UGC NET/JRF EXAM, June-2019* Labour and Social Welfare

Dunning's Eclectic theory, known as the "transaction cost theory of international production," explains why corporations produce abroad, how they are able to compete successfully with domestic corporations, and where they are going to produce.

The theory selectively combines elements of various other theories (hence the name "eclectic"). According to Dunning, a company that wishes to set-up production in a foreign country and wants to operate as a MNC must simultaneously meet three conditions: ownership advantages; location advantages; internalization advantages.

Ownership advantages, also known as corporation-specific advantages, are advantages in the production of a good or service that are unique to a particular company.

The range of advantages, both tangible and intangible, can be summarized as follows: proprietary technology due to research and development activities; managerial.

marketing, or other skills specific to the organizational function of the corporation; product differentiation, trademarks, or brand names; large size, reflect ing scale economies; large capital requirements for plants of the minimum efficient size.

The presence of ownership advantages, however, in no way fully explains the existence of the multinational company. For example, if a company gains an ownership advantage over other companies for a certain foreign market, it could simply export its products to that market.

For this reason, the second condition must also be met: location advantages. Location advantages include all of the factors ranging from an abundance of fertile land and cheap labour to a liberal capital market and a sound infrastructure.

To that we can also add the favourable investment conditions offered by some countries to attract foreign investors. These may be in the form of subsidies, tax exemptions, or cheap housing.

At any rate, the benefits for the corporation must proceed from the combination of ownership advantages and location advantages. However, it will not necessarily lead to foreign direct investment and, therefore, to the establishment of a multinational concern.

After all, the company can also sell its ownership advantages or license them out to another company in the foreign market. That is why finally the third condition must be met as well: the internalization advantages.

A company possesses internalization advantages if it is more profitable for this company to exploit its ownership advantages in another country itself than to sell or license them.

In actual practice, there are countless arguments in favour of internalization. To a large, extent these arguments have their origin in Coase's and Williamson's transaction cost approach.

Interpersonal
Figurehead : Symbolic head; required to perform a number of routine duties of a legal or social nature.
Leader : Responsible for the motivation and direction of employees.
Liaison : Maintains a network of outside contacts who provide favours and information.

Informational
Monitor : Receives a wide variety of information; serves as the nerve centre of internal and external information of the organisation.
Disseminator : Transmits information received from outsiders or from other employees to members of the organisation.
Spokesperson : Transmits information to outsiders on the organisation's plans, policies, actions and results; serves as an expert on the organisation's industry.

Decisional
Entrepreneur : Searches the organisation and its environment for opportunities and initiates projects to bring about change.
Disturbance handler : Responsible for corrective action when the organisation faces important, unexpected disturbances.
Resource allocator : Makes or approves significant organisational decisions.
Negotiator : Responsible for representing the organisation at major negotiations.

(a) Has reason to believe that by reason of the omission or failure on the part of the employer to make any document or report available, or to disclose, fully and truly, all material facts necessary for determining the correct amount due from the employer, any amount so due from such employer for any period has escaped his notice;

(b) Has, in consequence of information in his possession, reason to believe that any amount to be determined under Section 7A or section 7B has escaped from his determination for any period notwithstanding that there has been no omission or failure as mentioned in clause.

A on the part of the employer, he may, within a period of five years from the date of communication of the order passed under section 7A or section 7B, re-open the case and pass appropriate orders redetermining the amount due from the employer in accordance with the provisions of this Act.

Provided that no order re-determining the amount due from the employer shall be passed under this section unless the employer is given a reasonable opportunity of representing his case.

Approaches or Methods of Human Resource Valuation: The accountants and finance professionals have suggested various methods for measuring the value of human resources utilized in an organisation.

They are: 

1. Historical Cost Method: This method is developed by Rensis Likerst. Under this method, all actual costs incurred on recruitment, training, familiarisation, etc., are capitalized.

Then, the capitalized cost is amortised, or say, written off over the period an employee serves in the organisation.

In case the employee leaves the organisation before his expected service period, the remaining amount is written off completely in that particular year of his/her leaving the organisation.

The advantage of this method is that the value of human asset can be shown on conventional Balance Sheet and Profit and Loss Account. However, its drawback, if at all, is that human resource is equated resulting in undervaluation.

2. Replacement Cost Method: As the title itself indicates, under this method, replacement cost refers to the cost of replacing an existing employee. In other words, replacing cost is the cost that would cost to replace the existing human resources with human resources capable of rendering equivalent services.

Here, the underlying costs included in replacement cost are the cost of recruitment, training and development, opportunity cost for the intervening period till the new recruit attains the efficiency level equal to that of the old (to be replaced) employee.

In this way, this method helps the management in the process of human resource planning for the organisation by making the information available on costs to be involved in the acquisition of people in future. In a sense, this method is inconsistent with the 'historical cost method'.

That there may not be similar replacement cost for a certain asset and management may not be willing to replace the present human asset because of its greater value than that of scrap value are some of the drawbacks of this method.

3. Opportunity Cost Method: This method is used to value employees possessing certain skills and, thus, are rare in availability. Managers willing to acquire such scarce employees offer bid prices.

One who finally acquires the scarce employees puts the bid price as his investment in such employees. The bid price is arrived at calculating actual or expected rate for capitalisation of the supposed earnings to be earned by such employees.

Obviously, if an employee can be hired easily, there will be no opportunity cost for him/her. The main drawback of this method is the absence of a well justified criterion to decide the amount of the bid, or say, offer.

4. Asset Multiplier Method: This method is based on the assumption that there is no direct relationship between cost incurred on an employee and his value for the organisation.

This is because the value of an employee depends on factors like motivation, working conditions and their attitude toward work and organisation.

In this method, all employees working in an organisation are broadly classified into four categories; viz., top management, middle management, supervisory management and operative and clerical staff.

The salary bill of each category is multiplied with appropriate multiplier to ascertain the total value of each category for the organisation at a given point of time.

Here, multiplier is an instrument that relates the personal worth of employees with the total asset values of the organisation. As per principle, the value of human asset should match with the value of goodwill.

Inconsistency in the value of human assets in comparison to goodwill is indicative of inaccuracy in multiplier that should be adjusted accordingly.

5. Economic Value Method: Under this method, human asset is valued on the basis of the contribution they are likely to make to the organisation till their retirement from the jobs.

The payments made to them in the form of pay, allowances, benefits, etc. are estimated and then discounted appropriately to arrive at the present economic value of the individuals. This model can be expressed in the following formula:

Where, V, = the human capital value of an individual r years old.
E(t) = the individual's annual earnings upto retirement, represented by the earnings profile.
r = discount rate i.e., cost of capital.
T = retirement age.

The drawback of this method is that the under or over-fixation of salary may affect equating the total earnings to the human capital.

Calculation of bonus with respect to certain employees: Where the salary or wage of an employee exceeds [seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher] per mensem, the bonus payable to such employee under Section 10 or, as the case may be, under Section 11, shall be calculated as if his salary or wages were [seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher] per mensem.

Explanation: For the purposes of this section, the expression "scheduled employment" shall have the same meaning as assigned to it in clause (g) of section 2 of the Minimum Wages Act, 1948.

Disguised Unemployment: An important type of unemployment which is specially seen in the field of agriculture is known as 'disguised unemployment'. Most of the people are observed to be engaged in agriculture, however, in reality a sufficient number of them are unemployed.

Their contribution regarding production is negligible. Apart from agriculture such type of unemployment is found in other occupations also which are concerned with manual dexterity. This type of employment can be categorised as disguised employment.

The Project or Matrix Organisation : This is one of the latest types of organisational design. It has been developed to establish flexible structure to achieve series of project objectives.

Matrix organisation, also known as grid, is an answer to the growing size and complexity of the undertaking, which require an organisation structure more flexible and technically oriented than the line and staff and functional structures.

The matrix organisation is a combination of the project organisation and the functional organisation. Authority flows vertically within functional departments, while authority of project managers flows horizontally crossing vertical lines.

Thus, matrix organisation is created, "when project management is superimposed on a stable hierarchical structure, usually of a functional nature.

Here the individuals working on a project have a continuing dual assignment; to their project and to their base department.