Chapter 10
International Industrial
Relations
IBUS 618, Dr. Yang
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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 will:
 Discuss key issues in industrial relations and the policies and
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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
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Introduction
 Cross-cultural difference in industrial relations (IR)
and collective bargaining
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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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Factors underlying Historical Differences
in Structures of Trade Unions
 Mode of technology and industrial organization at
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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
 Differ considerably among countries
 IR policies must be flexible enough in order to adapt
to local traditions and institutional requirements.
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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.
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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
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Thousands take to streets as strikes
cripple France
 In France, people are used
to having social conflict.
 Unions often hold a socialpolitical change agenda
 In Oct.-Nov. 2007, School
closed, flights delayed, trains
cancelled, and newspapers
not printed;
 Civil servants joined
transport workers in strikes
to challenge President
Nicolas Sarkozy’s reform
programs;
 Costing $400 million a day
for weeks of public
demonstration.
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German conductors forsake the
Country’s model of consensus
 In Germany, social
 Also in Nov. 2007,
unrest is rare.
 Unions are viewed as
business partners since
post WWII.
Germany’s worst rail
strike since WWII lasted
for three days;
 Strikes have shattered
union unity;
 Costing $111 million.
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Japanese Enterprise Union
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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 MacDonald
Workers’ Union
Executives with
President Takagi
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The Challenge to the Multinationals
 Standardization vs. local adaptation
 Global mindset and local responsiveness
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Difference in MNE Approached to
International Industrial Relations
 Degree of centralization or decentralization
can be influence by several factors:
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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 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.
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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 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 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.
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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.
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Competitive/confrontational versus cooperative
Codetermination
Works council
 Union density in western industrial societies
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Sweden has the highest level of union membership
U.S. managers tend to hold a union avoidance value
France has the lowest unionization in the western world.
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Table
10-2
Union membership for selected countries
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Union Density and Bargaining Coverage
by Percentage
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
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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
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Union Membership by Gender
 More men in
 Equal gender
 More women
the union
participation
in the union
in the union
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U.S.
Germany
Austria
Netherlands
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Japan
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Canada
U.K.
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Ireland
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Sweden
Norway
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Finland
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Unionization Trends and Key Factors
 An overall decline among
 Economic shift from
industrial societies with a few
exceptions
 Unionization rates remain high
in public or government
sectors
 Increased female unionization,
reaching equal or even higher
rates in some countries
manufacturing to service
oriented
 Global competition and
relocation of jobs
 Alternative ways of
employment
 EEOA related legislations
and social movement
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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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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-Harley Act
 An organizational behavioral approach: voluntary
and informal, initiated by management, e.g.
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Participative management
Employee empowerment
Advocating market forces, efficiency, and effectiveness
Collective bargaining at the firm level
More adversarial labor relations
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German Industrial Democracy
 A formal-structural approach aimed at equalizing
power
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Established since post WWII
The Codetermination Act (1951)
The Codetermination Law (1976)
 Supervisory Board
 Management Board
 Works council
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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:
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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.
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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:
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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 OECD, EU, UN, etc.
 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
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.
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General Motors as an example of this ‘sub-optimization of
integration’. 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.
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GM Europe
 Sells vehicles in over 40
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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%
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Trade Unions’ Response to
Multinational
 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 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 relations
 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
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The Response of Trade Unions to
Multinationals
 The response of labor unions to multinationals has been
threefold:
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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
 The long-term goal of ITSs is to achieve transnational
bargaining through a similar program, involving:
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Research and information
Calling company conferences
Establishing company councils
Company-wide union–management discussions
Coordinated bargaining
 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.
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Limited Success of ITSs
 Overall, the ITSs have limited success, due
to several reasons:
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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:
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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
 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:
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Labor law and working conditions,
Aspects of employment and vocational training
Social security and pensions.
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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),
with requirement of disclosure of company information to
unions.
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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 two
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.
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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.
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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 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
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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.
 The issue of “social dumping”
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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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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 possibility.
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Chapter Summary
 Trade unions should opt for less ambitious strategies in
dealing with multinationals, such as
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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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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?
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