An empirical research on the institutional theory of downsizing: Evidence from MNC's subsidiary companies in Taiwan

Abstract

The research uses 18 business cases to verify the institutional theory of downsizing (McKinley et al., 2000). It shows that the rationale behind enterprises' downsizing practices is mixed with economic factors, institutional factors and social cognition processes. Moreover, the influences of institutionalization appear not only on the motivation of downsizing, but also on the practices used by enterprises to execute the downsizing strategies. The implications are: institutionalization would influence the entire process of downsizing and the future research should try to make the institutional theory of downsizing more concrete and complete. Meanwhile, the findings are useful references for enterprises and employees when dealing with the labour relations when downsizing, especially for the global HRM strategies in MNCs.

Does downsizing really matter? Evidence from Japanese multinationals in the European manufacturing industry

“…This article offers two meaningful results: first, the rationale for downsizing seems to be due to economically rationale motives more than legitimacy-driven purposes. Namely, this result does not reinforce the validity of institutional theory of downsizing advocated by McKinley et al (1995), McKinley et al (2000), and Tsai et al (2006). As expected by past downsizing research (Chadwick et al 2004;Guthrie and Datta 2008), the results obtained in this study support the prevailing assumption that downsizing exerts an adverse effect on perceived market performance, namely sales growth.…”

“…McKinley et al (1995) argues that constraining, cloning, and learning act as three major institutional causes of implementing a massive employee reduction. Institutional theory of downsizing assumes that firms reduce uncertainty and gain legitimacy by imitating downsizing practices by those firms seen as being accepted by the members of a society (Tsai, Wu, Wang and Huang 2006). Tsai et al's (2006) empirical study of the downsizing decision by 18 foreign MNCs in Taiwan found that downsizing was attributable to commands from hierarchy, a widely shared social norm, and learning from benchmark corporations.…”

“…Institutional theory of downsizing assumes that firms reduce uncertainty and gain legitimacy by imitating downsizing practices by those firms seen as being accepted by the members of a society (Tsai, Wu, Wang and Huang 2006). Tsai et al's (2006) empirical study of the downsizing decision by 18 foreign MNCs in Taiwan found that downsizing was attributable to commands from hierarchy, a widely shared social norm, and learning from benchmark corporations. A few authors have discussed the real rationale behind a transition from Asian lifetime employment system to Anglo-Saxon flexible employment system in the institutional context.…”

“…One possible explanation for this low response rate could be explained by the fact that the questionnaire includes sensitive questions concerning the scale of employee downsizing and hidden incentives to downsize. According to Tsai et al (2006), confidentiality hinders company executives' participation in the survey. From this line of reasoning, some senior managers were reluctant to answer this type of survey even for academic purposes.…”

Other Organizations Are Doing It, Why Shouldn't We? A Look at Downsizing and Organizational Identity through an Institutional Theory Lens

“…economic downturns, declining demand). Downsizing, as seen through an institutional theory lens, often occurs because it is deemed to be a legitimate strategy and therefore worthy of mimicking (Tsai et al, 2006).…”