chapter 10 nyppt

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IBUS 618, Dr. Yang 1

Trade Unions and International

Industrial Relations

Trade unions may limit the strategicchoices of multinationals in three ways: By influencing wage levelsto the extent that

cost structures may become uncompetitive;

By constraining the ability of multinationals tovary employment levels at will; and

By hindering or preventing global integrationofthe operations of multinationals.


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Influencing Wage Levels

Although the importance of labor costsrelative to other costs is decreasing, laborcosts still play an important part in

determining cost competitiveness in mostindustries.

Multinationals that fail to manage their wage

levels successfully will suffer labor costdisadvantages that may narrow theirstrategic options.


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Constraining the Ability to Vary

Employment Levels at Will

In Western Europe, Japan and Australia, the inability of firmsto vary employment levels at will may be a more seriousproblem than wage levels.

Many countries now have legislation that limits considerably

the ability of firms to carry out plant closure, redundancy orlayoff programsunless it can be shown that structuralconditions make these employment losses unavoidable.

Plant closure or redundancy legislationin many countriesfrequently specifies that firms must compensate redundant

employees through specified formulae such as 2 weeks payfor each year of service.

In many countries, payments for involuntary terminationsaresubstantial, 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 governmentsto introduceredundancy legislation, and

Encouraging regulation of multinationals by international

organizationssuch as the OECD, EU, UN, etc.

Multinational managers who do not take these restrictionsinto account in their strategic planning may well find theiroptions severely limited.

Recent evidence shows that multinationals are beginningto consider the ability to dismiss employees to be one ofthe priorities when making investment location decisions.


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Hindering Global Integration of

Operations

Many multinationals make a conscious decision not to integrateand 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 manufacturingnetworks partly to placate trade unions and partly to provideredundancy in sources to prevent localized social strife fromparalysing their network, e.g.

General Motors as an example of this sub-optimization ofintegration. GM in the early 1980s had undertaken substantial

investments in Germany at the demand of the Germanmetalworkers 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 40markets.

Operates 10 vehicle-production and assembly

facilities in seven countries Employs around 54,500

people.

Additional directly relatedjobs are provided by some

8,700 independent salesand service outlets.

In 2008, GM mained amarket 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%
http://www.gmfleet.com/gmfleetjsp/global/


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Trade Unions Response to

Multinational

Seeing the growth of multinationals as a threat tothe bargaining power of laborbecause of theconsiderable power and influence of large

multinational firms. Multinationals are not uniformly anti-union, but their

potential lobbying power and flexibility acrossnational borders creates difficulties for employeesand trade unions to develop countervailing power.

There are several ways in which multinationals havean 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, thusensuring that the plant will become obsolete andeconomically non-competitive

Offshoring


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The Response of Trade Unions to

Multinationals

The response of labor unions to multinationals has beenthreefold:

Form international trade secretariats (ITSs)

Lobby for restrictive national legislation, and

Try to achieve regulation of multinationals by internationalorganizations.

International trade secretariats (ITSs).

There are 15 ITSs, which function as loose confederations to

provide worldwide links for the national unions in a particulartrade or industry (e.g. metals, transport and chemicals).

The secretariats have mainly operated to facilitate theexchange of information.


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The Goal of the ITSs

The long-term goal of ITSsis to achieve transnationalbargaining through a similar program, involving:

Research and information

Calling company conferences

Establishing company councils

Company-wide unionmanagement discussions

Coordinated bargaining

One of the fastest growing ITSs is European Regional

Organization of the International Federation ofCommercial, Clerical, Professional and TechnicalEmployees (Euro-FIET), which is focused on the servicesector.


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Limited Success of ITSs

Overall, the ITSs have limited success, dueto 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 industrialrelations field.


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Lobbying for Restrictive National

Legislation.

On a political level, trade unions have for manyyears lobbied for restrictive national legislation inthe U.S. and Europe.

The motivation for trade unions to pursuerestrictive national legislation is based on a desireto prevent the export of jobs via multinationalinvestment policies.


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Regulation of Multinationals by

International Organizations

Attempts by trade unions to exert influence overmultinationals via international organizations havemet with some success.

The International Labor Organization ILO hasidentified a number of workplace-related principlesthat 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

The social dimensionaims to achieve a large labor marketby eliminating the barriers that restrict the freedom ofmovement 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 EuropeanCommunity.

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.


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The EU Directorates

The EU has introduced a range of Directives related to thesocial dimension.

The most contentious Directive is the Seventh (Vredeling),with requirement of disclosure of company information to

unions. Strong opposition led by the then conservative British

government and employer representatives argued thatemployee involvement in consultation and decision-makingshould be voluntary.

The European Works Councils(EWC) Directive wasapproved on 22 September 1994 and implemented twoyears later.
http://en.wikipedia.org/wiki/File:Flag_of_Europe.svg


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Implications from the EU

The EU aims to establish minimal standards forsocial conditions that will safeguard the fundamentalrights of workers.

Obviously, all firms operating in the EU need tobecome familiar with EU Directives and keep abreastof changes.

While harmonization of labor laws can be seen as theultimate objective, the notion of a European social

community does not mean a unification of all socialconditions and benefits, nor for all social systems.


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Pan-European Pensions

The EU Council of Ministers has approved the pension fundsDirectivethat sets standards for the prudential supervision ofpension 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 acoherent framework to operate within the internal market andallows 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 pensionfunds.


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Difficulty in Implementing the EU

Social Policy

Taxation differencesamong Member States Many member countries tax laws do not recognize contributions to foreign

pension plans.

This creates unfavorable tax circumstances for employees working outsidetheir home countries and contributing to pension plans in their host

countries.

The issue of social dumping

The impact of SEM on jobsMember States that have relatively low socialsecurity costs would have a competitive edge and that firms would locate inthose 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 fromone region to another, and its effect on employment levels; and the need fortrade union solidarity to prevent workers in one region from accepting paycuts to attract investment, at the expense of workers in another region.


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Chapter Summary

In this chapter, we have reviewed and discusseddifferences in industrial relationsacross borders,and highlighted the complexity in international IR.

We have also identified unionization trends andsome key factors

Combining recognition of the overt segmentationeffects of international business with an

understanding of the dynamics of FDI yields theconclusion that transnational collective bargaining islikely to remain a remote possibility.


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Chapter Summary

Trade unions should opt for less ambitious strategies indealing with multinationals, such as

Strengthening national union involvement in plant-based andcompany-based bargaining

Supporting research on the vulnerability of selectivemultinationals, and

Consolidating

With regional economic integrations, it is likely that trade

unions and the ILO will pursue these strategies andcontinue to lobby where possible for the regulation ofmultinationals via the European Commission and theUnited Nations.

chapter 10 nyppt

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largest industrial unions

plant closure

wage levelsalthough

wage levelsto

employment losses unavoidable

thewestern world

labor costdisadvantages

western europe