How Significant a Role Do Multinational Corporations (Mncs) Play in Today’s Uk Economy in Terms of Their Impact on Employment Relations (Er) and Labour Conditions?

How significant a role do multi internal corporations (MNCs) play in todays UK economy in terms of their relate on booking dealings (ER) and labour conditions? This is the question the paper attempts to evaluate by drawing on academic literature and empirical evidence from the 2004 Wers survey. The graduation exercise instalment profiles MNCs in the UK, currently dominated by US and German firms. Following this, there is a brief analysis of employment dealings in the UK. The third section reviews literature from leading commentators on the subject, foreground contrasting views and evidence of unusual IR and ER practices.The fourth section looks at key factors that influence the way labour is managed within MNCs subsidiaries. The verdant of origin effect, the crime syndicate solid ground effect, the global dominance effect and a global interaction effect as identified by Edwards and Ferner. This is valuable to assess to what extent MNCs drop these factors in the managem ent of labour. Finally, a consequence impart be drawn and a consideration whether MNCs vex flaccid home expanse employment relations practices to their UK contradictory subsidiaries and if they pick up touch labour conditions for the UK men.Introduction unlike organize investment (FDI) as a portionage of GDP (Ferner Industrial) in the UK is the highest of any developed country in the world. Since the deregulation of the labour market in the 1980s the UK has seen a burn up in overseas owned companies. According to the WERS 2004 survey, 19 per centime of confidential sector get tos with 10 or more(prenominal) employees had slightly degree of foreign ownership, an increase of 4 per cent on the 1998 survey. Similarly, a rise from 8 per cent to12 per cent of companies were predominantly foreign owned and controlled. For what reason do MNCs choose to set up subsidiaries in the UK?Could it be to take returns of the nature of the 1 frank and deregulated issue headache arrangement and hit home country ER practices? Marg art Thatcher and the conservative government activity came to power in 1979 and in favour of capital markets rather than labour markets legislations were put in place to weakeneden the power of brotherhoods. The national business dust has changed dramatically resulting in an institutionally weak British system. These factors have altered the employment relationship, weakening the statutory and long established support for bodied internal representation.A small proportion of the UK work personnel office is right off covered by bodied bar throwing (McDonalds) in the employment relationship, although remains the principal phase angle of present setting (Primarily in the public sector). Union membership has decreased from 13. 2 million members at its peak in 1979 to 6. 7 million in 2005 and league density1 has declined from 32 per cent in 1995 to 29 per cent in 2005. Commentators suggest that MNCs ar an important sourc e of advance(a) work practices, such(prenominal) as a specialist HRM functions.Moreover, that they ar able to transfer business models from sustain companies, the country of origin effect to UK subsidiaries with relative ease. This has been described as a send diffusion of practices. However, evidence suggests that some MNCs, dependant on their country of origin, will adhere to the host country practices even though they conflict with the boot companies policies and practices. This will be explored in more dot further into the paper. The following section of the paper will profile MNCs in the UK.Profile of MNCs MNCs are non homogeneous but are now heterogeneous and are spread crossways sectors, although are dominant in the fast food and manufacturing industries in the UK. At the 1 The unionised workforce expressed as a percentage of potential membership 2 turn of the century there were 18000 foreign subsidiaries ( coetaneous Employment dealing) operating in Britain, with 5 000 of these employing more than 1000 employees. They stem from the US, Europe and Asia. The US is dominant with 25 per cent of total FDI to the UK followed by Ger galore(postnominal) (Bach) with 21 per cent.Foreign subsidiaries employ 18 per cent (Warwick) of the workforce in the production sector in the UK and the relative incidence of foreign-ownership of UK workplaces has risen since 1998 (Wers 2004) by approximately a quarter. They tend to have everydayness it its products and service across its subsidiaries with 52 per cent (Warwick) having an multinational product. It could be argued that for these reasons they have significant economic and political power and the potential to significantly impact UK employment relations and labour conditions.Employment traffic and push back conditions in the UK throughout the 1980s the Thatcher government and the neo-liberal labour movement stripped unions of their power, collapsing the traditional IR pluralist system under the previous labour governments. Historically unions compete a powerful role in the UK economy, with the emphasis on modify collective bargaining over the employment relationship. Union recognition and membership has since been on the decline. Although, sectorial shifts from manufacturing industries were unionization was predominant to an increase in the services sector is a mathematical conclusion.Moreover, the increase in small enterprises were unions fancy it hard to organise is another possible answer. It is evident that unionisation in the UK has lost its appeal and there is a marked shift towards choice means by firms to regulate the employment relationship. The emphasis is shifting internationalistic from the pluralist view to the unitarist view on the role of the individual. Successive elbow grease government under Tony Blair 3 supported the regulative reforms of the conservative government, although amended the union recognition procedure.This stipulates that unions must be reco gnised in a workplace if there is a majority consensus of employees. The UK is now under EU directives, around recently the information and consultative directive (ICE) which came into force in 2005. This stipulates that companies with more than 1000 employees must establish a works council. This gives the workers rights to information and hearing on ships company decisions. Employees are also protected by many employment legislations in areas such as discrimination, unfair dismissal, minimum remuneration and working time regulations, directives from both the EU and the UK.With the general trend away(p) from union involvement and collective agreements there has been a rise in union substitution strategies in the form of HRM policies in domestic firms. ER in Foreign Subsidiaries The following section reviews business systems of different countries that have foreign subsidiaries in the UK and their stance towards trade unions and practices and policies on employment relations. Th e US is similar to the UK with respect to the national business system. The role model for union representation in the US is weak and the support for collective bargaining is declining.Throughout the 1990s unionization rates have declined rapidly from 30 to14 percent (Policies) in US firms leading to widespread non-unionism and anti-unionism. Do US firms then transfer this stance to their subsidaireis? One argument is that many US MNCs, particularly in the services sector, with low paid, low skilled workers will use strong union avoidance strategies, the low road approach to industrial relations. McDonalds is a key example of this with union membership (MCDonalds) bordering at zero. UK 4 unions find it impossible to organise in the company.According to Royle, a possible reason is the strength of the corporate culture disseminated by management. The chief administrator of McDonalds stated that unions do not bring much to the equation of the companys philosophy of service and emplo yee motivation. To many US MNCs unions are seen as conflicting with their corporate dodge, the philosophy geared towards shareholder value. This gives them the private-enterprise(a) edge in terms of financial markets in the ever increase globalising world. However, this has only been observed in certain sectors and it is argued that strong anti-unionism is only lively in few MNCs.If it is existent then exploitative HR policies are commonplace (Policies) which is a Bleak house model. Non-union US MNCs use innovative union substitution polices, introducing incentives such as favourable pay and conditions to gain commitment from employees. US firms are characterised by centralised decision do and formalised procedures stemming from the HQ. There is a high degree of employee participation involving direct communication and individualised HR function and pay is predominantly act related. In contrast to the US and UK, Germany has a strong institutional framework to protect the rights of workers.Collective bargaining in firms is under the force of the rectitude (Royle) and 80 to 90 per cent of the workforce is covered by collective agreements. Conversely to the US, German MNCs tend to adapt to their host country environment, not recognising unions in their subsidiaries, which is divergent to their home country practices. 5 Influences on Labour Management According to Ferner and Edwards there are key influences that affect the way labour is managed in MNCs. Firstly, the country of origin effect as mentioned earlier. This is when the MNC exerts its kick upstairs companys management style to their foreign subsidiaries.This contends that MNCs transfer ER practices to subsidiaries in order to converge the firms practices and policies across international boundaries. This comes under the convergence theory, were globalization is pressurising companies to standardize best practice policies across its international trading operations. According to Bach, the pace of c onvergence is increasing with growth of international trade and integrated financial systems, resulting in the erosion of distinctive national differences in the field of ER and industrial relations.This theory is argued by Traxler, who states that national differences remain intact and national variances will always occur collectable to differing cultural approaches. This is important as it determines the way employees are managed. Autonomy is not left to the subsidiary and policy making is in the hands of the parent company. This is evident in the report by Warwick that identified 61 per cent of MNCs having a worldwide philosophy on the management of employees.With a generally regulated framework in the UK it is possible for MNCs do forward dissipate certain practices and are able to circumvent the national business system if it is in their interests. The characteristics of a flexible workforce and the ease of dismissal in the UK is an example. This is taking advantage of the h ost countrys business system. Whether this is a positive or negative impact is dependant on the parent companys country of origin, the culture of management and the sector of operations and of course their strategic objectives.The extent to which they are able to impact on UK ER through the country of origin effect is questionable. US MNCs 6 are the most likely to diffuse home country practices such as union avoidance and antunionism, as evidence suggests. It is argued that US MNCs will scrap traditional pluralist industrial relations. Although, it is evident that union recognition has been declining in the UK over the last twenty years so to suggest that US MNCs are at the forefront of this change is unsound. Companies are finding choice methods of managing the employment relationship without the need for intermediaries (unions).A further example of forward diffusion is that of Japanese work practices transferred in the 1980s. Renowned for the innovative work practice of lean prod uction which was successfully transferred to their UK subsidiaries in the manufacturing industry. The host country effect is when the MNC is influenced by the country of operation. Certain factors attribute to the extent to which subsidiaries admit host countries practices. The regulatory framework of the UK is weak compared to its European counterparts so therefore, open to MNCs devising policies to suit their strategies and the environment.The global dominance effect is associated with how dominant the MNC is and its country of origin in the global economy. It may either enable or constrain (Edwards, Ferner) MNCs to implement ER practices to foreign operations. This has an effect alongside the home country effect. The US is dominant in the global economy gum olibanum its practices of ER are seen as influential and innovative, as did the Japanese form of work organisation. There is evidence to suggest that European countries will lard such characteristics of this liberal model i n order to compete effectively in the ever increasing competitive global economy.The US has brought specialized HRM practices, such as recruitment and training and implemented them across foreign sites. 7 The global integration effect is when the MNC is globally integrated on their policies thus becomes one powerful global company. The best practice to evaluate all operations in order to meet their oibjectives. Conclusion It is probable that MNCs have the economic and political power to impact UK employment relations and labour conditions. Foreign direct investment is important in ensuring a progressive economy and creating employment.Margaret Thatcher favoured capital thus deregulated the labour market to go on FDI. The institutional framework of the UK is now weak and open to the transfer of MNCs IR policies. There is evidence that foreign companies will take on union avoidance strategies but there are few that openly challenge the UK IR system. A possible reason to adhere t o the national system could be to victuals the peace with employees and to maintain good community relations within the areas they operate.The UK environment is such that models of unionism, non-unionism and the Bleak house exist in MNCs in the UK and that a cross fertilization of these strategies are forming. There is bittie impact on the UK framework for IR as it is already evolving from sovietism since the 1980s towards individualism. Although, there is an increase in the services sector were MNCs are dominant and non-unionism is the preferred strategy. The global dominance effect is a crucial factor on the impact of employment relations in the UK. This is virtually related to the country of origin effect and global integration effect.The US at present is the most dominant. The main emphasis is now geared towards the shareholder and a short-termist view is the leading strategy. This is impacting on the labour force as MNCs will use their power to dismiss employees if 8 the str ategy is focused on shareholders returns. ER is fairly regulated in the UK, workers are protected by legislation, although MNCs do have the power to circumvent some areas. However, there is evidence that they have been influential in terms of HRM in the UK. There impact can be seen in other foreign subsidiaries and indigenous MNCs in creating specialised HR.The main issue is the speed of globalisation and firms will want to compete in countries that have a weak institutional framework, as capital is favoured compared to labour. It will be difficult for countries to keep their national identities with regard to their IR and ER framework. 9 References Alpin, C, Kersley, B (2006) interior the Workplace Findings from the 2004 Workplace Employment relations Survey, Routledge Chapter 2, 11. Clark, I and Almond, P (2004) sex appeal and embeddedness towards a lower road? British subsidiaries of American multinationals.Industrial Relations Journal (IRJ), 356. Edwards, T. , Ferner, F, Bach, S (2002) The renewed American Challenge a review of employment practice in US multinationals. Industrial Relations Journal, Vol. 33 No. 2, pp. 94-108. Edwards, T and Ferner, A (2005) Managing Human Resources in transnational Companies. Managing Human Resources Personnel Management in Transition (4th Edn), Oxford Blackwell, Chapter 3. 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