How Significant a Role Do Multinational Corporations (Mncs) Play in Today's Uk Economy in Terms of Their Impact on Employment Relations (Er) and Labour Conditions?

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How significant a role do multinational corporations (MNCs) play in today’s UK economy in terms of their impact on employment relations (ER) and labour conditions? This is the question the paper attempts to evaluate through drawing on academic literature and empirical evidence from the 2004 Wers survey. The first section profiles MNCs in the UK, currently dominated by US and German firms. Following this, there is a brief analysis of employment relations in the UK. The third section reviews literature from leading commentators on the subject, highlighting contrasting views and evidence of foreign IR and ER practices. The fourth section looks at key factors that influence the way labour is managed within MNCs subsidiaries. The country of origin effect, the home country effect, the global dominance effect and a global interaction effect as identified by Edwards and Ferner. This is important to assess to what extent MNCs use these factors in the management of labour. Finally, a conclusion will be drawn and a consideration whether MNCs have diffused home country employment relations practices to their UK foreign subsidiaries and if they have affected labour conditions for the UK workforce.

Introduction Foreign direct investment (FDI) as a percentage of GDP (Ferner Industrial) in the UK is the highest of any developed country in the world. Since the deregulation of the labour market in the 1980’s the UK has seen a rise in foreign owned companies. According to the WERS 2004 survey, 19 per cent of private sector workplaces with 10 or more employees had some degree of foreign ownership, an increase of 4 per cent on the 1998 survey. Similarly, a rise from 8 per cent to12 per cent of companies were predominantly foreign owned and controlled. For what reason do MNCs choose to set up subsidiaries in the UK? Could it be to take advantage of the nature of the


open and deregulated national business system and transfer home country ER practices? Margaret Thatcher and the conservative government came to power in 1979 and in favour of capital markets rather than labour markets; legislations were put in place to weaken the power of unions. The national business system has changed dramatically resulting in an institutionally weak British system. These factors have altered the employment relationship, weakening the statutory and long established support for collective representation. A small proportion of the UK workforce is now covered by collective bargaining (McDonalds) in the employment relationship, although remains the principal form of pay setting (Primarily in the public sector). Union membership has decreased from 13.2 million members at its peak in 1979 to 6.7 million in 2005 and union density1 has declined from 32 per cent in 1995 to 29 per cent in 2005. Commentators suggest that MNCs are an important source of innovative work practices, such as a specialist HRM functions. Moreover, that they are able to transfer business models from parent companies, the ‘country of origin effect’ to UK subsidiaries with relative ease. This has been described as a ‘forward diffusion’ of practices. However, evidence suggests that some MNCs, dependant on their country of origin, will adhere to the host country practices even though they conflict with the parent companies policies and practices. This will be explored in more detail further into the paper. The following section of the paper will profile MNCs in the UK.

Profile of MNCs MNCs are not homogeneous but are now heterogeneous and are spread across sectors, although are dominant in the fast food and manufacturing industries in the UK. At the


The unionised workforce expressed as a percentage of potential membership


turn of the century there were 18000 foreign subsidiaries (Contemporary Employment Relations) operating in Britain, with 5000 of these employing more than 1000 employees. They stem from the US, Europe and Asia. The US is dominant with 25 per cent of total...
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