Human capital of displaced employees; how is Human Capital affected by MNC subsidiary Closure?
By: Harmen Klaassen S1932748
MSc BA Strategic Innovation Management
Supervisor: Pedro de Faria Co-assessor: Isabel Estrada Vaquero
June 22, 2015
Word Count: 12082
Abstract
This thesis sets out to investigate the effects of human capital flows after MNC closure. While investigating this occurrence a contribution is provided to the current literature of MNC closure, knowledge transfer and human capital.
A case study approach was used to assess the impact that Cordis had on the human capital of its employees. Data collection was done by interviewing eight former employees.
The result show that in displaced employees from closed down MNC subsidiaries, employees were subject to regular reorganizations. Moreover, personal development played a large role. This benefitted the flexibility of the employees to a large extend. Moreover, the firm in which most employees are currently working was established with a similar culture that allowed for a relatively large portion of the social context that facilitated the productivity of the employees.
Lastly, a signaling effect of the good reputation of an MNC increases the value of human capital.
Contents
Abstract ... 2
1. Introduction ... 4
2. Theoretical Background ... 6
3. Methodology ... 10
3.1 Case selection ...11
3.2 Instruments ...12
3.3 Data Collection ...13
3.4 Data Analysis ...14
3.5 Building Propositions ...14
3.6 Comparing to existing literature ...14
3.7 Closure ...15
4. Results ... 15
4.1 Analysis of the interviews ...16
Interviewee 1 ... 17
Interviewee 2 ... 17
Interviewee 3 ... 18
Interviewee 4 ... 18
Interviewee 5 ... 19
Interviewee 6 ... 20
Interviewee 7 ... 20
Interviewee 8 ... 20
5. Discussion ... 21
5.1 Human Capital ... 22
5.2 Knowledge Asymmetry ... 23
5.3 Firm specificity ... 24
5.4 International influence ... 25
6. Conclusions and limitations ... 25
7. Bibliography ... 28
8. Appendices ... 32
Appendix 1 ...32
Appendix 2 ...32
Appendix 3: ...33
1. Introduction
MNC activity is studied extensively in the business literature. Yet, the focus is primarily on MNC’s entering host countries via foreign direct investment (Noorbakhsh, Paloni and Youssef, 2001; Blomstrom and Kokko, 2003). FDI is described as a company investing within the borders of another country in the form of a wholly owned subsidiary, acquiring another company or entering into a joint venture with another company (Moran, 2012).
Companies have identified that FDI activities can be profitable when a certain threshold of human capital in the host country is met. Through FDI, companies can access resources, labor and knowledge. At the same time, MNC’s supply the host country with financial wealth and knowledge (Bonetti and Masiello, 2014). To accommodate FDI, most governments compete for policies that create favorable conditions. However, as a result, companies also consider moving away from one host country to move to another (KPMG, 2012; Berry, 2013). Not much focus has been on MNC’s leaving a host country as a result of strategy realignment.
Divesting foreign direct investments has become a relevant topic as information and knowledge is more easily transferred to other geographical locations (Argote and Ingram, 2000). Moreover, Henderson (2001) identified that the trend of companies moving operations to other countries is present in Scotland, but in other countries as well. He identified that in Scotland, in the period between 1975 and 1980, there have been 30.000 jobs that have been divested as a result of MNC closure. In the Netherlands. Philip Morris, a cigarette manufacturer, closed its doors in 2014 after external pressures forced the company to re-evaluate its current strategy as cigarette consumption in Europe declined.
As a result, the amount of production plants decreased to improve efficiency. The closure of the plant meant that over 1200 employees were displaced. Also, in 2014, Tetra Pak decided to close a factory in the Netherlands. Displacing 215 employees. Moreover, in 2012, KPGM published a rapport regarding the current entrepreneurial environment in the Netherlands. The rapport concludes that almost 50% of the 100 largest companies in the Netherlands are considering to move their operations, due to a more favorable business climate in other geographical locations.
When subsidiaries close, it will impact the host country significantly. First, because the money that is earned in the host country will depart, the suppliers will lose a major customer and the customers have to find new suppliers. Also, when companies close down, many employees need to find employment elsewhere. In most cases, when companies divest their operations, this has a negative effect on the host country economy.
However, there are also upsides to MNC subsidiary closure. One of these upsides is the
knowledge that the employees in MNC subsidiaries are exposed to is not available to the host country. When employees are displaced and find employment elsewhere, the country and the new company can get access to the knowledge that the employee has accumulated.
On the individual level, displacement generally has a negative effect for the employees because they need to find new employment (Couch and Placzek, 2010; Kletzer, 1998).
However, in some cases, the effects of displacement can be small or even positive (Berry, 2013).
The human capital of an individual is a key aspect in understanding the effects of employee displacement. It is argued that the future earnings of an individual are directly related to the expected productivity of an employee (Spence, 1973). Moreover, as human capital is tied to a specific context, the productivity of an employee decreases in a new job.
The expected loss of productivity is caused by two factors. First, the knowledge, abilities and skills of an employee are tied to a specific firm or context. When the context changes, the human capital cannot be applied fully, therefore it is expected that employees will be less productive. Second, because the new employer does not have perfect information about the human capital of a potential employee, the new employer cannot perfectly predict the performance of the employee in a new position (Spence, 1973).
Sofka, Preto and de Faria (2014) found that there is a difference in the expected productivity of an employee when he has previously worked for a MNC or a domestic firm.
The results show that employees that have previously worked for a MNC will have a higher expected productivity in a new job than employees that have worked at a domestic firm. However, the authors could not determine why the employees from MNC’s were expected to be more productive in a new company.
The literature regarding labor economics and human capital still contain multiple gaps.
Human capital that has been accumulated in a MNC appears to be more valuable in a new companies. But, as only quantitative data has been collected, there is no proper insight in the context in which the human capital is transferred and more importantly, what unique aspects of human capital are MNC’s able to add that domestic firms cannot.
The goal of this study is to understand the unique contributions that MNC’s make to human capital of host country employees. This thesis will contribute to existing literature by closing the gap that was identified by Sofka et al. (2014) in the current literature.
Namely, what do MNC’s add to human capital that is valued in other firms. In order to understand the context of why and how this Human capital is positively affected in MNC’s,
a case study is conducted to understand how human capital is influenced in MNC’s specifically. For this study a large MNC in the medical industry is investigated that closed down.
This research will have implications for the current literature in labor economics, human capital and MNC closure. Moreover, the contributions made in this thesis will help displaced employees evaluate their strategy in finding new employment. Finally, the findings can be used as a tool for governments to better understand the relevant factors for displaced employees. This can aid them in adjusting the instruments for helping unemployed individuals. Moreover, MNC’s can also use this study to understand what the investments are that they do in the host country. MNC’s are not always fully aware of the unique strategic assets they have in a host country. Also, MNC’s can use the findings from this thesis to determine how their firm specific knowledge can be used in new firms after the MNC closes down. This is relevant because when subsidiaries close for strategic reasons, employees generally do not have restrictions for new employment and they can choose to work for a direct competitor. The human assets should be evaluated closely and the value can be high for a MNC. Finally, the findings of this thesis can function as a tool for managers to determine whether additional productivity can be expected from an employee over employees from domestic firms.
The main question that will be answered in this thesis is:
“How does the experience from working in an MNC subsidiary influence the future productivity in a new firm after being displaced from a closed MNC subsidiary?”
This question will be supported by multiple sub-questions which will be formulated as follows: What unique skills and knowledge do MNC’s add to human capital? How do MNC’s affect human capital in order for it to retain value after being transferred?
The structure of this thesis will be as follows: in the following chapter, the theoretical background will be elaborated upon and previous research will be extensively discussed.
Next, the methodology for this research will follow. Following the methodology, the results of the interviews will be discussed and anylyzed. Finally, propositions will be made that can be empirically tested in future research and the conclusion.
2. Theoretical Background
This chapter provides a comprehensive overview of the current literature regarding international business, labor economics and MNC closure. Foreign direct investment is a topic that is primarily researched in one direction, which is foreign direct investment into
a host country (e.g. Borensztein, Gregorio and Lee, 1998; De Mello, 1997; Blomström, Kokko and Mucchielli, 2003). However, MNC divestment is also present. MNC’s retreat from host countries on regular basis (Berry, 2013). Moreover, In the Netherlands, almost half of the top 100 largest companies are considering to move operations to other countries within five years (KPMG, 2012).
Governments believe that foreign direct investment is an important part of the domestic economy (Gorg and Greenaway, 2003). For that reason, Governments attempt to attract significant amounts of foreign direct investment using multiple methods. The goal of these methods is to increase welfare in the home country (Blomström, Kokko and Mucchielli, 2003). The countries want to stimulate knowledge flows that allow domestic companies to thrive (Alcácer and Chung, 2007). The policies that governments set are effective in attracting foreign direct investment (Hall and Jones, 1999), but the goal of the policies are not achieved because (1) MNC’s tend to benefit more from knowledge inflows than the host country benefits from knowledge inflows (Singh, 2007) and (2) the effectiveness of foreign direct investment is largely dependent on the absorptive capacity of the host country (Durham, 2004), which is determined, to a large extend, by the previous experiences with MNC’s (Cohen and Levinthal, 1990). As a result, welfare does not increase as much as intended and the host country cannot benefit from the knowledge (Feinberg and Majumdar, 2001).
MNC closure can have multiple motivations. The most common reason is financial performance (Berry, 2013). By this is meant that the financial performance is insufficient compared to the MNC standards, regardless of the domestic average performance. In other words, a subsidiary might be outperforming competitors in the host country. Then again, when another MNC subsidiary in another country can operate with a higher performance the aforementioned subsidiary is still underperforming with regards to the MNC benchmarks. Nevertheless, there are also other influencers that lead to MNC closure.
A predominant motivation for MNC closure is the reconfiguration of complementary assets (Chakrabarti, Vidal, & Mitchell, 2011). In this reconfiguration, assets can be released or adapted because the valuable resources for which a company operates in a host country are not sufficiently present (Kronborg & Thomsen, 2009) or because other MNC subsidiaries can perform the tasks with a higher efficiency (Birkinshaw and Hood, 1998). When financial pressure plays a role in divesting assets, the main focus is on increasing efficiency of the MNC (Bibeault, 1998).
When MNC’s enter a host country, many new employees are attracted. These employees accumulate human capital. Human capital is defined as the set of skills, abilities and
knowledge an individual possesses (Ployhart and Moliterno, 2011). This human capital of the employees is further developed at the MNC by performing their job. This includes knowledge that is unique to the MNC. When an employee accumulates more human capital it means that the individual has more abilities and possesses more knowledge. The human capital of an employee is closely related to the productivity as an employee that has more capabilities can perform more and harder tasks which can be perfected over time (Becker, 1962).
When MNC’s divest from a host country, its employees are forced to find new employment as the job disappears. It is important to make a distinction for different motivations for finding new employment. Specifically, employee displacement is relevant in human capital flows as a result from MNC closure. It refers to when an individual loses his job as a result of the position disappearing (e.g. plant closure) from a location for other reasons than performance (Kletzer, 1998). Employees that are displaced have no influence over maintaining their job as the productivity was irrelevant for losing their job. This distinction is important to make, because employees that suffer from poor performance have different implications in their future careers to which this thesis will not contribute.
The fact that the MNC closes, even though the performance was sufficient, sends a negative signal about human capital to future employers (Kronborg and Thomsen, 2009).
This is because the MNC’s assess the performance based on the different subsidiaries in the MNC while the performance compared to the host country can be vastly superior (Berry, 2013). Within MNC’s, subsidiaries compete among themselves to outperform other subsidiaries to absorb their activities (Birkinshaw and Hood, 1998). On the other hand however, the reputation of a firm can have a positive signaling effect about the human capital regardless of the performance of the subsidiary in the host country. Even when the performance is below the domestic average, the MNC subsidiary can provide a positive signal regarding the MNC (Rindova, Williamson, Petkova and Sever, 2005).
Human capital is not perfectly mobile. Therefore, the valuation of it is different for different firms. The motivation for this is because of two primary reasons. First, human capital is hard to define by employers as it is an asymmetric intrinsic measurement of the capabilities of a person (Chang and Wang, 1996). This means that the employee and potential employers are unable to accurately predict the future productivity of an employee. This in turn will create uncertainty which depreciates the value of human capital (Spence, 1973). The second reason is because human capital is, in most cases, tied to specific conditions and environments (Groysberg and Nanda, 2008; Kletzer, 1998). The skills and knowledge that a person learns in a job are added to the human capital.
However, they can very well be tied to specific machinery or the company culture. When the individual would perform the same tasks in a different firm the productivity will decrease due to the complementary assets that are required for the human capital (Helfat, 1994). These factors do have implications for employees that move from an MNC to a new employer in the host country.
In labor economics multiple studies have focused on employee displacement and there is a consensus in the empirical research that employees will generally suffer a decrease in future earnings after being displaced (Couch and Placzek, 2010; Kletzer, 1998). Human capital that is generated at an MNC consist of two segments, human capital that is firm specific and human capital that can potentially be transferred to a different firm (Kletzer, 1998). On the one hand, employees at a MNC have access to knowledge that can be hard to obtain in a domestic market. Moreover, empirical evidence has identified that knowledge flows prove to be easier within the borders of a country than beyond it (Audretsch and Feldman, 1996). This is explained by differences in the culture between the host country and the MNC (Kogut, 1991). However, MNC’s appear to form a bridge to the host country where knowledge can be exchanged efficiently internally (Kogut and Zander, 1993). This way, employees gain knowledge, abilities and skills that are generally not available in the host country.
On the other hand, not all human capital can be applied in other firms. The level of specificity is an important part of assessing the value of human capital in a different context. Tacit knowledge is hard to transfer from one firm to another, for this reason it is valuable in international business. Tacit knowledge provides an individual with the tools to solve new problems and to operate under new circumstances (Reber, 1989). Sofka et al. (2014) describe positions like this, for example, as managerial skills and the ability to lead international teams. Tacit knowledge can be transferred by an individual to a new firm to a certain extend. The limitation to this transfer is the context in which the skills can be applied and the complementary assets required to benefit from the skills (Helfat, 1994; Groysberg et al., 2008). Moreover, another limitation surfaces when the knowledge is tied to the social context in the MNC (Dokko, Wilk and Rothbard, 2009). Human capital that is unique and can be transferred to a new firm is therefore valuable. However, which factors play a role in the transfer of knowledge between firms is unknown. Mechanistic and explicit knowledge is easily codified. As a result, the knowledge is not specific to a firm but is it neither unique and therefore, not very valuable to a new firm, as new employees can learn these skills relatively fast (Lecuona and Reitzig, 2013; Balconi, 2002;
Hitt, Biermant, Shimizu and Kochhar, 2001). In sum, tacit knowledge such as managerial
skills of employees are valuable because they can be transferred and implemented in other firms. Mechanistic, explicit skills hold very little value, because the knowledge can easily be codified.
In the study of Sofka et al. (2014) it was concluded that employees that are displaced from an MNC will earn a higher salary compared to employees displaced from domestic firms.
As the earnings of an employee are a signal of the expected productivity (Spence, 1973), this implies that employees that have previously worked in MNC’s have more valuable human capital than employees that have not (Sofka et al., 2014). The reason why this is the case is currently unknown. A logical explanation is that the employees at MNC’s receive different types of human capital than people in domestic firms. However, uncertainty still exist in determining which aspects of the human capital generate more value for MNC employees.
To conclude, a lot of empirical research has attempted to uncover the value of human capital when it moves from one firm to another. There is consensus that there are losses to human capital when it moves to another firm and also that human capital is more valuable when it comes from an MNC. However, currently the literature is unsure why human capital from MNC’s is more valuable than human capital from domestic firms. This case study sets out to investigate why human capital has more value when it is generated in an MNC and how the human capital from the MNC is used in the new firm.
3. Methodology
The aim of this thesis is to gain a better understanding about the factors of human capital, relevant to being transferred from a closed MNC subsidiary to a different firm. More specifically, what aspects of the human capital from MNC employees are perceived to be valuable, that explains why these employees have a higher expected future earnings than employees that originate from domestic firms (Sofka et al, 2014). Currently, there is no detailed literature on factors of human capital that flows from closed MNC subsidiaries.
There is evidence that supports that MNC closure does not always influence future remuneration negatively (Berry, 2013). However, currently there are gaps in the literature that can only be filled with qualitative research. Therefore, this thesis will focus on the theory development in the area of human capital flows, by conducting a case study research on a MNC that has closed down. This form of research is the best option as the influences of the multiple factors are far too complex to measure with quantitative research. Moreover, an understanding about the context of human capital flows is necessary, something a case study is well suited for. A quantitative approach cannot
analyze the data to such a degree that reliable data could be produced that can lead back to novel insights. Moreover, as the research questions focus on “how” and “why” there are influences on human capital, a case study approach is a reliable type of research (Yin, 2013).
This case study will maintain its reliability by using the eight steps of the process for theory building by Eisenhardt (1989). Using multiple processes in a case study research is often ill advised as the reliability of the research will be compromised (Yin, 2013). This process will also lay out the structure that the thesis will follow. In the introduction the research question was introduced along with supporting questions to allow us to gain an understanding in the mechanics that are relevant in human capital flows.
3.1 Case selection
The thesis will perform a case study research on a single case. The selected company for this research is Cordis, a company that develops and produces medical devices. The company was a MNC subsidiary active in Roden, The Netherlands from 1968 until 2008.
In 1996 the company was acquired by Johnson and Johnson. The impact of this takeover on the operations of Cordis had a significant impact on the management of the subsidiary.
First, it released 460 employees after a major reorganization in 1999 and another 460 employees in 2005. In 2008 the subsidiary in the Netherlands shut down due to efficiency motivations. Production was moved to Mexico where labor is cheap, distribution moved to Belgium and the R&D department moved to Miami.
The motivation for selecting Cordis as a case specifically, is due to multiple reasons. First, the company is in a close proximity that allows for better access to information. Second, the company was controlled, to a large extend, by the headquarters in America. Therefore the international influence can become more visible. Third, the company consisted of multiple departments with varying links to the MNC. Therefore, information can be gathered on multiple levels to gain insight how human capital is accumulated on different levels. Finally, as the data collection will mainly rely on interviews with displaced employees, it is important to control for as many characteristics as possible to achieve higher internal validity and reliability. Therefore, no bias will emerge between the different companies. Cordis left approximately 800 people unemployed after retreating from the Netherlands and each one of these people can potentially have knowledge that contributes to understanding why human capital from MNC’s is generally more valuable than human capital generated in a domestic firm. Therefore, this study will investigate the careers of eight individuals who have lost their jobs after Cordis closed down. Six of
the eight individuals are currently employed by the same employer and the remaining two people are employed at a local hospital. With this approach, most factors of the individuals are equal while others differ. This is where ultimately the differences in the context can be identified. Also, by including two individuals that are employed at another company, triangulation is used to determine whether it is only one company that might be different or whether we find similar results from multiple companies that the employees are currently working at. Within the interviewee selection at Cordis, the goal was to collect data from individuals with varying backgrounds, experience and positions.
Having a diversity in the interviewees will help to find results during the study that will support the propositions with a higher level of reliability due to firm variation (Eisenhardt, 1989). Additionally, an interview with the hiring managers of the firms would increase the validity of the research further. However, resource and time constraints make this difficult, as well as the privacy of employees that needs to be respected.
3.2 Instruments
There are no methods to gain insight in the individuals who have previously worked at Cordis. This is because (1) there is no data regarding Cordis employees in the Netherlands anymore and (2) because the data is confidential, it cannot be handed over when requested. The tool used to get access to the individuals previously working for Cordis is LinkedIn, a professional oriented social network. On this network members post their occupation and previous experiences. Due to filters that can be applied, a list could be extracted of all people working at Cordis until 2008 and are currently working at another firm. In total 197 individuals could be identified. Unfortunately, LinkedIn does not have a messaging system that is suitable for requesting participation. For that reason the current employers of employers were contacted and asked if they could internally forward a message that was intended to allow people to respond in case they wished to collaborate.
Moreover, the data of all 197 employees that could be identified via LinkedIn were collected in an Excel sheet that will provide some quantitative measure in the later stages of the research. The data collected includes: Tenure duration at Cordis, positions taken at Cordis, time unemployed, new employers and positions, education and whether the new firm is an international firm or a domestic firm.
The initial data will also be used for triangulation purposes in the analysis to determine whether other companies have similar effects on human capital. This will be done by comparing the positions they have fulfilled in the past to the position they are currently
at (e.g. the type of firm and the size). The relevant characteristics of the employees will be compared to other employees. This way additional patterns that occur can be revealed.
This combines the qualitative data from the interviews with the quantitative data that is available via the social network. In most situations a case study is perceived as a qualitative research method but this is not always the wisest decision as reliability can be increased by combining qualitative and quantitative data (Eisenhardt, 1989).
After the initial data collection, a pool has been created from which individuals can be selected. As previously mentioned, LinkedIn does not provide personal information as it is a social network. For this reason, a selection was made based on the amount of employees working for each firm. Six firms were identified that hired five or more Cordis employees that lost their job in 2008. Contact was sought with all six of these firms to ask for cooperation. Three of the firms that I approached responded positively and forwarded the request as intended. After the initial request, eight people responded positively.
In order to collect the data for the case study, single session in-depth interviews were conducted. These interviews are semi structured. There were predetermined questions that needed to be asked during the interview. However, many questions needed to be formulated based on the answers of the respondents. This allows for a more thorough approach during the data collection phases. All of which took place at the current location of employment to generate a more familiar atmosphere in which interviewees tend to open up more. Also, as the research will be made public the identities of the interviewees remain anonymous. The reason for this is primarily their privacy. Moreover, many of the interviewees know each other which might make interviewees unwilling to answer the whole question (Ritchie, Lewis and Elam, 2003).
3.3 Data Collection
The data was collected in four sessions. The main firm was visited twice for in total six interviews. Conducting many interviews at once has both downsides and upsides. An upside is that when the interviews are in a small timeframe the information given by the previous interviewee are fresh. This helps in the overlap between data collection and data analysis. It is desired that there is a significant overlap between data collection and analysis to allow for more flexibility during the data collection process (Eisenhardt, 1984;
Harris & Sutton, 1986). For this reason it is also important to transcribe the interviews as soon as possible after the interview to allow for a better analysis. According to Eisenhardt (1989), altering the research by adding questions is supported during theory building research. This is because it allows for a deeper understanding. For this reason the questions differ somewhat between the interviewees. Also, the order in which questions
were asked are different for some of the interviewees. All transcripts from the interviewees are added to the thesis in appendix 1.
3.4 Data Analysis
The data that is collected for the case study is extremely large. The transcripts combined were approximately 60 pages. Analysis from a data source that large is quite complex. For that reason it is important to systematically approach each interviewee to allow it to be compared. The focus will be on the skill that Cordis added to the human capital, what part of the human capital is valuable for the new employer and how the knowledge from Cordis is currently used. For this reason, notes have been made during the interviews to emphasize important aspects of the data. These notes will be used as the within-case analysis tool (Eisenhardt, 1989; Burgelman, 1983).
After all data is collected the data is analyzed using an inductive method where every interview is summarized to generate a comprehensive set of facts from the raw data. After the data is simplified, the data can be analyzed easier and patterns can become more visible. As a final step a framework is created that produces propositions that will help us to understand more about human capital of displaced employees (Thomas, 2006).
3.5 Building Propositions
After the data analysis the focus will be on new propositions that can be build and tested in future research. Based on these eight interviews it is impossible to make generalizations. Not enough empirical data has been collected to generalize the effects.
However, propositions can illustrate areas of research that play a role in human capital flows. In order to reach valid propositions the data must be closely linked to the analysis and literature. As a result, the propositions can be created with a high reliability. After propositions are made, they need to be checked against the data. The requirement of all propositions made is that the propositions fit well with the studied case (Eisenhardt, 1989). This will give insight on when an occurrence holds and then the influence is not present.
The created propositions are formulated so that they can be tested used quantitative methods in research in the future.
3.6 Comparing to existing literature
In this stage the findings of the case study are compared to existing literature. As the paper of Sofka et al. (2014) is a similar study based on quantitative data from the Portuguese market, the gaps identified are attempted to be filled. Moreover, the case study’s goal is to produce explanations why human capital from employees that have been
displaced by MNC’s is valuable. Existing literature has only made guesses to the explanations for the added value. However, these guess can be compared to the case study to determine whether previously made assumptions are correct.
By comparing the findings of this case study with other findings from other research the internal validity and generalizability will be increased. Moreover, the synergy between multiple researchers may inspire future research.
3.7 Closure
In this case study, the number of displaced employees to be studied was set before going into the field. This was done due to resource and time constraints. Moreover, it was predicted that the eight selected individuals would provide a sufficient bases on which theoretical saturation would be approached. Also, complexity played a role that would make the analysis extensively more difficult.
Theoretical saturation as defined by Glaser and Strauss (1967) is impossible to predict perfectly beforehand as it is the point where the impact of new interviews does not significantly impact the research findings anymore. As time constraints were set, the approach to reach out to as many people as possible in a short amount of time was more efficient and the interviewee selection afterwards proves to be sufficiently diverse for the research.
This approach will also be used during the iteration process between the collected data and the theory. When comparisons do not provide significantly novel insights to the theory the analysis will seize and result will be presented (Eisenhardt, 1989).
4. Results
A total of eight interviews have been conducted that will be analyzed in this chapter.
When the interviews were conducted, they have been transcribed and codified as soon as possible. This is important as the audio recordings do not have perfect capture features and if the process takes too long, meaning in the words can be overseen.
As predicted by previous literature, the impact of MNC closure has been primarily negative. However, most employees feel they have improved their work satisfaction. All employees have identified that the experience they have built at Cordis was an enabler for their current employment in one way or another. This chapter will assess the results of all the interviews and it will compare these. All data will be summarized and the important implications are discussed. After the interviews have been summarized, a
better insight is possible to build an explanation why employees from MNC’s suffer less from displacement.
4.1 Interviews
This subchapter will provide a comprehensive overview of the relevant aspects that were identified for all interviewees. In particular, the attention will be on the knowledge and skills that Cordis added to the individuals’ human capital, the knowledge that is required in their current job and the knowledge from Cordis that is currently applied in the new firm. A summary of the individuals will be visually presented in table 1 below. In table 2 the results of the analysis will be briefly summarized.
Table 1: interview summary
Position Cordis: Current position:
1 - Started in product development.
- Also moved to other
departments such as validation.
- Last position was as senior technician.
- Currently works in a local hospital and worked at a blood supply company in between.
- The current position is as a medical instrumentation employee.
- Job description is completely different from Cordis
2 - Started as product engineer.
- Moved to manufacturing engineer, project leader validation engineer and committee member for IT and quality related initiatives.
- Last position was as supervisor facilities.
- Currently works at a local hospital.
- Current position is manager facilities and maintenance.
- Job description is similar but with much less responsibilities.
3 - Started as administration assistant.
- Moved to multiple department in the same function
- Currently works in a medical firm.
- Current position is management assistant.
- Job description was similar until 2012 when the board changed a lot.
4 - Started as process engineer.
- Moved to R&D as engineer.
- Last position was as senior engineer.
- Currently works in a medical firm.
- Current position is senior engineer.
- Job description is similar but more responsibilities.
5 - Started as clinical researcher.
- Moved to Regulatory Affairs in
’98.
- Currently works in a medical firm.
- Current position is QA/RA manager.
- The job description is somewhat similar but there are a lot more responsibilities.
6 - Started as assistant engineer.
- Moved to R&D.
- Last position was as staff engineer.
- Currently works in a medical firm.
- Current position is as senior engineer.
- Job description is similar but more freedom currently.
7 - Started in production.
- Added processes in later stages.
- Last position is as principal technician.
- Currently works in a medical firm.
- Current position is as Engineer R&D.
- The job description is similar but much broader.
8 - Started as project manager.
- Last position is as senior PD engineer.
- Currently works in a medical firm.
- Briefly worked at a different firm.
- Job is different but in the extension.
interviewee 1.
After Cordis, the first interviewee moved to a major hospital. The hospital is much larger than Cordis in terms of employees. At the hospital, approximately 12.000 employees are currently working. He worked in multiple departments at Cordis. Examples include product development, production and validation.
The employee was trained by Cordis to be very versatile and he was aware of all the different functions that were present in developing catheters. The knowledge that was built during the tenure was very versatile and not restricted to one position at all.
Other skills that developed during the tenure were related to cooperating with many different people from different departments. Moreover, Cordis offered many courses for personal development. These courses were continuous and every quarter there was a whole day dedicated to updating the personnel to the latest quality standards. These were taken seriously by Cordis and helped the employees be flexible in their position. After Cordis he offered support during audits because of his experience with audits. His knowledge was valuable there because he has a lot of experience in quality from working at Cordis. Moreover, the good reputation that Cordis has was a positive signal to new employers.
Even though the current position of the interviewee is completely different, the experience from Cordis did support the hiring process and the technical insight he has established gave him an edge.
interviewee 2.
The second interviewee currently works at the same hospital as the first interviewee and are therefore the only two people employed there from this research. There was quite a bit of growth and diversity in the activities at Cordis. He started as a product engineer and moved from there to manufacturing engineer, project leader, and validation engineer to eventually become the facility manager. In the meantime there were also activities towards the global IT committee where there were also meetings and initiatives towards Cordis.
The skills that were added at Cordis were primarily the English language. Also, the communication skills to interact with people from different countries and towards strategy were added. In sum, a wide variety of positions were occupied and a lot of knowledge could be accumulated at Cordis. In terms of education they were supported by green belt trainings too.
The position that was taken after Cordis closed down was in a similar area but on a different level. Even though he needs to manage many more people the responsibilities are much smaller now because there are other departments that take over actions. In the current job the skills that are important are mostly related to managing people as it was at Cordis but also knowledge about technology is relevant:
The international aspect of Cordis doesn’t appears to influence in the current job as the hospital. It is very locally oriented. However, the fact that the previous employer was Cordis did seem to give a signal to the employer. Moreover, the employees from Cordis seem to be quite in demand because of the reputation effects.
interviewee 3.
Interviewee 3 until 8 currently all work in the same firm. The firm operated in the medical industry and develops and produces catheters for the market. The origin of the company was also in Cordis.
This interviewee worked as a secretary at Cordis. Working in the administration to create schedules and to support the departments he worked at. Cordis reorganized quit frequently and the teams stayed together for a large part but they changed the department on a regular basis. Also, in terms of personal development there was a lot of attention. The courses Cordis provided were also a means to allow a person to feel as comfortable as possible in the position he was working in and also keeping people flexible was very important. The culture that came from the American management really came through in the way that the people worked at Cordis.
When he moved to the job at the current company the director was already familiar with him and the profile fit. Primarily, the background was relevant for the new firm, they were aware of his capabilities so the risk was small. Even though he feels the name does help, the influence is not present for this employee.
The new position is quite different currently, but at the beginning it was similar. However, the tasks that needed to be done were much broader. Because of that, many new skills needed to be learned that were not present at Cordis.
interviewee 4.
This person started at Cordis as a process engineer via another company. When Cordis took over the contract he moved to the R&D department where he started at the position engineer 1 and developed to senior engineer at the end. The same position he currently has in the new firm. The activities during the tenure did change significantly.
The courses that were offered aided this development plan from Cordis and the versatility of the employees played a key role. This employee worked in many different departments to gain an understanding in how they operate and how they set priorities.
When the company closed down he was working on a PTA project, that project moved to the firm he currently works at. So the knowledge from Cordis was extremely relevant.
With this employee, multiple other employees moved to the new company. This meant that a lot of the culture also moved along with multiple people joining the company. The factors that really made the difference were the company, the size, the name and the quality it offered.
In the current situation not much has changed at all, the work methods and procedure all moved with the people starting to work at the new firm. It was a different company but the products were still developed for the same company.
In conclusion, the methods of working and the environment did not change a lot for this person. Except, there was a bit more freedom and there were some additional responsibilities.
interviewee 5.
Interviewee 5 is also currently working at the smaller sized medical firm. The tasks that were performed at Cordis were first as a clinical researcher but when a demand for regulatory affairs developed the company moved him towards this department to specialize in registration and documentation in order to obtain the required certifications. Additional responsibilities were regarding the development of the quality system, auditing and developing new processes. The job is quite unique as it is difficult to find people that are able to do it, but there are no courses for it. That created quite a unique position. Many companies wanted access it. Unfortunately, most firms are unable to find people that could do it. Therefore, it was not hard to find new employment and Cordis did contribute significantly as they were the company that provided the experience and knowledge to do it.
Using the skills the added value for the new employer became evident quite quickly too, as the quality level of a relatively small company is relatively high.
In sum, the work is similar but there are no more supervisors and own initiative is needed.
The quality remained the most important and the knowledge of Cordis is used extensively.
interviewee 6.
This employee started at Cordis as the assistant of an engineer and managed to get promoted to the highest level of engineers at Cordis. From his background the production department for support at the beginning and was in communication with the drawing room. At this point in time there was not a R&D department at Cordis yet. But the positive evaluations invited growth and he was able to climb to the R&D department.
In the last position at Cordis he developed custom made products that were not designed for the market. Cordis was a source of new knowledge and resources for him that allowed development quite rapidly. For example, when he started at Cordis he had no knowledge of the human anatomy.
After the closure he had multiple patents with his name on them and multiple offers to choose from. He was never really worried about new employment as he was well educated and the personnel in the medical industry is limited. Cordis had a positive influence on that for the knowledge that was accumulated. The work is not very different and almost all of the knowledge from Cordis can be applied in the new position. The patents are not believed to make a large difference in the current firm, but the capabilities are still evident and the firm benefits greatly from the knowledge.
interviewee 7.
Interviewee 7 was active as a production and process manager and for this employee there was a lot of diversity during the Cordis period. The main difference between the position he currently has and the position at Cordis is that the responsibility is not was a small part of the catheter but for the whole product. Also, at Cordis there was a lot of attention for further education.
As Cordis was a multinational firm, it was expected that employees were able to benefit from more opportunities. Moreover, the reason why this knowledge was relevant was because the current company was developing the same product he had a lot of knowledge about. Because the job is very similar the knowledge from Cordis is still used every day to develop Catheters.
interviewee 8.
The last interviewee was primarily active in management positions at Cordis. Any issues that project managers would run into were directed at him, along with manual tasks that needed work. Many new skills were taught via Cordis in the form of courses. This leads to why Cordis was so valuable in the career of this employee. The quality standards were
identified to be incredibly high. For that reason the performance in the new position was also a step higher than those of new colleagues. It was not just the courses at Cordis that created this, it was also the culture that had a large influence. Also, the quality system that is implemented here is the same as what was used at Cordis so the knowledge I have can be used in this firm without too much trouble.
In conclusion, the education that Cordis invested in was very relevant in the current job still. The human capital doesn’t seem too much tied to the firm but when so many employees moved to one firm the culture that was present at Cordis does move to the new firm.
Table 2: Overview over relevant factors
Present at Cordis: Currently relevant in job:
Type of Human Capital
- Many trainings and courses were given.
- Contact with many different people.
- Technical knowledge.
- High quality thinking and work.
- Much of the knowledge from the courses is used (1,2,3,4,5,6,7,8).
- Soft skills are used currently (1,2,3).
- Technical knowledge is relevant in the current job (1,2,3,6,7,8).
- Quality of work is important (1,4,5,6,8).
Reputation Signals
- Good name.
- Opportunities offered. - Benefit from the reputation and name of Cordis (1,2,3,6,7).
Transferrability - Regular
reorganizations.
- Working with many different departments.
- Increased flexibility (2,3,4,5,6,7,8).
- Knowledge about how the firm works (3,4).
International influence
- Learning english.
- International contacts.
- Working in a large firm.
- International aspects are currently used (6).
5. Discussion
This chapter will focus on answering the research questions that were posed in the introduction and developing propositions for future research. As the interviewees provide insufficient evidence to generalize findings, it is possible to provide areas for future research.
The research set out to fill the gap to understand why and how human capital of employees is affected differently after being displaced from a firm retreating from a host country (Sofka et al., 2014). The primary conception is that this has negative effects on
the host country as a lot of money that is generated by the firm will no longer be generated (Kletzer, 1998). In the case of Cordis, 800 people lost their job because of a strategic decision. The reason for leaving the country was based in economic grounds. As a result, many people needed to find new employment.
The knowledge that was accumulated at Cordis flowed into the host country. As a result, at least three companies were established that were founded by Cordis employees. Other employees flowed to other companies. In all of the interviews the primary reason for finding a job is because of the experience and knowledge that was accumulated at Cordis, in combination with a network of people. Education had no visible effect on the job opportunities of the employees, as experience and certifications proved more relevant.
5.1 Human Capital
Cordis made sure that the employees had opportunities to develop themselves:
I did more courses, at some point I needed to investigate patents, so I had a training for that. I also took a management assistant course for 2 years in the evenings, they paid for everything. They were a good employer for personal development.
[Interviewee 3]
In my case they made sure I worked on different departments, so as senior engineer I worked on the QA department and on RA to gain a full picture of what the departments pay special attention to. [Interviewee 4]
Moreover, the MNC educated its employees regularly and structurally to remain up to par with the standard:
Many of the courses were mandatory that were related to quality. You needed a green belt for that, lean engineering. [Interviewee 1]
A pattern was identified that the position in which an employee works, has a large impact.
When the new job is similar compared to the old position in terms of responsibilities, it seemed that the employees were better off than those who did not, as they were able to transfer a lot of the knowledge and skills (Kletzer, 1998):
I use the [technical] knowledge from Cordis every day. [Individual 7]
The quality system is similar to Cordis, so I could use my existing knowledge.
[Individual 8]
Especially the contact properties and the technical insight and experience were relevant for the current job. [Interviewee 2]
The networks that were established during the tenure were irrelevant in the new job and no pattern was identified (Sofka et al., 2014). It is still possible that they exist, but the study did not uncover any relevant aspects. Moreover, the personal network of colleagues proved to be very useful for most displaced employees:
The whole team was approached by this company, most chose a different firm but I chose this firm. [Individual 4]
I knew the director here and I had the profile of what they were looking for.
[Individual 3]
To summarize, the personal network did aid in finding a new suitable position. However, the professional network of customers and suppliers was not visible (Dokko and Rosenkopf, 2010). Therefore, I propose:
Proposition 1: for displaced employees, the technological knowledge that is accumulated at a MNC is more valuable and relevant than relational knowledge.
5.2 Knowledge Asymmetry
From the interviews, it appears that none of the current employers were worried about the productivity of the employees in their new functions. For the individuals that currently work in the hospital, the responsibilities are quite different. The reputation of Cordis and the knowledge that was accumulated appeared to be very valuable in the new firm (Kronborg and Thomsen, 2009; Berry, 2009):
Cordis had a good reputation in business [Individual 1]
I don’t know if it was the case for me, but many companies wanted Cordis people because of the good reputation [Individual 2]
Moreover, the other six interviewees found themselves in a firm that was established by Cordis employees. The culture that the company created is very similar to that of Cordis in terms of work methods and therefore it seems as if most employees feel like they currently work in a smaller version of Cordis (Dokko et al, 2009). Meaning that the culture is similar but the resources available are less and more responsibilities are taken by the employees (Groysberg et al., 2008; Kletzer, 1998):
It was as if Cordis continued here. [Individual 3]
They asked me because they know me. I had worked previously with the project leader. They worked at Cordis since before I came there. I have worked 24 years with them and that was familiar and trusted. They knew what I could contribute.
[Individual 6]
Overall, the asymmetry that is expected between the employer and the displaced employees seemed very small, this will lead to less uncertainty (Chang and Wang, 1996).
When the data is compared to the initial data set from the Excel sheet, 44 of the 197 employees that were identified are currently working in quality related departments and validation. Additionally, many more have consulting positions.
To summarize, it seems that when displaced employees are more visible and employers have a better understanding of what the employees are capable of and the reputation of the firm decreases the risk of asymmetry. Specifically, I propose:
Proposition 2: Displaced employees from MNC’s are valued because the reputation of the firm helps in decreasing the risk of hiring.
5.3 Firm specificity
During the interviews, it was revealed that the employees were not educated in only one discipline. All employees made progress during their tenure duration and moved to different departments to learn and contribute with their knowledge:
I gained many skills at Cordis, project management; we were all educated in the design, lean engineering, DFFS and statistics. [Interviewee 8]
There was a lot of variation, one day you worked on a balloon catheter for cardiology and the next day you installed marking ribbons on the catheter so the doctor could see where it was and the next day something else again. [Interviewee 7]
This allowed the employees that worked at Cordis to operate with high flexibility, they were able to adapt to new situations and manage different types of departments and committees (Brown and Duguid, 1991):
At a certain moment we became incredibly flexible because every year something changed. We had to get used to it at the beginning but that was the way the business worked. It was quite American. [Interviewee 3]
This prevented the knowledge and abilities to become too rigid as they used the knowledge in multiple different ways. This resulted in a situation where, even though the skills might be connected to the firm on a social level, the employees are better equipped to cope with change and adapt to a changing environment (Reber, 1989; Helfat, 1994).
Therefore I propose:
Proposition 3: Displaced employees from MNC’s are experienced and properly equipped to cope with a quickly changing environment.
