246 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT

managers.29 Commenting on labor relations in the US, the noted Harvard labor law scholar,
Derek Bok, has observed that:

A look at the forces that shape our labor laws does tell us something about our own society – or
at least it brings some old truths into sharper focus. Consider the individualism, the pragmatism
and the decentralization that pervades our system of labor relations. These qualities have been
much praised and doubtless contribute much to labor relations in America. They permit great
flexibility in a diverse country and provide abundant opportunities for initiative . . . At the same
time, these national traits have also produced a system of labor law that is uniquely hard on the
weak, the uneducated, the unorganized and the unlucky. (p. 1459)30

OECD data on trade union density of 24 developed economies from 2005 to 2010 indicates that
Finland, Sweden, Denmark, Norway and Belgium have the highest levels of union member-ship
while France, the USA and Korea have low levels of union density. Thus, managers from these
countries may be less likely to have extensive experience with unions than managers in many other
countries. Overall, OECD data shows that union density has slightly declined in the period 2005–
2010 with the OECD average declining from 18.8 in 2005 to 18.1 in 2010. This decline in union
density in many countries may been explained by economic factors such as reduced public-sector
employment, reduced employment in manufacturing industries as a share in total employment, and
increased competition; it is also suggested to be associated with decen-tralization of industrial
relations to business unit level, changes in governance and legislative changes. Union membership
decline is also linked to the introduction of new forms of work or-ganization, globalization of
production and changes in workforce structure. 31
Although there are several problems inherent in data collection for a cross-national comparison of
union density rates, several theories have been suggested to explain the variations among coun-tries.
Such theories consider economic factors such as wages, prices and unemployment levels; social
factors such as public support for unions; and political factors. In addition, studies indicate that the
strategies utilized by labor, management and governments are particularly important. 32
Another key issue in international industrial relations is industrial disputes. Hamill 33 exam-ined
strike-proneness of multinational subsidiaries and indigenous firms in Britain across three industries.
Strike-proneness was measured via three variables – strike frequency, strike size and strike duration.
There was no difference across the two groups of firms with regard to strike fre-quency, but
multinational subsidiaries did experience larger and longer strikes than local firms. Hamill suggests
that this difference indicates that foreign-owned firms may be under less finan-cial pressure to settle a
strike quickly than local firms – possibly because they can switch produc-tion out of the country.

Overall, it is evident that international industrial relations are influenced by a broad range of
factors. Commenting on the overall results of his research, Hamill 34 concluded that:

general statements cannot be applied to the organization of the labor relations function within
MNEs. Rather, different MNEs adopt different labor relations strategies in relation to the
environmental factors peculiar to each firm. In other words, it is the type of multinational under
consideration which is impor-tant rather than multinationality itself.

TRADE UNIONS AND INTERNATIONAL

INDUSTRIAL RELATIONS
Trade unions may limit the strategic choices of multinationals in three ways: (1) by influencing wage
levels to the extent that cost structures may become uncompetitive; (2) by constraining the ability of
multinationals to vary employment levels at will; and (3) by hindering or preventing
 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 247

global integration of the operations of multinationals.35 We shall briefly examine each of these
potential constraints.

Influencing wage levels

Although the importance of labor costs relative to other costs is decreasing, labor costs still play an
important part in determining cost competitiveness in most industries. The influence of unions on
wage levels is therefore, important. Multinationals that fail to successfully manage their wage levels
will suffer labor cost disadvantages that may narrow their strategic options.

Constraining the ability of multinationals to

vary employment levels at will
For many multinationals operating in Western Europe, Japan and Australia, the inability to vary
employment levels ‘at will’ may be a more serious problem than wage levels. Many countries now
have legislation that limits considerably the ability of firms to carry out plant closure, redundancy or
layoff programs unless it can be shown that structural conditions make these employment losses
unavoidable. Frequently, the process of showing the need for these programs is long and drawn-out.
Plant closure or redundancy legislation in many countries also frequently specifies that firms must
compensate redundant employees through specified formulae such as two week’s pay for each year
of service. In many countries, payments for involuntary termina-tions are quite substantial, especially
in comparison to those in the USA.
Trade unions may influence this process in two ways: by lobbying their own national gov-
ernments to introduce redundancy legislation; and by encouraging regulation of multination-als by
international organizations such as the Organization for Economic Cooperation and Development
(OECD). (Later in this chapter we describe the Badger case, which forced Raytheon to finally accept
responsibility for severance payments to employees made redun-dant by the closing down of its
Belgian subsidiary.) Multinational managers who do not take these restrictions into account in their
strategic planning may well find their options to be considerably limited.

Hindering or preventing global integration of the operations of MNEs

In recognition of these constraints (which can vary by industry), some multinationals make a
conscious decision not to integrate and rationalize their operations to the most efficient degree,
because to do so could cause industrial and political problems. Prahalad and Doz 36 cite General
Motors as an example of this ‘sub-optimization of integration’. GM was alleged in the early 1980s to
have undertaken substantial investments in Germany (matching its new investments in Austria and
Spain) at the demand of the German metalworkers’ union (one of the largest indus-trial unions in the
Western world) in order to foster good industrial relations in Germany. One observer of the world
auto industry suggested that car manufacturers were sub-optimizing their manufacturing networks
partly to placate trade unions and partly to provide a ‘redundancy in sources’ to prevent localized
industrial relations problems from paralyzing their network. This sub-optimization led to unit
manufacturing costs in Europe that were 15 per cent higher, on av-erage, than an economically
optimal network would have achieved. Prahalad and Doz 37 drew the following conclusion from this
example:

Union influence thus not only delays the rationalization and integration of MNEs’ manufacturing net-
works and increases the cost of such adjustments (not so much in the visible severance payments
and ‘golden handshake’ provisions as through the economic losses incurred in the meantime), but