Does Downsizing Really Matter? Evidence from Japanese Multinationals in the European Manufacturing Industry

This article empirically examines the antecedents and consequences of organizational downsizing using a sample of 67 Japanese multinational corporation (MNC) subsidiaries operating in the European manufacturing industry. To date, existing findings on the occurrence of downsizing at the subsidiary level are based on anecdotal accounts or simple descriptive surveys without any clear-cut conceptual framework that addresses factors and consequences of downsizing events. This study provides evidence that the macro-environmental (e.g. demand declines, international competition) and organizational factors (e.g. stagnant sales growth and poor profitability improvement of international competitiveness, development of stable management) were the central motivations for firms to engage in workforce reductions. Using the ordered probit and multiple regression techniques, a negative relationship was found between the adoption of downsizing by firms and perceived market and organizational performance, namely sales growth and employee motivation. This article also presents managerial implications and methodological limitations.