Employment Relations in the Mobile Telecoms Services Industry

Employment Relations in the Mobile Telecoms Services Industry

Kiu-Sik Bae, Korea Labor Institute (Korea)

Summary

The mobile communication services industry has led the knowledge information industry since

the 1990s. Its rapid growth gave rise to tremendous hope that a fundamentally different

employment paradigm would come into being from that of the traditional manufacturing sector. At

corporate level, theories like flexible firms (Atkinson and Meager 1986), individualization of

employment relations (Brown et al 1998), and sub-systems of employment relations within

corporations (Ostermann 1987) were developed. However, at national or industrial level, they

actually evolved into polarization of employment relations or production (Harrison and Bluestone

1988; 1990, Harrison 1994, Zuboff 1988), and converging divergence (Katz and Darbishire 2000).

Theories on employment relations in the services sector are diverging to incorporate standardization

in service production (Levitt 1972, 1976), discussion on discretion (Schlesigner and Heskett 1991,

Bowen and Lawler 1995) or strategic segmentation (Batt 2000). Such a wide range of theories

reflect the increasing complexity of employment relations in every respect. In this paper, these

various debates are summed together to develop the assumption that employment relations in the

mobile services industry are composed of complex elements of flexible production systems,

corresponding individualization of employment relations, polarized employment relations,

differentiated HR management systems, and dual industrial relations. This assumption is verified

by examining cases. This research is not a simple case study into a large firm engaged in the

mobile service sector. Rather, it methodically attempts to review the employment relations

between two mobile service providers and their subcontracted partners in the context of

organizational ties.

According to the research, the mobile service sector has a firm structure similar to modular firm

based on control-subordinate relationships between the large company and its subcontractors. This

in turn creates dual and polar relations in employment relations that have qualitative differences.

However, employment relations are not merely bipolarized – they also have complexity with a

certain level of diversity. This paper is an exploratory study to predict the future development of

employment relations in the information technology industry by examining employment relations in

the mobile service industry.

Chapter 1. Overview

The study looks into organization, employment, and industrial relations in large companies and

their subcontracting partners in the mobile service sector from the late 1990s to 2002. The

development in Korea’s mobile telecoms service industry has been unprecedented. Functionally,

the compositional structure of the workforce at the mobile services companies can be broken down

into marketing, management, and professional staff including engineering one. The core functions

of marketing people lie in development of services products as well as planning, executing and

managing marketing campaigns. They do not come into direct interaction with customers but

meet them through sales agencies, outsourced call centers, and services centers. Marketing people

are typically in charge of managing front-line workers that come into direct contact with customers.

Managers are responsible for conducting analysis, planning, and managing markets, finance,

organization, HR, PR, and investment as well as regulatory compliance. The core functions of

engineering staff are the operations of various telecoms facilities, application programs

development, and the development of programs to support new services. The workforce in the

mobile telecoms services sector can also be classified into generalists, specialists, and

experts/professionals. In principle, comparatively simple and routinized work is outsourced.

For company A, the share of labor costs out of turnover was 3.3% in 2000 and 3.5% in 2001, while

company B had 1.4% and company C, 3.6% in 2001. These figures are significantly lower than

22.3% at KT, the dominant fixed telecoms services provider. This vast difference arises from the

fact that mobile service providers are not only more technology-intensive but also outsourced

simple repetitive tasks.

1. Company A

Company A was founded as ** Mobile Telecoms in 1982. It was a public entity and a

subsidiary of Korea Telecom before being privatized in 1994 with Business Group A coming in as

the majority shareholder. Upon privatization, the company underwent a major reform under the

initiative of the management put in place by Group A to eliminate any remaining legacies of the

public enterprise. Korea’s mobile telecoms services market grew in tandem with Company A (in

terms of the number of subscribers, sales, or annual net income). It enjoyed a monopoly in mobile

telecoms markets (excluding mobile paging services) until 1996. Then in 1997, the landscape of

the mobile telecoms market changed; four new players came into being with the launch of

PCS(Personal Communication Services) services. Enjoying a monopoly in the mobile telecoms

services industry ** Mobile Telecoms Co., Ltd. (current Company A) recorded rapid growth in the

1990s. Even after the introduction of competition in 1997, the company continued to realize

stellar growth, as seen in Table 1-1. Its net income was significant despite substantial investment

in various facilities and network building. Since then, cutbacks in capital expenditures have

resulted in increased net income for the following year. Net income was 18,3%, 17.5%, and

20.4% of sales in 2001, 2002, and 2003, respectively.

<Table 1-1> Growth Trends of Company A (in 1,000 subscribers, 1 billion won, %)

1997 1998 1999 2000 2001 2002 2003 No of Subscribers 4,571 5,966 10,110 10,935 11,867 17,220 18,313

Full Time Equivalents 4,009 3,404 3,272 3,067 3,532 4,095 Sales 3,512 3,545 4,285 5,761 6,227 8,634 9,520

Sales per Person 562 648 643 1,233 1,459 Net Income for the Year

(%) 189 (3.2)

236 (4.3)

413 (7.1)

1,090 (16.5)

1,279(18.3)

1,511(17.5)

1,943 (20.4)

Capital Expenditure 1,534 764 1,083 1,794 1,241 1,153

The number of FTEs (Full Time Equivalents) at Company A fell from 4,009 in 1997 to 3,067 in

2000 before rising to 4,095 (female: 517) as of December 2002. The number of temporary

workers hired directly by company A rose from 1,776 in 1996 to 3,390 in 1999 before dropping to

736 by the end of 2001. Although the company was founded in 1984, the average age of

employees is relatively young, 33, and employees’ average years of services with the company are

only seven (26.2% less than five years, 60.4% from six to 10 years). The share of those in

managerial positions is high as the company puts priority in hiring experienced workers to new ones

who have just come out from college in order to help successfully explore new business areas

(Internet, development of services contents, and etc.) and because professional engineers receive

benefits and treatment equivalent to managers regardless of their job titles or ranks1.

1. 80.6% of employees are university graduates or persons with higher degrees (61.3% are university graduates, 18.7% have

masters or doctoral degrees). 40 to 50% of employees (about 1,600) work in network engineering. As of September 2002,

marketing people working at 40 sales centers around the country totaled nearly 1,100, and 200 of them worked at site

managing agencies. There are about 500 employees working in Internet related businesses and about 1,000 in support areas

(finance, HR, planning, etc.). There were no Internet related functions in marketing until 1998. But with wireless Internet

emerging as viable business area with high growth potential, some of the marketing resources were reallocated to the Internet

with the remaining people now handling marketing. Of the 4,089 full-time employees, 1,900 are managers (above

sub-section managers or above) including 1,400 subsection managers called Gwajangs. Temporary worker hired directly by

A totaled 129. Although the business makes it hard to use agency workers, there are sub-contract workers working in

specific areas. Agency workers number 423 (long-term agency 300) and work mostly in simple admininistering or secretary

positions. However, the number has dwindled significantly with adoption of outsourcing. Should there be a sudden spike

2. Company B

Company B launched its services in late 1997 and grew the fastest of all the four newcomers in

the mobile services sector. Company B was founded in January 1997 and started to offer services

in October of the same year. Although it had incurred heavy losses until 1999 because of

substantial investment in network building, it became profitable in 2000 because of the rapid

expansion of its subscriber base. Company B then merged with C in May 2001. Although the

main source of revenue of the company B is still basic, call charges for mobile services, sales from

wireless Internet and value-added services are rising quickly such that B now has a similar profit

structure as A.

<Table 1-2> Growth Trends at Company B

1997 1998 1999 2000 2001 2002 2003

No. of Subscribers (in

1,000) 2,353 4,267 5,285 9,591 10,378

Sales (in 1B won) 145 1,432 2,259 2,781 4,468 5,353 5,076

Net Income (in 1B won) -96 -141 -59 116 433 532 407

Source: 2001 annual report 2001 and 2002 3Q report of Company B

There are still some vestiges of Korea Telecom because the company naturally inherited its

organization and personnel. Of the over 1,800 employees, 400 to 500 including engineers were

in work at site sales center or any other areas, 100 to 400 agency workers are used on a short-term basis to handle non-sales

related operations.

with Korea Telecom2.

3. Subcontracted Companies

Both mobile telecoms services providers A and B have outsourced operations that offer services

to customers by either direct or indirect contact. Those units whose functions are outsourced by A

and B include mobile handset sales agencies, call centers, services branches, and base stations.

The subcontracted operations are undertaken by subcontractors that are typically referred to as

“partner companies” at both companies. They offer services to the customers under the name of

the parent mobile services companies A and B.

Let’s first look at the subcontractors of company A. The Company A has about 1,500 MOBILE

handset sales agencies around the country with about 7,500 employees. Through 10

subcontractors, the Company A operates 13 call centers and five telemarketing centers with a total

staff of 3,000. There are also about 1,500 employees working for a subcontractor responsible for

maintenance and repair of relaying facilities at base stations. There are also about 1,000

employees of subcontractors that run 51 services branches, 20 sales agencies and 10 invested shops

of company A. In other words, the subcontractors to the company A employ more than 13,000

workers; which is 3.25 times the payroll (about 4,000 employees) of the parent company A.

There are also quite number of people working at mobile handset sales agencies, call centers,

2. As of the end of November 2002, Company B had 1,806 FTEs. Among them, 1,167 were in managerial positions

(subsection managers or managers above). The share of managerial positions is relatively high due to the need to hire

experienced workers in new business ventures, the need to give mid-level managerial benefits and treatment to professionals,

and because full-time employees need to take care of core operations as most simple, repetitive, and standardized work has

been outsourced. Of the full-time employees, about 580 were in marketing, 214 were in Internet and other new business

areas, 548 were in engineering areas, and 391 were in supporting areas. 74.6% of the employees were university graduate,

and 15.3% had master degrees. Here again, the educational level of employees is high with 89.9% of employees possessing

bachelor’s or higher degrees. Temporary employees totaled 743, with 352 contract workers and 389 agency workers. Of

agency workers, 304 worked in simple clerical positions and 39 worked as customer sales representatives. The number of

temporary employees was 2,016 in 2000 but dropped to 901 by the end of 2001.

local channels, companies maintaining and repairing relaying facilities at base stations all of which

have subcontracting agreements with company B. As of November 2002, there were 3,600 to

4,000 employees of subcontracted companies working at 1,467 mobile handset sales agencies

around the country. There were also 3,870 workers from subcontracted companies. Of these,

1,138 were engaged in maintenance and repair of relaying facilities at base stations scattered around

the country; 1,511 worked at call centers (including telemarketing centers); 625 at local channels;

and 581 at collection centers. When including mobile handset sales agencies, there were 7,370 to

7,870 employees working at companies subcontracted by B. The subcontractors employed

roughly four times as many FTEs as the company B.

The composition of the workforce between the mobile telecoms services companies and their

subcontractors alone shows clearly the unique structural characteristics of the mobile

communications industry – the small core workforce surrounded by many supporting or peripheral

workforce.

Chapter 2 Existing Theories on New Employment Relations

1. Revisiting Existing Theories

Employment relations were stable until the 1970s as a result of the relatively stable market, full

employment policy, and the presence of the strong (social) democratic parties. However, changes

in the general business environment meant that employment situation in each country has become

different from that of the past. Globalization, technological innovation, deregulation, and shifts in

power became the driving forces of fundamental change in the traditional employment relationship

(Ostermann et. al. 2001). Drops in union density in many countries reflecting changes in

industrial structure, shifts in the composition of the workforce, and changing political tendencies,

together with a transformation of the political landscape, have put workers at a disadvantage. The

common characteristics of changes in employment relations were labor market flexibility, lower job

security, performance-related compensation, the devolution of decision-making downwards, decline

in unionization, as well as changes in the nature of collective bargaining. Let’s review the existing

theories on new employment and labor relations in the U.S. and the U.K.

The debate on employment relations at enterprise level involves theories of ‘flexible firm’,

‘individualization of employment relations’, and ‘division of employment relations at enterprise

level’. The debate at national or industrial levels revolves around theories of ‘polarization’ and

‘converging divergence’. In the service industry, the theories developed into theories of the

standardization of vs. autonomy in, service production and strategic market fragmentation.

First, the theory of flexible firms says that the flexible firm was created under the pressure of the

newly created external environment (competition, cost reductions, quality improvement). It is

composed of the core workforce with functional flexibility and the peripheral one with numerical

flexibility (short-term contract, part-time, job sharing, agency workers, subcontract workers)

(Atkinson and Meager 1986). However, even the core workforce can be subject to numerical

flexibility, and this theory cannot take into consideration the possibility of temporary workers

replacing regular staff. Nor does it offer adequate explanation of the fact that flexibility may vary

from one country to another depending on its political and/or institutional context (Ellingaeter

1998).

The theory of individualization in employment relations maintains that cost cutting by

management results in procedural individualization owing to individualization of employment

contracts – i.e. weakened or reduced collective bargaining power and substantial individualization –

meaning differentiation of working conditions (Brown et. al 1998). Polarization theory addresses

the widening income gap between the core and peripheral workforce in the new competitive

environment. The gap came into being for different reasons by industry and country (Harrison and

Bluestone 1988; 1990). This theory also takes up the dual structure between primary firms that

developed the internal labor market and secondary firms that are dependent on the external labor

market (Doeringer and Piore 1971). The new dualism is based on so-called ‘flexible production’

where the outsourcing of non-core businesses is combined with Japanese-style lean production for

core businesses (Harrison 1994, 1996)3. In terms of impact of IT on work organization, there is a

dichotomic polarization between ‘innovating’ knowledge and work and ‘automating and

standardizing’ existing work (Zuboff 1988). The levels of the debate on polarization vary by firm,

industry or country, just as the structures formed by polarized workers in the labor market also vary.

The converging divergence theory argues that while domestic employment relations become

more divergent as a result of external environmental changes such as deregulation, technological

innovation, and accelerated market competition, employment relations between countries are

becoming more convergent. New employment relations cause forms of work practices to

converge based on ① low wages type; ② human resource management R type; ③ Japanese

oriented type; and ④ joint team-based type (Katz and Darbishire. Oct. 2000). In the service

industry, researches on work organization show two different approaches. First is the argument

that in order to achieve high efficiency, mass production based on standardized processes should

also be adopted in the service sector (Levitt, 1972, 1976; Batt 1999). Second is the argument that

skill level and discretion should be used in work processes to raise the competency of employees

(Schlesigner and Heskett 1991; Bowen and Lawler 1995). Keltner et. Al (1999) and Batt (2000)

talk about the ‘theory of strategic segmentation’ where service quality and customization differ

according to the size of the value-added from the customer. Management’s strategic segmentation

3 In the beginning, the jobs of insiders who belonged to the internal labor market in the dualized labor market were very

secure. However, in the new dual market, even high-ranking positions or managerial jobs no longer mean security. The

reduction in the number of safe and secure jobs, in other words, the decline of the internal labor market, is in lockstep with the

restructuring efforts of large firms.

strategy becomes an important criteria for customers, business strategies, and HR practices so that

firms producing low-added value focuses on cost minimization and standardization, while firms

with high added value offers various qualitative services (Batt 2000; Batt and Keefe 1999).

2. Theoretical Framework

Let’s now try to identify the framework for a hypothetical argument that can offer an adequate

explanation of the new employment relations in the mobile telecoms services industry, based on the

theories discussed above. First, we will assume that the external environment of the

telecommunications services industry with its fast changing market, technology, competition, and

the increasing importance of knowledge calls for something different than the rigid mass production

system of the past. It requires a flexible production system that has allowed for quick response to

external changes. Unlike the past vertically integrated organization where all production and

support activities were centered around the big company, the flexible production system requires

contractual relations between the parent company and subcontracting partners or horizontal

cooperation between the companies. Employment relations in the mobile telecoms services

industry will also evolve into a form that can support a flexible production system.

Second, the mobile services industry shall require an employment system that is conducive to

flexible production but at the same time manages labor in a discriminating way and can ensure low

cost and high service quality. Such an employment system recognizes differences between the

core and peripheral employees and assumes a certain level of polarization resulting from different

treatment of the two types of employees. Polarization of the labor market in turn will create new

problems and contradictions in the existing labor union and labor relations. At the same time,

procedural and substantial individualization will become more pronounced in employment relations

of the mobile services industry. Such a trend could threaten the very existence of established

unions and even bring about the collective nature of labor relations to become individualized.

Third, employment relations in the mobile services industry will reflect the polarization in

employment relations to become a dual structure. We could see core knowledge workers

characterized by cooperative labor relations and peripheral workers characterized by

non-cooperation or the lack of representation in industrial relations. The former will be

guaranteed with a higher level of discretion, while the latter will become subject to tight controls.

Chapter 3 Subcontracting Structure of Mobile Telecoms Services Industry – The

Modularization of Service Production

1. Strategic Outsourcing

In the past, mobile service providers as relative newcomers did not inherit the legacy of past

management systems and, therefore, had more strategic options for organization or employment4.

They used two interrelated yet contradicting strategies, or dualistic strategies. They separated

professional, planning, and management functions from the simply repetitive, labor-intensive, and

standardized ones geared up for upgrading the former and outsourcing the latter. In the internally

integrated organization, relatively uniform HR and employment strategies were possible.

However, in an industry like the mobile telecoms services, a significant gap exists between core

operations and simple standardized non-core operations. Core operations here refer to planning,

which demands the ability to quickly adapt to fast-changing situations and put creative ideas into

4. Although Company A started as a subsidiary of Korea Telecom, its high growth phase started in the 1990s. Thanks to its

fast technological innovations and market growth, it was easily able to make a fresh start without being burdened by the

legacy of the old system. Company B was established in 1997 and grew in a very short timeframe, which witnessed the

rapid growth period of the mobile service industry. Any vestiges of corporate legacy are, therefore, much weaker at B.

places along with R&D and professional and engineering tasks that require specific knowledge of

the area. They require support of various HR and employment strategies. An internally

integrated organization with a vertical hierarchy will soon expose its organizational rigidity.

Since the late 1980s, employees who joined mobile telecoms services companies had relatively

higher competencies and preferred creative jobs rather than simple and labor-intensive ones.

However, growth in the number of service subscribers also increased the demand for people that

can handle simple, routinized tasks, technical jobs, and standardized operations. Although these

people performed low value-added work, the prevailing uniform HR management system at the

time resulted in a rigid increase in labor costs. A substantial mismatch existed between these new

employees wishing to do challenging, creative jobs and those simple, repetitive, standardized tasks.

Employees who had been with the company, long performing simple and functional tasks, was not

easily able to adapt or immerse themselves into the fast changing technologies or the new market of

the mobile industry. Their skill has increasingly become obsolete. For this reason, mobile

telecoms firms started to reduce the number of workers in simple, routinized, standardized

operations. However, this was met with strong resistance from the labor union, whose members

included worker performing those simple tasks in the unionized firms, resulting in a head-on

confrontation between unions and management. This resulted in a clear contradiction in HRM and

industrial relations.

It was against this background that simple, standardized, and non-core operations were

outsourced. When such contradictions became apparent in other large firms with unions in the

early 1990s, mobile telecoms services companies started to call in temporary workers or agency

workers at call centers, base stations, and local channels, separately set up from the parent firms.

However, because of the regulations in the Agency Workers Act, which states that if a agency

worker is used for two consecutive years, he or she should be recognized as a full-time employee,

from March 2001 mobile service providers started to outsource call centers, maintenance and repair

of relaying facilities at base stations, and other operations to have been run directly by the company

using temporary or agency workers5. As a result, most of non-core operations are now outsourced

and are being undertaken by subcontractors6. The two mobile services providers strategically

outsourced all processes that produced services for customers. In other words, all processes of

service production – the contact points with customers that are regarded as the source of

competitive strength in the service industry – have been delegated to subcontractors. In

manufacturing industry terms, the production plant is being run by a subcontractor while the parent

company is solely focused on planning, design, quality control, and R&D.

2. Multi-layerd Structure of Parent and Subcontracting Companies in the Mobile Telecoms

Service Industry

The subcontracting relationship between the parent company and its subcontractors in the mobile

communications service industry is not a horizontal, cooperative partnership, but has hierarchical

structures characterized by support, integration, control, and subordination of the parent company.

5. Company A outsourced maintenance and repair functions of relaying facilities at base stations and at the time 300 technical

staff who worked at those functions also relocated to the outsourced company. Employees were given the option of either

staying at the parent firm or relocating to the outsourced company. Moreover, when the employee joined the outsourced

company, the position and wage level he or she enjoyed in company A were guaranteed. 6. At Company A, all service operations had been handled by those directly employed by company A. However, starting in

1998, maintenance and repair work at base stations, customer calls and services, visits to customers and other simple and

labor-intensive operations started to increase in step with the growth of the subscriber base, resulting in higher demand for

manpower. There was rising concerns that difficult industrial relations issues could emerge should those hired for simple

and labor intensive jobs unionize themselves. Hence, the decision was made to outsource low value-added standardized

functions. In August 2000, the call centers, which had been run by 700 to 800 agency customer services representatives,

were outsourced. In 2001, maintenance and repair work at base stations run with over 400 agency employees as well as

credit management dealing with arrearages were outsourced. Company B ran all its service operations with full-time or

agency employees before 2001. The local channel, Members’ Plaza, had been integrated into sales and run directly by the

parent company as had been maintenance & repair at base stations and five call centers. But in 2001, with the Agency Work

Act prohibiting usage of agency workers for more than two years, call centers, local channels, and maintenance work at base

stations were also outsourced.

Below [Figure 3-1] describes the relationship between the mobile services parent company and its

subcontracting firms with regard to four service channels (mobile handset sales agency, local

channel, call center, and relaying facilities at base stations). The parent company uses its

subcontractors running these four services channels to promote marketing, transact sales, and

handle inquiries and complaints at customer contact points. The subcontracting companies

actually running these four channels are ostensibly independent companies separate from the parent

company, but they are in reality integrated to the parent company organizationally and operationally.

They also offer services under the name of the parent company.

Thus, the parent company in the mobile telecoms service industry possesses only core functions

and controls the subcontractors, who are actually in charge of providing the quality and content of

services as determined by the parent company. Modularization has progressed further in the

mobile telecoms services industry than in automobile production, and service production in the

mobile telecom services industry is entirely outsourced. In such a modular organizational model,

major production processes are outsourced while the parent company is focused on core functions

like planning, administration, coordination, R&D, management support, and network management.

Production processes with simple repetitive, labor intensive, and standardized functions are also

outsourced in ‘modular firm’ model. (In-soo Kim, 1999, 302).

Mobile handset sales agencies offers a wide range of services on behalf of the parent company

– including selling handsets, handling subscriptions, billing, and changes in handsets owners, and

handling customer complaints. Those agencies are exclusively subject to the parent company and

act on behalf of the latter to offer various services to customers. They are units for transaction

whose main sources of income are commissions or gains arising from services provisions7. Sales

7. The sales teams of both A and B are responsible for managing and supporting exclusive handset sales agencies (i.e. for

only A or B). Each has 250 and 200 employees dedicated to managing those sales agencies, respectively. One sales team

oversees 50 to 80 agencies. Exclusive handset sales agencies number about 1,500 for company A and 1,467 for company B.

More than half are located around the Seoul metropolitan area with the rest scattered around regional cities. There are about

three to seven employees per store under a sales agency. Employees hired for those sales agencies alone total about 7,500

shops under the agencies earn sales commissions by selling various handsets supplied from

different agencies. One mobile handset sales agency typically deals with 10 to 100 sales shops,

and they can earn money by selling handsets through these shops.

〔Figure 3-1〕 Subcontracting Relationship of Mobile Communications Parent Company

Service production

Mobile telecomsServices firms

Core FunctionsStrategic Planning

Manag’t & CoordinationR&D

Manag’t SupportNetwork Management

mobilehandset

Sales agents(subcontractors)

localchannels

(subcontractors)

call centers(telemarketing

centres(subcontractors)

maintenance& repair at Base stations

(subcontractors)

subscriptionscancellationsReplacing handsets

Services inquiries

cancellationsreplacing handsetsservices inquiries

handling complaints

Value-added services

cancellationsbill inquiries

services inquiries

maintenace &repair of relay

facilities atbase stations

Modular Model

The two parent companies in the mobile services sector created local channels for customer

services and outsourced them to subcontractors (Company A’s ‘Branches’ or Company B’s

‘Members’ Plaza’). These local channels are the counterparts to the local telephone offices of the

past fixed-line services and were created to offer services to visiting customers and receive

in-coming customer calls. The relationships between the parent company and its subcontractors

running a local channel are similar to the concept of in-house subcontracting. Although the

for company A and about 4,000 for company B. Just in number alone, the total of about 11,500 is higher than the number of

full-time employees of the parent companies.

function of the subcontractor’s local channels that offers customer services overlaps in many

respects with that of sales agencies or call centers, it cannot register new subscribers or replace old

handsets by new ones. Company A has 51 local channels, and company B has 50 ones.

Company A’s ‘Branches’ are run by retired senior managers who are provided with running the

branches for limited periods of three years.

Call centers are a channel where a wide range of customer services are provided over the

telephone. Although call centers offer services under the parent company’s name, just like a local

channel, they are run by separate subcontractors. There are three types of call centers. Inbound

service call centers mostly receive calls from customers and help them to subscribe to new

additional services, handle their bill inquiries, activate or cancel subscriptions, and inform

customers about new products. The outbound call center calls up customers to promote services

and/or new services products (telemarketing). Other call centers collect arrear bills. Like local

channels, call centers are located within the parent company’s building and use equipment, facilities,

billboards, leased lines, and other call center facilities set up by the parent company. They receive

commissions which include incentives, based on the number of customer service representatives

and, depending on the number, quality, and level of services offered8.

3. Organizational Relationships Between the Parent Company and Subcontractors

8. Company A’s call centers were first established in 1985 and were operated directly by the parent company with agency

and temporary workers before being outsourced owing to concerns of labor dispute in August 2000. Senior managers

retiring from Company A could create separate subcontractor and be allowed to run call centers. As of the end of 2002,

company A had 13 inbound call centers (10 operated by subcontractors), five CRM centers or outbound call centers and a

global credit information center responsible for the collection of arrear bills. All in all, over 3,000 customer service

representatives worked at these centers. The call centers of company B were run by subcontractors from its inception in

early 1998. 1,170 work at five inbound call centers called ‘Members Center,’ 580 work at five arrear bill collection centers

and 340 work at CRM call centers for outbound telemarketing. In total, 2,090 CSRs work at 13 call centers run by seven

subcontractors. The call centers are composed of CSRs (10 to 15 CSRs) teams/divisions and sections. Most of employees

(97%) are females in their early/mid 20s. Their starting annual salary is around 14 million Won + communication + incentive.

On average, their years of services are about 1.5 years and the turnover rate is around 3 - 6%.

A. Support and Integration of Subcontractors by the parent company

Both companies A and B delegated their entire service production to their subcontractors.

However, despite such apparent, formal separation of organizations, in order to make delegated

services part of the integrated services framework of the parent company – in other words to enable

subcontracting companies to function like parts of the parent companies, the parent companies offer

substantial support to them by, for example, providing necessary infrastructure, facilities and

training. Sales agencies and local channels are also given various forms of support so that they

can effectively conduct their sales operations under the parent brand. In addition to offering rental

deposits, standardized signboard, interior decorations, IT, uniforms, and shopping bags and

covering PR material costs, the parent companies give each shop 800,000 won a year for IT

maintenance and repair and LAN usage charges. Subcontract firms do not pay separate amounts

for purchasing facilities, office fixtures/materials, installation charges, or rents. They only cover

expenses incurred during business operations, consumables, and customer service related expenses.

Subcontract firms running local channels or call centers offer customer services by simply hiring

employees to work at the buildings and facilities provided by the parent company. In the past,

they received funding to cover the labor costs of their employees and commissions but nowadays

are paid commissions per service item. The parent company also offers welfare benefits and bears

training cost for agencies9. By providing support in the form of providing needed infrastructure,

welfare benefits, providing training for subcontractors, the parent company integrates sales agencies,

9. Employees of large sales agencies receive 100,000 won monthly in direct support by company A. Other benefits include:

Mobile charge support for the owner of, and workers at, sales agencies; summer retreats; gifts for major holidays; health

checks for owners of agencies; support for sports day expenses; and support for welfare benefits. Agencies with high sales

performance can also expect additional incentives, event support for overseas trips as bonuses. There are also educational

programs: IT training; service product training; customer services training; and case studies on worst agencies are offered to

local channels, and call centers into the service production process under its control. Parent

companies, in other words, only outsource labor, particularly to local channels and call centers.

B. Control and Service Production Management

The relationships between the parent company and its sales agencies, local channels, and call

centers are those of subcontracting based on asymmetrical control, cooperation, and subordination.

The dynamics between the parent company and its subcontractors for these three service channels

are as asymmetrical as the relationship between David and Goliath. Subcontractors have no

choice but to accept all conditions put forth by the parent company. The parent company can use

forced allocation, incentives, service commission pricing, and ‘Best Agency’ awards as means to

directly force or control new customer acquisition or bring service quality up to its required

standards or forms. The parent company controls the service quality offered by sales agencies

through customer service commissions and related incentives while pitting the agencies against

each other to compete for new customers10. Customer service commissions are paid not only

based on service quality, but also on services load (number of new acquisitions, cancellations,

handset changes, bills collected etc.)11. The parent company gives warnings to sales agencies with

new or experienced agency employees. Owners of sales agencies are provided with labor, HR, tax and other practical training

programs to help increase the efficiency of their agency operations. 10. In addition to management commissions offered as compensation for attracting new subscribers for the parent company,

there are also CS (Customer Service) commissions for sales agencies by the parent company for handling customer inquiries

and complaints. There is also commission tied to customer satisfaction where the commission rate is determined by the rank

resulting from monitoring conducted by the parent company (“Happy Call” where calls are made to the customer who visited

the sales agency to check service content and quality) and mystery shopper activities (Visits to sales agencies by agents

pretending to be customers to monitor or capture service quality on camera). 11. If a sales agency with over 50,000 subscribers handled many service requests, it can receive a ranking of S to receive as

much as 15 million won of monthly commission. The ranks of S, A, B, and C, used for customer service commission

calculation, are awarded not just by workload based on simple number of subscribers, but by proportional workload. At

Company B also, 200 to 300 won in customer service commission is paid per handling a work. Agencies in convenient

locations easily accessible to customers receive about two to four million won in customer service commission a month.

poor sales or service records and even has the right to cancel the contract with a worst performing

agency. Cancellation of subcontracting agreements for the sales agencies, in reality, means the

closure of businesses.

Although local channels have been outsourced, they are actually operated through agents in a

fashion that is not unlike the direct control by the parent company. Company A assigned

operations of local channels to retired senior managers who are guaranteed a basic salary income

plus additional incentives based on branch performance. The branch owner, the retired senior

managers in charge of branch operations, has a strong alliance and commitment to the parent

company and plays a key role in enabling the local channels to service customers as if they were

part of the parent company. Local channels are, in other words, controlled very effectively

through personal ties and support measures.

Company B outsourced services to companies specializing in customer services and extends

contracts every six months to one year with subcontractors participating in its Members’ Plaza

program. Contract extensions or cancellations are determined based on overall evaluation of

customer satisfaction and performance. Company B dispatches a middle manager as the head of

the Members’ Plaza to manage and control service quality and contents12. Company B has the

right to cancel a contract with a local channel subcontractor and employs other means of control

like ranking systems for service quality control and other forceful measures to increase productivity.

Services offered by local channels and call centers are subject to surveys by external agencies

There are also CS contest commissions where commissions are awarded after evaluating service quality by branches. The

evaluation of an agency’s service quality is done quarterly, and about 200 agencies receive commissions ranging from

hundred of thousands won to as much as 30 million won. 12 Once a month mystery shopper system is used to evaluate service quality (courtesy, quick response, information provided,

etc.), and the result is used to rank the agencies. Customer service representatives at Members’ Plaza who received top

ranking (AAA) receive 20,000 won per person every month. 300,000 won also goes out as dinner treats for CSRs, and

100,000 won goes to the head of CSR team. Agencies with low CSR rankings also had lower customer satisfaction levels.

Such ranking systems pushed overall service quality of many Members’ Plazas upward. In addition, on-site service quality

survey is conducted once every three months for customers who are leaving Members’ Plaza upon receiving service. The

result of this survey is also reflected in ranking results.

specializing in monitoring of service quality and contents.

Chapter 4 Employment Relations in the Mobile Communications Service Industry

1. Employment Relations in the Parent Company

A. Training and Education of Core Employees

The HR strategy of mobile service providers is to outsource simple and standardized operations

while continually upgrading the qualifications of their full-time regular employees. Management

assigns full-time regular staff members to core positions to increase added-value activities and

educate them as flexible competent staff and to explore various ways to effectively use

knowledge-based workers. Accordingly, training and education programs were organized to hire

top quality talents and continue to develop their competencies.

In the mobile telecoms services industry where the change in technology or market environment

is very fast, a consistent and proactive HR development policy is required to enable employees to

obtain deep knowledge and strong competencies. New technologies tend to become obsolete in

only two to three years, and marketing techniques likewise quickly become outmoded. The two

parent companies develop their own training and education programs as part of their HR

development strategies. The objective is to increase organizational flexibility and adaptability

based on knowledge and technology and also to increase value and efficiency in utilizing

knowledge workers. To this end, a variety of education or training opportunities are offered to

gain experience and explore and challenge one’s capabilities. Although the training programs are

designed by the parent companies based on their own content, employees have some say in

choosing the content of their training for their own career development. The training programs

entail the use of the virtual learning system13designed for self-study by employees, internal/external

training programs tailored to personal career development plans, and degree courses at universities

in and outside Korea14. There are also other on-going training programs designed to help

employees gain knowledge about their jobs15.

B. Integrated Employment Relations

Because simple, repetitive, and standardized operations have been outsourced, the highly

competent workers of the parent company are mostly engaged in planning, administration, R&D,

engineering, management support, and other knowledge-based work (Zuboff 1988).

Knowledge-based work above all requires the ability to apply innovative ideas to develop and plan

services, marketing techniques, and technology, and explore niche markets that will increase the

competitiveness of the company. The training and education programs mentioned above are part

of the HR strategy deployed to upgrade manpower. Ultimately, a proper system to effectively

manage knowledge-based jobs is developed, and the knowledge-based approach in a flexible team

13. Company A is running training courses on technology, general management, marketing and other areas based on its own

virtual learning system developed in 1997. With the system, 860 workers finished six technical courses in 1998; 12,025

finished 86 management/marketing/technical courses in 1999; 16,786 finished 71 courses in 2000; 21,332 finished 100

courses in 2001 and 20,000 completed 103 courses in 2002. This means that one employee on average takes five courses. 14. Staff in general and managers can take courses in colleges in and out of Korea (at least five credits 40 hours a year) to

develop professional competency to enhance their job skills and respond to the changing business environment. They can have

double majors and select subjects in line with their personal career development plan or area of specialty. All required

education expenses are paid by the company. As of July 2002, employees were enrolled in 1,969 courses. They also receive

up to two million won per person for self-development costs. There are also courses to increase their international

competency by learning more about global business, foreign languages, and multinational companies. 15 . An example of job training would be CRM (Customer Relationship Management) training. The course covers

customer-oriented management, customer satisfaction, CRMs at world-class companies and the company’s own

customer-oriented management approaches. In 1999, 1,959 regular full- time employees in positions below chajang

(sectional managers) working at back-end offices received the training. In 2000, the number rose to 1,540 and in 2001, 421

new employees and employees of subsidiaries received the training.

is used to improve the innovative capabilities of the knowledge work. These knowledge workers

are also guaranteed opportunities to become promoted to managerial or executive positions as well

as chances to participate in the company’s decision-making process and to exercise self-discretion.

The opportunity to climb the corporate ladder to managerial positions is open to them, their salaries

and benefits are attractive, and their relationship with management is not stifled by hierarchy.

Rather, the relationship is maintained through team leader – team member ties while people climb

up to the gwajang (sub-sectional manager) – chajang (sectional manager) and bujang (senior

manager) levels.

The high number of managers and the flexible team give rise to an organizational structure that

looks like an inverted pyramid triangle16 that is different from the traditional bureaucratic and

hierarchical organizational structure. The fact that the number of managers accounts for close to

half of full-time employees is a manifestation of the characteristics of knowledge-based work and

flexible team. Under the team structure, relationships between team leaders and team members

become more flexible; unlike the rigid vertical ties between departmental head and departmental

staff in hierarchical organizations. The flat management structure of the team reduces the

psychological and emotional distance between management and employees. Management can

bring employees together within the corporate boundaries to help them internalize corporate goals

and values as their own goals and values and create a greater sense of unity. Such a relationship is

clearly a major break from the traditional hierarchical organization characterized by authority,

command, obedience, or control and resistance.

The bud of a new social psychological contract is borne under such an integrated employment

16 Company A has about 1,900 managers (positions of gwajang, sub-section manager, or above), about half of its total 4,000

plus full-time employees. Company B also has 1,167 managers that are gwajang, subsection manager or above out of 1,806

full time regular employees which is 64.6% of the total. The share of managers is higher because only middle managers and

professionals are left at the parent company after outsourcing functional and simple office jobs. Moreover, managerial

positions rose as experienced workers that are specialists in mobile communications were hired at market salaries. Attempts

relationship17. The new social and psychological contracts comes with flexible employment,

compensation and promotion based on one’s competencies and performance, HR development,

efforts to increase market value of employees, and focus on simultaneously increasing both

company-specific and market value-oriented skills. These contracts also entail flexible and

discretionary team and labor relations based on trust and mutual respect. Although the role of the

market is important in this new social psychological contract, such things as employee loyalty to the

company, creation and sharing of collective knowledge through the team-based approach, and

strong job ownership cannot be expected in market-based employment relations. Unlike

traditional employment relations, both the parent companies A and B create new, more integrated

employment relations where the distance from management to middle managers and employees is

relatively short, more discretion and authority is devolved to lower level employees, and the goals

of the employees are equal to those of the management.

C. Cooperative Industrial Relations with Knowledge Workers

The fact that the relationship between the parent and subcontracting companies is closer to an

organizational model of a ‘modularized firm’ signals the birth of a new labor market. Only a

small number of core knowledge workers are insiders of the parent company’s labor market, while

those undertaking simple, labor-intensive, and standardized functions and are actually responsible

for service production are larger in number but are in the inferior labor market of subcontracting

to remove any disadvantage to employees of the two companies coming together as a result of a merger also resulted in many

promotions. 17. The typical social contract for white collar workers at Korea’s mid to large-sized companies included secure employment

based on the concept of lifetime employment, tenure based promotion, and salary increases owing to development of the

internal labor market, stagnation and reduction in the market value of middle-aged to elderly group or workers, and

control within the hierarchical employment system. Although there is some cooperation in labor relations, the dominant trend

is distrust and calculative approaches to the relationship. Such a social contract was developed mainly for white collar

workers based on the industrialization model in tandem with Korea’s industrialization.

companies. The ‘modular firm’ organizational model and the integrated employment relations

described above do carry some significance in industrial relations. Under the traditional

organizational model workers who were in charge of direct production exercised their bargaining

power under the initiative of the labor union by controlling production. Under the modular

production model workers who constitute the majority members of trade unions are knowledge

workers such as professionals, competent staff, and engineers who work in planning, administration,

internal coordination, R&D, network management, and management support18. Their areas of

interest go beyond simple demands for higher wages and better conditions. They want to develop

their careers, participate in decision-making processes, and have more autonomy. Therefore, a

trade union representing their interests for more integrative bargaining rather than distributive one

would facilitate the effort to find common ground with management. The managements of the

two mobile telecoms service providers also know that the cooperation and dedication of these

knowledge workers can result in significant economic benefits (cost reductions by adopting best

practices, an improved decision-making processes, sharing of expert knowledge, and increased

cooperation between departments or teams). They serve as the foundation for creating a

cooperative labor-management relationship.

D. Job Security

Job security in the two mobile telecoms service companies is a complicated matter. Although

security is more or less guaranteed, some instability still persists. Because the industry had been

on the fast growth track since the 1990s, the size of both parent companies’ organization also grew

in tandem, thus increasing job security. However, during the 1998 financial crisis, company A

restructured its employment to cut about 500 employees. The option of voluntary early retirement

18 The knowledge workers do not produce goods or services themselves. Workers create profits by converting products that

was given to middle-aged and elderly employees who had come over from Korea Telecom, those

with low performance scores, and bujangs (senior managers) or executives who were slow to adapt

to changes. At the time, voluntary early retirees got 60 months of salary as a retirement payment.

However except this one-off payment, the turnover rate remains low at less than 1%. At the same

time, insecurity due to increased payrolls created as a result of a merger with other mobile telecoms

company (Company A merged with a mobile firm called Shinsegi telecoms while company B

merged with one called Hansol telecoms) remains strong at both companies19.

The job security issue at these companies has also emerged because existing employees find it

hard to carry out their tasks as they cannot easily adapt to the fast pace of technological innovation

or market change. Initially, they can take systematic training programs to acquire new skills or

increase their adaptability to become more agile in responding to new technologies or market

changes. However, increasing adaptability or mastering new technologies through training and

education have limited effectiveness as the speed of change is much faster in technology or the

market than in training. In a company where the retirement age is 58, middle managers in their

mid-40s frequently have to leave the company because of their lack of adaptability, creating serious

employment security problems for middle aged employees20. As the average age of both

companies is 33 to 34, the issue of job insecurity for middle-aged employees might be still minor,

but it has a potential to become serious as such vulnerability can also soon become reality to

are non-material and intangible into electronic goods and services with the help of their creative ideas. (ILO 2001). 19. According to a survey conducted on employees of Company A, 70% of employees were very interested in employment

security. Because of the fast changing technologies and market environment, the general thought seems to be that “if there is

no more chance for promotion after the mid-40s, I have to be ready to leave the company at any time as my ability to adapt

will decline.” In particular, though some in their mid-30s and early-40s are being promoted into executive positions, some

bujangs (senior managers below executives) in their 40s have failed to take managerial positions. This had led to middle

managers in their 40s feeling psychologically insecure about their jobs and feeling a pressure that they soon would have to

leave the company. 20. From the young executive’s perspective, having to work with managers who are in their late 40s who once were his or her

seniors is uncomfortable – especially considering the importance of age and tenure in the Korean office culture. Failure to

employees in their late 30s.

E. Flexible Team Structure and Leveraging Knowledge Labor

Both parent companies of mobile service adopted the flexible team structure to increase the

efficiency of knowledge labor. They also introduced knowledge management techniques and

devolved significant authority and discretionary power to team leaders and coupled it with

team-level and not individual compensation structures to emphasize team operation. The flexible

team structure also acts as the medium to encourage creation, dissemination, and usage of diverse

ideas and knowledge among team members – the knowledge workers.

Company A adopted the team structure in 1999, and each team has 20 to 40 team members.

Large teams are again divided into sub-units and have sub-unit heads. Team leaders enjoy

significant discretion and responsibility to make everyday decisions. Reporting typically occurs in

two stages starting from team member – team leader – head of division. With the team leader at

the helm of team operations, ‘can meetings’ are held to gather team members’ ideas and wisdom

whenever the need arises for large or small tasks within or between teams. In a team,

communications between members for daily operations as well as ‘can meetings’ offer an effective

venue to share or create new information, experience, and knowledge. Team activities facilitate

exchange, accumulation, and creation of explicit as well as tacit knowledge that is difficult to

document through socialization. Examples of tacit knowledge would be understanding the context

of a project or job, judgment on possibilities and opportunities, details of operation, evaluation on

the people responsible for the job, and information and assessment on the external organization or

people related to the job (Nonaka et al 2001: 14 –16). As such, this knowledge and know-how are

internalized by teams as well as at the individual team member level.

adapt to the fast pace of technological advancement and market environment changes by middle managers in their 40s also

All tacit knowledge like team members’ wisdom, experiences, information, and expertice are

pooled together, and the processes and results of a project or task are converted into explicit

knowledge by being included in the ‘Supex Notes’ that describes the processes or results with the

highest efficiency and quality. Then the ‘Note’ is recorded in the knowledge management system

to be used as reference by employees undertaking similar jobs or projects.

〔Figure 3-1〕Comparison of Departmental Organization and Flexible Team Structure

Departmentalheads

middlemanagers

newlyrecruited

experiencedstaff

Bold line means strong ties Dotted line means weak ties

Team leaders

Two types of dotted lines represent two groups of team members engaged in the same project

Traditional departmental organization Flexible team structure

The team offers a venue for on-the-job training and has a team leader or sub-unit leader playing

coach by job area to enable ‘socialization’ in knowledge management terms. ‘Socialization’

presents problems.

happens when experienced member of the team carries out a job together with a less experienced

new employee or someone who just moved from another team to mentor him or her while working

on the job. That is why team structures use ‘can meetings’ to satisfy different objectives of

knowledge creation, knowledge utilization, problem solving, and job training. The flexible team is

also proactive in obtaining external knowledge and internalizing it. Teams engaged in new

business areas or undertaking new types of projects invite external specialists to hear their

presentations, ask questions, and engage in active debate on areas of interest. They also obtain

information, experience, and knowledge in their regular contacts with customers, subcontractors,

competitors, and operators of businesses in related sectors. Through these processes, teams

‘internalize’ general knowledge (explicit knowledge), case studies, experiences, and other

information. Flexible team arrangements, in other words, exercise major techniques of knowledge

management while seeking to utilize knowledge work. The Flexible team structure acts as an

effective organizational framework to create and share diverse knowledge.

F. Individualization of Employment Relations

Since the 1998 IMF financial crisis, the performance-related pay has been adopted in variety of

forms mainly for managerial and clerical staff. Individualization in employment relations in the

mobile industry is evident in the compensation management scheme, which includes performance

evaluation, promotion, and wage determination. Both company A and company B have relatively

large portions of highly competent knowledge workers and therefore have favorable conditions to

move into the individualization of employment relations. Company A has already adopted a

certain level of procedural and substantive individualization in performance evaluation, promotion,

and salary decisions. However, collective and traditional approaches still prevail in

non-managerial grades under gwajang (sub-sectional managers). Company A had offered

fast-track opportunities to a few highly competent and high performing employees, while only

managers in positions including the chajang (sectional managers) grade were subject to an

performance-related pay. However, through consultation with the trade union in 2002, the

performance-related pay also became applicable to the gwajang (managers) grade in 200321.

Those not subject to the performance-related pay are non-managerial grades. Their basic salaries

are divided into capability-based pay which are set with consideration of competency and

performance plus seniority increments (1 to 40 increments) common to all employees. Even

employees in the non-managerial grades include some components of performance and competency

evaluation so that the level of salary increase can be different even within the same grade.

2. Employment and Labor Relations in Subcontracted Company

A. Impacts of Subcontracting Structure on Employment Relations

Mobile service providers offer systematic support to sales agencies, local services channels and

call centers. Although they are formally separated from the parent, they are in reality integrated to

the parent’s service production system, which is subject to fine-tuned control by the parent

company in a number of ways. Such a unique subcontracting relationship characterized by control,

cooperation, submission, and support defines employment relationship of the subcontractors.

Although from outside, it looks as if independent employment relations exist at the subcontracting

companies, in reality, not much discretionary power is given to the subcontractors as everything is

21. Negotiations to adopt a performance-related pay system for gwajangs, subsectional managers started in early 2002. The

company formed a taskforce with the trade union in July 2001 to listen to the union’s position on the new payment system,

which was finalized after five months of the team’s work. The performance-related pay was newly applied to 1,450 or 36%

of all employees, and as a result, 47.5% of all employees are now under the performance-related pay system.

determined or substantially restricted by the conditions set forth by the parent company. The

impact of the subcontracting relationship on employment relations is described in [Figure 3-2].

Subcontractors have no choice but to set the wage and working conditions within such structural

limitations and regulations. Subcontractors have to develop and enforce various techniques to

control service quality as per the standards demanded by the parent company.

〔Figure 3-2〕Relationship between Parent and Subcontracting Company and Employment

Relations

Subcontracting relationships & Employment Relations

Mobile telecoms Services companies

Subcontracting firms

mobile handsetsales agencies

Local channels Call centers

Support/Integration Control/Command

Employment relationsat subcontracting firms

Direct Control by the Parent

structuraldefinition/restraints

B. Employment Relations in Call Centers22

22. Customer calls handled at call centers mostly related to bill inquiries (free minutes campaign, bill disputes, new bill

calculations as a result of changes in service, etc.) followed by service related inquiries such as address changes, owner

changes, inquiries on TV ads, call quality, and new products.

Jobs and Work Organization at Call Centers – Skill Level, Customer Relations and

Management/Control

Work organization at the call centers is significantly impacted by the technological changes.

With the advancement of ACD (Automatic Call Distribution) technology, customers’ inbound calls

are automatically connected to the CSR (Customer Service Representatives), while call content and

call processing procedures are centrally monitored and controlled 24 hours 7 days a week at the

center23. CTI (Computer Telephone Integration) technology manages customer information and

puts it into a database to enhance the quality of customer services.

CSRs must pay attention not only to the number of calls they handle, but also to the details and

quality of services. Existing services and new products are becoming more complicated and

diverse in nature thanks to IT advancements, which in turn makes call center jobs much more

complicated. Such complexity in call center jobs translates into restrictions on any attempts to

standardize processes. At the same time, the need to strengthen customer relationships, the

emphasis on service quality, and uncertainties in call details also make standardization difficult.

CSRs need to be familiar with computers. They need to be able to swiftly move around different

software programs and be familiar with all of them and possess the social skills to maintain good

customer relations.

Team leaders receive incentives based on team performance, and because individual incentives

are determined through individual evaluations of CSRs within a team, evaluation serves as an

important control function24. Because the call center as a whole is greatly influenced by the

23 Individual CSRs activities – whether they are receiving calls, handling additional work related to calls or taking a break –

can all be tracked. Advancements in telecommunications technology allow electronic control and contribute to improvement

of the work process through quantitative control. At the same time, technology development accelerates integration of call

centers dispersed in different geographic regions, making them bigger and turning them into virtual call centers. Such

technological advancement allows call centers to handle increased call volume and use quantitative controls. 24 A very detailed survey on the number of calls handled, talk time, friendliness of CSRs, swiftness in call connection, CSR’s

response speed and knowledge, and other items needed to judge service level and quality is conducted. At the same time,

and automated system at call centers tracks over 100 indexes related to service quality. Such service indices and

customer service satisfaction surveys conducted by the parent company, a center’s priority is always

on control. The higher the importance on customer satisfaction, the more diverse quality control

measures are put in place at the call center to increase service quality. The call center’s internal

control mechanism therefore is veering away from traditional quantity-oriented control toward more

quality-focused control measures such as call monitoring/feedback, CSR training, and testing of

job- related knowledge.

<Table 4 - 1> Example of Daily Performance Report at Call Center

Group CSRs

Input CSRs Calls Handled per

CSR

Time per CSR

(min) Incoming

Calls

Customer

Inquiry

Calls

Calls

Picked

Up

within

20 Sec

Hit

Rate

Service

Level

In Out Total

General 21,574 20,798 17,812 96.4% 82.6% 156.0 133.3 11.6 144.9 326.1 Royal

Customer2,913 2,843 2,683 97.6% 92.1% 45.0 63.2 56.5 119.7 298.6

Call Quality

3.353 2,762 680 82.4% 20.3% 59.0 46.8 47.3 94.1 312.5

Total 27,840 26,403 21,175 94.8% 76.1% 260.0 - - - -

Source: Internal data of A’s call center (July 31, 2002)

In conclusion, while evaluating the number of calls handled, the quality of service is evaluated

by monitoring calls, training, evaluation, and satisfaction level feedback from customers to enable

survey results are used to rate the service quality of call centers. Within a center, the staff compete to receive higher service

ratings, which are determined every week, month, quarter, and year on the levels of center, team, and individuals. The CRM

centers responsible for outbound telemarketing are also evaluated by the center, team and individuals based on sales of

value-added services and collection efforts. CSRs also receive monthly incentives ranging from 80,000 to 400,000 won a

month based on their performance. The call center head’s salary has a fixed portion (about 60%) and performance based

variable (40%) as determined based on the center’s service performance. If the call center has weak service performance, the

flexible management and control. Such a control system helps CSRs focus on quantitative

performance while striving to achieve quality goals. The system allows managers to act as

supervisors as well as supporters to help CSRs solve any problems they may face.

<Table 4-2> Example of Month-End Evaluation of CSR

CSRMonitorin

g(50)

Job

Knowledge

(15)

Processing

(25)

Evaluation

from

Coworkers (5)

Motivation

(5)

Points

Added

Points

Deducted

Total

ScoreRank

Incenti

ve

A 46.17 14.55 25.00 4.5 4.5 0.00 0.00 94.72 1 S B 43.58 14.55 25.00 5.00 5.00 0.00 0.00 93.13 8 A C 44.25 14.10 25.00 4.00 4.00 0.00 0.00 91.35 22 B D 45.75 10.05 24.50 4.50 4.50 0.00 0.00 89.30 43 C E 42.50 14.10 23.25 4.50 4.50 1.00 0.00 89.85 52 C

Source: Monthly report of A’s call center (July 2002)

HR Management

HRM at call centers is defined within the structural environment of the subcontracting

relationship, and worker at the call center is exposed to competition of the external labor market.

Its workers are typically engaged in simple jobs and possess low skill levels, which translates into

low wages and high job insecurity for CSRs. A new CSR typically receives three to four weeks of

training to learn about services, products, related technologies, marketing, and the basics of how to

respond to customer calls. Then comes two weeks of field exercises or mentoring followed by a

two-weeks to one-month internship period before becoming a full-fledged CSR. Service and

product training for existing CSRs is held everyday at the team level. Overall training for the

entire call center is organized as part of the annual training plan. Training is done simultaneously

variable portion will be reduced by an appropriate amount. Although the incentives of CSRs are given by the head of the

call center, they are in fact paid separately by the parent company.

with evaluation and is linked with incentives. As such, CSRs have to attend training.

<Table 4-3> Individual Incentive Payment (in KRW)

S(10%) A(15%) B(15%) C(25%) D(35%)

350,000 230,000 170,000 120,000 0

Source: Call center internal data.

Under a rather simple grading structure, promotion can be based on performance and not tenure.

In the case of company A’s subcontracted call center, an employee with good performance was

actually promoted to class 5 (team leader) in just two years. The difference in basic wage resulting

from promotion ranges from 30,000 to 50,000 won, and there are also incentives based on

performance evaluation. The results of competition between call centers, between teams in the

call center, and between CSRs are tallied with the performance of the center, team, and individual

to calculate individual and group incentive bonuses. The turnover rate is higher owing to the

developments in the external labor market. To prevent CSRs from leaving, the company is trying

to highlight future opportunities for career development. An incentive system based on

compensation and promotion is part of a positive retention strategy adopted by the company to

prevent high performers from leaving. In addition, grading structure within the same CSR were

created to offer benefits matching the number of years with the company.

C. Employment Relations in Mobile Handset Sales Agencies and Local Services Channels

Sales agencies and local channels are different from call centers in that they have face-to-face

contacts with customers and emphasize sales activities such as handset sales. They are similar to

call centers in terms of services offered to customers. Servicing customers face-to-face entails a

very different customer – service provider relationship in terms of quality compared to customer

service via telephone. Above all, in terms of technological development, the work environment is

far removed from electronic control. Relationships with customers are formed not only through

machine connection, but personal connection in the same physical space. There is more room for

control on the work speed or workload, and not all job processes can be exposed or measured by

machines.

Employment Relations at Sales Agencies

Sales agencies are largely responsible for four areas. The first two are sales to visiting

customers and wholesale to sales shops (retailers). Next is front services and responding to

inquiries of visiting customers followed by acting as a secondary support line for sales and service

activities. Sales and services for visiting customers – the most typical function of a sales agency –

are conducted together at shops at sales agencies. Wholesale to sales shops (retailers) is an

important area accounting for 70% of sale of the sales agency. This is the area where agencies

earn management commissions, and winning new customers means higher evaluation results and

incentives from the parent company. It is therefore a very important part of sales agency

operations. Wholesalers responsible for retail shops should be able to judge market trends and

apply the right pricing model amidst cut-throat competition. It is an area that requires a high level

of business sense, experience, and social skills. Employees at sales agencies require entry level

knowledge of computers when they join the company as well as social skills for customer services.

Operations are very greatly individualized at sales agencies and secondary sales support refers to

paper processing for customer services or wholesale. Such a pure supporting role can be

understood as a mere division of work.

In terms of work process control, indirect control is much stronger including incentives offered

based on CS scores. As a result, work practices at sales agencies are divided between customer

service representatives working at customer service counters and sales personnel dealing with

wholesale. The targets of sales and service activities can also be divided into individual customers

and sales agencies. The level of discretion, responsibility, technological expertise, and work

control also differs significantly between the two roles.

With control and subordination forming the base for relationship between the parent company and

sales agency, the approach to HR management is similar to other employment systems for

peripheral workers typically characterized by low wages and high turnover rates. In job

assignments, males usually go to wholesale, and females typically work at retail counters. On

average, employees work for about a year, and the turnover rate is especially high for women. The

turnover rate of male workers, on the other hand, is not that high. Most female workers graduated

from vocational high schools and receive starting salaries of 700,000 to 800,000 won a month.

The figure jumps to 1.2 million to 1.3 million won a month once they receive six months of

computer training. Males, on the other hand, receive annual salaries of around 20 million won

within 1 to 2 years. Most of the education/training programs for experienced workers are led by

the parent company. There are incentives attached to passing each level. If an employee passes

level 4, some of his or her salary is paid by the parent company. The long working hours – the

agencies typically stay open until 9 pm – is the one point of greatest dissatisfaction among

employees. The biggest problem relates to identity and treatment. The next biggest problem is

the gap in wages as well as other benefits between the parent company and agencies that is due to

employees belonging to different companies.

Employment Relations at Local Services Channels

Local services channels which offer services by coming to direct contact with the customers are

under direct management from the parent company’s marketing division – Company A’s Marketing

Regional Offices and Company B’s Regional Headquarters. For this reason, there is high pressure

to maintain high customer service levels and quality at local channels. Local channels handle all

things related to customer services (New subscriptions, cancellations, handset replacements,

ownership changes, bill payments, customer inquiries, subscriptions to value-added services,

customer complaints, etc.). Each employee of a local channel typically handles 30 to 40

customers each day and responds to individual customer requests with the objective of providing

“one-stop service.” The work process is individualized as it is handled one-on-one through direct

relationships with customers. Because sales agencies increasingly focus on sales of mobile

handsets, many customers with complaints tend to come to local channels. The most difficult

job is the handling of customer complaints or “claims.” These types of task are the source of the

greatest stress for employees. The skills required include social skills for responding to customers,

computer skills, and job related knowledge. Employees receive continuous training to improve

their customer services. Standards for CS (Customer Services) at local channels are high, and CS

becomes the basis for control. Internal and external CS evaluation is an indirect yet strong control

mechanism25.

In HR management, despite relative low wages, weak benefits, and lack of career management,

continuous training is emphasized to improve customer services. Average years of services is

around a year and employee are mostly female. The first three months is the internship period.

Upon being hired, new workers first receive three days of group training by the parent company

before starting field training at the local channgl. After one month, a new employee learns the

basic skills needed to perform the job and is ready for work. However, it usually takes about three

months for the employee to start to fulfill her role. Training is conducted on a regular basis to help

job performance, and regular training programs are held two to three times a month. Service

products, computer usage, and customer response skills are tested every month through written tests.

25 CS evaluation is based on internal monitoring of friendliness, greeting method, intonation, and service knowledge. Those who score low are put

through one-day remedial training. Externally, mystery shoppers from a company hired by the parent company visit local channels to receive

service and make evaluations. Calls are also put to serviced customers to ascertain their satisfaction level.

If the test score, customer satisfaction survey results, or monitoring scores are low, the employee is

requested to receive remedial training.

There is neither a guarantee of job security nor a future vision for career development. Although

they work side by side with employees from the parent company, they are very dissatisfied about

the significant difference in position, wages, and working conditions. As a result, HR

management at local channels is mostly dependent on the external labor market as wages,

promotion, or career development opportunities are significantly poorer even when compared

against call centers.

D. Characteristics of Employment Relations at Subcontracting Companies

Employment relations at the call center are neither 1) mass production based on production

process standardization or 2) based on the empowerment model for offering quality service. They

are somewhere between these two extremes. Advancement in call center technology has enabled

electronic control over workload and work processes while facilitating operational standardization.

However, the rising importance of customer service quality in the very competitive market requires

that more discretion and authority be devolved to workers. To win against competition,

employees are asked to offer custom-tailored service, increase job related knowledge to enhance

service satisfaction levels, and maintain relationships with customers. They have to attend endless

training courses to obtain complex job related knowledge, and adoption of performance based

evaluation means that they are awarded with incentives or receive promotions based on individual

or group evaluation results.

Employment relations at sales agencies and local channels shows elements typically found in

peripheral labor like low wages, lack of career development opportunities, and job insecurity as

well as core labor factors like expanding job scope – i.e. non-standardization and growing emphasis

on worker training. The two axes seen at these subcontractors that conflict with complicated

employment relations are: 1) Stronger standards for customer service and 2) the subcontractor’s HR

strategy focusing on operational efficiency to reduce cost. To improve service quality, job

processes are not segmented in detail like those of call centers, and workers are responsible for a

wider scope of work. For example, the employees of sales agencies or local channels offer all

services requested by customers from bill payment to service change as “one-stop service.” In

such cases, the employee’s job entail different tasks with expanded scope rather than simple

repetitive work. Next, lack of (or weak) HR management reflects poor working conditions for

peripheral workers in jobs with not much future growth potential. These workers cannot increase

their skill sets or manage their career pathss.

The complex employment relations where such conflicting trends co-exist can be seen at call

centers, sales agencies, and local channels. At sales agencies, such trends are further segmented

into differentiated employment relations based on job specification, showing increasing variation in

employment relations even within the same job type. For example, wholesalers at sales agencies

require experience on the job and a certain level of technical know-how. The job, therefore, has

future development opportunities and entails differentiated employment relations where substantial

incentives are available based on sales performance. However, treatment of customer counter

service personnel is lower than that of workers at call centers.

In conclusion, employment relations at the call center, sales agency, and local channel reflect the

subordinate position of subcontractors in their relationships with the parent company, and although

workers are full time employees of the subcontractor, their wage levels, working conditions,

employment periods, and career management are commensurate with those of peripheral workers.

Their work entails both a certain level of standardization and job scope expansion. There are also

diverse control mechanisms in place to ensure service quality. Intensive training is also available

to ensure service quality and to win against the competition. Furthermore, even under same

conditions or same job type, a certain level of variation exists between males and females or

between roles.

E. Labor Relations at Subcontractors

Labor relations at a subcontracted company are defined by the subcontracting relationship

between the parent and subcontracted companies. A subcontractor cannot help but be in the

absolute weaker position when representing, organizing, or negotiating on behalf of workers’

interests. Any move toward unionization of workers at a subcontracted company could result in a

cancelled contract from the parent company. This is a strong characteristics of labor relations

under a parent company, so workers at subcontractors cannot be unionized or have an organization

or entity that represents their positions or interests. CSRs at B’s Members’ Plaza attempted to

form a union in 2001 but could go no further when facing the threat by B to cut subcontracting ties

find another company. Structural problems in the asymmetrical power relationship between the

parent company and subcontractor forces the latter to always look out for any potential issue

between labor and management. For the parent company’s managers overseeing the

subcontractors, managing labor relations is as important as management of performance targets.

To alleviate workers’ dissatisfaction, the parent company regards labor-management relations as an

important strategic target on par with customer satisfaction and other goals. To improve labor

relations, managers including team leaders and gwajangs meet with CSRs about once a month so

that CSRs opinions can be reflected in the policy decision-making process, to eliminate any mistrust,

and to create a cooperative atmosphere. Subcontractors, whose working conditions are not nearly

as good as those of the parent company, very active block any unionization attempt by workers

through communication and proactive problem solving.

As a result of the parent company’s no-union strategy, subcontracting companies’ workers not

only have no union, but also do not have any proper entity that can effectively represent their

interests. No subcontracted company has held labor-management consultations. Unionization by

work site or at the company level seems impossible for these workers. The dissatisfaction with the

lack of representation or poor benefits and treatment is expressed indirectly by leaving the company.

The high turnover rate at sales agencies, local channels, and call centers reflects the fact that jobs at

subcontracted companies are not regarded as ‘decent jobs;’ they are seen as ‘pass through’ jobs for

workers in lower positions in the labor market. The turnover results in heavy losses for the parent

or subcontracted companies who had invested in employee training. However, the contradiction in

the subcontracting company’s employment relations arises from the very fact that they cannot

drastically improve employee benefits. Hence, the realistic limitations of no unionization and lack

of a collective representation body means that the issue of unionization and improvement in

working conditions will continue to be raised in labor relations at subcontracted companies and

with the parent company. Subcontracted companies could unionize through regional or industrial

unions that transcend corporate boundaries. It could be realized together with the unionization of

non-regular workers.

Chapter 5. Conclusion and Implications

In this paper, we looked at employment and industrial relations between the parents and their

subcontractors in the mobile telecoms services industry of Korea. First, in organizing (control and

coordinate) economic activities in the mobile services industry, inter-firm relationships between the

parent and subcontractors determine the labor and employment relations. Both company A and

company B had been using mostly agency workers than regular full-time workers in four service

channels that were recognized as non-core business areas even before opting for outsourcing.

Agency workers were used in these non-core areas owing to rigidity in HR management, and

workers hired for non-core areas (people handling relatively simple, repetitive, and standardized

work) were subject to the same benefits and treatment as core staff engaged in planning,

management support, engineering, and R&D operations. Furthermore, under the seniority-based

wage structure, non-core workers with longer seniority resulting in higher wages would have meant

higher labor costs for non-core functions. Second, if non-core worker had been hired as regular

employees and the company had had to undergo employment restructuring in response to the fast

changing market and technology environment typical in the mobile telecoms industry, the situation

would have become difficult and prone to conflict. Third, if non-core workers had been hired as

full-time regular employees, they could have demanded the same treatment as core staff under the

initiative of the trade union, opposed flexible resource allocation, and hindered attempts at

restructuring. Against this backdrop, agency workers were used for four service channels deemed

as performing simple repetitive operations. But with the Agency Work Act limiting the period of

using agency workers to two years, both companies decided to outsource the functions of the four

service channels that had until then been operated under the direct control of company A and

company B.

When compared to the inter-firm relationships between the parent assembly company for the

finished car and its subcontractors in the automobile industry, that between the parent company and

its subcontractors in mobile services is similar in terms of production modularization. However,

the mobile service industry went a step further than the automobile industry in that it outsourced the

entire production processes. In the mobile telecoms services industry, the entire service

production processes, or what people call the source of the competitive edge in the service sector,

has been outsourced such that workers responsible for service production are employed by

subcontractors. This is a unique characteristic of the mobile service industry that does not apply to

existing manufacturing or service industries. Subcontractors use the parent company’s name to

offer services directly to end-customers and is subject to the parent’s plan and control. Although

subcontractors are formally separate companies, they are required to act as if they are a functional

department of the parent company. Such a modular firm model is based not on horizontal

relationships between independent companies, but on vertical relationships based on control,

cooperation, subordination, and support by the parent company at the center. In other words, the

subordinated subcontractors’ network creates a modular firm model that is a lean and mean parent

company (Harrison 1994, 196). This was created because the parent company opted to outsource

certain functions, and adopted flexibility and differentiation as its main strategies. Cost reduction,

avoidance of complex labor relations, and outsourcing are part of the HR management policy in the

mobile services industry, and it holds significant meaning with regard to employment relations.

The parent company uses outsourcing to maintain only the core workforce, reduce labor costs, make

it easier to restructure employment in line with the market and technological changes, and to avoid

labor issues arising from differential treatment between core and non-core personnel. Despite

these benefits to the parent company, on industrial and social level, subcontractors are spun off by

the mobile service provider and are controlled and become subordinate to the parent company.

Hence, workers at subcontracting firm rarely have access to opportunities for promotion or self

development, thus further bifurcating of the labor market.

Under the strategies of keeping the highly competent HR, the parent company hires top talents,

develops human resources by offering diverse educational opportunities, and adopts the flexible

team to efficiently use knowledge workers. This in turn creates a new social and psychological

contract that is similar to employment relations under the HRM model that links performance with

compensation and promotion by giving more discretion in performing jobs, promoting loyalty and

individualization in employment relations. In particular, to increase efficiency in using knowledge

work, various knowledge management approaches are adopted using a flexible team system. All

important plans and businesses are developed and carried out using the team’s knowledge,

challenges are overcome through collective efforts, and knowledge formed through such processes

is shared among team members. Systems are also put in place to allow the knowledge to be

exchanged and shared throughout the company. To create, accumulate, and disseminate team

activities and knowledge, the knowledge management system is developed and maintained through

a very systematic method. Such an HR management model shows a qualitative difference from

the traditional employment relations that had emphasized a seniority-based order, bureaucratic

control, collective employment relations, and uniform HR management.

At the same time, a micro-partnership was adopted as a labor relations strategy. The trade union

at the parent company does speak with an independent voice but cooperates with management to

form micro-partnership within the company. The distance between employees who are members

of the union and managers and executives is not far, diluting the sense of separation or distance

traditionally felt between executives, managers and employees. Diverse channels are open by

which employees can partake in the company’s decision-making processes. Employees also gain

a sense of responsibility and ownership while matching their personal goals with that of the

company’s, thus reducing the potential for conflict between management and union the company

also uses official and unofficial channels to proactively identify causes of dissatisfaction and

problems felt by the employees to eliminate any seed of labor conflict. As a result, the trade union

is also more inclined to resolve labor disputes through dialogue with the company rather than

through physical confrontations. Employment relations for knowledge work in mobile services

companies are cooperative, and productive relationships exist between management and union.

Integrated HR management-type employment relations and its corresponding industrial relations

work together in complementary form.

Subcontractors, on the other hand, are staffed by workers who produce services and who come in

direct contact with customers. Subcontractors control and supervise workers who are engaged in

relatively simple and standardized jobs to produce the level of services demanded by the parent

company. Control is linked to the renewal of subcontracting agreements, service commission rates,

and incentives. The subcontractor’s workers undertake their work while being subject to various

control mechanisms and having little discretion, no opportunity to partake in the decision-making

processes, no opportunities for career development or educational support, poor benefits, poor

chances of promotion, and lack of ownership. The lack of representation for workers at

subcontracting firms is very serious. Unionization workers at a subcontracting firm could lead the

parent company to cancel the subcontracting with the relevant subcontractor. The subcontracting

forms also do not run labor-management joint consultant committee, and its HR management

approach is ‘if you don’t like it, leave.’ Unless wages or working conditions in the same sector

(call center or similar customer services) improve, and unless the parent company improves the

contract relationship with its subcontractors, it would be difficult to see improvement in wages or

working conditions of employees at subcontracting firms. However, there is also a conflicting

trend. To increase service quality, rather than pushing strongly for functional standardization, the

subcontractors are opting to enlarge jobs and strengthen training. There is a limit to

standardization owing to the irregularity and unpredictability in dealing with customers, and the

continuing emphasis on customer relationship management means that CSRs have some minor

degree of discretion and authority. We can also see some variations in employment relations

depending on services channels. This is probably due to the necessity of mass customization in

the service industry. Workers at subcontractors maintain low costs, low commitment employment

relations without any union/employees consultations that can represent their own interests.

Because improvement in worker benefits at subcontractors are structurally infeasible, collective

efforts may be needed at the industry level to push for change.

As seen above, employment and labor relations between the parent company and subcontractors

in the mobile services industry are mutually dependent and yet show a very different polarized trend.

Mobile service providers have HRM-type employment relations and very cooperative industrial

relations. Subcontractors have low-cost market-oriented employment relations, while their

industrial relations are characterized by the lack of union representation and focus on control.

Such polarization in employment and labor relations means that the positive benefits from the

growth of the industry are being enjoyed only by a few workers, while the majority of workers at

the subcontractors cannot reap the fruits of industry growth. Because the parent company in the

industry has embraced a few privileged workers while ignoring the majority, issues related to

majority of workers have been transferred outside of the company, in other words to society.

More specifically, the sole focus on improving corporate competitive edge has resulted in serious

problems with regard to social equity and marginalization. Although this problem is not

something that is found in the mobile service industry alone, it has taken a clearer and more

extreme form here as the flagship industry of the knowledge information as a whole, which is

relatively freer from the past legacies. Although this is in line with the conclusion drawn by

Jae-Joon Hur et. al (2003, 56) that advancement in informatization in the industries using ICT

(Information and Communication Technology) will increase demand for low-skilled office workers,

it is different in that a minority knowledge workers and majority of subcontracted workers are

connected to each other through control and subordination based on the subcontracting

relationships.

Such polarization in employment and labor relations arises primarily from the management

strategy to secure competitive edge by flexibly responding to the changing environment and

through cost reduction efforts. However, we should also not ignore the uniformity of

enterprise-based employment system in Korea. That is, indiscriminate salary increases without

regard to jobs or their quality; the seniority-based wage system, and unions at the company level, all

serve to make employment relations rigid, therefore forcing management to outsource non-core

functions to improve efficiency. In other words, our existing employment system and labor

relations are promoting such polarization in a way or another. Such a conclusion was drawn

through this research because we looked simultaneously at the parent and related subcontractors in

the mobile telecoms services industry, whereas studies in the past typically looked only at the large

firms in each industry. Because the difference in approach shows that a different conclusion can

be drawn, research methodology deserves greater attention.

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