Chinese multinational corporations’ responses to host country trade unions: An eclectic approach

Abstract

This paper explores Chinese multinational corporations’ responses to trade unions in host countries. Using an in-depth case study analysis of the policies on union representation and union–management relations in six Chinese multinational corporations, this paper demonstrates that Chinese multinational corporations’ responses to host country unions are primarily shaped by home and host institutions, rational choices of firms, and organizational learning. It concludes that while rational choice and institutional theory, the two dominant lenses used in existing literature, are helpful in understanding the industrial relations practices in multinational corporations, they need to be supplemented with an organizational learning perspective in an analysis of industrial relation practices in multinational corporations from emerging markets.

Keywords

Emerging markets multinational corporations trade unions

Considerable attention has been paid to industrial relations (IR) issues in multinational corporations (MNCs) from developed economies (Ferner et al., 2005; Gunnigle et al., 2005; Tuselmann et al., 2008). However, research on IR in MNCs from emerging economies is scarce. The question arises whether the IR approaches and practices of these firms can be explained in terms of theories derived largely from MNCs from developed countries. International business scholars tend to conclude that the internationalization of MNCs from emerging markets takes on distinctive features (Child and Rodrigues, 2005). This raises the possibility that an examination of IR approaches and practices in firms from emerging economies may contribute to the extension of existing theories.

This paper explores Chinese MNCs’ responses to host country trade unions, focusing on identifying the major forces that appear to influence firms’ responses and assessing them against those emphasized by the mainstream theories on IR in MNCs. The choice of Chinese MNCs as a research context is underpinned by the increasing role of Chinese MNCs in international business, and the identification of their relations with host country trade unions as being one of the key problems confronting Chinese MNCs (Xi, 2007). In order to obtain the fullest possible understanding of the phenomenon being studied, in-depth case studies were undertaken in six Chinese firms, which have production facilities in developing countries. Data were collected from both the headquarters and the subsidiaries, covering firms’ approaches to union representation, management–union interaction, and rationales behind the firms’ choice of actions. Armed with rich data, this paper demonstrates that IR practices in Chinese MNCs are shaped by corporate strategic considerations and national contexts, confirming the applicability of the two dominant paradigms in the literature on IR in MNCs, specifically rational choice and insitutional theory. It also reveals the influence of organizational learning on MNCs’ IR approaches, highlighting the need for an extension of existing theorizing. This paper argues for an understanding of IR in MNCs from emerging markets within a framework that supplements existing dominant paradigms with an organizational learning perspective.

The major contributions of the paper are threefold. Firstly, this paper develops a theoretical framework that incorporates an organizational learning perspective into existing theories on IR in MNCs. While recognizing that the mainstream perspectives, primarily rational choice and institutional theory, are instrumental in understanding IR in MNCs, this paper identifies that organizational learning also informs MNCs’ IR approaches and practices, particularly in the case of MNCs from emerging economies. This paper distinguishes from previous studies in that it draws together rational choice, institutional theory, and an organizational learning perspective in an analysis of IR in MNCs. It addresses a common problem existing in the international management literature, namely that institutional theory and organizational learning perspective often do not coexist or engage with each other in empirical studies. Secondly, this paper redresses a shortcoming in the IR literature, this being the paucity of research on IR practices in MNCs from emerging economies. Finally, this research addresses the practical concerns of the stakeholders of Chinese MNCs over their IR practices in host countries. Despite an increasing academic interest in Chinese MNCs and the magnitude of the overseas labor relations problems confronting them, little systematic research has been undertaken to analyze Chinese employers’ responses to host country trade unions. This has resulted in the situation where rapid growth of Chinese outward foreign direct investment has caught the stakeholders in Chinese MNCs unaware of the root causes of their IR problems. The findings of this paper are expected to address this need.

The paper is organized as follows. The first section summarizes the existing theoretical frameworks used in the analysis of IR approaches in MNCs and proposes a research framework for the paper. The following section explains the research method employed in this study, specifying details of the empirical study as well as providing background information on the six case companies. The third section reports the research findings, which are divided into issues relating to union recognition and union–management relations. The final section concludes the paper with a discussion of the broader implications of this research for IR management in MNCs and future research.

Literature review

Rational choice paradigm

The IR of MNCs from developed economies, in particular their union policies and practices, has received considerable attention over the last three decades (see Buckly and Enderwick, 1985; Ferner et al., 2005; Gunnigle et al., 2005; Hamill, 1983; Turner et al., 2002; Tuselmann et al., 2008). Research has progressed from describing to theorizing MNCs’ practices in this regard. A number of theoretical frameworks have been utilized to explain the configuration of IR in MNCs’ subsidiaries, and some of the components of these theories cast light on the analysis in this paper. One is rational choice theory. Three variants of this theory are noteworthy: Kochan et al.’s (1984) strategic choice theory, Schmitt and Sadowski’s (2003) rationalistic cost-minimization approach, and Cooke’s (2003) bounded rationality framework. Kochan et al. (1984) advance that business strategy shapes managers’ calculation of the best IR approach, while Schmitt and Sadowski (2003) posit that managers will calculate cost benefits when deciding whether to transfer home IR practices. Cooke (2003) has applied bounded rationality theory to an analysis of union practices in MNCs. He assumes that both MNCs and unions act rationally, with employers seeking profit maximization and unions seeking to optimize gains for workers. However, he believes that each actor’s optimization of gains is bounded by two conditions: their relative power and the constraints of their operating environment. Regarding union policy choice by MNCs, this theory predicts that MNCs will make a rational choice regarding whether to engage in union recognition or union avoidance, based on their evaluation of the impact of a choice on operational performance. The three perspectives discussed here converge upon one point – the configuration of IR in MNCs is partly driven by firms’ rational choices, based on their evaluation of either business strategy or cost. In addition, both Schmitt and Sadowski (2003) and Cooke (2003) touch on the constraining effect of institutional environment on MNCs’ rational choice, a focal point of an institutional approach to IR in MNCs.

Institutional theory

Institutional theory has been increasingly used by IR scholars in their analysis of IR in the subsidiaries of MNCs. A central tenet of institutional theory emphasizes the shaping effect of external institutional environment on a firm’s economic behavior (DiMaggio and Powell, 1983; Whitley, 2001). These theorists argue that historically evolving societal institutions, such as IR systems, generate nationally distinct ways of organizing economic activity. Consequently, the competencies of firms and their management behavior reflect the national institutions within which they develop their practices. In relation to MNCs, when operating overseas, they are influenced by the operating models they have developed in the home context (Whitley, 2001). Furthermore, new institutionalists contend that a subsidiary of a MNC is faced with two sets of competing institutional pressures (Rosenzweig and Singh, 1991). On the one hand, foreign subsidiaries experience pressures to adopt local practices in order to gain the legitimacy required for them to survive in host environments. On the other hand, they encounter institutional pressures from headquarters to retain home country practices. Therefore, this theory assumes that IR approaches in MNCs is essentially the outcome of the interplay between home country effect and host country effect.

The institutional approach has received considerable criticism for its inadequacy in explaining the complicated IR practices within the complex settings of MNCs. For example, Edwards and Ferner (2002) and Ferner et al. (2005) posit that institutional approach should be supplemented with a power and interests perspective. Both papers acknowledge that MNCs’ policies and behavior toward unions are the result of the complex interaction of the macro-institutional forces of home and host environments. However, they also concede that these macro-institutional forces are not deterministic. Edwards and Ferner’s (2002) ‘four influences’ framework proposes that IR practices in MNCs are the outcome of the interplay between home and host country effects, the competitive pressure for MNCs to integrate international operations that is partly contingent on the nature of industry, and a dominance effect that is connected to the relative power of host and home nations within the international economy. Similarly, but with more emphasis on an organizational level, Ferner et al. (2005) highlight that the home and host country effects are filtered through the perceptions and interests of the actors in MNCs.

Organizational learning: A possible supplement

Although scholars are increasingly aware of the inadequacy of rational choice perspective and institutional theory in explaining IR configurations in MNCs, and have attempted to incorporate factors such as politics and power within MNCs and industry sector in their frameworks, little attention has been paid to the possible impact of organizational learning on IR configurations in MNCs. However, there are many reasons, as well as substantial evidence, to support the argument that MNCs learn from their own successes and mistakes, and those of their competitors in their effort to build up competitive advantage and to survive (Kogut and Zander, 1993). Internationalization of MNCs is found to be an unremitting effort through which firms accumulate knowledge over time, taking advantage of various learning opportunities (Khavul et al., 2007). This accumulation process arguably contributes to the evolving nature of MNCs’ practices, as evidenced in Björkman (2004). Therefore, MNCs’ learning, including both inter- and intraorganizational knowledge acquisition and transfer, can be expected to influence their management practices. This is especially so for latecomers, such as Chinese MNCs. This is because their determination and capability for organizational learning is one of their most important competitive advantages (Child and Rodrigues, 2005). According to Mathews (2006), it is through the learning built from repeated applications of linkage and leverage that the cohort of MNCs creates their competitive strengths, and are able to catch up in international competition. It is this process of building that explains their rapid appearance and accelerated internationalization.

An organizational learning perspective can be a viable supplement to rational choice theory and institutional theory in explaining IR behavior of MNCs. Although the latter two perspectives are valuable in explaining IR configuration, they are susceptible to the charge of holding a static view and ignoring the dynamic nature of a MNC’s practices. Institutional theory tends to predict that IR practices in MNCs are the outcome of either transferring home practices or adopting local practices. Although rational choice theory has the potential for predicting that MNCs may rationally choose a most efficient practice that is beyond a home or host model, it falls short in casting light on how MNCs can successfully do so. This, however, is not an issue with international business scholars who are interested in understanding MNCs’ adoption of innovative practice through learning (Kogut and Zander, 1993), and who hold that learning is essential for firms to obtain and sustain competitive advantages (Foss and Pedersen, 2004; Mathews, 2006). Therefore, this paper suggests that supplementing the conventional IR paradigms of rational choice and institutional theory with an organizational learning perspective has the potential to provide a potent explanation of IR behavior of MNCs from emerging markets. To explore this possibility, this research asks the question: How do Chinese firms respond to host trade unions, and why do they respond in that way?

Research method

This research adopted a qualitative case study research design as it allows rich data to be tapped from multiple sources, and provides the opportunity for an in-depth investigation and a holistic understanding of the phenomena under study (Tharenou et al., 2007; Yin, 2009). A multiple case study method was employed as it has the ability to generate more compelling evidence, and is more likely to produce robust results than a single-case study (Miles and Huberman, 1994; Yin, 2009). In addition, it allows the researcher to suggest explanations for possible patterns, trends, or linkages and to achieve theoretical replication through the comparison of similarities and differences across cases and replicating pattern matching (Yin, 2009). Six case firms were chosen for this study as four to eight cases are a good number for case study research (Eisenhardt, 1989) and this study seeks to achieve analytical generalization rather than statistical generalization (Yin, 2009).

The cases included in this study were selected primarily based on accessibility (whether a firm agrees to participate in this study) and eligibility (whether it has at least one overseas operation undertaking production activities in a developing country) (Yin, 2009). The threshold of having production overseas was set as firms satisfying this criterion are substantially embedded in the host environment and likely to deal with local trade unions. Therefore, they have good potential in providing rich data for this study. The backgrounds of the six cases are as follows:

Caseco1

A large state-owned alumina producer, started internationalization in the late 2000s, with around 107,831 employees worldwide, 0.95 per cent of them outside China. One mining operation in Peru employs around 1000 people (still at the preparatory stage at the time of interview).

Caseco2

A state-owned enterprise specializing in mining, processing and trading non-ferrous metals, with 3000 overseas employees and 25,000 employees worldwide. Mining operations in Zambia, Inner Mongolia and Thailand were established in the 2000s, while a Myanmar operation is under construction.

Caseco3

A state-owned steel manufacturer established in the 1910s, employing around 2000 overseas employees, mostly in its Peruvian mining operation, out of a global total of around 80,000. Its first mining operation in Peru (also the only overseas production facility) was acquired in the early 1990s.

Caseco4

A state-owned automotive manufacturer, participating in the oldest Sino-foreign car making joint venture, it has 150,000 employees worldwide and around 8000 (5.3%) of them working in its Korean and UK subsidiaries. It acquired its first overseas operation, a Korean automobile manufactory, and a second one in the UK around the mid-2000s.

Caseco5

A privately-owned consumer electronics manufacturer, with around 2000 overseas employees from a worldwide total of just under 46,000; established their first overseas factory in Vietnam in the 1990s and acquired two European multinational corporations, a German manufacturer and a French manufacturer, in the early 2000s.

Caseco6

A state-owned fishery, with 550 overseas employees out of a global total of 18,000; it started overseas operations in the 1990s and currently invests in three countries: Argentina, Morocco and Mauritania.

The field studies were primarily conducted at the headquarters of the case companies in China from 2009 to 2011. Multiple data collection methods were employed, including interviews with managers and documents collected from secondary sources such as organizational reports, documents provided by the case firms and media publications. The field study involved managers at the headquarters and overseas subsidiaries and, whenever possible, from a range of functional departments, such as finance, human resources, and strategic planning. By doing so, this study was able to triangulate data collected from different participants within each case firm, and use the documentary data to validate data obtained from the interviews, thereby strengthening the validity of findings concerning each individual case firm. In total, 39 interviews were conducted with managers from the six case firms; 16 of these were with headquarters managers and the rest primarily with expatriates responsible for the HR–IR issues in the overseas operations.

The interviews were semi-structured. For each case firm, a set of questions were covered, including company background, union presence in overseas operations, policies and practices toward host country trade unions and rationales for the choice of decisions, the climate of union–management relations, the incidences of industrial disputes and their causes, and interviewees’ perceptions of overseas trade unions. Interviews were recorded digitally and the interviewer (the author of this paper) also took notes during each interview. The interviews were transcribed and translated into English by the author, who is an accredited Chinese–English translator.

Data collected were manually coded. Chunks of text in the transcripts and documents were marked in pencil, with a code being noted down in the left-hand margin beside the segment (Miles and Huberman, 1994). Codes were employed for matters such as union recognition–avoidance, reasons for union recognition, issues that involved unions, union management practices, industrial disputes and their causes, and manager’s views of overseas IR. The sections of text were then categorized by theme and collated in the process of aggregating data to the company level. Following this, a descriptive case study for each company was constructed. The case summary for each participating firm was then sent back to the firm for their records and to check for accuracy. The data analysis concluded with a cross-case synthesis (Yin, 2009). The systematic analysis and comparison of data enabled the researcher to identify similarities and differences across cases and verify patterns. The findings are presented in the next section, according to themes emerging from the data, and are illustrated with typical examples drawn from individual cases.

Findings

The findings from the case studies are reported in two sections. The first part examines the evidence relating to case firms’ union recognition practices. The second assesses union management relations in the case firms.

Trade union recognition and avoidance

A dominant pattern across the six case firms is union recognition rather than avoidance. However, the rationales behind case firms’ choice of collective representation vary, pointing to the prominence of national contexts, managers’ rational choices, and organizational learning in influencing firms’ union representation policies.

A strong theme emerging from the data is that union representation policies in the case firms were primarily shaped by host country institutional contexts. More specifically, the incidence of union recognition across the case firms correlates with the militancy of local unions, the level of local regulation and, in the case of brownfield establishments, previous union recognition arrangements in the subsidiaries. In general, the case firms formally recognized or intended to recognize (in the case of Caseco1) trade unions in their overseas operations where unionism was the norm and where the unions were active and powerful. For example, unionization in Caseco5’s greenfield manufacturer in Vietnam was the result of the firm’s compliance with the local regulations, while Caseco6 did not have formal union recognition arrangements in its overseas subsidiaries as they had not encountered union organization challenges. As for Caseco3, the Korean subsidiary of Caseco4, the Zambian subsidiary of Caseco2, and the German and French operations of Caseco5, the primary reason for recognizing trade unions was that unions were already present when they bought those subsidiaries.

However, within the limits set by host country institutional environment, case firms calculated appropriate strategies toward union representation based on their arbitration of strategic goals and the possibilities in the host country environment. For example, the reported reason for Casecos 2, 3, 4, and 5 not renegotiating union recognition arrangements in the acquired operations was that they prioritized the settlement of the acquisition deals and thought little of union issues. This was best captured in the following statements:

At that time, the only concern was to take their mines. (Former HR Director of Peruvian subsidiary, Caseco3)

We did not consider renegotiating the collective agreement when we purchased the Korean subsidiary. Our major purpose is to get the technology we need through acquisition and it is impossible for us to allow small issues like this to impede our acquisition deal. (Former HR Director of Korean subsidiary, Caseco4)

Management’s calculative choice was also accountable for the nonunion status in the UK subsidiary of Caseco4 and the Indian subsidiary of Caseco5. In response to the local union’s organization effort, Caseco4 instructed its acquired nonunionized UK subsidiary to embrace the strategy of ‘avoiding or delaying unionization of the establishment as much as possible under the condition of observing local laws and regulations’ (Headquarters HR Director, Caseco4). Caseco4’s determination to retain its nonunion status was grounded in its painful experiences with Korean unions, the full-hearted support of the British HR manager of the subsidiary and the knowledge that unions in the UK are weak. In the case of Caseco5’s Indian subsidiary, it managed to sustain nonunion status by employing a loophole in the local regulations. Knowing that Indian labor law only applies to blue-collar workers directly employed by firms, Caseco5 subcontracted all blue-collar workers from local labor hire companies to avoid having to confront militant local unions.

It should be noted that managers’ rational choice appeared to be bounded, not only by host context, but also by the cognitive framework that managers used to perceive reality and to select possible actions. There is evidence that the perceived high legitimacy of unionism by the case firms also contributed to the high incidence of union recognition across these firms. The interviewees had a tendency to think that unionism was supported by local laws and regulations and that they did not have much choice regarding union recognition and collective bargaining issues. The following quotation illustrates the typical view of managers interviewed across the case firms:

You cannot avoid trade unions. I would follow whatever is stipulated by the host country law. Everything should be done in accordance to laws and regulations. What issues you need to communicate with unions are also stipulated by the law. Therefore, it is not an issue that if you want to recognize then you recognize it, and if you do not want to recognize then you reject it … I am only concerned about doing things in accordance with the regulations in the host country. It is impossible to create new methods. (General Manager, Caseco6)

Most importantly, the case studies revealed that organizational learning, including both inter- and intrafirm learning, contributed to the formation of union representation policies. For example, Caseco1’s decision to recognize trade unions in its Peruvian subsidiary was the outcome of learning from one of its Chinese predecessors who had invested in Peru. With the desire to avoid mistakes made by that pioneering firm, Caseco1 adopted a localization strategy in managing its acquired Peruvian operation. It retained the whole management team employed by the previous owner and decided to recognize the unions, based on the suggestion of the local general manager. Similarly, learning from Chinese firms in India, Caseco5’s Indian subsidiary successfully avoided collective representation in its operation through using contracted workers. In the case of Caseco2 and Caseco4, learning from their own experience with their first overseas operations influenced their union representation policies in successive overseas ventures. Caseco2 reported that it intended to recognize unions in its subsidiary in Myanmar, and transfer the successful union management practices developed in its Zambian subsidiary to this new venture. As mentioned above, Caseco4’s painful experience with the unions in Korea shaped its posture toward union representation in the UK subsidiary.

Evidently, national context, the managers’ strategic choices and organizational learning form an important part of the story in understanding union representation policies in the case firms. The influence of these factors also shows up in the area of management–union interaction, although the picture here is a more dynamic and complicated one.

Union–management relations

Two major aspects of the union–management relations in the case firms were investigated: union involvement in workplace IR issues and the nature of union–management relationship. The evidence demonstrated that institutions in both host and home country shaped firms’ union management practices, but that firms’ responses to unions evolved with their accumulation of experience and with shifts of strategic focus.

The impact of host country context on management–union interaction shows up most strongly in the area of union involvement in workplace IR issues. More specifically, the extent of union involvement in workplace issues largely hinges upon local unions’ aggressiveness and power. A good example relates to the radically different experiences of Caseco4 and Caseco5 with host country unions. In Caseco4’s Korean subsidiary, the managers complained that the enterprise union interfered in nearly every aspect of business, including issues related to choice of suppliers and market development strategy. However, in the case of Caseco5’s Vietnamese subsidiary, the HR manager could not think of any case where he had consulted the enterprise union except in relation to dismissal issues, where he was required by the law to seek the union’s approval. The HR manager made the comment that ‘the union does not require us to discuss issues with them and we do not feel that we must do so’.

Two interesting cases also provide a good illustration of case firms’ compliant stance toward local unions’ bargaining rights. The first concerns the nonunionized Indian subsidiary of Caseco5. In 2005, when a local union represented two former employees to request compensation for their alleged redundancy, the firm conceded the union’s claims, although it deemed the request as unreasonable. Similarly, while Caseco6 did not formally recognize trade unions in its Argentinian subsidiary, it tried to accommodate local unions’ claims whenever it was approached by the unions on behalf of their members. A former general manager of the Argentinian subsidiary recalled: ‘Although I often felt that they [local unions] were irrational, I tried to negotiate with them in accordance with the principle of satisfying their claims with the lowest cost’.

Home country influence is most evident in the case firms’ handling of host country trade unions. In all the unionized subsidiaries, the management initially tended to develop harmonious and cooperative management–union relations. To do so, they commonly took the measures prevalent in China. For example, Caseco2’s Zambian subsidiary and Caseco5’s Vietnamese subsidiary directly deducted union dues from the payroll without obtaining employees’ consent like they did in China. Both Caseco3 and Caseco4 attempted to improve their relations with the local unions through organizing study tours to China for union representatives in their subsidiaries. In the case of Caseco3, it introduced host union representatives to the socialist ideology of ‘workers as the master’ and the all-round employee benefits schemes adopted in their headquarters. Later, Caseco3 transferred a staffing practice to its Peruvian subsidiary, using casual workers and paying them at a rate that is much lower than that of permanent staff. These practices sowed the seeds for their troubled IRs in later years (see below).

Home country influence on the firms’ handling of host country trade unions is also manifested in Caseco3 and Caseco4’s casual attitude toward collective agreements in the early years of their internationalization. Interviewees from Caseco3 revealed that their disputes with Peruvian unions mainly derived from the first collective agreement which it signed, without due diligence, under the influence of the firm’s experience in China. An HR director who worked in the Peruvian subsidiary in the early stages of its operation stated:

When we bought the mine in Peru in 1992, the implementation of collective agreements was still in its early days in China. The first batch of expatriate managers did not even know what a collective agreement was. Thus, they did not regard a collective agreement seriously. They read the agreement and thought that in principle there was no big problem. Then, they signed it …. At that time, we did not have the kind of awareness that the collective agreement was equal to a legal document and even surpassed laws and you have to be meticulous about the words in it. At home, the collective agreement is just a formality. Also, our Chinese culture emphasizes general principles and we are not very meticulous about words and details in an agreement.

In the case of Caseco4, upon the acquisition of the Korean operation, the firm had already conceived a redundancy plan in the hope of improving the operational efficiency of the acquired firm. However, to satisfy the requirements for the acquisition deal, Caseco4 signed an agreement with Korean unions, promising employment security and further investment under a condition that the business runs well. One year later, Caseco4 unilaterally made the decision to lay off over 500 workers. This led to the unions organizing large-scale strikes. During the interviews, managers from Caseco4 confessed that the firm had intentionally made terms in the agreement ambiguous (only stating principles, as Caseco3 had).

Although home and host country institutional contexts have conditioned the firms’ responses to host country trade unions, it is the strategic choices made by management and the trade unions that are crucial in understanding the outcomes of union–management relations in the case firms. All unionized operations started with reasonably good relations with the local unions, but union–management relations in these subsidiaries evolved in different ways due to the differing responses of management to unions’ claims or vice versa. In Caseco3’s Peruvian subsidiary and Caseco4’s Korean subsidiary, management–union relations became adversarial after a short period of harmonious accommodation. In the case of Caseco3, after a visit to the headquarters, the Peruvian unions demanded Caseco3 operate its Peruvian subsidiary in a socialist enterprise mode, increasing employees’ wages substantially and providing employees with benefits comparable to those offered in China. In the early years of its operation, Caseco3 conceded to the unions’ demands. However, when the business became unprofitable due to a price drop for mining products in the global market, Caseco3 decided to curb its labor costs. In addition to employing casual workers at low pay rates, the management shifted their union strategy from being acquiescent to rejecting most union claims. Consequently, in recent years, collective bargaining in the company has often been accompanied by violent strikes and invariably ended in arbitration.

In Caseco4’s Korean subsidiary, union–management relations went along a path of irreversible deterioration after the first strike (as mentioned above). Seeing that Caseco4 was adamant in executing its redundancy plan, and the global strategy of integrating R&D activities and resources between headquarters and the Korean operation, unions organized a series of strikes which later included workers from other facilities. Leveraging high patriotism in Korea, unions publically alleged that Caseco4 was stealing technology and plotting to destroy the Korean automobile industry, and demanded that Caseco4 leave Korea. Eventually, Caseco4 was forced to withdraw from Korea after suffering heavy losses due to labor unrest.

In other unionized case firms, the union–management relations were far from confrontational, and developed gradually into two major groupings. The first group includes Caseco5 and Caseco6, who described their relationships with unions as ‘workable’. Caseco5 reported that union–management relations in its Vietnam subsidiary were generally good, a situation made easy by the fact that local unions had little impact on workplace IR issues, whereas in Germany and France the only difficulty with European trade unions involved the character of redundancy packages. One explanation for this relatively harmonious relationship is that Caseco5 used European managers to deal with IR issues, being cautious about the highly regulated nature of IR in these countries and the militancy of the unions on their premises. Caseco6 reported that they tried to satisfy union demands in Argentina as the local unions could effectively stop their ocean fishing operation, which could lead to substantial costs for the firm.

Caseco2 stood out among the unionized subsidiaries. The union–management relations in its Zambian subsidiary evolved from confrontational to a very cooperative relationship. The firm initially ignored union claims and fired union activists when Chinese management found out that the local trade unions tried to limit their prerogative. However, in 2006, when a strong union entered the company, Caseco2 soon realized that defying trade unions was not a viable practice anymore. Given this situation, they sought to bribe union officials to serve the company. Caseco2 succeeded in doing so. The relationship between management and the local unions became so positive that union officials often secretly informed the management about the workers’ intention to strike so that Caseco2 could prepare for it. Moreover, some union officials even revealed to management the minimum pay increase that was acceptable, prior to collective bargaining.

As shown above, managers’ choices are constrained by host and home country’s institutional contexts and pressures from the market. However, the extent to which they constrain managers’ decisions changes with an improvement in the cognitive framework and mental models from their efforts in learning. Managers interviewed in subsidiaries who had experienced labor unrest commonly acknowledged that the major source of the difficulties in managing host unions in the early years was their unfamiliarity with local customs. However, they grow with their experience. The following statement by an HR manager from Caseco3 best captures Chinese MNCs’ experience in this regard:

At the beginning, we did not know these things. We basically knew nothing about overseas industrial relations customs. … We could only cross the river by feeling the stones and by trial and error. At the beginning, we had good will towards the unions and hoped to build up harmonious relations with them. In fact, initially I felt uneasy about confronting unions because as a Party member the concept of harmonious labour relations was deeply entrenched in my mind. However, I gradually realized that I had to change my stance, regarding the union as an opponent. Otherwise, the firm would not be able to make money … Through these years, we gradually became mature. We obtained experience and now we start to employ various strategies in response to unions. Our policies and practices towards unions are becoming more and more comprehensive.

Conclusion

This paper has investigated Chinese MNCs’ responses to host country trade unions. It has shown how Chinese firms’ policies on union representation and their interaction with local unions are shaped by a confluence of institutional forces, managers’ rational choices, and firms’ learning experience. It concludes that an extension of existing theorizing on IR in MNCs is required to understand Chinese MNCs’ responses to host country unions. Specifically, a framework that supplements mainstream international IR theories of rational choice and institutional theory with an organizational learning perspective is needed in an analysis of IR in Chinese MNCs.

Firstly, institutional theory offers much in explaining the behavior patterns of Chinese MNCs. In line with previous IR studies on MNCs from developed economies (Mueller, 1998; Turner, et al., 2002), this research found that Chinese firms conform to the IR customs and practices in host countries with strong IR institutions. Such behavior patterns are precisely what new institutionalists would predict a firm would do when facing high isomorphic pressure from their operating environment. Moreover, the notion of path dependence developed by historical institutionalists, such as Collier and Collier (1991), can also explain why most of the acquired operations of the case firms reproduced their union recognition arrangements. It also explains why the union–management relationships in Caseco3 and Caseco4 traveled along a path which was detrimental, but irreversible, after the first sour confrontations between Chinese management and the unions.

Insights advanced by institutionalists who emphasize the embeddedness of MNCs in their home country (Ferner, 1997; Whitley, 2001) are instrumental in understanding why Chinese MNCs dealt with host country unions in a Chinese way. The fact that Chinese managers tended to be compliant to unions’ recognition requests, based on their perception of the high legitimacy of the host unions, can be explained by their home institutional context, where union recognition is stipulated by law. Moreover, in the area of managing relations with host unions, there are instances of the case firms replicating practices prevalent in China. In some cases, these practices were executed even when they were incompatible with host country’s institutional environment, and consequently led to detrimental industrial conflicts. This happened because expatriate decision makers relied on assumptions, beliefs, and perceptions of how relations with unions should be managed that were developed in China. This is best captured in the statement that ‘The top managers thought in a Chinese way and did not realize the importance of IR issues’ (Headquarters HR Manager, Caseco3) and in the observation of the Deputy General Director of the HR Division of Caseco5, that ‘we cross the river by feeling the stones’. This often means that, at least in some circumstances, home practice invariably serves as the ‘first stone’, or reference point, for expatriate decision makers before they are fully immersed in the host environment and are exposed to the contrasting norms in this environment.

Therefore, in relation to the home country’s influence on the IR practices in MNCs, the cases considered in this study suggest that the managers’ lack of international management experience, and the consequent limited repertoire of strategies and practices for them to choose when making decisions, can also lead to the occurrence of a home country effect. This point has been inadequately recognized in the existing literature, which is too wedded to the view that the home country’s influence occurs primarily because of the legitimacy pressures from headquarters, or the MNCs’ desire to transfer organizational competencies developed in their home country business system (Ferner et al., 2005).

Secondly, while institutions in both home and host countries conditioned Chinese MNCs’ responses to host trade unions, there remained room for managers to maneuver. For example, it was market pressure and Caseco3’s concern over labor costs that drove the firm to shift its stance toward the Peruvian unions, from compliance to defiance. In the case of Caseco4, ultimately it was the firm’s global strategy of integrating R&D capabilities that dictated Caseco4’s uncompromising stance toward the Korean unions’ requests. Another good illustration of the influence of management’s rational choices on the configuration of IR in Chinese MNCs is that the case firms recognized and complied with the unions in host countries with strong IR institutions, but opted to be union free and defy unions’ rights in host environments with weak unionism. Moreover, Caseco1 and the European operations of Caseco5 localized their IR management, while in weakly institutionalized contexts, such as in Zambia and Vietnam, there was relatively more evidence of borrowing from home country practices in dealing with local unions. This indicates not only the isomorphic pressure from the host country’s environment but also the consequences of managers’ calculation of the potential cost associated with the adoption of a vigorous union exclusion strategy and home practices.

Thirdly, organizational learning, both interfirm learning and intrafirm learning, impacts on Chinese firms’ responses to host trade unions. As pointed out earlier, Caseco1 and Caseco5’s learning from other Chinese investors informed their responses toward the local unions. Caseco2 and Caseco4’s learning from their own experience in operating their first overseas subsidiaries shaped their policies on union representation in their subsequent overseas ventures. Through learning, managers developed their skills in dealing with trade unions, improved their cognitive frameworks, and repertoire of strategies and practices which were initially informed mainly by institutional norms, and thus were able to better exercise their agency in determining IR practices over time. The finding that organizational learning influences IR in MNCs is arguably the most important finding from this research. Literature discussing the shaping effect of national contexts and strategic choices on managerial practices in MNCs, and how these factors interact with each other, is abundant (Edwards et al., 2007; Ferner et al., 2005; Geppert et al., 2003). There are also scholars who have pointed out the need for adaptive learning by German and US MNCs (Wever, 1995). However, the influence of MNCs’ learning on their policies and practices has received little attention in a literature that focuses on MNCs from developed economies internationalizing, with strong managerial competence and interests in exploiting prior organizational competencies. The cases discussed here suggest that greater attention should be paid to the ways in which organizational learning contributes to the formation and evolution of management practices in firms starting internationalization with weak managerial competence.

An important theoretical implication of this research is that scholars who aspire to advance the relatively new field of IR in MNCs from emerging economies should be cautious about shackling themselves with the existing predominant paradigms. To be more specific, they should be wary of solely relying on a deterministic institutional lense, exaggerating the constraining effect of the institutional contexts that MNCs are embedded in, and thus fixating the analysis of MNCs’ practices on the debate around whether home country effect overrides host country effect, or vice verse. Neither should the studies on IR in MNCs overstate the effect of managers’ market-based concerns nor cost calculations on IR configuration in MNCs, as their room to maneuver is constrained by the institutional context in which they operate (Edwards et al., 2007). Rather, this research suggests that IR scholars should consider the latecomer features of MNCs from emerging economies, and draw on the theoretical advancements made in other disciplines, especially the organizational learning perspective developed in the international business literature on latecomers and their catch-up strategies, in their efforts to understand IR in MNCs from emerging economies. More broadly, it is not only worthwhile but also promising for future studies to explore IR in MNCs from emerging markets with a consideration of the distinctive features of this cohort of MNCs, and how these features influence their IR practices. The case studies also demonstrate the need for viewing MNCs as dynamic entities that can learn from external environments, and their own experience, to pragmatically respond to institutional constraints, while optimizing their operational performance. This means that when examining IR in MNCs, scholars should bear in mind the neccesity of investigating the processes within the MNCs in order to garner a more comprehensive understanding of the phenomenon under study, rather than to stop their investigation at policies and practices observed at the time of study. These cautions have wider implications for employment relations in MNCs beyond the specific issue examined in this study.

The most important practical implication of this study is the neccesity for managers in MNCs from emerging markets, in particular Chinese executives, to be mindful that their home IR models rarely provide a reliable guide to managing overseas IR issues as IR institutions are often country specific. Consequently, they should carefully evaluate the receptability of the host country’s institutional environment before they decide to transfer home IR practices. They should be prepared for a pragmatic accommodation in a host country, where the IR customs are vastly different from those in their home country, and where there may be a high level of regulation. The case studies in this research also suggests the neccesity for MNCs from emerging markets to actively learn from actors in their network, and host operational environment, to effectively address the IR challenges they face. This research has raised implications for IR stakeholders as well. There is evidence that the nonunion status of the case firms’ subsidiaries was largely attributed to the host unions’ weak organizational initiative. For unions aspiring to boost their membership base or collective strength, they may consider actively approaching new entrant MNCs, bearing in mind that these potential members may need their assistance in learning about host IR customs.

This paper has demonstrated how expanding existing paradigms by incorporating a new perspective, the organizational learning perspective, can enrich our understanding of the IR practices in MNCs. However, as the findings of this study have emerged from a relatively small sample, whether they are applicable to a broader sample of organizations or to the contexts of MNCs from other emerging markets, or to the MNCs engaging in the service industry, or Chinese MNCs investing in developed economies, can be a challenge for future research to take up.

Footnotes

Declaration of conflicting interests

The author declares that there is no conflict of interest.

Funding

This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.

Biographical note

Judith Shuqin Zhu is a lecturer in international business at Newcastle Business School, the University of Newcastle, Australia. Before she commenced her academic career, she worked for the Shanghai Municipal Human Resource and Social Security Bureau. Her PhD research is on Chinese multinational corporations’ approach to host country trade unions and employer associations: An analysis of country of origin effect. Her research interests focus on employment relations in Chinese multinational corporations and industrial relations in China. Particular interests include Chinese multinational corporations’ response to trade unions and employer associations in host countries, human resource management in Chinese multinational corporations, unionism in China and employer associations in China.

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