Subsidiaries of Multinational Corporations

Abstract

This article analyzes allegiances of three groups of employees in foreign subsidiaries of multinational enterprises—parent country nationals, host country nationals, and third country nationals. Building on, but different from existing work, we broaden the focus of inquiry from expatriates at the managerial level to (a) include other categories of subsidiary employees and (b) incorporate in our analysis host country nationals rather than focus exclusively on expatriates. We explore the notion that the allegiances of subsidiary employees may be conceptualized as being split among three potential objects of allegiance, namely the focal subsidiary, the headquarters, and the subsidiary host country. Our key arguments are summarized in a framework, complemented with a set of theoretical propositions and implications for future research and practice are discussed.

Keywords

allegiance devotion loyalty subsidiaries multinational corporations staffing

This article engages with the topic of allegiance, or the devotion and loyalty to a particular person, group, unit, or organization. In organizational psychology, researchers have drawn on allegiance and related concepts such as organizational commitment, organizational identification, and intention to remain in the organization (retention) to explore employees’ attachment to particular organizational entities (Ali, 1992; Banai & Reisel, 1993; Gregersen, 1992; Gregersen & Black, 1992; Guzzo, Noonan, & Elron, 1994; Reade, 2001a, 2001b). In the international management (IM) literature, focus has been on the allegiance tensions and dilemmas of expatriate managers in multinational corporations (MNCs; Black & Gregersen, 1992; Gregersen, 1992; Gregersen & Black, 1992, 1996; Janssens, 1995; Richardson & McKenna, 2006; van Oudenhaven, van der Zee, & van Kooten, 2001).

We engage with this long-standing discussion in novel and significant ways. We broaden the focus of inquiry from expatriates at the managerial level to also include other categories of subsidiary employees, namely parent country nationals (PCNs), host country nationals (HCNs), and third country nationals (TCNs). We also take a step onward from the seminal insight that allegiance is not necessarily toward a single entity but can also be dual or directed toward two entities at the same time (Black & Gregersen, 1992). Our contribution in this regard is exploring the notion that the allegiances of subsidiary employees may be conceptualized as being split among three potential objects of allegiance: the subsidiary, the headquarters (HQ), and the subsidiary host country. Finally, in positioning our exploration at the individual level of analysis, we respond to repeated calls for microlevel analysis of subsidiary phenomena (Björkman, Barner-Rasmussen, & Vaara, 2010; Foss & Pedersen, 2004; Michailova & Mustaffa, 2012; Werner, 2002).

The rest of the article unfolds as follows. The next section presents the conceptual background of our analysis. In particular, we attend to the notion of allegiance and to how different categories of subsidiary employees have been treated in the IM literature. We then introduce a framework and propositions on how three key categories of subsidiary employees may differ in relation to their allegiance to the HQ, focal subsidiary, and host country. Finally, we conclude and outline implications for research and practice.

Conceptual Background

In previous work on allegiance in the context of MNC subsidiaries (Black & Gregersen, 1992; Johnson, 1999; Vora & Kostova, 2007; Vora, Kostova, & Roth, 2007), simultaneous commitments to different organizational units have been found to lead to conflicts with potentially severe negative consequences for some or all of the objects of allegiance. This line of work has focused on subsidiary managers. However, our examination of subsidiary personnel also includes employees at other hierarchical levels. This is in line with previous definitions of expatriates that explicitly include employees (not exclusively managers) who are transferred on a temporary basis to another country by their organization to complete tasks and achieve objectives and purposes for the organization (Aycan & Kanungo, 1997; Harrison, Shaffer, & Bhaskar-Shrinivas, 2004; Harzing, 2004),

We also address an evident gap in international staffing research in engaging with three different categories of subsidiary employees, both separately and in relation to each other, seeking to explain the levels of allegiance that HCNs, PCNs, and TCNs are likely to exercise toward three different entities—the focal subsidiary, the HQ, and the host country. The subsidiary is the organizational unit the employee works for, the HQ is the unit in charge of the MNC as the corporate entity to which the subsidiary belongs, and the host country is the national context where the subsidiary is located. We use the term triple allegiance to denote the fact that subsidiary employees may exhibit allegiance to all these three entities. Johnson (1999, p. 64) used the somewhat similar term “balanced tri-allegiance” to explain commitment levels of international joint venture team members with strong allegiance to the joint venture and both parents. Our approach differs from this not only in its practical context but also in that we see no a priori reasons to assume balanced triple allegiances.

Our analysis makes a further contribution to the literature in that most work to date does not clearly distinguish between PCNs and TCNs (e.g., Black & Gregersen, 1992; Gregersen & Black, 1992; Johnson, 1999; Shaffer, Harrison, Gilley, & Luk, 2001; Stroh, Gregersen, & Black, 1998; Vora et al., 2007). This is problematic because one’s national and cultural background influences how one adjusts and performs in the subsidiary and the host country (Selmer, 2001; Waxin, 2004). Finally, our study provides insights into how not only expatriates (TCNs and PCNs) but also HCNs build and preserve their allegiance to the three entities that constitute key elements of their work environment.

Allegiance and Its Multiplicity

Black and Gregersen (1992) argued that allegiance can be dual; that is, directed toward two entities at the same time. This applies both at the unit level and the individual level. MNC subsidiaries have been conceptualized as being embedded in dual networks, that of the MNC and that of the host country (Mu, Gnyawali & Hatfield, 2007; Zhao, Anand, & Mitchell, 2005), as having dual roles (Andersson, 2003), and enjoying dual legitimacy (Hillman & Wan, 2005). At the individual level, it has been suggested that expatriate managers in subsidiaries may under certain conditions experience dual organizational identification (Reade, 2001a, 2001b; Vora et al., 2007; Vora & Kostova, 2007), dual embeddedness (Newburry, 2001), dual organizational commitment (Gregersen & Black, 1992), or dual allegiance (Black & Gregersen, 1992) to both the HQ and the subsidiary. Other research has highlighted the close links between such dual allegiances and having boundaryless careers (Banai & Harry, 2004) or being able to play boundary spanning roles (Barner-Rasmussen, Ehrnrooth, Koveshnikov & Mäkelä, 2014; Kostova & Roth, 2003; Reiche, Harzing, & Kraimer, 2009).

The notions of expatriates’ dual allegiance (Black & Gregersen, 1992) and, later, subsidiary managers’ dual organizational identification (Vora et al., 2007; Vora & Kostova, 2007) have been acknowledged in the IM literature as important in understanding MNC employees who often have mutually conflicting responsibilities to various stakeholders such as the corporate HQ, peer subsidiaries, and suppliers and customers located either globally, regionally, or within the host country (e.g., Nguyen, Felfe, Fooken, & Ngoc, 2015). We concur with this perspective but see no reason to believe that subsidiary employees’ allegiance would be limited to the HQ and subsidiary. Instead we argue that they are likely to be torn between the conflicting demands of also a third type of relationship—to the host country. Interestingly, this has been implicitly acknowledged in the long-standing body of work on subsidiary staffing strategies, which we now proceed to review.

MNC Staffing Strategies

MNC units can employ three types of staff: PCNs or citizens of the country where the MNC is headquartered, TCNs, and HCNs (Daniels, 1974). The concept of “staffing mix” has been used to refer to the “mix and flow of PCNs, HCNs, and TCNs within the MNC, with the choice often perceived as a trade-off between local knowledge and global allegiance” (Thompson & Keating, 2004, p. 772).

MNCs are considered to have strategic reasons for choosing expatriates—whether PCNs or TCNs—over HCNs. Expatriates are traditionally put in key positions in foreign subsidiaries, especially at the early stages of the subsidiary’s establishment, as agents of control and coordination (Björkman, Barner-Rasmussen, & Li, 2004; Collings & Scullion, 2006; Perlmutter, 1969). They can act both as symbols of dominance, complementing formal decision-making processes and control mechanisms; as socialization mechanisms for the MNC and the subsidiary; and as informal communication channel between the subsidiary and the MNC (Harzing, 2001a). Compared to HCNs, expatriates have been argued to assist HQs in addressing agency issues in subsidiaries because they are more likely to act in the best interest of the MNC as whole (Collings, Scullion, & Morley, 2007).

Subsidiary-level staffing is linked to staffing approaches at the corporate level that, following Perlmutter and colleagues, are often labeled as ethnocentric, polycentric, geocentric (Perlmutter, 1969; see also Tian, Harvey, & Slocum, 2014), or regiocentric (Heenan & Perlmutter, 1979). An ethnocentric approach refers to employing primarily PCNs in the top management positions in foreign subsidiaries. The polycentric approach emphasizes hiring HCNs and is the preferred approach of MNCs that operate in diverse locations with heterogeneous demands and requirements (Collings & Scullion, 2006). The geocentric approach focuses on employing the best person for the job, regardless of nationality or country of origin (Perlmutter, 1969). The regiocentric approach differs from the geocentric by limiting staffing options to people from the geographic regions where subsidiaries are located.

Staffing and Allegiance

The staffing mix literature agrees that the choice to staff subsidiaries with PCNs, TCNs, or HCNs depends on several factors at different levels of analysis, both macro (host country level), meso (industry, firm, or function level), and micro (individual level). However, many of these factors are underpinned by allegiance patterns.

Parent Country Nationals

Bebenroth, Li, and Sekiguchi (2008) found that MNCs from home countries with a high power distance and high uncertainty avoidance—corresponding to a tendency toward centralized management systems and organizational control—appoint significantly more PCNs to subsidiary top manager and board member positions. Similarly, multinationals tend to employ more PCNs in industries and functions where control and coordination are important, for example, to increase productivity (Belderbos & Heijltjes, 2005; Harzing, 2001a) and/or when the aim is to strengthen control over a focal subsidiary, facilitate transfer of shared values (Harzing, 1999) or knowledge from HQ to a subsidiary, or ensure the transfer of subsidiary knowledge to HQ or/and peer subsidiaries (Ando & Paik, 2013; Björkman et al., 2004; Gaur, Delios, & Singh, 2007; Gong, 2003; Pucik, 1988). PCNs have a better understanding of the multinational’s knowledge base and social ties with other managers in the firm and are hence in a better position than HCNs to strengthen the richness of transmission channels within the MNC (Gupta & Govindarajan, 2000). Because of this, they are also effective in reducing information asymmetry between the HQ and the subsidiary (Gong, 2003; Paik & Sohn, 2004) and facilitating the creation of an information network embedded in the HQ corporate culture (Hyun, Oh, & Paik, 2015). This is enabled by them having a good understanding of the business environment in which the HQ operates, a feature that allows them to provide valuable international expertise and advice to the subsidiary, while also transferring subsidiary information to the HQ (Du, Deloof, & Jorissen, 2015). A larger number of expatriates also gives local subsidiary employees more frequent opportunities to observe and imitate their behaviors and play linking roles in resolving HQ–subsidiary conflicts, especially in situations of important information asymmetry or high levels of ambiguity (Smale et al., 2015).

Host Country Nationals

In industries and functions that emphasize localization or local legitimacy, MNCs tend to deploy more HCNs (Gaur et al., 2007; Harzing, 2001b; Putti, Singh, & Stoever, 1993). Compared with PCNs, HCNs are more familiar with the cultural, economic, political, and legal environment of the host country (Kim & Slocum, 2008; Tarique, Schuler & Gong, 2006). They bring valuable local knowledge of the market and business practices (Harzing, 2001b) to the HQ and the subsidiary and decrease the subsidiary’s liability of foreignness in the host country. HCNs’ familiarity with and knowledge of the host country’s cultural, economic, political, and legal environment enable subsidiaries to better respond to host country requirements, demands, and preferences.

Employing HCNs, especially in key positions in subsidiaries, tends to be appreciated by host governments as a sign of the MNC’s commitment to the host country (Selmer, 2004). HCNs’ local knowledge can be used to adjust organizational practices to improve interactions with local entities and conform to local institutions (Ando & Paik, 2013). In that sense, HCNs are an efficient means to mitigate uncertainty stemming from the local environment (Ando, 2015, p. 50). Employing HCNs also indicates that the multinational is committed to developing local employees’ careers within the MNC, mitigating potential problems related to disparity, perceived injustice, and perceived lack of career opportunities (Collings & Scullion, 2006). HCNs tend to be the preferred employees for subsidiaries in host countries where local knowledge is more valuable than the managerial and functional knowledge of PCNs (Harzing, 2001a), qualified locals are readily available, and cultural distance and living costs between home and host countries are comparable. They also tend to be preferred when staffing by PCNs is considered too expensive due to relocation and administrative costs and/or failure or under-performance due to the long adjustment process to the host country environment (Collings & Scullion, 2006; Harzing, 2001b).

Still, HCNs often occupy the lowest position in the social hierarchy because they are twice removed—by location and nationality—from the MNC’s center of power and are thus seen as possessing lower levels of valuable assets, such as knowledge, coordination and communication abilities, trust, and social connections (Levy et al., 2015). To the extent that HCNs’ career advancement is blocked by ethnocentric staffing policies, sizeable income and status disparities contribute to frustration and dissatisfaction among locals (Reiche, 2007).

Third Country Nationals

While much early research on staffing focused on the choice between PCNs and HCNs (Gong, 2003), TCNs have attracted increasing scholarly attention in the past decade, reflecting the fact that they are an increasingly popular option for MNCs (Gaur et al., 2007). Historically, TCNs were viewed as cheaper substitutes for PCNs, at the cost of a weaker understanding of HQ priorities and objectives (Daniels, 1974; Reynolds, 1997). They typically remain a minority in the subsidiary staffing mix (Tarique et al., 2006) and tend to occupy lower positions than PCNs in the social hierarchy of the MNC, being constrained in terms of access to resources and benefits derived from belonging to the home country nationality. They are usually less knowledgeable about HQ priorities and goals (Harzing, 2001a; Tharenou & Harvey, 2006) and less effective in establishing links between the HQ and subsidiaries (Gaur et al., 2007; Levy et al., 2015).

By the same token, TCNs can be seen as a more neutral choice combining the benefits and drawbacks of parent country and HCNs (Tan & Mahoney, 2006). Depending on her or his background, a TCN may have greater host country knowledge than a PCN and a better understanding of the corporate policy than a HCN (Perkins & White, 2008). TCNs also offer multicultural insights and cognitive diversity supporting the global development of the MNC (Harvey, Novicevic, & Speier, 1999). With an increasing number of multinationals shifting to nontraditional foreign assignments (Collings et al., 2007; Meyskens, von Glinow, Werther, & Clarke, 2009) and geocentric staffing, the number of TCNs in MNCs is increasing (Farndale, Scullion, & Sparrow, 2010; Gowan, 2004; Peterson, Sargent, Napier, & Shim, 1996).

Subsidiary Employees’ Triple Allegiance: A Framework

There is substantial research on staffing strategies of MNCs and subsidiaries, particularly on the staffing of top and executive level management positions in MNC subsidiaries (Collings, Morley, & Gunnigle, 2008; Harzing, 2001b). The expatriation literature has examined issues related to the selection (Tung, 1998; Zeira, 1993), training (Forster, 2000; Mendenhall & Stahl, 2000), adjustment (Florkowski & Fogel, 1999; Kim & Slocum, 2008; Stroh, Dennis, & Cramer, 1993; van Oudenhaven et al., 2001), and career development (Feldman & Thomas, 1992; MacDonald & Arthur, 2005) as well as expatriates’ readjustment and reentry (Bossard & Peterson, 2005; Lazarova & Caligiuri, 2001; Stroh et al., 1998). But this wealth of previous work contains few efforts to develop a holistic understanding of the allegiance patterns of different categories of MNC subsidiary employees. Against this background, we now turn to discuss the likely allegiance positions of these three different types of employees in relation to subsidiary, MNC and host country, and present a set of propositions that, taken together, form our framework on the triple allegiance of MNC subsidiary employees. This is illustrated in Figure 1 below.

Figure 1.

Subsidiary employees’ allegiance to three entities.

A natural root cause of differences in allegiance between the groups is the initial location of employment of the three different subsidiary employee groups. PCNs usually start with several years of employment at the HQ, while HCNs typically have accrued most or all of their work experience in their local subsidiary. “This secondary socialization reinforces parent-country managers’ loyalty to the HQ while enhancing host-country managers’ loyalty to the host-country subsidiary” (Banai & Reisel, 1993, p. 235). A large number of studies have also concluded that national identity, shared social relationships and cultural attachments generate a sense of belonging (Felfe, Yan, & Six, 2008; Torbiorn, 1985), and is likely to influence the formation of groups and subgroups at subsidiary level. Common culture, language, and social relations are likely to make expatriates feel more familiar with the HQ, while HCNs may feel more familiar with their local operations (Nguyen et al., 2015).

Parent Country Nationals and Their Allegiances

PCNs tend to occupy a higher position and have a higher status than HCNs and TCNs in the social hierarchy of the MNC thanks to their affiliation with the home country and ultimately the HQ. Their affiliation with the home country provides symbolic proximity to the central axis of power in the MNC (Levy et al., 2015; Reiche, Kraimer, & Harzing, 2011). Most PCNs are sent to subsidiaries on international assignments, often tasked with replicating existing organizational specificities and operating procedures of the HQ in the local units (Rosenzweig & Singh, 1991) or acting as a control agent or mechanism for the HQ at the local subsidiary (Egelhoff, 1984; Harzing, 2001a; Paik & Sohn, 2004). Many PCNs are also involved in coordination and knowledge transfer (Bonache & Brewster, 2001; Wang, Tong, Chen, & Kim, 2009). They are posted to ensure that the subsidiary acts in accordance with the HQ’s objectives and interests and can communicate better with the HQ through established social ties (Ando & Paik, 2013; Björkman et al., 2004).

The literature views PCNs employed in subsidiaries as having the highest levels of allegiance to the HQ (Ando & Endo, 2013; Belderbos & Heijltjes, 2005; Collings et al., 2007; Gong, 2003). They not only easily accept HQ-determined rules but also show strong commitment to the firm’s overall corporate goals and priorities (Kobrin, 1988). PCNs are likely to have started their careers at HQ, and thus tend to have long-lasting socialization and working familiarity and experience there for a considerable amount of time (Naumann, 1992; Tan & Mahoney, 2006). They are also familiar with the policies and practices at the HQ and ultimately with the vision and mission of the MNC.

Ishii (2012) identified three reasons for why expatriates’ identification with the subsidiary may be challenging:

First, expatriates typically come to the subsidiary with the established identification with their headquarters (Sanchez, Spector, & Cooper 2000; Toh and DeNisi 2005). Second, their assignment to the subsidiary is temporary, and they will eventually return to their headquarters. Although identification can be formed temporarily (Rousseau, 1998), those who cannot cope with their temporary position may not be able to establish identification with the subsidiary successfully. (pp. 1113-1114)

These arguments apply to both PCN and TCN expatriates.

PCNs’ assignments are also likely to be a part of a career development program at the HQ. They have often been rotated in various subsidiaries within the same firm (Tan & Mahoney, 2006), have more opportunities for career advancement after returning, and are typically generously rewarded by the HQ. These benefits are reciprocated by allegiance to the HQ in a self-reinforcing process (Bonache, Sanchez, & Zárraga-Oberty 2009; Dickmann, Doherty, Mills, & Brewster, 2008; Dowling, Festing, & Engle, 2013; Nguyen et al., 2015). Compared with TCNs, PCNs also receive more organizational support in terms of both pre-relocation training and assistance and repatriation support (Harvey, 1993).

PCNs are typically sent abroad for short- to medium-length assignments, limiting their opportunities to build strong allegiance and connections to the subsidiary and even less so to the host country (Michailova & Husted, 2003). Also expatriates’ traditional role as the HQ’s control agent can prevent them from developing strong connections with the subsidiary. The perception that they are overrewarded also puts PCNs in a category of their own within the subsidiary, further distancing them from other subsidiary employees. MNCs’ rewards and compensation packages have discriminated in favor of PCN expatriates compared with TCN expatriates (Harvey, 1993; Phillips & Fox, 2003), and HCNs, further distancing PCNs from the culture and the people in the host country. Hence, we propose that,

Proposition 1: Compared with HCNs and TCNs, PCNs have higher allegiance to the HQ and lower allegiance to the subsidiary and the host country.

Host Country Nationals and Their Allegiances

Although HCNs are viewed to occupy lower positions than PCNs in the social hierarchy of the MNC due to more limited access to certain valuable resources (Ferner, Edwards, & Tempel, 2012), they remain key actors in geocentric MNCs (Perlmutter, 1969). There they are allowed autonomy to adapt HQ strategies and goals to fit the specificity of the local context (Harzing, 2001b; Kobrin, 1988). Because of their local knowledge and familiarity with the host country cultural, economic, political, and legal specificities, HCNs are considered invaluable when it comes to taking care of local responsiveness idiosyncrasies. This makes them the preferred staffing choice when MNCs pursue a multidomestic or localization strategy (Gong, 2003; Tan & Mahoney, 2006; Vance & Paik, 2010).

Choosing appropriate business practices and communicating effectively locally are some of HCNs’ advantages (Hyun et al., 2015). They know the local market in which the subsidiary operates, as well as local needs, demands and changes in the market conditions (Beamish & Inkpen, 1998). This allows them also to be effective in negotiating with local institutions, suppliers, and buyers (Ando & Endo, 2013). Although HCNs are viewed as less effective when it comes to knowledge management due to their limited knowledge of the parent firm’s values, culture, and strategic intent (Belderbos & Heijltjes, 2005; Levy et al., 2015), they play an important role when HQ knowledge and practices need to be recontextualized during transfer to the subsidiary.

HCNs are more likely to start and develop their careers with the MNC at the subsidiary (Tan & Mahoney, 2006) and their career prospects with the MNC are the most likely to be limited to the host country. Compared with PCNs, they have fewer opportunities to visit or work in the HQ and, thus, have relatively fewer opportunities for socialization with peers and colleagues from the HQ. As a result, HCNs have limited connection with and can be rather distant from the HQ located in the parent country. HCNs may also have fewer opportunities to develop commitment to their parent companies, because their expatriate counterparts exert stronger control over communication between the subsidiary and the HQ (Nguyen et al., 2015). This pattern may be intensified by geographical distance (Gregersen & Black, 1992). Therefore it seems reasonable to argue that HCNs tend to feel greater allegiance toward the focal subsidiary than to the HQ. The former is their primary work environment, physically as well as symbolically, and so it is only natural that allegiance to the two entities differs in favor of the local operation (Nguyen et al., 2015).

Naturally, compared with PCNs and TCNs, HCNs have the highest allegiance to their own country. This is good for subsidiary local responsiveness and legitimacy, but can be detrimental to the MNC and the subsidiary in that HCNs may put the interests of the host country above those of the local subsidiary and the MNC. On the basis of the above observations and arguments, we advance the following:

Proposition 2: Compared with PCNs and TCNs, HCNs have higher allegiance to the host country, higher allegiance to the subsidiary, and lower allegiance to the HQ.

Third Country Nationals and Their Allegiances

Older evidence suggests that TCNs tend to view the HQ, its leadership approach and managerial style as superior to those of the local subsidiary. Zeira and Harari (1977) found that TCNs tend to impose decision-making styles and managerial approaches closer to those practiced in the HQ, without adapting the styles and approaches to the local environment. Nevertheless, in that study, HQ managers tended to regard TCNs as less loyal to the MNC, while TCNs felt treated as “second-class employees” by HQ (Zeira & Harari, 1977). Harvey (1993) and Harvey et al. (2001) found that TCNs perceived their career development opportunities within the MNCs as relatively limited, and their salaries and benefits as lower, compared with PCN expatriates. These results indicate that the position of TCNs is closer to that of host country than PCNs, and suggests TCNs feel weak allegiance to the HQ.

However, more recent evidence suggests that TCNs are increasingly viewed as the “the best compromise” between host country and PCNs (Reiche & Harzing, 2011, p. 189) and, therefore, can tentatively be considered an intermediate status group (Caricati & Monacelli, 2010), positioned at neither the upper nor the lower end of the social hierarchy (Levy et al., 2015). This has implications for TCNs’ allegiance to both HQ and subsidiary. Especially in situations that cannot be resolved impartially by either host country or PCNs (Harvey et al., 2001; Harzing, Pudelko, & Reiche, 2015), TCNs can be effective mediators in HQ–subsidiary tensions and conflicts, such as information asymmetry and goal congruence problems. In contexts where this potential is appreciated, TCNs are likely to feel more allegiance toward the subsidiary than PCNs, although still less than HCNs. Inversely, TCNs’ allegiance toward the HQ is likely to be stronger than that of HCNs, although weaker than that of PCNs. However, in MNCs with a geocentric or regiocentric orientation, which tend to employ the best employees available globally/within the region, TCNs may feel as strong allegiance toward the HQ as do PCNs.

As for allegiance toward the host country, TCNs are typically regionalists (Reynolds, 1997); they hail from outside the country but from within the region where the subsidiary is located. Considering the preference for regional strategies as opposed to global ones (Rugman & Verbeke, 2004, 2008) and the tendency toward semiglobalization (Ghemawat, 2003), this means most TNCs are culturally relatively close to the host country, which would tend to increase their allegiance toward that country, but on the other hand still physically near their home country, which would likely decrease their allegiance to the host country. We suggest a neutral net effect for this factor, yielding the following propositions.

Proposition 3: Compared with HCNs and PCNs, TCNs have moderate allegiance to the HQ, the subsidiary and the host country.

Proposition 4: In MNCs with a geocentric or regiocentric staffing policy, TCNs’ allegiance to the HQ may be as high as that of PCNs.

Our propositions are summarized in Table 1.

Table 1.

Subsidiary Employees’ Triple Allegiance: Differences Between Parent-, Third-, and Host-Country Nationals.

Type	Headquarters	Subsidiary	Host country
Parent country nationals	Higher	Lower	Lower
Third country nationals	Moderate (higher^a)	Moderate	Moderate
Host country nationals	Lower	Higher	Higher

Only in multinationals with geocentric or regiocentric staffing policies.

Discussion and Conclusion

The allegiance relationships proposed above can be influenced by certain key variables. One of these is tenure, which has been found to be a consistent factor in determining organizational commitment (Gregersen, 1992). Longer tenure at the same unit allows meaningful relationships and friendships to be established (George & Chattopadhyay, 2005), and this can affect a person’s allegiance to the unit. Expatriates may view tenure in the parent company as an investment that can maintain the relationship with the HQ. Thus, the longer they stay with their parent companies, the higher is their commitment to these organizations (Nguyen et al., 2013).

Allegiance to multiple MNC units can also be influenced by the number of overseas assignments of a particular employee. Those who have been rotated to various international subsidiaries within the MNC are more likely to experience allegiance to the HQ rather than to the subsidiaries and host countries they have worked in. Additionally, the more they have been posted to various international assignments, the more they learn to capture the overall strategic intentions of the entire MNC. They gain a better understanding of how HQ decisions that at the outset may seem unpopular to the local subsidiary fit into the overall strategy of the entire MNC. Subsidiary employees, be they PCNs or TCNs, will form stronger allegiance to the MNC when they have been involved in various international assignments for a significant period of time, while their allegiance to the local subsidiary and host country may weaken. For these reasons, subsidiary employees’ allegiance is moderated by the amount of time they have spent on international assignments within the same MNC.

Subsidiary employees’ allegiance to an entity can also vary according to the time they have spent in the particular entity. Expatriates, either PCNs or TCNs, who are assigned for a shorter duration but in many host countries throughout their career with the MNC, may develop weaker allegiance to the host country to which they have been assigned. Similarly, their allegiance to the subsidiary they are assigned to during their short stint is weakened because they have not been as heavily involved in the subsidiary as those expatriates who stay longer in one particular subsidiary or host country.

Finally, compensation policies are likely to influence subsidiary employees’ allegiances. HCNs are likely to receive lower compensation compared to expatriates whom they view as social referents (Toh & Denisi, 2003). Especially, expatriates from more developed countries are likely to get higher compensation premiums (Harvey, 1993; Tian et al., 2014). Such disparities can magnify the existence of two subgroups and the differences between them (Paik, Parboteeah, & Shim, 2007), which in turn is likely to influence their respective allegiances. Interestingly, however, Tornikoski (2011) pointed out that “a positive state of the psychological contract relating to tangible universal rewards (i.e. the compensation package traditionally considered in previous expatriate research) is not linked to an increase in the overall affective commitment of expatriates” (p. 214). However, Tornikoski (2011) also noted a very strong positive relationship between the state of expatriates’ psychological contract relating to total rewards (which include intangible particularistic rewards) and affective commitment.

Understanding allegiance issues in MNCs is important for individuals, subsidiaries and HQs because of the potential detrimental consequences of allegiance conflicts (Black & Gregersen, 1992; Johnson, 1999; Vora et al., 2007; Vora & Kostova, 2007). Our framework and propositions help guide both practice and future research toward a more nuanced understanding of allegiance toward HQ, subsidiary and host country across categories of subsidiary employees.

Key conclusions are that there indeed seem to be solid grounds to assume triple, instead of double, allegiances. There are often tensions between these and so, sustainable balance between them (Johnson, 1999) is clearly difficult to attain. Such variations in cross-group allegiance patterns have significant consequences for international human resource management as well as subsidiary management. Additionally, such variations are important when assigning employees to subsidiaries. Allegiances of different employee groups are likely to influence their ability to carry out certain kinds of tasks in the MNC both directly, by influencing their own actions, and indirectly by influencing how others perceive and react to those actions. In that sense, our focus on individual or microlevel issues has yielded results of clear mesolevel significance, especially in highlighting the potential of TCNs to act as bridges between HQs and subsidiaries in tense situations.

We have not addressed the issue of how different types of allegiances may interact with each other. We made a step toward positioning the allegiances in relation to each other, but did not examine in greater detail how one type of allegiance may lead to, counter, substitute or crowd out other allegiance types. The dynamics of the interaction between allegiance types is a logical avenue for further research.

A different, yet related issue that we have not touched upon, but find fertile in terms of potential future research is inpatriates’ allegiances. Inpatriates are employees who are transferred from the foreign subsidiary to the country where the corporation has its HQ. Our analysis has excluded them; yet they constitute an increasingly important component of foreign subsidiaries’ staffing mix. While inpatriates are similar to expatriates on a number of dimensions, they are also different on others. Provided the majority of inpatriates have previously held roles as host country managers of subsidiaries (Tharenou & Harvey, 2006), they already have developed certain allegiances. Whether and how those change in the process of inpatriation is a line of inquiry worth pursuing, especially bearing in mind the likelihood of inpatriates’ potential decrease of status and power as they inpatriate.

Our framework offers several practical implications. First, not knowing or appreciating the different degrees of allegiance can lead to decisions that may be detrimental to the MNC as a whole, to the subsidiary or the host country. It can also result in decisions that are favorable to some units, but not to others. Too great or too limited allegiance to one entity can create conflicts, as well as serious costs to all involved actors. Second, for HR managers, it is important to understand the nature of allegiance of subsidiary employees in itself, and likely even more important to understand how these allegiances relate to each other. Indeed, a mix of employees means having to manage a mix of different allegiance setups. Understanding them well can facilitate processes of managing them well, and if allegiances are managed well, they can improve. This, in turn, can improve the staffing practices and provide more legitimacy to HR managers in the MNC.

To conclude, we return to our starting point that allegiance, or the devotion and loyalty to a particular person, group, organization, or macro context, can be directed toward several entities at the same time. We have argued that the allegiances of subsidiary employees may potentially be split between the subsidiary, the HQ, and the subsidiary host country; a situation that harbors significant potential for personal distress and detrimental organizational outcomes. From this follows the ultimate conclusion of our study: that a key task of MNC management, at HQ as well as subsidiary level, is to promote and enable the alignment of allegiances across levels. This implies that HQ should strive for decisions, practices, and policies that are aligned not only with HQ and subsidiary business interests but also with the broader interests of the subsidiary host country; that are fair, legitimate, and culturally acceptable across all of these contexts; and hence allow subsidiary employees, irrespective of category, to go about their daily work with a sense of purpose and pride. Understanding such psychological dynamics through the perspective of employee allegiances carries significant business potential. This is especially relevant in an era when the attractiveness of MNCs as employers has repeatedly been called into question.

Footnotes

Authors’ Note

Zaidah Mustaffa passed away in August 2015.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Author Biographies

Snejina Michailova is a professor of International Business at The University of Auckland Business School, New Zealand. She received her PhD from Copenhagen Business School, Denmark. Her research interests include organizational behavior issues in a cross-border context, knowledge based perspectives on organizations, and methodological issues in management and international management research.

Zaidah Mustaffa earned her PhD degree from The University of Auckland, New Zealand in 2010. She conducted research on cross-cultural management and knowledge flows in multinational corporations, with a particular focus on subsidiaries. She passed away in August 2015.

Wilhelm Barner-Rasmussen is a professor of Business Administration at Åbo Akademi University School of Business and Economics, Turku, Finland (starting January 1, 2016). He received his PhD from Hanken School of Economics, Helsinki, Finland. His research specialization is international management, with a particular interest in issues related to language, microlevel organizational issues, and subsidiary management.

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