Irfan Asgani (isa8) Labor Relations - ILR5000

Final Exam

Question No.4:

Multi-National-Companies (MNCs) traditionally preferred to structure their internal labor

relations and HR in a decentralized manner because of 2 biggest reasons, 1). Each country has

its own labor law and politics that shape them, and 2). Culture is different in each country. For the

first reason, as each country has different labor laws and also the politics are different,

decentralization will give more authority to local managers in solving the issues as they are the

ones that understand the context more compared to global HQ. Decentralization will also give

flexibility and the ability to have quick responses in case of an emergency happening in the

operating country. In countries where the industry shapes their politics (i.e. Bangladesh and its

garment industry), it is important to have local employees that are able to give local insight

compared to global directives that may be distant from the local context.

Secondly, cultural difference is also an important aspect that decentralization is able to

address better compared to a centralized structure. Culture drive employee preferences in

compensation, holidays, and other cultural aspects of the company in each country. For example,

cultural norms in the US will be different from cultural norms in Indonesia. With the majority of

Indonesian being Muslim, their holiday season is also different. These differences will affect how

HR chose to give any bonus and decide on its company day offs. With decentralization, local

employees could also decide what kind of cause is accepted in their country even if it is a global

directive. One example of this is how LGBTQ+ is championed in the US while in the majority of

Muslim countries it is not even mentioned as it is still considered taboo and forbidden.

Decentralization will give freedom for local employees to decide on what is appropriate to

be implemented in each of their countries and let them operate closest to their local context.

However, with the advancement of technology and a new global economy, the decentralization

that gives too much power to the branch can become a future issue for MNCs. Most MNCs

nowadays will have a hybrid structure that balances the local authority with global guidance. One
Irfan Asgani (isa8) Labor Relations - ILR5000
Final Exam

of the reasons for this hybrid structure is caused by the emergence of the global supply chain.

This global supply chain has become increasingly important in the modern world, as it allows for

the efficient and cost-effective production and distribution of goods and services, often across

international borders. Especially with the existence of a trade agreement between countries (e.g.

NAFTA, CAFTA-DR, EU, etc.) that reduces tariffs for imported products, the global supply chain

has become an important reason why companies chose to have a hybrid structure. This hybrid

structure with regional structure is trying to connect the local context with global guidance so that

companies can manage the consistencies of their policies to support business strategy.

As global supply chain gives many advantages to the company, it could also pose a threat

to the company if they did not manage it well. Many NGOs has led activism to counter the greed

of MNCs that tend to exploit poor country with lax regulation. One example is how Nike in the

1990s is facing a backlash after there were reports that their products are made by exploiting

workers with some of them also using child workers in Cambodia and Pakistan. This report has

damaged their reputation which affects their sales and stock price. Damage to their reputation will

also reduce their chance to attract talent, especially when these talents have concerns about

social issues. In the end, Nike has to build a rigorous code of conduct that bind their suppliers by

following certain guidelines that enable them to uphold human rights in their global supply chain.

All of these issues caused by social pressure are amplified by how globalization and the

easiness of communication enable intense communication with everyone across the world.

However, it doesn't mean that the labor movement is also getting an upward trajectory because

of this. With each country having its own labor law, it also tied the labor movement and its union

to its own country. Even though there are some efforts to organize these unions into one global

union federation (e.g. IndustriALL, BWI, IDWF, etc.) it is still far from the ideal global unions that

can lead to global collective bargaining. Hardship on creating solidarity across the country borders

also occurred as they feel that when production has an issue in one country then it might give a

fortune to another country where the MNC operates. Language differences also can make their
Irfan Asgani (isa8) Labor Relations - ILR5000
Final Exam

communication harder and become ineffective. Adding the complexity of unclear common

interests or goals could create distrust toward union members which eventually makes global

solidarity still a far dream.

The expansion of global trade and MNCs is also giving companies more advantages, while

it may give more disadvantages to the union and its labor movement. Some of the disadvantages

are 1). Low strike leverage, and 2). The elasticity of workers' demand is reduced. One of the

strongest points why a global supply chain gives an advantage to companies is the ability of

companies to move their production in case there are some problems in one country. With this

ability, unions' strike leverage will be very low as companies will just need to move their

productions to other countries to achieve their target. This also affects the elasticity of the workers'

demand, where the workers are more likely to accept a lower wage to ensure their job safety.

Higher costs of workers will make the production cost higher and the product may not be

competitive enough to be sold at a higher price.

One exception to this general pattern is the cross-border employee such as flight crews

(e.g. stewards, stewardesses, pilots), maritime workers (e.g. ship crews, dockers), and

professional athletes or actors/actresses. As most of them are under the same working condition

under the same company, they will most likely have common interests that enable them to have

solidarity among others. The reason why they are able to create solidarity is as their industry

(airline and maritime) practically has the same conditions in every country, hence they will have

stronger bargaining power when working together as one. Strike leverage will also still be high as

their location advantage is not easily replaced (i.e. when there is a strike in Jakarta they will still

need to deliver the cargo to Jakarta). In a professional athlete or actor's situation, having a global

reputation will improve their total power. International expansion and exposure will give them more

leverage as their talent is uniquely embedded in themselves and it will not be easily replaced as

well.
Irfan Asgani (isa8) Labor Relations - ILR5000
Final Exam

To summarize, globalization and international labor relations will have advantages and

disadvantages for both sides (management and labor). Balancing the business need and the labor

demand will need a hybrid approach to understanding the local context with a clear guideline from

regional/global HQ to ensure there is a consistency of policies across their country of operations.

While at some points globalization reduces the leverage of employees and their unions, there are

also people that can benefit from it. What we need to ensure is that social dialogue is still

happening in any case to have a fair solution for both sides.