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Human capital, cultural distance and staffing localization

Naoki Ando (Faculty of Business Administration, Hosei University, Tokyo, Japan)

Multinational Business Review

ISSN: 1525-383X

Article publication date: 4 January 2021

Issue publication date: 13 July 2021




This study aims to explore how a change in the staffing configuration of foreign subsidiaries affects subsidiary performance by focusing on staffing localization.


The relationship between localization and subsidiary performance is analyzed from the perspective of human capital. Hypotheses are tested using a panel data set of foreign direct investment by Japanese multinational enterprises.


The analysis demonstrates that localization has a positive effect on subsidiary performance when subsidiaries can access a pool of competent local managers in the host country. It also shows that when competent local managers are highly available, localization has a positive effect on subsidiary performance under high cultural distance. In comparison, when the availability of competent local managers is limited and cultural distance is high, localization has a negative effect on subsidiary performance.


Using human capital theory, this study theorizes how localization, which is a change in the configuration of human capital toward a reliance on local-specific human capital, enhances subsidiary-specific advantages. It introduces the effects of changes in the configuration of human capital over time, into studies on subsidiary staffing. In addition, from a different viewpoint than previous studies, this study proposes one possible path where human capital leads to organizational performance. Specifically, it shows that a change in the configuration of human capital affects subsidiary-specific advantages, which eventually impacts subsidiary performance.



This research was supported by Grant-in-Aid for Scientific Research (15K03697 and 16K03899) provided by the Japan Society for the Promotion of Science. The author would like to thank Editor Chang Hoon Oh and two anonymous reviewers for their insightful comments and suggestions.


Ando, N. (2021), "Human capital, cultural distance and staffing localization", Multinational Business Review, Vol. 29 No. 3, pp. 420-439.



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