Introduction
Multinational companies refer to those that conduct their operations and have subsidiaries in at least one country other than their country of origin. The first MNC came into existence in the 17th Century; the East India Company was the first one. Since then, MNCs have grown to over sixty thousand today being fueled by growth in world economy, better business infrastructure, and globalization amongst other factors. The first generation of MNCs had multi-domestic, international and global MNCs. The distinguishing characteristic of multi-domestic MNC is their interest in entry in new markets while the international ones were based on technological knowledge of the parent companies. Global MNC integrated international production system. The second generation multinationals were transnational (operated in more complex environment), more networked organizational form and knowledge advantage developed at range of locations. Multinational companies have major political, social and economic influences, and some have a lot of power considering a large number of people they employ globally. In fact, some MNC such as Walmart generates more revenue over some national states such as Sweden and Turkey thereby overpowering them (Thite & Dasgupta, 2011). In employee and human relations practices, MNCs play a major role as agents of spreading such practices. MNCs may introduce new into a country human resource and employee relations practices that were adopted from another country. Local companies in the country where such practices have been put in place may then imitate such practices. By so doing, MNCs act as spreading agents.
In spite of the relatively higher political and economic power that MNCs possess over local countries, they are less likely to influence some social factors. Instead, most factors that affect a multinational's approach to employee relations practices in its subsidiaries are influenced by social factors. Employee relations practices differ from region to region, e.g. America and Africa, country to country e.g. United States and South Africa, and from category to category e.g. developed countries and less developed countries. For this reason, it is less possible for MNCs to centralize their employee relations practices. Such a move may end up pushing the MNC to the less competitive edge. As such, the employee relations practices are influenced by various factors (Wilkinson et al., 2014). This paper seeks to examine the factors that are likely to influence MNC’s approach to employment relations practices in its subsidiaries.
Factors Influencing a Multinational’s Approach to Employee Relations in its Subsidiaries
Employee relations refer to formal and informal relationship between an organization (management in particular) and its employees. It examines all aspects of employment relationship and integrates a range of differing but interconnected perspectives. Ideally, employee relations provide a link between human resource management and industrial relations. In spite of the united definition, employee relations has two different perspectives; unitarist and pluralist. The unitarist approach perceives employee relations from the perspective of a unified team with a single goal and as a prominent concept in human resource management. While this is so, the pluralist approach perceives employee relations from the perspective of organizations as groups with different objectives with conflict as a common element.
One of the main factors that influence employee relations approach adopted by multinational’s in their subsidiaries is the justified working hours. The term ‘justify’, in this case, has been used to imply the extent of reasonableness. In some countries like the United States, most employees (especially those with graduate level degrees) expect more part time jobs than full times jobs. This is not the case in the United Kingdom; employees here find it more reasonable have full-time jobs as opposed to part-time jobs (Lewn & Kaufman, 2009). For this reason, an MNC like Walmart may advertise more part-time vacancies in the US than in the UK. Conversely, the MNC would advertise full-time jobs in the UK than in the US. The time justification factor has various aspects. An additional aspect is the reasonable number of hours per week that an employee should work that varies from one country to the other. While in some countries the most reasonable hours for an employee to work per week is as few as 35, in others it is as higher 60; almost doubling. For instance, the average working hours in Canada and the US is 37. While this is so, the average working hours in Europe is 35, Australia 38 while Asia has the highest; 60 hours per week. In such a case, an MNC like McDonald Foods that has subsidiaries in both Europe and Asia will adopt different approaches to employment relations practices in the different regions (Wright et al., 2005).
Perceived reasonable wage payment. Payment is one of the main factors that influence MNC’s approach to employment relations practices because it is directly related to the most important resource; human resource. Payments have a great hand in determining the level of organizational productivity through boosting or reducing employee morale (Shen, 2006). An MNC is expected to compensate its employees for such an amount of money that is reasonable as compared to the revenue accrued from the MNC’s particular subsidiary. The remuneration perceived to be reasonable in a country in Africa may not be perceived to be reasonable in a country in America. This is influenced by other factors such as the level of development of a particular economy, the cost of living and the standards of living of the members of a particular economy (Barry & Wilkinson, 2011). For instance, from a general point of view, employees in most African countries would be contented with half the amount of money paid to employees in American countries doing the same job. MNCs, therefore, discriminate against payments in subsidiaries in different countries in a bid to maximize profits and ensure good employee relations.
On the same note, the availability/ unavailability of cheap labor influences an MNC’s approach to employee relations. Like any other profit making the organization, a multinational corporation cannot pay more when there is an opportunity to spend less (Tuselmann, 2007). This is the consideration that even after paying less, good employee relations are maintained, the quality of services provided is maintained or improved and no working hours are reduced. In some instances, however, multinational corporations are compelled to compromise the quality of services as they remain feasible after comparison with the payment was given. In subsidiaries in most developing countries, this is the case. Due to the harsh economic conditions such as the high unemployment rates, the rising cost of living and the little amount of disposable income to purchase consumer goods, members of the economy are ready to accept more work with less pay. For instance, an accounting manager (small store) for the US-based Coca-Cola Company gets $45362, a person holding the same position in the company’s subsidiary based in South Africa receives $2500. The former payment is almost twenty times the latter. This can be attributed to, among many other reasons, the fact that more people in the latter country are willing to take jobs at that payment rate than in the former.
Besides, adding up to these factors is culture. Culture is a term used to connote the phrase ‘the way things are done around here’. As much as the organization may have its culture, it is important to recognize and appreciate the fact that culture is influenced by several factors within the host country of its subsidiaries. Some of these factors include the political system, the education system, religious belief, values, languages and economic prosperity amongst others. For instance, an organization may have a culture of treating everyone fairly (Holley et al., 2012). This culture may be influenced in a subsidiary that is in a dictatorial political state that requires the political class to be treated in a special way with no regard to justice. In such a case, the result is determined by the amount power each party has; the state and the MNC. If the MNC has more power than the state, the state’s culture shall be influenced towards that of the MNC and vice versa. According to Hofstede et al. (2007), the emergence of a third cultural category is more likely especially in cases where power base does not favor either side.
Employment relations practices in other organizations in the host country also play a major role in determining the MNC’s approach to employment relations practices. It is less likely for a multinational corporation to introduce unpopular employment relations terms especially if such terms are negative. The aim of every employer is to introduce such terms that are reasonable enough to attract and retain the best employees. Due to other factors such as culture, it is important for a newly introduced subsidiary of a particular MNC to benchmark its employment relations terms with those other firms in the same industry in the host country where it intends to venture. Such a comparison is considerably important in ensuring that all the employee relations terms and conditions adopted not to deviate by large extents as compared with those of other local firms in the industry (Blanpain & Brulin, 2008). The subsidiaries may as well hire a local consultant to be included in the employment relations terms development panel. For instance, if a multinational corporation such as the ANZ bank based in Australia and New Zealand intends to open a subsidiary in an Africa country such as Kenya, it should benchmark its employment relations terms with those of Kenyan firms in the banking industry such as Equity Bank, the Kenya Commercial Bank and multinationals in the same country and industry such as the Barclays Bank of Kenya.
Among the factor that influences a multinational’s approach to employment relations also include the overall staff turnover rate of a particular a country. Multinational corporations may introduce subsidiaries with better employment relationship terms in countries that higher turnover rates than in those that have lower ones to remain attractive enough to retain the employees. In countries where the turnover rate is considerably high, one of the main factors is the employment relations terms (Brewster, 2005). Employees, therefore, leave jobs and look for better ones either within or outside the country. In such cases, MNCs adopt an employment relations approach that positions them as the better option for employees resigning from other jobs. Where turnover rates are minimal, the subsidiaries introduce employment relations terms that are at par with those of other firms in the industry. For instance, the Dell Company has added better employment relations procedures in its subsidiary in China than in the German subsidiary. The sole reason is that the overall Chinese staff turnover rate is 10.5% while that in Germany is barely 4% (Sirkin et al., 2008).
Government policies also influence the approach adopted by MNCs as far as employment relations are concerned. The term ‘government’, in this case, has been used to refer to many different institutions and government departments that influence employment relations (Shen, 2006). The government may delegate its powers to committees or institutions. The term ‘government’, here, has been used to encompass even such committees. Government policies influence multinationals’ approach to employment relations in that some government provides the maximum working hours for their citizens (Chang, 2009). If an MNC's minimum working hours are higher than those set out by the subsidiary's host country, the MNC is compelled to lower them. Besides, some countries especially the developed countries like the United States have set the minimum wage rates per hour for all employees. In that case, a multinational corporation must ensure that the payment given to their employees are well consistent with the minimum wage provisions. It is important to note that government policy keeps changing. For instance, on September 1, 1997, the federal minimum wage in the US was updated to $5.15 per hour up from $4.75 in the previous year. Today, minimum wage rates are fixed by the state governments and they vary from state to state with the highest being $10.50 and the lowest $7.25 while others are not specified. MNCs, therefore, keep updating their employment relations terms with government policy updates.
Working conditions provided in home countries also form an important factor that influences a multinational’s approach to employment relations practices in its subsidiaries. This is especially for centralized as opposed to MNCs with decentralized organizational structures. In a centralized management structure, decisions are made by the parent company, and the main role of managers in the subsidiaries is to implement the decisions (Chew & Zhu, 2002). As opposed to the centralized structure, decisions in the decentralized structure are made from the subsidiaries themselves. Managers in the subsidiaries play a major role in making decisions. The figures below illustrate typically centralized and typically decentralized management structures:
Figure One: Typical Centralized Structure
Source: www.12manage.com
Figure 2: Typical Decentralized Structure
Source: www.12manage.com
Closely related but different from culture is ethics which is an additional factor that influences a multinational’s approach to employment relations in its subsidiaries. Ethics refers to a set of principles of right and wrong behavior guiding a specific culture, group, society or the people (Ramamurti & Singh, 2009). The ethics of the host country in which the MNC establishes a subsidiary will be a large extent influence the multinational’s approach to employment relations practices in the subsidiaries (Contractor et al., 2007). For instance, it may be morally right to employ an individual aged below 18 years in one country but entirely wrong to do the same in a different country. Keeping other factors such as legislative provisions and acts that govern employment relations, the underlying factor is ethics. Furthermore, such acts and legislative rules were settled upon with consideration to the ethical practices of the people they intend to govern. For instance, a 15-year-old employee of the Coca-Cola Company is deemed fit to drive the corporation’s vehicle in some states the United States. While this is so, the same employee would have to wait for an additional eight (8) years to be deemed suitable to conduct the same role in the corporation’s subsidiary in Niger.
In connection to culture is the employment relations practices deemed appropriate by other firms in the industry conducting the same role as the subsidiary. Most of the employment relations practices adopted by an MNC must be well acceptable by local firms in the same industry as the one that the MNC introduces a subsidiary (Engardio, 2008). If employment relations practices introduced are deemed inappropriate by the local firms, the MNC is likely to face considerable rivalry from such firms to the extent that it may end up withdrawing from the market. For instance, Uber (a China-based MNC) introduced its operations in the Kenyan market in 2015. Unfortunately, other firms in the taxi services industry were deemed its employment terms inappropriate. The multinational corporation introduced terms such as non-stop movement around the town irrespective of whether or not their taxis had clients in an attempt to evade parking fees. Further, the MNC provided that employees shall request the clients to pay based on the number of kilometers traveled irrespective of the area. This did not auger well with most local taxi drivers, associations and firms, some of which ended up seeking legal justifications. The corporation is, however, yet to adjust its employment relations practices.
The employment relations practices that are deemed as the industry’s best practices must be considered when making decisions relating employment relations practices for an MNC. The ethical industrial practices are those practices that are deemed right in one industry irrespective of whether or not they are justified by other industries (Ericksen & Dyer, 2005). An MNC’s multinational approach must be consistent with the employment relations practices in the industry it intends to venture or the one it is venturing in.
Conclusion
In conclusion, MNCs cannot just venture into businesses in other economic regions without making considerations to the economic, social and political considerations of such regions. It is from these three main aspects that other sub-factors emanate. These factors have a major hand in determining the employment relations approach adopted by the MNCs (Zhang et al., 2008). Among the main factors that influence the MNC’s approach include justified working hours, payment of reasonable wages, culture, availability of cheap labor, employee relations practices of other organizations in the host country, staff turnover rates, working conditions provided in home country, government policy in host country, adherence to local ethics, local firm’s best practices and industrial best practices (Ferner, 2009). One of the elements that are so evident is the need for multinationals to benchmark their employment practices with those of the local firms in the host countries. Furthermore, there is dire need for them to keep reviewing government policies of host countries to ensure that they are in compliance with any provisional changes made.
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Appendix
Figure 3: Diffusion of Global HR Strategies & Practices across Subsidiaries in MNCs from an Emerging Economy
Source: Thite & Dasgupta (2011)
