Multinational Subsidiaries That Shut Down Can Be a Major Resource for Entrepreneurs
Startups that scale need high-quality talent in their first years, but often have difficulty competing with larger, established firms. A recent study shows that when subsidiaries of multinational corporations (MNCs) shut down, professionals at the closed subsidiary become much more likely to join an entrepreneurial company.
MNC subsidiary closure rates can reach 20 percent during the first five years of subsidiaries’ operations according to studies reviewed by the report, which often has detrimental effects on the countries where they operate. The report analyzed over 60,000 MNC professionals in Portugal to identify where MNC subsidiary closures can actually provide interesting opportunities for local entrepreneurs.
- Professionals at MNCs are twice as likely to join local entrepreneurial firms when the subsidiary where they work shuts down. According to the study, professionals at MNCs are about 22 percent likely to work at young entrepreneurial firms in their next job. When the branch where they are employed closes, this likelihood almost doubles to 50 percent.
- MNC professionals with entrepreneurial experience are even more likely to work at entrepreneurial firms after a closure. Professionals who were business owners for two consecutive years in the ten-year period before joining the MNC were much more likely to work at younger entrepreneurial firms following a closure. These are the professionals that the authors especially recommend that entrepreneurial firms try to recruit.
- MNC professional are less likely to move to a young domestic firm if there are many job opportunities available with other MNCs, i.e. if there is a high concentration of MNCs in the region. This has an important implication, namely that entrepreneurial firms can be a critical source of employment in economies that are heavily reliant on MNCs and are especially hard-hit by a branch closure.
The findings have interesting implications for entrepreneurial communities. First, this strategy can mitigate the negative effects of an MNC subsidiary closure, especially in economies that rely heavily on the jobs they create. Second, this allows entrepreneurial companies to access high-quality talent they would not otherwise be able to attract, which in turns increases their performance and their ability to hire even more.
A third implication ties to previous research by Endeavor Insight, which shows that founders with more combined work experience, especially at firms that have scaled, are more likely to scale their companies themselves. By this logic, MNC subsidiary closures can also be a source of professionals who are set up to succeed as entrepreneurs.
The full study can be accessed here.
Contributed by Maha AbdelAzim