Gunnigle Collings and Morely 2006

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4 Accommodating Global Capitalism? State policy, and industrial relationsin American MNCs in Ireland

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Patrick Gunnigle, David G. Collings and Michael J. Morley

Chapter 4, in Ferner, A., Quintanilla, J. & Sanchez-Runde, C. (2006)Multinationals, Institutions and the Construction of Transnational Practices:

Convergence and Divergence in the Global Economy, Basingstoke, UK & NewYork: Palgrave Macmillan

INTRODUCTION

The impact of multinational corporations (MNCs) on host country industrialrelations (IR) has long been a source of academic debate (cf. Bomers andPeterson, 1977). In evaluating the impact of MNCs, Gennard and Steuer (1971:144) argued that it is the foreignness of subsidiary behaviour which matters,while, more recently, Ferner and Quintanilla (2002: 245) suggest that their keyinfluence is that they act as agents of change by introducing innovations into theirsubsidiaries and thence into the host business system. It is this latter influencewith which this chapter is concerned.

The chapter examines the IR approaches of US-owned MNC subsidiariesin Ireland. Using case study data from five US MNCs located there, we primarilyconcern ourselves with subsidiary practice on trade union recognition andavoidance. We review the evolution of subsidiary IR policy and practice againstthe backdrop of a changing official context for foreign direct investment (FDI) inIreland. Our main objective is to examine the interaction between the agendas ofMNCs and of the Irish host country authorities and review some of theimplications for IR policy and practice. Beyond some survey data, relatively fewinsights are available on the nature and development of IR in MNCs in Ireland.Our five cases generate some important findings on the evolution of IR policy andpractice over time in subsidiaries of US MNCs in Ireland, and allow us tospeculate on the impact of FDI on Irish public policy in this key area.

FOREIGN DIRECT INVESTMENT (FDI) AND INDUSTRIAL

RELATIONS

MNCs have become key players in the global economy. While one typicallyassociates the term MNC with global corporations such as McDonalds or Sony,there are also large numbers of smaller privately owned firms that operate acrossnational boundaries. In total, MNCs exert a huge economic and political influence.UNCTAD (2004) data indicate that total global inflows of FDI in 2003 amountedto $560bn, driven by some 61,000 MNCs and their 900,000 foreign affiliates.

Ireland is one of Europes most FDI-dependent economies, and thecountry has continued to attract significant investment despite a recent global

downturn in FDI (cf. UNCTAD, 2004; Collings et al., 2005). It was the largest netrecipient of FDI in the OECD over the period 1993-2003, recording a cumulativebalance of inflows over outflows of $71bn, making it the worlds eleventh largestrecipient of FDI (ibid.). It has been estimated that MNCs in Ireland contributewell over 50 per cent of manufactured output and some 70 per cent of industrialexports (Tansey, 1998, OHiggins, 2002). Furthermore, over 49 per cent ofemployment in manufacturing is accounted for by those employed in affiliatesunder foreign control (OECD, 2005). A 2002 study identified Ireland as the


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worlds most globalized economy, placing it ahead other highly globalizedcountries such as Singapore (cf. Kearney, 2002). The US is by far Irelands largestsource of FDI. OECD data indicate that US FDI in Ireland increased by a factor offive over the period 1990-98, while the Economist (1997) found that FDI stockfrom US firms amounted to $3000 per head in Ireland, compared to $2000 inBritain, $500 in Germany and $200 in Spain. The great bulk of this investment is

located in a small number of export-oriented high technology sectors, notablyelectronics, pharmaceuticals and healthcare, software, and internationally tradedservices.

The significance of FDI in Ireland is the result of a longstanding andconsistent public policy of providing preferential incentives to MNCs to locate inthe country, dating from the late 1950s (cf. Gunnigle et al., 2005) (see Table 4.1 ).This policy stance has given rise to a generous incentive package to encourageFDI, the most important element of which is a low level of tax on corporate profits(cf. Gunnigle and McGuire, 2001).

[table 4.1 about here]

Given this background of a high level of dependence on FDI, especially USFDI, it is instructive to examine how American MNCs have impacted on IR inIreland over time. Ireland presents an interesting and somewhat distinctive hostcountry context for examining the influence of US MNCs. In particular, the IrishIR context contrasts with the US in a number of regards. The most obviousmanifestations of divergence include: the widely accepted legitimacy andconsiderable influence of trade unions in society and the absence of a strong anti-union ideology or agenda among any of the major political parties; the high levelsof centralization in collective bargaining, involving the negotiation of a successionof economic and social accords between government, employers and trade unions;and the substantially higher levels of union density and recognition (cf. Roche,1992; 1997; Gunnigle et al., 2002).

Over the past three decades, Irish governments of all political hues havebeen strong advocates of national level accords on pay and other aspects ofeconomic and social policy, involving negotiations between the social partners.Such agreements have ensured that organized labour has played a prominent rolein public policy determination. This clearly contrasts with the US experience, inwhich there has often been a hostile socio-economic and political climate fororganized labour, particularly under Republican-led administrations. Since 1987Ireland has had a series of centrally negotiated agreements, the most recent beingSustaining Progress (2003-05). Centralized bargaining also pertained during the1970s with a brief return of enterprise level bargaining in the period 1982-87. Itshould be noted that -- again in contrast to the US -- the Irish system of collective

bargaining is grounded in voluntary principles, relying on the moral commitmentof the participants to implement agreements achieved through the bargainingprocess; there is no legal requirement on employers or trade unions to adhere tothe terms agreed.

In international comparison, Ireland has reasonably high, if falling, levelsof trade union density. The most recent figures suggest that in 2001 workforcedensity in Ireland was just over 43 per cent (Roche and Ashmore, 2002), a figureconsiderably higher than in the US, where density was 13.4 per cent in 2001, down


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from 20 per cent in the early 1980s. In explaining the relative lack -- incomparison to the UK -- of ideological divisions on the role of trade unions amongIrelands main political parties, commentators point to the absence of clear class-based distinctions between the major parties (cf. Roche, 1997). Thus Irish tradeunions have generally operated in a much more benign political context and havenot been exposed to the dramatic oscillations that have characterized Britain (or

indeed the US) over recent decades (cf. Roche and Turner, 1994). Indeed, Rocheand Ashmore (2002) concluded that Irish unions occupy a pivotal role in Irisheconomic and political governance.

CASE STUDIES OF US MNC SUBSIDARIES IN IRELAND

This chapter draws on data gathered from five detailed studies of IR and HRM inIrish subsidiaries of US MNCs. Summary information on these is provided in Box4.1. Case study data were generated largely through in-depth interviews withcompany personnel at subsidiary level and with trade union officials, whileadditional information was garnered from company documentation, web sourcesand observation. Interviews were conducted with all the top management team ineach subsidiary and with a cross section of middle and front line managers and

team leaders, lower-ranking employees, employee representatives (shop stewards)and full-time trade union officials. In total 63 interviews were conducted. Eachinterview was conducted by a minimum of two interviewers. Interviewees werebriefed in advance regarding the research agenda. With regards to IR, ourobjective was to evaluate the evolution of policies in American MNCs in Irelandover time, within the dynamic of a changing national context for FDI. Althoughthe study is limited to subsidiary-level perspectives, we are confident that thebroad range of people we spoke with has provided us with a rounded and balancedperspective on subsidiary-level IR. Moreover, for one of the companies, ITco, ourfindings were triangulated by data from interviews at corporate HQ levelconducted by colleagues in the international research project of which the Irishstudy was a part; for a second, company, Logistico, a broader perspective wasprovided by interview data from the European regional level. Our main findingsare outlined below.

[BOX 1 - The Case Study Firms ABOUT HERE]

CONTRASTING STRATEGIES ON TRADE UNION RECOGNITION

AND AVOIDANCEA well established characteristic of the IR approach of US firms is antipathytowards trade unions, a clear preference for union avoidance and so calledindividualized management--employee relations (cf. Foulkes, 1980; Kochan et

al., 1986). However, our findings on trade union recognition reflect contrastingapproaches among our case firms. Table 4.2 summarizes the key characteristics ofIR in the case firms and how this has developed over time.


Ab Initio union avoidance in ITco, Compuco andLogistico


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Firstly we find that our ICT firms,ITco and Compuco, were staunchly non-union,a finding consistent with the Irish and international literature (cf. Jacoby, 1997;Gunnigle et al., 2002). All their Irish sites were established on a non-union basisand remain so to the present day. However, the policies and practices used toestablish and sustain this approach differed. WhileITco pursued a broadly welfarecapitalist strategy, characterized by engaging the commitment of employees

through high levels of material benefits, the provision of long-term employmentopportunities for core groups of employees, and the development of a strongcorporate culture (cf. Jacoby, 1997), Compuco initially employed a unionsuppression approach (cf. Dundon 2002). While over time Compucos approachwas tempered by the deployment of certain HR initiatives, such as improvementsin pay and working conditions, a greater emphasis on two-way communicationsand enhanced investment in employee development, the basic tenets of unionsuppression remain. Compucos direct relationship with its customers was centralto its highly individualist management philosophy. Compuco did not recognizetrade unions in any of its worldwide operations including Ireland. Unionavoidance was taken very seriously by management: the company rhetoric linkednon-union status and its direct relationship with both customers and employees as

essential for the continued growth of the company:

The major American influence would have definitely been non-union. Itwould have been made known [to local management at set up] that thiswas a non-union organization. We do not want to get involved in the unionsituation full stop.it would have been put fairly clearly that if that doeshappen that could be the downfall of the company [in Ireland].(HR Manager, Compuco)

A senior line manager further suggested that any employees identified with unionorganizing would not survive within the company:

I think that whoever tried to introduce a union into [Compuco] would findthemselves out the door so fastit would not be tolerated.

Given that ITco was widely seen as a modern exemplar of welfarecapitalism, it is hardly surprising that all its Irish operations were non-union. Allthe interviewees emphasized ITco Irelands explicit preference to remain non-union and consistently reiterated the policies it employed to achieve this end, mostnotably various steps to elicit high levels of employee commitment. In this regard,the areas mentioned included: the pay and benefits package, which was pitched atlevels to ensure ITco attracted high quality personnel; its training anddevelopment system; attractive work environment, social and sports infrastructure

and welfare provision; and finally, its claimed proactive approach to handlingemployee relations issues (grievances, etc.). All interviewees were explicitlyasked how both individual and collective grievances were handled. There was aremarkable level of consistency in the responses received. Every person we spokewith was aware that ITco had a corporate policy of trade union avoidance.Furthermore, all consistently observed that ITco did not acknowledge collectivegroups. It was also stated that where a grievance or issue of collective disputearose, theITco approach was to deal with this on an individual basis. Even where


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the dispute clearly affected a group, the approach was to deal with each employeein the group individually and to attempt to resolve the issue on this basis. Ourfindings suggest a remarkably standardized approach across ITcos Irishoperations, characterized by an overriding desire to remain non-union and avoidcollective bargaining:

If anything [a collective issue or dispute] was raised with us, we wouldobviously register that issue but we would deal with that on a one-on-onebasis. We wouldnt have everybody into a room. Each issue is treated onan individual basis.(HR Officer,ITco)

AlthoughITco Ireland did have certain unionized groups on site from timeto time (e.g. contracted in teams), it was repeatedly stated that the companypursued a system of management which was based on a relationship between themanager and the individual employee as an alternative to union recognition andcollective bargaining. The reasons given by management for this approach largelyrelate to the nature of the ICT sector, particularly the need for high levels of

flexibility in responding to changes in their competitive environment. It was statedthat this approach was quicker and more flexible than collective bargaining.

Like ITco and Compuco, Logistico initially established all its new Irishoperations on a non-union basis. Unlike the former companies, however, thepursuit of a union avoidance strategy in Ireland deviated from established practicein its US operations which had traditionally been, and remained, highly unionized.Likewise the company had a tradition of union recognition in other Europeanoperations, most notably in Germany. In evaluating the decision to locate theinternational call centre and financial services centre in Ireland, seniormanagement interviewees indicated that that the option to go non-union was animportant factor.

The desire to keep unions out of the Irish operation seems to haveoriginated primarily at corporate HQ, although regional HQ also had considerableinput. In particular the companys experience in dealing with trade unions andworks councils in Germany appears to have been influential in the decisionregarding the Irish operation. The call centre leader noted that one of the primaryreasons for establishing the facility in Ireland was to avoid the difficulties createdby unions in managing the German operation. Likewise, the HR managerreiterated the desire of senior regional and corporate management to keep theunions at bay:

It would be strongly held at corporate and region level that they donot want these two sites to become unionized. I mean any hint of

union activity and I get phone calls from the Europe region staffmanagement about whats going on.(HR Manager,Logistico)

Ab Initio union engagement inPharmaco andHealthcoFollowing a different tack, both Pharmaco and Healthco recognized unionsrepresenting manual and craft categories, and engaged in collective bargaining inall their early plants. Pay and other major IR issues in these facilities were thus


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handled via collective bargaining. Both companies concluded so-called pre-production union recognition agreements at start-up stage. These agreementsallowed new firms to prescribe which unions they wished to deal with, andoperated on the basis of post-entry closed shop arrangements whereby workerswere required to become and remain members of the union representing theirparticular occupational category while in the firms employment (cf. Kelly and

Brannick, 1985; Enderwick, 1986; Fennell and Lynch, 1993). The decision torecognize trade unions and engage in collective bargaining clearly sought to alignIR practice with practice among other inward-investing MNCs of the period.However, the decision represented a departure from practice in the home countrywhere both firms were considered solidly non-union (cf. Gunnigle et al., 2005).

The decision of both companies to opt for union recognition was based onthe advice of key Irish institutions dealing with inward-investing MNCs. Inparticular, Irelands major industrial promotions agency of the time, the IndustrialDevelopment Authority (IDA) strongly supported this approach. The mainemployer association, the Federated Union of Employers (FUE), reflecting theconventional wisdom among local HR practitioners of the period, also keenlyfavoured it. Another important factor influencing the decision was the widely

publicized but failed attempt of the American firm EI Ltd, to operate on a non-union basis (cf. McGovern, 1989):

When [Pharmaco] ... first came to Ireland in the late 1960s they wouldhave done an assessment about whether to go union or non-union, but theclimate at the time in Ireland was very much union.(Head, HR, Pharmaco)

CHANGING CONTEXTS AND EMERGING POSSIBILITIES

Of the five firms studied, Compuco and ITco have been the most consistentregarding their stance on union recognition, remaining staunchly non-union.Management respondents in both firms noted the emphasis placed by HQ onretaining non-union status in Ireland. In contrast,Logistico was unable to sustainits non-union status, despite having established all its Irish operations on a non-union basis and senior managements assertions that this had been one of theattractions of locating in Ireland. Confronted by a determined union organizingdrive, the company eventually conceded what it claimed was a limited form ofunion recognition. In essence, the company accepted the unions right to representmembers on individual issues only, but not in regard to collective issues. Itwould appear thatLogisticos approach to trade unions was essentially pragmatic.Faced with the fact that a substantial number of its employees in two of its threelarge operations had joined a union, it soon acquiesced and engaged with theunion on a limited basis:

We are doing OK. They provide check-off at source [of union dues] andthey give us a room for union business. We are also beginning to getworkers into membership in the call centre. They are beginning to like us.They have let us address workers. We seem a better option to them theother choice was X[widely perceived as more militant union]. They [thecompany] are smart and you can do business with them.(Union official,Logistico)


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However, both our ab initio heavily unionized firms, Pharmaco and

Healthco, had gone in the opposite direction, opting for non-union status in theirnewer sites. This was most evident inHealthco: all its new plants opened from theearly 1990s were non-union. Pharmaco also established its newest plant on a non-union basis. The parallel use of union recognition and avoidance in sister plants,

generally termed double-breasting, represents quite a departure in the context ofIrish IR (cf. Beaumont and Harris, 1992). In addition to providing evidence of aprogressive trend of increased union avoidance among new MNCs in Ireland (cf.Gunnigle, 1995), the widespread deployment of double-breasting among long-established MNCs presents great challenges to unions, particularly given therecent industrial policy focus on encouraging existing MNCs to deepen their rootsin Ireland.

We explored the reasons why both these long-established US firms hadchosen to opt for non-union status in their new sites. Management explanationsfirstly emphasized the contention that becoming non-union increased operationalflexibility: managers claimed that it made it easier to progress change in areassuch as work practices, scheduling tasks, etc. Secondly, management respondents

stated that there was little demand for unionization, arguing that the new sitesemployed young, well-educated workers who were not predisposed to seek unionmembership. Finally, they emphasized their belief that they would not encounterany great opposition should they choose to move to a non-union approach. Ourdiscussions with the management team further indicated that while localmanagement helped lead the decision, it was one they knew would go down wellat corporate headquarters. It would thus appear that, unlike the situation threedecades earlier, the viewpoints of local and corporate management were now inunison:

I think it [union avoidance] is coming from the States but it is also a newbreed of management thats online [in Ireland].the problem today is thatthere are so many companies [Pharmaco sites] ....and they are all

jockeying for position. [Managements] attitude is we will drive as muchas we can and we wont talk to unions (Union official, Pharmaco)

More generally, the change in the stance of Irelands industrial promotionsagencies has undoubtedly contributed to increased union avoidance. Since the1980s these agencies have adopted a position that is less favourable to unionrecognition, indicating to inward-investing firms that they have the freedom to optfor non-union status should they so wish:

The IDA never tell us about new companies anymore. I think the IDAchange is related to broader government change... instigated by the PDs[Progressive Democrats2]. IBEC [Irish Business and EmployersConfederation] will not talk to us unless there is a problem they want us tosolve.

(Union official,Pharmaco)

DISCUSSION


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In Ireland the issue of public policy with regards to union recognition andavoidance is an area of intense current debate. This is largely a result of theprogressive fall in union density. The most recent employment density figure inIreland of 35 per cent in 2004 (Quarterly National Household Survey), representsa fall of 27 percentage points since 1980 when employment density in Irelandreached its high water mark of 62 per cent. It is all the more noteworthy that this

decline has occurred during a period when IR in Ireland has been dominated bynational-level partnership agreements negotiated principally by government,employers and trade unions. While a number of factors, many of which applyinternationally, have been used to explain this decline, we find broad consensusthat FDI has played a key role. For example, a survey of greenfield firms in themanufacturing and internationally traded services sectors found a high incidenceof union avoidance -- 65 per cent of firms were non-union -- especially amongstUS MNCs in the ICT sector (cf. Gunnigle et al., 2002).

Looking at our case evidence, we see a pattern of union avoidance in fourof the five case firms. Compuco andITco began and remain non-union, while bothof the traditionally heavily unionized firms, Healthco and Pharmaco, have optedfor a non-union strategy in their new sites. This leaves Logistico as the only

company where union penetration increased over its time in Ireland; even in thiscase, union recognition is limited basis and does not extend to full collectivebargaining. In attempting to explain these findings we can point to a number offactors. The changing political context has been particularly influential. It hasprogressively shifted from being comparatively prescriptive with regard to the IRapproaches expected from inward-investing MNCs, to one which allows suchfirms immense scope to pursue their preferred IR approach. Thus the issue ofperiodization emerges as a key factor. We now consider how differing waves ofUS FDI have pursued differing IR arrangements legitised by the priorities of thesystem and the state.

Conformity with codification: 1960s and 1970s

Numerous commentators have noted Irelands long track record in competingaggressively for FDI. Having pursued a protectionist approach to industrialdevelopment for much of the period since independence, Ireland reversed thispolicy stance in the late 1950s. With the objective of accelerating industrializationand economic growth, the government of the day initiated an open economymodel designed to attract FDI through an incentive package including grants andsubsidies, and a preferential corporate tax regime. This approach met withconsiderable success and the 1960s saw a surge in FDI, primarily in high volume,low cost manufacturing. Studies of IR in this period indicate a picture ofconformity with what was then seen as pluralist IR traditions. For example,studies by Kelly and Brannick (1985) and Enderwick (1986) found no evidence

that MNC subsidiaries in Ireland were distinguished by their reluctance torecognize unions. This work formed the basis for the convergence thesis whichposited that the IR policies and approach of MNC subsidiaries in Irelandconformed with host country practice, then characterized by union recognition(among larger firms) and collective bargaining. Our evidence is very much in linewith this position. Both Pharmaco andHealthco, the only case study firms to haveestablished significant manufacturing facilities in Ireland during the 1960s and1970s, recognized unions representing manual and craft categories.3


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Subsequently, pay and other major IR issues were handled through plant-levelcollective bargaining with each of these unions. As noted earlier, the practice ofentering into union pre-production recognition agreements at start-up was astandard characteristic among inward-investing MNCs during the 1960s and1970s. While this approach ensured that MNCs conformed to host countrytradition in regard to union recognition, it also differed in certain respects from IR

practice in the indigenous sector. The major difference was in the extent ofcodification. Pre-production agreements in the MNC sector generally prescribedwhich unions were to be recognized, each unions rights and responsibilities, andthe issues subject to collective bargaining and management prerogativerespectively. In contrast, IR in the indigenous sector was largely characterized bycustom and practice, with little or limited codification. On the one hand, we cantrace the preference for codification to home country traditions. In particular USfirms would have been more familiar with detailed written legally enforceableagreements -- a stark contrast to the Irish tradition of minimal documentation andvoluntary agreements. However, Irish public bodies in the field, and certainly thelocal IR practitioner community, would also have been conscious of thedifficulties of multi-unionism. Pre-production agreements were seen as a means of

avoiding this in the MNC sector by allowing MNCs to specify which union(s)they would recognize for bargaining purposes. Thus, while this approach is widelyacknowledged as representing convergence with host country practice it alsoentailed particular and important innovations, some of which became morecommonplace over time.

A final factor influencing the decision of inward-investing MNCs to godown the union route during this period was the attempt by a large US subsidiary,

EI Ltd, a subsidiary of General Electric, to operate on a non-union basis in the1960s (cf. McGovern, 1989; Brady et al., 2002). The companys failure to do so islargely attributed to a prolonged strike but also to a broad political consensussupporting the principle of union recognition for the workers involved. Ingovernment debates on this issue the then Minister for Transport and Power statedthat the Industrial Development Authority in America and in Dublin and theShannon Free Airport Development Company at Shannon recommend new firmsto engage in trade union relations (Dail Eireann, 1968), while the Commission ofInquiry Report (1969) on this dispute concluded that incoming companies shouldrecognise the industrial relations of this country and the inevitability of unionrecognition (McGovern, 1989: 63).

The US greenfield factor: union avoidance in the 1980sAs mentioned earlier, much of the FDI during the 1960s and 1970s focused onhigh volume production operations. However, the turn of the 1980s saw anincrease in investment by companies from the ICT sector. Many of these were of

US origin and had a non-union background. As Wallace (2003) notes, unionavoidance in Ireland followed much the same pattern as identified in America byKochan and his colleagues (1986) some years earlier. Here the vanguardcomprised a small number of American ICT companies, notably Digital, WangandAmdahl which set up new greenfield facilities. These firms generally operatedon a union substitution premise, based on good pay and benefits. This, combinedwith the prevailing high levels of unemployment, made union recruitment drivesin such firms problematic. The demonstration effect of these early non-union


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firms together with the decision of key MNCs, particularly Intel and laterMotorola and Hewlett Packard, to go non-union did much to legitimize thisapproach and encourage its uptake among other new MNCs. Over the decadeunion avoidance grew increasingly common, eventually becoming the typicalpattern for new FDI. Thus the decision ofITco,Logistico and Compuco to go non-union at their new Irish facilities was very much in conformity with prevailing

FDI norms. The fact that Compuco largely followed a union suppression asopposed to a union substitution strategy initially highlights the confidence that haddeveloped among US MNCs in their capacity to sustain non-union status (cf.Gunnigle, 1995).

Double-Breasting in the 1990s: A New Orthodoxy?

For some time, the conventional wisdom was that union recognition in the Irishprivate sector presented a dichotomous picture in which union penetration andcollective bargaining was widespread in larger indigenous manufacturing andamong the older FDI sector, while union avoidance and more individualizedemployment relations were prevalent among newer MNC subsidiaries. Ourfindings suggest otherwise. The fact that both Healthco and Pharmaco chose to

operate their newer facilities on a non-union basis indicates that union avoidancehas taken root and is expanding even among MNCs which have long dealt withunions and engaged in collective bargaining.

Even the Logistico case, where the company conceded a limited level oftrade union penetration in some locations, is also an example of double-breasting. The senior union official indicated it was unlikely that the unionwould gain a foothold in one ofLogisticos main Irish sites, indicating thatdouble-breasting, rather than complete firm-level recognition, would be the mostlikely scenario inLogistico in the future.

It would appear that the pattern of union avoidance which began in a smallnumber of US subsidiaries in the 1980s has now become widely embedded in theMNC sector, to the extent that it greatly threatens union presence in this verysignificant area of the Irish private sector. Analysis of data on union recognition innew and expanding firms published in Irelands premier IR periodical, Industrial

Relations News, underpins this conclusion. Table 4.3 presents comparative dataover two periods, 1994-95 and 2001-03. This confirms that union avoidance hadbecome the prevailing norm among new FDI by the mid-1990s and remains so.However, by far the most important change has been in relation to expandingfirms: while just under half these opted for non-union status in the mid-1990s,over eight in ten had chosen this approach by 2001-03.


In assessing the import of this pattern, it is useful to consider recentdevelopments in Irish public policy on FDI. We saw earlier how Ireland embarkedon a policy of industrialization by invitation from the 1960s and how many ofthe MNCs attracted in this period focused on high-volume assembly, attracted byIrelands low labour costs and government incentives. While Ireland benefiteddisproportionately from the FDI surge in the 1990s, we have concurrentlywitnessed a progressive trend of MNC closures and scaling back of operations,largely due to increased labour and other operational costs in Ireland. This


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prospect was not unanticipated. For some years Irelands industrial promotionagencies had forecast that Irelands ability to attract FDI would recede and theyinstigated important changes in the countrys overall strategy towards MNCs. Themost important decision was to re-balance: essentially, they sought to reducetheir focus on attracting new greenfield investment and increase the emphasis onretaining existing MNCs and facilitating their growth, ideally into higher-order

activities. Recent expansions by companies such as Intel and Wyeth, companieswith longstanding Irish operations, suggest that this policy change has met withsome success. However, our data also indicate that such new facilities will mostprobably operate on a non-union basis, further hastening the fall in unionpenetration on the Irish private sector.

The Primacy of US FDI and the Consequences for IR

This chronological review highlights the evolution in key IR aspects of the Irishbusiness system. It notes some key changes that have occurred primarily, wewould argue, as a result of the need to attract and retain foreign capital. This isparticularly evident in the changing strategies of Irelands industrial promotionagencies. We saw earlier that during the 1960s and 1970s these agencies

encouraged collective bargaining among new FDI, largely by arrangingintroductions to union representatives and advising firms to conclude pre-production recognition agreements. However, in the late 1970s and 1980s theagencies adopted a more equivocal stance, refraining from taking an overt positionon union recognition and thus allowing incoming MNCs the freedom to maketheir own choices in this regard. Undoubtedly the fact that Irish industrial policyhad begun to focus on attracting US MNCs in the ICT sector, almost all of whichwere non-union, helps explain this shift. If Ireland was to compete effectively forthis type of FDI it had to present an accommodating host environment. The quotebelow from a senior Irish industrial promotion executive who was instrumental insecuring two of the largest ICT investments in Ireland by US MNCs reflects theposition.4 Talking about the success in attracting the larger of these two firms, hestated:

.union recognition would be a major deterrent If UScompanies saw a union environment, many would not come.Company Xwas a crucial development in this respect. There wasconcern about Ireland as a location for such a large high-techfacility. Would they be a major target for a large number ofworkers to join trade unions? It was difficult for us to deal with thisconcern. A focus group approach was put in place wherebycompany representatives could talk to young school leavers. TheCompany Xpeople really pushed these young people on how they

would process grievances, what if your supervisor wont listen,what if the HR people wont listen. They were looking for theunion issue to emerge but it just wouldnt. Finally, they saidwould you go to a union?...and the answer was no, they wouldmost likely leave the company. The Company Xstaff were blownaway by these young people, their confidence and attitudes. Thiswas the last barrier we had to overcome and the focus groups did it.


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The fall in union penetration at enterprise level has not gone unchallengedby the labour movement. Amid increasing union concern, a High-Level Groupwas established in 1997 under the prevailing national accord (Partnership 2000)to examine the issue of trade union recognition. Comprising representatives ofgovernment, the Irish Congress of Trade Unions (ICTU), IBEC, and IDA Ireland,it recommended the use of voluntary rather than mandatory procedures to deal

with recognition disputes. However, its publication in 1998 coincided with amajor dispute atRyanair, which refused to recognize a union representing some ofits workers in Dublin Airport. The union side rejected the report, opting to pursuetheir goal of mandatory recognition. A final report was subsequently published in1999 which formed the basis for the Code of Practice on Voluntary DisputeResolution and the Industrial Relations (Amendment) Act 2001. Again theseprovide a voluntary process for dealing with union recognition disputes. Whilecases may ultimately reach the Irish Labour Court, there is no facility for theCourt to finally arbitrate on the issue of union recognition. On the contrary, theCode of Practice and the Act explicitly exclude decisions on arrangements forcollective bargaining. As noted by a number of commentators, the legislationessentially sidestepped the issue of recognition (cf. Twomey, 2001). Again we

would argue that the FDI influence helps explain developments. The Irishgovernment and public bodies are acutely aware that imposition of mandatoryunion recognition mechanisms would act as a disincentive to FDI, both new andexisting. IDA Ireland would most likely have articulated this MNC view at theHigh-Level Group, and would have emphasized that it would put the IDA at asignificant disadvantage in selling Ireland as a site for FDI. From the employersperspective, it is likely that IBEC pursued a similar line, ensuring that the tradeunion representatives were isolated as the only likely advocates of mandatoryrecognition.

This is but one example of the impact of the MNC constituency on thecrafting of policy and legislation. Another is the growing role of the AmericanChamber of Commerce (ACC) in articulating the views of US MNCs in Ireland.The ACC claims to represent some 500 US subsidiaries in the country, includingmajor names such asIntel,Hewlett PackardandIBM. A particular illustration ofits position relates to the Organization of Working Time legislation (relating to theapplication of the EU Working Hours Directive). The ACC submission togovernment argued that the proposed legislation would limit company flexibilityand damage Irelands efforts to win US investment:

It is no exaggeration to say that the lack of flexibility in this Bill couldrepresent the single most negative change in Irelands flexibility towin US direct foreign investment that has happened in the past 20years

(Irish Times, 22 February 1997)

The submission further criticized what the ACC saw as an inherent bias inthe proposed legislation towards firms that recognized trade unions: that onlybodies recognized under the Irish Trade Union Acts would be able to negotiate acollective agreement on working hours. Since many of the MNCs represented bythe ACC were non-union, this criterion was unlikely to be met. The ACCs


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lobbying met with some success, prompting the head ofIDA Ireland to supportthe Chambers position in stating that the proposed legislation would make it moredifficult for the IDA to attract international -- particularly US -- firms to Ireland.

Donaghys (2004) recent work on social partnership further notes theinfluence of US MNCs on Irish public policy. Donaghy found that the MNCsector significantly influenced the social partners approach to institutional

change, leading them, for example, to reject any type of works councilarrangements along German lines. Based on interviews with representatives ofIBEC, ICTU, the Services Industrial Professional and Technical Union and theNational Economic Social Council (NESC), Donaghy (p.110) found that:

any sort of legislated mandatory system of European style works councilwas dismissed at an early stage due to the potential negative implicationsthat this could have on attracting inward investment, especially by USmultinationals. These pressures both pushed the actors away fromembracing any sort of compulsory mechanism towards operating avoluntary system.

He (p.206) went on conclude to that:

As economic openness has established an incentive system forforeign direct investment in Ireland, the principal social partnersare reluctant to take any action which could make Ireland a lessattractive site for FDI.

CONCLUSIONS

In evaluating the interaction between the agendas of MNCs and of the Irish hostcountry authorities, our evidence points to an evolutionary dynamic in thisinteraction with attendant implications for enterprise-level IR. Specifically wepoint to the incidence of double-breasting in three of our five case firms, and thesuccess of the remaining two companies in effectively sustaining non-unionstatus. In essence, the data demonstrate the fluidity of the Irish business systemover time, particularly in the IR sphere. We argue that this is primarily due to thecountrys openness to, and its remarkable success in attracting, FDI. In greatmeasure Irelands economic fortunes are critically dependent on the MNC sectorand its export performance. To ensure Ireland remains an attractive location forFDI it has effectively restructured key aspects of the business system toaccommodate the preferred IR (and HR) approaches of US MNCs. This is mostevident in the change in the position of Irelands industrial promotion agencies onthe issue of union recognition and collective bargaining. By shifting from a pro-union to a union-neutral stance, they have in effect given their imprimaturto new

FDI to follow the non-union route.Our evidence demonstrates how US MNCs encounter relatively fewimpediments in implementing policies that are congruent with home countrytraditions. This is the case because many of the Irish institutions important inworkplace IR arrangements (centralized bargaining, promotion of partnershiparrangements, encouragement of trade union--employer engagement) arecomparatively toothless, and thus have little impact on the MNC sector. In thisregard the Irish case seems to resonate with the UK experience where as Ferner


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(2003: 99) notes the deregulation of swathes of economic life, including labourmarkets and industrial relations, has increased the permeability of the Britishsystem: that is, it has removed some of the institutional impediments to theabsorption of outside influences. In their efforts to promote and sustain economicdevelopment, Irish governments and their agencies have sought to create an open,pro-business, FDI-friendly economy. One manifestation of these efforts is the

package of incentives, including a generous subsidy programme based partly onthe promise of jobs but also including grants and subsidies, together with anextremely attractive, low tax rate on profits. Another is the comparatively openand lightly regulated IR environment. The Irish business system thus competes forFDI on a number of dimensions, one of which is the absence of constraining IRinstitutions which might impose alien HR/IR host country practices on inward-investing MNCs, as might be perceived to be the case in countries such asGermany. More generally, our findings support the emerging literature whichsuggests that levels of FDI appear to be higher in countries where levels ofconstraint with regard to labour issues are lowest (cf. Cooke, 2003; Kleiner andHam, 2003). A few years ago the Tanaiste (Deputy Prime Minister) indicated thatit was in Irelands best interests to be a lot closer to Boston than Berlin. Our

research suggests that in IR terms this certainly is the case.


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ENDNOTES

1 This article draws on the Irish node of an international study of human resource

management in US MNCs, co-ordinated by Professor Anthony Ferner, De

Montfort University, UK. This study involves a large number of researchers from

De Montfort University and Kings College, London, UK, the Universities of

Trier and Erfurt, Germany, IESE Business School, Spain and the University of

Limerick, Ireland. The Irish study is supported by the University of Limerick

Research Office, the Irish Research Council for the Humanities and Social

Sciences and the Labour Relations Commission.

2 The Progressive Democrats are a small centre right party, founded in the 1980s.They are currently (2005) the junior partner in the coalition Government.

3 Both companies had earlier established non-union sales operations. This was to

be expected given their very small scale and the nature of the workforce in these

operations.

4 This interview formed part of research undertaken in the US by Patrick Gunnigle

while working as a Fulbright Scholar in the Department of Management, San

Diego State University; see, for example, Gunnigle and McGuire (2001).


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Table 4.1: MNCs in Ireland by ownership (number of firms), 2004

2004USGermanyUKRest of Europe

Asia-PacificRest of the WorldTotal

478 (46.7%)140 (13.7%)116 (11.4%)209 (20.5%)

46 (4.5%)33 (3.2%)1,022

Source: IDA Ireland, 2004.


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Table 4.2: Industrial relations in case study companies over time

Pseudonym /

Period of

establishment in

Ireland

IR approach

in US

IR approach on

establishment in

Ireland

Current IR approach

in Ireland

Compuco1990s Strongly anti-union Non-union -- unionsuppressionprimarily

Tradition of unionsuppressionincreasinglytempered by unionsubstitution(improved pay andbenefits, employeedevelopment andcommunications)

Healthco1940s(manufacturing

in 1970s)

Strong non-unionpreference,

welfarecapitalisttraditions

Union recognitionand collectivebargaining

Union avoidance inall new sites. Unionsubstitution

ITco1950s(manufacturingand call centresin 1990s)

Welfarecapitalist non-union

Non-union -- unionsubstitutionprimarily

Strong resistance tounions primarily viaunion substitutionincluding coherentpolicy of notrecognizingcollectiverepresentation andcompetitive pay andworking conditions

Logistico1990s

Strong tradeunionorganization

Non-union butsubsequentlyconceded limitedrecognition in twosites

Union avoidancewhere possible butpragmaticaccommodation oflimited trade unionrepresentation (onindividual issues).

Pharmaco1960s

Strong non-unionpreference,

welfarecapitalisttraditions

Union recognitionand collectivebargaining

Union avoidance innewest site. Recentmoves to restrict

union influence, androw back on traditionof conceding abovethe norm pay deals


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Table 4.3: Foreign direct investment and trade union recognition, 1994-95

and 2001-03

Trade Union Recognition

New firms Expanding firmsYes No Yes No

1994-95 (n = 50) 2 (6%) 30 (94%) 10 (56%) 8 (44%)2001-03 (n = 39) 1 (6%) 16 (94%) 4 (18%) 18 (82%)

Source:Industrial Relations News (1996, 2004, 2005)


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BOX 4.1 The case study firms

Pharmaco is one of the worlds top pharmaceutical firms, featuring high on theFortune 500 list. It was established in the nineteenth century and expanded abroadin the 1950s. It currently boasts global employment levels of 120,000 and annualrevenues in the region of US$50bn. Its first Irish operation was established in the1960s and it now employs 1800 people in Ireland at a number of sites.

Historically, Ireland has been very significant within the worldwide portfoliobecause it was a primary location for the production of a number of thecorporations best selling products.

Healthco manufactures pharmaceutical, medical and diagnostic products. It wasestablished in the late nineteenth century and first expanded abroad in the late1930s. It has global revenues of US$16bn and employs some 70,000 peopleworldwide. Having had a small sales presence in Ireland since the 1940s, itopened its first Irish manufacturing operation in the mid-1970s. It currentlyemploys some 2000 people at a number of Irish sites. In the recent pastHealthcohas expanded its Irish investments significantly.

ITco was incorporated in the early 1900s and is by some extent the largest of thecompanies studied in terms of revenue and employment levels globally. It is a

longstanding Fortune 500 corporation in the information and communicationstechnology (ICT) sector. While it had a sales presence from the 1950s, ITcosIrish operations remained quite small up to the mid-1990s. It then established aninternational technical support and customer service centre and, soon after, atechnology facility. Total employment in Ireland is currently in the region of3700 spread across a number of sites.

Logistico was founded in the early twentieth century and is one of the worldsleading distribution and transport corporations. It currently operates in 200countries, employing over 370,000 workers and boasting global revenues of someUS$30bn. Logistico has three primary operations in Ireland: distribution, a largecall centre, and a financial services centre. Its first Irish operation was establishedin the early 1990s, with the other centres opening in the mid- and late-1990srespectively. Total Irish employment amounts to some 1000 people.Compuco was established in the early mid-1980s, boasts global revenues inexcess of US$40bn and employs approximately 53,000 people worldwide. Itmanufactures and sells computer hardware. It established its first Europeanmanufacturing operation in Ireland in the early 1990s and currently has four Irishsites, employing some 3300 people.

Gunnigle Collings and Morely 2006

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