When a local economy was buffeted by two or three crises striking simultaneously, there was even more of an impact on subsidiary sales. After dual shocks, the authors found that exports to the rest of the world (again, excluding the U.S.) jumped substantially—by 4.9 percentage points the year following the shocks and 5.6 percentage points two years after. (The additional increase was marginal in the case of triple crises. Why dual shocks had a bigger impact than triples is not explained.) Furthermore, preceding either dual or triple crises, local sales were several percentage points higher, showing that subsidiaries made a determined shift toward the global market in anticipation of turmoil on the domestic front.
Taken together, the authors write, the results support their theory that financial upheaval increases the value of “across-country” growth over “within-country” development, as multinational firms can exploit their ability to shift resources and target different markets. In the best of times, subsidiaries are designed to operate as a foothold for future growth in local economies, but when those foreign markets stumble and their demand temporarily dries up, multinationals can redirect their production facilities toward international exporting.
In other words, managers at multinational firms would do well not to panic during times of financial discord. Instead of ordering layoffs or plant closings in the face of lower local demand, managers should call on other subsidiaries in their corporate network to determine where else their products might sell and then assist with the distribution. Differentiating between types of crises, and determining whether the local economy is in store for a multipronged set of downturns, can also help managers implement the right plan.
“Rather than initiating a long-term strategy change aiming at a termination of local operations,” the authors write, “managers can use the multinational’s network to immediately assist subsidiaries in [crisis]-stricken locations, thus retaining local labor and maintaining their commitment to the local community in difficult times.”
When economic strife hits, the global operations of multinationals are an asset that allows them to shift their focus from troubled domestic fronts to more robust foreign markets, in effect mitigating the risks plaguing a specific country or region. Particularly when more than one type of financial crisis strikes at the same time, export sales from the affected area tend to increase, thanks to the flexibility of the multinationals’ production capabilities and target markets.