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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. Union Density Trends and Bargaining Coverage by Percentage
Table 9.3
Country
Union Density
Coverage
Percentage change
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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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:
SAIC-Shanghai Automotive Industry Corporation; FAW-First Auto Works
IHRM, Dr. N. Yang

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. 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

50. 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

51. 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

52. 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

53. 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

54. 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