MCC Coops and International Expansion
The following are a few emails from an exchange with a friend and professor at Loyola University in Chicago. He asked me some questions about the expansion of the MCC coops in developing countries and inernationally in general. I thought this would be interesting to post. These are themes I will be revisiting soon. Enjoy!

Dan Bianchi

David:
Dan, Concerning the MCC operations abroad: why are they doing these(expanding operations to foreign countries)? What sorts of companies are they? Are the MCC motivations the same as capitalist ones—looking for cheaper labor, trying to avoid import duties? Are these companies producing inputs for the cooperatives? Is it simply a matter of profit maximization, or are there other, more technical reasons for what they are doing

-David

Me:

Great questions. This is something that has been on my mind lately. I am hardly an expert yet but here is my take.

Keep in mind there are operations 60 abroad and growing, more than half of which are factories and they belong to a number of different companies each with their own vision, problems and level of commitment to local development. Then there is the distinction of owning a plant in a developing country versus one in Europe. In the cases I am familiar with, Irizar a bus company, Fagor Electrodomesticos (appliances), Fagor Ederlan (automotive) and a few others, the companies tend to be located in highly competitive industries where either some aspect or their production or there entire business can be done much cheaper abroad. These companies often then purchase a key component from abroad, or make simpler versions of their products aboard and make the most advanced, latest and highly value added ones in Spain. For instance, Fagor Electodomesticos will in 2 or 3 years make the majority of its standard fridges in Poland, but will continue to make advanced (i.e. with a TV or computer in the door etc) here.

Irizar makes its older bus models in Brazil, China or India and the newest one here. As a new model comes out the slightly older models get ¨exported¨ to the foreign plants.

In the case of Ederlan they were invited to be part of a supplier park by I think Fiat in Brazil and didn’t want to turn down the business. This company incidentally is the most committed to coop development abroad, but in a systematic way. They are starting with coop incubators and a technical school in the areas around their plant.

Fagor electrodomesticos also recently bought the largest appliance company in France, Brandt (which is the same size as they are). That is simply a question of market share.

An interesting thing I learned is that there is a real commitment to expand ownership of an ESOP on the part of MCC. Specifically through a plan called GESPA (which is what EROSKI uses outside of the Basque Region) in which workers own a company which is partial owner of the company they work in. The commitment on the part of MCC is to start implement this in 2008, with 30% of ownership effectively belonging to local workers. Furthermore there are some companies like Ederlan, Fagor and Irizar, which seem to be committed ideologically to turning the companies they have into coops. But it is a much slower process in these cases. Many of these companies are also very convinced of the importance of worker participation as being critical to remaining competitive and thus implement shared management as well.

In addition I recently met with 2 people who work a lot with coops abroad, one is head of member labor relations and one is a grad student who is doing his thesis on soops abroad. Both told me that MCC's stragtegy is to in a way repest their own history in developing countries. Namely, start region division (in this case by country), that can cooperate say in China, or Mexico ( although in different industries) giving them a competiive advantage. Eventually the idea is to expand from the nucleus, form schools, joint ventures, new businesses and begin to cooperatize ownership. This is a long term vision, but it is definitely something that is part of the plan

The idea basically in th short term behind opening these subsidiaries seems to be, how do we remain competitive here? What can we do more cheaply abroad and what can we do effectively here in order to maintain and create employment.

Sometimes the motives are joint ventures, new markets etc. I would say on the whole there is a High Road approach, and that the characterization some have made of MCC companies being just like any old multinational is a gross simplification. In the case of Fagor they are making an effort to cooperatize in Poland, but have found workers to be skeptical.

-Dan

David:
Thanks for the helpful reply. This is a really interesting topic. I don't understand the ESOP idea, workers owning a company that is partial owner of the company they work form. Does this mean they are buying shares of MCC itself, which is the partial owner of their
company?

I'd like to know more about worker skepticism in Poland. What's the
story on that? In Poland, of all places! Solidarity, when it was
opposing the Communist regime, was an advocate of
worker-self-management.

It's interesting--and understandable--the coop workers outsource simpler
versions of their product abroad. They certainly don't want to
outsource their own jobs. But then what is to be gained by this
outsourcing? Is it simply brand recognition for their own version, or
are they reaping substantial profits from these, which are repatriated
home. Presumably it's the latter--which would seem to involve a certain
amount of "exploitation."

-David

Dan:

I spoke to Fred Freundlich ( a professor at Mondragon University) about this topic after I wrote you that email and he emphasized the fact that it is really hard to generalize about the situation. There is a lot of diversity in types of project, reasons for going abroad, commitment to local development and coop development. Even here people are not entirely sure of what is going on in other countries, even when there own companies have affiliates abroad. What is the case is that this is a huge issue for people involved in the world of MCC. Everyone thinks about it, has an opinion and is concerned about the future of coops abroad and the challenge of spreading them. What Fred also said was that it would be inaccurate to say that MCC coops behave like regular multinationals. It would be a gross simplification to make any generalization about their role abroad.

The ESOP idea, as least in the case of EROSKI (which is the company that has most done it) is this; workers buy a share in a company that owns thirty percent of the company that they work in. The other 70% is owned by a holding company created by the parent (Irizar, Eroski etc.). Don’t ask me why it is done that way. I am not sure if it would always take on that form in other cases, but that seems to be the dominant form. They are not buying shares themselves but rather buying (in a roundabout way) a share in the company they work in. It was explained to me in the following way: If workers have a stake in ownership that will motivate them to care about the company and not feel exploited, work harder etc. Basically the ESOP idea.

MCC´s central office has created the following framework for future foreign expansion, 1) there should be transparency of information, accessible to all workers 2) the same management techniques used in the Europe should be applied abroad 3) 30% of ownership should belong to employees and 4) 5% of profit should be dedicated to local development. Of course not all companies have to follow these guidelines, so it is not clear that all will do this.

As for the Poland thing, I don’t know too much about that situation other than that there are maybe 7 or so plants there. When I asked someone from MCC about cooperativising a Fagor plant there, that was the reason he said it was unfeasible. (But he also told me that within 50 years there would be no coops left in MCC, he is also one of the 5 founders of the first coop, go figure!). I will have to investigate a bit more.

As for sending production abroad it is a bit complicated. Sometimes it is simply a way of remaining profitable. What is key though is the strategy of not just moving production abroad but the emphasis on technological innovation here, allowing them to produce more value-added products while pushing less value added production abroad. Surely there is a certain amount of exploitation there. One company in particular, Irizar refers to this process as technology sharing, and really talks about improving the capacity of manufacturers in other countries.

As I said this is something I really need to explore, it is complicated and sometimes hard to get a straight answer about

Otalora

Located in a scenic valley near the town of Aretxabaleta, in a beautiful building which formerly belonged to the Lord of Otalora, who 700 or 800 years ago ruled this entire region is the MCC coop Otalora. Otalora (nowdays), is in charge of training MCC managers in management practices and coop values, as well as providing an MBA to managers, a mini-MBA for technical staff and training for members who will serve on the Social Councils or the Governing Councils of coops. It also provides training/orientation to new coop members, providing them with a basic understanding of coop structure, their rights, responsibilities, the economic details of coop membership, etc.

Otalora also provides a manager location service for coops that need personal, from within the MCC world. That is they locate qualified managers from other coops in coops that have an opening that the can't fill internally.

Training in coop values is not extremely extensive. In the MBA, mini-MBA and other training they provide at Otalora, it is simply one part of the course, in the personnel management section. This orientation for new members is only a week or so.

Learning coop values, and about cooperativism is something that is mostly done on the job and over the years. Given that there are more than 120 coops in MCC, each with their own culture and history, members get a very different training on what Mondragon cooperativism is depending on where they work. Because once a new member receives the initial orientation to cooperativism they may never deal with issue relating to coop structure, management, renumeration, etc. all members who serve on the Social Councils and Governing Councils ( please see my next entry for a more detailed discussion of the structure of coops in MCC). Partly, it seems there is an assumption that the culture of cooperativism is widely diffuse here and within the coops. This is something I will have to investigate more.

About two weeks back I visited one of Fagor Electrodomesticos plants(MCC's oldest coop, Spain's largest appliance maker and one of Europe's largest). The company is divided into "business" each one consisting of a different area (Kitchen Furniture, Stoves, Refrigerators, etc.) Each business acts with a great degree of autonomy. Each has its own manager, personal directors, etc. and is in many ways a separate entity. I specifically visited Fagor Negocio de Muebles de Cocina FNMC (which is Kitchen Furniture, mostly cabinets and counters). This particular business of Fagor has about 125 workers in one plant (Fagor Electrodomesticos has 4,000 plus 4,000 more in France due to the recent purchase of France´s largest appliance maker). FNMC has consistantly improved sales and profitability during the last five years. The purpose of the visit was to share their system of 'improvement teams’ (similar to those described in my post on Geyser Gastech), their system of workers' ability to achieve their individual goals (as laid out by an objectives framework that relates all workers goals to the goals of the company), their client oriented structure and extensive use of customer surveys to improve production and services.
FNMC does extensive surveys each year of the customer. These surveys are done mostly by assembly line workers or other workers who are not is sales and don’t usually have contact with customers. In the last five years they have made a concerted effort to adjust the production and customer service to improve areas that customer regard as lacking. This has very direct effects on the production process, design and relation to clients. They specifically create direct linkages from customer to design and production teams (the survey being one of the principal ways doing so). The information received in these surveys may form the basis of a goal for ¨improvement groups¨, for instance if a specific item or piece regularly breaks, it may become the task of certain groups to redesign the assembly process, find a new or better way to make the piece, find a new material, etc. The focus is on meeting the customer needs, while at the same time creating an environment where groups of workers (often working with several other teams of workers from different areas) can creatively respond to problems, improve production etc, in a decentralized way. Collaboration between teams is facilitated by other personal (often customer service people). What I found most important was the degree to which improvement, meeting customer needs is dependant on the ability of improvement groups to independently solve problems, and take ownership of their work. Last year FNMC purchased one of its suppliers Grumal (located in another town in the Basque region), which makes doors for cabinets. The company was formally owned by an American multinational. The company is profitable and twice as large as FNMC. Currently the FNMC has a 70% share of the company while the management owns 30%. In 2010 the company will be fully converted into a coop as a part of FNMC. This seemed to me to be a particularly interesting example of the strategic and nature of Fagor's business model. This is something I have seen reflected in other coops as well. A larger vision of their future and of what remaining competitive consists of, while still remaining faithful to cooperative values although not in a simplistic way. Many coops recognize that it is impossible to compete by expanding in ways that seem like the methods of any other corporation or multinational. They recognize strategic needs and opportunities. In the case of Grumal, it is in the Basque region, in an area familiar with MCC and Fagor, nevertheless transforming this company into a coop will take 5 years. Transforming a company outside of Spain or the Basque region into a coop, becomes infinitely more complicated. However, that doesn’t mean that buying a company and keeping it as a subsidiary or starting up a factory in Poland is qualitatively the same as when a regular non-coop does it. Expanding market share, broadening the base of the coops and increasing the competitiveness of the coop is critically important. Furthermore, working in a company owned by a coop is qualitatively different then working in one owned by another company.