Chapter 9 Industrial Relations IBUS 681 Yang

Chapter Objectives 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

Introduction 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. (cont.) IBUS 681 Yang

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. IBUS 681 Yang

Union Structures Union structures differ considerably among countries, e.g. Industrial unions – Represent all grades of employees in an industry; Craft unions – Based on skilled occupational groupings across industries; Conglomerate unions – Represent members in more than one industry; General unions – open to almost all employees in a given country. IR policies must be flexible enough in order to adapt to local requirements. IBUS 681 Yang

Trade Union Structures in Leading Western Industrial Societies Australia General, craft, industrial, white-collar Belgium Industrial, professional, religious, public sector Canada Industrial, craft, conglomerate Denmark General, craft, white-collar Finland General, white-collar, professional and technical enterprise Japan Enterprise Norway Industrial, craft Sweden Industrial, craft, white-collar and professional Switzerland Industrial, craft, religious, white-collar The Netherlands Religious, conglomerate, white-collar UK General, craft, industrial, white-collar, public sector US Industrial, craft, conglomerate, white-collar West Germany Industrial, white-collar IBUS 681 Yang

Key Issues in International Industrial Relations National differences in economic, political and legal systems produce markedly different IR systems across countries Multinationals generally delegate the management of IR to their foreign subsidiaries. However, a policy of decentralization should not keep corporate headquarters from exercising some coordination over IR 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. IBUS 681 Yang

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

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, 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. IBUS 681 Yang

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. 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. US-owned subsidiaries are much more centralized in labor relations decision making than the British-owned, attributed to: More integrated nature of US firms Greater divergence between British and US labor relations systems than between British and other European systems, and More ethnocentric managerial style of US firms IBUS 681 Yang

IHR Management Approach An ethnocentric predisposition is more likely to be associated with various forms of industrial relations conflict. Conversely, more geocentric firms will bear more influence on host-country industrial relations systems, owing to their greater propensity to participate in local events. IBUS 681 Yang

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. The opposite is more typical for U.S. firms In the U.S., employer associations have not played a key role in the industrial relations system, and firm-based industrial relations policies are the norm. IBUS 681 Yang

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. 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. Poor subsidiary performance tends to be accompanied by increased corporate involvement in industrial relations. IBUS 681 Yang

Characteristics of the Home Product Market Lack of a large home market is a strong incentive to adapt to host-country institutions and norms. 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 as an extension of domestic operations. For European firms, international operations are more like to represent the major part of their business. Since the implementation of the Single European Market, 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. IBUS 681 Yang

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. Competitive/confrontational versus cooperative Codetermination Works council Union density in western industrial societies Denmark has the highest level of union membership U.S. has the second lowest France has the lowest in the western world. IBUS 681 Yang

Industrial Disputes and Strike Proneness Hamill examined strike-proneness of multinational subsidiaries and indigenous firms in Britain across three industries. 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. But multinational subsidiaries experienced larger and longer strikes than local firms. 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

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; 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

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. Multinationals that fail to manage their wage levels successfully will suffer labor cost disadvantages that may narrow their strategic options. IBUS 681 Yang

Constraining the Ability to Vary Employment Levels at Will In Western Europe, Japan and Australia, the inability of firms 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. 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. In many countries, payments for involuntary terminations are substantial, especially in comparison with those in the USA. IBUS 681 Yang

Constraining the Ability to Vary Employment Levels at Will (cont.) 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). Multinational managers who do not take these restrictions into account in their strategic planning may well find their options severely limited. 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

Hindering Global Integration of MNE Operations Many 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. 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, e.g. 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 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

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. Multinationals are not uniformly anti-union, but their potential lobbying power and flexibility across national borders creates difficulties for employees and trade unions to develop countervailing power. There are several ways in which multinationals have an impact upon trade union and employee interests. IBUS 681 Yang

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,’ whereby the multinational refuses to invest any additional funds in a plant, thus ensuring that the plant will become obsolete and economically non-competitive. IBUS 681 Yang

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, and Try to achieve regulation of multinationals by international organizations. 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.g. metals, transport and chemicals). The secretariats have mainly operated to facilitate the exchange of information. IBUS 681 Yang

The Goal of the ITSs One of the fastest growing ITSs is European Regional Organization of the International Federation of Commercial, Clerical, Professional and Technical Employees (Euro-FIET), which is focused on the service sector. The long-term goal of ITSs is to achieve transnational bargaining through a similar program, involving: Research and information Calling company conferences Establishing company councils Company-wide union–management discussions, and Coordinated bargaining IBUS 681 Yang

Limited Success of ITSs Overall, the ITSs have limited success, due to several reasons: Generally good wages and working conditions offered by multinationals Strong resistance from multinational firm management Conflicts within the labor movement, and Differing laws and customs in the industrial relations field IBUS 681 Yang

Lobbying for Restrictive National Legislation. On a political level, trade unions have for many years lobbied for restrictive national legislation in the U.S. and Europe. 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. IBUS 681 Yang

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

Regional Integration: the EU Social Dimension Regional integration such as the development of the EU has brought significant implications for industrial relations. In the Treaty of Rome (1957), some consideration was given to social policy issues related to the creation of the European Community. The terms ‘social policy’ or ‘social dimension’ are used to cover a number of issues, such as: labor law and working conditions, Aspects of employment and vocational training Social security and pensions. 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

The EU Directorates The EU has introduced a range of Directives related to the social dimension. The most contentious Directive is the Seventh (Vredeling), which requirement of disclosure of company information to unions. Strong opposition led by the then conservative British government and employer representatives argued that employee involvement in consultation and decision-making should be voluntary. The European Works Councils (EWC) Directive was approved on 22 September 1994 and implemented 2 years later. IBUS 681 Yang

Implications from the EU The EU aims to establish minimal standards for social conditions that will safeguard the fundamental rights of workers. Obviously, 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, the notion of a European social community does not mean a unification of all social conditions and benefits or, for that matter, of all social systems. IBUS 681 Yang

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. Member States will need to implement the Directive by the middle of 2005. The Directive covers employer-sponsored, separately funded pension plans. 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. Once implemented, the Directive will ensure a high level of protection for both members and beneficiaries of pension funds. IBUS 681 Yang

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. This creates unfavourable tax circumstances for employees working outside their home countries and contributing to pension plans in their host countries. The issue of “social dumping” 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. 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 pay cuts to attract investment, at the expense of workers in another region. IBUS 681 Yang

The Impact of the Digital Economy Knowledge acquisition used by MNEs are an emerging issue in the U.S., where newly trained professionals from overseas replace their trainers (expatriates or domestic workers), e.g. U.S. non-immigrant visa programme – particularly the L-1 classification allows companies to transfer workers from overseas offices to the U.S. for as long as 7 years. Importantly, this visa classification allows companies to pay these workers their home-country wage. IBUS 681 Yang

The Digital Divide The International Labor Organization noted that “The digital divide exists not only between societies but within societies.” Only 15 per cent of the world’s population (living mostly in industrialized countries) has access to ICT.80 A majority of the world’s population is technologically disconnected. Internet usage is stratified and is much more common among Younger rather than older people Men rather than women Urban rather than rural dwellers, and People with higher levels of education and income. IBUS 681 Yang

Chapter Summary In this chapter, we have reviewed and discussed differences in industrial relations across borders, and highlighted the complexity in international IR. 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

Chapter Summary (cont.) Trade unions should opt for less ambitious strategies in dealing with multinationals, such as Strengthening national union involvement in plant-based and company-based bargaining Supporting research on the vulnerability of selective multinationals, and Consolidating With regional economic integrations, 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