A. Introduction:
The globalization of the economy is going at a fast pace. This rapid move towards greater integration of the world economy is fuelled by a number of distinct yet interdependent forces: the spreading political decisions of countries to move towards liberalization and adoption of market oriented economies, the freer flow of capital, both direct foreign investments and portfolio investments, the very rapid developments in production and information technology, the spread and advance of global telecommunication, and the vast improvements in transport systems.
The forces fuelling globalization are creating a new production and market structure. The phenomenon of globalized manufacturing characterized by global commodity and value chains is becoming widespread. The network form of enterprise, where a product or service is produced and distributed by a network of enterprises, each contributing to the production and distribution according to their respective core competencies, is an emerging production structure. Flexible production processes and structure are increasingly required by very dynamic markets where product life is very short and where very discerning customers with higher purchasing power and more differentiated and international tastes are demanding much more product variety, high quality and value for money. Thus, in the increasingly globalized economy, competitiveness means the ability to constantly take the most advantageous position or niche in the rapidly changing market environment. The major determinants of the ability to sell products and services in the international market are no longer mainly relative costs advantages. More and more, competitiveness is based on quality, speed, technical superiority, service and product differentiation.
In the final analysis though, the underlying determinant of competitiveness, whether at national, sectoral or enterprise level, is rising total productivity which combines the notion of efficiency and effectiveness. It is no wonder then, that the factors that improve competitiveness of nations and enterprises are similar and parallel to the factors that are very important in improving total productivity.
In order for enterprises to meet the heightened competitiveness and productivity improvement imperatives brought about by globalization and the rapidly advancing information and communication technology, labour- management consultation and cooperation at both national and enterprise levels is very important. It helps build the human and social capital which are the foundation of sustainable competitiveness and productivity improvement. Participation and involvement build among the human resource of the enterprise, the skills, knowledge and attitudes as well as the innovative and creative abilities so essential for agility and adaptability of the enterprise to the dynamic markets. Consultations, communications, information sharing and involvement create the mutual trust and confidence, understanding, shared values and objectives, and partnership required for concerted actions.
B. Competitiveness of enterprises
With globalization, enterprises are now faced with new competitiveness requirements brought about by:
In such an environment, speed, product differentiation, technical innovation, organizational flexibility, and good customer orientation are increasingly becoming important competitive tools in addition to costs and quality focus. To meet these new terms of competition, enterprises must build competitive advantage based on innovation in soft and hard technology, industrial upgrading, flexibility, agility and adaptability, and improved total productivity.
An enterprise's competitive advantage is developed through improvements in the way it organizes and performs its sourcing, production and distribution activities (Porter, 1990). It acquires strong competitive position by creating and offering products and services of better or superior value to its customers. This it can achieve through better management and performance of what is called the value-chain of the enterprise: the sourcing and organizing of inbound inputs, the production operations which transform these inputs into products and services needed by the target markets, the organization and management of outbound distribution, marketing and sales, and the provision of after-sales services to ensure that customers enjoy the full value of its products and services.
Customer orientation
The improvement of the enterprise's value chain starts from determining what the customer wants. Thus, with the more discerning and demanding customers with more varied and rapidly changing requirements, enterprises have realized the importance of increasing their customer orientation. They must always be able to meet the needs, desires and expectations of their customer. This may call for rapid product development, frequent changes in product models and types, a broader range of products, and even production according to specifications of a particular buyer. With the rapid change of technology, of the fast spread of communication and information, the needs and requirements of customers, whether it be industrial or end-consumers, is very dynamic and volatile. An enterprise must have the flexibility and competence to cater to this very dynamic market.
Flexibility and agility
Enterprise develop and acquire the flexibility and competencies needed through strategies that involve: (a) the development and strengthening of internal core competencies and capabilities, simplifying structures and improving lateral interactions and coordination and improving communication; (b) the outsourcing of standard and specialized competencies through practices such as outright purchasing of standard parts and subcontracting of specialized parts and services, including the use of business service suppliers, temporary workers, home-work and geographical relocation of particular jobs and activities; and (c) the acquisition and quasi-internalization of complementary competencies and capabilities through various forms of cooperative relations with other enterprises such as partnership, networking and alliances (Palpacuer, 1997).
Human resource management
Enterprise competitiveness is based more and more on the quality of the human resource of the enterprise. Good human resource management (HRM) thus becomes an important cornerstone of an enterprise competitiveness strategy. Being an integral part of the strategic management of the enterprise, the various HRM policies, functions and practices should contribute to the creation and sustenance of the enterprise's competitive advantage. Thus, the development of the culture of productivity and creativity, the building-up of mutual trust and shared values, initiative and self-management, and multi-skilling and skills upgrading and continuous learning must always be priority goals of the various HRM functions of human resource planning, staffing, and allocation; human resource utilization; human resource development and motivation and commitment-building.
Trust and shared values appear as central mechanism for work coordination and control in a flexible enterprise. When work is complex and constantly changing, "direct control" based on supervision becomes too expensive and unwieldy, and "bureaucratic control" based on work standardization, rigid systems and procedures and rules and regulations is not workable and is counter-productive. Organizations must rely more on "self-management". This form of internalized control is built on mutual trust and confidence, shared values, and common understanding and acceptance of the organization's or corporate objectives, philosophies, priorities and norms. In this sense, information sharing becomes very important. Committed, motivated and capable employees at all levels are essential to gaining sustained competitive advantage.
Developing distinctive competence and proprietary technologies
In an era of rapid technological development, enterprises gain competitive advantage through offering unique product and services, development of distinctive competence and proprietary technologies. A strategy towards productivity and competitiveness therefore is promoting organizational capacity and adaptability to exploit the full potential of new technology to improve efficiency, develop new products and services and unleash the creativity and innovation of the workforce. Efforts need not be just in research and development to develop cutting-edge technologies, but it must also be in the adaptation of already existing hard and soft technology to build-up distinctive technical competence. Introducing technology alone however, is not sufficient. More than ever before, people are the most important resource in the new knowledge-based economy. The benefits of new technology can only be fully realized if it is introduced together with new forms of work organization and continuous training.
For enterprises in the cutting-edge technology development, the importance of keeping ahead in proprietary technology is clearly demonstrated in the electronics industry. A new term of competition, called "Wintelism" is emerging based on experiences in the electronic sector. In what is called the Wintelist (code word derived from combination of Windows and Intel) era, competition is based on setting and evolving de facto product standards in the market. The character of the shift in market power is seen in the advertisements of PC producers like IBM, Toshiba, Compaq or Siemens-Nixdorf whose systems are nearly identical and who emphasize components or software that have become de facto market standards - "Intel Inside", or "Microsoft Windows Installed" - rather than unique features of their own brand. In the Wintelist era, firms located anywhere in the disintegrated value chain can, potentially, control the evolution of key standards and in that way define the terms of competition not just in their particular segment but critically, in the final product market as well. For the Wintelist firms, ownership and manipulations of their de facto standards are considerably more effective barriers to entry than the barriers of scale and vertical control over technology and production which constituted the competitive strategy of the prior era because they are harder to duplicate (Borrus and Zysman, 1997).
Better supply chain management
The product or service that an enterprise sells to a customer is the result of a series of activities involving bringing together the inputs required, manufacturing these inputs into the enterprise's products, transporting these products to wholesalers and distributors, bringing them to the customer through retailing and other outlets, and providing after sales services as required. The supply chain is made-up of segments: the up-stream segments made-up of suppliers of raw-materials, components, services, consumables, etc., the internal supply-chain made-up of the various departments and units involved in the production of the products or services, and the down-stream segment made-up of distributors, wholesalers, retailers and providers of after-sale service. Improved value to customers can be achieved through the improvement in the various segments of the chain, as well as in completely redesigning the supply chain.
An enterprise can significantly improve its internal productivity by focussing on those things it can do well and subcontracting or outsourcing the other activities to other firms who could do them better. In the situation where an enterprise relies on a network of suppliers and service providers, the effectiveness and efficiency of the enterprise is very much affected and is very much dependent on the way it manages the supply chain. Improving collective productivity of an enterprise's supply chain requires (Porier, 1997):
Networking and alliances
One way for enterprises to improve their flexibility, acquire new technical and managerial competencies, increase leverage of their internal resources, and achieve speed in bringing products to market from market research, product development to distribution and retailing is through entering into networks and alliances with other enterprises. Through cooperation and collaboration with other enterprises -even with those in the same business and competitors- an enterprise could access new market opportunities and sources of needed inputs; concentrate and perform only those activities and functions that it can do most productively and quickly; have better access to new technology and innovation; learn and access new managerial practices and organizational systems; increase speed of the product cycle; and improve overall productivity.
The networking relationships between and among firms can be formal or informal. It can be vertical relationships such as those formed by firms engaged in complementary activities and those form supply chain relationships, and horizontal relationships involving firms engaged in similar or competing activities. Strategic alliances can be entered into, agreeing with other firms to combine efforts to pursue a competitive advantage that neither of the parties to the alliance could accomplish or achieve alone. The partners in the alliance contribute complementary products, market presence, distribution networks, production facilities, skills and technologies, etc. Strategic alliance is usually limited in space (e.g. for activities in a specific country), in time (i.e. for a specific period only), and purpose (e.g. they may be on technology but not on markets, or vice versa).
To obtain maximum benefits and minimize the risks and hidden costs of networking and alliances the enterprises entering into the relationship must undertake careful analysis and address a number of critical questions such as what the enterprise's core competencies are, its strength and weaknesses and what peripheral capabilities must it seek from the external environment; how the network will be governed, share influence and responsibilities; and where the competitive advantage will be created through networking.
Sustaining the enterprise's competitive advantage
The sustainability of the competitive advantage of an enterprise is dependent on the nature of the major source of its present advantage over the competitors. There is a hierarchy or level of sources of competitive advantage in terms of sustainability. Lower order sources of advantage such as low labour costs or cheap raw materials are relatively easy to imitate or acquire by competitors. Higher order advantages such as proprietary processes and technology, product differentiation based on unique product or services, brand reputation based on cumulative marketing efforts, and customer relationships protected by high costs to the customer of switching vendors, are more durable. These higher-order advantages are created through sustained and cumulative investment in physical facilities, human resource development, research and development, and/or marketing activities. Competitive advantage is therefore sustained through constant improvement and upgrading. In order to sustain its competitive advantage, an enterprise must become a moving target, creating new advantages at least as fast as competitors can replicate old ones. To remain competitive, an enterprise must constantly destroy old advantages to create new, higher-order ones (Porter, 1990).
The futuristic study conducted by the Committee on Visionary Manufacturing Challenges of the American National Research Council has identified that even in the near future, the basis of competition will be creativity and innovation in all aspects of the manufacturing enterprises (NRC, 1998). Companies must be able to bring new ideas and innovations to the marketplace rapidly and effectively. They must be able to rapidly restructure their value-chain organization - suppliers and distributors network, production and other business systems and processes- to meet the very dynamic and fluid markets. Closer integration and collaboration of all parties in their value chain will be a defining competitive advantage.
C. Competitiveness of nations
Nations do not compete as enterprises do. Rather, nations compete in creating the conditions that attract and encourage investors -foreign and domestic alike- to invest in productive and competitive enterprises within their borders (and even for local enterprises to invest abroad, if that will enhance international presence and market proximity and responsiveness). A country competes through creating the policy framework that encourages and enables its enterprises to constantly upgrade themselves and keep on improving their productivity, and by putting in place programmes and incentive packages that help and enable its enterprises to develop competitive advantages and pursue competitive strategies for successful participation in international markets.
Reports that rank countries according to competitiveness are getting widespread attention by policy makers and economic actors in both developing and developed countries. The World Competitiveness Yearbook of the International Institute of Management Development based in Lausanne, Switzerland (IMD, 1998) uses eight major groups of factors/principles to rank a nation's ability to encourage and sustain the competitiveness of its enterprises. Similarly, the Global Competitiveness Report published annually by the World Economic Forum also makes use of eight clusters of structural characteristics of national economies in constructing the Competitiveness Index used in ranking the competitiveness of the countries covered by the Report. The Report looks at international competitiveness as the ability of a nation's economy to make rapid and sustained gains in living standard (Sachs, J., Stone, G. And Warne, A., 1996). The Competitiveness Index thus aims to gauge the ability of a national economy to achieve sustained high rates of economic growth as measured by the annual change in gross domestic product per person. It attempts to measure growth potential on a horizon of five to ten years, offering an assessment of economic conditions for medium term growth.
A detailed scrutiny of the factor clusters -and the sub-factors within them- used by the two competitiveness reports show that over-all the two cover the same general issues that are deemed to influence "national competitiveness" (O'Neill, 1997). These factors are: (a) internationalization or openness of the economy, (b) domestic economy and government involvement and policies including legal and regulatory environment and institutions of civil society, (c) financial institutions including their size and transparency, (physical infrastructure, environment and energy, (d) management skills, (e) science and technology capability and facilities, and (f) people including skills and access to education, unemployment levels, working hours, welfare and social services, equal opportunity, quality of life, and attitudes to work.
Systemic competitiveness
The most competitive countries therefore have what Esser et al. (1996) call systemic competitiveness. Industrial competitiveness is the result of the complex and dynamic interaction among factors at four social and economic levels in a national economy: at the meta, macro, meso and micro levels.
At the meta level are the socio-economic, cultural and political factors that are essential to competitiveness such as :
At the macro level, the key ingredient for competitiveness is a stable and predictable macro-economic framework. Such a framework should lead to the creation of well functioning markets that are essential for the effective and efficient allocation of resources. This policy framework includes a realistic exchange-rate policy, a general foreign trade policy that stimulates local industries, a competitive policy, and a fiscal and budgetary policy geared for growth and stability. The macro framework should encourage or require the country's enterprises to be effective and efficient.
At the meso level, the key factors for competitiveness are specific policies and institutions that help industries to adapt to their environment and create competitive advantage. There are two sets of meso level factors:
An important element at the meso level is the legal and regulatory framework affecting the establishment and operations of enterprises. A legal and regulatory framework that imposes undue and excessive administrative and financial burdens on enterprises adversely affect their capacity to compete. Another important element is the effective channels and media of communication that facilitate the flow of information and exchange of ideas among key stakeholders and actors, relevant social groups, organizations and institutions.
At the micro-level, factors that determine enterprises competitiveness (in terms of costs, quality, product specificity, speed and responsiveness) are: entrepreneurial and managerial competencies; quality of human resources; organization of production, including process and organizational innovations; organization of product development; organization of the value-chain; and cooperation networks and alliances, among others.
Strategies for enhancing national productivity and competitiveness.
In the same vein, national productivity results from the intimate interaction of factors at the meta, macro, meso and micro levels. At the meta level are the socio-cultural factors that influence values and attitudes towards productive and qualitative work. It includes the capacity of the society to achieve strategic concertation towards common national development objectives. At the macro level are the macro economic policies that create the conducive and enabling economic environment that encourages and demands from the economic actors and enterprises to be productive and competitive. At the meso levels are the supportive micro-economic policies and governmental and private institutions that are implementing programmes. At the micro level are the enterprises who, through various efforts like managerial capability building, workers' skill and competency development, improvements in the production process and structures, alliances and networking, etc. are making productivity and competitiveness improvement a reality.
Many countries, faced with the opportunities created by globalization as well as by increased competition in the international and domestic markets are initiating national productivity movements or drives. These are concerted efforts aimed at creating the conditions for a sustained and continued productivity improvement of the various economic activities of the country. National productivity movements or drives vary from country to country as they must address situations and priorities dictated by particular country's needs and development strategies. Invariably though, such a concerted action for productivity improvement must deal with the meta, macro, meso and micro level factors important to productivity and competitiveness.
D. The positive link between labour-management cooperation and productivity and competitiveness
The above discussions on the competitiveness imperatives faced by enterprises in the rapidly globalizing economy has highlighted the critical importance of human resources and their interaction dynamics, not only within the enterprise itself, but also to its extended enterprise systems, i.e. through its value chain. In addition to the physical and financial capital of the enterprise, its competitiveness will more and more depend on its human capital and social capital. Human capital is reflected in the skills, knowledge, attitudes, creativity of the people of the enterprise while its social capital is determined by the mutual trust and confidence, collaboration, decision making processes, information sharing and communication, relations with its suppliers and distributors and relations with the customers and community, among others. Labour-management cooperation is essential in building the human and social capital of enterprises.
It has long been recognized that there are positive linkages between harmonious labour-management relations and productivity increase. Joint labour-management partnerships can spark the transformation of companies into flexible, customer-responsive organizations better equipped to compete in fast changing global markets (Rosow and Casner-Lotto, 1994). Where employers and workers cooperate on the basis of mutual trust and confidence, it is easier for them to agree on corporate policies and practices designed for productivity and competitiveness improvement and to implement participatory approaches to productivity improvement at the workplace. A conducive learning environment is created. Flexibility and rapid response to market shifts become easier to achieve. On the other hand, where labour-management relations are influenced by mistrust, adverse attitudes and confrontation, productivity drives have little chance to succeed. The situation is particularly serious where opposition and confrontation lead to open conflicts and disputes which are likely to further deteriorate labour management relations, disrupt production processes, and in some cases lead to collective work stoppages.
Especially at the present time of increasing globalization, widespread trade liberalization, internationalization of consumer preferences and rapid advance of information and production technology, it is more necessary than ever for the partners to consult each other and collaborate on issues of vital importance to the survival and growth of the enterprise. There is therefore a more intensified interest in how to develop new forms of labour-management relationships and new organizational structures and processes that are based on consultation, collaboration and participation that will help enterprises cope with increasingly competitive business environments.
This recognition of the need for labour-management cooperation is not entirely new. The basic and underlying idea is spelled-out in the Cooperation at the Level of the Undertaking Recommendation (No. 94) adopted by the International Labour Conference in 1952. The Recommendation calls for the promotion of consultation in the enterprise on matters of mutual concern not dealt with in collective bargaining or other machinery concerned with the determination of terms and conditions of employment. The Recommendation further suggests the encouragement of such consultation through voluntary agreements between parties. It also provides that consultation and cooperation may be promoted, as an alternative to or in combination with voluntary agreement, by laws or regulations establishing appropriate bodies for this purpose as well as their scope, function and structure. The Recommendation is very brief, and merely lays down the general principles without specifying details as to particular subjects for, or specific forms of consultation and cooperation. The countries and enterprises are to develop the specific mechanisms according to their particular situation and needs, national custom and practices, and industrial relations situation.
For example, one of the achievements that the Japan Productivity Centre for Socio-Economic Development is proud of is the role it played in advocating and spreading the labour-management joint consultation system in Japan. Taking-up from the ILO Recommendation, the then JPC introduced the concept and spread it as a workable system in the Japanese context. The aim was not to replace collective bargaining but on the contrary, the joint consultation system and collective bargaining both fulfilled important functions in labour management relations. For issues which were affecting employment conditions such as pay increase, working hours, more holiday, etc. the unions negotiated with management through collective bargaining. On matters of mutual interest, such as productivity improvement, safety and health, and training and education, representatives from both sides exchanged views and had constructive talks during joint consultation meetings. There were no rigid rules governing the procedure of joint consultation meetings. The government at one stage approached the JPC with a view to including this system in state legislation, but the JPC held that it would be better to leave the matter entirely in the hands of labour and management. The areas and subject to be discussed were left to each individual union and management to decide upon.
Some of the lessons learned on labour-management cooperation and productivity
Labour-management cooperation for productivity improvement has been the subject of many international and regional conferences, particularly those organized by the Asian Productivity Organization, and the European Foundation for the Improvement of Living and Working Conditions, with the aim of sharing varied national experiences. Some of the findings and conclusions of these meetings are:
1. Indeed, labour-management cooperation results in economic and non-economic, tangible and intangible gains to all parties involved. In other words, it is a win-win situation. Participation has a positive effect on the productivity of enterprises (although the effects depend on the totality of the firms' internal characteristics), and this results in the financial gains of investors, managers and workers of the enterprise. It leads to improved working relations, humanization of work, and greater workers' self-respect and sense of achievement.
2. It is difficult to implement labour-management cooperation and consultation at the firm level unless a consensus has been reached at the national level on the desirability of cooperation. It is very often the case that when people hear or use the term "labour-management cooperation" they think only of labour-management relations within the company and enterprise as well as in the shopfloor and workplace. What is often forgotten is the fact that labour-management relations at the enterprise level is strongly influenced by the nature and atmosphere of labour-management relations at the sectoral and national levels. The character and quality of labour-relations at these different levels depend on each other, act upon each other and determine each other. Employers' and workers' organizations should therefore start the cooperative relations at the national level and take concrete steps and programmes to help in the promotion of labour-management cooperation at the level of individual enterprises. These actions can be taken bi-laterally, or through institutionalized tripartite bodies and mechanisms such as the Tripartite Consultative Committees or the Tripartite National Productivity Councils.
3. It is most desirable that consultation and cooperation mechanisms be established voluntarily between labour and management, free from intervention from other parties. Only when management will not take the initiative in establishing such mechanisms, should government come into play to convince management. Basically government should not play a policing but an advisory and encouraging role in promoting labour-management cooperation.
4. Labour-management cooperation must be initiated by management. Whether they are based upon legislation or private mechanisms, initiatives for labour-management cooperation must come from management, or no-one else will take them. It should start with the management philosophy that recognizes that human resource is the most important resource of the enterprise and that the performance of the company results from collaboration and partnership between management and workers of the enterprise. It must take the form of deliberate personnel and human resources management policies, translated into management styles, systems and practices at all levels of the enterprise. Achieving effective labour-management cooperation involves not just the installation of new procedures and processes e.g. establishment of a joint-consultation committee or of a participatory productivity improvement scheme. Experiences have shown that mere installation of a labour-management cooperation scheme in isolation from broad changes in organizational culture generally does not succeed. A participatory and collaborative culture involves developing a new kind of philosophy, values, behaviour and practices of both management and workers.
Case studies of successful labour-management partnerships in America have highlighted the following underlying principles for effective partnerships (Rosow and Casner-Lotto, 1994):
Mechanisms and forms of labour management cooperation for productivity and competitiveness:
Cooperation at national level. As mentioned earlier, the social partners at the national level should take positive action to promote labour-management cooperation towards enhancing national productivity and competitiveness. In many countries, the strategic response to changing economic conditions has included deliberate joint action of the social partners at the national level. With regards to productivity improvement, for example, tripartite consultation and concertation have been used in various countries to determine the broad framework for labour-management approach to productivity, cooperation in the workplace, and for setting broad guidelines on productivity improvement strategies at the enterprise level. This consultation and concertation are carried through tripartite mechanisms and processes such as task forces and institutionalized bodies like the Tripartite National Productivity Councils which are common in Asia or through bi-partite cooperation bodies such as The Social Partners' Joint Action Programme for Enterprise Development in Norway, and the Labour Market and Productivity Centre of Canada.
Cooperation at enterprise level. At the level of the enterprise, labour management cooperation for productivity improvement can be of either or both the representative type and direct involvement type. Representative cooperation can take various forms, such as labour-management joint consultation committees, where representatives of labour and management consult and discuss issues, -those outside the collective bargaining purview-, related to improving the productivity and competitiveness of the enterprise. Some say that while collective bargaining covers, among the many employment related issues within its purview, those that deal with how to divide the pie, joint consultation for productivity deals with issues on how to increase the size of the pie. It is also important to make sure that the joint consultation mechanism is not mixed-up or confused with the grievance procedure, that the representative consultation and cooperation mechanisms and processes fully respect and recognize the roles and contributions of trade unions, and that they do not in anyway supplant collective bargaining.
Direct participation can be through the involvement and participation of workers in one-off productivity improvement projects such as company restructuring, changing the production lay-out, or selection and installation of new production process; or through continuing participatory productivity improvement programmes such as the 5S, Quality control Circles, Work Improvement Teams, etc.
E. Conclusion:
The importance of harmonious, collaborative labour-management relations to productivity improvement is recognized and proven. Especially given the heightened importance of productivity in the highly competitive globalized economy, fostering good labour-management relations becomes more imperative. It is no more a question of debating why and when, but the need is for action now.
Action should be taken both at the national level and at the level of the enterprise. The collaborative relations among the social partners at the national level creates the environment and facilitates the collaboration at the firm level. Successes and demonstrations of best practices at pioneering enterprises prove the workability and efficacy of collaboration in the local setting thus facilitating national acceptance and consensus on collaboration for productivity and competitiveness.
References and suggested readings:
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This paper was prepared by Arturo L. Tolentino, Head of the Management Development Programme, Job Creation and Enterprise Department, International Labour Office.
Opinions expressed in this paper are those of the author and not necessarily
those of the ILO.