An empirical study of the mediating model for downsizing strategies

Until now, many studies have focused on some patterns of downsizing performance and survivor's syndrome. An early stage of those studies tried to identify what is the downsizing syndrome. In the later stage, some researchers explored the relationship between downsizing practices and results. However, those studies have not sufficiently analyzed the integrated causality of downsizing. Academic sphere just only focused on the survivor's syndrome or empirical evidence such as financial performance. On the other hand, business societies recognized downsizing as an unavoidable decision, and tried to establish the strategic road-map for successful downsizing. Therefore, an integrated perspective in the downsizing research is very important for business society to develop the practical road-map, to solve the related problems, and to secure the downsizing performance. This paper approaches the downsizing strategy as a mediating model in which DPM(Downsizing Process Management) mediates between PMD(Pre-stage Management of Downsizing) and PDR(Post-Downsizing Response). To investigate the mediating model of downsizing strategy, this paper selected the Korean automobile industry as a research population. The automobile industry has been directly affected by the global economic downturn. Korea is no exception. It is widely recognized that the automobile, semiconductor, and petrochemical industries are expected to be the core targets for downsizing. In fact, the automobile industry is one of the most vulnerable sector during the global financial crisis. Currently, Hyundai Motor shut down one major plant due to a lack of orders. With carmakers cutting production, parts manufacturers are having trouble. At namdong industrial complex in incheon and national industrial complex in gunsan, nearly 600 businesses suspended operations temporarily, leaving 10,000 workers at home. Now, downsizing and restructuring are inevitable situation in the Korean automobile industry, especially auto parts manufacturers. A total of 500 questionnaires were sent out and 226 were returned. Excluding 26 invalid questionnaires, 200 valid responses were received. By testing the causality of mediating model based on LISREL, hypotheses 2, 3 are supported, and hypothesis 1 is rejected. These results suggest that DPM plays an important role in the situation of post-downsizing. The empirical results are consistent with Flint(2003), Allen et al.(2001), and Band & Tustin(1995) that downsizing process management is beneficial in the downsized organization. Also, PMD has a significant effect on DPM. This is an important finding since it varies from prior studies that regarded both PMD and DPM as a similar variable. The causality between PMD and DPM is a core in the downsizing strategy. In summary, PMD must be reprocessed, and needs to be verified by the DPM. In conclusion, this paper demonstrated the mediating causality of DPM between PMD and PDR.