Industrial Relations in Asia-Pacific Region - Research Paper Example

Industrial Relations in Asia-Pacific Region Executive Summary In the contemporary era, the giant profit making business enterprises expanded their commercial branches in both domestic and foreign marketplaces. By increasing the scale and scope of business internationalization, these firms try to increase their global market share and revenue in the long run. Multinational companies grow their business in the emerging economies, for experiencing lower cost and increased demand for their products and services in the market. Many research reports elaborate about the benefits generated by these companies over these growing economies. However, there are limited studies that evaluate the impact of these companies on the local labor markets of the emerging nations. The present research report tried to analyze the impact of multinational firms on these markets of China and Indonesia. It had been proved that foreign firms create greater impact on China than Indonesia. Multinational firms prefer the former country over the latter because of its superior infrastructure, population strength and per capita discretional spending. However these firms generate positive as well as negative impacts over the local labor markets, through wage, export and productivity spillover effects. Multinational business firms have created greater job opportunities in the industrial and tertiary sectors of China and Indonesia. The labor rights of these countries have achieved global standards. However, many foreign firms outsource laborers through contracts and hence generate employability in a volatile pattern. Finally, the paper has evaluated that labor force is managed for creating biased, asymmetrical and perplexed response to the international firms. These responses can affect the local labor markets positively or adversely. Contents Introduction 4 Multinational Business Boom in Emerging Economies 4 China 4 Growth of Multinational Business in China 5 Chinese Labor Market 5 Impact of Multinational Firms on Chinese Labor Market 6 Empirical Analysis 7 Indonesia 7 Growth of Multinational Business in Indonesia 8 Indonesian Labor Market 8 Impact of Multinational Firms on Indonesian Labour Market 9 Empirical Analysis 10 Conclusion 10 Reference List 12 Introduction A labor market is a destination where the employers and workers relate with each otherb (Bama, 2004). In such a market, the employers intend to hire the best workers and in turn the employees compete against each other to get the most satisfying job (Bama, 2004). In a modern economic system, the labor market operations are determined by the aggregate supply and demand of labor. However the strength of employment demand and supply depends on the changes in the bargaining power of the employers and the employees. Flexible labor markets accompanied with low welfare costs are the primary symbols of economic growth in a nation. Social welfare is maximized under perfectly competitive market but the modern economies are governed by mixed economic principles (The Economist Intelligence Unit Limited, 2011). The political authorities often intervene in the labor market for experiencing greater social welfare. Growth of industrialization and commercialization has generated significant impacts on the labor market of contemporary economies (Millar, Hind and Magala, 2012). The modern business firms enhance revenue and profitability through increased business internationalization. This research report tries to evaluate the impact of multinational business on the local labor markets of China and Indonesia. It is rational to conduct an explorative study on China and Indonesia because both the countries are labor surplus economies and have historically experienced drastic changes within its labor markets. The impact evaluation process of the report will be analyzed in an argumentative approach. Multinational Business Boom in Emerging Economies The global financial crisis and its subsequent recession in the western economies had shaped the enthusiasm of the foreign business adventurers. Some developing nations such as India, China, Russia and Brazil started encouraging open trade policies within their economies at that point of time (Cox, 2014). The giant multinational firms in the depressed western economies started to invest in these emerging countries for experiencing lower operational cost and greater demand, generated by the growing middle income group of consumers in these nations. The volume of foreign multinational takeovers in these booming economies summed up to $ 180 billion in 2010 (Cox, 2014). Rather research reports states that rich multinational portfolio and institutional investments pioneer’s economic growth in all the emerging countries (Cox, 2014). China China had a centrally planned economic structure until 1970’s. From 1970 onwards, the country started to adopt market-oriented norms within its economy (CIA, 2014). Open economic policies were practiced in China through collectivist agriculture, liberalization of prices, increased disinvestment practices and fiscal decentralization (CIA, 2014). However the country has adopted economic reform in a gradualist approach. China has experienced significant economic growth and development with the help of liberal economies policies. It is now known as an emerging economy and is estimated to be the second largest economic system after the U.S., in 2013 (CIA, 2014). Increased foreign business participation and domestic productivity has helped to enhance the aggregate employability and per capita income level in China (CIA, 2014). However the government of the country faced certain issues relating to low domestic savings, high population pressure and income inequality (CIA, 2014). Growth of Multinational Business in China From 2008 onwards the extent of multinational business in China has considerably increased. Foreign companies invest in China for experiencing cost and profit advantages (The Economist, 2010). The exchange rate and current value of the country is low and is the most populated country in the world. Figure 1: Multinational Business in China (Source: The Economist Intelligence Unit Limited, 2011) According to the research reports of The Economist, the above table shows the list of the most successful multinational firms in China (The Economist Intelligence Unit Limited, 2011). These companies accrue more than 20% of its gross revenue from the Chinese market (The Economist Intelligence Unit Limited, 2011). Multinational companies often transfer their manufacturing business divisions in China because they desire to employ skilled, semiskilled and unskilled laborers at low wage costs from the country (The Economist, 2010). China is a labor surplus economy and experiences relatively lower wage rates than most of the western developed countries. However increased multinational business has generated significant impacts on the local labor markets of China. Chinese Labor Market The economic reforms and increased foreign business participation has generated significant changes in the labor market of China (The Economist, 2010). Before the reforms, the skilled urban workers of China primarily worked in the state owned enterprises. However growth of multinational business has changed the employment pattern of the country. The degree of labor mobility in China has increased and the proportion of rural employed workers has considerably increased in the country (The Economist Intelligence Unit Limited, 2011). Figure 2: Demographic Structure of Chinese Labor Market (29) (Source: Rush, 2014) From the above graph it can be stated that the dependency ratio (proportion of non working individuals depending on the percentage of income earners) of China is forecasted to increase in the long run. This signifies decline in the number of income earners in the country compared to the proportion of aged non earning individuals (Rush, 2014). Impact of Multinational Firms on Chinese Labor Market After the western financial crisis, multinational firms have helped to increase industrial and tertiary sector employments in China (Rush, 2014). The foreign firms have helped to make the Chinese market more formal in nature. Figure 3: Employment Structure in China (31) (Source: Rush, 2014) The above figure shows that the percentage of employment generated by the state and collectively owned enterprises in China have declined after the economic reforms. However the proportion of employability generated by the private and foreign firms of the country has increased. According to a report published by UNCTAD, foreign multinational firms have made investments worth $ 500 billion in China and these investments generate employment opportunities for more than 16 million Chinese workers (Rush, 2014). Multinational firms have facilitated in improving employments, per capita income levels and living standards in China. Several foreign firms have also generated job opportunities for Chinese laborers in foreign countries. These companies outsource Chinese workers for acquiring skilled workforce at cheaper costs (Rush, 2014). However the increased job opportunities created by the multinational firms in China are not stable in nature. Many multinational companies of the U.S. have lowered their domestic and foreign labor outsourcing activities from China, subject to the recent U.S. domestic labor protection laws (Warnera and Zhub, 2010). The Federal government has claimed that trade deficit of the U.S. is primarily responsible for the cheaper imports made by the country from China. The stakes of almost 153 biggest exporting companies of China are owned by foreign firms (Rush, 2014). Subjected to such outcomes, many multinational companies have lowered their self generated employment opportunities in China. This has resulted into stoppages, strikes and suicides in the Chinese market. Figure 4: Declining Labour Productivity in China (Source: The Economist, 2014) The above graph shows that along with higher dependency ratio, the productivity of Chinese labor market is also declining over time. Several foreign companies are now deciding to continue their operations in China just for the sake of experiencing growing domestic consumption demand but not cheap employment (The Economist, 2014). Many firms are hiring less Chinese laborers for avoiding the trade union related issues. However multinational firms and the World Trade Organization (WTO) have improved the domestic labor rights of China (The Economist, 2014). Thus with the help of the above review it would be correct to conclude that multinational companies have generated positive as well as negative impacts for the local Chinese labor market. Empirical Analysis Indonesia Indonesia is a polyglot nation and has experienced significant growth since 2010 (CIA, 2014). During the global financial crisis, along with India and China, Indonesia was the only member country among all the G20 nations that experienced economic growth (CIA, 2014). However the public authorities of the country promote conservative fiscal policies. Indonesia is also considered to be an emerging economy of the current epoch and experiences sound macroeconomic indicators such as low inflation and low debt burden. The country has a low exchange rate and is witnessing increased level of investments across all its growth oriented industrial segments (CIA, 2014). However the government of the country faces problems relating to inadequate infrastructure, high corruption, unemployment and poverty. Labor market disputes and increasing energy resource prices are the two crucial economic issues of Indonesia (CIA, 2014). Growth of Multinational Business in Indonesia Similar to China, multinational business growth in Indonesia has taken place due to cost and demand related factors. The foreign companies operating in the emerging industrial marketplaces of Indonesia are able to acquire large strength of cheap labor resource within their business from the country. For instance, in 2011 General Motors had only 30 workers in each of its manufacturing plant of Indonesia but in 2013, the number increased to a level of 700 workers per plant (Cochrane, 2013). The company reported $ 50 million returns from the investments made in the country. This era is the age of ‘reserve innovation’, where innovative products manufactured in emerging economies such as Indonesia are launched in the western developed countries by the multinational companies (Cochrane, 2013). Multinational firms are making greater investments in Indonesia because the domestic consumption expenditure of the country is increasing at a steady rate. From 2012 to 2013, the level of foreign direct investments made in the country has increased by 27% (Cochrane, 2013). Growing multinational business in the country can also be witnessed by observing the rising number of McDonalds’s, KFC and Burger King Outlets in Indonesia (Cochrane, 2013). However increased international business has brought about significant changes in the labor market of Indonesia. Indonesian Labor Market Just similar to China, the Indonesian labor market and economy is characterized to by dual segments, namely formal and informal sectors. Duality exists in the country in form of rural and urban or non agriculture and agricultural sector. Just like China, the informal labor market generates non standard employment opportunities in Indonesia. The jobs in the informal market of the country experience high volatility, low wage, less regulation and seasonal fluctuations (Millar, Patricia and Magala, 2012). This sector primarily recruits the unskilled workforce of Indonesia. On the other hand, the formal sector creates job facilities for skilled and semi skilled workforce. Such employments experience higher wage rates, efficient legal protection and increased stability. The formal jobs in Indonesia are offered by the multinational and nationalized, native as well as foreign companies. Figure 5: Indonesian Employment and Domestic Income (407) (Source: Tjandraningsih, 2012) The above chart shows that the proportion of workers working in the agricultural sector of Indonesia is more than the number of workers functioning in its service and industrial sector. However the value of its industrial output is highest within its total domestic income. With the essence of globalization in economic activities, the proportion of laborers working in the tertiary and industrial sectors of Indonesia has significantly increased (Tjandraningsih, 2012). According to the reports of Central Bureau Statistics in 2000, the approximate size of Indonesian labor force was 203 million (Kotter and Schlesinger, 2008). The labor force participation rate of the country is growing over time. Just like China, the labor market policies of the country are determined by the norms of Millennium Development Goals. Impact of Multinational Firms on Indonesian Labour Market Increased commercial activities of the multinational companies have helped to improve the working conditions and wage rates of the Indonesian labor market. Multinational firms have transformed the Indonesian labor market in terms of the global labor standards. In order to increase the domestic employment opportunities, the government of Indonesia has introduced liberal policies for the domestic and foreign multinational firms (Hasoloan, 2014). These firms recruit Indonesian workers for acquiring productive human capital at relatively lower costs. Thus, the multinational firms have helped to increase the domestic income, economic growth, per capita earnings and gross production of Indonesia. Through such parameters one can evaluate that multinational trading activities have facilitated in developing the labor market of Indonesia (Hasoloan, 2014). However, development is a purposive and normative concept and cannot be estimated only through aggregate accounting indexes such as gross national product. A considerable proportion of labor force in Indonesia has become dependent on the recruitments created by foreign multinational companies. A sudden change in the external business environment of a western country can create significant adverse impacts on the labor market and employability of Indonesia. Empirical Analysis Multinational companies have created similar impacts on the local labor market of Chinese and Indonesian economy. However, the impacts are stronger in China compared to Indonesia because Chinese economy is more attractive to the giant corporate investors. Multinational companies can influence the labor market of China or Indonesia, either positively or adversely, through three primary ways (Hasoloan, 2014). These three ways are wage, export and productivity spillovers. All the three spillover effects can generate positive as well as negative impacts. Foreign direct investments made by multinational firms created negative wage spillovers in China. Under this regime, some domestic Chinese firms were found to lower the wage rates in the market, subjected to the changes introduced by some popular multinational companies in the country. Positive technology or productivity spillovers, initiated by the multinational firms in Indonesia and China has helped to generate greater employment opportunities, through increased manufacturing functions conducted by the domestic and foreign firms (Cooney, 2007). National level research studies have proved that the labor outsourcing activities have significantly increased in the metal industries of Asian economies such as Indonesia. Outsourced laborers are considered to be causally employed because the foreign multinationals offer them jobs through contacts. In Indonesia, the proportion of outsourced workers has increased from 6.7% to 11.0% from 2001 to 2009 (Tjandraningsih, 2012). A study conducted by the Indonesian Metal Workers Federation have claimed that greater outsourcing activities in the metal industry have increased job uncertainty and created adverse effects on the workers. Such circumstances have ultimately enhanced the labor market complications in this industry through increased trade union movements (Diefenbach, 2007). However in order to stably improve business, many multinational companies such as KFC have adopted differentiated strategies in business for suiting the local market preferences of the country (Tjandraningsih, 2012). Conclusion Multinational companies of developed western economies conduct business according to the norms of transaction cost economies resource based view. These firms try to exploit their productive resources in foreign markets, after saturation of domestic demand. Since the emergence of the global financial crisis, many foreign companies have extended their commercial activities in the emerging Asian economies such as China and Indonesia. These two countries are rich in terms of labor resource, possesses lower currency values and experience relatively low wage rates in the global forum. The report shows that multinational companies have generated certain positive and negative impacts on the local labor markets of these two countries. These impacts are generated by wage, productivity and export spillovers (The Economist, 2014). However formal labor markets of Indonesia and China constantly fluctuate to negotiate with the strategy based workforce requirements of the multinational companies. Contemporary workforce is managed for generating partial, lopsided and confused response to the international firms. The employment opportunities generated by the multinational companies are highly fluctuating in nature. However, without the essence of multinational business growth, emerging economies such as China and Indonesia could not experience significant growth in its gross employability and per capita income thresholds. The labor rights related matters of these countries are also improved to the international standards with the essence of the internationalization activities practiced by these firms (Appelbaum, et al., 2012). The dominant powers of the potential multinational companies should be checked through government regulations. The adverse impacts created by the multinational companies on the local labor markets can be controlled with the help of increased welfare and maximizing government regulations across all the emerging markets such as Indonesia and China (The Economist, 2014). 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