Divestments of European Multinational Enterprises

Abstract

This paper investigates three questions concerning divestments of multinational enterprises (MNEs) using unique data collected from the Restructuring events database (RED) of Eurofound, an agency of the European Union. The first issue is to answer the question, ‘To what extent do divestments by MNEs impact jobs?’ Previous works, especially statistical empirical studies, intend to answer the question of why MNEs divest, but pay less attention to the above question. This paper makes clear that the impacts of divestment on jobs are quite different from one case to another, whilst MNEs conduct divestments from both host and home countries, which is missed in previous research. Second, this research answers the question, ‘Why do MNEs divest?’ through precise examination of the narrative information offered by the RED. There are three reasons for MNEs' exits. (1) Some MNEs did not fully prepare for the investment beforehand, and had to face operating difficulty. This is not caused by ‘liability of foreignness’, but can be called ‘liability of unpreparedness’. (2) Changes of competitive and demand conditions surrounding MNEs force some of them to consider exits. These can be called ‘extra-firm factors’. (3) MNEs actively respond to new environments, and divestments are a part of this process. These can be called ‘intra-firm factors’. The third main question of this paper is, ‘How are divestments embedded in the context of the whole restructuring process?’ To address this question, restructuring methods other than divestments are also examined. Furthermore, MNEs are classified into four groups according to the combination of active or inactive job reduction and job creation. Among the four types, four MNEs are active in both job reduction and job creation. The details of their restructuring processes, including job creation, suggests that MNEs do not only adjust their workforces along with the demand cycle, but also enter new business areas. Through the investigation, this paper contributes to our understanding of divestments by MNEs.