Liabilities of Origin and Foreign Subsidiary Performance of Korean MNEs - The Moderating Role of Expatriate Utilization -

This study examines how the development level of the host country relative to that of the home country affects the performance of emerging economy MNEs’ overseas subsidiaries. Drawing from the social psychology literature on intergroup bias, we suggest that host country members’ nationalistic in-group bias against firms from a particular country tend to be stronger when the host country’s level of development is more advanced than that of the home country. Since nationalistic in-group bias causes various disadvantages to the subsidiary in terms of local marketing and internal management, we hypothesize that the host country’s relative level of development is negatively related to the subsidiary performance. Based on intergroup contact theory, we also hypothesize that the extent of expatriate deployment at the subsidiary will positively moderate the relationship between the host country’s relative development level and the subsidiary’s performance. Findings from our analysis of 1,453 subsidiaries of 818 Korean MNEs operating in 47 host countries provide support for our arguments.