Free «Impact of globalization on industrial relations» Essay Sample


Globalization is vital in the drive of economic development and it concerns itself with all the actors in economy. Globalization has had a tremendous effect on the social partners and the labour relations have had to deal with new and dynamic situations. This paper will aim to shed light into the globalization impacts on industrial relations. We will also discuss how the future looks for trade unions in the European Union.

Globalization and industrial relations

Globalization became particularly popular in the 1990s and has ever since been discussed for its impact in the society. This was due to the demands that the international competition and rapid technology changes which together are the globalization forces and their resultant changes in the nature of operation of the market and product organization.  Most economists almost agree that in the long-run, globalization benefits will outweigh the short-term costs. The impact of globalization means the integration of markets and supply chains, global market development and a quick spread of technology. Some analysts claim that there is more regionalization that globalization concerning the fact that half of the world trade and that of worldwide circulation of capital takes place in the EU. The social impact concern is that liberalization of trade.



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Global integration intensified in the 1970s and the 1980s during which time the liberalization of flow of capital and deregulation of financial markets decreased the scope for national and fiscal policies. By the end of the 1980s and early 1990s a new phase of interdependence had reckoned with an increase in FDI investments primarily in capital and technology intensive. Competition intensified, this led to growth in global integration of production as more and more firms used information and technology to integrate with the economies of scale and from the geographical diversification scope. The deepening of integration has led to shifting focus of trade policy. The third phase of integration has been in the ICT sector. This involves the technological changes in the transportation sector especially with containerization. Rapid transformations in the service sectors have led to increased trade and have enabled enterprises to allocate production processes to foreign affiliates.

Another phase of global integration is now the growth of the electronic commerce otherwise known as e-commerce. The reflective shift in technology has opened a whole new world in the cyberspace eliminating boarders and opening up of new boarder markets. Thus this has deepened the integration of the global economy and intern creating a global single market. The industrial regime has been the main public policy and institution that has been under the subject of globalization. The main reasons for a global singe market are economic reasons whereby consumers will be able to buy the best products at the lowest price in the market anywhere and at any time. The gains are many and vary from the eliminated barriers and also from the dynamic efficiencies which creates new jobs as the global competition forces firms to restructure and be innovative. This will result to global business increase, the global consumers will benefit although the immobile skilled labour will be affected negatively. These alleged effects of globalization on the labour markets have led to attacks on globalization.

Companies are now required to innovate and provide the right products, right on time and with the right price. These requirements have demanded that companies and the employers have to develop and implement strategies and processes. This means that there is an increasingly strategic role for industrial relations within the organization. This is due to the fact that what has to be done entails a paradigm shift from the traditional practices. The resultant is that the nature of industrial relations is changing in many of these organizations and hence a new approach has emerged that relies on a broader concept of employment relations. The new approaches are based on a wide range of industrial relations that are directed to improving the flexibility and skills of the workers in that particular enterprise. The enterprise has to emphasize on cooperation, communication and trust among them including the workers and their representatives.

As globalization evolves to being a basic economic reality, on the recruitment front, more enterprises realize that they need skilled workers who can conform to the international standards. Most of these organizations want expatriates to motivate and keep their employees interested and retain their best while building a talented lot.

We have seen that globalization impacts directly and indirectly on IR and the European economy is a nice example to place our arguments. This stems from the fact that Europe has dealt with several globalization challenges both in the form of transfer of investments, competition, job losses, unemployment and rapid structural changes. This has seen Europe's performance change from the likes of its Asian and North American competitors, hence the challenges they are facing. But at the same time there are high expectations relating to the performance of the European economy.

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Asia and the pacific

In Asia and the pacific, a wide range of contrast is presented from the strong and variable economic performance of the advanced countries to the rapidly industrializing countries. Unlike in the past, globalization is emphasizing the importance of industrial relations to the industrialization and economic development in the region. New and complex challenges have been created as well as renewing the old tensions among social partners and governments. Also a number of strategic opportunities have as a result been borne in which the involved parties in which if parties can take advantage of them, they can improve the worker's prospects in the company.

Within these regions, there is an increase of correspondence between IR policies and those that support industrialization for economic development.  Most of the enterprises here are adapting to these changes. This is more so by globalization although other factors which are internal to each country are also effecting these changes. Due to the diverse nature of IR in the region, it is hard to predict the future course of IR. Although globalization stresses on convergence between the economic and related systems, IR here is determined by some complex range of factors unique to each country.

IR in the global context

IR is defined as the accommodation of various interests in the labour market mainly to enable regulates employment relationships. IR has a collective and pluralistic nature which is concerned with relationships between the employer and the workers, the relationship that workers and employers have with organizations that are formed to defend and promote their respective interests. IR also involves itself with the processes through which these relationships are expressed and the management of any conflict that may arise.

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The IR situation has greatly changed by the significant forces of liberalization and globalization. In many countries, there is market liberalization that has been reflected by the governments' tariff barrier reduction, facilitating and enabling the flow of capital and investments coupled by the privatization of state owned enterprises. These have been made possible by the significant growth of the world trade and foreign direct investment as well as the advancement of information technology.

Data from 1991 to 1993 shows that about two thirds of FDI inflow is mainly to advanced and industrialized countries which again are the source of about 95 percent of the outflows of such kind of investment. Major sources of FDI are multinationals based in the US, Japan, UK, France and Germany. The MNC's create complex international production networks which differentiate globalization from the simple earlier forms of international business. MCNs have used their influence as producers of global goods and services and as a network of large employers to impact on not only in the places they are located but also in far-away countries they have their networks. In addition, the MNCs have used information technology to focus on domestic and international markets.

Globalization has led to the disturbance of the status quo between the capital and labour in many of the countries. Capital is now more significantly in an open international market while international labour is but slowly continuing to migrate although immobile compared to the 1970s data. This means that capital can now employ labour in different countries at a lower cost. There is also information that globalization has a contra-indicatory impact on IR. Globalization has accelerated the economic interdependence between different countries either on an intra-regional or inter-regional basis. This encourages some similarities in approach by individual organizations in competitive markets. This has led to a slow but steady convergence in industrial relations and its arrangements in the world. This is again contrasted by resistance to this convergence by some nations based on their regional and national circumstances.

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IT and IR

The impact of information technology on IR's organization of production and work gives an example of how globalization has been supported and encouraged. This is so true in developed western nations and with Asian's emerging economies and even for the developing nations. This is a trend that has spread across the globe and is expected to spread even faster with the increasing industrialization and the globalization impact.

Due to increased competition in the local and global spheres, there is demand for better quality and specialized goods. This has led to a higher measure of volatility in product markets and a shorter product life cycle. Hence enterprises are now required to respond quickly and in a flexible way to the changes in demand.

Thus the interaction of technology between electronic technology and industrial relations has seen unprecedented changes especially to employers who are in a position to easily control a large workforce. The high-tech know-how has resulted to using of brains and mind than muscles resulting to consent and consensus than conventional principles.

Regimes of industrial relations: convergence or divergence

In the OECD countries since the mid 1980s has seen a decrease in demand for less-skilled and less-educated workers while that for the highly skilled has strengthened. The cause of this trend has generated a heated debate as for the reasons and the main explanation has been that the technological changes have had a bias toward the highly skilled and educated labour while the international factors have had a minor role in the changes. But now studies have suggested that concerning the foreign investments, delocation reports dampen the wages. This has been as a result of elasticity of demand for labour which has been apparent in the manufacturing industry but will most likely spread its services as more intra-firms are established. To be immune to this globalization effects, it has been established that the most educated and most skilled labour who are also mobile can command a high reward.

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There has also been an attribution of the differential impact of these combined forces among the OECD countries which has been another notable feature in the globalization versus the technology literature. There has been a stylized fact about globalization in the UK and the US. The rising unemployment in the UK which is attributed to European rigidity and the rising inequality in the US attributed to America's flexibility are all due to labour market characteristics. This view compared to that of Japan has been central to policy discussion on labour market reforms in the UK. The answer to convergence or divergence has been taken to be that of convergence following the American model but Ralf Dahrendorf asks trickily about this, "would you rather be poor in the US or unemployed in Europe?"

Industrial relations regime comprises of the arrangements which influences market outcomes with three characteristics; percentage of union members who are employed and their destiny, their collective bargaining pattern and the legal infrastructure that has the collective terms for the union workers. The rates of coverage are higher in Europe followed by the UK than in Japan or North America. Apart from in Japan, centralization and coordination are linked although annual bargaining is done by employer associations. Studies have tried to link whether globalization forces have forced a trend convergence among the IR regimes. While in some OECD countries (Australia, Sweden, New Zealand and the UK) centralized bargaining has considerably weakened in others (Portugal, Norway and Italy) it has strengthened. Japan and many European countries have a HRM structures that have been introduced with collaboration with trade unions although the process has been confrontational in the UK and the US. This clearly shows that in the OECD countries, they are few signs leading to convergence.

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Markets and non market systems

Recent studies have suggested that in Europe, product market barriers have been an impediment to job creation affecting the service sectors like telecommunications and financial service sectors. Another impediment to job creation stems from the unwillingness to form new laws and or lack of enough capital. These suggest that we cannot rely only on IR regimes to as the labour market determinant to produce policy guidance.

The changing nature of IR

IR is not static activity; it keeps on changing, referring to the persons, groups and the institutions which it relates with in a particular country. Employment relations on the development of global enterprises and industrialization changes require a broader perspective. Work related activities must now be covered by IR which includes the interaction between mangers and other fellow employees. This is due to the fact that some issues that relate to HRM like job design, development of skills, job security and employment flexibility have been ignored on the IR front. But now the situation is changing especially in the westernized nations.

What we are seeing now is a broader approach to IR issues that is incorporating and seeking to harmonize the two; IR and HRM. This is done by expanding on the boundaries of the two and thus IR's mandate will need to be expanded to address issues that it does not currently address. Therefore it will have a shift from only addressing collective relations and incorporate issues related to labour management.

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Globalization and IR challenges

Globalization is a complex and ambiguous concept that is often not easily understood. As the world "shrinks globally" with technological advancement and the interdependence among nations, there are several atrocities that can be detected in these globalized international relations.  Although globalization translates to a consistent growth of the world markets, its basic problem has been its selectiveness. The exclusion is then inherited in the globalization process and then the atrocities evenly distributed by misery and conflict. In the face of weak and untamed globalizing world, many states have responded through regionalizing to try and preserve economic, cultural and political identity. Regional blocks arise out of the inability by globalization to address ad hoc situations that occur throughout the world.

Trade unionism in the EU

Within a modern society like the EU, the state market labour relationship dynamics are vital to understand how its economy works with trade unions being central in the equation. Integration and globalization have deepened and complicated the nature of trade unions. By the close of the twentieth century, a time of uncertainties regarding trade union's mission beckoned. From a tough competition in the labour and product markets and the declining number of male workers in the manufacturing industries, coal-mining and in railways to an increase in the number of workers in the private sector which have led to a decline in the number of union membership in Europe. Due to the structural and economic changes, trade unions have continued to lose their members and are experiencing a daunting task of maintaining and increasing their members especially coming from the services sector. Many of the workforce is better qualified and have shown reluctance to join these trade unions. Increased services sector means that there is a growing number of smaller numbers of enterprises making it difficult to form trade unions.

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Several researchers including Macdonald and Venkata have highlighted this fact that the trade union's future in the EU is facing a declining number of membership levels. They have said that a way to increasing membership levels will involve developing social and economic partnerships in different sectors of the economy such as in the IT sector.


The paper has dealt with the globalization impact on industrial Relations. Globalization is a process by which there is increased global interconnectivity, integration and interdependence among different nations. The pace at which globalization takes place varies from country to country and we have seen that the European faces major challenges.  The review of IR and the labour markets policies do not always provide for the empirical support to the flexibility and rigidity model. We have also seen that there is no meaningful evidence of convergence in the IR regimes. We have also seen that IR regimes are integrated in broader and deeper institutional systems. Although system convergence is neither desirable nor feasible, the paper has argued that due to job creation, the system has to go beyond the labour markets. 

There are several future challenges that industrial relations face which are concerned with declining membership levels. Trade unions thus need to be innovative to keep and attract new members. Companies will also need to improve their competitiveness in the global market and liberalize employers' demands.


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