Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 2003 1 (4)
PLANT RELOCATION:
WHEN IS IT A VIABLE THREAT?
RON EDWARDS*
T
his paper uses research from the field of international business to investigate
when a multinational corporation’s threat to leave a country is likely to have
substance. Some multinationals have broad flexibility to relocate. Others do not. Customer
expectations, transportation costs and organisational factors may limit their flexibility.
The challenge for trade unions in high wage countries like Australia is to be able to assess
these factors and judge whether threats to ‘move to Asia’ are viable. Often they are not.
INTRODUCTION
Plant closures, with production transferred to other affiliates of the same multinational corporation, can lead to serious hardship for employees, especially if the
region in which they work is experiencing economic decline. Such scenarios are
unfortunately familiar in Australia, where the giant multinational corporations
Unilever, Heinz and Nestlé have recently closed plants and made workers
redundant. In these circumstances, negotiating power resides with the employer.
Trade unions can do little more than negotiate redundancy payments and assist
workers in their search for new jobs. At other times, by simply raising the
possibility of plant closure, management may place pressure on trade unions in
order to have them acquiesce to lower wage offers.
The aim of this paper is to provide a comprehensive review of the international
literature dealing with industrial relations in multinational corporations and place
it in context for Australian readers. An understanding of this literature assists trade
unions to determine when threats to move to Asia have substance and when they
do not.
Trade unions and other institutions interested in the welfare of workers in
middle and high wage countries have had their concerns about globalisation
heightened recently by published research in international economics and
international politics. Writing from an economic perspective, Rodrik (1997)
argues that workers in developed countries are disadvantaged by globalisation.
Adopting a microeconomic perspective, he identifies a significant change in
the relative bargaining power of workers, particularly of the low-skill type.
In Rodrik’s view, multinational corporations (MNCs) have gained the upper
hand in industrial relations by their ability to substitute one country’s workers
with another’s, either through trade or foreign direct investment. This has led
* Associate Professor, Department of Management, Monash University. Postal address: McMahons
Road, Frankston, Victoria 3199. Email: Ron.Edwards@BusEco.monash.edu.au The author would
like to thank Ruby Ranjan for her research support and Andrea Howell, Gerard Griffin and
Chris Nyland for their valuable comments on an earlier version of this paper.
THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 45, NO. 1, MARCH 2003, 23–34
24
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
to a decrease in the demand for labour in advanced countries and an increase
in its elasticity, causing a reduction in average earnings for low-skilled
workers.
If taken to an extreme, the permeability of national boundaries for the transfer of production by multinational corporations will lead to the creation of a
single, global labour market in which multinational corporations are able to push
wages in developed countries down to the lowest point. In time, low labour
standards will spill over from poor countries to rich. Rodrik (1997) describes this
as the ‘race to the bottom’ in which workers in the North have to acquiesce to
standards that are low enough to prevent footloose capital and employers from
deserting them for the South.
Similarly, writers in the field of international political economy, believing that
the modern multinational corporation’s ability to transfer capital is unfettered,
argue that such firms have the upper hand in the negotiations with, mainly,
nationally-based trade unions (Breitenfellner, 1999). Moreover, multinational
corporations, especially those that promise employment growth or export
revenue, have considerable bargaining strength over governments of developing
and developed countries, particularly when the initial investment or subsequent
reinvestment is being considered (Enderwick 1985, Wade 1988). These writers
perceive the nation state as a regulator of production relations losing its ability
to protect labour. Globalisation can, therefore, be perceived as an irresistible
force that is changing the nature of economic, political and social relations. Gallin
(1994) draws a very bleak picture: the global economy is a great leveller––but it
levels downwards. The consequences are dire: it undermines every nation’s
ability to maintain social cohesion (Greider 1997).
The method employed by MNCs to exploit their multilocational character is
to close, or at least threaten to close, plants in high wage countries like Australia
and expand production in lower wage countries. Do all multinational companies
have the option to transfer production to low wage countries? When are such
threats most plausible?
First, this paper will consider the macroeconomic data pertaining to international investment patterns. Second, the academic literature addressing multinational corporation strategy, especially that relating to locational choice and
governance structures, will be reviewed. And third, literature dealing with the
practice of industrial relations in multinational corporations will be reviewed.
Specifically, it will examine whether multinational corporations choose their
investment locations on the basis of least wage cost, whether their organisational
structures allow production to be moved from one country to another in
response to union wage claims, and whether the location of multinational
decision-making assists them in operating global industrial relations strategies.
It concludes that globalisation is indeed a significant threat to workers in particular circumstances, but this is not the general case. In some circumstances,
the opportunities presented to move production to low wage countries are
considerable and an ever-present shadow over the conduct of day-to-day
industrial relations. In other circumstances, threats to shift production have
little substance.
P L A N T R E L O C AT I O N
INTERNATIONAL
25
INVESTMENT TRENDS
Using the United Nation’s definition of ‘developing country’, the United Nations
Conference on Trade and Development (UNCTAD) (2000b) has found that
foreign direct investment (FDI) to developing countries is a minority element
of total direct investment, fluctuating between 20 per cent and 40 per cent of
the world total. In the 10 years to 1997, the share of developing countries in
FDI inflow increased from 18 per cent of the total to almost 40 per cent.
However, in the following two years, the developing country share fell to
less than 25 per cent. At the same time, firms from developing countries
have increased their investment abroad, reaching eight per cent of total FDI
in 1999.
The great majority (88 per cent) of direct investment flowing out of
Australia, from both foreign and domestically-owned Australian companies,
is directed to the United States and United Kingdom, both of which have
significantly higher wages than Australia (Australian Bureau of Statistics
2000). The next most popular destination is New Zealand (eight per cent).
Only a small share of Australian outward FDI goes to low wage countries.
This pattern is consistent with the bulk of advanced countries’ investment,
which is with each other (UNCTAD, 2000b). In 1999, developed countries
attracted nearly three-quarters of the world’s total FDI and this investment
continues to grow faster than FDI to developing countries (UNCTAD,
2000). Consequently, foreign direct investment per worker is far higher
in the developed world than in developing countries (UNCTAD 1998
& 2000).
In summary, investment trends indicate that multinational corporations are
establishing production bases in low wage countries but this trend is overshadowed
by investment in high wage countries. The next section will examine the factors
that explain the locational choice of multinational corporations.
LOCATIONAL
CHOICE FOR
MNCS
The international business literature has identified various factors as influencing
the locational choices of MNCs. First, an abundant supply of factors of production, natural or human, has been found to be important in attracting firms
to invest in particular countries if their production process is dependent on such
inputs (Dunning 1993). The mobility of this type of investment has increased
as trade barriers have been reduced through the efforts of the World Trade
Organisation and efficiencies in transport and communication have taken
place. Multinational corporations are more able to shift production away
from countries that have lost their comparative advantage. The shift of footwear,
clothing and textile companies from Australia to Asia over the last 25 years is
an example of such mobility (Industry Commission 1997). The decline in tariffs
and removal of quotas in these industries allow the Australian market to be served
from a lower wage cost location. However, if cheap labour alone were sufficient
to attract FDI, most of this type would be concentrated in countries with
abundant labour, which is not the case (UNCTAD 2000b).
26
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
Although low wages are a factor in explaining the location choices of labour
intensive MNCs, increases in relative wages have not been found to always be a
clear deterrent of FDI. Some studies have reported that higher wages reflect
a more productive workforce and, as such, are associated with increased
inward foreign investment (Beeson & Husted 1989). Some studies report
the reverse effect, supporting the cost minimisation theory (Billington 1999).
Others have found no relationship between the cost of labour and inward
investment at all (Hill & Monday 1994; see Dunning 1993 for a summary of
this research).
Although cost and resource availability are important for many investments,
studies of aggregate FDI show consistently that the more significant determinant
of location is demand, as reflected in the size and growth potential of markets
(Calof & Beamish 1995, Dunning 1993, Edwards and Buckley 1997). The
majority of multinational corporations locate their production facilities in or
near their major markets. Services industries, which receive the bulk of world
foreign direct investment, must in large part be located near their customers
(UNCTAD 1998). Recent innovations, such as data entry and call centres, have
given only limited scope to vary this rule.
Manufacturing companies, especially those producing products with high
weight to value ratios or that have limited shelf-lives, also tend to locate production in their target market (Buckley & Casson 1976, Edwards & Buckley 1997).
Local providers may be seen as more reliable, effective and responsive sources
of supply (Dunning 1993, Kwon & Hu 1995, Porter 1990). Studies of consumer
behaviour show that, in certain circumstances, consumers prefer to purchase goods
that are manufactured in their home country for patriotic reasons (Daser
and Meric 1987). ‘Buy local’ campaigns may enhance this effect (Olsen et al.
1993).
Even when a multinational need not establish production within the target
market, it may be constrained in the choice of location of production by
consumer perceptions or image of particular countries. Image can influence
consumer preferences through their perceptions of the country of brand, design,
assembly, production or ownership (Papadopolous & Heslop 1993). For example,
Japanese cars are perceived as more reliable, whereas American cars are perceived
as more spacious and safer in the event of a collision (Kim and Chung 1997). A
country may be perceived as proficient in some domains but not others, e.g.
Russian caviar versus Russian cars (Johanson et al. 1994, Kaynak & Cavusgil 1983).
Developing countries in particular have a poor image among consumers of
manufactured goods. Khachaturian and Morganosky (1990) concluded that
‘associating a brand with less-industrialised countries could potentially lower the
quality image of that brand’. Moreover, ‘the less-industrialised the country
of origin, the more the potential decline in quality image’. In the interest of
securing sales, multinational corporations may avoid production sites that have
a poor image for their particular product in their primary markets, even where
such locations offer low wages.
Research into the relatively small amount of Australian FDI flowing to
Asia shows that market size as well as low wages attracted the investment. For
P L A N T R E L O C AT I O N
27
example, Fittock and Edwards (1998) found that the size and growth potential
of the Chinese market were the major factors explaining Australian FDI in
China. Similarly, Edwards and Muthaly (1999) found the primary objective
of Australian foreign direct investment in Thailand was to access local and
neighbouring markets, with low wages being a secondary attraction.
In summary, survey and econometric studies of firm behaviour point to demand
factors being more important than supply factors (including relative wage costs)
in explaining the locational decisions of multinational corporations. When considering aggregate foreign direct investment, low wages are important but not
the primary factor explaining the location of production.
MNC
STRATEGY AND STRUCTURE
Are multinational corporations free to move production from one country to
another in order to secure a negotiating advantage over trade unions? This
depends in part on the global structure of the firm. The number of production
sites is crucial for the issue of relative bargaining power. Assuming trade unions
exist, the firm is highly vulnerable to industrial action if production is centred at
one site. World sales can be held up by a single dispute. On the other hand, if
production takes place at a number of locations, the company can potentially
replace output from a plant that is disrupted by an industrial dispute with
output from other plants. However, such potential is limited. Strategies for
retaining surplus capacity or permanent stocks to be called upon in the event of
industrial unrest are costly and place the firm at a cost disadvantage relative to
others that avoid such strategies (Van Liemt 1992). ‘Just-in-time’ stock handling
systems and the avoidance of surplus stocks to improve profit-to-asset ratios
highlight the cost of such a strategy (Breitenfellner 1999).
Even where MNCs have surplus stocks or production capacity, they may not
have the opportunity to use these to counteract the union. Many, for example,
have joint venture partners, especially in parts of the world that have markedly
different business contexts to those with which they are familiar (Davidson 1982).
Dual ownership means that these subsidiaries need to be relatively autonomous.
Disputes are likely to arise between joint venture partners if one is expected to
help break a strike in a company in which they have no interest. Keeping in mind
that US and European MNCs are more likely to have joint venture partners in
Asia than elsewhere (Davidson 1982), the real potential to use these subsidiaries
to replace production lost during strikes, say in Australia, may be limited to firms
that have not taken the joint venture path.
In addition to the constraints to short-term flexibility in the location of
production facing single production site MNCs and those in joint ventures,
organisational structure may limit a company’s ability to move production around
the world to neutralise trade union activity. The global operations of multinationals have been found to fall into two broad categories, described as ‘regionally’ and ‘vertically’ integrated (Stopford and Wells 1972). The former involves
dividing the company into regional divisions, each supplying their ‘territory’
somewhat independently of the others. This arrangement offers some potential
for a plant in one region to divert output to another region in the event that
28
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
industrial unrest there disrupts production. A vertically integrated, or worldwide
production arrangement, divides the value-adding process and locates each
element in a different setting, possibly selected on the basis of least cost.
Potentially, each component or sub-component of the product might be produced in a different country with a view to cost minimisation. For example,
General Motors produces engines for assembly in European models at its
Fishermen’s Bend plant in Melbourne. Where international operations are
vertically integrated, there is no potential to transfer output as each plant
undertakes different activities. In these circumstances, the MNC’s bargaining
position is weak. Industrial action at any one plant can disrupt the flow of
intra-firm trade. For example, if overtime is stopped in a plant producing
gearboxes, the completion of cars worldwide may be impossible (Enderwick
1984).
Which of these two types of organisational structure is more common?
There is evidence to suggest that multinationals are progressively replacing
regionally-based structures with vertical structures (Birkinshaw 1996). Regional
structures are perceived as the higher cost option, there being duplication of
activity.
In sum, multinational corporations that pursue vertically integrated global
production systems, apply just-in-time inventory management, operate as
near as possible to full capacity, or have joint venture partners, will have little
opportunity to move production from one country to another in response to a
rise in relative wages. Indeed, companies that follow a vertically integrated
strategy will be highly vulnerable to strike activity as global production may
be held up by industrial action at any site. On the other hand, multinational
corporations that have wholly-owned, multiple production sites capable of
producing identical products, and spare production capacity, will have the opportunity to resist wage increases by calling on other sites to replace lost production
during strikes.
REGIONALISATION
The creation or extension of regional trade blocs gives companies fresh opportunities to review their cost structures. Firms with multiple production sites across
an emerging ‘single market’ have been observed to develop pan-regional strategies, involving a rationalisation of sites with a consequent loss of employment in
the sites to be closed (Cantwell 1992). The growth of US investment on the
Mexican side of the Mexico–US border, following the creation of the North
American Free Trade Area (NAFTA), is a good example of rationalisation in the
wake of a regional trade agreement. Destler and Balint (1999) report a widespread
perception among US workers that the North America Free Trade Agreement
has undercut their bargaining power vis-à-vis employers, reinforced by the use
of the ‘move to Mexico’ threat in labour negotiations. The outcome, many believe,
is a change in the composition of employment in America, shifting it toward
‘lower-paying services industries’.
P L A N T R E L O C AT I O N
29
Even if firms do not rationalise production sites, these circumstances offer them
the opportunity to extract concessions from trade unions as they can threaten
to do so (Bean 1994, Liebhaberg 1980, Marginson et al. 1995). Motor manufacturer Ford, for example, threatened British unions with a plan to move
manufacturing to continental Europe unless British workers abandoned work rules
and showed restraint in negotiating wage increases and conducting strikes
(Enderwick 1985, Hill 1997). Ford, however, continued production in the
UK. In another case, management at Hyster Ltd (a Scottish firm) told
employees in Scotland that the company was prepared to move production
lines from the Netherlands to Scotland and expand its Scottish operations if
employees there decided within 48 hours to take a 14 per cent pay cut (Newman
1981).
Regionalisation, facilitated by the free trade agreement between Australia and
New Zealand, has led several multinational corporations to rationalise production
with a consequent loss of jobs in Australia. In 2000, the food giant Heinz closed
its Dandenong (Melbourne) plant in favour of Echuca (NSW) and New Zealand.
In 2001, Nestlé closed its plant at Maryborough (Victoria), transferring
production to New Zealand. There is likely to be more rationalisation of
manufacturing as companies review the cost saving opportunities that flow
from the free trade agreement. Plants will close in both countries. However,
such rationalisation is not the sole prerogative of multinational corporations. In
1998, Telstra closed a Hobart (Tasmania) facility, transferring the work to
Melbourne and, in 1999, GWA International closed its Melbourne plant
making Dorf brand taps, in favour of a larger, lower cost plant in Adelaide
(South Australia).
Regionalisation promotes rationalisation. However, firms that must locate near
their customers or have a comparative advantage in one country or the other,
will have no such option. In these cases, threats to ‘move to New Zealand’ or ‘to
Asia’ may well overshadow negotiations, but there will be little real potential for
them to be carried out.
THE
LOCUS OF
MNC
STRATEGY
Moving production from one site to another in pursuit of lower labour costs
requires that a company operate a centralised management system. There are a
range of opposing views on the determinants of MNC structure and, by implication, the factors that determine whether centralised decision-making is
possible. Stopford and Well’s (1972) research into the organisational arrangements of MNCs found that companies tend to commence their internationalisation by establishing semi-autonomous subsidiaries. This ‘multi-domestic’ stage
of internationalisation offers little scope to conduct a global industrial relations
policy as subsidiaries are left sufficiently autonomous of the parent to respond
to local market conditions. They may have no administrative capacity to
coordinate a global response to a union in one location. Following this stage,
firms commonly create a separate division within the parent company that seeks
30
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
to coordinate subsidiary activities. This arrangement offers scope for conducting global industrial relations policy but tends to be short-lived, firms replacing
it with either a regionally or a vertically integrated structure, as described
earlier. Of these two structures, the latter offers the most opportunity to
manage industrial relations on a global basis. Great authority is vested in global
managers of particular product lines. Centralised decision-making of this sort
lends itself to a global industrial relations policy. However, unless the company
also applies the relatively high cost strategy of duplicating production sites, it
will have no special strength in industrial negotiations. Regional divisions, on
the other hand, offer greater scope for strike breaking actions but the absence
of spare stocks or capacity will restrict such strategies, at least in the short run.
Hence, neither of Stopford and Well’s two global structures gives the MNC
unfettered capacity to conduct the style of industrial relations where unions in
different countries are pitted against each other by all-powerful multinational
corporations.
A range of writers in a tradition described as the ‘internationalisation process’
school have criticised Stopford and Wells as too architectural and deterministic
in their portrayal of MNC structure. Rather than a uniform approach to all
management issues, they argue that MNCs adopt a more fluid approach,
centralising or decentralising different types of decision-making, depending on
the circumstances. This interpretation allows industrial relations to be conducted
centrally, even if other areas of management are decentralised. However, research
has revealed that, although some elements of strategy are centralised, such as
research and development, industrial relations, while adopting some central
policies, are usually left to local management to implement (Bray and Lansbury
2000, Lucio and Weston 1994). MNCs are subject to the law of their host
countries and have to manage their business within the local framework of
regulations and employment practice. Since labour relations vary greatly
from country to country, MNCs find that the strategy they use in one
country is sometimes irrelevant or of limited value in another (Bamber and
Lansbury 1998). Thus, MNC decisions on many labour-related matters tend to
be left to the personnel managers of the individual affiliates (Rosenzweig and
Nohria 1994).
Rodwell and Teo’s (1999) study of MNCs in Australia also found that human
resource management is better described as localised than conforming to a
common, global corporate strategy. Subsidiaries tend to balance their strategic
human resource management issues by following host country norms but
adapting the style in which those practices are carried out to parent country
norms. That is, subsidiaries may officially adopt a headquarters approved
policy for say, employee motivation, and use the corporate jargon, giving
the appearance of global uniformity within the MNC, while, in practice, it
interprets and implements the policy in a manner that reflects the local
environment.
Zhao (1998) argues that, in a vertically integrated MNC, the negotiated wage
is higher if the trade union negotiates with headquarters than if the union negoti-
P L A N T R E L O C AT I O N
31
ates with the subsidiary. This is because the company can use transfer pricing to
influence the labour-management negotiations in subsidiaries. Zhao concludes
that unions would be wise to negotiate with headquarters while MNCs are
advantaged if unions negotiate with subsidiary management. This is because
lower prices and hence, lower subsidiary profits have a downward effect on wages
if the subsidiary is negotiating.
Similarly, Mueller and Purcell (1991) argue that MNCs are likely to favour
decentralised bargaining in order to play unions in one country against those
in another. Local union officials are likely to be more responsive to threats
of closure of their workplaces than national or regional union authorities
and will, therefore, concede to such threats sooner. A centralised bargaining
structure also enhances a union’s ability to exploit the employer’s product
market power. Hence, rather than strengthening the multinational’s hand,
centralised industrial relations management may advantage local trade unions.
Marginson et al. (1995) argue that, even where the conduct of day-to-day
industrial relations is left to local management, MNCs assert their power by
applying a common framework for subsidiary management. The collection and
processing of performance data across sites give international management the
potential to compare labour performance, and reward and punish individual sites
through decisions on the location of capital investments and the rationalisation
of productive capacity in the form of plant closure or run-down. Such coercive
comparisons, and their actual or threatened consequences, can be employed to
extract concessions from local workforces and secure the implementation of best
practice. However, they have little meaning or impact in vertically integrated
multinational corporations where each plant operates in a separate part of the
value chain.
In summary, the global management of industrial relations has been found to
disadvantage MNCs by enhancing trade union power. Differences in the context of industrial relations in each country and a desire to have management and
unions focus on the profitability of their subsidiary, encourage decentralisation
of human resource management, including industrial relations. MNC power is
limited to setting budgets and comparing cost and productivity data across plants;
strategies that are most relevant in regionally structured MNCs with duplicate
facilities in different countries.
CONCLUSION
Commentators on globalisation emphasise that improvement in communication
and transportation, and reduced barriers to trade and capital flows have led multinational corporations to develop strategies that exploit the greater flexibility that
such conditions offer. MNCs can locate production in least cost locations, to the
disadvantage of workers and their unions in higher wage countries. Certainly,
multinational corporations are subject to changes in relative costs, as are locallyowned firms. They may be more alert to such changes and more experienced in
relocating to lower cost sites. For example, they may be the first to close plants
in Australia if regionalisation or globalisation make New Zealand, Asia or else-
32
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
where, lower cost options. However, only a minority of MNCs are likely to do
so. A range of market, organisational and strategic factors limit their behaviour.
The challenge for trade unions is to know when threats to move offshore have
substance and when they do not. Further research, focusing on the actual strategies of multinationals in Australia, particularly those that have moved offshore,
will assist trade unions in identifying the pre-conditions that determine the
propensity for such movement.
REFERENCES
Australian Bureau of Statistics (2000) Australian Direct Investment Abroad Outward Stocks. Catalogue
Number 5352.0. Canberra.
Bamber G, Lansbury R (1998) International and Comparative Industrial Relations. Sydney: Allen and
Unwin.
Bean R (1994) Comparative Industrial Relations: an introduction to cross-national perspective. 2nd edn,
New York: Routledge.
Beeson P, Husted S. (1989) Patterns and determinants of productive efficiency in state manufacturing. Journal of Regional Science 29(1), 15–28.
Billington S (1999) The location of foreign direct investment: An empirical analysis. Applied
Economics 31 (1), 65–6.
Birkinshaw (1996) How multinational subsidiary mandates are gained and lost. Journal of
International Business Studies 26 (4), 729–54.
Bray M, Lansbury R (2000) The conditions for convergence: multinationals, product
markets, production systems and employment relations. Journal of Industrial Relations
42(2), 295–313.
Breitenfellner A (1999) Global unionism: A potential player. International Labour Review. 136(4),
531–55
Buckley PJ, Casson M (1976) The Future of the Multinational Enterprise. London: Macmillan.
Buckley and Enderwick (1983) Comparative pay levels in domestically-owned and foreign-owned
plants in UK manufacturing – Evidence from the 1980 Workplace Industrial Relations
survey. British Journal of Industrial Relations 21 (3), 395–400.
Calof JL, Beamish PW (1995) Adapting to foreign markets: explaining internationalisation.
International Business Review 4, 115–31.
Cantwell J (1992) The Effects of integration on the structure of multinational corporation
activity in the EC. In: Klein MW, Welfens PJ, eds, Multinationals in the New Europe and Global
Trade. Berlin: Springer-Verlag.
Daser S, Meric HJ (1987) Does patriotism have any market value: exploratory findings for the
‘Crafted with Pride in the USA’ campaign. In: Wallendorf M, Anderson P, eds, Advances in
Consumer Research, Provo, Utah: Association for Consumer Research.
Davidson W (1982) Global Strategic Management. New York: Wiley and Sons.
Destler I, Balint P (1999) The New Politics of American Trade: Trade, Labour and the Environment.
Washington: Institute for International Economics.
Dunning J (1993) Multinational Enterprises and the Global Economy. Wokingham: Addison-Wesley.
Edwards R, Muthaly S (1999) Perceptions of risk and opportunity: Why some Australian firms
have invested in Thailand. Journal of Asian Business 15(2) 79–84.
Edwards RW and Buckley PJ (1997) European integration: Strategic consequences for Australian
multinationals. International Journal of Business Studies 5(2) 22–32.
Enderwick P (1984) The labour utilization practices of multinationals and obstacles to multinational
collective bargaining. The Journal of Industrial Relations 26, 345–64.
Enderwick P (1985) Multinational Business and Labour. Sydney: Croom Helm.
Fittock S, Edwards R (1998) The determinants of Australian direct investment in China. Journal
of Asian Business 14(3), 41–52.
Frenkel S (1993) Workplace Relations in the Global Corporation: A Comparative Analysis of Subsidiaries
in Malaysia and Taiwan. Centre for Corporate Change, Paper No. 039. Sydney: University of
New South Wales.
P L A N T R E L O C AT I O N
33
Gallin D (1994) Address to the Global Labour Summit. 31 May – 1 June, Copenhagen: Global Labour
Institute.
Greider W (1997) One world ready or not: The manic logic of global capitalism. New York: Simon and
Schuster.
Hill C (1997) International Business: Competing in the Global Market Place. Chicago: Irwin.
Hill S, Monday M (1994) The regional distribution of foreign manufacturing investment in the
UK. In: Christodoulou P, ed, Inward Investment: An Overview and Guide to the Literature, London:
The Bristish Library.
Industry Commission (1997) The Textiles, Clothing and Footwear Industries, Report Number 59,
Melbourne.
Johanson JK, Ronkainan IA, Czinkota MR (1994) negative country of origin effects: The case of
the new Russia. Journal of International Business Studies 1, 157–76.
Kaynak E, Cavusgil ST (1983) consumer attitudes toward products of foreign origin: Do they vary
across product classes? International Journal of Advertising 2, 147–57.
Khachaturian J, Morganosky M (1990) Quality perceptions by country of origin. International
Journal of Retail and Distribution Management 18(5), 21–30.
Kim CH and Chung JY (1997) Brand popularity, country image and market share: An empirical
study. Journal of International Business Studies 2, 361–86.
Kwon YC, Hu MY (1995) Comparative analysis of export-oriented and foreign productionoriented firms’ foreign market entry decisions. Management International Review
35, 325–36.
Liebhaberg B (1980) Industrial Relations and Multinational Corporations in Europe. Cower: ECSIM.
Lucio M, Weston S (1994) new management practices in a multinational corporation:
The restructuring of worker representation and rights. Industrial Relations Journal,
25(2) 110–21.
Marginson P, Armstrong P, Edwards PK, Purcell J (1995) Extending beyond borders: Multinational
companies and the international management of labour. The International Journal of Human
Resource Management 6(3), 702–19.
Mueller F, Purcell J (1991) The Europeanisation of manufacturing and the decentralisation of
bargaining: Multinational management strategies in the European automobile industry.
The International Journal of Human Resource Management 3(1), 15–31.
Newman B (1981) Ford threatens to move production abroad. Wall Street Journal 22 April,
pp. 3.
Olsen J, Granzin K, Biswas A (1993) influencing consumers’ selection of domestic versus imported
products: Implications for marketing based on a model of helping behaviour. Journal of Academy
of Marketing Science 21, 307–21.
Papadopolous N, Heslop LA (1993) Product-Country-Images: Impact and Role in International
Marketing. New York: Haworth Press.
Porter M (1990) The Competitive Advantage of Nations. New York: The Free Press.
Rodrik D (1997) Has Globalization Gone Too Far? Washington: Institute for International
Economics.
Rodwell J, Teo S (1999) The value of employment relations in multinationals: Finding the right
balance. International Business Review 8, 309–21.
Rosenzweig PM, Nohria N (1994) Influences on human resource management practices in
multinational corporations. Journal of International Business Studies 25(2) 229–51.
Sim AB (1977) Decentralised management of subsidiaries and their performance. Management
International Review 17(2) 45–51.
Stopford J, Wells L (1972) Managing the Multinational Enterprise. New York: Basic Books.
UNCTAD (1998) World Investment Report 1998: Trends and Determinants. New York: United
Nations.
UNCTAD (2000a) Trade and Development Report 2000: Global Economic Growth and Imbalances. New
York: United Nations.
UNCTAD (2000b) World Investment Report: Cross-Border Mergers and Acquisitions and Development,
New York: United Nations.
Van Liemt G (1992) Economic globalisation: Labour options and business strategies in high labour
cost countries. International Labour Review 131(4–5), 453–71.
34
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
Wade P (1988) The Japanese of the Malaysia trade union movement. In: Southall R, ed, Trade
Unions and the New Industrialization of the Third World, London: Zed Book.
Zhao L (1998) Labour-management bargaining and transfer pricing in multinational corporations.
Canadian Journal of Economics 31(4), 815–29.
WHEN IS IT A VIABLE THREAT?
RON EDWARDS*
T
his paper uses research from the field of international business to investigate
when a multinational corporation’s threat to leave a country is likely to have
substance. Some multinationals have broad flexibility to relocate. Others do not. Customer
expectations, transportation costs and organisational factors may limit their flexibility.
The challenge for trade unions in high wage countries like Australia is to be able to assess
these factors and judge whether threats to ‘move to Asia’ are viable. Often they are not.
INTRODUCTION
Plant closures, with production transferred to other affiliates of the same multinational corporation, can lead to serious hardship for employees, especially if the
region in which they work is experiencing economic decline. Such scenarios are
unfortunately familiar in Australia, where the giant multinational corporations
Unilever, Heinz and Nestlé have recently closed plants and made workers
redundant. In these circumstances, negotiating power resides with the employer.
Trade unions can do little more than negotiate redundancy payments and assist
workers in their search for new jobs. At other times, by simply raising the
possibility of plant closure, management may place pressure on trade unions in
order to have them acquiesce to lower wage offers.
The aim of this paper is to provide a comprehensive review of the international
literature dealing with industrial relations in multinational corporations and place
it in context for Australian readers. An understanding of this literature assists trade
unions to determine when threats to move to Asia have substance and when they
do not.
Trade unions and other institutions interested in the welfare of workers in
middle and high wage countries have had their concerns about globalisation
heightened recently by published research in international economics and
international politics. Writing from an economic perspective, Rodrik (1997)
argues that workers in developed countries are disadvantaged by globalisation.
Adopting a microeconomic perspective, he identifies a significant change in
the relative bargaining power of workers, particularly of the low-skill type.
In Rodrik’s view, multinational corporations (MNCs) have gained the upper
hand in industrial relations by their ability to substitute one country’s workers
with another’s, either through trade or foreign direct investment. This has led
* Associate Professor, Department of Management, Monash University. Postal address: McMahons
Road, Frankston, Victoria 3199. Email: Ron.Edwards@BusEco.monash.edu.au The author would
like to thank Ruby Ranjan for her research support and Andrea Howell, Gerard Griffin and
Chris Nyland for their valuable comments on an earlier version of this paper.
THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 45, NO. 1, MARCH 2003, 23–34
24
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
to a decrease in the demand for labour in advanced countries and an increase
in its elasticity, causing a reduction in average earnings for low-skilled
workers.
If taken to an extreme, the permeability of national boundaries for the transfer of production by multinational corporations will lead to the creation of a
single, global labour market in which multinational corporations are able to push
wages in developed countries down to the lowest point. In time, low labour
standards will spill over from poor countries to rich. Rodrik (1997) describes this
as the ‘race to the bottom’ in which workers in the North have to acquiesce to
standards that are low enough to prevent footloose capital and employers from
deserting them for the South.
Similarly, writers in the field of international political economy, believing that
the modern multinational corporation’s ability to transfer capital is unfettered,
argue that such firms have the upper hand in the negotiations with, mainly,
nationally-based trade unions (Breitenfellner, 1999). Moreover, multinational
corporations, especially those that promise employment growth or export
revenue, have considerable bargaining strength over governments of developing
and developed countries, particularly when the initial investment or subsequent
reinvestment is being considered (Enderwick 1985, Wade 1988). These writers
perceive the nation state as a regulator of production relations losing its ability
to protect labour. Globalisation can, therefore, be perceived as an irresistible
force that is changing the nature of economic, political and social relations. Gallin
(1994) draws a very bleak picture: the global economy is a great leveller––but it
levels downwards. The consequences are dire: it undermines every nation’s
ability to maintain social cohesion (Greider 1997).
The method employed by MNCs to exploit their multilocational character is
to close, or at least threaten to close, plants in high wage countries like Australia
and expand production in lower wage countries. Do all multinational companies
have the option to transfer production to low wage countries? When are such
threats most plausible?
First, this paper will consider the macroeconomic data pertaining to international investment patterns. Second, the academic literature addressing multinational corporation strategy, especially that relating to locational choice and
governance structures, will be reviewed. And third, literature dealing with the
practice of industrial relations in multinational corporations will be reviewed.
Specifically, it will examine whether multinational corporations choose their
investment locations on the basis of least wage cost, whether their organisational
structures allow production to be moved from one country to another in
response to union wage claims, and whether the location of multinational
decision-making assists them in operating global industrial relations strategies.
It concludes that globalisation is indeed a significant threat to workers in particular circumstances, but this is not the general case. In some circumstances,
the opportunities presented to move production to low wage countries are
considerable and an ever-present shadow over the conduct of day-to-day
industrial relations. In other circumstances, threats to shift production have
little substance.
P L A N T R E L O C AT I O N
INTERNATIONAL
25
INVESTMENT TRENDS
Using the United Nation’s definition of ‘developing country’, the United Nations
Conference on Trade and Development (UNCTAD) (2000b) has found that
foreign direct investment (FDI) to developing countries is a minority element
of total direct investment, fluctuating between 20 per cent and 40 per cent of
the world total. In the 10 years to 1997, the share of developing countries in
FDI inflow increased from 18 per cent of the total to almost 40 per cent.
However, in the following two years, the developing country share fell to
less than 25 per cent. At the same time, firms from developing countries
have increased their investment abroad, reaching eight per cent of total FDI
in 1999.
The great majority (88 per cent) of direct investment flowing out of
Australia, from both foreign and domestically-owned Australian companies,
is directed to the United States and United Kingdom, both of which have
significantly higher wages than Australia (Australian Bureau of Statistics
2000). The next most popular destination is New Zealand (eight per cent).
Only a small share of Australian outward FDI goes to low wage countries.
This pattern is consistent with the bulk of advanced countries’ investment,
which is with each other (UNCTAD, 2000b). In 1999, developed countries
attracted nearly three-quarters of the world’s total FDI and this investment
continues to grow faster than FDI to developing countries (UNCTAD,
2000). Consequently, foreign direct investment per worker is far higher
in the developed world than in developing countries (UNCTAD 1998
& 2000).
In summary, investment trends indicate that multinational corporations are
establishing production bases in low wage countries but this trend is overshadowed
by investment in high wage countries. The next section will examine the factors
that explain the locational choice of multinational corporations.
LOCATIONAL
CHOICE FOR
MNCS
The international business literature has identified various factors as influencing
the locational choices of MNCs. First, an abundant supply of factors of production, natural or human, has been found to be important in attracting firms
to invest in particular countries if their production process is dependent on such
inputs (Dunning 1993). The mobility of this type of investment has increased
as trade barriers have been reduced through the efforts of the World Trade
Organisation and efficiencies in transport and communication have taken
place. Multinational corporations are more able to shift production away
from countries that have lost their comparative advantage. The shift of footwear,
clothing and textile companies from Australia to Asia over the last 25 years is
an example of such mobility (Industry Commission 1997). The decline in tariffs
and removal of quotas in these industries allow the Australian market to be served
from a lower wage cost location. However, if cheap labour alone were sufficient
to attract FDI, most of this type would be concentrated in countries with
abundant labour, which is not the case (UNCTAD 2000b).
26
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
Although low wages are a factor in explaining the location choices of labour
intensive MNCs, increases in relative wages have not been found to always be a
clear deterrent of FDI. Some studies have reported that higher wages reflect
a more productive workforce and, as such, are associated with increased
inward foreign investment (Beeson & Husted 1989). Some studies report
the reverse effect, supporting the cost minimisation theory (Billington 1999).
Others have found no relationship between the cost of labour and inward
investment at all (Hill & Monday 1994; see Dunning 1993 for a summary of
this research).
Although cost and resource availability are important for many investments,
studies of aggregate FDI show consistently that the more significant determinant
of location is demand, as reflected in the size and growth potential of markets
(Calof & Beamish 1995, Dunning 1993, Edwards and Buckley 1997). The
majority of multinational corporations locate their production facilities in or
near their major markets. Services industries, which receive the bulk of world
foreign direct investment, must in large part be located near their customers
(UNCTAD 1998). Recent innovations, such as data entry and call centres, have
given only limited scope to vary this rule.
Manufacturing companies, especially those producing products with high
weight to value ratios or that have limited shelf-lives, also tend to locate production in their target market (Buckley & Casson 1976, Edwards & Buckley 1997).
Local providers may be seen as more reliable, effective and responsive sources
of supply (Dunning 1993, Kwon & Hu 1995, Porter 1990). Studies of consumer
behaviour show that, in certain circumstances, consumers prefer to purchase goods
that are manufactured in their home country for patriotic reasons (Daser
and Meric 1987). ‘Buy local’ campaigns may enhance this effect (Olsen et al.
1993).
Even when a multinational need not establish production within the target
market, it may be constrained in the choice of location of production by
consumer perceptions or image of particular countries. Image can influence
consumer preferences through their perceptions of the country of brand, design,
assembly, production or ownership (Papadopolous & Heslop 1993). For example,
Japanese cars are perceived as more reliable, whereas American cars are perceived
as more spacious and safer in the event of a collision (Kim and Chung 1997). A
country may be perceived as proficient in some domains but not others, e.g.
Russian caviar versus Russian cars (Johanson et al. 1994, Kaynak & Cavusgil 1983).
Developing countries in particular have a poor image among consumers of
manufactured goods. Khachaturian and Morganosky (1990) concluded that
‘associating a brand with less-industrialised countries could potentially lower the
quality image of that brand’. Moreover, ‘the less-industrialised the country
of origin, the more the potential decline in quality image’. In the interest of
securing sales, multinational corporations may avoid production sites that have
a poor image for their particular product in their primary markets, even where
such locations offer low wages.
Research into the relatively small amount of Australian FDI flowing to
Asia shows that market size as well as low wages attracted the investment. For
P L A N T R E L O C AT I O N
27
example, Fittock and Edwards (1998) found that the size and growth potential
of the Chinese market were the major factors explaining Australian FDI in
China. Similarly, Edwards and Muthaly (1999) found the primary objective
of Australian foreign direct investment in Thailand was to access local and
neighbouring markets, with low wages being a secondary attraction.
In summary, survey and econometric studies of firm behaviour point to demand
factors being more important than supply factors (including relative wage costs)
in explaining the locational decisions of multinational corporations. When considering aggregate foreign direct investment, low wages are important but not
the primary factor explaining the location of production.
MNC
STRATEGY AND STRUCTURE
Are multinational corporations free to move production from one country to
another in order to secure a negotiating advantage over trade unions? This
depends in part on the global structure of the firm. The number of production
sites is crucial for the issue of relative bargaining power. Assuming trade unions
exist, the firm is highly vulnerable to industrial action if production is centred at
one site. World sales can be held up by a single dispute. On the other hand, if
production takes place at a number of locations, the company can potentially
replace output from a plant that is disrupted by an industrial dispute with
output from other plants. However, such potential is limited. Strategies for
retaining surplus capacity or permanent stocks to be called upon in the event of
industrial unrest are costly and place the firm at a cost disadvantage relative to
others that avoid such strategies (Van Liemt 1992). ‘Just-in-time’ stock handling
systems and the avoidance of surplus stocks to improve profit-to-asset ratios
highlight the cost of such a strategy (Breitenfellner 1999).
Even where MNCs have surplus stocks or production capacity, they may not
have the opportunity to use these to counteract the union. Many, for example,
have joint venture partners, especially in parts of the world that have markedly
different business contexts to those with which they are familiar (Davidson 1982).
Dual ownership means that these subsidiaries need to be relatively autonomous.
Disputes are likely to arise between joint venture partners if one is expected to
help break a strike in a company in which they have no interest. Keeping in mind
that US and European MNCs are more likely to have joint venture partners in
Asia than elsewhere (Davidson 1982), the real potential to use these subsidiaries
to replace production lost during strikes, say in Australia, may be limited to firms
that have not taken the joint venture path.
In addition to the constraints to short-term flexibility in the location of
production facing single production site MNCs and those in joint ventures,
organisational structure may limit a company’s ability to move production around
the world to neutralise trade union activity. The global operations of multinationals have been found to fall into two broad categories, described as ‘regionally’ and ‘vertically’ integrated (Stopford and Wells 1972). The former involves
dividing the company into regional divisions, each supplying their ‘territory’
somewhat independently of the others. This arrangement offers some potential
for a plant in one region to divert output to another region in the event that
28
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
industrial unrest there disrupts production. A vertically integrated, or worldwide
production arrangement, divides the value-adding process and locates each
element in a different setting, possibly selected on the basis of least cost.
Potentially, each component or sub-component of the product might be produced in a different country with a view to cost minimisation. For example,
General Motors produces engines for assembly in European models at its
Fishermen’s Bend plant in Melbourne. Where international operations are
vertically integrated, there is no potential to transfer output as each plant
undertakes different activities. In these circumstances, the MNC’s bargaining
position is weak. Industrial action at any one plant can disrupt the flow of
intra-firm trade. For example, if overtime is stopped in a plant producing
gearboxes, the completion of cars worldwide may be impossible (Enderwick
1984).
Which of these two types of organisational structure is more common?
There is evidence to suggest that multinationals are progressively replacing
regionally-based structures with vertical structures (Birkinshaw 1996). Regional
structures are perceived as the higher cost option, there being duplication of
activity.
In sum, multinational corporations that pursue vertically integrated global
production systems, apply just-in-time inventory management, operate as
near as possible to full capacity, or have joint venture partners, will have little
opportunity to move production from one country to another in response to a
rise in relative wages. Indeed, companies that follow a vertically integrated
strategy will be highly vulnerable to strike activity as global production may
be held up by industrial action at any site. On the other hand, multinational
corporations that have wholly-owned, multiple production sites capable of
producing identical products, and spare production capacity, will have the opportunity to resist wage increases by calling on other sites to replace lost production
during strikes.
REGIONALISATION
The creation or extension of regional trade blocs gives companies fresh opportunities to review their cost structures. Firms with multiple production sites across
an emerging ‘single market’ have been observed to develop pan-regional strategies, involving a rationalisation of sites with a consequent loss of employment in
the sites to be closed (Cantwell 1992). The growth of US investment on the
Mexican side of the Mexico–US border, following the creation of the North
American Free Trade Area (NAFTA), is a good example of rationalisation in the
wake of a regional trade agreement. Destler and Balint (1999) report a widespread
perception among US workers that the North America Free Trade Agreement
has undercut their bargaining power vis-à-vis employers, reinforced by the use
of the ‘move to Mexico’ threat in labour negotiations. The outcome, many believe,
is a change in the composition of employment in America, shifting it toward
‘lower-paying services industries’.
P L A N T R E L O C AT I O N
29
Even if firms do not rationalise production sites, these circumstances offer them
the opportunity to extract concessions from trade unions as they can threaten
to do so (Bean 1994, Liebhaberg 1980, Marginson et al. 1995). Motor manufacturer Ford, for example, threatened British unions with a plan to move
manufacturing to continental Europe unless British workers abandoned work rules
and showed restraint in negotiating wage increases and conducting strikes
(Enderwick 1985, Hill 1997). Ford, however, continued production in the
UK. In another case, management at Hyster Ltd (a Scottish firm) told
employees in Scotland that the company was prepared to move production
lines from the Netherlands to Scotland and expand its Scottish operations if
employees there decided within 48 hours to take a 14 per cent pay cut (Newman
1981).
Regionalisation, facilitated by the free trade agreement between Australia and
New Zealand, has led several multinational corporations to rationalise production
with a consequent loss of jobs in Australia. In 2000, the food giant Heinz closed
its Dandenong (Melbourne) plant in favour of Echuca (NSW) and New Zealand.
In 2001, Nestlé closed its plant at Maryborough (Victoria), transferring
production to New Zealand. There is likely to be more rationalisation of
manufacturing as companies review the cost saving opportunities that flow
from the free trade agreement. Plants will close in both countries. However,
such rationalisation is not the sole prerogative of multinational corporations. In
1998, Telstra closed a Hobart (Tasmania) facility, transferring the work to
Melbourne and, in 1999, GWA International closed its Melbourne plant
making Dorf brand taps, in favour of a larger, lower cost plant in Adelaide
(South Australia).
Regionalisation promotes rationalisation. However, firms that must locate near
their customers or have a comparative advantage in one country or the other,
will have no such option. In these cases, threats to ‘move to New Zealand’ or ‘to
Asia’ may well overshadow negotiations, but there will be little real potential for
them to be carried out.
THE
LOCUS OF
MNC
STRATEGY
Moving production from one site to another in pursuit of lower labour costs
requires that a company operate a centralised management system. There are a
range of opposing views on the determinants of MNC structure and, by implication, the factors that determine whether centralised decision-making is
possible. Stopford and Well’s (1972) research into the organisational arrangements of MNCs found that companies tend to commence their internationalisation by establishing semi-autonomous subsidiaries. This ‘multi-domestic’ stage
of internationalisation offers little scope to conduct a global industrial relations
policy as subsidiaries are left sufficiently autonomous of the parent to respond
to local market conditions. They may have no administrative capacity to
coordinate a global response to a union in one location. Following this stage,
firms commonly create a separate division within the parent company that seeks
30
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
to coordinate subsidiary activities. This arrangement offers scope for conducting global industrial relations policy but tends to be short-lived, firms replacing
it with either a regionally or a vertically integrated structure, as described
earlier. Of these two structures, the latter offers the most opportunity to
manage industrial relations on a global basis. Great authority is vested in global
managers of particular product lines. Centralised decision-making of this sort
lends itself to a global industrial relations policy. However, unless the company
also applies the relatively high cost strategy of duplicating production sites, it
will have no special strength in industrial negotiations. Regional divisions, on
the other hand, offer greater scope for strike breaking actions but the absence
of spare stocks or capacity will restrict such strategies, at least in the short run.
Hence, neither of Stopford and Well’s two global structures gives the MNC
unfettered capacity to conduct the style of industrial relations where unions in
different countries are pitted against each other by all-powerful multinational
corporations.
A range of writers in a tradition described as the ‘internationalisation process’
school have criticised Stopford and Wells as too architectural and deterministic
in their portrayal of MNC structure. Rather than a uniform approach to all
management issues, they argue that MNCs adopt a more fluid approach,
centralising or decentralising different types of decision-making, depending on
the circumstances. This interpretation allows industrial relations to be conducted
centrally, even if other areas of management are decentralised. However, research
has revealed that, although some elements of strategy are centralised, such as
research and development, industrial relations, while adopting some central
policies, are usually left to local management to implement (Bray and Lansbury
2000, Lucio and Weston 1994). MNCs are subject to the law of their host
countries and have to manage their business within the local framework of
regulations and employment practice. Since labour relations vary greatly
from country to country, MNCs find that the strategy they use in one
country is sometimes irrelevant or of limited value in another (Bamber and
Lansbury 1998). Thus, MNC decisions on many labour-related matters tend to
be left to the personnel managers of the individual affiliates (Rosenzweig and
Nohria 1994).
Rodwell and Teo’s (1999) study of MNCs in Australia also found that human
resource management is better described as localised than conforming to a
common, global corporate strategy. Subsidiaries tend to balance their strategic
human resource management issues by following host country norms but
adapting the style in which those practices are carried out to parent country
norms. That is, subsidiaries may officially adopt a headquarters approved
policy for say, employee motivation, and use the corporate jargon, giving
the appearance of global uniformity within the MNC, while, in practice, it
interprets and implements the policy in a manner that reflects the local
environment.
Zhao (1998) argues that, in a vertically integrated MNC, the negotiated wage
is higher if the trade union negotiates with headquarters than if the union negoti-
P L A N T R E L O C AT I O N
31
ates with the subsidiary. This is because the company can use transfer pricing to
influence the labour-management negotiations in subsidiaries. Zhao concludes
that unions would be wise to negotiate with headquarters while MNCs are
advantaged if unions negotiate with subsidiary management. This is because
lower prices and hence, lower subsidiary profits have a downward effect on wages
if the subsidiary is negotiating.
Similarly, Mueller and Purcell (1991) argue that MNCs are likely to favour
decentralised bargaining in order to play unions in one country against those
in another. Local union officials are likely to be more responsive to threats
of closure of their workplaces than national or regional union authorities
and will, therefore, concede to such threats sooner. A centralised bargaining
structure also enhances a union’s ability to exploit the employer’s product
market power. Hence, rather than strengthening the multinational’s hand,
centralised industrial relations management may advantage local trade unions.
Marginson et al. (1995) argue that, even where the conduct of day-to-day
industrial relations is left to local management, MNCs assert their power by
applying a common framework for subsidiary management. The collection and
processing of performance data across sites give international management the
potential to compare labour performance, and reward and punish individual sites
through decisions on the location of capital investments and the rationalisation
of productive capacity in the form of plant closure or run-down. Such coercive
comparisons, and their actual or threatened consequences, can be employed to
extract concessions from local workforces and secure the implementation of best
practice. However, they have little meaning or impact in vertically integrated
multinational corporations where each plant operates in a separate part of the
value chain.
In summary, the global management of industrial relations has been found to
disadvantage MNCs by enhancing trade union power. Differences in the context of industrial relations in each country and a desire to have management and
unions focus on the profitability of their subsidiary, encourage decentralisation
of human resource management, including industrial relations. MNC power is
limited to setting budgets and comparing cost and productivity data across plants;
strategies that are most relevant in regionally structured MNCs with duplicate
facilities in different countries.
CONCLUSION
Commentators on globalisation emphasise that improvement in communication
and transportation, and reduced barriers to trade and capital flows have led multinational corporations to develop strategies that exploit the greater flexibility that
such conditions offer. MNCs can locate production in least cost locations, to the
disadvantage of workers and their unions in higher wage countries. Certainly,
multinational corporations are subject to changes in relative costs, as are locallyowned firms. They may be more alert to such changes and more experienced in
relocating to lower cost sites. For example, they may be the first to close plants
in Australia if regionalisation or globalisation make New Zealand, Asia or else-
32
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
where, lower cost options. However, only a minority of MNCs are likely to do
so. A range of market, organisational and strategic factors limit their behaviour.
The challenge for trade unions is to know when threats to move offshore have
substance and when they do not. Further research, focusing on the actual strategies of multinationals in Australia, particularly those that have moved offshore,
will assist trade unions in identifying the pre-conditions that determine the
propensity for such movement.
REFERENCES
Australian Bureau of Statistics (2000) Australian Direct Investment Abroad Outward Stocks. Catalogue
Number 5352.0. Canberra.
Bamber G, Lansbury R (1998) International and Comparative Industrial Relations. Sydney: Allen and
Unwin.
Bean R (1994) Comparative Industrial Relations: an introduction to cross-national perspective. 2nd edn,
New York: Routledge.
Beeson P, Husted S. (1989) Patterns and determinants of productive efficiency in state manufacturing. Journal of Regional Science 29(1), 15–28.
Billington S (1999) The location of foreign direct investment: An empirical analysis. Applied
Economics 31 (1), 65–6.
Birkinshaw (1996) How multinational subsidiary mandates are gained and lost. Journal of
International Business Studies 26 (4), 729–54.
Bray M, Lansbury R (2000) The conditions for convergence: multinationals, product
markets, production systems and employment relations. Journal of Industrial Relations
42(2), 295–313.
Breitenfellner A (1999) Global unionism: A potential player. International Labour Review. 136(4),
531–55
Buckley PJ, Casson M (1976) The Future of the Multinational Enterprise. London: Macmillan.
Buckley and Enderwick (1983) Comparative pay levels in domestically-owned and foreign-owned
plants in UK manufacturing – Evidence from the 1980 Workplace Industrial Relations
survey. British Journal of Industrial Relations 21 (3), 395–400.
Calof JL, Beamish PW (1995) Adapting to foreign markets: explaining internationalisation.
International Business Review 4, 115–31.
Cantwell J (1992) The Effects of integration on the structure of multinational corporation
activity in the EC. In: Klein MW, Welfens PJ, eds, Multinationals in the New Europe and Global
Trade. Berlin: Springer-Verlag.
Daser S, Meric HJ (1987) Does patriotism have any market value: exploratory findings for the
‘Crafted with Pride in the USA’ campaign. In: Wallendorf M, Anderson P, eds, Advances in
Consumer Research, Provo, Utah: Association for Consumer Research.
Davidson W (1982) Global Strategic Management. New York: Wiley and Sons.
Destler I, Balint P (1999) The New Politics of American Trade: Trade, Labour and the Environment.
Washington: Institute for International Economics.
Dunning J (1993) Multinational Enterprises and the Global Economy. Wokingham: Addison-Wesley.
Edwards R, Muthaly S (1999) Perceptions of risk and opportunity: Why some Australian firms
have invested in Thailand. Journal of Asian Business 15(2) 79–84.
Edwards RW and Buckley PJ (1997) European integration: Strategic consequences for Australian
multinationals. International Journal of Business Studies 5(2) 22–32.
Enderwick P (1984) The labour utilization practices of multinationals and obstacles to multinational
collective bargaining. The Journal of Industrial Relations 26, 345–64.
Enderwick P (1985) Multinational Business and Labour. Sydney: Croom Helm.
Fittock S, Edwards R (1998) The determinants of Australian direct investment in China. Journal
of Asian Business 14(3), 41–52.
Frenkel S (1993) Workplace Relations in the Global Corporation: A Comparative Analysis of Subsidiaries
in Malaysia and Taiwan. Centre for Corporate Change, Paper No. 039. Sydney: University of
New South Wales.
P L A N T R E L O C AT I O N
33
Gallin D (1994) Address to the Global Labour Summit. 31 May – 1 June, Copenhagen: Global Labour
Institute.
Greider W (1997) One world ready or not: The manic logic of global capitalism. New York: Simon and
Schuster.
Hill C (1997) International Business: Competing in the Global Market Place. Chicago: Irwin.
Hill S, Monday M (1994) The regional distribution of foreign manufacturing investment in the
UK. In: Christodoulou P, ed, Inward Investment: An Overview and Guide to the Literature, London:
The Bristish Library.
Industry Commission (1997) The Textiles, Clothing and Footwear Industries, Report Number 59,
Melbourne.
Johanson JK, Ronkainan IA, Czinkota MR (1994) negative country of origin effects: The case of
the new Russia. Journal of International Business Studies 1, 157–76.
Kaynak E, Cavusgil ST (1983) consumer attitudes toward products of foreign origin: Do they vary
across product classes? International Journal of Advertising 2, 147–57.
Khachaturian J, Morganosky M (1990) Quality perceptions by country of origin. International
Journal of Retail and Distribution Management 18(5), 21–30.
Kim CH and Chung JY (1997) Brand popularity, country image and market share: An empirical
study. Journal of International Business Studies 2, 361–86.
Kwon YC, Hu MY (1995) Comparative analysis of export-oriented and foreign productionoriented firms’ foreign market entry decisions. Management International Review
35, 325–36.
Liebhaberg B (1980) Industrial Relations and Multinational Corporations in Europe. Cower: ECSIM.
Lucio M, Weston S (1994) new management practices in a multinational corporation:
The restructuring of worker representation and rights. Industrial Relations Journal,
25(2) 110–21.
Marginson P, Armstrong P, Edwards PK, Purcell J (1995) Extending beyond borders: Multinational
companies and the international management of labour. The International Journal of Human
Resource Management 6(3), 702–19.
Mueller F, Purcell J (1991) The Europeanisation of manufacturing and the decentralisation of
bargaining: Multinational management strategies in the European automobile industry.
The International Journal of Human Resource Management 3(1), 15–31.
Newman B (1981) Ford threatens to move production abroad. Wall Street Journal 22 April,
pp. 3.
Olsen J, Granzin K, Biswas A (1993) influencing consumers’ selection of domestic versus imported
products: Implications for marketing based on a model of helping behaviour. Journal of Academy
of Marketing Science 21, 307–21.
Papadopolous N, Heslop LA (1993) Product-Country-Images: Impact and Role in International
Marketing. New York: Haworth Press.
Porter M (1990) The Competitive Advantage of Nations. New York: The Free Press.
Rodrik D (1997) Has Globalization Gone Too Far? Washington: Institute for International
Economics.
Rodwell J, Teo S (1999) The value of employment relations in multinationals: Finding the right
balance. International Business Review 8, 309–21.
Rosenzweig PM, Nohria N (1994) Influences on human resource management practices in
multinational corporations. Journal of International Business Studies 25(2) 229–51.
Sim AB (1977) Decentralised management of subsidiaries and their performance. Management
International Review 17(2) 45–51.
Stopford J, Wells L (1972) Managing the Multinational Enterprise. New York: Basic Books.
UNCTAD (1998) World Investment Report 1998: Trends and Determinants. New York: United
Nations.
UNCTAD (2000a) Trade and Development Report 2000: Global Economic Growth and Imbalances. New
York: United Nations.
UNCTAD (2000b) World Investment Report: Cross-Border Mergers and Acquisitions and Development,
New York: United Nations.
Van Liemt G (1992) Economic globalisation: Labour options and business strategies in high labour
cost countries. International Labour Review 131(4–5), 453–71.
34
THE JOURNAL
OF
I N D U S T R I A L R E L AT I O N S
March 2003
Wade P (1988) The Japanese of the Malaysia trade union movement. In: Southall R, ed, Trade
Unions and the New Industrialization of the Third World, London: Zed Book.
Zhao L (1998) Labour-management bargaining and transfer pricing in multinational corporations.
Canadian Journal of Economics 31(4), 815–29.