ihrm chapter 09

8/8/2019 IHRM Chapter 09

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Use with International Human Resource Management ISBN 1-84480013-XPublished by Thomson Learning Peter Dowling and Denice Welch

Chapter 9

Industrial relations


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Chapter objectives

Discuss key issues in industrial relations and the policies and practices of multinationals.Examine the potential constraints that trade unions may have onmultinationals.

Outline key concerns for trade unions.Discuss recent trends and issues in the global workforce context.Discuss the formation of regional economic zones such as theEuropean Union.

The focus of the preceding chapters has been on managing andsupporting international assignments, post-assignment and theissues in subsidiary operations. In this chapter we:


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Introduction (cont.)Schregle has observed:A comparative study of industrial relations shows that

industrial relations phenomena are a very faithful expressionof the society in which they operate, of its characteristicfeatures and of the power relationships between differentinterest groups. Industrial relations cannot be understoodwithout an understanding of the way in which rules areestablished and implemented and decisions are made in thesociety concerned.(cont.)


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Introduction (cont.)Poole has identified several factors that may underlie thesehistorical differences: the mode of technology and industrial organization at critical stages of

union development methods of union regulation by government ideological divisions within the trade union movement the influence of religious organizations on trade union development managerial strategies for labor relations in large corporations.

(cont.)


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Introduction (cont.)Union structures differ considerably among Western countries.These include industrial unions, which represent all grades of employees in an industry; craft unions, which are based on

skilled occupational groupings across industries; conglomerateunions, which represent members in more than one industry;and general unions, which are open to almost all employees ina given country.(cont.)


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Table 9-1: Trade union structure in leading westernindustrial societies

Introduction (cont.)


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Introduction (cont.)These differences in union structures have had a major influenceon the collective bargaining process in Western countries. Somechanges in union structure are evident over time.

The lack of familiarity of multinational managers with localindustrial and political conditions has sometimes needlesslyworsened a conflict that a local firm would have been likely toresolve.Increasingly, multinationals are recognizing this shortcomingand admitting that industrial relations policies must be flexibleenough to adapt to local requirements.This is evidently an enduring approach, even in firms thatfollow a non-union labor relations strategy where possible.


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K ey issues in international

industrial relationsIndustrial relations policies and practices of multinational firms Because national differences in economic, political and legal systems

produce markedly different industrial relations systems across countries,multinationals generally delegate the management of industrial relations

to their foreign subsidiaries. However, a policy of decentralization doesnot keep corporate headquarters from exercising some coordination over industrial relations strategy.

Generally, corporate headquarters will become involved in or overseelabor agreements made by foreign subsidiaries because these agreements

may affect the international plans of the firm and/or create precedents for negotiations in other countries. Multinational headquarters involvement in industrial relations is

influenced by several factors, as detailed below.(cont.)


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) The degree of inter-subsidiary production integration.

High degree of integration was found to be the most important factor leadingto the centralization of the industrial relations function within the firmsstudied.Industrial relations throughout a system become of direct importance tocorporate headquarters when transnational sourcing patterns have beendeveloped, that is, when a subsidiary in one country relies on another foreignsubsidiary as a source of components or as a user of its output.In this context, a coordinated industrial relations policy is one of the keyfactors in a successful global production strategy.


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K ey issues in internationalindustrial relations (cont.)

Industrial relations policies and practices of multinational firms(cont.) N ationality of ownership of the subsidiary.

A number of studies have revealed that US firms tend to exercise greater centralized control over labor relations than do British or other European firms.US firms tend to place greater emphasis on formal management controls and aclose reporting system (particularly within the area of financial control) to ensurethat planning targets are met.Foreign-owned multinationals in Britain prefer single-employer bargaining (rather than involving an employer association), and are more likely than British firms toassert managerial prerogative on matters of labor utilization.Further, Hamill found US-owned subsidiaries to be much more centralized in labor relations decision making than British-owned. Hamill attributed this difference inmanagement procedures to the more integrated nature of US firms, the greater divergence between British and US labor relations systems than between Britishand other European systems, and the more ethnocentric managerial style of USfirms.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) I nternational human resource management approach.

The various international human resource management approaches utilized by multinationals; these have implications for international industrialrelations.An ethnocentric predisposition is more likely to be associated with variousforms of industrial relations conflict.Conversely, it has been shown that more geocentric firms will bear moreinfluence on host-country industrial relations systems, owing to their greater

propensity to participate in local events.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) MNE prior experience in industrial relations.

European firms have tended to deal with industrial unions at industry level(frequently via employer associations) rather than at firm level.The opposite is more typical for US firms. In the USA, employer associations have not played a key role in the industrial relations system, andfirm-based industrial relations policies are the norm.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) S ubsidiary characteristics.

Research has identified a number of subsidiary characteristics to be relevantto centralization of industrial relations.First, subsidiaries that are formed through acquisition of well-establishedindigenous firms tend to be given much more autonomy over industrialrelations than are greenfield sites set up by a multinational firm.Second, according to Enderwick, greater intervention would be expectedwhen the subsidiary is of key strategic importance to the firm and thesubsidiary is young.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) S ubsidiary characteristics (cont.) .

Third, where the parent firm is a significant source of operating or investment funds for the subsidiary, that is, where the subsidiary is moredependent on headquarters for resources, there will tend to be increasedcorporate involvement in industrial relations and human resourcemanagement.Finally, poor subsidiary performance tends to be accompanied by increased

corporate involvement in industrial relations. Where poor performance is dueto industrial relations problems, multinationals tend to attempt to introduce

parent-country industrial relations practices aimed at reducing industrialunrest or increasing productivity.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) C haracteristics of the home product market.

An important factor is the extent of the home product market.If domestic sales are large relative to overseas operations (as is the case withmany US firms), it is more likely that overseas operations will be regarded

by the parent firm as an extension of domestic operations.This is not the case for many European firms, whose international operationsrepresent the major part of their business.Lack of a large home market is a strong incentive to adapt to host-countryinstitutions and norms.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) Although there are several problems inherent in data collection for a

crossnational comparison of union-density rates, several theories have been suggested to explain the variations among countries. Such theoriesconsider economic factors such as wages, prices and unemploymentlevels, social factors such as public support for unions and politicalfactors. In addition, studies indicate that the strategies utilized by labor,management and governments are particularly important.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) Another key issue in international industrial relations is industrial

disputes. Hamill examined strike-proneness of multinational subsidiariesand indigenous firms in Britain across three industries. Strike pronenesswas measured via three variables strike frequency, strike size and strikeduration. There was no difference across the two groups of firms withregard to strike frequency, but multinational subsidiaries did experiencelarger and longer strikes than local firms. Hamill suggests that thisdifference indicates that foreign-owned firms may be under less financial

pressure to settle a strike quickly than local firms possibly because theycan switch production out of the country.


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industrial relations (cont.)Industrial relations policies and practices of multinational firms(cont.) Overall, it is evident that international industrial relations are influenced

by a broad range of factors. Commenting on the overall results of hisresearch, Hamill concluded that:General statements cannot be applied to the organization of the labor relations function within MNEs. Rather, different MNEs adopt differentlabor relations strategies in relation to the environmental factors peculiar to each firm. In other words, it is the type of multinational under

consideration which is important rather than multinationality itself.


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Trade unions and international

industrial relationsTrade unions may limit the strategic choices of multinationals inthree ways: (1) by influencing wage levels to the extent that coststructures may become uncompetitive; (2) by constraining the

ability of multinationals to vary employment levels at will; and(3) by hindering or preventing global integration of theoperations of multinationals. I nfluencing wage levels.

Although the importance of labor costs relative to other costs is decreasing,

labor costs still play an important part in determining cost competitiveness inmost industries.Multinationals that fail to manage their wage levels successfully will suffer labor cost disadvantages that may narrow their strategic options.


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industrial relations (cont.) C onstraining the ability of multinationals to vary employment levels

at will.For many multinationals operating in Western Europe, Japan and Australia,the inability to vary employment levels at will may be a more serious

problem than wage levels.Many countries now have legislation that limits considerably the ability of firms to carry out plant closure, redundancy or layoff programs unless it can

be shown that structural conditions make these employment lossesunavoidable.Frequently, the process of showing the need for these programs is long anddrawnout.

Plant closure or redundancy legislation in many countries also frequentlyspecifies that firms must compensate redundant employees through specifiedformulae such as 2 weeks pay for each year of service. In many countries,

payments for involuntary terminations are substantial, especially incomparison with those in the USA.


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industrial relations (cont.) C onstraining the ability of multinationals to vary employment levels

at will (cont.) .Trade unions may influence this process in two ways: by lobbying their ownnational governments to introduce redundancy legislation, and byencouraging regulation of multinationals by international organizations suchas the Organization for Economic Cooperation and Development (OECD).Multinational managers who do not take these restrictions into account intheir strategic planning may well find their options severely limited. In fact,recent evidence shows that multinationals are beginning to consider theability to dismiss employees to be one of the priorities when makinginvestment location decisions.


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industrial relations (cont.) H indering or preventing global integration of the operations of

multinationals.Many multinationals make a conscious decision not to integrate andrationalize their operations to the most efficient degree, because to do socould cause industrial and political problems.General Motors as an example of this sub-optimization of integration. GMwas alleged in the early 1980s to have undertaken substantial investments inGermany at the demand of the German metalworkers union (one of thelargest industrial unions in the Western world) in order to foster goodindustrial relations in Germany. One observer of the world auto industrysuggested that car manufacturers were sub-optimizing their manufacturingnetworks partly to placate trade unions and partly to provide redundancy insources to prevent localized social strife from paralysing their network.


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industrial relations (cont.) H indering or preventing global integration of the operations of

multinationals (cont.) .This suboptimization led to unit manufacturing costs in Europe that were 15

per cent higher, on average, than an economically optimal network wouldhave achieved:Union influence thus not only delays the rationalization and integration of MNEs manufacturing networks and increases the cost of such adjustments(not so much in the visible severance payments and golden handshake

provisions as through the economic losses incurred in the meantime), butalso, at least in such industries as automobiles, permanently reduces theefficiency of the integrated MNC network. Therefore, treating labor relationsas incidental and relegating them to the specialists in the various countries isinappropriate. In the same way as government policies need to be integratedinto strategic choices, so do labor relations.


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The response of trade unions to

multinationalsTrade union leaders have long seen the growth of multinationalsas a threat to the bargaining power of labor because of theconsiderable power and influence of large multinational firms.While it is recognized that multinationals are neither uniformlyanti-union nor omnipotent and monolithic bureaucracies, their

potential for lobbying power and flexibility across national borders creates difficulties for employees and trade unionsendeavouring to develop countervailing power.

There are several ways in which multinationals have an impactupon trade union and employee interests. K ennedy hasidentified the following seven characteristics of MNEs as thesource of trade union concern about multinationals:


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multinationals (cont.) Formidable financial resources. Alternative sources of supply. The ability to move production facilities to other countries.

A remote locus of authority (i.e. the corporate head office management of a multinational firm). Production facilities in many industries. Superior knowledge and expertise in industrial relations. The capacity to stage an investment strike, whereby the multinational

refuses to invest any additional funds in a plant, thus ensuring that the plant will become obsolete and economically non-competitive.


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multinationals (cont.)Another issue reported by trade unions is their claim that theyhave difficulty accessing decision-makers located outside thehost country and obtaining financial information.The response of labor unions to multinationals has beenthreefold: to form international trade secretariats (ITSs), tolobby for restrictive national legislation and to try to achieveregulation of multinationals by international organizations. A lternative trade secretariats ( I T S s).

There are 15 ITSs, which function as loose confederations to provideworldwide links for the national unions in a particular trade or industry (e.g.metals, transport and chemicals).The secretariats have mainly operated to facilitate the exchange of information.


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multinationals (cont.) I nternational trade secretariats ( I T S s) (cont.) .One of the fastest growing of the ITSs is the European Regional Organization of the International Federation of Commercial, Clerical, Professional and TechnicalEmployees (generally known by its initials, Euro-FIET) which is focused on theservice sector.The long-term goal of each ITS is to achieve transnational bargaining with eachof the multinationals in its industry.Each ITS has followed a similar program to achieve the goal of transnational

bargaining. The elements of this program are (1) research and information, (2)calling company conferences, (3) establishing company councils, (4) company-

wide unionmanagement discussions and (5) coordinated bargaining. Overall, theITSs have met with limited success, the reasons for which Northrup attributes to(1) the generally good wages and working conditions offered by multinationals,(2) strong resistance from multinational firm management, (3) conflicts withinthe labor movement and (4) differing laws and customs in the industrial relationsfield.


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multinationals (cont.) R egulation of multinationals by international organizations.

Attempts by trade unions to exert influence over multinationals via internationalorganizations have met with some success. Through trade union federations suchas the European Trade Union Confederation (ETUC) and the International

Confederation of Free Trade Unions (ICFTU), the labor movement has been ableto lobby the International Labor Organization (ILO), the United NationsConference on Trade and Development (UNCTAD), the Organization for Economic Cooperation and Development (OECD) and the European Union (EU).The ILO has identified a number of workplace-related principles that should berespected by all nations: freedom of association, the right to organize and

collectively bargain, abolition of forced labor and non-discrimination inemployment.


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multinationals (cont.) R egulation of multinationals by international organizations (cont.) .

In 1977 the ILO adopted a code of conduct for multinationals (TripartiteDeclaration of Principles Concerning MNEs and Social Policy). The ILO code of conduct, which was originally proposed in 1975, was influential in the drafting of the OECD guidelines for multinationals, which were approved in 1976. These

voluntary guidelines cover disclosure of information, competition, financing,taxation, employment and industrial relations and science and technology.There is also some controversy in the literature as to the effectiveness of theOECD guidelines in regulating multinational behavior.This lack of agreement centers on assessments of the various challenges to theguidelines.The best known of these challenges is the Badger case.


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multinationals (cont.) R egulation of multinationals by international organizations (cont.) .

A recent development with the OECD guidelines (which are addressed by 36OECD and non-OECD governments) has been the follow-up procedures. Thesystem of National Contact Points promotes observance of the guidelines byMNEs operating in or from the governments territories.

Recognizing the limitations of voluntary codes of conduct, European trade unionshave also lobbied the Commission of the European Union to regulate theactivities of multinationals.Unlike the OECD, the Commission of the EU can translate guidelines into law,and has developed a number of proposals concerning disclosure of information tomake multinationals more transparent.


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Regional integration: the

European Union (EU)Regional integration such as the development of the EU has

brought significant implications for industrial relations. In theTreaty of Rome (1957), some consideration was given to social

policy issues related to the creation of the EuropeanCommunity. In the EU, the terms social policy or socialdimension are used to cover a number of issues including in

particular labor law and working conditions, aspects of employment and vocational training, social security and

pensions.(cont.)


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Regional integration: theEuropean Union (EU) (cont.)

There have been a number of significant developments in EUsocial policy over the past four decades. The Social Charter of the Council of Europe came into effect in 1965. In 1987, themajor objective of the implementation of the Single European

Act was to establish the Single European Market (SEM) on 31December 1992, in order to enhance the free movement of goods, money and people within the SEM. The social dimensionaims to achieve a large labor market by eliminating the barriersthat restrict the freedom of movement and the right of domicile

within the SEM. The European Community Charter of theFundamental Social Rights of Workers (often referred to simplyas the Social Charter) was introduced in 1989, and has guidedthe development of social policy in the 1990s.(cont.)


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Multinationals are often accused of doing research anddevelopment in developed countries and operating out of lowcost countries. A recent press release by the EU listing the top

100 Best Workplaces in the EU in 2003 provides some evidencethat this pattern may be changing to some extent in Europe (seeTable 9-3). Of these 100, the top ten companies were from allover Europe. The global software giant Microsoft was listed asone of the top 10 best workplaces in multiple countries

(Belgium, France, Germany and Ireland).(cont.)


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D isclosure of information and E uropean WorksC ouncils The EU has introduced a range of Directives related to the social

dimension. Of the Directives concerned with multinationals, the mostcontentious has been the Vredeling Directive (associated with Henk Vredeling, a former Dutch member of the EU Commission). The Seventh(Vredeling) Directives requirement of disclosure of companyinformation to unions faced strong opposition led by the thenconservative British government and employer representatives. Theyargued that employee involvement in consultation and decision-makingshould be voluntary. The European Works Councils (EWC) Directivewas approved on 22 September 1994 and implemented 2 years later.


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D isclosure of information and E uropean WorksC ouncils (cont.) Obviously, all firms operating in the EU will need to become familiar

with EU Directives and keep abreast of changes. While harmonization of labor laws can be seen as the ultimate objective, Michon argues that thenotion of a European social community does not mean a unification of allsocial conditions and benefits or, for that matter, of all social systems.However, the EU does aim to establish minimal standards for socialconditions that will safeguard the fundamental rights of workers.


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Pan-European pensions

The EU Council of Ministers has approved the pension fundsDirective that sets standards for the prudential supervision of

pension plans in the EU. The Member States will need to

implement the Directive by the middle of 2005. The Directivecovers employer-sponsored, separately funded pension plans.The Directive provides pension funds with a coherentframework to operate within the internal market and allowsEuropean companies and citizens the opportunity to benefit

from more efficient pan-European pension funds. Onceimplemented, the Directive will ensure a high level of protectionfor both members and beneficiaries of pension funds.(cont.)


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Pan-European pensions (cont.)

The greatest barrier to implementation of the pan-European pensions is the taxation differences among Member States. Theconsulting firm Mercer HR states in a report analysing the

viability of pan-European pensions that The Directive does notattempt to cover taxation issues which may need a separate andmore prolonged process though the EU legislative institutions.Many Member countries tax laws do not recognizecontributions to foreign pension plans. This creates

unfavourable tax circumstances for employees working outsidetheir home countries and contributing to pension plans in their host countries.(cont.)


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The issue of social dumping One of the concerns related to the formation of the SEM was its impact

on jobs. There was alarm that those Member States that have relativelylow social security costs would have a competitive edge and that firmswould locate in those Member States that have lower labor costs. Thecounter-alarm was that states with low-cost labor would have to increasetheir labor costs, to the detriment of their competitiveness.

There are two industrial relations issues here: the movement of work from one region to another, and its effect on employment levels; and theneed for trade union solidarity to prevent workers in one region fromaccepting pay cuts to attract investment, at the expense of workers inanother region.

There is some, although not as much as was expected, evidence of socialdumping in the EU. It is likely that this issue will be a contentious one inEurope for some time and multinationals need to be aware of this debatewhen doing business in Europe.

(cont.)


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The impact of the digital economy Processes of knowledge acquisition used by MNEs are an emerging issue

in the USA where local technology workers are increasingly being paidtheir normal salaries to train people from overseas eventually to do their

jobs. These newly trained professionals then replace their trainers. This isin part an unintended consequence of the US non-immigrant visa

programme particularly the L-1 classification that allows companies totransfer workers from overseas offices to the USA for as long as 7 years.Importantly, this visa classification allows companies to pay theseworkers their home-country wage.

(cont.)


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The impact of the digital economy (cont.) Only 15 per cent of the worlds population (living mostly in

industrialized countries) has access to ICT.80 This leaves a majority of the worlds population technologically disconnected. As noted by theInternational Labor Organization, The digital divide exists not onlyb etween societies but within societies. Internet usage is stratified and ismuch more common among younger rather than older people, men rather than women, urban rather than rural dwellers, and people with higher levels of education and income.


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Chapter summaryThe literature reviewed in this chapter and the discussionsurrounding the formation of regional economic zones such asthe European Union and the Asia Pacific Economic Cooperation(APEC) support the conclusion that transnational collective

bargaining has yet to be attained by trade unions. As Enderwick has stated:The international operations of MNEs do create considerableimpediments in effectively segmenting labor groups by national

boundaries and stratifying groups within and between nations.Combining recognition of the overt segmentation effects of international

business with an understanding of the dynamics of direct investmentyields the conclusion that general multinational collective bargaining islikely to remain a remote possibility.


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Chapter summary (cont.)Enderwick argues that trade unions should opt for lessambitious strategies in dealing with multinationals, such as (1)strengthening national union involvement in plant-based andcompany-based bargaining, (2) supporting research on the

vulnerability of selective multinationals and (3) consolidatingthe activities of company-based ITSs. Despite setbacks,especially with the regional economic integration issuesdiscussed in this chapter, it is likely that trade unions and theILO will pursue these strategies and continue to lobby where

possible for the regulation of multinationals via the EuropeanCommission and the United Nations.


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