Local air pollution and expatriate deployment

Abstract

Expatriates, who play key strategic and governance roles within MNEs, are often directly exposed to local air pollution in host countries. Given the pervasive and deleterious effects of local air pollution, this study examines how it affects expatriate deployment in MNEs’ international subsidiaries. Our theoretical approach emphasizes bounded reliability as a key mechanism for understanding contractual friction between expatriates and MNEs. To gain a deeper understanding of how underlying behavioral mechanisms link expatriates’ attitudes to MNEs’ international staffing decisions, we conducted interviews with current and former expatriates. These interviews indicate that expatriates perceive local air pollution as a severe stressor, which consequently diminishes their commitment to international assignments. Building on these insights, we developed hypotheses on expatriate deployment in international subsidiaries, and tested them using archival data of Japanese MNEs’ subsidiaries in Chinese cities. Our quantitative analysis, which employs a meteorology-based instrument variable to mitigate potential endogeneity problems, reveals that local air pollution significantly reduces expatriate deployment. Furthermore, this negative relationship is contingent on the MNE’s local experience and local talent supply, and may also be influenced by industry pollution levels. This study contributes to the growing research focusing on the microfoundations of internalization theory by proposing a conceptual framework for expatriate deployment that explicitly incorporates bounded reliability in the analysis of contractual interactions between expatriates and MNEs. Our findings also contribute to the expatriate management literature by identifying the nuanced effects of local air pollution (as a part of the natural environment) on expatriates and MNE governance.