INTERNATIONAL HUMAN

RESOURCE MANAGEMENT

Labor & Industrial Relations

June 11, 2008 1

 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 2
 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 3
 Major Determinants of Labour and
Industrial Relations
Political

Ideological
Determinants of
Labour & Cultural
Industrial
Relations
Economic

Structural

Legal

June 11, 2008 4

 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 5
 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 6
 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 7

 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 8
 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 9

 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 10

 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 11

 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 12
 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 13
 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 14

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 15
 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 16

 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 17

 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 18

 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 19

 Union Responses
Unions 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
June 11, 2008 20