Factors that Influence the Management of Employment Relations in Subsidiaries of Multinational Companies - Term Paper Example

Introduction Doing business internationally has become one of the most challenging tasks for the modern organizations owing to the volatility and risk. The recent phenomenon of expanding the markets through foreign direct investments and subsequently increase the employment with the help of foreign companies has now become a routine matter. (Rushing & Kleiner, 2003). The current economic conditions prevailing in most of the developed countries indicate that the overall situation in international market may not be good. In such complex and fluid competitive landscape, management of employment relationships by international organizations becomes more complicated. The off-shoring process that has overtaken the current management thought indicates that the international firms will continue to expand themselves into new markets. Such expansion into new markets also made the existing labor force more mobile and the exact relationships between the employees and employers have become relatively more complex. (Kippenberger, 2000) Such mobility of the workforce also indicates that the overall management of relationship between the employer and employee need to be viewed from a larger perspective than just considering the same as an ordinary phenomenon. The relative complexities of legal structures, cultural hurdles as well as other social and political issues have made it more difficult for managers of international firms to manage the employment relations in their most traditional sense. Thus there are different factors which directly and indirectly affect the employment relationships in subsidiaries of international firms. (Carby-Hall, 1993) This paper will therefore provide a critical analysis of the factors that may affect the management of employment relationships in subsidiaries of international firms. The Rise of International Organizations Before discussing some of the factors that affect the employment relationships between the subsidies and their parent international organizations, it is critical to understand the rise of the international organizations on international competitive landscape. This is critical due to the fact that it will allow understanding the actual factors or reasons as to why the firms invest internationally and what their ultimate motives for investing at international level are. This therefore indirectly indicates the extent and level of their relationship with the employees working in such subsidiaries. With the advent of globalization and systematic reduction of regulatory restrictions, capital started to flow easily across the borders. This easy mobility of the capital resources allowed firms to expand themselves into new geographical markets and establish their business in those areas. It is critical to note that globalization allowed the flight of capital from one country to another country based on the relative economic merit of achieving the strategic objectives of the firm. It was because of this unique phenomenon that firms like NIKE established unique business model with no centralized manufacturing facilities. Such diversification of production process therefore clearly reflects the ability of large organizations to penetrate into international markets and take advantage of different factors such as cheap labor as well as raw materials to provide affordable products and services. (Zeng & Zhao, 2010). What is also critical to understand is the fact that large organizations have been successful in establishing themselves in the local culture with the help of hiring local employees. The hiring of local employees not only provide large organizations an opportunity to tap into the local knowledge but also understand the dynamics of conducting business in local environment and fit themselves into the local environment so that they are considered as the part of that local environment. (Franklin, 1990) This has only been possible due to the ability of the large organizations to successfully mould the local employees into their global culture while continuing to retain their individual local characteristics also. This therefore also requires that the large organizations must manage their relationships with their employees in a manner which not only parent organization to achieve their strategic objectives but also flourish the employees of their local subsidiaries in most appropriate manner. (Hurn, 2006) Before discussing as to how the overall employees relationship between the international organizations and their subsidiaries exist, it is important that the process off-shoring as well as labor mobility is discussed. Off-shoring Process and Labor Mobility As discussed above that off-shoring was one of the main variables for allowing the mobility of labor from one geographical region to another. As the overall pace of offshoring increased, the mobility of the workers from one industry to another industry and from one country and another country expedited. Though the overall work force was largely heterogeneous in countries like US however, the overall social composition of working class was homogenous in nature thus allowing the flourishing of uniform practices and policies adapted by the firms to deal with the employees in more appropriate manner. (Walz, 2005) The overall quantum of foreign direct investment has increased over the period of time which also indicate that the presence of international organizations in various markets have increased too. The overall direction of the investment flow has been from countries with high investment levels to the countries with low investment level. (Choi, Woods, & Murrmann, 2000). This transition of investment from developed countries to relatively poor countries makes it clear that the international organizations tend to invest into those areas where the availability of cheap labor and raw materials is abundant (Cooke, 2003). It is also argued that the mode of entry into the developing markets has been the mergers and acquisitions thus international organizations often attempt to formulate their own subsidiaries in new markets. The mergers and acquisition process of subsidiaries not only ensure that the existing level of employment remains intact but also gives rise to the possibility of new employment generation. It is because of this reason that governments often allow international firms to enter into their markets without facing significant regulatory challenges and hurdles. (Jagersma, 2007) It is however also argued the movement of capital from one country to another give substantial power to the international organizations also. As such the overall employment relationships shall also be viewed from this perspective also because international organizations and their involvement is effectively seen as an step towards controlling the ideas emerging from the developing countries. (Ferner & Almond, 2006). Viewed from above perspective, following section will discuss the management of employment relationships in subsidiaries of international organizations. Management of Employment Relationships The management of employment relationships with employees from the subsidiaries of the international organizations mostly depends upon the overall perception that international parent organizations held for their subsidiaries. The advance literature on human resource management indicates the strategic role of HRM within the organization and growing emphasis is on aligning the overall strategy of the organization with that of the HRM strategy of the firm. (Wilson, 2008) It is therefore a significant challenge for the international HR managers to ensure that they hire those individuals in their organizations who are best fit with the organization. Achieving the best fit between the organizations as well as the employee therefore allows an organization to fully utilize the potential of their employees and journey towards achieving their strategic objectives. International organizations often enter into new markets in order to expand themselves and achieve and maintain the desired level of profitability. It is therefore critical that the hiring in subsidiaries is performed in a manner that allow international organization to find a perfect that narrows the gap between the existing core competencies of the subsidiary with that of the parent organization. This ultimately leads towards managing of employment relations in a manner that support the organizational objectives. (Jakobsen, Cressey, & Beaumont, 1990) As such the maintaining of overall employment relationships depends on varying degree of factors which contribute towards achieving and maintain most appropriate relationships between the employees in subsidiaries with that of the host international organizations. Bargaining Power Probably the single most important factor that shapes the overall industrial relations between MNCs and their subsidiaries is the relative bargaining power of the international firms. Higher the bargaining power enjoyed by international firms, little the influence which subsidiaries can exercise over the parent firms. (Shin, 2007). This also invariably depends upon the overall size of the subsidiaries, their ability to transfer knowledge as well as their dependence on the home market. (Shin, 2007). Thus to maintain effective and smooth employment relationships, it is important to understand that the subsidiaries can influence the employment relationships if the dependence of the international firms is higher on them. Such level of dependence not only dominates the way subsidiaries negotiate with the MNCs but also indicate the relative power of the various elements within the subsidiary who can dominate this whole process. What is also critical to note that the higher bargaining power of MNCs may result into significant managerial issues as employees may not feel part of the organization. Higher dominance of MNCs may result into unfavorable compensation structures, unhygenic work conditions, suppressive hiring and firing policies whereas on the other hand, a higher domiance by the subsidiaires may result into the ineffeiciency which will again be deterimental to the overall strategic objectives of the firm. Political and Legal structures MNCs are considered as the primary source which dominates and shapes the political economy of the world. (Edwards, 2001). However, despite the globalization and dominance of large organizations, the political and legal structure of many countries may not allow international firms to dominate the employment relations. Many countries restrict the formation of unionized activity such as strikes etc however; they also compel the employers to follow certain rules and regulations. The political environment of the country may require that the subsidiaries must employ locals or legally international firms may be compelled to offer a certain compensation benefits to the employees’ etc. for example, in countries like China, foreign entities are often legally required to follow strict rules and procedures when dealing with their Chinese employees. Thus the overall direction and orientation of the employment relationships depends upon how flexible as well as supportive the political as well as legal environment of the host country is. (Chetty, 1999) Further, by forcing international firms to adapt a certain way of corporate life, inefficiencies may creep in as international firms may fail to maintain their profitability targets due to inefficient human resource base at the subsidiary. Cost Control There are potentially two important motives of the international firms when they deal with their subsidiaries and decide upon the employment relationships. Those firms which enter into the market in order to control their costs and take advantage of the cheap labor, they may tend to have different stance towards managing the employment relations as compared to those firms which focus on the development of core competencies of their subsidiaries and raise the skill level of their employee through training and development and imparting and transferring new technologies. (Todd, 1999). Firms looking for controlling their costs therefore may offer such terms and conditions to their subsidiaries which may not be suitable and as such may ultimatley result into loss of efficiency of subsidiary. Union Formation Employee unions probably serve as the most important institutional arrangements that deal with employee and employer relationships. The success of effectively managing the employment relationships therefore greatly depend upon the relative role and degree of robustness of the employee unions. It is however, believe that growing professionalism has resulted into the dilution of the role of unions within the organizations on the pretext that the professional unions already exists therefore professionals at least do not require unions to negotiate the industrial relations with their employers. (Noronha & D’Cruz, 2009). The case study of the call centers in India perfectly identifies how international companies treat the call center employees in India on their failure to meet the organizational expectations. (Noronha & D’Cruz, 2009). This is critical due to the fact that the call center employees do not have properly identified employment relationships with their employers and as such they are often been punished on smaller mistakes. Such behavior indicates that the overall employment relationships between the employees of the subsidiaries of the international organization may not be enjoying the relatively easier professional life. (Taylor, D’Cruz, Noronha, & Scholarios, 2009) In such scenario, it therefore becomes critical that the employees formulate unions in order to negotiate their terms with their employers. Given the overall notion of power and hedgmony over the international markets, international corporations engage into activities which may be unethical in nature and therefore require formation of unions to properly balance the relationship with the employers. Thus one of the most critical factor for managing the employment relationships between subsidiaries and the parent international organizations. Staffing locals Studies conducted by Gong (2003) indicate that one of the key indicators of maintaining and managing employment relationships and achieve the desired level of performance is the hiring of the locals by the international organizations in their subsidiaries. As the cultural distance increases staffing locals prove beneficial for the international firms however, this link tends to become weaker as the time passes by. (GONG, 2003). Employment of foreigners therefore can become one of the significant political issues as host environment may be potential hostile towards foreigners taking important jobs in the country. In countries like China, it is often required under the law that the international firms must form joint ventures to make an entry into the market and it is often customary that the international firm must employ locals. This will also determine whether the locus of decision making will exist within the subsidiary or outside it. If an international firm employ CEOs who are more powerful, it may be evident that the locus of control may remain within the subsidiary and in this case the employment relationships will be mostly dominated by the subsidiary whereas if locus of control remains within the hands of international firm, the overall nature of the relationship may differ. This is however, critical from the point of view of the overall performance of the employees as international organizations may be compelled to hire local people at the top management jobs in their subsidiaries. From agency theory perspective such actions may not be acceptable as they may not only result into the loss of efficiency whereas on the other hand, same may also result into potential loss for the international firm. Conclusion There are various factors which affect the employment relationships between the international firms and their subsidiaries. Most importantly the overall bargaining power as well as the intended objective of entering into the new market serves as the strong variables which tend to affects the employment relationships. If an international firm enters into new market in order to save costs, it may force unfavorable compensation structures, longer working hours as well as other restrictions which may cause the employees of such subsidiaries to enter into the unionized activities despite the fact that they are already served by their professional societies and bodies. What is also critical to note that the legal and political forces of a country can also force international firms to provide certain incentives to the employees of subsidiaries? Such situation therefore may tilt the locus of control in favor of the subsidiary and international firms may not exercise the same degree of control over their subsidiaries and local employees may dominate the employment relations. Bibliography 1. Carby-Hall, J. (1993). HOMEWORKING: - The flexible workforce. Managerial Law , 35 (3), 1-11. 2. Chetty, S. K. (1999). Dimensions of internationalisation of manufacturing firms in the apparel industry. European Journal of Marketing , 33 (1), 121-142. 3. Choi, J.-G., Woods, R. H., & Murrmann, S. K. (2000). International labor markets and the migration of labor forces as an alternative solution for labor shortages in the hospitality industry. International Journal of Contemporary Hospitality Management , 12 (1), 61-67. 4. Cooke, W. N. (2003). Multinational companies and global human resource strategies. London: Greenwood Publishing Group. 5. Edwards, T. (2001). Globalization, employment relations and reverse diffusion in multinational companies. In I. G. Yaw A. Debrah, Globalization, Employment & the Workplace (pp. 191-206). New York: Routledge. 6. Ferner, A., & Almond, P. (2006). American multinationals in Europe: managing employment relations across national borders. London: Oxford University Press. 7. Franklin, J. (1990). The International Manager. Executive Development , 3 (1), 50-62. 8. GONG, Y. (2003). SUBSIDIARY STAFFING IN MULTINATIONAL ENTERPRISES: AGENCY, RESOURCES, AND PERFORMANCE. Academy of Management Journal , 46 (6), 728-739. 9. Hurn, B. J. (2006). The selection of international business managers. Industrial and Commercial Training , 38 (6), 279 - 286. 10. Jagersma, P. K. (2007). Redefining the paradigm of global competition: offshoring of service firms. Business Strategy Series , 8 (1), 35 - 42. 11. Jakobsen, P., Cressey, P., & Beaumont, P. (1990). Key Industrial Relations: West German Subsidiaries in Britain. Employee Relations , 12 (6), 3-7. 12. Kippenberger, T. (2000). The scouring effect of change. The Antidote , 5 (3), 18 - 20. 13. Noronha, E., & D’Cruz, P. (2009). Engaging the professional: organising call centre agents in India. Industrial Relations Journal , 40 (3), 215–234. 14. Rushing, K., & Kleiner, B. H. (2003). New developments in executive relocation practices. Management Research News , 26 (2), 12-19. 15. Shin, J. (2007). Approaches to International Industrial Relations in Chinese Multinational Corporations. Management Revue , 18 (4), 410-426. 16. Taylor, P., D’Cruz, P., Noronha, E., & Scholarios, D. (2009). Indian call centres and business process outsourcing: a study in union formation. New Technology, Work & Employment , 24 (1), 19-42. 17. Todd, P. (1999). THE IMPACT OF FOREIGN MULTINATIONAL CORPORATIONS UPON MALAYSIAN EMPLOYMENT RELATIONS - A STUDY OF SIX AUSTRALIAN COMPANIES MANUFACTURING IN MALAYSIA. International Journal of Employment Studies , 7 (2), 1-23. 18. Walz, J. T. (2005). Whats This India Business? Offshoring, Outsourcing and the Global Services Revolution. Leadership & Organization Development Journal , 26 (6), 506-507. 19. Wilson, F. (2008). Meeting the challenges of global resourcing. Strategic HR Review , 7 (2), 5-10. 20. Zeng, D.-Z., & Zhao, L. (2010). Globalization, interregional and international inequalities. Journal of Urban Economics; , 67 (3), 352-361. Read More