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International Industrial Relations – Convergence and Divergence

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I. INTRODUCTION There has been a growing interest in the issue of globalization, internationalization, 'best practices' adoption and its impacts on the convergence of national employment relations system. Many scholars concludes that at the industry level, the needed changes to be more flexible and internationally competitive has led to several common patterns in term of employment relations. Meanwhile, others argue that cross-national variations such as culture, economic stage of development, institutions workers, behavioral mindset still exist and constitutes diversity within and between nations. This essay will review some of the most relevant literature, research and debates surrounding the topic as well as explore different viewpoints in order to make an insightful understanding of these processes. The paper will also compare and contrast two of three most dominant national models: Anglo-American and Japanese model (another is Rhineland-German model) as a case to reflect how convergence and divergence in term of employment relations system moving unstoppable. II. CONVERGENCE – COMING TOGETHER 1. Globalization Impact Convergence of employment relations system across national borders was predicted in the early days by many scholars. They stated that globalization and international trade may put pressure on firms to standardize practices and policies. Convergence theory was developed by American Harbison and Myers (1959) and Kerr et al. (1960). They view similar political and economic systems is the result of industrialization process and rapid growth of advanced technology. While the theory itself does not specify on industrial relations or human resource management, but its approach can be applied to gain understanding of the issue. Globalization's impacts on HRM come via the opening and penetration of economies to external forces. This is two-way process, with both indigenous firms and multinational enterprise adopt each other's HRM practice. For example, foreign direct investment (FDI) promote new HRM practice from home country to host country (home-country effect) or alliances/ mergers and acquisitions between organizations facilitate the personnel transfer/relocation, in turn lead to potential convergence. Kerr's view in the 19060s received criticism due to the over-simplification of industrial development, too much emphasis to the technology impact. Nevertheless, Kerr and other scholars like MAcDuffie (1995) argued that the forces of convergence was more likely to overwhelm national differences. 2. Best Practice Effect Convergence theorists also debate the spread of 'best practice' effect and benchmarking. What is considered 'best practice' is subjective and variable between authors, sectors and time. To simplify, we can take Gennard and Judge (1993)'s defined best practice (in employee relations) as 'managing by behaving in a fair and reasonable manner which help to add value to the business. They assumed that firm across nations would have to converge to best practice, otherwise losing the competitive advantages. From the industrial relations perspective, it means that HRM system need a more comprehensive and integrated mechanism, rather than a 'pick and mix' of few practices in order to gain their performance (Pfeffer, 1994). It is also important to notice that 'best practice' benchmarking occur in two different scales: internal or individual firm practice, for instance the use of particular technology, production system, labor division, inventory management system, etc and external or inter-firm practice, such as customers and suppliers relations, related industries collaboration or educational institution relations. Furthermore, universal-type theorists believe internationalization forces (political, socio, economic and technological/STEP) will push national system, including industrial relations and HRM towards uniformity. It is argued that all countries are influenced by these factors therefore government will provide similar responsibilities regarding to workforce, infrastructure and competition for international investment (Salamon ,1997). In short, the transfer of universal 'best practices' around the world resulting in convergence system, both at enterprise (internal and inter-firm) and national (constitutional and industry) level. 3. US - Japan Case The next part of paper will analysis, compare and contrast between two very different nations: Japan and U. S. A in term of employment relations and corporate governance model, each with its own advantages and disadvantages. This would be an example to illustrate how the convergence process varies during the time periods. Japanese companies were relatively organization-oriented, meaning that employment was of extended duration and turnover low, training was extensive; and internal considerations - equity, seniority-dominated decision making on wages and allocations. Stakeholder corporate governance and enterprise unions supported the firm 's organizations orientation, All these implies centralized HR function in Japan. On the other hand, U. S 's employment practice tended to be more market-oriented with shorter job duration and higher turnover, low training expenditures, pay and allocation based on ongoing rates and other external criteria. Corporate governance privileged shareholders, and unions were either industrial in orientation or did not exist. HR function is decentralized in U. S. In the 1980s, the flow of management was from east to west, with the idea of 'Japanization' of work organization, quality systems and industry relations. During this period, U. S economy struggled, productivity declined, inflation rose while Japan experienced one of most glorious days of economy. American realized they should learn the Japanese economy model of high levels of coordination between business and government, well-balance between stakeholders, highly trained workers as well as just-in-time method. However, in the 1990s, the flow has reversed with Japanese companies experienced pressures to adapt U. S- style corporate governance and market-oriented employment practice. U. S now enjoys macroeconomic success, generate millions of new jobs while Japan and Europe experienced slow growth and high level of unemployment. American model with flexible employment arrangements, shareholder sovereignty, decentralized companies recaptured the lead as slower-growing peers such as Japan and Europe regarding the model as the best. Generally, this two economies become more aware of each other, they compare themselves and more likely to adopt each other's practices, especially at the level of the industry in which they complete. For example, U. S investors are active in Japan, trying to persuade local executives to adopt U. S- style business practices, just as U. S policy makers have been urging the Japanese government to emulate American laws regarding trade, commerce and intellectual property. On the other hand, Japanese firms have made huge amount of investment in U. S and have considerable U. S based employees who adopt to Japanese-style practices. Over time, the U. S and Japanese firms resembled each other and this could be considered a type of convergence. However, not all ideas were borrowed. The Meiji reformers in Japan during nineteenth century picked and chose the national models that were considered 'best practice' of the day, but they favored those that fit with Japanese characteristics. For instance, French police system over the English version. As in 1980s, Japanese learn about the American superior economic system, but only those elements that 'best fit' with Japanese practice. Japanese labor law is an example of how Japanese borrow American elements but still preserve their underlying structure. . Limitation of universalistic theory Convergence theory is contradictory as criticism states that they are too simplistic, assume all organizations implement practice in the same way while in fact they only benchmark what considered 'best fit' practice elements into their system. In addition, 'best practice' would not bring competitive advantage if all other firms can imitate those practice as well. The theory also focus on the system and practices but ignore variations in national context such as institutions and culture. III. DIVERGENCE - MOVING APART While many convergence theorists support that there is 'one best practice' of HRM approaches for organizations across nations to follow in order to fit the external environment regardless of differences in technology or stability of environment, it fail to explain how these managerial ideas and practice are interpreted, implemented and respond vary at individual, firm, industrial and institutional level. 1. Culturalism Perspective One of the criticism emphasis on the remained cultural differences between economies. The popular work of Hofstede (1980;1992) can applied to explain the variation in management aspect. Culture is defined as the 'collective programming' of mind of individuals or groups which is reflected in particular assumptions, beliefs and norms held by that person or groups. Apply these perspective to employment relations area, these cultural factors was believed to be of the main important elements that shape management behavior and working practice, therefore bring about divergence. Hofstede concluded that each country will have distinct 'national economic culture' ince they respond differently along axis of four dimensions (power distance, individualism, masculinity and uncertainty avoidance) US-Japan Case Japan For example: 'individualistic' in the US encourage personal incentives versus 'collectivism' in Japan which remunerates group achievement and minimizes pay differentials . Or high 'uncertainty avoidance' in Japan, favor social stability, guarantees of job security while low 'uncertainty avoidance' in America indicates high degree of labor market mobility. Therefore, each country would end up with each own distinctive 'national economic culture' because they respond differently along each of four culture dimension. Limitation of Perspective However, this cultural approach also have its limitation because it assumes that individual cultural attributes that influence economic behavior held constantly over time. In fact, many value and individual perceptions change such as Japanese adapt to more individualism base view from Western, especially in the case of young generation. Furthermore, the assumption of these cultural characteristics may led to bias, cultural stereotypes or misunderstandings. In addition, it completely ignore the wider institutional context such as national legal framework, business system variations as well as industrial orders. Given that limitation, other authors like Whitehill (1991) argues that cultural should not only include values held by individuals but also the structure of the firm and society. These boarder factors are referred to as institutional approach 2. Institutional Perspectives The institutional view argues that the traditional values and practices are embedded in a country's social and economic institutions. Maurice et al. (1986) argues that variation in educational institutions, organization structure produce national distinctive patterns of institutional framework. Whitley (1998) who adopt these perspectives in explaining the pre-industrial history and industrialization process shape the national business system. Similarly, Kotsova (1999) defined the term 'country institutional profile' (CIP) as a country set of 3 institution: regulatory (laws, rules), cognitive (schemas, frames), and normative (values and norms). He also mentioned the gap between HRM practices and mindsets that result in failure of internalization- the deeper process when employee make commitment to, satisfaction with and psychological ownership of the practice. Adopt of 'best practice' in HRM therfore does not lead to global harmonization but differences as the effect of negative internalization process or divergence between All these view can be utilized to explain the variations within and between nation in term of HRM and industrial relations US-Japan Case For example, the success of Japanese economies would not be explained only by its strong 'work ethic; and 'discipline' but should include other institutional factor like government support, substantial enterprise training. direction and availability of skilled workforce. These institutional factors create 'national culture gaps' between countries (Horng, 1993) and constitutes huge barrier to the convergence process. Both the cultural and institutional approach above can be utilized by scholars to argue that national employments relations system and practices are varied. Even convergence at the global level in terms of political, economic, socio and technological forces as mentioned on the first part, divergence still remain. Divergence remains at the national and intra-national level (macro) since these forces are interpreted, responded and implemented by different way with each country's unique tradition and cultures. At the firm, employee level (macro) divergence occurs since each individual have their own distinctive behavioral mindsets to make commitment and internalization the newly adopted practice. Kottova, 1999:311) Furthermore, each countries are at different stages of industrial and economic development, different way technology configured and used, different choice to make their distinctive political-economic framework 'best fit' with global environment, gap between theory and reality of practice are considered reasons that all create divergence. 3. Convergence and Divergence- not subtitles but complementary Recently, scholars realized that divergence can happen inside the convergence trend to some extent as other way around. Youndt et al. 1996 support the view by argues that convergence and divergence both simultaneously occur, only at different level of HRM system's structure. Universal and best practice effect are likely to occur at macro level (structure, technology) and divergence at micro level (internal fit, culture and behavior mindsets). To summaries, transfer of 'best practice' and convergence of Industrial relations system is a matter of degree, not of kind. 'What aspects and how much' choice is determinants that shape the divergence inside that kind (Taira, 1990). IV. CONCLUSION Through the paper, I have examined the impacts of globalization on the national employment system, using Japan and US model as example to explore different viewpoints of convergence/divergence perspectives. On one side, multinational enterprise apply global standards to their employment system with best practice transferred at various levels, therefore push the convergence button. On the other side, institutional and mindsets differences, the level of HRM practice integrated, internalization, implemented push the divergence button. More importantly, it was agreed that both process occur simultaneously and there is no 'best practice' for all. Depend on their own unique culture and structure. firm will design their own HRM practices as their strategic advantages to be globally successful. References Whitley, R. (1998) Internationalization and Varierities of Capitalism: The Limited Effects of Cross National Coordination of Economic Activities on the Nature of Business System. Review of International Political Economy, 5: 445-481. Harbison, F. and Myers, C. (1959) (eds. ) Management in the Industrialized World. NY: McGraw Hill. Kerr, C. , Dunlop, J. , Harbison, E. H. , & Myers, C. (1962). Industrialism and industrial man. London: Heinemann. MacDuffie, J. P. (1995) 'International Trends in Work Organization in the Auto Industry: National-Level vs Company-Level Perspectives' in K. Wever and L. Turner (eds. ) The Comparative Political Economy of IR, Ithaca, NY: ILR Press, 71-113 Gennard, J. , & Judge, G. (1999). Employee relations. London: IPD. Pfeffer, J. (1994). Competitive advantage throgh people. Boston, MA: Havard Business School Press. Salamon, M. (2000). Indstrial relations: Theory and practice. London: FT/Prentice Hall Hofstede, G. (1980) Culture's Consequences: International Differences in Work-Related Values. London: Sage. Hofstede, G. (1993) 'Cultural Constrains in Management Theories'. Academy of Management Excutive, 7 (1): 81-93. Whitehill, A. (1991) Japanese Management, London: Routledge. Maurice, M. , Sellier, F. and Silvestre, J. J. (1986) The Social Foundations of Industrial Power, Cambridge, MA: MIT Press. Kostova, T. (1999). Transnational transfer of strategic organizational practices: A contextual perspective. Academy of Management REview, 24(2): 308-324 Horng, C. 1993). Cultural differences, Trust and their relationships to business strategy and control. Advances in International Comparative Management, 8:175-197. Youndt, M. A. , Snell, S. A. , Dean, J. W. , Jr. , & Lepak, D. P. (1996). Human resource management manufacturing strategy, and firm performance. Academy of Management Journal, 39: 949-969. Taira, K. (1990). From "Americanization" of Japan to "Japanization" of America in HRM/IR. Paper Presented at the Forty Third Annual Meeting of the INdustrial Relations REsearcch Association (pp. 467-475). Washington, D. C. : IRRA
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