Labour economy: do unions really influence sourcing decisions?

Abstract

Purpose This article aims to uncover the influence employment relations, and more specifically union avoidance has on the decision to outsource road transport. Employment Relations literature often attributes outsourcing decision to decollectivist strategies, minimising the influence unions have in their workplaces or to labour cost reduction objectives. These explanations, however, fail to explain why some firms do not outsource when their sourcing structure incurs greater union involvement or industrial relation. Design/methodology/approach The author examines two case studies. Company A and Company B, while operating in a similar environment, selling similar products and offering a similar home delivery service have adopted different governance structures for their outbound transport function; Company A has integrated while Company B has outsourced. Was union avoidance or transaction cost reductions central to their respective decisions? Findings Company A did not integrate in an effort to circumvent union intervention or reduce costs. Company A’s integration, on the contrary, increased the firm’s dealings with unions, as well as regulatory compliance and transaction costs. Company B’s decision to outsource yielded similar results. While not experiencing an increase in union intervention, the firm failed to reduce the density of unionised labour and by maintaining ownership of delivery vehicles, saw a rise in costs. Originality/value Union avoidance is not an explanatory factor in the sourcing decision, nor is it possible to explain through transaction cost economics. Explication for outcomes lies in value enhancement. Companies are willing to incur higher employment relations and transport costs if the result is higher value capture.