Closure of multinationals

In recent decades, the subsidiaries of multinational enterprises (MNE), i.e. companies where part of the share capital belongs to a parent company with foreign capital, have become fundamental pillars of the host country's economy. The closure of a subsidiary can entail huge losses, both in financial terms and in terms of prestige for the company, as well as significant problems for both workers and communities as a whole.

Let’s take the example of Rohde in Portugal, a German subsidiary operating in the footwear sector. The company had been in Portugal since 1984 and its production was export-oriented. Rohde had two factories, one in Santa Maria da Feira and the other in Pinhel. It also had five stores of its own: four in the north and one in Lisbon.

The company ended up closing its production facilities in Pinhel (in 2006) and Santa Maria da Feira (in 2010). In Pinhel, Rohde had more than 700 workers and, when it closed, the plant employed around 370 people, which represented approximately 16% of the municipality's working population. In 2010, the closure of the Santa Maria da Feira plant led to the loss of approximately 970 jobs.

This case sparked controversy as the subsidiary had received several grants in the years leading up to this, including a grant of 1.4 million euros from the European Globalisation Adjustment Fund (EGF).

Very few studies, however, investigate the consequences of MNE subsidiary closures on the host country. This study by Fundação Francisco Manuel dos Santos aims to fill this gap: understanding the factors behind the longevity of MNE subsidiaries is essential, not only for the employees of the subsidiaries, but also for the MNE managers who make large investments and for the political decision-makers who are faced with the consequences of closure.

To this end, it summarises three empirical studies carried out by a team of researchers from a number of universities on the closure of multinational subsidiaries in Portugal:

• a first study on the effect of initial human capital strategies when multinational companies set up in Portugal;
• a second study on the effect of MNE closures on young Portuguese companies;
• a third study on how the performance of multinational company subsidiaries is affected when their managers have experience as entrepreneurs.

The aim of this study was to understand what effects this phenomenon has and what positive and negative marks it leaves on former employees, on companies operating in the same region as the closed subsidiary and on the very regions where multinational companies are most represented. This was the contribution of FFMS to in-depth knowledge of this reality in the Portuguese economy.