Do Japanese MNCs use Expatriates to Contain Risk in Asian Host Countries?

Abstract

We investigate the impact of host country risk on the expatriation strategies of multinational firms, using data on Japanese subsidiary firms in manufacturing industry in 13 host countries in Asia. We find that country risk is negatively correlated with the degree of expatriation and that, rather than host country risk, firm-specific factors (particularly capital intensity, ownership share of parent firms in subsidiaries and the age of the venture) explain most of the variation in the degree to which subsidiaries rely on Japanese expatriates. Contrary to previous studies, the capital intensity of production is a key explanatory firm-specific variable that correlates positively with the degree of expatriation. Japanese MNCs do not rely on expatriates to off-set host country risk, but to mitigate risk to parent investment in subsidiaries.