Chapter 9

Industrial Relations
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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

in industrial
industrial relations and the
the policies

and practices of multinationals.

Examine the potential constraints that trade
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.
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Introduction
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.

(cont.)
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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
movement
Influence of religious organizations on trade union
development
Managerial strategies for labor relations in large
corporations.
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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
country.

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

countries
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
output.
In this context, a coordinated industrial relations policy is
one of the key factors in a successful global production
strategy.
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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

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.

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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

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.
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Management Attitudes towards

Unions
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.

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

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.

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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
industries.
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

Operations
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.
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

Multinationals
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

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, 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

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

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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.

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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 decisionmaking 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
funds.
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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
countries.

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

societies.
Only 15 per cent of the worlds population (living mostly in
industrialized countries) has access to ICT.80
A majority of the worlds population is technologically
disconnected.
Internet usage is stratified and is much more common
among

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
Inthis
thischapter,
chapter,we
wehave
have reviewed
reviewed and
and discussed
discussed

differences
differencesin
inindustrial
industrialrelations
relationsacross
acrossborders,
borders,
and
andhighlighted
highlightedthe
thecomplexity
complexity in
in international
international IR.
IR.
Combining
Combiningrecognition
recognitionof
of the
the overt
overt segmentation
segmentation
effects
effectsof
ofinternational
internationalbusiness
businesswith
withan
an
understanding
understandingof
ofthe
thedynamics
dynamicsof
ofFDI
FDI yields
yieldsthe
the
conclusion
conclusionthat
thatgeneral
generalmultinational
multinationalcollective
collective
bargaining
bargainingisislikely
likelyto
toremain
remainaaremote
remotepossibility.
possibility.

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Chapter Summary (cont.)

Trade
Tradeunions
unionsshould
shouldopt
optfor
forless
lessambitious
ambitiousstrategies
strategiesin
in

dealing
dealingwith
withmultinationals,
multinationals,such
suchas
as

Strengthening
Strengtheningnational
nationalunion
unioninvolvement
involvementininplant-based
plant-basedand
and
company-based
company-basedbargaining
bargaining
Supporting research on the vulnerability of selective
Supporting research on the vulnerability of selective
multinationals,
multinationals,and
and
Consolidating
Consolidating

With
Withregional
regionaleconomic
economicintegrations,
integrations,ititisislikely
likelythat
that

trade
tradeunions
unionsand
andthe
theILO
ILOwill
willpursue
pursuethese
thesestrategies
strategies
and
andcontinue
continueto
tolobby
lobbywhere
wherepossible
possiblefor
forthe
theregulation
regulation
of
ofmultinationals
multinationalsvia
viathe
theEuropean
EuropeanCommission
Commissionand
andthe
the
United
UnitedNations.
Nations.
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