The relationship of national character to foreign subsidiary management policy with regard to parental control and expatriate usage

The National Character theory suggests that the psychological characteristics of nations differ systematically and, when applied to international business, that a country's psychological characteristics influence the management policies of its multinational enterprises. This study examines the notion that cultural diversity between parent and host correlates with differences in foreign subsidiary management policy regarding centralized control and expatriate usage. The sample population for this research includes foreign subsidiaries of Dutch, Japanese and American multinationals operating in the same host countries or geographic regions. Three established measures provide the major independent variables used for statistical analysis. They include the country indices of Hofstede's (2001) uncertainty avoidance cultural dimension, the updated country indices of Kogut & Singh's (1988) cultural distance construct, and the World Bank's (2001) economic classification of countries. The dependent variables analyzed are primary data gathered by survey and relate to the home country of subsidiary managers and the level of subsidiary control. The results of this study provide support to the National Character theory. Specifically, findings support hypotheses correlating greater cultural distance between parent firm and subsidiary host home countries with more centralized management and greater use of parent country expatriates in subsidiary management. Also supported by the conclusions of this study are the premises that greater economic development of the subsidiary host country correlates with more flexible parental control and with greater use of host country nationals in subsidiary management. However, no support is found for the notions that greater uncertainty avoidance of the parent country correlates with more centralized management control or with greater numbers of expatriates in subsidiary management. Further findings imply uncertainty avoidance of the host country may be better correlated with foreign subsidiary management policy than is uncertainty avoidance of the parent country.