Chapter 10 International Industrial Relations IBUS 618 Dr

Chapter 10 International Industrial Relations IBUS 618, Dr. 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 will: n Discuss key issues in industrial relations and the policies and n n practices of multinationals. Examine the potential constraints that trade unions may have on multinationals. Outline key concerns for trade unions. Discuss recent trends and issues in the global workforce context. Discuss the formation of regional economic zones such as the European Union, and impact of opponents to globalization. IBUS 618, Dr. Yang 2

Introduction n Cross-cultural difference in industrial relations (IR) and collective bargaining n n n The concept Level of negotiations Objectives Ideology Structures Rules and regulations n Cross-cultural differences also emerge as to the enforceability of collective agreements. IBUS 618, Dr. Yang 3

Factors underlying Historical Differences in Structures of Trade Unions n Mode of technology and industrial organization at n n critical stages of union development Methods of union regulation by government Ideological divisions within the trade union movement Influence of religious organizations on trade union development Managerial strategies for labor relations in large corporations. IBUS 618, Dr. Yang 4

Union Structures n Differ considerably among countries n IR policies must be flexible enough in order to adapt to local traditions and institutional requirements. n n n 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 multiplant enterprise, rather than within a craft or industry, common in Asia-Pacific countries. IBUS 618, Dr. Yang 5

Table 10 -1 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 West Germany Industrial, white-collar IBUS 618, Dr. Yang 6

Thousands take to streets as strikes cripple France n In France, people are used to having social conflict. n Unions often hold a socialpolitical change agenda n In Oct. -Nov. 2007, School closed, flights delayed, trains cancelled, and newspapers not printed; n Civil servants joined transport workers in strikes to challenge President Nicolas Sarkozy’s reform programs; n Costing $400 million a day for weeks of public demonstration. IBUS 618, Dr. Yang 7

German conductors forsake the Country’s model of consensus n In Germany, social unrest is rare. n Unions are viewed as business partners since post WWII. n Also in Nov. 2007, Germany’s worst rail strike since WWII lasted for three days; n Strikes have shattered union unity; n Costing $111 million. IBUS 618, Dr. Yang 8

Japanese Enterprise Union n n n 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. IBUS 618, Dr. Yang Japan Mac. Donald Workers’ Union Executives with President Takagi 9

The Challenge to the Multinationals n Standardization vs. local adaptation n Global mindset and local responsiveness IBUS 618, Dr. Yang 10

Difference in MNE Approached to International Industrial Relations n Degree of centralization or decentralization can be influence by several factors: n n n n Degree of inter-subsidiary production integration Nationality of ownership of the subsidiary IHR management approach MNE prior experience in industrial relations Subsidiary characteristics Characteristics of the home product market Management attitudes towards unions IBUS 618, Dr. Yang 11

Degree of Inter-subsidiary Production Integration and ILR n High degree of integration was found to be the most important factor leading to the centralization of the IR function within the firms studied. n 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. n In this context, a coordinated industrial relations policy is one of the key factors in a successful global production strategy. IBUS 618, Dr. Yang 12

Nationality of Ownership of the Subsidiary n US firms tend to exercise greater centralized control over labor relations than do British or other European firms. n 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. n 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. n US-owned subsidiaries are much more centralized in labor relations decision making than the British-owned, attributed to: n More integrated nature of US firms n Greater divergence between British and US labor relations systems than between British and other European systems, and n More ethnocentric managerial style of US firms IBUS 618, Dr. Yang 13

IHR Management Approach n An ethnocentric predisposition is more likely to be associated with various forms of industrial relations conflict. n Conversely, more geocentric firms will bear more influence on host-country industrial relations systems, owing to their greater propensity to participate in local events. IBUS 618, Dr. Yang 14

Prior Experience in Industrial Relations n European firms tend to deal with industrial unions at industry level (frequently via employer associations) rather than at the firm level. n The opposite is more typical for U. S. firms n In the U. S. , employer associations have not played a key role in the industrial relations system, and firm-based industrial relations policies are the norm. IBUS 618, Dr. Yang 15

Subsidiary Characteristics n Subsidiaries formed through acquisition of well-established indigenous firms tend to be given much more autonomy over industrial relations than are green-field sites. n Greater intervention would be expected when the subsidiary is of key strategic importance to the firm and when the subsidiary is young. n 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. n Poor subsidiary performance tends to be accompanied by increased corporate involvement in industrial relations. IBUS 618, Dr. Yang 16

Characteristics of the Home Product Market n Lack of a large home market is a strong incentive to adapt to host-country institutions and norms. n n If domestic sales are large relative to overseas operations (as is the case with many US firms), it is more likely that overseas operations will be regarded as an extension of domestic operations. For European firms, international operations are more like to represent the major part of their business. Since the implementation of the Single European Market, there has been growth in large European-scale companies (formed via acquisition or joint ventures) that centralize management organization and strategic decision-making. However, processes of operational decentralization with regard to industrial relations are also evident. IBUS 618, Dr. Yang 17

Management Attitudes towards Unions n Knowledge of management attitudes or ideology concerning unions provides a more complete explanation of multinational industrial relations behavior than relying solely on a rational economic model. n n n Competitive/confrontational versus cooperative Codetermination Works council n Union density in western industrial societies n Sweden has the highest level of union membership n U. S. managers tend to hold a union avoidance value n France has the lowest unionization in the western world. IBUS 618, Dr. Yang 18

Table 10 -2 Union membership for selected countries IBUS 618, Dr. Yang 19

Union Density and Bargaining Coverage by Percentage change Coverage 1970 -2003 Country Union Density 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 IBUS 618, Dr. Yang 20

Union Density Rates in the Face of Socioeconomic Changes Country Private Public Male Female 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 U. S. 2004 Source: data adapted from Eurofund 2004 IBUS 618, Dr. Yang 21

Union Membership by Gender n More men in the union n U. S. Germany Austria Netherlands n Japan n n Equal gender participation in the union n Canada U. K. n Ireland n IBUS 618, Dr. Yang n More women in the union n Sweden Norway n Finland n 22

Unionization Trends and Key Factors n An overall decline among n Economic shift from industrial societies with a few exceptions n Unionization rates remain high in public or government sectors n Increased female unionization, reaching equal or even higher rates in some countries manufacturing to service oriented n Global competition and relocation of jobs n Alternative ways of employment n EEOA related legislations and social movement IBUS 618, Dr. Yang 23

Key Issues in International Industrial Relations n National differences in economic, political and legal systems produce markedly different IR systems across countries n 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. n Generally, corporate headquarters will become involved in or oversee labor agreements made by foreign subsidiaries because these agreements may affect the international plans of the firm and/or create precedents for negotiations in other countries. IBUS 618, Dr. Yang 24

Labor Relations in the U. S. n National Labor Relations Act (1935), also known as the Wagner Act n Labor-Management Relations Act (1947), also called the Taft-Harley Act n An organizational behavioral approach: voluntary and informal, initiated by management, e. g. n n n Participative management Employee empowerment Advocating market forces, efficiency, and effectiveness Collective bargaining at the firm level More adversarial labor relations IBUS 618, Dr. Yang 25

German Industrial Democracy n A formal-structural approach aimed at equalizing power n n n Established since post WWII The Codetermination Act (1951) The Codetermination Law (1976) n Supervisory Board n Management Board n Works council IBUS 618, Dr. Yang 26

Industrial Disputes and Strike Proneness n Hamill examined strike-proneness of multinational subsidiaries and indigenous firms in Britain across three industries. n Strike proneness was measured via three variables: n n n Strike frequency Strike size Strike duration n There was no difference across the two groups of firms with regard to strike frequency. n But multinational subsidiaries experienced larger and longer strikes than local firms. n Foreign-owned firms may be under less financial pressure to settle a strike quickly than local firms – possibly because they can switch production out of the country. IBUS 618, Dr. Yang 27

Trade Unions and International Industrial Relations n Trade unions may limit the strategic choices of multinationals in three ways: n n n By influencing wage levels to the extent that cost structures may become uncompetitive; By constraining the ability of multinationals to vary employment levels at will; and By hindering or preventing global integration of the operations of multinationals. IBUS 618, Dr. Yang 28

Influencing Wage Levels n 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. n Multinationals that fail to manage their wage levels successfully will suffer labor cost disadvantages that may narrow their strategic options. IBUS 618, Dr. Yang 29

Constraining the Ability to Vary Employment Levels at Will n 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. n 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. n 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. n In many countries, payments for involuntary terminations are substantial, especially in comparison with those in the USA. IBUS 618, Dr. Yang 30

Constraining the Ability to Vary Employment Levels at Will (cont. ) n Trade unions may influence this process in two ways: n Lobbying their own national governments to introduce redundancy legislation, and n Encouraging regulation of multinationals by international organizations such as the OECD, EU, UN, etc. n Multinational managers who do not take these restrictions into account in their strategic planning may well find their options severely limited. n Recent evidence shows that multinationals are beginning to consider the ability to dismiss employees to be one of the priorities when making investment location decisions. IBUS 618, Dr. Yang 31

Hindering Global Integration of Operations n Many multinationals make a conscious decision not to integrate and rationalize their operations to the most efficient degree, because to do so could cause industrial and political problems. n 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. n General Motors as an example of this ‘sub-optimization of integration’. GM in the early 1980 s 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. IBUS 618, Dr. Yang 32

GM Europe n Sells vehicles in over 40 n n markets. Operates 10 vehicleproduction and assembly facilities in seven countries Employs around 54, 500 people. Additional directly related jobs are provided by some 8, 700 independent sales and service outlets. In 2008, GM mained a market share of 9. 3%. 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% IBUS 618, Dr. Yang 33

Trade Unions’ Response to Multinational n 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. n 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. n There are several ways in which multinationals have an impact upon trade union and employee interests. IBUS 618, Dr. Yang 34

Seven Characteristics of MNEs as the Source of Trade Union Concern n Formidable financial resources n Alternative sources of supply n The ability to move production facilities to other countries n A remote locus of authority n Production facilities in many industries n Superior knowledge and expertise in industrial relations n 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 IBUS 618, Dr. Yang 35

The Response of Trade Unions to Multinationals n The response of labor unions to multinationals has been threefold: n n n Form international trade secretariats (ITSs) Lobby for restrictive national legislation, and Try to achieve regulation of multinationals by international organizations. n International trade secretariats (ITSs). n n There are 15 ITSs, which function as loose confederations to provide worldwide links for the national unions in a particular trade or industry (e. g. metals, transport and chemicals). The secretariats have mainly operated to facilitate the exchange of information. IBUS 618, Dr. Yang 36

The Goal of the ITSs n The long-term goal of ITSs is to achieve transnational bargaining through a similar program, involving: n n n Research and information Calling company conferences Establishing company councils Company-wide union–management discussions Coordinated bargaining n One of the fastest growing ITSs is European Regional Organization of the International Federation of Commercial, Clerical, Professional and Technical Employees (Euro-FIET), which is focused on the service sector. IBUS 618, Dr. Yang 37

Limited Success of ITSs n Overall, the ITSs have limited success, due to several reasons: n n Generally good wages and working conditions offered by multinationals, Strong resistance from multinational firm management, Conflicts within the labor movement, and Differing laws and customs in the industrial relations field. IBUS 618, Dr. Yang 38

Lobbying for Restrictive National Legislation. n On a political level, trade unions have for many years lobbied for restrictive national legislation in the U. S. and Europe. n The motivation for trade unions to pursue restrictive national legislation is based on a desire to prevent the export of jobs via multinational investment policies. IBUS 618, Dr. Yang 39

Regulation of Multinationals by International Organizations n Attempts by trade unions to exert influence over multinationals via international organizations have met with some success. n The International Labor Organization ILO has identified a number of workplace-related principles that should be respected by all nations: n n Freedom of association The right to organize and collectively bargain Abolition of forced labor, and Non-discrimination in employment IBUS 618, Dr. Yang 40

Regional Integration: the EU Social Dimension n 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. n Regional integration such as the development of the EU has brought significant implications for industrial relations. n In the Treaty of Rome (1957), some consideration was given to social policy issues related to the creation of the European Community. n The terms ‘social policy’ or ‘social dimension’ are used to cover a number of issues, such as: n n n Labor law and working conditions, Aspects of employment and vocational training Social security and pensions. IBUS 618, Dr. Yang 41

The EU Directorates n The EU has introduced a range of Directives related to the social dimension. n The most contentious Directive is the Seventh (Vredeling), with requirement of disclosure of company information to unions. n Strong opposition led by then conservative British government and employer representatives argued that employee involvement in consultation and decision-making should be voluntary. n The European Works Councils (EWC) Directive was approved on 22 September 1994 and implemented two years later. IBUS 618, Dr. Yang 42

Implications from the EU n The EU aims to establish minimal standards for social conditions that will safeguard the fundamental rights of workers. n n 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, nor for all social systems. IBUS 618, Dr. Yang 43

Pan-European Pensions n The EU Council of Ministers has approved the pension funds Directive that sets standards for the prudential supervision of pension plans in the EU. n Member States need to implement the Directive by the middle of 2005. n 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. n Once implemented, the Directive will ensure a high level of protection for both members and beneficiaries of pension funds. IBUS 618, Dr. Yang 44

Difficulty in Implementing the EU Social Policy n Taxation differences among Member States n n Many member countries’ tax laws do not recognize contributions to foreign pension plans. This creates unfavorable tax circumstances for employees working outside their home countries and contributing to pension plans in their host countries. n The issue of “social dumping” n n n The impact of SEM on jobs – Member States that have relatively low social security costs would have a competitive edge and that firms would locate in those Member States that have lower labor costs. The counter-alarm was that states with low-cost labor would have to increase their labor costs, to the detriment of their competitiveness. There are two industrial relations issues here: the movement of work from one region to another, and its effect on employment levels; and the need for trade union solidarity to prevent workers in one region from accepting pay cuts to attract investment, at the expense of workers in another region. IBUS 618, Dr. Yang 45

Chapter Summary n In this chapter, we have reviewed and discussed differences in industrial relations across borders, and highlighted the complexity in international IR. n We have also identified unionization trends and some key factors n 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. IBUS 618, Dr. Yang 46

Chapter Summary n Trade unions should opt for less ambitious strategies in dealing with multinationals, such as n n n Strengthening national union involvement in plant-based and company-based bargaining Supporting research on the vulnerability of selective multinationals, and Consolidating n With regional economic integrations, it is likely that trade unions and the ILO will pursue these strategies and continue to lobby where possible for the regulation of multinationals via the European Commission and the United Nations. IBUS 618, Dr. Yang 47

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? IBUS 618, Dr. Yang 48