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International Industrial Relations and the Host Country Context


Chapter 9 International Industrial Relations and the Host Country Context IHRM, Dr. N. Yang * China s Top 10 Largest Passenger Vehicle Makers Rank Name Units 2010 ... – PowerPoint PPT presentation

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Title: International Industrial Relations and the Host Country Context

Chapter 9
  • International Industrial Relations and the Host
    Country Context

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
  • Discuss HR implications of off-shoring

  • 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.

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
  • Influence of religious organizations on trade
    union development
  • Managerial strategies for labor relations in
    large corporations.

Union Structures
  • Differ considerably among countries
  • IR policies must be flexible enough in order to
    adapt to local traditions and institutional
  • 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

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
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
Thousands take to streets as strikes cripple
  • In France, people are used to having social
  • Unions often hold a social-political change agenda
  • In Oct.-Nov. 2007, School closed, flights
    delayed, trains cancelled, and newspapers not
  • Civil servants joined transport workers in
    strikes to challenge President Nicolas Sarkozys
    reform programs
  • Costing 400 million a day for weeks of public

German conductors forsake the countrys model of
  • In Germany, social unrest is rare.
  • Unions are viewed as business partners since post
  • Also in Nov. 2007, Germanys worst rail strike
    since WWII lasted for three days
  • Strikes have shattered union unity
  • Costing 111 million.

Japanese Enterprise Union
  • Most enterprise unions in the same industry
    affiliate into an industry-wide federation.
  • Nearly all of these federations are members of
    Rengo (Japanese Trade Union Confederation).
  • But an individual enterprise union normally
    bargains without direct participation of the
    industrial federation or Rengo.
  • Japanese enterprise unionism reflects Japans
    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
  • Compared to other forms of the western unions,
    opinion is divided on whether Japanese enterprise
    unions effectively advance member interests.

Japan McDonalds Workers Union Executives with
President Takagi
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

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

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.

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

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.

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.

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.

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
  • For European firms, international operations are
    more like to represent the major part of their
  • 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.

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
  • Codetermination law and the Works Council in
  • 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
  • France has the lowest unionization in the western
    world, but the collective bargaining coverage is
    among the highest.

Union Density and Collective Bargaining Coverage
Country Union Density Collective Bargaining Coverage 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 90 Spain 14.3 68
France 7.7 95 Sweden 68.3 90
Germany 19.1 67 U.K. 27.1 36
Greece 24 65 EU average 25 66
Ireland 32.2 66 U.S. 11.9 13.8
Italy 33.4 90 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
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
  • 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.

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
  • Global competition and relocation of jobs
  • Alternative ways of employment
  • EEOA related legislations and social movement

Union Density Trends and Bargaining Coverage by
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 95.0 -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
Union Density Trends in the Face of Socioeconomic
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 29.8 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
Union Membership by Gender
  • More women in the union
  • Sweden
  • Norway
  • Finland
  • Equal gender participation in the union
  • Canada
  • U.K.
  • Ireland
  • More men in the union
  • U.S.
  • Germany
  • Austria
  • Netherlands
  • Japan

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

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
  • Collective bargaining at the firm level
  • More adversarial labor relations

German Industrial Democracy
  • A formal-structural approach aimed at equalizing
  • Established since post WWII
  • The Codetermination Act (1951)
  • The Codetermination Law (1976)
  • Supervisory Board
  • Management Board
  • Works council

Trade Unions and International Industrial
  • 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.

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

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
  • 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
  • In many countries, payments for involuntary
    terminations are substantial, especially in
    comparison with those in the USA.

Constraining the Ability to Vary Employment
Levels at Will (cont.)
  • Trade unions may influence this process in two
  • 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
  • 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.

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
  • 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.

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
Chinas Top 10 Largest Passenger Vehicle Makers
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//
-cars/ SAIC-Shanghai Automotive Industry
Corporation FAW-First Auto Works
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

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
  • 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

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.

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 unionmanagement discussions
  • Coordinated bargaining

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
  • Conflicts within the labor movement, and
  • Differing laws and customs in the industrial
    relations field.

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

Regulation of Multinationals by International
  • Attempts by trade unions to exert influence over
    MNEs via international organizations, such as
    ETUC, ILO, UNCTAD, OECD, EU, have met with some
  • The International Labor Organization (ILO) has
    identified a number of workplace-related
    principles that should be respected by all
  • Freedom of association
  • The right to organize and collectively bargain
  • Abolition of forced labor, and
  • Non-discrimination in employment

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

OECD Guidelines for MNEs
  • To promote responsible business conduct, firms
  • Respect human rights in every country they
  • 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

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
  • 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

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.

Offshoring and HRM in India
  • Benefits
  • 3.1m graduates each year
  • 20 population speak English
  • Salaries used to be 80 lower than Western
  • 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
  • Low emphasis on training and career development

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
  • Lack of systematic link between performance,
    reward, and long-term motivation
  • Lack of coherence and continuity of enterprise
  • Difficulty in assessing right Guanxi

Monitoring Host-country Subcontractors
  • Outsourcing activities to host-country
    subcontractors requires some monitoring of HR
  • 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.

HRM Roles with Global Codes of Conduct
  • Drawing up and reviewing codes of conduct
  • Conducting a costbenefit analysis to oversee
    compliance of employees and relevant alliance
  • Championing the need to train employees and
    alliance partners in elements of the code of
  • Checking that performance and rewards systems
    take into consideration compliance to codes of

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

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

Chapter Summary
  • Trade unions should opt for less ambitious
    strategies in dealing with multinationals, such
  • 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

  • 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
  • social dimensions, social dumping
  • umbrella or chateau clause
  • golden handshake
  • strike-proneness
  • converging divergences

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