Development of institutional downsizing theory: evidence from the MNC downsizing strategy and HRM practices in Taiwan

Abstract

Although downsizing is one of the most essential strategies of a firm, its effectiveness has been controversial. Institutional downsizing theory asserts that institutional factors influence the motivation of firms to adopt organisational downsizing as a common strategy. Institutional factors not only lead the internal motivation for downsizing, but also influence external downsizing actions. To develop institutional downsizing theory further, this study empirically examines whether the theory applies to the responsible downsizing strategy of multinational corporations (MNCs) and human resource management (HRM) practices to enhance intellectual capital. This study investigated 224 firms in Taiwan, including local firms and MNC subsidiaries from different countries, as the sample to examine this research question. The results revealed a high degree of isomorphism in actual downsizing strategy and HRM practices among these firms. However, universal value is a vital institutional force not discussed in the literature. The findings of this study support and extend institutional downsizing theory and imply the downsizing strategies of MNCs and HRM practices. However, the research background of this study is only in Taiwan; this may limit the generalisation capability of the findings to other contexts and cultures.