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International Labor Standards and Employment Relations in Multinational Companies

Posted on Aug 2017

The Role of International Labor Standards in Enhancing Employment Relations in Multinational Companies


 One of the greatest challenges that multinational companies face is maintaining healthy employee relations in all its operations abroad. Employee relations are concerned with efforts of a company managing relationships between employees and employer in an effective manner. According to Brewster et al. (2016), a company that maintains good employee relations provides consistent and fair treatment to its all workers leading to their commitment to work as well as being loyal to an organization. For purposes of succeeding in international business operations multinational companies, such as Nike, Coca-Cola is supposed to maintain high levels of employee relations for them to succeed. Employee relations issues include working conditions, respect for employee rights, minimum wages, fair remuneration, and others (Fossum 2014). However, the biggest challenge that multinational companies face to build strong employee relations is the fact that different countries around the world have employment laws and standards that are different (Locke 2013).  For example, in developing countries, there are weak labor standards, whereby, some companies exploit for purposes of lowering their cost of doing business, such as using child labor, which is cheap in their operations. Multinational companies have been caught up in confusion, some engaging in unethical labor practices, such as child labor as it was the case of Nestle in Ivory Coast, where it was accused of using child labor.  The major question that requires being answered is how multinational companies can maintain good employee relations in their global operations in a different jurisdiction with differing labor standards and challenges?

 International labor standards, which provides global guidelines on certain labor practices and standards that are supposed to be used by companies in dealing with employee related issues, can be a good way to which multinational companies can enhance their capabilities of maintaining good employment relations (Fichter, Sydow and Volynets 2007). The principal objective of the research, in this case, is to analyze the concept of international labor standards, especially how its concepts and practices can be used by multinational companies in improving employment relations in the global operations.

International Labor Standards (ILS)

            According to Basu et al. (2008), international labor standards can be defined as the conventions which have been agreed by global actors, leading to a number of value judgments, aimed at protecting the basic employee rights, enhancing employees' job security, as well as improving their employment terms within the international context.  The ILS has been developed through efforts of different unions from various countries under the leadership of International Labor Organization and civil societies concerned with the rights of employees. The main focus of ILS is to ensure that the rights and welfare of employees are fully protected by companies around the world. It aims at ensuring that companies implement programs that help in improving the working conditions of the employees (Basu et al. 2008).

 There are about 204 recommendations and 190 conventions that are outlined in the ILS. Around eight conventions found within the ILS are considered as the fundamental international labor standards. The fundamental standards usually address issue related to employees' freedom of association, forced labor elimination, collective bargaining right, discrimination related to employment as well as occupation, and child labor abolition. Therefore, these standards require companies to engage in practices that protect the welfare of the employees, particularly engagement in practices that amounts to the violation of the rights of the employees, such as discrimination by region and others (Harzing and Pinnington 2010). The standards ensure that around the world companies maintain the same standards while treating employees working for them in different geographical regions. Therefore, the ILSs are critical in enhancing the employee relations management within multinational companies, by ensuring that appropriate labor practices are embraced.

System Theory

            To understand the how international labor standards can be applied by multinational companies in improving their employees' relations, it is critical to look at system theory. The system theory usually argues that employee relations are best described as sub-systems of the greater social system. Harzing and Pinnington (2010) indicates that the system theory of employees relations hold that work in an organization is guided by a range of informal and formal regulations and rules, which cover all aspects of employee relations, such as recruitment, wages, hours, performance and holidays. The system theory indicates that industry actor’s basis their policies and practices on matters to do with work on existing regulations and laws within their jurisdiction of operation.

            The system theory indicates that the industrial relations system is made up of four key elements. The first element is the industrial actors, who are the employers as well as their respective representatives, employee and their union representatives, as well as external agencies dealing with employee relations issues in a nation. The environmental context is the second element, which constitutes of the existing technological, economic and wider society distribution power which limits the actions of the industry actors when dealing with matters related to employees’ relations (Harzing and Pinnington 2010).  The fourth element is the web of rules, which as the regulations used to govern employees relation in industry. The last concept is the binding ideology, which constitutes of the common understandings and beliefs that facilitate the actors to compromise certain issues for purposes of encouraging the industrial relation system to work effectively (Brewster et al. 2016).

            International labor standards fit well within the context of the system theory of employees' relations. The ILSs are ruled that should be followed by companies and employers globally as they deal with issues related to employees. The standards outline rights of the employees and how they are supposed to be protected by the employers. There are different actors who are supposed to implement the standards, and these are the managers and owners of multinational companies. The owners in efforts of implementing these global labor standards are influenced by economic as well as technological changes, which for instance impact on their ability to assure the workers of their job security or better payments (Basu et al. 2008).  The rules, in this case, the international labor standards are what govern the way managers and employees of multinational companies are supposed to treat employees. The last aspect is common beliefs, where in this case, the need for ensuring that the welfare of the employees is taken care of forms the basis of encouraging the employers and managers in multinational firms to implement the ILSs in all their operations as part of improving the working conditions of the individual employees.



Ways in which Multinational Companies Can Improve Employment Relations through ILS

            There are different ways in which international labor standards can be used by multinational companies in enhancing employment relations. First, the ILSs can be used by multinational companies in ensuring that the employees are not discriminated in any given way. According to Locke and Romis (2007), one of the greatest challenges that employees working within a global chain of a multinational company face is discrimination by gender, religion or race. Given that multinational companies, such as Nike usually outsource certain aspects of their operations to third parties, these third parties sometimes engage in discriminatory employment practices. Discrimination in the workplace has a negative impact on the individual worker's levels of morale and loyalty towards an organization. Consequently, employees who are discriminated against by multinational companies end up being less motivated in their work, leading to low productivity, which impacts on the overall organization's productivity. Therefore, use of international labor standards can help multinational companies deal with issues of discrimination, by requiring all their partners to ensure that they do not engage in discriminative labor practices if they are interested in doing business with a company in the future (Locke and Romis 2010). This means that ILSs can be used by multinational companies as basis of improving their employee relationship management, especially within their supply chain practices globally, by requiring all their suppliers to observe global labor standards on matters to do with eliminating discrimination on matters to do with occupation and employment, such discrimination of employees during promotions and others.

 Additionally, ILSs are instrumental in helping multinational companies to avoid engaging in labor practices of employee minors to work in their plants. According to Locke et al. (2007), Nike over the years has managed to use global labor standards to improve its employment practices where it has raised the minimum age of employing different categories of individuals in all its factories around the world. The practice in Nike has resulted in it avoiding hiring of minors in its factories, a practice that is discouraged by international labor laws. Hence, multinational companies can apply the same concept that has been used by Nike by ensuring that they avoid engaging in the practice of hiring minors by observing global labor standards, whereby, one of the core standards discourages employers from engaging in the practice of hiring minors (Toffel, Short and Ouellet 2015). The main reason why minors are discouraged from being used as a source of labor is that they are easily exploited by employers. Therefore, multinational companies embracing the concept of global labor standards in managing their labor relation issues will play an instrumental role in helping them eliminate practices of exploiting some group of individuals in the society who are vulnerable to their economic advantage (Thomas 2011).

            Armstrong and Taylor (2014) point out that fair remuneration of employees in all operational bases for companies operating in more than one country is a major challenge in the field of human resource management. Remuneration is one of the critical employment relation issues that can affect a company’s operations either positively or negatively. Yu (2008) argues that some multinational companies engage in remuneration practices that are not fair in their global operations, whereby, they pay better wages in some jurisdiction which are well regulated on matters to do with labor, but poorly in developing countries. For example, companies like Rebook, usually pay employees lower wages in China for the same work compared to what they pay employees in the U.K. The differences in remunerations have a negative effect on the overall productivity of individual employees within multinational companies. The application of global labor standards, which require companies to ensure that they fairly remunerate all their employees in different jurisdictions, can be applied by multination companies to enhance their remuneration policies. Implementing remuneration policies that encourage are standard across the globe without any form of discrimination can play an instrumental role in enhancing employees morale in different markets for a multinational company (Armstrong and Taylor 2014).


            In summary, the system theory indicates that labor relations work effectively within a sub-system of societal systems. The system that makes it possible for organizations to maintain good labor relations with employees is through regulations and rules. The international labor standards play a critical role in enhancing the management of employment relations within multinational. According to this paper, these standards require companies to engage in practices that protect the welfare of the employees, particularly engagement in practices that amounts to the violation of the rights of the employees, such as discrimination by region and others (Harzing and Pinnington 2010).  The ILSs can be used by multinational companies in ensuring that the employees are not discriminated in any given way and also deals with issues associated with child labor and remuneration. In conclusion, it is evident that use of global labor standards enhances the practice of good employment relations within multinational companies around the globe.