Employment Relations and Human Resources Management - Essay Example

Expansion of multinational corporations in the UK and its impact on British employment relations Introduction Globalization is considered to have a revolutionary impact on the world economy by way of minimization of trade barriers and integration of various economies in one global forum. One of the major outcomes of globalization is international trade. In other words, development of multinational corporations can be considered as a major implication of globalization. In this paper, implication of globalisation in the United Kingdom (UK) in the form of expansion of multinationals and their impact on employment relations in the UK will be analysed. Initiation of globalisation in the UK Origin of globalisation in the UK dates back to 18th century when industrialisation shaped in the country through foreign trade and colonial connections. British industrialisation is often considered as the initiator of globalisation as it introduced production and global transportation of commodities at mass level. In addition, many authors also argued that during 19th century free trade was initiated and globalised by the UK. According to Hirst and Thompson (1992; 2000), the UK can be considered as an over internationalised economy in an under globalised business environment. In their study, data used by Hirst and Thompson (1992; 2000), suggest that the UK is open to foreign investments as an exporter as well as importer. Furthermore, due to its globalised existence, it is well recognised in the international financial system. It has been observed that banks, investment funds and pension funds in the UK tend to invest majority share of their fund in foreign ventures, resulting in the country being considered as the most globalised nation among all the G7 countries (Estrin, Hughes and Todd, 1997). Growth of multinational corporations in the UK Among various western countries, the UK is considered to have one of the most open economies in terms of business. The reason for the same is abolition of the foreign exchange rules, which occurred about two decades back and gradual deregulation and relaxation of the financial market since then. These two factors has increased trading activities of the UK with other countries over the time and generated a continuously increasing national output (Hirst and Thompson, 2000). Impact of globalisation in different forms can be observed on the British economy and explained as follows. The UK economy has witnessed tremendous inflow as well as outflow of foreign direct investment in recent years and is also considered as a preferable venue for direct investment from overseas accounts. Such a notion is backed by a number of factors such as improved performance of the supply side of the economy, low taxation system and high reputation in terms of international relations. Studies suggest that majority of manufacturing sector of the UK is financed by foreign investment and most importantly, inflow of foreign investment has resulted in an increase in the level of import penetration. Import penetration in this context can be defined as the degree or extent to which imported goods satisfy domestic demand. According to research, Britain had lost its competitiveness in sectors such as textile and electronic products due to increasing market players but import penetration in these sectors has caused the economy to earn comparative advantage (Estrin, Hughes and Todd, 1997). It is noteworthy in this regard that globalisation and entry transnational companies in foreign economy have been appreciated by many researchers because entry of foreign corporations in any economy increases competition level for domestic companies and improves their efficiency. Furthermore, entry of multinationals also bring along new technologies thereby induces technological development in different countries. Due to globalisation Britain has been successful in developing competitive advantage through high growth industries and consequently has made sufficient contribution in improving the living standard of the country in long term. Globalisation has had significant contribution in terms of facilitating the process that changes comparative advantage over time. This has been largely possible due to rapid diffusion of technological progress. However, in order to sustain this progress a considerable amount of investment is required in manufacturing sectors that are powered by high to medium-high technology as well as in knowledge intensive service sectors. Globalisation brought in structural changes in various industries across the UK that had long term problems related to employment and output. However, such changes created complex issues regarding resources that are not movable (Estrin, Hughes and Todd, 1997). The increasing role of globalisation has placed huge importance on human capital or human resources and has emphasised on it as an important component of long term economic growth. With entry of various multinational companies from emerging economies, the UK has lost its competitive position of manufacturing low value products while the demand for the same continues to grow rapidly. Thus, it is very necessary for economy to undertake measures for substantial enhancement of skill and knowledge of the workforce in the country. According to a number of studies, the effect of globalization on British government was reflected through various tax reforms as well as reforms in the welfare system and labour market. A number of economist have argued that globalization affects government’s ability of levying business taxes on domestic as well as international organizations. As higher taxation may result in a corporation shifting in production and other operational base to countries that are presently offering lower tax directly as well as indirectly. However, taxation cannot be considered as the only factor that influence location decision as there are other factors such as proximity to market, communication channels and export import facilities which have certain impact on the location decision. In the British tradable goods industry, competitive pressure has grown manifold due to globalization and entry of numerous multinationals. This pressure has however helped the economy in earning a trade-off between inflation and unemployment. The British economy has over the time secured its inflationary position by producing and selling various finished goods and international commodities at an inexpensive price. Another reason of growth of multinationals for several years in the UK that has been highlighted by economists is the Anglo Saxon Capitalism model followed by the country along with other economies such as the United States and Canada. The main characteristics of the Angle Saxon model are high degree of free market mechanism and less amount of regulation in financial and labour markets. Recent studies suggest that various global companies such as United States based multinationals are targeting the UK for establishing their operations so as to earn tax advantage as the corporate tax of the UK is comparatively low (Estrin, Hughes and Todd, 1997). Employment relations from a global perspective It has been witnessed in recent years that globalisation and entry of transnational organisations not only impact economy of a particular country but also play significant role in changing employment relations. Katz and Darbishire (2000) highlighted that traditional employment relations are being constantly challenged by cross national business patterns and can be classified in terms of low wage, team strategies and human resource management. The authors further added that these patterns have significant connection with decline of unions in various organisations and increasing income inequality. Impact of globalisation on employment can be observed in various developed as well developing economies and to have a clear understanding of the same, various authors has proposed utilisation of academic tools that belong to fields such as accounting, economics, law, politics, history, sociology and psychology. International employment relations are considered comparatively complicated because in involve exploration of various phenomena that are beyond national boundaries such as labour market, cross cultural environment in multinational organisations and behaviour of government (Katz and Darbishire, 2000; Colling and Terry, 2010). Studies suggest that a significant share of European workforce is employed in foreign owned firms. The proportion differs in different industries and countries in Europe but in manufacturing industry, the percentage of hiring was found to be highest. Many academicians argued that the national employment relations of Europeans countries such as the UK may face challenge from various Japanese and United States based multinationals because these corporations tend to transfer the work culture of home country into the employment system of host countries (Muller‐Camen, et al., 2001; Almond and Ferner, 2006). Home country effect Existing evidence supports that a number of transnational firms transfer their managerial practices from their country of origin to the country of operations through expatriates in key managerial positions, internationally integrated management system and financial control mechanism, and explicitly mentioned organisational guidelines. Such practices are exhibited by most Multinationals due to the pressure of international integration. This pressure has caused organisations to abandon multi-domestic approach that emphasises on high responsiveness towards local conditions over international integration (Muller‐Camen, et al., 2001; Donaldson, 2001). Host country effect The host country effect, contrastingly, focuses on the fact that employment relations in an organisation should be influenced by the ongoing developments and activities of the country of operation. Host country effect is primarily dependent on two factors, that is, institutional distance between home and host nations and strength of institutional regulations of hosting nation. Researchers suggest that with great institutional difference the host country effect strengthens and a transnational firm is dominated by the stronger institutional governance irrespective of the country (Muller‐Camen, et al., 2001). Impact of Multinationals on employment relations in the UK Among various European countries, impact of transnational corporations on employment relations can be strongly observed in France, Germany, Spain, Ireland and the UK (Gunnigle, Collings and Morley, 2005). Among these nations as well as other European nations, the UK has gained large share of foreign direct investment due to relatively inexpensive labour, lightly regulated economic sector and attractive fiscal incentives. In recent years, Britain has been boasted by the UK government for its attractiveness as a foreign investment destination. British economy was found to be greatly influenced by home country effect. For instance, as Toyota opened its manufacturing facility in the UK, its policies regarding industrial relation in British environment was highly influence by innovative practices of the company in its home country (Muller‐Camen, et al., 2001; Ferner and Quintanilla, 2002; Ferner, 2003). With growth of multinationals in the UK, the national employment relations have witnessed several changes. These changes include shift of voluntary system of management to neo-liberal interventionist management and decline in power of various unions. It was observed that with privatisation and implementation of neo-liberal measures, strikes and defensive labour policies declined (Bamber, Lansbury and Wailes, 2004; Deery, Walsh and Plowman, 2001). In 1965, the Confederation of British Industry was formed which over the time became an importance regulatory organisation for employers in Britain. The confederation does not take part in collective bargaining but it does act as a pressure point for the government and the European Union regarding employer related problem. It also represents about half of total workforce of the UK (Confederation of Business Industry, 2014). According to the UK government, since 2004 proportion of non-standard working hours such as shifts, zero hours contract and annualised hours have increased significantly in workplaces. The percentage of individuals working in shifts has increased relatively. Moreover, in large organisations contracts related to annualised work hours were found to be implemented. The study further revealed that even through the number of trade unions have declined significantly; stable union presence can be felt in various public as well as private organisations (The UK Government, 2011). The constant integration of different cultures in multinationals has resulted in development of a contemporary work culture in various organisations. In a cross cultural framework, it has become very important for companies to keep their employees engaged and committed to the organisations (Edwards, 2009). For this purpose, different measures such as all staff workplace meetings, staff survey, team briefing and problem solving groups are being undertaken. Additionally, management involve employees and representatives in decision making, respond to their queries and seek their views regarding different issues. However, there are certain negative impacts of growth of multinationals such as job loss and social dumping (The UK Government, 2011; Kersley, 2006). Conclusion It was witnessed in the paper that the UK has become an attractive market for foreign investment due to supportive legislations and business environment. Numerous transnational organisations can be recognised to enter the market due to the prospective nature of the economy. Further studies revealed that entry of multinationals in British economy has resulted in stabilisation of union, development of contemporary work culture and international integration of business. It has also enhanced competitive positioning of the economy. However, it is also important to note that excessive international exposure often result in weakening of the local markets and industries. Therefore, as a concluding remark it can be suggested that British economy require maintaining a balance between local industrial development and international exposure. Reference list Almond, P. and Ferner, A., 2006. American Multinationals in Europe. Oxford: Oxford University Press. Bamber, G. J., Lansbury, R. D. and Wailes, N., 2004. International and comparative employment relations. London: Sage. Colling, T. and Terry, M., 2010. Industrial relations: theory and practice. New York: John Wiley & Sons. Confederation of Business Industry, 2014. CBI around the UK. [online] Available at: [Accessed 21 August 2014]. Deery, S., Walsh, J. and Plowman, D. H., 2001. Industrial relations: A contemporary analysis. Australia: McGraw-Hill. Donaldson, J., 2001. 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