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Impact of interfirm relationships –employment and working conditions

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A literature review

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http://www.eurofound.europa.eu

Authors: Rose Martin (Institute for Employment Studies, IES), Mick Marchington (European Work and Employment

Research Centre, EWERC), Damian Grimshaw (EWERC), Kari P. Hadjivassiliou (IES) and Annette Cox

(IES)

Research manager: Irene Mandl

Research project: The impact of emerging forms of interfirm relationships on employment and working conditions

Contents

Introduction

Common types of interfirm relationships: definitions, objectives and impact on HRM

Organisational objectives and HR strategies

Interfirm dynamics or processes

HRM in the organisational relationships under study

Social and institutional context

Conclusions

Bibliography

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1

Overview

This literature review aims both to provide an up-to-date synthesis of, and contribute to, the relevant debates by

analysing the varied effects of five types of interfirm relationships: public-private partnerships (PPPs), joint ventures,

strategic alliances, clusters and virtual company networks (VCNs). The review uses existing literature to illustrate likely

effects of each type of relationship on employment practices and working conditions.

It starts by presenting working definitions of the various types of interfirm relationships, the rationale for establishing

each type of company collaboration, and common effects of the relationships on human resource management (HRM).

A discussion follows on how organisational objectives can affect HR strategy. The next section addresses the dynamics

involved in interfirm relationships and identifies features that are likely to have an important bearing on the relationship

overall, but particularly with regard to HR transfer. The existing evidence and the theoretical discussion is then applied

to the five types of organisational relationship under study, and the likely impacts of these relationships on HRM are

explored. The institutional and socioeconomic context will have an important role in moderating or even determining

the transfer of HR practices, and these broader factors are discussed in the final substantive section.

Rationale

A number of new forms of interfirm relationships have emerged over the past few decades. In the current macroeconomic

climate – that is, the aftermath of the global recession – it seems natural that they continue to be of importance, as

cooperation might be a way to sustain competitiveness in a situation of limited public and private resources and insecure

demand levels. Each of these forms of interfirm relationships is characterised by a greater or lesser degree of boundary

permeability and business integration. This evolution of business relationships has given rise to a wide body of literature,

including perspectives from the fields of competitive strategy, transaction economics, innovation theory and

organisational development. However, despite the proliferation of new organisational and inter-organisational forms,

relatively little research seems to have been carried out on the precise (and varied) impact that such forms have on

employment practices, HR management policies and terms and conditions for the workers concerned (Rubery et al,

2002; Barley and Kunda, 2001). Indeed, as Barley and Kunda have shown, in the past 40 years organisational analysts

have adopted an increasingly narrow focus on aspects of organisational life such as performance, strategy and structure,

while those studying the world of work have largely been divided between those who examined industrial relations and

those who focused on industrial sociology. Such fragmentation and isolation of scholarly endeavour in separate but

closely linked fields of study tend to impoverish the study of the complex and dynamic interaction between

organisations. It is therefore imperative to bring the theme of work organisation back into analysis of relationships

between organisations.

This is also important in order to advance the research agenda examining the quality of working life and conditions for

employees. Empirical studies of employment policy and practice have flourished, in particular with the rise of strategic

HRM models and approaches, which have sought to relate the ways in which employees are treated and their experience

of working conditions to competitive strategy and advantage. However, analyses of differentiation in terms and

conditions of employment between different groups of employees have focused largely on workers who are segmented

into different categories within organisations, such as core/periphery models (Atkinson, 1984; Atkinson and Meager,

1986), or from a legal perspective on the rights of employees undergoing transfers of employment between two

organisations (Hardy and Adnett, 1999). Some work has taken place on the transfer and diffusion of employment policy

and practice across national borders, but the common unit of analysis for this is the multinational (often US-owned)

company and the transfer of practice is most commonly between corporate headquarters and subsidiary divisions (for

example, Almond and Ferner, 2006). The more complicated evolution of changes in different elements of HRM policy,

practice and process as a result of multilateral relationships between organisations has received relatively less attention.

Introduction

© European Foundation for the Improvement of Living and Working Conditions, 2011

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This has led to assumptions that employment relations (and to some extent employment contracts), which have

traditionally referred to a single employer–employee relationship, can be analysed using the historical frame of the single

organisation even when they concern interfirm relationships (Rubery et al, 2003). Yet, there is an increasing body of

empirical evidence that management practices, including employment policies, are influenced and even shaped by

clients, suppliers and partners, in examples of manufacturing supply chains and PPPs (Marchington et al, 2005; Fisher

et al, 2008).

Impact of interfirm relationships – employment and working conditions


3

The various types of interfirm relationships tend to have different objectives and involve various degrees of cooperation,

in terms of both the breadth and depth of their relationship. Some definitions are given here that can be used to explore

the different types of collaboration under study – PPPs, joint ventures, strategic alliances, clusters and VCNs. However,

it should be noted that these definitions are flexible – interfirm relationships are complex and variable, so the forms

described are ‘ideal types’ rather than rigid definitions. This section also discusses the HRM impacts of the various types

of relationships.

PPP

Definition and objectives

Lattemann et al (2009) draw on the literature to identify six fundamental attributes of PPPs, which can help to distinguish

these partnerships from the broader process of privatisation:

� a voluntary collaboration based on contracts;

� involving public and private partners;

� aims to fulfil certain tasks of public interest;

� often performed in an entrepreneurial manner;

� the opportunities and risks are shared among the partners;

� the partners expect encouragement to achieve their own goals and to gain from economic synergies.

PPPs may be quite varied in structure. Hall (2008) identifies three types of PPPs: concession contracts (under which a

private company providing a service is paid through user charges); private finance initiatives (PFIs) (where a private

company is paid by a public authority); and institutional PPPs (where a joint venture company, partly owned by a public

authority and by a private sector entity, provides a public service).

Of these, concession contracts and PFIs are the most common (Hall, 2008). The important distinctions between the

models are the variations in contractual obligations and risks (Baker, 1986, cited in Lattemann et al, 2009). The financial

backing may theoretically sit anywhere on the continuum from 100% private sector funding to 100% public sector

funding. However, 100% private sector funding should not occur: if private backers are willing to take on the full risk,

then there is no market failure and therefore no need for a PPP (Lattemann et al, 2009).

PPPs may be set up with a number of objectives in mind. For the private sector partner, the chief objectives may be to

move into a new market area and to spread risk (Lattemann et al, 2009). There are a variety of motivations for public

sector partners to enter the partnership:

� to decentralise service delivery management to increase flexibility (OPSR, 2002);

� to offer service users greater choice between alternative suppliers (OPSR, 2002);

� to provide improved value for money, either by improving management (OPSR, 2002) or by drawing on private

sector technical specialism, for instance in engineering or information and communication technologies (ICT)

(Lattemann et al, 2009);

� to break monopolies – initiating competition and (particularly in the case of communications) network effects

(Lattemann et al, 2009).

Common types of interfirm relationships:definitions, objectives and impact on HRM


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Implications of PPPs for HRM

PPPs, quite prevalent in the UK (as well as Spain and Portugal) and, to a lesser extent, in the rest of Europe, are having

an effect on the employment relationship – especially for public sector employees who are transferred to, or come to be

managed by, the private sector. For example, Hebson et al (2003) showed that PPPs in the UK health and local authority

sectors have serious implications for workers, not least due to work intensification (especially for employees of the

public partner) and the way that the public service ethos seems to be recast using more managerialist and quasi-market

discourses and contractual relations. This can, in turn, lead to feelings of demotivation, job insecurity and alienation

among those who experience the change from public sector to private sector management.

A number of studies have found that pay for manual workers formerly employed by the public partner deteriorated as a

result of a transfer to a private firm (see Grimshaw and Roper, 2007). On the other hand, workers in private firms tend

to be subject to a range of different rates of pay and payment systems, including protected pay (for example, in the UK

as a result of the Transfer of Undertakings (Protection of Employment) Regulations/TUPE) and new firm rates (Rubery

and Earnshaw, 2005). In contrast, it seems that transferred white-collar workers experience pay improvements – perhaps

reflecting an increased market orientation, which would tend to benefit those who lack skills while resulting in lower

pay for those with more widely available skills (Keune et al, 2008).

PPPs also result in tighter performance monitoring of employees carrying out the function of the partnership, which may

affect the amount of employee autonomy and discretion, especially among employees transferred from the public to the

private sector. PPPs also seem to adversely affect perceptions of job security, both through the direct negative impact of

redundancies associated with outsourcing and a more subtle impact caused by change of employer and employee ‘status’

as well as recurrent rounds of contracting. Public sector managers are also asked to assume new roles and exhibit new,

more ‘entrepreneurial’ behaviours (as opposed to traditional ‘bureaucratic’ behaviours). Some commentators argue that

PPPs tend to worsen both the employment conditions of workers and their access to and engagement in collective

representation through unions (Hall, 2008).1

Joint venture

Definitions and objectives

Although there is more than one type of joint venture, the focus here is on equity-based alliances, in which the partners

create a separate legal organisational entity representing the partial holdings of two or more parent firms. The ventures

themselves tend to be subject to the control of their parent firms (see Schuler et al, 2004) and the arrangement is normally

long term (Koeszegi, 2004).



1Nonetheless, workers involved in PPPs can be protected through the following: i) the general use of ‘fair wage’ clauses, and other

social clauses, under international and EU law, including the International Labour Organization (ILO) Convention 94; ii) the

negotiation of national and local framework agreements to regulate the impact of PPPs on employment, pay and conditions; and

iii) the use of national and local procurement laws and policies for the same purpose.

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Joint ventures are established for a number of reasons (Allen & Overy, 2009):

� to expand into complementary areas to access new customers and geographic markets, without the cost of making

acquisitions;

� to share up-front investment and liabilities to reduce individual firms’ exposure to risk;

� to improve competitiveness and cut costs by locating the venture in a less expensive nation, such as the emerging

markets of Central and Eastern Europe;

� to learn from the skills or knowledge of a partner to accelerate entry into a market area;

� as the first step towards acquisition of another firm;

� as the first step towards divestment of an area of business.

Implications of joint ventures for HRM

The HRM implications of joint ventures depend on the purpose of the partnerships. For example, in joint ventures set

up to maximise the resource base or dynamic capabilities of the firm and/or to enhance learning through transfer of

knowledge across organisational boundaries, such learning is contingent upon aspects of employment relationships like

employee turnover, teamworking, loyalty and commitment to the employer and ability and willingness to share

knowledge with others. Yet, studies of HRM in joint ventures have yielded mixed results. For example, Cascio and

Serapio (1991) found that multiple compensation systems involved in joint ventures caused feelings of inequity, while

(real or perceived) blocked promotion of venture employees gave rise to resentment and feelings of job insecurity, all of

which led to conflicting industrial relations systems. Schuler (2001) also found that joint venture employees may have

conflicting loyalties, while they may also experience career disturbance and lack of job security, especially if they are

parent assignees. These problems occur in numerous different cultural and institutional contexts. Case study work on

joint ventures in eastern Europe found that employees felt unfairly treated and were dissatisfied with their salary, while

communication problems also bedevilled these ventures (Cyr and Schneider, 1996).

Strategic alliance or network


Strategic alliance is a formal relationship between two or more parties, usually within a supply chain (Maloni and

Benton, 1997), to pursue a set of agreed goals or to meet a critical business need while remaining independent

organisations. Partners may provide the strategic alliance with resources such as products, distribution channels,

manufacturing capability, project funding, capital equipment, knowledge, expertise or intellectual property. The alliance

is a complementary cooperation or collaboration, where each partner hopes that the benefits from the alliance will be

greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and

expertise), economic specialisation, shared expenses and shared risk.

International cooperative alliances have been described by Johnson et al (1996) as demonstrating the following

differences from international joint ventures: more flexibility; easier dissolution; a lower public profile; a veil of

competitive secrecy; a lighter legal burden; easier negotiation; and a more transient and less formal relationship between

partners.


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Todeva and Knoke (2005) identify a number of reasons for forming strategic alliances.

� Economic – market-seeking, cost-sharing, reducing risk, economies of scale.

� Strategic – cooperating with potential rivals, pre-empting competitors, achieving competitive advantage, gaining

access to new organisational learning and competence-building (including sharing technologies).

� Political – for example, overcoming legal and regulatory barriers.

Implications of strategic alliances for HRM

In strategic alliances (at least in some sectors) there seems to be tension between the trend towards standardisation of

other functions such as procurement, information technology (IT) systems, facilities and marketing, while in

employment practices pressures for differentiation are still dominant, with implications for employees of all alliance

partners (Holtbrügge et al, 2006).

Strategic alliances are commonly formed within a supply chain partnership (Maloni and Benton, 1997). Swart and

Kinnie (2003) showed in a study of growing, knowledge-intensive companies that choices within the HR system of such

firms were constrained by business-to-business relationships, especially with clients. A number of factors determined the

nature and extent of these constraints, most notably the power relationship between client and supplier, and the

uniqueness of the services provided. Similarly, Truss (2004) has shown how HRM policies, such as training provision,

are both directly and indirectly affected by franchisers rather than the direct employer of workers.

Strategic partnerships along the supply chain may also involve outsourcing. Recent work by Grimshaw and Miozzo

(2009) on the impact of IT outsourcing-related staff transfer on HRM policies points to the need for an alternative

approach to analysing such effects rather than using a conventional HRM approach predicated on the ‘standard’

organisation. Specifically, they found that such outsourcing had serious implications for a number of HRM policies,

notably recruitment and selection, skills development (and knowledge management), performance monitoring and

management, career development and progression, all of which can in turn affect employees’ experience of work and

sense of job security. This is further mediated by the institutional context, including employment legislation and labour

market conditions. For example, although such outsourcing was associated with tight contract performance monitoring

and the potential for greater task simplification and standardisation and the use of casual employment contracts,

extending the IT firm’s involvement in various client systems could potentially provide career development

opportunities for specialist IT staff.

Cluster


Clusters can be defined as geographically proximate groups of independent but interconnected companies, suppliers,

service providers and associated institutions in a particular field, linked by commonalities and complementarities.

Clusters are often concentrated in a particular national region, and sometimes in a single town, but increasingly ‘clusters

of clusters’ are emerging across regional and even national borders. They may be collaborating or competing; and they

may be institutionalised (with a cluster manager) or non-institutionalised (European Commission, 2002).



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The rationale behind forming a cluster may be multifaceted, but will centre on aspiration to growth and long-term

business benefits. There has been considerable interest, driven in part by the Lisbon Agenda, in promoting clusters, or

‘innovation poles’, at EU level – especially to bring together high-technology organisations, universities, business and

financial intermediaries (for example, see European Commission, 2005). Clusters are formed to:

� enhance innovation and competitiveness;

� improve skills;

� gain information;

� access a qualified labour force;

� where they are geographically concentrated, access nearby universities, training centres and research institutes;

� take advantage of local features like customers and suppliers (European Commission, 2002).

These benefits may be particularly valuable for small and medium-sized enterprises (SMEs), which are less likely to be

able to make economies of scale and may be unable to take advantage of market opportunities requiring a rapid and

large-scale response (UNIDO, 2001).

Implications of clusters for HRM

Clusters do not always have integrated HR systems, but one way in which integration and alignment can occur is through

codes of conduct issued by buyers to their supply chains. Examination by the Ethical Investment Research Service

(EIRIS) has suggested that, of the 147 firms in their database2

which head a supply chain in sectors ‘of concern’ with

regard to working conditions, about 20% have a code of conduct on supplier working conditions (OECD, 2002, p. 7).

The study draws an interesting comparison: companies working in ‘high environmental impact’ sectors are more likely

to issue environmental codes of conduct to their suppliers (75% do this, compared with the 20% mentioned above). This

may imply that there are differing incentives and barriers relating to codes of conduct on working conditions (OECD,

2002, p. 8) – in other words, that firms put a lower priority on improvement of working conditions compared with

improvement of environmental impact when making requests of suppliers. A more recent study suggests that longer-term

relationships are particularly important in bringing about real change in working conditions – ensuring that codes of

conduct are carried through into management practices. Organisational change that permits both high productivity and

favourable conditions is required, and such conditions are difficult to foster through shorter-term policing (OECD,

2008).

As there has been growing European interest in clusters as centres of innovation (see Petrin, 2009), participating firms

are more likely to benefit from knowledge-sharing practices, whether through formal policy or through more natural

exposure facilitated by the cluster network. For example, the policies of a cluster in Timişoara (Romania) specialising

in textile and leather goods have been found to encourage cooperation and networking between companies. This has led

to beneficial partnerships (Isbasoiu, 2006). However, it is less clear whether this type of relationship leads to HR policies

or practices that have an impact on working conditions for all employees.


2It should be noted that the EIRIS analysis is of a sample of 147 firms containing a large number of UK companies (61). Other

countries represented in the database include Japan (37 companies), France (7), Greece (7), Australia (5), Canada (4), Belgium and

Italy (3) (see OECD, 2002, p. 5). Sectors ‘of concern’ include retail, clothing and sporting goods manufacture, and tobacco.

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Virtual company network

Definition and objectives

A virtual company network is a temporary alliance of enterprises that come together to share skills or core competencies

and resources in order to execute a specific contract (that is, project-based work), or to better respond to business

opportunities. Cooperation between firms is characterised by a widely dispersed network of actors and a high degree of

reliance on and use of ICT and computer networks. In other words, cooperation by separate organisations across

geographical boundaries is mainly virtual (Donker and Posthuma de Boer, 2001) – usually temporary, and often with

intensive use of ICT (Brandão Moniz and Kovács, 2000).

Such networks may be set up to fulfil a particular order or requirement, especially where markets are turbulent and

opportunities pass quickly. According to Brandão Moniz and Kovács (2000), firms in the network hope to:

� aggregate competencies and resources;

� reduce costs;

� increase market share.

Implications of virtual company networks for HRM

Virtual organisations are characterised by having no physical location, a fluctuating workforce, a need for sharing of

organisational expertise and a reliance on ICT to enable tasks to be undertaken (Bosch-Sijtsema, 2002). Where

individuals or organisations come together in collaboration to deliver a contract on a virtual basis, there may be less legal

and practical compulsion to consider the implications of inequities of terms and conditions of employment as well as the

way employment policies and practices are implemented. This is because such issues are less visible to workers, as they

are not all working on the same site, and because cooperation tends to be project-based or temporary.



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The preceding section laid out some of the objectives of specific interfirm relationships and the existing literature that

describes some of the impacts of these relationships. This section reviews some more theoretical typologies of the

objectives of interfirm collaborations, and how these relate to HR practices.

Recurrent themes throughout these are functional flexibility (often involving improving skills levels) and numerical

flexibility (changing staff numbers). These are drivers of interfirm relationships – rather than the HRM outcomes that

are of interest – but these strategic objectives are likely to have a bearing on how HRM is managed, as outlined below.

Engaging staff of varying skills levels

An important aspect of interfirm relationships may be the need to engage staff who have an appropriate skills level for

their assigned tasks. One typology in this area has been developed by Lepak and Snell (1999, 2007), who explore the

uniqueness and value of the human capital involved in interfirm relationships.

Their model proposes that human resources are used differently across interfirm relationships depending on the

uniqueness of the human capital (the extent to which skills are specialised or firm-specific) and on the strategic value to

the focal firm (the extent to which employees can improve efficiencies and effectiveness, enable their organisation to

exploit market opportunities, or ward off threats).

Table 1: Human capital in interfirm relationships

Source: Lepak and Snell, 2007, Figure 11.1, p. 214, and text pp. 213–216

The Lepak and Snell model has been criticised for assuming that employers act with perfect rationality and freedom of

choice when making decisions about allocation of tasks – ignoring other important factors such as the views of partner

organisations and the external labour market (Swart and Kinnie, 2003). As pointed out in Marchington et al (2009), there

is, therefore, a need to look at particular networks’ decision-making. With these caveats in mind, however, the typology

may still be a useful tool.

Organisational objectives and HR strategies


Uniqueness of humancapital

High Alliance partners (idiosyncraticknowledge)

Collaborative HR; relational

Group incentives, cross-functional teamsto encourage trust and continuity overtime and engender reciprocity and trust.

Knowledge employees (core knowledge)

Commitment-based HR; relational

Development of competencies,employee empowerment, participation indecision-making, discretion, long-termincentives.

Low Contract workers (ancillary knowledge)

Compliance-based HR; transactional

Short-term productivity and efficiencyare emphasised, for specified andlimited tasks. Jobs are likely to bestandardised and training/performancemanagement will focus on proceduralcompliance.

Job-based employees (compulsoryknowledge)

Productivity-based HR; transactional

Standardised jobs; selection of thosefrom external labour market who cancontribute immediately. Short-term,results-oriented emphasis.

Low High

Value of human capital

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Flexibility

It is also important to note that firms may need either functional or numerical flexibility (or both). Functional flexibility

may be required to diversify into different areas, while numerical flexibility is required when the workload increases

(Sako, 1992).

Many of the interfirm relationships aim to increase functional flexibility – for example, clusters of SMEs may more

easily be able to provide staff with access to training and to introduce innovative practices through collaboration as small

organisations commonly lack the capacity to develop these internally (UNIDO, 2001).

Functional or numerical flexibility may also be acquired through outsourcing and temporary work. Transnational

corporations are increasingly using temporary work agencies to meet their staffing needs (Ward et al, 2005). This shift

to ‘contingent employment’ (work that can be ended with minimal costs to the employer) can lead to long-term changes

in the organisation of work. For instance, employers can become enamoured of this relatively flexible relationship; and,

in turn, trade unions find it difficult to deal with temporary workers (Bergström, 2004). It is worth noting that, in itself,

this is a form of interfirm relationship, with large multinational agencies offering a supply of temporary workers.

Agencies may even move into new nations in order to supply particular large clients (Ward, 2004).

There may be differences across organisational cultures in how temporary work agencies are viewed. For instance, case

study evidence suggests that American firms have tended to view temporary work agencies as strategic partners, whereas

German employers do not. This may be linked to the finding that the same American firms tended to look to temporary

workers to extend their functional flexibility, while the German firms under examination tended to be looking for

numerical flexibility only (Mitlacher, 2007).

The processes involved with these relationships are not simple. Some of the important features and processes of interfirm

interactions are explored in the following section.



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As firms work to achieve the goals/objectives in the interfirm relationship, for example to increase their knowledge base

or enter into new markets, various dynamics and processes will come into play.

The context within which interfirm relationships are forged is complex, multi-dimensional and multi-layered. It is

important to recognise that interfirm relationships may even involve tensions between different parts or subsidiaries of

the same parent company (Marchington et al, 2005). The outcomes for employees depend on two key factors in the

relationships between workers and the different organisational parties to the relationship: how power and risk are

distributed between them. For example, Marchington et al (2005) demonstrate that this results in a range of dynamics

from relational to transactional contracting, somewhat akin to Rousseau’s (1995) typology of psychological contracts,

with different consequences for employment policy and practice.

Linked to this is the fact that relationships and forms of governance between organisations have been shown to have a

major influence on the type and extent of impact on working conditions and employment practices of these

organisations. It also emerges that social relationships/networks/capital among the involved actors in an interfirm

relationship (for example, the managements of the different firms) are a critical success factor for the working of the

interfirm cooperations (Granovetter, 1985; Uzzi, 1996). For example, network ties, themselves embedded within these

social relationships, have been shown to influence firms’ decision-making and behaviours. This dynamic may be

particularly important for interfirm relationships such as strategic alliances that emerge and develop in business settings

where the logics of embeddedness are particularly salient.

Some of the key broader themes in interfirm relationships are risk, trust, dominance and modularity. It is necessary to

take a look at these themes, and their potential impact on HRM, before addressing issues of alignment, integration and

consistency.

Risk and trust

Risk

Different types of interfirm relationships may involve varying degrees of risk for the organisations involved. However,

all are likely to involve some uncertainty and therefore some degree of risk – and these risks may be seen to increase as

time, information and control decrease (Ring and Van de Ven, 1992).

Trust

The issue of trust has attracted a great deal of attention in the literature on interfirm relationships. There is a need for

some caution in how such theories are applied: in particular, there is the problem of whether considering ‘trust’ is a

legitimate way to analyse interfirm relationships. In other words, it is not clear to what extent one can generalise trust –

a potentially passing psychological state – beyond individuals to the firm level. Some experts argue that it may be

problematic to treat organisations as persons (that is, to anthropomorphise the organisation), although authors do

sometimes assume firms are ‘actors’. (See Möllering et al, 2004 for a review of literature on this.) However, this problem

can be addressed by focusing on key individuals within organisations, looking at the trust between employees and

employers, and the trust between key strategic managers.

Sako’s (1992) analysis provides a useful way to link trust with different types of interfirm relationships. Although Sako

focuses on the buyer–supplier relationship, her typology could potentially be applied more widely. She envisages a

spectrum of interfirm relations, from Arm’s-length Contractual Relation (ACR) – a less ‘close’ market-based relationship

Interfirm dynamics or processes


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– to Obligational Contractual Relation (OCR) – where there is mutual dependence. OCR, compared to ACR, is

characterised by:

� a greater transactional dependence on trading partners – under OCR both buyers and suppliers have a larger number

of partners compared to ACR;

� a longer projected length of trading – Parkhe (1993) also points out that longer-term alliances, as signalled by

investment in non-recoverable assets, encourage cooperation. Frequency of interaction may also have a role to play

here, as Parkhe’s game theory analysis (1993) and Ring and Van de Ven (1992) propose;

� a greater willingness to accept or offer orders before prices are negotiated and fixed;

� less contractualism – contracts may contain procedural rules but substantive issues are decided case by case.

Contracts may be oral rather than written. Contingencies tend not to be written out – there is case-by-case resolution

with ‘much appeal to the diffuse obligation of long-term relationships’;

� a greater degree of uncosted sharing of technological know-how and risks associated with business fluctuations;

� a greater degree of contractual trust (supplier may start production on oral instruction, before written orders are

given);

� goodwill trust (sole sourcing by buyer/supplier’s transactional dependence – contrast with multiple sourcing by buyer

and low supplier dependence) observed only in OCR, not ACR;

� a greater degree of competence trust (little or no inspection on delivery for most parts – though buyer may be

involved with quality-control systems);

� technology transfer and training: not always fully costed (intangible/long-term benefits) – whereas under ACR, only

transfer, training and consultancy occurs that can be costed and claimed for in the short run;

� more extensive communication channels between those in a number of roles; frequent contact;

� more sharing of risk; principles of fairness (rather than prior agreement) determine the sharing of unforeseen loss or

gain.

(The above 11 points are based on Sako, 1992, Table 1.1, pp. 11–12; see also p. 241.)

Trust is understood to underpin these relations and contribute to stable interfirm interactions.

Trust among employees is also important. As discussed in the introduction, in an interfirm context organisational

identification can be weak. However, Lee (2004) found in a study of a US–Korean joint venture that trust and

organisational identification can together determine continuous improvement (employees striving for quality). Other

factors that can be affected by HR practices such as training have also been found to foster trust between workers in an

interfirm context – for example, cultural sensitivity (Johnson et al, 1996).

Factors outside the interfirm connection can also be important for trust. For instance, Lane and Bachmann (1997) found

that system power, in the form of strong and predictable institutions, can foster trust.

Risk and trust in combination

Since risk and trust are related concepts, it is useful to examine the way they interact with each other. To this end, Ring

and Van de Ven (1992) produced an interesting typology of governance structures according to risk and trust, and the

impact these have on management – including issues relevant to human resources.



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Table 2: Risk and trust in governance structures

Source: adapted from Ring and Van de Ven (1992), Figure 1, p. 490, and text pp. 490–495

Mechanisms to monitor and control partner organisations are closely related to risk and trust. Aulakh et al (1996) identify

three such mechanisms:

� output control (the degree to which the focal firm monitors results or outcomes);

� process control (the extent to which partners’ behaviour or processes are monitored);

� social control (establishing an environment in the partner firm that encourages self-control) – this is found

empirically by the authors to be positively linked with trust.

Power, dominance, control

A number of interfirm relationships are established in order to enhance competitiveness in the market. It can be argued,

for instance, that strategic alliances are a substitute for market competition: firms may hope to place themselves in a

stronger position, sometimes through internalising new knowledge or skills. Therefore, a distinction should be made

between competitive collaboration on the one hand, and complementary ventures on the other. Differing approaches such

as these will lead to different strategic and managerial objectives (Pucik, 1988).

This applies not only to different types of networks/partnerships, but also to different actors within networks/partnerships.

Collaborating partners may hold a dominant position over others within the same network – for instance, suppliers may be

pushed to cooperate with buyers (Marchington et al, 2009). Relationships between clients and suppliers can involve varying

degrees of influence. For instance, Sinclair and colleagues identified four potential client–supplier models.

� A ‘demands’ model with specific requirements and delivery within a defined contract period.

� An ‘audit’ model, under which joint working may take place, but there is heavy monitoring.

� A ‘supplier development’ model, involving joint working and the sharing of systems, expertise and diffusion of

training and development practices.

� A ‘partnership’ model, with client and supplier working together on a range of issues including training, development

and management (Sinclair et al, 1996, cited in Garavan et al, 2008, p. 622).


Risk of the deal

Low High

Reliance on trustamong partners

Low – atomisticmarket norms orsuperior/subordinate rolerelationships

Market-based

Discrete contracts, classical contract lawand markets.

Hierarchy (governance structuresprovide parties with safeguards; mergermay occur but alternatively jointventure, which limits degree ofinvestment)

High – trust isprincipal mode ofsocial control

Recurrent contracting (Norms ofequity and reciprocity; allowsexperimentation with elements ofhierarchy that can be incorporated intocontract: command structures, authoritysystems, incentive systems, administeredpricing systems, structures for conflictresolution and standard procedures.Performance measures like quantities,quality and delivery time left open tofuture determination.

Relational contract (typically whereorganisations use relational contracts togovern joint research and development(R&D), technology or productdevelopment ventures). Safeguardswould be expected: provisions thatfacilitate just distribution of ‘tacit know-how assets’. Consultation to reduceinformation asymmetries.

14

Such client–supplier relations have a particularly strong impact on the supplier if lead organisations take unpredictable

actions such as cancelling contracts or dramatically reducing orders (Marchington et al, 2009).

However, more benign forms of dominance relationship can also occur – for example, through the dissemination of good

practice from firms with well-resourced HR departments or training provision to others in the network (Marchington et

al, 2009).

The hierarchy does not need to be explicit for issues of dominance and control to emerge. Firms that wish to maintain

their competitive advantage may attempt to control partnerships to ensure that their lead is maintained. In the case of

relationships such as international joint ventures, this wish for control can mean that HRM and staffing become a

battleground. For instance, in the 1990s, Siemens-Fujitsu deployed joint expatriate chief executive officers (CEOs) from

each company, each with different approaches, leading to considerable infighting. Resources can easily be over-

committed (for example, through doubling up of posts) if HRM is based, as in this case, on desire for control rather than

necessity for control (Kabst, 2004). Parent firms may also wish to retain their own HRM practices simply because they

are familiar with them (Iles and Yolles, 2002), which again does not necessarily lead to efficiency.

Modularity

Recent discussions of ‘modularity’ in interfirm relationships (again, especially client–supplier relations) have added to

this picture of trust between managers and highlighted its effects on HRM. Highly modular relationships, as might be

seen in firms down the supply chain, where layers of subcontracting are apparent, involve few interactions between

firms, weak interdependence and formalised or codified exchanges (Sturgeon, 2002). This tends to be associated with

low levels of employment security, low wages, strongly hierarchical relationships and few opportunities for career

development. By contrast, weakly modular relationships typify high-trust networks where partners often work together

on a number of projects, and links between organisations occur at multiple levels. In this situation, working conditions

are likely to be taken more seriously because clients are keen not to damage their own reputations by providing defective

goods or services. Efforts are often made across the network to improve the quality of HRM, to provide training to meet

quality standards, and to encourage employee discretion (Marchington et al, 2009).

Adaptation of HRM strategies

Alignment

This refers to the creation of links between organisational goals or strategies and HRM, which then leads to the

development of employee commitment and allegiance to organisational, or network, goals. In the case of a multi-firm

relationship, achieving alignment across organisational boundaries is likely to be difficult, if goals, expectations or even

styles of HRM of the various partners differ (Marchington et al, 2011). Nevertheless, there may be common objectives,

such as project commitments, which drive alignment to some extent even where formal alignment of policies does not

take place.

Integration

This refers to HR packages or ‘bundles’ – connected or complementary policies that usually aim to promote behaviour

and cooperation to enhance organisational effectiveness. This refers both to the policy level and the actual behaviour and

practices in an organisation. Thus, even if policies across a multi-employer network are harmonised, practice may not

follow suit. Mobility of workers, variation in managers and regular changes in ownership of firms as well as turnover

within interfirm networks, for example when companies leave or join the network, can all make integration even harder

(Marchington et al, 2011).



15


Consistency

Consistency refers to employees’ perception of fairness, over time and in comparison with colleagues. Engagement with

multiple employers – whether through a change in employer or through less formal contact with other organisations –

can lead to lack of consistency. Marchington and colleagues give the example of an employee who might have an

appraisal or performance review from a network partner, but may not be able to access recommended training due to

their own employer’s decision (Marchington et al, 2011). Lack of equity in pay and disciplinary matters may also occur

(Cascio and Serapio, 1991).


16

Having discussed some of the theoretical and related literature, the focus now turns to how these factors interact in the

various types of relationship under examination. The five key relationships considered are:

� public-private partnerships (PPPs);

� joint ventures;

� strategic alliances;

� clusters;

� virtual company networks (VCNs).

Each of these involves different types of interfirm relationships and extent of collaboration, degrees of integration, and

number and size of partners, all of which will affect employment relations differently. Indeed, depending on the form of

interfirm relationship one would expect to find variations both in the extent and type of impact on employment relations.

As Rubery et al (2002) have shown, different configurations, for example, joint ventures, strategic alliances or networked

organisations, raise different questions regarding employment relations. Other authors have tried to define the degree to

which different types of organisational relationships affect practice, including HRM practice. Aulakh et al (1996) make

reference to the extremes of vertically integrated hierarchies and one-time spot transactions – placing joint ventures,

strategic alliances, networks and repeated transactions between these two poles. Todeva and Knoke (2005) attempt to

situate all forms of inter-organisational relationships in a spectrum of 13 different organisational types. Their spectrum

reflects the degree of integration and formalisation in the governance3

of interfirm cooperation, running from purely

market-based relations to hierarchical structures (control by acquisition or merger).

Drawing on such literature, this section discusses the impact on HRM of the five types of relationship named above. The

aim is to make generalisations about the different forms of collaboration – so individual cases will vary from this outline.

Table 3 summarises the different HR policies that can be found in the five types of interfirm relationships under

examination.

HRM in the organisational relationshipsunder study


3Governance defined as the ‘legal and social control mechanisms for coordinating and safeguarding the alliance partners’ resource

contributions, administrative responsibilities, and division of rewards from their joint activities’ (Todeva and Knoke, 2005, p. 2).

17


Table 3: HR policies by type of interfirm relationship


PPP Joint venture Strategic alliance/network

Cluster Virtual companynetwork

Staffing:recruitmentand selection;redundancies

Contracts very ofteninvolve staff transferfrom public toprivate sectorpartner; changes interms and conditionscontingent uponemploymentprotectionregulations (forexample, theAcquired RightsDirective) and role oftrade unions andworks councils (forexample,Berlinwasser;MülheimerEntsorgungs-gesellschaft, cited inEuropeanCommission, 2004).

Sources for staffingcan include: parentcompanies, locals,third-countrynationals, and others(Harry and Banai,cited in Schuler andTarique, 2005).Expatriate staffingfrom parents can be aproblematicmanifestation of astruggle for control(Kabst, 2004).

There may also bestaffing implicationsfor parent companies,for example, theneed to replace staffwho are recruited inthe joint venture.

As no new entity isformed, there may beless potential forimpact in this area(and in HR ingeneral), comparedwith internationaljoint ventures (IJVs)(Schuler andJackson, 2004).

Unlikely to belargely affected, butmay help identifyskills locally(EuropeanCommission, 2002) –although this mayresult in poachingbetween companies.

Unlikely to begreatly affected, butlinks may facilitaterecruitment. Thismay be positive ornegative forindividual companies– poaching mayoccur.

Training anddevelopment

Major challenge fordeveloping a sharedapproach to traininggiven the differentorganisationalobjectives of profitmotive versus publicservice (Grimshaw etal, 2011); skills maybe ‘bought in’ ratherthan developedinternally.

Knowledge sharingand transfer can be akey driver for theestablishment of IJVs(Schuler and Tarique,2005). Cross-culturaltraining anddevelopmentinitiatives can beimportant (Schuler etal, 2004).

The alliance may beformed to meetparticular skills needs.Demand for scientistsand engineers, forexample, is likely toincrease and makethese skills morevaluable (Schuler etal, 2004). Cross-cultural training anddevelopmentinitiatives can beimportant (Schuler etal, 2004).

Sharing ofknowledge may be akey reason forestablishing thecluster, thougharrangements fortraining might not beformalised. Theremay also be concernabout knowledge-sharing with, ortraining ofcompetitors.

Knowledge-sharingand development is amajor objective ofthe virtual companynetwork (BrandãoMoniz and Kovács,2000): impactexpected forknowledge workers.

Reward: pay,pension,benefits

Pay may be affected– for example, bytransfer to a privatefirm as found inGrimshaw and Roper(2007). Lower-paidworkers may benegatively affectedwhile white-collarworkers may benefit,in terms of both payand employmentconditions (see alsoKeune et al, 2008).

This tends to belocally adaptable(Schuler and Tarique,2005, p. 12) but theparents may havesome influence.Multiplecompensationsystems can causefeelings of inequity(Cascio and Serapio,1991).

Corporate socialresponsibility (CSR)of a strategic partnermay have an impact.

Geographicalproximity may meanthat reward systemsare similar, thoughthis may not be amatter of policy andit is likely to dependon whether partnersare at the same levelof the value chain.Partners’ CSR mayhave an impact.

Little impact mightbe expected.

Performancemanagementandsupervision

Performancemonitoring andaccountability mayincrease or change incharacter – forexample, targets-focused (Hall, 2008).

Especially given thatthe venture involvesrisk to the parentcompanies, theremay be monitoringand control pressures(see Aulakh et al,1996).

Less impact expectedcompared to jointventures, as no newentity is formed, butclients may placeperformancemonitoring orsupervisory pressureson suppliers.

Dependent on type.Cooperative clustersunlikely to experienceeffects; suppliers mayexperienceperformancemonitoring oroccasionalsupervision.

Little impactexpected.

18





Workorganisation:control,working time

Work intensificationcan occur, especiallyfor public sectoremployees underprivate sectormanagement;recasting of ethostowardsmanagerialist andquasi-marketdiscourses (Hebsonet al, 2003).

Joint ventures maybe located to takeadvantage offavourable (lessstrict) labour marketregulations.

CSR of a strategicpartner may have amoderate impact.

Those in supplychains may beaffected by clientdemands (Sako,1992), perhaps dueto CSR – althoughthis effect may bemitigated by EUregulations.

Relationship is set upto respond rapidly tomarket needs, so thenetwork may lead tointensification ofwork, even if not asa result of pressurefrom partners.

Staff healthand well-being

Public SectorDirective 2004/18and the UtilitiesDirective 2004/17allow publicauthorities to use arange of conditionsin procurement,including social andenvironmental (Hall,2008).

Ethical standards mayneed to follow parentcountries’ influence(Schuler and Tarique,2005 – though theyare speculative on thisrather than providingempirical evidence –p. 12), where the jointventure is establishedin a less regulatedcountry – forexample, to fulfilCSR.

CSR of a strategicpartner may have animpact.

CSR may beimportant forsuppliers (forexample, OECD,2002).


Employeerelations:trade unionand collectivebargainingnegotiations

Collectiverepresentationthrough unions maybecome morefragmented,especially for publicsector workers (Hall,2008), but unionsmay also benefitfrom new pockets ofunionism in privatesector firms.

Evidence frommultinationalcorporations (whichhave somecomparability to IJVsin terms of cross-border parentalcontrol) is mixed.Some (especiallyUS) parentcompanies resistunionisation, butunions have beensuccessful in certaincampaigns forinfluence (Grimshawet al, 2011).Managers maychoose to signprotocols (forexample, recentagreement by DeltaAirlines, KLM andAir France

4). Parent

and venture locationmay be important.

Unlikely to have astrong impact.

CSR may come intoplay (for example, ifsuppliers imposeconditions aboutaccess to collectivebargaining), but thishas not been a focalpoint forcampaigners.


4http://avstop.com/news_june_2010/airline_ceo_s_and_union_leaders_sign_historic_joint_venture_protocol.htm

http://avstop.com/news_june_2010/airline_ceo_s_and_union_leaders_sign_historic_joint_venture_protocol.htm

19





Trust Some suggestionsthat PPPs may erodeemployee–employertrust and lead tohigher levels oforganisation-levelmonitoring (Hebsonet al, 2003).

Complexity of thejoint venture maymake theestablishment of trustwithin the venture aslower process(Schuler and Tarique,2005).

Monitoringmechanisms may beimportant for trustbetween buyers andsuppliers. Sako’s(1992) analysis ofBritish and Japaneseinterfirmrelationships and anexamination byAulakh et al (1996)conclude thatestablishing moresubtle forms ofcontrol is associatedwith higher levels oftrust compared withdirect monitoring ofoutcomes and results.

Relationshipsbetween partnercompanies may besignificant in asupply chain (seeSako, 1992). Alsocrucial forknowledge-sharingbetween competitors(see, for example,Johnson et al, 1996,on cooperativerelationships).

The relationshipdepends on trust, butinterfirm trust maybe difficult toestablish especiallywhere short-termorders are beingprocessed rapidly.

20

A variety of characteristics that can be clustered by nation will have an effect on HRM policies and practice. Grimshaw

et al (2011) specify three main types of influence: institutional, socioeconomic and normative. The literature in these

areas is discussed below.

Institutional influences

Labour market regulations such as legal minimum wages, contractual protection and working time vary across the EU

(Grimshaw et al, 2011), which will clearly have an impact on collaboration across national boundaries.

Industrial relations systems matter in a variety of ways. HRM within and between firms is clearly influenced by worker

rights and collective bargaining arrangements in various national contexts. There are varying degrees of unionisation and

coverage of worker protection across Europe, from countries with sectoral-level agreements and strong worker rights to

those with more voluntarist arrangements, but where failure to follow collective agreements may lead to poor

employer–employee relations (see Grimshaw et al, 2011).

It seems intuitive that industrial relations arrangements will have an effect on employment conditions in general – but

there is also evidence that the various systems of labour organisation can have differing impacts on human resources in

interfirm relationships in particular. For instance, models of IT outsourcing with staff transfer take the form of direct staff

transfer in the UK but a transition to a joint venture in Germany, largely as a result of stronger participation of works

councils in designing the transfer process (Grimshaw and Miozzo, 2009). Conversely, interfirm relationships can impact

on wider patterns of collective bargaining. Doellgast and colleagues have found this effect in the telecommunications

industries in France and Germany (Doellgast et al, 2009). They found that French state-organised unionisation covering

the whole sector seems to have discouraged employers from seeking pay concessions or from externalising (outsourcing)

jobs. In the German telecommunications sector, however, there has been a greater degree of restructuring, more

externalisation of jobs and concession bargaining – resulting in lower wage levels in the industry.

This has occurred despite still-powerful, firm-level works councils in Germany. More fragmented bargaining, and the

wish to protect core organisation employees rather than all those within the sector, have reduced the ability to protect the

sector as a whole (Doellgast et al, 2009). The vertical disintegration of German employers has been an important element

in this. German firms have traditionally been vertically integrated. However, in the automotive and telecommunications

industries this pattern has been in decline in recent years, with an increase in outsourcing and reliance on external

suppliers. This has occurred partly because there are no statutory obligations to consult works councils before

outsourcing labour, and because worker representatives have tended to cooperate when cost-cutting measures have been

deemed necessary. Subcontractors, subsidiaries and temporary agencies often have no collective bargaining institutions,

or are covered by different firm-level and sectoral agreements. These factors together have made collective bargaining

more difficult to coordinate, and less effective (Doellgast and Greer, 2007), demonstrating the interplay between

interfirm relationships and labour relations.

Other national and cross-national policy choices are also important. An example of such institutional embeddedness of

inter-organisational forms concerns public-private partnerships. The UK was a first mover in Europe in introducing

quasi-markets in the public sector and greater use of private sector organisations ostensibly to modernise the public

sector and make it more responsive to customer needs (Grimshaw and Roper, 2007). It is no coincidence then that the

UK seems to have the lion’s share of PPPs in Europe, given its weak commitment to public sector capital investment.

Specifically, from 2001 to the end of 2008, the total value of signed PPP contracts in the UK was €61.1 billion, while

the total value of signed PPP contracts for the rest of Europe was €36.6 billion (IFSL Research, 2009, Table 5, p. 3).

Social and institutional context


21


While PPPs have in recent years become increasingly popular in a growing number of European countries, they are of

macroeconomic and systemic significance only in the UK, Portugal and Spain. In all other European countries the

importance of investment through PPPs remains small in comparison to traditional public procurement of investment

projects (Blanc-Brude et al, 2007). Similarly, reflecting a strong sectoral/industry bias, across the EU transport

infrastructure accounts for 60% of PPPs (by number), while in the UK over half of PPPs are in health, education and

local government (ibid, 2007, pp. 14–16).

Public initiatives may support other types of interfirm relationships. For instance, the automotive sector is increasingly

characterised by clusters (especially vertical ones in the form of supply chains and with professional/separate cluster

management arrangements) and, more recently, strategic alliances. One example of this is the automotive cluster in

Galicia, CEAGA, initiated by the regional government to develop the region (European Commission, 2002).

Socioeconomic influences

A number of socioeconomic factors will come into play to influence employees’ bargaining power and shape work

environments.

� Labour market conditions will affect recruitment, job security and the availability of temporary labour (Grimshaw et

al, 2011).

� Education and training and associated career progression – companies will need to take into account the skills profile

of their partners’ nations (Grimshaw et al, 2011).

� Social factors such as social stratification, standards of living and the welfare state are likely to affect employee

perceptions of fairness in pay structures. Collective agreements can provide marriage or child allowances, or require

that funding is offered for children’s education. Wages may also be expected to rise in line with cost of living (rather

than in line with personal performance, for example) (Grimshaw et al, 2011).

� Household-level systems – household, family and gender norms potentially affect expectations about working time,

family and equal opportunities (Grimshaw et al, 2011).

� National variations in production systems and work organisation can lead to different expectations. Various countries

have tended to have particular firm and network structures. For instance, German manufacturing has traditionally

demonstrated a high degree of vertical integration – in other words, firms have tended to maintain internal control

over all stages of production, from the design stage to delivery and marketing of the end product. Interfirm networks

have typically been used more in the event of spare capacity than as a general system of supply or cooperation

(Sturgeon, 2002). Some authors have concluded that this lack of experience of external suppliers is a major reason

why outsourcing of different stages of manufacturing has occurred less frequently and with less efficiency in

Germany compared with Anglo-Saxon nations, particularly the US (Amberg, 2006). By contrast, Italian

manufacturing has traditionally involved cooperative networks (Sturgeon, 2002 – see p. 45 for his country-specific

production network models).


22

Normative influences

Differences in organisational structure partly reflect historical characteristics of nations, which in turn can shape

everyday behaviours and organisational cultures. These systemic differences can have an impact on day-to-day

operations of firms – for example, by influencing managerial cultures. Such cultures can be a vital factor in the success

or survival of interfirm relationships (Fedor and Werther, 1996, cited in Iles and Yolles, 2002).

Danis (2003) found that interfirm interactions between Hungarian managers and those from more established market

economies (Germany, Japan and the US) were affected by the institutional backgrounds of the various nations. The

managerial systems in place under communism tended to be large, hierarchical structures, driven by volume rather than

market requirements. Human resource systems had been informal, based around administrative requirements, and

information systems had been opaque. This contrasts with the flat management structures of many western organisations,

in which human resource processes can be quite demanding and conform with extensive regulations and guidelines (see

also Walton and Guarisco, 2008, on Russia). This legacy of communism can have an impact on a variety of managerial

values, practices and systems. For instance, Hungarian managers were found to espouse fewer organisational values;

tended to be focused on shorter-term goals and less on market needs; and gave less priority to work (Danis, 2003). A

more recent study of eastern Europe, including Russia, has suggested that institutional background factors have a greater

influence on the way organisations are managed than whether organisations are in the private or public sector, for

example (Kyj and Kyj, 2009).

The stage of development of such post-socialist emerging markets can be an important contributor to how firms interact

with each other, and learn from each other in all respects. For example, it has been suggested that firms in more mature

emerging markets seek different types of learning and use different learning processes, compared with those in more

recently opened economies (Hitt et al, 2005). Other authors have emphasised that organisations in more established

emerging markets simply have a greater ‘absorptive capacity’ – a greater ability to learn from foreign partners, especially

in joint ventures – compared to the newer emerging markets (Steensma et al, 2005). This, however, somewhat overlooks

the fact that organisational learning can go in both directions – from eastern to western Europe, as well as vice versa –

as several authors have pointed out (for example, Walton and Guarisco, 2008; Iles and Yolles, 2002).

Frameworks for cross-national analysis

A variety of theoretical approaches could inform and structure cross-national analysis of the impact of interfirm

relationships on employment and working conditions. For example, Table 4 presents an analysis by the Directorate-

General for Employment, Social Affairs and Equal Opportunities, providing an overview of industrial regimes across

Europe.



23


Table 4: Industrial regimes or arrangements

Note: * In France, employee representation in firms incorporates both principles, in Spain and Portugal it is dualist, and in Italy andGreece it is merged with the unions but based on statutory rights. Source: European Commission (2008), Table 2.2, p. 49

To create a workable model, however, it may be valuable to use a more simplified typology. Regulation of the labour

market may be selected as a feature that overlies many of the themes of relevance to interfirm relationships – such as

certain aspects of industrial relations; employment protection; and the consequent obligations placed on organisations

(Table 5).

The extent to which different types of interfirm relationships are affected by the regulatory context will be closely related

to the breadth of human resource practices affected by the collaboration.


North Centre-West South West Centre-East

Production regime Coordinated market economy Statist marketeconomy

Liberal marketeconomy

Statist or liberal?

Welfare regime Universalistic Segmented (status-oriented, corporatist) Residual Segmented orresidual?

Employmentregime

Inclusive Dualistic Liberal

Industrialrelations regime

Organisedcorporatism

Social partnership Polarised/state-centred

Liberal pluralism Fragmented/state-centred

Power balance Labour-oriented Balanced Alternating Employer-oriented

Principal level ofbargaining

Sector Variable/ unstable Company

Bargaining style Integrating Conflict oriented Acquiescent

Role of socialpartners in publicpolicy

Institutionalised Irregular/politicised Rare/event-driven Irregular/politicised

Role of the state inindustrial relations

Limited (mediator) ‘Shadow ofhierarchy’

Frequentintervention

Non-intervention Organiser oftransition

Employeerepresentation

Union based/high coverage

Dual system/high coverage

Variable* Union based/small coverage

Union based/small coverage

Countries Denmark

Finland

Norway

Sweden

Belgium

Germany

(Ireland)

Luxembourg

Netherlands

Austria

Slovenia

(Finland)

Greece

Spain

France

Italy

(Hungary)

Portugal

Ireland

Malta

Cyprus

UK

Bulgaria

Czech Republic

Estonia

Latvia

Lithuania

Hungary

Poland

Romania

Slovakia

24

Table 5: Anticipated impact of regulation on the various types of interfirm relationship



Regulated Deregulated

PPP Impact on workers may be less than in a deregulatedlabour market, due to relatively equal conditions inpublic and private sectors.

Highly skilled workers may benefit from marketrewards; lower skilled workers may find that theirworking standards fall.

Joint venture Affected by a range of legislation on pay, recruitmentof local labour, health and safety, dismissal.

New entity will be less affected by restrictions. Jointventures may be set up for consequent cost advantages(Allen & Overy, 2009).

Strategicalliance

Strategic alliances involving contractual arrangementsmay have heavier obligations in a regulated system,but trust between partners may be increased wherethere is ‘system power’ (Lane and Bachmann, 1997)

Lower ‘system power’ may lead to increased relianceon contracting and lower trust between partners.

Cluster Legal requirements to train may affect clusters. A cluster in a deregulated economy may continue tohave an impact on training conditions and careerprogression. Other HR practices may be less affected.

Virtualcompanynetwork

As for strategic alliances and clusters, regulation mayallow for increased trust between firms, perhapsleading to more knowledge sharing and sharing ofdevelopment-related HRM practices.

Less regulation may encourage caution and mean thatthere is less impact on HRM.

25

The increasingly complex and interdependent organisational structures that have been emerging in the past two decades

present particular research questions and challenges in relation to the way of conceptualising both the organisation (and

its boundaries) and the resultant employment systems and relations. As has been observed, ‘it is becoming harder to

determine for whom one really works. Interlocking business relationships are at the heart of this confusion’ (Felstead,

1993, p. 189). Complications therefore arise over a number of issues:

� whether employees are supervised by managers who are employed by another organisation;

� how pay is determined and by which organisation for which group of workers;

� how employment relations are negotiated;

� what happens to contractual terms and conditions and security of employment under the various types of interfirm

relationships;

� how issues around identity, culture and multiple forms of commitment arise for employees working in such types of

relationships and in boundary-spanning roles.

An examination of the literature suggests that there are some key concepts that are useful when examining interfirm

relationships and their impact on HRM.

� The degree of trust and risk in interfirm relationships will affect the HRM approach, with higher levels of trust and

lower levels of risk allowing for longer-term, less formalised relationships. Lower levels of trust and higher risk,

however, tend to result in more ‘modular’ relationships that are more likely to be based on discrete market

transactions.

� Meanwhile, differing levels of power will also affect the interfirm relationship. Firms that are dominant due to their

size or their position in the supply chain (for example, as a client with the power to terminate or reduce contracts)

may have a disproportionate impact on smaller organisations’ HRM policies. This may take the form of

explicit/direct requests for changes to HRM (such as skills development/qualifications or of ‘softer’/implicit

influences such as diffusion of good practice).

� Alignment, integration and consistency will also vary according to how closely organisations work together, and

according to whether the objectives of the collaboration require changes to working practices.

� Context is crucial. This applies partly to the immediate context of the relationship, such as the objectives of the

relationship; and whether collaborating organisations are competitors or not (which will have a bearing on the levels

of trust and risk involved). The broader context is also crucial as the decision to set up relationships, and their

management, will be influenced by national and European institutions and policies; as well as by socioeconomic and

normative variation.

Conclusions


26

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