Subsidiary closures and relocations in the multinational enterprise: Reinstating cooperation in subsidiaries to enable knowledge transfer

Abstract

Subsidiary closures and relocations, a process whereby a multinational enterprise (MNE) closes down a subsidiary and relocates its activities, are commonplace and increasing. Yet we lack an understanding of how knowledge in such situations can be successfully transferred to prevent loss and provide for future knowledge recombination in the MNE. Compared to periods of normal operation, knowledge sharing during subsidiary relocations is likely compromised by diminished sender motivation. In a detailed case study of a subsidiary closure and relocation, we find that the announcement of a subsidiary closure can lead to a break in cooperative behavior that inhibits knowledge transfer. It is therefore critical to reinstate cooperative behavior among subsidiary employees. Reinstatement can be achieved through a set of subsidiary leadership practices that affect the emotions of employees and subsidiary identity. This finding contributes to our understanding of knowledge transfer dynamics in MNEs during subsidiary relocations and closures, extends theory on the practices of subsidiary leadership in subsidiary death and adds to our understanding of identity in MNEs.