By Samuel Davies, Fabian Jintae Froese, Daniel Han Ming Chng and Fedor Portniagin

MNCs around the world recognise the vital importance of ensuring that their HQ and subsidiaries are working in sync. Knowledge transfer (encompassing everything from specific problem-solving ideas to ‘softer’ corporate cultural practices) must flow between both entities. This process has traditionally been implemented by sending expatriates from HQ to their subsidiaries. More recent research suggests that MNC knowledge transfer can also be accelerated by inpatriation experience of working at HQ gained by host-country national (HCN) subsidiary employees.

A recent study we conducted supports the idea that HCN subsidiary CEOs with inpatriation experience can dramatically enhance knowledge transfer and improve their subsidiaries’ performance. More importantly, we uncover the individual characteristics and process through which inpatriation experience can improve subsidiary knowledge transfer and performance.

These insights came from the analysis of survey and archival data from 289 subsidiaries of MNCs in South Korea –a major recipient of foreign direct investment from all manner of MNCs. Of the 289 HCN (Korean) subsidiary CEOs surveyed, 81 had prior inpatriation experience (28% of the sample), spending on average 16 months at their MNC’s HQ. Comparing these two groups, we found that those CEOs with inpatriation experience:

• Established strong social relationships with personnel in MNC HQ, yielding substantial benefits for subsidiary knowledge transfer and financial performance.
• Used this knowledge transfer to substantially enhance the quality of decision-making as well as operational efficiency to increase subsidiary financial performance.

However, some HNC subsidiary CEOs clearly benefit more from inpatriation experience than others. The motivational cultural intelligence (CQ), individuals’ willingness and ability to overcome cultural barriers and learn from people of other cultures, of inpatriates is a vital moderating factor. Subsidiary CEOs with higher motivational CQ are better equipped to forge strong social relationships with others at HQ, allowing them to gain more from their time at HQ, while also encouraging their social ties in HQ to support them more directly with data access and information sharing – ultimately improving knowledge transfer, and ultimately their subsidiary performance.

These findings strongly support our theory that selecting HCN high-potential managers with strong motivational CQ and sending them on inpatriation experience is a highly effective process for improving subsidiary knowledge transfer and financial performance. This gives rise to some important practical considerations for any MNC looking to strengthen ties with its subsidiaries and accelerate knowledge transfer.

MNCs should aim to widen their inpatriation experience efforts, with a particular focus on those being considered for future subsidiary CEO roles. Inpatriation training should be a systematic part of HCN managers’ career development paths.

Given the importance of forming strong social ties between HQ and subsidiary leadership figures, MNCs should make overt efforts to encourage socialisation during inpatriates’ stay at HQ. Scheduling social activities, allowing time for informal socialisation, including inpatriates in meetings and post-meeting debriefs – these are all viable ways to allow HQ and inpatriate staff to bond and learn from one another. Crucially, our study highlights that the strength of such social ties is the significant predictor of knowledge transfer, not the number. Having more social ties may be beneficial, but the tacit and complex nature of such knowledge transfer between business units means that forging a smaller number of stronger ties is preferable to having weaker but more numerous ones. MNCs should be mindful of this, and should therefore aim to create an environment where inpatriates can bond more deeply with a select group of relevant contacts at HQ. More formalised mentoring and feedback activities may also be beneficial in these efforts.

MNCs must also be on the lookout for potential HCN subsidiary CEOs with high motivational CQ. This is particularly important for future CEOs of subsidiaries in regions where staff may be more hesitant to form social ties across cultural boundaries, such as East Asia. A high level of motivational CQ is a prerequisite for maximising inpatriates’ time at HQ, and for implementing knowledge transfer effectively once they get back to the subsidiary. Of course, the MNC doesn’t have to rely purely on high motivational CQ individuals; it can actively motivational cultivate CQ in its potential leaders through cross-cultural training, increased international exposure, global virtual work and so on.

This article is based on a paper entitled, “Improving subsidiary performance via inpatriate assignments: The role of host country national subsidiary CEOs’ social ties and motivational cultural intelligence,” published in the Journal of World Business here.

Samuel Davies is a Lecturer in Leadership and Organisation Behaviour at University of Bristol. Fabian Jintae Froese is a Professor of HRM and International Management at University of Goettingen and a Joint Appointment Professor of International Business Yonsei University Business School, Daniel Han Ming Chng is a Professor of Strategy and Entrepreneurship at CEIBS. Fedor Portniagin is a PhD student in Human Resources Management at University of Goettingen.