June 11, 2008 1

INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Labor & Industrial Relations

June 11, 2008 2

Labour and Industrial Relations (1)

Labour and industrial relations is an important for all organizations – especially for those commercial and non-commercial organizations which are operating at the international level

Labour and industrial relations concepts differ according to country and region and according to the type of industry concerned

The labour unions and associations in some countries yield considerable power which can be used to their benefit in their dealings with employers

The evolution of labour or industrial relations, and the history of trade unions, has been determined to quite a considerable degree by the historical and ideological contexts

June 11, 2008 3

Labour and Industrial Relations (2)

Employers and organizations need to understand the structural evolution of how labour unions in order to effectively deal with them

Lack of unfamiliarity with prevailing local industrial and political conditions on the part of employers can have far-reaching damaging consequences for the organization

Labour and industrial relations policies of organizations operating at the international level must be flexible and take prevailing local factors, considerations and requirements into account over time

June 11, 2008 4

Major Determinants of Labour and Industrial Relations

Determinants ofLabour &IndustrialRelations

Political

Ideological

Cultural

Economic

Structural

Legal

June 11, 2008 5

Labour Relations Strategies

Due to the context-related differences, labour relations systems differ between countries and, hence, the task of managing labour relations should be handled decentrally

The headquarters of organizations operating at the international level usually try to maintain some form of coordination and control over the management of labour relations. The level of involvement depends on numerous factors and considerations

Two fundamental reasons for the headquarters interest in subsidiary labour and industrial relations are that agreements made by subsidiary units may have possible spill-over effects on the organization’s international plans, and that they may create “precedents” for negotiations in other countries

June 11, 2008 6

Monitoring Labour Performance Across Countries

Most firms tend to closely monitor and compare labour performance in their subsidiary units

Comparative labour performance data have the advantage of yielding useful information as to where, for example, new subsidiary units should be established, where capital and investment should flow to on a priority basis, and where production capacities should be rationalized

Comparative data are especially useful in situations where an organization has a spread of subsidiary units which are undertaking similar activities

June 11, 2008 7

Parent Organizations’ Involvement in Labour and Industrial Relations (1)

Degree of Inter-Subsidiary Production Integration – Research indicates that a high level of production integration between subsidiary units (for example, in a transnational perspective, the production outputs of one or more subsidiary units become production inputs for other subsidiary units) determines a high level of centralization – i.e. involvement by the parent organization – in determining labour and industrial relations throughout the organization

A global coordinated labour and industrial relations policy becomes an important factor in ensuring a successful global production strategy, and with it, helps ensure the organization’s growth and sustainability

June 11, 2008 8

Parent Organizations’ Involvement in Labour and Industrial Relations (2)

Nationality of Ownership of the Organization and Subsidiary Units – The level of involvement by the organization’s headquarters in its subsidiary units’ labour and industrial relations policy has been shown to differ according to the ownership

U.S organizations tend to exercise more centralized control over labour and industrial relations than organizations from the European Union

Reasons put forward to explain the difference are that U.S. tend to be comparatively more integrated, differences between U.S. and European labour relations systems, and the more ethnocentric managerial style of U.S. organizaions

June 11, 2008 9

Parent Organizations’ Involvement in Labour and Industrial Relations (3)

International Human Resource Management Approach – The type of staffing approach utilized by organizations has an effect on labour and industrial relations. Research indicated that an ethnocentric approach is more prone to labour conflicts than other staffing approaches

Experience of Organizations in Labour and Industrial Relations – European Organizations have considerable experience dealing with unions at the industry level (for e.g. through employer associations), unlike U.S firms which tend to deal with labour relations at the organizational or firm level

June 11, 2008 10

Parent Organizations’ Involvement in Labour and Industrial Relations (4a)

Subsidiary Characteristics – A number of subsidiary characteristics have been found to be relevant in determining parent organizations involvement in labour and industrial relations:

Subsidiaries formed through acquisition of well-established indigenous firms tend to have more autonomy than newly-established units

The higher the subsidiary unit’s strategic importance for the organization, and the younger it is, the more the parent organization will seek to control its labour and industrial relations policy

June 11, 2008 11

Parent Organizations’ Involvement in Labour and Industrial Relations (4b)

If the parent organization is an important source of investment or operating funds for the subsidiary unit, the more the parent organization will tend to be involved in labour and industrial relations, and the subsidiaries human resource management policy

If a subsidiary unit does not perform up to the desired level of expectation, the higher the likelihood that the parent organization will seek to become involved in its labour and industrial relations, especially if the poor performance is linked to problems with labour

June 11, 2008 12

Parent Organizations’ Involvement in Labour and Industrial Relations (5)

Characteristics of the Home (Product) Market – If the organization’s home market is large, and most of its revenue is generated there, then the organization would tend to regard foreign markets as an extension of its home market and would usually use home country practices in dealing with labour and industrial relations. This is typical for U.S. corporations due to the size of the U.S. domestic market

If the organization’s home market is small - as is the case for many smaller and medium-sized European countries – and the organization depends mainly on foreign markets for its revenue generation, then the organization will be more likely to adopt its labour and industrial relations approach to the conditions prevailing in those foreign markets

June 11, 2008 13

Parent Organizations’ Involvement in Labour and Industrial Relations (6a)

Management Attitudes towards Unions – Historically and ideologically, managements have evolved different attitudes towards unions:

In the U.S., the traditional emphasis has been on the importance of capital in the factors of production; unions have traditionally been avoided, and the U.S. has a comparatively low union-density rate, i.e. the percentage of labourers and employees who belong to a union. A consequence of this is that U.S. managers will have less experience in dealing with unions than managers in other countries– for example, in European countries such as Great Britain, France, Germany and Italy

June 11, 2008 14

Parent Organizations’ Involvement in Labour and Industrial Relations (6b)

There has been a general trend away from unionization throughout the world in the past couple of decades. Reasons include:

• Reduction in public-sector employment

• Reduced employment in the manufacturing sector

• New forms of work organization

• Increased job competition and pressure on workers and employees

• Legislative changes

• Collapse of the communist bloc

June 11, 2008 15

Labour Unions Effect on International Organizations

Unions may have an effect on international organizations in three ways:

– Influencing wage and salary Levels, resulting in higher wages being paid and thus effecting the organization’s cost-competitiveness

– Constraining the ability of organizations to easily change their employment levels, for example, by lobbying influential groups such as legislators to pass laws (redundancy legislation) that make the dismissal of workers and employees subject to stringent conditions and an expensive undertaking for the organization (redundancy allowance, compensation programmes). Many countries have such legislation and the corresponding judicial infrastructure in place

June 11, 2008 16

Labour Unions Effect on International Organizations (2)

– Hindering or preventing global integration or the operations of international organizations, by compelling international organizations to avoid integrating their subsidiaries too much in order to prevent the potentially damaging consequences which may be brought about by potential labour and industrial disputes and demands. This results in a suboptimal allocation of resources

June 11, 2008 17

Labour Union Concerns About International Organizations (1)

Financial Resources – International organizations have more financial resources than unions, can confront unions simultaneously in one or more countries where they have their operations and still be profitable overall

Alternative Sources of Supply – International organizations can limit their vulnerability to labour and industrial action by adopting a dual sourcing policy and/or by switching production to other facilities

June 11, 2008 18

Labour Union Concerns About International Organizations (2)

Mobility of Production Facilities – International organization’s may pose a threat to job security by relocating facilities to other countries, for example, where a more skilled workforce is available or where semi-skilled labour is cheaper

Lack of Information – Some unions may find it difficult to understand the organization’s policies, strategies and approach due to lack of awareness and access to the requisite information

June 11, 2008 19

Labour Union Concerns About International Organizations (3)

Superior Knowledge and Expertise in Labour Relations – International organizations often have a repository of information, knowledge and experience in dealing with unions which they can utilize to their benefit

The Investment option – International organisations may refuse to invest additional capital into facilities in case of labour and industrial disputes

June 11, 2008 20

Union ResponsesUnions have several options at their disposal to enhance their bargaining power vis-à-vis international organizations, for example:

– Establish institutional links and exchange information through international trade secretariats

– Legislative and political lobbying in order to improve working conditions and pay (e.g. minimum wage, limit on weekly working hours, discouraging the ‘export’ of jobs to foreign countries)

– Exertion of influence on international corporations through agencies such as the International Labour Organization, the United Nations Conference on Trade and Development, the OECD and the EU