Impact Of Globalization On Industrial Relations

Globalisation is inevitable trend with the development of technologies in transportation, communication, and information etc. Globalisation has its impacts on many fields including politics, economics, and cultures around the world. With respect to impact on the economy, the impact of globalisation on the firm’s performance has been studied for a long time by scholars. Industrial relations are one important aspect in organization and it highly affects the performance of one firm. Thus, this essay takes a close look on what impact of globalisation will have on the industrial relations. Two countries which are classically represented by different market economy (USA: Liberal Market Economy; Japan: Coordinated Market Economy) are selected so as to analyse the impact of globalisation on their industrial relations in different variety of capitalism.

Introduction

Along with the globalisation especially in economy, it has led to new changes and features in global competitive environment, decentralisation of negotiation between labour and employers, more flexible wage system, labour allocation & workshop organization and industrial relations in both developed and developing countries. Globalization has certainly influenced the industrial relations in developed countries with different types of market economy. With the deeper expansion of globalisation and enhancement of cross-border capital flows, traditional industrial relations systems in countries are facing great challenge. Whether the future development of industrial relations will have more similarities or differences between countries is always a hot topic focused by industrial relations scholars around the world. Globalisation has accelerated the interdependence in economy between countries and offered new possibilities for global economic growth. It is the progress of human society and inevitable results of world economic development. Meanwhile, globalisation is also one of the important features of the contemporary world economy. However, globalisation will have significant impact on industrial relations and unions in countries.

In this essay, based on the USA and Japan experience in industrial relations after globalisation, it will provide an overall analysis of how the globalisation impacts the industrial relations in these two countries. Since USA and Japan are obviously featured with two different market economies, Liberal Market Economy and Co-ordinated Market Economy, it will have significant meaning in comparing and explaining the different impacts on these two countries’ industrial relations caused by globalisation. At the end of this essay, it will draw a proper conclusion based on the analyses in the previous parts.

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Globalization and industrial relations

To begin with the analyses of the topic, there are two very important concepts which should be clearly explained, globalization and industrial relations. Globalization mainly refers to economic globalization, meaning the economic activities crossing the national borders, and forming an organic economic integrity worldwide through foreign trade, capital flows, technology transfer, provision of services, interdependent and interrelations (Greenaway, Gullstrand & Kneller, 2008). Globalization has begun in 1980s; especially in 1990s its process was accelerated greatly. Globalization is good for the globally reasonable resources and production elements allocation, is beneficial for the flow of capital and products globally, technological expansion in the world, and helps to promote economic development in underdeveloped countries or regions.

Industrial relations are also called employment relationship in some countries. Industrial relations are applied to denote the collective relationships between employer’s management and the employees (Colling & Terry, 2010). The relations are established by the Labor Agreement or Group Agreement signed by both employer party and employee party. Industrial relations is called employment relationship, on the one hand, employee is hired by employer and gets salary from the employer, on the other hand, the owner or manager or representative of an organization who employees labors on behalf of the organization deals with the associated labor issues. The relation between them is so called employment relationship.

Impact of globalisation on industrial relations in USA

Under the globalization environment, Western developed countries such as United States of America has experienced new problems and very much challenge in its industrial relations. From historical perspective, industrial relations in USA were dominated by Labor Union and Political parties. Although historically two of the American political parties did not highly emphasize on the benefits of labor class, traditionally compared with Republican Party, Democratic Party treated Labor Union more friendlily not only from legislation view or national policies. Since the development of globalization especially in 1990s, the competition between enterprises is intensified, America was forming a situation where Labor Unions were weakened while Enterprise owners were strengthened. American Enterprises weakened the negotiation force of Labor Unions through various ways by introducing human resources management methods such as quality circle, objective management, group construction, professional planning etc. and subcontracting or outsourcing, non-labor unions in new enterprises or withdrawing labor unions in the existing enterprises. The result was directly leading to decrease in numbers and density of unions. The density of labor unions was reduced to 15.5% in 1990 from 23.5% in 1973 and until 1999; the density of labor unions was 13.4% (Blanchflower & Bryson, 2011). Non-labor union in organization was popular and it resulted in dissatisfaction over the retirement pension, medical insurance, unemployment insurance etc. from labor force when comparing with the European labors. The difference in incomes between labors and employers has become the most important feature in American industrial relations. For instance, in 1965, the income of an American CEO was 25 times of the income of an ordinary worker, while 1n 2005, the figure was 265 times (Mishel, Bernstein & Allegretto, 2005).

From the market economy perspective, America is a typical country based on the Liberal Market Economy. According to Peter A. Hall and David Soskice, Liberal Market Economy (LME) is one of the major varieties of capitalism. America is a classic example of LME, and also this LME system is also applied by other developed countries in addition to USA. Under LMEs which are recognized as free market economies, firms resolve coordination problems mainly through hierarchies and market mechanisms. LMEs are featured with a relatively decentralized system of industrial relations (Hall & Soskice, 2003). The employee relations under LMEs are short term, market relations between employee and employer. And the top management has unilateral control of the firm. Speaking to the industrial relations in LME, the relationship between employer organizations and unions is relatively weak, the wage setting is decentralized and employment is not secured. Due to the features of LMEs, there are many characteristics in its industrial relations under the great pressure of globalization which has led to the competition more fierce for firms.

In the first place, employee’s profession in American firms is not secured. American Labor force market applies free employment system. Once the economy of one firm declines, there will be a large number of employees to be laid off. The relationship between workers and the management level is conflicting, or to be said as the true sense of employed and employing. Therefore, American employees have the reasons to not be loyal to a firm and the conflict or relations between employers and employees are representing in strikes or layoffs forms. In America, capital is the determining factor for the production. Just as Karl Marx described it a hundred year ago, capitalists or their representatives employ labor force according to the market price and make every important decision solely based on their own interests (Commons, 2009). This principle has been fully reflected in American Liberal Market Economy. In the international capitalism market economy, according to Adam Smith’s theory, the ultimate goal of enterprises owners or managers is to pursue to maximize profits for the owners or shareholders, but less likely to attach importance or concerns to the welfare and wages of employees (Chiu, 2009).

Secondly, globalization has led to more flexible and polarization in labor force market. In the process of globalization, labor market in America has a tendency of non-management and government loosens even removes the control of the labor market. Non-regulatory employment such as part-time workers, temporary workers, home workers with low wages are rapidly increasing. This change in industrial relations in USA has intensified the conflicts between capitalists and labor. In addition, with the day by day decreasing in Labor Unions power, labor in America feels extremely unprotected. And the labor bargaining power also decreases in this way. Therefore, in USA, every employee will have to take more serious attitude toward the labor contract than in other countries and every detail things relevant will be clearly stated in the contract.

Thirdly, globalization leads to the diversity in managing the labor force in firms. Due to the globalization of sharing resources, technologies, even labor resources worldwide, multinational enterprises are increasingly developed and established branches in different courtiers and regions around the world. All of these MNEs have to face its diversity in managing labor in different cultural contexts. Globalization makes the labor force to transfer internationally more and more frequently with larger and larger scale. Globalization enables people from different countries with different cultures to work in an organization. In this way, the industrial relations will have to change to adopt the local regulations or environments.

Impact of globalisation on industrial relations in Japan

Like Germany, Japan is also a Coordinated Market Economy (CME). CME represents another kind of varieties of capitalism and it resolves coordination problems not only through hierarchies and markets but also through formal non-market institutions in firms (Hall & Soskice, 2003). CMEs have the employee relations long term, formalised participation, consensus decision-making with the management. The industrial relations under CMEs are trade unions and employers organized, industry wide collective bargaining and pay determination, employment relatively secured. Under globalisation, the features of industrial relations in Japanese firms will be analysed from the following aspects.

Firstly, compared with America, employment system in Japan is characterized by corporate life time employment and trade unions belong to firms. Life time employment provides with high degree of employment security on the one hand, but on the other hand, it restricts labour mobility. Under this employment system, large Japanese Corporations actually offer the complete profession security for their “core” workers. Correspondingly, in Japanese firms, lifelong services for a company will progressively be promoted; however, the opportunity of getting promotion through “job-hopping” is very tiny. Due to job security, employees are very loyal to the firms. Employee’s loyalty to firms is good for establishing inter-cooperation industrial relations. Or to be specific, it is good for establishing a good relationship between owners, managers, shareholders and employees. Under CMEs, in Japanese firms, employees negotiate with the management together, and employees are highly involved in the decisions making in plants and workshops. Technical training and improvement are the important components in Japanese industrial activity. Firms in Japan will be less likely to conduct layoff unless the company is about to go bankruptcy. This harmonious employee-manager relationship and high sense of objective recognition are the secrets of rapid increase in labour productivity in Japan. Comparing to capital determining production in USA, labour is the determining factor in Japan. It is obvious that Japanese individual names are less likely to be seen in the global billionaires, however, world large companies in various industries are many Japanese companies. Japan economy is not dominated by capital owners but controlled by a group of managers and core workers. In Japan, 90% of people consider themselves as middle class. With regard to the salary difference, the difference in Japan is far better than America. Japanese corporations and government respect a relatively equal salary system which is similar to the traditional socialist ideology. In Japan, difference in salary between an ordinary worker and the top CEO is far much less than those in USA. Therefore, due to small salary difference, it is natural that workers can unite with the management level.

Secondly, collective bargaining is a main and important way to deal with industrial relations in Japan previously. Collective bargaining is the process in which employers and employees are bargaining their own interests. Employee bargaining power in Japan is better than in USA before, but now under the globalisation trend, the collective bargaining power is becoming less relevant and companies gain greater discretion in wage setting across a number of areas. Unions in Japan are also confronted with declined bargaining power and influence. As the involvement of employees and unions in enterprise governance varies considerably between countries, Japan has to find a way to properly maintain this relationship. However, it can not be said that unions are not making efforts in maintaining the industrial relations, the unions are still functioning in maintaining the relationship between employer and employees in Japan. Japanese firms also emphasize the consultation between employers and the workers. Under the globalisation trend, there are many unknown competition forces coming from the markets, industrial relations is extremely emphasized by Japanese firms as a sustainable resources to be competitive in the global market.

Thirdly, with the development of globalisation, international cooperation is urgently in need. Many Japanese companies started to establish sub-companies in overseas markets, and sell their products in foreign marketplaces. Globalisation accelerates the changing structure industrial relations in foreign markets. Under CME, Japan has maintained its type of industrial relations in domestic firms very well and very mature; however, whenever speaking to managing the workforce in other countries such as in China, the firms have to design industrial relations which are suitable for the local cultural context. So when Japanese firms operate factories in China, they have to combine the Asian Market Economy to design new industrial relations. Under such circumstance, industrial relations in Japanese firms will experience great challenge to change the traditional model of employment practices.

Conclusion

In conclusion, this essay interprets the concept of globalisation, industrial relations as well as two models of “varieties of capitalism” which are liberal market system and coordinated market system represented typically by USA and Japan. Further with the studies of globalisation’s impact on industrial relations in the liberal market economy of USA and in coordinated market economy of Japan with application of the Variety of Capitalism approach, it has analysed several impacts of globalisation on industrial relations in these two countries found. Both America and Japan have followed the previous industrial relations characterised by their liberal market economy and coordinated market economy. The industrial relations under these two different market economy systems are different a lot in terms of the employment period, job security, union’s relationship and so on. Both of these two countries have encountered new challenges in their industrial relations under the globalisation environment as it requires the firms to operate in global different culture contexts. As the industrial relations can be a very important factor to influence the company’s productivity, firms have to deal with the industrial relations within the organizations properly so as to be more competitiveness in the global market.