Abstract
In this article we investigate the flexibility strategies of foreign automobile producers in three Central and Eastern Europe countries, where employment flexibility has become a major issue and an area of conflict with unions. We focus on nine subsidiaries in the Czech Republic, Slovakia and Hungary, and argue that flexibility strategies were shaped by parent company practices, the flexibility needs of individual affiliates and the relative strength of labour in negotiating the implementation of these practices. Given the relatively weak industrial relations institutions in the region, the relative strength of labour is conditioned primarily by market factors and parent company contexts. The findings thus highlight the importance of political resources and agency of actors in shaping employment policies.
Keywords
The employment flexibility strategies of automobile producers in Central and Eastern Europe (CEE) constitute an issue of considerable importance in its own right, but also represent a test case for the factors influencing the development of employment relations in multinational corporations (MNCs) and hence for the development of thinking on comparative employment relations. We examine nine assembly subsidiaries in the Czech Republic, Slovakia and Hungary and focus on the influences on their employment flexibility practices.
Employment flexibility is central to companies because they have undertaken large-scale investment and need to recruit and maintain an adequately skilled and motivated labour force. At the same time, firms cannot guarantee a steady level of demand for individual products and therefore require variable labour inputs. How companies reconcile these potentially conflicting needs varies, reflecting to some extent the different market conditions they face but also their different approaches towards employment relations. The aim of this article is to investigate and explain these variations.
Below we discuss the determinants of employment flexibility practices, then describe the plants analysed and the research methods used. We then investigate the need for employment flexibility in general and how that is conditioned by the strategy of the parent company in terms of its production profile, network and models. We proceed to address the power resources available to employees and hence their ability to influence developing forms of flexibility, and set out the issues relating to flexibility that arose and were addressed in different companies. The concluding section brings our arguments together, confirming the importance of a broad approach that takes account, first, of firms’ market situations, strategies and influences from their home countries; second, of employees’ ability to wield influence; and third, the specific developments, negotiations and conflicts that determined final outcomes.
Background: Literature and explanatory framework
Interpretations of MNC employment strategies in CEE have involved three broad perspectives. The first is the role of the business systems, home-country institutions and specific strategies of the incoming companies. The second is the established institutional framework in the host country. The third is the possibility of more complex interaction, involving different sets of actors, between the first two.
The first has produced a body of literature that sees firm strategies as determining practices in subsidiaries (Boxall and Purcell, 2011) or that attributes employment practices in affiliates to influences of the business systems and other home-country institutions (Harzing, 1999; Whitley, 2001). However, the extent of transfer of practices varies with the particular field of activity. Technology is most likely to be centrally decided and closely integrated production systems require coordinated control. MNCs are less likely to integrate employment policies, as these also depend on nationally specific legal, institutional and historical circumstances (Cooke, 2007).
Nevertheless, a central issue in this literature has been how far MNCs transfer their domestic employment relations systems to host countries, and the difficulties they may face in so doing. The literature on home-country effects typically expects strong central control over employment practices among North American MNCs, while employment practices linked to the participatory German model are considered difficult to transfer beyond the institutional milieu of ‘coordinated capitalism’. MNCs from coordinated economies, however, can develop a distinct approach to employment relations in affiliates, adapted to the constraints and opportunities of the host environment (Ferner, 1997; Ferner et al., 2001). In CEE, the host-home country distinction informed an empirical controversy over whether German companies, representing the bulk of investors in the region, imported their models of employment practices and industrial relations or acted strategically and took advantage of CEE locations to evade the constraints of coordinated capitalism; evidence could be found for either possibility (Jürgens and Krzywdzinski, 2009; Meardi et al., 2009). Thus the question remains open how far MNCs attempt, or succeed, in transferring a system of employment relations practised in their home country. It also remains unclear whether they locate in CEE as part of a deliberate attempt to escape from their domestic system.
The importance of domestic environments has received relatively little direct attention, possibly reflecting a view that they represented a blank slate onto which MNCs could impose their chosen models. Yet MNCs need to cope with the systems of employee relations that developed out of reforms from state socialism. These incorporated central specification of minimum wage levels, holiday entitlements and maximum permissible working hours and overtime (Myant, 2014). More favourable conditions for employees were permitted, and could be negotiated by collective bargaining. Trade union representatives were given some legal protection and collective agreements, usually signed annually, were binding on both parties. Thus this was not a picture of unconstrained flexibility, and employers were required to negotiate with employee representatives over issues of irregular working hours. However, union membership fell below 20 percent in all countries, from close to 100 percent under the former regime, and bargaining coverage to below 50 percent. 1 However, whether or not collective bargaining existed, many conditions were generally above the minimum standards. That was less true for issues of working time and its flexibility, over which there were frequent conflicts and recourse to legal action (Bluhm, 2007).
This points to the value of an approach that takes account both of MNC strategies and of domestic environments and actors (Drahokoupil, 2014). Actor-centred institutionalist approaches have analysed employment practices as outcomes of micro-political struggles between actors (Dörrenbächer and Geppert, 2011), with transfer of work practices conditioned by how these affect the interests of local actors and by their capabilities and resources (Ferner et al., 2012). A congruence of interests could lead to the implementation of a work practice even when it does not match host country regulations (which could be changed through lobbying or reinterpreted in the affiliate). When there is opposition, outcomes are conditioned by the resources individual actors can mobilize in the negotiation, with power resources available to labour playing a key role.
This provides the basis for the issues addressed in this article. The complexity and variety of factors influencing the development of employment relations points to the need for a broad ‘political economy’ approach (Edwards et al., 2007) that integrates the institutional, market-based and political influences. Our application of the approach to the study of flexibility strategies puts particular emphasis on the power of labour, as is appropriate for what has been one of the most prominent issues in negotiations between employers and employee representatives, and on the market contexts in which MNCs operate. Product demand conditions are of central importance for general company strategies, while local labour markets condition both the need for flexibility and the relative power of labour.
Cases and methods
Production of motor vehicles and components represents a leading sector in CEE (Myant and Drahokoupil, 2011). It grew partly from the transformation of a base inherited from the past and partly from scratch, thanks to inward investment by major MNCs (Pavlínek et al., 2009). We conducted case study research in 2012–13 in nine motor-vehicle assembly plants in the three countries, which are those most dominated by the automotive industry. Table 1 presents an overview of the companies studied. They include those involved in the first wave of foreign investment in the early 1990s (Škoda Mladá Boleslav, VW Bratislava, Suzuki Esztregom and Audi Győr) – and the production plants established on greenfield sites after the EU accession in 2004 (TPCA Kolín, Kia Žilina, PCA Trnava, Hyundai Nošovice and Daimler Kecskemét). VW played a leading role in exploiting the opportunities in CEE in the early transition years, acquiring the Czech car producer Škoda in 1991 and a much smaller, Bratislava-based producer BAZ. Only Škoda retained its own brand and development functions. In 1993, VW subsidiary Audi established a greenfield operation in Győr. The history of Suzuki’s activity in Esztregom goes back to a 1986 joint venture with a group of Hungarian producers and international banks. The early entrants gradually expanded production capacity. VW also upgraded and diversified the product portfolio in Mladá Boleslav and Bratislava. The diversity of countries and companies, themselves with differing countries of origin, gives scope for demonstrating the effects of variations in company approaches and of legal and institutional influences.
Plant overview.
including agency workers.
We chose to analyse industrial relations and flexibility policies in MNCs that set benchmarks for the sector. While this article does not allow us to present each case in detail, the case study approach is well suited for analyses of the micro-political processes, actor constellation and preference formation in the evolving ‘niche institutional micro-climates’ through which employment practices in MNC affiliates are established (Ferner et al., 2012).
Case studies involved triangulating information obtained from published sources and interviews with plant-level trade union leaders and, where possible, management. 2 Automotive specialists in the relevant union federations in each country were also interviewed. Interviews were semi-structured, allowing for consistency as well as the exploration of emerging themes, with questions covering labour market conditions, trade union organization, bargaining history, the organization of flexibility and the views of the different parties involved. Interviews typically lasted two hours and were conducted in the interviewees’ native languages; they were transcribed and often followed up with questions of clarification. Information from interviews was checked against published sources, mostly from company and union publications, employee and employer web sites and also from the daily and weekly press. In this way, information in great depth on individual policies (pay structures, working time systems, frequency and nature of improvement proposals) and processes through which they were introduced was collected and presented in internal case-study documents.
The need for flexibility: The market context and business strategy
The need for employment flexibility can be conditioned by the production profile, as demand fluctuation for individual models can vary. A diversified production portfolio should provide some cushion against changing demand. Moreover, differences between production models may imply different skill requirements and thus employment needs. The importance of these factors in conditioning employment flexibility strategies is considered below.
Product profiles and production models
There are differences in product specialization which had important implications for approaches to flexibility. TPCA, PCA and Suzuki were narrowly specialized in single platform, small cars. Škoda, Hyundai and Kia produced a wider range of models, with Škoda the most diversified. The significance of these differences is taken up below.
The companies also brought differences in their human resource management (HRM) strategies. Toyota is considered as a paradigmatic example of a quality production model relying on specific skills, flexibility, team work, and worker input (Monden, 2011; Suzuki, 2004). It imported its payment system and features such as quality circles into its Czech operation. Similarly, from the 1980s, German car-makers followed a ‘diversified quality model’ aiming at non-price competition (Sorge and Streeck, 1988) and introduced an elaborate structure to encourage ideas for innovation from the shop floor into its Central European plants. Hyundai brought a history of adversarial labour relations, characterized by frequent strikes in its Korean plants (Lee and Jo, 2007) and a reputation for an ‘engineering-led automation’ method of perfecting technology before production which was said to minimize skill requirements and worker input (Jo and You, 2011; Lee and Kang, 2012). However, it adopted in total the Toyota payment system and, like the others, developed programmes for rewarding innovative ideas from employees.
The differences in HRM were broadly confirmed in the companies’ Central European plants, but they did not appear to outweigh greater similarities in the employment problems the companies faced. Skill levels required appeared very similar, despite claims of significantly different production models. In fact, employees could start on an assembly line after a few days’ relevant training in all cases. There was published evidence from all cases of measures to encourage and reward suggestions from shop-floor workers. There were different approaches to employee input, but the nature of innovations suggested by employees does not suggest much impact on productivity. The structures of employment in the production plants were broadly similar, with roughly two thirds of employees performing blue-collar jobs with very basic initial training requirements. All plants implemented some form of team work, not presented as job enrichment, or a means of stimulating innovation, but rather to allow task rotation for ergonomic reasons. Indeed, in all cases, the overarching employment-relations problems appeared to be the recruitment and maintenance of an adequately committed labour force under conditions of fluctuating demand. These production models were at best an aid to that while much depended on how employment relations were negotiated between employers and employees.
Demand fluctuation
Automobile assembly requires a large fixed investment and a large labour force, ranging in our cases up to 24,000. However, fluctuations in product demand have a significant impact on labour requirements. Table 2 shows changes in annual output in the nine plants over the period 2007–2012. There was continual expansion in only one, reflecting the relatively recent initiation of production by Hyundai; decline over the whole period in three; and in five, a significant fall in 2009, the worst year of the economic crisis. It should be added that this understates the fluctuations in output which were significant within individual years, notably 2009, as well as between years. These fluctuations require variations in the number of hours worked, which often means varying total employment levels. Managements need to find means to combine this with maintenance of a secure and committed labour force.
Output change relative to previous year (%).
There were also shifts in demand for individual models. Smaller cars did well in 2009, thanks to scrapping schemes introduced by governments in a number of European countries which favoured smaller, more energy-efficient vehicles. That helped TPCA and PCA, where production continued to increase in 2008–09. But such cars fared worse in later years. In TPCA, falling output turned into a long-term decline from 2010. PCA also experienced a drop in output in 2010, but sustained expansion followed. Suzuki suffered a permanent fall in output after 2008.
There is also a need for flexibility to adjust to demand over shorter time periods, requiring extra shifts or short periods without production. This depends on employee acquiescence (an extra shift will require acceptance by a large enough part of the labour force to make production possible) and on labour law affecting working hours. In all countries there were restrictions on permissible overtime and specifications for the terms required and provision for payment of a part of a normal salary during down time. However, in every case there was some flexibility around legal provisions: the employer either tried to ignore these or was prepared to negotiate better terms with employees.
Power resources available to employees
Trade unions have a major role in enabling employees to exert their voice within the companies. In general, unions in CEE suffered a steady and almost uninterrupted decline in density from near universal levels in 1990 to significantly below the western European average. Strikes were very rare, but the motor-vehicle sector was an area of relative strength, though the majority of the workforce was unionized in only a few cases; collective bargaining was almost universal. Table 1 provides information on unions in the plants and the number of officials released from work – an important indicator of union power. In all three countries, labour law provided a basis for such release, and the conditions were subject to collective agreements.
The Czech Republic and Slovakia each had one dominant union centre, but there was considerable decentralization of power to (often very small) local organizations and considerable fragmentation, exacerbated by specificities of their employment laws. The initial framework from 1990 guaranteeing union independence encouraged union pluralism, allowing any union with three members to claim the right to sign any collective agreement that might apply. This gave support to very small organizations, which existed at various times in all the Czech plants studied. Hungary differed, having adopted a system of works councils, which Czech and Slovak unions resisted, seeing this as a threat to union dominance in collective bargaining. The relative affinity of German and Hungarian institutions was reflected in greater direct involvement by German unions in developing the Hungarian industrial relations system. In the other countries, foreign unions were active only at the very general level by giving implicit support to collective bargaining.
Trade union strength, in the sense of ability to persuade management to concede to union demands, reflected five key influences. The first was the product market, which affected both long-term company investment strategies and approaches to collective bargaining. When demand was high, unions felt in a stronger position; when it was low or unstable, they were more likely to concede, or to moderate their demands. Employee representatives consistently wanted higher investment, over which they had no significant direct influence, and also wanted security for those already employed. Companies could choose where to place new investment and how to share out short-term output variations. This was a background consideration in all bargaining; unions were aware, even if these points were rarely explicitly covered in collective agreements, that concessions on pay, conditions and flexibility could bring benefits in employment security and perhaps investment.
The second influence was the local labour market: labour’s power was enhanced when management had to offer attractive conditions to secure an adequate labour force. Hyundai, Kia and Suzuki were in areas of high unemployment and had no difficulty recruiting; Škoda, VW Bratislava and TPCA were in areas of labour shortage, which made them more likely to concede to union demands. PCA experienced recruitment and turnover problems in the boom years of 2006–07, which it addressed by using agency workers from abroad. TPCA suffered extremely high labour turnover in its first months of operation when demand for products was high, and responded by providing accommodation to attract workers from further afield (851 flats were promised for core workers), subsequently improving pay and other conditions as demanded by union representatives. VW Bratislava found the local labour market tight and offered conditions to attract workers from a wider region.
The third influence was the historical legacies. Workplaces inherited from state socialism started with universal union membership, and it was much easier to keep a high level than to build it up from scratch in a context of employee scepticism and of possible confusion from competing organizations. This gave the Škoda plants the largest union organizations and enabled them to appear as leaders in setting union agendas. By contrast, Hyundai, Kia and Suzuki were relatively recent greenfield investments; union representatives complained of initially strong hostility and of continuing extreme difficulties in operating within these plants. In Hyundai, no union representative was released from work, there was no union office on the premises, no union activity was allowed during working hours and the media reported periodic complaints of threats to union members, typically of reclassification into a lower bonus band.
The fourth influence was the labour relations policy of the parent MNC. Investors came with different conceptions, both in terms of detailed employment practices and of the value they attached to good relations with employee representatives. However, the transfer of any practices also depended on a fifth influence, the scope for employee international contacts, including the ability to influence trade union, and more generally public opinion in the MNC’s home country. This marked an important difference between Asian and European MNCs. German automotive multinationals possess developed systems of codetermination with strong union presence (Haipeter et al., 2012), and they recognized trade unions in all our cases. That was practically inevitable in Škoda as the plant inherited near universal union membership; elsewhere it was a reflection of the power of local union organizations, in the sense of their ability to impose heavy costs on MNCs that dragged their feet over recognition. Indeed, two prominent German companies, Bosch and Siemens, had resisted unions in the Czech Republic (Bluhm, 2007; Myant, 2014), but were hit by adverse publicity, both locally and in Germany. This proved an important weapon in persuading them to choose a more conciliatory approach, but did not determine the precise forms of employee representation. It meant accepting the system already emerging in the CEE countries, with collective agreements negotiated annually with union representatives. These negotiations were conducted by local personnel managers, often natives of the country concerned. Union representatives felt able to negotiate over almost any issue without their negotiating partners needing to refer to a higher authority, with the one clear exception of the total wage bill.
The point here is not that German companies automatically transferred practices from home. Geographical proximity, ease of contact, legacies of past history and powerful unions in the home country ensured a practice of recognizing and negotiating with employee representatives (Bluhm, 2007; Krzywdzinski, 2011). There was more scope for transfer of practices to Hungary, with its system of employee representation closer to that of Germany. In at least one case, that of Daimler, the whole structure of employment relations in the parent company shaped that of the affiliate, with its European Works Council and the Rastatt works council heavily involved in helping to establish German-style institutions of employee representation.
Structures of social dialogue had an important role also in Toyota, the dominant parent of TPCA, and in PSA (Delteil and Dieuaide, 2012). These employers accepted from the start that they would recognize and negotiate with unions. In contrast, Hyundai and Kia had a background of adversarial labour relations, with pervasive distrust between management and strong unions in Korea (Lee and Kang, 2012). Union representatives in the Czech Republic and Slovakia had minimal, and largely unproductive, contacts with their colleagues in Korea and could not threaten their employing company’s image in its home country. Suzuki also practised adversarial industrial relations in its operations outside Japan and could effectively prevent unions from operating in the Hungarian plant, resorting in 2006 and 2009 to what courts later confirmed to be unlawful dismissal of union organizers.
Flexibility regimes
Companies can respond to demand fluctuations in three ways. First, numerical flexibility can be achieved through adjusting the total number of employees. Specific policies reflected company-level practices, but the detailed forms depended on local negotiations. The unions were most concerned with protecting the core workforce. Their negotiating power was weak when product demand plummeted, making them more likely to make concessions on other flexibility issues and pay. Second, production or employees can be moved between models and/or plants. The scope for such adjustments depends on the type of production network and thus the general business strategy. Third, work-time flexibility can be achieved by adjusting hours across a period. Here, the role of local negotiations and the relative power of unions was the strongest. MNCs tended to pursue their default policies, but were prepared to adjust these when faced with effective resistance from the unions. This section discusses developments of each type of measures across the cases. Table 3 provides an overview of their use.
Flexibility regimes.
Numerical flexibility
All firms used agency workers, who were the first to be dismissed in times of falling demand. Under EU law, agency workers should have comparable working conditions to core workers (Schömann and Guedes, 2012), but their pay levels in CEE are hardly ever set by collective bargaining and are therefore not made public. Evidence from Škoda revealed pay and conditions that were clearly inferior; agency workers were often from another country and, not being direct employees of the MNC, were not expected to join a union. Trade union representatives in practice accepted their presence without seriously questioning numbers and typically without taking up their complaints.
Numbers varied, as employers used this source of labour to meet temporary shortages and to provide a cushion for times of falling demand. Only Audi followed the rule of capping agency workers at 5 percent of the labour force, set for the VW group as a whole in an agreement between management and international union representatives in November 2012. 3 In VW Bratislava, a higher ceiling of 12 percent was agreed in 2013. In PCA, in the absence of a global agreement, the unions negotiated a 20 percent cap. Again without any formal agreement, Hyundai increased agency workers to around 25 percent of the total labour force in 2012 and 2013. Most were from the local area, and agency work was used not just for numerical flexibility but as a probationary period before an employee could graduate into the core labour force.
Only in Škoda was there open conflict over the status of agency workers, after a complaint from the Polish Ombudsman in 2008, representing Polish agency workers. Investigations by the Czech Ombudsman and the Czech Labour Inspectorate left no doubt that the law on equal pay for agency employees had been broken, with some employees being paid below the legal minimum. This led to a threat of strike action by some agency workers and to a fine imposed on one of the agencies. Management’s reaction, in view of bad publicity and of the need for good relations with a stable core labour force, was to seek to reduce its dependence on agency workers, even setting at one point a target of zero. Indeed, with rapidly falling demand at the end of 2008, almost all agency workers were dismissed and their work was taken by the core employees, following only one-day retraining courses. However, as demand recovered through 2009, so the number of agency workers quickly grew again, averaging 8 percent of the total labour force in 2012. Management then agreed, after negotiation with the union, to regularize the conditions of agency workers, to consult with unions over employment conditions and to hire mostly Czech employees. As agency workers did gradually join the main union, so they could raise their complaints, the most frequent of which was that their pay had been inaccurately calculated or that they were entitled to only very limited holidays given their short-term contracts.
Achieving numerical flexibility by varying the core labour force proved more difficult. Outcomes again reflected negotiations between employers and trade unions. The latter were more determined on this issue, but had little by way of sanctions with which to threaten employers. Unions were therefore likely to make concessions on other flexibility policies and pay when faced with threats of lay-offs. Thus VW Bratislava experienced a particularly severe drop in demand in 2008–2009 and, after dispensing with agency workers, sought 700 voluntary redundancies from the core workforce. The unions later attributed their support for the Flexikonto, implemented with their support from 2009, to their experience with the downturn. In contrast, Suzuki took a less accommodating approach to employees: in 2009, 1200 core workers were forced to leave, together with 400 agency workers.
The issue was acute in TPCA as demand fell for its small car. This plant also had great potential difficulties in recruiting labour when demand was expected to recover, with a completely new model due to be introduced in 2014. Unions accepted wage deals in 2010–2012 below the levels agreed in Škoda – the usual benchmark – in return for commitments of no redundancies among the core workforce. By 2012, the remaining 150 agency workers were to leave and 250 core workers accepted voluntary severance on terms better than those required by law. Other core workers left through natural wastage, and employment fell rapidly from its peak of 3600 in March 2010 to 2400 in 2012. Negotiations for the 2013 collective agreement, following falling output and deteriorating financial results, ended with another low pay rise (1.9% for most employees) but improved compensation for compulsory redundancies. There was no serious possibility of pressing for more by threatening strike action, as advocated by a group of employees, when compulsory redundancies seemed inevitable to many employees.
In PCA, stagnating demand threatened the viability of a third shift, introduced in May 2012. The collective agreement for 2009–2011 included an employment guarantee, which reflected the requirements of investment subsidies that the firm negotiated with the government. In the 2013 negotiations, unions accepted a wage freeze, work time reductions and concessions on the terms of work-time accounts in exchange for maintaining three shifts. As elsewhere, the primary concern was security for the core workforce, and a great deal was conceded to protect that.
Shifting production and employees across plants
Flexibility was also achieved by shifting between models within a plant or shifting production between plants. These were frequent practices within the VW group. Part of Octavia production was transferred to Bratislava in 2008, because of inadequate capacity in the Czech plants. Shifting between models within a plant, an option available only to plants with multi-model capacity such as Škoda, was so useful for protecting core workforce stability that the Hyundai and Kia plants exchanged production of models in summer 2011, despite costs involved in the ensuing duplication of some capacity. Each plant then had one larger and one smaller car. As these moves represented no threat to any core labour force, it was relatively easy to secure employee acquiescence.
Moving employees within or between plants would appear more difficult, but was relatively easy for Volkswagen and PCA. In April 2009, when the car-scrap scheme in Germany enabled a return to full production in Škoda, Volkswagen started transferring workers to the Czech Republic from its plants in Slovakia. TPCA was also able to ease labour problems in 2009 by bringing workers from Toyota’s Polish plant, which was facing falling demand. In 2012, employees were moved to PCA and its suppliers, although this proved only a temporary solution. Enough employees were willing to accept the moves when the alternative was possible redundancy. In some cases it was quite attractive: VW workers in Škoda enjoyed a higher pay given the appreciation of Czech currency, TPCA employees moving from the Czech Republic were themselves originally from Slovakia.
Work-time flexibility
The strength of labour and legal provisions all played parts in determining the use of work-time flexibility. National legislation specified a minimum percentage of normal pay to be received during downtime and maximum permitted hours, plus requirements for employee acceptance of overtime. Actual practice varied between improved terms for downtime and overtime pay above the legal minimum, as demanded by unions, and attempts to ignore the legal requirements altogether. The former was the more usual. Where unions were relatively strong, as at Škoda, TPCA and VW Bratislava, both downtime and extra shifts were compensated well beyond legal minima.
An ongoing theme for German MNCs was the introduction of the Flexikonto, a flexible work account within which downtime could be set against overtime. This helps the employer to cope with short-term demand fluctuations by cutting costs of downtime and by ensuring an adequate turnout from regular employees for extra shifts. The alternative, paying a fixed proportion of regular pay during downtime and tempting volunteers into extra shifts by offering supplements to stipulated overtime pay, would either be less reliable or more expensive. The Flexikonto is therefore desirable for management, but not a necessity in countries where pay levels are considerably below those in Germany and where labour is a small share of total costs. 4 Any benefits depend on the time period over which plus and minus shifts are required to balance because, if extra shifts are not made available after a certain period, then all schemes require substantial compensation for downtime.
German law allows various forms of work-time accounts and German companies sought to introduce the same solution in CEE. VW Bratislava negotiated a Flexikonto in the second half of 2008 in the absence of an appropriate legal framework, and then persuaded the government to change the legislation, allowing for flexible work accounts with a four-year reference period. In Hungary, Audi persuaded the government in 2009 to allow extensions beyond the existing 12-month accounting periods. In PSA, the parent of PCA, work-time accounts were negotiated after 2008 (Delteil and Dieuaide, 2012). In Slovakia, PCA implemented a Flexikonto from 2009 and negotiated an extension of the accounting period to 30 months in 2013, in exchange for employment guarantees. In TPCA, without any explicit reference to the German model, there was a system for 203 shifts per year with some flexibility over when they would be required.
In Škoda, despite enthusiasm and apparent determination from the personnel director, an effective Flexikonto system was blocked by employee opposition. Employment law allowed collective agreements to include flexible work accounts over a 12-month period, but the large and well-organized trade union had a strong bargaining position and, unlike unions in other automotive plants, had staged successful strikes. This partly reflected the importance of Škoda within the VW group’s production plans and the need for management to tread carefully to ensure an adequate core labour force. In 2010, agreement was reached on a trial system with a one-year accounting period, but employees did not like the loss of bonuses for extra shifts and the need to work at weekends with only a few days’ notice. The union thus entered negotiations on the basis of a total rejection of flexibility. As a compromise, a four-month Flexikonto was agreed for 2011. This very limited flexibility could hardly ever be of practical use to the employer, which continued to rely on compensation for downtime and bonuses for voluntary extra shifts.
An opposite extreme is represented by Hyundai, which in Korea relied on ad hoc solutions and long working hours (Lee and Kang, 2012). The same approach in the Czech Republic provoked open conflict shortly after the plant was opened in 2009. Following a failure to meet production targets, the company imposed extra overtime of two hours practically every day. Its own publicity confirmed that it often did not give even two days’ notice of overtime requirements, but refusing to work extra hours was treated as unexcused absence. Under Czech employment law, compulsory extra overtime was permitted only for ‘serious operational reasons’. The response was a one-hour strike by 400 employees, an extremely rare event in a country with hardly any strikes. The union, although not the initiator, quickly stepped in to negotiate an agreement for no victimization of those involved, an end to compulsory overtime outside quite exceptional cases, investigation of cases of alleged bullying and better consultation in future. The legal position was soon clarified as the local Labour Inspectorate, having seen reports of the dispute, undertook an investigation in early 2010 and found the company to be in serious breach of almost 50 laws and regulations, and imposed a fine. From then on, extra shifts were a matter for negotiation, with higher payments to encourage participation.
However, demand levels continued to fluctuate, raising the possibility of abolishing a recently introduced third shift or otherwise reducing working hours. By law any downtime had to be compensated at 60 percent of average pay, but in late 2012 the management proposed additional days of closure which would be unpaid, with employees using existing holiday entitlements or ‘requesting’ unpaid holidays. The union felt unable to offer serious opposition. Its position was weak, with only about 15 percent of employees in its ranks, and it saw no chance of calling a strike or even a protest meeting. Using the law to oppose management plans, since voluntary holidays under Czech law cannot be imposed on employees who do not want to take them, was also not favoured. A veiled threat from management was that the alternative would be total abolition of the third shift and significant job losses; and, without seeking agreement from union representatives, it quickly sought and found volunteers. The union judged it very difficult to do more than reach the best agreement possible when, as a union leader explained, ‘some managers have wooden heads and interpret labour law as they like, or as somebody is telling them to’ (Forum Hyundai Nošovice, 2012).
Finally, Suzuki implemented a Flexikonto with a four-month accounting period, claiming no urgent need for a more substantial flexibility policy. In any case, an extension of the accounting period was complicated by its hostile approach to the union, as the extension would require negotiation of a collective agreement.
Discussion and conclusion
The theme of labour flexibility demonstrates how employee ability to exercise a degree of power over employment relations was developed in, and varied between, plants of foreign MNCs in the automotive industry. We can set out two ideal-type extreme cases. In one there is respect for the provisions of employment law, full union recognition and prior consultation on all employment relations issues, general security of employment, restrictions on numbers of temporary or agency employees (if used at all), full compensation for any time not worked and substantial extra pay for extra shifts which are undertaken fully voluntarily. At the other extreme there is opposition or reluctance to recognize and consult with trade unions, high levels of instability and a high share of clearly insecure temporary or agency workers. Variations in working hours are at best subject to the minimum of legal protection and laws may be circumvented or ignored. This would seem a lower cost option for an employer, but one more likely to lead to conflict and less likely to ensure an adequate and stable labour force.
These extremes are loosely approximated on the one side by German multinationals and on the other by some Asian companies. The outcomes could be set on a scale, with Suzuki at one end and Škoda at the other. The differentiating factors are the five influences on power resources set out above: product and labour market conditions, historical legacies, labour relations in the parent MNC and employee ability to influence opinion in the company’s home country. These factors explain key features of firms’ strategies related to our three themes: how far they recognize and accept established legal positions, or conversely try to modify or ignore them; how far they choose to recognize and negotiate with employee representatives; and how far they seek to bring ready-made systems for employee relations from their home countries.
In no case did incoming MNCs seek major changes in employment law. Changes they argued for were essentially incremental, allowing greater scope for flexibility in forms that their specific experiences led them to favour, the obvious example being the Flexikonto. Beyond that, they did not advocate systematic liberalization, and preferred either to accept what existed or to try to ignore it. Accepting the established legal framework appeared to be automatic where unions were well established, albeit with one big reservation: agency workers, whom unions were implicitly happy not to represent. The case of Škoda shows that agency workers had to find their own levers of power, with the use of law and the threat of damaging publicity against the employer.
Work-time flexibility was an important issue for ensuring the law was respected. Where employees were in a strong position they had little difficulty securing conditions more favourable than those set out in the law. Where they were weaker, as in Hyundai, they had to use a degree of collective strength to enable effective intervention from the legal authorities, and even then full respect for the law remained an issue of conflict.
Recognizing trade unions as negotiating partners was not a legal requirement, but became fairly automatic for MNCs either coming from, or heavily committed in, Western Europe. Their plants also tended to be in areas where labour markets were tighter and employee power was correspondingly greater, making it impossible to assess the relative importance of different causal factors. Trade union recognition was less automatic for Hyundai, Kia and Suzuki, coming as greenfield investments in areas of high unemployment, but proved unavoidable in the first two of these. It is worth noting that, whether or not unions were recognized, some employment relations issues seemed not to cause conflict. Payment and grading systems, developed in the firms’ home countries, were imported without offending employees’ interests and therefore did not depend on a particular balance of power.
However, flexibility practices were an obvious area of interest conflict, and they were conditioned by negotiations between management and unions, with outcomes dependent on the overall power relations. That included all the elements mentioned above, including market conditions, international contacts and historical legacies. These set the broad power relations, while the course of the negotiations and particular approaches of negotiators at the time determined the final outcomes. Thus differences in flexibility regimes reflected to some extent choices made by negotiators as they balanced this issue against others: pay increases, short-term employment security and prospects for new investment or the run-down of existing plants.
The development of flexibility regimes needs to be understood in the context of trends in employment relations as a whole. It was not a simple matter of firms transferring practices from their home country, nor of their choosing CEE countries to escape from employment relations in their home countries. They were attracted by lower wage levels; but beyond that, their approach to employment relations required a degree of adaptation and improvisation as they negotiated with established local actors.
Footnotes
Funding
This research was partly funded by the German Science Foundation (DFG) project DR 827/2-1 ‘Weathering the crisis?’ (PI Jan Drahokoupil), the EU-FP7 project NEUJOBS, and by the ETUI. The ETUI is financially supported by the EU.