Expatriate Utilization and Foreign Direct Investment Performance: The Mediating Role of Knowledge Transfer†

Abstract

Multinational corporations (MNCs) often assign expatriate executives overseas to transfer knowledge, yet prior research has not specifically examined the utilization of expatriates as a strategic resource to facilitate knowledge transfer and enhance foreign direct investment performance. Drawing from the resource-based view of the firm and the international strategy literature, the authors argue that assignment of particular expatriates to the subsidiary will enhance subsidiary performance and that the knowledge transferred into the subsidiary through expatriates will mediate this relationship. Results based on MNCs’ subsidiaries in China showed that using expatriates with motivation and adaptability for knowledge transfer enhanced subsidiary performance and that this relationship was mediated by knowledge transferred into the subsidiary; using expatriates with technical skills did not directly affect subsidiary performance but had an indirect effect on performance via knowledge transferred into the subsidiary. They also discuss the implications of their findings for the resource-based view of the firm and international strategy research.