“Foreign Top Managers Across TMTs of Chinese Listed Firms: An Empirical Investigation”

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Faculty of Economics and Business

MSc International Business & Management

Master Thesis

“Foreign Top Managers Across TMTs of

Chinese Listed Firms: An Empirical Investigation”

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Abstract

This study investigates foreign top managers (FTMs) across top management teams (TMTs) of 234 Chinese listed firms from the manufacturing industry. Prior studies in this area have mostly focussed on developed markets, whereas this study is explored in an emerging market context. Results of this research are mixed and surprising. A regression analysis found a positive and significant relationship between nationally diverse teams and firm performance. Furthermore, there is a negative relationship between state-affiliated ownership and the percentage of FTMs but not a significant one. In addition, the results for the relationship between FTMs and foreign involvement are mixed. The correlation matrix provides evidence for this relationship, while the regression analysis does not.

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1. Introduction

In recent decades the business environment has changed from a domestic level to an unprecedented international level as a result of globalized markets, technological developments, integration of national states’ economies, and the increased international competition in the world (Heijltjes et al., 2003). This trend of ongoing globalization in the world poses significant challenges to the upper echelons of firms because of the increased complexity that comes along with the ongoing globalization, such as the managerial decision-making environment (Sanders & Carpenter, 1998). This paper will investigate the importance of nationally diverse teams and their influence on firm performance in today’s borderless world.

Within this globalizing world, many emerging economies arose in the past two decades with an incredible speed and other remarkable transformations in the economy. The United Nations published a World Investment Report in 2005 that revealed the top-six most attractive global business locations in the world. China, India, Russia, Brazil, and Mexico were all present in the list of most attractive business locations (UNCTAD, 2005). The enterprises acting in these countries have benefited mostly from inward internationalization at home by cooperating with experienced global firms who possess valuable resources that normally, without a collaboration, are not available for emerging economy multinational enterprises (EEMNEs). As a result of the transfer of technological and organizational skills from developed economies’ MNEs towards EEMNEs, enterprises from emerging economies were also capable of undertaking outward foreign direct investment (FDI) (Luo & Tung, 2007). These developments in emerging markets led to a more and competitive globalized business arena.

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been embedded in the ‘upper echelon perspective’ put forward by Hambrick and Mason (1984). In their perspective they argue that strategic choices, such as diversification, innovation and acquisition strategies, as well as organizational performance are strongly influenced by the perceptions, experiences, and backgrounds of the persons within the TMT. Moreover, one of the most accepted definitions of TMTs, used by scholars, has been: ‘Top managers involved in strategic decision making identified by the CEO’ (e.g. Amason, 1996; Collins & Clark, 2003 Iaquinto & Fredrickson, 1997; Knight et al., 1999; Sanders & Carpenter, 1998; West & Anderson, 1996). The definition used by these scholars implicates that top managers have an influence on the strategic decision-making of a firm. Hence, they ultimately have an effect on firm performance.

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All in all, more research needs to be done on nationality diversity in TMTs. More specifically, the scope of this research stream needs to be widened, since most research lays the focus on western countries, while emerging countries, like China, play an important role in the world economy. There are significant differences between these countries and the developed western countries, which may lead to different outcomes when doing research on TMT nationality diversity. Therefore, the research aim of this study will focus on the nationality diversity within the TMT of

Chinese MNEs and how this affects the firm performance.

Results of this research are mixed and surprising. A regression analysis found a positive and significant relationship between nationally diverse teams and firm performance. However, there was no significant relationship in the correlation matrix. Furthermore, there was a negative relationship between state-affiliated ownership and the percentage of foreign top managers (FTMs) but not a significant one. In addition, the results for the relationship between FTMs and foreign involvement are mixed. The correlation matrix provides evidence for this relationship, while the regression analysis does not.

This study makes a contribution to the research-gap that exists in the TMT nationality diversity literature by conducting a research that focused on the relationship between nationally diverse teams and their influence on firm performance. The study focuses on China because this phenomenon of nationally diverse teams is rather new in emerging markets. Consequently, widens the scope of data in this research stream. In addition, it adds to the upper echelons theory of Hambrick & Mason (1984) by extending the theory into the international context.

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2. Literature review

2.1 TMT nationality diversity and firm performance

According to the upper echelons theory of Hambrick & Mason (1984), the basis for managerial decision making and ultimately firm behavior is affected by the composition of the TMT. The theory suggests that top managers have human boundaries and limitations that influence the strategic choices top managers make. For example, top managers may have a limited field of vision, selective perception and interpretation bias. Therefore, the background characteristics and previous experiences of top managers have a strong influence on their choices and behaviors when facing high environmental uncertainty (Finkelstein & Hambrick, 1996). Consequently, the strategic choices and behavior of firms can ultimately be traced back to the TMT of a firm (Child, 1972; Hambrick & Mason, 1984).

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uncertainty, and lack of routines, nationality diversity within a team is likely to have a positive influence on comprehensiveness and quality of TMT strategic decision-making, which in turn influence firm performance.

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probability of conflicts within a group, by causing small irritations among the team members. This can lead to despise and isolation, and eventually to breakdown in the communication and cohesion (Milliken & Martins, 1996; Pelled, 1996). Another attribute of nationality is of course a person’s language. Within a nationally diverse team, language has a profound influence. It affects the amount and type of participation, as well as one’s influence in a team (Gudykunst, 1991). So at the same time, nationally diverse teams may have a negative impact on TMT strategic decision-making and thus firm performance. However, on balance, the benefits of nationally diverse teams, which are engaged in enhanced creativity and problem solving, are outweighing any affective costs related to team dynamics.

To sum up, nationality diversity will have a positive affect on firm performance as a result of access to important and diverse information and diversity in institutionally embedded experiences that leads to higher quality of decision making as a result of better filtering and interpretation. Therefore, I propose the following hypothesis:

Hypothesis 1: There is a positive relationship between the presence of foreign top managers in TMTs and firm performance.

2.2 TMT nationality diversity and state-affiliated ownership

The main reasons for the increase of cross-border business are the positive changes in globalizing markets, technological developments, integration of national states’ economies, and the increased competition in the world (Heijltjes, et al., 2003). Emerging economies have developed themselves as important players in the world economy due to very fast and other remarkable transformations in their economies.

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claimed the number one position in terms of the world’s largest recipient of global FDI (OECD, 2013). As for FDI outflows, they have settled themselves as well in the top of the list, with FDI outflows of over 60 billion dollars (OECD, 2013). The rise of China started in 1978 when the Chinese Communist Party realized that it could not continue following the policies that were pursued by Mao Zhedong between 1949-1978. This led to a stagnation of the economy. The new leaders of the country had to reform their system to accomplish economic growth (Huchet, 2006). China first started to enact the right for businesses to sell freely on the market an unrestricted amount of goods that exceeded the quotas fixed by the State Planning Commission (Naughton, 1995). Today, markets determine the prices of retail in the industry and agriculture. Furthermore, the form of ownership has changed significantly since the reform. More and more organizations are privatized and the government is getting more open for foreign direct investment (FDI) and opened their borders (Graham & Wada, 2001). In the 1980s the government of China started to establish guidelines regarding FDI. Joint ventures were in the very beginning severely restricted, with the government selecting the joint venture partner for the foreign firm. The pace of growth was very slow. As a result, the government introduced greater economic liberalization in the 90ths (Lau & Bruton, 2008). Initially, investments into China were only allowed through joint ventures with local partners. By following this policy, the government had more control over the foreign firm and the local firms were assured of the transfer of knowledge en technology. Nowadays the laws have changed and foreign companies are allowed to invest directly into China using wholly owned foreign subsidiaries. However, despite this economic liberalization, the state still has a big stake in the key sectors of the Chinese economy and Chinese listed firms (Tam, 2002).

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numbers of the year 2000. 90% of the 1088 companies listed on one of the two stock exchanges in China that year, were former SOEs (Tam, 2002. More noteworthy is that two third of the issued shares of the listed companies are owned by the state or state enterprises (Tam, 2002). Such firms in China with close government ties can give firms many advantages such as access to production inputs that are superior and that are not accessible when such ties are not established Moreover, it can ease or even bypass the regulatory process (Sun et al., 2002).

The governance structure of a firm is an important determinant that provides a firm with the ability to successfully deal with complexities and uncertainties a firm might face (Barlett & Goshal, 1989; Child, 1972; Daily & Schwenk, 1996). Especially, the rewarding system of members of a TMT (Gomez-Mejia, 1992; Rajagopalan & Finkelstein, 1992), board structure (Baysinger & Hoskisson, 1990), and the composition of the TMT (Ancona & Nadler, 1989; Michel & Hambrick, 1992; Wiersema & Bantel, 1992) are important factors in the dialogue on firm governance. Almost all the firms that are listed on the stock exchange of China have also transferred their top managers to the newly listed stock companies. These managers may bring their old heritage from their former SOE to the new company, and are more reluctant to permit outsiders, such as FTM, into the firm (Peng, 2000). Moreover, firms with large shareholders have a higher resistance to permit outside managers for governance reform (Cho & Kim, 2007). This is supported by the research of Chen & Najjar (2012). They assert that high state-affiliated ownership is related to inefficient monitoring, which leads to an increasing resistance of hiring independent and outside directors/managers. The reason of state ownership to be an ineffective governance mechanism in China is a conflict between owner-manager incentives. There is no direct link between rewards and financial performance in such firms and therefore there are insufficient incentives for correct monitoring. (Berkman, et al., 2002).

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Hypothesis 2: There is a negative relationship between state-affiliated ownership and the number of foreign managers in the TMT.

2.3 TMT nationality diversity and firm internationalization

An extensive body of research advocates that internationalization provides firms with significant benefits. These benefits related with international diversification are exemplified by research on FDI (Dunning, 1988; Hymer, 1976), international product life cycle models (McKieman, 1992; Vernon, 1996), oligopolistic competition (Caves, 1996; Kindleberger, 1969, and the operations of multinational firms (Grant, 1987; Hennart, 1982; Rugman, 1981). Studies that provide empirical findings point out that firms that engage in international diversification obtain significant better firm performance than firms that only focus on domestic product diversification (Hitt et al., 1994; Kim et al., 1993). However, internationalization is not without risk. Internationalization increases the level of uncertainty firms face in their targeted markets. Inadequate understanding of factors such as taste of consumers, regulations, access to distribution channels, cope with retaliation from local and multinational players, may result in negative and costly mistakes (Mitchell et al., (1992). Moreover, increased internationalization may also enhance organizational problems because of increased size and complexity. This may give multinational firms higher monitoring costs than domestic firms (Fatemi, 1984; Geringer et al., 1989). As a result of the borderless world of global competition, the call for managerial elites have risen to a level that was unthinkable decades ago (Beck, 2008; Ohmae, 1990). Internationally composed TMTs understand the dynamics of the international environment where the firm is operating in and they have a strong cross-cultural awareness and knowledge that can be used by firms to effectively navigate through the complex and uncertain environment that comes along with globalization (Bartlett & Goshal, 1989; Greve et al., 2009; Luo, 2005). Recent academic research has acknowledged that the number of foreigners that occupy top position in the world’s largest MNEs increased significantly, and of the world’s 80 largest MNEs, 75% had at least one or more foreigner member that occupied a top position in 2005 (Staples, 2007).

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of a firm’s hierarchy (Beck, 2008). Gupta and Govindarajan (2002) assert that firms that are engaged in international activities should have a global mindset through the presence of foreign managers in their organization in order to be open to and aware of the differences across cultures/markets. So when a firm increases its internationalization posture, the cognitive capacity within a TMT should be also enhanced. Foreign top managers who spent most of their formative years in a foreign country enhance and align the cognitive map of the TMT. These cognitive schemas are most likely developed and determined by the managers’ backgrounds and experiences (Schwenk, 1988).

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teams become beneficial in firms that are highly involved in international activities. Such firms make better use of the TMT’s cultural awareness and knowledge that such teams possess. They state that when firms face serious challenges and problems as a result of operating in numerous culturally and institutionally distant markets, the nationally diverse TMTs can fully utilize their human and social capital to cope with such challenges and problems.

Taken the above into account that foreign top managers have a positive relationship on the international involvement of a firm, I propose the following hypothesis:

Hypothesis 3a: There is a positive relationship between the presence of foreign managers in TMTs and the number of foreign subsidiaries.

Research on the TMT nationality diversity and firm performance had typically neglected the moderating variables. Certo et al. (2006) assert that the internationalization of a firm likely represents a moderator of the relationship between TMT nationality diversity and the performance of the firm. The degree of internationalization, which depicts the extent to which firms depend on foreign markets for revenues and factors of production, seems to be the most applicable strategic contingency under which to asses the value-creating implication of the nationally diverse team. This is because nationally diverse teams may be misaligned in firms that are either not internationalized or only on a limited scale. As mentioned above, the benefits of nationally diverse teams may only become tangible when firms are credibly committed to foreign markets. Therefore I propose the following hypothesis:

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3. Method

3.1 Sample and Data collection

The sample that is used in this study is extracted from Orbis, a database that provides financial information from annual reports as well as ownership data from firms across the globe (Orbis, 2013). The database provides information on more than 130 000 large Chinese firms. In order to obtain an appropriate sample for this study, several criteria have been added in the Orbis search engine to reduce the number of firms. First, the criterion ‘firms with senior managers’ has been selected. This reduced the sample from 130,000 firms to 10,088 firms. Second, only firms with available information about their TMT nationality has been selected, which resulted in 3,427 firms that satisfied this requirement. From these firms, the manufacturing industry, with the code NAICS 2007: 331-332-333, has been selected in order to have a sample that contains firms, which are facing similar conditions and are operating in the same environment. The study focuses on the metal and machinery industry, since this is the largest industry amongst the manufacturing industries in China in terms of the total number of enterprises, employees, and industrial sales output value (Liu & Li, 2012). By adding this criterion the results from this research will be derived from a more consistent and reliable sample. Furthermore, the focus will lie on listed firms, which gives us an extra source and where necessary verify the data on Orbis. Listed firms are obligated to publish the annual report of their firms. The size of the sample after this selection was still too large (361 firms). Therefore, due to time constraints, the criterion ‘firms with 1000 or more employees’ has been added. This resulted in a sample of 234 Chinese listed firms, with 1000 or more employees, operating in the manufacturing industry.

3.2 Variables and measures

3.2.1 Dependent variables

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of net income to total equity. These two options are selected because Orbis has the information available in their database for the selected sample.

3.2.2 Independent variable

The independent variable is the presence of foreign managers in the TMT of the selected 234 firms. This will be measured by calculating the percentage of foreign managers out of the total managers of the TMT. By taking the percentage of foreign managers within a TMT will not only show the presence of foreign managers but also the weight of foreign managers on a team.

3.2.3 Moderating variable

Hypothesis 3b results in the moderating variable that will be used in this study. This hypothesis posits a relationship between foreign top managers and firm value and adds a moderating variable that represents the intensity of international involvement of the firm. The Orbis database provides us information whether a firm owns foreign subsidiaries or not. To test the moderating effect of foreign subsidiaries on firm performance, we will make use of a subset of the sample. Meaning, that we will make a subset of all the firms with foreign managers and foreign subsidiaries. The study will use Dummy variables that denotes “1” as firms that own foreign subsidiaries, and “0” as firms that do not own foreign subsidiaries.

3.2.4 Control variables

State-affiliated ownership: Hypothesis 2 presumes that firms that have state-affiliated

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the state or not. The study will use a dummy variable with “1” defined as firms with 30% or more influence from the state and “0” defined as firms with lesser than 30%.

Prior performance: firm performance may be linked with changes in corporate

strategy (Tushman & Romanelli, 1985). Underperforming firms may seek new strategies to improve the performance of the firm (Hambrick & Schechter, 1983). Thus, firms may seek for nationality diversity within their TMT because it can give them access to more relevant information and the diverse experiences that comes along with a diverse TMT may lead to higher quality decisions by better filtering and interpretation of important strategic issues (Nielsen & Nielsen). Therefore, in this study all previous years’ ROE and ROA will measure the prior performance of firms from 2008-2011.

Firm size: larger firms are more likely to possess valuable resources and expertise to

successfully run a business. Moreover, the size of a firm may correlate with team size, as a larger firm tends to have a larger TMT (Barkema & Shvyrkov, 2007). In addition, larger sized firms are more likely to have stabilized revenue streams and therefore have performance advantages over their smaller counterparts (Kaczmarek & Ruigrok, 2013). Consequently, size matters because it can explain both the level of TMT nationality diversity and the differential performance between firms. Hence, in this study firm size is measured by the number of employees.

TMT size: this is measured by using the total number of members of the TMT. A large

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Firm age: has been used as a control variable in numerous studies (Shumway, 2001; Bhattacharjee et al., 2009; Boone et al., 2007). In this study firm age will be based on the date of incorporation of the firms.

3.3 Data analysis

The study will make use of a multiple regression analysis. This method is often used to estimate the relationship between the independent variable and the dependent variable. In this study it will test whether foreign top managers in TMTs have a positive influence on firm performance. Control variables are used that might have an influence on the dependent variable – firm performance (state ownership, prior performance, firm size, TMT size, firm age). Furthermore, a correlation matrix will be used to test the correlations between the various variables independently. The moderating variable will be tested with a subset containing only the firms with foreign managers in their team (n=29). The analysis of variance (ANOVA) will be used for this test.

4. Findings

4.1 Descriptive results

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Table 1: Nationality of foreign top managers in Chinese firms

Country Number of foreign top managers

1. Hong Kong 35 2. Australia 10 3. United Kingdom 3 4. Taiwan 2 5. United States 1 6. Germany 1 7. Slovakia 1 8. Hungary 1 9. Norway 1 10. Singapore 1 11. Unknown 1

Table 2 provides information about the mean and standard deviation of each variable that has been included in this research. The average performance of the 234 firms that were included in the research had an average performance, in terms of ROE and ROA, of 4,92 and 2,61 percent, respectively. These two numbers are both positive but not very good compared to the performance of the firms in previous years. Moreover, we can see on average that the state has an influence on 35% of the firms. This, however, does not mean that the other firms do not have any state influences. They just did not reached the 30% cut-off point. In addition, 26% of the firms own a foreign subsidiary and the average TMT size is 4,35 managers. The average number of the TMT size is surprisingly low. Especially if we look at the average number of employees the firms in the sample comprise.

Table 2: Descriptive statistics (N=234)

Variable Mean Standard deviation

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4.2 Correlation matrix

The correlation matrix presented in table 3 includes all the variables used in this study and provides information about the correlation of each variable individually. The first hypothesis proposed in this study contains the relationship between foreign top managers and their positive relationship on the performance of Chinese listed firms measured in ROE and ROA. ROE is measured as the ratio of net income to total equity and ROA is measured as the ratio of net income to total assets. We can conclude from the correlation matrix that there is a positive relationship between FTMs and ROE and ROA (ROE: r= .090, p= .084, n-234; ROA: r= .087, p= .093, n=234). However, the correlation between these variables is rather weak and insignificant. Therefore hypothesis 1 is not supported in this study.

The second hypothesis that has been proposed is the negative relationship that state-affiliated ownership has on the number of foreign managers in TMTs. Chinese listed firms are characterized by a high state-affiliated ownership structure. In this study the cut-off point of whether a firm has state influence is determined on 30% or more. Even though the correlation matrix provides us with a negative relationship between the two variables, there is no significant relationship and therefore we do not support the hypothesis 2 (r= -.034, p= .300, n=234). That there is no significant relationship is somewhat surprising and will be further discussed in a later section.

Hypothesis 3a is derived from the literature that asserts that multinational TMTs have a positive influence on the number of foreign subsidiaries. The results of the correlation matrix support this positive relationship (r= .123, p= .031, n=234). Despite the weak relationship, it is significant and therefore hypothesis 3a is supported in this research.

The correlation matrix provides us with additional information that is worth mentioning. There is a significant relationship between state-affiliated ownership and firm performance (ROE: r= -.112, p= .044, n=234; ROA: r= -.183, p= .003, n=234).

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Table 3 Correlation matrix of all variables (n=234)

1 2 3 4 5 6 7 8 9 10 1. % FTM Correlation Sig. (1-tailed) 1 2.ROE Correlation Sig. (1-tailed) .090 .084 1 3.ROA Correlation Sig. (1-tailed) .087 .093 .853** .000 1 4.Foreign subsidiary Correlation Sig. (1-tailed) .123* .031 ,025 .352 .021 .377 1 5.State affiliated ownership Correlation Sig. (1-tailed) -.034 .300 -.112* .044 -.183** .003 .011 .434 1 6.TMT size Correlation Sig. (1-tailed) .451** .000 -.092 .079 -.090 .086 .185** .002 .109* .048 1 7.Prior ROE Correlation Sig. (1-tailed) .090 .085 .275** .000 .377** .000 .160** .007 -.240** .000 .032 .311 1 8.Prior ROA Correlation Sig. (1-tailed) .038 .283 .275** .000 .510** .000 .056 .196 -.240** .000 -.006 .463 .818** .000 1 9.Number of employees Correlation Sig. (1-tailed) .135* .020 -.110* .046 -.139* .017 .373** .000 .195** .001 .346** .000 -.038 .283 -.136* .019 1

10.Firm age Correlation Sig. (1-tailed) -.016 .403 .022 .371 -.011 .432 .111* .045 .073 .134 .020 .380 .011 .431 -.012 .430 .002 .490 1 N=(234)

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4.3 One-way ANOVA

The last hypothesis is tested with the one-way ANOVA test. Hypothesis 3b makes use of a subset of the sample that has been used in this study, namely only the firms that have foreign managers (n=29). Hypothesis 3b tests whether foreign subsidiaries have a moderating effect on firm performance. As we can see in table 4, there is no significant relationship between firms with foreign subsidiaries and firms without foreign subsidiaries for both ROE and ROA. Therefore hypothesis 3b is not supported and, thus, there is no moderating effect of foreign subsidiaries on firm performance. This is not entirely surprising when we take the previous findings into account. Results from hypothesis 1 were also negative regarding the influence of foreign managers on firm performance.

Table 4 One-way ANOVA

Firm value (ROE)

Sum of squares

df Mean Square F Sig.

Between groups Within groups Total 258,240 2536,111 2794,350 1 27 28 258,240 93,930 2,749 .109

Firm value (ROA)

Sum of squares

df Mean Square F Sig.

Between groups Within groups Total 26,400 553,564 579,964 1 27 28 26,400 20,502 1,288 .266

4.4 Regression analysis

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matrix also show a positive relationship, this is not significant. So we may conclude that the control variables have a positive influence on the relationship between the dependent (ROE and ROA) and independent (percentage of FTM) variable. Therefore, according to this regression analysis we can support hypothesis 1. The contrary happened between the influence of state ownership on ROE and ROA. In table 3 this correlation was negative and significant. The results from the multiple regression analysis show us a insignificant negative relationship. A cause can be that state ownership is overshadowed by the other variables, such as the percentage of FTMs, which has become significant.

Table 5 Multiple regression analysis: ROA and ROE as dependent

variables

Variables ROE ROA

Beta Sig. Beta Sig.

Constant % FTM Foreign subsidiaries Prior ROE Prior ROA Firm age Number of employees TMT size State ownership .142 .023 .144 .138 .025 -.062 -.142 -.014 .002 .047** .738 .200 .216 .692 .398 .058* .837 .135 .031 -.139 .600 .002 -.039 -.130 -.046 .005 .034** .614 .167 .000*** .972 .549 .054* .439

Adj. R-square .082 Adj. R-square .266

N 234 N 234

*** Significant at level p < .01 (1-tailed). **Significant at level p < .05 (1-tailed). *Significant at level p < .10 (1-tailed).

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though the strength increased slightly and it lost some of its significance. For that reason, hypothesis 2 stays rejected. The relationship between the percentage of FTMs and the number of foreign subsidiaries remains positive, however it changed from a significant relationship to a highly insignificant relationship. A reason can be the growth of significance of the control variable TMT size and the presence of the other variables.

Table 6 Multiple regression analysis % FTM as dependent variable

Variables Beta Sig.

Constant ROE ROA Foreign subsidiaries Prior ROE Prior ROA Firm age Number of employees TMT size State ownership .037 .110 .034 .121 -.145 -.028 -.024 -.469 -.061 .000 .773 .438 .599 .275 .248 .643 .728 .000*** .327 Adj. R-square .082 N 234

*** Significant at level p < .01 (1-tailed). **Significant at level p < .05 (1-tailed). *Significant at level p < .10 (1-tailed).

5. Discussion

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firm behavior is affected by the composition of the TMT. The theory suggests the top managers have human boundaries and limitations gained from the country of origins that influence the choices of top managers. So the background characteristics of top managers can be traced back to the strategic choices and of firms and ultimately the influence on firm performance. A multinational TMT has more available input to manage successfully complex operations and cope with the challenges that come with the contemporary globalization, such as unique knowledge, information, and experiences gained from different institutional environments (Hambrick, et al., 1998). These beneficial characteristics of multinational TMTs are excellent to deal with strategic decision-making, which is characterized by high complexity, uncertainty, and lack of routines. These favourable characteristics are developed in the early years of a manager, through the formal- and informal institutions from the country of origins. The insignificant influence derived from the correlation matrix can be a result of the “double-edged sword” that characterizes nationally diverse teams. Diversity may increase team conflicts and negatively affect team dynamic, due to different communication patterns and interaction styles (Earley & Mosakowski, 2000; Simons & Peterson, 2000). However, these negative consequences tend to fade away over time (Earley & Mosakowski, 2000; Watson et al., 1993). A possible explanation why it is not significant in the correlation matrix could be the newness of this phenomenon in emerging markets like China and that they did not reached the turning point yet.

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insignificant. A possible explanation could be the presence of the large number of FTMs originated from Hong Kong (61%). Hong Kong lies next to China and has a similar culture. The Chinese firms could see them as ‘one of them’ while in this study they are labelled as foreigners. This may explain the high number of managers from Hong Kong and the total number of FTMs.

The third hypothesis is positive and has a significant relationship in the correlation matrix, however this significant relationship has diminished in the multiple regression analysis. With internationalization comes uncertainty. Inadequate understanding of factors such as taste of consumers, regulations, access to distribution channels, cope with retaliation from local and multinational players, may result in negative and costly mistakes (Mitchell et al., (1992). The call for managerial elites has risen nowadays (Beck, 2008; Ohmae, 1990). Such managers have a better understanding of the international environment and have a strong cross-cultural awareness and knowledge that can be used by firms to effectively navigate through the complex and uncertain environment (Bartlett & Goshal, 1989; Greve et al., 2009; Luo, 2005). Gupta and Govindarajan (2002) state that firms that are engaged in international activities should have a global mindset through the presence of foreign managers in their organization in order to be open to and aware of the differences across cultures/markets. An explanation why the significant level changed to highly insignificant is most likely because of the presence of the other variables, which are simultaneously tested and overshadowing the foreign subsidiary variable.

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6. Conclusion

This study makes a contribution to the research-gap that exists in the TMT nationality diversity literature by conducting a research that focused on the relationship between nationally diverse teams and their influence on firm performance. The study focused on China because it is quite a new phenomenon. Consequently, this widens the scope of data in this research stream. In addition, it adds to the upper echelons theory of Hambrick & Mason (1984) by extending the theory into the international context.

The limitations of this study need to be identified for future research. An important limitation is the sample of 234 firms and the small number of firms with FTMs (n=29). A larger sample size would be better for future research in order to find more evidence for significant relationships between FTMs, firm performance, international involvement, and state-affiliated ownership. Furthermore, future research should use more detailed data. This study made use of many dummy variables, whereas precise numbers, or percentages would give more accurate results.

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