Productivity gap and expatriate utilization

Purpose: This paper aims to investigate how the gap between a multinational enterprise’s (MNE) productivity and that of its competitor determines the utilization of expatriate managers in its foreign subsidiaries. Design/methodology/approach: The authors first develop a formal analytical model where expatriate managers are relatively more reliable and expensive while local managers are prone to job-hopping. The authors then test the predictions of the analytical model using subsidiary-level data of Korean MNEs. Findings: The findings show a positive relationship between the productivity gap and the share of expatriate managers in a foreign subsidiary. The empirical findings also show that the job position (middle versus top managers) is another key determinant of the utilization of expatriate managers. Originality/value: The results of this paper are consistent with the literature that finds that MNEs choose a governance structure that minimizes the hazard of opportunism in their subsidiaries, yet the paper reveals a novel aspect of the determinants of expatriate utilization.