John Geary

Class 2, International HRM September 19th, 2013

Presentation outlinePart A. MNCs and the context of globalisation

Part B. Globalisation and the Irish Economy

Part C. The IR and HR practices of MNCs in Ireland

Part A

MNCs and the context of globalisation

Economic activity has become increasingly internationalised in terms of:

- markets - production - finance - business services - labour sourcing and supply

Significance of these developments - MNCs play a leading role - birth of the ‘global firm’ (reputedly): - organised to service a global (regional) market - free from the constraints of any particular country

Why MNCs go abroad?Two possible reasons:

To gain access to and to serve local or regional markets (market seeking behaviour) = horizontal FDI

Exploit international factor-cost country differences (efficiency-seeking behaviour) = vertical FDI

The behaviour of US MNCs:

- some semblance of horizontal FDI → entry strategies reflect local host-country contexts

- outsource a lot of their production activities to overseas affiliates = vertical FDI - US MNCs tend either to supply local markets through establishing affiliates to

manufacture goods or through establishing wholesale trade affiliates which resell goods produced elsewhere: choice between production-oriented FDI & distribution-oriented FDI

Role and significance of MNCs Impact of MNCs on employment and IR practices - a focus of some concern - ILO, OECD and UN - codes of conduct - and increasingly of trade unions and civil society associations (migrant rights

groups, etc.)

A new international division of labour (NIDL) and dangers of ‘social dumping’ – European social charter and employment legislation

Profound changes in the organisation and management structures of MNCs - corporate restructuring and rationalisation, integration and devolution - SEM (in EU) - encouraged large companies to reposition themselves on a

European-wide footing

Management of the employment relationship - shift in the locus of IR regulation from sector to ‘organisation-based’ arrangements

→ challenge to national/sectoral modes of regulation

Conceptualising MNCs

MNCs are companies which control production or service operations in two or more countries either directly through ownership of subsidiaries overseas or indirectly through licensing, joint ventures or sub-contracting (Marginson, 1994)

Part B

The Irish Economy 1920-1980Post independence – very small manufacturing base (Brewing - mainly

Guinness = accounted for 30% of all manufacturing exports)

1930s – early 1960s policy of import substitution - initial growth in output and employment proved to be short-lived once

domestic market was saturated

No post war boom as there was in virtually every other European economy

Some ‘exceptions’, e.g. Guinness, Waterford Glass, Jefferson Smurfit, Barlo, and a number of the food co-ops.

The shift to inward investmentPolicy of import substitution and protectionism seen to have failed by 1960s

New strategy - attract fdi = cornerstone of government economic development

Considerable success – employment & output increased significantly through 1960s & 70s

- by 1973 MNCs accounted for almost ⅓ of manufacturing employment - by early 1980s MNCs had invested £4bn in Ireland: 50% US, 12% UK and 10%

Germany

Availed of grants and tax concessions, used Ireland as a ‘tax haven’, and a base for engaging in transfer pricing

Largely concentrated in semi-skilled sectors, poorly embedded in Irish economy (branch plants supplying overseas markets), mature product market segments - little, if any, R&D

Focus of IDA energies – employment creation

Mid 1980s to 1990s

Criticisms of government policy – Telesis Report, Culliton Report (too generous to MNCs, neglect of indigenous industry, etc.)

Greater attention paid to Irish companies

But still a great reliance on FDI – key sectors targeted (pharmaceuticals, electronics, software, banking and finance) but with an increasing shift to high skilled employment = considerable success

Very significant repatriation of profits. By early 1990s profit outflows = 10% of GDP (exaggerated as firms engage in transfer pricing - allocating much of their sales to Irish operations)

The 1990s: the Birth of the ‘Celtic Tiger’Success of 1990s due to ‘aligning of the economic planets’ (Haughton, 2000): - a booming US economy providing firms with the resources to move overseas

- 10% tax on manufacturing profits

- large pool of well-educated employees

- creation of the SEM which could be served efficiently from an English-speaking Ireland

- conservative macroeconomic stance (‘business friendly’)

- industrial relations context: wage restraint and industrial peace brought about by successive national wage agreements

In recent years MNCs have come to account for 70%+ of manufacturing output and 85% of manufacturing exports and almost 50% of manufacturing employment

55.8% of the total corporation tax revenue comes from foreign-owned MNCs

FDI Inflows ($ million and % global total; euro values) 1992-7 (av.) 1998 2000 2002 2010 2011 1,694 8,579 25,843 24,486 32,319 8,249 0.5% 1.2% 1.9% 3.6% 3%

Intel alone has invested $7bn in its Irish operations since 1989

The American dimension US FDI key – up to 80% of total FDI

Irish share of the (cumulative) stock of US FDI coming into Europe = 1.19% in 1994 → 2.94% in 1997 → 7% in 2008 → 8.7% in 2010 (close to 5% of

worldwide investment) - with 0.6% of the population of Europe and 1% of the EU15 in 1973 Ireland had 1.5% of

US manufacturing sector FDI stock in Europe. By 2006, figure was close to 10% This equates to more than the total invested in the BRIC economies. During the decade to

2010, US investment in Ireland was three times that invested in China.

US firms directly employ around 100,000+ employees (2012) and support many more – perhaps up to 250,000

Ireland is now the most profitable location for US MNCs

The profits of US MNCs with operations in Ireland doubled between 1999 and 2002 from $13.14 billion to $26.8 billion while profits in the most of the rest of Europe fell

[Irish firms employ 120,000 employees in the US = cumulative stock of Irish fdi in US $30.6b in 2010

Ireland enormously successful in attracting FDI – key factor in creation of ‘Celtic Tiger’

IDA’s success is well regarded internationally

Its success in attracting lead companies has created a virtuous circle whereby ‘big names’ help to pull in other MNCs

- computer hardware: IBM, Intel, HP, Apple, Dell. - software: Microsoft, Lotus, Oracle and more recently, Google, Twitter and Facebook - nine of the top ten pharmaceutical companies: Glaxo, J&J, Pfizer, Merck, etc. - medical devices: Medtronic, Boston Scientific - half of the world’s top fifty banks and 20 insurance companies

Also new R&D investments by companies like HP, Intel, Bell Labs, Microsoft, and other companies in pharmaceuticals, many with collaborations with Irish universities

In sum:

Ireland is very dependent on inward investment and particularly investment from the US

Challenges aheadEU corporation-tax harmonisation?

Accession of new EU states – inter-regime competition both in respect of tax and IR regimes → ‘race-to-the bottom’?

Transfer pricing practices came under closer scrutiny from US government auditors and by politicians during the last (and current) US presidential election and currently (2013) by EU and OECD

Manufacturing jobs moving to China, India and elsewhere

Moving up the value chain

Part C

The IR and HRM practices of MNCs in Ireland

(Geary and Roche, 2001)

Most striking finding = how different MNCs are on a whole variety of IR/HR practices

US workplaces are very substantially different

Trade union recognition - as likely to recognise unions - single union recognition agreements - simpler bargaining arrangements - more support for shop stewards - more likely to report ‘good’ IR

Recent IR postures

BUT such comparisons mask important recent trends

- since 1985 dramatic relative decline in union recognition in US MNCs

= non-union US workplaces

- while other foreign-owned workplaces more likely to recognise trade unions

Human resource practicesUS MNCs - profit-sharing and share ownership X 8 - employee involvement X 5 - suggestions schemes X 3 - assessment centres X 2 - team working X 2 - performance appraisal X 2

Also more likely to pay above the terms established under national wage agreements

Summary

(i) identifiable US country-of-origin effect overriding host-country effect

(ii) differences with other foreign-owned workplaces less marked

MNCs approach to personnel issues more consistent with a HRM approach

Why the differences?

Role of development agencies (IDA) and employers’ association (IBEC)

- regime competition and fears of ‘capital flight’

- abandonment of exhortation of MNCs to conform to indigenous IR practices

- special unit to advise on non-union route

Implications for understanding changing patterns of employment relations

– ‘spill-over effects’ = emulation, increased experimentation amongst indigenous firms

– direction of convergence?

– fragmentation (adversarial, partnership, sophisticated non-union HRM, and crude non-union models)

Conclusion: The Significance of MNCs for Irish Employment Relations

Different sectors, different competitive strategies, different national business systems, different LM and PM pressures

diversity of competitive spaces

Consequence: diversity of employment relations state’s steering capacity reduced

Sources and further readingBarry, F. and Bergin, I (2010) Ireland’s Inward FDI over the recession and

beyond, available at: http://www.tcd.ie/iiis/documents/discussion/pdfs/iiisdp321.pdf

US Department of Commerce (2009) Doing Business in Ireland: A country Commercial Guide for US Companies, available at: http://www.buyusainfo.net/docs/x_2101325.pdf

Finfacts Ireland (2005) Ireland top location for US Multinational Profits, available at: http://www.finfacts.ie/irelandeconomy/usmultinationalprofitsireland.htm

Hanson, R. et al (2001) The expansion strategies of US multinational firms, US Dept. of Commerce, available at: http://www.bea.gov/papers/pdf/HMS1.PDF

Geary, J. and Roche, W. (2001) Multinationals and human resource practices in Ireland: a rejection of the new conformance thesis, available at: http://www.informaworld.com/smpp/content?content=10.1080/09585190122933

Gunnigle et al. (2005) Exploring the dynamics of US multinationals: evidence from the Republic of Ireland, available at: http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1468-2338.2005.00356.x