Chapter: IHRM in the host country context.

Topics: 1. What are the determinants of the balance of standardization and localization in human
resource management in MNEs? d

2. How does a subsidiary's role affect its ability to transfer ideas and work practices to
parts of a global firm and what is the impact of the resources controlled by the respective
affiliate?

3. What are typical problems in offshoring organisations? What initiatives can be taken
to solve those problems? -- Write down with examples.d

Chapter Name: International Industrial Relations

Topics: 1. Why it is important to understand the historical origins of national industrial relations
system?

2. In what ways can trade unions constrain the strategic choices of multinationals?

3. What is social dumping? and why should unions be concerned about it? d

* All the Questions of chapter IHRM in the host country context and International industrial
Relations will have to be prepared and will be considered as your term paper. you must have to
submit this within 19.10.2020
Question:

What are the determinants of the balance of standardization and localization in human
resource management in MNEs?

Standardization and Localization in Human Resource Management:

Standardization in human resource management is management adopted by multinational

corporations in order to follow the standard HRM policies and practices among their
international operations so that they can achieve the best performance in the organization.
Localization in human resource management is the HRM policies and practices adopted by
multinational corporations when considering local rules and regulations for foreign
multinationals.

Answer and Explanation:

The determinants of the balance of standardization and localization in human resource

management in MNEs is as follows:

A) The balance of standardization in human resource management in MNEs is:

 Strategy and structure of the organization

 Corporate culture in the organization
 Size of the firm and maturity in the firm

B) The balance of localization in human resource management in MNEs is:

 Institutional Environment
 Cultural Environment
 Mode of the operation
 Role of the subsidiary in the organization.
 3) Maturity level in the organization.
3. What is social dumping? and why should unions be concerned about it?

Social dumping is a practice of employers to use cheaper labour than is usually available at their
site of production or sale. In the latter case, migrant workers are employed; in the former,
production is moved to a low-wage country or area. The company will thus save money and
potentially increase its profit. Systemic criticism suggests that as a result, governments are
tempted to enter a so-called social policy regime competition by reducing their labour and social
standards to ease labour costs on enterprises and to retain business activity within their
jurisdiction.

One of the early concerns related to the formation of the European Union was its impact on
jobs. There was alarm that those member states that have relatively low social security costs
would have a competitive edge and that firms would locate in those member states that have
lower labor costs. The counter-alarm was that states with low-cost labor would have to increase
their 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 the need for trade union solidarity to prevent workers in one region from accepting
paycuts to attract investment, at the expense of workers in another region.
With the expansion of the EU in 2004 to include ten new members (most relatively low income
states, some of whom are still working to overcome the heritage of state socialist economic
systems and limited recent experience with parliamentary democracy) there has been an
increased sensitivity to the problem of social dumping. This is particularly so since the global
financial crisis in 2009. An internet search using the term ‘social dumping’ will turn up
webpages reflecting concerns from multiple perspectives – trade union, societal and business.
We examine these multiple perspectives in the next section of this chapter where we look at the
issue of monitoring global HR practices.
2. In what ways can trade unions constrain the strategic choices of multinationals?

Trade unions may limit the strategic choices of multinationals in three ways: (1) by influencing
wage levels to the extent that cost structures may become uncompetitive; (2) by constraining
thability of multinationals to vary employment levels at will; and (3) by hindering or preventing.
global integration of the operations of multinationals. We shall briefly examine each of these
potential constraints.

Influencing 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 in most industries. The influence of unions
on wage levels is therefore, important. Multinationals that fail to successfully manage their wage
levels will suffer labor cost disadvantages that may narrow their strategic options.

Constraining the ability of multinationals to vary

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 losses unavoidable. Frequently, the process of showing the need for these programs
is long and drawn-out. Plant closure or redundancy legislation in many countries also frequently
specifies that firms must compensate redundant employees through specified formulae such as
two week’s pay for each year of service. In many countries, payments for involuntary
terminations are quite substantial, especially in comparison to those in the USA. Trade unions
may influence this process in two ways: by lobbying their own national governments to
introduce redundancy legislation; and by encouraging regulation of multinationals by
international organizations such as the Organization for Economic Cooperation and
Development (OECD). (Later in this chapter we describe the Badger case, which forced
Raytheon to finally accept responsibility for severance payments to employees made redundant
by the closing down of its Belgian subsidiary.) Multinational managers who do not take these
restrictions into account in their strategic planning may well find their options to be considerably
limited.

Hindering or preventing global integration of the operations of MNEs

In recognition of these constraints (which can vary by industry), some multinationals make a
conscious decision not to integrate and rationalize their operations to the most efficient degree,
because to do so could cause industrial and political problems. Prahalad and Doz cite General
Motors as an example of this ‘sub-optimization of integration’. GM was alleged in the early
1980s to have undertaken substantial investments in Germany (matching its new investments in
Austria and Spain) at the demand of the German metalworkers’ union (one of the largest
industrial unions in the Western world) in order to foster good industrial relations in Germany.
One observer of the world auto industry suggested that car manufacturers were sub-optimizing
their manufacturing networks partly to placate trade unions and partly to provide a ‘redundancy
in sources’ to prevent localized industrial relations problems from paralyzing their network.
Thissub-optimization led to unit manufacturing costs in Europe that were 15 per cent higher, on
average, than an economically optimal network would have achieved.:
Topics: 1. Why it is important to understand the historical origins of national industrial
relations system?

KEY ISSUES IN INTERNATIONAL INDUSTRIAL RELATIONS

The focus of this chapter is on the industrial relations strategies adopted by multinationals
rather than the more general topic of comparative industrial relations.8 Later in this chapter we
will cover the emerging topic of ‘offshoring of labor’, but first we examine the central question
for industrial relations in an international context, which concerns the orientation of MNEs to
organized labor. Industrial relations policies and practices of multinational firms Because
national differences in economic, political and legal systems produce markedly different
industrial relations systems across countries, MNEs generally delegate the management of
industrial relations to their foreign subsidiaries. However, a policy of decentralization does not
keep corporate headquarters from exercising some coordination over industrial relations strategy.
Generally, corporate headquarters will become involved in or oversee labor 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. Further found that the majority of the
firms in their study monitored labor performance across units in different countries. Comparison
of performance data across national units of the firm creates the potential for decisions on issues
such as unit location, capital investment and rationalization of production capacity. The use of
comparisons would be expected to be greatest where units in different countries undertake
similar operations. For reviews of the literature in this area, see the work of Gunnigle and his
colleagues.10 Much of the literature on the industrial relations practices of MNEs tends to be at a
more cross-national or comparative level. There is, however, some research on industrial
relations.

The degree of inter-subsidiary production integration. According to Hamill, a high degree of

integration was found to be the most important factor leading to the centralization of the
industrial relations function within the firms studied. Industrial relations throughout a system
become of direct importance to corporate headquarters when transnational sourcing pattern shave
been developed, that is, when a subsidiary in one country relies on another foreign subsidiary as
a source of components or as a user of its output. In this context, a coordinated industrial
relations policy is one of the key factors in a successful global production strategy. One early
example of the development of an international policy for industrial relations can be seen in the
introduction of employee involvement across Ford’s operations. Nationality of ownership of the
subsidiary. There is evidence of differences between European and US firms in terms of
headquarters’ involvement in industrial relations. 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 a
close reporting system (particularly within the area of financial control) to ensure that planning
targets are met. In his review of empirical research of this area, Bean showed that foreign-owned
multinationals in Britain prefer single-employer bargaining (rather than involving an employer
association), and are more likely than British firms to assert managerial prerogative on matters of
labor utilization. Further, Hamill18 found US-owned subsidiaries to be much more centralized in
labor relations decision-making than British-owned. Hamill attributed this difference in
management procedures to the more integrated nature of US firms, the greater divergence
between British and US labor relations systems than between British and other European
systems, and the more ethnocentric managerial style of US firms.

International human resource management approach. In earlier chapters, we discussed the

various international human resource management approaches utilized by multinationals; these
have implications for international industrial relations. Interestingly, an ethnocentric
predisposition is more likely to be associated with various forms of industrial relations conflict.
Conversely, it has been shown that more geocentric firms will bear more influence on host-
country industrial relations systems, due to their greater propensity to participate in local events.
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, and firm-based industrial relations policies

tend to be the norm. Subsidiary characteristics. Research has identified a number of subsidiary
characteristics to be relevant to centralization of industrial relations. First, subsidiaries that are
formed through acquisition of well-established indigenous firms tend to be given much more
autonomy over industrial relations than are greenfield sites set up by a multinational firm.
Second, according to Enderwick, greater intervention would be expected when the subsidiary is
of key strategic importance to the firm and the subsidiary is young. Third, where the parent firm
is a significant source of operating or investment funds for the subsidiary, that is, where the
subsidiary is more dependent on headquarters for resources, there will tend to be increased
corporate involvement in industrial relations and human resource management. Finally, poor
subsidiary performance tends to be accompanied by increased corporate involvement in
industrial relations. Where poor performance is due to industrial relations problems,
multinationals tend to attempt to introduce parent-country industrial relations practices aimed at
reducing industrial unrest or increasing productivity. Characteristics of the home product
market. An important factor is the extent of the home product market – an issue that wa. If
domestic sales are large relative to overseas operations (as is the case with many 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
operations represent the major part of their business. Lack of a large home market is a strong
incentive to adapt to host-country institutions and norms. There is evidence of change in the
European context: since the implementation of the single European market in 1993, there has
been growth in large European-scale companies (formed via acquisition or joint ventures) that
centralize management organization and strategic decision-making. However, processes of
operational decentralization with regard to industrial relations are also evident. Management
attitudes towards unions. An additional important factor is that of management attitudes or
ideology concerning unions. Knowledge of management attitudes concerning unions may
provide a more complete explanation of multinational industrial relations behavior than could be
obtained by relying solely on a rational economic model. Thus, management attitudes should
also be considered in any explanation of managerial behavior along with such factors as market
forces and strategic choices. This is of particular relevance to US firms, since union avoidance
appears to be deeply rooted in the value systems of American
What are typical problems in offshoring organisations? What initiatives can be taken to
solve those problems? -- Write down with examples.

Problems are given:

 There is no systematic approach for linking HRM with the business strategy.
 Despite a surplus of labor, many companies face recruiting and retention problems.
 There is no systematic link between performance management, reward and long-term
motivation.
 There is a lack in coherence and continuity of enterprise training.
 Turnover issues

Initiatives are given:

 Consultation with unions/employee representatives.

 l Manpower planning, considering the scope for employee redeployment.
 l Contributing to the internal communication strategy.
 l Identifying training needs.
 l Designing new jobs which stem from offshoring operations.
 l Highlighting potential risks, such as the implications of employment regulation both in
the home country and in foreign locations.

Example

Offshoring and HRM in India

India has developed a flourishing business process outsourcing (BPO) industry84 and respective

competencies. The technological infrastructure and the qualification as well as the motivation of

the employees are perceived as benefits by Western investors and partners. Furthermore, each
year 3.1 million graduates enter the workforce and 20 per cent of the population speaks
English.85 Indian graduates are prepared to work for salaries which are lower than those of their
Western counterparts. To capitalize on this cost advantage, US firms such as IBM, Hewlett-
Packard and Electronic Data Systems have outsourced software development to Indian
suppliers.86 Other multinationals, such as General Electric, have used the availability of a highly
educated yet relatively cheap labor force to establish their call centers in various parts of India.
Local staff employed in these call centers are trained to speak English complete with particular
accent and use of appropriate idiom, so that US, UK and Australian customers are often unaware
that their local call has been diverted to a call center in India.

For example, annual personnel turnover rates range from 20 to 80 per

cent and a shortage exists considering the high demand for a skilled workforce, especially in
middle management. As some HR managers have reported, only half of the candidates even
show up for a job interview.87 This shortage and the high demand for skilled workers have led to
an annual increase in salaries of between 10 and 20 per cent. Consequently, the significant cost
advantages of offshoring to India are in danger. Additional issues are the problems of worker
dissatisfaction and conflicts caused by stress as well as cases of reported sexual and racial
abuse.88 All of these factors can lead to a decrease in productivity and thus, to further financial
losses.89 These findings are confirmed by the results of an empirical study conducted by Mehta
et al., who concluded that HRM issues are perceived as a major weakness in BPO firms.90 This
represents a challenge to the HRM of BPO firms. As reported by Sparrow and Budhwar,91 the
Indian HRM policies and practices are still very much influenced by the caste system, social
relationships and politics.
. How does a subsidiary's role affect its ability to transfer ideas and work practices to parts
of a global firm and what is the impact of the resources controlled by the respective
affiliate?

Subsidiary Role

 Specifies the position of a particular unit in relation to the rest of the organization and
expected performance contributions
 Varies in Function, power and resource relationships, initiative-taking
 Host-country environment
 Predisposition of top management
 Active champing of subsidiary management

Gupta and Govindarajan’s four generic subsidiary roles

A global innovator (knowledge provider) is predominantly a source of knowledge for other
subsidiaries and the headquarters. One example of such a subsidiary might be SAP Labs US,
from which a significant portion of SAP's technological innovations have originated. Located in
Palo Alto, California, the subsidiary maintains strategic relationships with local organisations
such as Stanford University, and its mission is to leverage the valuable assets within Silicon
Valley to drive innovation .

■ An integrated player (knowledge networker) is also responsible for creating knowledge that
can be utilised by other subsidiaries. However, the knowledge networker must also rely on
knowledge from others and thus receives and sends high levels of knowledge to and from the
subsidiary. With this bi-directional integration in knowledge flows, it can be considered a “centre
of excellence” that is tightly embedded in both the MNC and its local environment

■ The implementor (knowledge user) relies heavily on knowledge inflows from headquarters and
from sister subsidiaries. It exploits the competitive advantages stemming from this knowledge in
its host market without initiating high knowledge outflows to the rest of the corporation.

■ Finally, the local innovator (knowledge independent) role implies that the subsidiary is isolated
from knowledge flows within the MNC and has to take local responsibility for the creation of the
necessary expertise itself. In terms of network models, companies with a multinational
orientation consist mainly of subsidiaries that can be considered knowledge independents.