Cultural Friction Between Managers of Foreign Subsidiaries and Host Country Workers Can Harm a Firm’s Performance

 

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By Jeanne Leong

Multinational corporations frequently appoint managers from their home country to operate a subsidiary in another country while staffing the operation with local workers, which could cause cultural friction and result in a negative impact on the subsidiary’s performance, says a Rutgers University‒Camden researcher.

In a relatively new area of studying cultural friction between a subsidiary’s parent country and host country, research led by Deeksha Singh, a Rutgers‒Camden assistant professor of management, looked into the effect of language and cultural differences between parent country nationals and host country nationals in the workplace.

The study, published in Human Resource Management, examined manufacturing operations of the foreign subsidiaries of 467 South Korean publicly listed, multinational enterprises. The study is based on an aggregate analysis of staffing composition and performance of 7,495 South Korean subsidiaries in 63 countries from 1990–2014.

Deeksha Singh

Corporations often appoint top managers to lead subsidiaries in the host country, to carry out the agenda set by the parent company. These employees bring with them a deep understanding of the company’s history and practices.

“It would be difficult to transfer technologies and organizational practices to a foreign subsidiary if you don’t have your own people who understand your organization’s culture and routines,” says Singh.

However, the presence of a large number of foreigners in the workforce also causes friction due to cultural differences. Without proficiency in speaking the language of the host county, cultural friction is likely to become severe. Language, Singh says, is a major delineator between two cultures.

“People in a crowd tend to talk or be more comfortable with people who speak the same language, and people who speak the same language come from similar cultures,” explains Singh. “If you are speaking South Korean, and my mother tongue is Hindi, there will be a communication problem.”

According to the researchers, the high number of South Korean parent country nationals in culturally distant locations, such as the United States, creates friction among employees, and adversely affects the performance of the subsidiary.

The authors found that cultural friction is highest involving the subsidiary’s top management team members who are making the major decisions. “If they can’t get along,” says Singh, “that is going to have a huge impact on that subsidiary’s performance.”

Singh says multinational companies and their workers would benefit from cultural training. A greater level of international exposure is one of the ways to sensitize the employees about different cultures. “You can teach about culture, but people can only learn when they interact with people from other cultures,” says Singh. “I come from India, and I didn’t know anything about American culture. I read about the American culture, but when I started working here, it was different. You can read about culture, but you only learn by being in that environment.”

The research found that when parent company nationals spent more time in the host country, they gain country-specific experiences and cultural awareness, and as their experience grows the friction among employees declines.

While the study involved South Korean companies operating subsidiaries in other countries, Singh says the findings could apply to any multinational company. She says companies need to have a balance of employees from the company’s parent country and the host country to achieve their organizational goals, reap the benefits of a diverse staff, and negate the negatives of cultural friction.

“Your top management team cannot be comprised of 90% parent company nationals and 10% host country nationals,” Singh says. Managers need to be cognizant of the negatives of having more parent country nationals when they are operating in very culturally distant countries.

Singh co-authored the study, “Subsidiary Staffing, Cultural Friction, and Subsidiary Performance: Evidence from South Korean Subsidiaries in 63 Countries,” with Chinmay Pattniak of the University of Sydney in Australia, Jeoung Yul Lee of Hongik University in South Korea, and Ajai S. Gaur of Rutgers University‒Newark and New Brunswick.

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