‘Which relevant developments are noticeable within transnational companies with respect to corporate structure, labour organisation, labour policy and employment relations?’
Transnational companies in Europe
Structure, labour organisation, labour policy and employment relations
F. Huijgen
1. Introduction
Multinationals (MNO’s) are becoming ever more dominating actors in the internationalisation process of the economy and within Europe are the driving forces behind the unification of the internal market and its further development. MNO’s are organising an increasing part of the world production and distribution and play a key role in the development of national economic systems and the functioning of the three most important blocks (North-America, Western Europe and Japan and East-Asia). Both foreign direct investments as well as the international trade within MNO’s have increased considerably in the last decade as well as the number of strategic alliances between companies in various countries and the number of joint ventures, mergers and take-overs involving MNO’s . Moreover, the significance of the MNO’s is no longer exclusively restricted to the industrial sector. The operational field of the MNO’s has increased considerably over the past fifteen years in the direction of the service sector, particularly as international competition rose considerably because of deregulation of sectors such as the financial services, transport and telecommunication. These developments are also expressed in the growing number of MNO’s: world-wide from 37,000, with 265,000 foreign subsidiaries in 1994, to 53,000 with 448,000 foreign branches in 1998 (1) . In addition, and because of this the MNO’s form a factor of increasing significance for employment in the private sector in the industrial countries in particular.
MNO’s are an important engine behind the process of internationalisation and are affected at the same time in their internal structure and operations. In this contribution we are focusing on recent developments within the transnational companies, particularly with respect to corporate structure, labour organisation, labour policy and employment relations. It is generally accepted that MNO’s play a vanguard role with respect to the development and spread of modern, more flexible and innovative organisational set-ups and labour management practices. Insofar as this is indeed the case, it can be assumed that the actual trends within transnational companies will in the future also have their effect in the position of the employee in Dutch companies.
The following paragraph gives a picture of the recent developments in the structure of MNO’s against the background of the process of internationalisation/globalisation and the developments in information and communication technology.
Paragraph three deals with the trends in the organisation of labour. The core question here is whether and to what extent the structural changes are coupled with adjustments of the traditional production concept (TPC: Tayloristic-bureaucratic organisation) or by replacing it by means of application of the so-called modern or new production concept (NPC).
Changes in the corporate structure and labour organisation also have repercussions on the position and role of the employee and the evaluation thereof. What tendencies are occurring in labour management within MNO’s; what is the role and meaning of the policy of the parent organisation in this; to what extent is the labour practice (still) influenced by cultural and institutional characteristics of the respective country of establishment? These issues are dealt with in the fourth paragraph.
In the final paragraph a balance is struck with respect to the effects of the trends identified for employment relations on a decentralised, company level.
2. Internationalisation and structure of MNO’s When discussing economic internationalisation the concepts of globalisation and regionalism are central. By globalisation (in an economic sense) is meant a world-wide process of - accelerated - internationalisation of the economy by expansion and liberalisation of markets, by technological and political developments. National economies are becoming increasingly interwoven with the world economy, ever more companies are operating internationally, ever more people are involved in the world economy as employees or otherwise. Processes playing a role in this include: expansion of multinational companies and of transactions in international trade and capital, liberalisation of international trade, the emergence of new industrialised countries (particularly Southeast-Asia), the spreading of new technologies (in transport, information and communications and in the organisation of production), the coming into existence of regional free trade zones and the former Eastern Block starting to integrate into the world economy.
Apart from globalisation there is also regionalism because of intensifying economic relations within the three most important economic blocks. Regionalism is partly a result of the same processes that lead to globalisation (technological developments etc.) and partly a politically stimulated reaction to globalisation of the economy: neighbouring States decide on closer economic co-operation, for instance because of increasing world competition (2) , to which business subsequently responds. Regionalism is particularly important for the European Union in connection with the creation and completion of the internal market. During the past ten years European MNO’s in particular have also come under increasing pressure to thoroughly review their international strategies. Because of the completion of the European market and the exposure to international competition of traditionally closed markets such as public transport, energy and telecommunications, the European MNO’s have been forced to tap into new markets outside Europe and in doing so they followed in the footsteps of American and English corporations in particular, who have traditionally been more internationalised.
The evolution of the MNO within the scope of internationalisation is coupled with internal restructuring. We make a distinction (3)
between three types of company restructuring. Portfolio restructuring refers to changes in the spread of their activities, for instance diversification, sub-contracting activities, mergers, take-overs or cutbacks. The second type, organisational restructuring , concerns changes in the structure of the company: de-layering, centralisation or decentralisation, creation of product divisions etc. The third type concerns financial restructuring : changes in the governance structure and the relations with shareholders and capital markets.
Restructuring the portfolio The sixties and seventies were characterised by the rapid development of conglomerates: corporations in which very diverse, non-related activities were combined. The economic reason was mainly that diversified companies would be less sensitive to fluctuations in trading conditions. Since that time, the trend has shifted: the transnationals started to focus increasingly on one or a limited number of core activities based on the so-called core competencies. This process was and still is coupled with slimming down and concentration processes, and is part of an impulse for “playing happy families” with companies in order to reach a mutual repositioning. At the same time we notice a further internationalisation of the (product) markets. On balance the core activities are becoming more and more internationally organised, which is coupled with a concentration of production activities in a limited amount of countries within an economic region, such as for instance the European internal market.
Recently we have noticed the re-emergence of conglomerates. A recent and impressive example is the merger of America On Line and Time Warner. However, this type of conglomeration formation is not so much about combining non-related activities but rather to amalgamate complementing, more or less linked activities. With respect to AOL Time Warner this is, combining the ‘medium’ (Internet) with the ‘message’ (information: publishing company, broadcasting company etc.) Moreover, it is typical that the new formation of conglomerates is concentrated on new markets created by liberalisation of telecommunications, such as for mobile telephony and Internet services. Moreover, corporations active in the ICT sector are mostly operating globally.
Organisational restructuring
Internationally operating companies are confronted with two opposite requirements. On the one hand they are forced to lay down strategic priorities and centralise decision-making in order to achieve synergetic advantages from operations in various countries. On the other hand they experience pressure to optimise the autonomy of the subsidiaries in order to anticipate adequately and in good time the specific national circumstances in which the subsidiaries are operating. MNO’s have to operate in the field of tension between globalisation and localisation. The manner in which they deal with this depends on the one hand on the country of origin of the corporation and the cultural and institutional circumstances in force there. It is well known that American and Japanese groups usually operate in a rather centralised way trying to impose their standards onto their subsidiaries, whilst corporations of European origin usually leave their subsidiaries some space. The manner in which the dilemma between centralisation and de-centralisation is dealt with, also depends on the respective business function. Strategic issues on portfolio management are dealt with in a rather centralised way, whilst operational decisions with respect to the management of staff members in the primary processes are rather left to local branches.
Until recently the polycentric organisation was the predominant organisational form of MNO’s. This is a type of corporation in which each foreign subsidiary operates relatively independently and adjusts its functioning to the national circumstances. Recent literature (4)
indicates that this organisational form and therefore the autonomy of the national organisation is losing its significance. Internationally integrated organisational forms operating cross-nationally, and which are product and/or client oriented are becoming prevalent.
The restructuring is partly sector specific. About two types of corporations can be distinguished in the industrial sector : a still relatively small part operates world-wide. Well-known examples are Ford (car industry), Shell (oil) and Unilever (food). The majority of industrial MNO’s have their activities limited to a number of countries within one of the three large economic blocks. However the switch to the multi-divisional form is common. MNO’s are in particular increasingly choosing product-based divisionalised structures. In recent years the international product division - with strategic responsibility for the production, R&D and the marketing of groups of products in various countries, and often containing more profit-responsible strategic business units - is the dominant form of international organisation. This process is coupled with a flattening of the organisational structure: the number of hierarchic levels is dropping. On this point the multinationals are also playing a pioneering role (5) . In this development process leading American and English groups form a spearhead. But recently European companies have also made big steps into this direction. In this connection Unilever is a good example. In 1997 they announced a thorough re-organisation with more weight for a limited number of product divisions (a concentration on a more limited number of core activities) and at the same time a loss of power on the part of national companies. Their most important world-wide competitors Nestlé (Switzerland) and Proctor & Gamble (US) had already previously converted to this.
The internationalisation process and with it the emergence of multinationals is relatively recent in the service sector . Only from 1990 onwards is a rapid increase in foreign investments noticeable in the service sector (6) . Within relatively young MNO’s a change-over to knowledge and customer oriented organisational forms is particularly noticeable in the knowledge-intensive parts of business services and in the ICT sector. This concerns relatively very de-layered, project-based, internal network-like structures in which specialists and employees dealing with the customer are the most important source of competitive capacity of the organisation. Knowledge management is an important if not the most important business function; mobilising creativity and the organisation of innovative capacity are central considerations. The bearer of knowledge, the staff member ‘on the frontline’, represents the most important resource of the organisation.
Financial restructuring Because of the increase in international competition and international restructuring there is an increase in confrontation and interweaving between companies from different countries with diverse business systems, different business cultures and corporate governance structures. In the liberalised European markets the influence of governments (particularly France) or corporate structures (particularly Germany) on the expansion of national MNO’s is decreasing. The shareholder value rules increasingly determine the development of the game and national governments, banks and trade unions are losing their influence. The so-called stakeholder model appears to be losing significance in many cases, the shareholder model is growing, even in a country such as Germany where the social market economy is and has been seriously put to the test. The hostile offer of the British Vodafone Air Touch to the German Mannesmann resulted in the necessary protests against growing Anglo-Saxon shareholder capitalism. The merger between Hoechst and the French Rhone-Poulenc resulted in the closure of less profitable industrial branches and in the strengthening of the profitable ‘farma’ branches. This was clearly influenced by the capital market.
The rules of the game of the Anglo-Saxon model, the American and English ‘Manchester Capitalism’, appear recently to be gaining. The Rhine-land stakeholder model is also rapidly losing its significance under the influence of the liberalisation of the capital markets and the formation of the European monetary union. Shareholder interests increasingly dominate the recent international restructuring and take-over processes. The development of the corporate governance structures of the European MNO’s in particular appear as an unequivocal shift in the direction of the Anglo-Saxon model. It suffices in this respect to refer to the contribution of Van der Heijden in this compilation.
On balance The indicated developments mean a radical restructuring of internationally operating business. National organisations are rapidly losing significance in favour of the internationally integrated forms of organisation. Horizontal and vertical networks originate in the process of interweaving between groups by means of mutual participation and take-over. And a growing number of corporations are developing in the direction of real transnational, globally operating mega-organisations no longer rooted in any country or region.
3. Labour organisation The increasing environmental dynamics with which the transnationals are confronted is not only the reason for the restructuring indicated above but also requires new forms of labour organisation. These forms have to facilitate flexibility of operation and contribute to the enlargement of the innovative capacity of the organisation. The relatively fragmented work and very bureaucratic forms that were recently dominant are no longer satisfactory. The traditional production concept (TPC) would have to be replaced by a new production concept (NPC). The European Commission argues in its Green Paper “Partnership for a new work organisation” issued in 1997 for modernisation of the organisation in this direction.
With respect to the development and application of the new production concept, MNO’s would be in the vanguard. But what in fact is the development of labour organisation in multinationals? Is there an unequivocal trend for diverse sectors of employment?
The argument about the termination of fragmentation of work and the emergence of NPC’s (7)
is rather unilaterally concentrated on the developments in the core sectors of the industry, in particular the car industry. However, recent empirical research (8) shows that - insofar as there is a replacement of TPC’s and the emergence of NPC’s - this development is largely limited to certain parts of the service sector, in particular the knowledge-intensive, business services. Here we see a proportionally large number of professionals designing their labour relatively autonomously, usually in direct interaction with the customers. Here too the introduction of self-steering teams and other forms of modern labour organisation, characterised by co-determination in the work, by the direct participation of the employee, have advanced furthest. The industrial sector is clearly behind in this respect. Instead of TPC’s being replaced by NPC’s we see small changes of labour organisational structures indicating an adjustment of the TPC’s to circumstances changed in the meantime. In this connection there is talk of neo-Tayloristic or neo-Fordistic labour forms. Team work according to the Japanese “lean production” model is a clear example of this. The work is and remains extensively standardised and fragmented. European alternatives such as the Scandinavian model groupwork or approaches according to Ulbo de Sitter’s socio-technics are little applied in industrial companies (9) . The heralded advance of the new product concepts has not materialised. Companies are rather inspired by Japanese “lean production”. So rhetoric and reality are widely separated in the industry. The tempo of innovations in labour-organisation in this sector are characterised as the “postponed transformation” (10)
and attributed to “the bearable sluggishness of management” 11 .
It is remarkable that with respect to the introduction of new forms of labour the MNO’s are hardly advanced in comparison to other companies. This applies to multinationals both in the industrial as well as the service sector. But when MNO’s introduce for instance one or more forms of direct participation they do tackle the matter rather thoroughly. That is to say that a large part of the staff is involved in the initiative individually or in groups and relatively large amount of direct co-determination or opportunity to have a say is offered. In other companies the range of the subjects to be discussed or autonomy in work is clearly much more limited.
In connection with the reduction in country-based organisations and the emergence of multi-divisional, cross-nationally organised structures, the direction of the development of labour organisation has shifted from a national to a transnational (division)-level. There appear to be few multinationals developing a corporate level policy with respect to labour organisation in their subsidiaries. However, Japanese groups are in this respect an exception.
The management of the innovation of labour organisation is not usually a top-down directive. More and more the ‘benchmarking’ method is used. ‘Best practices’ are detected and given as an example to the other members of the group. The emphasis is on cross-national diffusion of forms regarded as efficient and effective where usually the division has a co-ordinating and supporting role. But as I said before, the diffusion process also goes slowly in MNO’s. The real innovations remain largely concentrated on the new knowledge-intensive groups in business services and the ICT sector.
4. Personnel management Personnel management, or human resources management, within MNO’s can be characterised as dual. Senior management is approached in a different manner than lower management and other staff members. In this respect, despite all internationalisation and restructuring during the past decade, in general not much has changed.
Nearly every group has for its senior management a specific management development, allocation and rewards policy. With respect to corporations that are Anglo-Saxon and Japanese in origin, more emphasis is usually put on inauguration in and compliance with the corporate culture than is the case in European groups. Also the allocation policy varies with the country of origin of the parent organisation. Foreign subsidiaries of Japanese and American groups are relatively often managed by managers coming from the parent organisation. In the MNO’s of today option schemes for senior management (only) are increasingly often applied. This form of variable rewards increasingly forms part of the total reward system.
Labour policy for lower management, i.e. senior management of the subsidiaries in the various countries and the other employees , the ‘rank and file’ has traditionally been strongly influenced by the culture, legislation and institutions in the host-country. Only recently with the increasing significance of transnational division structures and intensification of the international interweaving between subsidiaries of the MNO’s has a certain pressure arisen to also reach a less national-specific fleshing out of labour policy for the rank and file. At division level, training programs and performance, assessment and reward systems have been developed that are presented as ‘best practice’ for all businesses in the division. They try to enforce compliance under penalty of restructuring, cut-backs or relocation of the production to other countries. The manner in which such systems are actually finalised in the various countries obviously depends on national legislation and institutionally established uses. In the area of labour policy in particular the influence of national context is considerable. However, this does not preclude the pressure in the direction of convergence of the personnel policy within Europe being unmistakable.
The content of the labour policy for employees is generally developing from ‘personnel policy’ into the management of ‘human resources’, HRM policy. By modernising the labour organisation, the employees are increasingly becoming an important asset, and in some sectors clearly the most important asset. Even in those branches of industry where the TPC’s are still dominant, semi- and unskilled employees are also involved in decisions at job and department level for instance by means of work planning and they are able by means of quality circles etc. to contribute to the continuous improvements in work processes. Involvement in company activities is increasingly stimulated and also actually rewarded by means of performance-related reward systems. Performance-related rewards are emerging strongly. This development has also been enabled by either the reduction in collective bargaining at sector level or the broadening of the policy freedom of the parties at company level in order to reach a company-specific finalisation of the labour conditions package. On these points multinationals are clearly in the lead and this also applies to greater flexibility of working hours and other forms of greater work flexibility, as is evident from recent research (12) . In connection with greater flexibility of labour organisation, greater flexibility of the labour factor is increasingly regarded of importance and actually put into practice. The manner in which greater flexibility is reached and the weight given to various variants of flexibilisation policy in the workplaces in the various countries, depends partly on the prevailing legislation and the institutional established schemes. The use of temporary employment contracts for instance is directly influenced by the legislation on dismissal in the country of establishment. And the national legislation on working hours has a directly influence on the opportunities for making working hours more flexible. In general many forms of greater numerical flexibility are bound by national specific rules.
In any case, greater numerical flexibility will soon be in tension with increasing involvement in the company and as to its extent will soon be checked by its limits. That is why we notice that the attention is increasingly focused on enhancing greater functional flexibility, broader deployment, for instance by means of job rotation. With the modernisation of labour organisation and the increase in international competition prompting faster adjustments in production programs, the enhancement of functional flexibility is becoming an important issue in both workplace, business unit as well as production division level. This is even more so when the labour market of the respective job class is tight or because the staff cannot be replaced for other reasons. The importance of the functional flexibility is for instance evident from the quantity of time and money invested by MNO’s, and their subsidiaries respectively for the education and training of employees. The functional flexibility of the majority of staff members remains limited to a relatively small range of directly related function areas or jobs respectively within the national boundaries. Cross-national mobility is usually reserved for senior management.
Recent internationalisation strategies and coupled re-structuring are resulting in increasing insecurity for staff members with respect to employment. In this respect the position of the management of the subsidiaries in the various countries hardly differs from those of the other employees. Business closures or relocations respectively in connection with the concentration of production capacity in a small number of establishments in a limited number of countries within Europe is common. Empirical research shows that knowledge-intensive activities are increasingly concentrating in countries with a highly educated labour force, such as for instance Germany and the Netherlands. On the other hand England in particular is more attractive for businesses with a relatively large amount of semi- and unskilled work, who moreover invest little in the education and training of their employees. With respect to the actual development of the volume of employment it appears that this is relatively positive in European subsidiaries of non-European multinationals (13) . On the other hand the volume of employment at subsidiaries of European MNO’s is often decreasing. Employment growth in independent European companies moves in between these extremes.
The increasing insecurity of employment is, just like greater numerical flexibility, in tension with enhancing the involvement of employees. The relatively high wages paid by multinationals appear to offer insufficient compensation in this respect. In any case, MNO’s are exponents of the most recent developments in organisation and labour policy and the dilemmas and paradoxes connected with them.
5. Employment relationships in multinationals. The position of the employee in MNO’s is taking shape against the background of labour organisation, labour policy and (in)security of employment.
The modernisation of labour organisation appears to be most advanced in MNO’s but is altogether limited. The latter applies certainly to industrial sectors where new production concepts have hardly got a foothold. Adjustments within the traditional production concept, strongly regulated co-determination in the work and increased involvement in the continuous improvements of processes and product quality are characteristic. The position of the modern knowledge-worker in the new sectors is completely different: being relatively autonomous in his work. On the basis of knowledge-power and relative shortage in the labour market he has a strong position in employment relations.
Under the influence of the current internationalisation strategies the labour management within MNO’s is susceptible to uniformitisation, at least with respect to the non-senior staff. However, the converging effects are lessened by diverging national contexts. It is in common that the position of the employee is strengthened by developments in the direction of an HRM policy.
Because of the emergence of transnational oriented forms of organisation and the radical rearrangement of international business, for an increasing number of employees the employment situation is continuously and increasingly insecure.
All in all, the position of the employees in modern MNO’s is characterised by dilemmas and paradoxes.
Relatively high rewards are coupled with growing uncertainty for the future of the work
The co-determination in the work and the possibilities of influencing direct work circumstances is increasing. But at the same time with respect to the future of the work important decisions are taken further and further away, at higher levels and in far-away, sometimes unknown parts of the corporation and countries.
By decentralisation of consultations on employment conditions the opportunities for influence at company level are in principle increasing but at the same time the collective power position is decreasing because of a reduction in the power of the unions, particularly at international level.
The European WC would in principle be able to provide for a number of gaps but its powers are limited for the time being and it has to operate within the context of a corporation moving more and more outside the EU region. Internationalisation strategies are becoming ever more global and therefore are aiming at a playing field outside the working area of the European WC.
Nijmegen
February 2000-02-24
Literature
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Footnotes
- United Nations 1994, 1998
- Lubbers, 1996
- In emulation of Bouwman and Singh (1993)
- See for instance Marginson and Sisson (1996), Ferner and Quintanilla (1998)
- This is for instance evident from the EPOC survey; personal calculations
- Dicken, 1998
- Kern and Schumann 1984
- EPOC Research Group 1997, Springer 1999
- Benders a.o. 1999
- Huys, Sels en van Hootegem 1995
- Van Hootegem 1995
- EPOC Survey, personal calculations
- EPOC Survey, personal calculations