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IBUS 681 Yang 1
The focus of the preceding chapters has been on managing and supporting international assignments, post-assignment and the issues in subsidiary operations. In this chapter we:
Discuss key issues in industrial relations and the policies
and practices of multinationals. Examine the potential constraints that trade unions may have on multinationals. Outline key concerns for trade unions. Discuss recent trends and issues in the global workforce context. Discuss the formation of regional economic zones such as the European Union.
IBUS 681 Yang 2
Cross-cultural difference in industrial relations (IR)
and collective bargaining
The concept Level of negotiations Objectives Ideology Structures Rules and regulations
Cross-cultural differences also emerge as to the
enforceability of collective agreements.
IBUS 681 Yang 3
IBUS 681 Yang 4 .Introduction (cont.) Several factors may underlie the historical differences among nations: Mode of technology and industrial organization at critical stages of union development Methods of union regulation by government Ideological divisions within the trade union movement Influence of religious organizations on trade union development Managerial strategies for labor relations in large corporations.
IR policies must be flexible enough in order to adapt to local requirements.Union Structures Union structures differ considerably among countries. General unions – open to almost all employees in a given country.g. Industrial unions – Represent all grades of employees in an industry. Conglomerate unions – Represent members in more than one industry. Craft unions – Based on skilled occupational groupings across industries. IBUS 681 Yang 5 . e.
Trade Union Structures in Leading Western Industrial Societies Australia Belgium Canada Denmark Finland General. craft. white-collar Industrial. craft. craft Industrial. white-collar Religious. industrial. craft. conglomerate. religious. white-collar General. religious. craft. white-collar General. professional. conglomerate. professional and technical enterprise Japan Norway Sweden Switzerland The Netherlands UK US West Germany Enterprise Industrial. white-collar IBUS 681 Yang 6 . conglomerate General. white-collar Industrial. white-collar. public sector Industrial. white-collar and professional Industrial. white-collar. public sector Industrial. craft. craft. craft. industrial.
IBUS 681 Yang 7 . a policy of decentralization should not keep corporate headquarters from exercising some coordination over IR strategy.Key Issues in International Industrial Relations National differences in economic. However. 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. political and legal systems produce markedly different IR systems across countries Multinationals generally delegate the management of IR to their foreign subsidiaries.
Factors Influencing International Industrial Relations Degree of inter-subsidiary production integration Nationality of ownership of the subsidiary IHR management approach MNE prior experience in industrial relations Subsidiary characteristics Characteristics of the home product market Management attitudes towards unions IBUS 681 Yang 8 .
a coordinated industrial relations policy is one of the key factors in a successful global production strategy. In this context. when a subsidiary in one country relies on another foreign subsidiary as a source of components or as a user of its output. IBUS 681 Yang 9 . that is.Degree of Inter-subsidiary Production Integration High degree of integration was found to be the most important factor leading to the centralization of the IR function within the firms studied. Industrial relations throughout a system become of direct importance to corporate headquarters when transnational sourcing patterns have been developed.
attributed to: More integrated nature of US firms Greater divergence between British and US labor relations systems than between British and other European systems.Nationality of Ownership of the Subsidiary 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. and More ethnocentric managerial style of US firms IBUS 681 Yang 10 . US-owned subsidiaries are much more centralized in labor relations decision making than the British-owned. and are more likely than British firms to assert managerial prerogative on matters of labor utilization. Foreign-owned multinationals in Britain prefer single-employer bargaining (rather than involving an employer association).
owing to their greater propensity to participate in local events.IHR Management Approach An ethnocentric predisposition is more likely to be associated with various forms of industrial relations conflict. more geocentric firms will bear more influence on host-country industrial relations systems. Conversely. IBUS 681 Yang 11 .
and firm-based industrial relations policies are the norm. employer associations have not played a key role in the industrial relations system.. IBUS 681 Yang 12 . The opposite is more typical for U.S.Prior Experience in Industrial Relations European firms tend to deal with industrial unions at industry level (frequently via employer associations) rather than at the firm level. firms In the U.S.
IBUS 681 Yang 13 . Where the parent firm is a significant source of operating or investment funds for the subsidiary – a subsidiary is more dependent on headquarters for resources – there will tend to be increased corporate involvement in industrial relations and human resource management.Subsidiary Characteristics Subsidiaries formed through acquisition of well-established indigenous firms tend to be given much more autonomy over industrial relations than are greenfield sites. Greater intervention would be expected when the subsidiary is of key strategic importance to the firm and the subsidiary is young. Poor subsidiary performance tends to be accompanied by increased corporate involvement in industrial relations.
IBUS 681 Yang 14 . Since the implementation of the Single European Market. processes of operational decentralization with regard to industrial relations are also evident.Characteristics of the Home Product Market Lack of a large home market is a strong incentive to adapt to host-country institutions and norms. However. it is more likely that overseas operations will be regarded as an extension of domestic operations. For European firms. there has been growth in large European-scale companies (formed via acquisition or joint ventures) that centralize management organization and strategic decision-making. If domestic sales are large relative to overseas operations (as is the case with many US firms). international operations are more like to represent the major part of their business.
Competitive/confrontational versus cooperative Codetermination Works council Union density in western industrial societies Denmark has the highest level of union membership U. IBUS 681 Yang 15 . has the second lowest France has the lowest in the western world.Management Attitudes towards Unions Knowledge of management attitudes or ideology concerning unions provides a more complete explanation of multinational industrial relations behavior than relying solely on a rational economic model.S.
Foreign-owned firms may be under less financial pressure to settle a strike quickly than local firms – possibly because they can switch production out of the country. IBUS 681 Yang 16 .Industrial Disputes and Strike Proneness Hamill examined strike-proneness of multinational subsidiaries and indigenous firms in Britain across three industries. But multinational subsidiaries experienced larger and longer strikes than local firms. Strike proneness was measured via three variables: Strike frequency Strike size Strike duration There was no difference across the two groups of firms with regard to strike frequency.
By constraining the ability of multinationals to vary employment levels at will. and By hindering or preventing global integration of the operations of multinationals. IBUS 681 Yang 17 .Trade Unions and International Industrial Relations Trade unions may limit the strategic choices of multinationals in three ways: By influencing wage levels to the extent that cost structures may become uncompetitive.
IBUS 681 Yang 18 . Multinationals that fail to manage their wage levels successfully will suffer labor cost disadvantages that may narrow their strategic options. labor costs still play an important part in determining cost competitiveness in most industries.Influencing Wage Levels Although the importance of labor costs relative to other costs is decreasing.
the inability of firms to vary employment levels at will may be a more serious problem than wage levels. Japan and Australia. redundancy or layoff programs unless it can be shown that structural conditions make these employment losses unavoidable.Constraining the Ability to Vary Employment Levels at Will In Western Europe. Many countries now have legislation that limits considerably the ability of firms to carry out plant closure. payments for involuntary terminations are substantial. especially in comparison with those in the USA. In many countries. IBUS 681 Yang 19 . Plant closure or redundancy legislation in many countries frequently specifies that firms must compensate redundant employees through specified formulae such as 2 weeks‟ pay for each year of service.
Recent evidence shows that multinationals are beginning to consider the ability to dismiss employees to be one of the priorities when making investment location decisions. IBUS 681 Yang 20 .Constraining the Ability to Vary Employment Levels at Will (cont. Multinational managers who do not take these restrictions into account in their strategic planning may well find their options severely limited.) Trade unions may influence this process in two ways: Lobbying their own national governments to introduce redundancy legislation. and Encouraging regulation of multinationals by international organizations such as the Organization for Economic Cooperation and Development (OECD).
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 redundancy in sources to prevent localized social strife from paralysing their network. because to do so could cause industrial and political problems. General Motors as an example of this „sub-optimization of integration‟.g. e. GM was alleged in the early 1980s to have undertaken substantial investments in Germany 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. IBUS 681 Yang 21 .Hindering Global Integration of MNE Operations Many multinationals make a conscious decision not to integrate and rationalize their operations to the most efficient degree.
but their potential lobbying power and flexibility across national borders creates difficulties for employees and trade unions to develop countervailing power. IBUS 681 Yang 22 . There are several ways in which multinationals have an impact upon trade union and employee interests. Multinationals are not uniformly anti-union.Trade Unions’ Response to Multinationals Seeing the growth of multinationals as a threat to the bargaining power of labor because of the considerable power and influence of large multinational firms.
IBUS 681 Yang 23 .‟ whereby the multinational refuses to invest any additional funds in a plant.Seven Characteristics as the Source of Trade Union Concern about Multinationals Formidable financial resources Alternative sources of supply The ability to move production facilities to other countries A remote locus of authority Production facilities in many industries Superior knowledge and expertise in industrial relations The capacity to stage an „investment strike. thus ensuring that the plant will become obsolete and economically non-competitive.
The secretariats have mainly operated to facilitate the exchange of information. and Try to achieve regulation of multinationals by international organizations.The Response of Trade Unions to Multinationals The response of labor unions to multinationals has been threefold: Form international trade secretariats (ITSs) Lobby for restrictive national legislation. International trade secretariats (ITSs). There are 15 ITSs. which function as loose confederations to provide worldwide links for the national unions in a particular trade or industry (e. metals.g. IBUS 681 Yang 24 . transport and chemicals).
which is focused on the service sector. and Coordinated bargaining IBUS 681 Yang 25 . Professional and Technical Employees (Euro-FIET). The long-term goal of ITSs is to achieve transnational bargaining through a similar program.The Goal of the ITSs One of the fastest growing ITSs is European Regional Organization of the International Federation of Commercial. involving: Research and information Calling company conferences Establishing company councils Company-wide union–management discussions. Clerical.
due to several reasons: Generally good wages and working conditions offered by multinationals Strong resistance from multinational firm management Conflicts within the labor movement.Limited Success of ITSs Overall. the ITSs have limited success. and Differing laws and customs in the industrial relations field IBUS 681 Yang 26 .
trade unions have for many years lobbied for restrictive national legislation in the U. The motivation for trade unions to pursue restrictive national legislation is based on a desire to prevent the export of jobs via multinational investment policies. On a political level. and Europe. IBUS 681 Yang 27 .S.Lobbying for Restrictive National Legislation.
Regulation of Multinationals by International Organizations Attempts by trade unions to exert influence over multinationals via international organizations have met with some success. The International Labor Organization ILO has identified a number of workplace-related principles that should be respected by all nations: Freedom of association The right to organize and collectively bargain Abolition of forced labor. and Non-discrimination in employment IBUS 681 Yang 28 .
Aspects of employment and vocational training Social security and pensions. some consideration was given to social policy issues related to the creation of the European Community. In the Treaty of Rome (1957). such as: labor law and working conditions. The social dimension aims to achieve a large labor market by eliminating the barriers that restrict the freedom of movement and the right of domicile within the SEM. IBUS 681 Yang 29 .Regional Integration: the EU Social Dimension Regional integration such as the development of the EU has brought significant implications for industrial relations. The terms „social policy‟ or „social dimension‟ are used to cover a number of issues.
The European Works Councils (EWC) Directive was approved on 22 September 1994 and implemented 2 years later. The most contentious Directive is the Seventh (Vredeling). Strong opposition led by the then conservative British government and employer representatives argued that employee involvement in consultation and decisionmaking should be voluntary. which requirement of disclosure of company information to unions.The EU Directorates The EU has introduced a range of Directives related to the social dimension. IBUS 681 Yang 30 .
Obviously. of all social systems. the notion of a European social community does not mean a unification of all social conditions and benefits or. for that matter.Implications from the EU The EU aims to establish minimal standards for social conditions that will safeguard the fundamental rights of workers. all firms operating in the EU need to become familiar with EU Directives and keep abreast of changes. While harmonization of labor laws can be seen as the ultimate objective. IBUS 681 Yang 31 .
the Directive will ensure a high level of protection for both members and beneficiaries of pension funds. separately funded pension plans. IBUS 681 Yang 32 . Once implemented. Member States will need to implement the Directive by the middle of 2005. The Directive provides pension funds with a coherent framework to operate within the internal market and allows European companies and citizens the opportunity to benefit from more efficient pan-European pension funds. The Directive covers employer-sponsored.Pan-European Pensions The EU Council of Ministers has approved the pension funds Directive that sets standards for the prudential supervision of pension plans in the EU.
The counter-alarm was that states with low-cost labor would have to increase their labor costs. There are two industrial relations issues here: the movement of work from one region to another.Difficulty in Implementing the EU Social Policy Taxation differences among Member States Many Member countries‟ tax laws do not recognize contributions to foreign pension plans. IBUS 681 Yang 33 The issue of “social dumping” . to the detriment of their competitiveness. This creates unfavourable tax circumstances for employees working outside their home countries and contributing to pension plans in their host countries. and its effect on employment levels. and the need for trade union solidarity to prevent workers in one region from accepting pay cuts to attract investment. The impact of SEM on jobs – 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. at the expense of workers in another region.
.S. e. Importantly.The Impact of the Digital Economy Knowledge acquisition used by MNEs are an emerging issue in the U.g. for as long as 7 years. IBUS 681 Yang 34 . where newly trained professionals from overseas replace their trainers (expatriates or domestic workers).S. non-immigrant visa programme – particularly the L-1 classification allows companies to transfer workers from overseas offices to the U. this visa classification allows companies to pay these workers their home-country wage. U.S.
80 A majority of the world‟s population is technologically disconnected.” Only 15 per cent of the world‟s population (living mostly in industrialized countries) has access to ICT. IBUS 681 Yang 35 . and People with higher levels of education and income. Internet usage is stratified and is much more common among Younger rather than older people Men rather than women Urban rather than rural dwellers.The Digital Divide The International Labor Organization noted that “The digital divide exists not only between societies but within societies.
and highlighted the complexity in international IR. we have reviewed and discussed differences in industrial relations across borders.Chapter Summary In this chapter. Combining recognition of the overt segmentation effects of international business with an understanding of the dynamics of FDI yields the conclusion that general multinational collective bargaining is likely to remain a remote possibility. IBUS 681 Yang 36 .
it is likely that trade unions and the ILO will pursue these strategies and continue to lobby where possible for the regulation of multinationals via the European Commission and the United Nations. IBUS 681 Yang 37 .) Trade unions should opt for less ambitious strategies in dealing with multinationals. and Consolidating With regional economic integrations. such as Strengthening national union involvement in plant-based and company-based bargaining Supporting research on the vulnerability of selective multinationals.Chapter Summary (cont.
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