Expat performance: Identifying its main driver in terms of cultural
distance and the moderating effect of bridging distance experience
Kevin Reiners S4114787
II Abstract
Despite the growing importance of expat assignments, little is known about the driver of their performance in terms of cultural distance. Research so far focused mainly on the impact of the company culture regarding performance abroad although the distance needs to be bridged by individuals. This thesis empirically tests the relationship between distance and performance in one multinational company (MNC) among 134 expats from 34 different countries who are dis-tributed across 25 host locations. By examining rival hypotheses regarding the influence of company culture and individual expat culture on expat performance, the results demonstrate that their performance depends rather on company culture differences than on the individual background of the expat. More precisely, a negative relationship between organizational level distance and expat performance has been found. Further, this relation between company culture and expat performance is positively moderated by the amount of bridged distance by the expat before the assignment has started. Thus, gaining further international experience within the firm-settings has a positive impact on the relation between distance and performance and thus enhances subsequent performance. Lastly, the by this study introduced novel approach of meas-uring expat performance as the difference in subsidiary performance before and after the inter-national assignment, has been assessed and yielded significant results.
III Acknowledgements
IV Table of contents
1. Introduction ... 1
1.1 Theoretical background ... 1
1.2 Literature gap, research questions and research approach... 1
1.3 Research approach and contributions ... 3
2. Literature review and hypothesis development ... 4
2.1 Distance and performance ... 4
2.1.1 Organizational level ... 4
2.1.2 Individual level ... 6
2.1.3 Main factors of expat performance ... 8
2.2 The role of bridging distance ... 9
2.3 Conceptual model ... 11
3. Methodology ... 11
3.1 Data collection and sample development ... 11
3.2 Variables ... 13 3.3 Analytical approach ... 18 4. Results ... 19 4.1 Robustness tests ... 19 4.2 Descriptive statistics ... 20 4.3 Regression models ... 22
4.3.1 Results Model 2 and 3 ... 23
4.3.2 Results Model 5 and 6 ... 25
5. Discussion ... 29
5.1 Discussion ... 29
5.2 Managerial and theoretical implications ... 33
5.3 Limitations and suggestions for future research ... 34
5.4 Conclusion ... 35
I. References ... 36
1 1. Introduction
1.1 Theoretical background
Expatriation of staff is an increasingly important aspect of subsidiary management for multina-tional companies (MNC) nowadays (Harzing, 2001; Finaccord, 2018). Expats are sent abroad to coordinate the response to opposing pressures of local responsiveness and global integration and to retain control over cross-border operations (Konopaske, Werner & Neupert, 2002). Thus, in today’s globalized world, the value of international assignments is constantly growing re-sulting in a need for firms to extend their international job mobility program to achieve global competitiveness and to improve their position in the global market (Harrison, Shaffer, & Bhaskar-Shrinivas, 2004; Lazarova & Caligiuri, 2001). Consequently, as employees need to deal with different host locations and environments, a critical aspect to consider is the individ-uals’ home country in which they can be deeply ingrained. Their response to the cultural dif-ferences experienced in the host country can influence their performance abroad (Dahl & Sorenson, 2012).
1.2 Literature gap, research questions and research approach
2 into the MNC network (Harzing, 2001). Thus, expatriate staff plays an important role in the manifestation of cultural and institutional distance as problems. Consequently, when analyzing the impact of cultural distance, the level of the expat manager should be taken into considera-tion. The home country of the MNC is only part of the institutional setting advising expats and the individual cultural as well as institutional background in which the manager is raised is equally likely to matter. Therefore, instead of only considering the home country of the parent organization, the home country of the individuals should become a determining factor in ana-lyzing performance. MNCs need to be aware of the potential differences between the home country culture of the expat and the host country, as these differences may significantly influ-ence their expats’ adjustment process and their performance (Wang & Varma, 2019). Thus, researchers argue that with increasing cultural distance from the expat’s home country, the ex-patriate will face greater problems in the host country (Bhaskar-Shrinivas, Harrison, Shaffer, & Luk, 2005; Brookfield Global Relocation Services, 2016). The reason for this assertion is that expatriates are forced to adapt to novel and complex environments concerning both, work and everyday life (Black, Mendenhall & Oddou, 1991). Therefore, it is important to explore the performance implications with increasing distance from the individual’s and not only the or-ganizations home country.
Therefore, the distance between the respective home country of the expat and the subsidiary as well as between the headquarters’ country and the subsidiary need to be differentiated to be able to make predictions regarding how performance is influenced. Thus, in a world where employee movement overseas becomes increasingly common, it seems crucial to explore the performance implications of moving employees closer or further from their home and from a company’s headquarter. Both are expected to have an influence on performance abroad which makes it critical for firms to understand the main driver of expat performance.
The resulting research question is as follows:
1.) Which cultural distance matters most in terms of expat performance, that between the parent home and host, or that between the expat’s home and host country?
3 settings. More precisely, the distance that has been bridged by working in the headquarter or in a certain country that is different from the home country of the expat and the effect thereof on subsequent performance has not been analyzed yet. Bridged distance enhances subsequent adaptability of expats and potentially increases performance in future assignments (Black et al., 1991). Therefore, it seems important to account for firm internal bridged distance as this not only facilitates the extension of international experience but also familiarity with the company culture, structures, and practices. Thus, the second research question is as follows:
2.) What influence does already bridged distance have on subsequent performance in expat assignments?
1.3 Research approach and contributions
This paper aims to assess the relative influence of organizational level culture and of an expat’s home culture on expat performance. The place of investigation in this study will be a MNC headquartered in Germany. This firm has been selected as it operates internationally and has both, a very diverse workforce in terms of nationalities and various subsidiaries scattered all over the globe. These host locations can be considered as dissimilar to a varying degree in a cultural context from the headquarter country which is a necessary condition for this research. In order to identify the main driver of expat performance, rival hypotheses have been developed based on the main streams in literature. Further, to account for the moderating effect of bridging distance, an interaction term has been incorporated in the analysis. The hypotheses are evalu-ated based on a sample of 134 expats from 34 different countries distributed across 25 host locations.
4 individual level on expat performance. This is important as in the end it is the individuals that create a connection between the parent organization and subsidiaries and institutional literature ought to pay more attention to them. Further, subsidiary performance is directed at an individ-ual level which makes it indispensable to combine these approaches.
2. Literature review and hypothesis development 2.1 Distance and performance
First, the underlying concept of cultural distance will be introduced shortly. The meaning of cultures is to provide a society’s distinctive profile regarding its norms, values, and institutions (Hofstede 1980; Trompenaars & Hampden-Turner, 1997). Cultural values are used to illustrate the collective ideas views in a society and are deeply ingrained in the societal institutions (Hof-stede, 1991). The cultural distance concept has been used to assess differences between coun-tries regarding their level of development, education, business, and the extent of connections between these countries (Shenkar, Luo, & Yeheskel, 2008). Hence, the cultural distance con-cept uses cultural values to capture the distance between countries and continues to be the most often applied approach (Beugelsdijk & Mudambi, 2013; Tihanyi, Griffith & Russel, 2005).
2.1.1 Organizational level
5 higher complexity to integrate the overseas business (Kostova, Marano & Tallman, 2016). Moreover, researchers have suggested that MNCs face costs not encountered by local firms that affect the performance of their foreign subsidiaries (Delios & Beamish, 2001; Eden & Miller, 2004). Zaheer (1995) labeled these costs as liability of foreignness and research thereof has grown steadily (Eden & Miller, 2004; Kostova & Zaheer, 1999).
However, researchers argued that not only the cultural distance between countries but also the institutional distance is an important driver of MNC’s performance in host countries (Kostova & Zaheer, 1999). The concept of institutional distance received great attention from interna-tional business researchers and managers (Kostova & Zaheer 1999; Xu & Shenkar 2002). It captures differences in the regulatory, normative, and cognitive facets of institutional environ-ments between countries (Xu & Shenkar, 2002). The complexity of the MNC environment is reflected in the multiple domains of the institutional environment and in the variety of institu-tional environments faced by MNCs (Zaheer, 1995). Each subsidiary is embedded in a different institutional environment with its own institutional patterns and consequently faces two sets of isomorphic pressures. On the one hand, the pressure of accomplishing internal organizational concerns and on the other hand of conforming to the local environment expectations (Kostova, 1999; Rosenzweig & Singh, 1991). The institutional perspective emphasizes that isomorphism can reduce liability of foreignness and improve subsidiary performance (Rosenzweig & Singh, 1991; Zaheer, 1995). As countries differ in their institutional environments, the efficiency of coordination, control, and knowledge transfer depends on how different the institutional envi-ronment between a firm’s home country and its subsidiary’s host country is (Kostova, 1999). The common assertion in research is that with increasing institutional distance, subsidiaries face greater differences in relation to the parent’s institutional environment and face increased dif-ficulties to transfer business practices. Consequently, their performance is impacted negatively (Kostova & Zaheer, 1999; Gaur & Lu, 2007).
6 However, the most common assertion amongst researchers is that strong organization cultures have a positive impact on not only the firm’s performance but also on the employee perfor-mance (Ogbonna & Harris, 2000).
2.1.2 Individual level
7 novel and innovative approach will be applied in this study as (self-) evaluations only offer proxies for that. More precisely, the expat performance will be calculated as the difference between the financial performance of the subsidiary before the expat is introduced and after the expat assignment is finished.
8 Despite the importance of expatriates for completing crucial tasks, MNCs face a persistent chal-lenge with international assignments which is the failure in distributing the right expats across the subsidiaries. Thus, many abort the assignment as they are incapable to adapt to the new cultural and business environment (Tung, 1981). More precisely, the negative impact is notice-able in the company due to lost business opportunities and a decrease in competitiveness (Shaf-fer & Harrison, 1998). Further, the expats themselves may experience a loss of confidence and a lower performance after returning to the home country (Aycan, 1997; Shaffer & Harrison, 1998). Due to the challenges with adaption and the resulting failures of expat assignments, it is necessary to investigate the determinants on expat performance.
.
2.1.3 Main factors of expat performance
Although conflicting views exist and no matter the direction of the influence, it is evident that the distance between an expat’s home country and the host country affects their performance. Further, it has also been validated that the distance between the parent home country and host country has an influence on the performance abroad. As it is the expats themselves that have to bridge the distance to the subsidiary it becomes undiscussable that their home country needs to be incorporated when analyzing performance implications. Therefore, the different streams in literature need to be combined to be able to identify the driving force of expat performance, namely whether it is organizational or individual distance. Therefore, the gap in the organiza-tional instituorganiza-tional distance literature of individual level mechanisms will be filled, by linking it to expat literature. Thus, although the differences between the countries on an organizational level may be similar, the deeply ingrained values attached to the expats home country can differ to a great degree. The streams in literature consequently offer different possibilities on factors influencing performance. On the one hand, the personal factor of the home country is seen as a major impacting factor on performance and on the other hand the company background is ex-pected to have an influence on the performance abroad. Therefore, two rival hypotheses are established in order to be able to identify the main driver of expat performance. Consequently, this research will help to understand if the distance between the headquarter and the subsidiary or between the expat home country and the subsidiary matters more in explaining performance. The hypotheses that will help to answer RQ1 and thus to identify the main driver of expat performance, are as follows:
9 H2: The distance between an expat’s home country and the respective subsidiary affects expat performance.
2.2 The role of bridging distance
10 This implies that much research has been done on the positive performance implications of general international experience that accounts for all conceivable types of international experi-ence. Thus, in this study the international experience will be narrowed to a more specific and organization-internal concept that only incorporates the bridged distance related to previous work within the company. As coming to the headquarter or a different subsidiary before the assignment has started allows the expat to gain further international experience and to adapt to a new culture, there is a potential that this moderator increases the efficiency of the assign-ment. Therefore, a relation between those elements will be examined and the role of distance that is already bridged by expats by coming either to the headquarter or to a different subsidiary beforehand will be introduced by this study. Of interest is thereby not only the observation whether the expats came to the headquarter or a different subsidiary before but also the amount of distance that is bridged by this process. Therefore, the moderating effect of already bridged distance will be applied to both previously introduced levels of distance to investigate the im-plications of bridged distance for the organizational and the individual level to be able to answer RQ2. More precisely, the additional effect of bridging distance is expected to increase subse-quent performance with higher bridged distance projected to be leading to higher subsequent performance.
H3: The distance between the company’s headquarter country and the host country affects per-formance but is positively moderated by the distance bridged by the expat before the assignment has started.
11 2.3 Conceptual model
The intuitive necessity to combine the research streams in order to identify the driving force of expat performance and to understand the role of bridged distance make the study interest obvi-ous, which will be illustrated by the conceptual model.
Fig. 1: Conceptual model
3. Methodology
3.1 Data collection and sample development
In order to evaluate the proposed relationship, firm-level data was collected from the financial reports of the respective company and from Bureau van Dijk’s ORBIS database (Bureau van Dijk, 2019). As expats are chosen based on carefully selected and specified criteria, the infor-mation matches the requirements for this research. This implies that the type of sampling was a non-probability approach with purposive sampling (Taherdoost, 2016). Certain requirements and characters of the population of interest were pre-defined and individuals who matched those characteristics were located. Country-level data was obtained from Hofstede’s database for cul-tural dimensions (Hofstede insights, n.d.). This secondary, quantitative data is used as the basis in this study as it suits for examining longitudinal data and as large representative figures are available (Adams, Khan & Raeside, 2014).
To create the sample, several steps have been executed to narrow down the initial sample and to have a set of data where information on all necessary variables are given. First, the sample development started with the selection of a suitable company (1). Due to a an already existing network in a German MNC, this company was investigated across all required criteria for this
Distance between expat home country and host
country
Distance between the HQ and host country
Expat performance H1 Als o sho w al-ter na-tiv es an d the ir re-sul ts? E.g . RO A in-ste ad of RO E as al-ter na-tiv e per for ma nce me asu re, 6 H2
Distance bridged by the expat before assignment
H4 Als o sho w al-ter na-tiv es an d the ir re-sul ts? E.g . RO A in-ste ad of RO E as al-ter na-tiv e per for ma Distance bridged by the expat before assignment
13 next section. Another required ability of the expat for the research purpose is the host country language proficiency. This information has been extracted from the language section in LinkedIn. Further, general information like the years worked in the company and the position in the company before and after the assignment were gathered. Personal information such as age and gender were extracted as well (5). All required information was transferred into an excel file. Lastly, only employees who offer information on all for the analysis required varia-bles have been included in the final sample, implying no random selection (6). Complete ano-nymity of the employees included is granted.
The type of data is panel as the set consists of a time series for each cross-sectional member in the data set. The variables are collected and followed over a thirteen-year period. Overall, the sample can be classified as very diverse as 44 different nations are included. Thereby 35 differ-ent expat home countries are included and 25 differdiffer-ent host locations to which the expats have been sent (Appendix A). The total number of observations is 134. This implies a huge reduction compared to the initial sample with 221 observations. Due to data availability issues regarding required financials for specific years of assignments and a non-match between available finan-cials and years of expat assignment, various observations needed to be dropped.
3.2 Variables Dependent variable
14 (ROA) to measure subsidiary performance, but asset turnover depends on the market value of assets, which may vary because of cross-country differences in the market value of assets (Chao, Kim, Zhao & Hsu, 2012). Consequently, ROE is a more appropriate measure for sub-sidiary performance in cross-country settings like in this study. The ROE ratios for the subsid-iaries for the required years were extracted from the ORBIS database. Contrary to that, EBIT has been used for the headquarter and the firm’s regional headquarters. Thus, a dummy coded variable has been accompanied to the dependent variable that is coded on headquarter level. Particularly, if the subsidiary is of subsidiary type ROE is used and if the type is (regional) headquarter, EBIT is used. The EBIT values are extracted from the company’s annual reports. Therefore, in this study expat performance is calculated as the difference between previous subsidiary performance and the performance after the assignment of the expat. This approach constitutes an innovation in the field of expat performance that ensures objectivity and inherits coherency as it has been found that expats have an impact on a subsidiary’s financial perfor-mance (Molinsky, 2007). As a result, the financial perforperfor-mance and development of the respec-tive subsidiaries will be analyzed following the start of the corresponding assignment. Due to this type of measurement and data collection, potential issues that would arise when conducting interviews or questionnaires can be diminished as neither the lack of time of expatriates or of HR representatives nor the response rate are potential threats. Further, HR representatives might not be able to assess performance accurately and cultural differences in performance assess-ments are possible. Issues would also likely arise using self-evaluations of expats as these can be highly subjective. Further, there is no common definition for success of expat assignments implying various criteria (Caligiuri, 1997) which could also lead to problems using qualitative methods like interviews or questionnaires.
15 Independent variable
In this study there are two different independent variables. On the one hand the distance be-tween the home country of the expat and the host country in which the respective subsidiary is operating (CD_homehost) and on the other hand between the corporate headquarter country and the subsidiary country (CD_HQhost). Several measures of distance between countries have been developed, such as Kogut and Singh’s index (KS-index) for cultural distance (1988), Dow and Karunaratna’s index for psychic distance (2006) and the geodist database for geographical distance (Mayer & Zignago, 2011). As intended in chapter 2, cultural distance is the most suit-able measure for the purpose of this study as the distance between two countries is of interest. Further, international business researchers mostly relied on cultural distance when capturing distances between countries (Beugelsdijk & Mudambi, 2013; Shenkar, Luo, & Yeheskel, 2008). The approach that is applied by a vast number of researchers in international business and val-idated in previous expatriate studies is the KS-index (Kirkman, Lowe, & Gibson, 2017; Jun & Gentry, 2005; Peltokorpi & Froese, 2009). The KS-index constitutes the leading measurement of cultural distance and has been applied to topics such as subsidiary performance (Gomez-Mejia & Palich, 1997), expatriate staffing (Gong, 2003) and expatriate performance (Tung, 1998) which makes the index an appropriate measure for this study. However, the KS-index has received criticism for its critical assumptions (Shenkar, 2001) and for its empirical applica-bility (Håkanson & Ambos, 2010). Further, research has produced mixed results due to con-ceptual and measurement-related weaknesses of this index (Shenkar, 2001). Nevertheless, be-ing extensively validated and the most widely used method, the KS-index will be applied in this study.
Fig. 2: KS-Index for Cultural Distance (Beugelsdijk, Ambos & Nell, 2018a)
16 Hofstede’s framework. This is done to increase consistency with the network and the countries of operation of the sample company.
Moreover, there is broad evidence regarding validity and reliability of the underlying Hofstede's (1980) country scores (Morosini & Singh, 1994; Shane, 1992). In his original model of national culture, he defined four dimensions which were later extended to six dimensions. These dimen-sions represent individual preferences for one situation over another that distinguish countries from each other. The dimensions used in this study are power distance, individualism, mascu-linity, and uncertainty avoidance, as these have been validated by other researchers and as the last two dimensions are only available for a limited number of countries. The countries are scored on each dimension and subsequently compared to be meaningful (Hofstede insights, n.d.). Although several weaknesses are related to the framework regarding the used methodol-ogy, validity, and accuracy levels of the data, it is still the most widely recognized and used model in international business and remains a highly valid tool for investigating cultures (Efrat, 2014; Shi & Wang, 2011).
Moderator
17 differ for the same person for specific observations. If people bridged distance more often, the home country is always used as unit of comparison and not the previous country.
Control variables
Consistent with prior research and empirical evidence, control variables will be used to rule out possible alternative explanations for the hypotheses and to capture the relationship between distance and expat performance effectively.
Firm-level
The reasons to include firm size as a control variable are twofold. On the one hand research provides support that firm size influences performance (Younis & Sundarakani, 2019) and on the other hand expats are more likely to have a higher impact in in smaller firms. Therefore, firm size needs to be controlled which is measured by the number of employees. As these change over time and as different years are used to calculate performance, categories that rep-resent the size of the firm have been built, yielding in 0=<200, 1=200-499, 2=>500 employees. The respective category has been applied to the years the expat spent abroad. To capture the size, figures from annual reports and the Orbis database have been compared and assigned. Further, firm age has been included as aspects such as the liability of newness can have an influence on the performance. This means that younger firms might need more time to establish new routines and experience difficulties in gaining access to finance (Coad, Holm, Krafft, & Quatraro, 2018). Contrary to that, older firms benefit from a great variety of experiences (Kirca, Hult, Roth et al., 2011). This variable has simply been measured by the year of establishment and the corresponding data has been extracted from the Orbis database.
Individual level
Gender was included as it impacts expatriate work adjustment, as female expatriates may face challenges in the host countries due to cultural norms (Caligiuri & Tung, 1999). Therefore, gender was dummy-coded (0=female, 1=male).
18 Further, empirical evidence has been contradictory with positive (Parker & McEvoy, 1993) and negative effects for short-term expats (Nicholson & Imaizumi, 1993). Moreover, expats that spend more time in the host country are expected to adapt better to the foreign environment which enhances their performance (Godart, Maddux, Shipilov & Galinsky, 2015). Conse-quently, performance is also determined by the length of time as an expat needs time to under-stand and learn from a novel culture (Black, 1999). Therefore, the time spent abroad for the assignment will be included as the length of the assignment, simply measured by the years spent abroad.
Lastly, host country language proficiency has been included as a control variable, as it facilitates adjustment in the host location (Naumann, 1993). This variable was dropped beforehand as there was too much missing or inadequate data. Relativized is the drop of this variable since the firm’s official business language is English.
Table 1. Overview of variables
Variable name Type Data type Measurement 1. Performance 2. CD_HQhost Dependent Independent Continuous Continuous
Difference in ROE or EBIT
KS-index, distance between HQ and host subsidiary
3. CD_homehost Independent Continuous KS-index, distance between expat home country and host country 4. Amount_BrDist Moderating Continuous KS-index, distance bridged by
com-ing to the HQ or a third country 5. Assignment Length 6. Firm age 7. Position 8. Gender 9. Performance type 10. Firm size 11. BrDist_before Control Control Control Control Control Control Control Continuous Continuous Ordinal Dichotomous Dichotomous Ordinal Dichotomous
Time spent abroad (in years) Year of establishment Pre-defined levels (0-6) Female (0) or Male (1) ROE (0) or EBIT (1)
Number of employees, Small (0), me-dium (1), large (2) firm size
No (0), Yes (1)
3.3 Analytical approach
19 research questions. A deductive research design with hypotheses development based on exist-ing literature has been chosen. Like this, it is possible to reason from the particular to the general (Creswell & Creswell, 2017). Following a quantitative research to test the rival hypotheses in H1 and H2 with the respective control variables, the corresponding model that will be used to run an analysis in a panel data framework is a simple linear regression as there is only one dependent and only one independent variable which are both continuous (Adams et al., 2014). As the dependent variable is not binary, ordinary least squares (OLS) regression will be applied. To analyze the third and fourth hypothesis a multiple linear regression is used due to the inclu-sion of a moderating variable. Thus, to test the proposed relations, an interaction term is incor-porated to account for the projected moderating effect. This interaction term captures the re-spective distance bridged and is connected to the independent variable.
4. Results
4.1 Robustness tests
20 demonstrated a lower skewness of 1.15. Consequently, a constant was added to every observa-tion as positive values are needed to transform performance into square roots (Osborne, 2010). The following assumption is homoscedasticity. Therefore, the error terms need to be constant over the various independent variables (Poole & O’Farrell, 1971). Before formal tests have been applied, the residuals are investigated and offered a possible presence of heteroscedasticity (Appendix C). Cameron and Trivedi’s decomposition and the Breusch-Pagen/Cook-Weisberg test have been applied to all models and illustrated heteroscedasticity, too. Therefore, robust standard errors have been included in the analysis to create homoscedasticity. Subsequently, it is assumed that the error term has a constant variance across different values of the independent variable (Williams, Grajales & Kurkiewicz, 2013).
Further, there needs to be a linear relationship between the independent and control variables and the dependent variable. A favored approach to test this assumption is to analyze the line of best fit regarding dependent and independent variable. This plot can be found in the Appendix and displays no sign of strong non-linearity.
Additionally, multicollinearity needs to be absent. Thus, a variance inflation factor (VIF) test is done for each model to see whether there is multicollinearity between the independent vari-ables. The descriptive statistics of all regression variables illustrate the bivariate Pearson corre-lations and are shown in the next section (Table 3). The following VIF statistics are illustrated in Appendix C.
Another assumption that needs to be met is that autocorrelation problems need to be absent. The Durbin-Watson test is used to test the models for autocorrelation. Therefore, a time-series indicating variable is added. Values around 2 indicate non-autocorrelation (Field, 2009). The results for the Durbin-Watson coefficient demonstrate potential autocorrelation issues. Thus, several control variables are included to ensure that the models do not show autocorrelation (Poole & O’Farrell, 1971).
Lastly, there must be no reverse causality. In the present study reverse causality issues are min-imized as not levels of performance are investigated but rather changes in performance which makes reverse causality less likely.
4.2 Descriptive statistics
21 Table 2. Descriptive Statistics
Obs. Mean S.D. Min. Max.
ROE in % EBIT ROE in % [sqrt] EBIT [sqrt] CD_HQsub CD_Homesub 62 68 62 68 134 134 7.81 46.78 12.119 13.87 1.34 1.51 52.39 73.57 1.98 2.339 1.11 1.20 -131.16 -149.52 4.455 10.882 0 0.01 224.56 288.5 19.379 20.965 3.45 5.86 Gender 134 0.672 0.471 0 1 Position 134 2.694 1.932 0 6 Firm size 134 1.075 0.837 0 2 Assignment length 134 2.32 1.29 0.17 5.50 Firm age 134 1898 21.97 1948 2009 Amount_BrDist BrDist_before 134 134 0.620 0.433 1.016 0.497 0 0 5.264 1
Correlation coefficients of the variables included in the regression models are presented in Ta-ble 3 below to be aTa-ble to refer back to the required absence of multicollinearity. Included are the dependent variable, all independent variables and dichotomous as well as continuous control variables. The remaining control variables position and firm size are not included as Pearson correlations are not applicable for categorical variables.
Table 3. Correlation Matrix
22 8 9 8. Performance type 9. BrDist_before 1.000 0.168* 1.000 Notes: N = 130, * p < 0.10; **p <0 .05; ***p <0 .01.
A correlation between 0.7 and 0.8 suggests that there could be mild multicollinearity (Tabach-nik & Fidell, 2014). Only the correlations between firm age and the distance between headquar-ter and subsidiary as well as between the variable that indicates whether expats bridged distance before and the amount of bridged distance indicated possible issues with multicollinearity with a significant correlation of 0.676 and 0.701. Thus, VIF statistics (Appendix C) were estimated for all predictor variables to examine whether the presence of multicollinearity would be prob-lematic. Thus, also categorical control variables are included in the VIF statistics to detect pos-sible multicollinearity issues. Solely the VIF results for the positional category manager are ranging around the threshold of 10 and exceeds the threshold in model 5 (Hair, Black, Babin, & Anderson, 2010). As it is only one specific category of an ordinal control variable, there is no multicollinearity issue present among the independent variables.
4.3 Regression models
23 4.3.1 Results Model 2 and 3
Table 4 describes the linear regression results for H1 and H2. The following equation will be used to test the first two hypotheses:
Expat performance= 𝛽0 + 𝛽1distance + 𝛽2female + 𝛽3Manager + 𝛽4Teamhead + 𝛽5Senior + 𝛽6Headof + 𝛽7GeneralManager + 𝛽8Director + 𝛽9small_firm + 𝛽10medium_firm + 𝛽11ROE_measure + 𝛽12Lengthofassignment + 𝛽13firmage + 𝜀
Model 1 of Table 4 demonstrates the regression of the various control variables on expat per-formance. The F-value shows that the model is highly significant (p<0.01). The control varia-bles explain 26.8 % of the variation in performance.
Model 2 of Table 4 illustrates the results of the linear regression between the distance between the headquarter and the subsidiaries and performance and thus organizational distance as the driver of expat performance. This model is highly significant (p<0.01) and explains 34% of the variation in performance. Compared to model 1, including the independent variable of distance between the headquarter and subsidiaries adds 7.2% to the explanatory power. Various included control variables showed to be significantly relevant for the proposed relation. More precisely, gender is significant (p<0.1), as well as performance type (p<0.1). Further, the length of the assignment (p<0.1) and firm age (p<0.05) are significant. Regarding the categorical variables of level of position and firm size, only level of position offers significant categories. For the level of position where junior was used as the default type, senior and headof are significant categories (p<0.05). However, firm size was not significant.
Model 3, in which the individual background is assumed as the main driver of expat perfor-mance, is also highly significant (p<0.01). However, the increase of the variance explained by the independent variable of distance between the expat’s home country and the headquarter is only 0.03%. Thus, the independent variable in this model does not add much explanatory power. Regarding the control variables, assignment length (p<0.1) and firm size (p<0.1) are significant. Regarding the categorical variables, the positions manager and team head are significant (p<0.01) whereas senior (p<0.01) and headof (p<0.05) are highly significant.
24 Table 4. Regression results on rival hypotheses about effects of distance on performance
VARIABLES Model 1 Model 2
Organizational level
Model 3 Individual level
Coefficients Coefficients Coefficients
Independent variable Cultural distance -0.845** 0.036 Control variables (0.326) (0.137) Gender Female 0.738 0.819* 0.741 (0.453) (0.426) (0.458)
Male 0 (base) 0 (base) 0 (base)
Level of position
Junior 0 (base) 0 (base) 0 (base)
Manager 1.606* 1.574 1.631* (0.858) (1.08) (0.844) Teamhead 1.549* 1.587 1.553* (0.901) (1.123) (0.894) Senior 2.367*** 2.284** 2.398*** (0.864) (1.104) (0.854) Headof 2.032** 2.422** 2.042** (0.899) (1.191) (0.891) General Manager 1.183 1.016 1.207 (0.88) (1.069) (0.881) Director 0.338 0.437 0.353 (0.976) (1.114) (0.98) Subsidiary size Small firm -1.168* -1.173 -1.201* (0.65) (0.749) (0.706) Medium firm -1.558** -1.32 -1.575** (0.769) (0.786) (0.794)
Large firm 0 (base) 0 (base) 0 (base)
Performance type
ROE -1.1 -1.32* -1.073
(0.763) (0.713) (0.779)
EBIT 0 (base) 0 (base) 0 (base)
25 (0.179) (0.179) (0.179) Firm Age 0.024 0.043** 0.024 (0.018) (0.017) (0.019) Constant -35.064 -72.561** -36.25 (36.509) (33.678) (37.547) Observations 130 130 130 F-statistic 4.96 5.29 4.57 Prob > F (Sig.) 0.000 0.000 0.000 R-2 0.268 0.34 0.268 Root MSE 2.05 1.955 2.058
Notes: Dependent variable = Expat Performance [sqrt]. Robust standard errors in parentheses reported under the regression coefficients, *** p<0.01, ** p<0.05, * p<0.10.
The resulting equation for expat performance is as follows:
Expat performance = -72.56 -0.85*(Organizational Distance) + 0.82*(female) + 1.57*(Man-ager) + 1.59*(Teamhead) + 2.28*(Senior) + 2.42*(Headof) + 1.02*(GM) + 0.44*(Director) – 1.32*(ROE) – 0.44*(small) – 1.17*(medium) + 0.31*(Assignmentlength) + 0.04*(firm age)
Following this equation gives certain directions in terms of expat performance. Overall, it says that there is a negative relation between organizational distance and performance, indicated by the negative coefficient of -0.845 for the independent variable. Female has a significant coeffi-cient of 0.819 implying that women performed better in expat assignments. Further, significant, and positive control variables of assignment length and firm age indicate that, as in the previous chapter indicated, longer assignments have a positive influence on the resulting performance as well as the year of establishment of the respective subsidiary. Further, a lower performance in smaller subsidiaries was found, illustrated by the negative coefficients for small and medium firms compared to large firms. Moreover, there is a rise in performance with increasing position. However, expats that were general manager or director were performing worse than expats from the other segments but still offered higher performances than juniors. In sum, these results pro-vide significant epro-vidence for a negative relationship between organizational distance and expat performance, supporting H1.
4.3.2 Results Model 5 and 6
26 relation between distance and performance. Therefore, a continuous-by-continuous interaction term has been created and accompanied by a dichotomous variable that indicates whether an expat bridged distance before or not. The resulting interaction term includes either the distance between the headquarter country and the subsidiary with the amount of distance already bridged or the distance between the expat’s home country and the host country and the distance bridged. As insignificant, compared to the previous models, control variable firm size has been left out. Overall, the explanatory power of the control variables for the variation of the dependent vari-able is 22.3% as it can be seen in model 4. Consequently, 22.3% are solely explained by the control variables.
In the regression of model 5, the independent variable of distance between the headquarter and the host country is connected to the amount of distance bridged by expats before they started their assignment. Results illustrate that the model is highly significant (p<0.01) and the inde-pendent as well as the moderating variable add an explanatory power of 11.2%. Like in model 2, the independent variable is highly significant (p<0.01) and indicates a negative relation with a coefficient of -1.162. Moreover, the moderator of bridged distance is slightly above the sig-nificance level (p=0.235) as well as the interaction term (p=0.116). The coefficient of the inter-action term that will be the basis of further analysis is positive with 0.221 whereas the moder-ating variable itself has a negative coefficient with -0.42. As the interaction term is the most important variable in this model and in order to be able to provide implications in the next chapter, the slope of expat performance on company cultural distance is calculated when bridged distance is held constant at different combinations of values ranging from 0 to 5.5. The results thereof offer throughout positive values for the margin ranging from 14.78 at lower lev-els of bridged distance to 12.48 at higher levlev-els (Appendix D). Further, the slopes are significant for all values of bridged distance (p<0.01). For model 5, control variables gender (p<0.1), per-formance type (p<0.05), firm age (p<0.05) and length of assignment (p<0.1) have been found to be significant. The dichotomous variable that indicates whether expats distance or not is slightly above the significance level (p=0.235). Further, all positional categories except of di-rector are significant for predicting the dependent variable.
27 significant. Regarding the control variables, performance type as well as positional categories manager, teamhead, senior, headof and general manager are significant. The equation for model 5 and 6 is as follows:
Expat performance= 𝛽0 + 𝛽1distance + 𝛽2Bridged distance + 𝛽3(distance*Bridged distance) + 𝛽4female + 𝛽5Manager + 𝛽6Teamhead + 𝛽7Senior + 𝛽8Headof + 𝛽9GeneralManager + 𝛽10Director + 𝛽11ROE_measure + 𝛽12Lengthofassignment + 𝛽13firmage + 𝛽14BrDist_be-fore + 𝜀
Table 5. Regression results on bridging distance
VARIABLES Model 4 Model 5
Bridged distance on HQ subsidiary distance
Model 6
Bridged distance on ex-pat home host distance
Coefficients Coefficients Coefficients
Independent variables Distance -1.162*** -0.093 Moderator Bridged distance (0.321) -0.42 (0.181) -0,372 (0.352) (0.484) Interaction term CD*Bridged Distance 0.221 0.061 (0.139) (0.108) Control variables Gender Female 0.721 0.757* 0.711 Male (0.462) 0 (base) (0.41) 0 (base) (0.466) 0 (base) Level of position
Junior 0 (base) 0 (base) 0 (base)
28 (0.791) (1.061) (0.843) General Manager 1.311* 1.536* 1.259* (0.686) (0.879) (0.718) Director 0.48 0.93 0.423 (0.844) (1.035) (0.888) Firm Age -0.0002 0.037** 0.0001 (0.012) (0.016) (0.012) Assignment length 0.274 (0.187) 0.325* (0.188) 0.255 (0.189) BrDist_before yes no Performance type ROE 0.326 (0.393) 0 (base) -1.417** (0.622) 0.62 (0.519) 0 (base) -1.33** (0.574) 0.699 (0.611) 0 (base) -1.461** (0.618) EBIT Constant 0 (base) 11.57 0 (base) -62.254* 0 (base) 11.19 (24.049) (32.71) (24.324) Observations 130 130 130 F-statistic 4.54 4.34 3.42 Prob > F (Sig.) 0.000 0.000 0.000 R-2 0.223 0.335 0.229 Root MSE 2.103 1.97 2.122
Notes: Dependent variable = Expat Performance [sqrt], Robust standard errors in parentheses reported under the regression coefficients, *** p<0.01, ** p<0.05, * p<0.10.
Given the described results, the moderating effect of bridged distance on the relation between company culture and expat performance can be illustrated as follows:
29 5. Discussion
5.1 Discussion
This thesis examined on a sample of expats from a German MNC in subsidiaries scattered around the globe, whether distance related to the organizational settings or related to the indi-vidual expat drives their performance. Further, the thesis helped to understand the role of bridg-ing distance and the effect thereof on subsequent performance.
30 which makes the previously given interpretation of the rejected hypotheses to be taken care-fully. Consequently, expats sent to culturally closer countries of the company are expected to perform better. Nevertheless, the expat home country should not be ignored entirely, as, alt-hough insignificant in this study, a positive relationship between distance from home and per-formance was found.
31 Additionally, the illustrated relationships of the included variables and the significance thereof as well as the similarity to existing suggestions in literature demonstrate support for the newly introduced method of measuring expat performance.
Regarding the rival nature of the first two hypotheses, it needs to be accounted for some aspects. H2 truly captures cultural distance between countries whereas accepted H1 is not only about cultural distance per se. It also includes institutional distance and with that formal institutional quality of the countries as the corporate headquarter country is used as the single unit of com-parison and not as in H2 the different individual expat home countries. In the context of cultural distance level, effects can be mixed. Thus, the resulting difference between home and host country may be the result of cultural as well as institutional conditions in the home or the host country (van Hoorn & Maseland, 2016). To illustrate this, going from Germany to an emerging market with low institutional quality might lead to negative consequences regardless of the cultural similarity or distance to Germany. Consequently, it is not only the cultural distance between countries but also the distance in institutional quality. Thus, the performance implica-tions might not only be driven by distances being far apart on cultural dimensions but also by the quality of a country’s institutions. In terms of culture, this problem is less important, as the country of the headquarter, namely Germany is often positioned in the middle of Hofstede’s dimensions that are used as the basis to capture cultural distance in this study. More precisely, the scores on the included dimensions are as follows on a scale from 0 to 100 for Germany: 35 on power distance, 67 on individualism, 66 on masculinity, and 65 on uncertainty avoidance (Hofstede insights, n.d.). In terms of institutional quality, the difference to the other countries included in the sample is higher as Germany has a very strong institutional quality (Weill, 2008; Henisz, 2000). Therefore, the difference of institutional quality compared to cultural distance is likely higher between Germany and the other countries as Germany is more different when it comes to institutional quality which could result in institutional quality affecting the results. Differentiating between distance and level effects is especially challenging when only one home or one host country is included (van Hoorn & Maseland, 2016). As this study only includes Germany as a home country for H1, it is suggested to have multiple home and host countries that are different in terms of cultural and institutional distance to ensure level and distance effects are not mixed.
33 to the individual cultural distance settings as it was expected that the gained international expe-rience could positively moderate the proposed relation between distance and performance. However, the moderator as well as the interaction term have been found to be insignificant. Nevertheless, the signs of the coefficients are the same, indicating that bridged distance posi-tively affects the relation between individual expat background distance and performance.
5.2 Managerial and theoretical implications
To date, no studies exist that combined the two underlying streams of literature in terms of performance, namely distance implications regarding expat performance on an organizational level with distance implications on an individual level. Therefore, this thesis makes an im-portant contribution to the literature by accounting for the personal background of expats for their performance. The findings help to address the question which of the distances drives per-formance and addresses a literature gap that was necessary to approach because of the increas-ing importance of expats for MNC’s. So, although the distance needs to be bridged by individ-uals, this facet has often not been recognized by researchers in the past. However, this study provides statistical evidence for organizational level distance being the main driver of expat performance abroad implying a negative relationship between firm level institutional distance settings and expat performance. The direction is in line with the suggestions of previous re-search (Zaheer 1995; Kostova et al., 2016; Ghemewat, 2001). However, although not signifi-cant, the relation between distance to the expat’s home country and performance has been pos-itive contradicting the common suggestions in research.
34 performance (Ghemawat, 2001; Eden & Miller, 2004) can now also be applied to the individual level. This has implications for international business managers as well. When making deci-sions about sending expats abroad, managers should focus on culturally closer target countries compared to the headquarter country. Distance between organizations should be analyzed and decisions should be based thereon. However, although not supported, a positive relation be-tween the distance bebe-tween expat home country and host country and performance has been found. Therefore, the expat home country should also be considered by managers when select-ing expats for international assignments. This study further demonstrates that performance in-creases over time abroad, implying that longer international assignments will result in higher expat performance. Further, the level of performance abroad is increasing with the level of position. Thus, managers in charge of assigning expats should not only aim for longer assign-ments but also account for the level of position when selecting expats. The finding of lower performance for highest level employees has likely been the result of previously explained re-structuring processes or crisis management.
This thesis also made an important contribution to international business literature in terms of methodology as it added a new measurement of expat performance to literature. As researchers so far relied on various measurement techniques of expat performance (Bruning et al., 2012; Harrison & Shaffer, 2005; Carraher et al., 2008), the newly introduced method can help to promote research on expat performance and give directions on how to measure performance effectively without subjectively biased assessments.
5.3 Limitations and suggestions for future research
While there are some important contributions made by this thesis, there are also some limita-tions that need to be accounted for. Due to time and resource constraints related to the scope of a master’s thesis, it was only possible to investigate one company and with that research is based on one headquarter country. The difficult and time-consuming approach to find suitable expats and to calculate their performance did not allow to investigate more companies within the given time frame. To capture the effects of distance on performance more effectively, it might be advisable for future research to include several companies with different organiza-tional home countries. Further, these home countries should be diverse in terms of both, cultural distance to their subsidiary countries and in terms of institutional distance as explained in the previous sections (van Hoorn & Maseland, 2016).
35 influence on the outcome of the firm. However, there are supporting argumentations in litera-ture that suggest that expats will have an influence on the financial performance of the firm where they are assigned to and several control variables are included that reduce the riskiness of this assumption such as firm size and level of position (Chang et al., 2012; Dowling et al., 2013). Future research should try to validate this newly implemented type of expat performance measurement with a sample that consist of various MNC’s. Further, the key figures that are used to measure performance, more precisely ROE and EBIT are truly objective measures of performance. Thus, this study does not consider subjective factors like improvements products or services and performance perceptions (Konara & Shirodkar, 2018). In the past, researchers mostly relied on truly subjective measurements of performance such as self-evaluations (Brun-ing et al., 2012; Ramalu et al., 2012). Thus, instead of solely focus(Brun-ing on either objective or subjective measures, researchers should try to combine both approaches.
Lastly, it has been found that cultural distance effects are sensitive to the cultural framework used as well as to the home country of the company (Beugelsdijk et al., 2018b). Therefore, future research should combine different cultural frameworks and not solely base their study on one. Further, as indicated in the previous chapter, home countries from both, emerging and developed markets should be included.
Despite these limitations, this thesis enhances the understanding of the link between cultural distance and expat performance and addresses the rising need to understand the intersection among institutional distance, cultural distance, bridging experience, and expat performance.
5.4 Conclusion
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