International and Comparative Employment Relations - Essay Example

International and Comparative Employment Relations Introduction Human capital is a major asset of any organization and effective management of human resources is the key to sustainability. The conditions in the labour market have been worsened with the advent of globalization as it has been argued that in an attempt to attract foreign investment, firms make considerable compromises in labour standards. A common term that has emerged in the discussion of researchers is that the governments in both developing and developed countries have joined a competition termed as race to bottom. In this approach, governments are deregulating standards relating to taxation policies, environmental protection and labour protection (Bamber, Lansbury and Wailes, 2011). The works on the labour standards and race to bottom are rather limited in the existing literature. Developed countries are now under the radar as there have been evidences that OECD countries are compromising on their labour protection issue. Many multinational companies like Foxconn are increasingly coming under scrutiny due to the unfair labour practices promoted by them (Chan, 2013). The purpose of this essay is to discuss the optimal labour standards mechanisms that should be developed by multinational companies so that they can qualify to be sustainable. The essay first establishes the problem that is being faced by the labourers and then discusses possible measures to improve the situation. Discussion The Problem The problem of race to bottom in labour market has been traced to the collective bargaining power of the labourers. The research conducted by Javorcik and Spatareanu (2011) had shown that multinational companies have been greatly deterred to enter into countries which have high labour costs on account of collective bargaining, a condition which is largely prevalent in the developed countries. The research conducted by Davies and Vadlamannati (2013) had shown that OECD countries have greatly relaxed their labour practices and joined the race to bottom. Their research had pointed out that it is not the labour laws which have gone through changes. It is rather the labour practices related to the enforcement of labour laws which have been hampered to a great extent. This behaviour of the countries can be directly seen as an attempt to attract higher Foreign Direct Investment (FDI). Similar findings were also made by Olney (2010) and he had observed that nations are engaged in a cut throat competition with one another to reduce labour standards. For instance, the shifting of a vacuum cleaner plant of an American multinational company to Scotland had coincided with the relaxation of hiring standards in Britain. The case of Foxconn can also be treated as one which is blindly been driven by profit and neglecting labour standards. Foxconn which mainly provides electronic parts to big players like Apple have greatly reduced their labour costs after recession and it was evident in the rising operating margin of the company. Research conducted by Chan (2013) had shown that the company have compromised basic human rights in a bid to meet the production quotas. This has led to suicide attempts among multiple employees. Supply chain of manufacturing companies in China, in an attempt to harness export led growth have created working conditions which were so mechanical that it almost became impossible for the workers to survive. In another research of Chan, Pun and Selden (2012) it was revealed that employees were so highly disgruntled with the conditions in the Foxconn factories that there were evidences of multiple protests against the harsh punishment that were met by the employees when they were late for their work. Problems were not only present with Foxconn, but all multinational companies operating in China, which had minimum regard for labour standards. The problems do not lie solely with developing countries. Developed countries like the U.S. have also seen significant stagnation of real wages of workers engaged in the export oriented industries as countries like China have very low minimum wages luring multinational companies to outsource their production processes in these countries (Becker, 2014). Based on the findings of these researchers there is an urgent need to protect the interest of the labourers as their overall well-being is adversely affected in the due course of time. Theoretical Background There is a plethora of research regarding employment relations that have been framed over the decades. There are mainly three schools of thought regarding employee relationship management namely, the Unitarism approach, Marxist approach and pluralism approach. Human relations theory and human resource management are the two theories to be discussed in this paper. Human relations theorists state that it is important to treat human asset in an organization uniquely compared to other assets. This theory states that if workers are not given enough independence in their work then they cannot be efficient or provide any creative input in their job. In this case, the primary duty of the management is to enhance the satisfaction of the managers (Abbott, 2006). Researchers of the human resource management states that any problem within the internal management of the organization can be resolved by establishing psychological connection with the employees. The human resource management theorists assert that strong culture and leadership in organizations creates a working environment that enhances productivity of workers (Abbott, 2006). The approach of pluralism harbours the systems theory and strategic choice theory. Among the system’s theory the approach taken by Dunlop’s is one of the most celebrated one (Becker, 2014). According to the theory there are three major forces that shape the industrial relations in the labour market namely the macroeconomic forces like political, social, technological, legal; the interaction between the labour unions and workers and the interaction between the external forces and internal forces (Kochan, McKersie and Cappelli, 1984). Dunlop’s theory had greatly prioritized the importance of external factors. Dunlop had developed the idea that the model developed by him was self-adjusting. He had also pointed out that employer’s associations, trade unions and external agencies are the three major actors in industrial relationships. Dunlop’s theory claims that industrial relations are nothing but representation of broader social relations. Strategic choice theory for the first time had pointed out that there were many new industries which did not come under the purview of labour union. A change was also noted by Dunlop in relation to the change in the collective bargaining power of the unions (Kochan, McKersie and Cappelli, 1984). Emergence of new managerial values in the workplaces was also noted. These were driven by forces like sharing of information between the management and the workplace, cooperation between the existing members and development of teamwork. The implications of this theory are widespread. They had pointed out that orthodox relationships between the managers and their subordinates are unlikely to work. Fading power of the labour unions indicate that there is redistribution in the power at workplace and managers have a greater role to play in organizational development. The final group of theories can be considered under the Marxist regime. One of the prominent theories of the Marxist regime is the labour process theory. According to this theory, the capitalist structure of production is the very reason of exploitation of employees and must be avoided under any circumstance. Feminist theories forms another strand of literature within Marxism and it points out to the fact that men have largely dominated women in the working environment (Esping-Andersen, 2013). Problems with existing labour contracts The international labour market has undergone through a lot of changes over the past decade that has major implications on the management decisions. Regulation of labour standards are largely being dominated by international labour agreements which can be regarded as an attempt taken by the labour unions to improve the working environment and effectively manage the relationship with the employer organizations. According to the research conducted by Lévesque and Murray (2002) it has been noted that the globalization has fostered labour flexibility in the market. This means that the labourers are exposed to market forces and are not facing enough social protection and experiencing eroding rights. At present the labour market regulations are largely marginalized owing to the current trends of privatization. It has been found that most of the transnational corporations have adopted their own codes of corporate governance to address labour issues. However, many researchers have pointed out that there is an inherent problem associated with the private code of conduct of transnational corporations. For instance, the research conducted by Reich (2005 cited in Lucio, 2013) had shown that the state of relations between the labour and management varies widely among organizations as there is no monitoring of labour practices. Other researchers like Ross (2004 cited in Lucio, 2013) have also pointed out that if multinational companies fail to comply with the supplier code of conducts then it is impossible to charge the companies as they are privatized. There is a growing consensus between researchers and market professionals that the foundations of traditional labour management techniques are no longer viable as the power of the multinational companies have increased greatly and that of the state had fallen. International Framework Agreements have become quite popular in the labour market as they are quite useful in addressing issues of collective bargaining and provide labour unions with considerable amount of power by making their approach formal. According to the research conducted by Riisgaard (2005) it has been confirmed that though the International Framework Agreements (IFA) have own share of problems, it is actually a useful tool to manage oppression against labour at a local level. A similar sentiment has also been reflected in the works of Thomas (2011) who had studied the potential approach of using IFA’s in developing labour relationships. The most important framework of the IFA approach is that it allows a direct communication between the corporate management of the multinational corporations with the global union members. The research conducted by Niforou (2012) had pointed out that though IFA’s are theoretically good but they defeat their own purpose and yield rather paradoxical results. This is because they provide a power to local laws which may sometimes turn out to be harmful. This is particularly the case if the local laws are in contradiction with the laws framed by transnational enterprises like International Labour Organizations. In a report that was published by WERS (2011) it has been found that there have been substantial changes in the U.K. labour market in the past. For instance, recession has adversely impacted the wages of the people in the U.K. and there have been significant changes in the work relationships. The nature of industries operating in the U.K. has also changed significantly. There has been a shift in the number of service oriented jobs compared to manufacturing jobs. Additionally, there is an increased proportion of ageing population in the economy which is likely to increase the labour costs of companies that had hired them. Trade Union agreement and collective bargaining process of the economy has been marked with drastic reductions and individual labour relations are gaining higher importance (CIPD, 2013). The concept of on-site representatives has become very popular in the U.K. which renders the traditional labour agreements weaker. There is also evidence that the fall in the number of trade union memberships has been followed by a fall in the negotiating conditions of labour pay. Greater attention is now being provided to the resolution of labour complaints (CIPD, 2014a). The fall in importance of the labour unions have made the concept industrial relations weaker which requires greater attention on the part of the corporate management. In a report that has been published by the CIPD it has been observed that the employees have lost their trust in the management and are highly plagued by the conditions that they are facing in the firms. The performance management systems of the company are reported to be unfair which limits their chances of progression in the career. Employees also have a negative perception regarding the retention strategies that has been used by the management (CIPD, 2014b). Evidences from multinational companies The current practices of Foxconn are definitely not adequate as has been observed in the increasing number of problems that are being faced by the organizations in China. However, the company has an elaborate system of labour code ethics in developed countries like the U.S.A. The working conditions of the company are highly unsuitable for long-term development of the workers in China. One of the plausible factors behind the disparity in the treatment of the workers in China is the poor government policies. It has been found that the government officials in China have close ties with the Foxconn management indicating the attitude of the government to compromise the lives of the labour and to enhance the competitiveness of the economy. However, the conditions in the U.S.A are quite surprising. This is because the company has been able to provide fair wages, effective collective bargaining of labour union and robust labour laws (Chan, Pun and Selden 2013). This situation is fully consistent with the findings of Ross (2004) who had shown that there can be a wide disparity in the code of ethics followed by multinational companies because there is no regulatory framework. The labour relations of Foxconn in European countries and the U.S. is compact with welfare measures covering food allowances, career development and training programs, code of conduct mentioning the reward and punishment relationship and health related programs to protect the employees. Nike is another such company which has underwent major problems in the past owing to the conditions it had in the labour market. Nike was heavily criticized owing to the poor working conditions it had in some of the developing countries like India, Pakistan and Bangladesh. The labour protection rules in these countries were not fully developed when the company had started to operate in these countries. It paid minimum wages, abused the labourer and forced the people to work overtime. There were instances of child labour as well in the countries like Pakistan and poor commitment to improve health conditions in Vietnam. These conditions were drastically different from that of the U.K. and U.S.A. where the conditions in the supplier plants is better. However, Nike had tried to resolve this problem by putting a strict labour monitoring programs and forcing its suppliers to take up a code of conduct which underlined ethical and humane conditions. The code of conduct taken up by Nike had included elements like compensation, rules of collective bargaining, equal treatment of labourers, hours of work and health and safety environment. These practices are all ratified by the fair labour association units so that any problems relating to mistreatment of labour can be avoided (Bamber, Lansbury and Wailes, 2011). Monitoring has proved to be a successful feature for Nike in order for it to address the labour issues. The cases of violations of labour relations are not only unique in the developing countries. It has also been observed that in countries like the U.S. which has otherwise strong collective bargaining power, there are instances of violation of basic human rights. For instance, in companies like Wal-Mart it has been found that there was gross mistreatment of labourers as they were provided with low salaries and baseless firing from the organization. National Labour Relations Board had stated that the labourers did not have proper bargaining power and were not in a position to regulate their overall working hours (Becker, 2014). Developing a Sustainable Framework In order to address the issues that are currently being faced by companies such as Foxconn and Wal-Mart there is a dire need to restructure the employee labour relationship. Based on the framework of Unitarist school of thought and Duncan’s system theory the following recommendations can be suggested which can improve the conditions of the people in these organizations: Firstly, creating a sustainable employer-employee relationship will require concerted efforts like commitment towards labour relations developed by organizations and government initiatives. Conditions in China have showcased that large multinational companies can easily undermine labour standard rules if the local governments allow them to exploit human resource. Secondly, modifying the labour contracts has become important for majority of the multinational companies as the conditions in the labour market have changed rapidly. It has now become important for companies to involve the employees in the major decision-making process. This is helpful because by doing so employers can enhance the level of job satisfaction and improve their productivity. Thirdly, monitoring should be incorporated heavily by companies such as Foxconn to remove the unfair practices of suppliers. Evidence from other companies like Nike has shown that incorporating monitoring conditions have helped them to reduce instances of labour violation. Foxconn needs to incorporate standard measures across all of its manufacturing units in order to ensure that there is parity in the regulations. Fourthly, it will be imperative for all organizations to treat their workforce in such a manner so that they feel they are valuable in the organization. Multinationals like Wal-Mart and Foxconn have been negligent regarding the way they manage their workforce (Becker, 2014). The employees in these organizations are dissatisfied with their work and have been voicing their discontent. Such a working condition is not only bad for the productivity of the organization but also raises concern regarding their social image. So, managing employees with greater care, listening to their grievances, helping them to align their personal goals with organizational development perspectives and benevolent leadership will be crucial for ensuring success. Conclusion Globalization has almost earned the status of necessary evil as it has brought considerable challenges in the labour market. Under these circumstances it is mandatory for companies to review their traditional labour relation techniques to accommodate changes like fall in importance of labour unions and increasing pressure on workforce to meet pre-specified organizational goals. As human assets are crucial for organizational success so it will be important for organizations to treat them with special care. The role previously played by labour unions is almost redundant as management styles of companies have altered. In this new environment, companies must integrate human resource development objective into overall strategic management process to enhance job satisfaction and accomplish long-term sustainability of organization. Concerted efforts are also required on the part of the government to support stringent labour protection policy which will discourage multinational companies to exploit labourers. Reference List Abbott, K., 2006. A review of employment relations theories and their application. Problems and Perspectives in Management, 1, pp.187-199. Bamber, G., Lansbury, R. and Wailes, N., 2011. International and comparative industrial relations. London: Sage. Becker, A., 2014. U.S. labor board alleges Wal-Mart violated labor law in 14 states. [online] Available at: [Accessed 26 Novemebr 2014]. Chan, J., 2013. A suicide survivor : The life of a Chinese worker. 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Framework agreements and the regulation of international labour standards. Labour Studies Journal, 36(2), pp.269-87. WERS, 2011. The 2011 Workplace Employment Relations Study (WERS): First findings. Available at: [Accessed 26 November 2014]. Read More