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Impact of interfirm relationships –employment and working conditions
Group incentives, cross-functional teamsto encourage trust and continuity overtime and engender reciprocity and trust.
Knowledge employees (core knowledge)
Commitment-based HR; relational
Development of competencies,employee empowerment, participation indecision-making, discretion, long-termincentives.
Low Contract workers (ancillary knowledge)
Compliance-based HR; transactional
Short-term productivity and efficiencyare emphasised, for specified andlimited tasks. Jobs are likely to bestandardised and training/performancemanagement will focus on proceduralcompliance.
Job-based employees (compulsoryknowledge)
Productivity-based HR; transactional
Standardised jobs; selection of thosefrom external labour market who cancontribute immediately. Short-term,results-oriented emphasis.
Low High
Value of human capital
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Flexibility
It is also important to note that firms may need either functional or numerical flexibility (or both). Functional flexibility
may be required to diversify into different areas, while numerical flexibility is required when the workload increases
(Sako, 1992).
Many of the interfirm relationships aim to increase functional flexibility – for example, clusters of SMEs may more
easily be able to provide staff with access to training and to introduce innovative practices through collaboration as small
organisations commonly lack the capacity to develop these internally (UNIDO, 2001).
Functional or numerical flexibility may also be acquired through outsourcing and temporary work. Transnational
corporations are increasingly using temporary work agencies to meet their staffing needs (Ward et al, 2005). This shift
to ‘contingent employment’ (work that can be ended with minimal costs to the employer) can lead to long-term changes
in the organisation of work. For instance, employers can become enamoured of this relatively flexible relationship; and,
in turn, trade unions find it difficult to deal with temporary workers (Bergström, 2004). It is worth noting that, in itself,
this is a form of interfirm relationship, with large multinational agencies offering a supply of temporary workers.
Agencies may even move into new nations in order to supply particular large clients (Ward, 2004).
There may be differences across organisational cultures in how temporary work agencies are viewed. For instance, case
study evidence suggests that American firms have tended to view temporary work agencies as strategic partners, whereas
German employers do not. This may be linked to the finding that the same American firms tended to look to temporary
workers to extend their functional flexibility, while the German firms under examination tended to be looking for
numerical flexibility only (Mitlacher, 2007).
The processes involved with these relationships are not simple. Some of the important features and processes of interfirm
interactions are explored in the following section.
Impact of interfirm relationships – employment and working conditions
Hierarchy (governance structuresprovide parties with safeguards; mergermay occur but alternatively jointventure, which limits degree ofinvestment)
High – trust isprincipal mode ofsocial control
Recurrent contracting (Norms ofequity and reciprocity; allowsexperimentation with elements ofhierarchy that can be incorporated intocontract: command structures, authoritysystems, incentive systems, administeredpricing systems, structures for conflictresolution and standard procedures.Performance measures like quantities,quality and delivery time left open tofuture determination.
Relational contract (typically whereorganisations use relational contracts togovern joint research and development(R&D), technology or productdevelopment ventures). Safeguardswould be expected: provisions thatfacilitate just distribution of ‘tacit know-how assets’. Consultation to reduceinformation asymmetries.
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Such client–supplier relations have a particularly strong impact on the supplier if lead organisations take unpredictable
actions such as cancelling contracts or dramatically reducing orders (Marchington et al, 2009).
However, more benign forms of dominance relationship can also occur – for example, through the dissemination of good
practice from firms with well-resourced HR departments or training provision to others in the network (Marchington et
al, 2009).
The hierarchy does not need to be explicit for issues of dominance and control to emerge. Firms that wish to maintain
their competitive advantage may attempt to control partnerships to ensure that their lead is maintained. In the case of
relationships such as international joint ventures, this wish for control can mean that HRM and staffing become a
battleground. For instance, in the 1990s, Siemens-Fujitsu deployed joint expatriate chief executive officers (CEOs) from
each company, each with different approaches, leading to considerable infighting. Resources can easily be over-
committed (for example, through doubling up of posts) if HRM is based, as in this case, on desire for control rather than
necessity for control (Kabst, 2004). Parent firms may also wish to retain their own HRM practices simply because they
are familiar with them (Iles and Yolles, 2002), which again does not necessarily lead to efficiency.
Modularity
Recent discussions of ‘modularity’ in interfirm relationships (again, especially client–supplier relations) have added to
this picture of trust between managers and highlighted its effects on HRM. Highly modular relationships, as might be
seen in firms down the supply chain, where layers of subcontracting are apparent, involve few interactions between
firms, weak interdependence and formalised or codified exchanges (Sturgeon, 2002). This tends to be associated with
low levels of employment security, low wages, strongly hierarchical relationships and few opportunities for career
development. By contrast, weakly modular relationships typify high-trust networks where partners often work together
on a number of projects, and links between organisations occur at multiple levels. In this situation, working conditions
are likely to be taken more seriously because clients are keen not to damage their own reputations by providing defective
goods or services. Efforts are often made across the network to improve the quality of HRM, to provide training to meet
quality standards, and to encourage employee discretion (Marchington et al, 2009).
Adaptation of HRM strategies
Alignment
This refers to the creation of links between organisational goals or strategies and HRM, which then leads to the
development of employee commitment and allegiance to organisational, or network, goals. In the case of a multi-firm
relationship, achieving alignment across organisational boundaries is likely to be difficult, if goals, expectations or even
styles of HRM of the various partners differ (Marchington et al, 2011). Nevertheless, there may be common objectives,
such as project commitments, which drive alignment to some extent even where formal alignment of policies does not
take place.
Integration
This refers to HR packages or ‘bundles’ – connected or complementary policies that usually aim to promote behaviour
and cooperation to enhance organisational effectiveness. This refers both to the policy level and the actual behaviour and
practices in an organisation. Thus, even if policies across a multi-employer network are harmonised, practice may not
follow suit. Mobility of workers, variation in managers and regular changes in ownership of firms as well as turnover
within interfirm networks, for example when companies leave or join the network, can all make integration even harder
(Marchington et al, 2011).
Impact of interfirm relationships – employment and working conditions
Contracts very ofteninvolve staff transferfrom public toprivate sectorpartner; changes interms and conditionscontingent uponemploymentprotectionregulations (forexample, theAcquired RightsDirective) and role oftrade unions andworks councils (forexample,Berlinwasser;MülheimerEntsorgungs-gesellschaft, cited inEuropeanCommission, 2004).
Sources for staffingcan include: parentcompanies, locals,third-countrynationals, and others(Harry and Banai,cited in Schuler andTarique, 2005).Expatriate staffingfrom parents can be aproblematicmanifestation of astruggle for control(Kabst, 2004).
There may also bestaffing implicationsfor parent companies,for example, theneed to replace staffwho are recruited inthe joint venture.
As no new entity isformed, there may beless potential forimpact in this area(and in HR ingeneral), comparedwith internationaljoint ventures (IJVs)(Schuler andJackson, 2004).
Unlikely to belargely affected, butmay help identifyskills locally(EuropeanCommission, 2002) –although this mayresult in poachingbetween companies.
Unlikely to begreatly affected, butlinks may facilitaterecruitment. Thismay be positive ornegative forindividual companies– poaching mayoccur.
Training anddevelopment
Major challenge fordeveloping a sharedapproach to traininggiven the differentorganisationalobjectives of profitmotive versus publicservice (Grimshaw etal, 2011); skills maybe ‘bought in’ ratherthan developedinternally.
Knowledge sharingand transfer can be akey driver for theestablishment of IJVs(Schuler and Tarique,2005). Cross-culturaltraining anddevelopmentinitiatives can beimportant (Schuler etal, 2004).
The alliance may beformed to meetparticular skills needs.Demand for scientistsand engineers, forexample, is likely toincrease and makethese skills morevaluable (Schuler etal, 2004). Cross-cultural training anddevelopmentinitiatives can beimportant (Schuler etal, 2004).
Sharing ofknowledge may be akey reason forestablishing thecluster, thougharrangements fortraining might not beformalised. Theremay also be concernabout knowledge-sharing with, ortraining ofcompetitors.
Knowledge-sharingand development is amajor objective ofthe virtual companynetwork (BrandãoMoniz and Kovács,2000): impactexpected forknowledge workers.
Reward: pay,pension,benefits
Pay may be affected– for example, bytransfer to a privatefirm as found inGrimshaw and Roper(2007). Lower-paidworkers may benegatively affectedwhile white-collarworkers may benefit,in terms of both payand employmentconditions (see alsoKeune et al, 2008).
This tends to belocally adaptable(Schuler and Tarique,2005, p. 12) but theparents may havesome influence.Multiplecompensationsystems can causefeelings of inequity(Cascio and Serapio,1991).
Corporate socialresponsibility (CSR)of a strategic partnermay have an impact.
Geographicalproximity may meanthat reward systemsare similar, thoughthis may not be amatter of policy andit is likely to dependon whether partnersare at the same levelof the value chain.Partners’ CSR mayhave an impact.
Especially given thatthe venture involvesrisk to the parentcompanies, theremay be monitoringand control pressures(see Aulakh et al,1996).
Less impact expectedcompared to jointventures, as no newentity is formed, butclients may placeperformancemonitoring orsupervisory pressureson suppliers.
Dependent on type.Cooperative clustersunlikely to experienceeffects; suppliers mayexperienceperformancemonitoring oroccasionalsupervision.
Little impactexpected.
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Impact of interfirm relationships – employment and working conditions
Work intensificationcan occur, especiallyfor public sectoremployees underprivate sectormanagement;recasting of ethostowardsmanagerialist andquasi-marketdiscourses (Hebsonet al, 2003).
Joint ventures maybe located to takeadvantage offavourable (lessstrict) labour marketregulations.
CSR of a strategicpartner may have amoderate impact.
Those in supplychains may beaffected by clientdemands (Sako,1992), perhaps dueto CSR – althoughthis effect may bemitigated by EUregulations.
Relationship is set upto respond rapidly tomarket needs, so thenetwork may lead tointensification ofwork, even if not asa result of pressurefrom partners.
Staff healthand well-being
Public SectorDirective 2004/18and the UtilitiesDirective 2004/17allow publicauthorities to use arange of conditionsin procurement,including social andenvironmental (Hall,2008).
Ethical standards mayneed to follow parentcountries’ influence(Schuler and Tarique,2005 – though theyare speculative on thisrather than providingempirical evidence –p. 12), where the jointventure is establishedin a less regulatedcountry – forexample, to fulfilCSR.
CSR of a strategicpartner may have animpact.
CSR may beimportant forsuppliers (forexample, OECD,2002).
Collectiverepresentationthrough unions maybecome morefragmented,especially for publicsector workers (Hall,2008), but unionsmay also benefitfrom new pockets ofunionism in privatesector firms.
Evidence frommultinationalcorporations (whichhave somecomparability to IJVsin terms of cross-border parentalcontrol) is mixed.Some (especiallyUS) parentcompanies resistunionisation, butunions have beensuccessful in certaincampaigns forinfluence (Grimshawet al, 2011).Managers maychoose to signprotocols (forexample, recentagreement by DeltaAirlines, KLM andAir France
4). Parent
and venture locationmay be important.
Unlikely to have astrong impact.
CSR may come intoplay (for example, ifsuppliers imposeconditions aboutaccess to collectivebargaining), but thishas not been a focalpoint forcampaigners.
Trust Some suggestionsthat PPPs may erodeemployee–employertrust and lead tohigher levels oforganisation-levelmonitoring (Hebsonet al, 2003).
Complexity of thejoint venture maymake theestablishment of trustwithin the venture aslower process(Schuler and Tarique,2005).
Monitoringmechanisms may beimportant for trustbetween buyers andsuppliers. Sako’s(1992) analysis ofBritish and Japaneseinterfirmrelationships and anexamination byAulakh et al (1996)conclude thatestablishing moresubtle forms ofcontrol is associatedwith higher levels oftrust compared withdirect monitoring ofoutcomes and results.
Relationshipsbetween partnercompanies may besignificant in asupply chain (seeSako, 1992). Alsocrucial forknowledge-sharingbetween competitors(see, for example,Johnson et al, 1996,on cooperativerelationships).
The relationshipdepends on trust, butinterfirm trust maybe difficult toestablish especiallywhere short-termorders are beingprocessed rapidly.
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A variety of characteristics that can be clustered by nation will have an effect on HRM policies and practice. Grimshaw
et al (2011) specify three main types of influence: institutional, socioeconomic and normative. The literature in these
areas is discussed below.
Institutional influences
Labour market regulations such as legal minimum wages, contractual protection and working time vary across the EU
(Grimshaw et al, 2011), which will clearly have an impact on collaboration across national boundaries.
Industrial relations systems matter in a variety of ways. HRM within and between firms is clearly influenced by worker
rights and collective bargaining arrangements in various national contexts. There are varying degrees of unionisation and
coverage of worker protection across Europe, from countries with sectoral-level agreements and strong worker rights to
those with more voluntarist arrangements, but where failure to follow collective agreements may lead to poor
employer–employee relations (see Grimshaw et al, 2011).
It seems intuitive that industrial relations arrangements will have an effect on employment conditions in general – but
there is also evidence that the various systems of labour organisation can have differing impacts on human resources in
interfirm relationships in particular. For instance, models of IT outsourcing with staff transfer take the form of direct staff
transfer in the UK but a transition to a joint venture in Germany, largely as a result of stronger participation of works
councils in designing the transfer process (Grimshaw and Miozzo, 2009). Conversely, interfirm relationships can impact
on wider patterns of collective bargaining. Doellgast and colleagues have found this effect in the telecommunications
industries in France and Germany (Doellgast et al, 2009). They found that French state-organised unionisation covering
the whole sector seems to have discouraged employers from seeking pay concessions or from externalising (outsourcing)
jobs. In the German telecommunications sector, however, there has been a greater degree of restructuring, more
externalisation of jobs and concession bargaining – resulting in lower wage levels in the industry.
This has occurred despite still-powerful, firm-level works councils in Germany. More fragmented bargaining, and the
wish to protect core organisation employees rather than all those within the sector, have reduced the ability to protect the
sector as a whole (Doellgast et al, 2009). The vertical disintegration of German employers has been an important element
in this. German firms have traditionally been vertically integrated. However, in the automotive and telecommunications
industries this pattern has been in decline in recent years, with an increase in outsourcing and reliance on external
suppliers. This has occurred partly because there are no statutory obligations to consult works councils before
outsourcing labour, and because worker representatives have tended to cooperate when cost-cutting measures have been
deemed necessary. Subcontractors, subsidiaries and temporary agencies often have no collective bargaining institutions,
or are covered by different firm-level and sectoral agreements. These factors together have made collective bargaining
more difficult to coordinate, and less effective (Doellgast and Greer, 2007), demonstrating the interplay between
interfirm relationships and labour relations.
Other national and cross-national policy choices are also important. An example of such institutional embeddedness of
inter-organisational forms concerns public-private partnerships. The UK was a first mover in Europe in introducing
quasi-markets in the public sector and greater use of private sector organisations ostensibly to modernise the public
sector and make it more responsive to customer needs (Grimshaw and Roper, 2007). It is no coincidence then that the
UK seems to have the lion’s share of PPPs in Europe, given its weak commitment to public sector capital investment.
Specifically, from 2001 to the end of 2008, the total value of signed PPP contracts in the UK was €61.1 billion, while
the total value of signed PPP contracts for the rest of Europe was €36.6 billion (IFSL Research, 2009, Table 5, p. 3).
Impact of interfirm relationships – employment and working conditions
Table 4: Industrial regimes or arrangements
Note: * In France, employee representation in firms incorporates both principles, in Spain and Portugal it is dualist, and in Italy andGreece it is merged with the unions but based on statutory rights. Source: European Commission (2008), Table 2.2, p. 49
To create a workable model, however, it may be valuable to use a more simplified typology. Regulation of the labour
market may be selected as a feature that overlies many of the themes of relevance to interfirm relationships – such as
certain aspects of industrial relations; employment protection; and the consequent obligations placed on organisations
(Table 5).
The extent to which different types of interfirm relationships are affected by the regulatory context will be closely related
to the breadth of human resource practices affected by the collaboration.
PPP Impact on workers may be less than in a deregulatedlabour market, due to relatively equal conditions inpublic and private sectors.
Highly skilled workers may benefit from marketrewards; lower skilled workers may find that theirworking standards fall.
Joint venture Affected by a range of legislation on pay, recruitmentof local labour, health and safety, dismissal.
New entity will be less affected by restrictions. Jointventures may be set up for consequent cost advantages(Allen & Overy, 2009).
Strategicalliance
Strategic alliances involving contractual arrangementsmay have heavier obligations in a regulated system,but trust between partners may be increased wherethere is ‘system power’ (Lane and Bachmann, 1997)
Lower ‘system power’ may lead to increased relianceon contracting and lower trust between partners.
Cluster Legal requirements to train may affect clusters. A cluster in a deregulated economy may continue tohave an impact on training conditions and careerprogression. Other HR practices may be less affected.
Virtualcompanynetwork
As for strategic alliances and clusters, regulation mayallow for increased trust between firms, perhapsleading to more knowledge sharing and sharing ofdevelopment-related HRM practices.
Less regulation may encourage caution and mean thatthere is less impact on HRM.
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The increasingly complex and interdependent organisational structures that have been emerging in the past two decades
present particular research questions and challenges in relation to the way of conceptualising both the organisation (and
its boundaries) and the resultant employment systems and relations. As has been observed, ‘it is becoming harder to
determine for whom one really works. Interlocking business relationships are at the heart of this confusion’ (Felstead,
1993, p. 189). Complications therefore arise over a number of issues:
� whether employees are supervised by managers who are employed by another organisation;
� how pay is determined and by which organisation for which group of workers;
� how employment relations are negotiated;
� what happens to contractual terms and conditions and security of employment under the various types of interfirm
relationships;
� how issues around identity, culture and multiple forms of commitment arise for employees working in such types of
relationships and in boundary-spanning roles.
An examination of the literature suggests that there are some key concepts that are useful when examining interfirm
relationships and their impact on HRM.
� The degree of trust and risk in interfirm relationships will affect the HRM approach, with higher levels of trust and
lower levels of risk allowing for longer-term, less formalised relationships. Lower levels of trust and higher risk,
however, tend to result in more ‘modular’ relationships that are more likely to be based on discrete market
transactions.
� Meanwhile, differing levels of power will also affect the interfirm relationship. Firms that are dominant due to their
size or their position in the supply chain (for example, as a client with the power to terminate or reduce contracts)
may have a disproportionate impact on smaller organisations’ HRM policies. This may take the form of
explicit/direct requests for changes to HRM (such as skills development/qualifications or of ‘softer’/implicit
influences such as diffusion of good practice).
� Alignment, integration and consistency will also vary according to how closely organisations work together, and
according to whether the objectives of the collaboration require changes to working practices.
� Context is crucial. This applies partly to the immediate context of the relationship, such as the objectives of the
relationship; and whether collaborating organisations are competitors or not (which will have a bearing on the levels
of trust and risk involved). The broader context is also crucial as the decision to set up relationships, and their
management, will be influenced by national and European institutions and policies; as well as by socioeconomic and
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