Legal Aspects of Business

MB 0051

Name: Rajesh Kumar

Roll number: 520932980

Learning centre: 03036

Subject: MB 0051 – LEGAL ASPECTS OF BUSINESS

Assignment No.: Set 1

Date of submission at learning centre:

MB0051-Legal Aspects of Business

ASSIGNMENTS
Subject code: MB0051
(4 credits)
Marks 60
SUBJECT NAME: LEGAL ASPECTS OF BUSINESS

Note: Each Question carries 10 marks

Q1. Explain the concept and limitations of the theory of comparative costs.

Ans: The principle of comparative advantage explains how trade can benefit all parties
involved (countries, regions, individuals and so on), as long as they produce goods with
different relative costs. The net benefits of such an outcome are called gains from trade.
Usually attributed to the classical economist David Ricardo, comparative advantage is a key
economic concept in the study of trade.

Adam Smith had used the principle of absolute advantage to show how a country can benefit
from trade if the country has the lowest absolute cost of production in a good (ie. it can
produce more output per unit of input than any other country). The principle of comparative
advantage shows that what matters is not the absolute cost, but the opportunity cost of
production. The opportunity cost of production of a good can be measured as how much
production of another good needs to be reduced to increase production by one more unit.

The principle of comparative advantage shows that even if a country has no absolute
advantage in any product (ie. it is not the most efficient producer for any good), the
disadvantaged country can still benefit from specializing in and exporting the product(s) for
which it has the lowest opportunity cost of production.

It has been argued that it is impossible to falsify the Theory of Comparative Advantage.

The principle of comparative advantage explains how trade can benefit all parties involved
(countries, regions, individuals and so on), as long as they produce goods with different
relative costs. The net benefits of such an outcome are called gains from trade. Usually
attributed to the classical economist David Ricardo, comparative advantage is a key
economic concept in the study of trade.

Adam Smith had used the principle of absolute advantage to show how a country can benefit
from trade if the country has the lowest absolute cost of production in a good (i.e. it can
produce more output per unit of input than any other country). The principle of comparative
advantage shows that what matters is not the absolute cost, but the opportunity cost of
production. The opportunity cost of production of a good can be measured as how much
production of another good needs to be reduced to increase production by one more unit.

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The principle of comparative advantage shows that even if a country has no absolute
advantage in any product (i.e. it is not the most efficient producer for any good), the
disadvantaged country can still benefit from specializing in and exporting the product(s) for
which it has the lowest opportunity cost of production.

It has been argued that it is impossible to falsify the Theory of Comparative Advantage.

Q2. What are the different market entry strategies for a company which is interested to
enter International markets?

Ans: Exporting

Exporting is the most traditional and well established form of operating in foreign markets.
Exporting can be defined as the marketing of goods produced in one country into another.
Whilst no direct manufacturing is required in an overseas country, significant investments in
marketing are required. The tendency may be not to obtain as much detailed marketing
information as compared to manufacturing in marketing country; however, this does not
negate the need for a detailed marketing strategy.

The advantages of exporting are:

• manufacturing is home based thus, it is less risky than overseas based

• gives an opportunity to "learn" overseas markets before investing in bricks and mortar
• reduces the potential risks of operating overseas.

The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack
of control has to be weighed against the advantages. For example, in the exporting of African
horticultural products, the agents and Dutch flower auctions are in a position to dictate to
producers.

A distinction has to be drawn between passive and aggressive exporting. A passive exporter
awaits orders or comes across them by chance; an aggressive exporter develops marketing
strategies which provide a broad and clear picture of what the firm intends to do in the
foreign market. Pavord and Bogart2 (1975) found significant differences with regard to the
severity of exporting problems in motivating pressures between seekers and non-seekers of
export opportunities. They distinguished between firms whose marketing efforts were
characterized by no activity, minor activity and aggressive activity.

Those firms who are aggressive have clearly defined plans and strategy, including product,
price, promotion, distribution and research elements. Passiveness versus aggressiveness
depends on the motivation to export. In countries like Tanzania and Zambia, which have
embarked on structural adjustment programmes, organisations are being encouraged to
export, motivated by foreign exchange earnings potential, saturated domestic markets, growth
and expansion objectives, and the need to repay debts incurred by the borrowings to finance
the programmes. The type of export response is dependent on how the pressures are
perceived by the decision maker. Piercy (1982)3 highlights the fact that the degree of
involvement in foreign operations depends on "endogenous versus exogenous" motivating
factors, that is, whether the motivations were as a result of active or aggressive behaviour

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based on the firm's internal situation (endogenous) or as a result of reactive environmental

changes (exogenous).

If the firm achieves initial success at exporting quickly all to the good, but the risks of failure
in the early stages are high. The "learning effect" in exporting is usually very quick. The key
is to learn how to minimise risks associated with the initial stages of market entry and
commitment - this process of incremental involvement is called "creeping commitment"

Aggressive and passive export paths

Exporting methods include direct or indirect export. In direct exporting the organisation may
use an agent, distributor, or overseas subsidiary, or act via a Government agency. In effect,
the Grain Marketing Board in Zimbabwe, being commercialised but still having Government
control, is a Government agency. The Government, via the Board, are the only permitted
maize exporters. Bodies like the Horticultural Crops Development Authority (HCDA) in
Kenya may be merely a promotional body, dealing with advertising, information flows and so
on, or it may be active in exporting itself, particularly giving approval (like HCDA does) to
all export documents. In direct exporting the major problem is that of market information.
The exporter's task is to choose a market, find a representative or agent, set up the physical
distribution and documentation, promote and price the product. Control, or the lack of it, is a
major problem which often results in decisions on pricing, certification and promotion being
in the hands of others. Certainly, the phytosanitary requirements in Europe for horticultural
produce sourced in Africa are getting very demanding. Similarly, exporters are price takers as
produce is sourced also from the Caribbean and Eastern countries. In the months June to
September, Europe is "on season" because it can grow its own produce, so prices are low. As
such, producers are better supplying to local food processors. In the European winter prices
are much better, but product competition remains.

According to Collett4 (1991)) exporting requires a partnership between exporter, importer,

government and transport. Without these four coordinating activities the risk of failure is
increased. Contracts between buyer and seller are a must. Forwarders and agents can play a
vital role in the logistics procedures such as booking air space and arranging documentation.
A typical coordinated marketing channel for the export of Kenyan horticultural produce is
given in figure 7.4.

In this case the exporters can also be growers and in the low season both these and other
exporters may send produce to food processors which is also exported.

Figure 7.4 The export marketing channel for Kenyan horticultural products.

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Exporting can be very lucrative, especially 'if it is of high value added produce. For example
in 1992/93 Zimbabwe exported 5 338,38 tonnes of flowers, 4 678,18 tonnes of horticultural
produce and 12 000 tonnes of citrus at a total value of about US$ 22 016,56 million. In some
cases a mixture of direct and indirect exporting may be achieved with mixed results. For
example, the Grain Marketing Board of Zimbabwe may export grain directly to Zambia, or
may sell it to a relief agency like the United Nations, for feeding the Mozambican refugees in
Malawi. Payment arrangements may be different for the two transactions.

Foreign production

Besides exporting, other market entry strategies include licensing, joint ventures, contract
manufacture, ownership and participation in export processing zones or free trade zones.

Licensing: Licensing is defined as "the method of foreign operation whereby a firm in one
country agrees to permit a company in another country to use the manufacturing, processing,
trademark, know-how or some other skill provided by the licensor".

It is quite similar to the "franchise" operation. Coca Cola is an excellent example of licensing.
In Zimbabwe, United Bottlers have the licence to make Coke.

Licensing involves little expense and involvement. The only cost is signing the agreement
and policing its implementation.

Licensing gives the following advantages:

• Good way to start in foreign operations and open the door to low risk manufacturing
relationships
• Linkage of parent and receiving partner interests means both get most out of marketing
effort
• Capital not tied up in foreign operation and
• Options to buy into partner exist or provision to take royalties in stock.

The disadvantages are:

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• Limited form of participation - to length of agreement, specific product, process or

trademark
• Potential returns from marketing and manufacturing may be lost
• Partner develops know-how and so licence is short
• Licensees become competitors - overcome by having cross technology transfer deals and
• Requires considerable fact finding, planning, investigation and interpretation.

Those who decide to license ought to keep the options open for extending market
participation. This can be done through joint ventures with the licensee.

Joint ventures

Joint ventures can be defined as "an enterprise in which two or more investors share
ownership and control over property rights and operation".

Joint ventures are a more extensive form of participation than either exporting or licensing. In
Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food
processing.

Joint ventures give the following advantages:

• Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner
with know-how in technology or process

• Joint financial strength

• May be only means of entry and

• May be the source of supply for a third country.

They also have disadvantages:

• Partners do not have full control of management

• May be impossible to recover capital if need be
• Disagreement on third party markets to serve and
• Partners may have different views on expected benefits.

If the partners carefully map out in advance what they expect to achieve and how, then many
problems can be overcome.

Ownership: The most extensive form of participation is 100% ownership and this involves
the greatest commitment in capital and managerial effort. The ability to communicate and
control 100% may outweigh any of the disadvantages of joint ventures and licensing.
However, as mentioned earlier, repatriation of earnings and capital has to be carefully
monitored. The more unstable the environment the less likely is the ownership pathway an
option.

These forms of participation: exporting, licensing, joint ventures or ownership, are on a

continuum rather than discrete and can take many formats. Anderson and Coughlan8 (1987)

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summarise the entry mode as a choice between company owned or controlled methods -
"integrated" channels - or "independent" channels. Integrated channels offer the advantages
of planning and control of resources, flow of information, and faster market penetration, and
are a visible sign of commitment. The disadvantages are that they incur many costs
(especially marketing), the risks are high, some may be more effective than others (due to
culture) and in some cases their credibility amongst locals may be lower than that of
controlled independents. Independent channels offer lower performance costs, risks, less
capital, high local knowledge and credibility. Disadvantages include less market information
flow, greater coordinating and control difficulties and motivational difficulties. In addition
they may not be willing to spend money on market development and selection of good
intermediaries may be difficult as good ones are usually taken up anyway.

Once in a market, companies have to decide on a strategy for expansion. One may be to
concentrate on a few segments in a few countries - typical are cashewnuts from Tanzania and
horticultural exports from Zimbabwe and Kenya - or concentrate on one country and
diversify into segments. Other activities include country and market segment concentration -
typical of Coca Cola or Gerber baby foods, and finally country and segment diversification.
Another way of looking at it is by identifying three basic business strategies: stage one -
international, stage two - multinational (strategies correspond to ethnocentric and polycentric
orientations respectively) and stage three - global strategy (corresponds with geocentric
orientation). The basic philosophy behind stage one is extension of programmes and
products, behind stage two is decentralisation as far as possible to local operators and behind
stage three is an integration which seeks to synthesize inputs from world and regional
headquarters and the country organisation. Whilst most developing countries are hardly in
stage one, they have within them organisations which are in stage three. This has often led to
a "rebellion" against the operations of multinationals, often unfounded.

Q 3. a. What are the benefits of MNC’s.

b. Give a short note on OPEC.

Ans: A. Benefits of MNC’s.

Multinational companies (MNCs) are not without benefits, which may be to the government,
the economy, and the people or even to itself. Cole (1996) stated that the size of multinational
organization is enormous; many of them have total sales well in excess of the GND of many
of the world's nations. Cole also stated that World Bank statistics of comparison between
multinational companies and national GNPs shows, for example, that large oil firms such as
Exxon and Shell are large in economic terms that nations such as South Africa, Australia and
Argentina are substantially greater than nations such as Greece, Bulgaria and Egypt.

Other large multinational companies include General Motors, British Petroleum, Ford and
International Business Machine (IBM). Some of the benefits of multinational companies are:

1. There is usually huge capital investment in major economic activities

2. The country enjoys varieties of products, services and facilities, brought to their door steps
3. There is creation of more jobs for the populace
4. The nation's pool of skills are best utilized and put to use effectively and efficiently
5. There is advancement in technology as these companies bring in state-of-the-art-
technology for their businesses
6. The demand for training and retraining and advancement in the people's education

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becomes absolutely necessary. This will in turn help strengthen the economy of the nation
7. The living standard of the people is boosted
8. Friendliness between and among nations in trade i.e. it strengthen international relation
9. The balance of payments of nations in trade are improved on

In the words of Cole (1996), he stated that the sheer size (and wealth) of multinationals
means that they can have a significant effect on host country. To Cole, most of the effects are
beneficial and include some of the above or all. The Electronic Library of Scientific
Literature (1996) explained the benefits of MNCs under a theory known as 'The Theory of
Externalities'. The theory considers the benefits of MNCs from the point of view of those
who maintain the importance of Foreign Direct Investment (FDI) as part of the engine
necessary for growth. In the contribution of Davies (1989), he gave some theories on the
benefits/advantages of multinational. Davies (1989:260) tagged this 'Economic Theory' and
the multinational where he took a comprehensive and critical look at the benefits of MNCs.

More benefits came along with these people's theories and some are:

1. There is significant injection into the local economy in respect to investment

2. Best utilization of the country's natural resources
3. They help in strengthening domestic competition
4. They are good source of technological expertise
5. Expansion of market in the host country

B. OPEC

OPEC's 'management' is also concerned with short term profits, but not for the same reason.
The more far-sighted OPEC personalities and/or theoreticians have as an ultimate goal the
use of oil incomes to reconfigure the economic structure of OPEC economies - i.e. to move
from being producers of petroleum to producing oil products and petrochemicals, and to a
certain extent beyond. An intention of this nature logically means restricting the production
of oil.

Assuming that every barrel of oil reserves that is not produced now will be produced later,
many of these 'future' barrels will be transformed into oil products (e.g. naptha), and a large
fraction of these items into petrochemicals. As the last Shah of Iran mentioned, "crude oil is
too precious to be burned up in the air."

What about the consumers of oil - do they have a strategy? If we think of consumers as a
group, they do not have a strategy - they have a dream. Their dream features a gradual
rearrangement of the global oil picture so that the price of vehicle and aviation fuel descends
to that experienced eight or ten years ago, and stays at that level. The genesis of this fantasy
is a profound indifference to what has taken place in the great world of oil over the past few
decades. Just the sort of deficiency that I told my students they should avoid if they preferred
a passing to a failing grade, they were also told to learn the following perfectly:

Output in the U.S. peaked at the end of l970 at a value of about 9.5 mb/d - which is
approximately the present output of Saudi Arabia and Russia, the largest producers of oil in
the world. When that peaking took place there was still an enormous amount of oil onshore or
directly offshore the United States. Production then dropped to 7.5 mb/d, but when the giant
Prudhoe Bay field in Alaska came on line, the total output in the U.S. turned up.

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Unfortunately however, the previous peak was never attained. Instead, total U.S. production
stopped short of that peak and once again began to decline. Today U.S. output is
approximately 5.5 mb/d, and it is almost certain that it will continue falling.

In other words, The U.S. oil production experience is both a model and a paradigm for what
will take place on the global level, and conceptually involves no more than intertemporal
profit maximization!

Now find and examine production curves for the 300 largest oil fields in the world, and after
satisfying yourself that a majority of these curves have turned down or flattened (i.e. plateau),
ask how is it possible, in these circumstances, for anyone to sincerely believe that a global
peak will not take place. Please note very carefully the word "sincerely".

What it means in the present exposition is that there are people who know better than I do
that a global peak will arrive, but have excellent reasons - of a career and financial nature -
for claiming the opposite. For example, at least one of my best students in Bangkok was
informed by his supervisor that it was taboo to engage in wanton chatter about 'peak oil'.

A supposed peak oil sceptic at an influential consulting firm has employed the picturesque
word "garbage" to describe the work of peak-oil believers. If you encounter him some fine
day, remind him that the output of the U.S. has peaked, as has production in the UK and
Norwegian North Sea. Given the opportunity you should also mention that what was the
second largest field in the world just a few years ago - the Cantarell field in Mexico - is
declining at a startling rate. None of this is likely to upset him, because his organization
claims that the production of oil will reach 115 mb/d by 2030, and moreover will remain at
that level through 2050. This kind of forecast is not even wrong - it is psychopathic.

The Russian output may be close to peaking, and a director of one of the largest Russian
firms says that his country will never produce more than 10 mb/d. This may or may not be
correct, but in any case Russian exporters will do an increasing amount of business in Asia, to
the detriment of European importers.

Oil importers everywhere though can consider the following: The discovery of conventional
oil peaked in l965. In the early l980s the annual consumption of oil became larger than the
annual discovery, and at the present time only about 1 barrel of (conventional or near-
conventional) oil is discovered for every 3 consumed. According to a British Petroleum
document, of 54 producing nations only 14 still show increasing production. Thirty nations
are past peak output, while output rates are declining in 10. To claim that all of this bad news
does not imply an eventual peaking is the same as implying that the (oil) whole is less than
the sum of the parts, which is a myth that no intelligent observer would rush to endorse.

Q 4. How will socio-cultural environment of a country have an impact on a

multinational business? Explain with an example.
b. Discuss the origin of WTO and its principles.

Ans: Social structure and religion of a society greatly influences the culture of that country.
There are two basic patterns of social structure: emphasis on individual or group, and social
stratification. Individualistic societies favor capitalism, but may lack teamwork and
cooperation. Society may be stratified on the basis of caste or class. Caste and class conflicts

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need to be minimized to reduce industrial disruptions.

The teachings of the dominant religion of a country can also influence its culture and thus its
suitability for international business. Hofstede's model of culture identifies four dimensions
along which the culture of a country can be classified: power distance, masculinity vs.
femininity, uncertainty avoidance and individualism vs. collectivism.

Employees of MNCs must be trained and educated to develop an understanding of cultural

differences. This will help them improve their performance. According to some critics,
MNCs do more harm than good to the culture of the host country. MNCs also interfere in the
politics of developing countries and attempt to influence their governments to formulate
policies that favor them.

Strategy and MNCs

A firm may be regarded as a chain of activities that add value to the final product. The activities may
be divided into primary and support activities. Primary activities include manufacturing and
marketing, sales and service, while support activities include management of materials, research and
development, human resources, information systems and infrastructure.

Firms should find ways to improve the efficiency of each activity to enhance the value of the final
product. Firms operating in international markets develop different strategies to cater to different
markets. These strategies can be classified as multinational, global and international strategies. These
strategies try to strike a balance between the conflicting demands of customization and cost reduction.

Organizational structure is a representation of the formal reporting relationships within an

organization. Span of control refers to the maximum number of subordinates a manager can
effectively supervise. A narrow span of control means fewer number of people reporting to a
manager and a wide span means more subordinates reporting to one manager.

While a narrow span of control creates a tall organization with many managers and
centralized decision making, wide span creates a flat organization with fewer managers and
more delegation of authority. The degree to which authority is delegated determines
centralization and decentralization.

Though centralization helps avoid conflict of interest that could arise in a decentralized
environment, it generally leads to slower, ineffective and inefficient decision-making.
Horizontal differentiation is concerned with how the departments in an organization function
together. An organization based on functions is the traditional and the most logical.

But a firm offering many product lines, will find this structure less successful. In a product
division based organizational structure, product heads are responsible for all functions
relating to a product. This enables the managers to gain expertise of various functions relating
to the product. Marketing plans can vary among product groups and need not be tied up with
the overall organizational marketing plan.

Most MNCs in their initial stages of globalization employed an international division

covering certain regions of the world to supervise the functions in those regions. But conflicts
could arise between the functional heads and the heads of the international division.

WorldWide Area Structure and Strategic Business Units (SBU) are more popular forms of

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organizational structure in big corporations. SBUs function as independent organizations with

a separate income statement and balance sheet. But the challenge of globalization and the
growth in technology have brought about more complex organizational structures like the
Matrix structure and the management networks.

Matrix organizations are a hybrid of the functional and divisional structures. Normally, this
results in a subordinate having to report to two bosses. But matrix structures can prove very
effective without any conflict in the reporting relationships, if they are well chalked out.
Network or virtual organizations use technology to collect and disseminate information. They
identify customer requirements and deliver products and services through a network of
specialists.

Q 5. A. Explain the merits and demerits of BoP theory?

b. Distinguish between fixed and flexible exchange rates.

Ans: A balance of payments (BOP) sheet is an accounting record of all monetary

transactions between a country and the rest of the world.[1] These transactions include
payments for the country's exports and imports of goods, services, and financial capital, as
well as financial transfers. The BOP summarises international transactions for a specific
period, usually a year, and is prepared in a single currency, typically the domestic currency
for the country concerned. Sources of funds for a nation, such as exports or the receipts of
loans and investments, are recorded as positive or surplus items. Uses of funds, such as for
imports or to invest in foreign countries, are recorded as a negative or deficit item.

When all components of the BOP sheet are included it must balance – that is, it must sum to
zero – there can be no overall surplus or deficit. For example, if a country is importing more
than it exports, its trade balance will be in deficit, but the shortfall will have to be counter
balanced in other ways – such as by funds earned from its foreign investments, by running
down reserves or by receiving loans from other countries.

While the overall BOP sheet will always balance when all types of payments are included,
imbalances are possible on individual elements of the BOP, such as the current account. This
can result in surplus countries accumulating hoards of wealth, while deficit nations become
increasingly indebted. Historically there have been different approaches to the question of
how to correct imbalances and debate on whether they are something governments should be
concerned about. With record imbalances held up as one of the contributing factors to the
financial crisis of 2007–2010, plans to address global imbalances are now high on the agenda of
policy makers for 2010.

B. fixed and flexible exchange rates

An exchange rate is the price at which one country's currency trades for another on the
foreign exchange market There are 2 extreme regimes of exchange rates – floating exchange
rate and fixed foreign exchange rate.

Floating Exchange Rate

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The floating exchange rate is a market-driven price for currency, whereby the exchange rate
is determined entirely by the free market forces of demand and supply of currencies with no
government intervention whatsoever.

Broadly, the floating exchange rate regime consists of the independent floating system and
the managed floating system. The former is where exchange rate is strictly determined by the
free movement of demand and supply. For managed floating system, exchange rate is also
determined by free movement of demand and supply but the monetary authorities intervene at
certain times to "manage" the exchange rate to prevent high volatilities.

Pros & Cons of Floating Exchange Rate

The floating exchange rate boasts various merits. Firstly, there is automatic correction in the
floating exchange rate as the country simply lets it move freely to the equilibrium of demand
and supply. Secondly, there is insulation from external economic events as the country's
currency is not tied to a possibly high world inflation rate as is under a fixed exchange rate.
The free movement of demand and supply helps to insulate the domestic economy from
world economic fluctuations. Thirdly, governments are free to choose their domestic policy
as a floating exchange rate would allow for automatic correction of any balance of payment
disequilibrium that might arise from the implementation of domestic policy.

Nonetheless, there are also specific concerns about the exchange rate being unstable and
uncertain under the floating exchange rate regime. Also, speculation tends to be higher in the
floating exchange rate regime, hence leading to more uncertainty especially for traders and
investors.

Fixed Exchange Rate

For a fixed exchange rate, the government is unwilling to let the country's currency float
freely, and they state a level at which the exchange rate will stay. The government takes
whatever measures that are necessary to maintain the rate and prevent it from fluctuating.
There are two methods which exchange rate could be applied to the price of currencies, a
fixed exchange rate and a pegged exchange rate.

Under the fixed exchange rate system, a decrease in the exchange rate which is infrequent are
called revaluations. While an increase in the exchange rate are called devaluations. A
devaluation in a fixed exchange rate will cause the current account balance to rise, making a
country's export less expensive for foreigners and also discourage import by making import
products more expensive for domestic consumers,. This will leads to an increase in trade
surplus or a decrease in trade deficit. The opposite happens in a revaluation

Pros & Cons of Fixed Exchange Rate

Despite its rigidity, the fixed exchange rate regime is still used for several reasons. First, there
is certainty in fixed exchange rate. With it, international trade and investment becomes less
risky. Second, there is little or no speculation on a fixed exchange rate.

However, a fixed exchange rate contradicts the objective of having free markets and it is not
able to adjust to shocks swiftly like the floating exchange rate.

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Q6. Discuss the need for HRM Strategies and International employee relations
strategies in International business.

Ans: Human resource management (HRM) is the strategic and coherent approach to the
management of an organization's most valued assets - the people working there who
individually and collectively contribute to the achievement of the objectives of the business.
The terms "human resource management" and "human resources" (HR) have largely replaced
the term "personnel management" as a description of the processes involved in managing
people in organizations In simple words, HRM means employing people, developing their
capacities, utilizing, maintaining and compensating their services in tune with the job and
organizational requirement.

Human Resource Management(HRM) is seen by practitioners in the field as a more

innovative view of workplace management than the traditional approach. Its techniques force
the managers of an enterprise to express their goals with specificity so that they can be
understood and undertaken by the workforce, and to provide the resources needed for them to
successfully accomplish their assignments. As such, HRM techniques, when properly
practiced, are expressive of the goals and operating practices of the enterprise overall. HRM
is also seen by many to have a key role in risk reduction within organisations.

Synonyms such as personnel management are often used in a more restricted sense to
describe activities that are necessary in the recruiting of a workforce, providing its members
with payroll and benefits, and administrating their work-life needs. So if we move to actual
definitions, Torrington and Hall (1987) define personnel management as being:

“a series of activities which: first enable working people and their employing organisations
to agree about the objectives and nature of their working relationship and, secondly, ensures
that the agreement is fulfilled"

While Miller (1987) suggests that HRM relates to:

".......those decisions and actions which concern the management of employees at all levels in
the business and which are related to the implementation of strategies directed towards
creating and sustaining competitive advantage"

The unitarist and pluralist perspectives as frames of reference in understanding employee

relationships

A unitarist or unitary modeling of organizations would view organizations as essentially co-

operative. Within unitarist frameworks, work organizations are viewed as integrated and harmonious
wholes. In the normal functioning of the organization, it is argued that there will be no conflict
between members of the organization, regarding, either the overall aims of the organization or the
means to achieve these aims. Within this frame of reference, then, it is assumed that all employees
share a common interest, not only in the long-term survival of the organization, but also in its fortunes
on a day-to-day basis. It should be of no surprise that ideas of teamwork and ideas of all within the
organization 'pulling together' to achieve common ends, permeate the model (Dundon & Rollinson
2004). Those who deploy unitarist or unitary models in analyzing organizations do tend to be rather
coy about outlining and explaining the nature of the theoretical model they are using to guide their
analysis. According to unitarist thinkers organizations are populated by people who are basically good
and are spontaneously co-operative. However, supporters of unitarism would also remind that, while

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people will be willing to work diligently for the common good, they are not simpletons and if they
were to feel that management were cheating them or not managing appropriately, the co-operative
ethos would begin to evaporate (Collins 1998).

Now, no sensible unitarist-oriented thinker would ever actually encourage a manager to cheat
his/her workforce. However, advocates of unitarism do warn that managers might, quite unknowingly,
give the impression of attempting to cheat or dupe their workers, where they have failed to
communicate the need for, or the benefits of a particular change to the workforce. Thus a key source
of conflict as far as unitarism is concerned would be caused by misunderstandings between
management and the workforce. Obviously the remedy for this sort of problem lies in renewed
attempts to communicate with the workforce so that misunderstandings can be cleared up. Unitarist
thinking is, perhaps best thought of as a management view of the world. It is perhaps not surprising,
therefore, that in dealing with conflict, unitarism seems to have a feel for certain types of conflict
within management. Thus a key source of conflict in organizations, as far as unitarists are concerned
would be due to power struggles between different power bases within management (Kekes 1993). A
pluralist view of organizations accords a more constructive role to conflict as a means of advance and
development in societies and work organizations than does unitarism. Whereas conflict within a
unitary modeling of organizations is a temporary transition which must be endured, with the conflict
experience adding little if anything to organizational functioning, conflict within pluralist models is
looked upon as a key dynamic of social development. Pluralism as applied to organizations is really a
concept borrowed from political theory. In this sense pluralism is a reaction to what might be termed
the doctrine of political sovereignty. The main idea behind pluralism, therefore, is that there is no
final or absolute authority in society, which can impose its will on the other members of society
(Kamoche 2001).

Applied to work organizations, the central idea within pluralism is that organizations are
composed of various competing interest groups, whose consent and co-operation must be secured if
the organization is to function. Unlike unitarist formulations where conflict is a simple distraction
from the normal processes of management, conflict plays a key role within pluralist views of
organizations and is looked upon as being unavoidable yet solvable. Indeed conflict is looked upon as
the key process which facilitates change and development. Thanks to the mechanisms for expressing
and solving conflict, disagreements and disputes are viewed as a motor for change and development.
Thus organizations are said to be stable but not static. The idea here is that individuals and groups
gain concessions through the process of bargaining which takes place to solve conflicts at work. Thus,
because pluralist work organizations allow the various interested parties to come together and to have
their say, the organization is regarded as being capable of incorporating the various competing interest
groups to an overall consensus view (Brooks 2002). Unitarism and pluralism tend to have rather
limited views of context. Indeed unitarist approaches are all but silent on the world outside work and
tend to view managers as the sole architects of strategy and structure. Pluralist approaches on the
other hand, do tend to acknowledge the existence of the wider society, although it is not at all clear
that pluralist views of organization offer a full and dynamic account of the context of organizations
(Cleckley, McClure & Welch 1997). Unitarist and Pluralist perspectives can provide a good reference
in understanding employee relationships. Unitarist and Pluralist perspectives describes the
characteristic and a mindset of a person. It gives an idea of the traits liked by an employee and what
might be the kind of person he/she will relate to. Unitarist and Pluralist perspectives describe what
attracts and annoys personnel. Unitarist and Pluralist perspectives gives a hint of what may cause the
straining of relationships in the workplace.

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MB0051-Legal Aspects of Business

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