The International Context of HRM Practice - Essay Example

? International context of HRM Practice Contents Contents Work Councils – Functions and Difference from Trade Unions 2 Difference between stakeholders’ model and shareholders’ model 4 Is there a coherent model of Anglo-Saxon employment and industrial relations? 6 Is there a model of East Asian employment relations? 8 Employment relations in Japan 9 Employment relations in China 10 Specific issues of International HRM for MNCs operating across borders 10 Role of ILO in improving international employment standards 11 Is ILO more effective than national governments and NGOs? 12 References 13 Work Councils – Functions and Difference from Trade Unions Globalization has triggered sea changes not only in the transnational commerce but multinational companies are also deluged with issues concerning labor relations in a cross cultural and multi-economic scenario. The earlier concept of negotiating with a central trade union and implementing the issues agreed upon in workplace is no longer a sufficient guarantee of smooth labor relations. Multinational enterprises now need to negotiate at multiple levels with trade unions of several countries to achieve harmonious labor relations. This surely is a humongous task what with dealing in unionized labor of different cultural and economic contexts (Prahalad and Doz 1987). Such situations surely result in loss of managerial flexibility as conditions agreed upon in one country might not be acceptable in another country. Further, the terms and conditions of appointment and associated remunerations and perquisites also vary from country to country thus causing unwelcome variances in managing human resources. The basic problem of transnational human resource management can be categorized as (Poole 1986): The level of technological attainment and unionization of labor in a particular country The nature and extent of governmental intervention in labor management The number and political polarization of trade unions Impact, if any, of religious organizations on trade unions Strategies adopted by management These factors have resulted in the growth and proliferation of various types of trade unions which could be either generalized trade unions that represented all categories of employees, or, craft unions that represented employees having specific skill sets and are employed in different industries, or, a conglomerate of unions spread across different countries. Such diversity, quite obviously, present a rather daunting scenario for executives entrusted with the responsibility of collective bargaining with employees and also raises the prospect of multiple agreements within a single corporate entity. One option open to multinational corporations to find some semblance of order in this otherwise chaotic and indeterminate scenario is to set up work councils. These are micro level labor representatives who are elected by workers of a specific factory for a period of four years. The most vibrant forms of such work councils are observed in Germany where once nation-wide agreements with recognized trade unions are completed by representatives of a particular industry, each individual member firm of that particular industry undertake negotiations with their respective work councils on the details of how such an agreement has to be implemented in a particular work place. As members of work councils need not be members of recognized trade unions, these councils can be formed even in those industries where there is no existence of a nationally recognized trade union. This surely invests in such councils a large degree of flexibility and freedom from dogma or political influence associated with conventional trade unions. This also provides an opportunity for both management and workers to strike out an agreement that factors in micro specifics and thus is beneficial to both the workers and that particular firm. The other benefit of having work councils is that the levels of interaction and the channels of communication between management and workers remain largely impervious to external influences and thus are much more effective and direct than they are in situations where organized trade unions exist. As all the workers are involved in selection of work council members, these councils have the legitimacy and requisite strength to conduct successful collective bargaining and often are able to extract more concessions than management would have otherwise been readily prepared to concede. Difference between stakeholders’ model and shareholders’ model There have been extended and often robust debates about corporate obligations and responsibility. This has opened the gates to a new concept that invests primacy of honoring social responsibility, also known as stakeholders’ model, by corporation as against the more entrenched concept of maximizing shareholders’ wealth, also known as shareholders’ model, which has been the overriding aim and objective of directors of a corporation. However, complete focus on maximizing shareholders’ wealth often throws up disturbing corollaries. The first issue that needs to be clarified is which shareholders is the company focusing on? Is the corporation solely concerned with current shareholders or is it concerned with future shareholders too? If the directors are also concerned with future shareholders, they might reject a premium-priced cash bid for the entire stock of a company if they feel that such action might jeopardize the benefit of future stockholders. This conflict of perspective has been resolved by academics by concluding that maximizing current share prices should be the overriding objective of shareholder’s model. This throws up certain disturbing corollaries as directors willfully violating a legally enforceable contract if they feel that according to market demands that would be the best option available as it would maximize current share prices. Polluting environment no longer remains an anti-social activity but simply a matter of trade-offs; are the costs of polluting with the contingent liability of a possible fines less than the costs of not polluting? If it is so, the directors should have no qualms about going ahead and polluting the environment. Destroying forest cover similarly becomes a simple calculation of whether the costs associated with such an act fall less than the salutary effect it would have on share prices. If share prices improve, the directors should have no hesitation in performing that act even though it might harm future generations and also other corporations who would have to face newer governmental restrictions and a more wary society. In short, breaching implicit contracts that have no immediate financial repercussions or penalties can very well be done if they improve share prices in the short run (Wallman 1999). There is absolutely no doubt that in the course of ordinary business activities, the primary responsibility of directors is towards owners of the company, i.e., the shareholders. But, when extraordinary decisions are to be taken, it would be in the best interest of the corporation that directors consider the interests and aspirations of other stakeholders as well. The other stakeholders of a corporation generally include employees, customers, suppliers, local community and of course the government. This approach of balancing diverse stakeholders’ interests while taking business decisions is the central postulate of stakeholders’ model. This model approves any business decision that maximizes benefits or, from a negative perspective, minimizes harm to constituencies other than shareholders. However, laudable as it might seem, stakeholders’ model does not always result in maximum social benefit. An example might put the contention in sharper perspective. Suppose there is an underperforming plant that is not closed down keeping in mind the unemployment problem that would result from closing down the plant. But, had the plant been closed down and the capital invested in some other more profitable avenue it would have not only generated higher shareholder returns but also higher returns to the community in the form of efficient production and higher levels of output. Hence, the moral high ground that supporters of stakeholders’ model often assume is neither necessarily logical nor beneficial to the society in the long run on all occasions. The best path that directors might tread would be a judicious balance between these two approaches. This again raises the vexatious contention of what would constitute to be judicious and it has to be left in good faith to the directors to decide the subsequent course of action. Legal provisions have become more and more stringent in almost all the countries of the world that place strong disincentives to organizations from causing environmental pollution or destroying green cover that are blatantly harmful to society (Hovenkamp 1990). Is there a coherent model of Anglo-Saxon employment and industrial relations? With globalization becoming the most dominant and influential phenomenon in international commerce and industry; intermingling of cultures, ethos and societal systems have become the order of the day. In this backdrop it might be rather misplaced to talk of an employment and industrial relations model that has its roots in a particular country or region of the world. But it must not be forgotten that not so long ago British Empire straddled vast swathes of world and thus influenced to a very large extent the social and cultural ethos of those countries. Hence, the Anglo-Saxon model of employment and industrial relations is very much a reality and has influenced industrial relations in many countries of the world though the exact model followed in a particular country incorporates local variations to suit country specific needs. As for example, labor unions are comparatively more powerful in UK as in US and as a result, labor strikes are more prevalent in Great Britain than in United States of America. Again, while a labor agreement is legally binding in US, it has no such legal backing in UK; it more in the nature of an understanding between the negotiating parties. As a labor agreement is in the nature of an understanding, it cannot be enforced in court and thus violations of such agreements by either or both the negotiating parties do not attract any legal penalties. This might be one of the reasons for prolonged and often bitter labor strikes that plague Great Britain every now and then. As labor agreements are in the nature of mutual understanding, the structure of such agreements is not so extensive and there is hardly ever any mention of any conflict resolution procedures or a forum for redressal of complaints. Negotiations and bargaining are usually conducted on a regional and industry basis rather than on a country wide centralized basis (Atkinson 1987). Perhaps because of such a fragmented approach to labor negotiations, Government intervention is usually negligible in Anglo-Saxon model prevalent in United Kingdom or even in the United States of America. Industrial democracy is also not an unknown element in Anglo-Saxon model of employment and industrial relations. Workers’ cooperatives that were independent and laid down their own rules of governance have been in existence since the second half of nineteenth century but unlike as observed in Germany (Central European social partnership model) or in Scandinavia (Nordic welfare corporatist model), British workers are not legally entitled to have seats in boards of directors. Industrial democracy under Anglo-Saxon model takes the form of shop floor democracy but not effective decision making democracy in the true sense of the word. There is also a specific distinction between UK labor relations model and US labor relations model with regard to work councils. While work councils are a common phenomenon in UK industries, there is hardly any trace of such a body in American industries (Bamber and Lansbury 1998). Presence of work councils provide an intermediate level of negotiations that focus on specific needs of a company and the chances of locating a common meeting ground of workers and management can be that much easier. This is very much a necessity in United Kingdom where labor agreements are not legally enforceable and thus lead to numerous labor disputes. Presence of such work councils where both the negotiating parties are well aware of the prevailing situation in the workplace and the limitations of the other side prevent many disputes or misgivings from going out of hand. Moreover, a worker need not be a member of a recognized trade union in order to be a member of work council. Thus, the members of work councils are not unnecessarily burdened by political or other dogmas while arriving at the negotiating table and can thus negotiate with a more open mind. Thus one might conclude that though there is a presence of a reasonably cohesive model of Anglo-Saxon employment and labor relations in United Kingdom, United States and Canada, there are enough modifications to the basic model to suit country specific needs. Is there a model of East Asian employment relations? Probably because of pressures of globalization when multinational companies are increasingly venturing into Asian economies, the talk about a model of East Asian employment relations has become commonplace in industry circles. The economies of East Asia are collectively referred as Newly Industrializing Economies (NIE) though Japan can surely not be branded as such in spite of the fact that it is an East Asian nation. Countries other than Japan are surely getting industrialized at a pace faster than what had happened there in last hundred years and the reason is most certainly arrival of multinational corporate entities in these economies. Interaction with western ideas and modes of industrial relationship have definitely impacted the exiting industrial relationship modes of those countries but as they differ hugely between themselves on cultural and societal fronts, it might be said without much hesitation that no cohesive model of East Asian employment relations have ever taken firm roots (Kuruvilla 1995). This however does not mean that there are no similarities between these economies with regard to investment priorities or legislations. Most of these NIE countries have high levels of governmental intervention, a state that has welfare motives topmost on its agenda, substantial investment in human resources, general absence of independent trade unions, independent from political influence, that is, and, a weak system of monitoring industrial relations. However, increased globalization has gradually started changing the scenario where workers are finding a louder voice with increased levels of democratization of workplaces and establishment of independent bodies dedicated to monitoring and managing industrial relations. These changes are accompanied by newer legislations that guarantee minimum wages, workplace safety and suitably address workplace related health hazards. But these similarities cannot be defined as salient characteristics of an Asian model of employment relations as it is not quite possible to identify any such cohesive model. Employment relations in Japan Japanese labor unions are decidedly weaker than those in western developed economies and there is an underlying sense of non-confrontation that reflects in the general cooperation between Japanese labor unions and management. Labor agreements, although enforceable in a court of law, are never as specific or detailed as those found in United States. Labor disputes are usually settled in an amicable manner, at times in the presence of third party arbitrators (who are not necessarily Labor Commissioners who have legal powers to do so), and they seldom reach courts of law. Governmental intervention is usually negligible at micro level, with the Government more focused on ensuring an efficient capital flow to ensure high levels of productivity. Labor unions are generally autonomous without any central political influence and mostly related to specific enterprises with main emphasis on ways and means of increasing labor productivity. However, from 1973 this scenario has altered with centralized nation-wise collective bargaining taking place in ship building, auto and steel industries. With western influence rapidly being felt in Japanese industries as they become multinational, it is expected that this mode of centralized collective bargaining will spread to other industries too (Hashimoto 1991). Employment relations in China China has come a long way from state controlled industrial sector to accommodating capitalist mode of production that started taking roots at the end of the Cultural Revolution in 1976. However, state control did not mean there was complete absence of labor discontent; on the contrary, it was very much there, notwithstanding efforts by government controlled media projecting a picture of total accord (Sheehan 1999). With the advent of 1990s, incidences of wildcat strikes by unrecognized labor unions were on the rise especially in foreign funded enterprises. While there were 19,098 official disputes in 1994, the figure multiplied seven times to 135,206 at the end of 2000 (Wang 2004). Rising tides of industrial disputes have induced the Chinese Government to motivate industrial enterprises to set in place collective bargaining processes where trade unions are expected to play a major role. China presents a peculiar scenario where large influx of unorganized workers from rural countryside is adding to the insecurity woes of urban organized workers. When pressures of globalization and increased competition are added to this, it surely becomes a highly unstable situation and Chinese trade unions are not yet quite equipped to handle it. Certain long held social beliefs and practices like gender discrimination and sense of social equitability have further complicated the scenario (Cooke 2005). Specific issues of International HRM for MNCs operating across borders Multinational companies that operate across cultural divides have to be very careful lest they inadvertently trample upon culturally sensitive issues and face adverse consequences as a result. Stereotyping has long been a way of perceiving alien cultures and this is very often influenced by bilateral historical relations between countries concerned (Chapman, et al. 2008). Hence, multinational HRM must take into consideration these long standing cultural complexities and managers must have fair notion about these attitudes and preconceived biases so that they are able to anticipate and consequently properly tackle any response from their subordinates, coworkers and superiors. Thus, managements of multinational companies try to ensure overseas posting of managers are done keeping in mind these stereotypes and long held biases so that there is least resistance faced from local population. Culture has a distinct impact not only on negotiating styles but also on what participants expect from negotiation. Japanese and so also the Chinese are of the opinion that the primary objective of any negotiation process is to create relationship but Americans feel that the ultimate success of a negotiation process is in signing a legally enforceable contract. If the American executive is not aware of these nuances, he might not be successful in East Asian contexts (Pye 1982). Apart from cultural differences, there are also marked differences in legal frameworks and ethical fabrics of various countries and the differences are no where starker than between western developed economies and far eastern newly emerging economies. The role and relevance of trade unions, prevalence of collective bargaining, levels of governmental intervention, and intensity of workplace democracy are areas where executive of multinational companies need to be trained thoroughly if they are to add value to the organization. Role of ILO in improving international employment standards International Labor Organization (ILO) began its illustrious journey way back in 1919 when the Treaty of Versailles was signed. It became the first agency of United Nations in 1946 and was awarded the Nobel Peace Prize in 1969 in recognition of its contribution towards development and promotion of legislations in different countries aimed at improving standard of living and working conditions of labor. Not only that, ILO is also involved in promoting cooperative organizations of rural poor for providing them technical assistance and requisite training for making them employable and wherever possible germinate the latent seeds of entrepreneurship among rural workforce. ILO also spends considerable effort in collecting, collating and analyzing relevant data and statistics not only to monitor the progress of its programs but also scout areas where it can reach out with its formidable array of facilities. There are 175 member states and they are represented by their governments, legislators and also their recognized trade unions. The representatives meet once every year at the International Labor Conference to review their work during the previous year and chalk out the programs for the forthcoming year (Mingst 2010). Is ILO more effective than national governments and NGOs? Without reducing the importance or relevance of the work done by ILO one little bit, one has to understand that ILO is essentially an international organization that plays a facilitating role in improving the lot of labor all over the world. It can act in advisory capacity but does not have any executive or legislative authority that rests entirely with the governments of member countries. Similarly NGOs of member countries work within a limited periphery and can concentrate on micro level events and induce the governments to take necessary remedial actions. Thus it would be wrong to compare the effectiveness of ILO with governments and NGOs of member countries. The sphere and nature of work are different for these organizations and they supplement each others’ efforts for better future of labor all over the world. References Atkinson, J. "Flexibility or fragmentation? The United Kingdom labour market in the eighties." Labour and Society 12, No. 1, 1987: 87-105. Bamber, G. J., and R. 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