International Industrial Relations and the Host Country Context Chapter 9 International Industrial Relations and the Host Country Context IHRM, Dr. N. Yang

Chapter Objectives Discuss key issues in industrial relations, and the policies and practices of MNEs. Examine the potential constraints that trade unions may have on multinationals. Outline key concerns of trade unions regarding activities of MNEs Discuss recent trends and issues in the global workforce context. Discuss the formation of regional economic zones such as the European Union, and impact of opponents to globalization. Present issues of codes of conduct and NGOs as MNEs Discuss HR implications of off-shoring IHRM, Dr. N. Yang

Introduction Cross-cultural difference in industrial relations (IR) and collective bargaining The concept Level of negotiations/collective bargaining Objectives Ideology Union structures Rules and regulations Cross-cultural differences also emerge as to the enforceability of collective agreements. IHRM, Dr. N. Yang

Factors underlying Historical Differences in Structures of Trade Unions 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. IHRM, Dr. N. Yang

Union Structures Differ considerably among countries IR policies must be flexible enough in order to adapt to local traditions and institutional requirements. 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 Enterprise union - a single trade union within one plant or multi-plant enterprise, rather than within a craft or industry, common in Asia-Pacific countries IHRM, Dr. N. Yang

Trade Union Structures in Leading Western Industrial Societies Table 9.1 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 Great Britain General, craft, industrial, white-collar, public sector Japan Enterprise The Netherlands Religious, conglomerate, white-collar Norway Industrial, craft Sweden Industrial, craft, white-collar and professional Switzerland Industrial, craft, religious, white-collar US Industrial, craft, white-collar, public Germany Industrial, white-collar, religious IHRM, Dr. N. Yang

Thousands take to streets as strikes cripple France In France, people are used to having social conflict. Unions often hold a social-political change agenda In Oct.-Nov. 2007, School closed, flights delayed, trains cancelled, and newspapers not printed; Civil servants joined transport workers in strikes to challenge President Nicolas Sarkozy’s reform programs; Costing $400 million a day for weeks of public demonstration. IHRM, Dr. N. Yang

German conductors forsake the country’s model of consensus In Germany, social unrest is rare. Unions are viewed as business partners since post WWII. Also in Nov. 2007, Germany’s worst rail strike since WWII lasted for three days; Strikes have shattered union unity; Costing $111 million. IHRM, Dr. N. Yang

Japanese Enterprise Union Most enterprise unions in the same industry affiliate into an industry-wide federation. Nearly all of these federations are members of Rengō (Japanese Trade Union Confederation). But an individual enterprise union normally bargains without direct participation of the industrial federation or Rengō. Japanese enterprise unionism reflects Japan’s traditional low turnover of labor and seniority-based system; workers tend to identify with the company rather than with the union. Union strikes are rare, prescheduled, and short. Some unions seem to be unduly, even at times illegally, influenced by management because of the close identification of the union with the enterprise. Compared to other forms of the western unions, opinion is divided on whether Japanese enterprise unions effectively advance member interests. Japan McDonald’s Workers’ Union Executives with President Takagi IHRM, Dr. N. Yang

The Challenge to the MNEs Standardization vs. local adaptation Global mindset and local responsiveness National differences in economic, political, and legal systems Negotiation in other countries Oversee labor agreement across borders Decisions on issues such as off-shoring, unit location, capital investment or divestment, optimizing or sub-optimizing, and rationalization of production capacity IHRM, Dr. N. Yang

Industrial Relations Policies and Practices Degree of centralization or decentralization can be influence by several factors: 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 IHRM, Dr. N. Yang

Degree of Inter-subsidiary Production Integration and ILR 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. IHRM, Dr. N. 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 the US firms Greater divergence between British and the US labor relations systems than between British and other European systems, and More ethnocentric managerial style of the US firms IHRM, Dr. N. 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. IHRM, Dr. N. Yang

MNE 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. IHRM, Dr. N. Yang

Subsidiary Characteristics Subsidiaries formed through acquisition of well-established indigenous firms tend to be given much more autonomy over industrial relations than are green-field sites. Greater intervention would be expected when the subsidiary is of key strategic importance to the firm and when 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 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. IHRM, Dr. N. 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. IHRM, Dr. N. Yang

Management Attitudes towards Unions Knowledge of management attitudes or ideology concerning unions may provide a more complete explanation of multinational industrial relations behavior than relying solely on a rational economic model. Competitive/confrontational versus cooperative/partnership Codetermination law and the Works Council in Germany European Works Council (EWC, since 1994) Union density in western industrial societies Sweden, Finland, Denmark, Norway, Belgium have the highest level of union membership U.S. managers tend to hold a union avoidance value France has the lowest unionization in the western world, but the collective bargaining coverage is among the highest. IHRM, Dr. N. Yang

Union Density and Collective Bargaining Coverage Table 9.2 Country Union Density Collective Bargaining Coverage Austria 28.9% 78% Netherlands 18.9% 88% Belgium 51.9% 90% Norway 53.3% 77% Denmark 67.6% 83% Portugal 20.4% 87% Finland 67.5% Spain 14.3% 68% France 7.7% 95% Sweden 68.3% Germany 19.1% 67% U.K. 27.1% 36% Greece 24% 65% EU average 25% 66% Ireland 32.2% U.S. 11.9% 13.8% Italy 33.4% Japan 18.2% 20% Luxembourg 37.4% 48% OECD average 18.1% - Based on ILO, OECD, EIRO 2010, union density 2008, collective bargaining coverage 2007; OECD average 2010 IHRM, Dr. N. 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. IHRM, Dr. N. Yang

Unionization Trends and Key Factors An overall decline among industrial societies with a few exceptions OECD average declined from 18.8% in 2005 to 18.1% in 2010 Unionization rates remain high in public or government sectors Increased female unionization, reaching equal or even higher rates in some countries Economic shift from manufacturing to service oriented Global competition and relocation of jobs Alternative ways of employment EEOA related legislations and social movement IHRM, Dr. N. Yang

Union Density Trends and Bargaining Coverage by Percentage Table 9.3 Country Union Density Coverage Percentage change 1970-2003 U.S. 2004 12.5 13.8 -11.1 Canada 2004 30.3 32.4 -6.5 U.K. 2004 28.8 35.0 -15.5 Netherlands 2001 25.0 82.0 -14.2 Sweden 2003 78.0 92.0 10.3 Finland 2001 71.2 95.0 22.8 France 2003 8.3 -13.4 Austria 2002 35.4 99.0 -27.3 Germany 2003 22.6 63.0 -9.5 Japan 2003 19.6 23.5 -15.4 Source: Eurofound 2004 IHRM, Dr. N. Yang

Union Density Trends in the Face of Socioeconomic Changes Table 9.4 Country Private Public Male Female U.S. 2004 7.9 46.4 13.8 11.1 Canada 2004 17.8 72.3 30.6 30.3 U.K. 2004 17.2 58.8 28.5 29.1 Austria 1998 29.8 68.5 44.0 26.8 France 2003 5.2 15.3 9.0 7.5 Germany 1997 21.9 56.3 17.0 Netherlands 2001 22.4 38.8 29.0 19.0 Norway 1998 43.0 83.0 55.0 60.0 Sweden 1997 77.0 93.4 83.2 89.5 Finland 2001 55.3 86.3 66.8 75.6 Source: data adapted from Eurofund 2004 IHRM, Dr. N. Yang

Union Membership by Gender More men in the union U.S. Germany Austria Netherlands Japan Equal gender participation in the union Canada U.K. Ireland More women in the union Sweden Norway Finland IHRM, Dr. N. Yang

Key Issues in International Industrial Relations National differences in economic, political and legal systems produce markedly different IR systems across countries MNEs 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. IHRM, Dr. N. Yang

Labor Relations in the U.S. National Labor Relations Act (1935), also known as the Wagner Act Labor-Management Relations Act (1947), also called the Taft-Hartley Act An organizational behavioral approach: voluntary and informal, initiated by management, e.g. Participative management Employee empowerment Advocating market forces, efficiency, and effectiveness Collective bargaining at the firm level More adversarial labor relations IHRM, Dr. N. Yang

German Industrial Democracy A formal-structural approach aimed at equalizing power Established since post WWII The Codetermination Act (1951) The Codetermination Law (1976) Supervisory Board Management Board Works council IHRM, Dr. N. Yang

Trade Unions and International Industrial Relations Trade unions may limit the strategic choices of multinationals in three ways: Influencing wage levels to the extent that cost structures may become uncompetitive; Constraining the ability of MNEs to vary employment levels at will; and Hindering or preventing global integration of the operations of multinationals. IHRM, Dr. N. 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. IHRM, Dr. N. 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. IHRM, Dr. N. 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 MNEs by international organizations such as the OECD, EU, UN, etc. 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. IHRM, Dr. N. Yang

Hindering Global Integration of Operations Many MNEs 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. Car manufacturers were found 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. This ‘sub-optimization of integration’ led to unit manufacturing costs in Europe 15% higher on average. GM in the early 1980s had 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. IHRM, Dr. N. Yang

GM Europe Sells vehicles in over 40 markets. Operates 10 vehicle-production and assembly facilities in 7 countries Employs around 54,500 people. Additional directly related jobs are provided by some 8,700 independent sales and service outlets. In 2008, GM market share in Eurpoe declined. GM Europe 2007 2008 Revenue $37.4 bn $34.4 bn Earnings (before tax) $55 m $(1,633) m Workforce 55,651 54,500 Vehicles produced 1,820,039 1,725,179 Vehicles sold 2,181,989 2,039,360 Market share 9.5% 9.3% IHRM, Dr. N. Yang

China’s Top 10 Largest Passenger Vehicle Makers Table 9.5 Rank Name Units 2010 Growth 2010 1 SAIC-GM-Wuling 1,135,600 16.26% 2 Shanghai GM 1,012,100 42.87% 3 Shanghai Volkswagen 1,001,400 37.50% 4 FAW Volkswagen 870,000 30.01% 5 Chongqing Changan 710,000 36.93% 6 Beijing Hyundai 703,000 23.27% 7 Chery 674,800 34.87% 8 Dongfeng Nissan 661,000 27.37% 9 BYD 519,800 15.93% 10 Toyota 505,900 21.24%. Total: 7,793,600 Market share: 57.00% Source: http://www.thetruthaboutcars.com/2011/01/china-car-market-101-who-makes-all-those-18-million-cars/ SAIC-Shanghai Automotive Industry Corporation; FAW-First Auto Works IHRM, Dr. N. Yang

Trade Unions’ Response to MNEs 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. IHRM, Dr. N. Yang

Seven Characteristics of MNEs as the Source of Trade Union Concern 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’ Refuse to invest any additional funds in a plant, thus ensuring that the plant will become obsolete and economically non-competitive Offshoring IHRM, Dr. N. 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. IHRM, Dr. N. Yang

The Goal of the ITSs 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 Coordinated bargaining IHRM, Dr. N. 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. IHRM, Dr. N. 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. A major difficulty is the reality of conflicting national economic interests, especially in times of economic downturn IHRM, Dr. N. Yang

Regulation of Multinationals by International Organizations Attempts by trade unions to exert influence over MNEs via international organizations, such as ETUC, ILO, UNCTAD, OECD, EU, 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 IHRM, Dr. N. Yang

ILO code of conduct for MNEs The ILO Tripartite Declaration of Principles Concerning MNEs and Social Policy Disclosure of information, competition, financing, taxation, employment and industrial relations, and science and technology To make the MNEs more transparent A key section is the umbrella or chapeau clause MNEs should adhere to the guidelines As a ‘supplement to national law IHRM, Dr. N. Yang

OECD Guidelines for MNEs To promote responsible business conduct, firms should Respect human rights in every country they operate Respect environment and labor standards, including paying decent wages, combating bribe solicitation and extortion, and the promotion of sustainable consumption Have appropriate due diligence processes in place to ensure this happens IHRM, Dr. N. Yang

Regional Integration: EU ‘Social policy’ and ‘social dimension’ as a means to achieve social justice and equal treatment of EU citizens Outlaw discrimination on the grounds of gender, race, and color Reaffirm workers’ rights to be informed, negotiate and take collective action – right to strike European Works Councils 1994 The issue of social ‘dumping’ Firms would locate in those member states that have lower labor costs (relatively low social security) to gain a competitive advantage IHRM, Dr. N. Yang

The EU Social Dimension 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. 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. IHRM, Dr. N. Yang

Offshoring and HRM in India Benefits 3.1m graduates each year 20% population speak English Salaries used to be 80% lower than Western employees Technological infrastructure, particularly for information system Motivation Challenges Low job satisfaction High turnover rates at 20-80% Driving salary increase at 10-20%/yr HR policies and practices influenced by castes, social relationships and politics, rather than performance Low emphasis on training and career development IHRM, Dr. N. Yang

Offshoring and HRM in China Benefits Inexpensive manufacturing High emphasis on education and career advancement Size of the market Sociopolitical stability Fast growing economy Infrastructure, such as transportation Highway road length secondary to the U.S. Challenges Language High turnover rates Lack of systematic link of HRM with business strategy Lack of systematic link between performance, reward, and long-term motivation Lack of coherence and continuity of enterprise training Difficulty in assessing right Guanxi IHRM, Dr. N. Yang

Monitoring Host-country Subcontractors Outsourcing activities to host-country subcontractors requires some monitoring of HR practices Further contracting is likely to occur. Vocal groups such as NGOs have accused MNEs of condoning work practices that would not be permitted in their home countries, regarding: Child labor Minimum pay Work hours Work conditions and safety Environmental issues E.g., Nike, Levi Strauss, Benetton, Reebok, Adidas, Apple, Shell Oil, PB, etc. IHRM, Dr. N. Yang

HRM Roles with Global Codes of Conduct Drawing up and reviewing codes of conduct Conducting a cost–benefit analysis to oversee compliance of employees and relevant alliance partners Championing the need to train employees and alliance partners in elements of the code of conduct Checking that performance and rewards systems take into consideration compliance to codes of conduct IHRM, Dr. N. Yang 49

HRM Roles with Offshoring Consultation with unions/employee representatives Manpower planning, considering the scope for employee redeployment Contributing to the internal communication strategy Identifying training needs Designing new jobs which stem from offshoring operations Highlighting potential risks, such as the implications of employment regulation both in the home country and in foreign locations. IHRM, Dr. N. Yang

Chapter Summary In this chapter, we have reviewed and discussed differences in industrial relations across borders, and highlighted the complexity in international IR. We have also identified unionization trends and some key factors Combining recognition of the overt segmentation effects of international business with an understanding of the dynamics of FDI yields the conclusion that transnational collective bargaining is likely to remain a remote possibility. IHRM, Dr. N. Yang

Chapter Summary 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 activities 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, the United Nations, etc. Cross-cultural ethics and the role of IHRM IHRM, Dr. N. Yang

Vocabulary industrial relations, trade unions regional economic zones collective bargaining enterprise unions plant closure, redundancy, layoff programs lobbying sub-optimizing investment strike offshoring turnover rates BPO = business process outsourcing EHCNs = ex-host-country nationals guanxi, iron rice bowl ITSs = international trade secretariats, SEM, NCP, EU ETUC, ILO, UNCTAD, OECD, IFCTU, CIIME, EWC, FIET, AFL-CIO social dimensions, social ‘dumping’ umbrella or chateau clause ‘golden handshake’ strike-proneness ‘converging divergences’ IHRM, Dr. N. Yang

Discussion Questions Why is it important to understand the historical origins of national industrial relations systems? In what ways can trade unions constrain the strategic choices of multinationals? Identify four characteristics of MNEs that give trade unions cause for concern. How has trade unions responded to MNEs? Have these responses successful? Can you give examples which are critical of multinational firms? IHRM, Dr. N. Yang