The Impact of Multinational Firms on Local Labor Markets - Case Study Example

THE IMPACT OF MULTINATIONAL FIRMS ON LOCAL LABOUR MARKETS By Name Course Instructor Institution City/State Date Table of Contents THE IMPACT OF MULTINATIONAL FIRMS ON LOCAL LABOUR MARKETS 1 Table of Contents 2 Executive Summary 6 Introduction 6 General Electric (GE) in South Korea and Apple in China 7 Local Labour Markets 8 China's labour market is regulated by Labour Law of 1994, which has established key norms for applying to employment relationships, covers matters like minimum standards, labour contracts, as well as dispute resolution. With more than 1.3 billion people as well as a GDP improving at an annual rate of 10 per cent, China has swiftly developed into one of leading global market contributors. The economic reforms between late 1970s and early 1980s led by Deng Xiaoping has immeasurably improved China’s living standard and facilitated economic development; regrettably, this outstanding growth was achieved through forced labour of children, women and men. Besides that, China’s distinctive combination of decentralised economic power and Communist ideology has resulted in the utilisation of both unsanctioned and state-sanctioned labour force, of which the former is propagated by means of corruption, ineffective policies, as well as inadequate legal enforcement. There is no available statistics on the magnitude of forced labour because of the China’s authoritarian political system. Still, reports, news articles, research, as well as the testimonies of former forced labourers confirm the situation severity. According to Lepillez (2008), forced labour that is state-sanctioned is extensively justified and promoted by the Chinese government by means of the ‘reform through labour’, which is a Communist doctrine. Basically, this philosophy commends the labour virtues as a means of transforming rebels into new socialist individuals; still, it has practically resulted in the creation of numerous Laogai, which are prison labour camps. In the last few decades, the economy of China is transformed itself, but still, issues associated with labour relations are prevalent. In consequence, this has affected more than 250 million migrant labour forces even if China appears to be the globalisation conqueror. Recent statistics show that the rate of unemployment in China has reduced to 4.04 in 2015 and has averaged 4.13 per cent between 2002 and 2015. 8 In January 2010 the South Korean government implemented a set of new labour laws that had been disapproved strongly by the opposition parties as well as the labour groups. Chinese authoritative form of leadership was exhibited when the legislators from the conservative minor party together with those from the governing Grand National Party (GNP) met and passed the contentious legislation with no debate. This evidenced contempt by the Lee Myung-bak government for democratic as well as fair procedures; thus exhibiting some form of totalitarian leadership. Simultaneously, the passing of the new labour laws signified a caricature of pursuing social dialogue for the benefit of creating supportive industrial relations in the country. According to the new labour laws, a single company can have multiple unions, but companies are prohibited from paying fulltime union officials. In combination with the layoffs system implementation in 1998, the labour law changes marks the beginning of tough market discipline for both local and multinational companies. The rate of unemployment in South Korea decreased in 2015 to 3.70 per cent and the average unemployment rate between 1999 and 2015 has been 3.63 per cent. The rate of unemployment was all time high in 1999 at 7.10 per cent and a record low in 2013 at 2.90 per cent (see Appendix one). Perverse labour as well as economic performance in the South Korea has raised a number of concerns related to the structure of the economy. The key issues that General Electric face in the Korean labour market includes jobless growth due to the ageing factor and polarisation of labour force. Multinational companies are worried that South Korea’s steady economic growth may fail to generate adequate employment. In this case, Anne (2010) argues that the link between the labour markets and economic growth were enfeebled in the late 1990s; therefore, the processes that bring about economic growth can no more result in satisfactorily large employment growth. 9 Wages 10 Employee Representation 12 Since the beginning of 21st century, China has attracted many global corporations because of its labour laws that limit the right to strike and outlaw independent trade unions as well as its low wage rate.  Lately, workers in China’s industries have been pushing for improved wages, working hours as well as conditions.  In a number of cases, collective action by employees in China, which includes strikes has succeeded and has consequently brought employers in China to the bargaining table.  In consequence, Chinese industrial workforces are moulding their own industrial relations system, essentially devoid of help from the existing law as well as institutions of labour relations.  Still, China is yet to meet international standards of labour law since workforces cannot select freely their collective bargaining representatives and the country has no law that need employers to engage in collective bargain with the workers.  Most employees in Chinese factories are not represented in trade unions, and are not allowed to strike or force their employer to engage in negotiations with regard to industrial grievances.  As noted by the International Trade Union Confederation, Chinese workers are not allowed to organise in the preferred trade unions and the legal trade unions must be related to the All-China Federation of Trade Unions and agree to its control.  Even though efforts have been made so as to establish systems for collective wage consultation, the right to collective bargaining in China is not allowed because it can result in labour strike.  The labour issues in Apple’s supplier factories prove that workers in China do not have proper representation. The Chinese government have in the last few years enacted improvements in rights of the workers (such as the 2008 Employee Contract Law), and have developed a policy that favours extensive collective consultation over working conditions as well as wages. It is for this reason that, the industrial wages in China is increasing progressively.  Still, the wages of workers in the Apple’s supplier factories is suppressed because they lack of freedom for collective consultation. 12 Lately, industrial relations decentralisation in South Korea has created concerns with regard to flexibility and individualisation and considering that the decentralised industrial relations are normally necessitated as a symbol of a global standard. Challenges in South Korea arise from the desire for central bargaining systems for deciding on the working conditions. The trade union’s traditional social-economic influence in South Korea is not pivotal since the cooperative enterprise level unions are the distinctive form of labour organisation in the country. However, democratisation in the country have enabled the labour unions to pay crucial roles in improving workers’ wages and working conditions and to some extent have a say during the devising labour policies and laws. Most Korean employers think trade unions are competitively aggressive bearing in mind that the country has had two major union federations since 1998, whose legal status offer them the crucial power for creating social policies by taking part in the Tripartite Commission. As observed by Singh (2014), the Tripartite Commission was instituted so as to deal with the South Korean foreign currency crisis, which is an unusual instance of a social deliberation committee wherein workers’ representatives and those from the government and employers discuss as well as make social contracts. Still, unions at the industrial level appear to be supported and have resulted in strong bargaining power while other systems of employee representations seem to be at the crossroads and membership has been reducing tremendously (see appendix three). Besides that, the South Korean labour relations’ employment rules are utilised as a crucial way for regulating working conditions, and have numerous contentious sections. 13 Recommendations 14 It is recommended that both South Korean and Chinese government must espouse measures for protecting the rights of employees and make certain that the working environment is suitable and within the required international standards. Besides that, both governments must take measures so as to ensure that the multinational companies do not violate the current labour flexibility policy. The Chinese government is performing poorly in monitoring MNCs adherence to labour-related regulations. In consequence, this put the basic livelihoods of Chinese workers at risk and exacerbates the conditions for employment and the full-time workforces’ job security. If not managed, this can result in high labour turnover, weakening of the work dedication, and eventually, reduce productivity. For this reason, fair and reasonable rules should be implemented by ensuring that all MNCs abide by the stipulated labour laws. Furthermore, the MNCs operating in these two countries can succeed if they offer a living wage for every employee, one which may enable an employee to meet the basic needs. Besides that, Apple should reform its management techniques by setting a rational production target and bringing to an end the standing-operation. The existing unions should be reformed and both Apple and GE should allow its workers to choose their representatives in line with the Labour and Trade Union Laws. 14 Conclusion 15 Bibliography 16 Appendices 19 The Impact of Multinational Firms on Local Labour Markets Executive Summary Presently, the expansion of the multinational companies is a major phenomenon of the global economy. Globalised big businesses with their headquarters in European developed countries and in the United States, are expanding operations to developing economies such as China and South Korea. Whereas the significance of multinational corporations in a globalised financial system is a stylised fact, scholars are lively discussing their impact. Numerous scholars see MNCs as corrupt profit-maximisers who are taking advantage of cheap labour whereas the literature on applied economic has somewhat established that MNCs' activities have positive impacts on factors like employment as well as wages. Without a doubt, the key objective of multinational companies is to make profits and given that the labour standards bring about costs, then they always ensure it is kept low. As it will be evidenced in the report, a number of MNCs such as Apple are infringing the rights of workers, especially in terms of working hours and wages so as to realise their profit-maximisation strategy. This is evident in many MNCs since they are more interested in cutting the labour costs and associated proprietary asset diffusion. This report examines the impact of Apple Inc and General Electric (GE) on the South Korea and China labour markets. Introduction In the last few years, globalisation has enabled many companies to enter the international market because of world economies integration into a global village. For this reason, individual nations and firms act locally but are judged as well as assessed globally.1 A number of scholars agree that globalisation agents together with technological changes are forces will transform the social and economic fabrics of the different countries and will generally be irreversible.2 The purveyors and agents of globalisation dividends are the MNCs, and globalisation has transformed techniques of operations variously in view of the changing dynamics as well as the character of the economic trend at the global level. The MNCs have had to shift from controlling as well as operating their international headquarters activities to essentially positioning their business activities in countries where resource inputs are cheaper and mostly available. General Electric (GE) in South Korea and Apple in China GE an American based multinational conglomerate company that have a breach in South Korea and is committed to offering transformation and sustainable growth to the South Korean economy with innovative technologies as well as services. GE has built partnerships, by expanding opportunities with the Korean government and conglomerates in Healthcare, Procurement, Engineering, Construction, Offshore and Marine, and Aviation. Currently, the company has 1400 employees in South Korea and has invested more than $3 billion US dollars. On the other hand, Apple is a multinational company with branches all over the world, and produces powerful personal computers, sleek mobile phones, as well as portable and slim music players. Apple depends on cheap Chinese labour to produce most of its products. In Chengdu as well as Shenzhen a joint Foxconn labour force of nearly 500,000 people take part in producing parts of the Apple’s products. Local Labour Markets China's labour market is regulated by Labour Law of 1994, which has established key norms for applying to employment relationships, covers matters like minimum standards, labour contracts, as well as dispute resolution.3 With more than 1.3 billion people as well as a GDP improving at an annual rate of 10 per cent, China has swiftly developed into one of leading global market contributors. The economic reforms between late 1970s and early 1980s led by Deng Xiaoping has immeasurably improved China’s living standard and facilitated economic development; regrettably, this outstanding growth was achieved through forced labour of children, women and men. Besides that, China’s distinctive combination of decentralised economic power and Communist ideology has resulted in the utilisation of both unsanctioned and state-sanctioned labour force, of which the former is propagated by means of corruption, ineffective policies, as well as inadequate legal enforcement. There is no available statistics on the magnitude of forced labour because of the China’s authoritarian political system. Still, reports, news articles, research, as well as the testimonies of former forced labourers confirm the situation severity. According to Lepillez (2008), forced labour that is state-sanctioned is extensively justified and promoted by the Chinese government by means of the ‘reform through labour’, which is a Communist doctrine.4 Basically, this philosophy commends the labour virtues as a means of transforming rebels into new socialist individuals; still, it has practically resulted in the creation of numerous Laogai, which are prison labour camps. In the last few decades, the economy of China is transformed itself, but still, issues associated with labour relations are prevalent. In consequence, this has affected more than 250 million migrant labour forces even if China appears to be the globalisation conqueror. Recent statistics show that the rate of unemployment in China has reduced to 4.04 in 2015 and has averaged 4.13 per cent between 2002 and 2015.5 In January 2010 the South Korean government implemented a set of new labour laws that had been disapproved strongly by the opposition parties as well as the labour groups. Chinese authoritative form of leadership was exhibited when the legislators from the conservative minor party together with those from the governing Grand National Party (GNP) met and passed the contentious legislation with no debate.6 This evidenced contempt by the Lee Myung-bak government for democratic as well as fair procedures; thus exhibiting some form of totalitarian leadership. Simultaneously, the passing of the new labour laws signified a caricature of pursuing social dialogue for the benefit of creating supportive industrial relations in the country. According to the new labour laws, a single company can have multiple unions, but companies are prohibited from paying fulltime union officials.7 In combination with the layoffs system implementation in 1998, the labour law changes marks the beginning of tough market discipline for both local and multinational companies. The rate of unemployment in South Korea decreased in 2015 to 3.70 per cent and the average unemployment rate between 1999 and 2015 has been 3.63 per cent. The rate of unemployment was all time high in 1999 at 7.10 per cent and a record low in 2013 at 2.90 per cent (see Appendix one).8 Perverse labour as well as economic performance in the South Korea has raised a number of concerns related to the structure of the economy. The key issues that General Electric face in the Korean labour market includes jobless growth due to the ageing factor and polarisation of labour force. Multinational companies are worried that South Korea’s steady economic growth may fail to generate adequate employment. In this case, Anne (2010) argues that the link between the labour markets and economic growth were enfeebled in the late 1990s; therefore, the processes that bring about economic growth can no more result in satisfactorily large employment growth. 9 Wages Over the last decade, the levels of wages in China have steadily increased; driven mainly by declining population growth and rapid economic growth.10 The number of young people joining the workforce in China is low, and for those joining have higher expectations. The labour forces are currently more organised, and this has forced scores of MNCs operating in China to pay higher wages so as to recruit as well as retain skilled employees.11 In China, the minimum wage levels are varying; for instance, the minimum wage in Shanghai and Shenzhen is 313.5 US Dollars per month, 133.2 US dollars per month in the remote cities like Yichun, and 156.7 US dollars per month in Guangxi. The average wage in China as per 2014 statistics is 750 US dollars per month. Presently, in Shanghai employees at Pegatron the main Apple’s supplier factory are wearisomely working many hours so as to produce iPhone, but they are underpaid (see Appendix 2). The workers at Pegatron work nearly 11-hour shifts, of which 20 minutes is not paid, while the remaining hours is paid at a rate of 268 US dollars per month without adding overtime.12 This is clearly below 313.5 US Dollars minimum wage in Shanghai and cannot meet the basic needs of a person living in a city. For this reason, the employees depend on long overtime hours to meet their basic needs, and the government of China has turned a blind eye the challenges these workers are facing. In South Korea, minimum Wages is 4.7 US dollars and the average wage is 2834.1 US dollars. This indicates that most European and American MNCs are investing in China rather than South because of cheap labour considering that the average wage per month in South Korea is almost four times that of China. That is to MNCs in South Korea experience high wages and management costs that make them less competitive in the international market. 13 This has forced General Electric to pay their workers handsomely with Senior Mechanical Engineers and Lead Software Engineers earning an average of $8000 per month, while Mechanical and Electrical engineers earning almost $6250 per month. Employee Representation Since the beginning of 21st century, China has attracted many global corporations because of its labour laws that limit the right to strike and outlaw independent trade unions as well as its low wage rate.14  Lately, workers in China’s industries have been pushing for improved wages, working hours as well as conditions.  In a number of cases, collective action by employees in China, which includes strikes has succeeded and has consequently brought employers in China to the bargaining table.15  In consequence, Chinese industrial workforces are moulding their own industrial relations system, essentially devoid of help from the existing law as well as institutions of labour relations.16  Still, China is yet to meet international standards of labour law since workforces cannot select freely their collective bargaining representatives and the country has no law that need employers to engage in collective bargain with the workers.  Most employees in Chinese factories are not represented in trade unions, and are not allowed to strike or force their employer to engage in negotiations with regard to industrial grievances.  As noted by the International Trade Union Confederation, Chinese workers are not allowed to organise in the preferred trade unions and the legal trade unions must be related to the All-China Federation of Trade Unions and agree to its control.  Even though efforts have been made so as to establish systems for collective wage consultation, the right to collective bargaining in China is not allowed because it can result in labour strike.  The labour issues in Apple’s supplier factories prove that workers in China do not have proper representation. The Chinese government have in the last few years enacted improvements in rights of the workers (such as the 2008 Employee Contract Law), and have developed a policy that favours extensive collective consultation over working conditions as well as wages. It is for this reason that, the industrial wages in China is increasing progressively.  Still, the wages of workers in the Apple’s supplier factories is suppressed because they lack of freedom for collective consultation. Lately, industrial relations decentralisation in South Korea has created concerns with regard to flexibility and individualisation and considering that the decentralised industrial relations are normally necessitated as a symbol of a global standard.17 Challenges in South Korea arise from the desire for central bargaining systems for deciding on the working conditions. The trade union’s traditional social-economic influence in South Korea is not pivotal since the cooperative enterprise level unions are the distinctive form of labour organisation in the country. However, democratisation in the country have enabled the labour unions to pay crucial roles in improving workers’ wages and working conditions and to some extent have a say during the devising labour policies and laws.18 Most Korean employers think trade unions are competitively aggressive bearing in mind that the country has had two major union federations since 1998, whose legal status offer them the crucial power for creating social policies by taking part in the Tripartite Commission. As observed by Singh (2014), the Tripartite Commission was instituted so as to deal with the South Korean foreign currency crisis, which is an unusual instance of a social deliberation committee wherein workers’ representatives and those from the government and employers discuss as well as make social contracts.19 Still, unions at the industrial level appear to be supported and have resulted in strong bargaining power while other systems of employee representations seem to be at the crossroads and membership has been reducing tremendously (see appendix three). Besides that, the South Korean labour relations’ employment rules are utilised as a crucial way for regulating working conditions, and have numerous contentious sections20. Recommendations It is recommended that both South Korean and Chinese government must espouse measures for protecting the rights of employees and make certain that the working environment is suitable and within the required international standards. Besides that, both governments must take measures so as to ensure that the multinational companies do not violate the current labour flexibility policy.21 The Chinese government is performing poorly in monitoring MNCs adherence to labour-related regulations. In consequence, this put the basic livelihoods of Chinese workers at risk and exacerbates the conditions for employment and the full-time workforces’ job security. If not managed, this can result in high labour turnover, weakening of the work dedication, and eventually, reduce productivity. For this reason, fair and reasonable rules should be implemented by ensuring that all MNCs abide by the stipulated labour laws. Furthermore, the MNCs operating in these two countries can succeed if they offer a living wage for every employee, one which may enable an employee to meet the basic needs. Besides that, Apple should reform its management techniques by setting a rational production target and bringing to an end the standing-operation.22 The existing unions should be reformed and both Apple and GE should allow its workers to choose their representatives in line with the Labour and Trade Union Laws. Conclusion In conclusion, the report has examined the impact of Apple Inc and General Electric (GE) on the South Korea and China labour markets. As pointed out in the report, MNCs activities appear to be related to a greater employment of more skilled workforces in capital intensive factories. The rapid development of China has resulted in an unequal society and the sources of possible crisis and conflict are difficult to reduce. For this reason, developing a society that is harmonious so as to become a coping mechanism has turned out to be a priority in China, especially in enhancing 'harmony' between employers and employees. Furthermore, South Korea social dialogue is not stable due to institutional restrictions, such as distrust between labour and the government. The distrust in combination of deficient social protection, as well as the bargaining structure that is highly decentralised, have all resulted in unfriendly industrial relations. South Korea as indicated in the report has high average wages as compared to China and this makes it unsuitable destinations for many MNCs, especially those that seek to maximise their profits. Besides that, both Chinese and South Korean labour laws do not favour the workers, but rather the employers. Bibliography AFL-CIO. Labor Rights in China. 2014. http://www.aflcio.org/Issues/Trade/China/Labor-Rights-in-China (accessed August 31, 2015). Anne, Zooyob. The Korean labour market: Some historical macroeconomic perspectives. Employment Working Paper, Geneva: International Labour Organization, 2010. Blanpain, Roger. Decentralizing Industrial Relations and the Role of Labour Unions and Employee Representatives. Rotterdam Area, Netherlands: Kluwer Law International, 2007. Chaykowski, Richard P. " Globalization and the Modernization of Canadian Labour Policy." Canadian Public Policy 28, no. 1 (2002): 81-91 . China Labor Watch. Apple’s Unkept Promises: Investigation of Three Pegatron Group Factories Supplying to Apple. New York: China Labor Watch, 2013. Cooney, Sean, Sarah Biddulph, Li Kungang, and Ying Zhu. "China's new labour contract law: Responding to the growing complexity of labour relations in the PRC." University of New South Wales law journal 30, no. 3 (2007): 786-801. Han, Chonghee, Jiho Jang, and Sunhyuk Kim. "Social dialogue and industrial relations in South Korea: Has the tripartite commission been successful?" Asia Pacific Viewpoint 51, no. 3 (2010): 288–303. Kim, Andrew Eungi, and Innwon Park. "Changing Trends of Work in South Korea: The Rapid Growth of Underemployment and Job Insecurity." Asian Survey 46, no. 3 (2006): 437-456. Lepillez, Karine. "The Dark Side of Labor in China." Human Rights & Human Welfare, 2008: 59-71. Lin, Carl, and Myeong-Su Yun. "Minimum Wages and Income Inequality in Urban China." Research Paper, New Orleans, LA, 2014. Nicholas, Dana. "China's Labor Enforcement Crisis: International Intervention and Corporate Social Responsibility ." The Scholar: St. Mary's Law Review on Minority Issues 11, no. 155 (2009): 155-194. Onodugo, Vincent .A. "Multinational Corporations (Mnc) And Employment And Labour Conditions Of Developing Countries: The Nigerian Experience." European Journal of Business and Social Sciences 1, no. 6 (2012): 67-76. Park, Hong Y., Geon-Cheol Shin, and Sung Hahn Suh. "Advantages And Shortcomings Of Korean Chaebols." International Business & Economics Research Journal 7, no. 1 (2008): 57-65. Ping, YEW Chiew. "China’s Recent Spate of Labour Protests: Tables Turned for Chinese Workers?" East Asian Policy 2, no. 3 (2010): 22-32. Republic of Korea. "REPUBLIC OF KOREA LABOR RIGHTS REPORT." LABOR RIGHTS REPORT, Seoul, 2011. SACOM. "iSlave Behind the iPhone Foxconn Workers in Central China." Students & Scholars Against Corporate Misbehaviour, Hong Kong, 2011. Singh, Amit. "Political Economy of Labour Reforms in South Korea." International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS) 1, no. 5 (2014): 73 -95. Sukhwan, Choi. "Employee Representation System in South Korea." Japan Institute for Labour Policy and Training 9 (2006): 133-145. Széll, György. "Changing Labour Relations in China." Indian Journal of Industrial Relations 1, no. 1 (2010): 554-565. Trading Economics. South Korea Unemployment Rate . 2015. http://www.tradingeconomics.com/south-korea/unemployment-rate (accessed August 31, 2015). Xinhua. China's urban unemployment rate at 4.04%. 2015. http://www.chinadaily.com.cn/business/2015-07/24/content_21397525.htm (accessed August 31, 2015). Appendices Appendix 1: Unemployment Rate in South Korea Appendix 2: Wage Breakdown at Apple’s Pegatron Supplier Factories Appendix 3: Union Organization Rate in South Korea Read More