The article highlights the challenges posed by outward investment by multinational companies to national systems of industrial relations, through the analysis of recent case study evidence of employment practices in a UK-owned multinational.
The increasing influence of multinational companies (MNCs) over economic activity is well established. The United Nations estimates that the stock of investments held overseas by MNCs amounts to USD 2,730 billion, roughly double the total five years ago. One in five workers in the developed economies are employed by MNCs while intra-enterprise trade within MNCs has now become the single most important source of international economic exchange. The influence of MNCs is greater in Britain than in any other European country. Outward investment by UK MNCs constitutes nearly 12% of the total stock of investments by MNCs, second only to US MNCs. Moreover, inward investment into the UK amounted to just over 9% of the total, again surpassed only by the US.
It is now commonplace to argue that MNCs have become "global" in nature, in that they are increasingly able to shift production across borders and hence their activities are spread more widely across the globe. Developments in international transport and communications enable MNCs to stratify and coordinate production or service provision between countries. Where production or service provision is highly integrated or standardised, scope exists for management in MNCs to seek to diffuse employment practices across borders, potentially posing a challenge to national industrial relations (IR) institutions and practices.
IR Effects of the Growth in MNCs
The nature of this challenge has grown along with the increasing scale of multinational activity. The attention of IR researchers and policy makers has centred almost exclusively on inward investment, examining the role of MNCs from economically successful countries in diffusing practices characteristic of their home country to their overseas subsidiaries. Thus, in the 1970s and early 1980s much UK research centred on the employment practices of American MNCs which were generally found to exhibit lower levels of trade union recognition and membership when compared with British firms, especially for white-collar workers. Where unions were recognised, moreover, many US MNCs appeared to pursue collective bargaining practices characteristic of the US - such as fixed-term agreements, single-employer (especially plant) negotiations and productivity bargaining. There is also some evidence that US MNCs have diffused other IR practices such as job enlargement, semi-autonomous work teams and performance-related pay. In the late 1980s and 1990s, research has investigated the role of Japanese MNCs in diffusing practices characteristic of Japan. The findings demonstrated a clear attempt to implement "lean production" in their British plants and also more commonly to adopt single-union structures, quality circles, single status, teamworking, job rotation, functional flexibility and attempts to generate a strong company culture through recruitment and training.
Domestically-based MNCs can also present challenges to UK national IR institutions and practices through practices being diffused back from their overseas subsidiaries to their UK plants. Indeed, potential exists for this to be a particularly important way in which practices are diffused from overseas since, as we have seen, foreign direct investment by British firms is greater than that from any other European country. This feature demonstrates the way in which this type of diffusion can affect domestic plants of British MNCs through analysis of data gathered from a case study of a British MNC in the manufacturing sector, "Engineering Products" - a pseudonym used in order to maintain confidentiality. The company operates in three different areas of manufacturing, the largest of which is automotive components which was the division that was studied. The division has a long history in the UK, but over the last two decades has expanded internationally to the point where overseas activities account for over half of the division's output and employment. The division's plants are located in many European countries and also in North America.
Evidence of diffusion
The HQ of the automotive division has taken steps to standardise the production of its components in its sites in different countries. Under pressure from its customers, the final manufacturers of cars, management in the division has sought to produce exactly the same component in different countries and to distribute orders across plants according to capacity and cost considerations. It has also established mechanisms designed to facilitate the sharing of best practice. These include: meetings of personnel managers from different parts of the division; "manufacturing councils" run by the HQ, which involve production and personnel managers attending workshops on practices operating in one part of the division; and the movement of managers across borders through expatriate assignments.
The research revealed numerous practices that operate in the domestic plants which originated in the overseas plants. The first example was the introduction of small production units in one of the plants in France, which involve a plant being broken down into a series of discrete units which are semi-autonomous from each other, operating with their own support services. The aim was to develop a much stronger focus amongst all workers on the success of their unit and to develop a culture within units that they were both a supplier and a customer for other units within the factory.
The second example was an initiative that originated in Spain, a form of cellular assembly. This involved the reorganisation of the assembly of the drive-shaft from a linear production line into a "U-shaped" cell. Under this new form of work organisation, employees were required to undertake a wider range of tasks than before. This created a demand for training in order to provide multiskilled operators who could work at any stage in the cells. Furthermore, under the cell structure fewer people were needed for the same output, meaning that the workforce was contracting. The American plant is presently half way through converting its operations from the linear to cellular assembly and the workforce had fallen from 600 to 450, partly as a result of the change.
The third example was the introduction of a set of core competencies for engineers. The issue was what core competencies an engineer should have wherever in the company they operated. The human resources director in the USA was working with a chief engineer from the UK to identify the basic competencies that are generic to the division's activities in different countries. The aim was to develop an international initiative out of the pilot scheme in the US which would be applied in all other plants and result in engineers being more mobile within the company.
The driving force behind the closer integration of the division's operations in general and the sharing of best practice in particular was the developments in the firm's product markets. The division sells to three main customers in Europe and North America; Ford, General Motors and Toyota. These customers are demanding that exactly the same components are supplied to all of their factories, and they deal with the HQ of the division rather than individual plants in order to ensure this. Thus, the HQ has sought to achieve greater standardisation across its plants both in the precise nature of the component produced and in the way it is manufactured. Further, the plants have become increasingly dependent on the HQ since a growing proportion of orders are placed with the HQ rather than at plant level. Plant managers, therefore, face pressure to engage in the diffusion of practices across the division in order to maximise their chances of receiving orders from the HQ.
Commentary
The central point from the case study is that domestic as well as foreign MNCs can act as innovators to national systems of IR. As differences in consumer tastes across countries become less pronounced, we might expect more MNCs to seek to integrate their operations and share best practice between their plants. One consequence is that a greater number of employees in domestic MNCs will experience employment practices which were developed in other countries. This tendency is likely to operate within limits, however. In many industries distinctive national tastes remain and MNCs, consequently, do not face the same pressures to standardise their product and share best practice as does the automotive division of "Engineering Products". Indeed, the automotive industry is one in which the homogenisation of tastes is furthest advanced and one in which MNCs have considerable impact on national IR systems in Europe. Recent events at Ford (UK9702101F) and Renault (EU9703108F)serve to highlight this fact (see Past Features). Other factors may also constrain the diffusion of best practice. One of these is that most MNCs retain a very strong presence in the home country; typically around two-thirds of employment in MNCs is in the domestic operations. MNCs with a low proportion of overseas operations have less scope to diffuse practices from overseas to their domestic operations. Moreover, the development of these inter-linkages is likely to emerge only over time rather than instantly. Thus this type of diffusion is likely to be most prevalent in "mature" as opposed to young MNCs.
We have seen that practices can be diffused to the domestic operations from overseas plants and that this is likely to affect a growing number of MNCs and, hence, a growing number of employees. Further, as MNCs integrate their operations and move away from plants in one country serving the national market, then management is less dependent on any particular plant, which reduces the bargaining power of workforce representatives. More generally, this points to the importance of researchers and policy makers investigating the impact of outward as well as inward investment. (Tony Edwards, IRRU)