Chapter 9

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					Chapter 9

Industrial Relations

        IBUS 681 Yang   1
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
   Discuss the formation of regional economic zones such as
    the European Union.
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 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.

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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
     Influence of religious organizations on trade union
     Managerial strategies for labor relations in large

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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
 IR policies must be flexible enough in order to
  adapt to local requirements.
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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
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Key Issues in International
Industrial Relations
 National differences in economic, political and legal
  systems produce markedly different IR systems across
 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.
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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

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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
 In this context, a coordinated industrial relations policy is
  one of the key factors in a successful global production

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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

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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.

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Prior Experience in Industrial
  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.

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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.

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Characteristics of the Home Product
 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.
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Management Attitudes towards
 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
      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.

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Industrial Disputes and Strike
 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.

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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.

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

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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.

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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.

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Hindering Global Integration of MNE
 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
 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.
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Trade Unions’ Response to
 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.

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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
   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.

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The Response of Trade Unions to
 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
    The secretariats have mainly operated to facilitate the
      exchange of information.
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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
 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

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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

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Lobbying for Restrictive National
 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.

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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

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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.
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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.
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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.

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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

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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
 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.

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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.

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The Digital Divide
  The International Labor Organization noted that “The
   digital divide exists not only between societies but within
  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
  Internet usage is stratified and is much more common
       Younger rather than older people
       Men rather than women
       Urban rather than rural dwellers, and
       People with higher levels of education and income.
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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.

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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.
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