Saturday, December 23, 2006

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




2 comments:

Bill Bianchi said...

Thanks Dan:
The dialog with David helped me understand better the scope of MCC activities and why it's so difficult to sum up neatly their future as a producer cooperative. Keep on posting on these issues.

Now I want to ask another big question that you may not be able to answer yet.

Based on what you've learned so far in Spain, what ideas, insights, advice do you have for people in the US who want to develop producer or consumer coops?

Dan Bianchi said...

Bill,

I posted a response to your comment earlier but the machine got shut off before I could save it.

I am not necessarily in a position to give too much advice on this subject at this point in a very concrete sense.
However I will say this: Your question is one that probably many people who look at MCC from outside and want to apply the model also make. I think nevertheless that is not the right approach. Certainly there are bits and pieces that would be useful for someone thinking about starting a coop or working in one now. But from my point of view what is really necessary to look at when studying the coops, is looking at the basis of the coops, that is their founding. Their values and early institutions.

Many people will tell you that replicating Mondragón is impossible because of the unique cultural of Basques, historic and political situation under Franco and the industrial history of the region etc. Thinking about these issues is an absolute waste of time when considering applying lessons from the coops. What is significant is that a small group of individuals lead by one dynamic leader (Fr. Jose Maria) founded a school, where they trained scores of young people in the same values, vision and created a community around these ideas. This school was founded 12 or 13 years before the first coop was started. In addition during this time, students went abroad learned practical skills and engineering, studied other social economic models and businesses. One MCC founder described it as a period of take off, or party formation, in which leaders were developed and values shared and a vision for development clarified.

In my opinion this is by far the most significant lesson of MCC. I am not suggesting that to start a coop it is necessary to found a school for 12 years, but rather that the approach to economic development of this kind starts with a core group of people who have a shared vision and a way of inculcating those values into young people. The structures that were subsequently created by MCC are a result of the education of the early students in that school and the leadership of one priest. The subsequent trajectory of MCC is best understood in terms of that period. This is certainly a subject I will be returning to.