Which type of employee refers to citizens of the nation where the subsidiary operates?

The correct choice is Host country national, which refers specifically to employees who are citizens of the country where a multinational company's subsidiary is located. This term underscores the relationship between the workforce and the subsidiary’s location, highlighting that these employees are integral to the local business environment and often possess valuable insights into the local culture, laws, and market conditions.

In contrast, the other terms refer to different categories of employees within international business contexts. Home country nationals are those employed by a company in their own country, often representing the nation where the company is headquartered. Third country nationals are employees who are citizens of a country other than the one where the subsidiary is located or the home country of the employer. Local country national is a less commonly used term, but it essentially describes the same group as host country nationals.

Thus, by understanding the specific definition of host country national, it's clear why this option is the correct answer in the context of international business.