Abstract
The Mondragon worker-owned and worker-governed cooperatives are an example of the struggle that some alternative work organizations face when dealing with the external pressures of competing in the global economy while at the same time endeavouring to retain their long-held values of workplace democracy. This article analyses the Mondragon cooperative-multinationals with regard to their subsidiaries in China at a time when the cooperatives are undergoing deep internal and external transformations. The study centres on the characteristics of governance and working conditions at the Mondragon subsidiaries in the Kunshan Industrial Park near Shanghai. The article asks whether, from the perspective of China and Chinese workers, there are any substantial differences between the Chinese subsidiaries of Mondragon and those of conventional multinationals. Overall, it concludes that while there are significant challenges inherent in extending the democratic and participative model of the parent cooperatives to their subsidiaries, there are also indications that if the cooperatives can muster the political will to act in accordance with their stated principles, they could potentially become a real if modest force for change in the labour relations of developing economies.
Keywords
Introduction
Founded more than 50 years ago, the Mondragon Cooperative Group, which is based in the Basque Country, is considered one of the largest and most successful examples of worker-owned and -managed organizations in the world, while also being part of capitalist industrial society. Renamed Mondragon Humanity at Work in 2008, the organization’s mission ‘combines the core goals of a business organisation competing on international markets with the use of democratic methods in its business organisation, the creation of jobs, the human and professional development of its workers and a pledge to development with its social environment’ (Mondragon, 2012a). At present, the Mondragon complex employ almost 85,000 workers at approximately 250 companies and organizations, half of which are cooperatives, in the areas of distribution, finance, knowledge and industry. With a turnover of €14,832 million in 2012, the Basque firms are coping with the recent economic crisis with hardly any plant closures and without significant loss of worker members’ jobs, helped by the inter-cooperative solidarity mechanism, by members’ resilience and also by the internationalization of their businesses (Arando et al., 2010; Elortza et al., 2012; Flecha and Santa Cruz, 2011).
In fact, during the last two decades many cooperatives belonging to the Mondragon Cooperative Group have pursued a strategy of international growth that has transformed the original local cooperatives into multinational groups. By 2012, there were 28 cooperative-multinationals controlling almost 100 foreign subsidiaries, distributed among 20 countries mainly in the developing world and the transition economies. The total of over 15,000 foreign employees accounts for 40% of all industrial employment in Mondragon (Mondragon, 2012b).
Multinational companies and cooperatives are antagonistic business models: the multinational model relies on hetero-management, or the capacity for control by a centralized unit distant from the various units spread over a number of countries (Dicken, 2011; Dunning and Lundan, 2008), while the cooperative model, closer to community-based enterprises (Peredo and Chrisman, 2006), makes use of self-management or the direct control by those involved in the process (Vanek, 1970). The case of the Mondragon multinationals represents a hybrid of these two models: it combines a cooperative headquarters with a number of capitalist subsidiaries. This ‘coopitalist’ solution creates new tensions and contradictions for the multinationalized cooperatives and the idea and practice of economic democracy.
The present article sheds light on this complexity through an examination of the Mondragon cooperative-multinational subsidiaries in China, which is the location for 14 Mondragon subsidiaries. The case study focuses on the Mondragon Kunshan Industrial Park, where most of Mondragon’s Chinese subsidiaries are concentrated. I analyse the governance and working practices in the Kunshan factories and particularly consider whether the subsidiaries of Mondragon Humanity at Work in China possess specific features that distinguish them from the subsidiaries of conventional multinational corporations, as Mondragon’s slogan and mission statement would suggest.
The article is organized as follows. The first part reviews previous research on the internationalization process at Mondragon and defines the theoretical approach. The second part presents the case study, presenting the methodology and analysing the relevant features of the firms studied in the Mondragon Kunshan Industrial Park. Two core empirical sections in this part discuss the characteristics of the subsidiaries and the nature of the work relationship in the Kunshan factories. The discussion section links the findings to relevant debates and literature on multinationals, and concludes with some reflections on how one might modify labour relations at Mondragon subsidiaries in developing economies.
Literature review and theoretical approach
The Mondragon Cooperative experience has attracted the interest of many researchers, both in the field of economic democracy (Bradley and Gelb, 1982; Greenwood and González, 1991; Kasmir, 1996; Morrison, 1997; Oakeshott, 1978; Whyte and Whyte, 1991) as well as in business in general (Malone, 2004; Mintzberg, 2009). Research interest – both sympathetic and critical – focusing on Mondragon has increased with the challenges of globalization, the recession and the transformation of many cooperatives into multinationals. One major assumption is that free trade and globalization has brought changes to cooperatives that may affect their capacity to pursue their goals within the traditional framework (Azkarraga et al., 2012; Bakaikoa et al., 2004; Basterretxea and Albizu, 2011; Cheney, 1999; Miller, 2002; Moye, 1993; Ridley-Duff, 2010). As pointed out by Cheney (1999: 72), the Mondragon cooperatives ‘have now far exceeded their founder’s expectations in terms of financial success, geographical reach and power’, provoking tensions over the extent to which they can achieve their targets in terms of social values. For example, Azkarraga et al. (2012: 99) focus on how to reinvigorate and perhaps transform participation in the context of globalization and individualization processes ‘in a way that recognizes the internal and external changes which have occurred, yet takes the best of local and global knowledge to bring employee decision making and commitment again to the forefront of everyday business practices’.
Little empirical research, however, has addressed the character of Mondragon cooperative-multinationals. Most research focuses on the parent companies and their cooperative nature, and the majority of the authors highlight that international expansion has been carried out to preserve Mondragon cooperative jobs and profitability. Clamp (2000) examines how the internationalization of the business has affected the Mondragon community-oriented, worker-owned firms. Errasti et al. (2003) point out that the Mondragon cooperative-multinationals are mostly market-seeking – that is, they expand overseas to promote new markets. Some have been obliged to follow their big manufacturing clients abroad as suppliers. Seeking low production costs has been limited to cases where the products were no longer profitable the parent company. Therefore, international expansion, sensu stricto, ‘has not been a policy of delocating … and it has not been detrimental to cooperative employment nor to cooperative autonomy’ (Errasti et al., 2003: 559). In other words, multinationalization has, according to Mondragon, transferred only such jobs that would have been lost anyway because of unprofitability, while saving other (mostly more skilled) jobs that would be lost if the company were to decrease in size or even go under. An opinion common among Mondragon managers emphasizes that growth and internationalization through the creation of foreign subsidiaries is not merely the only way to be competitive, but in fact the sole means of survival. A cooperative, like any business competing in global markets, needs more customers, lower production costs closer to the markets, specialized management to serve the needs of global customers and the wherewithal to match its competitors in investment in R&D.
There is also research contending that international expansion has been crucial in helping Mondragon companies withstand the crisis (Arando et al., 2010; Elortza et al., 2012; Flecha and Santa Cruz, 2011). In contrast to the 26% unemployment rate in Spain, the rate in the Mondragon valley, where around 50% of the workforce is employed by the cooperatives, stands at 12.5% (Eustat, 2013). Mondragon’s international sales (exports and foreign production) have increased in recent years by up to 60% (Mondragon, 2012a). Luzarraga and Irizar (2012; Luzarraga et al., 2007) emphasize that Mondragon ‘global cooperatives’ have pursued a multi-location strategy. During the past decades, in general terms, the cooperatives that have become multinationals have created more jobs in the Basque Country than those that have not gone international (Luzarraga and Irizar, 2012, Luzarraga et al., 2007). Nevertheless, there have been significant exceptions, as in the case of Fagor Electrodomesticos S. coop, Mondragon’s oldest and largest industrial cooperative, with 18 production plants in six countries. The number of jobs Fagor offers in the Basque Country and at its European subsidiaries has decreased considerably, going from nearly 11,000 workers at the peak of the Spanish housing bubble to only little over 6000 workers in 2013 in the midst of the recession (Fagor, 2012). From another angle, Winther and Sørensen (2009: 79) analyse the performance records of the Mondragon cooperatives and state that they ‘do not fare as well as before the network of co-operatives adopted a corporate structure and went global’.
Research on foreign subsidiaries has been more limited. It is well known that the multinationalization strategy has involved the acquisition of firms as well as greenfield investments, and that the foreign subsidiaries’ workforce is made up entirely of non-member affiliated workers with no ownership rights (Clamp, 2000; Errasti and Mendizabal, 2007; Errasti et al., 2003; Luzarraga and Irizar, 2012). Some researchers have argued for a degeneration thesis of Mondragon cooperatives – for example, Huet (2000: 284) contends that Mondragon ‘became a traditional capitalist employer operating its own plants in low-wage countries like Egypt, Morocco, Mexico, Argentina, Thailand and China’. Errasti et al. (2003: 127) state that ‘the overall outcome of employee participation in foreign subsidiaries leaves a lot to be desired from the self-management point of view’. They do, however, highlight a few interesting cases as ‘modest advances in ways of participation of employees on the Board of directors of an affiliated company, of profit sharing systems and even of the integration of a number of the local directors of the affiliated companies as “collaboration” part-members of the parent cooperative’ although they also note that ‘other contrary experiences could be mentioned’. According to MacLeod (2006: 33), the social dimension of foreign subsidiaries stems from their role as protectors of the headquarters’ cooperative identity and social stability, and therefore Mondragon firms remain ‘the closest model of a true social firm that actually exists in the world’. Luzarraga and Irizar (2012: 114) state that Mondragon ‘global cooperatives’ follow a strategy of international multi-location production ‘as a case of cooperative innovation towards a people-centred globalization’. They support their argument by pointing to the best practices utilized by Mondragon at its foreign subsidiaries regarding, for example, labour conditions, workers’ participation in profits and ownership and commitment to the local community.
On the whole, then, most research underlines the opportunity Mondragon cooperative-multinationals offer to build a new model closer to a ‘democratic multinational enterprise’ (Errasti et al., 2003) or ‘international social enterprise’ (Luzarraga and Irizar, 2012). Some even suggest that should such an evolution be possible, there might be hope in the global economy ‘of moving towards a world of optimal participation, rather than a world of exploiting capitalism’ (Vanek, 2007: 304).
I argue that these approaches need to be supplemented by a closer, more critical examination of the paradoxes of the Mondragon coopitalist multinationals and their foreign subsidiaries. In my view, in order to uncover the extent to which Mondragon ‘coopitalist’ multinationals differ from other multinationals, it is necessary not only to analyse the cooperative features of the parent company but also to examine its characteristics from an international business standpoint. Specifically, it is necessary to determine, for example, how the contribution made by Mondragon subsidiaries to the countries where they are located compares to that made by conventional multinationals. From a labour standpoint, one must analyse how working for a Mondragon subsidiary differs from working for some other multinational corporation.
The case study: The Mondragon Kunshan Industrial Park in China
The present study aims to provide an empirical and interpretative contribution that focuses on the employment relationships in the Mondragon subsidiaries in China. Governance and the employment relationship are interrelated, and both depend on an array of factors. To understand them in the particular case of Mondragon’s Chinese factories, I examine those factories with regard to some key characteristics of foreign subsidiaries. To study their governance, I analysed the patterns and motives of foreign direct investment, the relations between the parent company and the subsidiaries and the locus of decision-making. The study of the employment relationship was based on the analysis of the local workers’ labour conditions regarding working hours, work organization, turnover, trade unions and pay in the subsidiaries. The general assumption in this research was that the more these key dimensions corresponded to Mondragon cooperative principles, the more they would differ from the practice of other multinationals.
Mondragon multinationals have 19 production plants in various parts of China, corporate offices in Beijing, Shanghai and Shenzhen and 19 sales and purchasing offices. There are 1600 people working for Mondragon in China, including around 50 permanent expatriates. Mondragon projects that it will considerably increase the number of production plants and the numbers of workers in China by 2016, with industry sales estimated at a billion dollars (Lorenzo, 2013). Of the Mondragon production plants, 11 are located in the Kunshan Industrial Park. The study was mainly conducted in the Mondragon Kunshan Industrial Park, where I analysed these 11 subsidiaries belonging to Mondragon cooperatives (see Table 1 for an overview of these firms).
Characteristics of the 11 case firms.
Ceased its activity during 2012.
For this empirical research on the Chinese subsidiaries, the methodology of contemporary case studies was employed (Yin, 2003). The case study methodology is well suited to making visible the inner workings of the Mondragon subsidiaries, which have so far mainly operated out of view as opaque ‘black boxes’. It is also suitable for taking a critical look at the paradoxical aspects and tensions that arise from international labour relation practices (Eisenhardt, 1989; Myers, 2009). This case study was primarily based on observation and interviews on location at the Kunshan subsidiaries. During the visits paid to the subsidiaries in the spring of 2012, 51 face-to-face interviews using semi-structured questionnaires were carried out. The interviewees included 22 managers (including expatriates from the cooperatives, the human resources managers of the subsidiaries and local second range managers), six non-managerial expatriates (staff and skilled workers) and a sample of 23 locally recruited skilled and unskilled employees not holding managerial posts, selected by mutual agreement by us and the managers. The interviews, which lasted from one to one-and-a-half hours each, were conducted at the companies in Basque, Spanish, English and Chinese (in the last case with the help of a translator). The key focus of the interviews with the expatriates was governance and industrial relations, together with background information on each firm’s market position and strategy. The interviews with the Chinese managers and workers focused on three areas: first, the interviewees’ reasons for working in the firms; second, their working conditions, such as hours and pay; and third, their views about the parent companies and expatriate managers.
The fact that the interviews were carried out inside the companies was certainly a constraint for this research. Also, the fact that I was of the same nationality and culture as the expatriate managers and was introduced by them may well have added to the level of distrust on the part of the local managers and workers interviewed. Even when I insisted that I had no organic relation with the parent companies and that the information obtained would be used with absolute confidentiality, I perceived some reluctance in the Chinese workers’ and managers’ answers – in other words, there was some organizational silence (Morrison and Milliken, 2000). Despite the limitations of interviews – starting with the subjective perceptions of both the researcher and the interviewees – I regard them as a valuable strategy, since giving voice to people actively involved at different levels of the firms refines the understanding of the issues and points towards changes that might eliminate the causes of conflicts and constraints.
The analysis of these cases was complemented with short case studies at six additional factories: two other factories belonging to companies not related to the Mondragon group but located in the Mondragon Park of Kunshan, two subsidiaries located in the German industrial park of Kunshan, close to the Mondragon park, and two Mondragon subsidiaries elsewhere, one in Zhuhai and the other in Shanghai (see Table 2). These ‘complementary’ cases studies (Yin, 2003), based mainly on 12 interviews with the general manager, human resource directors and some skilled expatriate workers of the companies, functioned as points of reference for the main study in the Kunshan Industrial Park, offering a better understanding of the similarities and differences between the Mondragon and non-Mondragon subsidiaries within the park, as well as between Mondragon subsidiaries inside and outside the park.
Characteristics of the complementary case firms.
In addition to informal discussions and semi-structured interviews, the work also draws on existing research on Mondragon subsidiaries and on documentation made available by the parent companies and the subsidiaries.
An overview of the Kunshan Industrial Park
The Mondragon Group’s Kunshan Industrial Park is located on the outskirts of Kunshan, a county-level city with 1,800,000 inhabitants situated right next to the huge city of Shanghai, in the Yangtze River Delta, which is the most economically developed area in China. Kunshan is a high-density industrial and commercial city. Kunshan attracts 1.8% of all the foreign direct investment flowing into China, contributes 2.5% of national exports and yields 0.6% of national GDP. Firms from more than 50 countries have set up more than 6000 investment projects in the several industrial zones and parks established in Kunshan to attract foreign investors (Kunshan Statistics Yearbook, 2012). Kunshan’s economic boom has attracted many migrant workers from poorer neighbouring inland provinces, and its migrant population is larger than the number of its permanent residents. It was ranked first in the list of ‘25 Best County-level Cities in China’ (Forbes China, 2010).
The Mondragon Group’s industrial park is located in the Kunshan Export Processing Zone, along with a number of other industrial parks that cluster multinationals from Taiwan, China, Germany and Japan. The park is spread over more than 500,000 square metres; the plants have been designed by the Mondragon cooperative LKS and built by Chinese firms (Mondragon, 2012b). The Mondragon Group’s Kunshan Industrial Park was established in 2007 as the result of an initiative by the cooperatives Wingroup, Oiarso, Orkli and Orbea; initially, the plants employed 650 workers, 400 working for Wingroup and another 200 for Orkli. Today, the 10 companies located in the park, after the closure of the biggest company Wingroup, employ 500 workers. The economic advantages of being located near one another are based on synergies and economies of scale, and include cost savings achieved through the common management of certain business activities, a better negotiating position gained in relation to customers and suppliers and more effective lobbying. The industrial park itself is run by a company called Anaitasuna (Brotherhood), whose offices are located on the top floor of a large Basque-style farmhouse located right in the middle of the factories. Anaitasuna provides the Mondragon companies with a variety of services like assistance with plant construction, supplier management and public relations (guanxi) support with regard to banks, government, tax office and customs. There can be no doubt that for a Mondragon multinational it is much easier to set up a new plant or company inside the technology park than outside. In addition to the economic advantages, however, being clustered together in this way also offers the Mondragon multinationals more opportunities to develop their own socioeconomic policies in, for example, the field of human resource management (Luzarraga and Irizar, 2012).
Each subsidiary in the industrial park is different, and no easy generalizations are possible. Some are small, while others are medium-sized, with the number of workers ranging from between 15 to 250. Common characteristics include that all the companies are new greenfield investments, and all are equipped with modern facilities. Early on the Kunshan factories focused mainly on exports, and the investments made in machinery were fairly small, with most performing simple assembly processes based on manual labour. However, the complexity of the companies being set up in the industrial park is constantly increasing. For example, the latest additions to the park (Fagor Metal Forming Machine Tool Co., Batz and Fagor Ederlan) are companies manufacturing sophisticated products with specialist machinery and skilled workers. All three projects have involved major investments. Indeed, Fagor Ederlan invested more than €30 million in the park in 2012, the highest amount so far.
Automotive component manufacturers represent the most common type of company in the industrial park; they are also the largest with respect to investment and workforce. The Basque cooperatives’ new Chinese factories serve to reinforce their position as global suppliers. For example, Batz manufactures clutch, brake and accelerator systems for the automotive industry, and in addition to its factory in Kunshan, also plans to open two new plants in China in order to provide its customers with the quickest service possible (with deliveries twice a day), in accordance with the ‘just in time’ production strategy to manage global customers (Yin, 2003).
The companies in the Kunshan Industrial Park have been set up in response to offshoring and multi-location strategies. The Wingroup, Orbea and Oiarso subsidiaries are clear-cut cases of offshoring for cost-related reasons: in 2012 the cost per hour per worker calculated by Mondragon is €21 in the Basque plants but €1.5 per hour in China. Batz, Fagor Metal Forming Machine Tool Co., Fagor Ederlan and Cikautxo, on the other hand, are the result of a multi-location strategy designed to ensure services to Chinese customers and to markets that cannot be served directly from the Basque Country.
The companies located in the Mondragon Group’s Kunshan Industrial Park are all, with one exception, wholly-owned subsidiaries (Oiarso is a joint venture set up by a Basque cooperative and the Andalusian company Cardiva). In other words, the cooperatives (sometimes with the help of the Mondragon Cooperative Cooperation) own 100% of their subsidiaries’ capital. This gives them total control over the decisions made. The governing council of the parent cooperative, elected by the members of the cooperatives, selects the members of the board of directors, and the board then formally appoints a general manager for the subsidiary. The Kunshan general managers receive their orders from the general manager, the product managers and the functional managers of the parent company. The general managers of all the Mondragon subsidiaries in Kunshan are expatriates; most are Basque and most are cooperative members, although some exceptions exist: for instance, inexpensive young graduates hired for management tasks at the simpler plants or directors recruited to a specific managerial post for their talent or experience. Most managers plan to stay in China only a few years. Non-member expatriates aspire to become members of the cooperatives in the Basque Country, while those who are already members aim for better jobs within the cooperative; both groups expect the expatriate period to advance these ambitions. Often, however, expatriates returning from their stint in China complain that they find it difficult to achieve a position at the parent company corresponding to the experience, capacity and knowledge they gained as a result of the responsibility they were required to shoulder during their time abroad. With only one exception, all general managers are men. There is not, nor has there ever been, a Chinese general manager; this is unlikely to change in the near future.
The subsidiaries have limited autonomy, particularly as regards strategic, technical, financial and commercial aspects. The managers or heads of these areas maintain close ties with the parent company, either through weekly reports or telephone or Internet conversations. Since R&D activities, design and customer relations remain firmly in the hands of the parent company, the subsidiaries are completely subordinate. A Basque manager of one of the most developed Mondragon subsidiaries in the park put it this way: With the technical help and supervision of the cooperative, we try to set up the subsidiary and turn it into a profitable business using the production model of the parent company. That is our job. To set up and run a profitable company. In our case, we manufacture the same products as in the Basque Country in exactly the same way. The Chinese plant is a replica of one of our Basque workshops. For example, we apply the same Total Quality Management system in all our plants throughout the world. Production system quality and environmental and safety standards are similar here as in the Basque Country. The only difference is that we do not conduct R&D here. Or at least very little. Most of the R&D and engineering is done in the Basque Country.
Working conditions in the Kunshan Industrial Park
In China, the Labour Contract Law establishes the basic working conditions that must be respected, and the government’s Labour Bureau is responsible for ensuring that these conditions are complied with. The minimum wage, working hours, overtime, holiday leave and other conditions are established by companies in accordance with the government’s minimum set of norms (Xiaowen, 2007). The working conditions in the Mondragon Kunshan Industrial Park are also based on these norms.
There are many different ways of finding staff for the factories in Mondragon Kunshan factories. Unskilled workers are recruited through the government’s employment agency or through street bulletins and factory banners. Skilled workers, on the other hand, generally come from nearby towns or cities, and are hired through the government’s employment agency or different operator agents. As one local human resources manager explained: The labour market in and around Kunshan is extremely dynamic. There is as much work as you want and as many workers as you want. On the one hand, foreign companies are arriving in droves, and on the other, floods of young workers are coming in from the poor, overpopulated, rural, eastern provinces of Anhui, HeNan, Jiangxi and Idubei to meet this demand. It is these migrants that make up most of the unskilled workforce.
The majority of assembly workers are women, while those who work with machinery are men. There are more men than women working in office jobs. At the management level, however, both sexes can be found, although they tend to have different areas of responsibility: men work in engineering, manufacturing and sales, and women in human resources, the finance department and acquisitions. In general, they tend to be young people who have been with the company for only a short while.
Although the normal work week is 40 hours (five 8-hour days), Mondragon Kunshan Chinese workers attach a great deal of importance to overtime, since it can considerably increase their wage packet (one hour of overtime is paid at 1.5 times the normal rate during the week, at twice the normal rate on weekends and at three times normal on national holidays). As a result, employees usually work Saturdays as well, and in some cases, Sundays too.
In general workers work 11 hours a day, from 7 a.m. to 7 p.m. if working the day shift, and from 7 p.m. to 7 a.m. if working the night shift. They get one hour (unpaid) for meal breaks. For their part, Chinese managers start at 8 a.m. and finish at 6 p.m., and do not earn any overtime. In addition to official holidays (11 days in 2012), workers get no paid vacation leave during their first year with a company. Those who have been with the company for 2 to 5 years are entitled to 5 days of paid leave, while those with 5 to 10 years on the job are entitled to 10 days. However, as mentioned earlier, many workers choose to forgo vacations and to work on official holidays in order to accumulate overtime. As one local human resource manager observed: It is not just unskilled workers who do it; the managers too try to work as hard as we can. In my case, my fiancée and I are saving to buy a house and start a family, and to do this we need to earn as much money as possible. To save on transport costs I stay overnight with some fellow-workers during the week in a room in the dormitory of the industrial park. My fiancé also lodges in his factory’s dormitory during the week. We see each other on Sundays. I hope we will soon have enough money to buy a house.
With the minimum wage established by China’s Labour Bureau (in 2012 this was 1370 yuan, following a 20% increase over the previous year’s figure), overtime and other various supplements, unskilled workers can earn up to 2200 or even 3000 yuan. Skilled workers earn twice, three times or even four times as much as unskilled ones, depending on their responsibility and the size of the company in which they work. Precise statistics, however, were hard to come by, and the interviewed managers of Mondragon subsidiaries tended to claim that their plant, in keeping with the parent company’s policy, paid better than others.
Dismissing workers is extremely easy and perfectly commonplace; even in cases in which the dismissal is not justified, the company is only required to pay the dismissed employee a severance package of two months’ wages. According to human resource managers, the Labour Bureau rarely protests unjust dismissals. In addition, if a company wants to reduce its workforce, all it need do is stop offering workers overtime: employees will soon leave of their own accord. Thus, overtime has become a means of controlling workers, both collectively and individually.
The general opinion among Basque managers is that the Chinese are disciplined workers, but they have to be told what to do and rather lack creative, participation and teamwork skills. ‘You have to stay on top of them all the time, they are like robots’, said one manager. Another manager, on the other hand, asserted: It is just a question of time. Many of them come from the rural world and have not yet had time to get used to working in industry. We have been working in this way for much longer. But they are fast learners.
Although official trade unions are beginning to emerge in some companies in China, mainly larger ones (Cheng et al., 2012), there are no union representatives in the Kunshan Industrial Park. In the conversations with workers, they said that the whole idea of trade unions seems strange to them. The companies have no bodies which represent their workers, although production meetings are held in some factories. In the words of one local skilled worker: Given the breakneck speed at which the country is changing though, I wouldn’t be surprised at the presence of a trade union in the factory. I think it’s necessary. We negotiate with the managers on a one-to-one basis and this brings division among workers. But I am not sure if that fits with Chinese culture. We are rather individualistic.
Worker training is available basically only for managers and skilled workers. Unskilled workers are trained on the job in the basics of their tasks and to get them ‘up to speed’ faster. There is no transfer of cooperative knowledge, and no one explains to the workers what a cooperative is. Mondragon Kunshan workers who visit the parent company in the Basque Country in order to receive training do have the opportunity to see for themselves the essence of the cooperative culture, but these are a very small minority. The words of one Chinese production manager who visited his subsidiary’s parent company in the Basque Country are very revealing: You’d never be able to set up a cooperative in China. People here simply wouldn’t be prepared to do so. We’ve always been told that the company has to provide the money. I can’t put money into the company. I need my money to buy a house and other things. It’s the same for my colleagues. And also, I don’t know how we’d ever make any decisions. We are not used to deciding things together. Everyone just does what they’ve been told to do. In any case, no one has ever talked to us about cooperatives or trade unions. I’ll see though. Things here are changing fast.
Any conflicts or problems that may arise between workers in the company are resolved by the supervisors or human resource managers. If this is not enough, workers can always take the matter up with the Labour Bureau. In the words of a Basque manager: In fact it is becoming more difficult to recruit workers than it was before. Chinese government policies aiming at rural development have reduced the supply of rural workers. Now the workers are more reluctant to accept low pay and hard work. And they don’t complain about the working conditions, they just quit.
In fact, in the context of the absence of countervailing pressures from unions or other bodies, the employment alternatives that workers have give them some space for improving their working conditions and pay. No strikes have taken place in any of the companies in the park. The great number of firms located in the area of Kunshan makes it easy for both employers and employees to compare wages and conditions with those in other firms. For example, close to the Mondragon Park is located one of the manufacturing plants of the huge Foxconn Technology, the well-known maker of iPads, iPhones and other devices that is China’s largest exporter and, at 1.2 million workers, one of its biggest employers (Foxconn, 2012). More than 10,000 workers are employed at the Foxconn plant in Kunshan, and it is one of the points of reference for the local job market regarding pay and working conditions. In fact, the competitive labour market conditions pressure employers to offer attractive wages to employees. When employees encounter unacceptable conditions and wages, they will ask for an increase or look for another job. The Kunshan workers are not the ‘docile maiden workers’ identified by Lee (1995).
As a consequence, the most serious problem facing the Kunshan companies is the high rate of worker turnover, especially among unskilled workers. In some companies this turnover is as high as 20% per month, with the result that sometimes by the end of the year the whole workforce has been replaced. Wages are paid on the 10th of every month, with the aim of curbing this turnover rate. There is also a 13th wage packet, paid when results are good, scheduled for payment after the new year holiday in hopes of encouraging workers to come back after this break. As one Basque manager put it: The workers here will leave the company without a second thought if another firm offers them a better wage or better working conditions – i.e. a less harsh environment (air conditioning in summer and heating in winter, to help protect against the extreme temperatures to which the region is subject), a better canteen, etc. Others will leave for a time to go back to their villages with the money they have saved, and in the case of those who are parents (especially young mothers), to see their children left in their grandparents’ care. Workers feel no ties whatsoever to the company.
Staff turnover is not the same in all subsidiaries or among all groups of workers. The less important and more easily replaced workers are in a company, the poorer conditions they are offered, and the higher their turnover. Turnover, then, is much higher among unskilled and untrained workers (that is, those whose training is limited to that specifically required for their job) than among skilled workers and managers. Turnover is considerably reduced within this latter group: companies make a large investment in training and educating their skilled and managerial workforce, as these people cannot be so easily replaced. Consequently, companies tend to offer them better conditions, mainly a higher salary, in order to encourage them to stay. In the words of a skilled worked, who had earlier worked for Foxconn: When I was working at Foxconn I had some problems with my supervisor. He was unfair to me in many respects, allocating work, not giving bonuses. Somebody I knew was working in this company and I decided to try. In this firm I work hard but the relations with supervisors are better. They appreciate my work, and I am getting more money every year. My family lives not far from here. I think I will continue working here if the company is growing and performing as up until now.
The somewhat warmer relationship between workers and management described by this worker was echoed by some Basque and Chinese managers, who asserted that what distinguishes the Mondragon plants at the Kunshan Industrial Park from the companies in the German industrial park or from Taiwanese factories outside the park is that the management style in the Basque park is based on a relationship of trust, closeness, respect and fair treatment of workers, and that a positive attitude to talk and dialogue prevails. It is worth noting that this claim was not made about the non-Mondragon subsidiaries in the Mondragon Kunshan Industrial Park – in other words, it may be a country characteristic rather than something specific to Mondragon companies. It seems to chiefly draw on the interviewees’ perceptions of other countries’ management styles, which they may see as authoritarian and focused on discipline. Except for these remarks made by a few Mondragon managers, surveys did not bring forth any responses indicating major differences, nor did we ourselves observe any significant difference between the Mondragon plants in Kunshan, the Mondragon plants outside Kunshan, the other companies in Mondragon Kunshan Industrial Park and the companies in the German park. Overall, all these had similar labour relations, working conditions, hours of work and average wage ranges – see, for example, the Kunshan German industrial park salary survey (KSGIP, 2012). They also had experienced comparable turnover problems.
Discussion: The contradictions of Mondragon’s Chinese subsidiaries
While the point of reference of many businesses is the rate of profit that is earned elsewhere (Burawoy, 1985), the primary point of reference in the Mondragon cooperatives is the firm’s local success, in terms of job and wealth creation. According to this view, the aim of the multinational production network built by Mondragon has been to strengthen the competitive position of the cooperatives and save local jobs (Errasti et al., 2003; Luzarraga and Irizar, 2012). This mindset shapes the orientation of the Mondragon cooperatives towards their foreign subsidiaries and therefore the foreign subsidiaries’ characteristics.
There is no doubt as to who governs the Chinese subsidiaries. The governing council of the Basque multinationals, elected and controlled by the worker-members, holds the shares (sometimes with the financial participation of the Mondragon Corporation) and appoints the members of the board of directors. The corporate headquarters decide and implement the main strategies for the subsidiaries regarding production, product offering, R&D, investments, etc. The nature of the ownership of these Mondragon cooperative-multinationals has meant that relocation, in the strict sense of the word, has been limited. The results of the research presented here reflect the fact that only products that are no longer profitable in the parent company or products that need to be produced close to their multinational clients have been sent to Chinese subsidiaries. The parent company continues to hold on to as many jobs as possible and, crucially, to the core functions in management, R&D, design, etc. Top positions in the subsidiaries are occupied by Mondragon expatriate members, who transfer the practices and policies from the headquarters to the subsidiaries. The Mondragon Kunshan subsidiaries can be characterized as traditional auxiliary subsidiaries (Forsgren, 2008; Hedlund, 1993) or as truncated miniature replicas (Dunning and Lundan, 2008) – that is, a duplication of the parent firm, although lacking some components of the value adding activity. They are typical of the ethnocentric multinational model, according to Pelmutter’s classical classification (1969), reflecting a clear hierarchy with the parent Mondragon multinational dominating. In other words, they are far from the federative models closer to the cooperative model or business networks (Goshal and Bartlett, 1990).
In the context of the international multi-location production strategy, the Mondragon multinationals have transferred their production methods and knowledge to the Chinese plants. These plants reflect a work organization similar – less intensive in technology but with similar practices and policies – to that used in their parent companies’ workshops. The subsidiaries face the pull to achieve internal consistency with the other multinational units, prompting them to adopt practices from Mondragon headquarters, such as total quality management – in which Basque companies, notably Mondragon cooperatives, have been European leaders (Heras, 2011). At the same time, however, Mondragon Chinese subsidiaries have their own distinctive features with a strong isomorphic pull from the firm’s institutional environment, as the institutional economic theory suggests (Blumentritt and Nigh, 2002; Hedlund, 1993). The working conditions and labour relations of the subsidiaries depend not so much on the cooperative nature of the parent company, but on the conditions extant in the country where they are located. There are two clear references: on the one hand, the legal or normative framework of China and, on the other, the conduct of other companies within the same area, particularly other multinational small subsidiaries. In Mondragon’s Chinese subsidiaries there is no workers’ trade union representation. Chinese subsidiaries’ workers, mainly the managers and the skilled workers, do retain some bargaining power – not, however, because of the presence of trade unions or workers’ representation bodies similar to those in the parent companies, but chiefly because the labour market boom allows them to threaten the company with leaving to work elsewhere. Nevertheless, it is necessary to point out that work relations in the factories of the Mondragon Kunshan Industrial Park, although conditions are not easy and work pressure is fairly high, are more developed than suggested by the sweatshop image of extreme exploitation (Cooke, 2005; Hansen, 2008; Taylor et al., 2003). Indeed, conditions are apparently less severe than at the Taylorized workplaces controlled by large corporations, of which some Foxconn factories, with their stories of intense managerial control, despotic codes and a relentless assembly line, are the archetypal example (Chan, 2010; Duhigg and Barboza, 2012).
Whatever the working conditions and work relations at the Chinese subsidiaries, the idea of converting them into cooperatives is inconceivable to all the actors involved. According to Mondragon discourse, there are several reasons for organizing Mondragon companies abroad as limited companies: ‘most of the countries do not have the appropriate legislation of a cooperative nature that we have here; in many cases we incorporate these companies as a joint-venture with other partners and, thirdly, and this is perhaps the main reason, the setting-up of cooperatives requires cooperative members who are used to working within a cooperative culture, and this is a process that takes time. At our Congress held in May 2003, the decision was taken to drive the creation of formulas that allow for the participation in ownership and management by employed workers who pursue their activities in our non-cooperative companies’ (Mondragon, 2013). Subsequently two main lines of action were adopted: the encouragement of workers’ participation in subsidiaries, and the assumption of a social responsibility commitment aimed at promoting active implementation of social policy both internally, aimed at workers, and externally, aimed at the community around the companies.
Encouraging participation and assuming social responsibility are thus official and express policy – the Plenary Congress of Mondragon, which decided upon them, is ‘the most representative and formally the most important body at Mondragon as it lays down the general guidelines and criteria for the cooperatives to follow’ (Bakaikoa et al., 2004: 68). However, the evidence obtained from the fieldwork in the Chinese subsidiaries indicates that no significant progress has been made in any of these lines of action. The research found little trace of the Mondragon cooperative model: none of its characteristic features – worker democracy, workers’ ownership, profit sharing, job security, restricted wage differentials – were operative at the subsidiaries. Nor did we find examples of the best practices carried out by Mondragon subsidiaries in other subsidiaries (Errasti et al., 2003; Luzarraga and Irizar, 2012). In the Kunshan Industrial Park, there is no distribution of profits among workers, with the exception of some standard productivity enhancement bonuses employed by many purely commercial companies as well. There is no employee-owner scheme that would provide the company’s workforce with an ownership interest in the company. There is no worker representation on the firms’ board of directors. In fact, there is no worker representation body of any kind. With respect to corporate social responsibility, the fieldwork confirms the lack of any proactive policy towards the community around the company reminiscent of that at the Mondragon cooperatives, which invest about 10% of their profit in socially oriented activities each year through the Cooperative Education and Promotion Fund (Bakaikoa et al., 2004). Nor are there any firm policies to increase the low wages, reduce the long working hours or to introduce any other social improvements for workers in accordance with FLA or ILO ‘better work’ agendas (Lee, 2007; Seo, 2011).
One could perhaps highlight the management style that Mondragon expatriates apply in the Chinese subsidiaries as an example of the cooperative spirit. This style, following the Mondragon cooperative model, falls closer to McGregor’s (1960) Y theory of workforce motivation and seems to have a more consultative and participative character than the authoritarian style found at many companies. Nevertheless, apart from not being an exclusive feature of Mondragon or cooperative companies, the remarkability of this feature is reduced by the small number of expatriates, their isolation from their parent companies and the fact that some of these managers do not even have any previous experience with cooperatives.
Concluding remarks
During the last decades, the Mondragon cooperatives, to guarantee their survival, have shown an extraordinary dynamism in investing in foreign business projects. But when cooperatives engage in foreign direct investment, a plethora of dilemmas, paradoxes and contradictions ensue. Applying cooperative principles in the multinational company setting presents special difficulties. The analysis of the current transformation of Mondragon cooperatives should be placed more firmly within the theoretical framework known as the ‘degeneration thesis’, which recognizes the dynamic tensions that cooperatives experience in the capitalist system within which they operate. This thesis suggests that cooperatives fail in the long run as democratic organizations, either due to internal pressures or because of external market forces that compel cooperatives to resort to a capitalist form where some workers lose the democratic rights which originally applied to all (Cornforth, 1995; Webb and Webb, 1921). That no membership rights are accorded to workers in the Mondragon Kunshan Industrial Park or in other Mondragon foreign subsidiaries seems clearly to illustrate the constitutional degeneration of these cooperatives.
The multinationalized cooperatives of Mondragon have overtaken the traditional framework of the cooperatives, and have created a new organizational paradigm. In accordance with the multi-location strategy, an international division of labour can be observed within the Mondragon coopitalist multinationals. This consists not only of the division into a cooperative nucleus and a capitalist periphery made up of multiple subsidiaries where cooperative principles are not applied; it stems also from the prioritizing of the Mondragon plants over foreign subsidiaries in terms of jobs, the manufacture of products with higher value added and core functions such as R&D capacity, as illustrated by the cases studied here and suggested also by Hymer (1979).
On the one hand, these coopitalist multinational subsidiaries have witnessed rapid development in technical and managerial aspects, as we have seen in the Chinese subsidiaries: an example would be the application of modern business-like employee participation in programmes like the participatory innovation model total quality management. On the other hand, the research indicates that the development of industrial relations has been weak, not only in cooperative but also in conventional terms, as evidenced by the absence of trade unions or other worker representation bodies.
The analysis suggests a clear disconnect between the organization’s discourse regarding the encouragement of worker participation in subsidiaries and the practices we observed in the Kunshan Industrial Park. Substantial inconsistencies exist between the rhetoric of the Mondragon cooperatives – reflected in their corporate logo, mission statement and principles – and the cooperatives’ policies regarding the social aspects of international expansion. The Mondragon commitment to cooperation and social progress is not implemented at all in the governance and industrial relations practices of the Chinese subsidiaries and only minimally at other subsidiaries. Mondragon cooperatives have represented an outstanding model among alternative organizational forms, but overall their foreign subsidiaries do not at present differ significantly from traditional foreign subsidiaries.
So far the multinational expansion of the Mondragon cooperatives has not, then, served to expand economic democracy in the world, nor has it contributed much to improving labour relations in developing economies. If Mondragon really wished to live up to its principles even in its foreign ventures, one potential way of accomplishing that would be to concentrate on boosting functional improvements in the subsidiaries to develop what, in the literature, are classed as ‘quality subsidiaries’, ‘networked subsidiaries’ or ‘developing subsidiaries’ (Crone, 2000; Hedlund, 1993). Compared to auxiliary subsidiaries or branch plants, which lack the authority or capability to generate independent competences (the case of the subsidiaries discussed in the present study), higher-quality subsidiaries have a greater range of functions and powers, such as greater autonomy in management decision-making or more R&D capacity (Birkinshaw et al., 2005). As a consequence, they could provide better jobs with less staff turnover and shorter working hours, as the FLA or ILO recommend (Seo, 2011). Such higher-quality plants would also be able to exercise a more positive influence in the local economy through supply links, technological spillover effects and even the creation of new spin-off firms (Amin et al., 1994; Crone, 2000). Considering the speed at which changes are happening in the developing countries – clearly visible in this case study of Kunshan – Mondragon, despite its relatively small size, might become a force for change. The development of the subsidiaries with the consequent improvements of their labour relations and the progressive application of cooperative practices, substantially expanding and deepening what has so far been implemented at a few Mondragon subsidiaries, could result in significant positive consequences for the developing countries, as well as for the Mondragon cooperatives and their democratic tradition.
Footnotes
Acknowledgements
The author would like to thank Lur Errasti, Xiaomin Yu, Clare Abraham and Vilja Hulden for their contribution to the research and their comments on earlier drafts. The author also wishes to acknowledge the cooperation of the companies and particularly to express gratitude to all interviewees for giving their help and time to this research. Many thanks also to the anonymous reviewers of EID for helpful and considerate comments and suggestions for improvements.
Funding
This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.