Multinational companies, particularly those which have significant capacity to choose where their activities are located, pose substantial challenges to domestic systems of employment regulation. These are sometimes seen as contributing to international convergence , but it is generally acknowledged that globalisation has not – yet – resulted in cross-national uniformity in labour management, even between economies of comparable wealth and development.
Because of this, the literature on industrial relations and human resource management in multinational corporations (MNCs) frequently discusses ‘host country effects’. This type of research deals with two slightly different concepts.
Firstly, host effects often imply ‘constraints’ on foreign multinationals acting within the economy under investigation. These might impede or prevent the transfer into particular host countries of country-of-origin, or global ‘best practice’ inspired labour management policies. This literature looks at whether and how MNCs, conform with, seek to avoid, or seek somehow to negotiate, the nature of host country constraints. It sometimes also analyses the pressures foreign multinationals place on historically-established national systems of industrial relations and labour market regulation.
Second, some researchers examine how MNCs may attempt to use institutionally embedded resources. These may include potential advantages derived from skills institutions, research and development infrastructures, or the presence of clusters of competent firms which may engage as suppliers to global firms. Such resources are often seen as the domain in which older, higher cost industrialised economies compete.
Trying to make any realistic assessment of host constraints and resources requires an understanding of the contemporary context of international business. Clearly, neo-liberal globalisation has strengthened the hand of MNCs in relation to host business and employment systems. There are of course many factors at play here, but it is worth briefly highlighting the following:
- the additional locational flexibility of FDI brought into play by single market legislation, as well as broader international trade agreements;
- in Europe in particular, the possibilities for ‘brownfield’ investment which emerged in processes of privatisation (see for example the internationalisation of ownership of the European steel sector);
- the multiple ways in which technology, often allied to product market liberalisation, has enabled markets to be serviced remotely (in Anglophone countries at least, the Indian call centre was one of the core public images of corporate globalisation in the last decade);
- the ways in which corporate financialisation, and the related ideology of the lean enterprise, have made MNCs increasingly unwilling or unable to tolerate redundancy of capacity, leading in many cases to intense competition between different geographical sites of the same MNC for investment (the auto industry is the emblematic case in point here);
- the broad transition at state level from protecting domestic industries to securing positions in international contests for mobile investment.
All these factors both enable and encourage increasing proportions of productive capital to engage in ‘regime shopping’ between the institutionally-derived constraints and resources of different national and local economies.
Regime shopping was a phrase popularised in the industrial relations literature by Wolfgang Streeck. It has been used mainly to draw attention to the ways in which some MNCs have sought to avoid labour-friendly elements of host country regulation, the consequent risks of social dumping if investment decisions are made on this basis, and thus the risks of a race to the bottom as erstwhile social democracies compete for productive investment with regimes that offer fewer protections for labour. All of this is still relevant. But regime shopping is now more endemic, and goes beyond host country industrial relations (recent controversies around the dubious tax strategies of many MNCs reinforce this point).
To extend the ‘shopping’ analogy, those firms whose investment is mobile are quasi-customers of the business and employment systems of different economies, balancing host resources and constraints within a context in which geographies are constrained to conceive of each other as rivals for investment. But not all mobile MNCs ‘shop’ in the same way. Broadly speaking, there is a continuum between, on the one hand, firms that attempt to select the most appropriate locations à la carte and then attempt to act pretty much in isolation from institutional actors in the host economy, and, on the other, firms where subsidiary managers choose to engage with host institutions in order to construct a more desirable environment for themselves through continuing relationships.
If we take the need for national and local economies to compete for mobile investment as a given, the important question is that of ‘capture’: while most can see the potential for ‘overspill’ effects from foreign direct investment boosting local productivity and creating gains for the locality/region beyond the direct employment effects of FDI, these are not automatic and require governance. Equally, there are clear dangers, that given the asymmetric power relations between foreign investors and sub-national governance actors, that local institutions will, in attempting to maximise FDI, be ‘captured’ by MNCs.
Our international research in this area , funded in the UK by the ESRC , showed a number of different approaches to the local governance of FDI. We examined two national economies with strong sub-national levels of government – Spain and Canada – in both these cases there was a marked internal contrast between a relatively coordinated approach, with attempts at institution-building (Asturias and Quebec, respectively) and a much more free-market approach (Madrid and Ontario). Ireland, something of an outlier due to its dependence on the foreign-owned export sector, has maintained a largely national, coordinated network approach to FDI. Finally, the UK, and particularly England, has moved from a Blairite experiment in nationally-driven attempts to use Regional Development Agencies to correct market failures, to a much more squarely neo-liberal approach.
It is difficult to quantify which of these approaches is the most successful. This is particularly the case if we see the goal as optimising the local benefits to FDI, which is not necessarily the same thing as maximising the amount of FDI. However, one might tentatively conclude that those governance systems that have benefitted from a degree of political consensus that the process of FDI attraction and retention require substantive governance (Asturias, Ireland, and Quebec) seem to have more chance of potentially creating positive outcomes than those where this is not the case. In particular, the institutional destruction in England, justified by the requirement for deficit-reduction, has occasioned substantial losses of institutional memory at sub-national levels, and has left a situation where even directors of some large foreign MNCs lamented institutional loss. Given current pressures at all levels of the state to cut costs, it is important not to lose sight of the need for what will remain high-cost host economies to create resources. This cannot happen in an institutional vacuum; despite talk of a “Northern Powerhouse”, the government’s recent lack of action to defend the steel sector shows little sign of any real interest in industrial policy at national or regional levels.
Finally, social actors and policy makers have to be aware that any analysis of FDI, local embeddedness and potential contributions to local economies needs to take a very granular approach. That is, it needs to ask, on a unit by unit basis, why the firm is in a particular location, whether it is doing something there that is unique and/or is local resource dependent, whether there are sister plants elsewhere in the world, and what the real degree of potential mobility of the production/service provision of particular units is. This knowledge, which trade unions often have privileged access to, is a necessary pre-condition to policymakers making sensible choices in this area
Phil Almond is Professor of Comparative Employment Relations at DMU. His research interests are in the theoretical and practical challenges of the governance of work and employment in contemporary global capitalism, with specific expertise on the social relations of multinationals.
A more detailed account of the above research can be found here. Alongside the project’s researchers, he gratefully acknowledges the support of the ESRC, a Spanish Research, Development and Innovation grant, and of CRIMT.