One Company, Diverse Workplaces: The Social Construction of Employment Practices in Western and Eastern Europe

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One Company, Diverse Workplaces

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The Social Construction of Employment Practices in Western and Eastern Europe Marta Kahancová Research Fellow and Managing Director, Central European Labour Studies Institute Visiting Faculty Member, Department of Political Science, Central European University International Associate, Centre for Employment Relations, Innovation & Change, University of Leeds

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One Company, Diverse Workplaces

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© Marta Kahancová 2010 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission.

Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted her right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–0–230–57977–4 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

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No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS.

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List of Tables

ix

List of Figures

x

List of Abbreviations

xi

Preface and Acknowledgements

xiii

Introduction: Multinationals and Employment Practices across Europe Multinationals’ approaches to the construction of employment practices The empirical case The argument Outline of chapters 1 Constructing Employment Practices in Multinationals: A Framework for Analysis Understanding employment practices Organizational approaches to company behaviour Institutionalist approaches to company behaviour Micro-foundations of constructing employment practices Assumptions on behaviour and social interaction Actors and their attributes Social interaction Forms of social interaction Social interaction as means of constructing employment practices Conclusions 2

One Multinational, Four Host Countries: On Diversity in Subsidiary Employment Practices Electra as case study Electra’s subsidiaries Hard employment practices Wage policy and wages Employment flexibility Numerical flexibility

1 4 9 11 13 18 19 21 26 28 30 32 35 39 41 43

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Contents

45 46 49 52 53 54 54

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vi Contents

3 Channelling Corporate Values and Interests: Social Interaction within the Multinational Electra’s past legacy for current challenges Administrative heritage – the formation of corporate values The formation of corporate interests, organization and strategy Internal and external forces shaping Electra’s organization and behaviour Interaction between headquarters and subsidiaries Production issues Employment issues Interaction between Electra’s sister subsidiaries Analysis of social interaction within Electra Conclusions 4 Building a Local Corporate Presence: Social Interaction between the Multinational and Local Societies Beyond the subsidiaries’ gates: Electra and the local industry structure Electra’s social interaction with the local society Labour market actors Municipalities and local governments Citizens, media and other local actors Committed to being local? Conclusions 5 From Bargaining to Dancing: Social Interaction between the Multinational, Local Workers and Trade Unions Management–worker interaction in Electra subsidiaries

55 57 59 60 60 61 64 68 71 74 76 77 78 80 83 86 87 89 93 95 97 98 100 105 105 108 111 113 116

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External flexibility Internal flexibility Functional flexibility Summary Soft employment practices Work organization Motivation, performance pay and employee participation Social rewards and fringe benefits Subsidiary employment practices and local standards Conclusions

118 120

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Contents vii

6

7

Social Foundations of Trade Union Influence: Cross-Border Interaction of Unions and Employee Representatives Cooperation and competition in cross-border trade unionism Cross-border trade union interaction: a national and sectoral perspective Cross-border trade union interaction: a company-level perspective Institutionalized cross-border interaction: the European Works Council The EWC in Electra Informal functioning of the Euroforum: between friendships and antagonism Euroforum versus trade unions Two faces of cross-border interaction Conclusions Accounting for Diversity: The Social Construction of Employment Practices Uncovering diversity in employment practices Accounting for diversity Unfolding social interaction in Electra Interaction channels and forms Electra’s corporate headquarters and subsidiary managements (α) Interaction among Electra’s sister factories (β) Electra’s interaction with local actors (γ) Interaction between trade unions and the European Works Council (δ) Complementarities in interaction forms Sustainability of social interaction for diversity in employment practices Conclusions

124 128 133 139 146

148 150 153 157 163 164 166 167 169 172

175 176 179 185 186 186 187 188

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Electra and national industrial relations in Western and Eastern Europe Industrial relations in Electra’s subsidiaries Negotiating employment flexibility practices with subsidiary trade unions Analysis of social interaction between Electra and subsidiary employee representatives Conclusions

190 191 193 194

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8

Contents

Multinationals, Employment Practices and Institutional Change from below Implications of MNC behaviour and the social construction of employment practices Preconditions for social interaction: compatibility of actors’ interests with host-country institutions Embedding as institution building from below Reflections on the social construction of employment practices

197 200 201 205 207

Appendix

214

Notes

218

Bibliography

242

Index

255

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2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 4.1 4.2 5.1 5.2 A.1

A.2

Electra’s European subsidiaries in consumer electronics External flexibility Internal flexibility Hard employment practices Work systems Work systems in Electra subsidiaries Performance appraisals and performance-related pay Employment participation practices Social rewards and fringe benefits Employment in Electra factories Electra’s embedding in the local societies and social interaction with local actors Employee representation in Electra subsidiaries (2004–2007) Trade union involvement in constructing employment flexibility practices National industrial relations structure and company-wide industrial relations within Electra in the host countries Diversity in employment practices across Electra’s subsidiaries and prospects for convergenc

50 56 58 61 62 65 66 68 69 106 114 129 138

214

217

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Tables

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1.1 1.2 2.1 2.2 2.3 5.1 5.2 5.3 5.4 5.5 6.1 7.1

Organizational approaches to company behaviour Analytical framework – social interaction channels Structure of employment in Electra Electra’s organizational structure (2003–2006) Numerical flexibility Trade union involvement in constructing employment practices across Electra subsidiaries Social interaction: Electra Brugge Social interaction: Electra Dreux Social interaction: Electra Székesfehérvár Social interaction: Electra Kwidzyn Social interaction of trade unions Social interaction channels and form

23 36 47 48 55 139 140 141 142 143 169 191

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Figures

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ABVV ACLVB ACV ASZSZ BBTK BG BLMB CEE CEO CFDT CFE – CGC

CFTC CGT CGT – FO CNV CRT EEF EES EMEA EMF ESZT ETUC EU

Algemeen Belgisch Vakverbond (General Belgian Federation of Trade Unions) Algemene Centrale der Liberale Vakbonden van België (General Organization of Liberal Trade Unions of Belgium) Algemeen Christelijk Vakverbond (Confederation of Christian Trade Unions in Belgium) Autonóm Szakszervezetek Szövetsége (Federation of Independent Trade Unions, Hungary) Bond der Bedienden, Technici en Kaders van België (Trade Union of White Collar and Technical Employees of Belgium) business group Vlaamse Dienst voor ArbeidsBemiddeling (Brugge Labour Market Board) Central and Eastern Europe Chief Executive Officer Confédération Française Démocratique du Travail (French Democratic Confederation of Labour) Confédération Française de l’Encadrement – Confédération Générale des Cadres (Confederation of Professional Trade Unions, France) Confédération Française des Travailleurs Chrétiens (French Confederation of Christian Workers) Confédération Générale du Travail (General Confederation of Labour, France) Confédération Générale du Travail – Force Ouvrière (General Confederation of Labour – Workers’ Force, France) Christelijk Nationaal Vakverbond (Christian National Trade Union Confederation, the Netherlands) cathode ray tube European Electra Forum employee engagement survey Europe, Middle East and Africa European Metalworkers’ Federation Értelmiségi Szakszervezeti Tömörülés (Trade Union Federation of Intellectuals, Hungary) European Trade Union Confederation European Union

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Abbreviations

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EWC FNV FZZ HRM ICFTU KLMB LBC – NVK

LIGA MEDU MNC MOSZ MSZOSZ NBEPA NO OPZZ PD SCM SLMB Solidarność SZEF TUAC Vasas VHP WE

European Works Council Federatie Nederlandse Vakbeweging (Federation of the Dutch Trade Union Movement) Forum Związków Zawodowych (Forum of Trade Unions, Poland) human resource management International Confederation of Free Trade Unions Powiatowy Urząd Pracy (Kwidzyn Labour Market Board) Landelijke Bedienden Centrale – Nationaal Verbond voor Kaderpersoneel (National Federation of White-Collar Workers, Belgium) Független Szakszervezetek Demokratikus Ligája (Democratic League of Independent Trade Unions, Hungary) Magyar Elektronikai Dolgozók Uniója (Trade Union of Hungarian Employees in Electronics) multinational company Munkástanácsok Országos Szövetsége (National Federation of Works Councils, Hungary) Magyar Szakszervezetek Országos Szövetsége (National Confederation of Hungarian Trade Unions) Netherlands Bureau for Economic Policy Analysis national organization Ogólnopolskie Porozumienie Związków Zawodowych (All-Polish Federation of Trade Unions) product division supply chain management Munkaügyi Központ (Székesfehérvár Labour Market Board) Niezależny Samorządny Związek Zawodowy Solidarność (Independent Trade Union Solidarity, Poland) Szakszervezetek Együttműködési Fóruma (Forum for Trade Union Cooperation, Hungary) Trade Union Advisory Committee to the Organization for Economic Cooperation and Development (OECD) Vasas Szakszervezeti Szövetség (Trade Union Organization of Metalworkers, Hungary) Vakbond van Hoger Personeel (Trade Union of Higher Grade Personnel, the Netherlands) Western Europe

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xii Abbreviations

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This book follows up on a PhD dissertation research project, which started in 2002 and was defended in 2007 at the Amsterdam School for Social Science Research, University of Amsterdam, the Netherlands. The research project focused on the question of convergence in employment practices across several workplaces of the same multinational company in Western and in Central Eastern European countries. The project has led to a publication of two journal articles in the International Journal of Human Resource Management (2006, co-authored with Marc van der Meer) and in the European Journal of Industrial Relations (2007). The PhD dissertation has been awarded the 2009 Annual Dissertation Prize of the Dutch Sociological Association. The project underwent significant changes and extensions in 2007– 2009 during my postdoctoral research stay at the Max Planck Institute for the Study of Societies in Cologne, Germany and a visiting assistant professorship at the Central European University in Budapest, Hungary. The original focus has shifted from the convergence question to uncovering the reasons for diverse practices and elaborating the theoretical and conceptual mechanism of the construction of employment practices. For this purpose, the book presents original empirical evidence collected in four subsidiaries of a well-known Dutch multinational. This approach has proved successful in unveiling that social interaction between managers, workers and other local actors facilitates new convergences and divergences, as well as unique employment practices, which can neither be explained by the multinational’s economic interest nor by the host countries’ institutional frameworks. The book refers to the company name by an acronym in order to meet the company’s request. I wish to express my most sincere thanks to everyone who has supported this book in its doctoral and postdoctoral phases. My deepest gratitude goes to my PhD Supervisors, Prof. Dr Jelle Visser and Dr Marc van der Meer, for their guidance, support and constructive criticism. I also thank my colleagues in Amsterdam, Budapest and Cologne for sharing their thoughts and providing comments, criticisms and suggestions that helped me to improve the text and proceed to its final version. I am also grateful to Nina Bandelj, László Bruszt, Brian Burgoon, Thomas Fetzer, Annette Freyberg-Inan, Ian Greer, Hester Houwing,

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Preface and Acknowledgements

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Preface and Acknowledgements

Richard Hyman, Gerd Junne, Monika-Ewa Kaminska, Bernhard Kittel, Rüya Gökhan-Koçer, Guido Möllering, Geny Piotti, Damian Räss, Britta Rehder, Wolfgang Streeck and Joshua Whitford for providing feedback on my work in conferences, workshops, presentations and informal discussions, and the PhD defence. Outside the academic community, a number of people contributed to this book by helping to establish contacts with interview respondents, devoting their own time to interviews and sharing precious information from their professional experience and daily work. I express my sincere gratitude to the people at the studied multinational company, trade unions, and representatives of various public and private organizations that I visited and interviewed in the Netherlands, Belgium, France, Hungary and Poland. Institutional and financial support provided by the Amsterdam School for Social Science Research, University of Amsterdam, the Netherlands Science Foundation and the Max Planck Institute for the Study of Societies is greatly acknowledged. I also acknowledge the continuous support and cooperation from the publishers at Palgrave Macmillan. Finally, I thank my family and friends who trusted in my abilities and provided enduring emotional support while conducting research and writing the book. One person deserves special recognition and gratitude. Without my husband Martin I would most likely not have written this book. It was him who always motivated me to reach out for higher goals in my career, believed in me and gave me strength whenever I needed it. Bonn, September 2009 Marta Kahancová

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The 1990s were a turbulent period for most people in former socialist countries in Central and Eastern Europe (CEE). Political and economic changes after the fall of state socialism had wide-ranging consequences for the lives and careers of individuals. Capturing the essence of these early transition years and conditions in Hungary, Pál Schiffer produced the documentary trilogy Breaking Points (Schiffer 1996). This film authentically shows the everyday struggles of the unemployed and their families, as well as the economic stagnation of the city of Székesfehérvár – one of Hungary’s most industrialized cities before 1989. Despite the difficult post-transition years, the economic and social conditions in this region soon changed. The breaking point has been the settlement of foreign multinational companies (MNCs) in Székesfehérvár. With the inflow of MNCs, employment was rising again and by the mid-1990s, Székesfehérvár found itself among the most rapidly developing industrial parks in the world. Fifteen years after the first MNC inflow, the city is still flourishing and unemployment is down. Beyond growing employment, the inflow of MNCs also stimulated a growing variation in employment practices. Some MNCs started providing working conditions that exceed local standards; while other firms seemingly aimed at benefiting from loose regulations and cheap labour (Bohle and Greskovits 2006; Schiffer 1996). Schiffer’s documentary trilogy shows three industrial MNCs in the automobile industry and electronics, each adopting a different strategy vis-à-vis local employees and trade unions. The first company, the electronics giant IBM, decided to hire subsidiary workforce exclusively via a temporary labour agency, thus refraining from long-term job security.1 In contrast, the second MNC, the American

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Introduction: Multinationals and Employment Practices across Europe

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automotive company Ford, has been offering stable jobs with significant investment in workers’ training, participation and motivation; but preferred human resource management (HRM) without engaging in interaction with employee representatives, i.e., trade unions.2 Finally, the third MNC, the famous Dutch electronics producer, referred to by the acronym Electra, acknowledged trade union presence in the subsidiary and started regular negotiations with unions soon after its initial establishment in 1991. Nevertheless, from the very beginning until today, industrial relations at this site reveal a number of open conflicts between the MNC management and trade unions. Trade union representatives remain critical about subsidiary employment practices and filed a number of court cases against the employer. Comparing these different employment practices in the above MNC subsidiaries with our general knowledge and expectations on MNC practices, the situation in the Electra subsidiary is particularly puzzling. Electra, established in the late 19th century, has since long enjoyed a reputation of a caring employer in its home country. The MNC counts among frontrunners on introducing social provisions and employee housing as early as the first decades of the 20th century and recognizing co-operation with trade unions by the mid-20th century (Stoop 1992). Why do we thus observe such diversity in Electra’s employment practices when comparing evidence from the Netherlands and Hungary? How to explain the striking difference in practices of the same MNC in different countries? The above empirical puzzle serves as a source of inspiration for this book. It stimulates thought on a number of questions deserving further inquiry. How do MNCs manage their employment practices in diverse host-country conditions? How are subsidiary employment practices being constructed? Why treat employees differently in different host countries? Can differences in labour legislation and labour market conditions fully account for diverse employment practices across MNC subsidiaries in the host countries? How do the relationships that arise between the MNCs and local employees, trade unions, local governments, and other actors influence the subsidiaries’ employment practices? These empirical questions further stimulate more general questions at theoretical and conceptual level, namely, the issue of how foreign actors, in particular MNCs, become capable of shaping local employment standards, and how local host-country actors become capable of shaping MNCs’ subsidiary employment practices. In other words, the questions posed above can be reformulated as understanding MNC embedding – the process through which MNCs establish and reinforce their position in host-country labour markets. A particular

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dimension of embedding is the construction of employment practices in MNC subsidiaries across different host countries and the assessment of their diversity within the same company. Answering some of the above empirical and theoretical questions is the aim of this book. Starting from the observed puzzle on diversity in employment practices in Electra, I draw together evidence on employment practices from Electra in several host countries, including the Hungarian subsidiary of Székesfehérvár, to make a more general case on the constitutive processes of MNC embedding in diverse host-country conditions. In particular, I analyse the process through which employment practices in MNC subsidiaries are constructed in diverse host countries in Western Europe and in CEE. With this focus, the book is a direct response to recent MNC-oriented literature’s call for systematic comparative analyses of processes and outcomes of politics inside the MNCs, such as the micro-level of the relationship between management and employees in a cross-national perspective (cf. Ferner, Quintanilla and Sánchez-Runde 2006; Geppert and Mayer 2006; Scharpf 1997; Tempel, Wächter and Walgenbach 2006; ). The book in particular seeks to address three questions. The first one aims at mapping subsidiary employment practices and uncovering the extent of their diffusion within the MNC organization, or alternatively, their diversity and adaptation to local standards. The second question aims at theoretically understanding how MNC embedding occurs, and how the theoretical logic helps elucidate the actual process of constructing employment practices in Western European and CEE host countries. The focus here is not on the mode through which MNCs initially made their investments in the host countries, but on the ongoing social interaction between MNCs and relevant local actors after years of subsidiary operation. As will be explained later, social interaction between MNCs and local actors is at the core of the construction process. To support the second question, the book’s third question aims at uncovering the conditions facilitating MNC embedding and the empirically observed paths of constructing employment practices. In particular, I analyse the compatibility of corporate influences, originating in a large transnational organizational entity like an MNC with particular host-country environments and local actors. In addressing the above concerns, I adopt a relational approach to the construction of employment practices and study how organizational interests of MNCs and institutional influences of the host countries are mediated by actors’ social interaction at the micro-level. In the complex influences of corporate strategy and host-country conditions, social interaction within the MNC and between the MNC and local

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Introduction 3

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actors (workers, trade unions and the local society) is presented as the underlying social mechanism through which subsidiary employment practices are constructed and reproduced. Therefore, beyond the conventional institutionalist perspective on understanding the expected and real outcomes of MNCs’ exposure to host country conditions, the book shifts the attention from employment practices being the outcomes of MNC embedding to the process of constructing employment practices through actors’ social interaction. Within this approach, attention is paid to influences of economic as well as non-economic factors on social interaction between MNCs and local actors in constructing employment practices.3 The focus on social construction of employment practices is not in simple conflict with a rational economic perspective on MNC behaviour. Rather, it draws attention to the complex way in which actors’ decisions take place beyond limited, profit-driven considerations. In numerous decisions concerning the construction of employment practices, repeated patterns of social interaction between MNCs and local actors extend beyond pure economic means and serve as a broader channel for MNCs to develop local influence. In other words, embedding does not simply occur through pure economic means of market competition, and MNC behaviour is constituted also through additional, not strictly economic, means of influence. Having briefly outlined the book’s theme and conceptual approach, I now proceed with a brief introduction to the theme of constructing employment practices in MNC subsidiaries. After presenting the state of relevant scientific knowledge on MNC behaviour and employment practices, the book’s contribution to the existing literature is highlighted. I conclude with discussing the book’s empirical scope, its argument and the outline of subsequent chapters.

Multinationals’ approaches to the construction of employment practices How to define a multinational company? This question has stimulated a number of responses and has led to various definitions. Companies whose operations cross national borders have been defined as transnational, international, multinational, and global. Bartlett and Ghoshal (2002) define a multinational company as an organization consisting of decentralized and nationally self-sufficient subsidiaries, whereas more integrated organizational forms are labelled transnational, global or international companies. The empirical question of whether a

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company can be classified as multinational, transnational, international or global is remote from the book’s central focus on the construction of employment practices. Therefore, I refrain from analysing the company structure according to the above definition and follow a simpler definition introduced by Caves (1995): MNCs are companies controlling and managing subsidiaries in at least two countries. These subsidiaries are linked by common ownership, a common pool of resources and a common corporate interests and strategy (Perlmutter 1969; Vernon and Wells Jr. 1981). Recent literature on MNCs has evolved around two core themes. The first broad theme relates to institutional developments within global capitalism and the role of MNCs therein. The question is whether MNC activities throughout the world stimulate convergence in employment practices across countries (Berger and Dore 1996). Within this theme, one can distinguish between two alternative streams of MNC literature, one arguing in favour of cross-country convergence and the other being in favour of entrenched varieties of capitalism. According to the convergence thesis, increased competition, technological advancement, and liberalization of trade and capital movements will lead to convergence in business organization structure and institutions in national political economies (Kerr, et al. 1962; Womack and Jones 1991). MNCs are seen as the driving force of a converging global capitalism because of their ability to manoeuvre against state bureaucracies and thus challenging the existence of national institutions and practices oriented at internal workers’ pressures (Berger and Dore 1996; Boyer 1996; Rubery and Grimshaw 2003; Wallerstein 1980: 33). In an economic perspective, MNCs follow their economic interests and utilize host-country institutions in order to directly achieve profitability. MNCs then become drivers of convergence because of their adopting best employment practices that have proved to be efficient elsewhere and are feasible for assuring company profitability. The recognized reasons for transmitting employment practices across borders include an increased drive towards a flexible organization, derived from the MNCs’ strive for greater competitiveness in international markets, pressures of European integration, or coping with increased volatility of economies (Gallie, et al. 1998; Legge 2007; Procter 2005). MNC headquarters, using their economic power, control the behaviour of subsidiaries and foster convergence to best employment practices regardless of host-country conditions and MNC relations with local actors. The alternative stream of scholarship questioning the MNCs’ role in global capitalism stresses the enduring influence of nationally

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entrenched institutions, leading to persistent variation in institutions and organizational practices instead of their cross-country convergence. Rooted in the new institutional economics (North 1991) and in varieties of capitalism (Dore 1991; Hall and Soskice 2001; Hollingsworth and Boyer 1997; Katz and Darbishire 2000; Streeck 1992), it is argued that different institutional settings are able to provide equally efficient performance of economies. As an outcome, no convergence is expected, because instead of diffusing best practices MNCs will adapt to local employment standards and thus reinforce cross-country diversity. In this case, the host countries’ institutional infrastructure poses constraints on MNC behaviour and prevents MNC-driven convergence in employment practices (Ortiz 1999; 2002; Tóth 2004).4 The literature’s second core theme evolved around the transfer of MNCs’ organizational practices between headquarters and subsidiaries, in particular, outcomes of transferring technology and business and employment practices from MNC headquarters to subsidiaries. It is argued that, due to diverse influences, MNCs may diffuse work practices across several subsidiaries, adapt to local employment standards by imitating practices of locally established firms, produce reverse diffusion from host countries to home-country subsidiaries, or attempt to hybridize subsidiary work practices by combining the best of home- and host-country influences (Bartlett and Ghoshal 2002; Boyer, et al. 1998; Dickmann 2003; Edwards 1998a; Ferner 1997; Ferner and Quintanilla 1998; Ferner and Varul 2000; Geppert, Williams and Matten 2003; Harzing and Sorge 2003; Maurice and Sorge 2000; Tüselmann, McDonald and Heise 2003). To make a long story short, the large body of MNC literature can be clustered in three distinct ways of conceptualizing MNC behaviour relevant for employment practices and their cross-country diversity. First, MNCs are classified according to efforts in diffusing employment practices or adapting them to host-country conditions. MNCs are seen as innovators, adaptors or reverse diffusers (Ferner and Varul 2000; Marginson 1992).5 Second, the literature has questioned the reasons for diffusion or adaptation of employment practices, focusing on structural, institutional, political and cultural influences (Edwards, Rees and Coller 1999; Ferner and Quintanilla 1998; Maurice and Sorge 2000).6 These shape the extent to which MNC employment practices will resemble corporate, home-country or hostcountry traditions (Edwards, Rees and Coller 1999). Third, Boyer et al. (1998) make a distinction between diffusion outcomes and the principles and methods of diffusion. Implementing various combinations of methods and principles can lead to selective adaptation of employment

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practices to local standards, or in other words, to hybridization trajectories combining home-country and host-country standards (Boyer, et al. 1998; Dörrenbächer 2002; Meardi and Tóth 2006). The above debates offer a variety of considerations relevant for conceptualizing the process of constructing employment practices in MNC subsidiaries. They consider both global and local influences, factors internal and external to the MNC, and factors differently affecting different employment practices. In consequence, there emerge different predictions of MNC behaviour when constructing employment practices and driving their convergence or diversity. The shortcoming of the existing debates is an implicit assumption of MNC interest in crosscountry convergence, facilitated or obstructed by host-country institutions. The literature has rarely questioned MNC interest in diffusing best practices or adapting to local conditions, or in other words, the company’s preference for responding to or ignoring the diversity of local employment standards. Furthermore, despite the literature’s contribution to understanding the expected and real outcomes of MNC embedding in terms of specific subsidiary practices, little is known about the MNC embedding process itself. To overcome these shortcomings, in this book I set out yet a third theme relevant for the MNC literature, namely that of micro-level MNC behaviour and interaction with host-country actors in the process of constructing subsidiary employment practices. Within economic influences, politics, culture and institutions, the conceptual focus then shifts from questioning whether MNCs adapt to host-country conditions to understanding how the construction of subsidiary employment practices occurs. As already noted, the construction of subsidiary employment practices is part of a multi-dimensional embedding process of MNCs, in which the MNC and local actors play a central role. Assuming that socio-economic actors are associated with and influence one another (Smelser and Swedberg 2005), two theoretical logics apply to the embedding process. The first one is embedding as unilateral managerial action and competition-driven interaction between the MNC and local actors. The second logic is embedding as a relational social process, shaped simultaneously by the MNC and various social forces and host-country actors (Bandelj 2008). These two logics imply a different kind of interaction between MNCs and local actors in constructing employment practices. The first perspective assumes rational economic action on the part of MNCs, which decide a priori what the best organizational practices are and diffuse them across several subsidiaries in different host countries. In consequence, MNCs become embedded in host-country societies

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predominantly through competition-driven arm’s-length interaction with local actors. Social interaction develops around accommodating MNCs’ best organizational practices, imported from foreign subsidiaries, into specific socio-institutional condition in the host countries. Despite the fact that MNC embedding is assumed to occur through a genuine market type of interaction with local actors,7 this interaction is not isolated from the influence of host-country social forces that are non-economic in nature.8 In contrast to the above logic based on rational calculations of costs and benefits, the second perspective on embedding sees host-country social forces, i.e., social networks, institutions and culture, as constitutive of the embedding process (Zukin and DiMaggio 1990). MNCs do not necessarily see the influence of social forces as curbing their profit aspirations. Instead, through social interaction with local actors, MNCs seek to utilize local social forces in order to become an active part of the host country’s social structure. Therefore, MNC embedding in hostcountry societies is a socially constituted process. Constructing subsidiary employment practices with the help of local social forces may not be in conflict with MNCs’ profit aspirations, but rather determines a kind of social interaction between MNCs and local actors that is different from the one that would result from taking a narrowly economic perspective. Economic sociology has articulated that economic actors’ market behaviour is in fact social behaviour, and that an encompassing sociological perspective is necessary to understand behaviour (Bandelj 2008; Fligstein 1996; Granovetter 2005). Applying this reasoning to MNC embedding and the construction of employment practices, I adopt the latter, sociological, perspective, which in my view better reflects the complex reality of organizational decision-making in host-country conditions. Thus, this book develops a sociological framework emphasizing the notion that social interaction between MNCs and local actors, as a multifaceted network of social relations, constitutes MNC embedding, and, in particular, the construction of subsidiary employment practices. Social relations that emerge in the construction process do not only derive from the MNCs’ short-term profit interest, but also relate both to market and non-market types of relations. In this respect, the process of constructing employment practices through social interaction with host-country actors corresponds to an embedded perspective on economic action, situated between an undersocialized and oversocialized perspective on organizational behaviour (Granovetter 1985). Within the introduced analytical focus, the book emphasizes the empirical scrutiny of how subsidiary employment practices are

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constructed as a consequence of MNC’s social interaction with local actors; how employment practices vary across MNC subsidiaries; and what factors inform MNC behaviour beyond profit and efficiency. In other words, the book studies how employment practices result from the given variety of corporate and local influences; and the process behind designing, negotiating and deploying these practices in Western and Eastern European workplaces. The actor-oriented focus on constructing employment practices points to the scrutiny of the role that MNCs and local actors play in the construction process. A related question is the role that multinational and local actors play in shaping employment standards in the host countries (cf. Fligstein 1996). This latter question can be generalized as the role of micro-level actors in the process of host-country institutional change. The issue of institutional change directly feeds back to the issue of cross-national convergence of institutions and organizational practices as opposed to the varieties of capitalism perspective (Streeck and Thelen 2005; Thelen 2004). Institutional change has been extensively studied in the literature, predominantly within the varieties of capitalism. This book contributes to such debates by exploring the micro-level perspective on institutional change driven by particular actors and related in particular to the construction and convergence of employment standards across European countries.

The empirical case An in-depth insight in the construction of company employment practices requires a detailed study of the company’s internal functioning, the factors informing particular decisions, and the reasons why certain employment practices exist and how they are maintained. Therefore, the book’s empirical account is based on original in-depth research in Electra, a Dutch MNC in electronics and its four production subsidiaries in Belgium, France, Hungary and Poland.9 The similarity of subsidiaries in products, production seasonality, and involvement of headquarters in employment issues – and at the same time their different locations – offered a suitable research design. Bartlett and Ghoshal (2002) characterized Electra as an MNC with decentralized, self-sufficient operations and a portfolio of independent businesses that aim to utilize local conditions. However, recent reorganizations due to global market pressures strengthened the intra-firm coordination of production, research, development and sales. I find it highly interesting to study how Electra’s interaction with local actors and the tradition of locally

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determined construction of employment practices have been affected by such reorganizations. The book empirically shows how social interaction between the MNC and local actors happens; how it embodies values and interests of the MNC; and what concrete employment practices result from social interaction at workplaces in Western and CEE subsidiaries. Employment practices refer to the formal and informal organization of work in the subsidiaries or to organizational practices involving the use of labour resources. I selectively focus on the construction of employment practices of production workers, because they constitute the largest share of the workforce in Electra’s subsidiaries and are directly associated with the subsidiaries’ main economic activity – assembly of electronic devices.10 Studied employment practices include working time, contract flexibility, job rotation, motivation practices, employee involvement, and fringe benefits. These practices are seen as socially constructed via actors’ behaviour and social interaction. Therefore, to explore the construction of these practices, the empirical narrative covers four channels of social interaction between Electra and local actors. First, I examine the interaction between corporate headquarters and subsidiary managements in each host country in order to assess the internal consistency of MNC behaviour vis-à-vis local actors and the corporate approach to constructing subsidiary employment practices. Second, interaction between the MNC’s sister subsidiaries in Belgium, France, Hungary and Poland uncovers whether subsidiary managements cooperate across different host countries in constructing employment practices. Third, the analysis of the interaction between subsidiary managements and local actors, including workers, trade unions, labour market representatives, municipalities and the local society, seeks to identify the openness of MNC decision-making to external actors, cross-country similarities in this conduct, and the actual involvement of local actors in the construction process. Finally, I examine crossborder interaction of trade unions within Electra (company-level trade union interaction), between the concerned host countries (sectoral and national-level union cooperation) and interaction of Electra’s employee representatives in the European Works Council (EWC), in order to document the interests and behaviour of employee representatives vis-à-vis the MNC’s approach to constructing subsidiary employment practices. Complementarities in social interaction forms in each of the above channels frame the book’s analysis of how actors’ social interaction shapes the construction of work practices. The interaction process is informed by a variety of forces originating on the side of the MNC as

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well as the side of the host country. From the MNC’s side, these forces include revealed corporate interests and company values. From the point of view of host-country conditions, an obvious and important independent variable is the local institutional context, which facilitates MNC behaviour and social interaction with local actors. I particularly refer to the formal legal regulation of employment practices, and to employment standards and informal institutions in the local labour markets, such as employment practices, industrial relations, management styles and workers’ work habits that exist in other locally based firms and can be considered as typical of the local environment. Local standards are a benchmark against which Electra’s behaviour and its interaction with local actors is evaluated. Whereas the studied MNC subsidiaries are comparable in their production orientation and management distance from headquarters, the institutional contexts in which they operate allows one to distinguish between CEE and continental Western Europe. Differences are obvious in terms of unemployment levels, industrial relations, the position of trade unions, established employment standards, and effective motivation practices (Danis 2003; Kohl and Platzer 2004; Meardi 2002; Michailova 2003; Sagie and Koslowsky 2000; Whitley, et al. 1997). For example, a collective representation of worker interests is not as evident in CEE, where workplace competition and the use of performancerelated pay are more common (Whitley, et al. 1997). In general, CEE can be characterized as being more market-driven and liberal on company practices, work norms and industrial relations. Of course differences exist also between countries within Western Europe and CEE, but these are not as apparent as the differences between the two regions (European Commission 2006; Streeck 1998; Visser 2001). The empirical chapters reveal how Electra takes advantage of these differences, and the implications of MNC behaviour on the construction of employment practices and the local actors’ involvement therein.

The argument

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Introduction 11

The book’s argument revolves around the role of socio-economic actors – in particular, their behaviour and social interaction – in the process of constructing subsidiary employment practices and broader employment standards, and understanding their similarities and diversities across subsidiaries and host countries. I argue that cross-subsidiary diversity in employment practices across Western Europe and CEE is not sufficiently explained by comparative economic conditions,

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differing labour laws, and local employment standards. Instead, I show that social interaction between MNCs and local actors facilitates new convergences and divergences, as well as unique work practices, which can neither be explained by the MNC’s economic interest nor by the host countries’ institutional framework. Particular interaction dynamics between the MNC and local actors accounts for boundaries between two particular paths of MNC embedding and the construction of subsidiary employment practices. The first one is MNC embedding via unilateral managerial decisions. The second one is embedding with the direct involvement of local actors in the construction process. Both of these paths acknowledge MNC values and economic interests, as well as social and institutional factors constituting actors’ behaviour. In both paths employment practices are socially constructed through actors’ behaviour and social interaction. However, the two paths diverge on the role of particular actors in the construction process. In the former, unilateral path, the steering of the construction process remains within organizational boundaries of the MNC. In the latter, interactive path, employment practices are constructed with greater involvement of local actors. Conditions influencing and facilitating the particular path of MNC embedding demand compatibility between several resources: the MNC’s corporate values and profit interest, host-country institutions, interests of local actors, and trust between MNCs and locals. Diversity in employment practices in Europe and prospects for their convergence are therefore predominantly actor-driven. MNCs may voluntarily seek social and institutional embedding in the host countries via social interaction with local actors; and this process yields actors the agents of stability and change in employment practices and institutions governing them. Due to an existing power asymmetry between MNCs and local actors, MNCs benefit from manoeuvring space in the host-country institutional framework and local social networks, in order to better reflect corporate values and interests in the construction of subsidiary employment practices. In cases when social interaction between the MNC and local actors is cooperative, as shown empirically in Chapter 5, interaction generates trust-based informal agreements that often exceed local employment standards. The main benefit for the MNC is securing long-term sustainability of business performance. At the same time, the MNC actively contributes to incremental changes in the host countries’ business practices and employment-related institutions at the micro level.11 Building on this argument, the book attempts to formulate a broader argument that institutional change in modern capitalist societies,

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related to the flexibilization of work and the decentralization of collective bargaining, does not happen merely in a top-down perspective, i.e., through government policies, responses of collective actors and the introduction of EU regulation. Instead, an actor-oriented perspective on institutional change suggests that stability and change is to a great extent constructed in a bottom-up process of social interaction between powerful international actors such as MNCs and local actors in the host countries, including workers, trade unions and the local society and labour market actors. Social interaction allows MNCs to benefit from local institutional resources; thus MNCs become institutional rule-takers in the host countries (Streeck and Thelen 2005). At the same time, interaction creates space for the MNC to become a legitimate actor contributing to institution building in local labour markets, or an institutional rule-maker (ibid.). Social interaction between MNCs and local actors thus facilitates institution building at the micro-level. One of the consequences of such institution building is that actors’ internationalization strategies strengthen diversity in employment practices across Europe instead of their cross-country harmonization. The theme of institutional stability and change across European countries has been systematically addressed in the varieties of capitalism literature (Djelic and Quack 2003; Hall and Soskice 2001; Hollingsworth and Boyer 1997; Streeck and Thelen 2005; Thelen 2004). I attempt to contribute to these debates by shifting their focus from comparing complex institutional infrastructures to analysing the compatibility of organizational characteristics of large companies with institutional characteristics of host countries, in which these companies operate. The impact of organizational and institutional factors is channelled via actors’ behaviour and social interaction. My focus on social interaction is a conceptual amendment to the comparative institutionalist perspective on MNCs. In particular, an actor-oriented focus offers an integration of actors’ values, interests, behaviour and social interaction within the broader framework of the comparative institutional approach (Almond and Ferner 2006; Ferner, Quintanilla and Sánchez-Runde 2006; Geppert and Mayer 2006; Tempel, Wächter and Walgenbach 2006).

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Introduction 13

Outline of chapters The above argument is elaborated throughout eight chapters. Chapter 1 offers a conceptual framework and theorizes the influence of different interaction forms on the construction of subsidiary employment practices. The framework draws on organizational and institutionalist

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literature and enriches these by an actor-oriented focus. Acknowledging the attributes of economic actors, I conceptualize values and interests of MNCs, heterogeneity of interests, and resource dependence between MNCs and host-country environments. Next, I relate actor-centred and environment-centred attributes in a coherent conceptual framework on social interaction. The influence of social interaction on the construction of employment practices is discussed by distinguishing several social interaction channels. In each of these channels, a variety of possible interaction forms is presented. This framework is used to draw propositions on the impact of each interaction form on the construction of subsidiary employment practices across Western Europe and CEE. Moving from the conceptual framework to the empirical narrative, Chapter 2 justifies the comparative case study method and introduces the studied MNC, in particular, its organizational structure, subsidiaries and their local conditions. Next, I discuss and compare employment practices in the MNC’s four subsidiaries in Belgium, France, Hungary and Poland. Attention is predominantly paid to similarities and differences in employment flexibility, wages, work organization, motivation, participation and fringe benefits. These practices are compared across the subsidiaries as well as with local standards in each host country. The analysis does not reveal a single systematic pattern in the direction of adaptation to local standards (and thus host-country-driven diversity) or diffusion of similar practices regardless of host-country conditions (and thus company-driven East – West convergence in employment practices). Instead, similarities and differences in subsidiary employment practices are presented as a decentralized way of making the most of local conditions, with elements of diffusion, adaptation and development of distinctive practices. The next four chapters investigate the social construction of these employment practices by analysing four distinct social interaction channels. Chapter 3 studies the organizational influences from within the MNC’s headquarters, business units and other subsidiaries on the construction of workplace employment practices. It addresses internal social interaction between headquarters and the subsidiaries, controlling for the coherence of interaction content and form across various organizational levels. The focus is on how interaction within the MNC secures the compliance of the subsidiaries with corporate values and interests. Next, the mutual relation between corporate values and interests and their flow across the interaction channels is evaluated. I argue that corporate interests and values obtain concrete meanings through social interaction across several levels within the MNC. In consequence, they

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influence subsidiary behaviour in the process of constructing employment practices. Evidence of corporate values and interests suggests that the MNC strives to tailor its organizational practices to differing local conditions and thus consciously build an embedded organization with differentiated capabilities, tasks and resources. An implication of this finding is that social interaction within the MNC creates preconditions for subsidiary behaviour in line with corporate values and interests. Also, internal interaction stimulates subsidiary involvement in social interaction with host-country actors when constructing tailored employment practices. After explaining the corporate stance on the construction of subsidiary employment practices, Chapter 4 uncovers the local presence that the MNC has developed through its social interaction with the local society and local authorities after the subsidiaries have stabilized their operations and became an integrated part of the local economy. First, the analysis of interaction between the MNC and municipalities, labour market authorities, media and civil society establishes that interaction patterns range from trust-based cooperation to interactive bargaining with exchange of commitments and expected benefits to the MNC as well as to the local society. I argue that MNC interaction with the local society is neither driven by the MNC’s structural and organizational power, nor by an institutional ‘pull’ from the host countries. It is an interactive exchange relationship involving costs, benefits and trade-offs to all involved actors; with a differing dynamics across Western Europe and CEE. Interaction in form of bargaining and value-based cooperation increases the local society’s trust in the MNC’s local behaviour. Even if the local society does not have a direct impact on the construction of employment practices in MNC subsidiaries, Chapter 4 concludes that feasible preconditions for a locally driven construction process exist. This finding is complementary to findings in Chapter 3. From among local actors, the MNC’s interaction with trade unions and workers plays the greatest role in the process of constructing subsidiary employment practices. Chapter 5 explores applicable interaction forms and their effects on employment practices in each subsidiary. The analysis of social interaction encompasses several dimensions derived from the MNC’s organizational, institutional and social incentives. The chapter’s argument underlines the central importance of micro-level social processes even in legally regulated domains such as employment practices. Although the MNC is willing to involve trade unions in the construction of employment practices in each subsidiary, management – union interaction does not aim at cross-subsidiary convergence in

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employment practices, but at their diversity. The extent to which diversity is an outcome of joint agreements with local actors derives from the social interaction form between management and trade unions. In subsidiaries with value-based cooperation and interactive bargaining between management and unions, unions are more involved in the construction of employment practices. Union involvement in this case happens on an informal basis. In contrast, involvement of trade unions in the construction of employment practices is minimized to legally required minima and is seen as an obstacle in subsidiaries where management – union interaction is conflict-driven and does not embrace trust and commitment to joint informal agreements. Building on the argument of Chapter 5 that MNC interaction with local employee representatives is central in constructing employment practices, Chapter 6 asks what role employee representatives play at the international level in facilitating or constraining the locally embedded construction process. The analysis uncovers East – West interaction of trade unions at the national, sectoral and company level, and through the MNC’s European Works Council (EWC). Comparing original empirical evidence with the existing literature on Europeanization of trade unions and cross-border interaction, I make a case for two distinct faces of cross-border trade union interaction: a cooperative one at the national and sectoral level, and a competitive one at the company level. The cooperative interaction of national and sectoral trade unions does have a potential to exert pressure on MNC behaviour, because it enables local actors to draw on international resources and thus to strengthen their potential power vis-à-vis MNCs in facilitating a greater degree of East – West convergence in employment practices. However, the interaction of national and sectoral trade unions only has an indirect effect on the MNC. Interaction of employee representatives and trade unions within the MNC, or at the company level, has a greater capacity to influence management both at headquarter and subsidiary levels. The chapter illustrates that due to the lack of trade union networking, and the existence of competitive interaction, trade unions fail to build an international power resource to effectively influence MNC behaviour. Chapter 7 integrates the arguments from previous empirical chapters and draws broader implications from the case study. Most importantly, I investigate the complementarities in interaction forms and channels and present them as a set of interdependent processes that together build the mechanism of the social construction of employment practices. Complementarities in social interaction are central for the stability of the entire interaction mechanism and for its effects on

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employment practices. Rather than through normative constraints on MNC practices, stability is reached by the company’s utilization of local conditions, and the local actors’ involvement in constructing employment practices. In an attempt to make a theoretical contribution, the chapter discusses how company interests, values, social interaction and host-country institutions at the macro and micro levels are mutually reinforcing across international and local spaces. In conclusion, the chapter revisits the conceptual tools of earlier chapters and discusses their compatibility with mainstream concepts in the MNC literature. Finally, in the concluding Chapter 8 I revisit selected theoretical and empirical aspects of the book’s argument. I discuss the implications of the social construction of employment practices, and the organizational and institutional preconditions of the construction process. Instead of separating organizational and institutional influences, I argue that they mutually influence each other. The means of realizing organizational interests, i.e., profits or value-based interests, such as responsiveness to local conditions, are then endogenous and simultaneously informed by company values and the ability to benefit from local resources. Resources created through informal trust-based social interaction may diffuse outside a particular subsidiary and gain acceptance among other employers and the local society. This broader process can be characterized as institution building from below, in which MNCs simultaneously become institutional rule-takers and rule-makers. This argument contributes to the debate on institutional evolution and change in European countries from a bottom-up, micro-level perspective. I conclude by reflecting on the social construction of employment practices and raise several points deriving from the book’s theme that deserve more research in the future.

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1

Because of an ability to draw on multiple resources and operate simultaneously in differing conditions, MNCs represent the organizational face of internationalization and transmission of employment practices across borders (Geppert and Mayer 2006; Rubery and Grimshaw 2003). These pressures tend to be similar across different countries; but evidence does not offer a coherent pattern of how MNCs develop a legitimate role in shaping host-country employment standards, how employment practices are constructed, and whether MNCs drive their cross-country diversity or convergence (Ferner, Quintanilla and Sánchez-Runde 2006; Maurice and Sorge 2000; Michailova 2002; 2003). Two broad streams of literature have addressed the construction of MNCs’ employment practices. Whereas organizational theory acknowledges rational action of companies derived from their corporate interests (Bartlett and Ghoshal 2002; Kristensen and Zeitlin 2005), the comparative institutionalist perspective stresses the influence of homeand host-country institutions on company behaviour and employment practices (Ferner, Quintanilla and Sánchez-Runde 2006). Common to both streams of literature is their predominant focus on the outcomes, rather than the process, of constructing subsidiary employment practices. In this chapter, I attempt to cover this conceptual gap and elaborate a framework for analysing the construction process itself. The central conceptual question addressed is how MNCs, together with other actors in the host countries, become capable of constructing employment practices at particular workplaces, and which factors inform actors’ behaviour in this process. Of course, this framework is closely related to particular kinds of employment practices, which

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Constructing Employment Practices in Multinationals: A Framework for Analysis

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stand at the end of the process. Employment practices are thus viewed as the outcomes of MNC embedding. I argue that social interaction between the MNC and other actors is crucial for the construction of employment practices in different socio-institutional conditions. Construction of employment practices is thus viewed as a relational social process, with actors’ social interaction being at its centre. Interaction relates not only to formal negotiation between MNCs and local actors, but also to informal relations, communication and trust that may affect choices otherwise regarded as universally rational (Fox 1974; Smelser and Swedberg 2005). In other words, MNC behaviour is social, and social interaction between MNCs and host country actors may alter universal corporate strategies in constructing employment practices (Beckert 2003; Uzzi 1996; Zukin and DiMaggio 1990). Social interaction may also facilitate new employment practices, distinct from local employment standards in the host countries. The above argument is elaborated in four sections of this chapter. The first section briefly introduces the book’s understanding of employment practices, which yields implications for analysing the process of constructing such practices in MNCs. In the second and third sections I compare organizational and institutional perspectives on the construction of employment practices and address the advantages and shortcomings of both perspectives. The fourth section brings together selected concepts from organizational and institutional perspectives to underline the interdependence between actors and institutions; and elaborates a framework for analysing the construction of employment practices as a relational social process.

Understanding employment practices Employment practices are understood as terms and conditions derived on the one hand from a formal employment contract; on the other hand from informal rules and employment standards accepted at the workplace. The majority of empirical studies of European MNCs focus on institutionalized aspects of employment practices that are part of a formal employment contract (Marsden 1999). These include working time, employment flexibility, vocational training, wages, and collective bargaining practices (Bluhm 2001; Gallie, et al. 1998; Greer 2008; Marginson and Meardi 2006; Meardi and Tóth 2006; Ortiz 1999; van Klaveren, Tijdens and Brngálová 2008). However, large firms like MNCs increasingly direct their attention to a broader set of employment

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practices, encompassing less formalized practices, i.e., communication and informal relations between managers and workers, discretion over one’s job or employee welfare. Such practices often remain outside of the formalized employment contract, and one may question to what extent they undergo the same construction process as formalized employment practices. For example, MNC decisions may strictly follow corporate profit interests when adopting pay and working-time practices, whereas workplace communication may follow informal local standards. Such examples suggest that we cannot treat employment practices as one group, but have to acknowledge different kinds of practices. Therefore, this book covers both formalized and informal employment practices. Within the above integrated perspective on employment practices, the book’s conceptual approach loosely distinguishes between two groups of practices. The first group, hard employment practices, is a relevant aspect of the formal employment contract and relates to labour costs and employment flexibility (Armstrong 2003; Kaufman 2004). Because these practices are central for company success, their relevance is emphasized by practitioners as well as scholars in the field of management, business and economics (Rubery and Grimshaw 2003; Truss, et al. 1997). Hard employment practices scrutinized in this book include production workers’ working-time organization, fluctuations in overall headcount, presence of temporary workers, type of employment contracts, functional flexibility including job rotation and discretion over work tasks, and finally wages. The second group of employment practices involves a variety of soft practices that foster creativity, motivate employees, reward people’s initiative and provide them with social welfare in order to stimulate their commitment to company goals and increase in labour productivity (Dessler 1999; Bolton and Houlihan 2007; Nolan and O’Donnell 2003; Truss, et al. 1997).12 Recognizing soft practices rests on the premise that managing organizations like communities instead of distant, marketlike relationship vis-à-vis employees yields comparative advantages to companies in their overall business performance (Pfeffer 2006; Pfeffer and Veiga 1999; Peterson 1993). Soft employment practices thus do not directly derive from labour costs, but from company values, social relations between managers and workers at the workplace, and from implicit aspects of the employment contract. There are several advantages of distinguishing the above groups of employment practices for the purpose of this book. First, these practices are relevant for MNC interests as well as for the interest of local

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actors, i.e., subsidiary workers and trade unions.13 Second, working time, recruitment and dismissals are subject to legal regulation across all studied countries, and this allows controlling for the impact of macro-level institutional settings on the construction of these practices. By contrast, work organization and fringe benefits are, at least partly, excluded from legal regulation, and a macro-level influence on them is negligible. This leaves extensive room for actors to construct these practices exclusively within the company or subsidiary, leaving out broader institutional constraints. Finally, whereas in the studied MNC, headquarters exercise some direct influence on parts of work organization and working time, other employment practices are fully at subsidiaries’ discretion. Comparing employment practices in which the MNC as a coordinated organizational actor has a greater and a weaker influence renders a suitable comparative design to evaluate the actors’ role in constructing employment practices across host countries and subsidiaries.14 I now proceed with developing the theoretical framework to study the construction of hard and soft employment practices.

Organizational approaches to company behaviour In an actor-oriented perspective on the construction of employment practices, behaviour of socio-economic actors is central. Therefore, I start developing the theoretical framework on the construction process by reviewing relevant organizational theories on company behaviour. Although these do not explicitly focus on MNCs, they assist in outlining theoretical alternatives of how MNCs are organized, and how they structure their relationships with local actors in the host countries. MNC behaviour is, on the one hand, informed by internal factors (corporate factors), and on the other hand, by external factors (societal or environmental factors). The mutual interaction of these factors moreover informs the MNC’s organization, interaction with local actors, and preferences for particular employment practices in particular host countries. The underlying internal dimension of company behaviour, related to corporate factors, is the unity of organizational interests, whereas the key societal dimension, related to societal and environmental factors, is the degree of uncertainty the MNC faces in its environment (Beckert 1996; Grandori 1987). In the first, internal, dimension, the mainstream economic theory maintains that profit is a universal company interest, and that the structure and behaviour are subordinated to this interest. In other words, the company is a unitary actor whose behaviour is a function of a single

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interest – the profit. Alternatively, company interests may be broader and include, e.g., market power, the idea of enacting, or influencing, the environments15 or other interests beyond profitability (Bélanger and Edwards 2006; Pfeffer and Salancik 1978; Williamson 1964). In this case, the MNC possesses heterogeneous interests, whereas different weights can be assigned to different interests or to interests of particular organizational units (Grandori 1987; Pfeffer 1992). External societal conditions, such as markets, politics, social networks, legal conditions and cultural understandings of company behaviour across different countries, are the second, external, dimension informing MNC behaviour (Bandelj 2008; Ferner and Quintanilla 2002; Sellier 2000; Zukin and DiMaggio 1990). As external conditions are beyond the company’s control, MNCs face uncertainty – a situation in which they cannot anticipate the outcome of certain decisions, cannot assign probabilities to the outcome, lack local knowledge or cannot anticipate other actors’ behaviour (Beckert 1996: 804). Available literature distinguishes between three kinds of uncertainty. First, substantive uncertainty refers to a lack of local knowledge available to MNCs in order to make decisions or predict their outcomes (Dosi and Egidi 1991; Troy and Werle 2008). Second, procedural uncertainty relates to cognitive constraints or a competence gap of companies to pursue their desired interests (Dosi and Egidi 1991). Finally, strategic uncertainty refers to incomplete information on interests and behaviour of local actors (Iida 1993; Troy and Werle 2008). Because of different kinds of uncertainty, it is difficult to ex ante determine interests and to formulate strategies that assure their fulfilment. At the global level, substantive uncertainty relates to developments on world markets, whereas procedural uncertainty concerns MNC’s ability to remain competitive, or to maintain a positive reputation as producer and employer. In host countries, substantive uncertainty rises with not having extensive information on local labour markets, formal and informal institutions, social norms and employment standards. Finally, at the subsidiary level, MNCs face strategic uncertainty in securing employees’ commitment and acceptance of employment practices. Following the distinction of MNC interests, and the extent of recognizing and responding to substantive and strategic uncertainty, we can distinguish between four key theoretical approaches to company behaviour (see Figure 1.1). First, in the microeconomic approach socio-economic actors are assumed to be purposive and goal oriented, having a clear interest

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Constructing Employment Practices 23 Environmental uncertainty Low

Unitary

High

Microeconomics

Structural contingency

Discretionary behaviour and negotiation

Resource dependence

Heterogeneous

Figure 1.1 Organizational approaches to company behaviour

regardless of the conditions in which behaviour takes place.16 MNCs are fully rational actors and exclusively motivated by their profit interest (Grandori 1987; Phelan and Lewin 2000; Rubery and Grimshaw 2003; Womack and Jones 1991). In order to fulfil their interest, companies make calculations of costs and benefits of alternative actions (Turner 1991; Williamson 1979). Due to a high predictability of outcomes in assumed stable conditions, subsidiary decisions are based on ex ante determined corporate interest. MNC behaviour thus centres on the diffusion of universal organizational practices regardless of host countries’ specificities. Interaction between headquarters and subsidiaries reflects a principal-agent relationship, in which headquarters assure to diffuse best practices across organizational units located in different conditions. Decisions on the construction of employment practices are taken unilaterally without the involvement of local actors. As a result of rational company behaviour, one should observe convergence in employment practices across subsidiaries. If employment practices do not converge, this is attributed to market imperfections, or to the resistance of hostcountry actors and institutions to MNC conduct (Harzing and Sorge 2003; Ortiz 1999; Rubery and Grimshaw 2003). Second, the discretionary behaviour and negotiation approach shares the assumption of stable and predictable external environments with the microeconomic perspective. However, actors are no longer seen as having a unitary interest in profits. Companies are viewed as complex organizations where the profit interest is extended by other attributes, in particular, power over specific resources (Grandori 1987; Pfeffer and Salancik 1978; Williamson 1964). Different interest priorities develop within different organizational units, which leads to differences in

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MNC interest

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behaviour of organizational units dealing with different tasks or located in different environments.17 Heterogeneity of interests may produce a constructive task division between internal organizational units. However, such strategy may also produce organizational failures, or competing interests; and consequently an asymmetric internal power division. In order to avoid organizational failure, different weights can be assigned to various subsidiaries’ preferences, which cause an asymmetrical dependence (Grandori 1987: 55). Coordination and negotiation between different organizational units should avoid internal competition and foster a division of tasks that all involved units respect. In case of coordinated division of corporate interests, enduring internal power negotiations are limited and the MNC functions as a coalition of interests. From a sociological viewpoint, the main critique of the microeconomic and discretionary behaviour theories is their assumption of stable and predictable environments with a low degree of substantive, procedural and strategic uncertainty, and that ‘economic actors can even in highly contingent situations deduce their actions from a clear preference ranking and thereby maximize their utility’ (Beckert 1996: 804). Such a stable environment is unlikely in the complex reality of high uncertainty (Bandelj 2008; Beckert 1996). Next, these perspectives disregard the fact that actors’ behaviour is social and cannot be separated from the external environment’s influence (Cook 1977; Maurice and Sorge 2000). As the environment consists of a variety of other actors with which MNCs interact, it cannot be perceived as given and predictable, but incorporates uncertainty derived from other actors’ interests and behaviour. The next two organizational approaches take greater notice of uncertainty and environmental influences on MNC behaviour. The structural contingency approach ‘has transformed the one best way of classical [microeconomic] theory (one optimal organization model for all situations) into many optimal models as a function of organizational context’ (Grandori 1987: 5, emphasis added). The perspective emphasizes the fact that within the unitary interest in profitability, company behaviour is a function of interest and the environment (Lawrence and Lorsch 1967; Thompson 1967). Profitability is secured through rationally instrumental behaviour, effective coordination of subsidiary roles, and full control over corporate interests and the construction of subsidiary employment practices. Different levels of predictability exist for concrete organizational tasks and companies adapt their behaviour accordingly. In case of high uncertainty, it is best to remain flexible in responding to concrete contingencies, which

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requires an effective coordination and power distribution between different organizational units. MNCs are expected to search for functional equivalents in employment practices instead of diffusing best practices across subsidiaries. What deserves criticism is the assumption that environmental influences on actors’ behaviour are given. In other words, the theory does not extensively account for actors’ interests and expects actors to merely respond to external contingencies. Thus, the theory’s limit lies in its passive perception of actors as shapers of their environments, in particular, in contributing to the change and creation of new practices and institutions. Finally, resource dependence theory is the most advanced in stating that actors’ continued existence and success in addressing their interests depend both on heterogeneous internal resources as well as environmental conditions. This approach places actors’ interests in the centre and stresses the interdependence of actors that possess and control different resources in a highly uncertain environment. Changes in the environment are enacted via actors’ behaviour and interactions. A company’s functioning is thus exclusively questioned in relation to the environment from which it obtains resources: if stable supplies of resources were continually available, the uncertainty would be lower and hence company behaviour more predictable. However, company behaviour is more complex, because environments and the supply of resources can change (Cook 1977; Pfeffer and Salancik 1978). To obtain control over various resources, companies develop power to influence other actors from which resources are acquired (Pfeffer 1992). However, companies are not expected to acquire full control over resources in order to address corporate interests, but attempt to exchange resources with other actors (Blau 1964; Cook 1977; Heath 1971). Once such exchange of resources takes place, companies strive to increase control over newly acquired resources (Pfeffer 1992). Hence, actors’ structural power is central in acquiring control over desired resources, and relationships that develop among socio-economic actors are power-driven (Pfeffer 1981). In this approach, MNCs are rational actors striving for the fulfilment of heterogeneous interests through an optimal combination of own and foreign resources. Corporate resources can be used differently in different host countries,18 similarly in all conditions,19 or can be enriched via resource exchange and social interaction with local actors.20 For instance, MNCs need the labour resources of subsidiary workforce, and the workforce needs employer resources to create and maintain jobs. Social interaction and power relations between MNCs and local actors are an integral part of this relation.

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In contrast to organizational approaches, the institutionalist literature, gaining prominence in recent years, turns away from evaluating behaviour from the perspective of interests and management in complex environments. The focus here is on how national institutional environments influence actors’ behaviour, and how different institutional settings are able to provide an optimal performance of economies (Dore 1991; Hall and Soskice 2001; Hollingsworth and Boyer 1997; Katz and Darbishire 2000; Maurice and Sorge 2000; North 1991; Streeck 1992; Tempel, Wächter and Walgenbach 2006). This focus is rooted in sociological new institutionalism and the varieties of capitalism, responding to earlier globalization theories, which assumed cross-national convergence emerging from a rational diffusion of economically optimal practices (Berger and Dore 1996; Kerr, et al. 1962; Womack and Jones 1991).21 The core of the institutionalist approach is acknowledging actors’ embeddedness in institutional systems in their home and host countries, which facilitates particular organizational practices across particular environments (Meyer and Rowan 1977; Rosenzweig and Nohria 1994; Whitley 1999). Instead of opting for the same employment practices in different host countries, employment practices in MNC subsidiaries shall result from the influence of home-country and host-country institutions (Almond and Ferner 2006; Ferner 1997; Ferner and Quintanilla 2002; Ferner, Quintanilla and Sánchez-Runde 2006; Maurice and Sorge 2000; Myloni, Harzing and Mirza 2004; Noorderhaven and Harzing 2003). Institutional factors are described as rival, or isomorphic, pressures on MNC subsidiaries (DiMaggio and Powell 1983; Ferner and Quintanilla 1998; Rosenzweig and Nohria 1994; Rubery and Grimshaw 2003).22 Different isomorphisms have been identified to imply different propositions on MNCs’ employment practices (DiMaggio and Powell 1983; Ferner and Quintanilla 1998). First, corporate isomorphism indicates strong corporate control over subsidiaries, little responsiveness to home-country and to local conditions, and an interest in diffusing institutionalized, company-specific, employment practices across subsidiaries (DiMaggio and Powell 1983; Rosenzweig and Nohria 1994). Second, home-country isomorphism implies the transfer of institutions or established practices from the MNCs’ home country to foreign subsidiaries (Ferner 1997). In global (inter-corporate) isomorphism, the MNC is subjected to isomorphic pressures from key competitors in international markets. This is a response to apparently

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Institutionalist approaches to company behaviour

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successful organizations with a possibility of emergent employment practices, distinct from both home- and host-country standards (Ferner and Quintanilla 1998). Finally, host-country isomorphism encourages adaptation to local conditions in particular host countries. MNCs should then search for local effectiveness in conformity with host-country institutions and construct their subsidiary practices accordingly. In sum, due to diverse institutional influences, MNCs may diffuse employment practices across several subsidiaries, adapt to local standards by imitating local companies, produce reverse diffusion via transferring employment practices from host- to home-country subsidiaries, or attempt to hybridize employment practices by combining the best of home- and host-country influences (Boyer, et al. 1998; Edwards 1998b; Ferner and Varul 2000; Ferner, Quintanilla and Sánchez-Runde 2006; Geppert and Mayer 2006; Maurice and Sorge 2000; Rosenzweig and Nohria 1994; Tüselmann, McDonald and Heise 2003). The distinctive feature of the comparative institutionalist approach to MNCs vis-à-vis the general varieties of capitalism literature is an awareness of organizational dynamics, or so-called moving targets (Morgan 2005). In other words, the analysis of MNCs does not overemphasize stability and path dependency of employment practices due to stable institutional influences. Instead, institutions themselves evolve, and MNCs are part of this process (Ferner, Quintanilla and Sánchez-Runde 2006; Streeck and Thelen 2005). MNCs dynamically react to changes in their institutional environments and at the same time are capable of shaping institutions, e.g., employment standards. In most of the literature, the institutional domain within which companies operate coincides with nation states (Hall and Soskice 2001). However, the MNC-specific institutionalist literature increasingly recognizes the need for an integrated multilevel approach, with simultaneous attention to the global, systemic, level and to the micro-organizational level of MNC behaviour (Ferner, Quintanilla and Sánchez-Runde 2006: 5). At the micro-organizational level, institutionalists join forces with the organizational literature and acknowledge the heterogeneity of MNC interests. In other words, MNCs are viewed as ‘contested’ corporate actors, whose interests are composed by rival pressures originating from different stakeholder groups composing MNCs (Amoore 2000). Despite the contribution of the comparative institutionalist literature to understanding the expected and real outcomes of MNC behaviour, e.g., particular subsidiary employment practices, little is known about the process itself through which such practices are constructed. Within economic influences, politics, culture and institutions, the relevant

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theoretical question therefore is not confined to outcomes of MNC behaviour in host countries, but to understanding the construction of subsidiary employment practices. Central to this question is an analysis of MNCs’ social and organizational attributes and interactive relations that MNCs develop with host-country actors. To address this point, I now elaborate an analytical framework on the construction process of subsidiary employment practices. The framework draws both on organizational and institutionalist perspectives and stresses the social foundations of the construction process.

Micro-foundations of constructing employment practices Building on the interdependence and interaction of companies and their environment as stressed thus far, the central notion of my theoretical framework is the active role of actors in constructing employment practices. MNCs are seen as actors capable of responding to institutional challenges, and at the same time to cognitively shape the environment via their heterogeneous interests and socially embedded behaviour. These capacities are part of their broader embedding process. Constructing employment practices is a particular dimension of MNC embedding, in which companies evaluate their corporate interests relative to host countries’ economic, social and institutional conditions. MNC behaviour is then an action taken relative to the company’s variety of interests,23 as well as to the environment. Host-country environments shape the way in which MNCs interact with local actors, construct employment practices and develop a legitimate role to influence local employment standards. Therefore, local conditions are important enablers of MNC embedding. Assuming that actors influence one another and are linked with their environments, two theoretical logics apply to embedding as a relational social process (cf. Smelser and Swedberg 2005). The first one is unilateral managerial action and competition-driven interaction with local actors. The second logic is embedding with cooperative involvement of local actors (Bandelj 2002). These logics imply a different kind of interaction between MNCs and local actors in constructing employment practices. Deriving from microeconomics, the first perspective assumes rational economic action of MNCs with a priori designed best practices and their cross-country diffusion. MNC interaction with local actors is driven by profit-maximizing efforts. MNCs construct employment practices predominantly through a genuine market-type of social interaction24 with local actors. Interaction develops around accommodating

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MNCs’ best organizational practices into local conditions. This interaction is not isolated from the influence of host countries’ social forces, i.e., social networks, host-country institutions, political and cultural considerations; however, social forces are perceived only as a context constraining the MNCs’ rational instrumentalist behaviour (Bandelj 2008: 170). In contrast to the logic of rational costs-benefits calculations, the second perspective sees host-country social forces as constitutive of the embedding process (Zukin and DiMaggio 1990). Economic sociology has articulated that economic actors’ market behaviour is in fact social behaviour, and an encompassing sociological perspective is necessary to understand economic action (Bandelj 2008; Fligstein 1996; Granovetter 2005). Constructing employment practices is thus a socially constituted process, which shapes the emergence of stable labour markets and employment standards in MNCs’ host countries (cf. Fligstein 1996). The social construction may not be in conflict with MNCs’ profit aspirations, but determines a different kind of social interaction between MNCs and local actors when compared to the narrow microeconomic perspective. Through social interaction with local actors, MNCs seek to utilize social forces and become an active part of the local social structure. I argue that the latter perspective better reflects the complex process of constructing subsidiary employment practices. Hereafter I use the notion that social interaction between MNCs and host-country actors, as a multifaceted network of social relations, constitutes employment practices. Social relations are not limited to economic profit-making, but involve interactions that derive both from economic and non-economic relations. The process of constructing MNCs’ subsidiary employment practices through social interaction with local actors therefore corresponds with an embedded perspective on economic action, situated between an undersocialized and oversocialized perspective on company behaviour (Granovetter 1985). To further justify the adopted relational perspective on the construction process, I present two broad reasons why MNCs seek social interaction with local actors. First, in line with the organizational resource dependence theory, MNCs develop capacities to influence local actors from which resources can be acquired, especially when the supplies of resources are not stable and environments change (Cook 1977; Pfeffer 1992: 38; Pfeffer and Salancik 1978). The motive to acquire local resources is closely related to the second reason – overcoming substantive and strategic uncertainty in the host countries. Addressing uncertainty is particularly relevant, because cultural conceptions of

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employment practices in the host countries may differ from the MNC’s home country or from other countries. As will be shown in the empirical chapters, postsocialist host countries do demonstrate some degree of institutional intransparency, for example, a lack of collective regulation of employment practices that would be comparable to Western European countries. In these circumstances, MNCs may appreciate local knowledge on employment relations, informal standards and interests of local actors, which they obtain through social interaction. To combat uncertainty, mutual dependence of actors encourages social interaction in given socio-institutional and cultural conditions. Therefore, social interaction with host-country actors is an integral part of how MNCs handle their organizational practices in foreign subsidiaries (Bandelj 2008; Zukin and DiMaggio 1990). In short, the most important theoretical challenge is understanding how actors and their environments interact in the process of constructing employment practices across MNC subsidiaries in different host countries. Addressing this challenge, my analytical framework emphasizes social interaction in the construction process. Two shortcomings of organizational and institutionalist literatures are overcome. First, analysing social interaction helps to overcome the implicit assumption of unitary corporate interest, as presented in some of the above organizational literature. Second, the framework allows a more dynamic perspective on how actors’ behaviour matters in constructing employment practices. I believe this perspective extends the relevant literature that perceived MNCs as static rule-takers responding to institutional and other environmental influences (organizational resource dependence theory), or did not elaborate the exact mechanism through which MNCs become institutional rule-takers (comparative institutionalist theory). The remainder of this chapter seeks to theorize MNCs’ social interaction with local actors in the process of constructing employment practices. I start with assumptions and attributes of actors’ behaviour. Next, I conceptualize social interaction and proposed interaction forms under the influence of actors’ interests, values, and host-country social forces. Finally, I develop propositions on how different forms of social interaction denote different means of constructing employment practices in MNC subsidiaries.

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Assumptions on behaviour and social interaction I adopt the following five assumptions, inspired by the work of Avdagic, Rhodes and Visser (2005)25 on MNC behaviour and social interaction with local actors.

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●

●

●

●

Uncertainty and social interaction. MNCs and local actors face a high degree of substantive and strategic uncertainty. Motivation to combat uncertainty encourages and intensifies actors’ social interaction (Beckert 1996). Interaction fosters feelings of loyalty to joint agreements and/or informal institutions that are often enacted through social engagements beyond a formal, instrumental, relationship (cf. Krippner, et al. 2004). Bounded rationality. Actors cannot make fully rational decisions, as their rational behaviour is bounded by their knowledge, perceptions, and their informational endowment in the complex reality. Rational behaviour is thus bounded by the actors’ knowledge, perceptions, and their informational endowment. If actors possessed additional information, it is likely that they would opt for other decisions and behaviour. Therefore, MNCs will not respond to local conditions and actors according to fully rational and objective information, but in accordance with presently available knowledge and perception of the situation (Avdagic, Rhodes and Visser 2005: 14). Actors’ decisionmaking unfolds over time in a learning process. Heterogeneity of interests. Beyond the single interest of profitability, MNCs incorporate heterogeneity of organizational interests (Grandori 1987; Phelan and Lewin 2000; Scott 2000; Turner 1991). MNCs as corporate actors consist of organizational parts with different and potentially conflicting interests. The structure of interests and the nature of internal divisions can directly influence company strategies, and has an indirect impact on preferences and strategies of local actors that engage in social interaction with MNCs in the construction process (cf. Avdagic, Rhodes and Visser 2005: 15). For example, strategies of local trade unions vis-à-vis the MNC differ when the MNC has a coherent set of interests throughout several subsidiaries, and when company interests differ across subsidiaries. Context-specific and endogenous interests. MNCs’ preferred interests are context-specific and endogenous: they are determined in concrete environments and in concrete interaction moments with local actors, based on the character of existing relationships. This does not mean that MNCs (and other actors) lack ex ante interests. However, the concrete meaning to such interests is given in concrete social interaction forms, relative to the socio-institutional, structural and cultural environment in which such interaction has been evolving. Context-specificity of interests relates to situational structures in a given environment. In other words, MNCs are not driven by the same interests in all of their locations; i.e., an MNC

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may have different interests or interest priorities in a highly regulated labour market when compared to more liberal conditions. Endogeneity of interests relates to a learning process over time and to the path dependency of social interaction. When actors have a long-term trust-based cooperation, it is likely that this experience can affect their interests. In formulating behaviour, the MNC is expected to become familiar with local actors’ interests and build on earlier interaction with them. Endogeneity of interests thus relates to social interaction over time. Perception and asymmetry of power. Power is an inherent feature of interaction if actors do not perceive their resource dependence as being reciprocal (Heath 1971; Blau 1964). 26 I assume that the process of constructing employment practices precludes an equal distribution of power between MNCs and local actors, and between the kinds of their power resources. MNCs can draw on international economic power resources, whereas power resources of local actors are predominantly locally or host-country specific (van der Meer, et al. 2004). Therefore, I assume power asymmetry in the MNC’s interaction with local actors (Pfeffer 1992; 1981).

Actors and their attributes To understand which actors are involved in the construction process, why they opt for particular behaviour in particular conditions, and how their interaction takes place, I now review actors to be studied in later chapters and the attributes constituting their behaviour. The most important actor for constructing employment practices is obviously the MNC. Within the MNC, different organizational units or departments are endowed with different power resources. Departments or persons that are at the boundary of the company’s organizational structure and directly interact with external actors have greatest powers (Pfeffer and Salancik 1978). In employment practices, this applies to HR departments and/or managers, because they negotiate employment terms with employees and trade unions, and they interact with other labour market organizations.27 Therefore, to interpret MNC behaviour in constructing employment practices, I focus on HRM departments within the MNC and vis-à-vis local actors. Local actors with whom MNCs interact do not necessarily take direct part in constructing subsidiary employment practices, but are important for setting norms and benchmarks of appropriate behaviour in local conditions. I focus on actors that influence the construction of employment practices in general,

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and MNC practices in particular. These include the MNC’s subsidiary management, trade unions, employees, labour market organizations, and local public authorities. Understanding MNC interaction with these actors also helps to assess MNC embedding in broader social settings of the host countries. The first relevant attribute in MNCs’ behaviour is the embeddedness of company interests. Unlike the microeconomic theory stating that profit is the single rational company interest (Scott 2000), I argue that company interests cannot be isolated from the MNCs’ moral values and orientations (Scharpf 1997). Company values are broad tendencies to prefer certain states of affairs over others, formed in a path-dependent administrative heritage of doing things in an organization (Bartlett and Ghoshal 2002; Hofstede 1981). They are central in constituting company preferences for particular employment practices in particular host countries and subsidiaries. Next, there are general business standards that MNCs follow in their behaviour. Finally, individuals in the MNC bring their own personal values and seek their accommodation within company values and general business standards. Values therefore account for an embeddedness of MNCs’ interests, shape the MNCs’ interaction with local actors, and justify MNCs’ openness to engage local actors in the construction of employment practices. 28 I will elaborate how company values are indeed crucial for social interaction between MNCs and local actors in Chapters 2 and 3. Moving on to the next attribute, I argue that actors’ behaviour and interaction are influenced by societal and institutional effects, including political, legal and institutional conditions, and social networks in which actors participate (Bandelj 2002; Dequech 2003; Ferner 1997; Maurice and Sorge 2000; Uzzi 1996). Thus, the MNC’s economic rationality operates within customs, beliefs and existing social relations (Tilly and Tilly 1998: 18), which means that the construction of particular employment practices may or may not lead to profit maximization (Bandelj 2002). It does not mean that socially and institutionally embedded behaviour is irrational. Instead, such embeddedness evokes the earlier assumption of contextualized interests. What may seem rational for one actor may not be the same for others; and what one actor perceives as rational interest in particular conditions may be perceived differently by the same actor elsewhere. I stress two ways in which societal and institutional factors constitute MNC behaviour and social interaction with local actors in constructing employment practices. First, host countries impose normative institutional constraints

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and create a manoeuvring space for actors (Scharpf 1997; Streeck 1997a; Tempel, Wächter and Walgenbach 2006). MNCs embed in these institutional spaces by respecting legal regulation or collective bargaining practices, in order to find the optimal way of functioning in local conditions (Maurice and Sorge 2000; Sellier 2000). The second effect is that MNCs’ exposure to local actors facilitates an exchange of values and trust, which fuels social interaction even beyond the formal institutional spaces. Social interaction taking place in daily informal settings may foster commitment to joint agreements and thus the emergence of informal institutions (Krippner, et al. 2004). Actors’ voluntary commitments are maintained for reasons of legitimacy, uncertainty, or hidden costs in case of non-compliance. Social interaction thus serves as a voluntary self-reinforcing mechanism through which actors’ interests and behaviour are repeatedly reconstituted and in which employment practices are constructed. The final attributes that I wish to discuss include power and trust vis-à-vis other actors. I do not limit the understanding of power to its structural and organizational dimension, but associate power with the actors’ broader capacity to achieve desired goals (Avdagic, Rhodes and Visser 2005; Pfeffer 1981). I argue that power integrates structural and organizational resources with institutional resources, and is therefore dynamically reflecting MNC interests vis-à-vis local actors’ interests in social interaction. Different actors perceive the social climate in their company differently (Regini 1994); therefore, it is appropriate to leave the subjective evaluation of power to the actors themselves, because they assess the situation relative to their local environment.29 Moreover, for actors’ behaviour and interaction, a subjective rather than an objective perception of actors’ power is important (Avdagic, Rhodes and Visser 2005). Trust, or confidence that the other party will not suspect the actions promised, and will adhere to rules of reciprocity even in circumstances in which it might be advantageous to defect, can emerge in social interaction between actors of both equal and unequal power (Fox 1974: 71; Streeck 1997a: 202). Trust governs social interaction and lacks a specifically defined reciprocity or obligations that stipulate exact quantities of resources to be exchanged. Trust-based interaction thus involves favours to others with a general expectation of future returns, where the exact nature of these returns is not specified in advance (Fox 1974). Although the construction of employment practices is to a large extent regulated by formalized institutions such as labour law and employment contracts, trust is important in everyday interactions between

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Constructing Employment Practices 35

workers, managers and trade unions, as it may augment the process and the practices beyond formal rules.

Actors’ behaviour, constituted through the discussed attributes, encounters other actors’ behaviour in social interaction. I argue that subsidiary employment practices are constructed via social interaction in several interaction channels. Interaction can be broadly defined as a repeated situation where the behaviour of one actor is shaped by, and influences the behaviour of, another actor, and vice versa (Turner 1988: 13–14; Weber 1978). Others have referred to social interaction as voluntary actions motivated by the returns they are expected to bring and typically do bring from others (Blau 1964; Fox 1974). In any case, actors’ interaction forms a relational social process, with resource dependence and power asymmetry (Cook 1977). Actors entering interaction with other actors bring their own expectations but also offer returns to others (Blau 1964). Therefore, social interaction can neither be separated from the actors’ own attributes nor from institutional conditions in which interaction takes place (Scharpf 1997). Social interaction in this book applies to organizations rather than individual actors. Therefore, I refrain from the theorizing of social interaction applicable to individuals.30 My understanding of social interaction lies between a strict micro-perspective applicable to individuals, and a strict macro-perspective limited to obligatory encounters of MNCs with host-country actors because of formal institutional requirements. I argue that formal social interaction coexists with informal relations; and both are equally important for constructing MNCs’ employment practices (Whitley 1999). Thus, both formal and informal social interactions are analysed in the following chapters. Social interaction can be further distinguished into focused and unfocused interactions (Goffman 2001). Focused interaction refers to physical encounters between actors, in which they devote attention to a particular conversation, negotiation, or exchange of information. Unfocused interaction consists of social relations that result solely by virtue of actors being in one another’s presence (Goffman 2001). In MNCs unfocused interaction exists between individuals that are brought to work in the same workplace or a particular MNC subsidiary, or that underlie the same company interests or values. Focused and unfocused interactions are complementary, because actors simultaneously develop both kinds of interactions.

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Social interaction

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The process of constructing employment practices through social interaction can be logically structured in several interaction channels. The system of these channels, outlined in Figure 1.2, constitutes the analytical framework for empirical chapters. It depicts interaction channels and external environments that are assumed to have a significant direct influence on MNCs’ subsidiary employment practices. The arrows in Figure 1.2 indicate the direction of the resource exchange and the flow of values, interests and policies in constructing employment practices. From the MNC’s perspective, the framework distinguishes internal and external social interaction. The former incorporates heterogeneous interests and refers to intra-firm coordination between various organizational units. The latter refers to MNC relationship with local actors. Figure 1.2 also allows one to distinguish between several analytical levels: the intra-organizational level (channels α and β), subsidiary level (channel γ), and the transnational level of social interaction of employee representatives (channel δ). In channels α and β, involved actors belong to the same organization;

The MNC

Headquarters Other subsidiaries of the MNC

α

Subsidiary management

γ

Local actors δ

β Workplace employment practices

Trade unions and EWC

Local environment

Figure 1.2 Analytical framework – social interaction channels Channels of social interaction: α: interaction between MNC headquarters and subsidiaries β: interaction between MNC subsidiaries located in different countries γ: γ1: interaction between subsidiary management and workers (workplace HRM) γ2: interaction between subsidiary management and local trade unions (workplace industrial relations) γ3: interaction between subsidiary management and works councils γ4: interaction between subsidiary management and the local society (government, labour market boards, citizens, organizations, media) δ: δ1: international interaction of trade unions at the national and company level δ2: internationavel interaction of employee representatives through the EWC

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thus, their interests are not independent of each other and they may not opt out from interaction. Channels γ and δ resemble an interaction relationship between independent actors with a possibility to defeat or opt out. This distinction is relevant for an elementary game-theoretical analysis of social interaction, which is only feasible for channels γ and δ where actors are assumed to remain independent from each other. 31 Channel α depicts the flow of corporate interests and values between headquarters and subsidiaries and the use of corporate and local resources in host-country conditions. I pay attention to interaction in strategic and operational employment matters, because these are central for the construction of subsidiary employment practices. The extent of headquarters’ involvement in subsidiaries’ behaviour depends on the company’s perception of relevant resources. Accordingly, the MNC can centralize its HRM and attempt to diffuse the same practices throughout subsidiaries, or opt for an adaptation of employment practices to local conditions. Channel β illustrates intra-organizational social interaction, taking place between sister subsidiaries. Interaction between subsidiaries in the same organizational unit but in different host countries reflects on the one hand corporate values and interests; on the other hand the subsidiaries’ local conditions. In an instrumentalist perspective, sister subsidiary interaction may improve commitment to corporate values and interests, or foster a better implementation of corporate resources and thus a diffusion of best employment practices. However, in a socially embedded perspective, interaction between sister subsidiaries may have a different purpose, namely, to clarify each subsidiary’s distinct position within the corporation’s heterogeneity of interests and the diversity of host countries. Next to MNC headquarters, the subsidiary management plays a key role in constructing employment practices. Subsidiaries develop ties with local actors and integrate in local networks of employers and social partners (Kristensen and Zeitlin 2005). Involvement in such networks helps subsidiaries to internalize the host countries’ socio-institutional characteristics, to respond to local conditions, and to conform employment practices to local standards. The existing literature tends to limit this relation to MNCs’ interaction with host-country governments (Bandelj 2002). For workplace employment practices the role of the government is indirect and channelled through labour laws and legally granted power to employers, workers, trade unions

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Constructing Employment Practices 37

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and works councils. Therefore, I treat governmental impact as an integral part of the local institutional context. In the MNC’s interaction with local actors (channel γ), I focus on interaction between the MNC subsidiary and local actors involved in the construction of employment practices.32 These include the MNC’s workforce and employee representatives. Besides management–workforce interaction (channel γ1), the MNC negotiates employment practices with trade unions (γ2). This interaction varies across countries and industrial relations systems. For example, company industrial relations are the dominant negotiating level in liberal market economies where companies strive for flexibility, prefer individual bargaining, and do not tend to organize (Thelen 2001). Management–union interaction is also central in countries with weak and fragmented trade union movements, such as in some CEE countries (Kohl and Platzer 2004; Marginson and Meardi 2006; Meardi 2002; 2006; Schulten 2005). By contrast, sectoral collective bargaining is the dominant level for interaction between employers and employees in coordinated market economies in continental Western Europe (Schulten 2005; Thelen 2001). Given such differences, it is relevant to trace the consistency of MNC behaviour in social interaction with unions at different levels. In contrast to management– union interaction, the relationship between MNCs and works councils (γ3) is exclusively workplace or company related and relevant only in countries stipulating works council activity. Finally, channel γ also includes the MNC’s interaction with local society (γ4). Defined in broad terms, the local society comprises other actors that form the subsidiary’s social network. Interaction with local governments, labour market board, media, schools or non-governmental organizations does not necessarily involve a straightforward negotiation on employment practices, but is part of the broader embedding process. The final social interaction channel relevant in constructing employment practices is the cross-border relationship between trade unions and employee representatives (δ channel). I distinguish between international interaction of trade unions (δ1) and the EWC (δ2). Although these channels do not directly influence subsidiary employment practices, they are crucial in defining the power relations between MNCs and employee representatives. Institutionalized interaction in the form of EWCs can facilitate cross-border collective bargaining and eventually a cross-country harmonization of employment practices (Levinson 1972; Marginson 1992; Waddington 2006). This implies at least a formally diminished power asymmetry between MNCs and employee representatives. International trade union interaction can furthermore

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Constructing Employment Practices 39

strengthen the unions’ bargaining positions vis-à-vis MNCs in national settings even if a formalized European bargaining structure is lacking (Arrowsmith and Marginson 2006).

Building on the notion that employment practices are constructed through actors’ social interaction, the next step is theorizing how such interaction happens. Interaction can take various forms and thus differently affect the involved actors’ behaviour. For an analytical distinction, I draw on existing literature that has conceptualized four interaction forms (NBEPA 1997), including control, competition, value-based cooperation, and interactive bargaining. These interaction forms relate to different actor conceptions of control over the embedding process and construction of employment practices (cf. Fligstein 1996). Distinguishing interaction forms helps to analyse the direction in which actors’ social interaction takes employment practices; which values, interests and strategies actors utilize in the construction process; and whether these produce cross-country diversity in employment practices. In reality, several interaction forms can emerge simultaneously and their strength may vary. Therefore, I aim to identify the dominant interaction form in each of the discussed interaction channels (Kahancová and van der Meer 2006). Interaction in form of control entails economic or legal power of an actor to make decisions and impose these on others (NBEPA 1997: 57). 33 Headquarter control over subsidiary behaviour is the most common form of interaction via control (Harzing 1999). Control may invoke the subsidiary to attempt to increase the relevance of local resources in comparison to headquarter resources. In interaction between MNCs and local actors, control is associated with enforcing the MNCs’ corporate interests and diffusing best organizational practices regardless of local conditions and local actors’ interests. MNCs strive to leave external actors out of their organizational boundaries and maintain control over constructing employment practices, as well as over embedding in the host-country social structure (Pfeffer 2006; Williamson 1975). The second interaction form is competition, entailing rivalry between actors that strive for resources that not all can obtain (NBEPA 1997: 56). In such interaction, actors are equally endowed with power and therefore one of them (e.g., the MNC) cannot impose interests on others (e.g., local actors). Competition can be found between actors at the same level of hierarchy, and those not directly and extensively dependent

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Forms of social interaction

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on each other’s resources. Competing actors are willing to compromise over issues of common interest at the price of threats and large concessions. Competition can lead to identifying best employment practices and their efficient allocation. However, actors are not committed to the interest of others and only attempt to pursue what they believe to be in their own interest. This leads to low trust, lacking commitment to mutual agreements, and lacking informal cooperation in the construction of employment practices. Cooperation based on shared values, the third social interaction form, develops on the basis of a congruent set of preferences between involved actors (NBEPA 1997: 57). Actors are motivated and committed to share values and interests, which may or may not align with the MNCs’ profit interest. Power in this interaction is based on actors’ ethical values about appropriate behaviour. Value-based cooperation is vulnerable to quick destruction when actors start to prefer individual rational egoism. Therefore, actors’ trust, voluntary commitment and self-enforcement even in a situation without formal institutions are central for maintaining this interaction form (cf. Greif 2006; Greif, Milgrom and Weingast 1995). MNCs preferring value-based cooperation believe that a joint decision with local actors is better than learning the rules of the host country alone. Company values underpin actors’ preference for value-based cooperation. Therefore, cooperation is not merely an opportunistic decision to yield higher profits than alternative interaction forms. Even if actors’ interests differ in structural issues, they can develop value-based cooperation because of sharing ethical interests, i.e., commitment to fair employment practices. The final interaction form is interactive bargaining, explicating consultation between actors with different interests (NBEPA 1997: 58). Actors are informed about and responsive to each other’s interests regardless of their power relations. They are motivated to stay alert, innovative, and exploit existing opportunities in order to address their interests and obtain desired resources. Interactive bargaining may be observed in management–union relations in MNC subsidiaries, especially in cases of bargained or informally settled deals. In contrast to competition, bargaining produces compromises, concessions and satisfactory interaction outcomes (Cappelli 1985). In analytical terms, interactive bargaining has a distributive and an integrative element (Avdagic, Rhodes and Visser 2005; Walton and McKersie 1965). Distributive bargaining implies compromises and trade-offs between

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40 One Company, Diverse Workplaces

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Constructing Employment Practices 41

Social interaction as means of constructing employment practices What expectations on the construction of employment practices can we derive from the above interaction forms? I argue that each form yields different means of constructing employment practices. When interaction between MNCs and local actors evolves predominantly in the form of control, MNCs have a limited need to negotiate employment practices with local actors. Despite uncertainty, the MNC specifies its local targets and attempts to reach these unilaterally.34 Thus, the construction of employment practices is a unilateral process, to which local actors do not have direct extensive access. Given the limited encounters with local actors, conflicts, compromises, trust and value sharing do not develop to the same extent as in other forms of interaction. Social interaction by control may produce either convergence or cross-country diversity in employment practices. Control leads to convergence of employment practices if the MNC is convinced that a diffusion of best practices is the best for the company; and when headquarters enjoy great power to secure the diffusion across various subsidiaries. Alternatively, if MNC interest aims at exploiting local conditions, headquarters’ control over subsidiaries in channel α may prevent convergence, because headquarters control the construction process in order to tailor employment practices to local conditions (Ferner and Varul 2000; Marginson 1992). In interaction in form of competition, employment practices are be constructed with a greater involvement of local actors. Given the fundamentally different interests but comparable power resources of MNCs and locals, local actors can hinder the unilateral MNC-determined construction process. Conflicts, threats, trade-offs and lack of trust between the MNC and local actors are expected to be part of the bargaining process over employment practices. Competition may dominate interaction between sister subsidiaries (channel β), e.g., via technology, distribution of investments, monitoring of profitability. In this case,

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actors over the distribution of benefits from agreed behaviour and outcomes. In this case, interaction may incorporate greater power differences and larger compromises. In integrative bargaining, actors strive for an outcome, making everyone better off. Compromises are reached with fewer difficulties than in distributive bargaining, and perceived power distance between actors may not be as relevant as in distributive bargaining.

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each subsidiary will attempt to compete with others for resources and profit. Headquarters or subsidiaries may identify the most effective employment practices, diffuse them across different countries, and thus facilitate convergence. However, if sister subsidiaries construct equally effective employment practices in diverse local conditions, are not willing to imitate other subsidiaries’ practices, and headquarters are not fostering convergence, then internal competition in channel β does not lead to convergence. Lacking headquarter coordination, employment practices in each subsidiary evolve independently and are likely to be strongly influenced by host countries’ social forces and institutions. In contrast to control and competition, value-based interaction yields less conflicts and domination due to opinion sharing and moral convictions on issues of joint interest. MNCs are expected to benefit from local knowledge and resources, and ongoing formal and informal interaction then accounts for incremental MNC embedding. Due to emergent trust between MNCs and locals during the construction process, informal institutions may emerge. Trust may gradually modify the established employment standards and thus contribute to an actor-driven institutional change from below. As far as national legal regulation allows, value-based cooperation results in cross-country convergence of employment practices if MNCs and local actors (channel γ) believe in the benefits of convergence. Alternatively, MNCs may prefer to adapt employment practices to local standards. When local actors share the view that adaptation is desired, employment practices will remain diverse across countries. Finally, interactive bargaining yields two alternatives within the process of constructing employment practices. The first alternative rests on distributive bargaining, where MNCs and local actors undergo tough negotiations before reaching a compromise on employment practices. The second alternative is integrative bargaining, where actors are committed to bargain such employment practices that make both the MNC and local actors well off in terms of addressing their interests (Walton and McKersie 1965). Whichever process we observe, it is contingent upon actors’ attributes and their willingness to accommodate additional commitments and compromises. In both cases, MNCs benefit from local actors’ knowledge in overcoming substantive uncertainty; but the extent to which local actors engage in constructing employment practices may vary. Cross-country convergence or diversity in employment practices is conditional on how the MNC confronts its interests with local actors’ interests (channel γ), and to what extent each

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Constructing Employment Practices 43

Conclusions In this chapter I have put forward a theoretical and analytical framework to study the relational social process through which employment practices are constructed. In paying attention to actors’ behaviour and social interaction, and the effects of given (but variable) institutional structures across different countries, the proposed theory is actor-centred and combines organizational as well as institutionalist perspectives on actors’ behaviour. In broad terms, actors’ behaviour and social interaction not only serves the purpose of constructing employment practices, but belongs to the most important foci of creating, changing and innovating micro-level institutions (Eisenstadt 1971). Through social interaction, MNCs encounter local actors to acquire new resources and to combat substantive and strategic uncertainty in the process of constructing employment practices. Social interaction also allows broader MNC embedding in host-country societies and incremental changes in local employment standards. The values, interests, and power of the studied actors are among their most important behavioural attributes. Based on MNCs’ and local actors’ values, interests, power relations and institutional conditions, social interaction in the process of constructing employment practices consists of several interaction channels and forms. Interaction forms indicate different processes of constructing subsidiary employment practices and their cross-country convergence or diversity. The common feature is that they all acknowledge the social foundations of behaviour. They differ in the expectation on which actor’s interest, power and values matter for constructing employment practices, and in what way. The presented theoretical and analytical framework guides the book’s empirical research. In the next chapter, I start with an overview of the case company and compare employment practices across four subsidiaries. Throughout Chapters 3 to 6 I uncover the dominant

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actor is willing to tolerate concessions. Bargaining leads to convergence or diversity in employment practices if all actors in the relationship are convinced about the value of the integrative outcome. Becoming familiar with and responsive to each other’s interests precedes the actors’ agreement on the outcome. This feature distinguishes interactive bargaining from value-based cooperation, because in the latter a joint agreement derives from personal feelings and values, without the necessity to bargain.

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interaction form in each interaction channel. In Chapter 7 I revisit the system of social interaction channels to discuss how the attributes of actors’ behaviour, empirically documented social interaction and institutional contexts interlink in the process of constructing employment practices.

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2

In the book’s introduction, I have briefly outlined the existing empirical evidence of MNCs’ employment practices. Despite offering precious empirical evidence from Western Europe and from CEE, the literature lacks systematic internal comparisons on the behaviour and practices of the same MNC across different countries. This gap in the literature has motivated me to design the empirical narrative in this book in the form of an in-depth comparative case study of a single MNC. This method is feasible for a comparison of subsidiary employment practices and the construction process, because it permits a holistic analysis of a set of interrelated phenomena within controlled corporate settings (Boxall 1993; Dyer 1984; Truss, et al. 1997). This chapter sets the context for the empirical analysis by introducing the Dutch case study company Electra, its subsidiaries in Belgium, France, Hungary and Poland, and employment practices in these subsidiaries. Electra is a world leader in the development and manufacture of electronics, lighting and medical equipment. With a long history of international operations, the company has great experience of operating in different host-country conditions, facing different legal orders, and interacting with local actors across many countries. I start with an overview of Electra’s organizational structure and a description of its subsidiaries. Next, I present and compare the subsidiaries’ hard and soft employment practices. Attention is predominantly paid to similarities and differences in employment flexibility, wages, work systems and work organization, motivation practices, employee participation in management’s decision-making, and fringe benefits. These practices are then compared across the subsidiaries as well as with

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One Multinational, Four Host Countries: On Diversity in Subsidiary Employment Practices

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local standards in each host country. For the latter comparison, I use secondary evidence on local standards in employment practices 35, as well as original qualitative evidence from interviews with local actors. The analysis does not reveal a single systematic pattern of adapting employment practices to local standards or diffusing similar practices. Due to the MNC’s awareness of different institutional and cultural conditions, successful practices in one subsidiary are not transferred to other subsidiaries because they may not have the same effect on subsidiary performance. I argue that such logic of MNC behaviour yields feasible preconditions for the construction of employment practices that are responsive to local conditions. However, responsiveness to diverse conditions does not equal to adaptation to local employment standards. Whereas adaptation would mean MNCs imitating employment practices in other locally established companies, evidence documents that – especially in CEE – employment practices tend to exceed local standards. Therefore, diversity in employment practices across Electra’s Western and CEE subsidiaries is characterized as a decentralized way of making the most of local conditions, with elements of diffusion, adaptation and construction of distinct practices that neither represent corporate best practices nor local standards. Such account on the MNC and subsidiary employment practices pave the way for analysing the social construction of subsidiary employment practices in the subsequent chapters.

Electra as case study Electra was established in 1891 as a small family light-bulb business. Through production growth, consumer success and international expansion, Electra became the top European electronics producer. The MNC operated as a decentralized entity with a portfolio of independent businesses that aimed at exploiting local conditions (Bartlett and Ghoshal 2002). However, the past 20 years have shifted the company’s organization towards a more integrated structure with strengthened ties between formerly independent organizational units. Core competencies, i.e., information technologies, finance services and HRM of highly ranked managers, are now centralized at the corporate level (van der Meer, et al. 2004). Recent strategic restructurings involved the outsourcing of some product divisions, mergers or reorganizations of others, and an employment decline. 36 In 1974, 403,000 full-time equivalent employees worked for Electra worldwide; their number declined to 188,643 in 2001, 159,226 in 2005 and 118,098 full-time equivalent

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employees in 2007. In the second half of the 2000s, employment in Electra declined in all regions of the world with the exception of Eastern Europe and Asia Pacific (Dronkers 1975; Electra 2005; 2007). 37About half of all Electra employees work in production, and the majority of jobs are located in Europe and Asia Pacific (see Figure 2.1). Strategic reorganizations have had extensive organizational consequences for subsidiaries with a long history of relatively independent operation. Subsidiary independence became increasingly limited by the MNC’s strengthened regional and functional structures. First, subsidiaries no longer operate independently within host-country settings, but are under strategic influence of larger regional structures within Electra, which have a separate management. Second, next to regional structures, subsidiaries became more closely integrated in vertical hierarchies of particular product divisions with centrally coordinated decision-making. At the time of data collection for this book (2003–2006), Electra’s organizational structure comprised six product divisions with business units of similar product character (see Figure 2.2). In 2006, Electra sold over 80% of its semiconductor business; and in 2007, the company underwent further reorganization as part of its strategic plan with the title Vision 2010. As a result, since 2008 the company’s organizational structure has comprised three sectors, previously called product divisions: Healthcare, Lighting, and Consumer Lifestyle. In the light of the continuous restructuring of the MNC’s organization, in the remainder of this book I will refer to the organizational structure relevant for 2003– 2007, or the time period when this research was conducted. For closer

Electra employees by functional area at year-end 2005

Electra employees by geographic area at year-end 2005

Temporary 14%

Commercial/ General 20%

Production 53%

Netherlands 17%

Asia Pacific 31%

Western Europe (excl. Netherlands) 18%

Research and development 13%

Eastern Europe 8%

Africa < 1%

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One Multinational, Four Host Countries 47

Latin USA and America 9% Canada 17%

Figure 2.1 Structure of employment in Electra Source: Graphs by the author based on Electra (2005: 40).

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Level: Corporate

Electra corporate headquarters

Product

Business Units

Medical systems

Consumer Domestic SemiMiscellaelectronics appliances conductors neous

Home entertainment networks

Connected displays

Mobile infotainment

Manufacturing and operations

Subsidiary

Subsidiary Brugge (Belgium)

Subsidiary Dreux (France)

Subsidiary Székesfehérvár (Hungary)

Subsidiary Kwidzyn (Poland)

Subsidiaries outside Europe

Figure 2.2 Electra’s organizational structure (2003–2006) Source: Scheme by the author using company documents and interviews.

investigation, I selected the product division (hereafter PD) Consumer Electronics and its business group (hereafter BG) Connected Displays with four European production sites. 38 Until the 1990s, this division occupied the lion’s share of Electra’s profits (Cohen 1996), but recently Electra had to face extensive vulnerability of this division to competitors from Asia and other continents. With 15,537 employees in 2005, 14,486 employees in 2006 and 13,516 employees at year-end of 2007, Consumer Electronics today remains one of the smallest and most cost-driven divisions (Electra 2007). Although the division’s performance improved and stabilized after a downturn in the late 1990s, Consumer Electronics manufacturing sites have gradually disappeared from the Netherlands and from Western European and North American countries to countries with lower production costs.39 Headquarters and research and development divisions of the PD did not relocate from Eindhoven – the Dutch city where Electra has been established in 1891 (Electra 2007). The gradual move away from a decentralized organizational structure towards integration and centralization of key resources and strategic decisions makes an interesting research case. As will be argued in

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Lighting

Divisions

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Chapter 3, strategic moves in corporate business did not surmount the long-existing duality in corporate culture: on the one hand, Electra’s economic interest in centralizing core competences and decision-making; and on the other hand, an administrative heritage of paternalist HRM and responsiveness to local conditions (Bartlett and Ghoshal 2002).

Selecting subsidiaries within the PD Consumer Electronics for an empirical scrutiny of employment practices yields a unique comparative research design of most similar subsidiaries in different host countries. The subsidiaries are similar in their labour force size,40 products, and position within the corporate structure (see Table 2.1). Host-country differences refer to two subsidiaries that are located in Continental Western Europe, namely, in Brugge (Belgium) and Dreux (France); and two subsidiaries in postsocialist CEE countries, namely, in Székesfehérvár (Hungary) and Kwidzyn (Poland). Their production scope encompasses the assembly of televisions to home entertainment products coordinated by the BG. Brugge (Belgium) and Dreux (France) are Electra’s old industrial sites in Western Europe. A gradual refocusing on progressive technologies was the only survival option, as they could not sustain their cost competitiveness with CEE subsidiaries. Brugge, once a successful mass producer, evolved into a demand introduction centre with extensive product development activities and small-scale manufacturing of highend, technologically advanced products. Dreux is the only remaining mass assembly centre within Consumer Electronics in Western Europe. Székesfehérvár and Kwidzyn started as small industrial sites in 1991 and gradually evolved into mass production centres. New technologically advanced products have penetrated the production plans of Székesfehérvár, whereas Kwidzyn, until the mid-2000s the best performing Electra television factory in the world, was outsourced to Electra’s subcontractor Jabil Circuit shortly after concluding data collection for this book.41 Unlike their similarity in production and corporate structural influences, the subsidiaries are located in two regions with distinct employment standards, labour market conditions, and industrial relations (Frenkel 1994; Harzing and Sorge 2003). Countries in CEE experienced a multifaceted change from state autocracy and socialism to democracy and market economy. Significantly influenced by neoliberal ideologies, CEE now reveals a more liberal and market-driven context for company

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Electra’s subsidiaries

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1950s (brownfield)

1972 (brownfield)

1991 (greenfield)

1991 (greenfield)

Brugge (Belgium)

Dreux (France)

Székesfehérvár (Hungary)

Kwidzyn (Poland)

Mainstream televisions

Flat and mainstream televisions, monitors, home entertainment

Flat televisions

Flat televisions

Products

Mass assembly, older and new technologies

Mass assembly, older and new technologies

Mass assembly, new technologies

Development and initial assembly of new models, newest technologies

Key employer

Key employer

Key employer

Standard employer

Subsidiary’s local labour market status**

984 (872)

2,392 (2,200)

800 (600)

1,301 (401)

Subsidiary employment (production workers)***

High (27%)

Low (4.9%)

High (12%)

Low (7.37%)

Local unemployment****

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Notes: * Year of the subsidiary’s establishment under Electra’s ownership; and the mode of establishment. ** Estimated relevance of the subsidiary as an employer in the respective local labour market. *** Subsidiary’s overall labour force size in the high production season (regular production peak in the second half of a calendar year), including temporary and agency workers. In brackets: the size of production workers. Data for Brugge and Kwidzyn 2003, Székesfehérvár 2004, Dreux 2005. **** Refers to the unemployment rate in the respective local conditions. The author’s assessment whether unemployment is high or low is relative to the local region. Source: BLMB (Brugge Labour Market Board – Vlaamse Dienst voor ArbeidsBemiddeling) 2004, SLMB (Székesfehérvár Labour Market Board – Munkaügyi Központ) 2005, KLMB (Kwidzyn Labour Market Board, Powiatowy Urząd Pracy) 2004, Manpower Dreux (2005).

Source: Author.

Established*

Subsidiary

Position within corporate structure

Table 2.1 Electra’s European subsidiaries in consumer electronics

practices than continental Western Europe (Bohle and Greskovits 2006; 2007; Danis 2003; Marginson and Meardi 2006; Whitley, et al. 1997). This is obvious, for instance, in the frequent use of worker competition and performance-related pay in CEE countries (Sagie and Koslowsky 2000; Whitley, et al. 1997). Despite the enactment of new labour laws, legal enforcement and sanction mechanisms lack strong institutionalization (Bluhm 2006). Legal regulation in Hungary and Poland thus leaves significant room for employers to benefit from their power resources when constructing employment practices.42 CEE conditions are in sharp contrast with continental Western Europe where employment issues are heavily regulated. Employment protection, stable working hours and decent working conditions have become the landmark of Western European societies after the Second World War (Bosch 2004; Dickens 2004; Powell 2003). Although these conditions have been eroding with globalization and growing international competition, entrenchment of employment practices in strong regulation remains obvious. An East–West distinction also applies to industrial relations, which represent one of the core interaction channels between MNCs and local trade unions.43 Industrial relations have undergone long-term development in Western Europe resulting in mature systems with relatively centralized collective bargaining, strong trade unions and extensive legal regulation of trade unions’ position (Mair 1984; Thelen 2001). Sources of trade union power differ between Belgium and France, but in general trade unions have extensive capacities for action and interest representation (Mair 1984). By contrast, fragmentation and organizational weakness of trade unions in Hungary and Poland prevents their influence over national public policy and coordinated collective bargaining (Avdagic 2005; Marginson and Meardi 2006). Poland did adopt specific laws stipulating trade union rights; however, they lack enforcement mechanisms and the real position of trade unions is contingent upon particular employers’ willingness to bargain (Kahancová 2003b). If bargaining takes place at all, it is predominantly at the company or workplace level, with mixed evidence of cooperation and conflict and the marginalization of unions (Frege 2000). The previous paragraphs introduced the context for studying the construction of employment practices in four Electra subsidiaries, controlling for corporate influences and at the same time exhibiting diverse local conditions. I now present more information on each subsidiary and its local labour market conditions. The Brugge subsidiary has, in its over 60-year history, experienced growth in production and employment,44

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but also severe reorganizations with dismissals of production workers. In the 1996–1997 reorganization over 2,000 employees lost their jobs.45 Although the labour market quickly absorbed dismissed workers from Electra’s last reorganization, the subsidiary’s local image has suffered. Nevertheless, Electra belongs to the top five employers in the region (Electra, Brugge 2003). In the mid-2000s, the plant had a stable pool of permanent production workers, and a large pool of temporary and agency workers. The Dreux subsidiary was established in the small industrial town in France in 1956. The current subsidiary, a mass production TV assembly centre, was built in 1974. Electra is the biggest company in Dreux and belongs to important employers in the region (Electra, Dreux 2005). Despite the subsidiary’s long-term stability, the 2003 restructuring involved dismissals of 300 persons. This experience has hurt Electra’s local image and brought fears of relocation into the public discourse. In Dreux, the question of relocation is even more salient than in Brugge: unlike Brugge with its new strategic position, Dreux remained Electra’s one and only mass assembly centre in Consumer Electronics with a large pool of production workers in Western Europe. The Hungarian subsidiary belongs to show horses of local industry in Székesfehérvár. Due to a large investment inflow in the first half of the 1990s, Székesfehérvár belonged to the world’s ten fastest developing regions,46 exceeding the Hungarian national growth rate by 2–3%.47 Feasible investment possibilities in newly established industrial parks attracted large MNCs like Electra, Ford, IBM and Alcoa to settle in this region in the early 1990s (Schiffer 1996). Benefiting from highly skilled job seekers with experience in the socialist Videoton electronics factory, Electra opened its greenfield factory in Székesfehérvár in 1991. The subsidiary gave jobs to almost 2,400 persons in 2004.48 Local unemployment tends to remain below 5% (see Table 2.1); therefore, Electra faces significant labour shortages. Finally, the Polish subsidiary is located in Kwidzyn – one of the most industrialized towns in northern Poland. The subsidiary developed from a local greenfield company Brabork, established in 1991. Electra and its suppliers created around 5,000 jobs in Kwidzyn, which accounts for over 10% of the local population.49 Still, unemployment in Kwidzyn is relatively high (see Table 2.1).

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52

Hard employment practices Recalling the previous chapter, hard employment practices encompass wage policy, wages, and employment flexibility practices related to the type of employment contracts, working time, work organization, and

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job rotation. Some of these practices are consistent across subsidiaries and follow local standards; others vary considerably. Below I discuss selected hard employment practices, starting with Electra’s wage policy and subsidiary wages.50

Wage policy is a central aspect of the MNC’s labour cost management, and one in which adaptation to local standards is most expected (cf. Lipsey 2002; Rosenzweig and Nohria 1994; Taylor and Driffield 2005). At the same time, MNC wage policies show some rigidity vis-à-vis local standards and major competitors.51 It is not surprising that wages differ across Western and CEE Electra subsidiaries. Production workers’ wages in CEE subsidiaries are three to five times lower than those of Western workers.52 However, managers’ and knowledge workers’ salaries do not show enormous discrepancies. Electra does not have detailed corporate wage policies for knowledge workers and lower-ranked managers, but close coordination across the MNC applies to salaries of top managers. The largest differences thus apply to wage policies of production workers.53 Electra’s wage policy for production workers consists of two important elements. First, it encourages decentralized wage setting without direct headquarter involvement. Information about overall labour costs are part of formalized financial reporting from subsidiaries to headquarters.54 Beyond this formal practice, headquarters stay out of subsidiary wage setting.55 The second important element is building an image of an employer with median plus wages following local benchmarks. Local factors considered in wage setting include inflation, sectoral and regional wage averages, and alternative employers that Electra has to compete with when hiring qualified employees. In all studied subsidiaries Electra pays about 10–20% above the sectoral average. 56 There are of course better paying MNCs; however, wage levels necessarily reflect the desired skill levels, which render Electra’s wages incomparable with MNCs offering higher wages, i.e., International Paper in Kwidzyn or Alcoa-Köfém in Székesfehérvár.57 Besides consistency in decentralized wage setting, some cross-subsidiary wage coordination exists. Coordination of wage policies is most extensive in Belgium, where national and sectoral wage agreements concluded between trade unions and the Agoria employers’ association cover Electra. These leave limited room for company-specific adjustment negotiated directly between Electra and unions at the company or workplace level. Belgian trade unions monitor wage developments in Belgium, Germany, France and the Netherlands.58 Beyond the legal rule, it is the cost awareness of unions that motivates Electra to harmonize

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Wage policy and wages

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wages across Belgian subsidiaries. In France, wage policies are harmonized only for managers and higher-level employees. Electra is not part of sectoral bargaining structures, and wage setting for production workers is fully decentralized. However, Dreux’s HR manager monitors regional wage bargaining as a benchmark for subsidiary-specific wage policies.59 In Hungary and Poland, wage setting is fully decentralized. No coordination exists through Electra’s national headquarters, and every subsidiary negotiates wage increases individually with local trade unions. Managers monitor wage developments in other Electra subsidiaries for the purpose of their own local bargaining position.60 In conclusion, wage policies for all employees but the top management in Electra’s subsidiaries follow local standards. In order to secure an optimal use of resources, Electra adapts to local wage levels and uses sectoral and regional wage developments as a benchmark for subsidiary-specific wage policies. This finding conforms to expectations of rational company behaviour and an optimal resource allocation in line with corporate interests and a decentralized HRM. Employment flexibility Next to wages, employment flexibility is decisive for a successful subsidiary performance. All subsidiaries undergo production seasonality, but construct differing flexibility practices. In evaluating flexibility, I focus on four particular practices (Atkinson 1984; Gallie, et al. 1998). First, numerical flexibility relates to monthly fluctuations in the workforce size. Second, external flexibility relates to the workforce structure, namely, permanent, temporary, and temporary agency workers. Third, internal flexibility refers to working-time organization, i.e., the order of shifts, overtime, number of shifts, and weekly working hours. Finally, functional flexibility helps to utilize workers’ individual skills in workplace rotation and multiple task performance. Combinations of these practices yield a subsidiary-specific flexibility pattern that is optimal in particular labour market conditions, legal regulation, and management demands on employees.

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54

Numerical flexibility Reorganizations taking place within Electra since the mid-1990s produced an overall increase in subsidiaries’ numerical flexibility. Székesfehérvár, Kwidzyn and Dreux show a similar fluctuation pattern, because these are mass production centres with a relatively regular seasonality.61 Brugge’s position of a demand introduction centre, producing a variety of TV sets in smaller quantities, causes even larger

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% Workers

External flexibility External flexibility relates to decisions on solving the seasonally increased workload via recruiting temporary agency workers or additional Electra workers with permanent or temporary contracts. The subsidiaries exhibit the largest diversity in external flexibility. Hostcountry labour laws and local employment standards facilitate and constrain decisions on flexibility differently in different countries. Electra utilizes these local institutional spaces to develop optimal flexibility practices in each subsidiary. The MNC’s choices then differ in tight labour markets and in regions with high unemployment; or in labour markets with developed and with underdeveloped temporary labour agencies. Table 2.2 shows the structure of subsidiaries’ production workers at the moment of a production peak. Brugge has opted for similar shares of permanent workers, temporary workers with monthly contracts, and temporary agency workers hired on a weekly basis to substitute permanent workers due to holidays, sickness, or part-time work. In the 2004 peak season, the factory gave work

Headcount fluctuations (production workers)

180 160 140 120 100 80 60 40 20 0 1

2

3

4

Brugge

5

6 7 Month

8

Székesfehérvár

9

10

11

12

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fluctuations. Figure 2.3 shows the monthly deviations from the average annual workforce size.62

Kwidzyn

Figure 2.3 Numerical flexibility* Source: Author’s calculation using subsidiary statistics. *Data for Brugge and Kwidzyn refer to headcount fluctuations in 2003 and data for Székesfehérvár to 2004. Dreux is excluded due to lack of data.

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984

Kwidzyn

872

2,200

600

401

Total (a)

392

720

400

155

Permanent Electra

0

1,480

200

139

Temporary agency**

112

180

200

400

Administrative and managerial workers (b)

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Notes: *Average data in production peak (high season). Brugge and Kwidzyn for 2003, Székesfehérvár for 2004, Dreux for 2005. **Temporary agency workers in Székesfehérvár include 130 workers exchanged with another MNC.

480

0

0

107

Temporary Electra

Production workers

Source: Author’s calculation using company statistics and interviews.

2,392

Dreux

Székesfehérvár

901

800

Brugge

Total workforce (a+b+c)

Table 2.2 External flexibility*

0

12

0

100

Other workers (c)

to 300 agency workers.63 Exceptionally, an agency worker advances to a temporary Electra worker with a monthly contract renewed for a maximum of two years. In Dreux, external flexibility refers mainly to temporary agency workers. Dreux has a stable pool of permanent workers, but does not hire its own temporary workers.64 Unemployment levels in Dreux grant a sufficient number of job seekers via a temporary labour agency. The length of agency workers’ contracts varies according to company needs from one week to two to three months. In Székesfehérvár one-third of workers have permanent contracts, the rest being temporary agency workers and workers on exchange with another MNC with opposite production seasonality. The high demand for temporary workers initiated the development of temporary labour agencies in Székesfehérvár. Electra’s agency workers receive a contract for one to two months, with extension possibilities contingent upon production volumes. Agency workers may advance to a permanent position, but this practice is more constrained than before.65 In contrast to other subsidiaries, Kwidzyn does not typically hire agency workers but prefers its own temporary workers on a long-term or a short-term contract. This practice derives from managerial attitudes rather than from the underdeveloped structure of temporary labour agencies.66 Although temporary workers’ chances to obtain a permanent contract have significantly decreased in the recent years, many short-term workers return to Electra every year. The subsidiary does not face difficulties in finding enough workers willing to work under flexible conditions because of the region’s high unemployment. Electra’s above-average pay, fair and clearly presented working conditions, and a range of social provisions motivate the job seekers. Internal flexibility Internal flexibility relates to working time, shift work and overtime. Table 2.3 shows similarities and differences in subsidiary working-time organization. Electra Brugge has a relatively old population of employees, which has translated into many part-time arrangements preferred by older workers.67 Temporary workers prefer working full-time and are more motivated to work overtime than the permanent workforce. According to an agreement with trade unions, workers in each shift work eight hours per day over five days per week (40 hours), in a one-shift or a twoshift model, with shift bonuses paid in the latter case. Each shift model change is negotiated with trade unions and announced to the workers

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Table 2.3 Internal flexibility

Brugge

1–2 at 8 hrs.

40

Full-time and part-time

3 months fixed

16 extra free days/year, overtime pay, shift premiums

Dreux

2–3 at 35–40, 8 hrs. max. 44

Full-time

3 months/ 12 weeks

Avg. 7 extra free days, overtime pay, modulation premium

Székesfehérvár 3–4 at 40 8 hrs.

Full-time

8 weeks fixed

Overtime pay, shift premiums

Kwidzyn

Min-max

Annual, operational changes

Overtime pay, shift premiums

3–4 at 40 8 hrs.

Source: Company statistics and interviews.

in advance. The weekly working time exceeds the stipulated 36 hours, but Electra compensates the extra hours with 16 free days a year above stipulated holidays. In Dreux, in the high season workers work 40 weekly hours in two, occasionally three, eight-hour shifts. One-shift model operates for three months or twelve weeks, and workers are paid 5% extra during this period. In the low season, a shift is reduced to seven hours and conforms to the legally stipulated 35-hour week. Extra hours above the 35-hour-week are compensated with a pay bonus and extra free days.68 Each worker works full-time and is permanently allocated to the morning or the afternoon shift. Saturday work is more common in the low season, because in the high season a larger number of temporary workers supplement permanent workers, and more teams are formed to work during regular working hours. For Saturday work Electra seeks volunteers and does not face difficulties in finding them among permanent and temporary workers. Székesfehérvár operates in a three-shift regime or a continuous fourshift regime over seven days a week. Workers are allocated to teams, production lines and shifts, and a 48-hour break is guaranteed after working four days and before switching to another shift. The subsidiary’s

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Subsidiary

Weekly working Working-time Shift Compensation Shifts hours pattern frameworks for extra hours

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collective agreement stipulates that additional working days, including Saturday work for workers who would normally have a free day, are announced in advance. Extras are paid for working in the late shift, night shift and on weekends. Kwidzyn has constructed unique working-time flexibility. The standard production organization includes shift work, but to enable operational adaptations to weekly changes in production volumes, min-max contracts are used: workers are minimally paid for 50% of legally stipulated working time even if they stay at home due to little production. If production increases, workers are promptly mobilized, work 50 to 100%69 and are paid for the actual hours worked. Shift premiums apply for non-standard hours and overtime payments apply for working above the 40-hour week. Such min-max working time resembles an annualization of working hours. Together with temporary contracts it constitutes dual employment flexibility – a functional tool to avoid dismissals in the low season. In all subsidiaries, annual working-time calendars are negotiated with trade unions (Brugge, Dreux, Kwidzyn), or announced to trade unions (Székesfehérvár). Working-time preferences of individual workers cannot be extensively considered due to the workforce size and the intrinsic characteristics of shift work. Brugge is the only subsidiary where a large number of workers wish to work part-time. In Kwidzyn, workers with a min-max contract often work part-time, especially in the low season, although they would prefer working full-time. Individual preferences for other reasons, e.g., pregnancies, illness, family problems, are considered on an individual basis. Functional flexibility Functional flexibility covers workplace rotation and allocation of job tasks to individual workers. It is largely shaped by the company itself and is less exposed to legal regulation and collective bargaining than recruitment or working time. Legally stipulated health and safety regulations apply, but decisions about who works where are workplace specific. The subsidiaries’ technological processes determine a similar division of workers into production lines. Free rotation within a worker’s team is allowed only in Kwidzyn; managers here maintain that giving the worker responsibility for job tasks and rotation increases productivity. Managers in other subsidiaries maintain that frequent rotation may hinder productivity and therefore prefer a permanent division of groups and a controlled rotation.

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The main element in functional flexibility is the concept of butterflies, a corporate concept that lacks, however, cross-subsidiary coordination. Each subsidiary has trained a small group of multi-skilled employees70 able to work on any position substituting other workers during breaks, holidays or illness. Butterflies rank higher in Electra’s job classification scheme than standard workers and thus receive a higher wage. Other forms of functional flexibility exist only in Székesfehérvár and relate to the tight local labour market. Electra has been searching for a solution to increase employment security of workers exposed to temporary work, and at the same time to solve worker shortages during the production’s high season. After investigating local possibilities, Electra agreed with the nearby Unilever ice-cream factory with opposite seasonality to exchange a group of 130 workers. This exchange started in 2004 and brought positive experience to both employers, offering unique employment security to a group of workers who do not face unemployment upon the end of Electra’s or Unilever’s high production season.71 Summary To summarize the evidence on hard employment practices, Table 2.4 compares subsidiary practices in wages and employment flexibility. Electra’s wage policy is decentralized and follows local benchmarks in each host country. A comparison of flexibility practices reveals that the largest variation is found in external flexibility. Székesfehérvár hires a large number of temporary agency workers, Dreux supplements permanent workers with a smaller number of temporary agency workers, Kwidzyn prefers to employ its own seasonal temporary workers, and Brugge hires both temporary and agency workers. In internal flexibility, the most outstanding difference is that part-time work is tolerated only in Brugge and Kwidzyn. Kwidzyn’s part-time work is better described as working-time annualization with more workload in the high season and less in the low season, whereas in Brugge part-time work does not mean fluctuations in workers’ working times. In the high season, workers in all subsidiaries work 40 hours per week despite differing labour laws in each host country. In functional flexibility, Székesfehérvár engages in worker exchange with another MNC.

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60

Soft employment practices Soft employment practices, including work organization, motivation, worker participation in management decisions and fringe benefits, do not directly derive from incurred labour costs but from company values and social relations at the workplace. They aim at motivating and

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One Multinational, Four Host Countries 61 Table 2.4 Hard employment practices Subsidiary

Wages

Numerical flexibility

External flexibility

Functional flexibility

Brugge

Local adaptation

Seasonal fluctuations

Own and agency 40-hour week, extra holidays workers (temporary full- 16 days/year time)

Dreux

Local adaptation

Seasonal fluctuations

Agency workers (seasonal fulltime)

40-hour week, Multi-skilled extra holidays 7 workers days/year

Székesfehérvár

Local adaptation

Seasonal fluctuations

Agency workers (temporary fulltime), worker exchange

40-hour week, full-time (3–4 shifts)

Multi-skilled workers, worker exchange

Kwidzyn

Local adaptation

Seasonal fluctuations

Own workers (temporary minmax)

40-hour week, min-max working time

Multi-skilled workers

Multi-skilled workers

Source: Author’s analysis.

empowering employees in order to secure their desired performance. For workers, soft practices should create attractive working conditions and moderate some undesired effects of high employment flexibility. Work organization Work organization encompasses task organization and discretion, workplace relations between managers and workers, and practices not formally specified in the employment contract (Whitley 1999). Whitley (1999) defines these interconnected work organization attributes as work systems (see Table 2.5). Electra’s headquarters72 shape subsidiary work systems through a corporate job classification scheme, partially harmonizing job content and uncovering training requirements and internal labour market mobility options for higher-level employees and managers. Some other similarities in subsidiaries’ organizational hierarchy exist because of production requirements and technology. Simultaneously, the subsidiaries demonstrate some workplace-specific work system attributes. In Brugge about two-thirds of production workers are women, who seem to be more adept at tasks such as screwing and plugging. Workers are assigned to two assembly lines, supervised by line coordinators and a group leader. Group leaders are responsible for allocating skill-specific tasks and seats to workers.73 Rotation is highly encouraged in order to

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Internal flexibility

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Table 2.5

Work systems Work system type

Attributes

Taylorist

Flexible specialization

Paternalist

Negotiated

Artisanal

Patriarchal

Task High fragmentation

Low

Low

Low

Low

Worker Low discretion and involvement

Considerable

High

High

Limited

Managerial control over work organization

High

Considerable

Some

Some

High

Separation of managers from workers

High

Variable

Low

Low

High

Employer commitment to core workforce

Low

High

Considerable

Limited

Limited

Rewards tied to:

Standardized Personal jobs performance and abilities

Skills

Skills and personal evaluation

Personal evaluation of performance

Source: Whitley (1999: 92).

decrease repetitive tasks, but it is managers who decide the rotation. Nevertheless, worker discretion is high: managers seek feedback from the workers, because they have the first-hand experience to suggest task improvements and are extensively involved in defining the work contents.74 Task fragmentation is low; with frequent changes in produced models, workers have developed multiple abilities. Rewards are allocated on a collective basis and comprise almost exclusively nonfinancial benefits. In Dreux the share of women is high in general, and even higher among production workers. The site operates several production lines in two shifts, each with 170 workers, over five days per week.75 Temporary workers are either integrated with permanent workers in teams or form teams of temporary workers only. Managers try to maintain established teams of workers, supervised by line coordinators. Work tasks are fragmented, but workers perform a variety of tasks and

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Delegated responsibility

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rotate frequently, which decreases the monotony of work and overall task fragmentation. Managerial control is considerably high; managers determine which tasks and under what conditions workers perform. Nevertheless, workers have high discretion over their tasks as they participate in quality improvement teams and suggest improvement procedures. Electra’s loyalty to core employees is channelled through workers’ performance: workers with satisfactory performance have a higher chance for stable or regular employment. Electra Székesfehérvár has the largest workforce among the studied subsidiaries. After stagnation in employment during the 2002–2003 restructuring, headcount has been steadily growing.76 Experience has shown that women are more suitable for the given working conditions; therefore, 70 to 80% of production workers are women.77 Székesfehérvár differs from the other subsidiaries in that its production is divided into three operations areas, but work organization is similar within these divisions. Workers work in teams of 45–70 persons and are supervised by instructors and shift leaders responsible for two to three production lines. Permanent and agency workers form joint production teams. Management encourages multi-skilled permanent workers and organizes regular training sessions. To achieve high productivity, routine work is more encouraged than frequent rotation.78 During a working day, workers are assigned to a particular seat and remain there for the whole shift and even longer – as long as the number and structure of groups do not change. This practice indicates high task fragmentation, a low degree of worker discretion, and extensive managerial control over work organization. At the same time, managers are not strictly segmented from workers and informal communication at the workplace. Rewards are allocated according to individual and team performance. Competition between teams and individuals is strongly encouraged. In Kwidzyn, half of the production workforce is women. The flat organization is similar to other subsidiaries.79 Production workers are allocated in five production lines and work in three shifts over five to seven days per week.80 Kwidzyn also has a pool of multi-skilled butterflies not allocated to a particular production line. Several practices indicate high worker discretion and low managerial control. Individual tasks are fragmented, but workers are encouraged to perform multiple tasks and therefore overall task fragmentation is low. Rotation is highly encouraged; upon informing the direct supervisor, workers can freely rotate within their team. Rewards in Kwidzyn are distributed according to short-term and long-term personal performance, but also

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the performance of teams, production lines and the whole factory. Management fosters competition between workers to increase their productivity. In sum, Electra subsidiaries share several work organization attributes, i.e., low separation between managers and workers, training encouragement, and commitment to a highly performing workforce. Nevertheless, they also diverge in several attributes. Competition between workers is fostered in CEE sites but not in the Western ones. Great differences exist between Székesfehérvár and the other subsidiaries in task fragmentation, and between Kwidzyn and other subsidiaries in managerial control over work organization. The reason for workers’ extensive freedom over their tasks in Kwidzyn is the management’s perception of workers being highly skilled and thus able to carry individual responsibility. In contrast, the large size of the workforce in Székesfehérvár complicates delegated responsibility. Table 2.6 summarizes evidence on work organization in Electra subsidiaries referring to Whitley (1999). I argue that all subsidiaries more or less fit a delegated responsibility work system with elements of paternalism. On the one hand, paternalism explicates care for workers, commitment to worker welfare and to empowerment; but on the other hand it is an element of corporate managerial control and an attempt to preempt worker resistance and strong trade unions. In this sense, paternalism implies a hierarchic relationship between the management and the workers. At the same time, paternalism implies that workers’ discretion over employment practices is granted only when complementary to MNC interests. Paternalism has been an inherent feature of Electra’s corporate values for decades (van der Meer 2000; Stoop 1992). Even if Electra’s paternalism has a corporate origin, it is the task of subsidiary managements to tailor paternalist practices to local conditions. Motivation, performance pay and employee participation Motivation and participation practices aim at increasing productivity. Employee participation aims at participative decision-making and power-sharing between management and workers in order to benefit from workers’ resources and skills and through that secure organizational efficiency (Deery and Iverson 2005; Heller, et al. 1998). Such practices tend to be more successful if issues of importance for both the firm and workers are addressed (Peterson 1993). Motivation and participation practices in Electra’s subsidiaries follow these principles.81 Frequent meetings of managers with production workers, fostering teamwork and multidimensional tasks, worker improvement plans, and

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Attributes

Brugge

Dreux

Székesfehérvár Kwidzyn

Task fragmentation

Low

Low

High

Low

Worker discretion

High

High

Low

High

Managerial control over work organization

Considerable

Considerable

High

Low

Separation of managers from workers

Low

Low

Low

Low

Employer commitment to core workforce

High; somewhat performance based

High; performance based

High; performance based

High; performance based

Reward allocation

Job, skills, quality and collective performance

Job, skills, quality and long-term individual and collective performance

Short and longterm individual and collective performance and skills

Short and long-term individual and collective performance and skills

Source: Author’s analysis.

the Employee Engagement Survey (EES) are the most common motivation and participation practices in Electra subsidiaries. These are part of a structured participation and empowerment scheme emphasized in Electra’s internal business excellence documents. Although several practices are of corporate origin, their construction differs in response to local conditions. Most important differences regard financial motivation, which takes the form of performance appraisals and performancerelated pay (see Table 2.7). The Brugge management finds soft motivating factors most effective for performance improvement.82 Wage is not a motivating factor

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Table 2.6 Work systems in Electra subsidiaries

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Table 2.7 Performance appraisals and performance-related pay Performance Performance Subsidiary appraisal Evaluation pay Type

Frequency

Brugge

Unrelated to Personal; wage group leaders

No

N/a

N/a

Dreux

Related to wage

Personal; group leaders

Yes

Individual Annual and collective (13th month’s wage, annual wage increase)

Only in collective wage increase

Székesfehérvár

Related to wage

Factory Yes system with predefined points

Individual Monthly and collective (15% of wage: 10% output, 5% quality)

Only in collective wage increase

Kwidzyn

Related to wage

Personal; group leaders

Individual Monthly and collective (15% of wage: 9% individual, 6% team performance)

Only in collective wage increase

Yes (negotiated agreement)

Source: Author’s analysis.

in Brugge; workers are used to established standards and the wage is part of their standard expectations. Rather than explicitly motivating permanent workers, managers strive to limit demotivation by decreasing workers’ concerns related to perceived job security. Motivation in Brugge is exclusively collective; Electra does not foster individualized competition. This practice demonstrates Electra’s adaptation to the predominant collective identity in Western European participation schemes via trade unions and works councils (Brown and Heywood 2005; Sagie and Koslowsky 2000). Dreux uses both financial and soft motivating factors. Based on annual performance appraisal interviews and internal performance indicators,83 the subsidiary deploys collectively determined performance pay. During the calendar year workers have permanent wages but regularly receive feedback on their performance.84 Another form of motivation is a dual structure of wage increases (collective and individual). Managers argue that individual wage increases do lead to increased productivity whereas this effect is not obvious in the case of collective wage increases. Collective wage increases persist due to

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Yes

Trade union involvement

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trade union influence and Electra’s expectation that abandoning them would negatively impact individual productivity.85 To illustrate the stylized difference between workers’ motivation in Western and CEE subsidiaries, I recall the subsidiary terminology concerning working-time calendars. Whereas in Székesfehérvár and Kwidzyn they always referred to their annual calendar as the work calendar, in Brugge they called the same calendar the holiday calendar. In CEE, high motivation is a consequence of people’s post-socialist restructuring experiences, leading to individualization in work attitudes. Despite a tight labour market in Székesfehérvár, workers are highly motivated and at the same time humble, less demanding, and used to fulfilling supervisors’ commands (Danis 2003).86 Workers’ motivation in Kwidzyn extensively derives from the high unemployment in the region. People thus value their jobs and accept working conditions that would be unwelcome in a tight labour market situation. Annual performance appraisal interviews resemble those in Western sites,87 but are directly reflected in monthly and yearly financial bonuses and employment contract extensions. Finally, participation practices result from Electra’s interest in a balanced interaction with workers within a negotiated paternalist work system instead of outright managerial control. Table 2.8 summarizes subsidiary participation practices. In Brugge, workers do not desire individual competition and financial motivation, but appreciate responses to their performance in informal ways and in the form of small rewards. In Dreux and Székesfehérvár workers are encouraged to submit suggestions to improve working conditions or production processes to the good idea box.88 The owners of winning ideas participate in their construction and receive rewards from expected benefits that the idea delivers. Motivation, performance pay and employee participation is closely related to subsidiary performance and worker productivity. For the MNC, soft employment practices are successful if they have led to better performance – both directly through improved productivity and indirectly via workers’ satisfaction. The real effect of employment practices on workers’ satisfaction and productivity is difficult to establish with the current evidence. Management in Brugge argues that introducing performance pay would not lead to productivity increase. However, teamwork, high discretion, and an increased frequency of group meetings did have a positive impact on operators’ satisfaction and their productivity (Electra, Brugge 2003). In Dreux, managers maintain that without tailored motivation practices the subsidiary would not have fulfilled the current positive

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Subsidiary

Participation practices

Brugge

Small gifts for flexibility and personal improvement, encouraging patent requests, annual performance appraisal interviews introduced upon workers’ suggestion

Dreux

Multiple task engagement, improvement groups, teamwork encouragement, good idea box, participation in the 2004 new company logo competition

Székesfehérvár

Competition for The team of the month (rewarded with drinks, cakes, gift vouchers), Best employee in team (wallpaper and bulletin recognition, small gifts or cash), group meetings, teamwork, productivity recognition, reverse appraisals

Kwidzyn

Competition The team of the quarter (financial reward, personnel shop vouchers), Worker of the month (wallpaper and bulletin recognition, small gifts, cash), group meetings, teamwork, delegated responsibilities, improvement groups, reverse appraisals

Source: Interviews in the subsidiaries.

performance indicators. In Székesfehérvár financial motivation is claimed to improve productivity, but workers also emphasize the importance of non-financial participation and fringe benefits.89 Electra Kwidzyn reports high employee satisfaction, low absenteeism rates and increased productivity and efficiency over the past ten years. Employee satisfaction with non-financial motivation practices has been growing and reached 69% compared to the Polish benchmark of 43% in 2004. High unemployment in the Kwidzyn region has positive effects on workers’ motivation, absenteeism and productivity. Yet it also advocates personal conflicts and informal contacts between workers and foremen to secure jobs in low seasons, which negatively influences shop-floor social interaction and teamwork.90 In sum, descriptive evidence shows that Electra’s participation practices yield positive effects on productivity and subsidiary performance. However, external conditions (e.g., unemployment and work habits) strongly influence workers’ motivation and account for different extents of performance improvements across the subsidiaries.

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Table 2.8 Employment participation practices

Social rewards and fringe benefits In the Netherlands, Electra has at length been perceived as a social employer offering well-paid jobs, employment security, housing, health

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care, education and socio-cultural services for employees (van der Meer 2000; Stoop 1992). Current social rewards and fringe benefits in the studied subsidiaries are listed in Table 2.9.91 Each subsidiary’s rewards and benefits are fully responsive to local standards. In some cases, benefits are constructed through negotiations with local trade unions.92 As Table 2.9 documents, Electra has opted for rather generous fringe benefits regardless of subsidiary location. Social rewards and fringe benefits align with Electra’s generally decentralized approach to employment practices. The rational pursuit of profit meets with responsiveness and utilization of differences in host-country institutions, economic and labour market developments, and cultural characteristics of work attitudes in local conditions. In this logic, Electra is able to comply with its heterogeneous corporate interests, namely its profit interest, and at the same time the company’s legitimacy and reputation as a good employer.

Table 2.9 Social rewards and fringe benefits Social rewards and fringe benefits New Year’s day breakfast, lunch or drink

Brugge

Dreux

✓

✓ ✓

Recognition of workers’ personal achievements (i.e., additional diploma or certificate of personal interest) Santa Claus event (gifts for workers and their children)

Székesfehérvár Kwidzyn

✓

✓

✓ ✓

Women’s day event (flowers for women) Christmas presents, also for temporary workers (in Székesfehérvár also for agency workers)

✓

Integration and teambuilding parties, sponsored team trips Discovery day, Open day for workers’ families and the public

✓

✓

✓

✓

✓

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One Multinational, Four Host Countries 69

✓

Continued

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Table 2.9 Continued

Long-service recognition (Brugge: TV sets,93 Dreux: work medal, Székesfehérvár: thank you note and refreshments)

Brugge

Dreux

✓

✓

Volunteer firemen recognition day

✓

Medical care services (Electra Székesfehérvár), extra-legal medical insurance (Electra Dreux)

✓

Sickness and income supplement in case of a worker’s death

✓

Sponsored insurance for non-work related accidents

✓

Székesfehérvár Kwidzyn ✓

✓

✓

Subsidiary psychologist (2 days/week)

✓

Loans with 0% interest (Electra Dreux), housing loans (Electra Székesfehérvár)

✓

✓

✓

✓

Personnel shop or discount vouchers for Electra products

✓

Soccer matches and cinema tickets (Electra Brugge), holiday vouchers (Electra Székesfehérvár)

✓

✓

✓

Competitions and drawings to win Electra products (announced in the subsidiary’s bulletin)

✓

✓

Sponsored annual social and cultural events for workers and their families (Juniális in Székesfehérvár; Campus day in Kwidzyn)

✓

✓

Free parking (in Brugge a union-stipulated extra walking fee for parking in distant parking places)

✓

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Social rewards and fringe benefits

✓

Continued

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One Multinational, Four Host Countries 71 Table 2.9 Continued Brugge

Contracted bus service (Electra Székesfehérvár), agreement with public transport authority to adjust transport schedules to Electra’s shifts (Electra Kwidzyn)

Dreux

Székesfehérvár Kwidzyn ✓

✓

Source: Interviews in the subsidiaries.

Subsidiary employment practices and local standards The previous sections compared employment practices across Electra’s subsidiaries. In this section I discuss to what extent subsidiary practices resemble local employment standards. Assessing MNC adaptation to local standards is a relevant starting point for my argument on crosssubsidiary diversity in employment practices. A comparison of Electra’s decentralized but systematic wage policy aligns with the wage policies of comparable MNCs aiming at preventing frequent departures of skilled workers to competitors. Empirical research has shown that MNCs systematically pay higher than domestic companies. For example, the WageIndicator research compared wages and working conditions between MNCs and non-MNCs across European countries and found that the greatest wage gap applies to the metal and electronics sector.94 In Hungary, MNCs pay 30% higher wages for comparable skilled workers than non-MNCs.95 Therefore, although subsidiary wages slightly exceed sectoral averages in all host countries, I argue that Electra’s behaviour resembles those of comparable MNCs. In other words, Electra adapted to local standards in wage setting, as encouraged by its corporate interest. In employment flexibility practices, numerical flexibility is similar in Electra and locally established companies with seasonal production, i.e., in electronics, agriculture and food production.96 Deviations from local standards exist in Brugge, Kwidzyn and Székesfehérvár in using temporary agency workers and the length of their contracts.97 In internal flexibility, Electra’s 40-hour week in all subsidiaries is common in other companies in Hungary and Poland, but exceeds working-time standards in Belgium and France. The main differences from local practices include longer working hours in Brugge and Dreux compensated

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Social rewards and fringe benefits

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by extra days off, working-time annualization via min-max contracts in Kwidzyn, and a different shift regime in Székesfehérvár in comparison with other local companies.98 Finally, in functional flexibility divergence from local standards applies mainly to Székesfehérvár’s unique structure of employee exchange.99 Among soft practices in Electra’s subsidiaries, we find both similarities and differences vis-à-vis local standards. Brugge diverges from Belgian standards because of high worker discretion, extensive communication and feedback, low separation between managers and workers, flat hierarchy, and lack of interference from headquarters in workplace organization (Hees 1995). However, Brugge aligns with local standards in its considerable managerial control and the nonexistence of financial motivation and performance pay. Dreux is far from French standards of Taylorist task organization and strict workplace hierarchies (Brunstein 1995; Goyer and Hancké 2006: 178; Maurice, Sorge and Warner 1981: 84). Managers in Dreux argue that internal relations in the factory are better than in comparable companies, where employees report considerable work pressure and authoritarian management styles.100 Electra is nevertheless close to French standards in fostering teamwork, training, and modest workplace competition through workers’ performance pay (EPOC 1995). Evidence of fringe benefits from Dreux does not confirm Brunstein’s (1995) findings that MNC behaviour in France lacks social sensitivity towards workers and only aims at achieving profit at any costs. Székesfehérvár fits the Hungarian standards in high managerial control and less mobility between positions; and differs from Hungarian standards in relatively generous benefits, practices of employee participation, and institutionalization of monthly financial performance evaluations (Whitley, et al. 1997). Finally, Kwidzyn’s employment practices seem to exceed local standards (Kohl and Platzer 2004; Maczynski, et al. 1994; Martin and Cristescu-Martin 2004; Meardi 2002; Sagie and Koslowsky 2000; Whitley, et al. 1997). Electra’s corporate paternalism and personal values of managers account for generous fringe benefits, team-building via social events, and relatively good working conditions despite tough working times, flexibility and job insecurity. This enhances Kwidzyn’s reputation as an attractive place to work, and widens the gap between Electra’s and local companies’ employment practices. In the provision of social rewards and fringe benefits we cannot speak about Electra’s adaptation to local standards. Especially in CEE Electra’s benefits tend to exceed local standards. Moreover, CEE subsidiaries’

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benefits relatively surpass the Western subsidiaries’ practices in terms of costs and managerial creativity. This finding does not conform to a profit-driven behaviour of a MNC in low-wage countries. Why is this then the case? First, Electra’s Western subsidiaries are mature and operate in stable institutional conditions with strong trade unions. These factors account for wage stability, predictable working conditions and, to a certain extent, job security. Increased productivity stemming from extensive benefits is more limited than in CEE countries, which reduces the tendency to use such benefits. Second, the Western subsidiaries face higher labour costs and therefore increased budget constraints in organizing social events. Third, because benefits are not corporately determined, they are closely related to the values and interests of subsidiary managements and to local conditions, including welfare states and trade union strength.101 Finally, working conditions in CEE subsidiaries are more demanding than in the Western ones, because of longer working hours and a higher number of shifts. In line with company values, Electra aims at compensating tough working conditions with generous benefits. Bringing together the above comparative evidence, I now aim at formulating an argument on Electra’s diversity in employment practices. Two kinds of diversity can be identified. The first resembles an East– West divide in employment practices and thus Electra’s adaptation to local standards. The MNC acquires information about workers’ habits and interests and assures that employment practices reflect local standards. Electra’s adaptation to local standards applies to employee motivation, performance pay, wages, and individual competition in the CEE subsidiaries, as opposed to collective motivation and more egalitarian approaches to wages, performance pay, and working conditions in the West. Differences in employment practices do not persist only because MNCs adapt to local standards. A closer look at Western and CEE subsidiaries reveals the second kind of diversity, namely, new divergences that do not replicate the stylized East–West variation in local standards. In external and functional flexibility Electra’s subsidiaries document distinctiveness regardless of their geographical location. I will argue in the following chapters that such distinctiveness derives from corporate interests in benefiting from local conditions, the enabling character of these conditions, and social interaction between Electra and local actors. Diversity in employment practices – whether in the form of adapting to local standards, or in the form of innovative practices – is supplemented by a set of practices that are similar across subsidiaries and unrelated to regional conditions. The subsidiaries share their

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willingness to delegate authority, maintain flat hierarchies, encourage open communication and informal relations between managers and workers, and pay attention to workers’ welfare. In this respect, my findings confirm the company’s attempt to diffuse best practices across subsidiaries. The similarity of these employment practices derives from Electra’s values, technology, and the subsidiaries’ production process. Building on the above findings, the analysis does not reveal a single systematic pattern in the direction of adaptation to local standards or diffusion of best practices regardless of local conditions. In other words, neither can we speak of full-fledged corporate diffusion of best practices with the purpose of convergence for efficiency and profit reasons, nor of full adaptation to local standards with the same purpose. Electra recognizes that successful practices in one case may not have the same effect on performance in other cases due to different institutional and cultural conditions. This leads to employment practices that differ from each other in several aspects, in which they are responsive to local conditions. Responsiveness to diverse conditions does not equal Electra’s adaptation to local employment standards. Whereas adaptation would mean Electra’s imitation of employment practices that exist in other locally established companies, evidence documents that especially in CEE, several employment practices exceed local standards. Therefore, I argue that diversity in employment practices in Electra’s subsidiaries is best characterized as a decentralized utilization of local conditions, with elements of diffusion, adaptation, and the construction of distinctive employment practices.102

Conclusions This chapter has set the context for analysing the construction of employment practices in four Electra subsidiaries in Belgium, France, Hungary and Poland. This empirical setup, combined with the MNC’s traditionally decentralized approach to employment issues, has motivated the chapter’s empirical question: To what extent are subsidiary employment practices similar and resemble a corporate diffusion of best practices; and to what extent are they adapted to local employment standards? In answering this question, I have argued that Electra’s approach to employment practices is coherent in its responsiveness to local conditions. Adapting employment practices to local standards, Electra contributes to the reinforcement of existing differences in social norms between coordinated Western European countries, and CEE countries

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that are more liberal on company practices (Bohle and Greskovits 2004; Danis 2003; Meardi 2006; Whitley, et al. 1997). However, in other employment practices the East–West differences do not straightforwardly mirror the distinction in local conditions. Diversity in subsidiary practices is therefore best characterized as a decentralized utilization of local conditions, with elements of diffusion, adaptation, and the construction of distinctive employment practices. The reasons for observed similarities and differences in employment practices relate, on the one hand, to corporate values and approaches to resource management; on the other hand, to differences in local employment standards. Whereas corporate values directly account for company paternalism observed in the subsidiaries, the effect of local conditions on Electra’s practices is more complicated. If the hostcountry conditions would constrain Electra’s behaviour in such a way that employment practices would resemble practices in local companies, the findings in this chapter would indicate more similarities between Electra’s subsidiary practices and local standards. However, such a wide-ranging adaptation has not been documented. Especially the CEE subsidiaries’ practices greatly differ from local standards.103 Electra is not under economic and institutional pressures to offer generous benefits and above-average working conditions in its CEE subsidiaries. Societal pressures, i.e., local fashions in management practices that would force Electra to adapt to local standards, are not extensive either (Abrahamson 1996; Pfeffer 2006). Had Electra been pushed to adapt to local standards because of external influences,104 flat hierarchies and attention to worker welfare would have been less evident than documented. Deriving from this logic, I argue that local institutional conditions and local employment standards cannot fully account for Electra’s behaviour in fostering a decentralized construction of employment practices. However, local conditions do play a central role in constructing subsidiary employment practices, because they enable Electra to contextualize its rational behaviour and anchor decentralized strategies to a particular socio-institutional environment. Building on local institutional spaces, unique subsidiary-specific practices are developed without cross-subsidiary coordination, headquarter control, or adaptation to local standards. This argument paves the way for analysing the process of constructing the discussed employment practices in Electra’s subsidiaries. This is the aim of the following chapters.

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3

Every firm is characterized by particular corporate values and interests, which are diffused throughout multiple organizational levels and aim at securing compliance of all parts of the organization. These corporate influences define the boundaries between the extent to which MNC embedding occurs via unilateral managerial decisions and the extent to which work practices are constructed with the involvement of local labour market actors. A MNC with highly centralized decisions is likely to treat local actors differently than a MNC with an interest in involving local actors into the construction of employment practices. Therefore, I find it essential to start the analysis of constructing employment practices with an insight into the corporate origins of subsidiary behaviour. I examine organizational influences from within the MNC on the construction of subsidiary employment practices. These include Electra’s corporate values and interests; and the process of intra-organizational social interaction between headquarters and subsidiaries (channel α) as well as between subsidiaries located in Western Europe and CEE (channel β). I start with an argument that uncovering complementarities and tensions in intra-organizational social interaction, derived from corporate values and interests, helps to evaluate the overall coherence of MNC behaviour in the process of constructing subsidiary employment practices. As shown throughout the chapter, Electra’s corporate values and interests are translated into social interaction that resembles, on the one hand, control and centralization of production strategy; and on the other hand, decentralization of HRM. Moreover, variation in headquarters’ control over subsidiaries exists also in HRM of different groups of employees according to their relevance for corporate interests.

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Channelling Corporate Values and Interests: Social Interaction within the Multinational

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The main argument is that corporate values and interests obtain concrete meanings through social interaction between different organizational levels in the MNC. In consequence, they influence subsidiary behaviour related to the construction of employment practices in a particular way, namely, leaving large manoeuvring space to subsidiary managements to tailor corporate interests to local conditions and thus to consciously build an embedded organization with diverse capabilities, resources and employment practices. In other words, social interaction within the MNC creates preconditions for autonomous subsidiary behaviour within the framework of corporate values and interests, which stimulates the subsidiaries’ involvement in social interaction with local actors when constructing employment practices. In the first section, I discuss Electra’s values and interests, administrative heritage, and changes therein due to recent reorganizations. In the second section, I address how corporate values and interests are transmitted to subsidiaries, via which forms of social interaction, and what they imply for subsidiary behaviour. In the third part I evaluate social interaction between headquarters and subsidiaries and between sister subsidiaries; and formulate the concluding argument on the effects of corporate values and interests on subsidiary behaviour in the construction of subsidiary employment practices.

Electra’s past legacy for current challenges Electra’s history has brought both economic prosperity and downturn. Production expansion in the Netherlands and abroad alternated with reorganizations driven by changing market demands, increased international competition and need for improved efficiency. The first Electra manufacturing site was established in 1891 in Eindhoven in the south of Netherlands.105 This agricultural region attracted a range of industries because of its convenient geographic location at the crossroads of trade routes and available labour force. Electra offered jobs mainly to marginalized low-paid groups including women and young workers. In 1909, the share of women in Electra’s workforce reached 67.9%. With a growing complexity of products, the demand for male workers grew and the share of women decreased to about 30% in the 1930s (Stoop 1992: 45).106 In the 1930, about 50% of the local population was economically dependent on the company; and Electra continuously contributed to modernization and economic growth of the Eindhoven region. The great Depression meant widespread dismissals at Electra; not only because of the economic crisis, but also due to an exploration

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Channelling Corporate Values

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Administrative heritage – the formation of corporate values Corporate values refer to a common understanding about how certain processes are best dealt within the MNC, and at what level of the organization (Bartlett and Ghoshal 2002: 37–38). They shape organizational capabilities, business processes, subsidiary roles, and interaction with employees, suppliers and other actors. Bartlett and Ghoshal (2002) refer to such set of values as administrative heritage resembling company traditions of doing things and organizing business according to a particular configuration of assets and capabilities, distribution of managerial responsibilities, and an ongoing set of relationships that endure long after any structural change. Administrative heritage is built on long-term experience and comprises internalized moral values and charismatic leadership. Values relate, on the one hand, to behaviour; and, on the other hand, to organization. Behavioural or substantive values incorporate general entrepreneurial effort, commitment to fair interaction with shareholders and stakeholders, and to competition and market procedures. In contrast, procedural values are best described as the accepted belief about internal allocation of key resources, the organizational level at which particular processes should occur, and the best way of managing organizational processes. Procedural values are thus more stable and resistant to change than substantive values. Below I discuss selected procedural values that became the cornerstone of Electra’s administrative heritage and continued to shape corporate interests and behaviour up to the present day. In the construction of employment practices, Electra has often been regarded as a company with paternalist values shaping the MNC’s behaviour ever since its establishment (Bartlett and Ghoshal 2002; Kahancová 2007a; Stoop 1992). Electra’s paternalism derives from several factors that played a role during the company’s development: charismatic leadership of early Electra leaders, the company’s international experience, cultural embeddedness,107 and local religious and power struggles during Electra’s initial years in the Dutch countryside (Stoop

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of possibilities for international expansion (Stoop 1992). After the 1930s the company again experienced rapid growth in output and employment. This lasted until 1970s when international competition acquired new dimensions and Electra faced economic hardship. Since the 1980s the company underwent several major reorganizations and a long restructuring process in response to changing markets and intensified competition. At the end of this process stands a new Electra in terms of strategic interests, but still the old one in terms of its corporate values.

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1992). The combination of these factors has led to an employment and social policy that is specific to Electra, and thus not merely an outcome of institutional pressures such as home-country isomorphism (Ferner and Quintanilla 1998).108 Electra’s adjustment to local conditions and the local society in Eindhoven in the first half of the 20th century laid the cornerstone for the formation of corporate values. The company represented European family capitalism and belonged to crucial employers in the region. This status pulled Electra into ongoing power struggles with local religious authorities and the Catholic ideas that lived among workers and citizens. Several strikes in the 1910s and 1920s were a result of this battle of power in which both Electra and local religious authorities attempted to gain support of influential groups in the local society (Stoop 1992: 43). As an outcome of learning to coexist with each other, Electra became a stable part of the Eindhoven society and later even joined forces with religious authorities in an attempt to combat the organized labour movement. Partially in response to such external pressures, Electra developed its own employment and social policy to help employees cope with the economic crisis, and refused recognition of trade unions (Stoop 1992). The personnel policy included healthcare provisions, housing, pension plans, social services, establishment of a personnel department in 1917, introduction of the eight-hour working day in 1918 and an agreement to respect Catholic holidays that workers fought for. These developments not only marked the establishment of Electra’s paternalism, but also the company’s responsiveness to workers’ needs in diverse local conditions. Although the original reason why these values developed were functional to Electra’s power initiatives to combat trade unions and the Church, the commitment to paternalism and responsiveness to local conditions continued to persist after the Second World War when conditions changed. Today, Electra’s care for workers still persists, although trade unions have been long recognized as preferred bargaining partners to works councils (van der Meer 2000; Visser 1995).109 The introduced personnel and social policy is closely related to the other factor of crucial importance for Electra’s corporate values – charismatic leadership. Next to absorbing cultural and religious values from its environment, the personality of Electra’s leaders contributed to the formation of corporate administrative heritage. The literature most commonly refers to one of Electra’s founders’ sons who took office after his father and became the key initiator of the early personnel and social policy. This manager joined the company in 1930 as an industrial engineer and was appointed managing director in 1939 (Electra 2006b). During

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his first visit to the United States (1931) he was shocked by the deep social scars and poverty that the Great Depression had left. After returning to the Netherlands, he declared that he ‘would do everything within [his] power to avoid a recurrence of that kind of misery’ (Electra 2006b). He believed that large companies must replace the ‘short-term goal of maximum profit by the long-term goal of continuity so as to give increased security to employees, providers of capital and suppliers’ (Electra 2005). An inherent feature of Electra’s corporate values is also the company’s long-established responsiveness to the needs of employees in diverse local conditions. Electra’s local responsiveness materialized through its decentralized multinational hierarchy with a loosely linked network of self-sufficient national subsidiaries, which became its main competitive advantage in the post-war period. This decentralized organizational structure originates in Electra’s early expansions from Eindhoven to other rural parts of the Netherlands and to other countries. The Great Depression and the fear of German confiscation in World War II motivated Electra to open foreign subsidiaries as legally independent companies and to search for new markets and better production possibilities (Bartlett and Ghoshal 2002; Electra 2006b). Under the enduring influence of family ownership, foreign subsidiaries were managed by trusted appointees with an extensive understanding of Electra technology, commercial objectives and general strategy (Bartlett and Ghoshal 2002). In the 1970s and 1980s this structure faced enormous pressures to reorganize after Electra’s business started to decline and a search for global efficiency via economies of scale and a better integration of subsidiaries became strategic priority (Bartlett and Ghoshal 2002; van der Meer 2000). Despite these changes, the value of local responsiveness and delegating managerial responsibilities to the subsidiaries endure long after structural changes.110 To sum up, Electra’s administrative heritage encompasses paternalism and local responsiveness that produced a decentralized organization responsive to local conditions and employees. These values originated in Electra’s early history, namely in charismatic leadership and embedding into the local society of the Dutch countryside at the turn of the 20th century. These values and their origins are central for understanding the past and current development of corporate interests, behaviour, subsidiary roles, and finally the construction of subsidiary employment practices.

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The formation of corporate interests, organization and strategy The enduring influence of the founders is also obvious in the longexisting management practice of balancing technical and commercial interests (Bartlett and Ghoshal 2002: 46). The technical-commercial

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duality was institutionalized in Electra’s dual-headed management for over 90 years and feeds back to the duality in the company’s founders – a technologically oriented engineer and a talented salesman. In the 1980s the duality was abolished, but competition between technical and commercial groups is still present in Electra’s attempt to strengthen its market orientation, and in the dual organizational structure where product divisions are responsible for technology and manufacturing and national organizations are increasingly sales-oriented. Since the 1930s, Electra has been gradually expanding its product portfolio and its foreign operations, searching for new markets, benefiting from factor price differences, and diversifying sources of production (Bartlett and Ghoshal 2002). The MNC increased the number of product divisions, developed its research and development, and became a market leader in various innovations, patents and products.111 Business strategy was managed from Eindhoven, but national organizations enjoyed extensive autonomy in coordinating Electra subsidiaries in the host countries. Electra’s competitiveness was based predominantly on responsiveness to consumer demands and production possibilities in different parts of the world. With international competition intensifying in late 1970s, Electra’s multinational strategy was no longer sustainable and the company had to rethink its organization to maintain its flexibility and at the same time achieve a new target – global efficiency and economies of scale. Efforts to increase headquarter control and to centralize product development and production failed because of a deeply entrenched heritage of strategic and operational decentralization and the national organizations’ (NOs’) struggle to maintain their autonomy (Bartlett and Ghoshal 2002: 61). After restructuring in the 1980s and 1990s, Electra strictly reconsidered its worldwide assets and resources, implemented structural changes, and improved internal coordination by assigning new roles to subsidiaries. The restructuring encompassed three broad phases. Starting with the 1972 Yellow Booklet, headquarters analysed strategic improvement possibilities due to increased competition from Japanese companies. After a series of unsuccessful launches of new products112 and reorganizations that only brought small improvements in the 1980s, the second major restructuring phase finally brought Electra’s revival. The Operation Centurion in the first half of the 1990s was the largest reorganization in Electra’s history (Electra 2006a). Its major aspect was a decrease in the number of product divisions, strengthened coordination between these divisions, focus on core interests and capabilities, and a shift in power from NOs to PDs. This restructuring continued until the end of 1990s,

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when the corporate campaign Transforming into One Electra was launched to streamline and better coordinate selected practices by standardizing processes and introducing a shared way of working in the areas of information technologies, HRM, finance and purchasing (Electra 2002). This campaign not only serves as cost control but is also the vehicle for fundamental and sustainable change to operate the MNC. It is based on a simpler organization, greater transparency, clearly defined accountabilities, and an improved horizontal and vertical integration of subsidiaries under headquarter control (ibid.). Close coordination and control that transcend the traditional multinational organizational structure are fostered mainly in core business activities. Electra began to concentrate production activities in countries with lowest costs for each activity’s primary input factor (Bartlett and Ghoshal 2002: 99), bringing expansions of small operations in Singapore, Taiwan and Eastern Europe, and a closure of several production sites in Western Europe and the US. The remaining television factories in Europe came under close control of BG Connected Displays and were liberated from the command of national organizations.113 NOs became increasingly sales oriented and developed new roles in locally relevant matters that required adaptation to local market demands, i.e., in logistics, marketing, training of employees, and in some countries negotiating wages and other employment practices. Interestingly, Electra’s reorganizations left HRM strategies towards production workers largely untouched. In 1974, a Dutch HRM manager described the company’s HRM strategy as follows: In our experience, national management initiative is the best way of ensuring the flexibility and adaptability necessary in widely varying circumstances. This particularly holds true for personnel and industrial relations policies, which have to follow national legislation [ ... .] and to fit into the national labor market situation and industrial relations structure and climate as well as take into account national characteristics and preferences. Therefore, although social policies primarily take shape on a national basis, there is a concerned personnel and industrial relations service at the home office in Eindhoven, which aims at a certain consensus about the underlying basic considerations, acts as a clearinghouse of knowledge and experiences, and provides advice and assistance to the national organizations, but which has no executive power. (Dronkers 1975: 166)

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More than 30 years have passed since this statement, but Electra’s HRM strategy did not undergo major changes. HRM is an area in which

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Electra is most strongly committed to its heritage of local responsiveness and employee paternalism. One development within HRM, however, deserves attention: in contrast to decentralization of employment practices of production workers and lower administrative workers, there is a growing centralization and coordination in employment issues of knowledge workers and top managers.114 In the former case, the construction of employment practices has taken the direction of even deeper decentralization than before; and the decline in NOs’ roles has been traded for more corporate, PD and BG control in selected issues.115 At the same time, subsidiaries were left with an even larger autonomy to construct their employment practices than before. In sum, in some of its strategies Electra grew out of administrative heritage and strengthened its internal coordination and control. In other issues, Electra has maintained its decentralized HRM, paternalism, and local responsiveness.116 This applies mainly to management of employees below a certain level in the corporate job classification scheme. Although Electra claims these employees are not strategically important for the firm, in fact they are important because they secure subsidiary performance, output and productivity. Internal and external forces shaping Electra’s organization and behaviour The stability of Electra’s organization and behaviour, relevant for constructing subsidiary employment practices, is determined by several structural and institutional forces. In my view, the most important are company values, interests, and external isomorphic pressures. Two patterns in which these forces influence Electra’s behaviour are observed. First, competitive pressures on global markets and the adopted shareholder value pull the MNC in the direction of coordinated and centralized construction of employment practices. This implies a shift from autonomous subsidiary behaviour to corporate control and diffusion of best employment practices. Second, Electra’s administrative heritage and local isomorphism operate in the other direction and imply that Electra should maintain its decentralized behaviour, responsiveness to local conditions, and paternalist commitment to stakeholder interests. It is thus questionable whether these two directions are complementary or mutually exclusive; and how they amalgamate in Electra’s corporate and local behaviour and in headquarter-subsidiary interaction relevant for the construction of employment practices. Developments in Electra’s business strategy are closely related to the company’s external competitive environment, new technologies,

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changing consumer tastes and the overall economic conjuncture. Electra is extremely vulnerable to variations in economic demand (van der Meer 2000). The expansion of Asian producers since the 1970s, gradual liberalization of trade and improving logistic possibilities increased the competition in Consumer Electronics. Electra responded to these market conditions with reconsiderations of its business strategy, reorganizations, and changes in technology, innovation, lowering costs and shortening product life cycles. Headquarters increased control over subsidiary performance; and coordination between previously independent organizational units is now strengthened through its compliance with efficiency and profit interests. In institutional terms, this response corresponds with corporate isomorphism, or institutional pressures to strive for international conformity via strengthened coordination, internal control and the diffusion of best practices within the MNC (Ferner and Quintanilla 1998). An alternative to corporate isomorphism, cross-national isomorphism implies Electra’s effort to diffuse home-country strategies, organization and employment practices from the Netherlands to foreign subsidiaries. However, Electra’s embeddedness in the Dutch business and employment system is not as strong as corporate isomorphism. In the 2002 corporate restructuring, the position of the Dutch Electra organization became part of a larger regional structure including Europe, Middle East and Africa (EMEA). This has an effect on the centralization of strategic issues in line with Electra’s corporate goals of global efficiency. Electra’s Dutch trade union representatives perceive the situation as follows: Today, Netherlands is not considered a region anymore, but just a country within the region of EMEA. Decisions are taken for the region as a whole, and the region is very far away from us. The influence of the Netherlands within Electra has decreased significantly.117 Electra does not attempt to diffuse Dutch standards abroad and rather constructs company-specific organizational practices. Nor does Electra attempt to imitate best practices of its core international competitors (Bartlett and Ghoshal 2002). Still, Electra’s headquarter managers, and also Dutch employee representatives, stress the existence of Dutch influence in Electra’s decision-making and headquartersubsidiary interaction,118 but not in strategic behaviour and organization. Therefore, I argue that it is not home-country, but corporate isomorphism that best describes Electra’s behaviour in institutionalist terms.

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The drive towards global efficiency and profit has also penetrated Electra’s corporate values and brought an adoption of shareholder value. Shareholder value is among the most important goals.119 In a number of company reports, Electra addresses its shareholders and declares commitment to improve economic performance and increase shareholder value. Electra strives to maintain a satisfactory return on equity, ongoing growth in revenues across product divisions and sustainable dividend payment to shareholders (Bickerton 2004).120 This requires strict cost control and coordination of strategic resources.121 All of the influences discussed up to this point push Electra’s organization and behaviour in the direction of strict control, hierarchies, power concentration at headquarters, and the diffusion of best practices across subsidiaries. As mentioned above, there is also a second set of forces, which operate in the other direction. Consistent with its administrative heritage and local isomorphism, Electra declares its interest in persistence of decentralized HRM and commitment to stakeholders, most importantly responsibility towards employees (Electra 2005). Corporate reports frequently refer to the legacy of Electra’s founders who ‘never lost sight of their employees or the community they came from’ (Electra 2005: 10).122 The existence of elaborated statements on employee commitment and annual sustainability reports referring to Electra’s values, however, do not directly imply responsiveness to local conditions and a decentralized construction of employment practices. Such reports can well align with a rational profit-driven company that aims to enhance its societal legitimacy and reputation without a real commitment to these values. As I noted above, and confirm in the consequent chapters, Electra did maintain its interest in a decentralized construction of employment practices. But the construction process is neither based on corporate sustainability reports and slogans, nor on close control of headquarters. What matters are the values that penetrated the subsidiaries and give concrete meanings to corporate interests in local conditions. In this respect, the real effect of corporate sustainability reports is insignificant, and their influence on subsidiary behaviour cannot be traced due to a lacking operationalization of declared slogans for subsidiary behaviour. In addition to the influence of values, the external institutional influence that matters most for the construction of employment practices is its local isomorphism. It is the countervailing force to corporate isomorphism, encouraging subsidiaries to behave like other employers in the local environment (Ferner and Quintanilla 1998).123 In sum, two countervailing forces shape Electra’s corporate behaviour in constructing subsidiary employment practices. These are the

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MNC’s search for global efficiency via internal coordination and control; and a long-term administrative heritage of paternalism and local responsiveness via decentralized decision-making. Which set of forces is more important, and how did Electra manage to sustain its decentralized HRM under the existing pressures? Evidence shows that strengthened ties between product divisions, BGs and subsidiaries, and the decline in power and responsibilities of national headquarters in the host countries, did not lead to increased headquarter control of subsidiary employment practices, but facilitated their further decentralization. Issues previously coordinated at the level of host countries are now decided at the level of subsidiaries.124 This does not result from Electra’s inability to centralize decisions, but the MNC’s continuous belief that the subsidiary level is best for managing local resources and constructing employment practices. To answer the question of sustainability in Electra’s behaviour, organization and interests given the diverse influences, I argue that Electra has further strengthened its local responsiveness and the continuity of its values, and simultaneously improved its rational interest in profits. In an attempt to integrate these contradictions in values and interests, and to satisfy both shareholders and stakeholders, Electra continuously looks to balance its commitment to both groups. Shareholder value acquired corporate priority, but did not lead to strengthened control and internal coordination of all issues. As long as the broader framework of rational interests – induced by sharp international competition – allows local responsiveness and subsidiary autonomy in constructing employment practices remain among Electra’s priorities. I conclude that Electra’s shareholder value and employee commitment are not mutually exclusive but coexist at various organizational levels. Whereas shareholder value is most important in corporate-level strategy, local responsiveness is channelled between headquarters and subsidiaries without detailed guidelines on how to construct subsidiary employment practices. In the next section I analyse in greater detail what kind of social interaction between headquarters and subsidiaries exists in these particular organizational settings, and what content has dominated the interaction in employment and production issues.

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Interaction between headquarters and subsidiaries Recalling the research design from the previous chapter, channel α delineates interaction between Electra’s BG headquarters in the Netherlands and four television-producing subsidiaries in Brugge (Belgium), Dreux

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(France), Székesfehérvár (Hungary) and Kwidzyn (Poland).125 Brugge is the development centre for high-end plasma and LCD televisions; Dreux is their main European assembly site. Székesfehérvár is becoming the largest production site for several product groups, including TVs, home entertainment, and flat monitors. Until its outsourcing, Kwidzyn was the most important European production centre for mainstream cathode ray tube (CRT) televisions.126 The BG Connected Displays closely coordinates the production and supply chain management across these subsidiaries. Employment practices of all subsidiary workers except the general manager are fully at the subsidiary’s discretion. Production issues Building on Electra’s organizational structure,127 the BG Connected Displays has the closest influence on subsidiaries’ production issues. Within the corporate production strategy, the BG’s interest centres on managing the production, instead of production itself. Production takes place in Electra’s own subsidiaries and in contracted manufacturing companies unless there is a good reason to keep production within Electra. In the words of an industrial strategy manager, ... high-end products contain a lot of intellectual property, so those things we are not too much in a hurry to give to another manufacturer and teach them everything we know about those products. We keep those in house.128 The decision to produce TV sets in Electra’s own European subsidiaries confirms the strategic importance of these sites, and thus a close eye of the BG is kept on subsidiary performance. The BG’s impact is most intensive in coordinating the supply chain management (SCM).129 Monthly meetings bring together subsidiary SCM managers, BG managers, and representatives of Electra’s European sales and marketing department. After assessing each subsidiary’s capacity, the team of SCM managers with a close involvement of the BG allocate TV sets to be produced in each site.130 Prior to the monthly SCM meeting, internal meetings take place in each subsidiary to deliver a target volume, quantity and quality of production. Subsidiary production managers are closely involved in the SCM meetings, but not in the decision on production allocation, which is controlled by the BG, and subsidiaries only provide inputs for centralized decisions.131 Interactive bargaining between subsidiaries and headquarters over production allocation is possible but limited to the extent that some subsidiaries

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have underutilized capacities whereas others cannot cope with the allocated production load. Headquarters do not coordinate the implementation of this plan: subsidiaries’ production managers receive the plan and locally operationalize production targets per working day and production shift.132 The production planning process is similar across all subsidiaries. Interviewed manufacturing and SCM managers perceive this process in the same way, which confirms that centralized production planning is universally applied to all subsidiaries. The subsidiaries alone do not determine their production plan, only its implementation. Changes in decisions are also strictly coordinated with headquarters. Subsidiaries must comply with their commitments; in case of inability to meet the planned production target, extended working hours and weekend work are introduced. Besides SCM coordination, the subsidiaries’ general managers and manufacturing managers are in frequent informal contact with the BG. The frequency and interaction form are independent of subsidiaries’ geographical location and their position within the corporate hierarchy.133 Interaction takes place via emails, phone calls and teleconferences, and via a formal monthly financial report on subsidiary performance. The above evidence fits the described corporate interest in centralizing strategic decisions at the level of headquarters. Based on rational reasoning, the BG represents a feasible organizational level for allocating production resources and coordinating them. The BG’s interaction with subsidiaries is best described as extensive control, in which headquarters exceed their role of formal authority and are personally involved in precise production planning. The power of headquarters to determine subsidiary practices in production greatly exceeds the power and influence that local managers have in coordinating production targets. The form and (in)formality of interaction between managers at headquarters and in the subsidiaries has no influence on coordination in production planning; nevertheless, enforcement mechanisms and extensive trust assure that subsidiary managers will implement the centrally constructed production plan. These findings yield an argument that Electra’s headquarters exercise close control of production planning across subsidiaries. Control is fully rational and not influenced by non-economic factors such as managers’ personal preferences and locally specific interests. Headquarters’ control over production planning can stimulate crosssubsidiary competition around production allocation and the best possible utilization of local resources (Kristensen and Zeitlin 2005).

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However, competition among Electra’s subsidiaries is limited by their strategic role:

Manufacturing managers in the subsidiaries maintain that competition – if it at all exists – is healthy and operates to fulfil a common interest of the BG. The strict hand of the BG does not leave room for extensive market-like competition between subsidiaries, because their function in the BG’s production roadmap can only be changed through centralized corporate decisions. This increases subsidiary dependence on headquarters’ decisions and confirms that control is the dominant form of social interaction between headquarters and subsidiaries in production issues. Nevertheless, close control only applies to strategic planning, and subsidiaries enjoy a relatively large autonomy in implementing their production plans. Employment issues In contrast to close control over production issues, employment issues of production workers are largely independent from the headquarters.135 Within Electra’s generally decentralized approach to employment issues, even the corporate guidelines applicable to top managers and knowledge workers often lack precise instructions for implementation: If we talk about competence management, there are general guidelines that we are getting and nobody so far imposes it on me that this is the way I should work. There is still quite some freedom to design for ourselves how we would like to apply it.136 There are some HRM policies going around in emails, but we get it, it lies on everybody’s desk and that’s it. The business unit HRM department thinks it’s enough to distribute a list of ‘Electra values’ to people in the factories. But [ ... ] it can mean something different for different people in different countries. They don’t provide an explanation.137

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... in a multinational there is always competition between different locations and different sites, be it development activities or manufacturing being allocated somewhere. But [each] site has a specific role, meaning that competition on volume production is not there.134

Employment practices of administrative and production workers in the subsidiaries remain disconnected from the influence of headquarters.

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Local issues have to be solved in the local spot. It is about understanding each other. Headquarters cannot play a role here. Headquarters can give a direction, a way of working, but not get involved into local issues. This is something for the local management.139 Recently the EMEA headquarters started to investigate a possibility of closer coordination of industrial relations across Western European Electra sites. Instead of meaning headquarter control over employment practices, this initiative aims at finding a common understanding of industrial relations and a coherent attitude to bargaining partners. EMEA headquarters are also important in case of subsidiary closures and relocations. Managers maintain that benchmarking in case of restructuring is beneficial and allows socially responsible behaviour at the end of a subsidiary’s life.140 Next, EMEA coordinates a staffing department that deals with specific tasks within Electra’s internal labour market, i.e., recruiting or learning services.141 European subsidiaries can receive service or coaching from these centres concerning internal recruitment of top managers and knowledge workers. Other than that, subsidiary HR managers only rarely have direct contacts with the EMEA managers; and there is no other direct involvement of EMEA in constructing subsidiary employment practices. An institutionalized regional employment and industrial relations policy does not exist. Regional matters are more often consulted with NOs in each country. The role of NOs in controlling and centralizing country-specific employment practices has declined in the past decades after the upward shift of strategic HRM to EMEA and the PD, and a further decentralization of operational HRM to subsidiary level. Today the role of these organizations differs across countries. In Belgium, Electra’s NO aligns EMEA’s employment policies with Belgian regulations. It also creates country-specific policies and gives legal advice to the Belgian subsidiaries.142 According to the HR manager from Brugge,

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None of the interviewed subsidiary managers felt closely controlled by headquarters. Each subsidiary functions as a closed organizational entity, and Electra is committed to local responsiveness in constructing employment practices.138

The National Organization is a service organization – we are the customers and they are the service provider. [ ... ] They don’t give permissions or they don’t have a hierarchic power [ ... ] to give us guidelines. It is more a debating platform.143

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The Belgian NO coordinates payroll services, compensation and benefits, pensions, recruitment of high-level managers and management of expatriation. Related to that, the NO is informed about subsidiary employment practices, conducts benchmarking, and depending on legal requirements engages in company-wide collective bargaining deriving from national-level bargaining between employers’ associations and trade union confederations. A Belgian Electra HR council brings together subsidiary HR managers on a monthly basis. Emails and telephone contacts between subsidiary managers also assure a shared general direction of employment practices, which, however, does not have wide-ranging implications on subsidiary employment practices. The role of Electra’s NO in France is similar to Belgium. The Dreux manager stresses his freedom from the NO and at the same time the NO’s service to subsidiaries, e.g., explaining legal regulation, advice on salary developments and dismissals, and coordination of Electra’s behaviour towards trade unions in France. Emails between Dreux’s HR department and the NO are exchanged daily, and two to four personal or teleconference meetings per month are institutionalized.144 Székesfehérvár and Kwidzyn are even more independent from their NOs than Brugge and Dreux. Such divide between Western and Eastern subsidiaries is a consequence of historically strong positions of NOs in Western Europe, while the CEE subsidiaries were established only in the 1990s when the powers of NOs were already declining. In Hungary, the NO is a separate legal entity and does not play a coordinating role of HR issues at all. HR managers in Electra’s Hungarian subsidiaries established an HR platform with the goal of three meetings per year. However, this is a formally existing structure without a real coordinating role; and subsidiary HRM is fully decentralized.145 In Poland, the NO has succeeded to establish a Polish Electra HR council with the objective of fosterong exchange of information and best practices.146 Coordination applies mostly to the recruitment and training of high-level knowledge workers in Poland, exchange of information about vacancies in management positions in Polish Electra subsidiaries, and to Electra’s social policy in Poland. Although formally an attempt at coordination, the social policy further encourages decentralized subsidiary-specific employment practices (Electra, Kwidzyn 2004). In sum, Electra subsidiaries fall under headquarter control only in employment practices of top managers, knowledge workers, and expatriates in the upper grades of corporate job classification schemes. With a developing internal labour market for knowledge workers, the past years have brought a trend of HRM centralization for these

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employees within geographic regions, host countries and product divisions. Consequently, employment practices of knowledge workers are to a large extent constructed via headquarter control and diffusion of best practices. Employment practices of other employees are fully decentralized and subsidiary-specific, as supported by the absence of corporate policy guidelines on subsidiary HRM and industrial relations, a limited number of expatriates in the subsidiaries,147 no direct control or power domination of headquarters over subsidiary HR managers, and no detailed reporting on employment practices and industrial relations to headquarters. Headquarter-subsidiary interaction takes place via formal and informal contacts between subsidiary HR departments, NOs and the BG. Formal reporting structures include general audits, process survey tools and employee engagement surveys on an annual and biannual basis. Each subsidiary prepares a Business Excellence Briefing Document, which has sections titled People and Society.148 PD managers regularly visit the subsidiaries within HRM auditing processes, but auditing mainly focuses on employment practices of higher-level employees and not production workers.149 Developments in subsidiary headcount are listed in financial reports, but headquarter managers claim the figures on headcount are often skipped when reading the audit reports.150 Beyond this formal feedback, no other specific reporting on HR issues takes place. Informal interaction is more common than formal reporting, the most frequent way of communication being electronic mail. Teleconferences also take place regularly but less frequently. Via a teleconference or a personal annual or biannual meeting, the BG organizes a network of subsidiary HR managers to discuss issues of common interest. The above evidence implies that for the large part of subsidiary employment practices, headquarters define the space for local behaviour by delegating a large degree of freedom and power to subsidiary managers. The compliance of subsidiary behaviour with corporate interests is assured through shared values and exchange of information. Due to limited knowledge of local conditions, headquarters face the risk of not choosing the most appropriate behaviour vis-à-vis local actors. To avoid this risk, headquarters allow local managers to take over the construction of employment practices according to their best local knowledge. Electra thus fosters adaptation to local conditions through value-based cooperation. Headquarter-subsidiary interaction in the form of control applies only to employment practices of top managers and knowledge workers. It is in the interest of headquarters and local managers to maintain the subsidiaries’ competitive position within Electra and at the same

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time remain a locally responsive employer. Variation in headquarter involvement in employment practices of top managers and production workers produces a balanced allocation of resources to cope with corporate economic interests and with local employment standards. On the one hand, this duality helps to diffuse corporate values and strengthen subsidiary commitment to these values through the selection of suitable managers. On the other hand, it leaves enough space for adapting employment practices to particular local conditions. By implementing selective control over employment practices of only some employees, Electra went even further in its organizational flexibility than drawing a distinction between close control over production issues and local responsiveness in employment issues.

Interaction between Electra’s sister subsidiaries Cross-subsidiary interaction (channel β) serves as a control variable to identify cross-subsidiary influences on the construction of subsidiary employment practices. Benchmarking subsidiary performance offers a structural foundation for such interaction. A closer examination of interaction between Electra’s sister subsidiaries reveals similar findings to those applicable to headquarter-subsidiary interaction. There is a divide in the extent of coordination between production and employment issues, and between employment issues of top managers and knowledge workers, and of other employees. HR managers in all subsidiaries confirmed that local knowledge of culture and laws is crucial for their work, and thus benchmarking employment practices with foreign subsidiaries is not necessary. Managers are committed to the value of local responsiveness.151 We do have more and more issues that are international, so it’s not bad if there is a form of coordination, but it doesn’t have to go into details, and it should not have the intention that it should influence the way we are used to work.152

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Cross-subsidiary interaction is most intensive in supply chain and logistics issues, as already discussed. The sites also benchmark their customers’ satisfaction and are interested in gaining insights in how other subsidiaries manage seasonality in product demand. Subsidiaries’ general managers claim there is regular benchmarking concerning production organization, people, labour costs and flexibility. However, manufacturing and HR managers – who are involved in

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Benchmarking is useful, but you need to compare apples with apples. To compare to Brugge is not making any sense, because that is Belgium and this is Poland. You need to go to this area and see there is 20% unemployment. That’s the benchmark for this factory.153 If there is benchmarking in employment issues, it resembles exchange of information on managing employment practices rather than on employment practices directly. Subsidiaries, however, do share some best practices, e.g., a competence matrix for higher-level managers.154 Comparative audits conducted by headquarters are taken as an advice to prevent the re-invention of the wheel. Audits stimulate healthy competition, but do not pose a threat to subsidiary-specific employment practices.155 Other than formal audits, HR managers from Brugge, Dreux, Székesfehérvár and Kwidzyn claim to have almost no direct relationship with each other. They are eventually interested in information about other subsidiaries, but do not see a large added value of such information for their local decisions. The structure to establish cross-subsidiary coordination exists, but none of the managers initiates systematic contacts. If contacts exist, these are random and otherwise channelled via the BG. The BG’s initiative to form an HR network of subsidiary managers is welcome and appreciated; but it remains to be seen whether this initiative will produce any changes in the established process of constructing selected employment practices.156 Even if this initiative would be institutionalized on a long-term basis, it is likely that only practices for top managers and knowledge workers would be addressed. In sum, social interaction between Electra’s subsidiaries does not constitute major influences on the construction of subsidiary employment practices. Current interaction in channel β is best described by value-based cooperation and voluntary exchange of information. The non-existence of intensive competition between the subsidiaries in fact aligns with corporate interests and values, in particular with local responsiveness. This finding indicates strong commitment of local managements to Electra’s administrative heritage; especially the belief that a decentralized construction of employment practices is the best way to utilize local resources.

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these processes at an operational level – do not ascribe high relevance to such benchmarking. They argue that benchmarking is useful when involving comparable companies in the region, as stated by a manager in Kwidzyn:

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Evidence of Electra’s past and the current state of social interaction within the MNC indicate that internal consistency in MNC behaviour is achieved through combining several interaction forms. A tight corporate value system, and at the same time subsidiary autonomy in employment issues building on these values, play a central role in sustaining several interaction forms and the balance between them. First, I documented strict headquarter control in setting production targets for the subsidiaries. To a lesser extent control also applies to employment practices of top managers and knowledge workers. However, in the implementation of centralized plans the subsidiaries enjoy large autonomy from the headquarters. An indirect control in the form of socialization through expatriates is also limited (cf. Harzing 1999; Rosenzweig and Nohria 1994). In other words, subsidiaries enjoy great autonomy in operational issues in exchange for meeting corporate targets. Second, social interaction by competition is not evident in the hierarchic headquarter-subsidiary relationship. Some competition exists between the subsidiaries, but is limited by their specific strategic roles within Electra and by the corporate commitment to local responsiveness in employment issues. Third, interaction in the form of interactive bargaining applies to negotiations on production planning, i.e., to the optimization of subsidiaries’ production capacities. Bargaining motivates the subsidiaries to improve their performance and thus leads to positive-sum outcome for corporate interests. In employment issues, bargaining between internal organizational units is not evident due to local responsiveness and a decentralized approach to constructing employment practices. Finally, the influence of corporate values is strongest in employment issues and accounts for value-based cooperation both in headquarter-subsidiary and subsidiary-subsidiary interaction. Cooperation evolves around the corporate interest to maintain multiple power centres and delegate responsibility to local managers. The commitment to a decentralized construction of employment practices continuously influences the behaviour of individual managers at all organizational levels. Managers are convinced that it is best to construct and manage employment practices locally because of extensive local knowledge that headquarters lack. This belief is sustainable and none of the parties attempt to change it. It is an outcome of internal corporate isomorphism and of the responsiveness to institutional differences across host countries (local isomorphism). In Electra, corporate

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and local isomorphisms are complementary, because corporate values assign high priority to the relevance of local conditions for subsidiary behaviour. How do the described interaction forms between headquarters and the subsidiaries influence subsidiary behaviour in the process of constructing employment practices? As documented, headquarters do not encourage cross-subsidiary coordination and convergence in employment practices. If convergence occurs, it is the result of other forces, but not of Electra’s corporate interest and conscious effort. Had Electra been committed to a different set of values,157 it is likely that one would not observe the current discrepancy between path-dependent administrative heritage encouraging decentralized decision-making, and increasingly centralized strategic decision-making and production planning. It is likely that headquarter control influencing subsidiary behaviour and underlining cross-subsidiary interaction would have been more extensive also in employment practices of production workers. In this counterfactual case, Electra’s corporate isomorphism and local isomorphism would lead to tensions in subsidiary behaviour, whereas currently they are complementary. How to explain the sustainability of the described interests and MNC behaviour, involving on the one hand a drive to improve shareholder value and efforts to achieve subsidiary efficiency, and on the other hand the continuity of local responsiveness and decentralized HRM? Electra has since long operated in diverse host-country conditions, and thus developed a perception that rational behaviour in one host country may not lead to the same organizational performance in other countries. In line with the literature on varieties of capitalism (cf. Hall and Soskice 2001), Electra continues to seek equally optimal rational performance in different conditions. Even when all subsidiaries strive for the same corporate interests, the means to address these interests differ across subsidiaries. The MNC cannot easily change its longterm administrative heritage, and is in fact not interested in doing so. Therefore, headquarter-subsidiary interaction concerns mainly strategic issues driven by corporate economic interests and are thus rational from Electra’s point of view. The room for non-economic influences on corporate behaviour and internal interaction channels, e.g., the managers’ personal feelings or trust, is limited at the corporate level. Nevertheless, the influence of trust, social relations and personal values on behaviour is evident in social interaction between Electra’s subsidiaries and local actors, which will be addressed in the following chapters.

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This chapter explored and analysed Electra’s values and interests in light of its corporate history and the forms of social interaction that emerged in the attempt to maintain the balance between stable values and changing economic interests. Instead of assigning all subsidiaries an equal role and fostering internal competition among them, Electra’s headquarters maintain a transnational mentality believing that the task of subsidiaries is to tailor corporate interests to differing local conditions. Paternalist values vis-à-vis employees and local responsiveness are strongly entrenched in managerial decision-making at all organizational levels. This implies consciously building an organization with differentiated capabilities, tasks and resources (Bartlett and Ghoshal 2002: 120). In other words, adapting core resources to local conditions and constructing new employment that evolved in utilizing local resources are typical features of Electra’s behaviour. Corporate values and interests encourage a diversity of interaction forms between headquarters and subsidiaries. I have argued that corporate values and interests obtain concrete meanings through social interaction between different levels of the MNC organization. In consequence, they influence subsidiary behaviour related to the construction of subsidiary practices in a particular way. In production issues, headquarters closely control subsidiary behaviour in production planning. In contrast, employment issues of subsidiary workers are a lack of headquarter control and concentration of decision-making powers. Alignment with Electra’s values and interests is assured through the selection of feasible managers with commitment to a decentralized construction of employment practices, Electra’s paternalism, and local responsiveness. This argument implies that social interaction within the MNC significantly shapes subsidiary behaviour and social interaction between MNC and local actors in host countries. Given the tight set of corporate values and interests and a loose way of value implementation across subsidiaries, the main question this book tries to address is how are subsidiary employment practices constructed if headquarters’ influence is limited. Before diving into the empirical case of social interaction with employees and trade unions in the construction process, it is essential to uncover the more general features of Electra’s subsidiary behaviour and social interaction with the local societies across host countries. This is the aim of the next chapter.

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Building a Local Corporate Presence: Social Interaction between the Multinational and Local Societies

Company values, interests and social interaction within Electra create preconditions for a decentralized construction of employment practices across the subsidiaries. The construction process is closely related to the local context, in particular host countries and host cities (Maurice and Sorge 2000; Michailova 2002). The local context refers to particular geographical, institutional, political and social settings, and is part of a national host-country institutional space. The local context particularly relevant for subsidiary employment practices includes local labour markets, local employment standards and informal norms, common business practices, industrial relations systems, and legal regulation. In all these domains, Electra encounters local actors and eventually develops social interaction with them, in order to gain local knowledge and secure an optimal embedding process. Exploring Electra’s presence in the host countries’ local contexts and social interaction with local labour market actors, governmental and non-governmental actors is the aim of this chapter. Social interaction between Electra and local actors is not limited to the rule of law and the MNC’s adaptation to local employment standards. In the general actor-oriented perspective of this book, interaction with local actors encompasses Electra’s integration in a local network of companies, interaction with local governmental authorities, media and other external actors that I refer to as local society. Electra’s interaction with the local society (channel γ4) thus covers the construction of the MNC’s reputation and accommodation of its subsidiaries in a

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particular city, region and host country. More specifically, this chapter explores and highlights differences in Electra’s local public relations, involvement in local social life, sponsoring activities, interaction with municipalities and local labour market authorities, employers, schools, media and other local organizations. I question how Electra exchanges resources with the local society, and how the subsidiary behaviour and local image contribute to the local society’s development. Electra’s interaction with the local society is not the core of the argument on the social construction of employment practices. Nevertheless, it helps to implant the argument into a broader context of the complex relations between the MNC and the local societies. Electra is likely to develop a stronger sense of local identity, connections with elites, and engagement in the local society’s life in a small community where the investor is more visible (Domański 2004). Therefore, perceptions of local actors on whether Electra contributes to the enhancement of the local economy and quality of life, or whether the company’s behaviour lacks commitment to the local society’s development and imposes corporate interests and values on local actors, offer additional grounds for analysing MNC embedding and the construction of subsidiary employment practices. The chapter’s empirical focus is on MNC’s presence and daily relations with the local society and local authorities after the subsidiaries have stabilized their operations and became an integrated part of the local economy. The analysis of social interaction forms between the MNC and local society actors establishes that interaction patterns in the studied cases range from trust-based cooperation to interactive bargaining with exchange of commitments and expected benefits to the MNC and to the local society. Building on these diverse interaction forms, the chapter addresses the MNC’s impact on local labour market institutions and employment standards. I argue that MNC interaction with the local society is neither driven by structural and organizational power resources in the MNC’s possession, nor by an institutional ‘pull’ from the host countries. It is an interactive exchange relationship involving costs, benefits and trade-offs both to the MNC and to the locals. The revealed dynamics of this interaction differs between Western European conditions and CEE conditions. In CEE, interaction in the form of interactive bargaining and value-based cooperation increases the local society’s trust in the MNC’s local activities, including sponsoring and philanthropy. In contrast, Electra’s Western subsidiaries experience a gradual disembedding from the local society, which also takes place predominantly in the form of interactive bargaining.

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Even if the local society does not have a direct impact on the construction of employment practices in Electra’s subsidiaries, I argue that feasible preconditions for a locally driven construction of employment practices exist. The next section briefly reviews the local conditions in which Electra’s subsidiaries are located, focusing on the four host cities: Brugge (Belgium), Dreux (France), Székesfehérvár (Hungary) and Kwidzyn (Poland). I also review evidence of how Electra subsidiaries themselves refer to the particular host city and the common reputation of the subsidiaries in the local society. I then explore Electra’s social interaction with the local society, addressing interaction with several sets of local actors. In particular, three sets of local actors are particularly important and addressed separately: labour market actors including other employers and local labour market authorities; local governments and municipalities; and finally, citizens, media, and other local actors. The chapter’s final section analyses the documented interaction forms and develops the argument on their diversity and implication for MNC embedding and the construction of employment practices.

Beyond the subsidiaries’ gates: Electra and the local industry structure Electra is an important local actor in each host country and city, and has a large impact on the local society and labour markets. Nevertheless, differences can be observed in Electra’s role according to the structure of the local industry and labour markets. The Brugge subsidiary is located in the city of Brugge, the capital of the West Vlaanderen region in Northwest Belgium. Having 116,709 inhabitants,158 the city developed a firm industrial basis benefiting from its proximity to the North Sea coast. The city’s main economic activities besides industry are services – mainly in tourism, hotels, restaurants and catering. Several large industrial companies have been located here for decades, Electra being one of them. The long-standing presence of Electra in Brugge shaped the company’s local image and citizens’ pride over the factory. Having an image of an old industrial site with more than 60 years of history, the subsidiary underwent growth in production and employment,159 but also several reorganizations that mainly included dismissals of production workers. The large reorganization of 1996–1997 brought a dismissal of over 2,000 persons and transformed the subsidiary into a development centre with a relatively small production assembly.160 Although the labour market quickly absorbed the dismissed workers

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from Electra’s last reorganization, the company’s local image has suffered and Electra’s presence in public life has changed. Electra now presents itself as a development centre attracting highly skilled knowledge workers and no longer as a large industrial employer of blue-collar workers. Despite its damaged reputation after the 1996 reorganization, in Brugge, Electra is still seen as an important name both in terms of product brand and in terms of employment opportunities. Electra perceives itself to belong to the top five employers in the region (Electra, Brugge 2003: 79). The strong integration of the subsidiary with the local labour market and society has been illustrated by one of my interview respondents at the local labour market board: ... [t]hose who live here in Brugge and somebody from their family has not worked for Electra were not from here! That’s the way to see it.161 Electra’s restructuring has coincided with an overall decline in industrial activity in Brugge in recent years. These developments yielded significant consequences for the local labour market. Stable low-skilled jobs in industry declined and were replaced by job offers in other sectors, on a temporary basis, or via temporary agencies. This situation facilitated a new role for local labour market authorities, temporary labour agencies, and trade unions in their social interaction with Electra.162 Despite the changing industrial structure and labour market dynamics, with its unemployment rate of 7.37% in 2004 and 4.67% in 2008, Brugge still belongs to good performing labour markets both from the regional and the Belgian perspectives.163 Unemployment is mainly a problem of the low skilled, the young, and the older. The share of men among the unemployed has been growing, because men mainly occupied the industrial jobs that recently started to disappear. Traditionally the demand for women in the industry has not been high. Electra is an exception among locally based employers, because the subsidiary employs a high share of women because of their fine-motor skills necessary for assembling TV sets. The Dreux subsidiary is located in one of the most industrialized regions of France. Dreux shares some similarities in the local industrial structure with Brugge. Dreux is a small industrial town with 32,000 inhabitants (2007),164 80 kilometres west of Paris, conveniently connected with the capital by a toll-free highway. The Dreux region is among the most industrialized regions in France; industrial companies account for 38% of the city’s economic activity.165 Electra has been established in Dreux in 1956, and the currently functioning mass

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production TV assembly centre was built in 1974. Electra has a great impact on the local society because it creates employment opportunities for low-skilled workers that constitute the majority of job seekers in the region. Next to several pharmaceutical companies, Electra’s TV factory with about 800 jobs166 and the Electra LG joint venture with about 400 jobs belong to most important industrial companies and employers in the region (Electra, Dreux 2005: 73). Having developed its strong local position over several decades, Electra is truly part of the local society. Each family in Dreux has at least one member or friend who is working or has worked for Electra (ibid.). Despite the long-term existence and stable functioning of the subsidiary, the latest 2003 restructuring involved dismissals of 300 persons. Similarly to Brugge, Electra’s local image has suffered and the restructuring brought fears into the public discourse that the subsidiary would be relocated or outsourced. In Dreux, the question of the subsidiary’s relocation is even more salient than in Brugge: unlike Brugge with its new strategic position, Dreux remained Electra’s one and only mass assembly centre with a large pool of production workers in the Consumer Electronics PD in Western Europe. The general trend in the Dreux region’s development is similar to developments in Brugge. The past decade has been marked by deindustrialization and thus an increasing disparity between low-skilled job seekers and a growth in vacancies for knowledge workers. The unemployment rate reached 12% in 2005 and dropped to 9.9% in 2008.167 Still, the unemployment rate in Dreux is higher than the French national average of 9.6% in 2004 and 8.6% in 2007.168 Unemployment mostly concerns young low-skilled persons who do not have the working habits required by large employers like Electra, i.e., an ability to work flexible hours, travel to work, and show commitment to company interests and values.169 Another problem is an underdeveloped system of higher education in the city. Local authorities attempt to increase the educational level of the local labour force by attracting university graduates from other regions and offering diverse training possibilities for local low-skilled workforce. Unemployment among women is not high, because after many companies failed to find successful male job seekers, the demand has focused on women who turned out to be highly motivated and well-performing employees.170 62% of all Electra’s employees are women. Women constitute 73% of production workers and 36% of administrative and managerial employees (Electra, Dreux 2005: 74). In Székesfehérvár, Hungary – the capital of the Fejér region – Electra is one of the show horses of local industry. The city with 102,760

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inhabitants has a convenient location, about 70 kilometres west of Budapest, on the crossing of main north-south and East–West roads.171 Feasible investment possibilities in newly established industrial parks attracted large MNCs like Electra, Ford, IBM and Alcoa to settle in this region in the early 1990s (Schiffer 1996). Benefiting from highly skilled job seekers with experience in the socialist Videoton electronics factory, Electra opened its greenfield manufacturing subsidiary in Székesfehérvár in 1991. The TV, home entertainment products and monitor assembly in Electra gave jobs to almost 2,400 persons in 2004. Due to the subsidiary’s success, Electra enjoys a sound reputation in the local society, contributes significantly to the city’s budget, and offers support to the development of the local society via various sponsoring activities. Conflicts with the subsidiary-based trade union and unioninitiated media coverage of internal disputes between Electra and the trade union, as discussed in the next chapter, are the only reasons why Electra’s local reputation has suffered slightly over the past 15 years. Because of a large investment inflow, Székesfehérvár was among the world’s ten fastest developing regions in the first half of the 1990s.172 The growth of the region’s economic activity exceeded the Hungarian average by 2–3%.173 In the municipality’s perception, foreign investors were the only solution to cope with the catastrophic situation after a number of large state-owned industrial companies in Székesfehérvár went bankrupt after 1989. The municipality’s new strategy brought a rapid development of the city, with a growing number of newly established companies and subcontractors to already established ones, and declining unemployment. The closure of the IBM factory and dismissal of about 3,000 persons in 2002 was a shock to the local society, but within one year the local labour market stabilized and the dismissed workers found new jobs in other firms. In 2004, unemployment in Székesfehérvár was below 5%, compared to 6.9% in the broader region.174 The situation of Székesfehérvár’s labour market performance continued to improve: in the second quarter of 2008, when the Hungarian national unemployment rate reached 7.6%, unemployment rate in the Székesfehérvár city further dropped to 3.8%, whereas the unemployment rate in the Székesfehérvár region remained stable at 6.8%.175 This was a favourable situation compared with other Hungarian cities and regions of similar size. Unemployment concerns mainly school graduates and those without skills demanded in the labour market. Local authorities strive for a better alignment of educational programmes and employer requirements to further decrease unemployment.176 At the same time, companies like Electra face large problems in finding

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enough production workers, and therefore construct various innovative solutions in recruitment, as already discussed in Chapter 2. Electra Kwidzyn is located in a town with 37,936 inhabitants in 2007.177 Despite its underdeveloped road and train connections to major cities, Kwidzyn is one of the most industrialized towns in northern Poland. The industrial development is closely related to the presence of foreign investors. Being exposed to interaction with foreign investors in the local paper mill already in the early 1980s, the city’s municipality succeeded with its strategy to attract investors by offering investment benefits and a pool of skilled and motivated job seekers. Electra’s subsidiary emerged from the local greenfield company Brabork, which was established in 1991. Foreign investors, such as the large American MNC International Paper and the network of Electra’s suppliers established in Kwidzyn, contributed to a significant industrial development of the region. International Paper, Electra, and Electra’s suppliers created around 5,000 jobs in Kwidzyn, which accounts for over 10% of the local population.178 Despite earlier outsourcing of Electra’s print circuit board production to the American MNC Jabil and an outsourcing of the TV factory to the same MNC shortly after this research was completed, the local image of Electra is favourable and people appreciate the available job opportunities. Electra’s local image remained stable since the early 1990s. As well as an impact on the labour market dynamics, the impact on the local society’s development is most obvious through sponsoring activities and tax contributions to the local budget. In general, Electra is appreciated and strongly present in the local society.179 Involvement in the city’s economic, social and cultural life is firmly established despite that its largest local competitor, International Paper, invests in its local image even more than Electra does. The reason for Electra not catching up with International Paper’s efforts is the past reorganizations that required the management to focus predominantly on internal subsidiary affairs. Because of the extensive presence of foreign firms, the labour market in Kwidzyn is unique in that its unemployment rate oscillated between 23 and 27% in 2004, compared to 30–40% in nearby towns.180 In the following years, the unemployment rate has declined and stood at 18.1% in 2006, still way above the national unemployment rate of 8.3% in 2007.181 Unemployment concerns residents with the least education, those working in the informal sector while receiving unemployment benefits, and those not catching up with necessary skill restructuring after the fall of socialism.182 A related characteristic of the Kwidzyn labour market and the structure of business activity is that the town’s

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highly developed industry absorbs all educated and skilled persons. In consequence, small business and services remain underdeveloped because of the lack of potential entrepreneurs. Summing up, because of large firms like Electra, each host city plays a somewhat special role relative to comparable cities and regions in the respective host countries. All Electra’s subsidiaries are located in highly industrialized regions, belong to the stable basis of the local industrial structure and bear a significant impact on the local labour market. Despite similarities in structural conditions and the structural way of Electra’s integration in the local industry structure, labour market and the local society, different interaction forms between the MNC and local actors can be observed.

Electra’s social interaction with the local society In line with Electra’s values and interests, the company’s interaction with the local society has been evolving without headquarter interference. In each host country and host city, Electra’s exposure to local actors has brought an interactive relationship with trade-offs and benefits to all sets of involved actors. This has strengthened the interdependence between the MNC and the local government authorities, labour market authorities, other locally based employers, local organizations and citizens. Furthermore, Electra’s interaction with local actors in the local society has consistently shaped Electra’s public image and media appearance. The aim of this section is to review how interaction has evolved in the case of each subsidiary. This overview serves as an input for evaluating Electra’s commitment to the local society and labour market functioning beyond the company’s own corporate economic interests. Labour market actors The studied subsidiaries are currently the only manufacturing subsidiaries in Electra’s Consumer Electronics division in Europe. Production workers constitute the majority of headcount in these assembly centres, and in all four cases this means a significant source of employment with consequences for the local labour market structure (see Table 4.1).183 The most important actors with whom Electra interacts include the regulatory labour market authorities, other employers on the demand side of local labour markets and thus potential competitors of Electra, and temporary labour agencies. Through interaction with these actors Electra draws on local resources and shapes the local labour market

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Table 4.1 Employment in Electra factories Local unemployment rate**

Subsidiary

Established

Local status

Brugge

1950s (brownfield)

Standard employer

901 (401)

Low (7.37% in 2004; 4.67% in 2008)

Dreux

1960s (brownfield)

Key employer

800 (600)

High (12% in 2005; 9.9% in 2008)

Székesfehérvár

1991 (greenfield)

Key employer

2,392 (2,200)

Low (4.9% in 2004; 3.8% in 2008)

Kwidzyn

1991 (greenfield)

Key employer

Average of 984 (average of 872)

High (27% in 2004; 18.1% in 2006)

Source: *Data from Brugge and Kwidzyn 2003, Székesfehérvár 2004, Dreux 2005. **Brugge: Basisstatistieken Werkloosheid, BLMB, 2004 and 2008184; Dreux: Manpower Dreux, 2005, and Eures – the European Job Mobility Portal, 2008185; Székesfehérvár: SLMB, 2005, and Székesfehérvár municipality186; Kwidzyn: KLMB, 2004 and 2006.187 The author’s assessment whether unemployment is high or low is relative to the unemployment rate in the region and national unemployment rates in the respective host countries.

development. In Brugge, Electra has maintained contacts with the regional public labour market authority, BLMB. BLMB, with the support of local trade unions, monitors employers’ labour market activities and their implications.188 Other than that, Electra does not extensively utilize the BLMB’s services. The most important interaction between Electra and the local labour market is via intensive contact with two temporary labour agencies. Electra negotiates the number and conditions of blue-collar temporary agency workers on a weekly basis. For knowledge workers, Electra does not use a mediating agency and directly interacts with schools, technical universities, and job seekers. Electra does not coordinate its recruitment strategy or employment practices with other locally based companies, and competition among these companies for production workers is negligible. Interaction with local labour market actors in Dreux is similar to Brugge. The main actor with whom Electra interacts is a temporary labour agency – the local office of Manpower France. Electra is Manpower’s largest client and both parties are satisfied with the character of their

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High-season headcount (production workers)*

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interaction and the established relationship. Manpower maintains that Electra is an attractive employer caring for its employees even if production workers’ wages are moderate. By employing young people and migrants, Electra helps to solve youth unemployment and the work attitude problems of some groups on the labour market. Interaction between Electra and Manpower is frequent and informal. Electra informs the agency of the number of desired workers and eventually provides a list of persons to be hired if available. The agency has a few working days to fill these positions. The price for temporary agency services is the same in Brugge and Dreux.189 Contacts with other companies in the field of HRM are limited. In Székesfehérvár, Electra is one of the central actors in the local labour market. The number of jobs constantly increased over the past decade and unemployment plummeted; at the same time temporary agency work gained importance. Electra is one of the pioneers in hiring a high number of agency workers; its demand for these workers has resulted in the establishment of two temporary agencies in Székesfehérvár – Pannon Job and Job Service. Interaction with these agencies and other labour market actors is similar to the interaction with temporary agencies in Brugge and Dreux, but a few differences can be observed. The most important difference is that Electra jointly advertises seasonal production jobs with these agencies and participates in the selection of blue-collar job applicants, which is not common in WE. Second, constantly facing low labour supply in autumn and winter, Electra has developed a plan with the local labour market authority SLMB and the municipality to invite mayors of nearby towns and villages to the subsidiary and request their cooperation in recruiting workers from the countryside. Finally, direct interaction also developed with the city authority in Komárno, a Slovak town on the Hungarian border. As a result, Electra employs a group of Slovak workers, which offers a modest relief to the extremely tight Székesfehérvár labour market. Due to low unemployment, locally based companies compete not only for qualified managers, engineers and higher-level employees, but also for production workers. Recruitment strategies are not coordinated across these companies; however, an informal agreement exists between Electra and several other large employers that the employers will not lure away each other’s employees.190 In Kwidzyn, Electra has little direct interaction with the state-owned labour market authority KLMB. The subsidiary’s stable position on the local labour market does not need a mediator; jobs are offered and filled directly. Electra directly contacts desired job seekers and conducts

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interviews and the selection process even for temporary workers. In contrast to the other subsidiaries, Electra only occasionally interacts with temporary labour agencies.191 A final set of actors with whom Electra interacts encompasses the informal network of HR managers of companies located in Kwidzyn, having the purpose of fostering informal contacts between managers in the same field. Electra’s HR manager is part of this regional network. However, interaction through this network does not lead to coordination of recruitment or other employment practices. All in all, despite little direct interaction with local labour market actors, Electra significantly shapes the local labour market structure, dynamics and employment standards. First, unlike small local employers, Electra follows all legal requirements related to the employment contract. In this regard, large companies are a positive example for small Polish companies that often formally employ workers with a minimum wage and informally pay additional wages, in order to avoid paying social security contributions in full amounts.192 Second, Electra and other companies hiring workers with temporary contracts indirectly cause extra costs for the administration of the unemployed. The KLMB tolerates this practice and claims it is a trade-off between the number of created jobs and the administration of the unemployed. Because of a high availability of motivated job seekers, competition between Electra and other locally established firms in the labour market is marginal. In sum, Electra is a relevant employer in the local context across all studied cases. Interaction with local labour market actors demonstrates similarities but also differences. In all cases, Electra does have a significant impact on the local labour market, but this impact is higher in Dreux, Székesfehérvár and Kwidzyn than in Brugge. Direct interaction with local labour market actors is to some extent more intensive in CEE host countries than in Western host countries. Moreover, Electra as a large employer influences the local employment standards in CEE, especially vis-à-vis small local employers, to a greater extent than in Belgium and France where the employment standards are somewhat higher than in CEE countries.

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Municipalities and local governments In Brugge, Electra continuously attempts to improve its reputation after the last restructuring. The subsidiary strives to rebuild its local image unilaterally, thus without direct interaction with the municipality. In contrast to other subsidiaries, very little direct interaction with the city’s authorities exists. Managers argue that Electra’s current financial situation does not allow for more activities targeting the city’s development.

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Building a Local Corporate Presence 109

It is certainly not bad for the city that [Electra] is here. But you cannot say that there is a close relation between the city and [Electra]. We are here, and the city is a city, and you cannot say that there are often contacts, or that there is some financial or other support from the city to [Electra].193 In Dreux, Electra has a more interactive relationship with the city’s authorities than in Brugge. Both the city and the locally operating MNCs attempt to benefit from this relationship and use each other’s resources. Indirect interaction has developed around the issue of local taxes and their deployment.194 35% of local revenues come from Electra’s taxes (Electra, Dreux 2005: 73). The local government is familiar with investor requirements to settle in Dreux and prioritizes the provision of feasible economic and environmental conditions, childcare, and infrastructure. At the same time, the city influences a diversity of companies to prevent extensive dependence on one large employer or one sector. Next to tax-based interaction, a direct relationship between the city’s authorities and companies has developed also without specific reference to taxes. Organizations like Electra do not extensively exercise their power vis-à-vis the city. The relationship is interactive, based on trust and a common interest in the good performance of Dreux companies and the city, local society and the labour market. Formalized meetings take place between the city, the Department, and the local association of employers. The association Dreux Développement is one of the city’s initiatives to intensify interaction between employers, local governments and citizens. Even beyond formal meetings, the mayor of Dreux and other city representatives maintain informal contact with company directors. In Székesfehérvár, the local authorities developed an active strategy vis-à-vis MNCs upon an advice of renowned foreign consulting companies. Since 1991, when MNCs started to settle here, the city adopted an informal rule that all procedures to acquire property and building permissions for MNCs are to be finalized within 30 days. Next, the city helped to improve housing and education opportunities for managers and their families in order to attract them to live in Székesfehérvár instead of the capital city Budapest. After the expiration of the initial period of

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However, according to an internal Electra document, good relations with the mayor and the city government were essential in the restructuring process (Electra, Brugge 2003: 79). To generalize the observed interaction, a quote from a Brugge manager is illustrative:

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property tax exemption offered to the MNCs, Electra and other MNCs significantly contribute to the city’s budget. Moreover, Electra regularly donates part of its taxes to schools, cultural organizations and the local hospital. In general, an open interactive relationship with informal contacts characterizes the interaction between Electra’s HR department and the city. Interaction facilitates joint initiatives to address local labour market problems. Once or twice a year Székesfehérvár’s mayor invites local managers to discuss the priorities and problems of the local development. Both Electra and the city realize that power-based control, competition and threats will not lead to a desired result, and therefore attempt to moderate their interests and acknowledge the goals of the other interaction partner. In result, Székesfehérvár enjoys the longterm presence of Electra; and Electra benefits from local knowledge, resources and infrastructure via the local government. Similarly to Székesfehérvár, Electra Kwidzyn assigns a high priority to direct interaction with local authorities.195 Supporting the local social infrastructure is part of the subsidiary’s strategy vis-à-vis local actors (Electra, Kwidzyn 2004). Results from a regular survey on Electra’s local image, together with statements from Kwidzyn’s municipality, confirm the subsidiary’s good reputation. In order to achieve the current situation, both the MNC and local authorities invested considerable resources in developing their mutual interaction. Since the early 1990s, Electra’s successful stay in Kwidzyn has been due to the strategic priorities of the local government. In 1999, the mayor negotiated a special economic status for Electra with the Polish government. Instead of paying the full amount of taxes to the national budget, Electra now invests in the local society, education and infrastructure.196 Common interest in local development further facilitated informal relations between Electra’s leaders and the city’s authorities. According to a Kwidzyn official, Electra and other firms organize a number of events. It is difficult to say whether it is the initiative of the firms or of the city. The cooperation is that close, we no longer talk about what is to be done, but we do it. It is a joint initiative. The beginning was difficult, with very long negotiations, but later they were shorter because the companies realized the city is open to cooperation and has the same values.197

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110 One Company, Diverse Workplaces

In sum, social interaction between Electra and the local government in Kwidzyn is best characterized as a functioning interactive bargaining, in which both parties agree to invest some resources and effort to

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The impact of foreign firms is very positive. Thanks to them Kwidzyn is a completely different city. And thanks to this, more investors are eager to come here. ... One investor told me that Kwidzyn was the first city in which he was asked what the company needs to open a factory here. In other cities he was asked what can the company give to the city for opening a factory there.198

Citizens, media and other local actors In Brugge, Electra is not as active in interaction with citizens and other local actors as the other subsidiaries. The reason is strict cost management after the restructuring, including significantly less sponsorship activities than in the past.199 A few activities did survive the restructuring, i.e., the subsidiary’s open day, organized visits for retired citizens, and support of the local Bedrijvencentrum – an organization helping newly established companies. Local sponsoring is currently limited to a few initiatives: Electra sponsored several employee-organized bowling and squash events and in 2003 the reconstruction of Poème Electronique, an experimental musical composition, in Brugge’s Music Hall. On the occasion of Brugge being the cultural capital of Europe in 2002, Electra lent large flat-screen TVs for public use in cultural events.200 Other contacts, i.e., interaction with the multi-sector employers’ association Agoria for the technology industry, are coordinated by Electra’s Belgian NO and the direct involvement of the Brugge subsidiary is marginal. The media coverage of Electra Brugge peaked during the time of the 1996–1997 restructuring. Since then, occasional articles concentrate on presenting developments in Electra’s products, their technological advancement, innovations and outdated production. Media coverage of social or employment-related issues is virtually non-existent. Belgian trade unions did not initiate a press coverage of Electra-related social affairs, claiming that recent production stoppages did not lead to a decrease in jobs.201 In Dreux, Electra’s media coverage has recently reached much higher levels than in Brugge. The main reason is the 2002–2003 restructuring and trade union initiated articles discussing pay negotiations, employment flexibility and strikes. The local media coverage has largely occurred upon trade union initiatives. Electra’s management selectively encourages media involvement, i.e., in its annual meeting with active

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an expected outcome that benefits everyone. According to the KLMB director,

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and retired employees, and selected events such as launching new products, obtaining a medal for business excellence, the occasion of the onemillionth flat TV produced, or the departure of the previous general manager and an introduction of the new one. 202 Electra is no longer involved in extensive local sponsorship. Before 2002, local schools received donated computers. In late 2005, Electra lent TV sets on several occasions and to various local actors including city hall events, local exhibitions, the Saint Denis fair, or for the needs of the local hospital. Electra also sponsored several sports activities for its employees, which indirectly supported the growth of local sport clubs. According to Dreux’s municipality, Electra’s sponsoring is not extensive, nor is it extensively visible to the public. 203 In an attempt to demonstrate the MNC’s interest in local concerns, once in every three years Electra surveys local residential areas on noise annoyance caused by higher volumes of traffic around the subsidiary. In Hungary and Poland, Electra’s activities for the local society have been expanding hand in hand with the growth of the subsidiaries in the past decade. In both cases, Electra supports a number of activities for the local society. In Székesfehérvár Electra initiates a number of sponsorship activities. A part of local taxes was donated to support childcare facilities, schools and the local college, and to renovate the city’s theatre. The company has also been regularly donating products to schools and supports the children’s department of the local hospital. In cooperation with a catering company, Electra organizes a Christmas dinner for inhabitants of the local crisis centre. The subsidiary management is concerned with Electra’s local image and has conducted a society perception survey in cooperation with a local college. Based on the results, managers decided to further increase local sponsorship, charity donations, internships and start-up jobs for recent graduates. Local authorities appreciate Electra’s support for the city although they claim it is not always straightforwardly visible what MNCs do.204 Local authorities argue that MNCs could do even more, i.e., sponsor the local soccer club, or support the renovation of the main street. The problem is that better integration of MNC managers in the local social life is difficult, because many of them live outside of Székesfehérvár. Finally, Electra ascribes high relevance to its appearance in the local press. Although its local media coverage is rather extensive, the press appearance is largely shaped by the subsidiary’s trade union. The regional newspaper Fejér Megyei Hírlap regularly writes about developments in Electra, including headcount changes, changes in production quantities, or management changes. Many articles refer to union-initiated court cases and

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tensions in the subsidiary’s industrial relations. The public relations manager in the subsidiary attempted to balance the media appearance of union-initiated and Electra-initiated coverage. However, a new recent practice within Electra in Hungary is the subsidiaries’ obligation to coordinate all press appearances with the Budapest headquarters. The Székesfehérvár managers criticize this practice for hindering a timely and effective reaction of the Székesfehérvár subsidiary to union-initiated topics in local print media.205 In Kwidzyn, Electra contributes to a better education system by subsidizing English classes in primary schools, and financially supporting and donating TVs and computers to schools, pre-schools, the hospital, the orphanage, the social welfare centre, the home for problematic youth, and schools for handicapped children. The company’s annual summer festivity has gradually evolved into a large open-air social event where all local citizens are invited to enjoy cultural and sports activities sponsored by Electra. Electra also sponsored the renovation of the Kwidzyn castle’s basement, and the illumination of the historic cathedral and the castle. Electra does not conduct surveys on citizen complaints concerning noise and pollution, because the subsidiary is located outside of local residential areas. On Electra’s request, a local secondary school conducted a survey on the company’s local image. Between 1996 and 1999, Electra received the award Sponsor of the year. The municipality in Kwidzyn maintains that Electra’s activities for the local society are visible and appreciated even if the sponsorship activities of Electra’s local competitor, the American MNC International Paper, are more extensive. The peaceful coexistence of Electra and the city accounts for limited media coverage. In 2003, the only appearance in the local paper was a special issue titled We work together – we celebrate together on Electra’s and other companies’ summer festivities and information concerning the development of production in Kwidzyn-based companies.206 Negative publicity appeared only in 1% of Electra’s overall media coverage in Poland (Electra, Kwidzyn 2004). Electra cooperates with media on a local basis, because this is more effective than centralized public relations through the Polish Electra headquarters.

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Committed to being local? What does the above evidence imply for our understanding of broader processes of Electra’s embedding in the particular local conditions and local societies? What kind of social interaction between Electra and local actors fuels this embedding? Evidence discussed thus far documents

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114 One Company, Diverse Workplaces

Table 4.2 Electra’s embedding in the local societies and social interaction with local actors Brugge

Dreux

Székesfehérvár

Kwidzyn

Labour market impact

Moderate

High

High

High

Impact on local society; local awareness of Electra’s involvement

Low to moderate

Moderate

High

High

Extent of involvement and voluntary commitment to local society’s development

Low and further declining (cost constraint)

Moderate (cost constraint)

High

High

Interaction form with the local society

Interactive bargaining

Value-based cooperation; interactive bargaining

Value-based cooperation; interactive bargaining

Value-based cooperation; interactive bargaining

Social support and sponsoring

Limited

Limited

High

High

Resource dependence; exchange of Electra’s and local resources

Limited

Moderate to high

High

High

Power-based threats to the local society, using economic, structural or organizational power resources

No

No

No

No

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that the most important dimensions of Electra’s embedding include the development of subsidiaries’ local labour market presence, direct and indirect impact on the local society’s development, focused and unfocused social interaction with local actors, and voluntary commitment to offer sponsoring and support to the local society.207 A comparison of Electra’s embedding in the studied local societies yields both similarities and differences across these dimensions (see Table 4.2).

Source: Author’s analysis.

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Consistent with the MNC’s corporate interests, behaviour towards the local society is not coordinated with headquarters, sister subsidiaries, or other locally based employers in any host country. Despite lacking intra-organizational coordination, Electra has developed a significant local presence and interactive bargaining with the local society (see Table 4.2). In particular, each subsidiary has a significant impact on the local labour market although its importance varies between Brugge and the other subsidiaries. In the other dimensions of Electra’s embedding the findings clearly indicate variation between Western European and CEE subsidiaries. An extensive resource dependence fuelling Electra’s embedding is evident and appreciated by the local society in Hungary and Poland, whereas a process of gradual disembedding characterizes the Western subsidiaries, particularly Brugge. Related to that, interaction between Electra and the local society in CEE evolves in the form of interactive bargaining, with some evidence of value sharing and thus value-based cooperation. In Western Europe the extent of shared values between Electra and local actors is not as extensive anymore in maintaining and shaping Electra’s commitment to voluntary involvement in the local society’s development. Although Electra attempts to sustain at least some activities for the local society and fosters an interactive relationship with local authorities, I argue that the observed tension between this effort on the one hand and increasing cost constraints on the other hand accounts for the process of incremental disembedding. To elaborate this argument further, I recall the impact of MNC’s corporate interests as well as external institutional constraints originating in the local societies on MNC behaviour. This is relevant for our understanding the broader state and process of Electra’s local embedding. First, the growing cost constraint on Electra’s behaviour towards the local society as a potential explanatory factor is relevant in the Western subsidiaries. However, it cannot be argued that the cost factor induced by corporate economic interests drives Electra’s overall embedding, because a similar pattern of disembedding is not observed in CEE subsidiaries. Relative to the interests of particular subsidiaries and the enabling character of particular local conditions, in the past each subsidiary has been involved in some kind of interactive bargaining, with the purpose of a mutually beneficial exchange of resources between Electra and the local society. Therefore, corporate interests and values, especially local responsiveness and consequently the lack of direct headquarter control over subsidiary behaviour, allow the subsidiaries to construct their local behaviour and social interaction with the local society actors according to locally available constraints and opportunities. Second, local

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isomorphism, or host-country originated institutional constraints on Electra’s behaviour towards the local society, including formal legal regulation and the influence of trade unions, are not significant. Electra’s interaction with the locals is to a large extent an outcome of the MNC’s and local actors’ interests. This applies both to Western Europe and CEE. The complementary way through which local constraints influence Electra’s local embedding is the moderate competitive pressure in Kwidzyn, created by an extensive commitment of other large investors to develop their local corporate presence. However, it is unclear whether Electra would be less concerned with its local embedding if these pressures were absent. In fact, they are absent in Székesfehérvár; but Electra’s embedding in the Hungarian context is nonetheless extensive and reinforced by interactive bargaining and value-based cooperation with actors representing the local society. Both of these arguments support the book’s main argument that MNC behaviour in embedding and constructing employment practices across varying local conditions are socially constructed.

Conclusions In order to place the book’s perspective on MNC embedding and constructing subsidiary employment practices in a broader empirical context, this chapter has explored and analysed Electra’s presence in local societies and social interaction with local labour market actors, local governmental authorities, and non-governmental actors. MNC embedding in local societies happens predominantly through interactive bargaining, and is in some cases supported by value-based cooperation between Electra and local actors. I have argued that MNC interaction with the local society is neither driven by corporate interests nor by an institutional ‘pull’ from the host countries. Instead, embedding through interactive bargaining and value-based cooperation is an interactive exchange relationship involving costs, benefits and trade-offs to both the MNC and for local actors. Despite observed similarities in interaction forms, the broader embedding process differs between the Western European and CEE subsidiaries. In the latter, one can observe a greater MNC commitment to building a local corporate presence and to contribute to the local society’s development than in the former. Above, I have already addressed the impact of Electra’s corporate economic interest on the company’s local embedding. What still remains to be discussed is how Electra’s embedding process, the current state of its local presence, and the form of interaction with local actors feeds

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back to the MNC’s rational profit interests. In the long run, the MNC does expect positive effects on its profitability. At the same time, a voluntary decision to invest in the local society’s development without a short-run profit maximization implies that our understanding of rationality in MNC behaviour cannot be stripped of the social context in which behaviour happens. Electra’s behaviour shows an intention to contribute to the functioning of the local society, to gain local knowledge, and to benefit from it. According to a rational logic, a cost-driven MNC that aims at diffusing corporate best practices would not invest as much in its local corporate presence and interaction with the local society outside of local labour markets. Therefore, I argue that Electra’s embedding in the local society, channelled by social interaction with local actors, documents a contextualized rational behaviour that in the long run may lead to a rewarding relationship, benefiting both the MNC and the locals. Finally, what does Electra’s broader embedding in the local societies imply for the construction of subsidiary employment practices? This effect cannot yet be directly evaluated from the presented analysis. Drawing together the findings of the previous two chapters, I conclude that Electra’s corporate interests, interaction between headquarters and subsidiaries, and between subsidiaries and local societies, document a coherent pattern of organizational behaviour by creating feasible preconditions for the MNC to adapt to local employment standards in the host countries. In the next chapter I turn to investigating social interaction between Electra and those sets of local actors that are directly responsible for constructing subsidiary employment practices and thus their cross-subsidiary and cross-country diversity.

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From Bargaining to Dancing: Social Interaction between the Multinational, Local Workers and Trade Unions

The influence of social interaction between the MNC and local actors in constructing employment practices is most obvious in the MNC’s interaction with three groups of local actors: the subsidiary workforce, local trade unions and subsidiary works councils. These actors in diverse host countries may have different work habits, needs and interests, and may be influenced differently by external social, institutional and cultural conditions. The MNC’s encounters with these actors shape their trust and reinforce particular social interaction forms in given local conditions. Interaction concerning the construction of subsidiary employment practices may range from competition between the involved actors to meet each actor’s interests, to cooperation built on shared values and interests. It is thus justified to ask the following question: How, then, does Electra interact with subsidiary employees, trade unions and works councils across diverse host countries, and what effects does interaction have on the construction of employment practices in each subsidiary? To answer the above question, this chapter explores the diversity of interaction forms between Electra and employees, trade unions and works councils; and the effects of interaction on constructing employment practices in each subsidiary. Social interaction between Electra’s subsidiary management and production workers (channel γ1) evolves particularly around soft employment practices, whereas the influence of trade unions and works councils on these practices is limited.208 Management–union interaction (channel γ2) centres on employment

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flexibility, on which the employees have very limited direct impact. A parallel coexistence of these two interaction channels thus enables their separate analysis. I show that despite the MNC being willing to involve local actors in the construction process the interaction does not aim at straightforward convergence in employment practices. The extent to which diversity is an outcome of joint agreements with local actors derives from a particular social interaction form in the construction process. The involvement of subsidiary workforce, trade unions and works councils in the construction process draws on several resources. First, unions’ and/or works councils’ involvement is legally enforced. Second, unions’ interests and organizational capacity to influence MNC behaviour shape their involvement in constructing employment practices. Finally, Electra’s corporate values and interest determine the extent and character of interaction between the MNC and local actors and their influence on employment practices. A brief discussion of the management–workforce interaction is followed by a more extensive analysis of Electra’s interaction with institutional employee representatives, predominantly trade unions. The reason for greater focus on management–union interaction is that this channel is particularly important for constructing employment flexibility practices, which are the core component of the overall basket of employment practices. Moreover, the analysis of management–union interaction allows accounting for interesting differences in Electra’s flexibility practices across the subsidiaries already shown in Chapter 2. Three interaction dimensions are included in my analysis: the legal obligation to negotiate with unions/works councils, the MNC’s economic interest in interaction due to expected economic benefits, and the social dimension of interaction. The latter incorporates managers’ and unionists’ experiences, ongoing relations, and personal feelings that might fuel interaction to a larger or smaller extent than indicated by actors’ economic interests and legal obligation. The argument points at the central importance of micro-level social processes for employment practices even in highly regulated domains, including employment issues. As documented from the Belgian and Polish subsidiaries, social interaction in the form of value-based cooperation and interactive bargaining on topics of mutual interest leads to a higher degree of trade union involvement, often on an informal basis, and to a greater tendency to offer better employment practices than legally stipulated in each host country. In contrast, involvement of trade unions in the construction process is minimized to legally required minima and is seen as an obstacle in the French

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From Bargaining to Dancing

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and Hungarian subsidiaries where management–union interaction is conflict-driven and does not embrace trust and commitment to joint informal agreements. The chapter’s first part is devoted to social interaction between management and the workforce in Electra’s subsidiaries. The second part focuses on management–union interaction, starting with a general discussion on Electra’s accommodation in national industrial relations systems in the host countries. Next, I take a closer look at subsidiary industrial relations, and closely examine the involvement of unions and works councils in constructing employment practices. In the broad sense, attention is paid to the management–union relations that developed after the subsidiaries’ restructuring in the late 1990s and to the currently existing relations between involved actors. In a narrow sense, I compare how unions are involved in decision-making about concrete employment flexibility practices and how different interaction forms account for different union involvements in constructing flexibility practices. The final section evaluates whether Electra’s behaviour towards employee representatives yields a different interaction pattern in the construction process in the Western European and in the CEE subsidiaries.

Management–worker interaction in Electra subsidiaries Electra’s paternalist work system implies shared values between managers and workers, and interest in workers’ well-being and job satisfaction. I argue that Electra in its rational behaviour does not disregard the interests of workers across the host countries even if it means initial investments for the company in uncertain conditions. Uncertainty in this situation means that the MNC cannot anticipate whether the constructed practices will produce productivity improvements and higher profits. In exchange for fostering good workplace relations and providing generous fringe benefits, Electra maintains control over workers’ behaviour. On the one hand, management require high flexibility from the workers; on the other hand, each subsidiary attempts to compensate flexibility with soft practices aiming at a better working climate and worker satisfaction. Besides formalized interaction forms, e.g., regular town meetings,209 feedback on workers’ and supervisors’ performance, teamwork, and communication through subsidiary bulletins,210 it is the informal management–worker interaction that continuously contributes to the construction of soft employment practices and to balancing hard and soft practices. Informal management–worker

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interaction is fuelled by the low separation and a low communication barrier between managers and workers. Besides the general purpose of improving working conditions, in the Western subsidiaries (especially Brugge) communication shall yield higher trust, related to workers’ continuous insecurity concerning their job stability. Insecurity lives among workers and is obvious even in everyday matters. For instance, a decline in production of a certain product model or in a certain week raises rumours at the workplace that the subsidiary will be closed and relocated.211 This forces managers to regularly communicate business developments to the workers in an open and interactive way. Various communication channels serve this purpose. The daily contact between the workers and their direct supervisors is the most important dimension of informal interaction.212 As well as lower-level managers, the subsidiaries’ senior managers also take the effort to walk the production halls and foster informal contacts with workers. Workers do appreciate this practice. As one of the respondents put it, My HR manager [ ... ] said ‘nobody works for Electra, you only work for your boss’. That’s true. If you look up to your boss and you have a lot of respect for him, he has been very good to you and you have been very good to him and the communication works there, if he comes to you and says ‘I would like you to work an extra hour today’ you would be much happier to do it than if you have a very bad relationship and you have some kind of dictator walking along the production line.213 Personal communication is easier in Brugge than elsewhere due to the relatively small workforce size and the long-term tenure of many production workers, which has positive effects on informal relations and trust. The general manager knows all permanent workers by their first names and is well informed about the evolution of headcount, absenteeism, and temporary workers. On the other end of the interaction spectrum is Székesfehérvár, where, due to the large workforce size, personal contact is not as extensive and managers communicate with workers mostly at the level of teams and production lines. Still, the production manager and the relevant personnel officer regularly visit the shop floor and maintain that workers feel more at ease to approach managers in the production hall than up in managers’ offices. Managers in Brugge and Kwidzyn also share this attitude.214 In Dreux, the HR manager prefers to talk to workers in the office and not at the production line, claiming

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The relation is formal and friendly. We are not friends, it is business. But it is not so that there is a strict hierarchy ... blue-collars can speak directly to [the managers]. We encourage open communication, but it is still business wise, it is not the intention to have friends here, I think you should avoid that, because otherwise you cannot do proper [work].215 Finally, the character and relevance of informal interaction between managers and workers is documented through Electra’s responsiveness to local cultures, in particular the perception of hierarchies. Dreux maintains the hierarchy and formal communication between the worker and his/her boss, which is the common French practice. This is in contrast to the extensive informality in Brugge, where workers call their managers by their first names.216 A similar situation exists in Székesfehérvár, because it is a common practice in Hungary. In line with Polish standards, the hierarchy in Kwidzyn is maintained but people generally agree right away to call each other by their first name and communicate informally. This applies especially to managers and workers in daily contact. Although informal management–worker interaction slightly varies across the subsidiaries, workers and workplace trade unions do not object the existing interaction forms. 217 Trade unions monitor Electra’s behaviour and do not consider management–worker interaction and soft employment practices to be problematic or bearing negative effects on workers.218 Unions stress the positive effects of teamwork and task multiplicity, and the MNC’s interest in encouraging these practices. Informal management–worker interaction is a union concern only in Kwidzyn because of a suspicion that excessively informal relations between foremen and particular workers may lead to job assignment discrimination.219 Otherwise management–worker interaction in Kwidzyn frequently involves trade unions, whereas in the other subsidiaries Electra’s interaction with the workers remains strictly separated from the union-worker interaction. This is because of strong unions and their past attempts to manipulate information in Brugge and management– union conflicts in Dreux and Székesfehérvár.

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that at the production line workers should concentrate only on their work. Although important, informal social interaction does not mean close friendships between managers and workers, but aims at an interactive construction of mutually beneficial employment practices, as documented from Brugge:

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Drawing on findings from Chapter 2 on the similarities and differences in subsidiary work systems, management styles, employee participation and fringe benefits, I argue that diverse forms of management–worker interaction have helped to construct diverse employment practices. First, work organization and worker performance is achieved through interaction in the form of managerial control. To ensure that subsidiaries comply with corporate values and interests, headquarters control the selection of managers and their training. At the workplace, outright control over workers is more extensive in CEE subsidiaries because of individualized monthly performance appraisals and team performance competitions. Although informal, control is most extensive in Kwidzyn, because workers’ foremen directly conduct performance appraisals. In Székesfehérvár formal control procedures apply, but cannot be associated with concrete foremen exercising these. Second, social interaction by competition is not apparent in interaction between managers and workers, but in the management’s encouragement of competition between workers. This applies especially to Kwidzyn and Székesfehérvár. In Dreux this competition is more limited and less personalized; and in Brugge the collective identity among workers, together with the strength of trade unions to prevent individual appraisals, account for virtually non-existent worker competition. Third, management–worker cooperation based on shared values plays a central role in constructing and restoring workplace hierarchies, worker discretion, motivation practices and fringe benefits. Informal cooperation based on shared values between management and workforce on workers’ welfare is an independent and equally important form of social interaction as managerial control aiming at improving productivity. Finally, interactive bargaining best describes the construction of Electra’s participation practices, worker feedback, reverse appraisals, and regular employee surveys. In all subsidiaries workers appreciate fair treatment, information about company performance, and consultation even when real effects of worker feedback differ across subsidiaries. Through interactive bargaining, workers do have a say in subsidiary processes and their input is valued. However, it is impossible to objectively evaluate whether and how worker feedback really permeates managerial decisions, because Electra does not document the origins of decisions taken once feedback from workers has been collected. In sum, soft employment practices across Electra’s subsidiaries are constructed not only through management control over work organization, but also through value-based cooperation and interactive bargaining between subsidiary managements and workers. Recalling Electra’s

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corporate paternalism, these interaction forms are complementary. On the one hand, employment practices are constructed via the MNC’s cooperation with subsidiary workers, based on the shared belief over worker empowerment, acknowledgement of workers’ interests, and granting generous benefits. On the other hand, in exchange for good workplace relations and generous benefits, control is kept over employee performance and empowerment; and external participation in shaping soft employment practices is only tolerated when supporting MNC interests. Control and cooperation does not aim at Electra’s diffusion of best practices. I argue that Electra uses these interaction forms to develop locally responsive employment practices that benefit both the MNC and local workers through enhancing productivity and job satisfaction. This argument supports the argument of Chapter 2 that soft employment practices, and the process of their construction, reflect the interplay between the MNC’s responsiveness to local conditions, and the actual institutional, social and cultural variation across the host countries. The involvement of workers in the process of constructing employment practices differs from the case when employment practices are constructed with the involvement of trade unions and works councils. Whereas management–worker interaction develops mainly around soft practices, management–union interaction evolves predominantly around hard employment practices. Thus, management–union interaction coexists with management–workforce interaction with a certain exclusivity assigned to both interaction channels. The next sections discuss Electra’s accommodation in the host countries’ industrial relations systems and management–union interaction in constructing hard employment practices.

Electra and national industrial relations in Western and Eastern Europe Industrial relations in Electra are decentralized across the host countries and individual subsidiaries. The dominant level for management–union interaction is the workplace level even in countries with traditionally centralized bargaining. In Electra’s home country, the Netherlands, trade unions are organized predominantly as national and sectoral organizations with four large confederations dominating the union landscape.220 Electra opted out of the sectoral collective bargaining in the Netherlands and conducts company-wide negotiations. Trade unions are based outside the workplaces and union representatives offer

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their services to members on a company-wide basis, according to workers’ needs in each subsidiary. Moreover, every Electra subsidiary in the Netherlands has a works council and its representatives are members of a central company-wide works council. With its growing internationalization, Electra faced various national industrial relations systems. Already in the early 1970s Electra declared its interest to benefit from host-country conditions instead of transposing the Dutch industrial relations abroad. A union-initiated attempt to institutionalize a corporation-wide negotiation between Electra and trade unions in Europe failed after several trial negotiations in 1970s (Dronkers 1975). Hence, host-country industrial relations systems continue to set the stage for Electra’s interaction with trade unions and employers’ associations. Besides legal differences, cultural, societal and organizational factors are important enablers of Electra’s decentralized approach. The following quote by Electra’s subsidiary manager is illustrative: ... A Spanish guy is completely different than a British one, you cannot mix them into one. The way of negotiation, the way how people are working together and dealing together – this is the essence of industrial relations – are very different, you cannot find a European approach that would fit all those countries. So, you will keep your own way of working in all countries, but of course you can stimulate and create awareness about the main issues to deal with: we have to increase our competitiveness, we have to look at the productivity – labor costs ratio, such kinds of issues. How to deal with these issues in different countries is the role of the country [organization], the product division and the labor union/works council in that specific country.221 The decentralized approach to industrial relations in Electra is not limited to national differences across the host countries. Electra operates several subsidiaries in each studied host country; in this respect the national legal regulation can be seen as a uniting framework. Nevertheless, it is the subsidiary-level industrial relations that play the most important role. Being located in one host country is not a sufficient incentive for centralized interaction as each subsidiary differs in its strategy, subordination to a product division, and market challenges. In other words, an increased corporate centralization of production has produced further decentralization of industrial relations to the subsidiary level.

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Not only the MNC, but also employee representatives underline the importance of subsidiary industrial relations. In Hungary and Poland, which are countries with weak union organizations at sectoral, regional and national levels, subsidiary unions dominate the industrial relations landscape. In Electra, an increasing empowerment of subsidiary unions and a declining capacity of national and sectoral union leaders to strike deals at higher levels also applies to Belgium and France. This trend in the West relates to internal union fragmentation.222 As a consequence of developments on the side of Electra as well as national unions, the role of Electra’s NOs in the host countries as coordinators of industrial relations has been declining. Before uncovering in greater detail the social interaction between Electra and subsidiary unions, I present the general picture of Electra’s involvement in the host countries’ national industrial relations systems. The defining structural features of national industrial relations are presented in Table A.1 in the Appendix. In Belgium, Electra is covered by collective agreements and involved in collective bargaining at the national, sectoral, company-wide and subsidiary level.223 Being a consequence of the company’s long history in Belgium, interaction with trade unions at the company-wide level is a mature and fair relationship that has survived both peaceful and turbulent periods, including several reorganizations and subsidiary closures. Electra and the unions view their relationship positively and highlight the existing mutual trust: ... a restructuring in Belgium has to be announced in an official way to works councils before it becomes [ ... ] public [ ... ]. We always have a planning when to do that, so we always know beforehand of course. We inform the national secretaries [of trade unions] the evening before. That’s on a trust basis; because that would be dangerous for us if they would go to press before we had the chance to contact press. It would be a disaster for Electra, so we absolutely have to avoid that, but we never had a problem with informing [the unions] the evening before. That’s an example that we can speak to each other on a trust basis. Of course, they have to play their role, and we have to play our role.224

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In France, industrial relations differ from those in Belgium in several aspects: union membership is considerably lower, the union scene is dominated by a higher number of unions, and their relations are less cooperative than in Belgium (cf. Goyer and Hancké 2006). Union ideology, militant powers and threats are a relevant tool of the strongest

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CGT union in collective bargaining. This orientation renders trade union cooperation problematic both at the national and subsidiary levels. 225 The French NO bargains with trade unions over provisions applicable to knowledge workers and managers in France. For production workers, bargaining unfolds in each subsidiary individually. Electra does not participate in sectoral bargaining, but considers sectoral agreements a benchmark for subsidiary-level negotiations. 226 A typical feature of industrial relations in Hungary is the high trade union fragmentation. In contrast to other countries, Electra’s Hungarian NO does not act as a coordinating body for industrial relations. Electra is not covered by collective agreements beyond the subsidiary level. In 2004, subsidiary-based unions within Electra represented by a sectoral union proposed a framework collective agreement covering two Hungarian Electra factories.227 This agreement has been drafted, but not signed even after a year and a half of preparations.228 The HR managers from the concerned subsidiaries are not explicitly against this initiative, but maintain that all relevant employment practices will continue to be determined separately in each subsidiary. Trade unions share this view, because their power and membership originates predominantly from subsidiary-specific activity; but expect that such framework agreement could stabilize and lay down Electra’s, workers’ and trade unions’ rights. In Poland, bargaining commonly unfolds at the company level. In Electra, each subsidiary in Poland has its own negotiation without cross-subsidiary coordination. An attempt to create a company-wide cooperation platform was presented by Solidarność. However, this initiative has not translated to more coordination due to a lack of operative interaction between subsidiary unions and Electra’s lack of interest. Decentralization is one of the major organizational problems of Polish trade unions, because it complicates the integration of the vertical union structure and the funding of higher-level union organizations.229 Electra in Poland has a positive experience with trade unions, the main reason being the unions’ considerable business awareness that helps both parties to professionalize negotiations and to avoid conflicts.230 One could also interpret this information as trade union weakness; however, the unions themselves are satisfied with their situation, which is noticeably better than in many other Polish and foreign-owned companies where trade unions are not established. Despite the discussed differences in national industrial relations, Electra’s behaviour resembles common features across these systems. First, Electra does not attempt to disseminate central policies in industrial relations and guidelines for interaction with local trade unions, but is

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responsive to local institutions. There is no clear pattern of Electra’s NOs preferring subsidiary-level or company-wide collective bargaining; the actual state depends on local conditions and trade union interest. Second, the dominant level for management–union interaction in all countries is the subsidiary level. Thus, typical management–union relations are an outcome of consensus between the interests of Electra and unions, and not Electra’s straightforward adaptation to national industrial relations systems. In case of adaptation, the role of sectoral bargaining would be more evident in the Belgian case; and one would not observe attempts at coordinating cross-subsidiary industrial relations in Hungary or Poland upon trade union initiatives. The French situation most closely resembles Electra’s adaptation to French industrial relations. These findings lead to the conclusion that differences in existing national institutions cannot fully explain Electra’s interaction with unions and union involvement in constructing subsidiary employment practices. In consequence, a closer look at the subsidiary-level interaction between management and employee representatives is justified.

Industrial relations in Electra’s subsidiaries Trade unions are firmly established in all studied subsidiaries (see Table 5.1). Their position is primarily shaped by legal regulation. Electra conforms to the labour law and negotiates legally stipulated employment practices, such as pay and working time, with employee representatives. Interesting differences across the subsidiaries exist in management–union interaction and union/works council involvement in constructing employment practices. In Belgium, trade unions are a powerful bargaining partner due to high membership and extensive legal regulation on union roles. The core issues that Electra negotiates with subsidiary unions have not changed significantly in the past decade and include the legally stipulated working time, admission of temporary agency workers, dismissals, and workplace safety. Building on the unions’ formal and historical power and their recognition by Electra, management–union interaction in Brugge is interactive, often with agreed trade-offs. Both parties strive to achieve their goals, but welcome discussions and compromises based on shared values such as sustaining the subsidiary’s competitiveness. Managers view interaction with unions as a cooperative relationship despite admitting that agreements often result from arduous bargaining. At the same time, Electra perceives the two subsidiary unions to play their role as professional bargaining partners well.231

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Table 5.1 Employee representation in Electra subsidiaries (2004–2007)

Subsidiary

Unionization (production Union workers) members

Works council

Brugge

2 95% (ACV Metaal/ LBC-NVK, ABVV Metaal/ BBTK)

Permanent and temporary workers

Yes

Dreux

4 (CGT, CFTC, FO, CGC)

High (figures n/a)

N/a

Yes

Székesfehérvár

1 (Video/LIGA)

50%

Mostly permanent workers

Yes

Kwidzyn

1 (Solidarność)

35%

Permanent and temporary workers

No

Source: Interviews with subsidiary managers and trade union representatives.

The history of management–union interaction in Brugge has produced a mature relationship characterized by mutual trust, daily informal communication, information sharing, and a lack of open conflicts. Involved individuals exchanged their private mobile phone numbers and email addresses and agreed to contact each other at any time necessary. Both managers and unionists appreciate, but do not abuse, this possibility. The most important evidence of trust relates to the unions’ legal obligation to formally permit the admission of temporary agency workers. Often this happens informally between the responsible manager and the union representatives in corridor talks. Besides the unions, Electra Brugge has an institutionalized monthly works council platform. The works council is closely intertwined with union activity; it is a formalized platform where the management informs the unions about business indicators and subsidiary outlooks, discusses those issues for which no time was left during daily interactions, and formalizes the most important informal agreements concluded between managers and unions. Although important, the works council’s role is secondary; and trade unions are Electra’s real bargaining partners. In sum, both managers and union leaders in Brugge maintain that interactive bargaining yields the highest payoffs and is therefore the preferred interaction form. When union involvement is legally stipulated,

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Number of unions

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actors favour joint solutions even in issues where legally unions only have to be informed but not involved. As a consequence, actual union involvement in constructing employment practices exceeds legal requirements. The situation in Dreux differs considerably from Brugge. 232 The obligatory legal union involvement is less extensive than in Belgium, but more extensive than in Hungary and Poland. Besides legal resources, trade union powers derive from high membership and the capacity to use local media to create pressure on management. In consequence, interaction between Electra and unions is volatile and incorporates threats of strikes and an open union antagonism towards the MNC derived from union ideology. Dreux is the only subsidiary among those studied where the HR manager perceives that maintaining industrial peace is a central point in the subsidiary’s agenda. The level of trust between Electra and the unions is low. To avoid denials of concluded agreements or changing opinions, all agreements are formalized in a monthly works council meeting.233 With the exception of the works council, Electra has little formal or informal interaction with the unions, which gives the works council an important role in the subsidiary’s industrial relations. Nevertheless, and similar to Brugge, this role is secondary to unions, as the actors in the council and therefore Electra’s real bargaining partners in employment practices are union representatives elected by workers.234 The legally stipulated content of union involvement includes an obligation to inform unions about production forecasts, working-time flexibility, planned temporary workers, and business indicators. Only working time and collective pay require negotiation. If an agreement with unions cannot be reached, Electra constructs employment practices unilaterally. 235 In the eyes of HR managers, the crucial reason why interaction with unions is problematic is the internal ideological divide between CGT, representing around 60% of production workers, and the other three smaller unions. 236 In most cases, a concluded collective agreement is not signed by CGT and this has several times produced strikes. In sum, industrial relations in Dreux resemble a continuous battle between the management and unions, especially CGT. Due to their conflicts, the dominant interaction form is competition. Both parties assign the highest payoffs to tough strategies without easy compromising. Electra and the unions do not assign high payoffs to cooperation, as its sustainability is unlikely due to union ideology. It is likely that even if cooperation did develop, CGT would switch to a tough strategy. However, interaction also involves elements of interactive bargaining that lead to regular conclusions of

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collective agreements between Electra and smaller subsidiary unions. The management neither coordinates its subsidiary interaction with Electra’s French NO nor with other local companies. The attitude visà-vis union representatives and the existing social interaction form derives from long-term experience of individuals holding the same positions for longer than a decade. Electra Székesfehérvár was the first MNC in the region where union activity and annual collective bargaining started as early as 1991, the year of the subsidiary’s establishment. The legal stipulation of union involvement is very limited. The Video union does not have strong sectoral or regional union support, but relies on a strong membership base in the Székesfehérvár subsidiary and the power of local media.237 Despite a long experience of interaction, industrial relations in this subsidiary have always been noticeably confrontational. The actual union involvement in constructing employment practices mirrors this development. The union declares that employment practices are disappointing and the union’s main mission is to closely monitor Electra’s legal compliance. At the same time, Electra claims to appreciate cooperative industrial relations much more than frequent court cases that Video has initiated over the past decade due to differing interpretations of the labour law. Managers maintain that it is the union’s unrealistic requests in negotiations and its inability to strike in-house deals that significantly contributed to the current situation. It is generally believed that a change in the union leadership would bring an improvement in the relations, because no union elections have been held since 1991 despite the union’s statute promising elections every three years. Resulting from 15 years of hostility and antagonism, industrial relations in Székesfehérvár are best described in terms of competition and a lack of shared values, trust, and interactive bargaining. Both parties prefer a tough strategy: the union because of the personal ideological stands of its leaders; and Electra because of its lack of trust towards the union leader. The frequent court cases and negative publicity in the local media hinders the image of Electra and trade unions, because such confrontational industrial relations are not common in other locally based companies. Communication with the union is limited to formal email exchange and occasional personal talks. Most concluded agreements are documented in writing, which explicates low trust between the management and the union. Even if informal agreements were concluded, the union violated them several times.238 In consequence, the union’s actual involvement in employment provisions is moderate and mostly within the legally stipulated bargaining framework.239

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Industrial relations in Kwidzyn are an outlier among the studied factories. Legally stipulated union rights in Poland are much less extensive than in France and Belgium. A works council does not exist and is not legally stipulated. The union in Electra Kwidzyn does not have a formal power resource such as a strong sectoral organization or high membership. Nevertheless, due to Electra’s openness to bargaining and the union’s business awareness and ability to negotiate and to compromise, the union is respected and its interaction with the management is more cooperative than in other locally based companies and other Polish Electra subsidiaries.240 The main difference between Electra and other locally established companies is that in Electra Kwidzyn the management and the union gradually developed their relationship without external influences. Their cooperative relations are a result of social interaction and continuous learning since the union’s establishment in 1997. In the beginning, the interaction experienced initial power trials, but the interest of both parties to maintain the subsidiary’s success and employment in the region has led both parties to assign the highest payoffs to sustainable cooperation even if involving compromises. Interaction has stabilized in the form of mostly informal interactive bargaining without industrial conflicts. 241 The parties are committed to discussions and conform to joint agreements, the majority of which lack written formalization in a collective agreement with effective sanction mechanisms. Such behaviour also indicates a high level of trust and avoidance of militant action against each other. The union never used local media to publicize internal matters like in Dreux or in Székesfehérvár. The existing situation is a result of an evolution drawing on shared values to increase worker welfare despite high employment flexibility, and the personalities of involved managers and the union leader. As well as informal meetings and monthly negotiations, pay and working time are bargained annually. Solidarność is also involved in a number of operational decisions.242 In most of these issues, union involvement is not legally stipulated. The non-existence of union–management antagonism is obvious also in leisure events. The union leader is often part of company festivities and award ceremonies that are then reported in the subsidiary bulletin. In the 2004 company festivity, the (female) union leader spontaneously danced with the subsidiary’s Dutch general manager with mugs of beer in their hands. Other participants stopped dancing and were clapping their hands. Such practice would be unheard of in Brugge, Dreux or Székesfehérvár. Although Brugge has a positive relationship with unions, the managers and the unionists keep their relationship limited predominantly to professional contact and

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established power relations. In sum, Electra Kwidzyn favours positive workplace interaction with Solidarność and treats union proposals as a useful input for the construction of employment practices even in issues in which union involvement is not legally stipulated. Due to the lack of legal regulation and supporting sectoral union structure, the union is more exposed to the fact that cooperation largely depends on Electra’s interest. To conclude, in all subsidiaries the labour law is the resource for involving trade unions and works councils in employment practices. The legal obligation to interact with unions facilitates a diversity of union–management interaction forms, ranging from hostile competition to bargaining and value-based cooperation. Interaction between Electra and employee representatives evolves predominantly between management and trade unions; the role of works councils in constructing employment practices is limited. In none of the subsidiaries did Electra managers see the existing state of union involvement an obstacle to address the MNC’s interests. Assuming that benchmarks for reaching the desired performance and thus profitability have to be maintained, the MNC does welcome union involvement. This is in line with its corporate value of local responsiveness. The actual differences in interaction forms are contingent upon union strategies, power relations and attitudes of the concerned managers and unionists. Therefore, I argue that the social dimension of interaction plays an important role in shaping the actual form of interaction, and consequently union involvement in constructing employment practices.

Negotiating employment flexibility practices with subsidiary trade unions As discussed in Chapter 2, each subsidiary prioritizes employment flexibility. Legal frameworks across host countries offer various possibilities to involve unions in constructing employment flexibility.243 Nevertheless, even if the law in different countries permits a similar use of flexibility practices across the countries, the actual union involvement may differ due to particular MNC–union constellations in local conditions. Thus, understanding union involvement in constructing flexibility practices is the essential part of understanding MNC embedding. Employment flexibility became central in Electra Brugge after the subsidiary’s 1997 restructuring. Trade unions obviously did not welcome the new trend, but realized the growing pressures on the subsidiary’s competitiveness. The subsidiary management gives the ultimate face to

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the desired flexibility practices, which are, however, regularly consulted with trade unions. Union involvement is a consequence of extensive legal regulation in Belgium stipulating union roles in working time and temporary worker admission, and of management–union social interaction. Electra invested in an interactive relationship with unions even in issues in which management could have legally and economically proceeded without union involvement. As a result, Electra can prioritize employment flexibility with less difficulty than in the past. The debates with unions no longer focus on whether temporary agency workers would at all be permitted into the subsidiary. Rather, unions are involved in coordinating the number of agency workers hired. Next to the admission of temporary workers and the type of their employment contracts, other flexibility practices constructed with unions include the annual working-time calendar, working-time planning, night-shift regulation, overtime compensation, and occasional changes in work organization upon workers’ requests. Evidence of union involvement beyond legal requirements is obvious in several cases. First, upon an agreement, an implemented working-time shift model is in place for at least three months. Second, Electra and the unions agreed to exceed the legally stipulated 36-hour working week and work 40 weekly hours. Next, instead of unions formally approving the admission of temporary agency workers, their approval often happens informally in corridor talks.244 Finally, the parties agreed the minimal length of a temporary agency worker’s contract to be one week. The management also accepted several union proposals, such as the frequency of shift changes and the period of the change’s announcement, a temporary night-work proposal, and suggestions to improve workers’ parking spaces on the company premises and dressing-rooms for agency workers. Through such arrangements the parties avoid recurring bargaining over these issues. Electra and the unions are relatively satisfied with the current state of affairs and, given the economic pressures, they understand the priority of employment flexibility for job sustainability in Brugge. Dreux also prioritizes employment flexibility and union involvement covers working time and temporary worker issues. Working-time annualization is an important flexibility issue both for Electra and the unions. Following the law, Electra negotiates the annual working-time calendar with the unions. Nevertheless, the calendar is implemented without union approval. Electra is only obliged to inform the unions without having to negotiate or obtain a union approval. Unions are involved in operational calendar revisions, Saturday work planning, and its announcement. In constructing external flexibility, unions are

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informed about the number of incoming temporary agency workers, but do not have to approve their admission like in Belgium. The standard practice in Dreux is that the unions are informed about temporary agency workers in the monthly works council meeting, but the management does not negotiate the employment contracts of these workers with trade unions.245 Electra also informs the unions about operational issues, such as a temporary introduction of a night shift. All in all, trade union involvement in constructing flexibility practices in Dreux only marginally exceeds legal stipulations. It is likely that if workplace industrial relations were more cooperative, Electra would not pre-empt greater union involvement in the construction process. Issues where union involvement exceeds legal stipulations exist but are marginal: unions signal to the management cases of workers’ dissatisfaction with work organization. Managers appreciate union feedback, but do not consult the unions when uncovering reasons of dissatisfaction and finding solutions. A typical issue of extra-legal union involvement, and at the same time a source of management–union conflict, is the planning of the subsidiary’s collective summer break. In past years, trade unions organized a strike when disagreeing with the holiday’s timing. Using threats and militant action, unions were finally able to penetrate holiday negotiations and thus the construction of this practice. To avoid the recurrence of such a situation, Electra now regularly obtains union approval on summer breaks. To sum up, as a consequence of ongoing conflicts, union involvement in constructing employment flexibility in Dreux only marginally exceeds legally prescribed procedures. In cases where management–union interaction does exceed legal stipulations, the actual union involvement has been achieved through militant action instead of voluntary cooperation. Employment flexibility is crucial in Electra Székesfehérvár, but trade union involvement therein is limited. The Hungarian Labour Code does not stipulate extensive consultations with unions in functional and external employment flexibility. The conflicting relation between managers and the Video union did not facilitate an extensive extra-legal union involvement either. In fact, the Székesfehérvár situation shares many similarities with Dreux. Union involvement is legally stipulated in working-time issues: employers can legally opt for a working-time annualization over a period of eight weeks or longer if stipulated in a collective agreement. Electra’s collective agreement stipulates an annual working-time calendar, but the eight-week frame, in which working days can be operationally swapped with free days according to production needs, is much more important than the calendar. Electra would prefer

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From Bargaining to Dancing

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a working-time annualization for a longer period than eight weeks, but the trade union repeatedly declined this proposal. The union is also involved in constructing other aspects of working-time flexibility: upon the management’s proposal the union has agreed to introduce a fourshift model over seven days a week, but requested that a night shift is followed by an afternoon shift instead of a morning shift. As on several occasions before, the Video union turned to the court before subsidiarylevel negotiations terminated and lost this court case. The union’s role in recruitment practices is marginal.246 Although desiring higher employment security, the union does not prioritize the interests of temporary workers. As an outcome, locally unique flexibility practices, mainly worker exchange with the ice-cream manufacturer and the presence of temporary agency workers, are constructed unilaterally through Electra. Despite generally hostile relations between managers and union leaders in Székesfehérvár, there is some evidence of extra-legal union involvement: the parties concluded an agreement to announce overtime hours at least three days ahead of the planned overtime; and jointly agreed to grant the workers shift bonuses above the legally stipulated bonuses. These provisions are part of the subsidiary’s collective agreement that is the only existing formal agreement. The fact that Electra and the union were indeed able to agree on these extra-legal provisions suggests that interactive bargaining with cooperative strategies of both parties is not as unlikely as in Dreux where trade unions always assign higher payoffs to militant action. In Székesfehérvár, Electra and the Video union also assign relatively high payoffs to eventual cooperation. For Electra, the main condition for more extensive cooperation is democratic union elections and the reestablishment of the union’s role of representing workers instead of union leaders’ interests. Finally, employment flexibility is also central in Kwidzyn. The legally stipulated union involvement therein is very limited, but in reality Solidarność has a quite extensive say in the construction process. The union understands the importance of flexibility and claims its involvement helps workers to cope with their workload and variable working time. Thus, it is an important part of trade union activity even though the union lacks the capacity to increase workers’ employment security. The union’s weakness relates to workers’ fears of losing their jobs in an unemployment-stricken region. Legally, working time is the only flexibility issue to be negotiated with unions. In reality, Kwidzyn’s working-time calendar is negotiated annually and changes are introduced only upon union approval. Although not legally stipulated, quarterly renegotiations and informal talks about

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operational working-time changes also occur. The union enjoys an informally established veto right to oppose sudden working-time changes. Electra’s managers respect this right even if the union does not always approve management proposed changes. Union involvement in other flexibility issues is not legally stipulated; nevertheless, the actual involvement goes far beyond the legal requirements. Both parties realize the drawback of flexibility for the workers and their families. This is a shared value between organizations and individuals with otherwise different interests. To compensate for negative effects, Electra with the union jointly constructed a set of practices that lack written formalization. First, the number of consecutive nightshifts cannot exceed five. Second, in order to cope with temporary over employment in 2003, all full-time contracts of then employed production workers temporarily changed to three-quarters time contracts. This decision meant a decrease in workers’ working time and pay, but at the same time avoided dismissals. Finally, without any obligations on the side of Electra or Solidarność, Electra’s HR manager with the union leader jointly proposed improvements in working conditions and compiled a list of social criteria used in the process of recruiting temporary workers.247 Such practices are uncommon in other companies in Poland. Why did Electra and Solidarność construct such practices? An explanation derives, on the one hand, from the institutional decentralization of industrial relations and Electra’s paternalistic attitude vis-à-vis workers; on the other, from personal interests of the HR manager and the union leader to improve productivity and worker welfare. In sum, Electra’s voluntary commitment to cooperate with the union, together with the union’s capacity to engage in constructing flexibility practices via informal interactive bargaining, has produced a greater union involvement in constructing employment practices than the Polish legal framework, the state of industrial relations and economic incentives predict. Particular economic reasons for involving the union in flexibility issues are not obvious, because Electra could implement the relevant practices unilaterally, too. A comparative overview of management–union interaction in constructing subsidiary employment flexibility uncovers two patterns (see Table 5.2). First, the Western subsidiaries Brugge and Dreux fall into stricter legal regulation of union involvement in constructing employment practices. However, it is not Brugge and Dreux where the actual union involvement is highest. The highest union involvement has been observed in Brugge and Kwidzyn – subsidiaries where management–union cooperation and interactive bargaining facilitated union

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From Bargaining to Dancing

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138 One Company, Diverse Workplaces Table 5.2 Trade union involvement in constructing employment flexibility practices Evidence of trade union involvement Social (extra-legal) Evaluation

Brugge

Extensive Extensive; Trust, informal agreements, cooperative management– union interaction

Interactive bargaining and valuebased cooperation; detailed legal obligations; union capacity to engage in extra-legal matters; willingness of Electra to cooperate with unions

Dreux

Relatively Limited; extensive Low trust to conclude informal agreements, unions’ militant action

Marginally above legal requirements due to conflictful industrial relations; unions’ capacity to engage in extra-legal flexibility provisions based on militant action

Székesfehérvár

Limited

Limited; Low trust to conclude informal agreements, cooperation instead of union militancy

Conflictful industrial relations – union involvement within legal requirements; limited informal extra-legal agreements. Electra generally interested in cooperation but with a representative union

Kwidzyn

Limited

Extensive; Trust and informal agreements, cooperative management–union interaction

Union power not legally granted but Electra’s informal recognition; involvement is a result of extra-legal interaction; Electra’s interest and the union’s informal capacity to shape employment practices

Source: Author’s analysis.

involvement in the construction process beyond statutory requirements. In contrast, industrial relations in Dreux and Székesfehérvár are more hostile and less cooperative, resulting in a union involvement only marginally exceeding legal requirements. With the exception of legal differences across Western and Eastern subsidiaries, several legal stipulations on flexibility and possible union involvement therein are comparable across all subsidiaries. These refer mainly to working-time and shift organization, available working-time annualization, and the option of hiring temporary and agency workers. In all host countries the law is a key resource for social interaction

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Subsidiary Legal

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between the MNC and local employee representatives and a framework for involving trade unions in the construction of flexibility practices. The law allows the implementation of the same practices in Electra subsidiaries, but evidence shows diversity in subsidiary practices. If legally stipulated interaction between the MNC and employee representatives were central in determining the extent of union involvement in constructing employment practices, one would observe a regional pattern of interaction and a more extensive MNC adaptation to local standards. Due to a more extensive legally stipulated union involvement, trade unions would be more extensively involved in the construction of employment practices in Western Europe than in CEE. However, empirical evidence does not support such East–West divide. Instead, differences in the extent of union involvement exist, on the one hand, between subsidiaries with cooperative industrial relations, informal cooperation and high level of trust; and on the other hand, subsidiaries with competitive and hostile interaction, conflicts, and low trust (see Figure 5.1).

Analysis of social interaction between Electra and subsidiary employee representatives To support the above descriptive findings, this section provides a simple game-theoretic analysis of payoffs that Electra and trade unions assign to possible options in their subsidiary-level social interaction. Recalling the analytical framework and Figure 1.2 from Chapter 1, management– union interaction (channel γ2) resembles an interaction relationship

WE Brugge

Dreux

High legally stipulated union involvement

CEE Kwidzyn

Székesfehérvár

High union involvement; interactive bargaining and value-based cooperation Low union involvement; hostile industrial relations; competition

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From Bargaining to Dancing

Low legally stipulated union involvement

Figure 5.1 Trade union involvement in constructing employment practices across Electra subsidiaries

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between independent actors, each of which has an opt-out or defeating possibility. This enables a structured analysis of social interaction with assigned payoffs to each involved actor.248 In Brugge, payoffs for Electra and trade unions are strongly influenced by extensive legal regulation and legal and a strong sectoral and regional union organization. Both Electra and the unions prefer cooperation in their interaction and assign the highest payoffs (3) thereto (Figure 5.2). For Electra, cooperation secures industrial peace and allows them to benefit from local labour market specificities in Brugge via competent union expertise. For unions, cooperation is beneficial because their involvement in constructing employment practices extends beyond legal stipulations. Because of the willingness of both parties to cooperate, interactive bargaining has evolved instead of conflicts in subsidiary industrial relations. Legal regulation, together with extensive informal interaction, account for the fact that trade unions play a central role in constructing employment flexibility practices. A precondition for the current equilibrium’s sustainability is twofold: both parties treat the law as a resource for their interaction; and are committed to maintaining current power relations in exposure to international pressures and local opportunities. As well as cooperation, evidence from Brugge suggests yet another sustainable equilibrium. The parties may also opt for competition and tough strategies (bottom right-hand box in Figure 5.2). In fact, they do assign relatively high payoffs (2) to this possibility, because extensive legal regulation allows that unions switch to a tough strategy. In that case Electra also prefers a tough strategy. The other two strategies (cooperative MNC and tough unions, bottom left-hand box; and a tough MNC vs. cooperative unions, top right-hand box in Figure 5.2) are unlikely due to the strength of Electra and the Belgian legal regulation. In sum,

Electra Brugge COOP TOUGH COOP

1

3 0

3

Unions

0 TOUGH

1

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2 2

Figure 5.2 Social interaction: Electra Brugge

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the existing interaction form in Brugge results from the parties’ interests in the construction of employment practices via interactive bargaining. This is sustainable unless the unions [Electra] decide to change their strategy from cooperative to tough. In such case, it is best for Electra [unions] to do the same. In Dreux, trade union capacity for militant action compensates for legally granted union rights. Drawing on ideological divides and union– management conflicts, both Electra and unions opt for a tough strategy that yields the highest payoffs (Figure 5.3, bottom right-hand box, payoff 3). The existing tough–tough game involves competitive and antagonistic relations, limited informal interaction and a low level of trust between managers and unions. Consequently, union involvement in constructing employment practices remains within the boundaries of legal stipulations. The parties assign low payoffs to cooperation (top left-hand box in Figure 5.3, payoff 1 for both parties). Due to persistent union militancy and lack of cooperation between the CGT and other unions, none of the parties is convinced that cooperation is sustainable under the existing conditions. Electra declares its willingness to cooperate if more eagerness for cooperation were to be observed on the side of unions, especially CGT. In this case, actors’ preferred strategies could shift towards cooperation, with a similar fallback option of tough strategies as in Brugge.249 This scenario is, however, unlikely: even if Electra were to opt for cooperation (top left-hand and bottom left-hand boxes in Figure 5.3), cooperation would be unsustainable because the trade unions, especially CGT, would always choose to play tough against the MNC (bottom left-hand and bottom right-hand boxes in Figure 5.3, union payoffs 2 and 3). In sum, competition is the dominant and sustainable interaction form in Dreux.

Electra Dreux COOP TOUGH COOP Unions TOUGH

1 1

2 0 3

0 2

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From Bargaining to Dancing

3

Figure 5.3 Social interaction: Electra Dreux

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In Székesfehérvár, interaction is influenced by a tight labour market, limited legal regulation on union powers, and union fragmentation. Building on 15 years of conflicts between the management and the union, the subsidiary’s interaction is best described as a tough–tough interaction game (Figure 5.4, bottom right-hand box, payoff 3 for both parties). The union, although lacking a strong legal backup and a sectoral or regional supporting organization, relies on threats and initiation of court cases. In general, such cases did not have concrete negative effects on the subsidiary’s life, but management learned to respond in a tough manner (bottom right-hand box in Figure 5.4). Even if the union would decide to cooperate, lack of trust in management–union interaction suggests that Electra would still remain tough (top right-hand box in Figure 5.4; Electra’s payoff 2 for tough is higher than payoff 1 for cooperation in the top left-hand box). A tough strategy is not always a straightforward choice of the union, as the bottom left-hand and bottom righthand boxes in Figure 5.4 show. Both parties do see some benefits of cooperation (top left-hand box in Figure 5.4). For Electra, cooperation yields a smaller payoff (1), resulting from previous experience with the Video union. At the same time, Video assigns high payoffs to cooperation (2), but under conditions unacceptable for Electra. To improve the existing situation, the parties would have to develop trust and learn to cooperate. The union should switch to a cooperative strategy, and Electra should assign a higher payoff to cooperation. Although interaction in Electra Székesfehérvár resembles the Dreux situation, an important difference between the two subsidiaries is that cooperation is more likely in Székesfehérvár than in Dreux. In Dreux the ideological roots of union antagonism that hinder cooperation with Electra are deeper and more extensive. In Székesfehérvár they derive from authoritarian union leadership. Thus, unions in Hungary

Electra Székesfehérvár COOP TOUGH COOP Unions

2

1 0

2

3

0 TOUGH

1

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3

Figure 5.4 Social interaction: Electra Székesfehérvár

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assign a higher payoff to cooperation (Figure 5.4, top left-hand box) than unions in France (Figure 5.3, top left-hand box). At the same time, Electra assigns the same payoff (1) to cooperation with unions in both France and Hungary (top left-hand box in Figures 5.3 and 5.4). Finally, limited legal regulation on union involvement and high unemployment in the region define the structural and institutional conditions that influence management–union interaction in Kwidzyn. Interaction here is strikingly different from Székesfehérvár. Still, Electra’s willingness to cooperate with unions in constructing employment practices and the ability of Solidarność to be a legitimate negotiation partner account for both actors assigning the highest payoffs to cooperation (Figure 5.5, top left-hand box, payoff 3 for both parties). Via cooperation, Solidarność has significantly improved its involvement in constructing employment flexibility in Kwidzyn. For Electra, cooperation allows a tailored response to local specificities. Unless union involvement does not hinder subsidiary performance, Electra prefers voluntary cooperation with the union. The management–union interaction thus resembles interactive bargaining facilitated by frequent informal contacts and trust, and value-based cooperation deriving from a joint interest of Electra and the union to maintain a well-performing subsidiary, employment, fairness in mutual interactions, and commitment to jointly established rules. Both parties view this as an equilibrium state without a desire for major changes. Continuous successful performance of the subsidiary can thus partly be ascribed to cooperative industrial relations and union involvement in constructing employment practices. Due to a long-term power asymmetry between MNCs and unions in Poland, Electra could play tough and pre-empt union involvement in Kwidzyn. However, because Electra is committed to cooperation and

Electra Kwidzyn COOP TOUGH COOP Unions

3 3

1 0 2

0 TOUGH

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From Bargaining to Dancing

2

1

Figure 5.5 Social interaction: Electra Kwidzyn

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shares the union’s interest in worker satisfaction, managers assign only low payoffs to tough strategies (top right-hand box in Figure 5.5, payoff 1 for Electra). A higher payoff from tough strategies is only relevant if the union also decides to play tough (bottom right-hand box in Figure 5.5, payoff 2 for Electra and 1 for Solidarność). The union assigns a relatively high payoff (2) to the situation when Solidarność would attempt to exploit the MNC’s interest in cooperation (bottom left-hand box in Figure 5.5, payoff 2 for the union and 0 for Electra). However, tough union strategies are unlikely, because Solidarność lacks the necessary power resources and could lose its informally established status and involvement in constructing employment practices. An interesting difference applies to Hungary and Poland. Both countries share similar institutional conditions of fragmented unions and decentralized bargaining. These local conditions constitute a framework enabling interaction to develop exclusively at the subsidiary level. Despite this similarity in local conditions, an explanation of the striking difference between the two subsidiaries lies in the actors’ social interaction. Cooperation in Electra Kwidzyn is better than in other companies in Poland (Kohl and Platzer 2004). Industrial relations in Electra Székesfehérvár are worse than in locally based firms and other Electra sites in Hungary. In Kwidzyn, the interest of Electra managers and union leaders in cooperation, professionalism of the HR manager and the union leader, and interaction by learning-by-doing, contributed to increased trust and cooperative exchange. In contrast, the main factors responsible for ongoing conflicts and a lack of trust in Electra Székesfehérvár are the personal interests of the union leader, his dissatisfaction with his own dismissal from Electra and his personal antagonism to MNCs.250 This analysis confirms that despite Electra’s general interest in interaction with trade unions, the actual management–union relations vary according to union strategies and institutional conditions. Union involvement in constructing subsidiaries’ employment practices takes place via different interaction forms and reaches a different extent in each subsidiary. The main factors influencing these differences lie in different institutional conditions, but even more importantly in actors’ social interaction. Economic influences on Electra’s decisions whether to involve trade unions in constructing employment practices are important, but only to the extent that union involvement does not hinder subsidiary performance. Beyond this condition, the actual union involvement is socially constructed. Electra is willing to involve unions in decisions concerning employment practices as long as union involvement develops in a cooperative

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interaction form. This is the case in Brugge and Kwidzyn, where Electra and the unions assign the highest payoffs to cooperation. In Dreux and Székesfehérvár both actors are more eager to play tough against each other, relative to the other actors’ strategy and to the legal underpinning of management–union relations. Cooperation is therefore more likely to develop in Székesfehérvár than in Dreux. Whereas interaction based on actors’ interests in cooperation enhances subsidiary performance via desired employment flexibility, it does not mean that conflictful interaction hinders the MNC’s economic interests. The consequence of antagonism and hostility in management–union interaction has led to an exclusion of trade unions from decisions that are jointly taken with unions in subsidiaries with cooperative industrial relations. In subsidiaries without cooperative industrial relations, union involvement in constructing employment practices is limited to legally stipulated bargaining. In other words, due to the power asymmetry between Electra and local unions, employment practices are constructed without union involvement if there are obstacles to cooperation on the unions’ side. The sustainability of current equilibria in management–union interaction is related to institutional conditions and to actors’ social relations, power and trust. A strong institutional framework underpinning actors’ interaction and the reliance of actors on established institutions suggest more stable equilibria because they have been achieved in an extensively regulated environment with transparent enforcement mechanisms. If this is true, then Electra and unions in Brugge are more likely to maintain their cooperation than in Kwidzyn. However, because of extensive legal resources, actors in the Belgian conditions have more incentives to move away from current equilibria and to opt for tough strategies and interaction by competition instead of current cooperation. In contrast, because of a lack of legal underpinning of management–union interaction in CEE countries, actors have fewer incentives to move away from existing equilibria. This is because their current interaction form is based on values, trust and norms that emerge in the actors’ micro-level interaction in given local conditions. The sustainability of interaction forms is directly related to Electra’s and the unions’ commitment to shared values, i.e., a well-performing subsidiary, maintaining jobs, and feasible working conditions. Thus, the sustainability in management–union interaction that has been achieved in conditions lacking incentives for alternative interaction options is more stable than equilibria in conditions where the legal regulation or union strength allow for alternative strategies.

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From Bargaining to Dancing

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One Company, Diverse Workplaces

I have argued in this chapter that subsidiary-level industrial relations play a crucial role in the construction of employment practices. Differences exist in the actual way of industrial relations’ influence, the most important influence being the actors’ interests in cooperation and the form of social interaction between managers and trade unions. I conclude with several arguments that link this chapter’s findings with those presented in earlier chapters. First, Electra’s subsidiary managements, and local industrial relations in each subsidiary, are more important in the construction of employment practices than corporate headquarters, the PD or the NO. This is congruent with Electra’s local responsiveness. Such responsiveness may translate to unilateral managerial action, or to social interaction with the involvement of local actors in constructing employment practices. Electra’s behaviour in each host country and subsidiary confirms the MNC’s openness to local actors’ involvement in the construction of these practices. The goal of interaction is not to construct the same employment practices across all subsidiaries. The aim of management– union interaction, albeit showing similar MNC behaviour towards local actors, is to make the most of local conditions and to construct diverse employment practices in diverse subsidiaries. Second, the extent of legal regulation, differing between Western and Eastern Europe and potentially being the basis for a regional divide in union involvement in the construction process, is not the key determinant of social interaction depicting union involvement in the construction. Certainly legal stipulations have to be respected, and are in fact respected in Electra. But whereas the law serves as a resource for union involvement, it is the actors’ interest and their actual social interaction form that reinforces the extent and the form of social interaction. In Brugge and Kwidzyn, I found management–union interaction in the form of interactive bargaining and values-based cooperation. In contrast, in Dreux and Székesfehérvár, workplace industrial relations evolve in the form of competition and are dominated by conflicts and hostile relations. Actors’ social interaction based on shared values and interactive bargaining on issues of mutual interest leads to a higher degree of union involvement in constructing employment practices, and renders higher satisfaction to Electra and local unions. In contrast, union involvement in constructing employment practices is minimized to legally required minima and is seen as an obstacle in subsidiaries where managers and unionists do not get along and their mutual trust is limited.

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Conclusions

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Besides the legal and social dimensions of interaction, economic reasoning stipulates that union involvement in constructing employment practices will develop when the management and the unions perceive a possible maximization of their relative utilities (Aoki 1990; Deery and Iverson 2005). My evidence shows that management–union interaction is not limited to formal bargaining based on economic calculations. Instead, subsidiary industrial relations obtain their typical characteristics in informal interaction that rarely relates directly to particular economic benefits and utility maximization. Obviously profit interests primarily shape Electra’s strategic activities, but this strategic conception is not emphasized in each informal encounter between individuals at the workplace. In subsidiaries with a positive experience in union– management interaction, Electra involves unions beyond legal requirements and even in matters without a clear indication beforehand of economically superior outcomes. According to an economic reasoning and the information available at the time of decisions on union involvement in constructing employment practices, the management could have taken the same decisions unilaterally. In sum, social interaction is more decisive for the involvement of local employees and employee representatives in the construction of subsidiary employment practices than the MNC’s economic interest and the existing institutional infrastructure in host countries.

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From Bargaining to Dancing

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Social Foundations of Trade Union Influence: Cross-Border Interaction of Unions and Employee Representatives

I have argued in the previous chapter that social interaction between the MNC and trade unions in the host countries and subsidiaries plays a key role in the process of constructing employment practices. This argument has been confined to trade unions and/or works councils in a particular subsidiary context. In the current chapter, I depart from the subsidiary and seek to understand the role that cooperation across national and sectoral trade unions, and the MNC’s EWC, plays in constructing employment practices and employment standards across various host countries. In other words, I study the cross-border interaction of employee representatives and the capacity of this interaction to facilitate or constrain MNC embedding. Besides European-level trade union structures and networking among national trade union confederations, company-level union interaction is equally important for trade union influence on MNC behaviour, because direct networking between company employee representatives can strengthen trade union strategies at the micro-level (Arrowsmith and Marginson 2006; Greer and Hauptmeier 2008; Marginson 1992). Furthermore, company-level interaction enables the development of shared values and interests between Western and Eastern European unionists, and thus strengthens union capacity to resist unfavourable MNC practices that utilize local employment standards. I distinguish between three levels of cross-border interaction of employee representatives: the level of national trade unions, the level of company trade unions, and the level of the EWC. An overview of interaction among national trade union confederations from Western and Eastern Europe offers a broader context for understanding union interaction within

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Electra’s subsidiaries in different countries. At the level of company union and EWC interaction, attention is paid both to formal and informal relations of union representatives in Electra’s subsidiaries and EWC representatives from the host countries. Recalling the analytical scheme in Figure 1.2 in Chapter 1, the cross-border interaction of trade unions corresponds with the labelled interaction channel δ1 and interaction of EWC representatives with the labelled interaction channel δ2. Comparing original empirical evidence in these channels with the existing literature on Europeanization of trade unions and cross-border interaction, I develop an argument on two distinct faces of cross-border interaction of employee representatives: a cooperative one at the national level, and a competitive one at the company level. I argue that the cooperative interaction of national-level trade unions does have a potential to exert pressure on MNC behaviour and thus on the construction of employment practices. This scenario builds on the fact that cooperative cross-border social interaction enables local trade unions to draw on international resources and thus to strengthen their potential power vis-à-vis MNCs in facilitating higher employment standards and a greater degree of East–West convergence in employment practices, employment standards, and maintaining their cross-country diversity. Other than the interaction of national-level trade unions, interaction of employee representatives and unions within the MNC has a far greater capacity to influence MNC behaviour at the corporate and subsidiary levels. Nevertheless, an international power resource of company-level trade unions and employee representatives within the EWC, with the ability to effectively influence MNC practices, are missing. The reason is a lack of cooperation in cross-border networking of company-level trade unions and employee representatives, with established contacts being best described as interaction in the form of competition. I argue that competing interests of trade unions within the MNC delay the development of cooperative trade unionism at the European level and contribute to persistent diversity in employment practices and employment standards in Europe. The chapter is structured as follows. First, feeding back to the book’s conceptual and analytical framework, I offer a short conceptual discussion on cross-border interaction of employee representatives and an elaboration of possible interaction forms. Based on the existing literature as well as original interview data, the second section presents empirical evidence of the state of cross-border interaction between national trade union federations across Western Europe and CEE. 251 I discuss the state of East–West interaction of company-level unions within Electra in the

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Cooperation and competition in cross-border trade unionism Just like MNC management at different organizational levels, employee representatives in different countries and subsidiaries may attempt to foster cross-border interaction and coordinate their interests and behaviour. Research on international trade unionism has been gaining prominence since recent years, especially with the intensification of European integration and the increasing importance of MNCs (Boeri, Brugiavini and Calmfors 2001; Martin and Ross 1999; Bieler 2008; Greer and Hauptmeier 2008). Increased capital mobility, international competition, threats of production relocation, and benchmarking in MNC subsidiaries have brought a range of incentives and challenges for international trade unionism (Marginson 1992; 2000; Arrowsmith and Marginson 2006; Vos 2006; Greer and Hauptmeier 2008). In the EU there are also structural and institutional preconditions, including the European Monetary Union or European-level employee representation in the form of EWCs, which create opportunities for unions to gain additional resources. Why should one expect employee representatives to cooperate across borders? Expected reasons are twofold. First, institutionalized interaction in the form of EWCs or via European-level sectoral unions can play a major role in strengthening the position of labour beyond the national level, facilitate a shift from national collective bargaining to the European level, and play a part in cross-border harmonization of employment practices (Waddington 2006; Gollbach and Schulten 2000; Marginson 1992; Levinson 1972). Through internationally negotiated agreements between unions, employers and EU-level authorities, economically advanced countries with costly welfare states would have fewer reasons to fear social dumping and the emigration of their industries to low-wage countries (Scharpf 1997: 81). Moreover, such agreements could account for improved social standards in the poorer host countries, including those in CEE. The second reason is that international unionism strengthens bargaining positions of trade

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third section; and interaction between employee representatives within Electra’s EWC in the fourth section. In the fifth section, I analyse the presented findings using the same methodological tools as used for management–union interaction in Chapter 5. I conclude with implications for company behaviour and the cross-subsidiary, and diversity in employment practices and their convergence prospects.

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unions vis-à-vis MNCs at the company level, because offering additional resources for union action even when formalized international bargaining structures does not yet emerge at sectoral or European levels (Arrowsmith and Marginson 2006). My focus is on questioning which union interests prevail and what strategies do unions deploy in creating resources for European bargaining at sectoral and company levels.252 International unionism thus applies to cross-border interaction of trade unions from different countries, with the purpose of benefiting from joint resources and coordinating bargaining agendas vis-à-vis MNCs. International unionism may range from non-binding declarations of international solidarity to cross-border coordination of collective bargaining (Bernaciak 2006). Each form of action on the continuum yields different effectiveness. To evaluate the current state of East–West union interaction, I recall the book’s analytical framework from Chapter 1 and distinguish between two broad tendencies. First, cooperation refers to interaction between unions on the basis of a congruent set of preferences, driven by or leading to shared values (Kahancová 2007b). Despite their differing national backgrounds, unions’ interests in cooperation go beyond national embeddedness and seek to develop a real international function. In the ideal case, cooperation fosters the establishment of geocentric international union structures with a collective identity and an agenda distinct from national interests of members (Levinson 1972). Cooperation leading to coordinated union strategies and geocentric unionism has the highest potential to make unions influential actors in national and transnational industrial relations (Lecher and Rüb 1999: 20). Of course, cooperation may evolve also in weaker forms of cross-border networking, such as information sharing and regular contacts with foreign unions without a European strategy coordination. The second considered form of cross-border union interaction is competition, entailing rivalry between different unions in face of international competition for investments, (threats of) capital relocation, or fears of worsening employment standards in Western Europe. Competing unions are not committed to moderating their interests in the face of foreign unions and only pursue their own nationally embedded interest. This produces less trust and commitment to mutual agreements, and prevents joint union efforts in the European context. Union interests are in this case polycentric (Levinson 1972) and prevent building a capacity for international value sharing and cross-border interest representation. 253 Besides the unions’ direct motivation to cooperate, the Directive 94/45/EC on EWCs encourages company-level unionism. EWCs in

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MNCs primarily serve as platforms for information and consultation between management and employee representatives; however, they are also an effective structure for fostering cross-border unionism. Although EWC representatives are not necessarily trade union representatives, in almost all EWCs that have been subject to earlier research, trade union representatives were closely involved (EFILWC 2004). Explorations into the inner life of EWCs, including structure, communication, patterns of formal and informal interaction of representatives, and the general usefulness of the EWC for trade union endeavours are essential for a conceptualization of EWCs as distinct European institutions (Marginson 2000; Lecher and Rüb 1999). In analogy to cross-border interaction of trade unions, interaction within Electra’s EWC is evaluated according to the cooperation–competition dichotomy and Levinson’s (1972) polycentric, ethnocentric and geocentric conceptualization of international unionism.254 First, the EWC is a meeting point of national interests with little or no regular independent contact or coordination between members. Such polycentric EWCs lack the institutional capacity for international value sharing, influence on MNC behaviour in driving convergence or diversity in employment practices, and promoting cross-border interest representation of employees. Second, in ethnocentric EWCs, representatives of the MNC’s home country dominate and members from foreign subsidiaries are marginalized. In such circumstances, it is likely that management–union interaction in the MNC’s home country will be reflected in the EWC’s functioning. Third, EWCs may develop a real international function. In Levinson’s (1972) terminology, such EWCs are geocentric and develop a new collective identity, shared values and an agenda that is distinct from the national interests of member organizations. Geocentric EWCs have the highest potential to become an influential collective actor in national and international industrial relations (Lecher and Rüb 1999: 20). Given the differences in employment standards and industrial relations systems in Western and CEE countries, the extension of EWCs to CEE countries has facilitated two effects that deserve further empirical inquiry. The information effect indicates that CEE unions, by being more exposed to interaction with their Western counterparts, draw on Western resources and are thus better able to exert bargaining pressures on the MNC management in CEE conditions (Meardi 2006). The legitimacy effect allows CEE unions to bypass subsidiary managements and to access MNC headquarters in order to create a new alliance (ibid.). Uncovering these two effects in Electra’s EWC empirically is important in assessing the real impact of EWCs on employees’ voice in

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constructing employment practices and related European-wide coordinated endeavours. In sum, the framework guiding the analysis of interaction between Western European and CEE trade unions and EWC representatives distinguishes between cross-border cooperation and competition; and looks at how the interests of involved actors overcome their polycentric character at national, sectoral and company levels to strengthen their international position in the process of constructing employment practices.

Cross-border trade union interaction: a national and sectoral perspective The available literature on cross-border unionism documents a bipolar pattern in international interaction with employers generally better organized than trade unions although union networking is also increasing (Arrowsmith and Marginson 2006: 250). 255 Union networking has thus far predominantly developed through European trade union structures and specific sectoral trade unions, i.e., the European Trade Union Confederation (ETUC), International Confederation of Free Trade Unions (ICFTU), Trade Union Advisory Committee to the OECD (TUAC), or the sector-level European Metalworkers’ Federation (EMF) (Gollbach and Schulten 2000). Even though such efforts do not in fact represent a joint international trade union agenda, they are the basis for developing shared values about employment standards in Europe. The flow of information, necessary to build up these values, is predominantly channelled by international trade union organizations. These organizations act at the European level in promoting the European social model, influencing European legislation, and conducting collective framework agreements with employer representatives. Representatives of metal-sector unions perceive institutional membership in the EMF as the most important channel of interaction. Several agreements have been implemented in the form of EU Directives and thus influence the operation of companies in the EU indirectly via EU-level legislation.256 The EMF also mediates many bilateral contacts between the Dutch FNV, Belgian ACV Metaal and ABVV Metaal, Hungarian Vasas, and Polish Solidarność. The process of CEE unions’ integration into international union structures reflected the domestic competition and fragmentation of different union organizations. Ogółnopolskie Porozumienie Związków Zawodowych (OPZZ), the largest union in Poland, joined international structures later than its competitor Solidarność (Meardi

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2002: 87). Today OPZZ is part of several European and international union organizations. In Hungary, all six national union confederations are ETUC members, four are ICFTU members and two confederations are TUAC members.257 Beyond institutional contacts, evidence suggests that a vital bilateral union networking has gradually developed between national and sectoral trade unions. Unions see the presence of MNCs as an important incentive to foster cross-border exchange of union resources. The following quote from the Belgian ACV Metaal is illustrative: [Due to] the fact that we were a colony of foreign companies, we always had to be in contact with other unions ... So it’s a common goal that we are oriented to other countries and we adapt to their systems, but we maintain our strength, our ideology and our way of working ... [Belgian unions, both ACV and ABVV] put a lot of energy in European trade unionism. Western unions maintain closer contacts with unions in other Western countries; but after 1989 the trend of international unionism has been gradually integrating unions from CEE countries (Draus 2001a; 2001b; Gollbach and Schulten 2000; Kahancová 2003a; 2003b). 258 Sectoral and national unions in the West and East maintain that international interaction in form of institutional, bilateral or multilateral contacts does have an added value in increasing information flows to better understand the strategies and goals of foreign unions, in reducing the threat of social dumping, developing shared employment standards, and diffusing them in CEE where employment standards tend to be lower than in Western Europe (Bohle and Greskovits 2006; Meardi 2006). Using the words of a Polish representative of Solidarność: [Unions] are aiming at avoiding double standards. I am not talking about wages, but safety rules, environmental issues, corporate social responsibility. If you have a good company respecting all those standards in Sweden, why not respect the same standards in Poland? We can be good at fostering these standards if we have good knowledge on this. If you don’t know what you are striving for, it is a problem.259

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Meardi (2002) documents that trade unions in Poland very closely follow all European developments and assign an important role to relations with Western unions. The establishment of the Union Development

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Unit that promotes unionization in private enterprises in Poland is an outcome of a joint initiative of Polish, American and Western European unions.260 Another example of East–West union interaction is the network between the German IG Metall districts of Bayern and Berlin/ Brandenburg-Sachsen with Polish and Czech trade unions, established in the early 1990s. Until 1999, the function of this network was to provide material support to the Polish and Czech metalworkers’ unions in building new plant-level and collective bargaining structures (Gollbach and Schulten 2000: 167). In 1999 the already participating unions, together with unions from Austria, Hungary, Slovakia and Slovenia, adopted a Memorandum on Interregional Collective Bargaining Policy, which strengthens cooperation between European unions (Gollbach and Schulten 2000; Schulten 1999). The content, process and mechanisms of cross-border union interaction are rarely studied in the literature. Research on cross-border union interaction in MNCs in the metal sector in Western Europe found a great diversity of interaction forms, ranging from underdeveloped interaction to a well-established dialogue between French and Belgian unions or bargaining alliances between German, Dutch and Belgian unions (Arrowsmith and Marginson 2006; Gollbach and Schulten 2000). My research supplements the above evidence by finding two prevailing issues around which the content of cross-border union interaction develops: benchmarking employment standards, and training offered by Western unions to CEE union partners. First, benchmarking conducted across Western Europe is mainly used by the Belgian ACV and the Dutch FNV as a resource in national bargaining. Benchmarking with CEE or other non-Western countries is necessary for future union strategies. The loss of manufacturing jobs in Western Europe is the main trade union concern for the future. To cope with this concern, unions appreciate information from other countries. Western union leaders maintain that their encounters with Hungarian, Polish or other unionists outside of Western Europe and North America and visits in these countries served as an eye-opening experience.261 Second, building on the availability of extensive institutional facilities, the Belgian ACV and ABVV are especially active in offering workshops and training to unions from CEE. Western unions maintain that informal encounters during training sessions are a good basis for developing trust and future union interaction,262 but also for rediscovering international solidarity and issues of collective interest.263 Hungarian and Polish unions appreciate training mainly because it improves their bargaining skills and power relations in local interaction with MNCs, and also helps to alert

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some employers, especially small foreign companies to fair employment practices.264 In this respect, the above evidence supports Meardi’s (2002) argument that the availability of Western union resources helps CEE unions to strengthen their domestic bargaining position (information effect) and leads to a creation of East–West alliances between socioeconomic actors (legitimacy effect). The effect of interaction is, however, not equal and reciprocal for Western and CEE trade unions. Union representatives reported an increased parochialism of union members in the face of possible production transfers (Arrowsmith and Marginson 2006: 252). Although admitting benefits from Western union resources, CEE unions point to the lack of willingness of Western unions to learn from the values, interests and behaviour of Eastern unions. CEE unions feel colonized by Western practices without reciprocity in interaction. Both Solidarność and Vasas are convinced that some of their practices should be of value for Western unions, i.e., their more extensive workplace presence and greater business awareness: [U]nions in the old EU countries got a little bit bureaucratic, sitting and having good operators, strike funds, developed structures and machineries working, but there is a lack of some dynamics. Solidarność still feels that the real thing is having intensive contacts with employers [at] the company level.265 When [Western unions] complain that we Hungarians take up work for much less money, I’m sorry, this is the market, this is not a reason for blaming the unions. The Hungarian working conditions are such that a Hungarian worker is rather willing to work even for less money than to be unemployed and excluded from work life. Because of this, we feel there are some tensions between us and Western unions. 266 Several other issues complicate European trade unionism. One of them is the difference in rhetoric and behaviour of Western unions. In general, Western unions claim that international union ideology is their priority. However, unions are not too eager to be involved in concrete international initiatives. In such cases, the reference point is national differences and a lack of tradition in fostering cross-border unionism. Western unions turn to the rhetoric of national industrial relations and a nationally based constituency – factors that do not give enough encouragement to take action in the international dimension. Furthermore, limited knowledge of foreign languages, a high union plurality, and fragmentation in CEE complicate cross-border union

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interaction.267 This creates difficulties for Dutch and Belgian unions in finding cooperation partners with similar interests and ideology. Moreover, the straightforward alliance seeking among foreign union partners is paralleled by some unusual alliances between Eastern trade unions and Western employers (MNC headquarters) who share an interest in East–West harmonization of employment practices (Meardi 2002: 94). Western unions found alliance with Eastern employers in order to defend the existing status quo in employment practices, particularly wages (ibid.). In sum, the available literature highlights the relevance of the international networking of trade unions but presents mixed evidence of the capacity of such interaction to influence MNC behaviour. Evidence varies from sector to sector and from company to company. Nevertheless, I argue that East–West trade union interaction at the sectoral and national level does yield emerging patterns of international union cooperation. Although we cannot yet speak about a European trade union agenda and coordinated behaviour, cooperation facilitates a joint interest in harmonizing cross-border employment standards. The flow of information, necessary to build up shared values and joint interests, is predominantly channelled through international trade union structures rather than through bilateral union contacts. In bilateral contacts, some unions went further than others in taking concrete steps to strengthen East–West cooperation. Deriving from the above evidence, current cross-border union interaction is best described as an early stage of cooperation between currently polycentric trade unions. Barriers that somewhat impede cooperation include tensions derived from differing employment standards and an unbalanced exchange of union resources between Western and Eastern Europe, as well as structural obstacles and limited language abilities of union representatives.

Cross-border trade union interaction: a company-level perspective The dynamics of cross-border union interaction at sectoral and national levels differs significantly from company-level unionism, which is more exposed to intra-firm competition between production sites in MNCs. A competitive organizational structure yields incentives for local unions in different countries to coordinate their bargaining in order to defend themselves (Calmfors, et al. 2001: 129). Thus, prospects for transnational bargaining coordination among companylevel unions within MNCs shall be considerably greater than among

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national sectoral unions or national union confederations. In reality, an intensive cross-border union cooperation is less pronounced in the interaction of company-level unions than national or sectoral unions in the metal sector. In contrast to this general expectation, cross-border union interaction in MNCs differs from company to company and is largely influenced by the management–labour interaction in the context of the firm’s organizational structure (Greer and Hauptmeier 2008: 91). Unions in some motor manufacturing companies exert strong, locally based influence and were able to develop transnationally viable institutions that regulate competition between production sites of MNCs (Anner, et al. 2006: 17). In contrast, in other companies an increased parochialism of company unions in the face of possible production transfers can be observed (Arrowsmith and Marginson 2006: 252).268 Company-level union relations in Electra reveal different dynamics than international interaction of national and sectoral unions. Contrary to findings on union networking from a national perspective, regular international contact among unions at Electra is limited. In fact, none of the interviewed union representatives in Electra’s subsidiaries maintains regular contact or email exchange with foreign counterparts. Initial cross-border contacts of unionists were based on the curiosity of Western union leaders about Electra’s subsidiaries and employment standards in CEE, but these did not transform into a stable and continuous interaction. None of the interviewed union representatives in Electra’s subsidiaries maintains regular contacts or email exchange with foreign union peers. In Western European subsidiaries, unionists are not motivated to foster cross-border cooperation with CEE trade unions and tend to view their CEE counterparts as competitors. Their current attitude is related to several substantial reorganizations in the past twenty years, which forced them to concentrate on local concerns about the future of existing subsidiaries.269 CEE unions initially expected more cooperation with Western unions and were disappointed by the lack of interest from their Western counterparts; however, they understand that there are ‘no sentiments in union business’, especially when the subsidiaries face internal competition.270 A closer look at interaction between Western and CEE union leaders in Electra reveals several reasons for limited contacts and hostility towards cross-border union interaction. These range from local union strategies coupled with Electra’s decentralized organizational structure to fears of reorganizations and (threats of) production relocation from Western to Eastern Europe. In contrast to Calmfors’ (2001) prediction

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on cross-border cooperation of unions in a competitive MNC environment, Electra’s traditionally decentralized organization gives few direct incentives for unions to interact across borders. International initiatives did start to take concrete shape as early as in 1967, when unions affiliated to the EMF proposed that Electra hold informative discussions with company unions at the European level. Four meetings have been held, the last one taking place in 1975. As soon as the unions requested formalization of employment practices in European-level agreements, Electra argued that the company was neither able nor prepared to conclude such agreements because of the existing autonomy of its subsidiaries. Electra maintained that the composition of employment practices depends upon national, regional and local preferences, and Europeanizing ‘a few plums from the total package’ would be illogical and contradictory to the local orientation of daily management and union issues (Dronkers 1975: 168). Thus, the decentralized organization of the MNC is the first, although indirect, obstacle to international unionism at company level. In the unions’ point of view, Electra continues not to support cross-border union networking because of possible negative impact on the MNC’s restructuring plans. As well as the above view of decentralized organization as an obstacle to cross-country union interaction, unions admit that a lack of encouragement from the company also provides incentives to fight harder for coordinated cross-border trade union interests and strategies. Within overall international networking efforts, Belgian unions have been most active in bringing together Electra union representatives from different countries, for example in the 2005 Visegrad EWC training for representatives from CEE countries. These efforts were successful in facilitating a small number of personal encounters; however, they did not produce regular contacts. Next, obstacles to cross-border interaction originate in union attitudes and strategies. These play a more important role than the MNC’s decentralized organization. A broad difficulty is the unions’ unwillingness to search for international partners, because of an enduring conviction of the local relevance of union activity. The EMF’s efforts in the late 1960s failed to defeat workplace unionism in Electra’s Western European sites not only because of the company’s opposition, but also because of lack of attention from involved unions. Union representatives consider that having more information on other subsidiaries could possibly influence union members’ perceptions of foreign Electra subsidiaries especially in CEE. To obtain such information, unions admit that the fundamental image of foreign workers and unions as competitors, and the local focus

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On the general level, international cooperation works fine, but on the company level people are not that interested in international trade union business. They don’t see benefits of international cooperation ... . Very often unionists don’t know how to find international partners; even though they have a foreign partner they don’t know how to get benefits from such cooperation. It is not enough to do some social or trade union tourism; we need to develop real discussions.272 People are married with the local factory and they are not interested in the national level, and even less in international level ... . There is a small movement among Electra trade union members to [develop] international cooperation, but I think most of the union members only think about what is going on in my factory, my factory is the world.273 Even in cases where Western unions did succeed in finding cooperation partners among CEE unions in Electra subsidiaries, it was not clear which union organization should coordinate international endeavours. Being a MNC of a Dutch origin with headquarters based in the Netherlands, Western and Eastern unions agree that the Dutch unions should take the lead in organizing cross-border union interaction. When exploring the standpoint of Dutch unions in greater detail, several crucial obstacles to cross-border interaction become obvious. In their defence, the Dutch unions argue that the main problem is that national, international or global cooperation is not the priority of trade unions and their constituency. The tradition that each Electra subsidiary in the Netherlands had its own specialization for many years has shaped union orientation to such an extent that union powers are firmly related to the local level and oriented on cooperation with subsidiary managers. Employment practices of Electra’s workers remain locally constructed and untouched by headquarters. Coordination beyond the subsidiary level applies only to strategic decisions and employment practices of top managers and knowledge workers. Union responses to current strategic challenges would necessitate a response beyond the subsidiary level, but with a lack of tradition of coordinated trade unionism this remains problematic. FNV’s chief negotiator for Electra recognized these problems, together with the necessity to foster international union relations. However, her

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of union actions, would need to be overcome.271 Quotes from Polish and Dutch union representatives illustrate this point further:

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... the Dutch union representatives will be very angry at me if they find out that I am in Poland, or in Brussels, or elsewhere ... . I think we can learn a lot, being in Poland was a complete eye-opener for me. But if you ask a normal Electra employee here, he says ‘Poland – that is far away. My concern is whether I still will be working here tomorrow’.274 Similar to the Dutch evidence, Belgian union representatives report tensions between higher-level union organizations and company representatives. Despite a highly coordinated trade union movement in Belgium, company-level unionists at Electra’s Belgian subsidiaries are predominantly concerned with local issues and view Eastern European unions as competitors facilitating the Eastward relocation of jobs. In consequence, cross-border union interaction in Electra suffers from a lack of trust between company-level unions on both sides of the former iron curtain, as documented by the following quotes from Belgian and Polish union representatives. We fear some reservations sometimes, from [Eastern European unions], but also from us. Sometimes the discussions are not open. It is not lying, but we don’t say [everything], and the others don’t say [everything]. There is not enough trust. Because the move is that our products go to [Eastern Europe], it’s important for them to have work, but for us it’s important to have new things to do. 275 We [the Polish unions] cannot compare ourselves to the Dutch unions, because they never showed us their cards. They did everything to prevent us seeing their strategies. They have chosen one way, we have chosen another one. We know that there are no sentiments in business. The best ones will survive. We constantly tell our union members that if they fail to satisfy management requests, they will be out of the game.276

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arguments do not find support among workers and subsidiary union leaders whose concerns centre on employment practices and job security in particular Dutch subsidiaries. As she noted in an interview,

Because production tends to relocate from West to East rather than in the opposite direction, hostility towards cross-border union interaction is more extensive on the side of Western unions. Hungarian and Polish unions expected a more intensive cooperation to develop and were disappointed that their Western union counterparts did not foster regular contacts, exchange of information and coordinated union

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agendas. The CEE union representatives felt that Western unionists have kept them out of strategically important decisions in Electra. In consequence, hostility to cross-border interaction has also infiltrated the attitudes of Hungarians and Poles vis-à-vis Western unions. CEE unions were increasingly convinced that the best strategy is to prove to Western unions that Electra can indeed achieve better productivity and profits in its CEE subsidiaries because of motivated workers, cooperative unions, and generally better conditions for mass production than in Western Europe. The prevalence of polycentric interests is visible not only between Western and CEE company-level unions, but also in the interaction of Dutch and Belgian unions. These are at first glance expected to share the same concerns due to similar production reorganizations and institutional conditions in continental Western Europe. Belgians claim to have supported many union actions in the Netherlands, but their actions lacked reciprocity from the Dutch side. 277 The Dutch FNV leader in Electra noted the main problem being the growing individualism among union constituency and difficulties in finding issues of collective interests: We have to learn that not only Electra, but employees also have to change, ... they have to change their thinking ... . In the Netherlands, we don’t see possibilities to grow because we have everything we want. We are living in a world where everything is arranged. It is normal that on first of January you get more money, it is normal that you have a day off tomorrow, it is normal that you go for vacations for three weeks ... . People think they have all the rights and these rights are automatic. ... Younger people don’t become trade union members, because they don’t see a reason, a need for fighting for basic things does not exist anymore. People are fighting for retirement, against noise, for sickness leave, childcare, etc. Everybody is fighting for personal issues; we don’t have a collective issue anymore. The big problem is solidarity. Is there still solidarity? There is no solidarity anymore ... everybody is fighting for their own targets, and at the end we don’t win anything at all, we are only losing as a trade union. ... We have to learn to find issues of collective interests again.278

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In sum, the above evidence suggests an ongoing tension in cross-border interaction at different trade union levels, with sectoral and national unions encouraging international contacts and company unions being

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more protectionist and locally oriented. Company-level unionism is underdeveloped not only because of the decentralized MNC structure, but mainly due to unions’ locally embedded behaviour and lack of interest in strengthening international union resources. The precondition to overcome the local union orientation is a greater coordination of their interests in international as well as national dimensions – particularly in the Netherlands. Unions in other MNCs, i.e., General Motors and Ford, were more successful in mastering international contacts; however, the structure of these companies and the management–union relations helped trade unions to find common interests across borders (Greer and Hauptmeier 2008). The current state of Electra’s cross-border union interaction does not pose a significant challenge for constructing subsidiary employment practices in a decentralized and locally responsive way. Because of locally embedded interests and limited and hostile contacts between Western and Eastern trade union representatives in the MNC, the chances to develop an international company-level union agenda remain limited.

Institutionalized cross-border interaction: the European Works Council The fact that company-level unions failed to build a capacity for crossborder coordination inspires a further inquiry, namely, the extent to which Electra’s second employee representation channel – the EWC – is capable of developing an effective international function. Existing literature sees EWCs as an institutional framework for cross-border interaction of employee representatives in the EU, with the potential to underpin international-level bargaining and coordinate industrial relations in MNCs (Arrowsmith and Marginson 2006; Meardi 2004; 2006; Lecher and Rüb 1999). At the same time, a more sceptical perspective on EWCs suggests that national union representatives use EWCs to defend and extend national interests (Hancké 2000; Streeck 1997b; Marginson 2000); and MNCs use EWCs to advance MNCs’ corporate power (Lecher and Rüb 1999; Streeck and Vitols 1993).279 Evidence shows that many EWCs remain in rudimentary forms, with an inadequate quality and breadth of information and consultation procedures (Waddington 2003; 2006). Great variation is found in the functioning of EWCs in different sectors but also individual MNCs (Arrowsmith and Marginson 2006). EWCs in metal-sector firms have gone furthest in strengthening international cooperation and developing at least some influence over national and local collective

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bargaining (Arrowsmith and Marginson 2006; Waddington 2006). Different perspectives on EWC’s functioning by MNCs from different home countries, but also different national perceptions of employee representatives, are the major reasons for EWCs’ institutional weakness (Waddington 2006: 331). On the one hand, national union representatives use EWCs to defend and extend national interests (Hancké 2000; Marginson 2000; Streeck 1997b). After the 2004 EU enlargement, EWCs were extended to the new member states from CEE. Some MNCs successfully included CEE representatives in their EWCs even earlier than 2004;280 but other firms hesitated with the inclusion over several years or experienced difficulties and diverging interests between Western and CEE representatives. 281 The EWC in Electra In Electra, the European Electra Forum (EEF, or Euroforum) is the only institutionalized channel that facilitates regular cross-border interaction between employee representatives across Europe. Following the EU Directive 94/45/EC, the EEF has functioned since 1996 with 26 representatives from 16 EU member states. The allocation of seats is based on the number of Electra’s employees in a particular country.282 The Euroforum meets twice a year; and an elected committee of employee representatives and a management appointee carries out activities between the two annual meetings.283 According to the Euroforum agreement, EEF’s main function is information and consultation of issues of central importance for Electra employees in Europe.284 In practice, every EEF meeting offers several presentations on issues of actual relevance, followed by questions and answers. Interviewed Electra managers at headquarters and in the host countries claim that the EWC benefits employee representatives by giving them access to information on the state of Electra’s business. Such information can potentially influence local bargaining strategies of trade unions vis-à-vis Electra.285 In other words, the revealed role of the Euroforum is to channel information from management to employee representatives, increase business awareness, and ‘sell’ Electra’s arguments concerning restructuring in Western Europe to the employees.286 Managers do not see a further potential of the Euroforum and maintain that interaction with local and national trade unions is more important than interaction through the Forum. 287 Input from employee representatives is not extensively welcome; Electra assumes that encouraging a coordinated input from employee representatives would indirectly strengthen their cross-border cooperation. This opposes Electra’s local responsiveness and could threaten the continuity of decentralized

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If I were trade unions, I would not be satisfied [with the EEF], because I think ... that the information given in the EEF is very general and it does not really answer the questions that trade unions have. But from an Electra’s point of view, I don’t think that you need to want that too much.288 Western trade unions admit the usefulness of the Euroforum’s existence, but at the same time claim that it does not yet play a significant role in bridging local differences in structure and power of employee representatives. Unions are fully aware of Electra’s reasoning and opinions on the Euroforum’s role; and the current one-way managementdominated diffusion of information in the EWC is the main reason of their dissatisfaction with the Forum. 289 Moreover, employee representatives are not satisfied with the EWC’s name Euroforum and fought unsuccessfully for the official name Electra EWC, arguing that the current name does not capture the EWC’s real role and legitimizes this institution to be only a chat forum. A quote from the Belgian representative is illustrative: I am not satisfied with [the EEF]. I think it is a chat forum. It is not a discussion forum at all. Management comes there and says their story and we have to listen. Even if you try to set up a discussion forum, our chairman ... does not want any discussion at all. He is like our big father, he is a wise man and we have to listen to him.290 With English being the only official language in EWC meetings, representatives also face a language problem. Belgian unions are unhappy with English being the only language in the EWC meetings and have criticized the Dutch unions’ quick agreement with the management on the single language without considering the interests of other countries’ representatives. For all the reasons mentioned above, representatives do not see a great value in the EWC’s functioning and do not consider the information channelled through the EWC to be relevant for countryspecific trade union and works council activities. 291 At the time of this research, CEE representatives did not yet have enough experience to evaluate the Euroforum’s functioning. After an arduous final inclusion process in the EWC in 2004, Hungarians and Poles continued to maintain their reservations towards this institution.

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industrial relations between Electra and local trade unions. Therefore, Electra does not encourage collective input of representatives in the Euroforum:

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CEE union representatives felt offended that Electra did not include Eastern representatives prior to 2004, whereas a number of other MNCs invited CEE representatives to join their EWCs by granting them at least an observer status. Electra’s management and Polish unions share the view on postponement reasons; namely, the inability and unwillingness of Western trade unions to fight for the inclusion of CEE representatives. Whereas in German MNCs strong home-country unions fought for the inclusion of Polish representatives, Electra’s unions in the Netherlands failed to do the same.292 Nevertheless, we also have to admit that Electra was not extensively eager to select and include CEE representatives earlier either. It is very strange that Electra did not invite Polish workers to join the EWC even just giving them an observer status. The problem is not only the decision of central management. The biggest problem is that the unions themselves from Holland were not that interested to encourage Polish unions to join the EWC. Sometimes people used to say that [the former EEF coordinator] was the problem, but looking into details, I think that our union colleagues in Holland did not want to have Poles on the EEF.293 In short, the divide in Western and Eastern European company-level union interests also infiltrated the Euroforum. Together with Electra’s strategy of decentralization it continues to prevent the growth of the EWC as an institution that bridges cross-national employee interests and influences the construction of employment practices and employment standards from the European level. Informal functioning of the Euroforum: between friendships and antagonism Beyond the formal EEF meetings, EEF representatives emphasize the relevance of good relations and friendships as a suitable platform to develop international contacts:294

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It is very important, nothing can substitute personal contacts. ... [The delegates] get to know each other, they learn that they should not be enemies, but that they are all on the same ship and it is in the interest of everybody that this ship comes well in its destination.295 Despite the above quote, evidence of the inclusion of CEE representatives in the EEF suggests that informal interaction between Western

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and CEE representatives is competitive rather than cooperative. The story of including Polish representatives is the most illustrative of existing antagonism. Polish union representatives were invited to several meetings prior to their inclusion in the EEF. During these meetings, the representative claimed to have good informal interaction with representatives from Spain and Italy, which was in contrast with the open antagonism of Dutch representatives. However, at a later stage when debates started to concentrate on Electra’s restructuring, even the Southern representatives showed their hesitations and argued that Poles take their jobs.296 The Polish representative of Solidarność claimed to have been verbally attacked and personally offended by Western EWC representatives, which discouraged his efforts to join the EWC.297 Despite demonstrating disappointment and anger, he could not understand the objections of Western EWC members to integrating the representative 10,000 Polish Electra employees into the EWC circle. It is unclear whether it was a misunderstanding due to language problems, but this incident continued to shape the informal behaviour of representatives, especially the Poles, even after their official inclusion in the EWC. In addition, I had a chance to observe informal interaction between EEF representatives during a European trade union training session on EWC Directives in Belgium in February 2005. I noted some initial hesitation of Electra’s representatives from Belgium, Hungary and Poland to talk to each other. The language barrier was the most obvious but not the only reason. The annoyance of the Polish representative that originated in his previous encounters with Western EEF representatives still resonated in this meeting even though it gradually faded away as he took his role of representing Polish Electra employees seriously. The Hungarian representative had not yet participated in a formal EEF meeting and was not yet trained in her responsibilities as an EEF representative. Beyond exchange of information about the subsidiaries in which they work, representatives considered the frequency of informal encounters at Euroforum meetings satisfactory. They did not mention the necessity to intensify their international interaction.

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Social Foundations of Unions’ Influence

Euroforum versus trade unions International interaction between employee representatives is not only complicated due to East–West conflicts in interests, but a further complication is the competitive relationship between trade unions and the Euroforum as an institution. Dutch and Belgian trade unions maintain that the EWC poses a challenge for national

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trade union power and are therefore reluctant to integrate the crossborder union interaction with interaction through the EWC. In the unions’ opinion, EWC meetings generate new questions that would otherwise not have been a concern to local unions. This creates new union demands and divides between unions, because some unions are willing to accept more than others. In the end, the power of national unions and their solidarity decline.298 As a result, trade unions opt for building parallel channels of cross-border interaction that are distinct from the EWC. 299 To summarize, there are several reasons why Electra’s EWC is a weak actor in the cross-border dimension. First, the Euroforum is an extended hand of management delivering selective information to employee representatives. In addition to Electra’s decentralized strategy in constructing employment practices, trade unions’ locally embedded interests are an obstacle in developing the EWC into an institution bridging national labour interests. Representatives are thus unable to overcome management domination because of their own competitive relations that mirror the hostility in cross-border interaction of Electra’s trade unions. Finally, competition between the union and the EWC channels of cross-border interaction also complicate the position of employee representatives and their influence on Electra’s behaviour in constructing employment practices. Recalling the existing literature and the conceptual framework presented in the chapter’s first section, I argue that the EWC did neither develop its information and legitimacy roles, nor was there extensive capacity to influence Electra’s behaviour in constructing employment practices. Euroforum’s information role would imply employee representatives to draw on international resources, benefit from EWC agreements in their local work, and be able to influence employment practices in the subsidiaries. Evidence from Electra does not support this function of the EEF. Representatives from Western and CEE host countries do not see a great added value of the EEF for their local and national union agendas. The legitimacy role grants EEF representatives access to headquarters by bypassing local management. In Electra, this kind of interaction is not in place due to the predominance of polycentric interests both on the side of employee representatives and management. Employee representatives lack encouragement to look for alliances with headquarters in order to influence the construction of employment practices in the subsidiaries and Electra’s behaviour in the host countries. Instead, all parties stress the relevance of local conditions where their social interaction evolved and that is a resource for local trade unions’ position vis-à-vis the MNC.

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To systematize the presented evidence, in this section I apply the same game-theoretical interpretation of findings on cross-border union interaction as applied in the previous chapter on management–union interaction in Electra’s subsidiaries. Here the payoffs that unions in Western Europe and CEE assign to their options in their long-term international interaction range from 3 (highest) to 0 (lowest). Building on local interests, Western unions assign the overall highest payoff (3) to competition with CEE unions (see Figure 6.1).300 At the same time, Western unions see added value in cooperation with CEE counterparts and therefore assign a high payoff also to cooperation (2). Motivation behind cooperation is the development of cross-border shared values, international solidarity and union resources, and more European-level strength to drive the harmonization of employment practices across EU countries. CEE unions assign the highest payoff (3) to cooperation with Western unions. Expected benefits include learning from more experienced Western unions, improvement in employment standards and their cross-border harmonization. Western European unions tend to make the first move in interaction and thus influence the overall interaction pattern. Cooperation is likely to develop when unions from both West and CEE are open to cooperation and a transfer of Western unions’ strategies to CEE. However, when Western unions maintain a hostile attitude to CEE unions, CEE unions respond by assigning a high payoff to competition (2). Due to the fact that the direction of production shifts favours CEE unions, CEE unions do indeed benefit from competition vis-à-vis Western unions. Based on this logic, I identify two sustainable equilibria and thus argue for two faces of cross-border interaction of trade unions: a cooperative face applicable to national and sectoral unions and a competitive face that characterizes the interaction of company-level employee representatives. CEE unions COOP COMPETE 3

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Two faces of cross-border interaction

1

COOP 2 Western unions

0 0

COMPETE

1

2 3

Figure 6.1 Social interaction of trade unions

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In the first, cooperative face, Western and CEE unions prefer to cooperate with each other with the purpose of future coordination of bargaining strategies, in order to lobby for international coordination of employment practices or at least for coordinating national employment regulation (top left-hand box in Figure 6.1). This outcome characterizes interaction of national and sectoral unions. Although value-based cooperation and bargaining coordination between Western and CEE unions is not yet extensive due to the lack of interaction before the fall of socialism in 1989, the interest of national union organizations suggest that cross-border union interaction does have the potential for further developing a geocentric identity. The second, competitive, face of interaction implies that Western and CEE unions did not develop cooperation. Instead, they benefit from a competitive relationship that helps unions in defending local standards and promoting advantages of national diversity in employment practices and industrial relations (bottom right-hand box in Figure 6.1). Cross-border union interaction at company level is in line with this interaction pattern. Interaction between unions is dominated by competition: trade unions in Electra’s Western sites view Hungarian and Polish unions as a threat to employment stability in the West. Unions in Electra’s CEE subsidiaries would prefer more extensive cooperation with Dutch and Belgian unions, but knowing the Western unions’ attitudes they also opted for promoting local interests. Payoffs assigned to competitive interaction also apply to Electra’s EWC representatives. Being mutually aware of each other’s strategies, Western and CEE employee representatives assign a higher payoff to a competitive instead of a cooperative interaction. As a result, the Euroforum is best characterized as a polycentric EWC, in which representatives obey their national and local interests. Delegates were not yet able to develop a geocentric EWC in terms of a new collective identity and an agenda distinct from their national interests. Consequently, Electra’s EWC does not yet have the potential to play an important role at the international level. The sustainability of these interaction patterns depends on several factors. First and the most important is the strategy of Western unions that has a greater impact on cross-border union interaction than the strategy of CEE unions. As long as local union representatives maintain their reservations towards international contacts in protection of local standards, the competitive interaction of Electra’s union representatives will remain stable. The second factor is the MNC’s organization, strategy and power relations between the MNC and local unions. Electra has

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maintained its decentralized strategy and locally constructed employment practices over decades. Trade unions were not willing and able to change this strategy in order to drive the process of cross-border harmonization in employment practices. MNCs are more powerful than unions, especially when unions lack a coherent international strategy and a solid cross-border network of resources. Therefore, if MNCs continue to relocate their manufacturing operations according to unilateral management decisions, Western unions lack extensive motivation to develop closer cooperation with CEE unions. Third, there are institutional and structural conditions influencing the sustainability of the two faces of cross-border union interaction. In a top-down influence, the EU and EMU institutions do create conditions for greater crossborder union cooperation. Unions at the national level recognize this enabling factor to shape their interests; and as long as the interests and the institutional conditions remain stable, we can expect cross-border union interaction to improve. At the same time, differing labour market rules and national industrial relations influence the interests of company unions in preventing international contacts and thus contribute to the sustainability of the other – competitive – face of cross-border social interaction. Finally, the sustainability of current interaction patterns between company-level trade unions in the West and East is under the influence of higher-level union strategies and the role of international trade union organizations, such as the EMF. It remains to be seen whether and how a strengthened cross-border cooperation of national and sectoral unions, either direct or via the EMF, can facilitate more cooperation between company-level unions in Electra. As already argued, cooperative interaction of national and sectoral unions could – despite some current obstacles – eventually evolve towards international coordination, with a formal bargaining climate at the international level and an increasing role for union organizations at national and sectoral levels (van der Meer, et al. 2004: 127). Moreover, cooperative cross-border unionism has the potential to develop into a strong bargaining partner of MNCs because it will enable local unions to draw on international union resources. Nevertheless, it would be implausible to conclude that cooperation of sectoral and national unions facilitates union capacity to influence MNC embedding in local conditions. National and sectoral trade unions, especially in Western Europe, are too far away from company-level politics and thus have little influence on management behaviour and the construction of employment practices in the subsidiaries. This is true especially in MNCs like Electra that have traditionally focused on workplace interaction with unions.

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The channel through which European resources of national and sectoral unions could influence managerial behaviour is through vertical union structures and cooperation between company and sectoral and national unions. However, this influence is unlikely due to the current divide in union behaviour. Therefore, under current settings, it is the company-level cross-border interaction that has the highest potential to influence employment practices in MNCs. Whether company-level unionism eventually develops this function depends on cooperation of trade unions from different establishments in various countries of a particular MNC, and on consensual industrial relations within the corporation (van der Meer, et al. 2004). As documented in this chapter, trade unions have deeply national roots even after years of European integration (Calmfors, et al. 2001). Thus, instead of developing international company unions (van der Meer, et al. 2004), current competitive relations and lack of international company union networking fuels an existing power asymmetry between MNCs and trade unions. In consequence, MNCs have at their disposal greater possibilities for local responsiveness in constructing employment practices – with or without involving local unions. In other words, the fact that unions themselves stress the predominance of local interests and lack international solidarity gives MNCs a larger room to manoeuvre without external pressures on a corporation-wide harmonization of employment practices or Europeanization of collective bargaining.

Conclusions In this chapter I examined the current state of social interaction between trade unions and employee representatives in Western Europe and CEE at national/sectoral, company, and EWC levels; and asked how the observed interaction forms facilitate or constrain MNC behaviour in the process of constructing employment practices and their harmonization across Europe. The findings reveal two contrasting faces of cross-border union interaction: a cooperative one among national and sectoral union organizations in Western Europe and CEE countries, and a competitive one that prevails between Electra’s company unions and the EWC. At the level of national and sectoral trade unions in the metal sector, a strengthened cross-border cooperation with the potential to shape MNC behaviour in constructing employment practices is indeed emerging. Trade unions are eager to foster international contacts and value-based cooperation in order to strengthen their role in the construction of employment practices in the old and new EU

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member states. This process is, however, not evident at the company level. Company unions are embedded in their local conditions and are not motivated to cooperate with foreign partners. Regular cross-border contacts among Electra’s company unions are limited and unions in Western Electra subsidiaries view their CEE counterparts as competitors. In consequence, company-level union unionism is dominated by competition, which yields local management–union interaction in MNC subsidiaries more important for constructing employment practices and employment standards.301 What do the documented two faces of union interaction mean for harmonization of employment practices across Electra’s subsidiaries? Calmfors et al. (2001: 131) argued that if international collective bargaining shall develop, it is likely to occur within MNCs. International company-level bargaining should then improve prospects for crossborder union coordination also at higher levels. Thus, building crossborder union networks and bargaining is more likely in a bottom-up than a top-down process. This chapter presented a scenario that significantly differs from the forecast of Calmfors et al. (2001). Because of the weakness of international company-level trade unionism and the distance of sectoral cross-border unionism from individual MNCs, a bottom-up process of building cross-border unionism and European-level company bargaining is unlikely. Rather, my findings show that sectoral organizations are more active in maintaining and further developing cross-border union networks. Thus, if other obstacles concerning union organization and interaction between national, sectoral and company unions in different countries are overcome, I argue that instead of a bottom-up process, a top-down process of building cross-border unionism influencing the construction of employment practices is more likely. The two faces of cross-border union interaction do not currently pose major challenges to Electra’s decentralized strategy in constructing employment practices. National and sectoral union strategies could eventually exert influence on MNC behaviour and the construction of employment practices through vertical union structures. But such influence is unlikely due to the current divide in national and company-level unions’ interests and the two contrasting faces of interaction. As already mentioned, national- and sectoral-level unions are far away from company-level politics.302 Therefore, the union interaction that really matters for MNC embedding and construction of employment practices is the one between union representatives and EWC representatives within Electra. Company-level unions and EWC representatives with locally embedded and competing interests across Western and

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CEE host countries lack the capacity to exert pressures on management in harmonizing employment practices across the subsidiaries. This gives the MNC the greatest influence on the construction of employment practices across Europe, due to lack of trade union pressures and demands at the international or European level. In other words, international company-level trade union networking dominated by competing interests, combined with institutional diversity across Western Europe and CEE and with a decentralized MNC organization, are the most important factors facilitating a decentralized and locally responsive construction of employment practices.

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7

As shown in Chapters 4 to 6, various interaction forms apply to various interaction channels between the MNC and local actors. Some interaction channels are of direct relevance for the construction of subsidiary employment practices, whereas others complement the construction process and allow for a broader perspective on MNC embedding. Pulling together the findings of previous chapters, the current chapter investigates complementarities in social interaction forms and channels. These complementarities account for a set of interdependent interaction processes, or in other words, the mechanism through which employment practices are constructed. Complementarities in social interaction are crucial in understanding the comprehensive construction process, but also its stability and change. I argue that stability is not reached via normative institutional constraints on MNC behaviour in the host countries, but by the MNC’s utilization of diverse local conditions and involvement of local actors in the process of constructing employment practices. What does such an interaction mechanism imply for actual diversity in interaction outcomes, thus employment practices? Recalling the introduction, the book’s theme has developed around the reasons of constructing diverse employment practices across MNC subsidiaries, regardless of a unifying corporate strategy and effects of host-country labour laws and local employment standards. The analysis of empirical evidence in the previous chapters leads to the following argument. Diversity in employment practices is not sufficiently explained by economic and institutional conditions, such as differing labour laws, comparative advantages in economic conditions, employment standards

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and work habits, in Western Europe and in CEE. Even when institutions allow for similar employment practices across countries, the MNC has opted for diversity, because it better reflects its values and economic interests. Thus, institutions are an important resource for actors’ behaviour, but ultimately it is the actors who utilize institutional spaces and consequently generate and maintain diversity in employment practices. Diversity in employment practices is thus predominantly actordriven; and its thorough understanding requires the acknowledgement not only of institutional factors, but the interplay between institutions, actors’ interest-driven behaviour, and social interaction between MNCs and others in the process of constructing such practices. In other words, organizational interests, values, social interaction and host-country institutions at the macro and micro level are mutually reinforcing across international and local spaces and account for diversity in employment practices. The above argument is developed in the remainder of this chapter. The first section summarizes the book’s main findings on diversity in employment practices. In the second section I address why does diversity occur and reinforce the argument on the relevance of actors’ behaviour and social interaction for constructing employment practices and explaining cross-subsidiary diversity therein. In the third section, I take a deeper inquiry into actors’ social interaction and elaborate the process of constructing employment practices through complementarities in interaction forms between Electra’s headquarters, subsidiaries and local actors. Next, I evaluate the sustainability of interaction forms and highlight its implications for stability and change in employment practices. In the concluding section I revisit the book’s conceptual tools and discuss their compatibility with the organizational and the institutionalist literature on MNC behaviour.

Uncovering diversity in employment practices One of the research questions raised in the book’s introduction aimed at mapping similarities and differences in subsidiary employment practices and uncovering the extent of their diffusion within the MNC, or their adaptation to local standards across relevant host countries. I now revisit this question and draw together arguments on the process through which micro-level agency accounts for diversity in employment practices. The most outstanding cross-subsidiary diversity applies to employment practices directly related to labour costs. These follow local benchmarks and benefit from differences in local labour market conditions, including

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unemployment levels, labour turnover rates, wages, or working-time standards. Significant diversity is also documented in employment flexibility practices. Despite similar production fluctuations in all subsidiaries, different local solutions apply to seasonal shifts in demand for local labour. Differences pertain to balancing permanent and temporary workers in the overall headcount of production workers, working-time management, and work organization. Electra Kwidzyn is unique among the subsidiaries in its practice of dual flexibility, which effectively combines working-time flexibility with seasonal workers’ contract flexibility. Electra Székesfehérvár is unique for its innovative practice of employee exchange with another MNC with opposite production seasonality. In soft employment practices, great diversity exists in worker motivation. In contrast to Western subsidiaries, Electra fosters monthly performancerelated pay and individual competition at the workplace in CEE subsidiaries. These practices correspond to common standards in Western and Eastern Europe and confirm Electra’s utilization of differing local conditions. In work organization and workplace relations between managers and workers, cross-subsidiary diversity is limited. Employee participation in decision-making and fringe benefits are relatively generous in all subsidiaries and compensate for high employment flexibility and the growing share of temporary and agency work. Interestingly, fringe benefits exceed the local standards in CEE. This finding corroborates the consistency in MNC behaviour: Electra maintains its paternalistic practices even in conditions in which market-driven or institutional pressures to provide such benefits are marginal. A schematic comparison of the above similarities and differences in employment practices is shown in Table A.2 in the Appendix. The above findings indicate that diversity is greater in employment practices that are more exposed to external influences, i.e., legal regulation, trade unions, and local standards. This does not imply that Electra had no choice but to adapt to local standards. Instead, Electra took advantage of external influences and developed locally tailored practices instead of diffusing them throughout diverse subsidiaries. I identify two kinds of overall diversity in employment practices. The first resembles adaptation to local standards and thus an East–West divide in employment practices. Interaction of Electra’s managers with workers and trade unions in different countries facilitates such adaptation. The MNC acquires information about people’s work habits and interests; and assures workplace employment practices to reflect people’s needs and local social norms. Social interaction between Electra and local actors thus yields MNC embedding that reinforces broader

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societal and institutional differences between Western and Eastern Europe. Adaptation to already existing East–West differences applies mainly to employee motivation, performance-related pay, wages, and individual competition at CEE sites, as opposed to collective motivation and more egalitarian approaches to wages, performance pay, and working conditions in the Western subsidiaries. However, diversity in employment practices does not persist only because MNCs adapt to differing local standards in their host countries. A closer look at Western and Eastern workplaces reveals the second kind of diversity, namely, new divergences that do not replicate the stylized East–West differences. In a range of external and functional flexibility practices, each subsidiary documents distinctiveness regardless of its geographical location. Distinctiveness is an outcome of MNC interests in benefiting from local opportunities, the enabling character of these conditions and the form of Electra’s embedding through social interaction with local actors. In subsidiaries with cooperative social interaction and extensive trust, management opted for union and worker involvement in constructing employment practices even without legal obligations or economic motivation to do so. Local actors are thus more involved in constructing employment practices. In contrast, in subsidiaries with hostile relations and limited informal interaction, Electra has constructed locally optimal employment practices unilaterally, without extensive local actor involvement. Diversity in employment practices – whether in the form of adaptation to local conditions, or in the form of innovative practices diverging from local standards – is supplemented by a set of practices that are similar across subsidiaries and unrelated to differences in local conditions. Similarities apply to the willingness to delegate authority, maintain flat hierarchies, encourage open communication at the workplace, cultivate informal social relations between managers and workers, and pay attention to workers’ welfare. In this respect, my findings confirm the company’s attempt to diffuse several employment practices as best practices across different subsidiaries. The similarity of these employment practices derives from Electra’s corporate values and the subsidiaries’ technological and production specificities. In sum, neither can we speak of full-fledged corporate diffusion of best practices inducing convergence in employment practices for efficiency and profit reasons, nor of full adaptation of employment practices to local standards with the same purpose. Electra recognizes that successful practices in one case may not have the same effect on performance in other cases due to institutional and cultural differences in the subsidiaries’ local

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conditions. Employment practices are therefore responsive to local standards; however, responsiveness does not mean Electra’s straightforward adaptation to local employment standards.

Social interaction between Electra and local actors constitutes the core of the process through which employment practices are constructed and their similarities and differences are produced. I now address in greater detail how actors’ behaviour and social interaction account for constructing employment practices and explaining cross-subsidiary diversity therein. I start with the following claims that characterize behaviour of involved actors – mainly Electra – in social interaction, and the interaction’s consequences for diversity in employment practices. First, Electra’s behaviour significantly accounts for the lack of systematic convergence in subsidiary employment practices across Western and CEE subsidiaries. Instead of diffusing best practices, the MNC strives for constructing innovative practices without cross-subsidiary coordination, which produces diversity. Moreover, diversity in employment practices is not restricted to differences between Western and CEE subsidiaries, but also cuts across the East–West dimension. Second, diversity in employment practices is not an outcome of Electra’s adaptation to legal, economic and social standards in the host countries. Instead, several documented employment practices exceed local standards. Electra’s embedding – and in particular its behaviour in constructing employment practices – is thus best characterized as making the most of local conditions without fully adapting to them. Third, Electra’s behaviour in constructing employment practices is influenced on the one hand by internal resources, e.g., profit interests and corporate values, and on the other hand by external economic and institutional realities, e.g., product market competition and legal regulation. Electra’s economic interest is not limited to profit-seeking via exploiting local opportunities and actors. Building on both internal and external resources, the MNC voluntarily engages in social interaction with local actors to discover which employment practices are most feasible in particular conditions. Whether cooperative or competitive, interaction with local actors is thus central in the construction process. Finally, economic power and international resources inform Electra’s behaviour towards local actors. However, power is not the only relevant attribute in social interaction with local actors. Organizational culture

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and values of the company shape its behaviour vis-à-vis the locals. Under the influence of values, Electra’s behaviour aims at high-trust interaction with local actors, leading to joint (informal) agreements, frequently beyond the legal requirements on collective regulation of employment issues and beyond local employment standards. This interaction form significantly differs from one’s expectations when assuming universal economic rationality utilizing economic power. I argue that such behaviour is not irrational; instead, it resembles a particular logic of rational behaviour, with embedded interests and preference building that cannot be detached from company values, local conditions, and particular interaction channels. To analyse the above statements in reinforcing the actor-oriented argument on the social construction of employment practices, it is necessary to understand the origins of actors’ behaviour and the interplay between their values, interests and host-country institutions in the construction process. There are several forces influencing employment practices: some of these are inherent attributes of actors; others originate in the actors’ external socio-institutional environment. I argue that external economic, institutional and societal factors fail to fully account for constructing employment practices. Were the societal and institutional effects to constrain MNC behaviour in the construction process, my findings would indicate extensive similarities between the studied subsidiaries and local employment standards. However, such wide-ranging adaptation to local standards has not been found. Alternatively, external factors could facilitate cross-country diffusion of best practices. Even though legal regulation differs across the host countries, host-country laws do allow cross-country similarities, particularly in working time and recruitment of temporary workers.303 Despite the legal possibility of implementing some best practices across all subsidiaries, Electra has chosen cross-subsidiary diversity. In sum, in those dimensions of employment practices where external factors could facilitate Electra’s adaptation to local conditions, a full-fledged adaptation has not been found. In dimensions where external (mostly legal) factors enable the diffusion of best practices, widespread diffusion has not been found either. Instead, Electra has actively utilized institutional spaces to construct employment practices that are in line with its corporate values and interests. The fact that institutional and societal factors do not facilitate Electra’s adaptation to local employment practices is especially obvious in CEE where Electra’s way of treating local actors, and the generosity of fringe benefits in the subsidiaries, exceed local standards. CEE’s

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employment standards and collective labour representation to improve these standards differ greatly from Western Europe. Due to economic hardship and the uncertainty of employment, workers value their jobs and often refrain from demonstrating dissatisfaction with managers’ decisions. A strong institutional framework, including legal stipulations and a system of collective bargaining to facilitate workers’ welfare, is absent (Meardi 2006; Avdagic 2005; Mailand and Due 2004). Therefore, in CEE MNCs are not under economic or institutional pressures to offer generous benefits and above-average employment practices, because these lack an extensive legal or collective stipulation. Societal pressures, i.e., practices in other locally established companies that would force Electra to adapt to local standards, are not extensive either. The local environment is relatively conducive to manipulative treatment of workers by MNCs without obliging the companies to invest in the long-term improvement of labour resources and the enhancement of worker welfare. Had Electra been pushed to adapt to local standards because of external influences,304 shared values and cooperation with local actors with the purpose to build trust and to offer additional employee benefits would have been less evident than documented in this book. Even in hostile local conditions Electra tends to offer better employment practices than other employers. In exchange for increased costs, the company obtains stability, industrial peace and a motivated workforce – rewards preferred to short-term profitability and cost reduction (Thelen and van Wijnbergen 2003). In sum, external socio-institutional conditions do not directly account for the fact that subsidiary employment practices diverge from local standards. Nevertheless, the local environment is important in facilitating Electra’s interest to embed through utilizing local conditions and to construct employment practices tailored to these conditions.305 What elements does Electra effectively combine in its behaviour in order to achieve the desired diversity in employment practices? I have theorized in Chapter 1 that MNC behaviour in shaping employment practices may be informed by economic interests and company values. In the subsequent chapters, the analysis revealed that it is the complementarities between economic interests, values and host-country conditions that are central in understanding Electra’s behaviour and social interaction with local actors. In more general terms, these complementarities are central in accounting for the construction of employment practices and their diversity. If economic profit had been the only explanation of MNC behaviour in constructing employment practices, Electra would have made more effort in diffusing best practices across

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different countries in search of universal international competitiveness and profitability (Martin and Beaumont 1998; Paauwe and Boselie 2005). By exclusively following a profit goal in a short-term perspective, Electra would not be motivated to offset flexibility with generous benefits, reward workers for personal achievements and emphasize informal social interaction at the workplace. Additionally, Electra would have invested in voluntary social interaction with trade unions and the local society only if this led to a short-term profit increase. Since I did not find such empirical evidence, I argue that the instrumental profit interest alone is not a sufficient explanatory factor for understanding diversity in employment practices. Profit and efficiency considerations are, however, not unimportant for MNC behaviour. This book shows that the means of achieving profits are endogenous and informed by company values and responsiveness to workers’ interests in different countries and the MNC’s ability to benefit from local resources. Electra attempts to address its corporate interests in a socially embedded way, i.e., by responding to local workers’ needs, using local benchmarks for the development of generous benefits, and investing in building cooperative social interaction with local actors. Values shape the company’s perception of what is rational and how to achieve economic rationality in differing local conditions. Thus, Electra’s rational behaviour is contextualized in external socioinstitutional conditions, as well as it is informed by company values. Electra’s most important values that influence employment practices are paternalism towards workers and local responsiveness. These values have become the MNC’s hallmark and the cornerstone of its administrative heritage since the company’s establishment (cf. Bartlett and Ghoshal 2002; Stinchcombe 1965). A company-specific value system was gradually strengthened and permeated managerial thinking at all levels of the organization from headquarters to subsidiaries. Local responsiveness accounts for Electra’s interest in developing cooperative social interaction with local actors. Paternalism accounts for Electra’s interest in providing above-average employment practices and building trust of workers and trade unions regardless of short-term profit expectations. An important question is whether there are tensions between paternalism and local responsiveness. In other words, how do values coexist and support each other? Paternalism could imply centralized MNC control over employment practices regardless of local conditions, which could stimulate tensions between paternalism and local responsiveness. However, as shown earlier, in Electra’s case, such tension does not arise, because the company does not define paternalist practices

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centrally and does not closely control the diffusion of paternalist practices across the subsidiaries. Instead, the tightly coupled corporate value system is balanced with a loose system of value diffusion across local contexts. Selection and training of managers is an important feature in maintaining the continuity of this balance between the value definition and diffusion across subsidiaries. Instead of imposing corporate values on local managers, Electra recruits managers whose individual values match the company’s values. These managers are then granted large autonomy from headquarters to pursue their actions locally. This way, paternalism acquires different meanings in different local conditions, enters social interaction between the MNC and local actors differently, and results in diverse employment practices across subsidiaries.306 Electra’s values interact with economic interests. An outcome of this interaction is a paternalist employment policy specific to Electra and thus more than a reflection of home-country isomorphism or imitation of best organizational practices of similar MNCs. In recent strategic reorganizations, Electra’s economic interest has put company values under pressure, as discussed in Chapter 3. However, instead of evading paternalism and local responsiveness, Electra continuously invests in maintaining its values and seeks to find a balance between values and economic interests. Even if the MNC attempted to disembed itself from its value system, this would not be easy because the values form a pathdependent administrative heritage whose change requires long periods of time. Therefore, instead of trade-offs between economic interests and values, Electra attempts to balance these and avoid potential clashes. Next to balancing economic interests with values, Electra attempts to balance its profit interest with its behaviour by being socially and institutionally responsive to host-country conditions. Electra’s NOs have always enjoyed great decision-making powers. Corporate reorganizations aiming at improving economic performance have not led to a centralization of such powers at corporate headquarters, but have facilitated further decentralization and subsidiary autonomy. This is not the result of Electra’s inability to centralize decisions, but the MNC’s belief that the subsidiary is the best organizational level for managing local resources, including employment practices. The goal of a decentralized construction of employment practices is to better reflect the needs of each subsidiary and its workforce. In other words, Electra has combined the search for best economic performance with local responsiveness. The fact that the MNC itself is willing to utilize local conditions and engages in constructing different employment practices in different host countries eliminates the tension between a

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universal instrumental rational strategy and the constraints originating in diverse local institutions. An interactive relationship also exists between company values and local conditions. A tight value system can yield tensions in the local operation of these values, especially if they are not consistent with work attitudes and employment standards in particular local conditions. Electra’s responsiveness to local conditions and a decentralized way of transposing company values to subsidiary employment practices helps in eliminating these tensions. Consistent with earlier arguments, I argue that through social interaction with local actors, MNC values are maintained but acquire different meanings across different socioeconomic contexts, and take part in constructing different employment practices in different countries. Thus far I have argued why Electra’s behaviour can, and external conditions cannot, account for variation in employment practices. To underpin my argument, the final point to be discussed is the role of local actors and their responses to Electra’s behaviour. The power asymmetry between Electra and local actors is obvious both from an objective perspective and from the perspective of actors’ perceptions. Local actors that are involved in interaction with Electra directly or indirectly support Electra’s interest in maintaining diversity in employment practices. This is mainly due to two reasons. First, relevant trade unions in each host country are interested in maintaining local standards and therefore prefer the MNC to construct employment practices in line with these standards. Unions argue that such strategy better reflects individual workers’ needs than employment practices imported from abroad or determined via European legislation. Second, even if unions were to opt for cross-country diffusion of best practices, I have argued in Chapter 6 that, due to the competing interests of Western and Eastern European unions, they lack the capacity and power vis-à-vis the MNC to pursue convergence efforts. Therefore, diversity in employment practices is predominantly the MNC’s choice; but local actors play a central role in constructing diversity through their social interaction with the MNC.307 In sum, actors and their choices are most important for understanding why employment practices differ across Western and CEE subsidiaries. The actor with the greatest influence on diversity is the MNC, because of its capacity to pursue a behaviour combining rational economic interests with company values while taking advantage of social, economic and institutional spaces in the host countries. I have argued that in MNC behaviour vis-à-vis local actors, company values interact

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Unfolding social interaction in Electra Having established the actor-oriented argument in understanding diversity in employment practices, I now return to the main focus of the book and ask how actors matter; or in other words, how are employment practices constructed through actors’ social interaction. Recalling Chapter 1, social interaction within Electra’s organizational units and between Electra and local actors relates both to formal negotiation structures and to informal social relations, including communication and trust between managers, workers and trade union representatives. Social interaction is then a situation where the behaviour of Electra is influenced by, and influences the behaviour of, local actors. In this section I discuss how particular interaction forms in particular interaction channels, documented empirically throughout Chapters 3 to 6, come together to form a coherent mechanism of social interaction that amounts to the broad process in which employment practices are constructed. Subsidiaries are the meeting point of Electra’s interests with the interests of local actors. At the same time, subsidiaries are the place where employment practices are being constructed. Different forms of documented social interaction suggest that Electra and local actors play different roles in the construction process. Electra’s decentralized approach to the construction of employment practices materializes via value-based cooperation and interactive bargaining with local actors. At the same time, Electra keeps control over the embedding process and diversifies the extent to which the subsidiaries interact with local actors and the extent to which local actors are involved in decisions concerning employment practices. In other words, the construction of employment practices incorporates Electra’s choice of whether decision-making in the subsidiaries takes place with or without an active involvement of local actors. For the MNC to take this choice, an enabling institutional context and a favourable power constellation between Electra and local

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with rational economic behaviour and socio-institutional diversities in the host countries. Complementarities between values, interests and institutions thus foster a particular embedding process, which results in employment practices that are neither diffused from headquarters to subsidiaries, nor fully adapted to local employment standards. Diverse local environments are utilized as a resource for achieving international economic competitiveness and for transposing MNC values into concrete employment practices.

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actors are necessary. Such constellation does exist because of the asymmetric power resources of Electra and local actors. Whereas Electra’s power builds on both corporate and local factors, the interest of local actors is shaped predominantly by local economic and political factors, moral values, and an experience with and assessment of the MNC’s local behaviour. This argument is an outcome of social interaction in a system of four interaction channels: Electra’s corporate headquarters and subsidiary managements (α); interaction among Electra’s sister factories (β); interaction between Electra’s subsidiaries and local actors (γ); and cross-border interaction between trade unions and the EWC to influence union interests and behaviour towards the MNC (δ). Interaction channels and forms Electra’s corporate headquarters and subsidiary managements (α) In Chapter 1 I have assumed heterogeneity of corporate interests. In Electra, heterogeneity is outstanding in two issues: first, interest in closely controlling production targets and supply chain management; and second, lack of headquarter interest in controlling the subsidiaries’ organization of production and employment practices. Headquarters aim at closely controlling strategic business processes – and this is in line with Electra’s fundamental profit interest. At the same time, Electra fosters a decentralized organization of employment practices and assigns great freedom to subsidiary managers to locally construct employment practices for production workers. Are these interests in conflict with each other? I have argued in Chapter 3 that they are complementary. For Electra, a decentralized and locally responsive construction of employment practices has proven to be the best means to achieve profits. A crucial issue in channel α is the diffusion of Electra’s corporate values. The value system has two consequences for social interaction between headquarters and subsidiaries. First, corporate values are diffused and controlled throughout the organization; and headquarters recruit managers to be committed to these values in their operational activities. The selection of subsidiary managers who internalize the corporate values is the precondition for the functioning of values-based cooperation in employment issues between headquarters and the subsidiaries. Second, the tightly coupled value system entails loosely coupled value diffusion. By granting a large amount of freedom to subsidiary managements, Electra’s headquarters stay out of directly controlling the process of constructing employment practices and its outcomes. Formal and informal interaction between headquarters and subsidiaries thus

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focuses on issues of strategic importance, but the employment practices of subsidiaries’ production workers are not directly coordinated via this channel. In sum, social interaction between Electra’s headquarters and subsidiary managements in employment issues is best described as a value-based cooperation yielding a decentralized construction process. Cooperation revolves around the corporate interest in maintaining multiple resources and delegating responsibility to local managers. The consequences are that subsidiary managements enjoy greater power in the process of constructing subsidiary employment practices; and their behaviour matters most for cross-subsidiary diversity in employment practices. The form of headquarter–subsidiary interaction, informed by Electra’s corporate interests, creates a feasible precondition for social interaction with local actors with the purpose of tailoring employment practices in line with local opportunities instead of fostering their crosscountry convergence. Interaction among Electra’s sister factories ( β) In Chapter 1 I have assumed that healthy competition between MNC subsidiaries, eventually fostered by headquarters, may yield crosssubsidiary convergence in employment practices because of the selection of universally applicable best practices. Evidence from Electra does not support the existence of cross-subsidiary competition in employment issues with this purpose. Instead, managers prefer local responsiveness, claiming that local conditions are more important for constructing employment practices than importing practices from sister subsidiaries abroad. The close coordination of production targets and supply chain management contrasts with limited coordination of employment issues in cross-subsidiary interaction. What binds the subsidiaries together is the corporate interests and values. In sum, interaction among Electra’s sister factories resembles, on the one hand, control and bargaining in production issues; and on the other hand, value-based cooperation in constructing subsidiary employment practices. The latter involves informal interaction and exchange of general information, but lacks close cross-subsidiary control, competition or bargaining. Sister subsidiaries do not have a great impact on the behaviour of a particular subsidiary’s management in constructing employment practices. This conclusion corroborates the internal consistency in Electra’s behaviour in channels α and β; and the fact that interaction in these channels creates a feasible precondition for social interaction with local actors with the purpose of tailoring employment practices to local conditions.

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Social interaction forms in channels α and β suggest a decentralized and locally responsive construction of employment practices. Subsidiary managements strive to recognize local opportunity frameworks in order to benefit from local employment standards. To recognize such opportunities, Electra invests in its knowledge of host-country labour laws, formal and informal employment standards, and other labour market specificities. Hiring local HR managers is one way of gaining local knowledge. Yet Electra also seeks social interaction with diverse local actors, because such interaction is perceived beneficial to corporate interests and is in line with the corporate values. Starting from the broad MNC presence in the host countries, the local society, including municipalities, labour market boards, local media, and other organizations, is the first group of local actors with whom Electra interacts (channel γ4). Electra maintains interactive bargaining and value-based cooperation with these actors in each studied host country. Bargaining applies to the infrastructure of local services to the MNC’s benefit, and the use of MNC taxes for the local society’s development. Value-based cooperation is mostly obvious in CEE in Electra’s and local actors’ commitment to contribute to the local society’s development. Electra attempts to be actively involved in the local economic and social affairs and benefit from local resources, including property, educated population, simple administrative procedures and the support of municipalities and local labour market boards. While interacting with the local society, Electra controls the boundaries of the local society’s involvement into internal subsidiary affairs including the construction of employment practices. Steering the interaction in the desired direction is possible due to Electra’s international power resources, which make the MNC a stronger actor vis-à-vis the local society.308 The second group of local actors with whom Electra interacts is the subsidiary workforce (channel γ1). In comparison to the local society, workers have a greater direct influence on employment practices. This is due to Electra’s interest in involving workers in the construction process in order to increase subsidiary productivity through workers’ motivation and empowerment practices. Workers’ involvement is achieved through managerial control over work systems and through value-based cooperation between managers and workers at the workplace. In line with Electra’s values, managers encourage informal social interaction with workers, attempt to reflect on local standards in workplace hierarchy, and draw on local standards in workplace communication and

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social relations. This kind of MNC responsiveness to local standards improves management–worker interaction and renders workers more eager to accept flexible working hours, teamwork, performance pay and an obligation to provide feedback to management. Next, it is important to recognize that Electra as a paternalistic employer not only cares for workers’ interests, but at the same time utilizes corporate power to keep worker influence on employment practices within the boundaries of corporate interests. In consequence, extensive managerial control has been documented in some employment practices, i.e., in allocating jobs and performance appraisals. In sum, although less powerful than the MNC, workers in the subsidiaries do have a say in the construction of employment practices. In exchange for cooperative workplace interaction and generous benefits, Electra maintains control over employee performance and empowerment. Moreover, worker involvement in constructing soft employment practices is only encouraged when beneficial to Electra’s corporate interests. Other than the subsidiaries’ works council (channel γ3), subsidiary trade unions do have the largest influence on Electra’s employment practices via management–union interaction (channel γ2). Union involvement is to a great extent based on institutional conditions in the host countries; however, as argued in Chapter 5, the actors’ interests and constellation extensively determine the actual union involvement in the construction process. Preconditions for an extensive union involvement in the construction process include Electra’s willingness to interact with unions, the unions’ interests, coherence of interests if several workplace unions are present, earlier experience in union– management social interaction, management–union trust, and commitment to informal agreements. Managers in all Electra subsidiaries declare that cooperation with local unions is their preferred form of social interaction. Management–union interaction incorporates both distributional and integrative elements and is not limited to formal negotiations based on strategic calculations. 309 Subsidiary industrial relations obtain their essence from the existence of informal social interaction that rarely relates directly to particular economic benefits for the MNC, or a legal obligation to bargain with trade unions. I documented the contrast between high-trust subsidiaries where industrial relations resemble interactive bargaining and value-based cooperation (Brugge and Kwidzyn); and the low-trust subsidiaries with competing interests and conflict-based bargaining between management and unions (Dreux and Székesfehérvár). It does not mean that conflict-driven interaction hinders Electra’s interest in a locally responsive

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construction of employment practices. The consequence of unions’ antagonism has been their exclusion from decisions that are reached via trade union inclusion in subsidiaries that have cooperative industrial relations. Even when encouraging union involvement, Electra controls the boundaries to which trade union involvement in constructing employment practices is reasonable for corporate interests and values. This confirms my earlier assumptions that power asymmetry exists between Electra and local actors; and that the MNC utilizes local actors’ resources to its own benefit. In sum, Electra’s interaction with local trade unions occurs in the form of interactive bargaining, value-based cooperation and competition; and allows one to distinguish between union involvement in constructing employment practices within, and beyond, the formal legal requirements on trade union rights in negotiating employment practices. The purpose of Electra’s interaction with local workers, trade unions and the local society, albeit showing similar MNC behaviour vis-àvis local actors, is to make the most of local conditions and to construct tailored employment practices in Belgium, France, Hungary and Poland. I argue that power asymmetry between Electra and local actors, and the diversity in documented social interaction forms in channel γ, account for diversity in embedding outcomes, or in other words, subsidiary employment practices. The local actors have not contested this diversity. Interaction between trade unions and the European Works Council (δ) Thus far I have argued that diversity in subsidiary employment practices is actively driven by the MNC and its social interaction with local actors, informed by corporate interests, values, and host-country institutions. To what extent are trade unions able to overcome the MNC’s dominance and to increase their power vis-à-vis the MNC via international networking of employee representatives? I have explored this interaction channel in Chapter 6 and concluded that efforts to develop value-based cooperation exist between national trade unions confederations. However, similar efforts are limited in company-based unions, which are more important direct interaction partners for Electra. Unions in Western and Central Eastern Europe have polycentric interests and thus the dominant form of their cross-border social interaction is competition. Consequently, company trade unions have not developed cross-border cooperation to an extent that could directly strengthen their position vis-à-vis Electra. The EWC has the greater potential to become the MNC’s negotiation partner at the European

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level. However, competition between representatives, together with Electra’s efforts to limit the influence of this representation body, accounts for EWC’s current weakness. Competition between unions and EWC representatives thus validates the power asymmetry between the MNC and local actors; and the dominant role of Electra in the process of constructing employment practices.

In Figure 1.2 in Chapter 1 I schematized which interaction channels play a role for constructing employment practices. After studying each of these channels empirically, I now revisit this Figure and fill in particular interaction forms applicable to particular interaction channels. The updated scheme is shown in Figure 7.1 and includes only those interaction forms that have proven to be relevant for constructing employment practices.310 There is more than one interaction form applicable to each interaction channel. Diversity in interaction forms is found across channels, and also within channels. Together, the documented interaction forms are complementary and constitute the mechanism in which tailor-made subsidiary employment practices are constructed after drawing on corporate and local resources. Electra’s rational interests are not achieved via direct headquarter attempts to control subsidiary behaviour in constructing employment practices (channel α). The fact that corporate headquarters aim at utilizing host-country conditions eliminates internal competition and facilitates value-based cooperation between sister factories (channel β). It also creates good grounds for local managers to act autonomously and to seek

The MNC Value-based cooperation α

Headquarters Other subsidiaries of the MNC

Value-based coop. Interactive bargaining

Subsidiary management β Value-based cooperation

γ

Workplace employment practices

Local actors

Competition δ

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Complementarities in interaction forms

Trade unions and EWC

Local environment

Figure 7.1 Social interaction channels and forms

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a locally responsive construction of employment practices. The subsidiary behaviour vis-à-vis local actors depends on this corporate influence, but also on local influences and local actors’ interests. As a consequence of Electra’s and local actors’ constellation and interests, values-based cooperation complements interaction by control and interactive bargaining between Electra and local actors (channel γ). Due to the power asymmetry between involved actors, the MNC is able to limit the influence of local actors and guide it in the desired direction – i.e., involving workers in constructing soft employment practices, or selectively involving trade unions in constructing employment flexibility practices in subsidiaries with cooperative and high-trust industrial relations. Local unions lack the capacity to internationally mobilize against this kind of MNC behaviour. Their interests are locally embedded and competing (channel δ), thus facilitating Electra’s interest in local responsiveness and diversity in subsidiary employment practices. Complementarities in the above interaction forms account for a stable construction mechanism and resulting diversity in employment practices. A broader argument on the involvement of particular actors in the construction process, and the relevance of social interaction in the process, can also be formulated. Recalling the conceptual relevance of social interaction for constructing employment practices, as presented in Chapter 1, I corroborate the argument based on presented evidence and compatibility in interaction forms. I argue that different forms of social interaction represent different ways of constructing employment practices. In other words, particular interaction dynamics between the MNC and local actors account for different boundaries between the extent to which employment practices are constructed via unilateral MNC decisions or via the involvement of local actors.311 Both of these embedding processes acknowledge the MNC’s economic interests, values, and social and institutional forces in the host countries that constitute actors’ behaviour. Therefore, both embedding processes are socially constructed. However, in the former, the construction process remains within the organizational boundaries of the MNC, whereas in the latter case employment practices are constructed with greater involvement of local actors.

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Sustainability of social interaction for diversity in employment practices Changes in the presented construction process may originate, first, within Electra; second, in external normative conditions; or third, in

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behaviour of local actors. The first and most important factor for sustainability and change is Electra’s responsiveness and utilization of local conditions. This kind of behaviour builds on the MNC’s long-existing experience in decentralized business activities and the belief that profits are best achieved by utilizing host-country conditions and by providing local workers with better employment practices than local companies. If Electra were to encourage a more centralized construction of subsidiary employment practices with greater headquarter involvement (interaction in channel α would be dominated by control) and foster crosssubsidiary competition (interaction in channel β would take the form of competition to identify best practices), the constellation of subsidiary managers to local actors would change. Power asymmetry between Electra and local actors would increase, and as long as external normative constraints allow, Electra would opt for the diffusion of best practices and thus their convergence across subsidiaries. In sum, a change in interaction form in channels α and β to more control and internal competition would produce change in channel γ towards greater control of Electra over the involvement of local actors in the construction process, or eventually towards competition between Electra’s and local actors’ interests. The second factor that influences the sustainability of the presented construction mechanism is external normative constraints, of which harmonization of legal regulation in the EU and a close coordination of legal regulation among national governments of EU member states are the most important. Legal regulation of employment issues in EU countries is not yet harmonized to the extent of fostering cross-country convergence in employment standards. If legal regulation were to be strengthened and more coordinated in the future, it is likely that Electra would have less freedom in constructing those employment practices that are subject to legal regulation. Depending on the strategies of European decision-makers, harmonization of legal rules could eventually take employment practices either towards more convergence, or towards more diversity. The third and final factor relevant for the sustainability of the construction mechanism is the interests and behaviour of trade unions and employee representatives including their cross-border coordination of interests. In particular, changes in channel δ could alter the current construction process. If trade unions were more extensively committed to cross-border cooperation and able to overcome competing interests, international union networking could strengthen their bargaining position vis-à-vis MNCs in national or subsidiary settings even if a

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formalized international bargaining structure at a European level had not yet emerged (Arrowsmith and Marginson 2006). In other words, if the interaction form in channel δ were to be cooperation or interactive bargaining with the purpose of harmonizing employment standards across Europe, the MNC would be under greater pressure to alter its current behaviour in the direction of emphasizing more convergence instead of utilizing local conditions when constructing employment practices. Nevertheless, given the presented evidence, I argue that it is unlikely that the current competitive interaction of company-level unions will change without a third force, i.e., by a European legal rule or an intervention of higher-level union organizations such as the EMF.

Conclusions Consistent with the conceptual framework presented in Chapter 1, in this chapter I have drawn together evidence of social interaction between Electra and local actors to show how the empirically documented interaction forms in these interaction channels complement each other and together build up the social mechanism of constructing employment practices. The addressed analytical levels and interaction channels include the corporate level, the intra-firm level (interaction between headquarters and subsidiaries and the transposition of corporate values and interests into subsidiary behaviour; channels α and β), the subsidiary level (social interaction between subsidiary managers and workers, trade unions and the local society; channel γ), and the transnational level of social interaction of employee representatives (channel δ). In general, two types of the construction process are distinguished: one characterized by unilateral managerial action of the MNC; and one in which employment practices are constructed with the great involvement of local actors. In the case of Electra, social interaction in the form of value-based cooperation and interactive bargaining, encompassing a mutual exchange of resources and trust between the involved actors, and thus a greater involvement of local actors in the construction process, is more frequent than social interaction in the form of control or competition with conflicts of interests and a lack of trust. The argument on the social construction of subsidiary employment practices bears important consequences for understanding why similarities and diversities exist in employment practices across MNC subsidiaries and host countries. I have argued that diversity results from blending organizational and institutional, and transnational and local, forces, which are mediated, shaped and recreated by micro-level actors.

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Diversity in employment practices is therefore not sufficiently explained by economic and institutional conditions. Instead, institutions are an important resource for actors’ behaviour; and ultimately it is the actors who utilize institutional spaces for developing specific forms of social interaction through which employment practices and eventually their diversity are constructed. In other words, actors, their behaviour and social interaction, occurring in particular socio-institutional conditions and being informed by particular actors’ values and interests, are the most important for understanding why some employment practices are similar and others are diverse within and across Western and Eastern European MNC subsidiaries. Complementarities in social interaction are not only crucial for understanding the comprehensive construction process and diversity in employment practices, but also for stability and change in the construction process. I argue that stability is not reached via normative institutional constraints on MNC behaviour in the host countries, but by the MNC’s utilization of diverse local conditions, and the involvement of local actors in constructing employment practices. The interplay of actors’ interests, values, institutions, and their influence on behaviour and social interaction between the MNC and local actors in the construction process, calls for revisiting the existing literature on diffusion of employment practices in MNCs. In this final paragraph I wish to discuss how my actor-oriented perspective and my focus on the construction process complements the mainstream literature on MNC behaviour. Recalling Chapter 1, I have predominantly built my theoretical framework using organizational and institutionalist literature. I believe that the perspective emphasizing the social construction of employment practices makes a useful contribution to the existing literature both in empirical and conceptual terms. Assumed in mainstream MNC literature, both organizational and institutional, is the instrumental rationality of behaviour that aims at assuring company profits. I went further than testing and confirming rational MNC behaviour in constructing employment practices. Adopting a sociological framework to study the construction process, I focused on understanding how rational MNC behaviour takes place, how it is informed by factors seemingly unrelated to profits and shareholder value (i.e., self-imposed constraints on universally rational behaviour derived from values, social norms, relationships and trust between individuals in MNC subsidiaries) and how economic rationality relates to the MNC’s social and institutional environment in this process. Next, my analysis has brought forward two effects in which the society influences MNC

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behaviour when constructing subsidiary employment practices. The first one is the influence of normative institutional constraints, most obvious in the effect of legal regulation on employment practices. The second effect is the voluntary social influences originating in Electra’s interaction with local actors, with the potential of values-sharing and emerging trust, which stretches beyond the normative constraints and influences the MNC’s perception of what is rational in diverse socio-institutional conditions. I believe that the above conceptual contribution is a useful starting point for a further, more complex, research scrutinizing MNC behaviour and organizational practices across diverse host-country conditions. It introduces a new dimension to the existing literature by simultaneously drawing on organizational and institutionalist concepts and shifting the conceptual focus away from the outcomes of MNC behaviour and closer to investigating the impact of interests and institutions on behaviour and organizational practices.

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8

The standard approach in the comparative institutionalist literature on MNCs is to focus on the outcomes of MNC embedding in host countries, and thereby inquire whether MNCs diffuse best organizational practices throughout host countries or adapt to local employment standards (Ferner, Quintanilla and Sánchez-Runde 2006; Geppert and Mayer 2006). In this book I have taken a different approach and attempted to combine theoretical and empirical insights into the embedding process of MNCs, using case study evidence from Western Europe as well as postsocialist CEE host countries. In particular, I have sought to address three questions. First, the aim was to map subsidiary employment practices and uncover the extent of their diffusion within the MNC organization, or alternatively, their diversity and adaptation to local standards. The second question concerned a theoretical understanding of how MNC embedding and the process of constructing employment practices occurs in Western European and CEE host-country conditions. The final question aimed at uncovering the conditions facilitating the social construction of employment practices. In addressing these questions, I directed attention to the constitutive elements of the MNC’s embedding process and its particular dimension – the construction of subsidiary employment practices. In this concluding chapter I revisit the selected theoretical and empirical aspects of the book’s argument and elaborate implications of the social construction of employment practices for actors’ interests in the host countries, employment standards, and institution building from below. I start with a brief summary of the researched matter. The majority of available empirical literature draws on evidence covering a number of companies. The disadvantage of such studies is

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a lack of in-depth insight into social interaction and company behaviour that sustains particular employment practices. For this reason, I opted for a qualitative comparative in-depth case study of the Dutch company, Electra, and its four subsidiaries producing televisions and home entertainment products in Western European and CEE host countries. The similarity of subsidiaries in products, production seasonality and (the lack of) headquarter involvement in constructing employment practices while being at different locations offered a suitable research design. This design allowed an examination into the consistency in social interaction across several organizational levels within the MNC, as well as in social interaction between the MNC and local actors in the respective host countries. Empirical evidence has been collected in the form of interviews with managers, employee representatives and other respondents, and through collection of company reports, documents and newspaper clippings at the factories and at Electra’s Dutch and host-country headquarters. Where applicable I reconstructed the qualitative evidence of social interaction forms in game-theoretical matrices, enabling a more systematic analysis of the existing constellation and behaviour of actors, their power relations, their social interaction form and their involvement in the process of constructing employment practices. This perspective on the construction process furthermore allowed the uncovering of why similarities and diversities that occur in employment practices in different subsidiaries and host countries cannot be simply explained by the subsidiaries’ location and host-country institutions. There are two particular arguments that are crucial in addressing the book’s research questions within the above perspective of the construction process. First, MNC embedding is a complex process influenced by a number of organizational and institutional factors. In consequence, the construction of employment practices occurs in distinct ways, with greater or lesser involvement on the part of relevant local actors in the host countries. Depending on the interests and power resources of the MNC and local actors as well as on the enabling institutional conditions in the host countries, distinct dynamics of social interaction between the MNC and local actors will emerge. This dynamics accounts for different boundaries between the extent to which the construction of employment practices occurs via unilateral managerial decisions of the MNC on employment practices; and the extent to which employment practices are constructed with the cooperative involvement of local actors.

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These kinds of the construction process are predicated on the view that non-economic factors and social relations inform the MNC’s economic interest. In cases of cooperative interaction between the MNC and local actors, trust and informal relations underline the social nature of actors’ economic behaviour. The conditions influencing and facilitating the embedding process entail compatibility between several resources: the MNC’s corporate values and profit interest, host-country institutions, interests of local actors, and trust between MNCs and locals. Compatibility is acquired through the MNCs’ organizational interests, reflecting the specificities of the host countries’ institutional context. Host-country institutions are an important resource for the process of constructing employment practices in MNC subsidiaries, as well as for constructing local employment standards. Whereas I do acknowledge institutional relevance, my second argument is that it is ultimately the actors that make the most of institutional spaces and reconstruct employment practices and employment standards in local labour markets. These institutions help regulate employment affairs in labour market conditions where the broader institutional underpinning of employment standards and the tradition of collective bargaining are less extensive than in countries with strong regulatory systems and entrenched bargaining institutions. In the remainder of this chapter, I elaborate the implications of the above arguments. The first section evaluates the spill-over effects of documented MNC behaviour for the interests and welfare of workers in the host countries, and for the position and functioning of local trade unions and local societies. In the second section, I question the preconditions that facilitate a functioning social interaction between actors and consequently an actor-driven construction of employment practices. In particular, I discuss the compatibility between MNC interests and host-country institutions. The aim of the third section is to contribute to the debate on institutional evolution and change in European countries. In line with the book’s overall framework and in contrast to the mainstream literature on institutional change (Djelic and Quack 2003; Streeck and Thelen 2005; Thelen 2004), I approach this issue from a micro-level and actor-oriented perspective and assess institutional change from below as driven by particular socio-economic actors. I conclude with some reflections on the theoretical framework on the social construction of employment practices and raise several issues deriving from this book’s theme but deserving more attention in future research.

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The effects of company behaviour on the society have been widely questioned in the literature on corporate social responsibility (Diller 1999; Edwards, et al. 2007; Friedman 1970; Hiss 2006; Monshipouri, Welch and Kennedy 2003; Santoro 2003). In broad terms, they refer to spillover effects of company behaviour on other actors. Referring to social responsibility in the context of this book, I am interested in addressing what are the broader effects of MNC embedding in terms of impact on subsidiary workers, local trade unions and the local society across the studied host countries. Alternatively, the question can be reformulated as asking who benefits from the described MNC behaviour and the social construction of employment practices. In an economic logic, the outlined MNC behaviour, informed by paternalist values, local responsiveness and a decentralized approach to the construction of employment practices, certainly does benefit the company’s long-term profitability. Earlier evidence has shown that managing companies like decentralized communities via paternalist values brings comparative advantages in terms of a motivated workforce, which is indeed the key to company success in the long-term perspective (Pfeffer 2006). Electra’s ability to steer employment practices and to influence local actors in the desired direction facilitates the MNC’s continued existence in a capitalist society. The social construction of employment practices thus does not conflict with the long-term profit interest of the MNC, but facilitates this interest and therefore benefits the MNC. For local actors in the host countries, the documented MNC behaviour and the social construction of employment practices bear both positive and negative consequences. Given the power asymmetry between Electra and locals, the MNC is more powerful than local actors, and as my analysis has shown, able to steer the construction of employment practices in order to meet corporate interests. Trade unions are involved in MNC decision-making upon conditions specified by the MNC. This means that local actors are left to the favour of the MNC, even if the particular company provides good working conditions, relatively generous fringe benefits, and fosters cooperative relations with workers, trade unions and the local society. Some local actors could eventually prefer more freedom in their behaviour vis-à-vis the MNC. From this point of view, Electra’s behaviour disadvantages local actors as it implies more control over their local resources with the purpose of improving the MNC’s own profitability.

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At the same time, Electra’s behaviour does also bear positive spillover effects on local actors. This is obvious in particular when looking at recent trends in employment standards and labour market dynamics in CEE societies. Employment standards in this region have noticeably improved after the settlement of MNCs; job opportunities with better working conditions have increased; and MNCs offer higher wages and more fringe benefits and social rewards than local companies (Bohle and Greskovits 2006). Despite increasing the dependence of workers and local societies on MNCs, the above implications can be considered as positive externalities that benefit the local actors and contribute to their social and economic welfare. The concern with workers’ welfare is part of Electra’s value system regardless of whether it yields higher profits in a short-term perspective. In this respect, Electra is a socially responsible employer, because it maintains its commitment to provide fair employment practices and benefits even in market-driven institutional conditions of CEE where such kind of company behaviour is not induced by economic competition or by a legal rule. Corporate social responsibility is not understood here as securing lifelong jobs, but as a voluntary commitment of the MNC to tailor employment practices to local workers’ characteristics and provide employment practices that address the workers’ well-being. As already mentioned, this kind of behaviour benefits the MNC’s profitability in the long term, but at the same time it also benefits local actors and the development of the local society.

Preconditions for social interaction: compatibility of actors’ interests with host-country institutions The argument on the social construction of employment practices inspires a deeper theoretical inquiry into the preconditions that make MNC embedding and the construction of employment practices through social interaction possible. Such inquiry leads us to revisit theoretical notions of the compatibility of MNC interests with the interests of local actors and with host-country institutions. Two streams of literature address the relationship between MNC interests and host-country institutions. The first one is a strand of earlier globalization theories, assuming cross-national convergence in organizational practices that results from increasing global competition, technological advancement, and the liberalization of trade and capital movements (Berger and Dore 1996; Kerr, et al. 1962; Womack and Jones 1991). According to globalization theories, actors like MNCs should prefer to construct

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such employment practices that have proven economically optimal regardless of differing host-country institutions. In other words, this perspective argues for a profit-driven rational MNC with instrumentalist behaviour (Bandelj 2008). Compatibility between organizational interests and host-country institutions is then secured through the MNCs’ control over weak host-country institutions, or a clash between organizational interests and host-country institutions and the interests of local actors, that may hinder the MNC-driven construction of best organizational practices. Evidence from Electra’s subsidiaries does not support this instrumentalist perspective in favour of converging employment practices and a coordinated effort to bypass host-country institutions by importing best employment practices from foreign subsidiaries. Instead of endeavouring to overcome the diversity in employment standards across the host countries, Electra attempts to benefit from diverse local resources, such as the local knowledge of actors, the labour resource of subsidiary employees, and formal and informal employment standards. Embedding is thus not limited to unilateral managerial control with the aim of diffusing best organizational practices across the host countries, implying the dominance of MNC interests over local institutions and actors or a clash between organizational and institutional factors. An alternative stream of scholarship, rooted in sociological new institutionalism and the varieties of capitalism approach, argues that different institutional settings are able to provide an optimal performance of economies (Dore 1991; Hall and Soskice 2001; Hollingsworth and Boyer 1997; Katz and Darbishire 2000; North 1991; Streeck 1992). Applying this logic to MNC behaviour, it is argued that instead of opting for the same organizational practices in different host countries, MNCs are expected to construct employment practices in accordance with local standards because of host-country isomorphism (Almond and Ferner 2006; Ferner and Quintanilla 2002; Ferner, Quintanilla and Sánchez-Runde 2006; Maurice and Sorge 2000). The actual interest of the MNC in diffusion has been rarely questioned in this literature. Compatibility between organizational interests and local conditions is secured through the dominance of institutional pressures, coercing MNCs to adapt to local standards regardless of their corporate interests. The validity of this argument can be tested on the case presented in this book, in particular, when recalling my findings in the postsocialist CEE countries. These countries lack a strong institutional framework, i.e., legal stipulations, strong trade unions, market pressures or collective bargaining systems facilitating particular employment standards over

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others (Avdagic 2005; Mailand and Due 2004; Meardi 2006). Therefore, the CEE environment is relatively conducive to a variety of MNC practices without the constraining effect of host-country institutions, keeping employment protection and formal and informal employment standards below the standards in continental Western Europe. Had Electra been pushed to adapt to local employment standards because of host countries’ isomorphic pressures, my empirical findings would indicate more extensive similarities between Electra’s employment practices and local standards in Hungary and Poland. Nevertheless, the evidence presented in this book suggests that some of Electra’s employment practices that have been constructed in a locally responsive manner and in cooperation with local actors tend to diverge from local employment standards. Although opting for the construction of employment practices with the involvement of local actors might incur additional costs for the MNC, in exchange the company obtains stability, industrial peace and a motivated workforce (cf. Thelen and van Wijnbergen 2003). This justifies Electra’s behaviour and openness to construct subsidiary employment practices with the involvement of local actors. Each of the above streams of literature separates organizational and institutional influences and attempts to identify the dominance of one set of influences over the other. For the convergence theory, this means the dominance of organizational interests over host-country institutions. For the institutionalist and varieties of capitalism theory, this means the dominance of institutional pressures over organizational interests. In contrast to both of these perspectives, I argue that organizational interests and institutional pressures on MNC behaviour cannot be separated as they mutually influence each other in the construction of employment practices. In other words, the means of realizing organizational interests are endogenous and simultaneously informed by the MNC’s values and the ability to benefit from diverse resources. At the same time, institutions in the host countries are important in facilitating MNC interests, namely, Electra’s attempt at embedding and constructing subsidiary employment practices with reference to local employment standards. This argument sees embedding and the related institutionalization of employment practices as a contested process in which actors’ interests and power resources shape existing institutions instead of merely responding to them (Edwards, Colling and Ferner 2007). My argument is thus positioned between a narrow rational perspective on MNC behaviour and institutional determinism emphasizing a strong host-country effect (Wailes, Ramia and Lansbury 2003). Sustainable compatibility between organizational interests and

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host-country institutions, which is the basis for social interaction between the MNC and local actors in the construction process, requires that MNCs and local actors acknowledge the need for compatibility in the first place. For MNCs, this means an attempt to balance their corporate profit interests with behaviour that is sufficiently responsive to host-country institutions and local employment standards. As already noted, Electra is a company that traditionally combines the search for best economic performance with local responsiveness (Bartlett and Ghoshal 2002). In consequence, the relative autonomy of subsidiary behaviour is not the result of the MNC’s inability to centralize decisions at the headquarter level and constructing subsidiary practices through a tight headquarter control over local resources. Instead, the MNC views the subsidiary as the optimal organizational level for taking decisions on employment practices, thus delegating decisions on the embedding process and the use of local resources. The fact that the MNC itself is willing to utilize local resources for its embedding process and to construct employment practices through cooperation with local actors eliminates the tension between behaviour aiming at diffusing best employment practices and constraints by host-country institutions and local actors. Besides MNC interests, the other crucial dimension of a functioning compatibility between organizational interests and host-country institutions is the local actors’ interests, in particular their response to MNC behaviour in the process of constructing subsidiary employment practices in particular host countries. Local actors involved in interaction with Electra, most importantly trade unions, support the construction of Electra’s employment practices without the involvement of MNC headquarters and having a corporate template for company behaviour across diverse host countries. Subsidiary autonomy from corporate headquarters and Electra’s openness to social interaction with local actors give trade unions more opportunities for their involvement in the construction of employment practices. Even if trade unions were to opt for similar employment practices across different countries and subsidiaries, due to their competing interests in Western and Eastern Europe, company-based trade unions lack the capacity and power vis-àvis the MNC to pursue such convergence efforts. In sum, the compatibility between the MNC’s organizational interests, host-country institutions, and local actors’ interests is an important prerequisite for MNC embedding and the social construction of subsidiary employment practices. On the one hand, the MNC’s decentralized organization and willingness to benefit from local resources is

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Embedding as institution building from below Until this point, the book has predominantly concentrated on the social construction of employment practices in MNC subsidiaries, with occasional reference to broader effects on local employment standards. The question that remains open is a more focused look at how foreign actors like MNCs become capable of shaping local employment standards in the host countries. Although this question may open a wholly new research agenda, I wish to briefly address this issue using the evidence provided in this book. The form of MNC embedding is not only influenced by, but also shapes, the interests of workers, trade unions and other local actors; and the conditions on which certain employment practices are legitimized as local employment standards. Next, MNC behaviour in the host countries, especially if not fully adaptable to already existing local employment standards, contributes to modifying expectations, benchmarks, and competitive pressures for other employers in the region. MNCs thus possess great potential to influence local resources and contribute to changes in local employment standards. This is especially the case in those host countries that lack extensive formalized resources in the form of detailed labour law or institutionalized collective bargaining. Here, MNCs’ social interaction with local actors channels the creation of additional local resources. These include subsidiary employment practices that serve as local benchmarks for other employers, the increased use of temporary work, seasonal employment contracts, dual employment flexibility, cooperative industrial relations with commitment to informal agreements, and moral commitments to workers’ welfare derived from the corporate values of particular MNCs. Resources created through informal trust-based social interaction may diffuse outside a particular subsidiary and gain acceptance among other employers and the local society. This broader process can be characterized as institutional change and institution building from below that extends beyond MNC subsidiaries. In the embedding

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a condition for MNC embedding through social interaction with local actors. On the other hand, the host countries’ institutional structure has to be conducive to MNC embedding and offer manoeuvring space for actors’ social interaction. Additionally, the construction of subsidiary employment practices through social interaction forms entailing an active involvement of local actors is more likely when the interests of local actors align with MNC interests.

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process, the MNC simultaneously becomes an institutional rule-taker and an institutional rule-maker (Streeck and Thelen 2005). The presented findings in Hungary and Poland give particular empirical support to my argument on institutional change and institution building from below. Nevertheless, it is important to say that institution building does not lead to coerced conformity of subsidiary institutions with the existing collective institutions at the sectoral or national levels in the host countries. Instead, the direction that the process of institutional change and institution building takes is that the modified or emerging local employment standards are being tailored to the needs of individual employers and particular characteristics of local labour markets. In Hungary, the emerging local employment standards based on Electra’s influence include the development of temporary labour agencies and the use of seasonal temporary workers, companyspecific ways of addressing workforce shortages, and extensive fringe benefits despite a competitive and conflict-driven interaction with the subsidiary trade union. In the Polish case, institutional change and institution building applies to the use of dual employment flexibility, extensive fringe benefits, dependence of the local society’s development on MNC involvement, and cooperative industrial relations deriving from interpersonal relations between HR managers and trade union leaders.312 Following the above logic, I argue that social interaction between MNCs and local actors facilitates institution building and institutional change from below. Although the embedding process through which MNCs become institutional rule-makers differs, the outcome of MNC embedding in the host countries is incremental institutional change and the emergence of new local institutions as consequence of actors’ behaviour and social interaction at the micro-level. More research is needed to specify what form of institutional change from among the forms conceptualized in the existing literature best applies to the empirically observed process of institution building via MNCs’ interaction with local actors. In general, I support Streeck and Thelen (2005: 18) in their argument that such institutional change is incremental rather than rooted in historically given convulsive ruptures. Acknowledging the incremental character of institutional change and institution building through actors’ social interaction, the remaining question for future research is which form of institutional change is taking place in the presented reality; and how does micro-level empirical evidence of institution building and institutional change modify the forms of institutional change conceptualized in the relevant literature.313

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The theoretical approach taken in this book builds on a combination of theories on organizational behaviour, institutionalist theories, and sociological concepts on actors and their social interaction. My analysis has confirmed that the relationship between companies and their environments is indeed important in constructing employment practices. MNC behaviour does not follow a universal template in different local conditions, but neither does it straightforwardly adapt to contingencies in its environment. The interaction between the company and its environment is a more complex and dynamic process, as the organizational resource dependence theory has already acknowledged. Although this theory does not elaborate the social interaction mechanism between organizations and actors located in the external environments, I confirm that the resource dependence theory outlined in Chapter 1 served as a viable starting point for analysing the social construction of employment practices. Blending the resource dependence theory with institutionalist and sociological accounts on actors’ behaviour proved to be a justified extension of theories of organizational behaviour. The assumptions on actors’ behaviour and social interaction belong to the cornerstones of the theoretical framework adopted in this book. In Chapter 1 I assumed that MNCs are involved in social interaction with local actors in the construction process for economic reasons – to overcome uncertainty and expand local knowledge. In the latter chapters I have shown that there are also other reasons for actors to engage in social interaction. These derive from company values and from a voluntary commitment to interact with and involve local actors in the process of constructing MNCs’ employment practices. While the studied MNC encourages cooperative social interaction with local actors, the company controls the extent to which local actors’ involvement in constructing employment practices aligns with its corporate interests. The company would not welcome local actors’ involvement if these actors were to eventually pose a threat to the given power asymmetry between MNCs and locals. The empirical analysis also aligns with the assumption that rationality is bounded and at the same time socially constituted. Perceptions of what kind of behaviour is rational indeed change according to different local conditions, but also according to informal relations and trust that emerges in social interaction between MNCs and local actors. This statement gives support to the assumed

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Reflections on the social construction of employment practices

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endogeneity and contextualization of company interests in diverse host-country conditions. One of the central building blocks of the adopted theoretical approach was the interaction of MNCs with local actors in the host countries. Normative institutional constraints on MNC behaviour, originating in the host-country conditions, have been acknowledged in the literature, i.e., in Scharpf’s framework of actor-centred institutionalism (Scharpf 1997). The findings in this book indicate that the MNC obeys the formal rules in each host country and does not attempt to change them through opportunistic behaviour that would derive from the company’s objective or perceived power position. Instead, changes in host-country institutions are incremental and result from the MNC’s involvement in social interaction with local actors in the process of constructing subsidiary employment practices and shaping local employment standards. Moreover, my findings cut across the argument that local actors, especially trade unions, have more to say on the construction of employment practices in Western Europe than in CEE, as one would expect given the more formalized position of trade unions in the West. I have shown the importance of voluntary cooperation, trust, and the ability of cooperative interaction to steer the construction of employment practices beyond formal rules. In future research on company behaviour and social interaction, this kind of value-based and cooperation-based embedding, involving self-imposed soft constraints on actors’ behaviour, need to be deconstructed and studied in greater depth. From a theoretical perspective, the current study has the potential of being the starting point for enhancing two particular theoretical concepts. The first one is the concept of the social constitution of economic action and the mutual relationship of rational behaviour, institutions and values. The second concept is a shareholder plus mode of governance, in which employers voluntarily commit themselves to social responsibility and the provision of welfare to employees. Related to the first point, the book paid attention to how social and power relations between the MNC and local actors influence economic behaviour in the process of its embedding into host-country societies (Swedberg and Smelser 2005; Beckert 1996; Granovetter 1985; 1992). Despite the popularity of the embeddedness concept in economic sociology, its operationalization in empirical research is often disputed, because it is not clear what kind of behaviour is (not) socially constituted and embedded. We also lack guidelines for identifying embedding more clearly as a process related to actors’ interests (Beckert 2007). The mechanism

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●

●

●

Acknowledging the interest of other actors even if different from MNC interest. Socially constituted behaviour of an MNC reflects other actors’ behaviour and interests, regardless of a direct association with the MNC’s rational interests. The MNC is responsive to a diversity of institutional conditions, shows interest in cooperative social interaction with local actors, and interest in the well-being of these actors independently from the MNC’s short-term economic interests. In addition, the MNC does not attempt to control the interests and behaviour of local actors by imposing its own interests on others, but is open to social dialogue based on cooperation and shared values. Allowing or actively seeking the involvement of local actors in MNC embedding. The MNC welcomes negotiation and consultation, or shares its decision-making with local actors with a general expectation of future returns. The exact nature of these returns, such as a direct increase in profits or improvement in subsidiary performance, is not specified in advance (Fox 1974). It is uncertain whether the involvement of local actors will produce MNC profits, but the MNC interacts with and involves other actors in embedding despite a given uncertainty of outcomes. MNC commitment to informal institutions that result from social interaction without the existence of an enforceable binding contract. The outcome of social interaction between MNCs and other actors depends on the extent of discretion, trust and commitment of all involved parties without a binding contract to be enforced (Fox 1974). Expected returns are not based on formalized rules, but on less concrete, fragile, norms. Trust, or confidence that other actors will continue with their commitment, adherence to rules of reciprocity or fairness even in circumstances in which it might be advantageous to defect, is an informal institution that emerges in actors’ social interaction (Streeck 1997a: 202). Although the construction of employment practices is to a large extent regulated by formalized institutions such as the Labour Code or a formal employment contract, trust is important in everyday interactions between workers and managers, in informal agreements between headquarters and subsidiaries, and in the relations between the company, trade unions, local governments and

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through which the socially constructed embedding is maintained thus calls for further investigation. The findings of this book can be used as the first step in formulating, exploring and measuring the embedding of MNCs. Using my empirical analysis, I formulate the following attributes that are inherent to a socially constituted embedding of MNCs:

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The second theoretical concept with the potential to be further developed is the particular mode of governance, in which the social construction of employment practices and the related social responsibility and welfare provision is not concentrated in the hands of welfare states, but in individual companies. Electra is a MNC with a leading position on European production markets. Maintaining its competitive position, good performance, profitability, and shareholder responsiveness are the company’s priorities. I have discussed that Electra’s behaviour and commitment stretching beyond short-term profit aspirations is indeed complementary to the MNC’s drive to increase its shareholder value, long-term profits and thus an overall sustainability of the company. In line with a liberal corporate governance system, Electra adopted increased employment flexibility and performance-related pay (Poutsma and Braam 2005). These practices, however, do not mean that Electra disregards the interests of stakeholders, because higher flexibility and lower job security are balanced by generous fringe benefits, flat hierarchies, and a cooperative social interaction between management and workers in the subsidiaries. Thus, Electra may be seen as an MNC balancing its shareholder interest with its stakeholder orientation and thereby creating a shareholder-plus governance model where the welfare of individuals is not provided by welfare states, but largely dependent on interests of large capital holders and employers. The fundamental notion of this model is corporate social responsibility and the concern of employers with the effects of their profit-driven behaviour on the stakeholders and on the society. Additional research is necessary to understand the attributes of this kind of governance model, its emergence and sustainability, the complementarity of stakeholder-oriented behaviour with an interest in increasing shareholder value, as well as the ability of the shareholder plus governance model to substitute and prevent the erosion of employee welfare outside the Western European style of collective employment regulation. The motivation of MNCs to provide above-average social welfare is also an issue for further conceptual and empirical inquiry. In particular, the relation or complementarity of the documented company behaviour with the economic theory of efficiency wages deserves further attention (cf. Akerloff and Yellen 1986; Akerloff 1982; Yellen 1984). As a starting

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other local actors. These stimulate context-specific company behaviour that has implications for convergence in workplace-level institutions and employment practices in a MNC as well as in broader employment standards across different countries.

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point, it can be argued that the MNC commitment to granting better working conditions than local employment standards does not align with an efficiency wage model. The reason is that the MNC is not only interested in exchanging favourable employment practices for higher productivity and thus higher profits. Electra’s behaviour also incorporates an attempt to invest into local labour resource development over the long term. This relationship can generate trust, social capital and long-term profits although its short-term effects for MNC productivity and profitability are uncertain. The book’s theme, and in particular the above reflections on the social construction of employment practices, also open space for a theoretical inquiry into the sustainability of documented behaviour and interaction forms in the absence or limited influence of normative institutional constraints on actors and in the presence of voluntary selfimposed soft constraints on behaviour (Streeck 1997a). In this case, the organizations’ commitment to soft constraints is expected to derive from company values. A particularly appealing subject for further research is the character of company values and their influence on the power and position of other actors in the labour market. As a starting point, one needs to theorize whether company values and interests are adaptable to different situations, or whether they are constant and stable. Next, the character of company values, i.e., paternalism documented in this book, can be compared across different countries in a broader perspective. A related question is whether paternalism in companies strengthens or weakens the power of employees and trade unions with whom the MNC interacts. Furthermore, one may ask what are its implications for trade union strategies at the company level and at sectoral, national and transnational levels of unionism. To some extent, I have discussed the implications of Electra’s paternalism on the construction of subsidiary employment practices. But because I have predominantly focused on MNC behaviour and social interaction in the construction process, attention in future research could shift to workers’ behaviour in the construction process, i.e., responses of workers to a paternalist employer’s behaviour, the level of acceptance of or resistance to company values, or the effect company values bear on the workers’ skill levels, career paths and chances of finding alternative jobs and developing careers across diverse labour market conditions. While the adopted theoretical framework has been suitable for structuring the book’s inductive empirical analysis, the main difficulty has been the complexity of the framework and of the analysis itself, especially the various actors’ attributes (e.g., interests and values) and

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societal influences (e.g., the legal regulation, economic influences, and soft constraints in social interaction). The framework was limited to spelling out the factors that are expected to play a role in the process of constructing employment practices. The actual interdependence of these particular factors has not been assumed a priori, but has been induced in the empirical study. The shortcoming of the current analytical setup has been its focus on a single MNC with a specific company culture. To formulate a more robust and broadly applicable argument, the interdependence of the various organizational and institutional factors in MNC behaviour and social interaction in the construction process needs further elaboration that will be more universal and based on more empirical cases. This limitation opens up a range of possibilities for empirical research. First, broader evidence of MNCs from different countries, industries or with different management styles is necessary to extend the argument on company values, interest-driven company behaviour and the role of social interaction in constructing employment practices. A straightforward way to address this issue is to locate evidence of Electra in a broader comparative perspective, using empirical evidence of construction practices, values and interests of other MNCs. Such research would yield a more systematic and broadly applicable understanding of MNCs’ behaviour and social interaction with local actors in the host countries, and of how employment practices emerge given the variety of corporate, global and local influences. Second, in Chapter 2 I have briefly discussed the impact of soft employment practices, e.g., higher employee involvement and discretion over work tasks, on labour productivity of the subsidiaries. The question whether higher employee involvement pays off for economic success of companies is a prominent one in management literature. However, this topic certainly deserves more empirical and methodological attention. Current evidence offers mixed findings and thus lacks a clear argument for either direction of causality or influence of soft employment practices on productivity (Sagie and Koslowsky 2000; Heller, et al. 1998). To show how soft practices indeed influence productivity, more empirical evidence and analysis is needed on productivity itself, formal and measurable indicators of productivity, as well as on soft employment practices in a range of other companies. Finally, studying MNC behaviour in distinct institutional conditions is congruent with the framework of varieties of capitalism research in an institutionalist tradition (Hall and Soskice 2001). In the EU, this field of research has been gaining relevance with the increasing economic

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and political integration of nation states, the EU enlargement, and supranational policy-making. Do the interests and behaviour of individual actors, such as MNCs, clash with the interests and behaviour of governments in shaping employment standards and their cross-country convergence? Are governments, MNCs and other employers allies with similar interests in the construction process, or are their interests and behaviours independent from each other? Behaviour of individual socio-economic actors is far from supranational policies; however, a more nuanced understanding of how these two levels of behaviour interact in shaping the construction, character and cross-country convergence of employment standards may improve the success of future policy-making, such as the EU or government-driven harmonization of labour laws across the EU member states. An inquiry into this issue can also assist in enhancing the theoretical understanding of social interaction between MNCs and governments in raising employment standards, which has not been addressed in this book.

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Table A.1 National industrial relations structure and company-wide industrial relations within Electra in the host countries Industrial relations structure

Company-wide practices in Electra

Level of collective bargaining*

Belgium

Hierarchic structure of bargaining: national, intersectoral, sectoral, provincial, regional, company, subsidiary levels; Dominant level: sectors and professional branches**

National, sectoral, company-wide and subsidiary-level collective bargaining; Sectoral negotiations: Electra represented by the Agoria employer federation; Employment flexibility bargained at the subsidiary level; Cross-subsidiary benchmarking and moderate interaction via the Belgian Electra NO; Trade unions in Electra prefer subsidiary-level bargaining

France

Sectoral and companylevel bargaining; since 2008 growing national and intersectoral bargaining**; In larger companies collective bargaining at the company level**

Company-wide bargaining for managers and knowledge workers; Subsidiary-level bargaining for production workers Electra not part of sectoral bargaining; but sectoral agreements in Metalurgy are used as benchmark for subsidiary-level bargaining

Hungary

Company, sectoral, intersectoral level of bargaining. Dominant level: company-wide bargaining**

Exclusively subsidiary-level bargaining without a company-wide coordination

Poland

Company-level and subsidiary-level bargaining; Dominant level: companywide bargaining; Lacking structures for sectoral and regional bargaining**

Exclusively subsidiary-level bargaining without a company-wide coordination; Trade union initiative of companywide social dialogue lacks a supporting trade union structure and Electra’s interest

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Appendix

Continued

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Appendix 215

Continued Company-wide practices in Electra

Industrial relations structure Trade union confederations***

Trade union density****

Belgium

ACV; ABVV; ACLVB

Company-wide negotiations with those trade unions that have obtained a mandate in the social elections: ACV Metaal – bluecollar and white-collar fractions; ABVV Metaal – blue-collar and white-collar fractions; ACLVB – blue-collar fraction Electra’s interaction with trade unions at the company-wide level: mature, fair relationship, trust, experience of peaceful and turbulent periods (reorganizations and plant closures)

France

CGT; CFTC; CFDT; CGT – the strongest trade union FO (CGT-FO); CGC representing workers in Electra; Militancy and threats in collective bargaining; Conflict-driven interaction both at company-wide and subsidiary levels

Hungary

SZEF; MSZOSZ; ASZSZ; ESZT; LIGA; MOSZ

No interaction with trade unions beyond the subsidiary level; Attempts at cross-subsidiary trade union representation and social dialogue hindered by insufficient trade union structures at the sectoral level and underdeveloped cooperation between the sectoral trade unions Vasas and MEDU

Poland

Solidarność OPZZ FZZ

Solidarność and OPZZ represented within Electra; Solidarność is larger and represented in each unionized Electra subsidiary in Poland, including Kwidzyn

Belgium

All 39.7%; Company-wide union male 42%, female membership not available 37.4%; blue-collars 56.3%; white-collars 35%

France

All 15.6%; male 15.2%; female 16%

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Table A.1

Company-wide union membership not available

Continued

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216 Appendix Continued

Industrial relations structure

Works councils

Company-wide practices in Electra

Poland

All 15.7%; Union membership in Electra male 13.8%; female above national average in each 18.3%; blue-collars 17.4%; unionized subsidiary white-collars 14.7%

Hungary

All 13.1%; Union membership in Electra male 11%; female 15.2%; above national average in each blue-collars 10.5%; white- unionized subsidiary collars 14.8%

Belgium

Employer and union representatives equal share in the works council; Co-determination rights i.e. on company holidays

Subsidiary-specific works councils; No central company-wide works council

France

Only trade unions represented in the works council

Subsidiary-specific works councils; Central company-wide works council, but no effect on subsidiary-level bargaining

Hungary

Works councils stipulated in individual companies; No rights in collective bargaining

Subsidiary-specific works council; No central company-wide works council; Works council representatives in Székesfehérvár distinct from the trade union representatives

Poland

Not institutionalized

Not institutionalized

*The level of collective bargaining in the listed countries commonly refers exclusively to the level where wage bargaining takes place. However, the relevant bargaining levels in which Electra participates in these countries (listed in the right column) are not limited to wages, but cover a broader range of issues that are bargained with trade unions. **Source: Schulten (2005); EIRO (2007; 2009); Kahancová (2003a; 2003b); interview HRM Manager, Electra Dreux, 18 October 2005. ***Source: EIRO (2007). ****Trade union density is measured as the percentage of union members among all employees. Source: Schnabel and Wagner (2007) using the European Social Survey 2002–03. Other sources using country-specific reports report different percentages: EIRO (2007: 6) reports the following percentages of net union density in 2004: Belgium 49%, France 8%, Poland 17% and Hungary 17%.

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Table A.1

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Table A.2 Diversity in employment practices across Electra’s subsidiaries and prospects for convergence Evidence

Diversity and prospects for convergence

Wages

Decentralized wage-setting according to local benchmarks; Adaptation to wage setting standards of other locally based MNCs

Adaptation to local standards; East-West pattern in diversity

Employment flexibility

Permanent, temporary and agency workers (Brugge); Permanent and agency workers (Dreux); Employee exchange (Székesfehérvár); Dual employment flexibility (Kwidzyn)

Utilization of local conditions with elements of: adaptation to local standards diffusion of corporate best practices unique solutions in each subsidiary No East-West pattern in diversity

Soft employment practices Performancerelated pay, individual and collective worker motivation

Collective motivation, annual bonuses in Western subsidiaries; Individual workplace competition, performance pay, monthly bonuses in CEE subsidiaries

Utilization of local standards; Construction of most effective practices using local benchmarks; East-West pattern in diversity, but also diversity across Brugge and Dreux

Work organization and workplace relations between managers and workers

Flat hierarchies; Encouragement of informal management-worker interaction; Relatively high level of worker discretion but also managerial control; Rewards for individual and collective achievements

Low extent of diversity; Cross-subsidiary diffusion of best practices

Direct employee participation and fringe benefits

Participation and benefits in all subsidiaries; Generous benefits compensate for high employment flexibility

Utilization of local conditions; No convergence; Benefits in CEE beyond local standards; No East-West pattern in diversity

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Hard employment practices

Source: Author’s analysis.

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Notes

1. The documentary dates to 1996, and is therefore not able to address the fact that IBM closed the doors of the Székesfehérvár subsidiary in 2002, ten years after its initial settlement. 2. Since the documentary, Ford has been outsourced, but still continues its successful operation in Székesfehérvár. 3. Economic factors include profit and efficiency goals, and non-economic factors, include company values, trust between the MNC and local actors, and their power relations. 4. The comparative institutionalist literature on MNCs recognizes a variety of host-country forces influencing MNC behaviour, e.g., government policies and institutional pressures (Rosenzweig and Nohria 1994; Rubery and Grimshaw 2003; Maurice and Sorge 2000; Michailova 2003). These forces coerce MNCs to adopt practices that are common in local companies (Bandelj 2008; Ferner and Quintanilla 1998; Guillén 2000; Zukin and DiMaggio 1990). In any case, the argument contradicts the convergence thesis and stresses persistent variation in broader employment standards as well as more specific employment practices at the company level. 5. In innovator MNCs, employment practices are diffused from the company’s centre to foreign subsidiaries. Adaptor MNCs are companies that prefer a decentralized approach to employment practices and thus adaptation to local employment standards. Reverse diffusion takes place if employment practices originating in subsidiaries are transferred back to the MNC’s home-country settings (Edwards 1998a; Ferner and Varul 2000; Tüselmann, McDonald and Heise 2001). 6. Among institutional influences, the most frequently discussed are isomorphic pressures on MNC subsidiaries originating both in the corporate and in the local environment (DiMaggio and Powell 1983; Ferner and Quintanilla 1998). These include, among other influences, the home-country and host-country laws, business systems, and social norms. Structural factors that affect the subsidiaries’ employment practices include the characteristics of the parent company, the degree of international production integration, the nature of international management structures related to the sector in which an MNC operates, the method by which an MNC has grown, and the size and characteristics of host-country subsidiaries (Rosenzweig and Nohria 1994). Political processes that exist within MNCs also shape company behaviour and attempts at convergence in employment practices. These are based, on the one hand, on tensions between the headquarters’ power to ensure that the subsidiary engages in the implementation of best practices and thus convergence. On the other hand,

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Introduction: Multinationals and Employment Practices across Europe

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7.

8.

9.

10.

11.

the subsidiary’s power resources allow blocking convergence or not complying with central corporate decisions (Edwards, Rees and Coller 1999). A market type of social interaction is used interchangeably with a competition type of interaction. Both are based on short-term arm’s-length interactions, without any longer commitment to joint goals on the part of the actors involved other than for profit-making reasons. I.e., social networks, host-country institutions, political and cultural considerations. The effect of social forces is perceived as a context constraining the MNCs’ rational instrumentalist behaviour (Bandelj 2008: 170). Evidence has been collected via 114 in-depth interviews with the following actors: managers at several levels of the MNC organization, including headquarters and subsidiaries, trade union representatives in the MNC’s home country and host countries, and representatives of the local government and labour market authorities in the host countries. Supplementary evidence includes internal company documents, trade union materials and local media prints. The Belgian subsidiary does not employ such a high number of production workers as the other studied subsidiaries. It is a development rather than a production centre. However, the large development section of this site has its own separate organizational structure, which I exclude from my analysis. Within the assembly factory, production workers are in the majority and therefore a comparison of their employment practices with the other MNC subsidiaries in France, Hungary and Poland is feasible and justified. I.e., introduction of new standards of company behaviour in CEE countries and institutionalization of innovative employment practices that lack a broader collective or legal underpinning.

1 Constructing Employment Practices in Multinationals: A Framework for Analysis 12. In empirical chapters, I particularly address motivation practices, worker empowerment and participation, and fringe benefits that MNCs grant to workers in subsidiaries with the aim of promoting workers’ wellbeing both on the job (involvement in decision-making and right of information) and in their private lives (social services, recognition, fringe benefits). 13. Trade unions are in real life involved in coordinating working time, recruitment, selected aspects of work organization and fringe benefits. Workplace industrial relations are thus a particularly important interaction channel for the construction of those employment practices that legally require collective bargaining, as well as for those practices on which trade unions and other local actors have influence for other reasons. 14. Chapter 2 includes a comparative analysis of hard and soft employment practices in MNC subsidiaries. The construction of these practices, in particular the social interaction between involved actors, is addressed throughout the subsequent chapters. 15. I.e., in bringing about new employment standards.

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Notes 219

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16. The microeconomic approach underlies several well-known approaches to organizations, including information economics and the markets and hierarchies perspective (Grandori 1987; Williamson 1975). 17. For instance, the HRM department strives for fulfilling a different interest than the production or sales department, or the order of interests is different, leading to discretionary behaviour in given predictable conditions. 18. Adaptation to local conditions. 19. Diffusion of best practice. 20. Innovative practices in local conditions. 21. This kind of behaviour leading to convergence in organization practices is informed by increasing global competition, technological advancement, and liberalization of trade and capital movements. 22. Frequently acknowledged institutional factors include the legal regulation or local standards that coerce MNCs to imitate practices common in local companies (Bandelj 2008; Ferner and Quintanilla 1998; Guillén 2000; Zukin and DiMaggio 1990). 23. E.g., profit, market power, technological leadership, reputation, societal legitimacy. 24. Market-type social interaction is used interchangeably with social interaction in the form of competition. Both are based on short-term arm’s-length interaction, without longer commitment of involved actors to joint goals for other than profit-making reasons. 25. These assumptions are appropriate for scrutinizing any behaviour invoking interaction. 26. Various kinds of power resources are at actors’ disposal. First, structural power is based on organizational resources, managerial capacity, and location in an organizational structure (Pfeffer 1992). In MNCs, some departments are more important than others; thus, structural power derives from individual characteristics of managers (ibid.). Second, to ensure that employment practices conform to legal regulations, actors may have legal power based on legally granted rights and obligations (Avdagic, Rhodes and Visser 2005). Third, probably the most important power for MNCs is their economic power, allowing the company to utilize its competitive position on global markets. Moreover, economic power allows MNCs to play different subsidiaries and local actors against each other. The final kind of power is based on ethical values of behaviour. For example, without using its economic power, the MNC is able to convince other actors of its intentions through values and trust. This leads to a common interest or shared values among actors whose economic interests were initially conflicting. 27. No matter how important in external relations, within the company HRM strategies are often unilaterally informed by business strategies (Truss, et al. 1997; Purcell 1989), putting the HRM department in the shadow of departments such as finance, business, research, and marketing. 28. An alternative to this behaviour is leaving local actors out of the organization’s boundaries and developing more exploitative and market-like employment relations with local actors (Pfeffer 2006; Williamson 1975). 29. To illustrate this point, I use an example of how trade unions in Western Europe and in CEE perceive their power. Even if a Polish trade union’s

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30.

31.

32.

33. 34.

position vis-à-vis the MNC is much weaker than the Belgian union’s, still the Polish union may consider itself powerful, because the benchmark is not the Belgian situation, but the situation in locally established companies in Poland. Social interaction among individuals has been conceptualized in forms of signalling, sense making, frame making or ritual making, which are inherent features of the social interaction theory applied to individuals (Turner 1988: 102–117). This theory is, however, valuable in rethinking interaction features applicable to organizations. The principle of the game-theoretical analysis applied to selected channels of social interaction is explained in greater detail in Chapters 5 and 6 where this method is applied to the empirical analysis. The more similar the content of headquarter-subsidiary interaction (α) with MNC interaction with local actors (γ), the higher the chance that employment practices are an outcome of headquarters’ influence and corporate interests. Differences in content between headquarters-subsidiary and subsidiary-local actors’ interaction suggest that MNC interests reflect local conditions. An important aspect of control is power asymmetry, with MNCs having larger power over subsidiary decisions than local actors. I.e., which employment practices are to be adopted to realize corporate interests and simultaneously strengthen the subsidiary’s local labour market position.

2 One Multinational, Four Host Countries: On Diversity in Subsidiary Employment Practices 35. Next to available secondary evidence, I refer to survey evidence on working conditions in MNCs and non-MNCs across the relevant countries. The survey offers original micro-level data, collected within the Wage Indicator for Collective Bargaining 2 (WIBAR-2) project, operated by the Amsterdam Institute for Advanced Labour Studies as part of the international WageIndicator project. The uniqueness of WageIndicator in general and WIBAR-2 in particular is in collecting data on wages and working conditions through anonymous internet surveys of individual respondents. This kind of evidence provides a viable alternative to self-reported data by companies or trade unions, as well as to official national and international labour surveys. 36. Each strategic restructuring plan has been implemented under a particular title, i.e., the Operation Centurion in the early 1990s, Towards One Electra in early 2000s, and Vision 2010 launched in 2007. 37. All employment data refer to the headcount at year-end of the respective year. 38. In the new organizational structure since 2008, the BG Connected Displays remains one of Consumer Lifestyle’s business areas. Other business areas within Consumer Lifestyles include Video and Multimedia, Audio and Multimedia, Home Networks, Peripherals and Accessories, Domestic Appliances, Shaving and Beauty, and Health and Wellness. Source: Electra

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39.

40.

41.

42.

43.

44.

45.

Notes company history at: www.philips.com/about/company/history/index.page [access date 19 November 2008]. The PD continues the earlier trend of slightly declining sales and employment (Electra 2003). Manufacturing operations in the Consumer Lifestyles sector are located in the Netherlands, Belgium, France, Hungary, Austria, Poland, the USA, Brazil, Argentina, Mexico, China and Singapore. Source: Electra company history at: www.philips.com [access date 19 November 2008]. Production workers constitute the majority of headcount in the subsidiaries In Brugge, the share of production workers in overall headcount is lower than in the other factories. This is because Brugge is divided into two organizational entities – the development part, and the production part. Employment practices are independently constructed in each entity. In this book I am concerned only with the production part of the Brugge subsidiary, which is well comparable to Electra’s other studied subsidiaries. Electra outsourced its print circuit board production to Jabil Circuit Poland, and later its TV factory to the same MNC shortly after this research was completed. Evidence in this book covers the period when Kwidzyn was in full ownership of Electra, thus controlling for corporate influences across all four subsidiaries. Outsourcing has been induced by the expected end of the lifecycle of mainstream TV technologies, and Electra’s orientation on new technologies. As outsourcing took place between companies with a similar organizational culture and values, the factory continued to produce Electra brand televisions without major changes in organizational structure and employment practices. In general, Jabil is a highly centralized MNC; but Jabil Kwidzyn is relatively independent from headquarters control within the MNC. This special position derives from the personalities of Polish leaders and the local society’s pride over developing the factory throughout the 1990s. The general manager of one of the Jabil plants in Kwidzyn (operating since the early 1990s and serving as Electra’s subcontractor) negotiated the factory’s role vis-à-vis the MNC headquarters, arguing that under the specific local circumstances a top-down diffusion of centralized practices from headquarters would not be feasible. In consequence, Jabil Kwidzyn is relatively autonomous and the mentality of the factory’s local management is close to that of Electra’s. Source: interview HR manager, Electra BG Connected Displays, 28 September 2006. This situation reflects developments in the transition period after 1989, when real wages dropped, firm-based social benefits disappeared, and union density halved (Bohle and Greskovits 2007). There are also differences within both regions, but in this book I focus on internal similarities and highlight diversity between Western Europe and CEE rather than diversity within Western Europe and within CEE countries. Until 1980, the subsidiary employed up to 2,000 people; in 2000 the headcount peaked at 3,000. Source: Interview BLMB, Brugge, 13 January 2005; interview Deputy HR Manager, Electra Brugge, 13 September 2004. The subsidiary was turned into a development centre of high-end TVs with a relatively small production assembly. The production scope covers 200

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46. 47. 48.

49. 50.

51.

52. 53. 54. 55.

56.

57. 58. 59. 60.

61. 62.

kinds of TV sets produced, with a maximum of 50 pieces per type. Interview Manufacturing Manager, Electra Brugge, 1 October 2004; interview Deputy HR Manager, Electra Brugge, 13 September 2004. Source: interview Director, SLMB, 18 March 2005. Source: SLMB: A létszámleépítések tapasztalatai Fejér megyében (2005). In the 2006 high season, the headcount has been estimated at 3,300 workers. Source: HR Manager, Electra BG Connected Displays, 28 September 2006. Source: interview Director, KLMB, 14 May 2004. Wages are the most market-driven employment practices, and direct organizational influence is more limited than on flexibility practices. The comparison of wages and wage policies in Electra’s subsidiaries, discussed in this section, is not as detailed as the analysis of other hard employment practices, namely employment flexibility. Moreover, access to workplace information about wages is difficult to obtain. This is because large external constraints on wage policies exist, both market-related (competition) and institution-related (collective wage bargaining). Wages above local standards may not align with corporate interest of an efficient management of resources. At the same time, higher wages can help to attract more qualified and motivated employees in the competition on local labour markets. In consequence, efficiency wages are paid in order to compete with other employers. Source: informal discussion with the HRM Manager, Electra BG Connected Displays, 28 September 2006. This aligns with the discussion on market-related and institution-related factors in the subsidiaries’ host countries. Source: interview Deputy HRM Manager, Electra Brugge, 24 September 2004. In the words of the BG’s HRM manager, information about factory headcount is always the last line in a reporting document; and managers at headquarter level omit reading that information. Source: informal discussion with the HRM Manager, Electra BG Connected Displays, 28 September 2006. Source: interview with an employee, Electra Kwidzyn; interview Director, KLMB, 14 May 2004; interview Director, Manpower Dreux, 17 October 2005; interview Regional leader, ACV-Metaal Brugge, 7 October 2004. Other source: Fejér Megyei Hírlap, 1999 (exact date not available) – regional daily paper, archives Electra Székesfehérvár. Source: interview Director, KLMB, 14 May 2004; interview Director, SLMB, 18 March 2005. Source: interview ACV-Metaal union leader, 19 October 2004. Source: interview HR Manager, Electra Dreux, 18 October 2005. For example, management in Kwidzyn realized that workers are well paid relative to the fact that unemployment is high in Kwidzyn, after making a comparison with Electra in Pabianice where the labour market is tight. Source: interview Manufacturing Manager, Electra Kwidzyn, 21 April 2004. In contrast to the flexibility of production workers, the size of managerial and administrative staff is relatively stable over the calendar year. In Dreux, the interviewed managers referred to overall trends, but did not provide exact figures on headcount fluctuations. Therefore Dreux is not included in Figure 2.3.

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63. Source: internal employment statistics 2004, Electra Brugge. 64. Electra Dreux has in total only 16 part-time workers with an Electra contract (including production and administrative workers). Source: interview HRM Department, Electra Dreux, 18 October 2005. 65. In 2000, on two occasions 100 agency workers received a permanent contract. 66. Subsidiary management maintains that direct recruitment has positive effects on management–worker interaction and the workers’ commitment to the company. 67. The youngest permanent production worker is 28, and 40% of workers are over 50. Source: interview ACV-Metaal subsidiary representative, Electra Brugge, 26 October 2004. 68. Workers receive a 25% bonus, but if the working time exceeds 41 weekly hours, the bonus rises to 50%. Both permanent and agency workers receive the bonus. The actual number of free days is contingent upon the production load, but it is at least seven days above the standard legally granted five weeks’ holiday in France. Source: interview HRM Department, Electra Dreux, 18 October 2005. 69. Referring to the legally stipulated 40-hour working week. 70. In Electra’s terminology these workers are called butterflies in Brugge (vlienders) and Kwidzyn (motyle), jump-ins in Székesfehérvár (beugrók), and polyvalence in Dreux. 71. The actual arrangement of the exchange is managed by a local temporary labour agency. Source: interview personnel officer for production workers, Electra Székesfehérvár, 22 March 2005; Video (2004). 72. Headquarters refer to the Consumer Electronics PD. 73. Other responsibilities of the group leaders include solving disciplinary issues before escalating them to the HRM department, granting workers’ holiday requests, or handling workers’ dissatisfaction. 74. Source: interview Manufacturing Manager, Electra Brugge, 1 October 2004. 75. The pool of 20 multi-skilled butterflies is not assigned to a particular line. 76. Overall headcount reached 2,200 workers in 2004. In 2005 management expected a headcount of 2,500 workers, and in 2006 more than 3,000 workers. Source: company documents and interviews. 77. In contrast to other subsidiaries, the factory only has a few sitting jobs in production; and the majority of workers perform their job in a standing position. 78. Rotation follows instructors’ decisions. 79. The small management team is integrated with other employees. Source: interview Supply Chain Manager, Electra Kwidzyn, 22 March 2004. 80. Seasonal workers work as one group per line. Permanent workers form smaller teams, or mini-companies. One production line consists of five mini-companies in which tasks are similar, e.g., the assembling team, adjustment team, or the quality checking team. 81. Moreover, Electra encourages reverse participation, or the feedback of management on workers’ achievements that are not necessarily related to their work. This practice of recognition and awards aligns with the MNC’s corporate paternalism.

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82. Soft motivators include delegated responsibility, open communication, sharing company development information with the workers, and the possibility of reverse appraisals (worker feedback to immediate supervisors). 83. According to the French law, employers are obliged to share their profits with employees. This is complicated in an MNC with several subsidiaries. Not all subsidiaries are always profitable, but these profits have to be shared with all employees. For this reason, Electra elaborated internal performance indicators in Dreux that supplement the legal requirement. 84. For example, information on whether new products are launched on time, quality fulfilment, or costs related to unsatisfactory quality. Performance is related more to the fulfilment of production plans than to workers’ individual skills and effort. 85. Source: interview Manufacturing Manager, Electra Dreux, 18 October 2005. 86. Source: interview General Manager, Electra Székesfehérvár, 18 March 2005. 87. The corporate format for performance appraisal interviews is used in Kwidzyn, but in Székesfehérvár this only applies to indirect employees. Production workers have their own appraisal system developed by the factory’s production managers. 88. In Székesfehérvár, the number of ideas submitted by workers has increased from 11 at the time of introduction in September 2003 to about 25 per month in 2004 (Electra, Székesfehérvár 2004). 89. Quality improvement teams and teamwork encouragement brought a 2003 line-team restructuring and consequently 5% increase in production lines’ output (Electra, Székesfehérvár 2004). 90. Source: interview Solidarność leader, Electra Kwidzyn, 5 May 2004. 91. Temporary workers hired through an agency are somewhat discriminated against in the provision of the listed benefits. In Brugge and Dreux, agency workers are, legally, not Electra employees and therefore do not receive the benefits provided to regular employees. In Székesfehérvár, agency workers are discriminated against in terms of receiving holiday vouchers, any long-service recognition, or a reduced meal voucher contribution. Discrimination is least extensive in Kwidzyn; this subsidiary does not hire agency workers and thus all workers possess full rights to social rewards and fringe benefits. 92. Examples of this practice include the 2004 Open Day event in Brugge and regular annual outdoor events in Kwidzyn. 93. Rewarding retired workers with a TV set has been a tradition in Brugge for many years. After the 1996–1997 reorganizations when production in Brugge increasingly concentrated on technologically advanced high-end products and production costs have significantly grown, the management agreed with subsidiary trade unions to cease this practice. Interview Deputy HRM Manager, Electra Brugge, 24 September 2004. 94. In the WageIndicator survey, an MNC has been defined as a company with one or more subsidiaries, whereby establishments are located in two or more countries (van Klaveren, Tijdens and Brngálová 2008). In the metal and electronics sector, covering also Electra subsidiaries, the median hourly wage level in MNCs is substantially higher than that in non-MNCs, varying from 13.4% of the median MNC wage in

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95.

96. 97.

98.

99.

100. 101.

102.

103.

104.

Belgium to 34.5% in Poland (expressed in percentages of wages in MNCs). Controlling for the size of MNCs, in the category above 500 employees the findings show a MNC wage premium of 20% in Poland. The survey did not provide particular evidence on Belgium, France and Hungary. Source: Világgazdaság 1999 (exact date of the article not available; pages 1 and 13). Hungarian business paper, archives Electra Székesfehérvár. The exact publication date of the article is not visible on the copy available in Electra’s archives and could not be inquired at the publisher, because the electronic archives only cover articles since 2002. Source: interviews with local unions and labour market representatives in each host country. External flexibility in Brugge diverges from local standards in two characteristics: first, companies commonly hire temporary workers directly instead of using temporary labour agencies like Electra. Second, whereas agency workers in Electra receive weekly contracts, temporary workers in other companies commonly receive a seasonal contract for two or three months. In Dreux, seasonal contracts are common also in other companies; in this respect Electra does not deviate from local employment standards. External flexibility practices in Székesfehérvár align with common local practices and even initiated their development, mainly the worker exchange between two employers and the rise of temporary labour agencies. Kwidzyn deviates from local standards in offering min-max temporary contracts instead of full-time seasonal contracts. The longer working week of 40 hours is compensated with 16 extra holidays per year in Brugge and seven days in Dreux. In Székesfehérvár, the factory operates in a three- to four-shift regime, whereas the local standard is a twoto three-shift regime. This difference implies more frequent weekend work in Electra’s subsidiary than in other companies. In Kwidzyn, the min-max working-time structure is unique to Electra’s subsidiary and its subcontractors and therefore deviates from local standards of full-time work. Information on local standards in other subsidiaries’ locations is not available, as teamwork and job rotation tends to be defined within particular firms and a local standard is difficult to establish. The comparison refers to the companies General Electric and Valeo. Source: interview HRM manager, Electra Dreux, 18 October 2005. The business success of Brugge is attributed to the strong task orientation of the general manager vis-à-vis his moderate human orientation. In Székesfehérvár and Kwidzyn, managers are more people-oriented than taskoriented, and their personal values are transposed to the provided benefits. Utilization is distinct from hybridization of employment practices in its incorporation of locally constructed unique practices next to imitating local standards or diffusing best practices across the MNC (Boyer, et al. 1998; Meardi and Tóth 2006). Due to turbulent economic changes and the uncertainty of employment after 1989, the quality of working conditions underwent major changes. At the same time, economic pressures and a system of collective bargaining to facilitate workers’ welfare are absent (Avdagic 2005; Mailand and Due 2004; Meardi 2006). I.e., legislation, trade unions, market pressures, and employment practices common in locally established firms.

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105. The narrative is based on Stoop 1992. 106. In 2005 37.7% of Electra’s worldwide employees were women. The share of women in executive positions is 5% (Electra 2005: 40). 107. Cultural embeddedness refers to the role of shared collective understandings in shaping economic strategies and goals (Dequech 2003; Zukin and DiMaggio 1990). 108. The most important among these influences were Electra’s initial embedding in the Eindhoven region and the role of charismatic leadership for the formation of values and behaviour. 109. Collective agreements for production workers have been signed since 1949. 110. Tensions between the continuity of administrative heritage and the changed business strategy can also be observed in Electra’s current production organization and HRM. 111. For example, Electra was the first European MNC to open a subsidiary in Taiwan in 1965. 112. The V2000 video recorder was one such unsuccessful product. 113. The newly established subsidiaries in CEE did not inherit the legacy of control by national organizations; and their interaction with the BG always played a more important role for subsidiary behaviour than their contacts with national Electra headquarters in respective host countries. 114. Knowledge workers are highly educated, internationally mobile employees working predominantly in research, development and planning activities. Electra claims that knowledge workers are a key asset; and the expansion of the already existing internal labour market for these workers and for top managers is one of the company’s priorities. The main concern of Electra’s corporate policies is the HRM of managers and knowledge workers in top functions in Electra’s corporate job classification. In the worldwide population of 160,000 Electra employees in 2005, central policies targeted about 15,000 knowledge workers. At the year-end in 2005, 159,226 employees worked at Electra worldwide. Their number decreased to 118,098 of full-time equivalent employees at year-end in 2007 (Electra 2007). For these workers, corporate management development plans and incentive plans are developed centrally. Moreover, talent management, competence management, shared recruitment, internal labour market mobility, training, and compensation and benefits packages for these employees are diffused from headquarters and subsidiaries with limited feedback possibilities. There exist only a few corporate employment practices that widely apply to all employees across Electra, thus not only to top managers and knowledge workers whose employment practices are coordinated at the headquarter level. These include templates for performance measuring, performance appraisal guidelines, HR process survey tools, the biannual employee motivation and engagement survey, and a corporate classification scheme that allows adjustments to particular local conditions in the lower grades of the scheme. Source: interview Labour Relations Manager, Electra EMEA Headquarters, Amsterdam, 9 June 2004; interview HRM Manager, Electra BG Connected

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115. 116.

117. 118.

119. 120.

121. 122.

123.

124. 125.

126.

Displays, 11 June 2004; interview HRM Manager, Electra Consumer Electronics, Amsterdam, 23 July 2004; interview HRM Manager, Electra Dreux, 18 October 2005. Company-wide principles have been adopted in job classification, compensation and benefits, management development, and training. In Chapter 2 I have highlighted some employment practices across Electra’s subsidiaries that survived reorganizations or emerged in reorganizations, and remained consistent with Electra’s values of local responsiveness and corporate paternalism. Source: interview FNV representative and Electra’s central works council representative in the Netherlands, 23 June 2003. The influence of Dutch culture can be seen in leading long discussions and opting for consensus-based decisions, which are perceived as a typical characteristic of the Dutch culture. Source: interview HR manager, Electra Consumer Electronics Division, 23 July 2004. Electra’s General Business Principles and corporate Annual Reports, Quarterly Reports, Sustainability Reports. One of the central channels through which interaction between the firm and its shareholders takes place is the stock exchange. The price of stocks reflects the demand for and satisfaction of shareholders with the company performance and is therefore at the centre of Electra’s attention. The firm began to list its shares at the Amsterdam Stock Exchange as early as 1912 (Cohen 1996). Today shares are listed in Amsterdam and on the New York Stock Exchange. I.e., research, development, production and marketing strategies. Out of six institutionalized General Business Principles, the first one refers to general commitment, the second principle to shareholder commitment, and the third principle to employee commitment (Schipper 2003). In 2003 Electra was ranked Number One sustainable company in the Dow Jones Sustainability Index in its sector (Electra 2004a). Since 2002 Electra produces an annual Sustainability Report that documents developments in corporate social responsibility and environmental responsibility. As I have argued in Chapter 2 and will argue in Chapters 4 and 5, local isomorphism is central but not the only determining factor in the construction of employment practices for employees below the subsidiaries’ top management. This statement applies predominantly to NOs in Western European host countries. The BG is subordinated to the PD Consumer Electronics. The consistency in policies between the BG and the PD allows me to focus here exclusively on coordination between the BG and the subsidiaries. The sales-oriented regional headquarters and national organizations in the host countries play a marginal role in overseeing subsidiary production. Each of these subsidiaries has a particular position within the MNC. All subsidiaries produce TVs, but the added value differs between flat screens and CRT televisions. Despite differing added value, subsidiary managers maintain that all subsidiaries are important for Electra. Source: interview Industrial Strategy Manager, Electra BG Connected Displays, Eindhoven,

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127. 128. 129. 130. 131. 132. 133.

134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153.

29 June 2004; interview General Manager, Electra Kwidzyn, 5 May 2004; interview Manufacturing Manager, Electra Dreux, 18 October 2005. See Figure 2.2 in Chapter 2. Source: interview Industrial Strategy Manager, Electra BG Connected Displays, Eindhoven, 29 June 2004. SCM involves purchasing inputs from suppliers, planning production volumes, and an elaborated production plan based on expected sales. Source: interview Supply Chain Manager, Electra Kwidzyn, 22 March 2004. The overall goal is to design a highly efficient production plan for each subsidiary. Source: interview Manufacturing Manager, Electra Dreux, 18 October 2005. The general manager from Brugge is more involved in BG matters than managers from the other subsidiaries, because this manager is a member of the BG management team. Source: interview General Manager, Electra Brugge, 26 October 2004. Source: interview General Manager, Electra Brugge, 26 October 2004. Source: interview HRM Manager, Electra Kwidzyn, 30 March 2004. Source: interview Manufacturing Manager, Electra Kwidzyn, 21 April 2004. Source: interview HRM Manager, Electra Consumer Electronics, Amsterdam, 23 July 2004. Source: interview Industrial HRM Manager, Electra Győr and Hungary, 19 January 2005. Source: interview Labour Relations Manager, Electra EMEA Headquarters, Amsterdam, 9 June 2004. Source: interview Deputy HRM Manager, Electra Brugge, 24 September 2004. Source: interview HR and Labour Law Manager, Electra National Organization Belgium, Brussels, 20 September 2004. Source: interview Deputy HRM Manager, Electra Brugge, 24 September 2004. Source: interview HR Manager, Electra Dreux, 18 October 2005. Source: interview HR Manager, Electra National Organization Poland, 24 May 2004. Source: interview HR Manager, Electra National Organization Poland, 24 May 2004. There were no expatriates in the field of HRM in any of the studied subsidiaries. Despite the common format, the style of the text and information provided in these briefing documents in each subsidiary differ considerably. Some headquarter-level HR managers have never visited the subsidiaries. Source: informal discussion with the BG’s HRM manager, Amsterdam, 28 September 2006. Source: interview HR Manager, Electra Székesfehérvár, 26 November 2004. Source: interview HR and Labour Law Manager, Electra National Organization Belgium, Brussels, 20 September 2004. Source: interview Manufacturing Manager, Electra Kwidzyn, 21 April 2004.

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Notes

4 Building a Local Corporate Presence: Social Interaction between the Multinational and Local Societies 158. Geo Names Geographical Database, at: http://population.mongabay.com/ population/belgium/2800931/brugge [access date 20 June 2009]. 159. Until 1980, the factory employed up to 2,000 people; in 2000 the headcount reached 3,000. Source: Interview BLMB (Brugge Labour Market Board – Vlaamse Dienst voor ArbeidsBemiddeling), Brugge, 13 January 2005; interview Deputy HR Manager, Electra Brugge, 13 September 2004. 160. 200 kinds of TV sets produced, maximum 50 pieces per type. Source: interview Manufacturing Manager, Electra Brugge, 1 October 2004; interview Deputy HR Manager, Electra Brugge, 13 September 2004. 161. Source: interview BLMB, Brugge, 13 January 2005. 162. This role is discussed in greater detail in the following section. 163. Source: Basisstatistieken Werkloosheid (basic statistics on unemployment), BLMB, at: http://arvastat.vdab.be/nwwz/index2.htm [access date 18 November 2008]. 164. The Dreux municipality reported 32,656 inhabitants in 1999. The Financial Times reported 32,000 inhabitants in 2007. Source: Dreux municipality, at: www.ville-dreux.fr [access date 4 October 2006]; Dilday and Kuper (2007). 165. Source: interview Cabinet Director, Dreux Municipality, 17 October 2005. 166. Including temporary agency workers. 167. Source: Interview Director, Manpower Dreux, 17 October 2005 and Eures – the European Job Mobility Portal at http://ec.europa.eu/eures [access date 21 June 2009]. 168. Source: Bureau of Labor Statistics, U.S. Department of Labor, at: ftp://ftp.bls. gov/pub/special.requests/ForeignLabor/flsjec.txt [access date 18 November 2008]. 169. Source: interview Director, Manpower Dreux, 17 October 2005. 170. Ibid. 171. Source: www.citypopulation.de/Hungary.html [access date 6 October 2006]. 172. Source: interview Director, SLMB (Székesfehérvár Labour Market Board – Munkaügyi Központ), 18 March 2005. 173. Source: SLMB: A létszámleépítések tapasztalatai Fejér megyében (2005). 174. Ibid.; official statistics SLMB, 2004. 175. Source: official website of the Székesfehérvár municipality at: http://onkormanyzat.szekesfehervar.hu [access date 21 June 2009]. 176. Source: interview Director, SLMB, 18 March 2005.

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154. Source: interview HRM Manager, Electra Dreux, 18 October 2005. 155. Source: interview HRM Manager, Electra Székesfehérvár, 26 November 2004. 156. Source: interview Deputy HRM Manager, Electra Brugge, 29 September 2004. 157. I.e., a shareholder value-driven uniformity in employment practices and subsidiary behaviour vis-à-vis local actors in the construction of these practices.

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177. Source: Główny Urząd Statystyczny (Main Statistical Office), at: www.stat. gov.pl [access date 18 November 2008]. 178. Source: interview Director, KLMB (Kwidzyn Labour Market Board, Powiatowy Urząd Pracy), 14 May 2004. 179. Source: interview Kwidzyn Municipality, 18 May 2004. 180. Source: interview Director, KLMB, 14 May 2004; official KLMB unemployment statistics, March 2004. 181. Source: KLMB (Kwidzyn Labour Market Board, Powiatowy Urz ąd Pracy), at: www.bip.pupkwidzyn.pl [access date 18 November 2008] and Work Indicators in www.workindicators.org [access date 25 November 2008]. 182. Source: interview Director, KLMB, 14 May 2004; interview Kwidzyn Municipality, 18 May 2004. 183. Recalling Chapter 2, the share of production workers in the overall headcount is lower in Brugge than in the other subsidiaries. This book only covers the production part of the Brugge subsidiary, which is feasible for a comparison with the other studied subsidiaries. 184. Source: http://arvastat.vdab.be [access date 18 November 2008]. 185. Source: http://ec.europa.eu/eures [access date 21 June 2009]. 186. Source: http://onkormanyzat.szekesfehervar.hu [access date 21 June 2009]. 187. Source: interview Director, KLMB, 14 May 2004; and KLMB at www.bip. pupkwidzyn.pl [access date 18 November 2008]. 188. This role of BLMB derives from the Belgian law. 189. The price ratio between hiring workers directly and via an agency is 1:1.8. Source: interview Deputy HR Manager, Electra Brugge, 17 October 2005; interview Director, Manpower Dreux, 17 October 2005. 190. Source: interview Personnel officer for production workers (directs), Electra Székesfehérvár, 2 December 2004. 191. As shown in Chapter 2 it is not standard to hire agency workers in Kwidzyn. Although some large temporary labour agencies, i.e. Adecco, offer their services in the region, Electra’s subsidiary managers emphasize their preference to hire workers directly. In hiring highly skilled and educated engineers, Electra also prefers direct cooperation with the job seekers and cooperates with technical universities in Northern Poland (Electra, Kwidzyn 2004: 84). 192. Source: author’s observations; interview Director, KLMB, 14 May 2004. 193. Source: interview Deputy HRM Manager, Electra Brugge, 13 October 2004. 194. Property taxes paid by companies constitute 60% of the city’s budget in Dreux. Source: interview Cabinet Director, Dreux Municipality, 17 October 2005. 195. Centralized official communication channelled via the Warsaw-based national Electra organization did not prove to be an effective channel to interact with the local society in Kwidzyn; and subsidiary managers prefer direct interaction of Kwidzyn-based subsidiary with Kwidzyn authorities. 196. Source: interview Kwidzyn Municipality, 18 May 2004. 197. Source: interview Kwidzyn Municipality, 18 May 2004. Translation from Polish by the author. 198. Source: interview Director, KLMB Kwidzyn, 14 May 2004. Translation from Polish by the author.

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199. Source: interview Deputy HRM Manager, Electra Brugge, 13 October 2004; interview Regional leader, ACV-Metaal Brugge, 7 October 2004. 200. Interestingly, the regional ACV-Metaal union leader claims that Sony TV screens were more often placed in public areas and thus more visible as a sponsoring initiative than Electra branded screens (interview 7 October 2004). 201. Source: interview Regional leader, ACV-Metaal Brugge, 7 October 2004. 202. Source: archives of local newspapers, Electra Dreux (2005) . 203. Source: interview Dreux Municipality, 17 October 2005. 204. For example, Electra and other companies’ taxes financed the full renovation of the local sewage system. 205. Source: interview Public Relations officer, Electra Székesfehérvár, 7 December 2004. 206. Source: archives of the local newspaper Dziennik Bałtyczki. 207. Recalling Chapter 1, the distinction between focused and unfocused social interaction refers, on the one hand, to physical encounters between representatives of the MNC and local actors (focused interactions) in which actors devote their attention to a particular conversation, negotiation, or exchange of information; and on the other hand, to interaction that results solely by virtue of actors being in one another’s presence or based in the same local context (unfocused interaction). The distinction has been previously applied to social interaction of individuals by Goffman (2001), but is also feasible for social interaction of corporate and/or collective actors. Focused and unfocused interactions are complementary, because the studied actors simultaneously develop both kinds of interactions.

5 From Bargaining to Dancing: Social Interaction between the Multinational, Local Workers and Trade Unions 208. Where unions and/or works councils do have influence on employment practices other than employment flexibility, it is mentioned in the text. 209. Town meetings are monthly or half-yearly collective gatherings of management and workers where managers announce subsidiary developments and workers are encouraged to raise questions and provide feedback. Evidence from Brugge and Székesfehérvár shows that town meetings produce little responses and questions from workers. In contrast, in Kwidzyn’s employee motivation survey, workers rated communication very high because of frequent town meetings (Electra, Kwidzyn 2004). Such differing perceptions reveal that corporately controlled communication would not lead to desired results, and that direct responsiveness to workers’ needs across the subsidiaries is indeed essential. 210. A published bulletin is an important and appreciated communication form in all subsidiaries. Each subsidiary has its own bulletin including information on business and quality but also reports from team trips, competitions, social events, and other themes related to subsidiary life. In Brugge, the bulletin was introduced after worker feedback on inadequate communication. Workers like to read the bulletin and Electra’s managements consider the bulletin a very effective way of communication. Despite the overall

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211. 212.

213. 214.

215. 216. 217. 218.

219. 220. 221. 222.

223.

similarity of the concept, my analysis of subsidiary bulletins reveals that the content is more business oriented in Dreux and Brugge, whereas in Székesfehérvár and Kwidzyn equal attention is paid to socially oriented content and workers’ interests not related to work (e.g., children’s page in Kwidzyn or a recipe page in the Székesfehérvár bulletin, reports and photographs from team trips, social events and personal achievements including workers’ photographs). Source: interview Manufacturing Manager, Electra Brugge, 1 October 2004. Additional communication forms beyond daily informal contacts take place in Brugge via screens in the production halls and via surveys on workers’ satisfaction with internal communication. In Dreux, operational communication involves regular five-minute meetings with production workers to discuss weekly planning; access to computers and intranet; and wallpapers in production halls. Kwidzyn and Székesfehérvár use wallpapers and screens as well as the weekly five minutes with workers. An interesting difference that I observed between Western and CEE factories is the emphasis on achievements and awards in CEE and the lack of it in the Western subsidiaries. For example, in Kwidzyn the walls in the corridors are filled with information on subsidiary processes, awards and achievements. The Kwidzyn HR department’s offices are filled with awards and recognitions that the HR team and the subsidiary have received. This is in strong contrast with observations from Brugge where the walls and corridors are empty. Source: interview Manufacturing Manager, Electra Kwidzyn, 21 April 2004. In Kwidzyn, the manufacturing manager has decided to hire a production manager to strengthen informal communication with workers and compensate for the language barrier of expatriate managers (including the manufacturing manager) working in this subsidiary. Source: interview Deputy HRM Manager, Electra Brugge, 13 October 2004. Source: interview General Manager, Electra Brugge, 26 October 2004. Source: interviews with union leaders: Brugge 25 October 2004, Kwidzyn 5 May 2004, Székesfehérvár 8 December 2004. As perceived by trade union representatives, problematic areas of Electra’s behaviour relate to hard employment practices, namely extensive employment flexibility. Source: interview Solidarność leader, Electra Kwidzyn, 5 May 2004. The union confederations include FNV, CNV, De Unie, and VHP. Source: interview HRM department, Electra EMEA headquarters, 9 June 2004. Internal fragmentation derives from tensions between different union factions, i.e., between blue-collar and white-collar union factions, or between provincial and regional factions. Source: interview HRM department, Electra National Organization Belgium, 20 September 2004. In line with the changing roles of Electra’s NOs, the power of the Belgian NO in strategic decisions has significantly decreased. The unions fear a further undermining of their own powers because of a shrinking union constituency related to subsidiary closures. As a reaction, trade unions increasingly focus their agenda on workplace issues in each Electra

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224. 225. 226. 227.

228. 229. 230. 231. 232.

233. 234.

235.

236. 237.

238.

239.

Notes subsidiary individually, which further shifts the relevance of industrial relations from the national to the subsidiary level. Source: interview HRM Department, Belgian National Headquarters, 20 September 2004. Source: interview HRM Department, Belgian National Headquarters, 6 October 2004. Source: interview HR Manager, Electra Dreux, 18 October 2005; interview HRM Department, French National Headquarters, 20 October 2005. Source: interview HR Manager, Electra Dreux, 18 October 2005. Electra’s two Hungarian production subsidiaries are Székesfehérvár and Győr. The third subsidiary in Szombathely has been outsourced in 2003 and part of production (flat PC monitors) has relocated to Székesfehérvár. Based on information at the time of research in late 2004. Source: interview Solidarność International Coordinator, 28 April 2004. Source: interview HR Manager, Polish National Headquarters, 24 May 2004; interview Industrial HR Manager, Electra Poland, 18 June 2004. Source: interview Deputy HR Manager, Electra Brugge, 24 September 2004. Information on Electra Dreux is based solely on interviews with managers. Electra’s French headquarters granted access to the subsidiary upon the condition of not interviewing trade union representatives. Works council members are trade union nominees elected by employees at Electra Dreux. A discrepancy between the largest CGT union and the union with the strongest voice in the works council may arise due to the voluntary character of worker participation in social election. This is different from Belgium where all employees are legally obliged to vote for works council representatives in the social elections. For example, in a pay negotiation in 2005, Electra proposed a 1% collective increase, whereas the CGT union requested 5%. An agreement has not been reached, so the 1% increase has been implemented. Source: interview HRM Department, Electra Dreux, 19 October 2005. Workers are motivated to unionize because of lower membership fees than in other Hungarian unions. Whereas in other unions the membership fee constitutes 1% of the gross wage, in Electra Székesfehérvár the membership fee was set at 100 Hungarian Forints. This sum equalled approximately 0.41 EUR or 0.54 USD in late 2004, and about 0.37 EUR or 0.53 USD in mid-2009 (interbank rates). Source: www.oanda.com [access date 31 August 2009]. E.g., announcing partial negotiation results to the workforce despite an agreement with the management that only results that are finally agreed will be announced. Székesfehérvár is the only subsidiary where the works council is not closely intertwined with trade unions and functions as a separate representation channel. Electra has a cooperative relationship and frequent informal interaction with the works council, which further intensifies the tension between the works council and the trade union. In contrast to the Video union, Electra perceives the works council as a democratic body of representation with regularly held elections. The council’s responsibilities are, however, limited to the management of fringe benefits (holiday voucher distribution, prizes, work clothing distribution). Therefore, in key employment matters the works council’s role is secondary to the union’s role.

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240. Source: interview Solidarność leader, Electra Kwidzyn, 29 March 2004. 241. Several collective conflicts on job classifications and unfair dismissals did occur in 1998–1999. However, these did not have serious consequences for the management–union power relations and were a demonstration of union power to take issues further if a subsidiary-level consensus cannot be reached. 242. I.e., working-time revisions, workers’ temporary contracts, social criteria for temporary workers and working conditions. 243. Trade union involvement in other employment practices is less significant than involvement in wages and employment flexibility. Wage negotiations are not covered in this book due to the lack of data and access to wage information. The justified focus is then on employment flexibility. Next to flexibility, union involvement in other employment practices shows interesting differences between Brugge and other subsidiaries. In Brugge, Electra agreed with unions to pay fixed salaries and abandon the idea of performance-related pay. Managers do not encourage worker competition, and the company could accept this union request without major trade-offs. In the other three subsidiaries union influence on performance-related pay is limited because of inadequate interest of both unions and the MNC in negotiating these issues. Annual collective pay rises are on the union agenda, but individual participation practices are not central to union interests and action. Next, trade unions monitor work organization and are satisfied with teamwork, empowerment, job discretion, rotation and possibilities of worker feedback. Their role in constructing these practices is limited, but unions do have a say after receiving workers’ complaints and have indeed experienced successful interference in problem solving related to work organization (i.e., foremen rotation in Kwidzyn, production line design allowing workers’ leaning instead of standing in Székesfehérvár, worker rotation in Brugge to avoid uneven workload distribution). 244. According to Belgian legal stipulations, if a company admits temporary agency workers without trade union approval these workers have the status of permanent employees. 245. These workers receive a contract for at least one week, which is the same practice as in Brugge. However, the construction of this practice has differed between Brugge and Dreux, with unions involved in the former case via an informal management–union agreement and being wholly excluded from constructing this practice in the latter case. 246. Electra is legally obliged to consult the union in case of collective dismissals, which did not take place in Székesfehérvár. 247. These social criteria indicate the economic situation of workers’ families and the number of children. 248. Interaction is presented in the form of payoff matrices representing power constellations of involved actors, and the payoffs they assign to and obtain from certain behaviour relative to the other party’s behaviour and to the institutional environment in which interaction takes place. I distinguish between the cooperative and tough behaviour that Electra and the unions can opt for. Opting for cooperation means being inclined to compromise on employment practices with the actor with whom interaction takes place. Depending on the priority that actors assign to cooperation, this kind of behaviour characterizes either value-based cooperation, or interactive

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bargaining, as a form of social interaction. Analogously, in tough behaviour the actors are more eager to struggle for their initial goals and do not resign or compromise easily. A tough strategy is associated with interaction taking place either in the form of control or competition. Tough behaviour can also describe interaction in the form of interactive bargaining, especially when bargaining has a distributive character and actors cannot easily agree on a joint solution. Depending on the local conditions and the actors’ selected behaviour relative to the behaviour chosen by the coordination partner, different interaction forms bring different payoffs to Electra and to the unions. The payoffs listed in the matrices are derived from empirical data and are numbered zero to three for each actor. The choice of numbers is based on convenience, and the only relevant aspect of this selection is its ordinal structure (3 the most acceptable option, 0 the least acceptable option). A combination of individual payoffs for both Electra and the unions in each factory then allows an evaluation of the most convenient and sustainable form of social interaction for each actor, relative to the other actor’s interests and local specificities. The real game played – the one from which none of the actors attempts to deviate under the existing conditions and strategies of the other actor – is the Nash Equilibrium, the steady state when both actors opt for the same square of the matrix and both are satisfied with their choice (Osborne and Rubinstein 1994). The sustainable mode of interaction is not a one-time game, but the result of a long-term management–union interaction and international trade union interaction. In each case the reference to local conditions is crucial: even if one finds interaction by interactive bargaining, this means different power relations and informal social relations and trust in each studied situation and interaction channel. 249. This fallback option relates to the legal stipulations being a key resource for the management–union interaction, due to a legally required union involvement in the construction of employment practices and the unions’ own capacities to mobilize collective action in the process of constructing employment practices. 250. Since 15 years no democratic union elections have been held and personal interests of union leaders continuously dominate the Video union’s agenda. However, in these 15 years the worker structure changed and the number of temporary agency workers increased. Therefore, it is questionable to what extent is the incumbent union leadership democratically representing the interests of all workers, including temporary and agency workers. Electra’s permanent workers do not attempt to initiate a change in union leadership and rather prefer to retreat from active involvement in union-related activities.

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6 Social Foundations of Trade Union Influence: Cross-Border Interaction of Unions and Employee Representatives 251. Interview information in this chapter is based on evidence collected in Belgium, the Netherlands, Hungary and Poland.

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252. To maintain this focus, I refrain from discussing diverse national industrial relations systems, which are assumed to shape union strategies from an institutionalist perspective (Thelen 2001). An overview of industrial relations structures is included in Table A.1 in the Appendix. 253. Except for open rivalry, weaker forms of competition may be associated with non-existent contacts and a lack of initiatives in seeking union partners abroad. 254. The current literature agrees on three alternative conceptualizations of the EWCs’ organization that are independent of the company sector or home country (Lecher and Rüb 1999; Levinson 1972; Marginson 2000; Stoop and Donders 1998). 255. In-depth empirical evidence on international and in particular East–West union interaction is not extensive. EWCs and prospects for international bargaining deriving from the existence of EWCs have been addressed in the literature to a greater extent than direct union interaction. 256. Directive on parental leave (1996), part-time work (1997), fixed-term contracts (1999). As well as these directives, ETUC and employers concluded agreements on teleworkers’ working conditions (2002), lifelong learning and development of competencies and qualifications (2002), work-related stress (2004), and gender equality (2005). Source: www.etuc.org [access date 6 September 2009]. 257. Many of these memberships were obtained only recently in the past five years. In 2003, only five unions were part of ETUC, three were members of ICFTU, and one union participated in TUAC. Source: Kahancová (2003a), ETUC at www.etuc.org [access date 7 September 2009], ICFTU iatwww. icftu.org [access date 7 September 2009], TUAC at www.tuac.org [access date 7 September 2009]. 258. Polish Solidarność, Hungarian Vasas, and the Czech OZ Kovo. 259. Source: interview Solidarność international coordinator, 28 April 2004. 260. The first success of this cooperation was the unionization of workers in six foreign-owned supermarket chains between 1999 and 2001. Source: Kahancová (2003b). 261. Source: interview FNV Bondgenoten chief negotiator for Electra, 15 June 2004. 262. Source: interview ACV-Metaal chief negotiator for Electra in Belgium, 19 October 2004. 263. Source: interview FNV Bondgenoten chief negotiator for Electra, 15 June 2004. 264. Source: interview Solidarność international coordinator, 28 April 2004; interview Vasas president, 13 December 2004. 265. Source: interview Solidarność international coordinator, 28 April 2004. 266. Source: interview Vasas president, 13 December 2004. Translation from Hungarian by the author. 267. The limited language abilities of CEE unionists is also a source of difficulties. The unions themselves recognize this problem, but lack the facilities to provide language courses for their delegates. Language courses offered by MNCs for EWC representatives from CEE countries are a partial solution to this problem. 268. A good example is the recent case of the Finnish Nokia company. After the management announced the relocation of a German Nokia plant to

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269. 270. 271. 272. 273. 274. 275. 276. 277.

278. 279.

280. 281. 282.

Notes Romania, Finnish unions supported relocation. Their action had disappointed the German unions who were expecting more international solidarity and support for metalworkers’ unions from abroad. For recent debates concerning the Nokia case, see the German press of early 2008, i.e., Welt Online (www.welt.de): Nokia kündigt 2000 Beschäftigten in Bochum (publication date 15 January 2008); Spiegel Online (www.spiegel. de): Massenentlassungen in Bochum. Gewerkschaft wirft Nokia blanke Profitgier vor (publication date 15 January 2008); Rheinische Post Online (www.rp-online.de): Gewerkschafter im Interview “Bochum schlägt Rumänien” (publication date 7 February 2008); World Socialist website (www.wsws.org): Nokia kündigt Schließung des Werks in Bochum an (publication date 19 January 2008); World Socialist Web Site (www.wsws.org): Gewerkschaftern stellen sich offen auf die Seite der Konzernleitung (publication date 2 February 2008). [Access date for the above online sources 2 March 2008]. Source: interview ABVV Metaal headquarter office, 28 October 2004 Source: interview international union coordinator for Solidarność, Electra Poland, 10 May 2004. Source: interview ACV-Metaal representative, Electra Brugge, 26 October 2004. Source: interview Solidarność international coordinator, 28 April 2004. Source: interview FNV Bondgenoten chief negotiator for Electra Netherlands, 15 June 2004. Source: interview FNV Bondgenoten chief negotiator for Electra Netherlands, 15 June 2004. Source: interview ACV-Metaal regional leader, West Vlaanderen, 7 October 2004. Source: interview international union coordinator for Solidarność, Electra Poland, 10 May 2004. For instance, when Electra’s Belgian factory in Hasselt was closed in 2003, Belgian unions openly protested at Electra’s headquarters in the Netherlands, but were disappointed that the Dutch unions did not support their efforts. Source: interview ACV-Metaal leader and chief negotiator for Electra in Belgium, 19 October 2004. Source: interview FNV Bondgenoten chief negotiator for Electra Netherlands, 15 June 2004. In contrast to union interaction, EWCs in particular sectors and companies are well studied in the literature (Arrowsmith and Marginson 2006; Lecher and Rüb 1999; Marginson 1992; Marginson, et al. 2004; Meardi 2004; Waddington 2003; 2006). I.e., Volkswagen, Electrolux, Audi, Opel, Nokia. Source: interviews with trade union representatives in Hungary and Poland. I.e., FIAT, Danone, Renault (Meardi 2004). EEF’s seat allocation as of October 2004: one representative from countries up to 5,000 Electra employees (United Kingdom, Belgium, Austria, Spain, Italy, Portugal, Switzerland, Sweden, Norway, Denmark, Finland, Greece, Ireland, Hungary and the Czech Republic); two representatives from countries with 5,001–10,000 Electra employees (France and Poland); three representatives from countries with 10,001–20,000 employees (Germany);

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283.

284.

285.

286.

287. 288. 289.

290. 291.

292. 293. 294. 295. 296. 297. 298. 299.

and four representatives from countries with 20,001–30,000 employees (the Netherlands). Source: interview EEF Vice-Chairman, 27 February 2004. Electra’s European CEO acts as the EEF chairman. Other participating managers include the EMEA HR manager and the EMEA manager for European industrial relations and labour affairs. Regular activities of the Euroforum in between the two annual meetings are carried out by an elected committee of five employee representatives and one management appointee. Source: Electra (2004b). These include developments in the field of business and employment, the financial and economic situation of Electra, the MNC’s legal and organizational structure, major investments, mergers and production transfers, and the introduction of new working and production processes. Consultation refers to the exchange of views and a dialogue between managements’ and employees’ representatives. Source: interview Industrial HR Manager, Electra Poland, 18 June 2004; interview General Manager, Electra Brugge, 26 October 2004; interview HR Manager, Electra Székesfehérvár, 8 December 2004. Source: interview EMEA Labour Relations Manager, 9 June 2004; interview HRM Department Electra NO Belgium, 6 October 2004; interview Vice President of Social and Economic Department, Electra Netherlands, 19 September 2003. Source: interview Vice President of Social and Economic Department, Electra Netherlands, 19 September 2003. Source: interview HRM Department, Electra NO Belgium, 6 October 2004. The representatives have openly criticized the quality of Euroforum meetings, namely a lack of real discussions and a delayed availability of presented material from Electra’s management, which consequently means lack of time for representatives to prepare their agenda and questions in advance. Source: interview Belgian EEF representative, 21 June 2004. Source: interview Belgian EEF representative, 21 June 2004. Source: interview ACV-Metaal representative, Electra Brugge, 26 October 2004; interview ACV-Metaal regional representative West Vlaanderen, 7 October 2004. Source: interview Polish EEF representative, 10 May 2004; interview Industrial HR Manager, Electra Poland, 18 June 2004. Source: interview Solidarność international coordinator, 28 April 2004. Source: interview Vice-Chairman EEF Committee, 27 February 2004; interview ACV-Metaal representative, Electra Brugge, 26 October 2004. Source: interview Vasas president, 13 December 2004. Source: interview Polish EEF representative, 10 May 2004. Source: interview Solidarność international coordinator, 28 April 2004. Source: interview ABVV Metaal headquarter office, 28 October 2004. Not only unions representing production workers, but also Electra’s VHP union for higher-grade employees in the Netherlands shares this view. The VHP leader claims that works councils can be a serious countervailing power to management, but Electra’s EEF was not able to develop this capacity and the contacts developed via the EEF are not sufficient.

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Source: interview VHP leader, Electra Netherlands, 19 September 2003; interview FNV Bondgenoten chief negotiator for Electra Netherlands, 15 June 2004; interview ACV-Metaal chief negotiator for Electra in Belgium, 19 October 2004. 300. This reasoning relates to earlier production relocations from Western countries to CEE, existing differences in working conditions and wages, fears of future relocations, and protection of existing Western working standards. 301. Although I have attempted to utilize evidence from several available studies in the metal sector, the conclusions draw predominantly on a case study of Electra. For systematic scenarios concerning the future of international trade unionism at sectoral and company levels, inquiry into cross-border union interaction in other sectors and firms is necessary. 302. In particular because many MNCs, including Electra, have opted out of sectoral agreements.

7 Accounting for Diversity: The Social Construction of Employment Practices 303. MNCs often refer to the law being the main resource for their behaviour and the main source of diversity in employment practices. 304. I. e., legislation, trade unions, market pressures and employment standards in locally based companies. 305. From among formal institutions, it is the host-country labour law that Electra uses as a resource for interaction with local actors. The law is also a benchmark for local employment standards. 306. Social interaction with local actors is thus not imposed on the subsidiary management through external pressures or direct headquarter control. Being an effect of company values, the MNC voluntarily engages in social interaction with the locals in order to benefit from local conditions while constructing tailored employment practices. It is beyond the scope of this book to inquire in greater depth how the complementarity of values is maintained and constantly renegotiated within the MNC and between the MNC and local actors; and whether such functioning of company values is in line with existing sociological theories of organizational values and their stability and change (cf. Coleman 1999; Elster 1989; 1999). 307. In fact, the interests and behaviour of local actors make Electra’s behaviour possible. It is easier for the MNC to pursue the construction of employment practices in line with its value of local responsiveness when local trade unions also pursue local interests, i.e., prefer decentralized subsidiary interaction with the MNC to an encompassing company-wide bargaining. Moreover, MNC efforts are supported by the fact that cross-border interaction of company-level unions is competitive and polycentric trade union interests do not pose a threat to MNC efforts to decentralize the construction of employment practices. 308. Power resources include capital mobility, ability to relocate production and work, and past relocations from Western subsidiaries to CEE subsidiaries and overseas.

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309. Distributional elements in bargaining include negotiated trade-offs for a union approval of temporary workers, or avoiding dismissals. Integrative elements of interaction in form of bargaining include employment flexibility to secure the subsidiaries’ optimal performance and job security. 310. I have excluded the cooperative interaction form between national and sectoral trade union federations in channel δ, as this cooperation does not have direct influence on workplace employment practices. Therefore, only the competitive interaction of company-level trade unions is included. 311. Unilateral management decisions may originate from headquarters or from subsidiary managements. As shown throughout the book, Electra’s subsidiary managements enjoy large autonomy from headquarters in constructing employment practices. Therefore, the latter case – management decisions at the subsidiary level – is more likely than centralized diffusion of practices from headquarters.

8 Multinationals, Employment Practices and Institutional Change from below 312. Dual employment flexibility, or a combination of internal and external flexibility practices, is unique to the Kwidzyn subsidiary. See Chapter 2, section Employment flexibility. 313. Streeck and Thelen (2005: 18–33) differentiate between five forms of institutional change, i.e., displacement, layering, drift, conversion and exhaustion.

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actors see also local actors attributes of, 32–5 compatibility of interests of, with host-country institutions, 201–5 competition among, 39, 41–2 cooperation among, 40, 42 interests and behaviours of individual, 213 role of, in constructing employment practices, 28–43 socio-economic, 11–12 administrative heritage, 78–80 bargaining, 241n309 see also collective bargaining distributive, 41 individual, 38 integrative, 41, 42 interactive, 15–16, 40–3, 87, 99, 119, 123 partners, 90 behaviour assumptions about MNC, 30–2 company, 21–8, 200–1 Belgium see also Brugge subsidiary industrial relations in, 126, 128–9, 214 trade unions in, 128–9, 215 benchmarking, 94 BG Connected Displays, 87 bounded rationality, 31 Breaking Points (Schiffer), 1–2 Brugge subsidiary, 49–52, 54–5, 57–8, 60–2, 65–8, 87 employment flexibility in, 133–4 employment in, 106 labour market actors and, 106 local actors and, 111 local context, 100–1 local government and, 108–9

management-union interaction, 129–30, 132–3, 140–1 management-workforce interaction in, 121, 122 bulletins, 232n210 business practices, transfer of, 6–7 business standards, 33 see also local standards butterflies, 60 capitalism, varieties of, 6, 9, 13, 96, 203, 212–13 Central and Eastern Europe (CEE) see also specific countries changes in, 49, 51 compared with Western Europe, 11 interactions between Western European unions and unions in, 151–3, 155–63, 169–72 interactive bargaining in, 99 labor standards in, 180–1 legal regulations, 51 national industrial relations in, 124–8 trade unions in, 153–5 transition years in, 1 charismatic leadership, 79–80 citizens, 111–13 collective bargaining, 13, 51, 91, 124, 127 cross-border, 39, 151 international, 173 levels of, 214 company behaviour, 21–28 effects of, 200–1 institutionalist approaches to, 26–8 organizational approaches to, 21–5 company interests, 33 company-level union interaction, 148–9 company-level unionism, 151–2, 157–63, 172, 173

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company values, 33, 40, 43 comparative institutionalist perspective, 18, 27–8 competition, 40–2 in cross-border trade unionism, 150–3, 169–72 between workers, 123, 177 competitive pressures, 83–4 contextualized interests, 31–2, 33 control, 39, 41, 123 convergence thesis, 5, 203 cooperation, 40, 42, 235n248 in cross-border trade unionism, 150–3, 169–72 corporate interests, at Electra, 80–3 corporate isomorphism, 84, 85, 96 corporate values, 76–7, 180, 182–3, 184, 186–7, 211 defined, 78 at Electra, 85, 97 formation of Electra’s, 78–80 cross-border trade union interaction, 148–74, 194 bottom-up approach to, 173 company-level perspective on, 157–63 construction of employment practices and, 173–4 cooperation and competition in, 150–3, 169–72 effects of, 155–6 institutionalization of, 163–8 national and sectoral perspective on, 153–7, 172 obstacles to, 159–60 research on, 155 cross-country convergence, 5, 7, 42–3 cross-country diversity, 6 cross-subsidiary interaction, 93–6, 187 cultural embeddedness, 227n107 Czech Republic, trade unions in, 155 decentralization, 183–4, 185 decentralized approach, 91–2, 94–8, 124, 125, 158–9, 163, 168, 173–4, 183–8, 200 deindustrialization, 102 discretionary behaviour and negotiation approach, 23–4

distributive bargaining, 40–1, 42 Dreux subsidiary, 49, 50, 52, 57, 58, 60, 62–3, 66–8, 87 employment flexibility in, 134–5 employment in, 106 labour market actors and, 106–7 local context, 101–2 local government and, 109 management-union interaction, 130–1, 141 management-workforce interaction in, 121–2 media coverage and, 111–12 Dutch culture, 228n118 economic factors, 218n3 economic interests, 183 economic power, 220n26 economic profit, 181–2 economic sociology, 8, 208 efficiency, 182 efficiency wage model, 211 Electra, 2, 3, 9–10, 11 see also Electra subsidiaries administrative heritage, 78–80 as case study, 46–71, 198 charismatic leadership, 79–80 citizens, media and, 111–13 company background, 46–9 company-level union relations in, 158–63 corporate interests, organization, and strategy, 80–3 corporate values, 78–80, 85, 97, 180, 182–3, 184, 186–7 decentralized structure of, 91–2, 94–8, 124, 158–9, 163, 168, 173–4, 183–8, 200 diversity in employment practices at, 175–85 embedding by, 113–16, 179, 203 empirical analysis of, 45–6 employment issues, 89–93 employment practices at, 10, 52–61, 71–4, 217 EWC in, 164–6 formation of corporate values at, 78–80

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Electra – continued hard employment practices, 52–60, 61, 217 history of, 77–83 industrial relations, 214–16 interaction between employee representatives and, 139–45 interaction between headquarters and subsidiaries, 86–93 interaction with local actors, 98–117, 179–80, 188–90 internal and external forces shaping, 83–6 labour market actors and, 105–8 municipalities and local governments and, 108–11 national industrial relations and, 124–8 organizational structure, 47–9 outsourcing by, 222n41 paternalism of, 78–9, 86, 97, 124, 182–3, 211 production issues, 87–9 production workers at, 10, 52–6, 61–5, 82–3, 89, 92, 96, 100, 102, 104, 107, 219n10, 222n40 restructuring at, 81–2, 100–1 similarities in employment practices at, 178–9 social interaction at, 76–97, 185–91 socially responsible behaviour of, 200–1 soft employment practices, 60–71, 217 trade unions and, 124–8 wage policy, 53–4, 71 Electra subsidiaries, 49–52 see also Brugge subsidiary; Dreux subsidiary; Kwidzyn subsidiary; Székesfehérvár subsidiary diversity of employment practices across, 217 employee representation in, 129 industrial relations in, 125–33 interaction among, 93–6, 187 interaction with employee representatives, 139–45 management-workforce interaction in, 120–4

257

negotiation of employment flexibility at, 133–9 trade unions and, 124–8, 189–90 embeddedness, 26, 33, 84, 151, 208 cultural, 78, 227n108 embedding/embedding process, 2–3, 7–8, 12, 28, 33, 197 by Electra, 113–16, 179, 203 factors influencing, 199 as institution building from below, 205–6 by MNCs, 197, 198–9 socially constructed, 208–10 employee participation, 64–8 employee representatives see also trade unions cross-border cooperation and competition, 150–3 in Electra subsidiaries, 129 interaction between Electra and, 139–45 interactions between unions and, 38–9 interests and behavior of, 193–4 MNCs and, 39 employees see also workers Electra’s commitment to, 85 responsiveness to, 80 employment, in Electra factories, 106 employment contracts, 19–20 employment flexibility, 54, 71–2, 118–19, 235n243 diversity in, 177 negotiating, with subsidiary trade unions, 133–9 employment practices complementarities and, 181–2 construction of, 18–44, 194–6, 198–9 convergence in, 5, 187, 193–4, 201–4, 217 cross-country diversity in, 6–7, 181, 193–4, 217 cross-country unionism and, 173–4 decentralized approach to, 91–2, 94–8, 124, 125, 158–9, 163, 168, 173–4, 183–8, 200 defined, 10

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employment practices – continued diffusion of, 6–7, 218n5 diversity in, 175–85, 193–4, 195, 217 at Electra, 10, 52–61, 89–93, 217 factors influencing, 180 hard, 20, 52–60, 61, 217 institutional factors affecting, 26–8 legal regulation of, 11 local context and, 98–100 local standards and, 180–1 micro-foundations of, 28–43 MNC behaviour and construction of, 200–1 negotiating, with subsidiary trade unions, 133–9 role of micro-level actors in shaping, 9 similarities in, 178–9 social construction of, 3–12, 28–9, 41–3, 175–96, 207–13 soft, 20, 60–71, 118, 212, 217 of subsidiaries, 2–3 understanding, 19–21 employment standards, 2, 6–12, 19, 71–74, 108, 148, 152, 154, 173, 201–13 benchmarking, 155 in CEE, 180–81 convergence in, 9, 193–94, 213 cross-border interaction and, 169 modification of, 42, 43 shared values about, 153, 157 worsening 151 see also local standards endogeneity of interests, 31–2 ethical values, 220n26 Euroforum, 164–7 informal functional of, 166–7 versus trade unions, 167–8 European Electra Forum (EEF), 164–8 European Metalworkers’ Federation (EMF), 153 European Trade Union Confederation (ETUC), 153 European Works Council (EWC), 151–3, 163–8 in Electra, 164–6 interaction between unions and, 190–1

external conditions, 22 external flexibility, 55–7, 226n97 focused interaction, 35, 232n206 Ford Motor Company, 1–2 France see also Dreux subsidiary industrial relations in, 126–7, 214 trade unions, 215 fringe benefits, 68–71, 72–3, 177, 217 functional flexibility, 59–60 game-theoretical analysis, 221n31 global capitalism, 5–6 global efficiency, 85, 86 globalization theories, 201–2 good idea box, 67 governance, shareholder plus mode of, 208, 210 government interaction with local, 108–11 role of, in constructing employment practices, 38 Great Depression, 80 hard employment practices, 52–60, 61, 217 employment flexibility, 54 external flexibility, 55–7 functional flexibility, 59–60 internal flexibility, 57–9 numerical flexibility, 54–5 wage policy, 53–4 headquarters interaction between subsidiaries and, 86–93, 186–7 transfer of organizational practices to subsidiaries from, 6–7 home-country institutions, influence of, on employment practices, 26–8 host countries adaptation to, 7–8 differences across, 125 influences of, on MNCs, 218n4 local contexts, 98 subsidiary employment practices in, 2–3

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IBM, 1, 218n1 industrial relations, 51 differences in, across countries, 152–3 Electra company-wide practices, 214–16 in Electra subsidiaries, 128–33 national, 124–8 national structure, 214–16 informal interaction, between management and workers, 121–2 information effect, 152 innovator MNCs, 218n5 institutional change, 205–6 actor-oriented perspective on, 12–13 micro-level perspective on, 9 institutional context, local, 11 institutional determinism, 203 institutional economics, 6 institutional factors, 33, 218n6, 220n22 institutionalist approaches, to company behaviour, 26–8 institution building, 205–6 integrative bargaining, 41, 42 interaction, see social interaction interactive bargaining, 15–16, 40–1, 42–3, 87, 99, 119, 123 interests context-specific, 31–2 endogenous, 31–2 heterogeneity of, 31 internal flexibility, 57–9, 71 international collective bargaining, 173

International Confederation of Free Trade Unions (ICFTU), 153 international trade union organizations, 153 international unionism, see crossborder trade union interaction isomorphism, 26–7, 84, 85, 96, 115–16, 183, 202 knowledge workers, 160, 227n114 Kwidzyn subsidiary, 52, 57, 59–64, 67, 68, 87, 104–5 employment flexibility in, 136–7, 177 employment in, 106 labour market actors and, 107–8 local actors and, 113 local government and, 110–11 management-union interaction, 132–3, 143–4 media coverage and, 113 labour costs, 176–7 labour law, 240n305 labour market actors, 105–8 labour markets, local, 11, 101 legal power, 220n26 legal regulations, 11, 193, 196 in CEE, 51 on employment flexibility, 138–9 employment practices and, 180 legitimacy effect, 152 local actors construction of employment practices and, 185–91 diversity in employment practices and, 184–5 interaction between MNCs and, 11–13, 28–30, 33–4, 37–8, 98–117, 118, 204, 208 social interaction with, 177–80, 188–90 local context, 98 Brugge subsidiary, 100–1 Dreux subsidiary, 101–2 Kwidzyn subsidiary, 104–5 Székesfehérvár subsidiary, 102–4 local environment, 181, 184

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host-country institutions, 199 compatibility of actors’ interests with, 201–5 influence of, on employment practices, 26–8 host-country isomorphism, 27, 202 Hungary see also Székesfehérvár subsidiary industrial relations in, 127, 214 legal regulations, 51 local context, 144–5 trade unions in, 154, 215, 216 hybridization, 226n102

259

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local governments, interaction with, 108–11 local isomorphism, 96, 115–16, 183, 202 local resources, 29–30 local responsiveness, 80, 86, 96, 97, 182–3 local societies, 178–9 embedding in, 113–16 interaction between MNCs and, 98–117 interaction with, 188 labour market actors, 105–8 local standards, 1–3, 55, 71–5, 93, 98, 148, 170, 175, 177, 180, 184, 188, 199 adaptation to, 14, 27, 42, 46, 74–5, 117, 176–203, 217 employment practices and, 71–4, 178–81 influence of MNCs on, 28–29, 99, 108 responsiveness to, 188–9 uncertainty concerning, 22 see also employment standards management training, 183 management-union interaction, 118–20, 124–8 analysis of, at Electra subsidiaries, 139–45 cross-border, 148–74 in Electra subsidiaries, 128–33, 189–90 employment flexibility and, 133–9 management-workforce interaction, 119 in Electra subsidiaries, 120–4 media, 111–13 microeconomic approach, to company behaviour, 22–3, 24 micro-level social processes, 119–20 MNCs, see multinational companies (MNCs) motivation, 64–8 moving targets, 27 multinational companies (MNCs) adaptation by, to local economies, 6 in Central and Eastern Europe, 1–2

compatibility of interests of, with host-country institutions, 201–5 construction of employment practices by, 3–9, 18–44 defined, 4–5 diversity in employment practices at, 175–85 embedding by, 2–3, 7–8, 12, 28, 33, 197–9, 205–6, 208–10 employment practices of, 2–3 influence of, on local employment standards, 28–9, 99 institutional influences on, 218n6 interaction between local actors and, 11–13, 33–4, 37–8, 118, 208 interaction between unions and, 38 literature on, 5–6, 197–8 organizational influences within, 76 role of, in global capitalism, 5–6 social interaction with local societies, 98–117 social responsible behavior by, 210–11 wages paid by, 71 see also Electra municipalities, interaction with, 108–11 national industrial relations, 124–8 negotiation approach, to company behaviour, 23–4 Netherlands, 84 non-economic factors, 218n3 normative constraints, 193, 196 numerical flexibility, 54–5, 71 organizational culture, 179–80 organizational dynamics, 27 organizational interests, 31–2 organizational practices, transfer of, 6–8 organizational theories, on company behaviour, 21–5 organizational theory, 18 outsourcing, 222n41 overtime, 57

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parochialism, 156, 158

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paternalism, 64, 78–9, 86, 97, 124, 182–3, 211 performance appraisals, 66, 123, 225n87 performance pay, 64–8, 177 Poland see also Kwidzyn subsidiary industrial relations in, 127, 214 legal regulations, 51 local context, 143–4 trade unions in, 153–5, 215–16 power, 34, 179, 220n26, 240n308 asymmetry, 32, 39, 200, 221n33 perception, 32 procedural uncertainty, 22 procedural values, 78 production issues, at Electra, 87–9 production workers, 10, 52–6, 61–5, 82–3, 89, 92, 96, 100, 102, 104, 107, 219n10, 222n40 profit, 21–2, 24–5, 33, 181–2, 183 resource dependence theory, 25 reverse diffusion, 218n5 rule-makers, 13, 206 rule-takers, 13, 206 shareholderplus governance model, 208, 210 social constitution of economic action, 208 social construction, of employment practices, 3–12, 28–9, 41–3, 175–96, 207–13 social interaction, 3–4, 8–13, 35–9 among individuals, 221n30 assumptions about, 30–2 complementarities in forms of, 191–2, 195 construction of employment practices and, 19 cross-border, 148–74 defined, 35 at Electra, 76–97, 185–91 between Electra and employee representatives, 139–45 focused vs. unfocused, 35, 232n206 forms and channels, 37, 39–41, 175, 186–92

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between headquarters and subsidiaries, 186–7 with local actors, 28–30, 33–4, 177–8, 179–80, 188–90, 208 market type of, 219n7, 220n24 as means of constructing employment practices, 41–3 between MNCs and local societies, 98–117 with municipalities and local governments, 108–11 preconditions for, 201–5 between sister subsidiaries, 93–6, 187 sustainability of, 192–4 of trade unions, 148–74 trust and, 34 uncertainty and, 31 between unions and EWC, 190–1 social relations, 33 social responsibility, 200–1 social rewards, 68–71, 72–3 societal conditions, 22 societal factors, 33 socio-economic actors, role of, 11–12 sociological new institutionalism, 202–3 soft employment practices, 60–71, 118, 212, 217 across Electra subsidiaries, 121–4 diversity in, 177 employee participation, 64–8 motivation, 64–8 performance pay, 64–8 social rewards and fringe benefits, 68–71 work organization, 61–4 stock exchange, 228n120 strategic uncertainty, 22, 31 structural contingency approach, to company behaviour, 24–5 structural power, 220n26 subsidiaries competition among, 41–2 interaction among, 37, 93–6, 187 interaction between headquarters and, 86–93, 186–7 management-workforce interaction in, 120–4

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subsidiaries – continued transfer of organizational practices between headquarters and, 6–7 subsidiary bulletins, 232n210 subsidiary employment practices, 2–3 see also employment practices diversity in, 175–85 local standards and, 71–4 organizational influences on, 76 social construction of, 3–9 subsidiary workforce, 118, 119, 188–9 strategic uncertainty, 22, 24 substantive uncertainty, 22, 24, 31, 42 Székesfehérvár subsidiary, 52, 57, 58, 60, 63, 67, 68, 87 employment flexibility at, 135–6, 177 employment in, 106 labour market actors and, 107 local actors and, 112 local context, 102–4 local government and, 109–10 management-union interaction, 131, 142–3 management-workforce interaction in, 121 media coverage and, 112–13 works council, 234n239 technology transfer, 6–7 temporary workers, 57, 177, 225n91 town meetings, 232n209 Trade Union Advisory Committee (TUAC), 153 trade unions, 2, 10, 118, 119 see also management-union interaction attitudes and strategies of, 159–60 in Belgium, 128–9, 215 in CEE, 51 company-level, 149, 151–2, 172, 173 construction of employment practices and, 119–20, 189–90 cross-border interactions of, 148–74 employee representatives and, 38–9 employment flexibility and, 235n243 Euroforum versus, 167–8

European Works Council and, 190–1 in France, 126–7, 215 in Hungary, 127, 154, 215, 216 interaction between management and, 38, 118–19, 124–33 interests and behavior of, 193–4 local-level, 149 management-workforce interaction and, 122 national-level, 149 negotiating employment flexibility practices with, 133–9 in Poland, 127, 153–5, 215–16 social foundations of influence of, 148–74 subsidiary, 126, 128–39 wage policy and, 53–4 working time and, 59 trust, 34, 42 uncertainty, 22–5, 30, 31, 42, 120 procedural, 22, 24 strategic, 22, 24 substantive, 22, 24, 31, 42 unemployment in Brugge, 50, 101 in Dreux region, 50, 102 in Kwidzyn, 50, 68, 104 in Székesfehérvár region, 1, 50, 103 local unemployment rate, 106 unfocused interaction, 35, 232n206 union networking, see cross-border trade union interaction utilization, 226n102 value-based cooperation, 15–16, 39–43, 115, 116, 119, 123, 133, 143, 170, 172, 185, 187–92, 194, 235n248 value-based interaction, 40, 42 values, 33, 43 corporate, 76–80, 85, 97, 180, 182–4, 186–7, 211 procedural, 78 shared, 40, 42 substantive, 78 varieties of capitalism, 6, 9, 13, 96, 203, 212–13

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wage policy, 53–4, 71, 223n50, 223n51 wages, efficiency, 211 Western Europe compared with CEE, 11 interactions between CEE unions and, 151–3, 155–63, 169–72 national industrial relations in, 124–8 women, 101, 102 worker motivation, 177 workers communication between management and, 121 competition between, 123, 177 knowledge, 160, 227n114

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production, 10, 53–6, 61–5, 82–3, 89, 92, 96, 100, 102, 104, 107, 219n10, 222n40 temporary, 57, 177, 225n91 workforce, 118 interaction with, 188–9 working-time flexibility, 57–9, 177 work organization, 61–4 works councils, 118, 119, 125, 126, 133, 189, 234n239 in Belgium, 216 cross-border trade union interaction and, 163–8 in Electra, 164–8 in France, 216 in Hungary, 216 in Poland, 216

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