The effects of challenge and hindrance stressors on multinational corporations' subsidiary performance : the role of institutional dependence

An increasing number of multinational corporations (MNCs) have set up subsidiaries in emerging markets like China to implement their internationalisation strategy. Acknowledging the criticality of subsidiaries to corporations’ global success, international business scholars have attempted to address the question concerning “how can the performance of multinational corporations’ subsidiaries be enhanced?”. In headquarters–subsidiary relations, as subordinate within the hierarchy of decision-making, subsidiaries are susceptible to the work responsibilities that are imposed on them by their headquarters. Yet, a review of the international business literature reveals that relationship studies have not captured performance outcomes of subsidiary job stressors stemming from their headquarters’ demands (see table 2.1). It is important to address this omission because subsidiary managers may substantially susceptible to imposed work stress. In the light of work on group/team-level stress effects, imposed stress can be experienced collectively by a subsidiary’s top management team. Thus, the present study addresses a lacuna in research on the effects of subsidiary job demands within headquarters–subsidiary relationships. Research data were collected through online (Qualtrics) survey with 238 Chinese manufacturing subsidiaries and the performance outcome of operating revenue was measured using secondary data from OSIRIS database. The respondents were acquired through phone calls and emails. The study results confirm that challenge stressors are positively, and hindrance stressors are negatively related to subsidiary top management team’s work engagement. In turn, work engagement is positively linked to operating revenue and local responsiveness. Institutional dependence strengthens the link between challenge stressors and work engagement, but it weakens the association between work engagement and local responsiveness. The current study makes several contributions to existing knowledge in international business. First, it addresses an important lacuna in this literature by unveiling that subsidiary top management teams face imposed stress emanating from the headquarters’ demands and that this affects their work engagement and ultimately subsidiary performance. Second, the study explains inconsistent findings in the work on job stressors’ outcomes in international business by showing that challenge and hindrance stress types have positive and negative outcomes, respectively. Third, this study is novel in developing an extensive model of the conditionalities of work stress outcomes, combining the three complementary theories of transactional stress, JD-R, and neo-institution. From a managerial perspective, the present study suggests that MNCs should assess job stressors for subsidiary TMTs in terms of work challenges and hindrances that they encounter in working with/for headquarters. It is equivalently imperative for subsidiary managers to interpret institutional constituents’ expectations to acquire and utilise valuable resources in host country. Finally, subsidiary managers must proactively explore and exploit knowledge and resources beyond meeting local institutional constituents’ expectations in order to fast respond to local market changes. Hence, on the one hand, they must keep local institutional constituents satisfied, on the other hand, they should identify differences between institutional constituents’ expectations and local market demands to be ambidextrous in terms of meeting expectations from different parties.