Multinationals, Institutions and the Construction of Transnational Practices:Convergence and Diversity in the Global Economy

Multinationals, Institutions and the Construction of Transnational Practices Convergence and Diversity in the Global Economy

Edited by

Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde

Multinationals, Institutions and the Construction of Transnational Practices

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Multinationals, Institutions and the Construction of Transnational Practices Convergence and Diversity in the Global Economy Edited by Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde

© Selection and editorial matter © Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 2006 Individual chapters © contributors 2006 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph 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, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2006 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978–1–4039–4771–0 hardback ISBN-10: 1–4039–4771–6 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Multinationals, institutions and the construction of transnational practices : convergence and diversity in the global economy / edited by Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde. p. cm. Papers presented at a conference held at the IESE Business School in Barcelona in July 2004. Includes bibliographical references and index. ISBN 1–4039–4771–6 (cloth) 1. International business enterprises–Congresses. 2. Globalization– Congresses. I. Ferner, Anthony. II Quintanilla, Javier. III. Sánchez-Runde, Carlos. HD2755.5.M8456 2006 338.8′8–dc22

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Contents Preface and Acknowledgements

vii

List of Contributors

ix

1 Introduction: Multinationals and the Multilevel Politics of Cross-National Diffusion Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde

1

2 Towards a Political Economy Framework: TNCs as National and Global Players Jacques Bélanger and Paul Edwards

24

3 Theorizing the Role of the International Subsidiary: Transplants, Hybrids and Branch-Plants Revisited Tony Elger and Chris Smith

53

4 Accommodating Global Capitalism? State Policy and Industrial Relations in American MNCs in Ireland Patrick Gunnigle, David G. Collings and Michael J. Morley

86

5 Emerging Motivations for Global HRM Integration Sully Taylor

109

6 Patterns of Integration in American Multinational Subsidiaries in Europe Valeria Pulignano

131

7 Who is Hybridizing What? Insights on MNCs’ Employment Practices in Central Europe Guglielmo Meardi and Andras Tóth

155

8 Globalization and Labour Market Segmentation: The Impact of Global Production Networks on Employment Patterns of German and UK Clothing Firms Christel Lane and Jocelyn Probert 9 Global Networks or Global Firms? The Organizational Implications of the Internationalization of Law Firms Glenn Morgan and Sigrid Quack

v

184

213

vi Contents

10 Structuring the Transnational Space: Can Europe Resist Multinational Capital? Richard Hyman

239

Index

256

Preface and Acknowledgements This volume presents a selection of papers originally given at a conference on Multinationals and the International Diffusion of Organizational Forms and Practices: Convergence and Diversity within the Global Economy. The conference was held at IESE Business School, Barcelona, in July 2004. It was a companion event to an earlier conference held at Leicester Business School, De Montfort University in 2001. The aim of the Barcelona gathering was to push forward the development of the burgeoning field of research on the diffusion of practices and policies within multinationals. The substantive focus was – predominantly but not exclusively – on the terrain of employment relations and human resource management practices, policies and processes. Conceptually the emphasis was on understanding the value and limitations of a comparative institutionalist approach to the study of cross-border transfer in multinationals. Conference contributions explored the processes whereby organizational structures, policies and practices are diffused internationally in the context of ‘capitalist variety’; the ways in which structures and practices are adopted, adapted or hybridized in the host; the ‘politics’ of diffusion, manifested in the interplay of interests, power and negotiation at different levels within the multinational and beyond it; the way in which the multinational’s behaviour is both shaped by and shapes institutional arrangements in the spheres in which it operates; and the interactions between the institutional levels of the company itself, the national business system, and the global economy. The papers collected in this volume have been selected from the conference contributions on these themes. They have been thoroughly revised and developed by the authors for publication. We are very grateful to the invited keynote speakers – Professors Ron Dore, Richard Hyman, Wolfgang Streeck and Sully Taylor – whose presentations provided a stimulating and provocative framework for discussion at the conference. Two of their papers are included here. We owe a considerable debt of gratitude to IESE whose generous support for the event contributed greatly to its success; and to the administrative staff of IESE who faultlessly organized the conference. In particular, we would like to thank Christine Ecker for her dedicated and professional efforts. Finally, we gratefully acknowledge the financial support provided by the Departament d’Universitats, Recerca i Societat de la Informació of the Generalitat de Catalunya, and by the Ministerio de vii

viii Preface and Acknowledgements

Educación y Ciencia. The conference was held within the ambit of the international cultural event Forum 2004 hosted by the city of Barcelona. Leicester Business School and IESE, September 2005 Anthony Ferner Javier Quintanilla Carlos Sánchez-Runde

List of Contributors Jacques Bélanger is Professor in the Département des relations industrielles at Université Laval, in Quebec City. The results of his field research on multinational firms have appeared in various industrial relations and sociological journals. He is co-director of the Centre de recherche interuniversitaire sur la mondialisation et le travail (CRIMT). David Collings is Lecturer in HRM/OB at Sheffield University Management School, and a Visiting Research Fellow in the Strathclyde International Business Unit, University of Strathclyde, Glasgow. He was formerly in the HRM research group, University of Limerick. His current research interests centre on HRM and industrial relations in the multinational firm. Paul Edwards is Professor of Industrial Relations at Warwick Business School, University of Warwick. He is a Fellow of the British Academy and in the period 2004–7 is a Senior Fellow of the Advanced Institute of Management Research. His most recent book, co-authored with Judy Wajcman, is The Politics of Working Life (2005). Tony Elger is Professor of Sociology and Director of the Centre for Comparative Labour Studies at the University of Warwick, UK. His current research interests concern the interaction between international firms and national employment regimes, consent and dissent in contemporary workplaces, and relations between trade unions and social movements. Anthony Ferner is Professor of International Human Resource Management at Leicester Business School, De Montfort University, Leicester. His research is concerned with employment relations in multinational companies, focusing in particular on the interaction between multinational behaviour and national employment relations systems. Patrick Gunnigle is Professor of Business Studies at the University of Limerick, where he is also Director of the Employment Relations Research Unit. His main research interests are in the areas of multinational corporations and human resource management, trade union membership and recognition, and management strategies in employment industrial relations. ix

x List of Contributors

Richard Hyman is Professor of Industrial Relations at the London School of Economics and editor of the European Journal of Industrial Relations. He has numerous publications, including Understanding European Trade Unionism (2001). Currently he is researching the ways in which trade unions at national level engage with the process of European integration, and the changing interconnections between the state and industrial relations. Christel Lane is Professor of Economic Sociology in the Faculty of Social and Political Sciences (SPS), University of Cambridge, and Fellow of St. John’s College. Her research interests include varieties of capitalism in Europe, and global networks of production and innovation in different industries and countries. Her publications include Industry and Society in Europe (1995) and (as editor) Trust Within and Between Organizations (1998), as well as numerous book chapters and refereed journal articles. Guglielmo Meardi is Lecturer in Industrial Relations at the University of Warwick, UK. He has been visiting fellow or research associate at the Centre d’analyse et d’intervention sociologiques (Paris), Universities of Milan and Warsaw, Université Catholique de Louvain-La-Neuve, and the Hungarian, Polish and Slovenian Academies of Sciences. His research focuses on multinationals and trade unions in post-communist countries. Glenn Morgan is Professor of Organizational Behaviour at Warwick Business School. He is also a Research Associate at the ESRC Centre for Globalization and Regionalization at the University of Warwick and Visiting Professor at Copenhagen Business School. He is the editor of the journal Organization. Recent publications include Changing Capitalisms, edited with Richard Whitley and Eli Moen (2005). Michael J. Morley is Assistant Dean, Research, and Senior Lecturer at the Kemmy Business School, University of Limerick. His current research interests include convergence and divergence in European HRM; international assignments and expatriate management; intercultural transitional adjustment, intercultural sense-making and cross-cultural competence; and human resource management in US MNCs in Europe. Jocelyn Probert is Lecturer in International Management and Organization at Birmingham Business School. She has a PhD from Judge Business School at the University of Cambridge and until recently was Research Fellow at the Centre for Business Research,

List of Contributors xi

where she conducted comparative research on global value chains and the organizational reconfiguration of firms. Valeria Pulignano is Professor of the Sociology of Labour at the Katholieke Universiteit Leuven (Belgium). She is Associate Fellow at the Industrial Relations Research Unit, University of Warwick, UK. Currently, she is involved in a project on ‘Trade Unions Anticipating Change in Europe’ at ETUI-REHS, Brussels. Research interests focus on comparative European industrial relations. Sigrid Quack (PhD Free University of Berlin) is Research Fellow at the Social Science Research Centre (WZB), Berlin. Her books include National Capitalisms, Global Competition and Economic Performance (2000), which she edited together with Glenn Morgan and Richard Whitley, and Globalization and Institutions: Redefining the Rules of the Economic Game (2003), edited with Marie-Laure Djelic. Current research projects focus on the internationalization of law firms, international rule-setting in accounting and institutional change more generally. Javier Quintanilla is Associate Professor at IESE Business School, University of Navarra (Spain). His current research interests are the management of professional service firms and international human resource management, subjects on which he has published widely. Carlos Sánchez-Runde is Associate Professor and Associate Dean for Faculty at IESE Business School, University of Navarra (Spain). He has held teaching and research appointments in different countries, and is the author or co-author of several publications on personnel management, organizational innovation, and cross-cultural management. Chris Smith is Professor of Organization Studies, School of Management, Royal Holloway, University of London. He has published widely in the areas of management control, the labour process, comparative organization theory, professions (especially engineers), the transfer of work organization practices through multinational companies, the organization of professions, and call centres. He is researching human resource management and work organization practices of tele-nursing. His most recent book is Assembling Work: Remaking Factory Regimes in Japanese Multinationals in Britain (2005), with Tony Elger.

xii List of Contributors

Sully Taylor is Professor of International Management and Human Resource Management at Portland State University and Director of the Master of International Management. Her research interests include the design of global HRM systems in multinational firms, the management of women expatriates, and sustainable HRM. She has authored or co-authored a number of articles on her research as well as a book (with Nancy Napier), Western Women Working in Japan: Breaking Corporate Barriers. Andras Tóth is senior research fellow at the Institute of Political Sciences, Hungarian Academy of Sciences, and lecturer in the Faculty of Sociology at the Eötvös Loránd University, Budapest. He is also an external collaborator of the Zentralinstitut für sozialwissenschaftliche Forschung, Freie Universität Berlin, and of the European Trade Union Institute in Brussels. He has published books and articles on various aspects of labour relations, and on the impact of multinational investment, with particular reference to Hungary.

1 Introduction: Multinationals and the Multilevel Politics of Cross-National Diffusion Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde

Introduction Over the last decade or two, scholars in the fields of international employment relations and organizational behaviour have devoted considerable energies to arguing that systematic differences in the behaviour of multinational companies (MNCs) are significantly shaped by their embeddedness in distinctive national-institutional complexes, both of their country of origin and of the host business systems in which their subsidiaries operate. More recent analyses have explored MNCs’ behaviour as the complex outcome of the interaction between influences from the parent national business system (NBS) and those deriving from the host NBS. Such work has drawn heavily on the comparative institutionalist perspective whose variants include the ‘societal effects’ school (e.g. Maurice and Sellier, 1986), national business systems theory (e.g. Whitley, 1992), and the ‘varieties of capitalism’ approach (Hall and Soskice, 2001a). This approach to MNCs may be seen as a necessary antidote to two contrasting conceptual tendencies: on the one hand, more deterministic strands of globalization theory, with their underlying assumption or implication that a general cross-national convergence of management styles and practices was in train; on the other, the simplistic analyses of observable national differences in the behaviour of MNCs in terms of cultural ‘values’. The comparative institutionalist approach was thus fighting a war on two fronts, against a lack of attention to continuing national diversity, and against the analytical impoverishment of existing attempts to understand the sources of national variety. However, having at least partially achieved its purpose, and having won some degree of acknowledgement of its underlying premises at 1

2 Multinationals, Institutions and the Construction of Transnational Practices

least among European international business scholars, the approach rapidly ran into conceptual limits. The criticisms have provoked significant development of the comparative institutionalist approach over recent years, and this volume brings together some illustrative strands of thinking. The following sections sketch the main lines of attack against the limitations of early attempts at understanding MNCs in institutionalist terms, and set out the ways in which the analytical arguments are being developed. Thereafter, the contribution of the chapters in this volume to the development of these themes is discussed.

Multinationals between globalization and diversity: analytical developments MNCs and the evolution of national business systems: beyond comparative statics The legitimate concern of the national-institutional approach to show the distinctive historical development paths of different business systems has been frequently criticized for overemphasizing stability and continuity at the expense of analysis of the mechanisms of institutional transformation. This was encouraged by the attention paid by many of the exponents of national business system analysis (e.g. Lane, 1994) to the conditions that maintained the integrity of national institutional arrangements through the ‘interlocking’ of institutional complexes. Streeck and Thelen (2005; see also Thelen, 2003; Djelic and Quack, 2003) suggest that models of system change tended to rely on ‘punctuated equilibrium’ notions of abrupt systemic breakdown followed by reinstitutionalization. This bias leads to the danger that studies of MNCs (and other phenomena) across NBSs become exercises in ‘comparative statics’.1 In recent years, there has been increasing awareness that comparative analysis must deal with moving targets (e.g. Morgan, 2005), and that MNCs themselves play an important role in national-institutional evolution. They are, to adopt the terms of Streeck and Thelen (2005), institutional ‘rule makers’ as well as ‘rule takers’, shaping system dynamics through engagement at a number of levels, not least through their direct or indirect influence over the priorities and strategies of public policy-makers. This is illustrated in this volume by the chapter by Gunnigle et al. in the case of US MNCs in Ireland, and that by Bélanger and Edwards on relationships between Canadian-based MNCs and their domestic political elite. More indirectly, it is reflected in Hyman’s analysis EU policy-making and of the ongoing struggle to

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 3

impose a neo-liberal model of European integration in the interests of transnational capital. MNCs also operate at the micro-organizational level to shape institutions, by transferring practices that subsequently diffuse to other firms within their organizational field, through what the new institutionalists would call ‘mimetic isomorphism’ (DiMaggio and Powell, 1983), eventually becoming part of the taken-for-granted cognitive frameworks concerning appropriate ways of doing things. An example would be various innovations in the management of employees’ pay and performance initially diffused to the UK by American MNCs. Streeck and Thelen’s (2005) more general point is that institutionbuilding is not a periodic phase in a cycle of rupture and re-establishment, but rather an ongoing process in which institutions leave ‘space’ for actors to contest the nature and meaning of the institutional framework they inhabit (see also Morgan, 2005). Even the most highly regulated systems leave such space, and MNCs, as powerful actors, have the capacity to exert a strong influence over the evolution of institutions. An example would be their role in shaping the day-to-day functioning of the works council in German subsidiaries, eliciting new behaviours and roles more suited to their purposes (e.g. Muller, 1998). Despite these shifts in emphasis, however, it is important not to throw out the NBS baby with the bath water. To say that institutions are dynamic and evolving, and that institutional creation and re-creation is a continual process performed by active agents (including MNCs), is not to deny that there are significant and persistent differences between national-institutional systems; nor that persistent differences have a ‘path-dependent’ aspect, in that past institution-building constrains present choices (e.g. Mahoney, 2001); nor that, at any given time, many fundamental elements of an institutional complex are simply not ‘up for grabs’. Such continuities mean that it still makes sense to engage in comparative analysis of NBSs, seeing practices in the context of the ‘institutional complementarities’ (Hall and Soskice, 2001b) that shape alternative ways for economic sectors to organize themselves within and across national boundaries. At the same time, it is necessary to be alert to the ways in which the processes and actors being compared (including MNCs) themselves have a dynamic impact upon institutional frameworks within which they operate. The chapters by Lane and Probert, Meardi and Tóth, and Morgan and Quack in this volume illustrate the continuing importance of attending to ‘varieties of capitalism’, albeit varieties that are dynamically evolving.

4 Multinationals, Institutions and the Construction of Transnational Practices

Multilevel analysis and the interaction of institutional effects The predominant focus of comparative institutional analysis of MNC behaviour, for understandable reasons, has been on the institutional domain authoritatively coordinated by nation-states (e.g. Hall and Soskice, 2001). But this has been criticized on a number of grounds. First, the comparative institutionalist approach has been accused of failing to see the global-systemic wood for the national-institutionalist trees (e.g. Strange, 1997), overemphasizing national diversity while underplaying the powerful global dynamics driving the world business system. Against this it could be argued that national diversity is in fact a key constitutive mechanism driving innovation within the world economy: allowing MNCs to ‘leverage’ difference in the search for competitive advantage, and providing the basis for the emergence of new poles of innovative development based on local institutional advantages and specific circumstances. Nonetheless, the analytical question remains of the relationship between NBSs and the global system, particularly as supranational levels of institutional regulation become increasingly important. Not only do these interact in rather complex ways with national systems (e.g. Djelic and Quack, 2003), but they also, increasingly, call into question the analytical distinctiveness of the national business system level. Underlying this perception is the argument (see e.g. Ó Riain, 2000) that with the decline of the postwar model of international organization based on ‘embedded liberalism’, the ability of nation states to insulate national economies from global forces – notably through the provision of decommodified welfare services – has been compromised. Increasingly, the role of the ‘competition state’ (Cerny, 2000) has been to prepare national economic actors for the rigours of international competition, not least through the re-marketization of state services. However, as Hyman argues in this volume in relation to the model of European integration, the degree to which such processes respond to some ineluctable economic logic rather than to the choices and strategies of social actors, is open to question. Second, intermediate levels of analysis both above and below the national business system have tended to be neglected. In the first place, subnational arrangements may carry as much specific weight as national institutions in influencing the embeddedness of MNCs. Peculiarities of local labour markets, power elites, resource bases, and so on, may generate influences significantly different from, and even at odds with, those of the national domain. This is particularly the case where national systems make provision for distinctive formal

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 5

institutional arrangements at subnational level, as, for example, in federal systems; but also where there are wide disparities in political culture, economic level, and so on, within a single national state (as between northern Italy and the Mezzogiorno, or between western and eastern Germany). Such disparities widen the ‘space’ for actors to develop variant practices within a given institutional arrangement. In the second place, processes of regional integration raise questions about the complex interactions between national, regional and global levels and the institutional constraints and possibilities that result, an issue that Hyman’s chapter again explores. Third, the geographical or territorial dimension of institutional arrangements – whether global, regional, national or local – is only one that is relevant for understanding the international diffusion of organizational forms and practices in MNCs: equally important is the way in which industrial sectors are structured in a way that cuts across territorial demarcations (e.g. Colling and Clark, 2002). Pressures for convergence and divergence may occur at the level of the sector rather than at territorial levels. Nonetheless, sectoral institutionalization may well be interwoven with national arrangements, as when different business systems organize sectors according to distinctive national-regulatory regimes (Hollingsworth et al., 1994). Finally, the ‘micro-organizational’ level of the individual MNC itself needs to be seen as a distinct level of analysis, operating within and across higher-level institutional spaces but not totally shaped by them, with the MNC acting both as institutional rule taker and rule maker. This theme of the MNC as an institutional actor is taken up in the following section. In summary, therefore, current developments in research on MNCs seek to construct an integrated analytical framework capable of accommodating both the global dynamics of the system and the distinctive national (and regional, sub-national, and sectoral) dynamics of the constituent parts. Given the multiplicity of levels of analysis of MNCs in institutional context, a key conceptual task is to map the complex linkages between different levels. Some progress has been made in this respect in recent years, especially in conceptualizing relationships between the global system and other institutional levels. A key concept, for example, has been that of ‘dominance effects’ (Smith and Meiksins, 1995), which conveys a sense of hierarchy of national states and multinational players within the global capitalist system as a whole, manifested in the way in which MNCs from hegemonic states tend to diffuse practices to less dominant hosts, while the latter see an interest

6 Multinationals, Institutions and the Construction of Transnational Practices

in emulating such practices. The contributions by Elger and Smith and by Bélanger and Edwards in this volume tackle the theme of multilevel analysis explicitly, the latter focusing in particular on the ‘macro-level’.

The MNC as powerful players in transnational institutional space One of the criticisms that may be levelled at the comparative institutionalist approach to MNCs is that the emphasis on national-institutional influences and their interaction has somewhat obscured the reality of MNCs as powerful actors operating across institutional boundaries, with their own transnationally defined organizational logic, structure and strategy. They are, in short, not merely the microlevel product of competing macro- and meso-level institutional influences from sector or NBS. It is the very fact that MNCs constitute, in the term of Morgan et al. (2003), ‘transnational social spaces’ that are inherently segmented across geographies that has impelled them to develop strong bureaucratic and ‘cultural’ mechanisms for ensuring their internal organizational coherence and their ability to act in a coordinated way across institutional domains. Moreover, MNCs are capable of considerable influence on the institutional contexts with which they interact, at times being active shapers of the rules of the game at global, NBS, and sectoral levels (see e.g. Sell, 2000). MNCs powerfully shape what the theorists of the ‘new institutionalism’ refer to as the ‘cognitive’ and ‘normative’ pillars (Scott, 1995) of global, regional and national institutional frameworks, moulding perceptions of what are ‘legitimate’ ways of doing things and the taken-for-granted cognitive schema that underlie models governing international economic activity. Streeck (e.g. 1997) has suggested that, at the level of NBSs, MNCs are increasingly powerful because of their capacity for ‘regime arbitrage’, that is their ability to move their operations from one NBS to another in search of institutional conditions that best suit their operating requirements. NBSs are driven towards more voluntaristic regimes in response to MNCs’ demands for incentives, and states increasingly lose the capacity they typically had in the epoch of ‘embedded liberalism’ to build a general regime capable of compensating losing sectors within the national polity for the detrimental consequences of economic change and development. However, it is important also not to exaggerate the extent of MNC power. There are at least three countervailing tendencies. First, much foreign direct investment is not efficiency-seeking (e.g. focusing on the

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search for low-labour-cost locations), but market-seeking, and may have to locate in a particular national territory in order to serve that territory effectively. Thus the scope for regime arbitrage is constrained. Against this, however, the creation of regional economic spaces, notably the EU and NAFTA, has diluted the market-seeking constraint on MNCs since they have a wider choice of national host within a unified regional market. But in turn, such regional spaces allow the possibility of building supranational institutional regulation that can reduce differences between national arrangements and hence limit the capacity of MNCs to engage in regime arbitrage (see Hyman’s contribution in this volume). Second, as Streeck notes,2 states may actively counter the footloose tendencies of MNCs by stimulating the growth of development ‘poles’ around scarce and specialized competences for which geographical proximity generates important agglomerative effects. Thus within specific sectors in particular geographical locations, FDI, once there, will be increasingly ‘sticky’. Consequently, the power of states and political authorities to negotiate with MNCs over the terms of their presence will be significantly greater. More generally, efficiency-seeking behaviour may lead MNCs to search for specialized skills, rather than for the lowest possible labour costs and weakest social regulation. Their locational strategies do not, therefore, inevitably encourage a ‘race to the bottom’, especially given the relative success of other actors in contesting the ideological norms and labour practices associated with such a race. Third, while the MNC may be a powerful actor capable of coordinated interventions, it is also a somewhat fragile construct whose unity of action may be undermined by internal sources of fragmentation and by strong centrifugal forces. This theme is further developed in the following section.

Disaggregating the MNC: interests, actors, and the micropolitics of transnational diffusion of forms and practices Amoore (2000: 183) has commented on the ‘essentially “contested” nature of the firm’, riven by tensions between the ‘competing social forces’ – ‘managers, financiers, shareholders, suppliers and a diverse range of labour groups’ – who compose it. Internationalization, moreover, multiplies the points of tensions. This theme has increasingly become a commonplace of studies of MNC behaviour. These organizations are not unitary, monolithic structures but shifting coalitions of interests subject to complex micropolitical dynamics

8 Multinationals, Institutions and the Construction of Transnational Practices

(see e.g. Becker-Ritterspach et al., 2002; Edwards et al., 1999; Elger and Smith in this volume; Ferner and Edwards, 1995; Ferner and Tempel, forthcoming; Kristensen and Zeitlin, 2005). The interplay of interests within MNCs is shaped by various, interdependent, dimensions of international operation. First, the power of different levels or units reflects their structural location within the global value chain coordinated by the MNC. Units exercising a strategic role on behalf of the corporation as a whole are likely to have greater structural power than those whose operations are less central to the economic objectives of the organization. Likewise, as Pulignano shows in her contribution to this volume, the relationship with sister plants and the degree to which the role of a subsidiary is easily transferable and replicable elsewhere is an important determinant of subsidiary actors’ strategies, interests, and power resources. Second, internal micropolitical forces are fundamentally and specifically shaped by the fact that MNCs operate across, and interact with, different national-institutional domains. Thus subsidiary actors draw resources from the national-institutional framework in which they are embedded in order to negotiate their role and position within the wider MNC. Such resources may include the provisions of regulatory frameworks (e.g. on employee representation) that allow them to resist or to bargain over the terms of corporate policies; membership in local networks; traditions of action; location-specific skill-sets, and so on. Kristensen and Zeitlin (2005), for example, show how managers and union representatives in the Danish subsidiary of a UK MNC exploited their links into local institutional arrangements for skills training and their ability to form alliances of interests with tight local networks of supplier and customer firms, in order actively to ‘strategize’ over the subsidiary’s role within the MNC as a whole. Likewise, Meardi and Tóth in this volume show how European subsidiaries were able to develop useful competences within the MNC on the basis of skills that had earlier been developed in response to the peculiar institutional conditions of the command economy. Third, the growing organizational complexity of MNCs, structured into international business streams, global business functions (such as manufacturing, R&D or procurement), geographical regions, and complex matrix combinations of these, generates the potential for the further segmentation of interests across and between national institutional domains. MNC actors can, for example, define their interests at the level of the national subsidiary, or of the global function, of the global business stream, or of the supranational regional territory

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 9

(or some combination of these). Moreover, such international organizational structures do not merely create interests but are themselves reflections of the playing out of interests as different groups challenge for dominance. As the operational challenges facing MNCs create changing patterns and relationships between these different organizational levels (see e.g. Ferner et al., 2004), there is scope for kaleidoscopic variation in the definition and interplay of organizational interests. In short, therefore, MNCs are diverse coalitions, fragmented not only between competing social forces but across national-institutional domains, and along various ‘horizontal’ cross-national organizational dimensions, leading to the pervasiveness of a micropolitics with distinct characteristics that reflect the international dimension of MNCs’ operations.

Mapping organizational boundaries The conceptualization of MNCs as segmented transnational arenas of micropolitical activity links to another emerging strand of literature which emphasizes the ‘fuzziness’ and permeability of MNC boundaries as forms of organizing international economic activity. The focus on MNCs as the prime unit of analysis in the field of employment relations has been criticized explicitly by writers such as Bair and Ramsay (2003), and implicitly by much of the recent work on ‘global commodity chains’, stemming from the insights of Gereffi and Korzeniewicz (1994). The point is that understanding the global organization of labour and employment relations requires more attention to boundaryspanning global value chains, rather than merely to the intra-organizational management of labour associated with MNCs themselves. MNCs may be only part, and often a relatively small part, of chains of international economic activity that encompass a number of firms integrated by a variety of different mechanisms. As the chapter by Lane and Probert in this volume demonstrates, such value chains may coordinate complex international divisions of labour between different specialized productive functions in the absence of MNCs (in the sense of corporate actors with productive operations in more than one country). Dominance within the chain is defined primarily through market relations between nominally independent actors rather than by classic internalized ‘hierarchy’. On the spectrum from the traditional model of the hierarchically integrated MNC to the internationalized global value chain without MNCs are a variety of intermediate organizational forms. Joint ventures and strategic alliances involve MNCs in relatively stable relationships

10 Multinationals, Institutions and the Construction of Transnational Practices

with other actors who may be competitors. Such forms have grown in importance as a result of a number of economic and political factors, including the opening up of new markets (notably central and eastern Europe, and China) to which access may be easier through joint ventures with local actors; and through the desire of MNCs to share the investment costs of developing new technology-intensive products in fast-evolving consumer markets, and/or the costs of penetrating new geographical territories. Such cooperative relationships give rise to sophisticated inter-organizational networks (which may extend to other non-corporate actors such as universities) through which knowledge is created and diffused (e.g. Tregaskis, 2003). Finally, even within the boundaries of the MNC, increasing emphasis is being placed, notably within the organizational learning literature, on the fuzzy, non-hierarchical network-type linkages necessary for the creation and dissemination of complex organization-specific forms of knowledge capable of providing international competitive advantage for the MNC (e.g. McKern, 2003). Taylor’s contribution to this book argues for the increasing importance of such network structures in the future organizational role of the international human resource management function in MNCs, based more on the creation of ‘social capital’ and trust relations between different organizational actors than on hierarchical control systems.

The contributions in this volume The chapters in this volume examine the above themes from a variety of analytical and empirical perspectives. Their primary empirical focus is on the field of employment relations and human resource management in relation to the cross-border organization of productive activity within multilevel institutional contexts. However, some chapters are concerned with the more generic underlying issue of international organizational behaviour, rather than with employment relations issues per se. Bélanger and Edwards develop a ‘political economy’ framework for analysing MNCs as ‘political systems’, albeit with a clear emphasis on capital accumulation. Their focus is on the ‘macro’ level of the relationship between MNC as a whole and higher institutional levels, notably the national state. In line with the theme outlined above, they see MNCs as powerful, active shapers of their transnational environments, not only through control of material resources, but also through the ideological power to influence assumptions about how the global

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 11

system should and does operate. Nonetheless, MNCs face states and other actors with countervailing power and hence must negotiate over the terms of their relations within a multilevel and contested institutional terrain characterized by competing and sometimes contradictory logics. Of these, Bélanger and Edwards stress the tensions between the logic of accumulation and competition – on an international or global scale – and that of legitimation, the latter generating significant constraints on MNCs’ freedom of action. The outcome is a complex pattern of cooperation and rivalry between states and MNCs. The case of Canada is used to exemplify these themes, and to show how even a national state as highly integrated economically with its dominant neighbour is able to generate its own distinct power resources. The authors point to the active and independent role – despite the country’s increasing economic integration with the US – of the Canadian elite, with its dense social networks and strong interpersonal ties, in shaping and defining Canada’s place in the world economy, hence the Canadian state’s room for manoeuvre vis-à-vis powerful MNCs. Canadian MNCs are able to draw on this national resource to create support structures as ‘national champions’ in order to become global players within the international economic system. The authors end with a plea to carry forward the agenda of a political economy perspective on MNCs by incorporating more systematic comparative analysis of the processes and outcomes of politics not only at the macro-level but within the MNC itself, including the micro-level of the relationship between management and employees in the crossnational ‘politics of production’. Elger and Smith provide an ambitious synthesis of different levels of analysis. They stress the importance of a range of influences on management ‘repertoires’ in MNCs, stemming from the institutional arrangements of national business systems, the ‘system effects’ generated by the fundamental social relations underpinning a global system of competing capitalisms, and the ‘dominance effects’ that express the influence of practices emanating from dominant economies, sectors or firms in the global system. The impact of the different types of influence on work practices depends on micropolitical processes of negotiation between groups and individuals at different organizational levels within the MNC. Elger and Smith deploy this framework of system, society, and dominance effects to analyse the transfer of work and employment relations practices in Japanese manufacturing MNCs in the UK, using detailed longitudinal case studies. They show how the distinctive interests and

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power resources of the protagonists influence policy outcomes in different subsidiaries. Corporate MNC policy, on new investment or on rationalization of production internationally, shapes the context of organizational micropolitics in the subsidiaries, since these occupy different roles in the MNC and have different relationships with HQ and with sister operations. Within these structural parameters, subsidiary managers have significant autonomy to interpret and implement higher-level policy. Elger and Smith measure their findings against three contrasting conventional models of the subsidiary: the transplant, the hybrid and the branch-plant. The first of these assumes the unproblematic transfer of competitively superior Japanese practices. The second emphasizes a mix of home and host societal effects, reflecting the fact that some elements of the parent system clash with host societal effects. The third focuses on the subordinate and dependent role of the subsidiary within the international value chain integrated by the MNC and assumes that only limited elements of a work organization system are likely to be transferred. First, the authors suggest, there may be wide variation in the degree to which subsidiaries regard corporate production and work ‘repertoires’ as models for transfer and emulation. This depends on their role within the wider corporation. But more importantly, the scope and applicability of dominant repertoires have to be worked out in detail by subsidiary actors, creating space for negotiation and interpretation. As a result, transplantation, where it occurs, is a dynamic and contested process. Second, while the image of ‘hybridization’ is closer to the authors’ conceptual framework, it does not adequately characterize the micropolitics of transfer. Elger and Smith emphasize the uncertainties and tensions of policy formation in subsidiaries, and the differential distribution of benefits that is the source of contestation. Much depends on the degree to which individual subsidiaries have access to international corporate networks that provide power resources and means of influence over the transfer of policy repertoires. Third, while the authors recognize elements of the branch-plant image in the creation of routine, vulnerable assembly operations, and in the power of local management over a subordinate labour force, the image also has analytical shortcomings. Subsidiaries vary in their relationship to the wider corporation, and attention to the specific details of evolving corporate strategy, local product and labour markets, and power resources of local actors is necessary to explain the pattern.

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 13

Moreover, even in favourable circumstances, and in the absence of collective employee voice, management’s control of the local workforce is limited and problematic. Gunnigle, Morley and Collings use detailed case studies to examine the evolution of the industrial relations practice, especially in relation to union recognition, of US MNCs in Ireland against the background of changing state policy toward foreign direct investment. Ireland is a particularly interesting host given the extreme degree of ‘internationalization’: almost half the manufacturing workforce is employed in companies under foreign control, and MNCs are therefore important shapers of institutional context. Gunnigle et al. find a varied picture of union recognition, with a strong sectoral effect. MNCs in the ICT sector, for example, have always been strongly anti-union, a policy driven from the corporate centre. But the authors also find examples, in the pharmaceutical and healthcare sector, of MNCs characterized by ‘double-breasting’: their earlier-established plants have union recognition and collective bargaining, but later facilities were set up on a non-union basis. This pattern is related to phases in the evolution of public policy, and particularly to the stance of the key Irish institution dealing with inward-investing MNCs, the Industrial Development Agency (currently known as IDA Ireland). In the early phase of expansion of foreign investment in Ireland, the IDA and the main employers’ association adopted a policy of encouraging union recognition and ‘pre-production’ agreements laying down the respective spheres of union rights and management prerogatives. By the 1980s, the IDA had changed to a more neutral stance towards recognition, downplaying the earlier pluralist bias of policy. This reflected the Irish state’s desire to compete for new waves of foreign investment in sectors with non-union traditions, notably in ICT. The findings underline the fluidity of public policy and the adaptability of the NBS over time as it accommodates to the changing interests of MNCs. The chapter thus illustrates a form of implicit ‘arm’s-length’ bargaining between MNCs and nation states in which public agencies, sensitive to the realities of power relations, make the case for modifications in policy without the necessity for strong and direct pressure from MNCs themselves. Taylor examines two emerging and mutually reinforcing trends that she sees as likely to further the global integration of the international HRM function in MNCs. The first is the need to leverage organizational learning across borders. Knowledge resources and the speed of their

14 Multinationals, Institutions and the Construction of Transnational Practices

development and dissemination are increasingly seen as crucial factors in the international competitive advantage of MNCs. But organizational learning poses considerable problems of coordination and control, given the dispersion of resources throughout the operational units of the MNC, the instability and complexity of information flows, and the involvement of multiple organizational levels in cross-border knowledge diffusion. As a result, Taylor argues, MNCs need to focus on the creation of social capital within the global internal networks of the MNC. Social capital is defined as the stock of active connections among network members, based on trust, and on shared values, behaviours and meaning systems. Second, there are increasing pressures on MNCs to pay attention to the agenda of ‘sustainability’ as part of the company’s global strategic imperative. Sustainability is seen to encompass the pursuit of economic, social and environmental goals in such a way as to avoid prejudicing future capacity to satisfy needs. MNCs are increasingly driven to take account of the principles of, for example, environmental sustainability, for reasons to do with organizational competitiveness (e.g. the efficient use of resources, and the potential market opportunities for ‘green’ products and processes); to maintain organizational ‘legitimization’; and to satisfy increasing external demands for firms to meet social obligations as well as to achieve economic goals. Both tendencies have implications for the international HRM function. Increasingly, Taylor predicts, it will be drawn into providing the mechanisms for ensuring that the sustainability and organizational learning agendas are met. Both, for example, require innovation, with implications for the nature of organizational skills, and thus for recruitment and training strategies; both imply certain structures of rewards and incentives for employees; both have implications for the development of an international corporate culture. Taylor sees these two trends as mutually reinforcing tendencies; for instance, social capital helps both organizational learning and the innovation needed for sustainability. Her argument is more prescriptive than other contributions, concerned with what HR as a function should be doing to adapt to the powerful global tendencies she identifies, more within the international HRM traditions of the international business literature. Nonetheless, it resonates with several of the themes outlined above. First it relates to what Bélanger and Edwards describe as the ‘meso’ level – the dynamics of different core management functions at the global level of the MNC, in this case the global HR function. Second it shows pathways through which developments at the

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 15

global corporate level, namely the organizational learning and sustainability agendas, are harnessed in the development of functional roles. Third it implicitly underscores the need for actors at the level of the firm to engage in purposive action – including micropolitical action – in order to realize the potential of broad structural trends; for example, the possibilities of social capital formation depend on overcoming the reluctance of MNC actors in different locations to share knowledge widely with counterparts in other locations and at other organizational levels. Pulignano looks at the international transfer of employment relations practices in a US MNC. Her concern is with the sources of local subsidiaries’ leverage vis-à-vis their parent, seeking to integrate an institutionalist approach with an organizational perspective. She presents case studies of five British and Italian subsidiaries in three international business units whose global headquarters are in Europe. She argues that local actors in the subsidiaries exploited national-institutional differences in the regulation of employment relations in order to strengthen their bargaining position with higher levels of the MNC. But they also took advantage of cross-subsidiary organizational differences. While policies on pay and performance, on management–union relations, and on training and recruitment practices were generally centralized and standardized, there was scope for local adaptation of employment practices. The extent of local autonomy depended on how organizational and institutional effects interacted. Pulignano points to such organizational factors as whether European or American managers predominated at international business unit HQ. European managers tended to have a more refined understanding of institutional variety within European operations, while US managers tended to be less tolerant and understanding of such variations. These organizational factors interact with national-institutional effects since the approach to employment relations is influenced by the framework of the country hosting the business unit HQ. Thus the fact that one HQ was located in the Netherlands, with its statutory framework of employee participation through works councils, was seen as encouraging positive business attitudes towards the European works council. At national subsidiary level, organizational factors, such as the strength of the subsidiary’s performance in comparison to rival plants, interact with institutional factors, such as the degree of legislative protection of employees’ rights. Thus the stronger position of Italian managers in negotiating with business unit HQ partly reflected the stronger framework of national legal obligations regarding wage

16 Multinationals, Institutions and the Construction of Transnational Practices

determination, collective bargaining and employee representation rights; while at the same time, central management was more tolerant of local adaptation of policy given the strong competitive performance and strategic role of the Italian subsidiary. In short, Pulignano explores the role of agency and actors’ interests within the interacting structural determinants of NBS and organization-specific factors. In their chapter, Meardi and Tóth, in common with Pulignano, highlight the importance of the agenda and objectives of actors in the subsidiary. Their study of the transfer of work organization practices, by an Italian MNC to Poland and by a German company to Hungary, challenges the assumption common in the literature that corporate headquarters of MNCs push through their country-of-origin practices in the face of host-country institutional constraints and subsidiary resistance. Meardi and Tóth suggest that MNCs may be attracted, rather, by the ‘permissiveness’ of the environment, allowing them to experiment and innovate free of the constraints of the home business system. But the authors’ main contribution is to examine the diffusion of work practices in situations where transfer is not a goal of corporate actors. They focus on what they term ‘pull hybridization’, that is diffusion that occurs as a result of the attraction of parent-company practices by the subsidiary. As they stress, this concept puts the focus on the agency of different groups within the MNC. The interests, strategies, and power resources of subsidiary actors may be used to encourage rather than to inhibit diffusion – even where corporate actors in the MNC do not intend to diffuse. Meardi and Tóth also throw interesting light on ideas of regime arbitrage, suggesting in their Hungarian case study that the exploitation of differences in NBS institutional arrangements does not necessarily involve a levelling down in work conditions, or creation of sweatshops in low-labour-cost locations, but may entail a ‘levelling-up’ of employment conditions and skills in the subsidiary. Through their case studies, Meardi and Tóth refine notions of subsidiary capabilities, finding unexpected sources of competitive advantage in apparently weak hosts. In Fiat’s Polish subsidiaries, for example, the experience of workers in coping with the chaotic conditions of state socialism helped them to hone the ability to respond creatively and flexibly to unforeseen events in production. This unusual skill-set allowed the Polish plants to become models for innovations in lean production and quality management for the Italian operations. The authors demonstrate the subtleties and complexities of the transfer process, and the ‘layer cake’ of interactions between organizational

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 17

actors and the wider national-institutional context of which they are part. A question their analysis will raise is how far such a portrayal also characterizes transfer processes by MNCs from more aggressively selfconfident parent business systems, whose strategic approach to transfer may be more ‘missionary’ in nature. Lane and Probert examine an industry – clothing – which is integrated globally by firms that are for the most part not themselves MNCs. Moreover, production operations that in other industries would be performed within an integrated global firm are outsourced, for the most part to firms located in developing countries. The chapter raises questions, therefore, about the organization of sectors globally into national and transnational firms, and the interrelationships between them. Unlike most studies of the industry, the research by Lane and Probert focuses not on the role of developing countries within the global value chain but on the actors within the developed countries who orchestrate the chain. Their key argument is that this general global process of outsourcing does not have a uniform impact on employment relations and the labour market within the developed countries. Rather, the impact is profoundly shaped by the national-institutional context, particularly of skills and competences, in different countries. This is because institutional context shapes the sets of business competences available to firms and the range of competitive strategies open to them. The authors thus explicitly locate themselves, in this respect, within the ‘varieties of capitalism’ literature. Lane and Probert illustrate their general argument through detailed studies of the industry in Germany and the UK. They show how the two countries have responded markedly differently to the general process of job loss and outsourcing of production to developing countries that have characterized the industry over recent decades. In Germany, for example, firms are more likely to possess a high level of employee skills and qualifications; to have a high proportion of white-collar and technical staff; to occupy high-value-added niches in the value chain; to have the ability to create global brands; and to exercise close control over the outsourced segments of the global value chains they coordinate. By contrast, firms in the UK industry tend to have lower-skilled workforces with a higher proportion of blue-collar employees; have little capability for export; and occupy more subordinate positions in the value chain. Moreover, unlike Germany there is a significant informal sector in the UK serviced by low-paid and low-skilled, often ethnic minority, workers.

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In short, therefore, Lane and Probert’s study underlines the continued significance of national-institutional support structures in determining the range of available strategies, including employment relations strategies, of firms in different institutional contexts. And it also highlights the importance of exploring the organization of capabilities and roles within an integrated global value chain that spills beyond the boundaries of any one corporate player, emphasizing the limits to the coordinating capacity and power resources of the firms that try to integrate these chains. Morgan and Quack are concerned, like Lane and Probert, with the way in which national-institutional contexts influence developments in an industry. Their focus is the service sector. They examine different patterns of internationalization of law firms from Britain, Germany and the US. In the past, law firms have been distinctively national in their orientation, given the dominance of the nation-state as a source of law and hence the national contours of professional practice. This has changed significantly over the last two decades. Morgan and Quack first explore the changing demands of multinational clients that are increasingly seeking an ‘international capability’ on the part of law firms. They then turn their attention to the emerging forms of international organization in law firms, and relate these to the way firms are embedded in their respective national contexts. They identify a variety of organizational types, ranging from various forms of global networks that operate as arm’s-length strategic alliances among law firms, to ‘global law firms’ established through cross-border mergers and acquisitions. The authors highlight the significant distinction between ‘global law firms’ originating from the US business context and those developing in the European context, particularly out of the mergers of large British with German law firms. In the former, US headquarters tend to control foreign offices located in a limited number of ‘global cities’, practising predominantly US law; they are driven by an ‘export model’, with an emphasis on providing legal services internationally for multinational clients originating in the parent country. In contrast, the European firms pursue what the authors call an ‘integrative model’, operating as complex federations of national partnerships which, as well as servicing in Anglo-Saxon law, aim to be strong in the legal jurisdictions of the host countries in which they operate. Morgan and Quack acknowledge that the global spread of American legal norms and procedures is promoted by the close intertwining of American law firms, MNCs, and political authorities in a powerful

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network that also links closely to supranational institutions such as the WTO. They doubt, however, that this is resulting in a simple process of convergence or Americanization. They stress, rather, that the multifaceted contribution of the different national partnerships in the European model of the integrated global law firm provides such firms with a competitive advantage in developing operations, particularly within the European Union and in central and eastern Europe. Thus complex, countervailing forces need to be taken into account in order to gain a more comprehensive understanding of the role of global law firms in the multilevel politics of cross-national diffusion. Hyman’s chapter differs in its subject matter from the majority of contributions to this volume, in that it focuses on policy debates within the European Union. Nonetheless, it casts light on some of the major themes of the book, in particular in demonstrating the way in which power and interests shape the institutional terrain at national and supranational level, and the extent to which the practical meanings of notions such as economic integration and ‘globalization’ are contested through social action. The chapter explores European economic integration in terms of a struggle between the neo-liberal assumptions that underpin the current dynamic of ‘globalization’ and the traditions of national employment regulation within the EU encapsulated in the notion of ‘social Europe’. Hyman argues that there is nothing inevitable about the erosion of social Europe: if the responses of the EU to ‘globalization’ result in the erosion of traditional worker protections at national level and fail to strengthen ‘positive’ aspects of employment regulation at the supranational level, this flows from political choices rather than economic imperatives. Hyman notes that the ‘symbolic politics’ of the EU attempts to gloss over the irreconcilable differences between the free market agenda and the interests of social Europe. But in practice, the neo-liberal ‘Washington consensus’, with its belief in the efficacious self-regulatory capacity of markets, dominates the institutions and the policymaking processes of the EU in the interests of capital. At the same time, the institutions of the EU have a structural bias against social regulation since the body most in favour of it, the European Parliament, is also the most limited in its powers. Social Europe thus faces an uphill struggle. Moreover, the threats to social regulation in Europe are intensifying. The growth of cross-border economic activity has increased the motivation and capacity of multinationals to escape from national

20 Multinationals, Institutions and the Construction of Transnational Practices

arrangements of social regulation. At the same time, the last decade has seen the growth of neo-liberal agendas in the national politics of existing member states, and the incorporation of a bloc of eastern European countries that equate market fundamentalism with political democracy. These trends have radically shifted the balance of power within the institutions of the EU, in favour of neo-liberalism and the interests of capital, against social regulation and the interests of labour. Hyman sees neo-liberal globalization and the analogous project at EU level as one of ‘disembedding liberalism’, that is cutting markets free of their embeddedness in social regulations and protections. This, he argues, is generating a ‘legitimation crisis’ of the whole EU integration project and opening the way to alternative paths to EU integration. While acknowledging the structural advantage of capital, he argues for the ‘labour of Sisyphus’ required to construct an alternative around a redefined model of social Europe. Such a path would entail measures to restrain the power of capital to disrupt social relations, and to reempower labour to oppose the current neo-liberal ‘Brussels consensus’.

Conclusion The papers in this volume are concerned with a set of overlapping themes about how MNCs organize themselves across institutional domains at different levels, and how they shape – and are shaped by – these domains. One key thread running through the contributions is that the nature of national business systems and of the institutional arrangements that constitute them is more fluid than rigid stereotypical portrayals would suggest, leaving space for actors – including MNCs – to ‘inhabit’ and shape institutions in a wide variety of ways. A second thread is the need for an understanding of power in relation to the organization of activity across national borders, both within the MNC as an organization comprising multiple actors and interests, and between it and the actors with whom it comes in contact. As a whole, the collection provides insights into the development of comparative institutional analysis in relation to MNCs and their management of employment relations. In some respects, the contributions also underscore the gaps that remain. For instance, the increasingly ‘heterarchical’ model of MNCs, in which key subsidiaries acquire strategic responsibilities and powers on behalf of the global company, raises questions about the scope for (and limits of) subsidiary action, and the relationship between networks of subsidiaries independent of hierarchical coordination. Such

Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 21

possibilities are hinted at, for example, in Pulignano’s contribution but further conceptual development and empirical exploration is called for. The contributions also point to the need for a more systematic and comprehensive mapping of power relations in and around MNCs. Many of the chapters comment on the countervailing power of subsidiary actors. Yet not enough is known about the limits to subsidiary power. Under what conditions, for example, are subsidiaries unable to challenge HQ interventions? Overwhelmingly, the empirical material in this volume is drawn from North America and Europe. One may expect different patterns of intra-corporate power relations to emerge from observation of subsidiaries in developing countries where structural and institutional sources of power may be weak, and the capabilities required for exerting wider corporate influence are likely to be lacking; but this of course is an empirical question, and unexpected sources of local actor power in developing countries may be uncovered. Most fundamentally, while the MNC comprises a complex and multilayered set of interests, actors and power relations, the underlying structural ‘antagonism’ within MNCs, in the sense of potential and actual differences of interest and power, remains that between management and employees. More systematic analysis of the structuring of this fundamental fault line across different institutional spaces is required, as is a better understanding of the scope for employees and their representatives to organize and exert influence across borders, both on MNCs themselves and on the institutional context in which they operate.

Notes 1 A similar problem is evident in another strand of institutionalist analysis, that associated with the ‘new institutionalism’ of writers such as DiMaggio and Powell (1983) and Scott (1995) that emphasizes the ‘normative’ and ‘cognitive’ components of institutions, as much as the regulative ones. In recent years, this approach has increasingly rivalled the previously dominant Hofstedian cultural values approach in the international comparative management literature. Kostova (1999; also Rosenzweig and Nohria, 1994), for example, uses the notion of ‘institutional distance’, based on a comparison of ‘country institutional profiles’, to understand the degree of cross-national transfer and adoption of practices within MNCs. 2 This point draws on Streeck’s remarks in a keynote address to the conference on Multinationals from which the contributions to this volume are drawn.

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Anthony Ferner, Javier Quintanilla and Carlos Sa´nchez-Runde 23 Lane, C. (1994) ‘Industrial Order and the Transformation of Industrial Relations: Britain, Germany and France Compared’, in Hyman, R. and Ferner, A. (eds), New Frontiers in European Industrial Relations, Oxford: Blackwell, 167–95. Mahoney, J. (2001) ‘Path-Dependent Explanations of Regime Change: Central America in Comparative Perspective’, Studies in Comparative International Development, 36, 1: 111–40. Maurice, M. and Sellier, F. (1986) The Social Foundations of Industrial Power: a Comparison of France and Germany, Cambridge, MA: MIT Press. McKern, B. (2003) Managing the Global Network Corporation, London: Routledge. Morgan, G. (2005) ‘Institutional Complementarities, Path Dependency and the Dynamics of Firms’, in Morgan, G., Whitley, R. and Moen, E. (eds), Changing Capitalisms?, Oxford: Oxford University Press, 415–46. Morgan, G., Kelly, B., Sharpe, D. and Whitley, R. (2003) ‘Global Managers and Japanese Multinationals: Internationalization and Management in Japanese Financial Institutions’, International Journal of Human Resource Management, 14, 3: 389–408. Muller, M. (1998) ‘Human Resource and Industrial Relations Practices of UK and US Multinationals in Germany’, International Journal of Human Resource Management, 9, 4: 732–49. Ó Riain, S. (2000) ‘States and Markets in an Era of Globalization’, Annual Review of Sociology, 26: 187–213. Rosenzweig, P. and Nohria, N. (1994) ‘Influences on human resource management practices in multinational corporations’, Journal of International Business Studies, 25, 2: 229–51. Scott, W. R. (1995) Institutions and Organizations, Thousand Oaks, CA: Sage. Sell, S. K. (2000) ‘Big Business and the New Trade Agreements’, in Stubbs, R. and Underhill, G. R. D. (eds), Political Economy and the Changing Global Order, Don Mills, Ontario: Oxford University Press, 174–83. Smith, C. and Meiksins, P. (1995) ‘System, Society and Dominance Effects in CrossNational Organisational Analysis’, Work, Employment and Society, 9, 2: 241–67. Strange, S. (1997) ‘The Future of Global Capitalism; Or Will Divergence Persist Forever?’, in Crouch, C. and Streeck, W. (eds), Political Economy of Modern Capitalism. Mapping Convergence and Diversity, London: Sage, 182–91. Streeck, W. (1997) ‘German Capitalism: Does It Exist? Can It Survive?’ New Political Economy, 2, 2: 237–57. Streeck, W. and Thelen, K. (2005) ‘Introduction: Institutional Change in Advanced Political Economies’, in Streeck, W. and Thelen, K. (eds), Beyond Continuity: Institutional Change in Advanced Political Economies, Oxford: Oxford University Press, 1–39. Thelen, K. (2003) ‘How Institutions Evolve: Insights From Comparative Historical Analysis’, in Mahoney, J. and Rueschemeyer, D. (eds), Comparative Historical Analysis in the Social Sciences, Cambridge: Cambridge University Press, 208–40. Tregaskis, O. (2003) ‘Organization-Environment Influence on Knowledge as a Subsidiary-Level Strategic Resource’, International Journal of Human Resource Management, 14, 3: 431–48. Whitley, R. (ed.) (1992) European Business Systems. Firms and Markets in Their National Contexts, London: Sage.

2 Towards a Political Economy Framework: TNCs as National and Global Players Jacques Bélanger and Paul Edwards

Introduction Transnational corporations (TNCs), like all large and complex formal organizations, have two core features. First, they produce goods and services that satisfy consumer needs, and in the course of doing so provide income and employment to large numbers of people. Second, they are political actors, using power to shape the conditions under which they conduct their productive activities and as a result profoundly influence the lives of employees, customers and local communities. Something of these two aspects was captured by The Economist (27 March 1993) when it called them ‘everybody’s favourite monster’. The purpose of this chapter is to contribute theoretically to the second ‘political’ view but without losing sight of the first. Our purpose may be illustrated by two points. First, recent popular books essentially provide a critique of a political view and a reassertion of what we will call the revisionist position. Legrain (2002: 137) disputes the views of those who see TNCs as increasingly large, powerful, and outside democratic control: they are ‘not the demons they are made out to be’ and they ‘bring us many bounties’. For Micklethwait and Wooldridge (2003: 161), though multinational corporations have ‘always aroused suspicion’, they should not be seen as all-powerful and mighty forces. Critics of globalization, says Wolf (2005: 247), need to accept that ‘corporations are not more powerful than countries and do not dominate the world through their brands’. These authors reasonably underline exaggerated views of TNCs’ power and influence, but they put little in their place. It is thus an appropriate point at which to offer a more developed political analysis that is analytically robust and that is capable of addressing the revisionist position. 24

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Second, the need for a political view has been stated in several different contexts, in which different meanings are given to the word ‘political’. By developing a political economy framework, we thus aim to show how such views might be integrated. In this chapter, this framework is applied to the level of macro politics, taking the Canadian case as an example. The country is highly economically integrated with the United States; yet the TNCs operating in it are not mere ciphers of American capital. The country has a well-organized and influential corporate elite. It neatly illustrates the ways in which TNCs negotiate global projects on the basis of their embeddedness in national contexts. We first present very briefly some key points about TNCs’ operations. We focus throughout on the very large firms, such as those identified in lists of the largest 100 TNCs (UNCTAD, 2004), as opposed to the very large number of companies – 65,000 on Micklethwait and Wooldridge’s figures – having some kind of multinational operations. It is the large TNCs that have attracted most admiration and suspicion. We take it as read that only a very small proportion of the 65,000 multinationals have anything like the global power sometimes equated with the word ‘multinational’. The second section outlines a political view and indicates three domains of politics, the macro, meso and micro. We lack the space to discuss them all in detail. The second and third domains are covered in several other chapters of this book, and we thus focus mainly on the first. Sections three to five give illustrations of macro politics. Finally, we offer pointers as to how a political view can be developed.

TNCs: core features It is always tempting to offer stereotypical views, against which a more adequate approach can easily be measured. To avoid this method, we sketch some core facts that have become reasonably firmly established and that a framework needs to accommodate. We then indicate some distinctive features of TNCs.

Not so big, not so monstrous The first point relates to the size and power of TNCs. Some writers continue in the long-established tradition of arguing that the largest TNCs are bigger than many nation states. One such exercise places the largest TNC at number seven in a list of world economic units, on a par with France (Sklair, 2002: 37; see also Rubery and Grimshaw, 2003: 198). Yet the revisionists are correct in noting that like is not being compared

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with like. Sales are compared with GDP. But GDP is a measure of value added, not sales. Using a measure for value added for companies, only 37 multinationals appeared in the 100 biggest economies in the world in 2000; and only two of them scraped into the top 50 (Wal-Mart in forty-fourth place, and Exxon in forty-eighth) (Micklethwait and Wooldridge, 2003: 176). Crucially, companies lack the coercive powers of states (Wolf, 2005: 225). Second, many of the largest TNCs still have a high proportion of their assets, revenues and employees in their home country. The United Nations publish annually such data on the 100 largest transnational corporations worldwide, comparing them on the basis of the transnationality index (TNI), which is ‘calculated as the average of the following three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment’ (UNCTAD, 2004: 278). Clear patterns are apparent if we compare the data from 1998 to 2002. Hence, General Electric, still the largest corporation in terms of foreign assets in 2002, ranked eighty-fourth on the TNI index (UNCTAD, 2004: 276). For 2002, the ten largest TNCs in terms of foreign assets originate from only four countries, namely the USA (with four), the UK (with three), France (with two), and Japan with one, Toyota. But most of these ten firms score rather low on the transnationality index. In contrast, for 2002, nine of the ten most transnational firms (out of this series of the 100 largest TNCs) originate from small countries (such as Switzerland, with three firms including ABB, Canada with Thomson Corporation, and the Netherlands with Philips Electronic), a point also stressed by Dicken (2003: 221–4). The lower size of their home market obviously means that such firms have to develop a more global reach in order to sustain growth, but more complex issues of strategy and institutional support may also be at play here, a matter we will consider below. Third, some sectors are less dominated by a few global oligopolists than was the case in the past. In the highly globalized aluminium industry, for example, the share of the world market for the top six producers of primary aluminium fell from 77 per cent in 1969 to 45 per cent in 1989 (Bélanger et al., 1999b: 58). Despite a series of mergers and take-overs (Alcoa has acquired Reynolds [number three in 1989] and Alcan has acquired Alusuisse [number six] and Pechiney [number four]), their share has continued to fall (in the case of Alcan, from 20 per cent in 1969 to 13 per cent now). The major producers no longer control prices and production in the quasi-cartel system of the past. Ownership and production have become much more global,

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as new countries enter the market: China is now the largest world producer (with around 18 per cent of market share) while the countries of the former Soviet Union have 16 per cent of the market. As Wolf (2005: 225) puts it, markets dominate companies rather than the reverse. Fourth, TNCs are subject to countervailing power. Legrain (2002: 141–2) notes that a firm such as General Motors is larger than it was 40 years but that it had more power in the past to ‘produce overpriced, shoddy cars’. The reasons for its relative weakness include intensified competition from other firms and the fact that global brands can be highly vulnerable to pressures from campaign groups and consumers, as the experiences of firms including Nestlé and Nike have shown. Fifth, studies of TNC behaviour within a large number of host countries have repeatedly shown that employment arrangements are rarely transferred unaltered from TNCs’ home countries. All kinds of hybrid arrangements have been observed, reflecting differences of national regulatory regime, particular labour market circumstances, and different degrees to which TNC head offices wish to impose standard models (see Ferner and Quintanilla, 2002). The power to transfer practices is thus highly contingent. Finally, Ramsay (2000), from a point of view very different from the revisionists’, argues that critics of TNCs, particularly those in the labour movement, have tended to fall into the trap of investing TNCs with far more power and foresight than they in fact possess. Managements often misread the environment and have to be sensitive to the image and reputation of their firms. TNCs are in principle open to challenge. The picture of the TNC is thus a much more nuanced one than that of the all-powerful juggernaut. TNCs have to negotiate their way through a complex world. And the subtle distinctions and complexities of interaction … appear not as the frills, but as an inherent part of the ‘texture’ of global capitalism: the globalization dynamic is intrinsically played out through the medium of interacting, internally heterogeneous, nationally rooted MNCs, seeking to draw their international competitive advantage from the distinctive and variegated institutional configurations, including systems of employment relations, in which they are embedded (Ferner and Quintanilla, 2002: 249, emphasis original).

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What, then, is so special about TNCs? One might conclude that TNCs are no different in essence from other companies of comparable size. It is certainly true that we can apply ideas developed in relation to large capitalist firms in general. A central idea is that of the enactment of environments. As opposed to early ideas of managerial choice, which saw firms as responding to more or less neutral environments, the emerging view of strategic choice argues that firms actively shape their environments (Child, 1997). In the United States, for example, different conceptions of corporate control emerged as firms defined themselves and their contexts in changing ways (Fligstein, 2001). Hence a model of managerial capitalism, based on large firms which secured stable relationships between each other and with government and labour, prevailed from about 1945 to 1980; it was devised in response to earlier, competitive, models and was in turn challenged by models of shareholder value. The idea of enacting, or negotiating, environments is a powerful building block for a political view. It recognizes that TNCs have resources that they deploy in relations with other groups. They have to mobilize around political projects rather than simply having their own way. And these projects will have elements that are in tension with each other. For example, unionized US firms’ accord with labour stabilized relationships but also contributed to slow innovation and a drive for profits; the accord, in any event an uneasy and partial one, came under renewed challenge from non-union firms (Jacoby, 1997). Yet TNCs also have distinct features, that both strengthen and weaken them (Harzing and Sorge, 2003). Crucially, they operate across many national regimes. The problem of enacting environments is quantitatively different from the problem as experienced by firms based in one country. But it is also qualitatively different, in that signals from one environment may clash with those from others. TNCs are subject to different governmental policies, and indeed the requirements of supra-national bodies (as in the requirement that firms with significant cross-border operations in the European Union establish European Works Councils). TNCs gain some power as a result, as in arguments that they can threaten to shift production to other countries. But they also lose to the extent that they have to deal with differing regimes and absorb the transactions costs of doing so. Similarly, in terms of their internal relations, TNCs can deploy influence over their subsidiaries in ways less available to domestic firms, notably through ‘coercive comparisons’ between sites in different countries (Mueller and Purcell, 1992). Yet they also face particular problems of integrating operations from contrasting institutional and cultural contexts.

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It is important, following Dicken (2003: 221–7), to deconstruct the ‘myth of the “placeless” TNC’ and to throw light on the societal embeddedness of these large firms. This is the line of analysis we pursue from the political economy perspective developed in this chapter. This framework draws on recent institutionalist contributions on national business systems (e.g. Whitley, 1999) and societal analysis (Maurice and Sorge, 2000). As Lane shows on the basis of a study of German and British firms, ‘MNCs with different home bases have adopted divergent structures and strategies and have responded to intensified global challenges in distinctive ways’ (2000: 189). A political economy approach would also relate in useful ways to another stream of institutional research, the ‘varieties of capitalism’ model of analysis. As noted by Hall and Soskice, ‘the firms located within any political economy face a set of coordinating institutions whose character is not fully under their control. These institutions offer firms a particular set of opportunities; and companies can be expected to gravitate toward strategies that take advantage of these opportunities’ (2001: 15). The notion of country-of-origin effects refers to the characteristics of the institutions and business system of the country from which the corporation grew up, and which may shape its policies and behaviour in host countries. These studies go some of the way in showing how TNCs are embedded in the country where they first developed (Ferner, 1997). An implicit assumption of much of this research stream is that large corporations originating from the United States and from Japan tend to be more ‘ethnocentric’ and prone to centralize decision-making than their counterpart from Europe, in particular (for a review, see Edwards and Ferner, 2002: 101–6). On the basis of systematic case studies within US multinationals operating in the UK, Ferner et al. (2004) assess the extent of centralization and standardization in the management of human resources. To some extent, they confirm the view that US MNCs are highly centralized. But their study also introduces nuances by documenting two key mechanisms. First, it describes contingent patterns of ‘oscillation’ between centralization and decentralization, in a process of adaptation to the environment in the home and the host countries. Second, the authors go a step further in uncovering the mechanisms through which this balance between centralization and decentralization is negotiated (Ferner et al., 2004: 385). The same research programme also looked at US multinationals in three other European countries, which allows different host country environments to be taken into account. It is thus possible to analyse ‘the dynamic interplay of the various “embeddedness” effects’ experienced by a large US corporation in its European operations and the processes

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of negotiation occurring between various sites of decision-making within the firm (Almond et al., 2005: 278). There are, then, distinct political issues facing TNCs, and these entail continuing uncertainty and negotiation. We now offer a framework to address these issues.

Power and political processes Realms of power TNCs operate in several different political spheres. It is useful conceptually to distinguish three of these. Using the terms of Hyman (1995: 43), they can be called the macro, meso and micro; Edwards et al. (1999) also deploy these terms. In each, calls for a political perspective have been voiced repeatedly. In the context of this book, the most familiar is the ‘meso’ level of politics within the central managerial groups running the TNC. A longstanding theme has been the set of devices that head offices can use to control subsidiaries. Yet as Ferner (2000: 524) observes, ‘relatively little has been said about control as a relationship of power between different corporate levels and actors’. Morgan et al. (2003: 391) argue that the resources of national sites ‘provide the power from which the subsidiary is capable (or not) of developing and enhancing its own position’. For Morgan and Whitley (2003: 610), the MNC is a ‘political system as well as an organizational design, with conflicts of interest built into its configuration’. Ferner et al. (2004: 69–70) detect a neglect of ‘micropolitical’ power in many studies of the relations between head offices and subsidiaries. A second level is the ‘macro’ one of relations with governments, state agencies, pressure groups, and so on. Sally (1994: 165) identifies a neglect in the business literature of the power relations between TNCs and governments. This literature ‘rather simplistically exogeniz[es] the mixture of conflict and cooperation that characterizes bargaining between the two sets of actors’. More recently, Turner (2003: 4) has confirmed the absence of a ‘convincing, balanced overview of the power relations between [multinational] companies and states’. A third level might be called the micro, but this label could be confusing in that micro politics also refers to the details of negotiations between managerial groups. The label might also downplay what we have in mind. This is what Burawoy (1985) termed the politics of production, meaning the relations of power, control and consent between managements and employees. It is importantly additional to the other

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senses of power, and a level that many accounts of TNCs neglect. Yet such firms must not only bargain with states and with their own managers but also secure a degree of consent from their employees. This process, as discussed elsewhere (Edwards, 1986), has its own dynamics entailing a continuing bargain around control and consent. Whatever the state of politics in the other two aspects, without a degree of workplace consent, TNCs will find it hard to function. They face issues distinct from firms in general. On the one hand, they have resources, such as threats to shift production and the fact that labour, traditionally organized at national level, has found it hard to establish a direct voice at global level (Cooke, 2003). Silver (2003: 4) cites a range of studies that argue that ‘labor’s bargaining power has been weakened’ as a result of capital mobility. Yet they also have to deal with employees with their own material and cultural resources, and these resources can be deployed in distinct ways, as when British workers studied by Collinson (1992) expressed distrust of American (‘Yankee’) managers. Sharpe’s (2001) analysis of the transfer of work practices by a Japanese firm to its UK operations revealed different shopfloor traditions (such as unionization) and labour market conditions between the two sites that influenced the extent of transfer.

Forms of power Debates on power have often become entangled in attempts to identify distinct forms or bases of power (for a critique, see Thompson and McHugh, 2002: 17–21). Yet, as Runciman (1999) argues, the many ‘bases’, such as expert knowledge, hierarchical position, and personal authority, can in fact be reduced to three forms. Runciman terms these the economic, the political, and the ideological. Economic power pertains to control of resources; expert knowledge might fall under this head to the extent that the relevant knowledge allows its holder to claim or control resources. Political power rests ultimately on physical force – for example the right of the owner of property to exclude other people from it; but more normally it embraces the rights of authority that go with ownership, for example, the right of the owner of a firm or his agents to direct the firm’s activities. Ideological power relates to ideas, meaning systems, and symbols. Ideology is a more precise concept than that of culture. Particular problems with the latter notion are that ‘culture’ can mean merely a set of mental states which may be shifting and variable and that it can be, and often has been, used as a catch-all for national or other traditions. To explain a phenomenon by the alleged culture of the people concerned is

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often a non-explanation. A classic case is the success of Japanese TNCs. To attribute this success to Japanese culture does not explain why some firms were not successful, treats the success as the result of timeless and unchanging factors rather than examining historical contexts, and does not offer any causal mechanisms between culture and concrete outcomes. The concept of ideology, by contrast, captures the ways in which beliefs and meaning systems are produced as part of the activity of firms. As Burawoy (1979) famously insisted, ideology is not a summary term for free-floating orientations to work (or, in the more modern term, a psychological contract). It relates, rather, to the concrete set of meanings and symbols that are generated in particular settings.1 The economic and political powers of TNCs are reasonably obvious. TNCs plainly control resources and have the right to exercise authority over their employees. Their ideological resources are more varied. At macro level, TNCs shape assumptions as to how the global economy does and should operate, for example through arguments about the value of open markets. At meso level, managers in specific TNCs come to adopt accepted world views about the aims of the firm and how it operates (for example, how far it treats managers as global resources, and how any national manager might behave in order to become such a resource). And, at the level of the politics of production, TNCs deploy messages to workers about the state of global competition, the need to be flexible in order to compete, and so on.

Contradictions of power We have proceeded thus far by presenting power as an attribute or property of a social actor such as a TNC. We now qualify this approach in three key respects. First, and most obviously, other social actors have countervailing power. The economic and political aspects are fairly evident, for example the powers of nation states to enact laws. One familiar line of argument states that such powers are being weakened through the growth of global competition. Yet the extent to which the political powers of various actors are growing or declining is an empirical question. Unless it is asserted that the powers of nation states are zero or negligible, the fact of countervailing power has analytical force. Empirically, we observe (as economists often loftily remark) all kinds of actions by nation states to which TNCs object, regulations on pollution being one example. Ideological powers of other actors are less obvious, but increasingly apparent, as in campaigns by pressure groups on such issues as child labour.

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Now, it might be argued that this kind of power is ‘in the last instance’ an economic or political power. Thus, campaigns on child labour obtain some of their force from the fact that consumers may cease to buy the products of firms accused of bad practice. Yet a selfinterested consumer will be interested in cheap goods, unless we assume also an interest in treating children better rather than worse (which is what economics typically has to do, since it deals with fixed utility functions). The point of ideological power is that it helps to shape and define preferences, and we can thus explain developments otherwise treated as exogenous. Campaigns against TNCs are a clear example. Second, powers are often ambiguous in their effects, and subject to the actions of other groups. We asserted above that managers come to adopt certain world views. In a conventional top-down view of the TNC, it is taken for granted that ‘top’ managers define the goals of the firm. This may be qualified by arguments about the power of subsidiaries to negotiate about their mandates, using such resources as their local market knowledge and the particular tacit competencies that they have developed. But this still takes the view that there are objective resources that are simply mobilized as need arises. Yet, subsidiary managers may be unaware of a resource, particularly when it is a tacit competence that is by definition hard to capture. They may also lack the skills or experience of deploying resources in a bargaining context. Resources are to a degree constituted through their use. Defining objectives is a process of negotiation, rather than a game with pre-defined resources. Third, TNCs have contradictory goals, and deploying power in relation to one goal may interfere with the pursuit of others. Goals may not appear to be contradictory, and are often stated in such terms as maximizing shareholder value. But there are many ways in which such an overarching goal might be defined, for example whether it is immediate or more long term. And specific strategies to pursue it will have contradictory aspects. Thus it will be necessary to bargain at the macro level with various other bodies, while also maintaining meso-level consent. Making concessions to campaign groups, for example, could be seen by local managers as weakness or as failing to appreciate the realities under which they work. Those realities, moreover, include the TNC’s own demands to meet performance targets, so that local managers may experience a classic problem of mixed messages: meet the targets, or pursue a social responsibility agenda, or find some way of balancing these demands.

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Conclusion: a political framework A developed framework building on these remarks would do at least three things. First, it would give illustrations of processes in the macro, meso, and micro spheres. Second, it would introduce variations within each; for example, meso politics occur at different levels, and between different functions, of management. Third, it would address the interplay between these levels. We lack the space to pursue all three issues. We focus on macro issues, since the other two levels are covered elsewhere in this book and have been discussed in previous work (e.g. Bélanger et al., 1999a and b). We attempt to allow for some variations at macro level. Thus the following sections address three issues in turn: TNCs as global players; the national state and its efforts to shape its environment; and relations between TNCs and the national state.

Global politics: TNCs and globalization2 How far is there a global project involving MNCs based on ‘liberal market economies’ principles? We argue that there may well be such a project but that it is far from uniform and that it may well be challenged by other logics. We start with three examples. The first is the globalization of telecommunications. According to Hutton (2002: 200–7), as early as 1962 ‘the US had been alert’ to how satellite technology would allow its companies to dominate the information and communication industries. GATT and then the WTO were pressurized to ‘accommodate the US’s unilateral ambitions’. In this account, a nation state promotes a project on behalf of its TNCs, and this project is successful. But it is then hard to explain why events turned out to produce, in Hutton’s word, a ‘fiasco’. A more nuanced account is provided by Comor (1998) in his study of the Digital Broadcasting Satellite. Between 1962 and 1984, DBS was seen as rather marginal. The US state had some activity in the field, but this tended to cut across the interests of existing corporations, notably AT&T, so that the state was not directly in the control of such capital. Domestic liberalization started with the breaking up of AT&T in 1982, and it began to be realized that competition in the US would work only if this model was exported. Opening the US market to overseas suppliers meant, in the US view, granting access to firms that were protected in their home markets. This in turn led to pressures to deregulate other markets, which was the ‘unintentional’ result of domestic liberalization (p. 193). There seems to have been an uncertain search for new approaches rather than a clear plan, and outcomes were often unintended.

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The second example is intellectual property rights. The power of TNCs is illustrated by the progress of the Trade-Related aspects of Intellectual Property (TRIPS) agreement within the WTO. What TRIPs do is to give to the owner of intellectual property a 20 year monopoly over its use. The rationale was to recognize the rights of inventors and to promote economic development, but there was little empirical support for the latter proposition. TRIPs originated in the demands of 12 large US firms that established the Intellectual Property Committee in 1986, which then won changes in domestic law and US support in the WTO. US trade negotiators, concerned at a lack of national competitiveness, saw IP as an area in which they could fight back. IP pirates were readily blamed, and firms claimed extensive damage from a lack of protection, though these claims were ‘wildly exaggerated’ (Sell, 2000: 97). This issue is also illustrated by the third example, the well-known dispute about drugs to combat AIDS, wherein developing countries accused the major pharmaceuticals companies of charging excessive prices, while the companies argued that the prices reflected the huge costs of research and development. The companies also gave relatively little attention to treatments for major tropical diseases such as malaria. And they ‘actively try to shape’ market rules, lobbying governments fiercely (to the tune of $167m in the US presidential election of 2000, more than any other industry: McMillan (2002: 32)). The reason is that they need their patents protecting through laws on intellectual property, and intellectual property ‘could not exist without the state’. These laws, McMillan goes on, ‘represent an uneasy compromise between the needs of the innovator and the needs of the state’ (p. 34). Yet he also argues that the terms of the compromise can be altered, and he gives examples of how some countries, including India and South Africa, overrode existing intellectual property rights in order to reduce the costs of AIDS drugs. Importantly, in his view, the benefits of doing this exceeded the costs. Thus there are competing logics, and that in some circumstances the preferences of TNCs can and should be overridden by other logics. At this point we might recall Claus Offe’s distinction between the legitimation and accumulation functions of the capitalist state, and the key point that there is an inherent contradiction between the two (e.g. Offe and Ronge, 1982). TNCs will be influenced by the degree to which global and national institutions pursue legitimation, and will also have to be sensitive to the legitimation challenges of anti-globalization activists. The idea of competing logics has been taken further in relation to nation states by Frenkel and Kuruvilla (2002). They identify the logic

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of competition (clearly linked to globalization though not necessarily dependent on that process) but also the logics of industrial peace (important for social and political stability) and employment and income security (which is important because of the need for social order and legitimacy). They explain variation between countries in the strength of the logics in terms of ‘economic development strategies, the intensity of globalization, government responsiveness to worker expectations, labor market characteristics, and unions’ strength’ (p. 388). TNCs will thus have to manage such contradictory logics in the various countries in which they operate. The idea of legitimacy can be taken further, conveniently pursuing a different analysis by Frenkel, this time of global labour standards as exemplified by two Adidas sub-contractors in China (Frenkel and Scott, 2002). The argument here is that acceptance of standards is promoted by three factors: consumer pressure and demands for ethical investment; producers’ own wish to avoid a race to the bottom; and policy-makers’ desire for continued support for the world trading system. Thus TNCs pursuing a pure accumulation strategy might well find legitimacy being undermined by external challenges or by attempts to end trade liberalization through the WTO. Moran (2002: 24–5, 35–43, 90–1) offers a parallel analysis. His key points include the following. • Conditions encouraging the maximization of worker oppression are quite limited. (We can see these as constraints on the pursuit of a competition logic, that are in effect internal to that logic). First, as labour markets in developing countries emerge, alternative forms of employment will arise and an exploitation strategy will be less able to attract workers. Second, to meet international product standards calls for capable workers. • In countries including the Philippines conditions in export-processing zones have improved. FDI has shifted from poverty-stricken countries to competitive labour markets offering skilled workers. • Corporate codes of conduct have become commonplace. In the US, all Fortune 500 companies have such codes, while a UK survey in 2000 estimated that 75 per cent of firms had them. They are widely seen as committing firms to social responsibilities, though ‘actual practice’ in the field ‘is distinctly uneven’ (Sachdev, 2006: 280). A further logic, therefore, is that of the insertion of a production chain in the global system. Legitimatory pressures on firms constrain

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their freedom, even in an economy such as China. Some of these pressures may be consistent with their own preferences (as with the ‘race to the bottom’ argument), so that it is not a matter of external forces making firms do what they would otherwise avoid. Complying with labour standards can be a competitive advantage for some firms, so that the various logics interact with each other.

Politics at the national level: the example of Canada In turning to the national state and its relations with TNCs, we focus on the case of Canada. This country is analysed much less often than the US or Germany, and is commonly treated as an example of a ‘North American’ pattern. Yet it displays some distinct features, which show that nation states have their own political resources. It also reveals a changing balance of forces within the national political elite, suggesting that there are contested views as to the place of the country in a global economy. The very high extent of economic integration with the United States represents a characteristic feature of the Canadian political economy which evolved through the twentieth century and was consolidated by the implementation of the North American Free Trade Agreement in 1994. In 2003, exports to the United States accounted for 84 per cent of total exports from Canada, compared to 78 per cent in 1996. Imports from the United States represented 70 per cent of total Canadian imports in 2003, compared to 76 per cent in 1996.3 The volume of trade between these two countries grew substantially. Hence, ‘in the 10 years since the North American Free Trade Agreement (NAFTA) came into effect in 1994 the removal of tariffs and increased cross-border cooperation paved the way for the doubling of Canadian exports to the United States while imports from south of the border jumped by 83.7 per cent’ (Statistics Canada, 2004: 7). By contrast, the European Union accounted for only 6 per cent of total exports from Canada in 2003, and 10 per cent of imports. Data also confirm that, in the years following the NAFTA agreement, trade flows within Canada’s home market, on the east-west axis, were further eroded, while trade flows on the north-south axis (with the US) expanded in much higher proportion (Carroll, 2004: 207). In an influential paper, Arthurs argues that this restructuring of corporate governance in the context of economic integration plays the major role in the ‘hollowing out of corporate Canada’. US-owned firms have reduced the autonomy of their main centres of decision-making in Canada, reducing the resources and power of those corporate man-

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agers who were more acquainted with distinct Canadian institutions and culture. The logic of globalization required a change in the governance of what were formerly ‘miniature replica’ subsidiaries. These subsidiaries were until fairly recently organized as publicly-held ‘national’ companies whose relative autonomy was emphasized, symbolically and functionally. … But as autonomy has increasingly come to be seen as counter-productive, many of these companies have been wound-up and either closed down altogether or reconstituted as private companies wholly-owned by the foreign parent or one of its proxies (Arthurs, 2000: 33). Arthurs sees this reconfiguration of structures and governance, especially among US corporations which have long been operating in Canada, as a matter of major concern. While such corporate restructuring is not specific to this country, Arthurs argues, ‘Canada is more vulnerable than most because of its geopolitical location, its dependency on exports, its willing accession to junior partnership in an integrated continental economic system, its ongoing constitutional and political crises and its failure to develop a significant number of home-grown transnationals’ (2000: 45). In short, Arthurs argues, the consolidation of corporate control and head office functions in the US has weakened the position of Canada as a centre of corporate decision-making.4 Yet there have also been counter trends. From a systematic study of the 250 largest Canadian corporations (on the basis of revenue) in 1976 and 1996, Carroll finds a diminution, from 40 to 19 per cent, in the proportion of US-controlled corporations, and an increase in the proportion of Canadian-controlled ones, from 47 to 70 per cent (2004: 74). These somewhat surprising figures are partly explained by his methodology, which ranks corporations on the basis of revenues on Canadian soil, hence inflating the importance of large firms operating mostly in Canada, in particular in the financial and services sectors. In contrast, many of the foreign-owned multinationals currently playing a key role in the Canadian economy, such as Honda, Toyota, Bell Helicopter Textron, Rolls-Royce, and Siemens, are excluded from the 1996 sample. But Carroll’s figures also confirm that a restructuring of corporate governance between Canada and the US is currently occurring. As he points out: ‘as the developing continental market rendered branch-plant production for a “Canadian” market obsolete, many domestically oriented firms controlled in the US disappeared from the Top 250’ (2004: 74, 206). Ongoing research, in preparation for a survey

Jacques Bélanger and Paul Edwards 39

of all MNCs operating in Canada, confirms the role of US and domestic capital: out of the 1458 MNCs with at least 500 employees worldwide and with a minimum of 100 employees in Canada and 100 elsewhere, 754 (52 per cent) are owned by a US corporation, as compared to 331 (23 per cent) by Canadian-owned firms, with Britain coming third with 95 firms (6 per cent).5 Although Carroll’s methodology underplays the importance of foreign-controlled firms, his work is convincing in showing the social cohesiveness and lasting influence of the Canadian corporate elite in controlling large firms and shaping neo-liberal policies. The method consists mainly in a network analysis of the holders of two or more directorships within these 250 largest corporations, comparing 1976 and 1996. Over this period, some changes have occurred in the composition of this population of 489 individuals in 1976 and 426 in 1996, the ‘intercorporate linkers’ (p. 17). In particular, the study confirms that boards of directors have been reduced in size, and that French-Canadians have reinforced their presence in the Canadian corporate elite, in spite of the fact that Toronto has ‘decisively eclipsed Montreal as the country’s corporate metropolis and terminus for many continental and transnational interlocks’ (p. 201). But in short, ‘we find by the late 1990s a Canadian corporate elite whose social organization remained “national” at the level of corporate governance, but whose business strategies were increasingly continental, if not more fully “global”’ (p. 208). The author points out that the notion of a separation between ownership and control, too easily taken for granted since the classic study of Berle and Means (1932), may have some hold in countries such as the US or the UK, but certainly not in Canada, where capital is not sufficiently dispersed, and relations not sufficiently depersonalized, to allow for such a development. Carroll’s study rather shows how dense social networks and ‘thick interpersonal ties’, as well as the high importance of wealthy families, remain key features of Canadian capitalism. This study does not support the thesis of Canada being seen as a ‘rich dependency’ of the United States. Despite the high extent of economic integration, Canadian corporate power has much autonomy, and the elite of these two countries evolve mostly in parallel, in different networks. Hence, ‘it is intriguing and perhaps paradoxical that, as of 1996, a predominantly “national” corporate elite – arrayed east to west and linking industry with finance – governed major corporations in an economy whose trade and investment flows were increasingly moving north to south’ (Carroll, 2004: 104). While this paradox cannot be fully explained, Carroll provides part of the answer by documenting

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how this corporate class has all the means and social organization to play a leading role on the ‘hegemonic terrain’, elaborating the neo-liberal discourse in all spheres of society, not least universities, and advocating ‘national corporate interests’ through policy groups and linkages with political parties and various levels of government (on the pre-eminence of corporations in broader society, see also Bakan, 2004). The Canadian case thus illustrates two key themes. First, although corporate governance in Canada can only be understood by taking economic integration into account, the Canadian corporate elite deploys considerable resources in shaping policies regarding the insertion of the national economy into the global economic system. Second, a national corporate elite has shaped strategies towards, and also ideological images of, international competition. We now address how these strategies have played out, and in particular how TNCs can gain support from states in their global ambitions as national champions.

The politics of firms and states Even in a country like Canada, considered by Hall and Soskice (2001: 17–21) as a ‘liberal market economy’, the influence of large corporations in shaping the political agenda is considerable. This can be easily understood considering the role of corporations in pursuing research and development, diffusing technology and innovation, and shaping the economic infrastructure of any country. The process through which the views and concerns of large and medium-sized corporations affect various levels of government is usually beyond public knowledge, although the media are sometimes used to reach broader audiences. Relationships between TNCs and states contain elements of both conflict and collaboration, or rivalry and collusion. ‘TNCs and states may be rivals but, at the same time, they may collude with one another. In a real sense, states need firms to help in the process of material wealth creation while firms need states to provide the necessary supportive infrastructures, both physical and institutional, on the basis of which they can pursue their strategic objectives’ (Dicken, 2003: 312). Negotiations on ‘government support’ to particular firms sometimes become the object of public debates. Such a situation occurs much more frequently when a large TNC is seen as a ‘flagship’ for a given national economy, and even more so when such firms produce public utilities. In Canada, Bombardier Inc. plays such a role, with both its aerospace and transportation divisions. From the invention of a lightweight snowmobile by founder J. A. Bombardier in 1937, this corpora-

Jacques Bélanger and Paul Edwards 41

tion, partly as a result of strategic acquisitions, has developed into the world leader in rail equipment manufacturing and one of the key players in the aerospace industry. In each of these two sectors, but with different patterns, elaborate negotiations with various levels of government, in Canada and in many other countries, have also played a major role. The Annual Report of the corporation shows that for the fiscal year ended 31 January 2005, the Aerospace Division generated revenues of US$7.9bn, and the Transportation Division US$7.6bn. Considering the limited size and characteristic features of the Canadian political economy, relations between Bombardier Inc. and the Canadian and Quebec governments (where this family corporation originates and is still headquartered, except for Bombardier Transportation, of which the HQ is now located in Berlin) have been a frequent feature of media coverage (especially but by no means only in daily newspapers), particularly in recent years when both arms of the corporations became key players on the world stage (Hadekel, 2004). It is worth giving examples of political transactions in each of these two divisions because they do not follow the same pattern. The manufacturing of public utilities such as rail transportation equipment, and especially the mass transit market segment, is much more prone to political exchange than the manufacturing of mass consumption products. Besides the importance for governments of attracting major investment and ‘high-quality jobs’ (a feature of all economic sectors), the government, as a major customer, directly or through public agencies, is here in a position to influence and condition corporate decisions, encouraging them to maintain or increase manufacturing in their country. A single firm can therefore proceed to such negotiations with many host countries. We observe another pattern in aerospace, where negotiations concern mainly (although not exclusively) the home country. Here, governments are not necessarily key customers. However, they have to ensure a ‘level playing field’ for their ‘national’ player, in a situation where all major countries support heavily the other few major competitors, as does Brazil with Embraer in the market segment of regional and business aircrafts in which Bombardier operates. Indeed, the issue is not whether or not to provide financial support but rather to negotiate the level and specific nature of this support, some of which may be implicit, e.g. relating to fiscal advantages, support for military research, and so on. Such matters can only, and with difficulty, be clarified by international trade tribunals, as in the major dispute between Canada and Brazil in the 1990s, when ‘the WTO found both parties guilty. Neither country applied sanctions.

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Subsidies continued to flow’ (The Economist, 26 March 2005, p. 62). A similar dispute between the United States (for Boeing) and the European Union (for Airbus), concerning the support for a wider range of aircraft, is currently under adjudication by the WTO after a failure of protracted international negotiations (The Economist, 4 June 2005, pp. 59–60). The political ramifications of such a transnational organization are by no means limited to the ‘home’ country. For instance, when in August 2003 Bombardier Transportation lost to Siemens what was seen as a strategic contract to build high-speed trains for service in the north of England, a Bombardier spokesman was reported as saying: ‘clearly there will be implications for our industrial footprint in the UK. It is now obvious that companies do not have to be based in the UK to win UK orders’ (The Globe and Mail, 23 August 2003, p. B2). Indeed, Bombardier Transportation is also a major producer in Belgium and Germany, where similar stories had much more political impact. In March 2000, the company announced the closure of its railway car plant at Manage, Belgium, despite having earlier won concessions to put business in the plant and despite assurances as to its future; the closure was seen as a betrayal by local politicians and unions (EIRO, 2000). In November 2001, Bombardier announced its plan to close a railcar plant located in Ammendorf, a suburb of Halle in eastern Germany, which it had acquired three years earlier; this reflected excess capacity following the acquisition of Adtranz from Daimler Chrysler in 2000. With high unemployment and the coming election (September 2002), this became a major political issue. Following much political pressure and even a meeting of Chancellor Schroeder with the chairman of Bombardier Inc. and the president of Bombardier Transportation, the company reversed its plan in January 2002 (The Globe and Mail, 24, 28 and 29 January 2002). There was speculation in the press about the nature of the assurances given by the government in terms of orders to ensure the plant’s future. But in March 2004, when Bombardier Transportation unveiled a major ‘restructuring programme’ under which seven of the 35 plants in Europe and North America were to be closed, the Ammendorf plant could no longer survive (the announced closure was planned for late 2005). This reflects the intensity of competition in this industry and the fact that Bombardier’s rail division then operated eight more plants in Germany. But it was also reported that the promised orders from the state-owned railways never materialized (The Globe and Mail, 18 March 2004). In the Aerospace Division, elaborate bargaining occurred with many governments regarding a major project, the development of a new

Jacques Bélanger and Paul Edwards 43

generation of commercial aircraft, of 110 to 130 seats, known as the C-Series. It illustrates very explicit negotiations with governments which show all of the features of the ‘locational tournaments’ discussed by Dicken with examples from the automobile industry (2003: 306–8). Many countries and levels of government were involved in negotiations by which the corporation sought to have one third of the US$2.1bn costs of the R&D for this project financed by different levels of government, another third being financed by suppliers. The company reviewed financing proposals from over a dozen sites in Canada, the United States and Europe. In May 2005, Bombardier made the announcement that ‘the UK and Canadian governments and the province of Quebec have agreed letters of intent to provide a US$700m aid package’ (Financial Times, 14–15 May 2005, p. 8). Canada’s and Quebec’s contributions represent US$262.5m and US$87.5m respectively. That of the UK, amounting to £180m, in the form of launch investment and financial assistance, ensured that when the project officially went ahead, expected at the time of writing in autumn 2005, the wings, composite tailplane and nacelles would be built at the large Bombardier plant in Belfast, creating 1700 more direct jobs, and a further 1500 jobs in the UK supply chain. Final assembly will take place in the Montreal region. Illustrating links to micro politics, in March 2005, more than 4000 (of the 6300) members of Local 712 of the International Association of Machinists and Aerospace Workers in Montreal took part in a union meeting and voted 9 to 1 in favour of a new 6-year collective agreement. Making concessions, especially on wages and flexibility in work organization, and accepting a long-term agreement, was seen by all as a gesture to influence the Bombardier decision, in a context where possibilities of several other locations were under consideration. There was much complaint at the extent of government support, not least from Brazilian rival Embraer and from the United States, to which Canada’s Industry Minister responded that ‘Canada, unlike most large, industrialized countries, doesn’t use defence spending to stimulate its aerospace industry. All countries do it their own way’ (The Globe and Mail, 14 May 2005, p. B6). In Canada, much of the critique focused on the dual-class share structure by which the Bombardier family has retained the majority of voting shares with a minority of the total equity, by maintaining a lock on the ownership of multiple voting shares. While this represents a key feature of corporate governance in many Canadian firms, and a growing object of debate on corporate governance in the country, the issue was raised publicly and explicitly

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in the case discussed here, some high-profile institutional investors suggesting that government’s financial support should be tied to changes in corporate structure (The Globe and Mail, 18, 19, and 23 March 2005). At the annual meeting of shareholders of Bombardier Inc., the Chairman and CEO stated there was no intention to change the corporate structure and went further in explaining its rationale: ‘Bombardier would not be here today if there had not been the multiple voting shares. We would not have had the growth we had because the majority shareholders would have objected to certain acquisitions and … expansion’ (The Globe and Mail, 8 June 2005, p. B3). Interestingly, such a rationale is usually associated with corporate governance in coordinated market economies, a category in which Canada is not usually considered. By illustrating how this corporation became such a global player, without relinquishing its local roots and family control but by leveraging its capacity for growth and innovation, we have highlighted how the divide between elected governments and corporations often becomes blurred, even (and perhaps more so) in the current globalizing context. In the process of major acquisitions and growth, over 20 years, in both the aerospace and transportation divisions, Bombardier was consistently able to take advantage of arguments around economic development and knowledge-intensive manufacturing to win government support (Hadekel, 2004). In the context of economic integration with the United States, the development of leading Canadian corporations on the global stage is seen by many in influential neo-liberal circles as something to be fostered by the Canadian federal government. Some of this meaning was expressed by the government in explaining the letter of intent with Bombardier: major initiatives like this represent long-term opportunity for Canadian industry, and our proposed support will provide an opportunity not only for Bombardier to develop a new series of aircraft, but will create new and exciting opportunities for aerospace companies across Canada to develop new technologies and enhance their competitiveness in the global aerospace business.6 What this statement does not reflect, however, is the complexity of Canadian politics, with each main region having competitive advantages in different economic sectors. The automobile industry is concentrated in Ontario, the oil and energy sectors are based in Alberta, and the aerospace industry is highly associated with Quebec. As Quebec

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now has to develop its industrial structure beyond the resource-based sectors of pulp and paper and aluminium smelting, the growing aerospace sector is a key lever of development. Such a context is likely to encourage negotiations between states and large corporations, particularly so with corporate flagships such as Bombardier. Hence the negotiations and financial arrangements between Bombardier and the Canadian government are part of the fabric of Canadian politics and economic policies.

Conclusions: developing a political economy framework This chapter has developed a political economy view of the TNC and applied it at the level of macro politics. While various shades of contingency theory treat politics as more or less exceptional, we see politics as a fundamental dimension for understanding transnational corporations. It remains the case that TNCs are driven by capitalism. But they are neither monolithic nor apolitical organizations. A political economy perspective rather sees them as complex coalitions of interests, as political systems with a clear focus on capital accumulation. The discussion of the Canadian context illustrated the links between national states and the global economy. New political projects emerged that allowed the country to re-define its role and to promote its national champions. While extreme views of the hollowing out of the nation state are unduly one-sided, it is the case that states such as Canada are playing a game whose rules are set elsewhere. TNCs are important influences on the rules, as we saw in discussing their role in the global economy. New modes of negotiation are emerging through which many TNCs seek ways of sharing the risks associated with product development with other agents, and particularly with the chain of suppliers and national governments. Market risks, and related corporate decisions associated with global competitiveness, are hence entering into the sphere of political decisions and government policies. A political economy perspective, taking account of the three levels of politics identified above, helps in several other respects. First, it points to the distinct character of the TNC. Such a firm has to deal with all three levels, together with the fact that, by definition, it is dealing with each level across different institutional environments: managing, for example, micro politics in different national contexts. Each level will also have sub-divisions, as between national states and supra-national bodies. And there are inherent contradictions between the processes at different levels.

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Second, we can see why evolutionary models of the TNC, such as that of Bartlett and Ghoshal (1989), do not work. Such models require a mechanism driving development along the specified path. This is usually the globalization of markets, perhaps accompanied by a process of maturation within TNCs. Yet globalization is not an inevitable trend but is itself a political project, and it throws up conflicting pressures on TNCs, as our analysis of different logics suggested. TNCs are also riven by internal contradictions. And existing ones may be challenged by newcomers. The ‘transnational solution’ is an appealing image but it is an idealized model and not a practical prescription. We have not addressed here micro politics or their links with the other levels of politics. To illustrate how a research programme might do so, consider first the analysis of Kristensen and Zeitlin (2005), appropriately entitled Local Players in Global Games. This examines a single British-owned TNC, drawing on rich and often longitudinal data on three of its production sites and the head office. It demonstrates that the head office often lacked any clear strategic view and that its approach tended to be shifting and uncertain. In many respects the local sites were more ‘global’ than the head office because they understood the competitive situation in their specific market niches while the head office was tied into a conception of its role shaped by its own local context in financial markets. The subsidiaries had substantial power resources, which included some active choice as to which TNC they were owned by. In line with our argument that TNCs achieve production goals, as well as being bargaining and influence systems, the subsidiaries were able to deploy their resources so as to improve production systems. For example, the Danish site, faced with the threat of job losses, used its embeddedness in the country’s training system to retrain and indeed upskill its workers. A key actor in this process was the leader of the local trade union branch. This brought production benefits and also helped to strengthen its political position within the TNC. In short, ‘micro’ politics around training contributed to a political project at meso level. In their lengthy concluding reflections, Kristensen and Zeitlin (2005: 243–9) underline how deeply embedded are the political tensions that they dissect. It is not the case that these tensions are incidental or marginal. They constitute the way in which the TNC functions. Technical solutions, such as staffing the head office with experienced operational managers so as to build up relations of trust, are insufficient because they do not address the ‘institutional logic’ of the firm: the TNC has to

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deal with financial and consumer markets while within its own operations individual managers have to play political games with the reporting of information. It would be ‘foolish for managers to respect the reports of others … or to report honestly about their own activities and performance’ (p. 249). In taking forward a political approach, two issues are crucial. The first is comparative analysis. The dominant approach to politics has been the demonstration of their existence and the exploration of subtle mechanisms of influence. This has been of huge value in demonstrating the contested and uncertain nature of TNC strategies and in questioning rationalistic and deterministic models. Yet it has tended to rely on specific cases. It is not accidental that two of the key studies of the details of meso and micro level processes are of single firms (Bélanger et al., 1999a; Kristensen and Zeitlin, 2005), for issues of access and of the time to collect data are very substantial. None the less, certain universal themes, such as the centrality of political processes, are well-established. It is now important to show how such processes work in different contexts. • At macro level, do arguments about national champions have more legitimacy in some nation states (perhaps small ones concerned at ‘hollowing out’) than in others? Can such arguments be sustained more effectively by some TNCs (e.g. large ones in ‘leading’ sectors) than others? Do some corporate and national contexts support the emergence of a transnational capitalist class (Sklair, 2001), and do they in turn develop leverage over the shape of the world economy? One might also build on analyses of TNCs’ influences in such areas as corporate social responsibility and the environment. These have shown how firms can respond to challenges to their own position and shape developing agendas, so that they are now often keen to show off their ‘green’ credentials (Sklair, 2001; Levy and Egan, 2003). Yet these analyses tend to focus on how power was deployed in a given case. The next key question is whether TNCs find it easier to shape some issues than others, and why. • At the meso level, there is already substantial information on the power resources of head offices and subsidiaries. For example, subsidiaries operating in important markets and having production systems that are different from those in the rest of the TNC have bargaining resources (Birkinshaw and Hood, 1998; Edwards et al., 1999). One might now compare companies with different structures to address differing political processes such as the role of strategy

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committees in transmitting ideological messages. How, given their internal tensions and the shifting external environment, do TNCs continue to hold together? Or to be more exact, why do some such as BP do so and continue to grow while others do not? The idea of the ‘corporate glue’ has been used to explain the maintenance of bonds within international operations (Evans, 1992; Ferner et al., 1995). It may be useful to revisit this notion, to consider whether the glue is becoming more or less effective and, to continue the metaphor, whether there are new processes that improve bonding. • At micro level, the influence of TNCs on wages and employment conditions is a long-standing issue which is becoming, with the marketization of eastern Europe and China, even more important. Comparative analysis of different types of MNC in different national settings will be of major importance. Second, as writers including Hyman (1995) and Thompson (2003) have urged, it is crucial to develop studies that move across levels, for example placing micro politics at the point of production in the context of firms’ global strategies. The challenges here are evident, but analytical tools are now in place that permit the issues to be grasped more clearly than was the case in the past. A political economy view has a great deal to offer, in moving away from stereotypical views of TNCs and in examining the dynamics of competing economic and political logics. If it can now build a linked programme of empirical research, it can further advance understanding of the complexities of the TNC.

Notes 1 Burawoy explicitly based his analysis on Gramsci’s discussion of ideology and hegemony. Useful studies in this vein on TNCs and global political projects include Sklair (2001) and Levy and Egan (2003). For application more generally, see Edwards and Wajcman (2005). 2 This section draws on Edwards and Wajcman (2005: 240–5, 251–3). 3 Statistics Canada, International Merchandise Trade: Annual Review, Catalogue no. 65-208-XIE, 2004, pp. 7–8. Calculations based on a balance of payment basis. 4 This analysis is not shared or acknowledged by all policy-makers and researchers in Canada. A research paper by Statistics Canada economists, based on measures of number of head offices and their employment for the period 1999–2002, does not confirm such a ‘hollowing out’ tendency (Baldwin, Beckstead and Brown, 2003). 5 This research is being conducted by a team, from Montreal and Laval Universities and HEC Montreal, at the Centre de recherche interuniversitaire sur la mondialisation et le travail (CRIMT). 6 Press release of the Government of Canada, dated 13 May 2005, from the web site of Industry Canada. Another press release from the Canadian

Jacques Bélanger and Paul Edwards 49 government, dated 28 October 2004, was explicit about Bombardier being considered as a ‘corporate flagship’: ‘Bombardier is the cornerstone of the Canadian aerospace industry, maintaining a network of suppliers from all regions of the country’.

Acknowledgements Funding from the Social Sciences and Humanities Research Council of Canada and the (UK) Economic and Social Research Council, through the Advanced Institute of Management Research, is gratefully acknowledged.

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Jacques Bélanger and Paul Edwards 51 Kristensen, P. H. and Zeitlin, J. (2005) Local Players in Global Games, Oxford: Oxford University Press. Lane, C. (2000) ‘Understanding the Globalization Strategies of German and British Multinational Companies: Is a “Societal Effects” Approach still Useful?’, in Maurice, M. and Sorge, A. (eds), Embedding Organizations, Amsterdam: John Benjamins, 189–208. Legrain, P. (2002) Open World, London: Abacus. Levy, D. L. and Egan, D. (2003) ‘A Neo-Gramscian Approach to Corporate Political Strategy’, Journal of Management Studies, 40, 4: 803–29. Maurice, M. and Sorge, A. (eds) (2000) Embedding Organizations, Amsterdam: John Benjamins Publishing Co. McMillan, J. (2002) Reinventing the Bazaar, New York: W. W. Norton. Micklethwait, J. and Wooldridge, A. (2003) The Company: A Short History of a Revolutionary Idea, New York: Modern Library. Morgan, G., Kelly, B., Sharpe, D. and Whitley, R. (2003) ‘Global Managers and Japanese Multinationals’, International Journal of Human Resource Management, 14, 3: 389–407. Morgan, G. and Whitley, R. (2003) ‘Introduction’ [to special issue], Journal of Management Studies, 40, 3: 609–16. Moran, T. H. (2002) Beyond Sweatshops. Washington, DC: Brookings. Mueller, F. and Purcell, J. (1992) ‘The Europeanisation of manufacturing and the decentralisation of bargaining’, International Journal of Human Resource Management, 3, 1: 13–34. Offe, C. and Ronge, V. (1982) ‘Theses on the Theory of the State’, in Giddens, A. and Held, D. (eds), Classes, Power and Conflict, London: Macmillan. Ramsay, H. (2000) ‘Know Thine Enemy: Understanding Multinational Corporations as a Requirement for Strategic International Laborism’, in Gordon, M. E. and Turner, L. (eds), Transnational Cooperation among Labor Unions, Ithaca: Cornell University Press, 26–43. Rubery, J. and Grimshaw, D. (2003) The Organization of Employment: an International Perspective, Basingstoke: Palgrave. Runciman, W. G. (1999) The Social Animal, London: Fontana. Sachdev, S. (2006) ‘International Corporate Social Responsibility and Employment Relations’, in Edwards, T. and Rees, C. (eds), International Human Resource Management, London: Pearson, 262–84. Sally, R. (1994) ‘Multinational Enterprise, Political Economy and Institutional Theory’, Review of International Political Economy, 1, 1: 161–92. Sell, S. K. (2000) ‘Structures, Agents and Institutions’, in Higgott, R. A., Underhill, G. R. D. and Bieler, A. (eds), Non-State Actors and Authority in the Global System, London: Routledge. Sharpe, D. R. (2001) ‘Globalization and Change’, in Morgan, G., Kristensen, P. H. and Whitley, R. (eds), The Multinational Firm, Oxford: Oxford University Press. Silver, B. (2003) Forces of Labor, Cambridge: CUP. Sklair, L. (2001) The Transnational Capitalist Class, Oxford: Blackwell. Sklair, L. (2002) Globalization, Oxford: Oxford University Press. Statistics Canada (2004) International Merchandise Trade: Annual Review. Catalogue No. 65-208-XIE, Ottawa: Ministry of Industry, June. Thompson, P. (2003) ‘Disconnected Capitalism’, Work, Employment and Society, 17, 3: 359–78.

52 Multinationals, Institutions and the Construction of Transnational Practices Thompson, P. and McHugh, D. (2002) Work Organisations. 3rd edn, Basingstoke: Palgrave. Turner, L. (2003) ‘The (A)political Multinational’, in Birkinshaw, J. et al. (eds), The Future of the Multinational Company, Chichester: Wiley. UNCTAD (2004) World Investment Report 2004: The Shift Towards Services, New York and Geneva: United Nations. Whitley, R. (1999) Divergent Capitalism, Oxford: Oxford University Press. Wolf, M. (2005) Why Globalization Works, New Haven: Yale University Press.

3 Theorizing the Role of the International Subsidiary: Transplants, Hybrids and Branch-Plants Revisited Tony Elger and Chris Smith

Theoretical orientation: system, society and dominance effects on organizational politics and workplace relations The system, society and dominance model (Smith and Meiksins, 1995; Smith and Elger, 2000; Elger and Smith, 2005; Smith 2005) aims to capture the complexity of innovations in work organization and employment relations and their ‘transfer’ within the modern, internationalized enterprise. By identifying ‘societal effects’ it recognizes the origins of particular innovations in specific societal settings and the extent to which those settings (whether in home or host societies) continue to influence the conduct of managers and workers within the firm. At the same time, the partial character of such effects is emphasized by underlining the extent to which national production regimes may be characterized by differentiation, conflict and reconstruction. Moreover, by identifying ‘dominance effects’ it recognizes that practices that have been developed in leading national economies, industrial sectors or indeed firms have the potential to exert a distinctive influence on key actors in a wide range of business enterprises situated in different societies, by virtue of their claimed efficacy. Finally the concept of ‘system effects’ identifies fundamental social relations and processes that underpin and condition the specific institutional patterns and organizational practices that characterize the evolution of competing capitalisms and competing firms. Despite national variations between capitalist countries, they share certain fundamental systemic commonalities that are sometimes overlooked in discussions of societal differences. When certain management practices, such as quality control, become generalized as shared standards of performance they may thus become ‘systemic’. Nevertheless, 53

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particular management approaches and techniques rarely attain more than a provisional systemic status because they remain beset by the contradictory features of the capital–labour relationship. As Child (1972) and others have emphasized, the policies and practices of business enterprises are rarely a direct result of structural forces and contingencies, as organizational actors are reflexive and strategize in response to such conditions. Moreover, the system, society and dominance model highlights the contradictory and shifting pressures and priorities faced by capitalist firms, and the varied repertoires of practices that managers may draw upon in response to such pressures. This notion of varied repertoires suggests that enterprise managers may draw upon home or host country models, internal corporate or wider sectoral or network recipes, and/or exemplars drawn from dominant countries or leading firms. We need to be sensitive to the ways in which these elements are brought together within specific firms and workplaces, as managers and employees address and mediate the effects of globalizing capitalist forces, national institutional rules and ‘world best practice’ work and employment standards within distinctive local contexts. It is only through micropolitical processes of argument, interpretation, conflict and compromise that groups and individuals negotiate how these different (often competing) ways of working, standards of quality, authority relations and forms of employment will actually shape particular work situations. At the same time, of course, the interests and powers of different actors within the capitalist enterprise differ and conflict (Amoore, 2002). The dominant coalition of owners and top managers will be differently structured and may have different priorities in different national variants of capitalism, but in any case will possess some strategic capacity to shape the ways in which the firm organizes itself at home and abroad. Senior head office managers clearly possess considerable resources to control the activities of subordinate managers, both at home and in overseas subsidiaries, through the promulgation of rules and targets, the monitoring of performance, and financial and career inducements and penalties. It is they who define the objectives and priorities of newly established subsidiaries, though in circumstances (such as national regulatory frameworks or the moves of rivals) that may constrain their options. Furthermore, Bélanger and Edwards (this volume) highlight the leverage that top managers possess to shape state policies, either through direct representations or through organized business lobbying, though they also note the tensions and limitations that may beset such leverage.

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At the same time, the managers of subsidiaries also possess some scope to negotiate and modify their position vis-à-vis head office. They can appeal to local conditions to argue the case for increased autonomy in detailed policy formulation or develop local organizational capabilities which justify agreed changes in the objectives of the plant (Birkinshaw and Hood, 1998; Pulignano, this volume). Such initiatives and negotiations can be pivotal to the consolidation and growth of specific subsidiaries, though subsidiary managers are not always successful and local plants may become more precarious rather than more secure (Birkinshaw and Hood, 1998). Furthermore, the importance of local management policy initiatives and lobbying activities in the evolution of subsidiaries does not preclude top management decisions to expand, contract or close such operations because of changes in wider corporate priorities over which local management have minimal influence. Finally, employees other than managers, and perhaps some key technical or professional workers, are generally excluded from the organizational processes through which both corporate and subsidiary policies are formulated (though in some national contexts highly institutionalized forms of representation and consultation, such as works councils, may allow organized labour a limited formal voice in such processes). Nevertheless workers more generally remain an active presence in relation to such processes, even when they are weakly organized or unrepresented by unions. This is partly because formal and informal bargaining around the consequences of management policy decisions is likely to influence outcomes and hence future management policy stances. But it is also because even unbargained worker responses (such as changing patterns of effort, absenteeism or turnover) will also impinge on management calculations, especially at the level of the workplace. Of course, such observations also underline the limits of worker leverage even in propitious conditions, such as tight labour markets or advances in collective organization, while in less favourable circumstances such inequalities of power will be all the more marked. Still, managers can rarely take employees and their labour power entirely for granted, and in this sense they remain an active presence in the workplace, albeit with limited and variable leverage. In this context both the national provenance and the local relevance of alternative policy repertoires remain contested within international subsidiaries. Nationality of ownership differentiates the local from the international enterprise, but we need empirical research to uncover how and how far different groups invoke nationality in seeking to legitimate or undermine activities that reconstruct work and employment

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relations within the workplace. For example, recent research on HRM practices within US multinationals in Europe suggests that ‘diversity management’ was diffused to subsidiaries by US corporate management, but resisted as a strictly American recipe, appropriate for the parent firm but not the subsidiaries (Ferner et al., 2005). This was especially the case where such subsidiaries were located in ethnically homogeneous societies, such as Ireland, where local management resistance drew upon indigenous societal norms to resist dominant practices, the nationality of which (Americanness) was highlighted to emphasize their specificity and inappropriateness. Milkman’s (1991) research on Japanese firms in the USA provides another example. Japanese managers sometimes used work sharing, reduced hours, flexible allocation of labour and other practices to retain labour through downturns in trade, when the first reaction of the American managers was to lay off workers. In turn, American managers argued that such labour security was inefficient when hire and fire could weed out unproductive workers. In this contest, Japanese managers applied home-influenced company practices that conflicted with local management approaches, but American workers could ally with Japanese managers in seeking to maintain employment security. Thus nationality was contested, and societal class divisions between workers and managers were complicated by competing management practices. The key objectives of our own research were to explore the different ways in which nationally designated repertoires of work organization and HRM practices were debated and deployed within Japanese manufacturing subsidiaries in Britain, and to analyse the implications of this for our understanding of the interplay of system, society and dominance effects in the operations of such subsidiaries. The next section therefore outlines three influential but contrasting accounts of the operations of such Japanese subsidiaries that are to be found in the existing literature.

Conceptualizing Japanese subsidiaries: transplants, hybrids or branch-plants? Analyses of the operations of Japanese manufacturing subsidiaries outside Japan have developed three distinctive types of argument, which treat these subsidiaries as transplants, hybrids or branch-plants. These three variants do not exhaust the terms of debate as each contains different strands and some authors shift their positions over time, but they nevertheless represent distinctive and contrasting approaches, not only to the operations of Japanese overseas subsidiaries but also to the conceptualization of international subsidiaries more generally.

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The transplant: from dominance to system effects The first image, that of the transplant, was widely used in the 1980s and 1990s, especially to characterize Japanese inward investors. This suggests that such enterprises seek to transfer an unproblematically superior portfolio of Japanese management and production techniques quite directly from home factories to overseas subsidiaries. These practices are seen to provide the basis for the competitive strength of the parent firm, both at home and in its overseas subsidiaries. This makes it necessary for transplantation to take place, but also facilitates this process, because it becomes attractive to all participants by offering mutual benefits from competitive success. Hence transplantation implies a convergence of interests between workers and managers which will overcome mutual suspicions grounded in older class relations or cultural traditions. At its most benign this may be founded on shared interests arising from an egalitarian and participative production regime, as in Kenney and Florida’s (1993) analysis of ‘innovation mediated production’. At its most stringent it may be based on shared subordination to the disciplines of ‘waste elimination’ in pursuit of enhanced job security, as in the advocacy of lean production by Womack et al. (1990). Within this approach the trajectory of subsidiary development tends to be seen as linear and progressive, as the overseas site takes on a widening range of activities and comes to mirror the capabilities of parent production clusters. Thus particular corporate practices of the Japanese parent company are identified as elements of a hegemonic national repertoire, and are translated directly into ‘system effects’ across international operations, readily overriding and subsuming local ‘societal effects’. This approach tends to work with a reified ‘model of best practice’, formed within but emancipated from specific national and corporate contexts. It also glosses over conflicts of interest within the employment relationship, either by conceptualizing the model as a basis for the reconciliation of such conflicts or by subsuming remaining tensions within a shared imperative to adopt the model to allow competitive survival. In this sense the ‘dominant’ model is translated directly into a transformation of ‘system’ characteristics.

The hybrid: home and host societal effects with contradictory implications for dominance The second image, developed from the late 1990s onwards, is that of the hybrid factory. This emphasizes the mixing of home and host

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societal influences to produce a distinctive set of organizational and production relations, not only in specific subsidiaries and settings but also in the operations of indigenous competitors. It is evident that an unqualified model of transplantation makes very strong claims about the universal pertinence of parent company practices and their ready transfer overseas. Thus almost any qualification to these assumptions moves the discussion towards hybrid theorizing, though the transplant imagery may be challenged in weaker or stronger terms. The weakest version of hybridization, still close to the universalism of the transplant approach, identifies distinctive ‘functional equivalents’ for some components of the parent firm’s management model. In this approach some elements of that model – such as specific production arrangements – are identified as core best practices which must be pursued by the subsidiary, but others – such as payment systems – are seen as supportive but secondary. The latter are then seen as open to replacement by alternative arrangements, which are similarly supportive but tailored to the circumstances of the local subsidiary. Many of those who use the language of transplantation nevertheless allow for such limited hybridization, or even see it as central to the process, as in the influential analyses of Japanese auto transplants in the US developed by Kenney and Florida (1993) and Japanese transplants in the UK developed by Oliver and Wilkinson (1992). In these approaches ‘societal effects’ are recognized but are seen to have little effect on the dominant and increasingly systemic model because of the availability of functional equivalents. Other analysts of hybridization depart more clearly from the notion of transplantation. For example, Abo (1998) charts how subsidiary operations often deviate from model versions of Japanese work organization, personnel practices and industrial relations by moving some way towards local, domestic patterns. In turn, these adaptations to local conditions are interpreted as dilutions of the Japanese model and are thus seen as serving to weaken the effectiveness of such subsidiaries. This diagnosis still emphasizes the strength and coherence of an ideal-type Japanese model, which is seen as compromised and diluted by pressures and constraints arising from the host society. Here, then, ‘societal effects’ clash with ‘dominance effects’ and may limit their translation into systemic features. There is considerable latitude within this broad approach to highlight different sources of pressure, involving different institutional complexes – such as training arrangements or supplier networks – and social agents – such as unionized workers or local managers (as in Broad, 1994). In general, however, this

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view of hybrids construes them as suboptimal operations, which are thus potentially vulnerable and only survive as second best. The final important variant in analyses of hybridization challenges this last assumption, to suggest that institutional constraints and compromises may impel enterprises to develop new configurations of work and employment relations with their own distinctive strengths. Relatively weak versions of this argument have been developed by Fruin (1999) and Liker et al. (1999) who emphasize that any transfer of existing socially-embedded workplace practices necessarily involves an active process of translation for new settings. In some cases, this process may be channelled in directions which limit subsidiary effectiveness, but in others it may be channelled in ways which enhance that effectiveness. Adler (1999) develops an interesting variant of this approach in analysing organizational innovations in unionized brownfield and non-union greenfield Toyota factories in the United States. He argues that strategic management responses to local conditions, including distinctive power relations with unions and regulatory bodies, involved subtle modifications to the Toyota production system and more marked departures from Japanese employment practices. Furthermore, these innovations facilitated plant productivity and viability, though they did not create an unproblematical pattern of joint benefits for management and employees. This highlights the capacity of management for active organizational learning and institution building within overseas subsidiaries, the varied leverage of unions and state agencies and also the continuing sources of tension surrounding any emergent hybrid repertoire. Here, societal effects may challenge and modify a seemingly dominant model, underlining the provisional character of such dominance. In turn, new model variants may emerge but their provisional character, and the unresolved tensions that surround them, qualify their translation into systemic features. A stronger argument for innovative hybridization has been developed by theorists working within the French ‘regulationist’ tradition. Their analysis builds upon a wide-ranging collaborative research programme on evolving patterns of corporate strategy and production organization among the world’s large auto firms and addresses developments in both parent plants and overseas operations of US, European and Asian producers (Boyer, 1998). This analysis of hybridization stresses two key points that represent important advances on accounts of the transplantation of ‘model’ production regimes. Firstly, active processes of remaking and innovation call into question static models

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of best practice. Secondly, emergent production models confront substantial dilemmas that can be addressed in several ways. Thus a range of relatively coherent configurations of corporate strategy and work organization are likely to coexist, none resolving all the problems but several viable at some of the available locations. Thus the interaction of home and host societal effects underpins a variety of contested but potentially dominant models, and a feature of the ‘system’ is continuing competition between such evolving and contending models, rather than a clear resolution of the claims to dominance by any one model. Thus Boyer (1998: 27) argues that ‘the notion of hybridization becomes significant, not just as a more short-term adaptation to environmental resistance, but as a principle of transformation, indeed of genesis, of industrial models themselves, through their interaction with social and economic systems which are different from those in which they first developed.’ However, the generation of a new model represents only one among a range of possible outcomes. Boyer identifies a spectrum of possible trajectories for the successful operation of subsidiaries, ranging from effective imitation (transplantation), through hybridization as the utilization of functional equivalents, to hybridization as adaptation to local conditions and only finally hybridization as innovation of a new model with broader potential. Alongside these possibilities are others, characterized by greater dissonance between context and strategy and/or less coherence across elements of management policy, generating failed imitation, suboptimal forms of hybrid compromise, or opportunistic but incoherent mixes of policy. According to Boyer, the prevalence of these various outcomes will depend on the dynamic interplay between evolving strategies of the parent companies and the institutional configurations of constraints and opportunities characteristic of the sites of their overseas subsidiaries. The analytical principles emphasized by Boyer and his colleagues, combined with their substantive research findings, generate a rich map of possible trajectories of hybridization. This map subsumes many earlier discussions of ‘functional alternatives’ and compromised forms of adaptation whilst highlighting the possible emergence of innovative repertoires. It also converges with other research which emphasizes significant differences among Japanese companies in their orientations towards their subsidiaries, especially in regards to their commitment to the generalizability of their parental model and their willingness to adapt that model to local circumstances (Beechler et al., 1998).

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However, there are also problems in utilizing this analytical framework, primarily arising from its high level of abstraction. Firstly, Boyer discusses the difficulties of adjudicating between those subsidiaries displaying optimal and suboptimal levels of performance, emphasizing both the inappropriateness of narrow and abstracted benchmarking exercises and the pertinence of satisficing rather than maximizing strategies. Nevertheless, it remains unclear how these points inform his discussion of different trajectories of hybridization. Secondly, only brief attention is given to the substantive character of the production and employment relations involved in these various forms of hybridization, and this leaves the forms of subordination and insubordination of labour that may be involved rather opaque. There is a tendency to divide cases into those characterized by the integration of labour and those characterized by a crisis of employment relations, rather than exploring the scope and limits of the subsumption of labour in each case. Finally, as Meardi and Toth (this volume) also emphasize, this approach neglects the possibility that the parent company may pursue a policy of selective transplantation and hybridization, conditioned by the specific role that is envisaged for the subsidiary within its overall internationalization strategy. Boyer’s model addresses the strength or weakness of a parent firm’s commitment to export its production model, but gives little attention to any principles of selectivity which might apply to that process.

The branch-plant: the interplay of system, societal and dominance effects The third image, that of the branch-plant, returns to debates of the 1970s and 1980s. This metaphor emphasized the subordinate role of subsidiary operations within wider corporate structures and strategies orchestrated from the centre, and highlighted the dependency of regions and localities upon precarious sources of employment because of the capacity of inward investors to shift their operations and investments from place to place. By emphasizing corporate power relations, this approach addresses some of the limitations of the hybridization approach, while remaining compatible with the important insights of such authors as Boyer, Adler and Fruin. Analyses of foreign manufacturing investment sites as branch-plants (Hudson, 1989) stress two key features which are glossed over in accounts of transplantation and hybridization. Firstly, the analysis does not start from the assumption that parent companies are concerned to produce replicas of home operations in their subsidiaries.

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Instead, subsidiaries are seen as playing specific, selective roles within a wider international division of operations. Secondly, branch-plant imagery emphasizes the leverage of the parent company through its continuing capability to switch investment elsewhere. As a result, overseas subsidiaries often perform limited assembly operations as part of an integrated international commodity chain, using a lowwage, labour-intensive production regime. This may involve the selective transfer of low-end production arrangements and employment relations from elsewhere in the parent company, either from more routinized operations at the parent plant or from other subsidiaries at home or abroad. For example Dedoussis (1994) suggests that Japanese firms have selectively transplanted the work and employment relations of Japan’s subordinate subcontracting networks and peripheral labour market to their overseas operations. It could also involve forms of adaptation that draw heavily on the indigenous management practices of the host country, especially when they involve harsh conditions and union exclusion. For example Milkman (1991) argues that the operations of many Japanese factories in California depend on a low-wage immigrant workforce and appear to have self-consciously copied American union-avoidance strategies. Thus there is a significant fit between the branch-plant argument and several substantively based challenges to the transplantation model. It can nevertheless be argued that a substantial weakness of the branch-plant approach arises from its direct equation of subsidiaries with routine assembly operations, as variations in the role and character of such subsidiaries include both upgrading and divergence from basic assembly (Henderson, 1989; Dicken, 1998). The branch-plant approach can only accommodate such developments if it addresses the varied roles of such factories in complex international production arrangements (Dicken, 1998; Castree et al., 2004). However, from this vantage point such higher value-added operations are seen in relation to the overall corporate strategies of their parent companies, thus contingent on the development and modification of such strategies rather than part of an automatic process of transplantation and upgrading. Furthermore, the issue of the leverage afforded to employers through their international, multisite operations remains pertinent, even though the extent of sunk-costs and ease of relocation will vary according to the specific roles played by different subsidiaries. This revised conception of the branch-plant reconnects discussions of the operations of Japanese overseas subsidiaries with a wider literature on international manufacturing companies. This focuses on the

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ways in which power relations in subsidiary operations are affected by the range and character of a firm’s international operations (Edwards et al., 1996; Dicken, 1998; Castree et al., 2004). It explicitly addresses how HQ-led comparisons across production operations may be used, often in quite subtle and incremental ways, to modify how subsidiary managers conduct their operations. In particular, it highlights the scope for senior managers to use the allocation of investment streams to reward and punish subsidiaries over time, and the manner in which corporate policy debates and guidelines involve both the forcing and fostering of evolutionary modifications in local management policies. At the same time, contributors to this literature also recognize that international companies vary in both their propensity and their capacity to demand compliance with centrally formulated operating principles. In particular, vertically integrated production companies are much more concerned to develop common design principles and production standards than are conglomerates or multi-domestic firms, while international firms also differ in the size and experience of the international management cadre they have available to manage their foreign subsidiaries. Thus the branch-plant approach places a valuable emphasis on the location of specific subsidiaries within their wider corporate strategies and structures, whether as low-end assembly operations (the traditional image of the branch-plant) or in some other role. This reminds us that any engagement between dominant production models and local societal effects, and indeed any process of hybridization, is mediated through distinctive corporate management structures, strategies and power relations.

Research design and methods Our own research (Elger and Smith, 2005) focuses entirely on Japanese manufacturing subsidiaries in Britain. The underlying logic is to focus on a critical case in terms of the interplay of home and host societies. Internationalizing Japanese manufacturing firms are potential carriers of a distinctive and influential home model of work organization and production relations, while Britain is a particularly open host economy for inward investment, characterized by a sharp decline in its own manufacturing base. This combination is therefore a powerful test-case for arguments about the transfer and implementation of production models through the foreign subsidiaries of international companies. Within this ‘one home, one host’ research design, however, we sought access to a variety of Japanese manufacturing firms, in terms of size,

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sector and ownership structure, and gained the cooperation of five rather different Japanese firms and subsidiaries. This allowed us to consider how far such firms differ in their roles and modes of operation, and address the organizational dynamics that we believed would mediate interactions between home and host country effects and dominant and declining production models. Our research did not represent the full range of Japanese manufacturing in Britain. In particular, none of our case-study enterprises was unionized though many of the earlier inward investors did recognize unions. However, our cases are more typical of recent greenfield operations in Britain, while union absence makes them strong test-cases for transfer arguments because managers ostensibly have more power as a result. Another distinctive feature of our research is that four of our firms were located in one new town, Telford, that was particularly successful in attracting Japanese inward investors to the English midlands. Their ‘greenfield’ sites gave inward investors particular scope to innovate, but we also found that the cluster of such firms had its own dynamic as they interacted with one another and sought to manage their impact on the local labour market. We conducted systematic semi-structured interviews with a representative range of informants in each firm, including Japanese and British managers and engineers and local supervisors and shopfloor workers. This involved about 8 per cent of the people in each subsidiary over three to six-week periods during 1995 and 1996. We combined this with shopfloor tours, the collection of documents, interviews with other local informants, and later revisits and telephone interviews between 1997 and 2002, to gain an understanding of policy developments in each firm from its formation through to the turn of the century.

Organizational policies and management processes in Japanese subsidiaries Our research enabled us to develop a detailed analysis of the experience, orientations and actions of managers, supervisors and employees in five contrasting Japanese manufacturing subsidiaries operating in the UK, and thus pursue comparisons between these firms over time. Table 3.1 summarizes our findings and locates them in terms of the distinctive features of each firm. Concentrating first on the quartet of greenfield inward investors in Telford, we documented both important similarities and differences in their operations. In terms of similarities they were all predominantly involved in routine assembly and materials

Table 3.1

Resume of case-study findings

Pseudonym

Part-co

Copy-co

PCB-co

Assembly-co

Computer-co

Ownership

Japanese (initial involvement of European company as joint venture)

Japanese

Japanese (parent specialist in high value products)

Japanese/US joint venture (trading company and sleeping partner respectively)

Failing UK specialist firm bought by major Japanese firm

Establishment and current status

1990, continuing expansion

1983, model changes but relative stability

Opened 1987, closed 1999

1989, fluctuating production

Bought 1990, closed 1999

Number of employees

1996: 720 2003: 1400

1996: 550 2003: 650

1996: 92

1996: 180 2003: 370

1996: 475 on two main sites

Products

Complex sub-assemblies for cars

Office equipment and consumables

Printed circuit boards

Plastic parts/ assemblies

Computer and server design, development and manufacture

Role of site in commodity chains

Powerful first tier supplier to several car manufacturers across Europe, operating in highly competitive sector

Specialist producer supplying marketing division

Supplier to several final assemblers, competing with sister plants in East Asia, pushed towards smaller batch runs

Supplier of parts to shifting range of final assemblers, with initial advantage of patented mechanism

World product division, providing capability where parent company had failed

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Table 3.1

Resume of case-study findings – continued

Pseudonym

Part-co

Copy-co

PCB-co

Assembly-co

Computer-co

Major areas of task activity

Moulding and machining of components, complex assembly on flow lines dedicated to specific customers

Plastic moulding shop, process production and packing of consumable, bench assembly of simple components, flow line assembly of complex machinery, manufacture of complex component, minor D&D role

Automated insertion, manual flow line insertion and rectification

Plastic moulding and routine assembly, small ‘amateur’ development effort

a) design and development of computers, servers and IT services; b) automated and manual manufacture of PCBs; assembly bay and flow line manufacture of computers and servers

Collaborative relationship between Japanese and local management; tensions about quality crosscut groups; key Japanese role in liaison with HQ and production management; local personnel management initiatives

Suspicion and Japanese top manager liases with parents conflict between and customers but small Japanese management cadre management of sites and local managers; delegated to local management failure to become profitable, intra-management conflict and squeeze from competing Asian factories prompts closure

Relations between Japanese Japanese and local management cadre management substantial and dominant, drawing lessons from US subsidiary; personnel management local responsibility but with limited autonomy; debate about breaking from local pay norms

UK management dominant in R&D with supportive Japanese cadre; plant and personnel management local; Japanese managers active in process innovation (but draw on sector recipes); long-term investment strategy

Table 3.1

Resume of case-study findings – continued

Pseudonym

Part-co

Copy-co

PCB-co

Assembly-co

Computer-co

Dominant features of work organization

Stringent implementation of productivity and quality controls; highly routinized assembly work; training and job rotation limited by production pressures and worker turnover; process engineers prime movers in work reorganization; worker scepticism about spasmodic and ritualistic quality circles

Rotation between short cycles on bench assembly; longer cycle line assembly involves foolproofed task routines but little rotation; active quality control regime but spasmodic and superficial involvement in quality circles

Routine, line-paced assembly; personalized supervision; idiosyncratic selection from Japanese production repertoire; no time for quality circles, quality targets varied by customer; ageing equipment; crisis management

Extensive and intensive routine assembly on benches and lines; sub-assembly at small branch factory; little evidence of Japanese production techniques; NVQ accreditation of basic skills

a) matrix organization of project teams with limited resources, juggling quick delivery and robust design; b) extensive routine low paid assembly work, with no quality circles; some shift to timed off-line ‘build through’ process; extensive post-production quality checks and rectification

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Table 3.1

Resume of case-study findings – continued

Pseudonym

Part-co

Copy-co

PCB-co

Assembly-co

Computer-co

Personnel policies and strategies

Union avoidance; tightly regulated worker consultation process excluding key issues; payment of local rate but more stringent work pace and compulsory overtime; cursory selection process and use of agency labour influenced by recruitment and retention problems

Active union avoidance; no formal consultation arrangements; modest pay; move from youth recruitment to older workers; cultivation of loyalty through ‘caring attitude’ and internal promotion (compromised by external recruitment of new team leaders); commitment to employment security, but use of temporary agency workers

Non-union; low wages; personalized relations; dramatization of competition from Chinese factories; use of agency temps to cover fluctuations and facilitate recruitment

Non-union; modest wages involving payment by results and attendance bonus; personalized HR efforts to cool out problems; use of NVQs to document training; branch factory to escape constraints of local labour market

Non-union; limited consultation through heavily managed ‘one goal committee’; a) semblance of strong culture; significant training opportunities, but terms and conditions below average for sector; b) minimization of personnel function through agency recruitment and training; use of current panaceas, from agency temps to zero hours contracts

Table 3.1

Resume of case-study findings – continued

Pseudonym

Part-co

Copy-co

PCB-co

Assembly-co

Computer-co

Dominant features of employment relations and foci of tension

Widespread shopfloor criticism of unfavourable effort bargain; sceptical instrumentalism; informal operator efforts to moderate impact of management control systems; team leaders under pressure; substantial turnover

Management see labour turnover as problem; process workers critical of erosion of relative indulgency pattern; elsewhere tensions around quality and productivity and criticisms of restructuring of supervision and favouritism

Tensions over work pressure; informal resistance; significant turnover of established and newer workers

Informal fiddles around payment by results; significant labour turnover

a) young ‘techies’ join to gain experience, but tendency to lose experienced staff b) critical view of management fuelled by increased work pressure and treatment of temps

69

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processing operations, using a comparatively low-paid, semi-skilled workforce. Secondly, all continued to avoid union recognition, and alternative mechanisms of worker consultation and involvement were at best rudimentary. Thus management–worker relations were primarily mediated through informal bargaining within firms and by workers’ moves between firms. Thirdly, despite management efforts to coordinate their regulation of employment relations, all found the recruitment and retention of workers more problematical than they expected, while workers remained critical of important features of management policies. Finally, while the rhetoric of management sometimes emphasized the active involvement of workers in problem-solving and continuous improvement, management’s own commitment to such policies appeared patchy and inconsistent, and employees were usually sceptical about participation in such ‘discretionary’ activities. The Telford case studies challenge accounts of the innovativeness of Japanese inward investors in terms of production regimes. They also question the extent to which managers secured hegemony through distinctive employment practices. Managers in these firms certainly gained more control over the organization of the production process and the flexible deployment of labour than British manufacturers of an earlier period, but this control should not be overstated. Furthermore, managements used their power in quite mundane and uneven ways to maintain quality and output levels, rather than to deliver anything like innovation-driven production or high commitment, high performance workplaces. In the terms used by Kenney et al. (1998), our greenfield subsidiaries look like ‘reproduction’ rather than ‘learning’ factories. The production operations and employment relations at the manufacturing facility of our fifth case study, Computer-co, can be characterized in similar terms, though it was located in a different new town and was not a greenfield site. However, its R&D centre operated on a very different basis, as a relatively poorly resourced but highly innovative design facility. Turning to the processes of management, our research emphasizes the extent to which existing templates and repertoires of work organization and employment relations, from whatever source, were actively modified and reworked in efforts to bring them to bear upon the organization of work and management–worker relations within these subsidiaries. As we have seen, our research sites were biased in the direction of conditions that could facilitate the exercise of management prerogatives and the transfer of parent company practices to subsidiaries. Nevertheless, policy formation and implementation in

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each of the factories faced significant problems and uncertainties, and responses to these challenges involved patterns of debate, alliance and conflict among managers (in the subsidiaries and in their parent firms) which were influenced by the distinctive priorities, resources and powers of the protagonists. As a result, there were important differences between our case-study firms in the evolution of management micropolitics and management–worker relations and in the particular policy mixes and dilemmas that came to characterize each workplace. The recruitment, retention, control and motivation of shopfloor workers represented a major focus of management concern across our case studies, and in this sense labour was an active influence on the making and remaking of work and employment relations despite the absence of any collective voice. However, the intractability of labour was not the only source of uncertainties for management. The specific product market and commercial relations of the subsidiaries also raised questions about the relevance of the established production or design repertoires of some of the parent companies. Corporate policies beyond the subsidiary, at regional or corporate headquarters, clearly had a major impact upon the micropolitics of the workplace. Thus our research documented the ways in which wider corporate decisions on such matters as the terms of new investments, the allocation of new product lines or wider corporate rationalization influenced the fate of local operations. We did not explore such wider social processes and power relations in the same depth as those within the case-study plants, as we drew primarily on the accounts of subsidiary managers. While these managers no doubt have a partial, selective view of policies and politics in their parent firms, just as top managers have an incomplete understanding of developments within subsidiaries, they can nevertheless be expected to have a well-developed understanding of the pressures that impinge on them. With these qualifications, our case studies document four important features of the relationship between headquarters and overseas operations, all of which bear upon differences in the way they operated. Firstly, these subsidiaries were located within rather different corporate structures and their roles were defined in terms of distinctive corporate strategies. Secondly, these different roles not only involved different relations with headquarters and ‘parent plants’ in Japan but also distinctive relationships with ‘sister plants’, suppliers, customers and competitors. Thirdly, there were critical junctures when top corporate policies overrode the concerns of subsidiary managers, most obviously when decisions were made to close plants but also when key investment

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decisions were made or particular performance targets defined. Finally, however, within these parameters subsidiary managers had a significant degree of autonomy, as they actively engaged with, interpreted and negotiated the implications of top corporate policies, including those that substantially constrained their room for manoeuvre.

Transplants, hybrids or branch-plants? What, then, are the implications of our analysis for the models of international subsidiary operations outlined earlier, in regard to the claims they make about the character of workplace social processes and the wider structures of social relations that impinge on these processes?

Transplants In some of our case studies, certainly, established repertoires of production organization, often drawn from influential home country models, represented central resources and reference points for key actors. In conditions where leading enterprises in the home economy were regarded as successful exponents of contemporary ‘best practice’, while host country practices were viewed as backward and unsuccessful, such dominant models influenced not only headquarters and expatriate managers but also locally recruited managers and to some extent shopfloor workers. Our research, however, underlines the contingent and contested impact of such established corporate repertoires. Firstly, our case-study firms differed markedly in the degree to which existing Japanese production or design operations were seen as models for the subsidiary. In this regard they could be ordered on a spectrum, from Part-co, where parent practices were most closely emulated, through PCB-co and Copy-co where their appropriateness was more debated and negotiated, to Assembly-co and finally to Computer-co, where AngloAmerican models were more dominant reference points. These differences in the salience of parent company recipes can be explained partly in terms of the role of the subsidiary in wider corporate strategies. For example, among the larger parent firms Electrical-co clearly sought to acquire key design and development competencies from Computer-co, its British subsidiary, and this reduced the relevance of its existing expertise for the British operation. Part-co sought to provide European-based motor manufacturers with an equivalent service to that provided to major customers in Japan, making its home model more directly relevant. Amongst the smaller companies, the

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relevance of Japanese models of best practice was seen differently at PCB-co and at Assembly-co. At the former, some aspects of the parent’s production expertise were drawn upon, but in increasingly contentious circumstances. At the latter, the parent’s limited production experience provided considerable latitude for British production managers to go their own way. Secondly, in each case the salience of parent company practices (and indeed those drawn from sister subsidiaries or local companies) had to be worked out in detail among expatriate and local managers within the subsidiary, albeit influenced by varied levels of guidance and pressure emanating from above. The imputation of ‘dominance’ to leading sectors or whole national economies may be seductive, not only for commentators but also for some of the participants in transnational operations. But rhetorics of dominance still had to be translated into concrete forms of work organization and employment relations, and it was here that the ramifications of specific product and labour market conditions became pertinent. The terms of debate about these matters varied across our case-study factories, as did the related evolution of work and employment policies (Elger and Smith, 2005). At Copy-co, for example, the existing skills of the workforce, the mix and scale of production, and the resultant balance of capital investment and labour deployment, were all implicated in the tailoring of production arrangements in terms of such features as job rotation and ‘foolproofing’ (the design of tasks to minimize scope for operator discretion and thus errors). The implications of these circumstances were explored in discussions among management specialisms and factions with variable leverage at different levels in the firm, while the initiatives and responses of employees also had an indirect influence on the outcomes. In these respects ‘transplantation’ was inevitably a dynamic and contested process. Furthermore, there were important differences between our case studies in the management micropolitics through which these matters were addressed, and in the weight given to these different ‘contingencies’ in the resulting management policies. Such differences arose not only from the dynamics of social organization within the plant but also from the wider field of forces within which each plant operated. Thus our engagement with the model of the transplant highlights two key arguments that contribute towards a more adequate theory of the operations of international subsidiaries. The first is that subsidiaries vary in the roles they play within broader corporate structures and this makes a difference to the pertinence of purportedly

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dominant home country production repertoires. The second is that efforts to draw upon such home country or company models inevitably involve tailoring to the specific commercial and labour market circumstances of the subsidiary. Thus the positioning of the factory within wider corporate structures and strategies, the micropolitical negotiation of the implications of existing management repertoires within the enterprise, and specific product and labour market exigencies, are all implicated in the active making of production and employment relations within these local workplaces, in ways that are neglected by the image of the transplant.

Hybrids Our analysis has important affinities with the image of hybridization, because it problematizes transplantation and does not treat host country conditions merely as obstacles to the adoption of home country practices. However, we have seen that the notion of hybridization remains rather ambiguous. At one extreme it simply signifies the incomplete and diluted character of transplantation, but at the other it suggests the emergence of new configurations of work and employment relations that may represent viable competitors to existing dominant models. At their best, then, analyses of hybridization have moved beyond the juxtaposition of home and host country effects, to emphasize the evolution of subsidiary operations over time and the emergence of distinctive configurations that may depart from both home-based templates and local practices. Nevertheless, analyses of hybridization often provide inadequate accounts of the micropolitical processes that condition such outcomes and neglect the varied roles of subsidiaries within wider corporate structures and strategies. This section concentrates on the first theme but carries the second through into discussion of the branch-plant approach. Hybridization has sometimes been conceptualized as a process of ‘organizational learning’ that, in its ideal form, involves both local learning and proactive adaptation (Beechler et al., 1998). Our research, however, emphasizes that managers face cross-cutting constraints and challenges, so that policy formation is often marked by uncertainties, contradictions, conflicts and limitations, rather than a smooth or consensual process of hybridization. Furthermore, such ‘learning’ cannot be presumed to offer equivalent benefits to all participants, given enduring conflicts of class interest between management and workers and divergences in the status concerns and priorities of different segments and levels of management.

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Thus the modification and melding of policy repertoires indicated by the concept of hybridization is inevitably characterized by competing claims to expertise and by difficulties in deploying these forms of expertise. In our research, British and Japanese managers typically claimed different sources of expertise: Japanese managers in most of the firms could draw upon strong claims to technical expertise grounded in existing corporate activities, while British managers invariably claimed particular expertise in managing a British labour force. However, in neither case could the effectiveness of such claims be taken for granted, and their leverage varied between firms and over time. Japanese claims to technical expertise varied in their potency depending upon the subsidiary’s specific role and evolution, and the related implications of British product and labour markets. Meanwhile, the persistence of problems of recruitment and retention in the Telford factories weakened the efficacy of British management claims. Thus an adequate theory of subsidiary operations cannot be based on an idealized account of the emergence of new hybrid production and employment regimes but must address the conflicts and uncertainties that commonly characterize subsidiary operations. Analyses of the micropolitics of hybridization must also address the varied structures, resources and power relations within which such fraught forms of organizational learning have developed. Our research documents a range of organizational networks and exchanges that could influence policy debates. These included circulating expatriate managers, problem-solving teams from Japan, local managers visiting Japanese parent factories, links with sister subsidiaries in other countries, discussions with other local Japanese firms, and comparisons with the practices of other firms operating in the UK. Thus Copy-co managers modified foolproofing ideas from Japan, but their reorganization of teamworking was influenced more by British models, while Part-co managers drew especially on consultative arrangements developed at their sister plant in the USA. Indeed, in our two major assembly plants the dominance of the Japanese parent firm and the presumed superiority of their production practices did not preclude lateral borrowing from sister plants or even, in the case of Copy-co, some modest reverse transfer of technical innovations. However, at Computer-co a central rationale of the take-over was ‘reverse learning’ by the parent company. Subsidiaries also varied in the extent of such networks and in the power relations that characterized them. Thus the larger subsidiaries could draw upon a more developed international management cadre, a

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wider range of sister plants and more sustained contacts with cluster firms. By comparison, the major influences on the smaller subsidiaries tended to be a limited number of parent or sister plants and pressures emanating from major customers, though this left managers at PCB-co with much less room for manoeuvre than those at Assembly-co. Even in the larger firms such networks also involved hierarchies of power, with headquarters as the dominant partner, sister subsidiaries as more equal partners/competitors, and other firms having potential influence more than direct leverage. At Part-co, and to a lesser extent at Copy-co, the parent company could call upon a cadre of committed expatriate managers who had experience of managing international operations. Both could encourage expatriate and local managers to draw upon recipes and comparisons across parent and sister plants in developing initiatives within specific workplaces, and both could use funding decisions and performance criteria to guide management priorities. Thus borrowing from sister plants and occasional reverse transfer took place within these parameters, though there was some scope for subsidiary managers to make a case for their own policy preferences. Except for a period at Computer-co, however, the efforts of subsidiary managers to widen the ‘charter’ of their plant (for example Copy-co sought to develop competences in design and development while PCB-co appealed for a broader product range) were not supported by headquarters. Processes of hybridization were not simply guided by top management imperatives, as they were also influenced by relatively intractable features of existing work and employment relations in the workplace and the local labour market. Nevertheless our case studies emphasize that the evolution of ‘hybrid’ policy repertoires within subsidiaries was strongly influenced by distinctive organizational networks and power relations, especially within the management structures of the parent firms. In this sense they support the argument that corporate organization is often a strong mediator of both home- and host-country effects (Ferner and Quintanilla, 1998), undermining any analysis of hybridization as the direct product of the interaction between such effects. Thus the notion of hybridization may represent a valuable starting point for developing a theoretical understanding of the operations of international subsidiaries, but key features of the dynamics of subsidiary operations risk being obscured by this metaphor. In particular, we need to recognize the contested and problematical character of emergent policy repertoires and to locate processes of management policy formation within varied and unequal networks of influence and corporate power relations.

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Branch-plants We draw upon this imagery to underline the importance of the specific roles played by the various factories within their parent firms and the importance of top corporate decision-making at critical junctures in both the expansion and closure of such plants. In line with the branchplant metaphor, we also argue that the efforts of national and local states to capture such manufacturing investment have often created clusters of routine assembly operations, characterized by low-skilled and low-paid jobs and relatively vulnerable to closure and relocation. However, our analyses have also shown that the roles of our case-study subsidiaries differ significantly in ways that are not easily accommodated within the branch-plant imagery. Indeed different subsidiaries of the same parent company may differ in their relation to that parent. This was evident in our research in PCB-co (which was untypical in being a subcontractor subsidiary of its parent company) and Computer-co (which was untypical in being designated as a product champion in an area of parent company weakness). One way to conceptualize such distinctive operations is in terms of the specific rationales or charters that informed their formation and the distinctive relationships that then developed between them and their headquarters, sister companies and customers (a theme also addressed by Pulignano and by Meardi and Tóth in this volume). For all of our firms the establishment of their operations was primarily an exercise in building market access, rather than delivering immediate profits to the parent company, and this framed initial relationships with corporate headquarters. To some extent this may reflect distinctively Japanese corporate calculations, but it nevertheless underlines the pertinence of varied logics of foreign investment across both countries and firms. Furthermore, the implications were interpreted differently in our different firms and over time, in ways which were related to the distinctive product markets and relationships with customers and competitors that each company and subsidiary faced. In this regard the concept of the production chain (Gereffi and Korzeniewicz, 1994) offers some illumination, as it highlights the salience of distinctions between final assemblers and various tiers of component suppliers, though it does not provide a full characterization of the relationships involved. The three larger companies each performed different roles within their parent firms. Computer-co was distinctive as it was intended to provide the parent company with a capability in the design and production of a specific product range where Japanese operations had earlier been unsuccessful. Copy-co was the final assembler of major

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lines for the European region in an oligopolistic market, where leasing of complex equipment enhanced scope for profitable sales of consumables, but local content continued to be an important consideration to facilitate market access. Meanwhile, Part-co was the key European regional supplier of a dominant Japanese first-tier components firm, supplying powerful and often demanding customers in the highly competitive motor sector. The remaining two factories were both smaller subcontractors, more vulnerable to pressures from both their customer firms and competitor suppliers. However, Assembly-co gained a degree of protection from its possession of an unexpired patent and its close relationship with one major customer, while PCB-co occupied the most precarious position as an outrider operation facing direct competition from east Asian factories. These varied features are not readily reduced to a simple continuum, but an understanding of the different ways in which inward-investing subsidiaries are located in these terms is essential to any broader theoretical understanding of the operations and employment relations within such workplaces. In particular, it is important to locate discussion of the performance criteria that regulate relationships between parents and subsidiaries in these terms. In two of our cases, Computer-co and PCB-co, the parent eventually closed the subsidiary, after each had operated for about ten years. In both cases the closure decision reflected wider pressures that encouraged corporate rationalization and changed the calculus that was applied to the performance of the subsidiary, rather than a distinct change in that performance itself. In other respects, however, the cases differed. At Computer-co there had been a long-term commitment to investment in a loss-making but innovative enterprise in the hope of developing a viable competitive presence in the PC market, albeit from a marginal and relatively vulnerable position. However, this commitment was curtailed by a wider crisis of corporate profitability, arising from changes in other segments of the parent firm’s operations, and it was this that precipitated closure. By contrast, at PCB-co an initial tolerance of poor financial performance was underpinned by the prospect of developing business with customers of the parent company, driven by demands for local content in their overseas operations. However, the relaxation of such regulatory requirements and changes in the sourcing policies of these customers undercut these prospects and exposed the factory more directly to competition from China. As a result the parent company imposed increasingly stringent performance targets which eventually precipitated closure. By comparison, the three remaining companies sustained ‘good enough’ production in the

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circumstances of their different corporate and commercial settings, though none did this on the basis of a high commitment, high performance workplace. In this context, subsidiary managers often sought to consolidate the position of ‘their’ factories both by seeking to extend the capabilities of the enterprise and bidding for new investment. While their scope for doing this was limited by the evolving character of wider corporate strategies, in each case they gained scope for further investments or new product lines, sufficient to sustain production at Copy-co and Assembly-co and to continue expansion at Part-co. As a result, the sunk costs invested in the larger assemblers became substantial, though this may not fully guarantee their longer-term performance and viability. A further aspect of the branch-plant imagery concerns the leverage that investment decisions offer management over workers. Here, however, our research exposes some of the problems as well as advantages of greenfield locations and deregulated labour markets for management. There were a variety of incentives for Japanese companies to locate in Telford, including new factory sites, good communications links and the presence of existing Japanese companies. But the most obvious attraction, emphasized by the local state, was a plentiful supply of relatively cheap labour for routine manufacturing work, while trade unions were relatively quiescent and themselves eager to encourage inward investment. These features promised to facilitate the construction of management’s preferred production and employment regimes, and the firms were able to retain favourable wage rates and avoid unionization throughout the 1990s. However, managers discovered that the regulation of labour remained more challenging than they had expected (Elger and Smith, 1998; 2005). Labour turnover was often substantial, workers were often sceptical about management strategies for worker involvement, and recruitment became difficult as the pace of inward investment and expansion led to a tighter labour market. In some respects these subsidiaries became locked into this pattern. The larger firms sought to sustain their position by actively collaborating in efforts to manage the local labour market, both by discouraging the movement of labour between firms and setting guidelines for wage and non-wage costs, while the smaller firms also had to operate within this framework. But such concertation constrained the options of individual subsidiaries, in terms of pay and to some extent personnel policies, without delivering workforce stability. For workers, the arrival of Japanese investors provided increasing job opportunities in an initially slack labour market. This was a particular

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attraction to older workers who had experienced redundancy from better paying jobs or those who had worked in more poorly paid service sector work, especially when accompanied by promises of enhanced job security. At the same time the demands of routine factory work coupled with modest wages fed employee grievances. In the absence of effective ‘voice’, ‘exit’ in search of modest improvements became a common response, especially for younger or more skilled workers who were relatively confident about gaining another job. Furthermore, threats of leaving also provided a basis for significant informal bargaining over work rates and working conditions in each of these workplaces. In these circumstances, selective management efforts to enhance worker involvement through quality circles tended to be experienced as superficial and inconsistent, while in the more stringent work regimes they were seen as a further imposition in the context of an already inequitable effort bargain. Managers in the larger firms could nurture greater commitment by offering opportunities to progress up internal job ladders, but the attractions of these aspects of employment were qualified by the work pressures involved (especially at Part-co) or by the perceived unfairness of criteria for progression (especially at Copy-co). Other personnel initiatives included increasing recruitment of older workers, bussing in employees and prioritizing attendance in bonus calculations. Such policies gave distinctive inflections to management–worker relations, but none overcame a primarily instrumental orientation among workers or fully stabilized the workforce. Thus there were real limits to management hegemony in these workplaces, notwithstanding the leverage afforded by greenfield investment and concertation between enterprises. Moves between firms, instrumental responses to management policies, and informal bargaining over the pace of work significantly constrained management power. Clearly, managers in the factories we studied were in key respects subordinate to the wider policies of senior management, but also possessed considerable power resources in managing their workforces. In these respects the branch-plant model represents an important corrective to characterizations of processes of transplantation or hybridization that abstract from such power relations. However, our case studies also suggest that the leverage of subsidiary management vis-à-vis headquarters varied significantly according to the specific role of the subsidiary within wider corporate strategies. Furthermore, even in favourable circumstances the regulation of labour and especially the mobilization of worker cooperation remained problematical. Thus a full

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analysis of subsidiary operations must overcome these limitations of the branch-plant model as well as developing the features we have highlighted in our critical engagement with the transplant and hybrid models.

Conclusion: system, society and dominance effects and subsidiary operations We wish to emphasize three key themes that emerge from our discussion of transplant, hybrid and branch-plant approaches to the operations of international subsidiaries. First, any discussion of the transmission of dominant home country recipes from parent to foreign subsidiaries, or of the development of hybrid policies which meld together home- and host-country influences, must give particular attention to the ways in which specific subsidiaries are positioned within the wider corporate strategies of their parent firms. Corporate ‘effects’ are important because ostensibly ‘national’ models and related claims to dominance are developed within specific sectors and firms, and are accorded more or less relevance for specific subsidiaries according to the particular roles that they expected to play within their parent companies. Corporate effects are also important because different firms are characterized by rather different networks of resources and power relations. In turn, these condition the activities of subsidiary managers and mediate the impact of a variety of home and host management repertoires. Furthermore, the role of sister plants highlights the potential salience of multiple home and host reference points. Of course, established ‘corporate effects’ are also challenged by systemic processes. New corporate strategies and policy repertoires developed by competitor firms, or in rival sectors or national economies, may undermine the existing strategies of parent firms, and this may indirectly increase the vulnerability of their subsidiary operations. There is a systemic tendency for corporate rivalry to problematize existing corporate repertoires and national business systems, even those with current claims to dominance. But it is important to recognize that such tendencies (exemplified in our research by the increasing location of competitor and sister subsidiaries in China) ramify through the global capitalist system in heavily mediated and uneven ways. Our second argument is that, wherever inward investors are located, the management of the labour process and the regulation of labour are likely to pose significant problems for management. Neither headquarters nor subsidiary managers are likely to discover the ideal location or the perfect supports for management hegemony. However, the specific

82 Multinationals, Institutions and the Construction of Transnational Practices

tensions and challenges that managers will confront will be strongly influenced by differentiated host country effects, involving specific institutional arrangements and class and gender compromises that characterize particular districts, regions or countries. As labour process theorists have persistently argued, the underlying intractability of labour may be regarded as a systemic feature of capitalist employment relations. But our research also documents the particular forms and limits of such intractability within a relatively open and supportive site for capital, a greenfield locality within the fragmented and contradictory British production regime (Almond and Rubery, 2000). It is plausible to argue that such localities are becoming more common internationally, as national states pursue policies of liberalization and flexibilization, and international companies gain more options for relocation of their production operations. In this sense, system dynamics involving both states and corporations are recasting and also weakening country effects, making it more likely that the challenges facing management will take the form of an increased volatility of labour and disorganized discontent, rather than organized challenges and compromises. At the same time, however, it should be recognized that the specific forms taken by greenfield sites and flexibilized local labour markets continue to vary substantially. Those in the interstices of leading capitalist economies (parts of the UK), those on the less developed periphery of core capitalist regions (say in Mexico or eastern Europe) and those in the export-processing zones of developing countries (say in Indonesia or South China) each have distinctive characteristics. These arise both from different positions in the development hierarchy and specific national features (such as the complex capitalist/state-socialist form in China). In this sense, country effects continue to play a significant role in constituting the terrain on which even the more mobile international subsidiaries may operate. Finally, our third argument is that the policy repertoires and management practices in specific subsidiaries necessarily develop through micropolitical processes of management debate, alliance and conflict and inevitably involve tacit but somewhat contested bargains with employees. Structures and contexts do not automatically determine outcomes in the enterprise or workplace. Social relations between managers and workers and among groups of workers and managers animate, articulate and interpret structural pressures and contextual conditions in novel and unanticipated ways. Such processes are clearly framed within wider parameters, of distinctive corporate structures, strategies and power relations, and also the local and national-institutional structuring of labour

Tony Elger and Chris Smith 83

markets. However, our empirical research suggests that these mediating processes absorb much of the energy and constitute much of the immediate experience of those who work at these subsidiaries. We also argue that these processes are often more complex than is recognized. They rarely involve a simple clash between, say, Japanese and British managers, and they often sustain patterns of conflict and cooperation between managers and workers that cannot simply be read off from broader relations of power and dependency. In our more detailed analysis (Elger and Smith, 2005), we have sought to capture these complexities of lived experience whilst locating them within an understanding of the wider structures and power relations discussed in this chapter.

References Abo, T. (1998) ‘Hybridization of the Japanese Production System in North America, Newly Industrializing Economies, South-east Asia and Europe: Contrasting Configurations’, in Boyer, R. et al. (eds), Between Imitation and Innovation: The Transfer and Hybridization of Production Models in the International Automobile Industry, Oxford: Oxford University Press, 216–30. Adler, P. S. (1999) ‘Hybridization: Human Resource Management at Two Toyota Transplants’, in Liker, J. K. et al. (eds), Remade in America: Transplanting and Transforming Japanese Management Systems, Oxford: Oxford University Press, 75–116. Almond, P. and Rubery, J. (2000) ‘Deregulation and Societal Systems’, in Maurice, M. and Sorge, A. (eds), Embedding Organizations: Societal Analysis of Actors, Organizations and Socio-Economic Context, Amsterdam: John Benjamins, 277–93. Amoore, L. (2002) ‘Work, Production and Social Relations: Repositioning the Firm in the International Political Economy’, in Harrod, J. and O’Brien, R. (eds), Global Unions? Theory and Strategies of Organised Labour in the Global Political Economy, London: Routledge, 29–48. Beechler, S., Bird, A. and Taylor, S. (1998) ‘Organisational Learning in Japanese MNCs: Four Affiliate Archetypes’, in Birkinshaw, J. and Hood, N. (eds) Multinational Corporate Evolution and Subsidiary Development, London: Macmillan, 333–66. Birkinshaw, J. and Hood, N. (1998) ‘Multinational Subsidiary Evolution: Capabilities and Charter Change in Foreign-Owned Companies’, Academy of Management Review, 23, 4: 773–95. Boyer, R. (1998) ‘Hybridization and Models of Production: Geography, History and Theory’, in Boyer, R. et al. (eds) Between Imitation and Innovation: The Transfer and Hybridization of Productive Models in the International Automobile Industry, Oxford: Oxford University Press, 23–56. Broad, G. (1994) ‘The Managerial Limits to Japanization’, Human Resource Management Journal, 4, 3: 41–61. Castree, N., Coe, N. M., Ward, K. and Samers, M. (2004) Spaces of Work: Global Capitalism and Geographies of Labour, London: Sage. Child, J. (1972) ‘Organisational Structure, Environment and Performance: the Role of Strategic Choice’, Sociology, 6, 1: 1–22.

84 Multinationals, Institutions and the Construction of Transnational Practices Dedoussis, V. (1994) ‘The Core Workforce–Peripheral Workforce Dichotomy and the Transfer of Japanese Management Practices’, in Campbell, N. and Burton, F. (eds), Japanese Multinationals: Strategies and Management in the Global Kaisha, London: Routledge, 186–217. Dicken, P. (1998) Global Shift: Transforming the World Economy, London: Paul Chapman. Edwards, P., Armstrong, P., Marginson, P. and Purcell, J. (1996) ‘Towards the Transnational Company? The Global Structure and Organisation of Multinational Firms’, in Crompton, R. et al. (eds) Changing Forms of Employment: Organisations, Skills and Gender, London: Routledge, 40–64. Elger, T. and Smith, C. (1998) ‘New Town, New Capital, New Workplace? The Employment Relations of Japanese Inward Investors in a West Midlands New Town’, Economy and Society, 27, 4: 578–608. Elger, T. and Smith, C. (2005) Assembling Work: Remaking Factory Regimes in Japanese Multinational Companies in Britain, Oxford: Oxford University Press. Ferner, A., Almond, P. and Colling, T. (2005) ‘Institutional Theory and the Cross-National Transfer of Employment Policy: The Case of “Workforce Diversity” in US Multinationals’, Journal of International Business Studies, 36, 3: 304–21. Ferner, A. and Quintanilla, J. (1998) ‘Multinationals, National Business Systems and HRM: the Enduring Influence of National Identity or the Process of “Anglo-Saxonisation”’, International Journal of Human Resource Management, 9, 4: 710–31. Fruin, M. (1999) ‘Site-specific Organization Learning in International Technology Transfer’, in Liker, J. K. et al. (eds), Remade in America: Transplanting and Transforming Japanese Management Systems, Oxford: Oxford University Press, 232–55. Gereffi, G. and Korzeniewicz, M. (eds) (1994) Commodity Chains and Global Capitalism, Westport, CT.: Praeger. Henderson, J. (1989) The Globalisation of High Technology Production, London: Routledge. Hudson, R. (1989) ‘Labour-Market Changes and New Forms of Work in Old Industrial Regions’, Environment and Planning D: Society and Space, 7: 5–30. Kenney, M. and Florida, R. (1993) Beyond Mass Production: the Japanese System and its Transfer to the US, Oxford: Oxford University Press. Kenney, M., Goe, W. R., Contreras, O., Romero, J. and Bustos, M. (1998) ‘Learning Factories or Reproduction Factories? Labor-Management Relations in the Japanese Consumer Electronics Maquiladoras in Mexico’, Work and Occupations, 25, 3: 269–304. Liker, J. K., Fruin, W. M. and Adler, P. S. (1999) ‘Bringing Japanese Management to the United States: Transplantation or Transformation?’, in Liker, J. K. et al. (eds) Remade in America: Transplanting and Transforming Japanese Management Systems, Oxford: Oxford University Press, 3–35. Milkman, R. (1991) Japan’s California Factories: Labor Relations and Economic Globalisation, Los Angeles: Institute of Industrial Relations, University of California. Oliver, N. and Wilkinson, B. (1992) The Japanization of British Industry: New Developments in the 1990s, Oxford: Blackwell.

Tony Elger and Chris Smith 85 Smith, C. (2005) ‘Beyond Convergence and Divergence: Explaining Variations in Organisational Practices and Forms’, in Ackroyd, S. et al. (eds.) Oxford Handbook of Work and Organisation, Oxford: Oxford University Press, 602–25. Smith, C. and Elger, T. (2000) ‘The Societal Effects School and Transnational Transfer: The Case of Japanese Investment in Britain’, in Maurice, M. and Sorge, A. (eds), Embedding Organizations: Societal Analysis of Actors, Organizations and Socio-Economic Context, Amsterdam: John Benjamins, 225–39. Smith, C. and Meiksins, P. (1995) ‘System, Society and Dominance Effects in Cross-National Organisational Analysis’, Work, Employment and Society, 9, 2: 241–68. Womack, J. D., Jones, P. T. and Roos, D. (1990) The Machine That Changed the World: The Triumph of Lean Production, New York: Rawson Associates.

4 Accommodating Global Capitalism? State Policy and Industrial Relations in American MNCs in Ireland1 Patrick Gunnigle, David G. Collings and Michael J. Morley

Introduction The impact of multinational corporations (MNCs) on host country industrial relations (IR) has long been a source of academic debate (cf. Bomers and Peterson, 1977). In evaluating the impact of MNCs, Gennard and Steuer (1971: 144) argued that it is ‘the foreignness of subsidiary behaviour which matters’, while, more recently, Ferner and Quintanilla (2002: 245) suggest that their key influence is that they ‘act as agents of change by introducing innovations into their subsidiaries and thence into the host business system’. It is this latter influence with which this chapter is concerned. The chapter examines the IR approaches of US-owned MNC subsidiaries in Ireland. Using case study data from five US MNCs located there, we primarily concern ourselves with subsidiary practice on trade union recognition and avoidance. We review the evolution of subsidiary IR policy and practice against the backdrop of a changing official context for foreign direct investment (FDI) in Ireland. Our main objective is to examine the interaction between the agendas of MNCs and of the Irish host country authorities and to review some of the implications for IR policy and practice. Beyond some survey data, relatively few insights are available on the nature and development of IR in MNCs in Ireland. Our five cases generate some important findings on the evolution of IR policy and practice over time in subsidiaries of US MNCs in Ireland, and allow us to speculate on the impact of FDI on Irish public policy in this key area.

Foreign direct investment (FDI) and industrial relations MNCs have become key players in the global economy. While one typically associates the term MNC with global corporations such as 86

Patrick Gunnigle, David G. Collings and Michael J. Morley 87

McDonald’s or Sony, there are also large numbers of smaller privately owned firms that operate across national boundaries. In total, MNCs exert a huge economic and political influence. UNCTAD (2004) data indicate that total global inflows of FDI in 2003 amounted to $560bn, driven by some 61,000 MNCs and their 900,000 foreign affiliates. Ireland is one of Europe’s most FDI-dependent economies, and the country has continued to attract significant investment despite a recent global downturn in FDI (cf. UNCTAD, 2004; Collings et al., 2005). It was the largest net recipient of FDI in the OECD over the period 1993–2003, recording a cumulative balance of inflows over outflows of $71bn, making it the world’s eleventh largest recipient of FDI (ibid.). It has been estimated that MNCs in Ireland contribute well over 50 per cent of manufactured output and some 70 per cent of industrial exports (Tansey, 1998; O’Higgins, 2002). Furthermore, over 49 per cent of employment in manufacturing is accounted for by those employed in affiliates under foreign control (OECD, 2005). A 2002 study identified Ireland as the world’s most globalized economy, placing it ahead of other highly globalized countries such as Singapore (cf. Kearney, 2002). The US is by far Ireland’s largest source of FDI. OECD data indicate that US FDI in Ireland increased by a factor of five over the period 1990–1998, while the Economist (1997) found that FDI stock from US firms amounted to $3000 per head in Ireland, compared to $2000 in Britain, $500 in Germany and $200 in Spain. The great bulk of this investment is located in a small number of export-oriented high technology sectors, notably electronics, pharmaceuticals and healthcare, software, and internationally traded services. The significance of FDI in Ireland is the result of a longstanding and consistent public policy of providing preferential incentives to MNCs to locate in the country, dating from the late 1950s (cf. Gunnigle et al., 2005) (see Table 4.1). This policy stance has given rise to a generous Table 4.1

MNCs in Ireland by ownership (number of firms), 2004 2004

US Germany UK Rest of Europe Asia-Pacific Rest of the World Total Source: IDA Ireland, 2004.

478 (46.7%) 140 (13.7%) 116 (11.4%) 209 (20.5%) 46 (4.5%) 33 (3.2%) 1022

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incentive package to encourage FDI, the most important element of which is a low level of tax on corporate profits (cf. Gunnigle and McGuire, 2001). Given this background of a high level of dependence on FDI, especially US FDI, it is instructive to examine how American MNCs have impacted on IR in Ireland over time. Ireland presents an interesting and somewhat distinctive host country context for examining the influence of US MNCs. In particular, the Irish IR context contrasts with the US in a number of regards. The most obvious manifestations of divergence include: the widely accepted legitimacy and considerable influence of trade unions in society and the absence of a strong antiunion ideology or agenda among any of the major political parties; the high levels of centralization in collective bargaining, involving the negotiation of a succession of economic and social accords between government, employers and trade unions; and the substantially higher levels of union density and recognition (cf. Roche, 1992; 1997; Gunnigle et al., 2002). Over the past three decades, Irish governments of all political hues have been strong advocates of national level accords on pay and other aspects of economic and social policy, involving negotiations between the ‘social partners’. Such agreements have ensured that organized labour has played a prominent role in public policy determination. This clearly contrasts with the US experience, in which there has often been a hostile socio-economic and political climate for organized labour, particularly under Republican-led administrations. Since 1987 Ireland has had a series of centrally negotiated agreements, the most recent being Sustaining Progress (2003–2005). Centralized bargaining also operated during the 1970s with a brief return to enterprise level bargaining in the period 1982–1987. It should be noted that – again in contrast to the US – the Irish system of collective bargaining is grounded in voluntary principles, relying on the moral commitment of the participants to implement agreements achieved through the bargaining process; there is no legal requirement on employers or trade unions to adhere to the terms agreed. In international comparison, Ireland has reasonably high, if falling, levels of trade union density. The most recent figures suggest that in 2004 employment density in Ireland was just over 35 per cent, a figure considerably higher than in the US, where density was 13.4 per cent in 2001, down from 20 per cent in the early 1980s. In explaining the relative lack – in comparison to the UK – of ideological divisions on the role of trade unions among Ireland’s main political

Patrick Gunnigle, David G. Collings and Michael J. Morley 89

parties, commentators point to the absence of clear class-based distinctions between the major parties (cf. Roche, 1997). Thus Irish trade unions have generally operated in a much more benign political context and have not been exposed to the dramatic oscillations that have characterized Britain (or indeed the US) over recent decades (cf. Roche and Turner, 1994). Indeed, Roche and Ashmore (2002) concluded that ‘Irish unions occupy a pivotal role in Irish economic and political governance’.

Case studies of US MNC subsidiaries in Ireland This chapter draws on data gathered from five detailed studies of IR and HRM in Irish subsidiaries of US MNCs. Summary information on these is provided in Box 4.1. Case study data were generated largely through indepth interviews with company personnel at subsidiary level and with trade union officials, while additional information was garnered from company documentation, web sources and observation. Interviews were conducted with all the top management team in each subsidiary and

Box 4.1

The case study firms

Pharmaco is one of the world’s top pharmaceutical firms, featuring high on the Fortune 500 list. It was established in the nineteenth century and expanded abroad in the 1950s. It currently boasts global employment levels of 120,000 and annual revenues in the region of US$50bn. Its first Irish operation was established in the 1960s and it now employs 1800 people in Ireland at a number of sites. Historically, Ireland has been very significant within the worldwide portfolio because it was a primary location for the production of a number of the corporation’s best selling products. Healthco manufactures pharmaceutical, medical and diagnostic products. It was established in the late nineteenth century and first expanded abroad in the late 1930s. It has global revenues of US$16bn and employs some 70,000 people worldwide. Having had a small sales presence in Ireland since the 1940s, it opened its first Irish manufacturing operation in the mid1970s. It currently employs some 2000 people at a number of Irish sites. In the recent past Healthco has expanded its Irish investments significantly. ITco was incorporated in the early 1900s and is by some way the largest of the companies studied in terms of revenue and employment levels globally. It is a longstanding Fortune 500 corporation in the information and communications technology (ICT) sector. While it had a sales presence from the 1950s, ITco’s Irish operations remained quite small up to the mid-1990s. It then established an international technical support and customer service centre and, soon after, a ‘technology facility’. Total employment in Ireland is currently in the region of 3700 spread across a number of sites.

90 Multinationals, Institutions and the Construction of Transnational Practices

Box 4.1

The case study firms – continued

Logistico was founded in the early twentieth century and is one of the world’s leading distribution and transport corporations. It currently operates in 200 countries, employing over 370,000 workers and boasting global revenues of some US$30bn. Logistico has three primary operations in Ireland: distribution, a large call centre, and a financial services centre. Its first Irish operation was established in the early 1990s, with the other centres opening in the mid- and late1990s respectively. Total Irish employment amounts to some 1000 people. Compuco was established in the early 1980s, boasts global revenues in excess of US$40bn and employs approximately 53,000 people worldwide. It manufactures and sells computer hardware. It established its first European manufacturing operation in Ireland in the early 1990s and currently has four Irish sites, employing some 3300 people.

with a cross section of middle and front line managers and team leaders, lower-ranking employees, employee representatives (shop stewards) and full-time trade union officials. In total, 63 interviews were conducted. Each interview was conducted by a minimum of two interviewers. Interviewees were briefed in advance regarding the research agenda. With regards to IR, our objective was to evaluate the evolution of policies in American MNCs in Ireland over time, within the dynamic of a changing national context for FDI. Although the study is limited to subsidiarylevel perspectives, we are confident that the broad range of people we spoke with has provided us with a rounded and balanced perspective on subsidiary-level IR. Moreover, for one of the companies, ITco, our findings were triangulated by data from interviews at corporate HQ level conducted by colleagues in the international research project of which the Irish study was a part; for a second company, Logistico, a broader perspective was provided by interview data from the European regional level. Our main findings are outlined below.

Contrasting strategies on trade union recognition and avoidance A well established characteristic of the IR approach of US firms is antipathy towards trade unions, a clear preference for union avoidance and so called ‘individualized’ management–employee relations (cf. Foulkes, 1980; Kochan et al., 1986). However, our findings on trade union recognition reflect contrasting approaches among our case firms. Table 4.2 summarizes the key characteristics of IR in the case firms and how they developed over time.

Patrick Gunnigle, David G. Collings and Michael J. Morley 91 Table 4.2

Industrial relations in case study companies over time

Pseudonym/ Period of establishment in Ireland

IR approach in US

IR approach on establishment in Ireland

Current IR approach in Ireland

Compuco 1990s

Strongly anti-union Non-union – Tradition of union union suppression suppression primarily increasingly tempered by union substitution (improved pay and benefits, employee development and communications)

Healthco 1940s (manufacturing in 1970s)

Strong non-union Union recognition Union avoidance in preference, welfare and collective all new sites. Union capitalist traditions bargaining substitution

ITco 1950s (manufacturing and call centres in 1990s)

Welfare capitalist non-union

Logistico 1990s

Strong trade union Non-union but organization subsequently conceded ‘limited recognition’ in two sites

Pharmaco 1960s

Strong non-union Union recognition Union avoidance in preference, welfare and collective newest site. Recent capitalist traditions bargaining moves to restrict union influence, and row back on tradition of conceding ‘above the norm’ pay deals

Non-union – Strong resistance union substitution to unions via primarily union substitution including policy of not recognizing ‘collective representation’ and providing competitive pay and working conditions Union avoidance where possible but pragmatic accommodation of ‘limited’ trade union representation (on ‘individual issues’).

92 Multinationals, Institutions and the Construction of Transnational Practices

Ab Initio union avoidance in ITco, Compuco and Logistico Firstly, we found that our ICT firms, ITco and Compuco, were staunchly non-union, a finding consistent with the Irish and international literature (cf. Jacoby, 1997; Gunnigle et al., 2002). All their Irish sites were established on a non-union basis and remain so to the present day. However, the policies and practices used to establish and sustain this approach differed. While ITco pursued a broadly welfare capitalist strategy, characterized by engaging the commitment of employees through high levels of material benefits, the provision of long-term employment opportunities for core groups of employees, and the development of a strong corporate culture (cf. Jacoby, 1997), Compuco initially employed a union suppression approach (cf. Dundon, 2002). While over time Compuco’s approach was tempered by the deployment of certain HR initiatives, such as improvements in pay and working conditions, a greater emphasis on two-way communications and enhanced investment in employee development, the basic tenets of union suppression remain. Compuco’s direct relationship with its customers was central to its highly individualist management philosophy. Compuco did not recognize trade unions in any of its worldwide operations including Ireland. Union avoidance was taken very seriously by management: the company rhetoric linked non-union status and its direct relationship with both customers and employees as essential for the continued growth of the company: The major American influence would have definitely been nonunion. It would have been made known [to local management at set up] that this was a non-union organization. We do not want to get involved in the union situation full stop….it would have been put fairly clearly that if that does happen that could be the downfall of the company [in Ireland]. (HR Manager, Compuco) A senior line manager further suggested that any employees identified with union organizing would not survive within the company: I think that whoever tried to introduce a union into [Compuco] would find themselves out the door so fast…it would not be tolerated. Given that ITco was widely seen as a modern exemplar of welfare capitalism, it is hardly surprising that all its Irish operations were non-union. All the interviewees emphasized ITco Ireland’s explicit

Patrick Gunnigle, David G. Collings and Michael J. Morley 93

preference to remain non-union and consistently reiterated the policies it employed to achieve this end, most notably various steps to elicit high levels of employee commitment. In this regard, the areas mentioned included: the pay and benefits package, which was pitched at levels to ensure ITco attracted high quality personnel; its training and development system; attractive work environment, social and sports infrastructure and welfare provision; and finally, its claimed ‘proactive’ approach to handling employee relations issues (grievances, etc.). All interviewees were explicitly asked how both individual and collective grievances were handled. There was a remarkable level of consistency in the responses received. Every person we spoke with was aware that ITco had a corporate policy of trade union avoidance. Furthermore, all consistently observed that ITco did not acknowledge ‘collective groups’. It was also stated that where a grievance or issue of collective dispute arose, the ITco approach was to deal with this on an individual basis. Even where the dispute clearly affected a group, the approach was to deal with each employee in the group individually and to attempt to resolve the issue on this basis. Our findings suggest a remarkably standardized approach across ITco’s Irish operations, characterized by an overriding desire to remain non-union and avoid collective bargaining: If anything [a collective issue or dispute] was raised with us, we would obviously register that issue but we would deal with that on a one-on-one basis. We wouldn’t have everybody into a room. Each issue is treated on an individual basis. (HR Officer, ITco) Although ITco Ireland did have certain unionized groups on site from time to time (e.g. ‘contracted in’ teams), it was repeatedly stated that the company pursued a ‘system of management’ which was based on a relationship between the manager and the individual employee as an alternative to union recognition and collective bargaining. The reasons given by management for this approach largely relate to the nature of the ICT sector, particularly the need for high levels of flexibility in responding to changes in their competitive environment. It was stated that this approach was ‘quicker’ and more flexible than collective bargaining. Like ITco and Compuco, Logistico initially established all its new Irish operations on a non-union basis. Unlike the former companies, however, the pursuit of a union avoidance strategy in Ireland

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deviated from established practice in its US operations which had traditionally been, and remained, highly unionized. Likewise, the company had a tradition of union recognition in other European operations, most notably in Germany. In evaluating the decision to locate two large back-office service operations in Ireland, senior management interviewees indicated that the option to go non-union was an important factor. The desire to keep unions out of the Irish operation seems to have originated primarily at corporate HQ, although regional HQ also had considerable input. In particular, the company’s experience in dealing with trade unions and works councils in Germany appears to have been influential in the decision regarding the Irish operation. The call centre leader noted that one of the primary reasons for establishing the facility in Ireland was to avoid the difficulties created by unions in managing the German operation. Likewise, the HR manager reiterated the desire of senior regional and corporate management to keep the unions at bay: It would be strongly held at corporate and region level that they do not want these two sites to become unionized…. I mean any hint of union activity and I get phone calls from… the Europe region staff management about what’s going on. (HR Manager, Logistico)

Ab initio union engagement in Pharmaco and Healthco Following a different tack, both Pharmaco and Healthco recognized unions representing manual and craft categories, and engaged in collective bargaining in all their early plants. Pay and other major IR issues in these facilities were thus handled via collective bargaining. Both companies concluded so-called ‘pre-production’ union recognition agreements at start-up stage. These agreements allowed new firms to prescribe which unions they wished to deal with. They operated on the basis of post-entry closed shop arrangements whereby workers were required to become and remain members of the union representing their particular occupational category while in the firm’s employment (cf. Kelly and Brannick, 1985; Enderwick, 1985; Fennell and Lynch, 1993). The decision to recognize trade unions and engage in collective bargaining clearly sought to align IR practice with practice among other inward-investing MNCs of the period. However, the decision represented a departure from practice in the home country where both firms were considered ‘solidly non-union’ (cf. Gunnigle et al., 2005).

Patrick Gunnigle, David G. Collings and Michael J. Morley 95

The decision of both companies to opt for union recognition was based on the advice of key Irish institutions dealing with inward-investing MNCs. In particular, Ireland’s major industrial promotions agency of the time, the Industrial Development Agency (IDA, now known as IDA Ireland) strongly supported this approach. The main employer association, the Federated Union of Employers (FUE), reflecting the conventional wisdom among local HR practitioners of the period, also keenly favoured it. Another important factor influencing the decision was the widely publicized but failed attempt of the American firm EI Ltd, to operate on a non-union basis (cf. McGovern, 1989): When [Pharmaco] … first came to Ireland in the late 1960s they would have done an assessment about whether to go union or nonunion, but the climate at the time in Ireland was very much union. (Head of HR, Pharmaco)

Changing contexts and emerging possibilities Of the five firms studied, Compuco and ITco have been the most consistent regarding their stance on union recognition, remaining staunchly non-union. Management respondents in both firms noted the emphasis placed by HQ on retaining non-union status in Ireland. In contrast, Logistico was unable to sustain its non-union status, despite having established all its Irish operations on a non-union basis and senior management’s assertions that this had been one of the attractions of locating in Ireland. Confronted by a determined union organizing drive, the company eventually conceded what it claimed was a ‘limited form’ of union recognition. In essence, the company accepted the union’s right to represent members on ‘individual issues’, but not in regard to collective issues. It would appear that Logistico’s approach to trade unions was essentially pragmatic. Faced with the fact that a substantial number of its employees in two of its operations had joined a union, it soon acquiesced and engaged with the union on a ‘limited’ basis: We are doing OK. They provide check-off at source [of union dues] and they give us a room for union business. We are also beginning to get workers into membership in the call centre. They are beginning to like us. They have let us address workers. We seem a better option to them… the other choice was X [widely perceived as a more militant union]. They [the company] are smart and you can do business with them. (Union official, Logistico)

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However, both our ab initio heavily unionized firms, Pharmaco and Healthco, had gone in the opposite direction, opting for non-union status in their newer sites. This was most evident in Healthco: all its new plants opened from the early 1990s were non-union. Pharmaco also established its newest plant on a non-union basis. The parallel use of union recognition and avoidance in sister plants, generally termed ‘double-breasting’, represents quite a departure in the context of Irish IR (cf. Beaumont and Harris, 1992). In addition to providing evidence of a progressive trend of increased union avoidance among new MNCs in Ireland (cf. Gunnigle, 1995), the widespread deployment of ‘double-breasting’ among long-established MNCs presents great challenges to unions, particularly given the recent industrial policy focus on encouraging existing MNCs to deepen their roots in Ireland. We explored the reasons why both these long-established US firms had chosen to opt for non-union status in their new sites. Management explanations firstly emphasized the contention that becoming non-union increased operational flexibility: managers claimed that it made it easier to progress change in areas such as work practices, scheduling tasks, etc. Secondly, management respondents stated that there was little demand for unionization, arguing that the new sites employed young, well-educated workers who were not predisposed to seek union membership. Finally, they emphasized their belief that they would not encounter any great opposition should they choose to move to a non-union approach. Our discussions with the management team further indicated that while local management helped lead the decision, it was one they knew would be well received at corporate headquarters. It would thus appear that, unlike the situation three decades earlier, the viewpoints of local and corporate management were now in unison: I think it [union avoidance] is coming from the States but it is also a new breed of management that’s online [in Ireland]….the problem today is that there are so many companies [Pharmaco sites] ….and they are all jockeying for position. [Management’s] attitude is we will drive as much as we can and we won’t talk to unions … (Union official, Pharmaco) More generally, the change in the stance of Ireland’s industrial promotions agencies has undoubtedly contributed to increased union avoidance. Since the 1980s these agencies have adopted a position that

Patrick Gunnigle, David G. Collings and Michael J. Morley 97

is less favourable to union recognition, indicating to inward-investing firms that they have the freedom to opt for non-union status should they so wish: The IDA never tell us about new companies anymore…. I think the IDA change is related to broader government change… instigated by the PDs [Progressive Democrats2]. IBEC [Irish Business and Employers Confederation] will not talk to us unless there is a problem they want us to solve. (Union official, Pharmaco)

Discussion In Ireland, the issue of public policy with regards to union recognition and avoidance is an area of intense current debate. This is largely a result of the progressive fall in union density. The most recent employment density figure in Ireland, of 35 per cent in 2004 (Quarterly National Household Survey), represents a fall of 27 percentage points since 1980 when employment density in Ireland reached its high water mark of 62 per cent. It is all the more noteworthy given that this decline has occurred during a period when IR in Ireland has been dominated by national-level ‘partnership agreements’ negotiated principally by government, employers and trade unions. While a number of factors, many of which apply internationally, have been used to explain this decline, we find broad consensus that FDI has played a key role. For example, a survey of ‘greenfield’ firms in the manufacturing and internationally traded services sectors found a high incidence of union avoidance – 65 per cent of firms were non-union – especially amongst US MNCs in the ICT sector (cf. Gunnigle et al., 2002). Looking at our case evidence, we see a pattern of union avoidance in four of the five case firms. Compuco and ITco began and remained nonunion, while both the traditionally heavily unionized firms, Healthco and Pharmaco, opted for a non-union strategy in their new sites. This leaves Logistico as the only company where union penetration increased over its time in Ireland; even in this case, union recognition was limited and did not extend to full collective bargaining. In attempting to explain these findings we can point to a number of factors. In particular, the changing political context and has progressively shifted from being comparatively prescriptive with regards to the IR approaches expected from inward-investing MNCs to one which allows such firms immense scope to pursue their preferred IR approach.

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Thus the issue of ‘periodization’ emerges as a key factor. We now consider how differing ‘waves’ of US FDI have pursued differing IR arrangements legitimated by the priorities of the system and the state.

Conformity with codification: 1960s and 1970s Numerous commentators have noted Ireland’s long track record in competing aggressively for FDI. Having pursued a protectionist approach to industrial development for much of the period since independence, Ireland reversed this policy stance in the late 1950s. With the objective of accelerating industrialization and economic growth, the government of the day initiated an open economy model designed to attract FDI through an incentive package including grants and subsidies, and a preferential corporate tax regime. This approach met with considerable success and the 1960s saw a surge in FDI, primarily in high volume, low cost manufacturing. Studies of IR in this period indicate a picture of conformity with what were then seen as pluralist IR traditions. For example, studies by Kelly and Brannick (1985) and Enderwick (1985) found no evidence that MNC subsidiaries in Ireland were distinguished by their reluctance to recognize unions. This work formed the basis for the ‘convergence thesis’ which posited that the IR policies and approach of MNC subsidiaries in Ireland conformed with host country practice, then characterized by union recognition (among larger firms) and collective bargaining. Our evidence is very much in line with this position. Both Pharmaco and Healthco, the only case study firms to have established significant manufacturing facilities in Ireland during the 1960s and 1970s, recognized unions representing manual and craft categories. 3 Subsequently, pay and other major IR issues were handled through plant-level collective bargaining with each of these unions. As noted earlier, the practice of entering into ‘preproduction’ recognition agreements at start-up was a standard characteristic among inward-investing MNCs during the 1960s and 1970s. While this approach ensured that MNCs conformed to host country traditions in regard to union recognition, it also differed in certain respects from IR practice in the indigenous sector. The major difference was in the extent of codification. Pre-production agreements in the MNC sector generally prescribed which unions were to be recognized, each union’s rights and responsibilities, and the issues subject to collective bargaining and management prerogative respectively. In contrast, IR in the indigenous sector was largely characterized by custom and practice, with little or limited

Patrick Gunnigle, David G. Collings and Michael J. Morley 99

codification. On the one hand, we can trace the preference for codification to home country traditions. In particular, US firms would have been more familiar with detailed written legally enforceable agreements – a stark contrast to the Irish tradition of minimal documentation and voluntary agreements. However, Irish public bodies in the field, and certainly the local IR practitioner community, would also have been conscious of the difficulties of multiunionism. Pre-production agreements were seen as a means of avoiding this by allowing MNCs to specify which trade union(s) they would recognize for bargaining purposes. Thus, while this approach is widely acknowledged as representing convergence with host country practice, it also entailed particular and important innovations, some of which became commonplace over time. A final factor influencing the decision of inward-investing MNCs to recognise trade unions during this period was the attempt by a large US subsidiary, EI Ltd, a subsidiary of General Electric, to operate on a nonunion basis in the 1960s (cf. McGovern, 1989; Brady et al., 2002). The company’s failure to do so was largely attributable to a prolonged strike but also to a broad political consensus supporting the principle of union recognition for the workers involved. In government debates on this issue, the then minister for transport and power stated that ‘the Industrial Development Authority in America and in Dublin and the Shannon Free Airport Development Company at Shannon recommend new firms to engage in trade union relations’ (Dáil Éireann, 1968), while the Commission of Inquiry Report (1969) on this dispute concluded that ‘incoming companies should recognize the industrial relations of this country and the inevitability of union recognition’ (McGovern, 1989: 63).

The ‘US greenfield’ factor: union avoidance in the 1980s As mentioned earlier, much of the FDI during the 1960s and 1970s focused on high volume production operations. However, the turn of the 1980s saw an increase in investment by companies from the ICT sector. Many of these were of US origin and had a non-union background. As Wallace (2003) notes, union avoidance in Ireland followed much the same pattern as identified in America by Kochan and his colleagues (1986) some years earlier. Here, the vanguard comprised a small number of American ICT companies, notably Digital, Wang and Amdahl which set up new greenfield facilities. These firms generally operated on a union substitution premise, based on good pay and benefits. This, combined with the prevailing high levels of unemployment, made

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union recruitment drives in such firms problematic. The demonstration effect of these early non-union firms, together with the decision of key MNCs, particularly Intel and later Motorola and Hewlett Packard, to go non-union did much to legitimize this approach and encourage its uptake among other new MNCs. Over the decade, union avoidance grew increasingly common, eventually becoming the typical pattern for new FDI. Thus the decision of ITco, Logistico and Compuco to go non-union at their new Irish facilities was very much in conformity with prevailing norms. The fact that Compuco largely followed a union suppression as opposed to a union substitution strategy initially highlights the confidence that had developed among US MNCs in their capacity to sustain non-union status (cf. Gunnigle, 1995).

Double-breasting in the 1990s: a new orthodoxy? For some time, the conventional wisdom was that union recognition in the Irish private sector presented a dichotomous picture in which union penetration and collective bargaining was widespread in larger indigenous manufacturing and within the older FDI sector, while union avoidance and more individualized employment relations were prevalent among newer MNC subsidiaries. Our findings suggest otherwise. The fact that both Healthco and Pharmaco chose to operate their newer facilities on a non-union basis indicates that union avoidance has taken root and is expanding even among MNCs which have long dealt with unions and engaged in collective bargaining. Even the Logistico case, where the company conceded a limited level of trade union penetration in some locations, is also an example of ‘double-breasting’. The senior union official indicated it was ‘unlikely’ that the union would gain a foothold in one of Logistico’s main Irish sites, indicating that double-breasting, rather than complete firm-level recognition, would be the most likely scenario in Logistico in the future. It would appear that the pattern of union avoidance which began in a small number of US subsidiaries in the 1980s has now become widely embedded in the MNC sector, to the extent that it greatly threatens union presence in this very significant area of the Irish private sector. Analysis of data on union recognition in new and expanding firms published in Ireland’s premier IR periodical, Industrial Relations News, underpins this conclusion. Table 4.3 presents comparative data over two periods, 1994–1995 and 2001–2003. This confirms that union avoidance had become the prevailing norm among new FDI by the mid-1990s and remains so. However, by far the most important change has been in relation to expanding firms: while just under half these opted for non-union status in the mid-1990s, over eight in ten had chosen this approach by 2001–2003.

Patrick Gunnigle, David G. Collings and Michael J. Morley 101 Table 4.3 Foreign direct investment and trade union recognition, 1994–1995 and 2001–2003

New firms Yes 1994–1995 (n = 50) 2001–2003 (n = 39)

2 (6%) 1 (6%)

Trade union recognition Expanding firms No Yes No 30 (94%) 16 (94%)

10 (56%) 4 (18%)

8 (44%) 18 (82%)

Source: Industrial Relations News (1996, 2004, 2005).

In assessing the import of this pattern, it is useful to consider recent developments in Irish public policy on FDI. We saw earlier how Ireland embarked on a policy of ‘industrialization by invitation’ from the 1960s and how many of the MNCs attracted in this period focused on high-volume assembly, attracted by Ireland’s low labour costs and government incentives. While Ireland benefited disproportionately from the FDI surge in the 1990s, we have concurrently witnessed a progressive trend of MNC closures and scaling back of operations, largely due to increased labour and other operational costs in Ireland. This prospect was not unanticipated. For some years Ireland’s industrial promotion agencies had forecast that Ireland’s ability to attract FDI would recede and they instigated important changes in the country’s overall strategy towards MNCs. The most important decision was to ‘re-balance’: essentially, they sought to reduce their focus on attracting new greenfield investment and increase the emphasis on retaining existing MNCs and facilitating their growth, ideally into higher-order activities. Recent expansions by companies such as Intel and Wyeth, companies with longstanding Irish operations, suggest that this policy change has met with some success. However, our data also indicate that such new facilities will most probably operate on a non-union basis, further hastening the fall in union penetration on the Irish private sector.

The primacy of US FDI and the consequences for IR This chronological review highlights the evolution in key IR aspects of the Irish business system. It notes some significant changes that have occurred primarily, we would argue, as a result of the need to attract and retain foreign capital. This is particularly evident in the changing strategies of Ireland’s industrial promotion agencies. We saw earlier that during the 1960s and 1970s, these agencies encouraged collective bargaining among new FDI, largely by arranging introductions to union representatives and advising firms to conclude pre-production

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recognition agreements. However, in the early 1980s, these agencies adopted a more equivocal stance, refraining from taking an overt position on union recognition and thus allowing incoming MNCs the freedom to make their own choices in this regard. Undoubtedly, the fact that Irish industrial policy had begun to focus on attracting US MNCs in the ICT sector, almost all of which were non-union, helps explain this shift. If Ireland was to compete effectively for this type of FDI, it had to present an accommodating host environment. The quote below from a senior Irish industrial promotion executive who was instrumental in securing two of the largest ICT investments in Ireland by US MNCs reflects the position.4 Talking about the success in attracting the larger of these two firms, he stated: ….union recognition would be a major deterrent … If US companies saw a union environment, many would not come. Company X was a crucial development in this respect. There was concern about Ireland as a location for such a large high-tech facility. Would they be a major target for a large number of workers to join trade unions? It was difficult for us to deal with this concern. A focus group approach was put in place whereby company representatives could talk to young school leavers. The Company X people really pushed these young people on how they would process grievances, what if your supervisor won’t listen, what if the HR people won’t listen. They were looking for the union issue to emerge but it just wouldn’t. Finally, they said ‘would you go to a union?’…and the answer was ‘no, they would most likely leave the company’. The Company X staff were blown away by these young people, their confidence and attitudes. This was the last barrier we had to overcome and the focus groups did it. The fall in union penetration at enterprise level has not gone unchallenged by the labour movement. Amid increasing union concern, a ‘High-Level Group’ was established in 1997 under the prevailing national accord (Partnership 2000) to examine the issue of trade union recognition. Comprising representatives of government, the Irish Congress of Trade Unions (ICTU), IBEC, and IDA Ireland, it recommended the use of voluntary rather than mandatory procedures to deal with recognition disputes. However, its publication in 1998 coincided with a major dispute at Ryanair, which refused to recognize a union representing some of its workers in Dublin Airport. The union side rejected the report, opting to pursue their goal of mandatory recogni-

Patrick Gunnigle, David G. Collings and Michael J. Morley 103

tion. A final report was subsequently published in 1999 which formed the basis for the Code of Practice on Voluntary Dispute Resolution and the Industrial Relations (Amendment) Act 2001. These again provide a voluntary process for dealing with union recognition disputes. While cases may ultimately reach the Irish Labour Court, there is no facility for the Court to finally arbitrate on the issue of union recognition. On the contrary, the Code of Practice and the Act explicitly exclude decisions on ‘arrangements for collective bargaining’. As noted by a number of commentators, the legislation essentially ‘sidestepped’ the issue of recognition (cf. Twomey, 2001). Again we would argue that the FDI influence helps explain developments. The Irish government and public bodies are acutely aware that imposition of mandatory union recognition mechanisms would act as a disincentive to FDI, both new and existing. IDA Ireland would most likely have articulated this view at the High-Level Group, and would have emphasized that it would put the IDA at a significant disadvantage in selling Ireland as a site for FDI. From the employers’ perspective, it is likely that IBEC pursued a similar line, ensuring that the trade union representatives were isolated as the only likely advocates of mandatory recognition. This is but one example of the impact of the MNC constituency on the crafting of policy and legislation. Another is the growing role of the American Chamber of Commerce (ACC) in articulating the views of US MNCs in Ireland. The ACC claims to represent some 500 US subsidiaries in the country, including major names such as Intel, Hewlett Packard and IBM. A particular illustration of its position relates to the Organization of Working Time legislation (relating to the application of the EU Working Hours Directive). The ACC submission to government argued that the proposed legislation would limit company flexibility and damage Ireland’s efforts to win US investment: It is no exaggeration to say that the lack of flexibility in this Bill could represent the single most negative change in Ireland’s flexibility to win US direct foreign investment that has happened in the past 20 years… (Irish Times, 22 February 1997) The submission further criticized what the ACC saw as an inherent bias in the proposed legislation towards firms that recognized trade unions: that only bodies recognized under the Irish Trade Union Acts would be able to negotiate a collective agreement on working hours. Since many of the MNCs represented by the ACC are non-union, this

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criterion was unlikely to be met. The ACC’s lobbying met with some success, prompting the head of IDA Ireland to support the Chamber’s position in stating that the proposed legislation would make it more difficult for the IDA to attract international – particularly US – firms to Ireland. Donaghy’s (2004) recent work on social partnership further notes the influence of US MNCs on Irish public policy. Donaghy found that the MNC sector significantly influenced the social partners’ approach to institutional change, leading them, for example, to reject any type of works council arrangements along German lines. Based on interviews with representatives of IBEC, ICTU, the Services Industrial Professional and Technical Union and the National Economic Social Council (NESC), Donaghy (p. 110) found that: …any sort of legislated mandatory system of European style works council was dismissed at an early stage due to the potential negative implications that this could have on attracting inward investment, especially by US multinationals. These pressures both pushed the actors away from embracing any sort of compulsory mechanism towards operating a voluntary system. He (p. 206) went on conclude to that: As economic openness has established an incentive system for foreign direct investment in Ireland, the principal social partners are reluctant to take any action which could make Ireland a less attractive site for FDI.

Conclusions In evaluating the interaction between the agendas of MNCs and of the Irish host country authorities, our evidence points to an evolutionary dynamic in this interaction with attendant implications for enterpriselevel IR. Specifically we point to the incidence of ‘double-breasting’ in three of our five case firms, and the success of the remaining two companies in effectively sustaining non-union status. In essence, the data demonstrate the fluidity of the Irish business system over time, particularly in the IR sphere. We argue that this is primarily due to the country’s openness to, and its remarkable success in attracting, FDI. In great measure Ireland’s economic fortunes are critically dependent on the MNC sector and its export performance. To ensure Ireland remains

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an attractive location for FDI, it has effectively restructured key aspects of the business system to accommodate the preferred IR (and HR) approaches of US MNCs. This is most evident in the change in the position of Ireland’s industrial promotion agencies on the issue of union recognition and collective bargaining. By shifting from a prounion to a union-neutral stance, they have in effect given their imprimatur to new FDI to follow the non-union route. Our evidence demonstrates how US MNCs encounter relatively few impediments in implementing policies that are congruent with home country traditions. This is the case because many of the Irish institutions important in workplace IR arrangements (centralized bargaining, promotion of partnership arrangements, encouragement of trade union–employer engagement) are comparatively toothless, and thus have little impact on the MNC sector. In this regard the Irish case seems to resonate with the UK experience where, as Ferner (2003: 99) notes, ‘the deregulation of swathes of economic life, including labour markets and industrial relations, has increased the “permeability” of the British system; that is, it has removed some of the institutional impediments to the absorption of outside influences’. In their efforts to promote and sustain economic development, Irish governments and their agencies have sought to create an open, pro-business, FDI-friendly economy. One manifestation of these efforts is the package of incentives, including a generous subsidy programme based partly on the promise of jobs but also including grants and subsidies, together with an extremely attractive, low tax rate on profits. Another is the comparatively open and lightly regulated IR environment. The Irish business system thus competes for FDI on a number of dimensions, one of which is the absence of constraining IR institutions which might impose alien HR/IR host country practices on inward-investing MNCs, as might be perceived to be the case in countries such as Germany. More generally, our findings support the emerging literature which suggests that levels of FDI appear to be higher in countries where levels of constraint with regard to labour issues are lowest (cf. Cooke, 2003; Kleiner and Ham, 2003). A few years ago the Ta´naiste (Deputy Prime Minister) indicated that it was in Ireland’s best interests to be ‘a lot closer to Boston than Berlin’. Our research suggests that, in IR terms, this certainly is the case.

Notes 1 This article draws on the Irish node of an international study of human resource management in US MNCs, co-ordinated by Professor Anthony Ferner, De Montfort University, UK. This study involves a large number of researchers from De Montfort University and King’s College, London, UK,

106 Multinationals, Institutions and the Construction of Transnational Practices the Universities of Trier and Erfurt, Germany, IESE Business School, Spain and the University of Limerick, Ireland. The Irish study is supported by the University of Limerick Research Office, the Irish Research Council for the Humanities and Social Sciences and the Labour Relations Commission. 2 The Progressive Democrats are a small centre right party, founded in the 1980s. They are currently (2005) the junior partner in the coalition Government. 3 Both companies had earlier established non-union sales operations. This was to be expected given their very small scale. 4 This interview formed part of research undertaken in the US by Patrick Gunnigle while working as a Fulbright Scholar in the Department of Management, San Diego State University; see, for example, Gunnigle and McGuire (2001).

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Patrick Gunnigle, David G. Collings and Michael J. Morley 107 Foulkes, F. K. (1980) Effective Personnel Policies: A Study of Larger Non-Union Enterprises, Englewood Cliffs, NJ: Prentice Hall. Gennard, J. and Steuer, M. D. (1971) ‘The industrial relations of foreign owned subsidiaries in the United Kingdom’, British Journal of Industrial Relations, 9, 2: 143–59. Gunnigle, P. (1995) ‘Collectivism and the Management of Industrial Relations in Greenfield Sites’, Human Resource Management Journal, 5, 3: 24–40. Gunnigle, P., Collings, D. and Morley, M. (2005) ‘Exploring the dynamics of industrial relations in US multinationals: Evidence from the Republic of Ireland’, Industrial Relations Journal, 36, 3: 241–56. Gunnigle, P. and McGuire, D. (2001) ‘Why Ireland? A qualitative review of the factors influencing the location of US multinationals in Ireland with particular reference to the impact of labour issues’, Economic and Social Review, 32, 1: 43–67. Gunnigle, P., O’Sullivan, M. and Kinsella, M. (2002) ‘Organised labour in the new economy: Trade unions and public policy in the Republic of Ireland’, in D’Art, D. and Turner, T. (eds), Irish Employment Relations in the New Economy, Dublin: Blackhall Press. IDA Ireland (2004) Annual Report, Dublin: IDA Ireland. Industrial Relations News (1996) ‘Non-union policies on the increase among new overseas firms’, Industrial Relations News, 4, 25 January, 17–23. Industrial Relations News (2004) ‘Unions being pushed out of multinational sector’, Industrial Relations News, 9, 26 February, 22–6. Industrial Relations News (2005) ‘Falling union density highlighted in manufacturing job losses’, Industrial Relations News, 5, 27 January. Jacoby, S. M. (1997) Modern Manors: Welfare Capitalism Since the New Deal, New Jersey: Princeton University Press. Kearney, A. T. (2002) ‘Globalization’s last hurrah?’, Foreign Policy, January/February, 38–51. Kelly, A. and Brannick, T. (1985) ‘Industrial relations practices in multinational companies in Ireland’, Journal of Irish Business and Administrative Research, 7, 98–111. Kleiner, M. and Ham, H. (2003) ‘The effects of different industrial relations systems in the United States and Europe on foreign direct investment flows’, in Cooke, W. (ed.), Multinational Companies and Global Human Resource Strategies, Westport, CA: Quorum Books. Kochan, T. A., Katz, H. C. and McKersie, R. B. (1986) The Transformation of American Industrial Relations, New York: Basic Books. McGovern, P. (1989) ‘Union recognition and union avoidance in the 1980s’, in Industrial Relations in Ireland: Contemporary Issues and Developments, Dublin: University College Dublin. O’Higgins, E. R. (2002) ‘Government and the creation of the Celtic Tiger: Can management maintain the momentum?’, Academy of Management Executive, 16, 3: 104–20. OECD (various) International Direct Investment Statistical Yearbook, Paris: OECD. OECD (2005) Country Statistical Profiles 2005: Ireland, Paris: OECD. Roche, W. K. (1992) ‘The liberal theory of industrialism and the development of industrial relations in Ireland’, in Goldthorpe, J. and Whelan, C. T. (eds), The Development of Industrial Society in Ireland, Oxford: Oxford University Press.

108 Multinationals, Institutions and the Construction of Transnational Practices Roche, W. K. (1997) ‘The trend of unionization’, in Murphy, T. V. and Roche, W. K. (eds), Irish Industrial Relations in Practice: Revised and Expanded Edition, Dublin: Oak Tree Press. Roche, W. K. and Ashmore, J. (2002) ‘Irish unions in the 1990s: Testing the limits of social partnership’, in Fairbrother, P. and Griffin, G. (eds), Changing Prospects for Trade Unionism: Comparisons between Six Countries, London/ NewYork: Continuum, 137–76. Roche, W. K. and Turner, T. (1994) ‘Testing alternative models of human resource policy effects on trade union recognition in the Republic of Ireland’, International Journal of Human Resource Management, 5, 3: 721–53. Tansey, P. (1998) Ireland at Work: Economic Growth and the Labour Market 1987–97, Dublin: Oak Tree Press. Twomey, A. F. (2001) ‘The Industrial Relations (Amendment) Bill, 2000: Birth of a boom-breaker?’, Paper Presented at the Chartered Institute of Personnel and Development (in Ireland) Annual Strategic Law Conference, Dublin, 14 March. UNCTAD (2001/2002/2003/2004) World Investment Report, Geneva: United Nations Publications. Wallace, J. (2003) ‘Unions in 21st century Ireland – Entering the ice age?’, Paper Presented to the Industrial News Conference, No Vision no Future?, University College Dublin, 27 February.

5 Emerging Motivations for Global HRM Integration Sully Taylor

Introduction For many years, the field of international human resource management (IHRM) has struggled with the question of whether or not it is better for a multinational firm (MNC) to integrate its IHRM practices across the various geographies in which it operates. The debate revolves around two issues: whether it is desirable, and whether it is possible. The obstacles to integration are obvious, and include such barriers as the vast array of labour law regimes, the enormous divergence in labour market characteristics and highly divergent cultures, all of which impede global integration of HRM. Yet MNCs, and the IHR function within them, are likely to become ever more intent on overcoming the many barriers that exist to integrating their HRM practices on a global basis. In short, global integration of HR is becoming more desirable. There are two emerging trends in particular that are creating strategic imperatives for greater HRM global integration. These two trends are the increasing need to focus on the creation of social capital within the MNC’s global internal network, and the growing need to focus on sustainability as part of the company’s global strategic imperative. Interestingly, and fortuitously for MNCs and their management, achieving these two goals is a mutually reinforcing process. This chapter first reviews the major forces for HRM integration identified in previous work before turning to a description of these two new trends in MNCs. It then examines how each is likely to increase the desire for global integration of HRM, and which set of employees and which HRM practices are most likely to be affected. The chapter ends with a look at the barriers to implementation most likely to discourage IHRM integration, as well as a discussion of how the pressures these trends create for HRM integration are complementary. 109

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IHRM integration debates What motivates MNCs to integrate HRM across their global networks? Various factors have been hypothesized and studied. One key force is the need for global integration and coordination of action (Edström and Galbraith, 1977). If one views the MNC as a network of operations in various geographies that needs to respond with one voice to clients, vendors or competitors, then an integrated HRM system can help ensure that the employees in the relevant units have consulted with each other and adopted a common stance. Another factor is to ensure internal equity, so that employees in foreign units do not feel, for example, that they are receiving different treatment than their peers in other countries, adjusted for differences in cost of living (Rosenzweig and Nohria, 1994). This could mean utilizing similar compensation approaches worldwide, such as a pay for performance policy. A further motivation is the exploitation of the MNC’s distinctive competence, such as the desire of Japanese firms to leverage their skill in producing quality products through effective HR policies such as cross-training and job rotation (Beechler and Yang, 1994). These HR policies enable companies to empower assembly line workers to spot and address a wide range of quality problems in production immediately. There is also a cost advantage to be gained through avoiding duplication of design and implementation of HR policies (Gomez-Mejia and Palich, 1997; Schmitt and Sadowski, 2003). Finally, some authors (Kobrin, 1994; Kamoche, 1997) have pointed to the contribution that HR integration can make to facilitating organizational learning. By having standardized practices, whether in marketing or HR, it is easier to transfer knowledge, particularly tacit knowledge (Quintanilla and Bonache, 2002). Similar HR policies increase the commonality of skills, thus nurturing the absorptive capacity (Cohen and Levinthal, 1990) of employees to integrate new knowledge. A great deal of empirical research has been carried out on the integration of HRM in global companies. Much of the early work focused on Japanese MNCs, as they were perceived to practise distinct HR policies that gave them a competitive edge (Ishida, 1986; Yang, 1992; Beechler and Taylor, 1994) and hence would want to transfer them. Later studies focused on US firms (e.g. Bae, Chen and Lawler, 1998; Béret et al., 2003), and more recently there has been interest in European firms (e.g. Coller and Marginson, 1998). While general conclusions over such a wide body of research are difficult, in general there has been some support for the ability of MNCs to transfer human resource

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or industrial relations (HR/IR) policies to foreign affiliates, although it is rarely a wholesale transfer (Béret et al., 2003; Coller and Marginson, 1998; Ferner et al., 2005; Muller, 1999; Muller-Camen et al., 2004; Schmitt and Sadowski, 2003; Doeringer et al., 2003). (The various conditions that affect transfer will be discussed later in this chapter.) Yet, with the exception of Ferner et al. (2005) and Schmitt and Sadowski (2003), few studies clearly specify the motivation for the transfer of HR policies in the MNCs they study. Schmitt and Sadowski (2003) examined the costs of decentralizing HRM/IR versus the costs of centralizing. Their study focused on the decentralization costs of foregone economies of scale and of differentiation (due to less internal consistency), and the centralization costs of slower decision-making, violating external regulations and norms and frustration of preferences (e.g. cultural norms). They found that decentralization of HRM is less likely than that of IR due to the higher costs associated with violating local norms in IR matters. While one of the most exhaustive empirical examinations of the motivations for HRM/IR integration, the Schmitt and Sadowski study does not parse out the individual motivations in their analysis (e.g. costs of not complying with local regulations versus desire for local consistency). Thus while it can be safely said based on present empirical evidence that transfer of HR policies does occur, albeit often moderated and piecemeal, and occurs more often than the transfer of IR policies, it is difficult to conclude which motivation of those theorized is the most important for MNC behaviour, and under which conditions. This chapter builds on Schmitt and Sadowski (2003) and others to argue that the reasons for MNCs to integrate HRM globally will probably increase in the years to come, and hence future studies may need to look at these emerging motivations for integration of HRM. The first reason for the growing pressure towards HRM integration that will be examined builds on the previously observed pressures to coordinate and control in a way that leverages learning across borders. The concept of social capital has recently been explored as a major contributor to the achievement of these goals. In order to explore how social capital is becoming more important to leveraging learning and increasing coordination across borders, it is important to examine more closely the overall strategic imperatives that MNCs face in the global arena. MNCs are subject to increasing pressure to do three things simultaneously in order to be successful: integrate across borders, respond to local demands and leverage the learning in the network (Bartlett and Ghoshal, 1989; Galbraith, 2000; Nohria and Ghoshal, 1997). The accelerating speed of change means that the firm that can do these things

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fastest in response to changes in the economic, technological and political environments will be the most competitive. MNCs must adapt to local conditions, such as consumer tastes, in order to compete with the growing number of domestic and global competitors they encounter. They must also locate resources where they are best utilized, building an interdependency among units that is constantly shifting. At the same time, the firm must control the utilization of its resources to maximize returns on them. The ever-widening dispersion of resources thus means that coordination and control will become ever more challenging and fluid. At the same time, as noted by Kogut and Zander (1996) and others, the most valuable resource for competitiveness today is knowledge. MNCs by virtue of operating in multiple locales are, in comparison with purely domestic firms, privy to a greater diversity of knowledge sources that can, if properly managed, help them create or access greater innovation and learning. And the firm that can create and share knowledge faster than competitors will be at an advantage. ‘The ability to learn faster than competitors may be the only sustainable competitive advantage’ (Snell et al., 1996: 68). Recently, several international management scholars (Inkpen and Tsang, 2005; Kostova and Roth, 2003; Tsai and Ghoshal, 1998) have claimed that social capital is critical to effective coordination and control in MNCs and to their ability to learn faster than competitors. Social capital can be defined as ‘…the potential value arising from certain psychological states, perceptions and behavioural expectations that social actors form as a result of both their being part of social structures and the nature of their relationships in these structures’ (Kostova and Roth, 2003: 301). Cohen and Prusak (2001: 4) elaborate on this idea, defining it as ‘…the stock of active connections among people: the trust, mutual understanding, and shared values and behaviours that bind the members of human networks and communities and make cooperative action possible’. Leana and Van Buren (1999) call this cooperative action ‘associability’, which they define as ‘…the willingness and ability of participants in an organization to subordinate individual goals and actions’ (p. 541). According to Nahapiet and Ghoshal (1998), there are three types of social capital: cognitive, relational and structural. Structural social capital is derived from the place an actor occupies in a particular network, and the contacts he enjoys that provide him access to information, jobs or other benefits. In general, this view of social capital is of a private good, the benefits of which devolve mostly to the person directly. Relational social capital emphasizes the assets that derive from

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interaction with others in the network, particularly the trust that builds up over time in others. An interesting, and important aspect of relational social capital is that in order for someone in the network to trust another person in the network it is not necessary for those two particular individuals to have built the trust. Rather, by holding membership in a network with high social capital, other members come to expect trust in any new relationship they form within the firm. This has also been called ‘generalized trust’ (Leana and Van Buren, 1999). Finally, cognitive social capital has been described as the ‘…resources providing shared representations, interpretations, and systems of meaning among parties’ (Nahapiet and Ghoshal, 1998: 244). Expectations about proper ways of doing things slowly evolve over time. Like relational social capital, cognitive social capital is more a public than a private good. All three kinds of social capital are important to the creation and sharing of knowledge in the MNC network (Nahapiet and Ghoshal, 1998; Kostova and Roth, 2003). As Kostova and Roth (2003) argue, structural social capital can be used to help create cognitive and relational social capital at the subunit level. They also argue that as social capital becomes a public good in the firm, the need for private social capital – that is, structural – will diminish. In order to build new knowledge, new combinations of existing knowledge must occur. This means that the holders of the knowledge must be willing to exchange it with others in the firm. Yet people will be reluctant to exchange unless they feel it is worth their while. ‘(E)mployees may be unwilling to share knowledge with others, particularly if they feel it may be detrimental to furthering their own career’ (Currie and Kerrin, 2003: 1029). In addition, holders of knowledge must have access to others, must anticipate some value in combining or exchanging information, and must have the human capital or capability (‘absorptive capacity’) to make the combining of knowledge work (Nahapiet and Ghoshal, 1998; Cohen and Levinthal, 1990). Social capital helps MNCs to meet these challenges. For example, relational social capital enables organizational members to have access to other organizational members with the desired knowledge, while cognitive social capital helps create shared codes and language that make absorption of knowledge easier (Nahapiet and Ghoshal, 1998). Thus firms high on social capital will, in general, be better at combining and exchanging knowledge. Not all MNCs experience the same degree of pressure to combine and exchange knowledge, nor are all affiliates equally affected. Kostova and Roth (2003) point out that different models of MNCs are characterized by

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different kinds and degrees of interdependence or resource flows. The interdependence varies from very low in the multinational model, with few technologies, people or products flowing between units, to very extensive, multidirectional and unstable flows in the transnational model. Resource flows, whether they be of knowledge or product, are thus of most concern to MNCs with high interdependence. In MNCs with high interdependence, the instability, complexity, and involvement of multiple levels and functions make it difficult to rely on formal structures to ensure the successful flow of resources, requiring firms to search for more informal ways of coordinating and controlling (Bartlett and Ghoshal, 1989). Social capital provides a more informal means of coordination and knowledge sharing. As Kostova and Roth (2003: 301) note, Higher levels of social capital are reflected in a motivation for social actors to maintain those relationships, a felt obligation to reciprocate past favors of other social actors, an expectation that other social actors will also reciprocate, and a psychic comfort in asking others for resources and in using those resources once acquired, as well as in the perceived likelihood of providing, receiving, and asking for help from the other social actors. Kostova and Roth (2003) go on to argue that while the private good form of social capital is important for informal coordination and control as well as knowledge sharing, the public good form of social capital may be the most important one to develop in MNCs. This is because MNCs are becoming increasingly complex in their interdependence, and the fluidity of exchange relationships means that employees at many different levels and locales constantly need to combine and exchange knowledge with a new member in the network. ‘New exchanges may require contributions by individuals who have not been previously part of the network and who are geographically and culturally distant. Yet these employees have to be motivationally predisposed to participate’ (p. 303). In sum, given the increasing interdependence in MNCs, particularly with regard to knowledge creation and sharing, there is greater need to build social capital, particularly of the public good sort. Social capital facilitates the access individuals have to others within the network, their motivation to share with them, and their ability to share. Thus one of the most crucial tasks of MNCs today, particularly those that are highly interdependent or moving towards greater interdependence, is to build social capital throughout the network.

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What builds social capital in firms, including MNCs? Returning to the three kinds of social capital discussed previously – structural, cognitive and relational – it is clear that each type requires different conditions in order to thrive, and these conditions are facilitated by the way the firm designs its HRM policies (Inkpen and Tsang, 2005; Leana and Van Buren, 1999). Structural social capital is facilitated by personnel transfer between network members, as well as decentralization of authority by headquarters and low personnel turnover organization wide. This is because you need to encourage the development of social network ties between people that facilitate knowledge sharing, avoid the loss of knowledge holders who have built social ties, and facilitate knowledge exchange by allowing individuals to determine ‘how to make the best use of the knowledge they possess’ (Inkpen and Tsang, 2005: 156). Decentralization of authority and commitment of employees can be facilitated with high investments in training, which supplies a signalling effect that increases employee commitment as well as enhances the capability of employees to effectively manage the exchange of knowledge across the network. Stability of employment not only helps retain knowledge holders, it is also important in building cognitive and relational social capital. Stability of employment encourages the building of associability, and by helping organizational members keep the ‘greater good’ in mind, results in desirable outcomes such as greater willingness to share information and decision-making with other members of the MNC (Leana and Van Buren, 1999). Leana and Van Buren argue that ‘trust-breaking’ behaviours by firms, such as contract violations, downsizing and the regular use of temporary employees, are likely to make the building of trust impossible. Stability of employment also facilitates the building of shared norms and values that oils the wheels of knowledge combination and exchange (Nahapiet and Ghoshal, 1998). Cognitive social capital is nurtured by shared vision and collective goals, and accommodation for local or national cultures (Inkpen and Tsang, 2005). High investments in training, as mentioned previously, help create common norms, narratives and language that aid in knowledge transfer. Accommodation for local or national culture helps to avoid conflicts from cultural misinterpretations. Cognitive social capital can be encouraged when firms select new members who share their values and socialize them into working collectively. Finally, relational social capital (trust) is facilitated by clear and transparent reward criteria, which helps to reduce distrust between organizational members (Inkpen and Tsang, 2005). Promotions can

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signal what kind of behaviour is desirable (Leana and Van Buren, 1999). Also, as Leana and Van Buren state, ‘(T)he presence of significant pay differentials among employees may undermine cooperative behaviour within the organization as whole’ (1999: 547). They also point out that compensation policies are important both because they can affect turnover (Campbell, 1994), and can reward collective over individual action (Leana and Van Buren, 1999; Campbell et al., 1998). Table 5.1 presents a summary of the HR areas most likely to be involved in the creation of social capital in MNCs. A central question, however, is which employees will be affected by the need to create social capital. Knowledge exchange and coordination between all employees in an MNC is highly unlikely, even in the most knowledgeintensive, interdependent firms. Kostova and Roth (2003) argue for a focus on key ‘boundary-spanners’ in each affiliate, who through building greater social capital on an individual basis with headquarters can transfer their heightened trust and general social capital to the rest of the members of the unit. In essence, these boundary-spanners turn a ‘private’ social capital into a ‘public’ social capital. While not disputing the importance of these boundary spanners, theory and research suggest that consideration should be given to the entire employee population when deciding which groups of employees to target. This is important because, as Kostova and Roth themselves note, the interactions between units occurs at multiple levels and functions, and thus the attitudes and behaviours of a large number of people affect the successful combination and exchange of knowledge. Taylor et al. (1996) suggest that MNCs transfer HRM policies only when the group of employees is considered ‘critical’ to the functioning of the affiliate and/or firm. Lepak and Snell (1999) offer a more elaborated approach, in which they designate employees who have a high degree of uniqueness of human capital combined with high potential for contributing to the competitive advantage or core competence of the firm as ‘core’ employees. Utilizing such a heuristic may be more appropriate than designating one group of employees, such as managers, as the most important group within which social capital should be built. First, it accommodates research that has found quite varied groups of employees as targets for HR transfer in MNCs, from R&D personnel (Béret et al., 2003), higher-level employees (Schmitt and Sadowski, 2003; Muller, 1999), to shopfloor workers (Doeringer et al., 2003; Marginson et al., 1995). That is, research has found that MNCs have attempted, more or less successfully, to transfer or centralize HR policies with regard to all of these groups. This would indicate that

Sully Taylor 117 Table 5.1 MNCs

HR Principles most likely to affect the building of social capital in

HR principle

HR policy examples

Kind of social capital affected

Build long-term connections between employees

Facilitate personnel transfer between network members Decentralize authority by HQs

Structural

High investment in training

Provide access to training worldwide

Cognitive Structural

Careful selection and socialization of employees

Select new members who share company’s values Socialize employees to work collectively

Cognitive

Accommodate for local and national cultures

Submit management practices for input and accommodation

Cognitive

Create shared vision and collective goals

Incorporate common goals into evaluation systems

Cognitive

Create equitable, clear and transparent reward criteria

Ensure pay systems minimize differentials among employees

Relational

Create collective reward systems

Provide some portion of compensation based on team/unit results

Relational

Build long-term connections between company and employees

Encourage long term employment/job security

Structural, cognitive and relational

Source: Partially based on ideas in Inkpen and Tsang (2005) and Leana and Van Buren (1999).

these groups are seen as key to the firm’s competitiveness in some way. Second, by arguing that different groups of employees can be ‘core’ to the firm’s success, it is possible to encompass the wide diversity of firms operating in the global arena. Industry as well as individual firm strategy will influence which group of employees most need to build social capital in order for coordination and knowledge sharing to occur. For example, in large multinational consultancy companies, it can be argued the consultants themselves will have as much need for high social capital as the managers of the company. Thus, it is not

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possible to designate one group of employees as most important to target. However, it is probable that the area of HR policy that is utilized to build social capital may vary depending on the target group of employees. For example, if the firm’s core employees are shopfloor workers, the ability of the MNC to enact collective reward systems is likely to be constrained. This is because, in general, HR policies regarding shopfloor workers are more embedded in national IR regimes than policies toward other employees (Schmitt and Sadowski, 2003). Finally, it should be noted that when designing the HR policy to be transferred MNCs will be unlikely to transfer policies without any modification (Ferner and Quintanilla, 1998; Taylor et al., 1996). Becker and Gerhart (1996) call this the level of abstraction problem in HR theory and practice. In essence, there are HR principles, HR policies and HR practices. While HR principles serve as guideposts to ‘…align lower, less abstract policies and practices’ (Colbert, 2004: 345), policies (such as team-based work systems) and specific practices (such as quality circles) are descending levels of abstraction. Practices can vary by company and by country, and still attain the goals of the HR principles that the firm has adopted. In short, transfer of HR may necessitate finding functional equivalents to the practices used in the parent company. In Table 5.1, the HR principle and policy levels only are utilized, as these are the easiest levels for MNCs to integrate. This discussion has shown the desirability of creating social capital in MNCs, particularly for some firms and some groups of employees. For the IHR function, this means that allowing each unit to devise its own approach to HR independently is simply not an option, particularly if the firm is characterized by high interdependence and its attendant resource flows. The question that must be asked in designing the global HR system is ‘does this approach encourage the creation of social capital throughout the global network?’ For example, allowing each site to approach the selection process based on local norms and practices ignores the necessity of selecting people who are most likely to adopt the philosophy and norms of the total global firm. The human capital characteristics of each individual, while important, should not be the only criteria. This wider lens applies across the HR system. ‘Human resource practices that simultaneously encourage stable job tenure and reinforce associability and trust might well yield better organizational-level results than those observed in systems that focus exclusively on individual contributions’ (Leana and Van Buren, 1999: 545). Thus the IHR function must insist that there be at least some degree of integration of HR across

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borders. The HR system is probably the most potent tool an MNC has for creating social capital. Implementation will not be without challenges. Harking back to the myriad obstacles to integration discussed at the beginning, IHR directors must address the concerns of local HR directors and local employees regarding the cultural, institutional and legal differences. This indicates a critical need for IHR to be involved not only in designing the IHR system in conjunction with foreign affiliates, but also the imperative IHR has to communicate what it is up to, and why. IHR must do this in order not only to avoid resistance simply because HQ is involved, but also to actively help local people understand the role that certain HR policies play in creating knowledge valuable to the firm. This is particularly important if one accepts the argument put forward by Fukuyama (1995) that the trust levels in unknown others differs widely between countries. In order to be truly effective, IHR must become a champion of an integrated HR system, a communicator of the reasons for it, and a booster for the overarching global vision of the firm that underpins the need for interdependence.

Sustainability and IHRM integration There is another reason why a more integrated approach to HRM in MNCs will be observed in the future. This is what could be called an emerging motivation, one that is on the radar screens of the IHR function in only a limited way, but that over the next decade or so will become more salient in global firm management. This is the concept of sustainability. While many firms are beginning to deal with certain limited aspects of sustainability in their global operations, such as the ethical behaviour of employees worldwide or the environmental impacts of foreign affiliates, a more systemic, holistic approach to these concerns is encompassed in the concept of sustainability. Sustainable development has been defined by the World Commission on Economic Development as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (World Watch Institute, 2000). At the firm level, sustainability is typically defined as pursuing the ‘triple bottom line’ of economic, environmental, and social goals. The economic principle emphasizes the necessity of an ‘….adequate production of resources to maintain a reasonable standard of living’ (Bansal, 2002: 23). The environmental principle is based on the assumption that ‘…ecosystems have limited regenerative capability and that the earth’s land, air,

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water and biodiversity will be compromised by irresponsible actions’ (Bansal, 2002: 23), while the social-equity principle is focused on treating everyone fairly, independent of initial endowments (Bansal, 2002: 23). It is generally agreed (Dunphy et al., 2003; Osland et al., 1999; Phillips and Claus, 2002; Bansal, 2002) that without equal attention to the social bottom line, the ability of firms to achieve environmental goals will be undermined. As Bansal states, ‘(I)f people aren’t treated equitably, they will exploit natural resources’ (2002: 123). Poverty, inequitable distribution of wealth, and lack of opportunity help create such ills as high population growth rates, deforestation and social unrest, all of which make environmental stewardship extremely difficult. As Osland et al. (1999: 173) state: The scientific basis for sustainability recognizes that people, and their economic and social activities, are an integral part of the ecosphere. It is the ecosphere and its ecosystems that support human society and economies, not the reverse. Thus human societies should be designed in a way that does not compromise natural systems. Adoption of these three principles is a growing imperative for MNCs for a variety of reasons. A study by Bansal and Roth (2000), conducted largely in companies in Britain and Japan, many of which were multinationals, found three main motivations to adopt a corporate ecological response: Competitiveness, Legitimization, and Social Responsibility. The first focuses on obtaining long-term profitability through such things as increased efficiency of resource utilization, designing ‘green’ products that gain the company a competitive edge, or even finding it easier to hire quality employees due to enhanced reputation. Legitimization is fuelled by a desire to comply, and seeks to reduce risk through ensuring that laws, industry norms and stakeholder expectations are met. Finally, social responsibility is a driver born of the belief that the firm has social obligations that are as important as economic goals. Each MNC will be driven by one or a combination of these motivations to adopt some degree of a sustainability strategy. Yet regardless of motivation, the fact remains that the IHR function in MNCs is going to become increasingly embroiled in translating the sustainability goals into action. Let us examine what kinds of concerns this will create for the IHR function, and why it will lead to a greater need for integration of HR within the global firm.

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First, in order to meet the economic imperative it is necessary for firms to innovate. Finding ways to reduce resource input or to design products that are non-toxic requires creative thinking and problem solving. The link between innovation and sustainable business strategies is increasingly recognized. For MNCs, this means that recruitment must focus on attracting employees who are environmentally concerned and utilizing selection criteria that include consideration of environmental knowledge and skills (Egri and Hornal, 2001). Particularly as manufacturing is outsourced to a wider array of countries, the skills and competencies to identify sources of eco-innovation need to be taught to employees worldwide, and their supervisors trained to encourage such efforts (Ramus and Steger, 2000). Compensation and reward policies, which have been found to be effective in encouraging eco-initiatives by employees (Milliman and Clair, 1996; Lawrence and Morell, 1995; Ramus and Steger, 2000), need to be instituted worldwide. Corporate HR is likely to be involved with local affiliates not only to ensure these things are done, but to share systems and materials developed at HQ or elsewhere. Second, the legitimization motive will force IHR to focus on such areas as job design, organizational structure and performance appraisals throughout the global system. Job descriptions will need to include responsibilities for environmental goals, and evaluation systems need to include metrics that measure their attainment. The IHR function will also need to ensure that a position of environmental officer is created in affiliates that need them. Finally, the social responsibility motivation focuses IHR on employees and other major stakeholders, such as sub-contractors. One key concern is organization culture and employee socialization. As Starik and Rands (1995: 920) note, ‘Ecologically Sensitive Organizations will be characterized by numerous cultural artifacts such as slogans, symbols, rituals and stories which serve to articulate for their members the importance of ecologically sustainable performance’. Organizational culture (O’Reilly and Chatman, 1996; Schein, 1985; Denison and Mishra, 1995) is one of the main instruments for conveying the values espoused by key decision-makers to other organizational members, and IHR can have an important role in creating and reinforcing the global firm’s culture. Another aspect of the social responsibility motivation is to ensure the long-term ‘flourishing’ of the company’s employees, through helping employees to achieve a good work–life balance and continuing to invest in their skills (Osland et al., 1999).

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A further important aspect of social responsibility is the reputation of the company (Hart and Milstein, 2003). On the positive side, a company such as Hewlett Packard that has increasingly pushed a sustainability agenda can differentiate itself through, for example, its efforts to design products that use less non-renewable resources than competitors. On the negative side, ignoring huge disparities or labour abuses by subcontractors can severely damage a valuable brand name, as Nike discovered to its dismay in the early nineties. For an MNC, the social responsibility motivation in particular is often nurtured by the need to meet the standards of leading sustainability countries in which it operates, which can affect its operations and reputation worldwide. It also can be driven by the values of key decision-makers, whether owners or top managers, who have adopted a sustainable view of business (Hart and Milstein, 2003). In Portland, Oregon, for example, the owner and CEO of Norm Thompson Outfitters returned from a year’s sabbatical in Latin America with a keen understanding of the interdependence of the three principles outlined above, and set about transforming his company to pursue a triple bottom line. Ensuring that Norm Thompson translates this vision consistently worldwide into sustainable HR policies is particularly important in order to ensure that the CEO’s vision is not violated and the company does not become a target of criticism by NGOs. Which group of employees will be most affected by a move toward a sustainability strategy? As can be seen from the discussion above, sustainability goals are likely to touch all groups of employees in one way or another. For example, the economic imperative focuses the company’s attention on reduction in resource utilization as well as on creativity in design. The first could be affected by input from shopfloor employees whose daily work brings them close to the production process and who can thus observe areas where inputs are being wasted. But equally involved would be administrative staff, who can give input on ways to increase the efficient utilization of office resources. New product design, while largely the responsibility of R&D and engineering staff, can also be influenced by input from sales, marketing and logistics staff. To reduce transportation and hence energy usage (as well as costs), logistics staff might suggest more effective ways of designing a product for more compact packaging. The key is that personnel share the same sustainability vision for the company, and have received training on how to think systematically about achieving the goals within their particular area. While the economic imperative is just one example, both the legitimization and social responsibility

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motivations of sustainability will also affect a great number of employees in the firm. In a sense, the sustainability motivation for HRM integration in global companies may be stronger than the social capital motivation as it affects more employees, and is closer to the core vision of the company itself.

Implementation challenges While the force of these two trends will be strong, it is unlikely that the IHR function will be able to achieve the level of integration of HR within the global firm that it sees as most desirable. Various factors can inhibit the ability of MNCs to transfer their HRM policies across national borders (Ferner and Quintanilla, 1998). Broadly speaking, these factors can be grouped into three areas: institutional, cultural and organizational (Evans et al., 2002). Institutional factors include the legal, political and labour market facets of the host countries in which the MNC operates. Legal constraints can include prohibitions on certain types of compensation schemes, limits on hire-at-will principles, and requirements for certain kinds of employee benefits (Rosenzweig and Nohria, 1994). Labour market characteristics may make it necessary for MNCs to adapt their HRM policies in order to attract local talent, such as the modification of seniority-based pay by Japanese investment firms operating in the US. Political history and structures can also influence HRM adaptation, with foreign firms that need to keep a low political profile often adapting their HRM policies in order to not stand out from locally owned and managed companies. A second key factor is the culture of the host country (Newman and Nollen, 1996; Schuler and Rogovsky, 1998). Here the premise is that cultural values and norms so tightly interact with behaviour that human resource management practices that encourage ‘unnatural’ behaviours – such as individual performance rewards in a collectivistic society – are destined to fail. Empirical evidence seems to provide some support for the importance of this factor in constraining integration of HRM in MNCs (Ngo et al., 1998). Last is what can be called organizational factors, into which can be placed the strategic posture and imperatives of the firm as well as the power relationships of key implementers. Organizational factors include some moderating variables, such as the role of the affiliates in the overall MNC network, or how embedded the affiliate is in the local environment (Rosenzweig and Nohria, 1994) due to the way it was founded or its age. It also includes the overall strategic orientation

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of the firm to its international operations. If it tends towards the multidomestic approach (Bartlett and Ghoshal, 1989) to participation in the global arena, then there will be greater pressure for local isomorphism. Industry of the firm, country of origin, and top management beliefs have all been discussed or studied as contributing to the chilling effect on global integration of HRM (Taylor et al., 1996; Ferner, 1997). Country of origin, for example, has been found to influence the kinds of HRM policies that MNCs adopt in the foreign affiliates, with MNCs from some countries showing greater propensity to adapt than others (Ngo et al., 1998; Bae et al., 1998). Finally, existing power relationships can influence the degree to which the corporate IHR function has enough leverage to achieve the integration it desires. Various studies (Muller-Camen et al., 2004; Coller and Marginson, 1998; Ferner et al., 2005) have found, for example, that individual affiliates with successful performance have greater power to resist, or that individual managers within the affiliate can use their informal networks to negotiate the how and degree of adoption of corporateinspired HR policies. Muller-Camen et al. (2004) found, for example, that as MNCs increasingly locate their critical operations and resources outside of their home countries, the role of the affiliates in creating and influencing corporate-wide HRM has grown. Some impediments may be stronger than others. For example, legal constraints, particularly concerning shopfloor workers in highly regulated countries such as Germany, seem to impede the transfer of HR policies considerably (Muller, 1999). For managers or R&D researchers, performance evaluation systems appear to be more amenable to corporate-inspired HR approaches than say managerial pay, which tends to be subject to more national influences (Muller, 1999; Béret et al., 2003). In integrating, whether in pursuit of a sustainability strategy or to build social capital for knowledge sharing and coordination, MNCs will find it easier to integrate some HR policies than others. As an example, and drawing on Table 5.1, the ability to adopt a long-term employment approach throughout the global network can be impeded by local labour market conditions, at least in the short term. Present day China, for example, is still experiencing fairly high turnover among experienced managers due to the high demand and low supply in the market. This necessitates creativity on the part of the IHR function to find ways of enhancing the value of long-term employment to local managers, as well as finding alternative approaches to achieving its goals, at least until the market achieves a greater balance. It will also increase the need to move away from

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imposing policies from the centre to creating them in tandem with the global network of affiliates, a desirable goal in any case as it increases the sense of procedural justice throughout the firm.

Mutually reinforcing motivations This chapter has examined how two trends – the need for social capital and for sustainability – are affecting the desirability of integrating HR within MNCs. Interestingly, it appears that the IHR function may be facilitated by the fact that many of the HR policies that aid in the pursuit of social capital for knowledge creation can aid in the pursuit of sustainability. To take one example, social capital is desirable because it aids in the creation and sharing of knowledge worldwide. On the other hand, in order to successfully pursue sustainability it is necessary for firms to encourage innovation of product, process and basic technologies. Thus nurturing social capital will in turn enhance the eco-innovation capability of the firm needed to achieve a sustainability strategy. To take another example, the careful selection and socialization of employees to ensure that they share in the firm’s values and to create common norms, understandings and narratives, which aids cognitive social capital and in turn knowledge absorption and sharing, can also include a focus on environmental values. These values will foster employees’ interest in and commitment to finding ways to save on non-renewable resources in product design or the production process itself, as well as other ways of achieving the economic sustainability goal. A third example is building long-term connections with employees, a key part of building all three types of social capital. This necessitates that the firm pay attention to factors that can ‘deplete’ human resources, including unbalanced lives that lead to family or personal problems. This helps achieve the social responsibility aspect of a sustainability strategy. The HR policies listed in Table 5.2 are not meant to be an exhaustive list of the ways in which these can provide support for the attainment of both social capital and sustainability goals, but rather to be illustrative. Of course, there can also be cases in which HR policies that support both social capital and sustainability goals can be in tension with one another. Building relational social capital, for instance, is often enhanced by the internal transfer or movement of employees, including across borders, in order for core employees to build the trust and familiarity that are characteristic of high social capital. Increasingly common is the ‘international suitcase employee’, who might spend 50 per cent of

126 Multinationals, Institutions and the Construction of Transnational Practices Table 5.2

HR policies that foster both social capital and sustainability goals

HR policy

Impact on social capital and sustainability goals

Careful selection and socialization for shared company values, including environmental values

Cognitive social capital Fosters economic sustainability through eco-innovation

Encourage long-term employment/job security, supported by fostering work/life balance

Structural, cognitive and relational social capital Fosters social responsibility sustainability through workforce stability and health

Training access worldwide, including on environmental skills

Cognitive social capital Fosters economic sustainability through improved resource utilization, and legitimization sustainability through ensuring standards are met

Ensure pay systems minimize differentials and compensate team/unit results, as well as reward econ-initiatives that help firm as a whole

Relational social capital Fosters both economic and social responsibility sustainability through sense of equity and focus on achieving common goals in innovation, resource utilization, etc.

his or her time out of the country, often in meetings with global team members or other stakeholders. While this face-to-face interaction may build relational social capital, it may also undermine the firm’s attempts to meet its social sustainability goals by contributing to stress from travel, family separation and the negative effects on the health of the traveller. As another example, both social capital and social sustainability goals may be enhanced by more equitable and egalitarian wage schemes, but the firm may find that over time it cannot recruit the top managers it needs to remain economically competitive. This happened to the Ben and Jerry’s Ice Cream company, which began life with a very low ratio between the top CEO pay and average worker pay but was eventually forced to modify its approach in order to attract top managers. There are equal challenges from trying to support through HR policies all three sustainability goals simultaneously. For example, selecting employees who share the firm’s values, including environmental values, could lead to a collective way of thinking about prob-

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lems that admits of little diversity of viewpoint. This could actually undermine innovation over time, including eco-innovation. Social and environmental sustainability goals could come into conflict when a firm replaces an environmentally unfriendly component in its product (such as a toxic glue or an endangered tree species) with one that is not. The community that had previously made, and perhaps depended on, providing the company with the component could be damaged by the withdrawal of the firm, particularly if it was the major buyer of that component in the community. As Dunphy et al. (2003) point out, a company pursuing a sustainability strategy is constantly seeking an adequate balance between the three sustainability goals, and when it fails – as when the Body Shop focused too much on environmental and social goals, to the detriment of its product line and hence economic goal – the consequences are likely to be severe. Through careful anticipation of such potential conflicts, MNCs may be able to put in place policies and practices that help to counterbalance these sorts of problems. As Norm Thompson found out when an economic downturn forced it to lay off workers for the first time since adopting a sustainability strategy, balancing between the three bottom lines is never an easy task. However, in spite of these conflicts, it can be argued that, in general, MNCs face a fortuitous situation in which many of the HR policies that aid in the creation of social capital also reinforce the attainment of the sustainability goals that will become ever more important in the coming years.

References Bae, J., Chen, S.-J. and Lawler, J. (1998) ‘Variations in Human Resource Management in Asian Countries: MNC Home-Country and Host-Country Effects’, International Journal of Human Resource Management, 9, 4: 653–70. Bansal, P. (2002) ‘The Corporate Challenges of Sustainable Development’, Academy of Management Executive, 16, 2: 122–31. Bansal, P. and Roth, K. (2000) ‘Why Companies Go Green’, Academy of Management Journal, 43, 4: 717–36. Bartlett, C. and Ghoshal, S. (1989) Managing Across Borders, Boston, MA: Harvard Business School Press. Becker, B. and Gerhart, B. (1996) ‘The Impact of Human Resource Management on Organizational Performance: Progress and Prospects’, Academy of Management Journal, 39, 3: 779–801. Beechler, S. and Taylor, S. (1994) ‘The Transfer of Human Resource Management Systems Overseas’, in Campbell, N. and Burton, F. (eds), Japanese Multinationals: Strategies and Management in the Global Kaisha, London and New York: Routledge, 157–85. Beechler, S. and Yang, J. (1994) ‘The Transfer of Japanese-Style Management to American Subsidiaries: Contingencies, Constraints, and Competencies’, Journal of International Business Studies, 25, 3: 467–91.

128 Multinationals, Institutions and the Construction of Transnational Practices Béret, P., Mendez, A., Paraponaris, C. and Richez-Battesti, N. (2003) ‘R&D Personnel and Human Resource Management in Multinational Companies: Between Homogenization and Differentiation’, International Journal of Human Resource Management, 14, 3: 449–68. Campbell, C. (1994) ‘Wage Change and the Quit Behavior of Workers: Implications for Efficiency Wage Theory’, Southern Economic Review, 61: 133–48. Campbell, D., Campbell, C. and Chia, H. (1998) ‘Merit Pay, Performance Appraisal, and Individual Motivation: An Analysis and Alternative’, Human Resource Management, 37: 131–46. Cohen, W. and Levinthal, D. (1990) ‘Absorptive Capacity: A New Perspective on Learning and Organization’, Administrative Science Quarterly, 17: 128–52. Cohen, D. and Prusak, L. (2001) In Good Company, Boston: Harvard Business School Press. Colbert, B. (2004) ‘The Complex Resource-Based View: Implications for Theory and Practice in Strategic Human Resource Management’, Academy of Management Review, 29, 3: 341–58. Coller, X. and Marginson, P. (1998) ‘Transnational Management Influence Over Changing Employment Practice: A Case From the Food Industry’, Industrial Relations Journal, 29, 1: 4–17. Currie, G. and Kerrin, M. (2003) ‘Human Resource Management and Knowledge Management: Enhancing Knowledge Sharing in a Pharmaceutical Company’, International Journal of Human Resource Management, 14, 6: 1027–45. Denison, D. R. and Mishra, A. (1995) ‘Toward a theory of organizational culture and effectiveness’, Organization Science, 6, 2: 204–23. Doeringer, P., Lorenz, E. and Terkla, D. (2003) ‘The Adoption and Diffusion of High-Performance Management: Lessons from Japanese Multinationals in the West’, Cambridge Journal of Economics, 27, 2: 265–86. Dunphy, D., Griffiths, A. and Benn, S. (2003) Organizational Change for Corporate Sustainability, London: Routledge. Edström, A. and Galbraith, J. (1977) ‘Transfer of Managers as a Coordination and Control Strategy in Multinational Corporations’, Administrative Science Quarterly, 22, 2: 248–63. Egri, C. and Hornal, R. (2001) Strategic Environmental Human Resource Management and Perceived Organizational Performance: An Exploratory Study of the Canadian Manufacturing Sector. Draft paper. Simon Fraser University. Evans, P., Pucik, V. and Barsoux, J.-L. (2002) The Global Challenge: Frameworks for International Human Resource Management. Boston: McGraw-Hill/Irwin. Ferner, A. (1997) ‘Country of Origin Effects and HRM in Multinational Companies’, Human Resource Management Journal, 7, 1: 19–37. Ferner, A., Almond, P. and Colling, T. (2005) ‘Institutional Theory and the CrossNational Transfer of Employment Policy: The Case of “Workforce Diversity” in US Multinationals’, Journal of International Business Studies, 36, 3: 304–21. Ferner, A. and Quintanilla, J. (1998) ‘Multinationals, National Identity and the Management of HRM: “Anglo-Saxonisation” and its Limits’, International Journal of Human Resource Management, 9, 4: 710–31. Fukuyama, F. (1995) Trust: The Social Virtues and the Creation of Prosperity, London: Penguin Books.

Sully Taylor 129 Galbraith, J. (2000) Designing the Global Corporation, San Francisco: Jossey-Bass. Gomez-Mejia, L. and Palich, L. (1997) ‘Cultural Diversity and the Performance of Multinational Firms’, Journal of International Business Studies, 28, 4: 736–58. Hart, S. and Milstein, M. (2003) ‘Creating Sustainable Value’, Academy of Management Executive, 17, 2: 56–69. Inkpen, A. and Tsang, E. (2005) ‘Social Capital, Networks, and Knowledge Transfer’, Academy of Management Review, 30, 1: 146–65. Ishida, H. (1986) ‘Transferability of Japanese Human Resource Management Abroad’, Human Resource Management, 25, 1: 103–20. Kamoche, K. (1997) ‘Knowledge Creation and Learning in International HRM’, International Journal of Human Resource Management, 8, 3: 213–25. Kobrin, S. (1994) ‘Is There a Relationship Between a Geocentric Mind-Set and Multinational Strategy?’, Journal of International Business Studies, 25, 4: 493–511. Kogut, B. and Zander, U. (1996) ‘What Firms Do? Coordination, Identity, and Learning’, Organization Science, 7, 5: 502–18. Kostova, T. and Roth, K. (2003) ‘Social Capital in Multinational Corporations and a Micro-Macro Model of its Formation’, Academy of Management Review, 28: 297–317. Lawrence, A. and Morell, D. (1995) ‘Leading-edge Environmental Management: Motivation, Opportunity, Resources and Processes’, in Collins, D. and Starik, M. (eds), Research in Corporate Social Performance and Policy, Supplement 1, Greenwich, CT: JAI Press, 99–126. Leana, C. and Van Buren III, H. (1999) ‘Organizational Social Capital and Employment Practices’, Academy of Management Review, 24, 3: 538–55. Lepak, D. and Snell, S. (1999) ‘The Human Resource Architecture: Toward a Theory of Human Capital Allocation and Development’, Academy of Management Review, 24, 1: 31–48. Marginson, P., Armstrong, P., Edwards, P. K. and Purcell, J. (1995) ‘Extending Beyond Borders: Multinational Companies and the International Management of Labour’, International Journal of Human Resource Management, 6, 3: 702–19. Milliman, J. and Clair, J. (1996) ‘Best Environmental HRM Practices in the U.S.’, in Wehrmeyer, W. (ed.), Greening People: Human Resources and Environmental Management, Sheffield: Greenleaf: 49–73. Muller, M. (1999) ‘Human Resource Management Under Institutional Constraints: The Case of Germany’, British Journal of Management, 10: S31–S44. Muller-Camen, M., Tempel, A., Almond, P., Edwards, T., Ferner, A., Peters, R. and Wächter, H. (2004) Human Resource Management of US Multinationals in Germany and the UK. Report. Anglo-German Foundation for the Study of Industrial Society. Nahapiet, J. and Ghoshal, S. (1998) ‘Social Capital, Intellectual Capital, and the Organizational Advantage’, Academy of Management Review, 23, 2: 242–66. Newman, K. and Nollen, S. (1996) ‘Culture and Congruence: Management Practices and National Culture’, Journal of International Business Studies, 27, 4: 753–79. Ngo, H.-Y., Turban, D., Lau, C.-M. and Lui, S. (1998) ‘Human Resource Practices and Firm Performance of Multinational Corporations: Influences of Country Origin’, International Journal of Human Resource Management, 9, 4: 632–52. Nohria, N. and Ghoshal, S. (1997) The Differentiated Network: Organizing Multinational Corporations for Value Creation, San Francisco: Jossey-Bass Publishers.

130 Multinationals, Institutions and the Construction of Transnational Practices O’Reilly, C. and Chatman, J. (1996) ‘Culture as social control: Corporations, Cults, and Commitment’, in Staw, B. M. and Cummings, L. L. (eds), Research in Organizational Behavior, 18: 157–200. Osland, J., Drake, B. and Feldman, H. (1999) ‘The Stewardship of National and Human Resources’, in Dempsey, C. and Butkus, R. (eds), All Creation is Groaning, Minneapolis, MN: Liturgical Press, 168–92. Phillips, R. and Claus, L. (2002) Corporate Social Responsibility and Global HR: Balancing the Needs of the Corporation and Its Stakeholders, International Focus, Society for Human Resource Management. Quintanilla, J. and Bonache, J. (2002) ‘Estrategias de Dirección de Recursos Humanos en las EMs’, in Bonache, J. and Cabrera, A. (eds), Dirección Estratégica de Personas, Madrid: Prentice-Hall, 350–78. Ramus, C. and Steger, U. (2000) ‘The Roles of Supervisory Support Behaviors and Environmental Policy in Employee Ecoinitiatives at Leading-Edge European Companies’, Academy of Management Journal, 43, 4: 604–26. Rosenzweig, P. and Nohria, N. (1994) ‘Influences on Human Resource Management Practices in Multinational Corporations’, Journal of International Business Studies, 25, 2: 229–52. Schein, E. H. (1985) Organizational Culture and Leadership, San Francisco: Jossey-Bass. Schmitt, M. and Sadowski, D. (2003) ‘A Cost-Minimization Approach to the International Transfer of HRM/IR Practices: Anglo-Saxon Multinationals in the Federal Republic of Germany’, International Journal of Human Resource Management, 14, 3: 409–30. Schuler, R. and Rogovsky, N. (1998) ‘Understanding Compensation Practice Variations Across Firms: The Impact of National Culture’, Journal of International Business Studies, 29, 1: 159–77. Snell, S., Youndt, M. and Wright, P. (1996) ‘Establishing a Framework for Research in Strategic Human Resource Management: Merging Resource Theory and Organizational Learning’, Research in Personnel and Human Resources Management, JAI Press, 14: 61–90. Starik, M. and Rands, G. (1995) ‘Weaving an Integrated Web: Multilevel and Multisystem Perspectives of Ecologically Sustainable Organizations’, Academy of Management Review, 20, 4: 908–35. Taylor, S., Beechler, S. and Napier, N. (1996) ‘Toward an Integrative Model of Strategic International Human Resource Management’, Academy of Management Review, 21, 4: 959–85. Tsai, W. and Ghoshal, S. (1998) ‘Social Capital and Value Creation: The Role of Intrafirm Networks’, Academy of Management Journal, 41, 3: 464–76. World Watch Institute (2000) Vital Signs, New York: W. W. Norton. Yang, J. (1992) ‘Americanization or Japanization of Human Resource Management Policies’, Advances in International Comparative Management, 7: 77–115.

6 Patterns of Integration in American Multinational Subsidiaries in Europe Valeria Pulignano

Introduction Key elements of multinational behaviour have been attributed to by observers adopting an institutionalist approach to the interplay of parent and host national business system pressures (Whitley, 1999). On the one hand, the behaviour of multinationals (MNCs) is influenced by ‘country-of-origin’ effects relating to the embeddedness of companies in a parent national business system with distinctive characteristics. On the other, different national host environments impose institutional constraints on MNCs: national legislative frameworks, labour market regulation and business environments shape to what degree and in what form employment practices are transferred across countries. In the terms of the ‘institutionalist’ approach, the normative or coercive ‘isomorphic pressures’ exerted by host country legislation or collective bargaining condition the extent to which such practices are transferred (Brewster and Tregaskis, 2003). Host institutional constraints on the transfer of HR and IR practices seem to exist most notably in countries with strong institutional labour systems. In such cases, there are stronger pressures for adaptation of transferred Anglo-Saxon HR/IR practices (Muller, 1998). Host-country isomorphic pressures have also been postulated in the case where MNCs from highly regulated parent company systems establish subsidiaries in weak institutional settings (Tüselmann et al., 2003). Nonetheless, parent country influences may still be present in more qualified and mediated forms; for example case-study evidence on German MNCs in Britain shows that despite pressures to adopt Anglo-Saxon business practice, German influences still persist (Ferner and Varul, 2000). 131

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In a study of the configuration of HRM policies in MNC subsidiaries in the European retail banks in Spain, Quintanilla (2002) points to subsidiaries as able to use the local institutional resources in order to develop a more active and strategic role within the management process of MNCs. More specifically, it is argued that characteristics of the national institutional context, such as the pattern of labour law and labour market features as well as national education and training systems, offer power resources and strategic choices to subsidiary level actors that they can use to influence global strategy implementation (Geppert et al., 2003; Kristensen and Zeitlin, 2005). Moreover, organizational or company-specific structural features are also seen to impact on local actors’ capacity to influence the process of diffusion of employment practices within MNCs (Frenkel and Royal, 1998; Bélanger et al., 2003). Such features include the individual history of the subsidiary; its embeddedness in a local market environment; its profitability and performance; its development of specialist expertise; and its consequent capacity to secure or maintain global ‘charters’, that is to say the strategic roles exercised on behalf of the MNC as a whole (Birkinshaw, 2000: 86). In such analyses, subsidiary practices are explained as a consequence of the variations in subsidiary strategic relations with corporate headquarters and with other parts of the global company. These relations are seen to be strongly affected by institutional and organizational factors which influence the scope for strategic choice by local actors. While the significance of a strategic choice perspective is becoming widely recognized in explaining subsidiary behaviour, it is still relatively under-researched, and, in particular, there is a lack of truly comparative research on subsidiary strategy. This chapter focuses on this comparative dimension while attempting to highlight the interrelationship between institutional and organizational effects in shaping the transfer of US multinational employment practices to host country subsidiaries. The research reported here was conducted as part of a project examining the evolution of the employment practices in European subsidiaries of American MNCs. The aims of the chapter are two-fold: first, to work towards a conceptual framework that integrates institutional and organizational factors in explaining the diffusion of employment practices in MNCs; and, second, to account for the impact of both factors on the scope for agency – ‘strategic choice’ – by local actors in subsidiary units. Thus we examine how far dynamic configurations of institutional and organizational features influence the diffusion of employment practices, and

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explore the processes through which local actors – specifically local management and trade unions – dynamically adjust the policies of the parent company to the local contexts. The study is based on in-depth case studies of five European subsidiaries of one American multinational in the metalworking and the chemical sectors in Italy and in Britain. The organizational variety at different sites within the company, and the institutional diversity of the different national employment relations regimes in which the subsidiaries operate, together offer a rich and valuable empirical framework within which to pursue the research aims. The chapter is organized as follows. After a brief outline of the comparative industrial and employment relations framework in Italy and Britain, the study is presented and the different company-specific organizational features of the five subsidiaries are underlined. The literature on the extent of adaptation of American employment practices in host countries is then examined. The chapter goes on to explore the way in which the American case-study MNC manages its workforce in Europe. This is done by examining the processes through which sources of autonomy for local actors are generated. Comparative case-study analysis is used to develop the argument for an integration of the institutionalist and the organizational approaches to the diffusion of employment practices in MNCs. This is done, first, by analysing how corporate mechanisms of control in American business work in the European context. Second, local management and trade union responses to corporate mechanisms of control are examined, in a comparative perspective. Finally, the processes through which these responses impact on final outcomes are identified.

Comparing institutional frameworks of employment relations in Italy and Britain The analysis of the factors affecting the international employment strategies of American MNCs in a cross-country comparison of Italy and Britain requires an initial understanding of the principal features of the industrial and employment systems in these two countries. The Italian system in the post-war period has been described as one of ‘voluntarist’ workplace-based union representation and collective bargaining (Regalia and Regini, 1998), characterized by a low level of institutionalization and the absence of formalized and stable rules governing relations among the social actors. In contrast, ‘voluntarism’ in Britain has generally focused on the principle of abstention of the

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state from direct intervention in IR and an absence of statutory regulation, a situation known also as ‘collective laissez-faire’. Moreover, the regulation of individual employee rights has generally been weaker than in Italy. In the British system, arrangements for participation at the workplace as well as for collective bargaining have traditionally been left to the voluntary initiatives of the parties locally. Hence, despite their apparent similarity, the two systems remain substantially different when the level of employment protection and regulation is taken into consideration. This is clearly illustrated by the combination of legislation protecting employment (such as the statutory right to strike and unfair dismissal legislation), employee representation rights and sector-level agreements which are integral parts of the Italian IR context, in contrast to Britain. ‘Voluntarism’ in Italy is mostly to do with enhancing coordination in collective bargaining and reinforcing information and consultation rights at the shopfloor rather than introducing patterns of rules to regulate the system. Moreover, the divergence between the IR systems is reflected in contrasting management approaches to employment relations. In Britain, employment relations have been coloured by the ‘individualistic’ style of Anglo-Saxon business practices in HR and IR, reflected in standardized policies on appraisal, performance and corporate culture; whereas the Italian style traditionally reflects the ability of firms to create flexibility by establishing a socio-economic model of networking based on the ‘economics of specialization’, while benefiting from informal mechanisms of governance of the workforce. During the 1990s both Italy and Britain introduced significant changes in the IR arena, which contributed further to sharpening the distinction between the two systems. Despite the shift in the ruling party from Conservative to Labour in May 1997, there has been relatively restrained change in the framework of legislation and government policy. The emphasis continues to be on relative state abstention, strong labour market flexibility to enhance corporate competitiveness, and a management culture emphasizing individualism over collectivism (Edwards, 2003). As Hyman (2003) reported, this has contributed to enhancing the atmosphere of ‘confusion’ – against a background of underlying deregulation and weak statutory requirements – that characterizes current British IR. By contrast, changes in the IR arena in Italy since early 1990s have introduced increased formality into collective bargaining and union representation structures, contributing to a consolidation of the country’s institutions of labour market regulation. The Social Pact

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(or tripartite agreement) of 1993 on incomes and labour policy contained the key elements of such change. The main aim was to enhance flexibility – for example in the distribution of working-time reductions across the workforce, and in work organization and pay procedures at company level – while reinforcing coordination among the bargaining levels and enhancing employee participation on the shopfloor (Alacevich and Burroni, 2001). Accordingly, the collective bargaining system in Italy has assumed a more coordinated pattern, in which bargaining is shifted to the company level but in such a way that control is retained by the national industry unions and employers’ associations. This is illustrated by the fact that pay and results bonuses negotiated every four years at company level have to be linked to the results of the socalled development programmes agreed by management and unions at sector level. Thus centrally negotiated guidelines are adapted to circumstances at local level, so that agreements at company or plant-level bargaining do not replace strong pattern bargaining in industry. Likewise, the system of employee representation has been set on a more solid footing, providing a more reliable basis for negotiating change and regulating employment relationships at the shopfloor. Thus a unitary trade union representative body (rappresentanza sindacale unitaria or RSU) was established by the 1993 Social Pact to foster participatory workplace relations between employers and unions. Within this context of institutionalized change, union representatives act as bargaining agents at company and local level on issues explicitly mentioned in national agreements. RSUs have recognized consultation and information rights under the 1993 tripartite agreement, which identifies them as formal bodies of employees participation.

Research design The chapter is based on a large case-study analysis of a big American MNC in two European countries, Italy and Britain, and in two sectors, metalworking and chemicals. The analysis focuses on three different business units of the same American corporation, two in the metalworking (referred to as Metal Electrical co, Metal Power co) and one in the plastics industry (i.e. Plastic co). Overall, five subsidiaries were selected for investigation within these business units. Two of five are based in Britain – Metal Electrical UK and Plastic UK – and three are based in Italy – Metal Electrical IT, Metal Power IT and Plastic IT. Within the limits of access granted by the company, operations were selected according to the following criteria: similarity in the nature of

136 Multinationals, Institutions and the Construction of Transnational Practices

the production process, union presence, and (where possible) size. The business units are unionized and have headquarters (HQ) in Europe. In two of the subsidiaries, the European HQ coincides with the global HQ for that business. The company selected for investigation is one of the most profitable in the global economy, with a global workforce of 340,000 employees. Its innovative success has been dependent on the management of organizational learning, and on high-skilled professional workers. More recently, skilled employees have been partly supplanted by unskilled and manual employees as the result of the expansion of the business in non-customized products, in particular in the electronics sector. With the advent of globalization the company executed a new strategy of integrating its operations internationally while increasing exports and expanding global sourcing for both products and services. This has been intertwined with the explicit corporate goal of maximizing efficiency and profit while minimizing employment levels around the world through the continuous rationalization of production and service provision. The three business units selected for investigation, Metal Electrical co, Metal Power co and Plastic co, have global HQs in Europe. Each subsidiary has significance within its host country. For instance, Metal Power IT is the subsidiary with the highest employment and it is the European HQ for Metal Power co. Metal Electrical IT and Plastic IT are smaller but they both focus on the production of specialized products in the electronics and plastics industry respectively; the electronics subsidiary is one of three technology centres in Europe. In contrast, production in Metal Electrical UK does not cover specialized products, and Plastic UK is a manufacturing site with a large workforce, which provides assistance on the development of HRM practices to the other plants within Plastic co in the UK. The subsidiaries in both Britain and Italy are highly unionized, with union density of more than 50 per cent. Data collection took place at both the European and the local subsidiary level. The cross-country and inter-subsidiary comparison allows examination both of contrasting national patterns of employment regulation, and of a rich variety of subsidiary organizational features and structural relationships to the wider corporation. The primary method of data-gathering was the in-depth interview. A total of 40 semi-structured interviews were conducted with key local, European and global managers, international, European and national union officers, employee representatives at the local and the European Works Council (EWCs) (see Table 6.1). Attendance at EWC-related

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meetings, where possible, was also included as part of the research methodology, as was analysis of documentary materials. Table 6.1

Case-study companies and number of interviews conducted

Business Units

Metal Electrical co

Metal Power co

Plastic co

Subsidiaries

Metal Metal Electrical Electrical UK IT

Metal Power IT

Plastic UK

EU & Global HQ

4

UK subsidiaries

7

Italian subsidiaries

–

Total

17

2

3

–

–

8

6

6

–

8

15

Total interviews

Plastic IT 9 –

15

4

16 40

Overview of the British and Italian subsidiaries Metal Electrical UK Metal Electrical UK was a British subsidiary of Metal Electrical co in the electronics industry. At the time of the research, the European HQ was in Spain and Metal Electrical UK was still part of the electrical business unit of the American corporation; subsequently, in January 2004, two business units (power control, lighting and appliances) were merged into one larger business unit and as a result, the European HQ moved from Spain to Hungary. The UK subsidiary was established in 1998, when a low voltage switchgear business was bought from a traditional British-owned company. On purchasing the operation, Metal Electrical co decided to restructure the business to increase efficiency by implementing a regional structure comprising Europe, Americas and AsiaPacific. Production units in Europe were located in Germany, Spain, Netherlands, Belgium, Italy, France, Portugal and the UK. The British plant manufactured industrial, domestic and commercial commodities, such as switches and fuses. It also distributed boards for electricity supply. In May 2003 there were 140 employees in total of whom 20 were sales staff. The plant was highly unionized, with Amicus as the dominant union. Following the accession of the 10 new members to the EU in January 2004, and the transfer of the European HQ to Hungary, in the second half of 2004 the entire production was moved from the UK to Poland and Hungary.

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Plastic UK Plastic UK was established at the beginning of 1990s when the American corporation took over a big American company in the plastics industry. At that time the business was integrated with the rest of the manufacturing, commercial and financial operations. The global HQ of Plastic co was in the Netherlands and also functioned as the European HQ. Overall, operations in Europe were present in seven countries: Netherlands, Spain, Italy, Germany, Austria, France and the UK. Production within Plastic UK was prevalently based on panels. The British-based subsidiary assisted other British operational units with the implementation and diffusion of HRM practices. The subsidiary had a total workforce of 170 employees, 70 of whom were shopfloor workers. It was highly unionized (Amicus and T&G were the most representative unions).

Metal Electrical IT Metal Electrical IT was one of three Metal Electrical co subsidiaries in Italy. It was the one that best survived the huge restructuring plan that led to a drastic reduction of the labour force in Italy, and more widely in Europe, in the previous ten years or so. Metal Electrical IT was the centre for the production of specialized electronics products, such as electrical control systems for appliances. The Italian subsidiary was also one of three technology centres in Europe for equipment products (the others being in Germany and Belgium). The total workforce was around 400. Union density in the plant was 80 per cent, with members predominantly represented by FIOM-CGIL (Federazione Italiana Operai Metalmeccanici), the largest Italian union federation in the metalworking sector. At the time of the research, the European HQ was based in Spain.

Metal Power IT Metal Power IT was the largest European subsidiary of Metal Power co, with both European and global HQ in Italy. The total workforce was around 3000. The subsidiary produced stem propellers, compressed spin-driers and equipment for the extraction of oil and gas. Union coverage was 100 per cent, with FIOM-CGIL as the most representative union. As in the case of the European HQ of Plastic co, Metal Power IT had responsibility for coordinating the diverse operations of the business across the globe. Production units in Europe were concentrated in Italy, Spain and the UK. The administration of personnel as well as training policies, salary planning and management–labour relations were centrally managed by the European HQ in Italy.

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Plastic IT Plastic IT was a small-medium production unit of Plastic co with both European and global HQ located in the Netherlands. Its workforce was about 70 and the level of unionization was around 60 per cent with FEMCA-CGIL (Federazione Operai Chimici) as the predominant union. Plastic IT was originally an Italian family-owned company which was bought by the American corporation at the beginning of the 1990s. Production in the subsidiary comprised specialized plastic components, and as a result the workforce included skilled employees. In the previous two or three years the plant had been affected by a wide-ranging restructuring plan which contributed to a reduction in the workforce of nearly 30 per cent.

Employment relations within American corporations: nature and orientations American corporations have acquired a reputation of being more highly centralized, formalized and ‘ethnocentric’, and less adaptive to local cultures, than MNCs of other nationalities. Various researchers have found that American MNCs draw on their own management and IR policies and attempt to adjust them to local rules, procedures and policies to the extent that is obligatory by law (Bartlett and Ghoshal, 1998; Turner et al., 1997; Young et al., 1985). It has also been found that they are typically against the recognition of trade union representation and collective bargaining. The ‘individualistic’ managerial ideology is seen as one of the main characteristics of the national identity of American corporations: employment practices are conducted on the basis of a direct relationship between individual workers and management, and the clear preference for performance-related pay and associated formalized performance appraisal systems to regulate the employment relationship. The non-union approach of American firms reflects this individualism. It has often been based on principles of union ‘substitution’, aiming to ensure that workers will not feel the need to be represented by the trade unions. Studies of American MNCs in host countries have also highlighted evidence of more proactive anti-union behaviour and discouragement of union membership accompanying the establishment of American subsidiaries abroad (Gunnigle, 1995; Martin and Beaumont, 1999; Muller, 1998). Some commentators (notably Dicken, 2003) have argued that the institutional context within which firms operate shapes the nature of corporate strategies. The individualistic, anti-union approach of American

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employers has been seen as embedded in traditions of American capitalism (Edwards et al., 2004). However, the country-of-origin institutional legacy is not seen as rigid but rather as evolving over time. Thus it does not close off the possibility for MNCs to learn from the host institutional contexts and business systems in which they operate (Edwards and Ferner, 2002). The extent to which this occurs is partly shaped by the relative strengths of parent and host business systems, in terms of economic performance and institutional and cultural characteristics. Smith and Meiksins (1995) refer to the ‘dominance’ of particular economies over others. Martinez Lucio and Weston (1994) argue that ‘dominance’ effects encourage inter-subsidiary learning within MNCs in areas such as work organization, resulting in pressures on poorly-performing plants to adopt practices from those with superior performance. In this respect MNCs look to ‘dominant’ systems to act as the source of new practices. ‘Dominance’ effects interact with legal and cultural factors in the host country. Hence elements of the legal framework of employment, such as labour law and trade union organization are seen as shaping the way in which MNCs operate and, in particular, how some aspects of the employment relationship are conducted. In countries with highly regulated statutory provisions and clear representative structures, such as in Germany and the Nordic countries, for example, it is difficult for MNCs to operate outside such structures. Thus, the emphasis of this strand of literature is on the impact of host country institutional determinants on the potential for local subsidiary autonomy at the expense of wider, corporate influences. This implies highlighting the impact of employment regulation, labour market institutions and the management culture of the host country on the formulation and implementation of parent company policies at the subsidiary level. More specifically, MNC policies are mediated by the intervention of local actors as the result of the host country effect. Ortiz (1999), for example, illustrates how, within national and local frameworks of labour regulation in Spain, unions could exploit international management strategies on work organization, such as teamwork, in order to reinforce their position in the IR system. However, as indicated, studies of MNCs have also highlighted the importance of organizational or company-specific factors in the analysis of the influence of local plants on the behaviour of MNCs. This suggests that a subsidiary may play an active role within the management process of the wider MNC (see, e.g. Birkinshaw, 2000; Ghoshal and Bartlett, 1990). Some authors have linked the subsidiary’s capacity to play an active role in the relationship with the MNC to the power

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resources deriving from a particular context. For example, in a study on the management of employment relations in American MNCs in the UK, Marginson et al. (2004) have pointed to the business focus, management organization and pre-existing IR arrangements as relevant factors which affect how management–labour relations vary amongst different subsidiaries within the same multinational. Overall, these approaches follow the long conceptual tradition of making distinctions between various patterns of authority within MNCs, drawing on Perlmutter’s (1969) categorization of ethnocentric, polycentric and geocentric approaches, and on the simpler distinction between centralized and decentralized authority structures. A growing body of research on HRM within MNCs currently poses the problem in terms of the balance between centralized policy-making and subsidiary autonomy. In particular, drawing on a series of case studies on the management of human resources it is argued that one important feature of the balance between parent and subsidiary is the way in which this balance is negotiated by local actors through micro-political processes (Ferner et al., 2004). This is because although fairly extensive centralized and standardized mechanisms are the norm in American MNCs, the transfer of practices becomes subject to a process of negotiation with local managers and unions and, therefore, centralized control of subsidiaries is rarely unambiguous. This suggests the importance of linking the idea of subsidiary autonomy to the broader literature concerned with the forces shaping the implementation of parent strategies and policies in local subsidiaries. Hence a more balanced, and perhaps dialectic, account is envisaged of the factors affecting the diffusion of employment practices in American MNCs. The chapter follows this balanced approach in examining the processes through which local actors derive their leverage vis-à-vis the parent company. It thus explores patterns of interaction between institutional and organizational factors in shaping locally-grounded responses by management and labour to the international strategies of diffusion of employment practices of one American MNC to sites in Italy and the UK. These responses reflect local actors’ interests as social groups and express the power that they derive from their relationships to each other within particular institutional and organizational settings.

Looking at international employment policies in one American corporation Our field study observation indicates that the determination of management policies in the areas of pay, management–labour relations,

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training and recruitment within the American subsidiaries in Italy and the UK was highly centralized and standardized under the control of corporate HQ. Policy planning was integral to this and conducted through powerful corporate functions. Corporate HR/IR policies were disseminated from the centre and monitored subsequently by the European regional level to ensure that they were in line with national legislation across Europe.

Pay and rewards system The encouragement of direct relationships with employees was a general characteristic of the American MNC’s approach to employment relations. The company established formalized norms and values regarding employee participation and social integration into the organization. These rules covered the regulation of employment relationships according to ‘individual’ patterns, relations with the customer and the public administration, and the resolution of disputes and conflicts of interests when they occurred. The individualized approach to employment relations was particularly seen in the linking of pay and performance. The company set the budgetary constraints for each business unit in planning salary increase in its European subsidiaries. Due to variations in national regulation, hourlypaid employees were not covered by global policies. Bonus systems and other pay arrangements for these workers were either established directly by local managers or negotiated with unions and/or works councils as part of local collective agreements. For non-hourly paid employees, performance was monitored annually at central level through the electronic completion of a questionnaire by employees themselves. The questionnaire was discussed by senior management and employees within each business unit, and the results were fed back to central management within each division. Senior managers were expected to classify nonhourly paid employees into three categories: ‘weak’, ‘average’ and ‘excellent’. Rewards in the form of salary increases or allocations of company shares were distributed amongst the employees on the basis of the performance ranking. The poorest performers did not benefit from any pay increase and in the case of the lowest 10 per cent risked ‘exit’ from the company (the so-called ‘Work Out’ system). ‘Exit’ was normally ensured through economic incentives to leave the company for those individuals who had not performed adequately in the previous two years or so.

Management–labour relations The pattern of direct relationships with employees was used by the corporate level to undermine the role of unions as bargaining agents and

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secure employees’ commitment to company values. The aim was to marginalize the role of ‘third parties’ – most notably unions – in the determination of pay increases and working conditions, and in the handling of organizational changes and the restructuring of production. As Jacoby (1997) argues, this reflects the tradition of ‘welfare capitalism’: a sophisticated variety of non-unionism based on encouraging a strong mutual commitment between the firm and the employee, the promotion of a strong, explicit and inclusive corporate culture, and the use of policies such as performance-related pay, profit sharing and productivityoriented innovations such as team-working. The main thrust of this model of employment relations is to remove the union role in employee voice by reducing the employees’ desire for collective representation. The MNC exploited its global programme of corporate restructuring to reduce levels of employment in subsidiaries that were more heavily unionized, and conversely to move production to those geographical areas with a low union density. This pattern coincided with the corporate strategy of market expansion and relocation to areas characterized by high labour force skills and competences.

Personnel policy Other employment issues, notably training and recruitment practices, were centrally coordinated and strongly monitored by the parent company which decided whether future training courses and recruitment were needed and for how long. Decisions on whether subsidiaries could recruit as well as the process whereby they did so, such as the use of particular skills and competences as recruitment criteria, needed central authorization from the parent company, which also had the right to decide whether changes in standard criteria requested locally were needed. As with pay and appraisal policies, there was a distinction to be made between managerial and non-managerial employees. Training and recruitment policies tended to be highly prescribed for certain occupational categories, most notably managers and senior managers. An electronic management system was used to identify employees’ developmental needs, and specific training courses were recommended by senior managers, following authorization from corporate HQ. A questionnaire was completed annually by individual employees as part of self-assessment procedures. The process was centrally monitored through periodic communication between parent and subsidiary in the course of which individual cases were discussed and solutions proposed regarding further development plans. While the financial cost of training courses was borne locally, courses were normally organized centrally by corporate HQ in the US, and they involved personnel experts

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coming directly from corporate HQ. In contrast, decisions regarding developmental needs of employees in non-managerial positions were taken at the subsidiary level following authorization from European HQ. Training courses were usually organized by local managers.

The research findings: a comparative analysis of the employment practices in five subsidiaries in two European countries In the following section, we illustrate a complex picture in which company-specific features coalesce with host country institutional forces to open up the scope for local adaptations of employment practices from the parent company to the Italian and British subsidiaries. The intention is not to give primacy to company-specific organizational influences at the expense of host-institutional factors, or vice versa, but rather to give greater emphasis to both, and to their interaction, in shaping the power resources of local actors and hence their ability to increase their room for manoeuvre vis-à-vis the corporate level, and to moderate the impact of ‘country-of-origin’ influences. The evidence shows that local actors in the British and Italian subsidiaries exploited both cross-national institutional differences in the regulation of employment relations and cross-subsidiary organizational diversity in order to increase their autonomy and strengthen their negotiating position with respect to central management. In other words, the subsidiaries’ ability to push for local interests was affected by a combination of national-institutional and company-specific traits. Although most employment practices in the five subsidiaries were determined at the corporate level, the extent to which local management tailored these practices to the host environment was affected by organizational factors mediated by national-institutional effects. For example, in those business units where the global HQ coincided with the European HQ, the determination of employment practices tended to take place at the European level (i.e. Metal Power co and Plastic co). Three considerations are useful in explaining the rationale behind the decentralization of authority from the centre to the European level as well as its implications for the degree of diffusion of employment practices within Italian and British subsidiaries. First, the geographical location where coordination takes place (Europe rather than US) affects management’s conception of how employment practices should be coordinated across different subsidiaries. Second, the degree of integration of employment practices within business units is influenced by the extent to which subsidiaries are spread across several

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countries with differentiated IR systems: when the global HQ is in Europe, for example, subsidiaries tend to be spread across several European countries, embedded within very diverse IR and employment regulation systems. Third, in global business unit HQs located in Europe, the presence of European managers is likely to lead to a higher degree of decentralization and local coordination of employment policies, and these will be more ‘European’ in character. Case-study evidence shows that Metal Electric co, with its global HQ in the US and subsidiaries spread across less institutionally diverse countries, had a weaker interest in coordinating employment practices at European level than the other two business units, Metal Power co and Plastic co, whose global HQ was in Europe and whose subsidiaries operated in more diversified institutional settings. In addition, in the case of Plastic co, the manager responsible for employment relations at global business unit HQ was from a continental European country, with intimate knowledge of works councils and of information and consultation procedures. As a result, the employers’ side had developed a more coordinated approach to labour issues at European level, which involved the employees’ side as well. The presence of European management at the global HQ level as well as the coincidence between the global and the European HQ are certainly ‘organizational’ factors since they both relate to the relationship between subsidiary, regional and corporate head offices, but they are also the manifestation of an institutional effect. For example, in Plastic co, the way in which employment was coordinated at European level was very much affected by the institutional framework of the country in which the European HQ was based, the Netherlands. The Dutch system of IR consists of highly regulated management–labour relations with statutory support for works councils. It gives plant-level worker representatives the right to influence company decisions and can lead to an alliance of works councils and local management against parent company plans. This has important implications for both European and local levels. Regarding the former, it fosters a positive employer attitude towards bodies of collective representation. The case of Plastic co was particularly interesting as management and employee representatives on the EWC explicitly agreed to negotiate European-level agreements on the implementation of appropriate company-wide procedures and policies. The agreements covered internet policy and the use of the e-mail system, and ‘pre-employment screening’ or ‘background checks’ for the recruitment and selection of employees at the European subsidiaries of Plastic co. Moreover, the existence of a European management structure familiar with the Dutch culture of information, consultation and collective

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bargaining also had implications at plant level. In Plastic IT, for example, Italian local union representatives expressed their interest in discussing with management the inclusion of the rewards system within the ambit of company-level bargaining. In Plastic UK, unions were able to negotiate changes at the subsidiary level to corporate policies on holidays and disciplinary procedures. Conversely, in Metal Power IT, the presence of American managers at the global level had a negative effect on the approach used by local managers. The latter strictly followed the individualization policies of the corporate level while establishing a narrow space for communication with local unions. Further insights into the impact of the interaction of institutional and organizational effects on the adoption of American practices can be gained from the British subsidiaries of Metal Electrical co and Plastic co. The HR director in Metal Electrical UK argued that the weak competitive position of the British plant in comparison to other operations in Europe had put enormous pressure on the subsidiary. This reflected subsidiary-specific factors, such as the subsidiary’s less competitive position in the product market, but it also resulted from institutional features: while the deregulated labour market conditions of the British system helped attract cost-sensitive work to the subsidiary, it also made it easier to make UK employees redundant, and therefore the subsidiary was more vulnerable to restructuring and relocation of production (indeed, as noted above, in 2004 production was transferred to plants in eastern Europe): One basic problem we have is the duplication of products throughout Europe. Here, we can make products which are different from what is produced in Germany, but we likely make the same products which are made in France, Spain or Portugal. Generally speaking here we produce non-customized products, which are very simple and perhaps more convenient to make in Britain than in other parts of Europe due to deregulated labour market conditions. In Britain we are very much affected by that, we have always to keep an eye on the level of plant performance and productivity; it has always to be high compared to the other plants in Europe because otherwise this risks to undermine the position of the subsidiary in the process of negotiation with the corporate and, correspondingly, it increases for us the risk of closure and redundancy at plant-level. (director of HRM, Metal Electrical UK) Moreover, local actors’ narrow room for manoeuvre in Metal Electrical UK reflected the relatively weak protection accorded to

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employees’ rights in the UK host environment. A shop steward in Metal Electrical UK argued that: In Britain the bargaining power of unions is very low because of the legal restraints of the British industrial relations system. This affects very much the work local unions can do at the plant level. (shop steward, Metal Electrical UK) In Plastic UK local managers saw the situation in a different light because of the stronger competitive position of the subsidiary in the global product market – Plastic UK was the only manufacturing site providing HRM support to other British-based subsidiaries within Plastic co. The competitive position of Plastic UK offered some room for manoeuvre in negotiating with the parent company over the transfer of ‘soft’ issues, such as training and recruitment policy. On these issues, practices in Plastic UK followed a local pattern and were not subject to authorization from the centre. However, other employment issues relating to employees’ terms and conditions (e.g. pay systems and shifts arrangements) were centrally decided by corporate HQ and then transferred to the local subsidiary. Moreover, despite the continental European management style at global HQ, the ‘individualization’ of employment relations was strictly maintained in Plastic UK as in the other British-based subsidiaries of the company. Hence, although Plastic UK had a higher room for manoeuvre than Metal Electrical UK because of its stronger competitive position, there was evident convergence between the two subsidiaries in terms of the outcomes of negotiation with corporate HQ. This clearly reflects an institutional effect, notably the deregulated nature of the national domain. The cross-national comparison between the British and the Italian subsidiaries illustrates this argument more clearly. Metal Electrical IT was seen by European HQ as one of the European subsidiaries most likely to push successfully for the annual percentage pay increase to be adjusted to local circumstances. The director of HRM in Metal Electrical IT remarked that: We often ask for adjustments in the range of salary increases and appraisal systems diffused by the corporate level. We do that because we have very experienced people working here who needs to be fairly rewarded for what they do! Any adjustment is negotiated with the European HQ. Once you give a good reason for why you need something different you get it. (director of HRM, Metal Electrical IT)

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The greater scope for Italian management to adapt corporate employment practices to local circumstances within Metal Electrical co is explained by the combination of host institutional and company organizational features. The stronger position of Italian local managers, compared with their British counterparts, in negotiating local adaptations of central policies is explained by the stronger competitive position of the Italian subsidiary, and by local management’s compliance with national legal obligations regarding wage determination, collective bargaining and employees’ representation rights. The plant’s competitive advantage was seen both in the location in the Italian subsidiary of a technology centre for the development of new electronics products, and in the position of Metal Electrical IT within the local product market. The HR manager at European HQ in Metal Electrical co stated that: ‘Italy is the country with the highest concentration of major clients for industrial systems in Europe.’ The more regulated institutional context of IR in Italy fostered the influence of local managers and unions over the diffusion of practices, while at the same time central management was more tolerant of such adaptation given the strong competitive position of the subsidiary. In Metal Electrical IT, for example, local unions at the three Italian subsidiaries of Metal Electrical co (which included plants at Turin, Milan and Rovato) coordinated bargaining with Italian management over terms and conditions. Using the provisions of the 1993 tripartite agreement (Social Pact), the unions negotiated over the appraisal system as part of the four-year pay bargaining round at company level. As a result, there was inter-plant harmonization of pay and working conditions, in contrast to the predominant corporate strategy of individualization of employment relations and attempts to confine bargaining to plant level. An Italian union representative reported that: Our common response to the corporate individualized strategy was to establish a common practice to squeeze the margin for individual negotiation while enlarging union collective agreements at company level. In doing that we were strongly supported by the provisions of the 1993 Social Pact in coordinating activity amongst the three Italian plants; we set up the ‘core’ of the coordination process at Metal Electrical IT because of its strategic position within the international company. The key information about each subsidiary is summarized in Table 6.2. Overall, the findings show that, despite cross-country and cross-organizational differences, the extent to which global models

Table 6.2

The adjustment of practices in American-based subsidiaries

Firm

Pay, appraisal and rewards

Training and recruitment

Collective bargaining

Trade unions and employees’ rights

Metal Electric UK

Centrally individualized pay and performance appraisal systems. Employees are rewarded on the basis of the level of performance. Low level of discretion by local managers over the implementation of local adjustments.

Centrally defined training and recruitment practices with low possibility of local adjustments.

Plant-level bargaining.

Employees’ rights guaranteed within the national context of social rights indicated by British regulation (very low).

Plastic UK

Centrally individualized pay and performance appraisal systems. Employees rewarded on the basis of performance.

UK operation developed local training. System aligned to requirements of local labour market.

Plant-level bargaining.

New discipline system and holiday scheme and training procedures negotiated at plant-level with trade unions. Pay and working conditions regulated by British legislation (very low).

149

150

Table 6.2

The adjustment of practices in American-based subsidiaries – continued

Firm

Pay, appraisal and rewards

Training and recruitment

Collective bargaining

Trade unions and employees’ rights

Metal Electric IT

No individualization of employment practices. Pay and rewards system negotiated with trade unions at company-level as part of pay increase.

Centrally defined training and recruitment practices but for certain managerial positions (i.e. within HR/IR), those practices are adapted locally.

Coordination on pay bargaining at company level under 1993 tripartite national agreement (Social Pact).

National statutory rules and collective agreements cover employees’ rights at the shopfloor.

Metal Power IT

Limited space for trade unions to negotiate local adaptations of pay, appraisal and reward systems with management.

Centrally defined recruitment and training practices.

Coordination between sector and companylevel bargaining in accordance with 1993 tripartite national agreement.

National statutory rules and collective agreements cover employees’ rights at the shopfloor.

Plastic IT

Appraisals at plant-level – trade unions indicate space for discussion on appraisal and reward systems with management. Collective agreements regulate pay increases.

Centrally defined training and recruitment practices.

Coordination between sector and companylevel bargaining in accordance with 1993 tripartite national agreement.

National statutory rules and collective agreements cover employees’ rights at the shopfloor.

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of production and employment practices were successfully imposed by the parent company on the subsidiary level depends on the combined effect of institutional and organizational factors. This is particularly true in cases where the subsidiary could rely both on a ‘competitive advantage’ – for instance a crucial logistical position within the market, or a leading role in the design or manufacture of a product – and on a regulated local institutional environment. Both factors together increase the scope for action and the possibilities of strategic behaviour by local actors in bargaining with the corporate level.

Conclusions The findings from this study confirm the analytical value of arguments which critically assess the ‘country-of-origin’ influences in American MNCs (see e.g. Ferner et al., 2000; Almond et al., 2003; Colling and Clark, 2002). Whilst the five case studies present evidence of centralized patterns in employment practices, the chapter also highlights hostinstitutional and company-specific factors that, rather than being mutually exclusive, co-exist in complicated and dynamic configurations. Company-specific factors include whether European subsidiaries are good or poor performers, and whether they occupy a strategic position within the international structure of the corporation. The latter often depends on the nature of the company’s products and business operations as well as on the relationship between subsidiary, the regional level and corporate HQ. Thus institutional and organizational factors together affect the extent to which local actors at subsidiary level are able to mediate the diffusion of employment practices from the parent. These factors offer local actors’ scope for bargaining with the corporate centre over the transfer of employment practices, at the same time as jointly shaping local actors’ strategic choices. Thus the chapter is in line with arguments pointing to ‘trends’ rather than ‘convergences’ in the way in which patterns of national business systems are transferred overseas (Almond et al., 2005). For example, a complex picture, in which national and company-organizational features strongly interact, can be drawn to explain trends in the diffusion of employment practices in Metal Electrical IT and Metal Power IT in Italy. The tight integration of the functions of new product research and manufacturing in Metal Electrical IT, as well as the position of the subsidiary in the local market, contributed to an increase in the autonomy of local management. In

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addition, the regulated system of collective bargaining allowed local unions to exploit the resources generated by the competitive advantage of the plant in the product market and, thereby, to negotiate successfully with the subsidiary on pay planning, training and recruitment polices, and to coordinate pay at company level. Conversely, in Metal Power IT, although the size and the position of the plant within the organizational structure of the MNC were significant, the lack of knowledge at global HQ of European national IR systems constrained communication between the MNC and the subsidiary. This argument is confirmed by evidence from Britain where the implications of the competitive position of Plastic UK (and Metal UK) were usually mediated by strong institutional effects. Generally speaking, adaptations were more easily implemented by subsidiaries where, on the one hand, local managers had an important role in the implementation of the multinational’s strategies; and where, on the other, unions were prepared to exploit the strategic choice of local management by negotiating the process of adaptation. Thus comparative analysis leads to the emergence of a complex picture whereby institutional and organizational factors broadly interact to shape subsidiaries’ policy responses by fostering the creation of scope for bargaining by local actors in MNCs. The means by which European subsidiaries dealt with the diffusion of corporate practices within the same American MNC are seen to be affected by beneficial companybased and institutional features that local actors in both countries could exploit within their different national contexts in order to bargain change with the corporate centre.

Acknowledgements The author thanks the British Academy (SG-36170) which funded the research, and Tony Edwards, Paul Marginson, Paul Edwards and the editors of this book for the stimulating comments on an earlier version of this paper.

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7 Who is Hybridizing What? Insights on MNCs’ Employment Practices in Central Europe Guglielmo Meardi and Andra´s Tóth

Introduction Within an enlarged and more diverse EU, the opportunities have increased for international reorganization of production and, with this, for ‘coercive comparisons’ and efficiency-oriented transfers of practices. This chapter discusses the dynamics of transfer through longitudinal case studies of two foreign investors active in the region since the beginning of the economic transformation in Central Europe (CE). The two cases represent contrasting situations: a greenfield investment in a non-union site by a medium-sized German company, compared with a large Italian multinational company (MNC) investing in strongly unionized brownfield sites. Both cases, through different paths, show that the transfer of practices by MNCs in CE leads to hybridized outcomes, but with dynamics that are difficult to understand through the lens of prevalent images of ‘hybridization’. Rather than the country of origin pushing through its models against host-country constraints and resistance, it is the ‘permissive environment’ of the host country that attracts MNCs and encourages the management of the mother company to innovate. This recalls what Dörrenbächer (2002) refers to as ‘hybridization at source’. We argue that management innovation in such cases takes advantage of the permissive environment of the host country to replace constraining elements of the home model, developed through decades of state and union pressure, with host-country assets. In this logic, managers seek to re-create more flexible, more unilaterally managerial versions of the production process they operate at home, using human resource (HR) policies that are ‘functional equivalents’ of home employment regimes. The importance of host-country dynamics is reflected in the need for 155

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local partners – whether managers, employees or even employee representatives – who embrace some features of the ‘home’ production model of the company. Nonetheless, such engagement has its limitation and causes tensions. These processes call into question views of MNCs as ‘missionaries’ and, it will be argued, require a better understanding of power relations at play and of actors’ strategies (‘who’ is hybridizing and why) as well as better analytical distinctions between the different practices that are transferred or adapted (‘what’ is being hybridized). The chapter first discusses existing debates on hybridization, with specific consideration of the CE case, leading to the conceptualization of ‘pull’ hybridization. It then presents the two case studies. The conclusion will make some theoretical and policy observations.1

Hybridization theory: insights and limits The original image of hybridization The most ambitious formulation of ‘hybridization’ is provided by Robert Boyer on the basis of empirical evidence on production models in the automotive industry and especially on the problems of ‘Japanization’. For Boyer (1998), hybridization is a third, mid-way situation between diffusion, that is the transfer of home-country models abroad, and adaptation, that is the adoption by the foreign subsidiaries of the pre-existing practices of the host country. The idea of hybridization does not refer to HR only. It refers to the broader concept of ‘productive model’, as composed by product policy, production organization, and employment relations. A productive model requires internal coherence (complementarity among different elements) and external pertinence. It is the idea of external pertinence that offers the link with institutional analyses and with the idea of socially embedded forms of capitalism. This chapter develops the arguments of Dörrenbächer (2002) that, despite the usefulness and popularity of the concept, most research on ‘hybridization’ has made too rigid and mechanical a use of it. In particular, analysis has often been based on the implicit assumption that MNCs are rooted in a home-country model and therefore only concerned with ‘diffusion’. This has led to a neglect of situations in which transferability is not a goal of MNCs and hybridization follows different patterns. Two aspects of transfer are highlighted by our research. First, attraction (pull) from abroad rather than diffusion (push) is an important mechanism at work. Second, while research on

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Japanization provides many examples of MNCs that have to adapt, it neglects cases where they want to adapt; in contrast, our findings point to processes in which adaptation is deliberately sought by the parent company as an outcome of cross-border transfer. In this perspective, the case of CE is particularly telling.

‘Hybridization at source’: the absence of Germanization Interestingly enough, Boyer’s first and purest example of hybridization comes from a post-communist location: the Eisenach Opel factory in Eastern Germany (1998: 54). In this case the institutions were the same as in Western Germany, but historical experience was quite different. This made it a viable location for the company to experiment with leanest production, which would have been arguably more difficult to introduce in the old Bundesländer. This interesting observation raises further questions. The Eisenach case may be seen as the starting point for a new stream of research looking at German MNCs and their alleged effort to escape, rather than diffuse, their original production model (Modell Flucht), especially with regard to employment relations (Ferner and Varul, 2000; Lane, 2000; Tüselmann et al., 2003; Pries, 2003). The case of German companies is a distinctive one because of the long-lasting Standortdebatte on location competitiveness, but it may show with more clarity processes that can take place in other MNCs. Tüselmann et al. (2003), while detecting some country-of-origin effect in industrial relations (IR) and in the emergence of a new ‘German style’ of ‘pluralistic HRM’, interestingly find that ‘German MNCs, in an Anglo-Saxon context, tend to be at the forefront in adopting what is frequently assumed to constitute the best practice element of the Anglo-Saxon approach’ (p. 339). Pries finds that in the BMW plant in Tuscaloosa (USA) ‘the decision-making process (…) is much faster than in production sites in Germany, and workers’ participation in process optimisation is much higher’ (Pries, 2003: 94). Foreign BMW plants were the frontrunners of Japanization within the corporation: a case of implementing a model abroad, but not the company’s original one. Dörrenbächer (2002) has pointed to the shortcomings of institutionalist approaches to MNCs diffusion and hybridization, based on the concept of business systems. The focus on the ‘pertinence’ of the home-country model overestimates the original coherence and underestimates host-country effects. Notably, there is a ‘strong strategic desire of the top management of many MNCs to flee certain aspects of their country of origin business system and/or to learn from or to

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experiment with aspects of other business systems’ (p. 3). In some cases, what happens in the foreign subsidiary is not the more-or-less mediated outcome of the transfer of home-country models, but deliberate innovation intended to affect the whole group, as in the Audi case in Hungary. This subverts ethnocentric views of MNCs: the home country is not necessarily the ‘model’, and the host country is not necessarily a passive recipient. Dickmann (2003) has noted insufficient consideration of the issue of willingness in the transfer of German HRM abroad. He argues that firms may consciously be using differences in business systems to pursue distinct local strategies, enabling a higher flexibility overall. Indeed, Dickmann’s own findings on German MNCs in the UK and Spain show that five out of six companies had an international HR strategy, but none wanted to transfer the German IR approach: the increase in managerial prerogative was seen as outweighing the advantages of codetermination. As one manager puts it: ‘we do not tie a millstone around our necks’ (p. 274). Yet the implications of such unwillingness to transfer become most apparent in the case of CE. Dörrenbächer (2002) admits that German MNCs often declare that they have transferred their ‘German’ employment practices, but this usually does not correspond to the reality. And what research shows in many cases is not just a modification, attenuation or adaptation of the original model, but a radical and deliberate departure from it. Such change can be interpreted as a search for functional equivalents (Ferner and Varul, 2000; Bluhm, 2003), but this does not reduce the importance of the fact that, against institutional coherence views, the production system is maintained through a change of the underpinning ‘social system’. Two aspects are widely considered as pillars of the German co-determination system. First, there is a division among channels of employee representation, in order to keep wage determination (arguably the most disputed issue) outside the firm (sector-level, union-led collective bargaining) and day-to-day cooperation inside the factory (through works councils). Second, the system is characterized by a long-term orientation which translates into employment security, generalized vocational training and stakeholder voice, in exchange for reliability, productivity, transferable skills and human capital development. Behind the specific organizational solutions, one can argue that if these two pillars are deliberately rejected, it makes little sense to speak of diffusion or even hybridization in Boyer’s sense: the push element is not present and there is little ‘Germanness’ left.

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Research on German investment in Hungary by Fichter and Dörrenbächer (Fichter et al., 2004; Dörrenbächer, 2002) shows exactly this. Works councils are allowed, but not consulted. Sector-level collective bargaining not only does not apply, but its possibility is viewed with repugnance. Employment practices depart even further from German standards, with the adoption of trial-and-error employee selection, use of agency workers and frequent unilateral overtime. German firms in Hungary adopt individual paternalistic communication strategies, rely on on-the-job training more than on vocational training, introduce innovative forms of teamwork, do not join, and even actively undermine, employer associations, and keep employee representatives at a distance. In other words, they seem more American than German. Hybridization, if it happens at all, is then understood not as the balance between home-country pressures and host-country resistance, but the outcome of the firm’s selective transfer strategy. The authors call it ‘hybridization at source’ in contrast with ‘exogenous hybridization’ (Dörrenbächer, 2002). The contrast between very high technological transfer (with some Hungarian workplaces overtaking their German counterparts) and very limited IR transfer is striking, and it raises important questions about both the state of the German model and the coherence of productive and business models. Such findings suggest that the home-country model is changing its meaning, moving away from an emphasis on rigid institutional pathdependency. As Lane (2000) puts it, hybridization in Germany occurs through German MNCs’ learning from abroad. On the telling issue of performance-related pay in Germany, Kurdelbusch (2002) found no difference between foreign and nationally-owned companies, but an important effect of internationalization regardless of ownership: internationalization in general, not FDI inflow alone, matters. German companies ‘pull’ from abroad as much as foreign companies can ‘push’. The lengthening of working time at Siemens (one of the fastest internationalizing German companies) in Germany under the threat of relocation is a rather brutal instance of such ‘pull’ factors.

Towards a ‘pull’ hybridization theory: the case of CE The important work on German FDI points the way to an improved conceptualization of mechanisms of hybridization. This chapter argues for the generalizability of such mechanisms through the discussion of two contrasting case studies: medium-sized and large, German and non-German.

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The general concept proposed is that of ‘pull’ hybridization. The idea of ‘pull’ effects is already present in the literature with the narrow and rather inappropriate meaning of ‘adaptation’ to local practices, for instance in the case of MNCs in China (Farley et al., 2004). Such meaning is inappropriate because the image of ‘pulling’ implies a voluntary act and the drawing-in of practices from another location. The idea of hybridization as a ‘pull’ rather than ‘push’ process requires further theoretical revisions. It includes two equally important components. First, it brings in the process of ‘reverse diffusion of practices’ detected and analysed by Edwards (1998), whereby headquarters ‘pull’ some elements from host countries. ‘Pull’ hybridization cases show that such reverse diffusion does not necessarily depend on the relative power of the subsidiary, as it may actually be planned by the headquarters. Pull hybridization does seem, however, to be influenced by what Edwards calls hegemony effects, whereby certain models (currently, the Anglo-Saxon ones) enjoy higher legitimacy than others. Second, it points at ‘attraction’ processes, whereby the home-country model diffusion is requested instead of resisted by host-country actors. Overall, the idea of ‘pull’ hybridization moves from an institutionalist paradigm of coherent models to a more actor-centred paradigm focused on strategies and power of different actors within MNCs and business systems. We will look at these dimensions of hybridization in the context of CE: a region generally expected, as a result of its status on the ‘periphery’, merely to adapt to external pressures or to resist them. A multidimensional perspective on hybridization, able to overcome the ethnocentric dualism between central models and peripheral routines, recognizes an innovative potential for subsidiaries, as well as the selective attractiveness of host-country environments for MNCs. Other ‘peripheral’ areas have proved to be at the cutting edge of MNC innovation, for instance Mexico for VW (Pries, 2003), South Africa for BMW (Pries, 2003) or South America and Southern Italy for Fiat (Balcet and Enrietti, 1999; Pulignano, 2003). In the same way, CE has proved in many regards to be ‘more Western than the West’ (Meardi, 2000) and its automotive suppliers sometimes form ‘frontrunner networks’ in terms of organizational innovation (Ruigrok and van Tulder, 1999). The position of MNCs in the new member states of the EU is structurally distinct. The unique combination of geographic proximity, high labour-cost differentials but comparable productivity levels, the absence of non-tariff barriers, and the existence of some degree of transnational political and social regulation, makes the enlarged EU

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different from other free trade areas where, as in the case of NAFTA, non-tariff barriers persist and virtually no supranational labour rights exist. International pressures and processes are most visible within a single market like the EU, where the debate has been shaped by the idea and threat of relocation. For the reasons discussed in the previous section, change in CE is particularly visible in the case of German MNCs. Bluhm (2003) has shown that although some German investors in Poland and the Czech Republic do transfer parts of the German model, they do not promote sector-level regulation, even seeking to oppose and undermine sectorlevel employer organizations. This applies not only to smaller German companies but also among larger MNCs, despite the fact that such regulation should be a pillar of the ‘German model’ for these firms. Thus German operations in Poland are oriented towards individualflexible models of labour relations that have little in common with German models of representation. Domsch et al. (1999) confirm that German companies in Poland have the same recruitment strategies and the same personnel development policies as Polish firms; local actors do distinguish between Poles and Germans, but more on the basis of stereotypes than on actual differences. Our (unpublished) survey of German and US investors in the Polish automotive sector (N = 30) confirms the departure of German companies from the classic German model. Controlling for size and mode of entry, the findings show no significant difference in the presence of trade unions between US and German subsidiaries, which is itself a challenge to the meaningfulness of home-country models. Such departures are not confined to German firms. The French firm Danone experimented in Poland with non-union employee representation bodies (Meardi, 2000); although management presented them as a traditional Danone practice, such bodies are clearly unknown in the home country. Durand (1997) gives further examples where local managers in French companies in CE react more quickly to innovation than their home-country counterparts. It is important to stress that the attractiveness of the periphery does not simply derive from low wages, as the traditional New International Division of Labour theory would have argued. It reflects a broader combination of employee relations, flexibility, organizational fluidity, skills and work attitudes. As recent studies show, since the second half of the 1990s, CE has attracted higher-value MNC operations, often not dissimilar from those of home countries and already at the level of southern Europe (Baldone et al., 2002; Radosevic et al., 2003). The most

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important targets for FDI in the region are not the traditional low-skilled, labour-intensive sectors like textiles, but sectors that are important for market access or that are technologically advanced (motor vehicles, chemicals, electronics). Some companies, like Peugeot and Toyota in the Czech Republic, also locate centres for R&D in the region, and General Electric is locating all of its European customer services in Hungary. The fragmentary evidence available shows that as long as they have made the necessary technological investments, MNCs usually obtain similar hourly levels of labour productivity in the region, and hence often achieve higher overall productivity thanks to longer working time. Thus it seems that most hybridization research has neglected the growing power of MNCs, especially in diverse free trade areas like the enlarged EU. A recent example is Siemens’ new form of organization, ‘Siemens Management System’, whereby all company functions, from pure research to the simplest operations, should be capable of worldwide relocation in the name of ‘global value creation’. Interestingly, Siemens has decided to locate important new operations in Hungary in spite of the failure of a previous more traditional transfer to the country. The transfer of practices may still occur in many cases, as a result of control, integration and quality standardization constraints, but there are no longer reasons to take it as the natural state of things. Despite MNC power, other actors must also be included in the analysis. Even when MNCs want to diversify productive systems instead of diffusing the original one, the factors influencing the feasibility of transfer still operate: coercive forces in the host country (laws, institutions, organizations) and the resources of actors at different organizational levels, including those within the host country (Ferner and Edwards, 1995). However, such channels may operate to attract rather than to resist transfer. Public bodies, employee representatives, and other host-country actors may make use of arguments about ‘fairness’, product standardization and ‘product reputation’ arguments to attract home-country practices even when the MNC does not intend to diffuse them. European works councils, as networks if not as deliberative bodies, are potentially privileged channels for such bottom-up pull attraction and even upwards ‘coercive comparisons’ whereby standardization operates through the upgrading of labour conditions (Meardi, 2004). A final and particularly ambiguous actor is local management. Local managers may reject diffusion when employees are requesting it. Research in progress shows that local managers in German subsidiaries may be disappointed by the transfer of HR or IR practices as it can reduce

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their status or increase the constraints imposed on them by employee representatives. But local managers may also be keen implementers of new practices. In any case resistance, whether by employees or by managers, is not on the grounds of ‘old routines’, as assumed by Boyer. Different actors will have different interests as to what to ‘pull’. In particular, host-country managers are likely to want to pull the legitimating role of technology and of the restructuring/change discourse, as our case studies will show. Employees may also want to pull technological expertise, on condition that it does not destroy jobs, but they will also increasingly wish to attract the social (organizational and IR) elements of the home-country production system. Requests by hostcountry managers, technicians and employee representatives may be driving transfer to the host much more than headquarters pressures. On the other hand, home-country managers are increasingly likely, within a public discourse of globalization and relocation, to attract elements of host-country flexibility or productivity. To conclude, Boyer’s model of hybridization based only on homecountry diffusion and host-country resistance (Table 7.1) does not seem well suited to predict developments in CE. According to the model, German and Italian companies should fall in the north-west cell, of pure transplantation of the firm’s original model, given that they are transferring clearly defined routines to a weak, heterogeneous host. As the case studies in the next section will show, however, this is generally not the case at all.

Table 7.1

Nature and likelihood of hybridization (Boyer, 1998: 38)

Host space Firm’s model

Weak and heterogeneous

Rather strong, compatible with some diversity

Strongly coherent and homogeneous

Precisely defined principles and routines

Transplantation [expected result of MNCs in CE]

Uncertainty

Conflict

Clear principles but some routine flexibility

Partial hybridization

Hybridization

Hybridization as innovation

Neither principles nor routines are strongly implemented

Incoherence

New trajectory

Adaptation

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In order to account for CE, it is necessary to elaborate on Boyer’s model to allow for the case in which the firm has the power and willingness to diversify its practices across countries and sites. In addition, the host’s weakness and strength should be understood not only in relation to the ability to resist transfer, but also to the ability to attract or innovate. Table 7.2 is an initial configuration of a revised model with these two additional possibilities. This will be used in the further discussion of case studies from CE. Table 7.2

Revised model to take account of efficiency-seeking FDI in CE

Host space Firm’s model

Weak and heterogeneous

Rather strong, compatible with some diversity

Strongly coherent and homogeneous

Institutionally weak, but with informal resources

Precisely defined principles and routines

Transplantation

Uncertainty

Conflict

Low-intensity conflict

Clear principles but some routine flexibility

Partial hybridization

Hybridization

Hybridization as innovation

Low-intensity hybridization

Neither Incoherence principles nor routines are strongly implemented

New trajectory

Adaptation

Informal distortions and resistance

Power and willingness to diversify

Isolated experiments

Externallycontested hybridization

‘Pull’ hybridization [cases in Hungary and Poland]

Sweatshop

‘Pull’ hybridization in contrasting contexts Methodology and comparative purpose Two case studies will be presented which, for the sake of theoretical generalization, display prominent differences. The first is in some regards representative of ‘greenfield’ situations, in which the investor enjoys a higher degree of freedom than average in shaping employ-

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ment practices. The second presents the contrasting situation of a large, brownfield investment in a highly unionized site. The discussion will show the generalizability of our approach. Although they followed different routes, both cases exhibit similar unexpected forms of hybridization, reflecting CE-specific resources and dynamics. The first example is taken from a research project on German investors in Hungary (Fichter et al., 2004), the second from in-depth research on Italian investors in Poland, carried out in 1995–99 (Meardi, 2000) and followed by an update in 2004. Both cases are longitudinal and focus on the historical sequence of events. The methodology is that of in-depth qualitative research, including non-participant observation and document analysis but primarily centred on a high number of interviews (28 in Hungary, 35 in Poland) with employees, local and foreign managers, headquarters managers, and home- and host-country employee representatives.

Greenfield hybridization: an ‘ideal’ German model in Hungary First steps: entry and early development The German Tool-Manufacturing Company (GC) is a family-owned medium-sized company, among the world’s leading producers of sensors. Its model retained some of the characteristics of paternalistic, family-like company culture despite the rapid changes of the last decades and adoption of modern management techniques. The business strategy in this product niche combines high-level R&D and lowcost, high-quality production. In the 1980s, the German plant employed around 800 employees, of whom 600 were production workers. The company reached a critical juncture in the late 1980s. In order to sustain its wide product portfolio, it had to add a low-cost manufacturing base. The solution, a new low-cost subsidiary (HS), was located in a medium-sized industrial city in Western Hungary. The location was chosen for the close logistical links, allowing a flexible production network to be operated between the parent company and the new site. A personal factor also played a role. The engineering director, who managed the establishment of the new subsidiary, had been born in Hungary. He personally knew the individual appointed as director of the subsidiary, a Hungarian engineer who was the head of the R&D department of a major Hungarian automotive supplier company. GC opted for a greenfield site and a trial-and-error development path. It started by relocating old machinery which had been operating a single shift in Germany owing to the works council’s opposition to two-shift schemes. Hungarian employees, eager to show their abilities,

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fixed the machine and secured a continuous flow of production over two shifts. These early signs of commitment and ability were a key early positive experience for top managers at GC. The second machine introduced at HS was a state-of-the-art pick-and-place machine, which represented a new technology never previously used by the German company. A stream of step-by-step relocations of assembly activities from Germany took place up to 1993. In this period relocation had an ad hoc character: as opportunity or necessity arose, production in Hungary was expanded. At the same time, HS took back in-house the production of some components which had previously been outsourced to smaller firms in Germany. This increased the autonomy and customer-oriented flexibility of the company, but also, due to low labour costs, allowed further cost-cutting. Additionally, HS was assigned new high-tech activities not previously undertaken in Germany. At the end of this period, HS employed 77 people. 1993 marked the beginning of a new phase. Between 1993 and 1994, a major relocation took place with the transfer to Hungary of the assembly of sensors. By the end of 1994, employment at HS had risen to 190.

Turning point and qualitative change In 1996, the company systematically redesigned its division of labour, concentrating all mass-volume production in Hungary. Employment at HS rose to some 400. In the new work division, the German plant retained the relatively small responsibility for assembly of low-volume customer-specific sensors. The number of production employees in Germany was reduced to approximately 100, while headquarters and R&D functions at the German site were reinforced. Subsequent years saw an increase in R&D, marketing, purchasing and supply chain tasks at HS. This international reorganization was successful. HS offered a lowcost production platform for GC, but also enabled it to develop new manufacturing activities, building on the high quality of local human resources and industrial experiences. The end of the 1990s saw a rapid and seamless reorganization of production according to Japanese production principles. Reorganization was shaped by the engineering director, who had previous direct experience of Japanese car manufacturing practices. He was assisted by specialized external consultant firms, especially in the planning of teamwork and the introduction of kanban in 1998. Reorganization of production was followed by revamping of other areas, including the IT network in 2001 and

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more recently the re-shaping of the supplier network, reducing the dependence of the company on traditional suppliers.

Transfer of production, HRM and IR In the case of relocation of production, there was a virtual one-to-one transfer of organization. Hungarian employees were trained in Germany and German engineers were posted temporarily to Hungary to supervise the transfer. Certain modifications of the production process were introduced as a result of technological advances, higher automation levels in Hungary, or differences in the physical layout of the Hungarian plant. These modifications, however, were designed by the engineering department of GC. The Hungarian input to the production planning process tended to be limited to ergonomics concerns. The tightness of GC control is shown by the fact that the Hungarian side had to seek German approval for any process development. The introduction of SAP software system tightened GC control over HS even further, and the hands of Hungarian management were tied by production, quality and cost targets set by central headquarters. By contrast, Hungarian management enjoyed autonomy in shaping HR policies. Company policy was to ensure decent wages and working conditions by local standards. The Hungarian director (HD) exercised tight control over employment relations in HS. He had a paternalistic style that emphasized loyalty and commitment balanced by good working conditions and fair compensation. HS was regarded as a highwage company in the local context and had a reputation for being a ‘caring’ company. With its relatively higher wages, it was able to employ the cream of the local labour market and had a better-trained workforce than the parent company in Germany. The higher skill levels of employees in production areas allowed a highly quality-oriented work culture and job flexibility. In addition to relatively good wages, the company offered working conditions at least equal to, if not better than, those at the German plant. The wage system for production workers encouraged multi-tasking and multi-skilling. The hourly wage for production employees depended solely on how many jobs and of what skill level an employee was capable of performing, regardless of seniority. On top of basic pay, there was monthly contingent pay of around 20 per cent, based on individual evaluations of employees’ quality and performance. Those who had not been on sickness leave during the previous month received an additional bonus. The salary was accompanied by a wide-range of fringe benefits. The pay system thus differed significantly from the mainly hourly-based

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German wage system, fixed by the sector collective agreement of BadenWürttemberg. The plant’s highly flexible working-time arrangements allowed it to adjust working hours to production cycles. Flexibility was unilaterally determined by management, thus departing from the partially employee-led German model (whereby employees may use timebank schemes to adjust their daily working schedules to their other commitments). Training had an important place in HS, both on-the-job and in relation to organizational change. The company supported two vocational schools and there were schemes to provide financial support for higher education for employees. The adaptation of the family style of the company culture was facilitated by the fact that HD has a very similar paternalistic conception of company culture to the German owner-manager of the parent company. As far as IR were concerned, GC and HS seem to be at opposite ends of a continuum. HS was run unilaterally by its management and was not constrained by works council or trade union, or by a sector or company collective agreement. GC was a typical German company with an influential works council and a sector collective agreement limiting managerial prerogative on the pay system. In several interviews with headquarters managers it was obvious that inflexibilities imposed by IR actors were seen as a problem rather than an asset. Nonetheless, from the 1990s the danger of relocation was an essential managerial bargaining chip for obtaining concessions from the local works council. The stream of relocations put the works council on the defensive. It primarily represented a declining segment of the bluecollar workforce, and was seemingly unable to establish strong links with the growing body of white-collar employees. GC made no attempt to create a copy in HS of the works council model operating in Germany, although Hungary introduced legislation on works councils in 1992. On the contrary, the German engineers who directed the setting-up of production at HS made clear that they did not want to have constraints such as those exerted by the works council in Germany. They regarded the works council as an obstacle to flexibility, efficiency and best practice, and HD seemed to share this opinion. HS, as a greenfield plant, had not ‘inherited’ a union. Management built up a paternalistic and high-involvement enterprise culture which offered no space for autonomous workers’ representation. It was not covered by a sector or regional collective agreement and there was no attempt to set up a local union organization, nor any initiative on the part of employees to establish a works council.

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The ‘pulling’ factors of hybridization and development HS represents a rare case in which a Hungarian subsidiary’s position was upgraded, a process that usually meets a number of obstacles (Dörrenbächer and Gammelgaard, 2004). A number of elements influenced its development path. First, there were ‘objective’ structural factors. Lower labour costs and lax labour regulation offered considerable cost-cutting advantages. The presence of a well-trained and skilled local workforce with considerable experience in manufacturing made the establishment of a greenfield plant less risky. The dual-track investment strategy (allocating high-tech mass production to HS and retaining labour-intensive customized products in Germany) relied on longer working time and the greater availability of shiftwork in Hungary, allowing more intensive exploitation of machinery. This fitted well with the paternalistic notion of GC top management, which did not want to have a low-cost ‘sweatshop’, but preferred to build up a comparable work environment. A second, more contingent, element was the good personal relationship and high level of trust between engineering director and HD. The engineering director recognized the local innovative capacity and valued the Hungarian education system, general knowledge base and expertise in fields such as software development and machine building. Hungarian employees were proud to consider themselves more innovative and flexible than their German colleagues. A third element was that GC employment practices fitted well with the orientation of Hungarian management. A broad coincidence between the traditions of GC and the personal culture of HD facilitated the development of an ‘old German-style’ corporate culture, work ethic and personal commitment, based on a family-management approach and high involvement. Nonetheless, the lack of independent social control over management, in the form of works council or trade union, also underlines that these HR policies were deployed on management’s terms and their major function was to ensure the untroubled flow of production and flexible working practices; this was seen for instance in the contingent pay element related to the assessment of sickness absence. Employees in HS lacked independent channels of influence over managerial policies and were more dependent on the benevolence and goodwill of their managers, an important difference compared to Germany. Transfer, when it occurred, was selective, institutionally-unconstrained and led by host-country actors as much as by their home-country counterparts.

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Brownfield hybridization: the Fiat case in Poland First steps: entry and early development The car-maker Fiat took over two large Polish factories in 1992. Fiat is rooted in a strongly specific production model in Italy. Although not representative of the whole of Italian manufacturing, the model is characterized by cooperative links with the political authorities, Fordism (in the period between the 1950s and the 1970s), and adversarial but also concessive IR. Fiat was unique among Western car-makers in its long-standing involvement in production in communist countries, including the Soviet Union, Romania and Yugoslavia. Fiat did not therefore enter Poland after 1989 but was already there, through close cooperation with the two state-owned car-making companies, FSO and FSM. With FSM, Fiat had opened a new assembly plant in Tychy, Silesia, in the 1970s. In 1987, it chose Tychy as the world production site for its smallest model, the Cinquecento. The fall of communism required a change of strategy, with disengagement from FSO and the take-over of FSM in 1992. In spite of the apparently pure transfer of Fordist practices, production in FSM before the arrival of Fiat was characterized by state-socialist peculiarities, which have been defined through the oxymoron of ‘arrhythmic Taylorism’ (Andreff, 1993: 244). One extreme example was the company’s practice of asking for help from the army to increase labour supply in order to achieve increases in production. Its departures from Fordism did not avoid worker unrest – Solidarity was very active in the 1980s, led initially by technical workers and then increasingly by manual workers – but did impede high quality: in the 1980s, only 10 per cent of production was suitable for export to Western markets. After 1992, within a few years Fiat Auto Poland had achieved world standards and subsequent models, Seicento and Panda, were also produced there. After privatization, most workshops (above all assembly line and paint shop) underwent substantial modernization. Work organization was redesigned and an enormous increase in productivity followed. Among the most important changes in the first period of restructuring were (Ga¸ciarz and Pan´ków, 1996): the weakening of the position of Polish executives; the reduction in those employed in R&D activities (which were transferred to Italy); a massive move from indirect to direct production jobs; increased internal mobility (including between the Tychy and Bielsko-Bial⁄ a factories, one hour’s drive apart); workingtime flexibility; workforce rejuvenation; and an impressive drive for

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retraining. Some 3000 workers (25 per cent) were involved in training in 1992–1993 and hundreds visited the Italian plants, although such activity often had, in the workers’ view, an ideological rather than a technical content. A final important change was the widening of pay differentials, with the pay of a workshop director increasing from three times that of a manual worker to seven times. The resulting production system, still Taylorist in nature, generated conflict and adversarial relations (Meardi, 1996). Overall, between 1992–1996, the Fiat model was rationalized and many aspects of socialist management and work practices were rejected.

Turning point and qualitative change Fiat waited until 1996 before transferring the ‘Japanese’ work organization model launched in Italy in 1989, and already implemented in Brazil. Management believed that a period of clear distinction of roles was necessary to eradicate former ‘socialist’ modes of participation and Solidarity self-management traditions before introducing a radically new form of ‘participation’. In addition, Polish foremen were not considered ready to take over the responsibilities associated with Japanese lean production techniques under the label of the ‘integrated factory’, IF. The new productive principles – Japanese lean production and the ‘modular’ factory based on large-scale in-house outsourcing – started to be implemented between 1996 and 1998. There were, however, some important changes with regards to the original IF model, in line with Italian practice. The number of hierarchical levels was reduced, the most traditional foreman roles were eliminated, and teamwork was introduced in the form of Elementary Technology Units (ETUs) under the new position of ETU heads. However, one important preliminary step which had been taken in Italy was not taken in Poland. According to Bonazzi (1994), a crucial reason for the unexpected success of Fiat’s ‘gentler way to Japanization’ lay in the previous ‘high automation’ phase which, by massively reducing physical effort (but also making work more monotonous), had prepared the ground for worker acceptance of reorganization. In Poland, automation had been introduced very selectively because the much lower labour costs did not justify the investment. Instead, cheaper functional equivalents for high automation were found. First, impressive refurbishing of toilets, showers and locker-rooms were instrumental in building consent to reorganization just as ergonomic improvement had been in Italy. Second, the much higher education level of Polish workers in comparison to their Turin counterparts (typically, 11 years in education rather than five as in

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Turin) allowed for faster and more direct change, and for better results from training. Finally, interviews point to the counterintuitive judgement that their past work experience in the planned economy had made Polish workers more suited to lean production and continuous improvement. In fact, as Burawoy detected during his Hungarian research in the 1980s, under the shortage economy workers became accustomed to responding creatively to unforeseen events in production, and were therefore more flexible than their American counterparts (Burawoy and Lukács, 1985). These capacities turned out to be of value to the company within a Japanese model that which required workers to take immediate action on problems instead of leaving them to final quality control to address, as under traditional Fordism. Fiat managers both in the Polish plant and at headquarters insisted that Polish employees were more open to change and innovation than the Italians. Managers gave a rather uncritical culturalist explanation (Polish mentality versus Italian mentality) and made political use of it to pressurize Italian unions and employees. A broader look at society and economics in Italy and Poland would clearly discard a culturalist explanation: the smooth introduction of Japanization in Poland in 1996–1997 must have been prepared by workplace-related preconditions. With time, managerial authority was delegated from Italian to local managers, many of whom had already been managers under state socialism, and everyday production management was undertaken by Polish technicians and ETU heads, with much less intervention by Italian technicians. Already in the late 1990s, rather than telling Polish workers to learn from the Italians, supervisors were starting to advocate the reverse to Italian workers (which was not welcome in Italy). In 2003, the Polish factories pioneered a new phase of Japanization based on ‘lean manufacturing’ and the introduction of (management-appointed) team leaders. On both lean manufacturing and quality management, it was now the Italian factories that followed Polish practice. The process seems to have achieved its peak in 2003–2004, when production of the new Panda was introduced in Tychy with minimal Italian intervention, and with a smoother and more successful outcome than in the previous cases of the Cinquecento and Seicento. Productivity and quality levels were the best in the group and were fast approaching the Toyota benchmark; the Polish factories were the first to obtain ISO 9001 certification. The local union August 80 could proudly claim in its bulletin to have overtaken the Italians (Mordasiewcz, 2003). With regards to outsourcing, which had a dramatic impact on IR at Italian sites (Bonazzi and Pulignano, 2002), change involved an apparent

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transfer of the Italian model. The process was called tercjaryzacja, a Polish neologism that corresponds to terziarizzazione, the Italian term for outsourcing. However, the process was not as problematic as in Italy thanks to an organizational specificity of Polish unions, rooted in the August 1980 strikes: the horizontal, multi-site organization. Polish unions reacted to outsourcing by constituting single, multi-employer union organizations covering both Fiat and outsourced employees under the same collective agreements (although additional separate agreements are signed in each company on specific issues). Thus they avoided the segmentation in status and coverage that has been a major preoccupation for unions in Italy. In this way, some rigidity was created, but change could be introduced in a less disruptive way.

Transfer of production, HRM and IR HRM at Fiat is both strategic (Camuffo and Volpato, 1998), with HR managers traditionally at the very top of the managerial structure, and ethnocentric, with extensive use of expatriates. When it started its internationalization policy in the 1990s, after a history of concentration on the Italian market, Fiat claimed to have only one model. This section will, however, contest this claim (which could also be done by looking at other Fiat investments abroad, in Latin America or India (Cardoso, 2003; Atzeni, 2001 and 2004). Fiat has historically developed a number of different models: Valletta’s authoritarian approach in the 1960s, Agnelli’s concessive and political model in the 1970s, high automation in the 1980s, and the participative ‘Integrated Factory’ in the 1990s (Camuffo and Volpato, 1998; Pulignano, 2003). The interesting point for our argument is that the newest, integrated model has not been developed primarily in the traditional sites of Turin and north-west Italy, but in the greenfield site built in 1993 in Melfi in southern Italy, which is an extreme case of reversal of the relationship between core and periphery. Although Melfi is institutionally and politically in Italy, the socio-economic and cultural gap between Turin and Melfi is very large, comparable with that between West and East Germany, and notably with that between Opel’s greenfield Eisenach site and its plants in Western Germany. Fiat started implementing Cinquecento production in Poland in 1991, before formally taking over FSM. Initially, centralization and ethnocentrism were extreme. Not only managers (including HR managers) but also hundreds of Italian workers were sent to Poland to teach local employees and implement all aspects of production. These efforts to transfer practices soon caused a deep crisis of rejection. Cultural and

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status clashes between Italian and Polish workers were so deep that they created long-lasting anti-Italian feeling, still evident in 2004. But above all, the ‘Agnelli’ strategy of privileging one trade union, Solidarity, in order to facilitate dealings with the government (the Tychy plant Solidarity leader happened to be the former prison cellmate of Polish president Lech Wal⁄ ec sa), and to capitalize on the Polish desire to welcome capitalism, did not produce the expected results in either Polish site. In Bielsko-Bial⁄ a, Fiat would use the plant branch of Solidarity as a channel to the regional, Solidarity-inspired government (Doman ´ ski, 2001). But in Tychy, where the company even recruited a leading Solidarity activist as advisor to the personnel director, conflict erupted and Solidarity collapsed. Discontent with the privatization procedure, run from Warsaw without consultation with the workforce apart from two union leaders, led to a two-month occupation and strike in the summer of 1992. After the first few days the two largest unions, Solidarity and Metalowcy (the post-communist OPZZ federation), abandoned the strike which was continued by the smaller organization Solidarity 80. At that point, Fiat was still not the official owner of the plants, so that the unions formally lacked a negotiating partner. The strike was totally defeated. Fiat used techniques already well-tested in Italy: mobilization of non-strikers, legal action against targeted activists, intervention by the political authorities. Eventually, however, the strike crystallized a militant identity in a situation of intense conflict (Meardi, 1996; Ga¸ciarz and Pan ´ ków, 1996). The evolution of employment practices following the strike and privatization was surprising: it reflected a dynamic and shifting attempt by the company to make the most out of the different forms of unionism in Poland and in the factory. Solidarity, the initially favoured partner, almost collapsed after the strike and was excluded from the Tychy factory for a decade. Fiat replaced it by strengthening its relationship with its political rival, Metalowcy, for the rest of the 1990s. Metalowcy provided the support and loyalty of clerical and core manual workers, and constituted a solid negotiating partner. The relationship with Metalowcy recalls Fiat’s support of the company union Sida in Italy before 1968, echoing the ‘Valletta’ model. August 80 (as Solidarity 80 relabelled itself in 1993) was still, however, the largest union in Tychy, with a very militant stance. Conflict mostly took the form of individual, but union-supported, legal action. Two short strikes took place in 1994, and a ‘work-to-the-rule’ strike was threatened in 1996 (curiously, this form of industrial action is known in Polish as an ‘Italian strike’).

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Gradually, though, August 80 changed its role within the company. It was a reluctant signatory of the first partial collective agreement in 1996, and did not dare to call a strike after 1994, against management expectations. In recent years, August 80, which is not part of a sector federation, has come to resemble a company union, still fiercely independent but strongly supportive of Fiat against competitors. In 1998, a full collective agreement was signed, the most detailed in the Polish metalworking sector at the time. In 2000, a large restructuring process involving the lay-off of 1400 workers and the transfer of 500 from Bielsko-Bial⁄ a to Tychy was managed jointly with the unions (something rare in Polish IR). By spring 2004, August 80 was the most cooperative union in Tychy and it did not join the protest action organized by Solidarity over pay increases. The relationship between Fiat and August 80, which was still by far the largest of the ten unions in the company, at this point is reminiscent of Fiat’s ‘participative’ involvement with the ‘social movement’ union, Fim-Cisl, in Italy in the 1990s. The reasons for the change in August 80 are complex. The company mentions collective bargaining and the pluralist approach introduced since the mid-1990s, and a huge effort in training targeting trade unionists. Also a factor was social and demographic change in the union’s constituency, following new recruitment, lay-offs in 2000–2001, and the transfer of hundreds of employees from the ‘moderate’ Bielsko-Bial⁄ a to the ‘radical’ Tychy factory. More deeply, however, it seems that the strongly ‘workerist’ nature of August 80, rooted in the factory and based on qualified core workers (e.g. from maintenance) but at the same time free from links to an external federation, made possible the apparently surprising change from shopfloor militancy to participation and mobilization in the name of the factory competitiveness. Such a process is not unknown in labour history: Japanese company unions paradoxically developed out of the ashes of the communist rank-and-file unions of the immediate post-war period. In both 1950s Japan and 1990s Poland, the exhaustion of political utopias left shopfloor unions better prepared for factory-level cooperation on production issues than for pluralist collective bargaining or sector-level organization. From 1997, IR were managed by a Polish manager, and by 2004, even though the personnel manager of Fiat Auto Poland was still Italian, HR issues were managed on a day-to-day basis by Polish personnel staff. The management of pay, working time, internal mobility and numerical flexibility followed Italian principles, but with greater flexibility in implementation. Employment relations stabilized in a sort of layer-cake of different historical models, reflecting the specificities of

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Polish unionism. While overall unionization remained relatively stable at 55 per cent, Solidarity, Metalowcy and August 80, representing the three Polish models of unionism (political, bureaucratic and rank-andfile), imposed themselves in turn as the main actors, only to be displaced by Fiat’s innovative strategies. In this regard, Fiat’s structural power as a large employer in a country with 20 per cent unemployment was an additional important factor. Fiat managed to overcome its initial image as a ‘bad’ employer (criticized even by the neo-liberal press) and to build a positive reputation: when it announced new recruitment in 2004, 4000 applications were received in three days.

The ‘pulling’ factors of hybridization and development Poland become a successful specialized production platform for Fiat (Panda in Tychy, engines in Bielsko-Bial⁄ a), in spite of a very difficult start, through a complex path of reorganization and change. This trajectory was not simply and mechanically plotted from the headquarters, however. Concentration of Polish production on one product for the global market, in a segment where margins were smaller and cost considerations more important, meant that the Polish workforce had to respond to market volatility through greater factor flexibility. By 2003, following the liberalization of the Polish labour code, the unions had accepted (temporarily at least) overtime of up to 350 hours per year, as against 150 hours in Italy. Moreover, the pace of the assembly line was a matter for unilateral management control, in contrast to Italy where it was negotiated with the unions. Other sites in Europe could hardly have guaranteed such low costs, high quality and high flexibility. Fiat’s path suggests that change in MNCs is a complex, contested process which cannot be easily portrayed on the home country versus host country dichotomy. Indeed, Fiat is a good example of change starting in the periphery (Melfi, Brazil, Poland), but in accordance with the MNC’s interests and power. Thus it is very difficult to speak of ‘one’ model, since ‘a situation in which the industrial strategy simultaneously called for restructuring and downsizing in some plants and investment in new plants required the design and implementation of different and segmented IR policies’ (Camuffo and Volpato, 1998: 328). Fiat was able to turn to its advantage features of the Polish context (particular forms of unionism, the traditions of the shortage economy, high levels of education) which were not part of its own original model. In spite of the apparent success of Fiat Auto Poland, doubts may be raised about the long-term sustainability of such forms of ‘hybridiza-

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tion’. Doubts have become more compelling following events at Melfi, the path-breaking southern Italian greenfield site. In April–May 2004 Melfi workers at Fiat and its suppliers, until then seen as unaffected by union activism, won a three-week strike over harmonization of wages, working time and line speed with plants in northern Italy. These were the same issues which also distinguished the Polish sites from the Italian ones. Given Fiat’s JIT model, the strike almost immediately brought nearly all Fiat’s Italian plants to a standstill. Even foreign companies were affected: the Bielsko-Bial⁄ a factory ran out of components, although interestingly, the reason for the disruption was not communicated to the workforce. Events at Melfi suggest that segmentation of employment practices over time creates contradictions with workers’ capacity to compare conditions with other sites and increased expectations of stability. The very success of the ‘periphery’ as a production location makes it impossible for it to maintain its ‘peripheral’ character indefinitely. The question for Poland is whether east-west European socialization may in future be as effective as Italian north-south socialization. In this regard the European works councils are particularly important. In Fiat, the company was keen to avoid east-west contacts as long as possible. Although the EWC was instituted in 1996, Fiat opposed any involvement of Polish representatives. Among Polish unions, however, their exclusion was blamed on Italian unions (Meardi, 2000; Doman ´ ski, 2001). A Polish observer was invited only in 2001 and participated in a meeting for the first time in November 2003, but as an unelected representative of the minority union Solidarity (on the grounds that it was the only union in the company that was a member of the ETUC); moreover, participation did not lead to any dissemination to local Polish representation bodies. In May 2004 (our interview), the August 80 company leader still believed that the EWC directive would not cover Fiat. Interestingly, at that time Polish unions at Fiat were still demanding the right to external phone lines and e-mail; they had not heard about the victorious strike at Melfi.

The lessons The two cases show, under contrasting structural conditions, how foreign investment within the enlarged European Union follows paths that cannot be understood in terms of a conception of ‘hybridization’ as a mix between home-country model and host-country constraints. MNCs adopt a range of models, none of which corresponds to their home-country dominant practice, and many of which are stimulated by the host environment.

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In the case of GC, the emerging model was a mix of traditional paternalism, craft culture, and ‘Japanese’ organization. The success of this mix was built on two host-country features: flexibility, especially working time and multitasking; and lack of effective social control, especially union control, for instance over the criteria for variable pay. Neither of these conditions was present in a comparable form in the German plant. The model was personified by the Hungarian director, whose pre-World-War-II paternalistic ethic combined a specific familymanagement style with parent-company traditions. In the Fiat case, management responded to the militant trade unions it faced with a sequence of apparently contradictory strategies that did not correspond to current Italian practice. While in the mid-1990s Polish observers (e.g. Ga¸ciarz and Pan ´ ków, 1996) saw Fiat as locked into permanent industrial conflict, all three models of unionism present in the factory rather quickly turned into social platforms for manufacturing cooperation, that is into resources for management, instead of sources of resistance. In each case, it was the strong will for change among Polish workers that allowed the unions to take on such roles (Meardi, 2000), and that against expectations led to the implementation of outsourcing and Japanization in a smoother and more advanced way than in Italy. Familiarity with the everyday problems of production under the constraints of the shortage economy paradoxically turned into a facilitating factor for lean production. In both cases, flexibility is understood not just as the permissiveness of institutions, but even more as an attitude and mindset. As an Italian Fiat manager put it, ‘it is not that we exploit numerical flexibility opportunities in Poland, but just that people here have the right mentality: they do not take their jobs for granted’. Today, the Hungarian site of GC has taken over almost all of the company’s manufacturing, and the Polish Fiat factories are the company’s only profit-generating operations in Europe. In neither case has there been a strike in the last ten years. Both case studies tell one story: how local actors, whether managers or trade unions, are adopting the managerial intentions of investing companies and becoming instrumental in the reformulation of an ideal and ‘filtered’ version of the home model. The periphery must be taken much more seriously than has so far been the case in studies of MNCs.

Conclusions There are some specific reasons that make actors in CE willing to ‘pull’ selective features of home-country models. These include the reputation of

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investing companies and hopes for personal, local, and national development. On a closer look, such factors reflect the actors’ limited power and their economic dependence as a result of the lack of suitable alternatives following the collapse of the socialist industrialization model. Limited power is, however, combined with important resources such as high levels of education, flexibility, openness to change and innovation, and experience of arrhythmic production. The resulting ‘idealized managerial model’ is a filtered version of the home one, free of constraints imposed by other stakeholders, rationalized and made more flexible. This works both in high-tech sites, as in the case of GC, or at relatively lower levels of technology, as in the case of Fiat. This model is not free from tensions and conflicts, however. In particular, the problem of its long-term social sustainability remains open. Will the wage gap with the West remain acceptable? Will the lack of job security lead, in the event of recession or restructuring, to the destruction of existing levels of trust and consent? What will be the effects of high levels of stress, flexibility and insecurity? More generally, will foreign investors be perceived as ‘fair’ in the long run, or will political and cultural reactions emerge? Although only two cases have been presented, they do not seem to be isolated. Flagships of the German industrial model like VW, Siemens and Opel are now asking their German employees to look to their eastern neighbours as benchmarks for productivity, flexibility and order: something quite new for a country where the idea of polnische Wirtschaft was a favourite joke. In both case studies, what is striking is how disparate elements drawn from past traditions (paternalism, company union) or from contexts beyond the parent company (Japanization) were reformulated in ways that fitted with the employer’s interests. Hybridization was not something to be endured by the MNC: host-country conditions did not constrain the investor but on the contrary attracted it. A form of ‘hybridization à la management’ was evident, in which elements of different models were combined by managerial strategies and interests. MNCs were positively surprised not only by how permissive the new environment was but also by how welcoming local actors were. MNCs did not behave like missionaries (the frequent metaphor for their action in economically weaker countries) but rather, to follow the simile, like the Quakers fleeing their corrupt land of origin to recreate an ideal version of their faith, which had never actually existed before, on more accommodating shores. What explains such developments? IHRM and ‘global firm’ models are of limited help. Even the idea of reverse diffusion of practice, for

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instance, assumes a degree of host-country influence. This is not the case in CE, a region that economically is still seen as having to learn, and where host-country practices are not imposed by the local environment, but selected and accentuated by the MNCs. Nor is an institutional standpoint of help in explaining the diversification of MNC models (Quintanilla and Ferner, 2003). It is precisely the weakness of CE’s institutions, combined with ‘intangible’ resources, that fosters this form of hybridization. Some perspectives, like resource-based and rationalchoice approaches, have shed some more light on the search for competitive advantage in the subsidiary and on strategies of diversification, but these must be seen in the structural context of MNCs’ power in CE: a geographically close and diverse common market, institutional weakness, a lack of alternatives, openness to change and informal resources. Host-country actors play an important role in ‘pull’ hybridization. Managers use their local knowledge and public discourse about their countries’ economic success to foster the upgrading of subsidiaries and to attract home-country practices; employees and their representatives seek to balance, on the one hand, their wish to attract technical and organizational practices necessary for productivity increases and, on the other, their desire to pull in beneficial social elements of the homecountry’s production model. Nevertheless, employees act within a frame of reference mostly dictated by management, and their power to selectively ‘pull’ practices is therefore limited. Only a focus on actors explains the degree of innovation in CE sites. Of course, such a view needs to be qualified. In other MNCs, and possibly particularly in the case of more centralized US-based companies, ‘push’ hybridization may well remain the most important pattern. There are MNCs that do try to export their models, including EU-based companies transferring their Western European social models (e.g. Volkswagen). These prove to be well-suited to CE employees’ expectations but often face competitive difficulties or the opposition of local managers. Also, host-country resistance does occur, whether mobilized formally through employee representatives or manifested informally in high turnover and organizational disloyalty. Finally, there are some attempts at international regulation and harmonization. EWCs, although they do not in themselves change power relations, allow central Europeans to realize that the models they are presented with do not necessarily represent dominant Western practice (Meardi, 2004). It is important to notice that hybridization à la management is not just a matter of labour costs. In the first case study, the paradoxical outcome was that capital-intensive production was transferred to the

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east, and skilled labour-intensive production retained in Germany. In the second case, it should be remembered that labour costs were around 10 per cent of total production costs. It is a more complex mix of resources, including flexibility, openness to change, industrial culture and lack of effective representation that creates the employer-friendly environment that invites Quaker-like ‘settlers’ with their new models. The future of such MNC Quakerism is uncertain, and its long-term social sustainability doubtful. These forms of hybridization, although attractive for cost reasons, may eventually be unsustainable, because of internal incoherence or of employee rejection in the long term. Previous experiences of belated employee rejection (as with the 2004 strike 10 years after the new ‘Melfi’ model had been introduced) suggest that this is not an unlikely scenario. It is also possible to foresee more constraints, especially from the spread of ideas among employee groups in different countries through such bodies as the EWC.

Notes 1 Some parts of this paper draw on two international projects on FDI in Central Europe, sponsored by VW Foundation and the UK Economic and Social Research Council. The authors are therefore grateful to the cooperation of research team colleagues, without whom these parts would not have existed: Mike Fichter, Christoph Dörrenbächer, La´szlo´ Neumann, Martin Wortmann, Paul Marginson, Miroslav Stanojevic´, Marcin Frybes and Adam Mielczarek. However, the authors are solely responsible for the content and mistakes of this paper.

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Guglielmo Meardi and Andra´s Tóth 183 Edwards, T. (1998) ‘Multinationals, work organisation and the process of diffusion: A case study’, International Journal of Human Resource Management, 9, 4: 696–709. Farley, J., Hoenig, S. and Yang, J. (2004) ‘Key factors influencing HRM practices of overseas subsidiaries in China’s transition economy’, International Journal of Human Resource Management, 15, 4: 688–704. Ferner, A. and Edwards, P. K. (1995) ‘Power and the diffusion of organizational change within multinationals’, European Journal of Industrial Relations, 1, 2: 229–57. Ferner, A. and Varul, M. (2000) ‘Vanguard subsidiaries and the diffusion of new practices: A case study of German Multinationals’, British Journal of Industrial Relations, 5, 3: 286–306. Fichter, M., Dörrenbächer, M., Neumann, L. and Tóth, A. (2004) ‘Internationalization of Production: Options and Responses. Evidence from German Enterprises in Hungary’. Paper presented to the IRRA 56th Annual Meeting, San Diego, 3–5 January. Gac ciarz, B. and Pan´ków, W. (1996) ‘Transformation of enterprises: Social and institutional conditioning factors’, Polish Sociological Review, 3, 231–51. Kurdelbusch, A. (2002) ‘Multinationals and the rise of variable pay in Germany’, European Journal of Industrial Relations, 8, 2: 325–49. Lane, C. (2000) ‘Globalization and the German model of capitalism: Erosion or survival?’, British Journal of Sociology, 51, 2: 207–34. Meardi, G. (1996) ‘Trade union consciousness, East and West: A comparison of Fiat factories in Poland and Italy’, European Journal of Industrial Relations, 2, 3: 275–302. Meardi, G. (2000) Trade Union Activists, East and West. Comparisons in Multinational Companies, Aldershot: Gower. Meardi, G. (2004) ‘Short circuits in multinational companies. The expansion of European works councils to Poland’, European Journal of Industrial Relations, 10, 2: 161–78. Mordasiewicz, K. (2003) ‘Fiat – Nowe wyzwania’, Kurier Zwiac zkowy, No. 168. Pries, L. (2003) ‘Emerging production systems in the transnationalisation of German car manufacturers: Adaptation, application or innovation?’, New Technology, Work and Employment, 18, 1: 82–100. Pulignano, V. (2003) ‘The Role of Unions and Workplace Change in Motor Manufacturing in Italy’, in Charron, E. and Stewart, P. (eds), Work and Employment Relations in the Automobile Industry, London: Palgrave. Quintanilla, J. and Ferner, A. (2003) ‘Multinationals and human resource management: Between global convergence and national identity’, International Journal of Human Resource Management, 14, 3: 363–8. Radosevic, S., Varblane, U. and Mickiewicz, T. (2003) ‘Foreign Direct Investment and its Effect on Employment in Central Europe’, Transnational Corporations, 12, 1: 53–90. Ruigrok, W. and van Tulder, R. (1999) ‘The Integration of Central and Eastern Europe in Car Production Networks’, Actes du GERPISA 25. Tüselmann, H.-J., McDonald, F. and Heise, A. (2003) ‘Employee relations in German multinationals in an Anglo-Saxon setting: Toward a Germanic version of the Anglo-Saxon approach?’, European Journal of Industrial Relations, 9, 3: 327–49.

8 Globalization and Labour Market Segmentation: The Impact of Global Production Networks on Employment Patterns of German and UK Clothing Firms Christel Lane and Jocelyn Probert

Introduction The clothing industry in developed economies was among the first to take on a global dimension, and is today geographically dispersed around the world (Dicken, 2003). As the industry has not been amenable to technological rationalization, its low capital and relatively high labour intensity1 have made it an obvious candidate for development in newly industrializing countries. Due to huge discrepancies in wage levels between developing and developed countries (Figure 8.1), firms in the latter have had to reorganize their value chain. The result has been the steadily increasing (in some European countries, almost total) outsourcing of production to lower-wage developing countries and drastic employment cuts in developed countries, particularly of semiskilled jobs like sewing. Nevertheless, the clothing industry remains a significant employer. The literature on this industry in developed countries has mainly focused on how organization of the supply chain (conceptualized both as global commodity chain (GCC) and as global production network) has affected developing countries (e.g. Gereffi, 1994, 1999; Henderson et al., 2002). Firms in developed countries that construct and coordinate global commodity chains have received far less academic attention, particularly with regards to the impact of foreign sourcing on domestic employment. The established wisdom is that the loss of low-skilled manual jobs in developed countries is compensated for by a general upgrading of the occupational structure 184

Christel Lane and Jocelyn Probert 185

€uro 0.50

Germany

€uro 0.25

Most industrialized countries

€uro 0.15

Threshold countries

€uro 0.10

Low wage countries

Figure 8.1 Clothing industry costs per working minute in different countries (in euros) Source: Volksbanken/Raffeisenbanken, 2003

towards more capital- and/or more skill-intensive jobs, mainly in service activities (Dicken, 2003: 542–3). The UK, with its highly developed service sector, is generally regarded as at the forefront of these developments. This chapter will show that the effect of foreign sourcing is by no means homogeneous across firms and countries. Informed discussion of the impact of globalization should examine employment effects in different developed and developing countries. The chapter argues that the role of clothing firms in global production networks and the consequences of their outsourcing practices for employment and labour markets cannot be fully understood unless we first analyse firms’ competitive strategy and their competences to implement it. Hence we begin by considering clothing firms in their domestic context. We refer to them as ‘coordinating firms’, that is as firms which coordinate the whole value chain from design to distribution of final products but which no longer execute all steps in-house. The paper reveals how the competences developed within firms shape their product strategy and market position and how both, in turn, affect the quantity and quality of employment in firms and in the industry as a whole. Although the prime interest is in employment consequences in two developed countries, we also briefly consider the impact of differing sourcing strategies on labour markets in developing countries.

186 Multinationals, Institutions and the Construction of Transnational Practices

Our study compares the competitive strategies of coordinating firms in the German and UK clothing industries, by viewing firms in their national institutional environment. It examines the contrasting sets of core competences these firms command and the way these have structured the organization of the value chain and relationships with suppliers. This contextualization shows that embeddedness in different national institutional structures leads to divergent strategies, with markedly different consequences for the organization of the industry’s labour market and the quality of employment. Last, detailed analysis of clothing firms in their domestic context reveals that, contrary to the claims of both the GCC literature and the wider analyses of global production networks in the globalization literature (e.g. Dicken, 2003; Held et al., 1999), these are not powerful multinational companies (MNCs). Instead, we find mostly medium-sized and even small domestic firms, struggling to reconcile their insertion into global supplier networks with their mainly national structures and modest organizational, financial and human resources. Our analysis identifies a sometimes incongruous mixture of national dependencies and global ambitions. This is most pronounced in the UK, whereas our German sample contained two very large global companies for which we found no British equivalent. Our analysis of domestically anchored firms inserted into a network of national, international and global relationships with customers and suppliers is informed by, and seeks to integrate, three sets of theoretical literature. (Here we gratefully acknowledge inspiration from Palpacuer’s (2000) work, particularly her thoughts on the new labour market segmentation.) We seek to link the strategic management literature on the capabilities that firms develop in response to competition, with political economy literature. This shifts the analytical focus to global chains/ networks and points to their consequences in terms of a new labour market segmentation. Finally, our emphasis on coordinating firms’ embeddedness in contrasting national institutional environments is informed by the literature on Varieties of Capitalism (VoC), particularly the work of Hall and Soskice (2001), which takes firms’ capability-based competitive strategies as its analytical point of departure. The chapter has the following structure. The first section outlines the theoretical framework adopted. The following section describes and analyses the German and UK clothing firms in their global and national context. It deals with five issues. First, it considers the size and ownership of firms in the two national industries. Second, it examines the capabilities and skill profiles of firms and their employees. Third, it

Christel Lane and Jocelyn Probert 187

looks at how these competences have shaped product and market strategies. Fourth, it explores the locational aspects of the networks that have been constructed and the differing sourcing strategies adopted. Fifth, it discusses the consequences for labour market segmentation and for the quality of the remaining domestic employment, and concludes by indicating the effects for labour market segmentation in global networks. The conclusion highlights the findings and theoretical insights developed. Our data draw on early impressions from 50 in-depth interviews with high-level managers/owners of British and German firms and associations in the textiles and clothing industries, as well as with retailers and a small number of supplier firms located in China, during 2003–2004. They are supplemented by official statistics and secondary data from both countries. This work forms part of a much larger comparative research project, run in collaboration with researchers at MIT, that examines how firms in different countries and industries fragment their value chains in response to the pressures of globalization. We used the Klar-Text (2003) annual rankings of men’s and women’s wear companies to identify the most important players in Germany; in the absence of similar listings for the UK, we compiled our own list of firms by searching commercial general databases such as Fame and Factiva, conducting extensive internet searches, and consulting major retailers about their important domestic suppliers. Although the UK search process was more ad hoc, we are confident that we missed no major player. We deliberately targeted larger firms, since our objective was to investigate firms inserted in some way into global networks. Among the firms targeted for interview, we achieved success rates of 35 per cent in the UK and 43 per cent in Germany; access to retailers was slightly higher, at 55 per cent and 45 per cent, respectively. Most interviews lasted 60–90 minutes, although some lasted three hours or more, and were recorded and transcribed. While we lack survey data to provide a snapshot of the industry, we use the richness of our qualitative data to illuminate discussion about the behaviour of firms in both countries.

Theoretical considerations The competence-based approach in strategic management To gain competitive advantage, managers develop organizational competences/or capabilities2 which facilitate not only technologically and

188 Multinationals, Institutions and the Construction of Transnational Practices

organizationally innovative responses to market pressures, but also flexible adaptation to unstable and rapidly changing markets (Grant, 1996; Hamel and Prahalad, 1994; Stalk et al., 1992; Teece et al., 1997). Competences/capabilities have been variously defined, but most authors emphasize the development and combination of various types of knowledge which, when embodied in products, are difficult for competitors to imitate and thus ensure a firm’s competitive advantage. Such idiosyncratic, value-generating competences vary between industries and may be connected with high-technology development, or be relatively mundane, such as the ‘quick-response’ capability of some clothing firms (Richardson, 1996). More often than not they now take the form of ‘services’, such as technological improvements, styling features, product images and other attributes that only services can create (Quinn et al., 1991: 302). Additionally, the effective coordination of internal and external competences may be considered a valuable managerial capability (Teece et al., 1997: 515). Although the knowledge sedimented in competences is often described as experiential, it is clear that it cannot develop unless management and society have laid the foundations through the provision of relevant educational qualifications and skills (Quinn et al., 1991: 301; Teece et al., 1997). Thus, although capabilities are broader than skills and are embodied in organizational processes, they cannot be completely divorced from them. Furthermore, the recruitment and development of employees with high qualification levels and the ability to continue learning requires both longer-term financial investment in human resources (Stalk et al., 1992: 59) and their adequate reward, which is often beyond the capability of small firms. Managers’ competitive strategy has to determine core and non-core capabilities. They must distinguish between capabilities unique to the firm and fundamental to its competitive advantage, and those which may be externalized, acquired either through market links or in networks (Grant, 1996).

Competences and the organization of the value chain The following examination of steps in the value chain and the skills required to execute them efficiently and effectively forms the basis for a delineation of different types of clothing firm, depending both on the capabilities considered core and non-core, and on the degree to which requisite core capabilities support internally retained functions. The clothing industry value chain embraces several different sets of activity, roles and occupations, the characteristics of which shape the profile of the sector. (The following adapts and develops ideas from

Christel Lane and Jocelyn Probert 189

Planning & development of collection

Design & prototyping of models

Production design

Manufacture & assembly of garments

Marketing

Distribution

Retailing

Figure 8.2 Steps in the clothing value chain

Dunford (2002: 1–2).) A stylized analysis of the value chain identifies the following steps (Figure 8.2). The first step in the chain, development and planning of the entire collection, involves such skilled activities as knowledge of market trends and fabric availability, the integration of both into development of product lines, and the costing of the planned collection. The second step is the design and prototyping of new models. In addition to understanding market demand and cost structures, this requires both creativity and technical aptitude. In a third step, the production design and sample-making function devises the most cost-efficient means of producing the item, taking into account quality standards. Decisions on manufacturing location are also considered. Steps one to three thus rely on highly skilled occupations, involving various combinations of technical, creative and financial capabilities. The fourth major step is the actual manufacture of garments, generally known as CMT (cut-make-trim). This involves mainly semi-skilled sewing and assembly operations, using simple machines and requiring elementary skills. The fifth step, the marketing of garments, seeks to match retail outlets to the quality and character of the clothes, and to achieve the broadest possible market access in a given segment. In practice, this function operates in parallel with earlier steps since most clothing firms try to spread risk by seeking expressions of interest from buyers before moving into full production. The sixth step, distribution, entails an increasingly sophisticated logistics operation based on computerized order tracking and inventory control systems. The seventh and final step is that of selling the garments to consumers through various retail channels. These seven steps, involving, on the one hand, different sets of capabilities and occupations, and on the other, clearly identified costs, can, in principle, be separated from each other and performed in different locations. This process of fragmentation of the value chain and its distribution over different locations and functions can occur in a number of ways, depending on available competences, cost considerations and product strategy.

190 Multinationals, Institutions and the Construction of Transnational Practices

There are at least five ways of organizing the clothing value chain, resulting in five different types of clothing enterprise (Table 8.1). Each type, as we elaborate below, involves different decisions about the activities and capabilities to be externalized through markets or within networks, and about their geographical location. These five types of clothing enterprise evidently differ in the capabilities and capital invested, and in the resulting products and hence the markets they can enter. Consequently, each type also has different consequences for the quantity and quality of employment created both within coordinating firms and in the network as a whole.

Labour market segmentation and employment This section adapts Palpacuer’s (2000) work on the consequences of competence-based organizational strategies and global network forms of organization for labour market segmentation. We focus on the way in which different degrees of labour market segmentation between firms in developed countries, together with divergent product strategies and sourcing arrangements, influence the overall quality of employment in the clothing industries of developed economies. In particular, we investigate what degree of upgrading has occurred in the status and conditions of the labour remaining in Western European firms. Last, we briefly indicate how these firms’ product and sourcing strategies affect employment development in foreign supplier firms in newly industrializing and threshold economies. Within coordinating firms in developed economies, fragmentation of the value chain and the now widespread outsourcing of manufacturing tasks have shifted demand for labour from predominantly semi-skilled operators not only to highly skilled and well paid staff in technical and creative design, product development, finance and marketing, but also to mainly less skilled employees in logistics and distribution functions. Where firms have integrated forward into retail operations, employees with retail skills are an additional requirement. The extent of the shift to higher-level employment depends, however, on the product strategy and the way this shapes and is shaped by relations between coordinating firms and retailers in domestic and foreign markets. Branded merchandisers (see Table 8.1) serving both domestic and export markets retain a high level of competence in creative and technical design, and in supply chain management, marketing and complex logistics functions. In contrast, firms selling mainly to large domestic retailers have lower demand for highly qualified staff in both the high-level functions of design and marketing and in logistics, since retailers themselves are

Table 8.1

Five types of clothing firms+, based on different combinations of steps in the value chain*

Type of firm

Steps combined

Type of product and market

Competences utilized

Costs incurred

Type 1

Branded merchandisers

High emphasis on steps 1–3 and 5–6

High quality brands, oordinated collections

Creative and technical design; technical preparation of production; marketing

High

Type 2

Domestic suppliers to large retailers

Same steps as type 1, but steps 1,2 and 5 receive low emphasis

Standardized made to order for retailers

Lower design, technical and marketing capability than type 1

Low

Type 3

‘Cut, Make and Trim’ firms ***

Step 4**

All types

Managerial coordination of semi-skilled operators

Medium

Type 4

Branded/high fashion merchandisers with forward integration into retailing

A. Steps 1–3, 5–7 B. Steps 1–7

As in type 1

A. Combines competences of type 1 with retailing capability. B. As A, plus manufacturing

Very high

Type 5

Retailers, with backward integration into design and supply chain organization

Steps 1, 2 and 7

Standard clothing, full package or imported

Mainly retailing competences, combined with some design and supply chain management

Medium

191

+ Includes retailers * Steps in value chain: 1. Development of collection; 2. Design; 3. Prototyping of models; 4. Manufacturing; 5. Marketing; 6. Distribution/logistics; 7. Retailing. ** If ‘full package’ suppliers, also buy fabric and trim. *** Located in developing countries or in informal sector of developed ones.

192 Multinationals, Institutions and the Construction of Transnational Practices

increasingly developing internal design capabilities and have their own distribution structures. Firms mainly supplying domestic retailers, unlike branded merchandisers, do not integrate forward into retail management. The different sourcing strategies of these two types of coordinating firms furthermore call for different levels of expertise among, and different numbers of, supply chain managers. At the inter-firm level, different sourcing strategies generate a segmented network structure between coordinating firms, first-tier and second-tier suppliers, with important implications for the quality and stability of jobs in subordinate firms (Palpacuer, 2000: 385). Second-tier suppliers or ‘periphery’ firms are usually small units with limited managerial and financial capabilities, which cannot rely on large-scale stable demand. They provide a buffer for coordinating firms by responding to demand for quick replenishment orders at low prices. Whereas first-tier suppliers offer relatively good wages, employment stability and health and safety conditions, second-tier suppliers offer inferior employment conditions and may descend to the level of sweatshops. While the existence of such segmentation is widely taken for granted in low-wage countries, it is less widely known that, in some industries, it also remains important in developed countries. Whether or not a segmented labour market strategy develops in advanced countries depends partly on the product and sourcing strategy of coordinating firms. But the latter is shaped in important ways by societies’ institutional framework, particularly by the degree and kind of regulation of employment conditions applied by industrial relations actors and by the state. These determine whether or not an informal, little regulated and often geographically concentrated sector can develop within a national industry. Last, a drastic reduction in the industry’s manual employment and the difficulty unions face in gaining access to firms in the unstable informal sector translate into severe problems for organized labour in terms of size of membership and ease of recruiting new members (personal communication from a British union representing the clothing industry). In newly industrializing countries, too, a more discriminating approach to employment conditions needs to be developed. As Gereffi (1999), Gereffi et al. (2005) Palpacuer (2000) and Yoruk (2002) make clear, in some semi-periphery or threshold industrialized countries industrial upgrading has been significant, with obvious consequences for wage levels and employment conditions. In some developing countries such as China, greatly intensified internal competition for labour in certain parts of the country no longer makes ‘sweatshop’ conditions viable.

Christel Lane and Jocelyn Probert 193

Explaining cross-national differences The Varieties of Capitalism approach (Hall and Soskice, 2001) suggests that the comparative advantage of firms in differing industries has its origin in the institutional foundations of their home nations. Teece et al. (1997) view firms as actors seeking to develop and exploit core competences or dynamic capabilities. In contrast to most management theories, they view firms in their institutional environment, thus facilitating cross-national comparison. Hall and Soskice (2001) conceive of firms as developing competences in interaction with other actors, compelling them to solve a number of coordination problems central to the development of their core competences. Of the five areas of interaction they outline, national systems of vocational training and education, institutions of industrial relations, and rules on ‘new firm’ establishment are of particular importance for this paper. Reference will be made also to the impact of financial systems on industry composition in terms of size and ownership structure of constituent firms. Hall and Soskice (2001) further suggest that different national political economies resolve these coordination problems in contrasting ways, due to the divergent manner in which their institutional frameworks provide support for dealing with particular problems. Firms in different national political economies, they argue, gravitate towards the mode of coordination for which there exists institutional support. Institutions are defined as a set of rules, formal or informal, that actors generally follow, whether for normative, cognitive or material reasons. Hall and Soskice accordingly develop two basic types of political economy: in liberal market economies, markets and hierarchies are the most prevalent coordinating mechanisms, whereas in coordinated market economies, firms depend more heavily on non-market mechanisms, entailing more extensive relational contracting. Whereas the first type describes the UK variety of capitalism, Germany is typically seen as representing coordinated market capitalism. This theory is useful for analysing the behaviour of firms from different national origins and will inform the analysis below. When we turn to outsourcing and the building of global production networks, however, the mainly national focus of the Hall and Soskice (2001) approach needs amending to allow for the adoption of a hybrid model of productive system (see Meardi and Tóth, this volume). It has to be recognized that firms create global production systems to escape constraints exerted by national institutions and, therefore, that host country institutions and practices will become influential. The degree of this influence is, however, diminished by the fact that suppliers, by

194 Multinationals, Institutions and the Construction of Transnational Practices

and large, are able to exert little or no power over their customer firms. Additionally, the impact of international institutions and rules systems, particularly those relating to trade, needs to be incorporated into the theory. Here we consider the Multifibre Arrangement (MFA)/Agreement on Textiles and Clothing (ATC) under the World Trade Organization (WTO), and import tariffs. (Although defunct since January 2005, the ATC was still operative at the time of our empirical study.) Tariffs are differentially enforced for different regions and countries, and have been completely abolished for a significant number of exporting countries.

The national industries and firms in their changing global and domestic contexts Shielded by the MFA/ATC until January 2005, the UK and German clothing industries have been important employers and contributors to GNP throughout most of the post-war decades. Yet global competition has sharply increased with the phasing out of the ATC, the introduction of regional agreements and the lowering of tariffs. It is clear from available statistics and from our interviews that, in the last five years or so, the position of textile and clothing firms in both Britain and Germany has significantly worsened as a result of increasing competitive pressure from newly industrializing countries. Gradual decline in both national industries since the 1970s turned precipitous only in the 1990s. In the UK between 1995 and 2000, employment fell 58.8 per cent to 127,000 (BATC, 2003, estimates based on ONS Labour Market Trends 2002), and a further ten thousand jobs were lost in 2001. Production value fell by 40 per cent to £4.8bn between 1996 and 2002 (BATC estimates, based on ONS data). In Germany, although employment nearly halved between 1995 and 2002 among firms with over 20 people, turnover declined by a much smaller 19 per cent (IHK Bielefeld, undated). As figures for the two countries are from different sources and cover slightly different periods, straightforward comparison is problematic, beyond diagnosing a very strong decline in employment in both countries but a lesser decline in turnover among German firms in recent years. The following assessment of the contemporary British and German clothing industry shows their fundamentally different structure and organization, due to divergent institutional environments.

Firm size, turnover and ownership Data in Table 8.2 indicate that the German industry achieves a higher turnover with a significantly lower number of employees, demonstrat-

Christel Lane and Jocelyn Probert 195 Table 8.2

Structure of the German and UK clothing industries, 2001/2 No. of firms

German industry (firms with >20 employees)*

560

German industry (all firms)**

6,159

UK industry (all firms)*

5,820

Turnover (€ billion) 9.65 14.4 8.92

No. of employees 53,901 – 127,000

* Data for 2002; ** data for 2001. Sources: Volksbanken Raiffeisenbanken, 2003; IHK Bielefeld data, 2002; ONS Annual Business Inquiry, 2001 and BATC estimates.

ing the widely acknowledged productivity deficit of the UK industry (e.g. Euratex 1998, cited by Stengg (2001): figure 7, p. 16). This appears to be linked to significant differences in industry structure, in terms of firm size, between the two countries. In 2002, in the German industry, 560 firms with 20 or more employees achieved a turnover of €9.7bn and employed 54,000 people (Volksbanken Raiffeisenbanken, 2003: 1). Including micro enterprises, the total number of firms rises to 6159 and turnover to €14.4bn (Volksbanken Raiffeisenbanken, 2003: 1, figures for 2001). This industrial sector is structured on the Mittelstand pattern. There are many very small and a few very large firms in the German clothing industry, but the bulk of employment and turnover is generated by medium-sized firms employing between 100 and 999 people. The 100 largest firms, which are internationally competitive and have over €25mn in annual sales, generate nearly two thirds of the sector’s turnover (Volksbanken Raiffeisenbanken, 2003: 2). Large and medium firms account for 85 per cent of turnover, a high level of concentration compared with the rest of Europe (Euratex, 2002). The relatively high number of small firms includes mainly artisanal establishments, as well as alteration tailoring shops, i.e. not industrial firms (Volksbanken Raiffeisenbanken, 2003: 1). Until the late 1990s, the UK clothing industry was polarized between a tiny number of giant manufacturers and a vast number of very small firms. There was no equivalent of the medium-sized Mittelstand firms (Owen and Cannon Jones, 2003: 61; TCSG, 2000: 11). Following the break-up of the two giant public companies, Coats Viyella and Courtauld, at the end of the 1990s, the industry divided into a tiny group of medium-sized to large firms and many very small firms (CAPITB Trust, 2001: 8). A particularly large tail of micro firms constitutes an informal

196 Multinationals, Institutions and the Construction of Transnational Practices

sector. Nearly three-quarters of clothing manufacturers have reported average annual turnover of less than £250,000 (Warren, 2003: 233). Thus, although statistics for both countries reveal a large number of micro firms, their nature differs and their weight in the industry is much more pronounced in the UK than in Germany. Rates of industry concentration offer a more straightforward comparison of the two national industries (Table 8.3). These data pre-date the break-up of Coats Viyella and Courtauld, and the difference in degree of concentration will subsequently have become more marked. Table 8.3 Share of turnover of companies in the UK and German clothing industries, in 1999, in per cent Top 3

Top 5

Top 10

Germany

32.9

45.2

62.2

UK

19.4

27.7

37.0

Source: Euratex, 2001, cited by Dunford, 2001.

These different size structures indicate firms’ differing access to financial resources, and hence their potential to invest in capabilitybuilding. They are reinforced by divergent ownership profiles. In Germany, total or substantial family ownership is widespread, even among large firms such as Triumph, Escada, Betty Barclay and Steilmann. During interviews several owners emphasized that, beyond paying themselves a salary, all profits are reinvested. In the UK, inherited family firms are rarer than in Germany. A small number of firms remain listed on the stock exchange, for example Burberry, Martin International and Wensum, but since the 1990s sizeable companies have been delisted and sometimes broken up by private equity funds, or through management buy-outs (MBOs). Reinvestment of profits is then reduced to satisfy investors. MBO firms, according to our interviews, are highly geared and hence short of investment capital. A recent industry report confirms the prevalence of low capital investment (TCSG, 2000: 7). Ownership of the many smaller UK clothing firms is less well documented but industry insiders (interview notes, 2004) indicate that ethnic minority owners are prominent, giving the section of the industry concentrated in cities like Leicester and in the east of London its special character (EMDA, 2001). Germany appears not to have a regionally concentrated, largely informal sector, despite the presence of large ethnic minority regional concentrations. The consequences of this

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differential development for outsourcing and employment respectively are discussed below.

Capabilities and skill profiles A mapping of available skills and capabilities reveals which production and market strategies are viable in each national industry. No sectoral statistics on managerial education and capabilities exist, and the following draws largely on interview material. Two industry insiders spontaneously described British managers in the clothing industry as ‘generally of very low calibre’. Levels of education and specialist expertise, with a few exceptions, appear to be significantly lower than those of their German counterparts. Graduate recruitment is problematic for the UK clothing industry as a whole (PSS, 2000). The German managers we interviewed, in contrast, were mainly graduates with relevant tertiary education. British clothing firms are said to attach relatively lower importance to design (Owen and Cannon Jones, 2003), because their large retail customers usually employ their own design teams (interview notes, 2003). Additionally, available designers are not rated well on technical and commercial understanding, although they sometimes score highly on creativity (EMDA, 2001: 29; interview notes, 2003; TCSG, 2000: 12). German designers, in contrast, appear to be better at integrating creative with technical design (interview notes, 2003). More systematic information about general skill structures in the two national clothing industries suggests that differences in skill levels between UK and German employees mirror, in somewhat exaggerated form, the difference in UK and German training systems for intermediate-level occupations (Gospel, 1998). A detailed sector comparison by Steedman and Wagner (1989: 47–9), covering an earlier period of sharp UK industry contraction, found that, at higher levels of training, more than ten times as many German as British employees had passed vocational examinations. According to CAPITB Trust (2001: 16), technical specialists constituted a mere 4 per cent of British employees. Our own impressions, too, were that there seemed to be more – and more technically qualified – designers and technical staff in German than British firms. Further down the hierarchy, among British supervisory staff and operatives, levels of qualification are low to non-existent, and training budgets constrained. Only 20 per cent of operatives have NVQ level 1 and 2 qualifications (TCSG, 2000: 27) and in 2001–2002 fewer than one thousand such certificates were awarded, while in clothing supervisory

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studies there were none at all (Owen and Cannon Jones, 2003: 60). The German industry’s ratio of trainees to total employees of 7.5 per cent in 2001, mostly in sewing and tailoring (BBI, 2002), is in a different league. To sum up, these striking differences in qualifications and skills in the two national clothing industries indicate that capability-building by UK managers meets much greater constraints, and that some capabilities, like the combination of creative and technical competences to develop brands, have been achieved only in exceptional cases. Finegold and Soskice’s (1988) characterization of the general British situation in terms of a low-skill equilibrium where, given low quality and technology specifications, the demand for skilled labour remains low, is pertinent also to this industry.

Product and market strategy These capability structures crucially determine both product and market strategy. According to Steedman and Wagner (1989: 41), whose work pre-dates the full-scale shift of manufacturing work overseas and the break-up of the UK’s Coats Viyella and Courtauld, the German industry produces small batches of high-quality goods in great variety (production runs of 150–300 garments), while British firms depend to a great extent on long runs (usually 15,000 garments) of standard items. They pinpoint differences in technical design (greater complexity in Germany), and in fabrics and trim used (higher quality in Germany). Euratex figures cited by EMDA (2001: 7) also show that the UK exports lowvalue clothing, whereas German clothing exports achieve more than twice the price per kilo. German producers cater mainly for the uppermiddle market, with an emphasis on quality and, in most cases, brand. BBI (2002: 11) speaks of 20–30 globally traded brands in the German industry. This market strategy – and the capabilities on which it builds – depends on the presence of high skill levels at the upper end of the value chain and on a high level of control over suppliers. In the UK, a very small number of firms concentrate on brands with high margins. The majority make fairly standard clothes in the middle to low market segment. Branding capability has been abandoned in favour of the apparently greater security, but lower margins, of contract clothing production for retailers’ own labels. Close relationships to powerful domestic retailers relieve these firms of design and marketing issues (TCSG, 2000), ‘but at the cost of leaving them invisible to the consumer and with a limited capacity to innovate’ (Owen and Cannon Jones, 2003: 56). Large firms that owned both branded and contract clothing businesses, such as Coats Viyella and William Baird, seemed

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unable to manage the different investment and marketing strategies required. Under-investment also plays a part. Compared to foreign competitors, British firms appear reluctant or unable to make the upfront marketing investments required to build a branded presence (e.g. EMDA, 2001, speaking of the mainly small East Midlands clothing firms). Export performance reflects these divergent production paradigms and market strategies. German firms achieve the relatively high export ratio of 32 per cent (Volksbanken Raiffeisenbanken, 2003) and are increasing their efforts. Their export growth rate of 6 per cent per annum since 1995 exceeds that of the UK, the US and even Italy (Groemling and Matthes, 2003: 77). Analysis by Euratex (2002: 86) suggests that Germany is one of the EU’s most successful clothing exporters, with a 19 per cent share of EU sales to non-EU countries in 2000. Their relatively high export ratio makes firms less dependent on domestic retailers and better able to resist the latter’s price-cutting efforts. British exports stood at only half the German level in 2000 (Trends Business Research, cited by EMDA, 2001: 21). Euratex (2002: 105–6) notes that UK trade with both EU and non-EU countries is below the EU average. The majority of large firms we interviewed neither exported nor intended to do so, and even at the higher-quality end such activity was low or non-existent. Brands such as Paul Smith and Burberry are the exception, as are firms making medium- to highly-priced men’s suits, such as BMB and Berwin & Berwin. This comparatively low export intensity leaves British firms, with few exceptions, more vulnerable to large domestic retailers’ cost reductions. From this overview it is clear that the two countries contain very different populations of clothing firms, possessing divergent capabilities and seeking competitive advantage at different geographical levels. In terms of the firm types introduced above (see Table 8.1), type 1, the branded merchandiser, is predominant in Germany, whereas type 2, the supplier to large retailers, and (in the informal sector) type 3, the CMT firm, are most frequently found in the UK. Type 5, the backwardintegrating retailer, is growing in both countries. The emergence in Germany, but not in the UK, of type 4, the high-fashion merchandiser, is still a relatively new trend. In both countries, firms are challenged by the new vertically integrated international firms such as Zara and Hennes & Mauritz. Despite their global sourcing practices, the majority of coordinating firms were not global players. Although a small group of UK firms operated some foreign manufacturing subsidiaries, as a whole UK firms in

200 Multinationals, Institutions and the Construction of Transnational Practices

our sample hardly corresponded to the image of global firms. They were mainly small in terms of employment (except those with foreign manufacturing subsidiaries) and turnover and, with three exceptions, had no sales activity outside Britain. Among the German firms were two global players and several internationally active firms with sales offices in mainly European locations. Although German firms’ turnover was, on average, significantly larger, employment levels were low, and overall most were national firms with some international operations.

Development of global production networks

3.5 3 2.5 2 1.5 1 0.5 0 Po l

an Tu d rk M ey or o C cc ol um o b Tu ia n G is ua ni a t El ema Sa la lv H ado on r du r Th as ai la Bu nd lg ar ia I In ndia do ne si a C hi Vi na et na m Eg y Pa pt ki st an

Hourly labour costs (US$)

The clothing industry is highly labour-intensive and wages for relatively low-skilled workers account for a significant share of the production costs. With intensification of competitive pressures from low-wage countries, the manufacturing function has relocated to low-wage countries in Asia-Pacific, North Africa and Central and Eastern Europe (see Figure 8.3). This section explores German and UK firms’ sourcing strategies, and points to some interdependencies with firms’ capabilities, industrial relations system and product strategy. External factors also shape the building of global production networks, in particular European and global regulation of the industry. Not only labour costs but also quotas and tariffs have influenced relocation decisions. More recently, with the acceleration in fashion cycles, outsourcing has further enhanced buyer firms’ flexibility. Although many of our interviewees in both Germany and the UK recognized that the highly successful ‘quick response’ strategy of companies such as Zara rested on vertical integration, they firmly ruled out

Figure 8.3 Hourly labour costs in the clothing industry, 2002 Source: Werner International Inc., Hourly Labor Cost in the Apparel Industry.

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this model. Since both countries are relatively high labour cost locations, ownership of domestic manufacturing is no longer regarded positively and the availability of subcontractors offering the right price at the right quality levels provides a more attractive alternative. A lack of suitable domestic subcontractor networks pushed the search for flexibility abroad. Although some ‘quick response’ manufacturing does occur in the UK, as explained below, this could sometimes descend towards the informal sector. The competences externalized by firms may be described as standard, facilitating easy substitution of one supplier firm by another. But suppliers of CMT garments must nevertheless be considered as having complementary capabilities. The quantitative coordination of output volume and the qualitative coordination of product features, all under intense time pressure, could not take place through purely market links. Coordinating firms have four options when considering the location of their production: 1. Retaining production in the home country, either in self-owned production facilities or via domestic outsourcing. 2. Retaining production in fully or partially-owned manufacturing facilities through FDI in lower-wage countries. 3. Manufacturing to order by third-party contractors, in the form of either outward processing or ‘full package’ supply.3 4. Direct importing (‘buying in’) from lower-wage countries, often through an agent. Combined strategies are, of course, adopted in many cases. German coordinating firms began to abandon strategy 1, home country production, from the 1970s onwards, due to high domestic wage costs and more stringent employment regulation (Froebel et al., 1980). Our interviewing revealed that, with one notable exception, complete domestic manufacturing in self-owned facilities no longer exists in Germany’s larger firms. There were a few cases of partial retention of the manufacturing function in-house, particularly of samplemaking facilities. Strategy 3, third-party manufacturing in the form of outward processing, has been by far their most prevalent strategy, and one that has gained in importance since the end of the 1980s. In 1998, Germany had easily the largest share – in terms of value – of outward processed clothing among major European countries (Dunford and Greco, 2004). As outward processing involves coordinating firms in the buying of fabric and trim, and in many cases also in the cutting of

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garment parts, they have greater control over the appearance and quality of the garment – a course of action congruent with an emphasis on high quality and branding. In distant second place for German firms are both direct importing and full package manufacturing, although the latter is growing; and in third place, manufacturing in lower-wage countries through direct investment in their own manufacturing subsidiaries (Adler, 2003, interview notes 2003). Domestic sourcing for short runs and re-orders in Germany is infrequent, presumably due to the absence of an informal sector, and instead occurs in neighbouring CEE countries (Donath, 2004). UK firms’ outsourcing of manufacturing to low-wage countries, in contrast, started only from the mid-1990s onwards (BATC, 2003), due both to lower wage levels and to dependence on Marks & Spencer, which maintained a ‘Buy British’ policy well into the 1990s. There are no systematic studies of the mode of outsourcing, and we rely on our interviews to present an account. Manufacturing exclusively in selfowned domestic plants no longer exists following numerous plant closures in recent years, and even partial domestic manufacturing is very rare (interview notes, 2003). A few larger firms own production facilities in low-wage countries, both in CEE and in Asia. This strategy is more prevalent than in Germany, especially among the large M&S suppliers, which have sought to obviate adoption by M&S of large-scale direct importing. Outsourcing to independent third-party suppliers is by far the dominant UK strategy. Concerning the mode of foreign sourcing, the ‘full package’ option is more prevalent and outward processing much rarer than for German firms. The volume of outward processing of clothing in 1998, to the value of €444m, was one-seventh that of Germany’s (Dunford and Greco, 2004). The ‘full-package’ strategy shifts costs and risks onto the supplier (Richardson, 1996) but also permits the latter to upgrade its capabilities; it also results in loss of expertise and control over the final product for coordinating firms. Where clothing firms supply to a dominant retailer, the latter now more frequently specifies the fabric source, depriving clothing firms of another area of expertise (Baden and Velia, 2002). German coordinating firms source four-fifths of outward processed garments from Poland, Romania and other CEE states, plus Turkey (Groemling and Matthes, 2003: 80). According to BBI (2002: 24), in 2001 only eight non-CEE countries – namely Tunisia, Turkey, Morocco, Portugal, Greece, Vietnam, Malaysia and China – figured among the 23 largest German suppliers. ‘Full package’ production is most likely to occur in Turkey and China (Volksbanken Raiffeisenbanken, 2003: 4). This locational pattern is also supported by our interviews.

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Preliminary evaluation of our interview data on UK firms’ sourcing strategies shows a clear focus on Asia-Pacific, especially China, and some Mediterranean rim countries. Larger firms use CEE locations to supplement distant suppliers, while a few smaller firms either exclusively use CEE third-party contractors or own manufacturing facilities there. As with German firms, Turkey is popular, not least because of an EU tariff-free trade agreement since 1996. But countries such as Sri Lanka, Mauritius and Cambodia, which were hardly mentioned by our German interviewees and which have no obvious locational advantages beyond low cost, also attract UK investment and/or third-party manufacturing orders. The choice of more distant suppliers is consonant with the preference for full-package or direct imports, rather than outward processing. However, long historical association with countries such as Hong Kong/China and the Indian subcontinent also partially explains this geographic focus. More widespread in the UK than in Germany is outsourcing to domestic suppliers for replenishment and experimental short runs. This work is still being carried out by smaller firms, which themselves often have several tiers of their own suppliers and use home work (Warren, 2003). This explains the large and continually shifting population of micro firms in a largely informal sector (KFAT et al., 2000; Warren, 2003). Managers in both countries give the following reasons for the popularity of foreign sourcing, as against production in their own foreign subsidiaries. It offers sufficient, if not complete, control; requires low capital commitment; and provides a high degree of flexibility, that is the possibility of moving from one supplier to another. Moves between suppliers occur either for efficiency reasons or, more often in recent years, because even lower-wage countries develop viable facilities. Although such footloose behaviour is not rampant, it is nevertheless a strategy that many firms in both countries adhere to – even those whose managers strongly subscribe to the notion of close, long-term relations with suppliers (interview notes, 2003). (However, a few firms in both countries explicitly repudiated such footloose behaviour.) A glance at historical shifts in sourcing locations confirms this interpretation. Thus German firms in the 1970s started sourcing from southern European firms, as well as Turkey and some Asian firms (Groemling and Matthes, 2003: 80) and only later moved into CEE. More recently, due to price rises in CEE countries ahead of accession to the EU, there has been a strong trend to move further east to Romania, and a weaker trend towards Bulgaria, Lithuania and Ukraine. China is the most popular Asian country, the source of about 4.1 per cent of clothing

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imports over the period 1990–2000 (Groemling and Matthes, 2003: 49, figure 13b; interview notes, 2003). British firms are also moving eastward in CEE countries and have become more focused on China, but Turkey and Morocco have also gained greatly in popularity (interview notes, 2003; BATC, 2003). To what degree and how do German and UK coordinating firms exert control over their nominally independent suppliers and thus over the quality of the finished product? Although coordination of the relationship by German firms occurs through contractual agreements, production remains ‘to a high degree’ under the influence of the German coordinating firm (Wrona, 1999: 161; interview notes, 2003). Our interviews confirm the use of strategies to retain control, such as placing the coordinating firm’s own technical staff with the supplier. British firms employ mixed methods of control, ranging from the use of agents to employing roving inspectors who conduct quality controls. Since British firms are more distant geographically from their suppliers and employ fewer trained technical staff compared with German firms, it appears that ‘virtual’ vertical integration is more rarely achieved and control less fully maintained than in the German case. Firms from both countries demand from their suppliers a combination of high quality, low price and timely delivery. It might be conjectured that these are now global standards from which suppliers cannot depart, or that quality means very different things to firms from these two countries. Our knowledge of the different quality standards in final products, as well as of the preferred mode of sourcing – outward processing (OPT) versus full package – leads us to think the latter interpretation more probable.

Implications for labour market segmentation and the nature of employment The most widely noted consequence of the large volume of outsourcing has been a huge reduction in manufacturing employment in developed countries, yet the restructuring of overall employment has so far received scant attention. Outsourcing of manufacturing to supplier countries by both German and UK coordinating firms has led to an inter-firm labour market segmentation both within developed countries and between developed and developing countries. This process has had very different consequences for labour force composition in the German and UK domestic clothing industry and for the quantity and quality of remaining employment, as well as for employee representation.

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Interviews with industry insiders and the literature on the UK industry suggest that outsourcing of manufacturing operations to domestic lower-tier suppliers remains prevalent, sustaining an informal sector and a segmented labour market. German industry insiders, in contrast, claim that neither an informal sector nor the ensuing labour market segmentation are found in the German industry. An informal sector in the UK clothing industry historically evolved in geographical areas with a high concentration of immigrants, such as east London and parts of the East Midlands. Despite the introduction of a compulsory minimum wage in the late 1990s and the much increased global sourcing, this informal sector and the accompanying labour market segmentation continue to thrive. This development has been favoured by relatively lax employment regulation and the inability of unions to enforce the adoption of adequate, industry-wide wage rates. Absence of legal support for ‘extension rules’, whereby terms and conditions of a collective agreement can be made legally binding over non-unionized employees in the industry or bargaining unit (Brown et al., 1997: 75), partly explains this impotence. Ethnic minority ownership (constituting around 35 per cent of owners, according to CAPITB Trust (2001: 5)) of predominantly small and often unstable firms has been combined with employment of ethnic minority, usually female, labour, frequently as home workers (Heyes and Gray, 2000; Warren, 2003). Conditions in such firms have been labelled as ‘sweatshop’, with low wages, poor and often unsafe working conditions, and numerically flexible hours (ibid.; interview notes, 2004). KFAT et al. (2000) comment as follows: ‘Some employers in the industry run what can only be called sweatshops. They break many of the UK laws on the minimum wage, health and safety and employment protection.’ By its very nature, assessment of the size of this sector can only be approximate, and it cannot be established whether it has suffered a significant decline in recent years. Industry insiders confirm its continued existence, also indicated by the survival and continual renewal of a large ‘tail’ of small and unstable clothing firms. Large coordinating firms, strongly concerned with their reputation, do not seem to buy directly from firms in the informal sector. But, according to one industry insider, some of their first-tier suppliers surreptitiously source their top-up and quick-response supplies from such cheaplabour firms. In Germany, despite the existence of regional concentrations of ethnic minority populations, such an informal sector has not been created. Stricter legal regulation of wage determination and employment

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conditions, including ‘extension rules’, has precluded the development of labour market segmentation and has consequently ‘squeezed out’ small, inefficient firms. Although the rate of unionization now is only slightly higher in the German than the British industry, legal regulation of collective bargaining agreements continues to secure industry-wide diffusion of wage rates.4 Importantly also, legal regulations stipulate that employers must have a master craftsman (Meister) qualification (Rath, 2002) – a requirement that excludes most ethnic minority aspirants. Presence or absence of labour market segmentation, in interaction with skill structure and product and market strategy of firms, in turn have determined what kind of labour remains in these two developed countries, given the almost total relocation of the production function by larger coordinating firms. Government policy decisions on whether to support the maintenance of a clothing industry in these two countries must closely examine the quality of remaining employment – whether there has occurred an upgrading and a shift from manual to higher-level non-manual jobs, and whether jobs are well-paid and relatively stable. Given the disappearance of most manufacturing jobs in both countries, one would expect remaining employment to be concentrated disproportionately at a higher level, that is in human capital intensive jobs in management, finance, marketing, technical work and design. But this development is marked only in the German industry. Thus, whereas in the UK clothing industry white-collar staff in the managerial, technical and supervisory categories account for a mere 20 per cent of all employees (CAPITB Trust, 2001: 16), in German clothing firms white-collar workers amount to a massive 45 per cent. The remaining 55 per cent of employees are mainly in logistics and finishing processes (Donath, 2004). These differing employment profiles are due in part to the predominance in Germany of type 1 firms, branded merchandisers, and in the UK of type 2 firms, suppliers to domestic retailers, without their own brand (see Table 8.1). The large proportion of manual workers in the UK industry is also a consequence of labour market segmentation. Last, what have been the implications of the development of global production networks for labour market segmentation between developed countries, on the one hand, and threshold and developing countries, on the other? As this question has not informed our research design, we can provide only a brief and general answer. The clothing industries of developing countries are widely portrayed in a very static manner as representing the very worst of sweatshop conditions, and

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the underlying labour market segmentation between developed and developing countries is seen to be at the base of this. While this undoubtedly is correct for many of the poorest developing countries, it is nevertheless a one-sided picture that ignores the dynamic aspects of this globally-integrated industry. Both Gereffi (1999) Gereffi et al. (2005) and Palpacuer (2000) have shown that significant upgrading of clothing firms has occurred in threshold countries. The example of Hong Kong is particularly striking, but similar developments may be expected in the most advanced CEE countries (Wrona, 1999). In Hong Kong, many firms have exploited their former status of ‘full package’ supplier to advance to the status of branded merchandisers who even export to Western markets. This enables them to charge higher prices and pay higher wages (Gereffi et al., 2005). Yoruk (2002) shows that a process of upgrading is already under way in a few Polish firms that have developed ‘own brands’ for the domestic market only. Transformations have also occurred in China, the foremost clothing producer among newly industrializing countries. As figures on international trade show, its volume of clothing exports more than quadrupled between 1980 and 2000 (WTO 2001, quoted by Dicken, 2003: 325). As supplier firms are highly concentrated in a few geographical regions, mainly close to Hong Kong, competition for labour has become intense. Female sewing workers, usually recruited in the poorer agricultural provinces and living in dormitories, are no longer dependent on any particular firm, but benefit from an active regional labour market. They move frequently between firms, depending on the benefits and working conditions offered, creating a ‘labour problem’ even for the larger Hong Kong owned firms (interview notes, 2004). In this situation, sweatshop wages and conditions cannot be sustained. But, at the same time, with the changing political world map, new and even lower-wage countries, both in Asia and Eastern Europe and Russia, have entered the world market. Following the expiry of the Agreement on Textiles and Clothing in 2005, tempered by the introduction in 2001 of a ‘China safeguard’ (until 2008), further movement in this global kaleidoscope may be expected.

Conclusions This chapter has advanced a number of theoretical claims and has substantiated them in the light of data on the organization of German and UK clothing firms. It has been suggested that, to understand the impact of global production networks on labour market segmentation

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and employment, one first needs to study firms in their domestic contexts, focusing on their competitive strategies and the different sets of capabilities they have developed to pursue them. Capabilities, we have argued, are not developed in the voluntaristic manner that the management literature suggests but, in line with Varieties of Capitalism (VoC) theory, are crucially shaped by available institutional support structures. We have demonstrated that capabilities shape product and market strategy. This, in turn, influences the kind of employment that remains in developed countries after the building of global production networks has eliminated many mainly semi-skilled manual jobs. Contrary to received wisdom which views the UK as an advanced service economy, a movement to higher service jobs is not evident in the UK clothing industry. In the German industry, in contrast, such a trend to more skill- and knowledge-intensive jobs has occurred. Our contextualization of firm strategy has lent some support to the VoC framework. We have confirmed the claim that British firms are more atomistic in their development of resources and capabilities. Among the many small and medium-sized, and often under-capitalized, firms the resulting product and market strategy, together with the industrial relations system and degree of employment regulation, give scope to the continuation of an informal sector and the segmentation of the labour market between firms. This development has prevented the upgrading of employment. The British clothing industry thus has not only lost many jobs over the last ten years or so, but has also failed to achieve the upgrading of employment which the new international division of labour is held to favour in developed countries. Labour in the German clothing industry, in contrast, has benefited more from institutional support structures, particularly in the area of skill development and wage determination. Restrictive regulation of qualification levels for employers also played a crucial part in preventing creation of an ‘ethnic’ segment of the clothing industry that thrives on exploitation of self and of fellow ethnic employees. Consequently, similarly high job loss in Germany at least can be counterposed to a significant upgrading of the employment structure. This preserves a much higher proportion of domestic jobs in professional, technical and managerial occupations. But we also suggest that the VoC approach may not offer sufficient explanation for the analysis of cross-border networks. Global production networks have been established specifically to escape national institutional constraints, such as industrial relations systems,

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employment regulation and pay structures. Both global regulation of trade and political/institutional factors in supplier countries are important additional influences on the structures of GPNs. As Meardi and Tóth (this volume) suggest, Western firms are seeking to diversify, rather than diffuse, their domestic model, but they still strive to retain elements crucial to the product model. Thus, German firms try to maintain the skills necessary for efficient production, as well as disciplined work attitudes, without incurring costs in terms of high wages and the establishment of formal training programmes. In the case of British firms such effort is less evident, with cost reduction as the only or dominant motive. Due to the generally low level of skill and technological sophistication in production processes, suppliers generally possess a low level of power. Hence the process of ‘reverse diffusion of practices’ noted by Meardi and Tóth is altogether absent in our study. Last, in neither country are coordinating firms powerful multinational companies. They are mainly medium-sized firms which, with a few notable exceptions in Germany, lack the resources and managerial capabilities to become truly global players. German firms, we showed, have developed at least European sales offices and relationships. In the UK, in contrast, most firms maintain an incongruous mixture of purely national relationships together with insertion into global networks. Moreover, supplier firms are even further removed from being MNCs. Of the approximately 350,000 clothing manufacturers in low-wage countries, 98 per cent are companies with only one factory and very few have their own sales offices in buyer countries (Flanagan, 2004: 28). The description in the literature of the clothing industry as one of the most globalized needs some correction, as does the adoption, for example by Held et al. (1999), of global production networks as one of the main indicators that globalization has occurred.

Acknowledgements This paper is an output of the project, The Globalising Behaviour of UK Firms in Comparative Context, undertaken in collaboration with the Industrial Performance Center at MIT and funded by the CambridgeMIT Institute (CMI).

Notes 1 This discussion ignores the high-end knitwear sector, where the capital intensity of the machinery utilized can be high and labour intensity low. 2 Some writers distinguish between the two concepts (e.g. Teece et al., 1997) but most use them interchangeably as we do in this paper.

210 Multinationals, Institutions and the Construction of Transnational Practices 3 For ‘full package’ manufacturing, the supplier purchases the fabric and trim specified by the coordinating firm and makes up the garment. 4 In the German clothing industry, now organized by a section under IG Metall, the degree of industrial organization is 22 per cent, compared with an overall union density of 28 per cent (figures supplied by P. Donath, IG Metall), whereas for the UK unions with membership from the clothing industry – KFAT, T&G and GMB – a density of under 20 per cent has been estimated, which is well below the general level of organization (personal communication from W. Brown, Professor of Industrial Relations, University of Cambridge).

References Adler, U. (2003) Suche nach Kernkompetenzen als Daueraufgabe – gibt es Grenzen der Produktionsverlagerung? Bekleidungsindustrie mit Zukunft, Frankfurt: IG Metall: Report on Conference organized by Textil- und Kleidungsverband Nordwest and IG Metall in Halle, Westphalia, 26 November 2003, 65–78. Baden, S. and Velia, M. (2002) Trade Policy, Retail Markets and Value Chain Restructuring in the EU Clothing Sector, Brighton: University of Sussex, Poverty Research Unit. BATC (2003) Trend Data 2002, London: British Apparel and Textile Confederation. BBI (2002) Jahresbericht 2001/2002, Koeln: Bundesverband Bekleidungsindustrie (BBI). Brown, W., Deakin, S. and Ryan, P. (1997) ‘The effects of British industrial relations legislation 1979–97’, National Institute Economic Review, July: 69–83. CAPITB Trust (2001) Sector Workforce Development Plan for the UK Clothing Industry 2001–2005, Leeds: CAPITB Trust. Dicken, P. (2003) Global Shift: Transforming the World Economy. 4th edn, London: Paul Chapman. Donath, P. (2004) Personal communication to C. Lane. 7 January: IG Metall. Dunford, M. (2002) The Changing Profile and Map of the EU Textile and Clothing Industry, Brighton: School of European Studies, University of Sussex. Dunford, M. and Greco, L. (2004) Textiles and Clothing: Industrial Districts, Magic Circles and Delocalization. Unpublished manuscript. University of Sussex, Brighton. EMDA (2001) Developing the Clothing and Textile Cluster in the East Midlands, Nottingham: East Midlands Development Agency (EMDA). Euratex (2001): EURATEX Bulletin. Brussels: Euratex. Euratex (2002) Evolution of the Textile and Clothing Industry in the European Union Between 1996 and 2000. Brussels: Euratex, Bulletin, 5: 18–159. Finegold, D. and Soskice, D. (1988) ‘The failure of training in Britain: analysis and prescription’, Oxford Review of Economic Policy, 4: 21–53. Flanagan, M. (2004) The Ground Rules for Sourcing after 2005: Management Briefing, Bromsgrove: Aroq Limited (Just-style.com). Froebel, F., Heinrichs, J. and Kreye, O. (1980) The New International Division of Labour, Cambridge: Cambridge University Press. Gereffi, G. (1994) ‘The organization of buyer-driven global commodity chains: how US retailers shape overseas production networks’, in Gereffi, G. and Korzeniewicz, M. (eds), Commodity Chains and Global Capitalism, Westport, CT: Greenwood Press, 95–122.

Christel Lane and Jocelyn Probert 211 Gereffi, G. (1999) ‘International trade and industrial upgrading in the apparel commodity chain’, Journal of International Economics, 48: 37–70. Gereffi, G., Humphrey, J. and Sturgeon, T. (2005) ‘The governance of global value chains’, Review of International Political Economy, 12, 78–104. Gospel, H. (1998) ‘The Revival of Apprenticeship Training in Britain?’, British Journal of Industrial Relations, 36, 3: 435–57. Grant, R. M. (1996) ‘Prospering in Dynamically-Competitive Environments: Organizational Capability As Knowledge Integration’, Organization Science, 7, 4: 375–87. Groemling, M. and Matthes, J. (2003) Globalisierung und Strukturwandel der deutschen Textil- und Bekleidungsindustrie, Koeln: Deutscher Institutsverlag. Hall, P. A. and Soskice, D. W. (2001) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford: Oxford University Press. Hamel, G. and Prahalad, C. K. (1994) Competing for the Future, Boston, MA: Harvard Business School Press. Held, D., McGrew, A., Goldblatt, D. and Perraton, J. (1999) Global Transformations, Cambridge: Polity Press. Henderson, J., Dicken, P., Hess, M., Coe, N. and Yeung, W.-C. (2002) ‘Global Production Networks and the Analysis of Economic Development’, Review of International Political Economy, 9, 3: 436–64. Heyes, J. and Gray, A. (2000) The Impact of the National Minimum Wage on the West Yorkshire Textiles Industry, Leeds: Leeds University Business School, Discussion Paper Series IH00/01. IHK Bielefeld (undated) Manufacturing in Germany. Photostat: Industrie und Handelskammer Bielefeld. KFAT et al. (2000) UK Garment Workers Report. Leicester: KFAT (Knitwear, Footwear and Apparel Trades), National Group on Homeworking, Women Working Worldwide and Labour Behind the Label Network. Klar-Text (2003) Der dreiunddreissigste DOB-Umsatz-Rangliste mit den Daten von 2002/Der dreiunddreissigste HAHA-BESPO-Freizeit-Umsatz-Rangliste mit den Daten von 2002, Brannenburg: Das Klar’sche Textil-Archiv GmbH. Office of National Statistics (ONS), Annual Business Inquiry 2001, London: ONS. Owen, G. and Cannon Jones, A. (2003) A Comparative Study of the British and Italian Textile and Clothing Industries, London: DTI Economics Paper No. 2. Palpacuer, F. (2000) ‘Competence-based Strategies and Global Production Networks: A Discussion of Current Changes and Their Implications for Employment’, Competition and Change, 4: 353–400. PSS (2000) People Skills Scoreboard: Clothing, Textiles and Footwear, London: DTI. Quinn, J. B., Doorley, T. L. and Paquette, P. C. (1991) ‘Beyond Products: ServiceBased Strategy’, in Montgomery, C. A. and Porter, M. E. (eds), Strategy. Seeking and Securing Competitive Advantage, Cambridge, MA: Harvard Business Review, 301–14. Rath, J. (2002) ‘Needle games: a discussion of mixed embeddedness’, in Rath, J. (ed.), Unravelling the Rag Trade: Immigrant Entrepreneurship in Seven World Cities, Oxford: Berg, 1–27. Richardson, J. (1996) ‘Vertical Integration and Rapid Response in Fashion Apparel’, Organization Science, 7, 4: 400–12. Stalk, G., Evans, P. and Shulman, L. E. (1992) ‘Competing on Capabilities: The New Rules of Corporate Strategy’, Harvard Business Review, March–April: 57–69.

212 Multinationals, Institutions and the Construction of Transnational Practices Steedman, H. and Wagner, K. (1989) ‘Productivity, Machinery and Skills: Clothing Manufacture in Britain and Germany’, National Institute Economic Review, 128, 2: 40–57. Stengg, W. (2001) The Textile and Clothing Industry in the EU: A Survey, Brussels: European Commission DG-Enterprise. TCSG (2000) A National Strategy for the UK Textile and Clothing Industry, London: British Apparel and Textile Confederation, Textile and Clothing Strategy Group. Teece, D. J., Pisano, G. P. and Shuen, A. (1997) ‘Dynamic Capabilities and Strategic Management’, Strategic Management Journal, 18, 7: 509–33. Volksbanken Raiffeisenbanken (2003) Branchen Special, 32 (July). Warren, C. (2003) Implications of Garment Industry Subcontracting for UK Workers. Garment Industry Subcontracting and Workers Rights: Report of Women Working Worldwide Action Research in Asia and Europe. Manchester, 231–54. Wrona, T. (1999) Globalisierung und Strategien der vertikalen Integration, Wiesbaden: Gabler Verlag. Yoruk, D. E. (2002) Global Production Networks, Upgrading at the Firm Level and the Role of the Network Organiser: The Case of Vistula SA in Poland, London: University College.

9 Global Networks or Global Firms? The Organizational Implications of the Internationalization of Law Firms Glenn Morgan and Sigrid Quack

Introduction1 The 2004 World Investment Report produced by UNCTAD was entitled ‘The Shift towards Services’. The report stated that ‘the structure of FDI has shifted towards services. In the early 1970s, this sector accounted for only one-quarter of the world FDI stock; in 1990 this share was less than one-half; and by 2002, it had risen to about 60 per cent or an estimated $4 trillion’ (p. xx). The report also noted that ‘despite the growth and dominance of services FDI, the services sector is less transnationalized than the manufacturing sector’. In this chapter, we examine one particular services sector that is a fast growing area for FDI – that of legal services. As the UNCTAD report states, ‘the legal business is skills oriented and strongly host-country specific. Each country has its own legal code upon which firms operate’ (p. 112). This raises three issues which we seek to explore and which constitute the three core sections of the paper. Firstly, what has changed in the legal business that makes internationalization an important issue, given that nation-states remain the predominant source of law and, as a profession, lawyers are predominantly educated, regulated and controlled by national associations? Our main argument here concerns the changing nature of client demands on legal firms pushing them to find ways of evolving more international capacities for advice. Secondly, how have legal firms sought to become international against the backdrop of national legal systems and national forms of professional regulation? Here we describe two basic models of internationalization which we label the ‘global firm’ model and the ‘network model’. We differentiate each of these models further in order to capture the broad range of internationalization models currently being pursued. We also consider the 213

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extent to which these different models emerge from a segmentation of the market or are alternative models within the same market segment. In our final discussion section we relate this to the general issue of the social embeddedness of firms in particular national contexts and consider how different are the forms of internationalization of legal firms across different ‘varieties of capitalism’? Our analysis draws partially on data derived from publicly available sources concerning the growth and development of law firms. These data are increasingly available through the websites of the firms themselves and through legal directories, the most important of which is Martindale-Hubbell (http://www.martindale.com). As well as providing data on individual law firms from different countries, Martindale’s provide a list of law firms, associations and their members (with website addresses in many cases). These sources have been a major resource for us in developing an understanding of different types of firms and networks within the legal industry. We have supplemented this with two other sources of information. The first is the flourishing legal press in which issues of internationalization appear regularly (e.g. The Lawyer, in the UK and the American Lawyer). These magazines provide important information on the latest developments within firms and networks, frequently revealing the tensions and difficulties which partners and their firms face as they try to internationalize. The second source derives from academic accounts of law firms from outside the arena of business and management. As well as the obvious literature in the field of socio-legal studies, there are also significant discussions of the internationalization of law and law practice in the fields of international politics and international relations. Although these literatures rarely examine the dynamics of firms, they are excellent sources for an understanding of how law and the demand for law is internationalizing. More recently the growing policy interest in the internationalization of services has also led organizations such as UNCTAD to look at law firms. In conclusion there is a substantial amount of primary and secondary data that enables us to develop a systematic framework for understanding the diversity of ways in which law firms are internationalizing.

Lawyers and their clients: the impact of globalization Boyle and Meyer (2002: 68) state that ‘legal systems are a constitutive element of that form of society known as the modern nation-state. The two arose concomitantly, each lending legitimacy to the other.’ Each

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society evolved its own particular pattern of law, law-making and lawyering on the basis of longer-standing traditions and institutions that in the European and Japanese contexts stretched back to previous forms of what Weber termed ‘traditional authority’. Stryker (2003: 339) describes the inter-relationship between law and the economy in classical institutionalist terms as follows: When there are stable sets of rules providing legal rights and guarantees to parties to exchange, this enhances certainty and predictability in contractual relations. Because guaranteeing enforcement of contracts according to known rules increases the probability that promises are kept, law encourages making contracts and also other forms of business activity on which market exchange depends…. Full-blown capitalist economic systems are unlikely without legal enforcement of contracts. The manner in which the characteristics of professionalism, such as licensing, exclusion, certification and organization, were constructed was dependent on the nature of the relationship established between the state and the profession (Johnson, 1972; Thorstendahl and Burrage, 1991) in various countries as was the relationship between lawyers and other professional groups, such as accountants and tax consultants. As far as most clients of law firms were concerned, up to the latter years of the twentieth century their needs would be predominantly national. Only with the largest multinationals (MNCs) was there likely to be any requirement for advice that spanned national boundaries. However, as globalization became more significant, this began to change. The UNCTAD report states that ‘FDI in services has traditionally been and continues to be, market-seeking’ (UNCTAD, 2004: xxii). In legal services, however, this has to be modified somewhat as frequently the goal of the law firm is not seeking new markets per se (which is difficult where skills and reputation lack cross-national transferability) but rather following the home client, i.e. trying to ensure that business is not lost when clients have legal needs overseas. However, even this is not sufficient to understand the internationalization of law where it is the nature of law itself and how it is evolving which are crucial factors. One way to approach this is to pose the following question which is increasingly common in the era of globalization: when MNCs make contracts with each other or with national governments, what system of law governs the transactions? The answer to this is that corporate

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law has increasingly become ‘de-territorialized’. In other words, the law which governs a contract does not automatically emerge from the physical place in which the contract is signed. In many circumstances, companies can and will exercise ‘choice of law’, that is they will agree that the law under which the contract takes place is US law even though the contract refers to business being undertaken in China. Indeed, companies may seek to establish that the contract is under ‘international’ law, what is known as lex mercatoria in the arena of corporate law. De Ly (2001: 161) describes these debates as follows: (The) basic proposition was that national sources (primarily codes and statutes and case law) did not reflect the realities of international business life… they argued that national sources were to a large extent inappropriate to cope with the problems and needs of international trade. They claimed that a new system was required and that… a new law merchant or lex mercatoria had emerged and was developing. This lex mercatoria may be defined… as a set of rules finding their origins outside domestic legal systems which is applicable to international business transactions. By and large, it is composed of international sources of law and self-regulatory rules. De Ly points out that lawyers disagreed about the degree to which this system was a separate autonomous legal system of its own, different and apart from national legal systems. If it is such a system, then ‘it is an outright attack on domestic law as the basis for international business adjudication. Thus, it challenges and disputes the traditional national state paradigm of international business law and its underlying assumptions’ (De Ly, 2001: 162). What is clear is that the nature of law regulating international business was gradually changing and that the debate over a new lex mercatoria was one symptom of this. Law was becoming more multi-layered, not just national. It was becoming less constrained by the state and the sphere of public law and it was moving into various private or semi-private arenas. The range of actors involved was also becoming more diverse. This web of institutions, actors and interactions reflected a new form of governance without government. The consensus amongst legal scholars is that international business transactions are governed at a variety of levels, not just the ‘national’. Martiny (2001: 126) states that ‘for most legal questions, even today, there exists only national statute and case law… nevertheless the respective national statutes often simply do not fit with international

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cases.’ States have tried to overcome these differences by signing up to international conventions and treaties. However, the complexity and diversity of international economic activity goes beyond this and the result has been a range of public, private and semi-public arenas for managing the legal issues arising. Slaughter (2002: 15) describes this in terms of ‘not only the devolution of state power upward to supranational institutions and downward to regional or local governments but also sideways to a fast-growing array of non-state actors, both civic and corporate.’ The consequences of this for processes of international economic coordination are not that the state is no longer significant. Indeed, the state remains at the heart of many of the coordinating mechanisms across borders but now the state is overlaid and networked with many other mechanisms. This in turn leads to uncertainty and ambiguity. How do these mechanisms connect together, which have priority and how is this enforced? Answers to these questions emerge out of processes, rather than being imposed by structures. In that sense, they remain fluid, temporarily useful but subject to change, challenge and reinterpretation – an era of governance, not without government per se, but with government (and its principles of hierarchical coordination and control) as but one part of a more complex scene of processual coordination. Much of this change can be captured in the concept of ‘governance without government’. Zürn’s account (2001: 49–50) neatly sums this up: Governance refers to the governing of purposive systems of norms and rules. In this sense, ‘governance is order plus intentionality’. Modern governance has best been provided within the nation-state by a government claiming a monopoly of legitimate force and that thus ruled by hierarchical orders…. International governance, specifically, lacks a central authority or a ‘world state’ equipped with a legitimate monopoly over the use of force. Thus governance beyond the nation-state cannot take the form of governance by government, but rather it needs to be governance with governments, as in international institutions, or governance without government, as in transnational institutions. These developments are invariably pushed forward by MNCs. The growing diversity of possible legal arenas inevitably offers opportunities for the large firms. The shift, for example, from public to private arenas of law has various advantages. For firms involved in disputes, public confrontations can irreparably damage commercial relationships

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and therefore more private processes are often preferred. In arenas of high complexity and rapid change (e.g. around financial markets), public law may be slow to respond and conservative compared to practitioners. Lying behind this, more generally, is clearly a shift into the private arena of issues that might become ‘political’ and damage the standing of companies and sectors in some ways. Similarly, an extension of ‘choice of law’ principles or the new lex mercatoria will enable companies to reach deals and compromises away from broader political accountability or scrutiny. For those law firms traditionally involved in corporate business, this extends considerably the legal arenas in which they operate and the activities which their clients may expect them to undertake. We can distinguish four levels of lawyering in this era which reflect these changes. We present these in increasing order of complexity from the point of view of the organizational coordination processes necessary to achieve them effectively (see also Morgan and Quack, 2005a, b, for a more general analysis of these processes): • Cross-border referral business. This refers to contexts where a client in one jurisdiction requires advice in order to undertake some legal process in another country. This is essentially bilateral business that emerges from the ongoing internationalization of trade. It may include advice on debt recovery, contract enforcement, incorporation procedures, regulatory barriers to goods and services, and so on. This is the arena of corporate law that most affects small and medium-sized enterprises in their effort to internationalize. • Doing law simultaneously and in a coordinated way in multiple jurisdictions – for example, competition law referrals arising out of merger and acquisitions activity. This sort of law requires central coordination and the provision of standardized services in local offices. However, it does not require high degrees of flows of information and expertise across the firm as a whole. • Arbitraging legal systems. MNCs also require their lawyers to be able to judge and compare the impact of different regulatory frameworks on the firm’s operations. Given a multi-jurisdictional world in which there is an element of ‘choice’ of law, of incorporation, of taxation, it is crucial to the firm that there are experts capable of helping them to maximize the advantages that can be gained from this. This is a highly complex process and requires the ability to create intensive flows of communication, knowledge and understanding between experts in different national jurisdictions.

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• Building new systems of public and private law at the transnational level. This final process reflects the fact that law and institution-building is a continual process at the international level. MNCs require their law firms to be active in this process not just through acting for them in specific cases but through their participation in the processes of institution-building itself. International law firms gain reputation and position (and through this the ability to charge premium fees) by their ability to interact with powerful lawmakers. This is reflected at all sorts of levels. In formal terms, it is demonstrated by the law firm’s ability to respond to consultative exercises launched by various governments or international bodies on matters of corporate law. In informal terms, it is reflected in the c.v.’s of the lawyers present in these firms – for example, their education in top institutions, their experience in government or politics, their role in prestigious international bodies. In conclusion, the clients of lawyers increasingly demand an international capability on the part of the firm. The idea of ‘international capability’, however conceals some significant differences. The capability to handle referral business for clients is much easier to develop than is the capability to influence the development of international institutions and international law-building. Thus there are different levels of capability, not all of which are required by all firms involved in international activity. Finally, it is important to note that as tasks become more complex, the ability to perform them requires more resources. In this respect, there is a clear cost hierarchy in this system. The more coordination is required across expert groups located in different national contexts, the higher will be the costs. Where these experts are also supposed to be an elite engaging regularly and directly with lawmakers and the process of institution-building, the higher the costs will be for clients. This reflects a move away from standardized processes and procedures such as referrals and multiple registrations towards more open-ended arbitraging and influencing types of processes. In the latter case, the gains from success may be huge to the company concerned but often it may be that the gains (particularly in terms of ‘influence’) are hard to identify and quantify and also ‘lumpy’ in terms of their timing (maybe influencing the climate of opinion in a way that only reaches fruition some time in the future). What this diversity of activity and costs implies, however, is a similar diversity in the nature of the organizational solutions that emerge to compete for this business. In the next section, we explore this in more detail.

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The development of organizational forms: global law firms and global networks of law firms In this section, we examine how law firms have responded to these changes. Our basic argument is that there have been two main developments in the past decades. The first we label the ‘networks’ model and the second the ‘global firm’ model. In the networks model, firms retain their independence in national contexts but advertise and effect a longer transnational reach by establishing relationships with other firms. In the past, much international legal work was in effect conducted through such informal, friendship networks of this sort. From an organizational point of view, the continued centrality of the partnership structure to the organization of law firms is of paramount importance. In spite of some reforms in particular jurisdictions (such as the establishment of the limited liability partnership), law firms belong to their partners. The partnership structure is difficult to internationalize particularly in areas like law for at least two reasons. Firstly, for most partnerships the issue of liability is naturally a central one. Unlike the public limited company model, where liability is strictly contained, in the partnership the partners are jointly and severally liable for the debts of the firm. For legal partnerships liability is usually contained in two ways: by avoiding involvement in other jurisdictions; and by purchasing professional indemnity insurance which is often mediated by the national professional association and is dependent on conformity to national standards. Thus in the UK, the issue of having lawyers qualified in other jurisdictions (such as the USA) as partners in the UK-based firm required Law Society approval as it raised questions of liability insurance. Secondly, partnerships are delicate institutions in terms of the distribution of rewards. It is the partners themselves (or a sub-group of them) who take the decisions about how to distribute surplus. In most cases, this requires a relative visibility of the performance of various partners and the fees they are earning. In general, there are two different mechanisms for this. One system known as the ‘lock-step’ model and favoured in the past in the UK has been effectively a seniority-based model. The other model, favoured more in the US is the ‘kill what you eat’ system where rewards go to partners according to performance. In both cases, however, systems are modified in order to deal with specific instances and to make sure that the firm does not lose particular talent which may be disadvantaged by the rules. This creates difficulty in international ventures. Firstly, it is difficult to create the mechanisms

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of visibility that can provide the legitimacy for decisions on distribution. Secondly, the earning power of lawyers across different jurisdictions varies enormously and therefore any redistribution system which sought to be ‘transnational’ would create major tensions amongst winners and losers. For all these reasons, therefore, any steps to internationalize the firm require careful handling. Many law firms will prefer to remain independent as that ensures that their partners retain their autonomy in terms of their own work and also they retain oversight and control over how surpluses are distributed. Giving up independence through becoming a part of a global firm brings into question how to organize roles and responsibilities as well as the distribution of surplus amongst partners even when it promises the possibility of a hugely enlarged surplus. It is these tensions which are reflected in the various models discussed in the following section. We begin from situations where least autonomy has been given up through to global firms where issues of managing across borders become more central.

Types of networks We identify four types of networks, that is to say where law firms in different countries retain their independence but become part of a network of cooperating firms. The degree of cooperation is the predominant factor of difference between the different types of networks.

International referral networks International referral networks have become established since the early 1990s as the scale of international law business has increased. Two of the most well-known are Multilaw, with its 4500 lawyers in 130 commercial centres, and Lex Mundi with its 15,000 lawyers in 161 countries. Any law firm can join these organizations on payment of a small fee. Such networks run various events but given the global spread of members these tend to be regional or local in their impact. Their governance structure reflects a mix of principles. Thus there is both professional involvement in oversight and a permanent secretariat. The network itself is likely to be a profit-seeking organization. This can create tensions between, on the one hand, an urge to keep costs low and revenue high and, on the other, a more professional agenda of developing the capacities of the network and its members. The standards of members in these networks, for example, are very difficult to monitor although the networks do claim to do this. This kind of network gives any individual member firm relatively little. The firm gains an additional logo or identity that can be placed on its publicity materials. It also receives a

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listing on a website or in a catalogue. Ideally this gains the firm referral business but as there is little effort to ensure that members are in principle not competing this is an uncertain and limited gain. This type of network is as much about reassuring clients as it is about actual practice. Nevertheless the ease of access to such networks does mean that SMEs in different countries can find their way to advice and expertise that may help them overcome difficulties in international transactions.

The integrative network The second tier, ‘integrative networks’, consists of linkages between large provincial firms in different countries where the heart of the network has been built and sustained by strong personal links between senior partners. Such networks are often characterized by membership in the region of 20–30 firms formalized on the basis of initial strong contacts between a core group. Membership is by invitation only and requires payment of a fee, though this is usually quite small. The invitation is usually extended on the basis of an agreement of existing members that they need to develop into new markets; for example, a number of such networks are seeking new members in the recent EU accession countries. Generally representation will be just one firm per country, but where there are clear boundaries between court areas in large countries more than one member may be permitted. The network works primarily on the basis of referrals, in other words a firm with a client in one country refers the client to a law firm in another country where the firm has an established need. There may be some effort to move to the level of a coordinated cross-border service for relatively standardized tasks so that, for example, an MNC could go to the lead member of such a network with a task that has to be done roughly simultaneously in a number of countries and the law firm will coordinate its contacts through the network to ensure that this is achieved promptly and at the same quality level. This may be relatively mundane in terms of issues such as debt recovery or corporate registration. There are no commissions on ‘introducing’, just an expectation of reciprocity in terms of referrals. Such networks may act quite strongly against members who either do not deliver mutual referrals (though this may be difficult for a firm in a small country compared to a firm in a large one and is not always a case of free-riding), or who consistently fail to deliver good service to a client thus undermining the introducer’s reputation and that of the network as a whole. These networks can become heavy consumers of the time of a small number of partners in particular firms who may run the administration of the network.

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Generally, personal contacts are essential to sustaining the social relationships necessary for making the network run. As a result network activities are often based around social events with a small amount of formal legal activity – for example, annual conferences with partners in exotic locations where social activity is interspersed with sessions on topics of legal interest. The sharing of a technology platform is increasingly part of networks like this. Within Europe, these networks are becoming increasingly common for mid-level provincial law firms, reflecting the growing intensity of cross-border business governed by EU law. They often reflect a conviction of some of the partners within the firms that an international presence is essential. Hard evidence in terms of new revenues arising from these activities may be difficult to discern.

The tightly coordinated quasi-firm network Tightly coordinated networks emerge from a process of interaction between independent firms in different jurisdictions, where the need to build more complex business propositions for multinational clients pushes towards greater formal integration both in terms of marketing activities and in the use of cross-border work teams. The most significant network model of the formal sort amongst the top law firms in Europe is the CMS network (known as CMS Hasche Sigle in Germany, where it is the fifth largest firm, and CMS Cameron McKenna in the UK, where it is the fourteenth largest). The CMS network is concentrated in Europe and consists of partners in Italy, France, UK, Netherlands, Switzerland, Belgium and Austria. Another example of such a network is DLA, headquartered in the UK (where it is the ninth largest firm), with network members in eight EU countries as well as in Singapore and Hong Kong. These networks have emerged from large provincial firms that might be described as second-tier law firms in their national setting. Such firms face the prospect of gradually losing their major clients to larger firms if they cannot deliver international services. Creating tight networks enables them to offer these services to clients whilst retaining their independence. Such networks have some of the potential of the global law firm in terms of sharing information and developing international practice groups. However, because they lack a strong coordinating headquarters and also the levels of revenue achieved by the global firms, it is not clear that they are likely to progress very far in this direction unless they become more centrally integrated.

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‘Best friend’ networks ‘Best friend’ networks tend to be very small and to involve highly prestigious firms in big markets that wish to retain their independence but recognize the need to offer their international clients a range of services that go beyond referral and simple coordination systems towards advice that was characterized above in terms of ‘regulatory arbitrage’. In the UK, one ‘Magic Circle’ firm,2 Slaughter & May, is characterized by the development of a best friends network. It has limited its expansion of offices to a few key places – Brussels, Hong Kong, New York, Paris and Singapore – whilst describing itself as networked with a small number of high prestige firms in other countries, the most important being in New York and Frankfurt. Two other UK-based firms which have developed in this way are Herbert Smith (in a network with Gleiss Lutz, seventh largest in Germany and Stibbe, a Brussels-based firm with offices in Amsterdam and New York) and Eversheds which provides service through a combination of its own offices in Europe and associated firms in Europe and Asia, constituting a network of ‘best friend’ and preferred law firms across the globe that have been used in the past. In Germany, two of the top ten firms, Hengeler Müller and Gleiss Lutz, have gone down this route. These informal networks, however, remain tightly controlled within the top firms of particular societies. There is a concern to link with other firms of similarly high reputation and in the past this has often been seen as a precursor to a formal merger, as appears to be the case with the Herbert Smith/Gleiss Lutz relationship. In conclusion, network models have significant diversity. They are clearly of increasing importance for standardized services where the client simply requires referral to another competent law firm in a different jurisdiction. For many SMEs whose international business has been increasing, the sorts of legal issues that they may encounter can usually be dealt with by such networks. The smaller and more integrated networks with tighter control of the performance of members are likely to be most valuable in this respect. Law firms that potentially want to engage with bigger clients through developing a more complex international law capability soon find that coordination costs start to rise as attempts are made to increase communication across different firms, develop common business strategies through the establishment of practice group working parties, and so on. This immediately raises the question of the independence of the different national constituent parts. In some cases, integration is going further and may eventually lead to a single firm though at the moment the network is a ‘brand

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identity’ rather than a single organization. In very small ‘best friend’ networks of prestigious firms, it may be possible to engage in ad hoc high levels of cooperation based on reputation and trust. Overall, therefore, it is clear that there is a certain segmentation in the market but there are also areas of overlap and competition between the different types of networks as well as between similar types of networks.

The global firm model The ‘global firm’ model refers to law firms which attain an international reach by having their own offices in different jurisdictions and which have a presence in the key global cities. The term ‘global cities’ was first coined by Sassen 2001 to refer to the key nodes in the emerging international flow of capital during the 1980s. In her original specification it referred to London, New York and Tokyo. More recently, the work of Taylor (2004) and others has developed this into an analysis of ‘world cities’ which refers to a more diverse but interconnected web of relations between cities, mainly still constructed around flows of capital. These cities are the sites of emerging economic and political power in the global economy. They connect together the US with Europe and Asia. In the US the main centres are New York and Wall Street, but also Chicago; in Europe, London plays a special role due to its position in international capital and commodities markets, but Brussels, Paris, Frankfurt and Berlin are other crucial nodes. In Asia, Hong Kong and Singapore link into China which in turn has its own emerging ‘world cities’ of Shanghai and Beijing; Tokyo remains a key part but is not as central as in Sassen’s model. In all these cities, to varying degrees, corporate financing and corporate restructuring (mergers and acquisitions, IPOs, and privatizations) are key areas of business for corporate law firms. These cities are also the key sites for the development of international institutions in the sphere of corporate law. Having a central role in these processes requires access to the key decision-makers, participating in the discussions and analyses of how to develop the system, and being proactive on behalf of clients in building new private systems of law and identifying areas of development in public law. Global law firms are those firms which construct a permanent and significant presence over these cities in the US, Europe and Asia. This is clearly a concentrated form of ‘global’; it does not refer to offices in all countries, but to those areas where the bulk of corporate law activities take place. The idea of the global firm is still very distinctive in law compared to other professional services such as accounting or management

226 Multinationals, Institutions and the Construction of Transnational Practices

consultancy. Even the largest law firms tend to be present in only 20–30 countries compared to the big four accounting firms which have offices in around 150 countries (Table 9.1). We distinguish two types of global firms, according to the degree to which the firm is seeking to incorporate different forms of law and expertise within its boundaries or is rather seeking to export a particular form of law to other countries. Table 9.1 Rank

Top 10 law firms in the world by gross revenue in 2002–3

Name

Home location

Number of partners/lawyers

Number of countries

1

Clifford Chance

UK

580/2600

24

2

Skadden Arps

US

314/1366

14

3

Freshfields

UK

277/1327

20

4

Linklaters

UK

229/1036

22

5

Baker & McKenzie

US

621/3141

38

6

Allen & Overy

UK

265/1285

20

7

Jones Day

US

416/1319

13

8

Latham & Watkins

US

322/984

10

9

Sidley, Austin, Brown & Wood

US

412/886

8

Mayer, Brown

US

317/827

9

10

Sources: for gross revenue, see American Lawyer, November 2003; numbers of partners, lawyers and countries taken from UNCTAD, 2004: 326.

The exporting global law firm This model of the global law firm is characterized by a strong central headquarters that establishes overseas offices primarily to support its home-based clients. It does this not so much by practising local law in the overseas jurisdiction, though it will probably have some capacity to do so. Rather it primarily services its home-based clients through the application and development of its home-based system of law in the overseas setting. This model is particularly associated with US law firms. According to UNCTAD (2004), US outward FDI stock in legal services has grown over 30 times in less than a decade and a half. In these sorts of firms, the overseas offices are mainly sites in which US law is practised. Therefore, the managing partners in such offices tend to be American, often relatively recent partners, sent abroad in order to get

Glenn Morgan and Sigrid Quack 227

management experience and a knowledge of international issues. Their most likely career trajectory, if they are successful, is to return to the US practice after a few years. Reflecting this, such partners will remain covered by the US partnership’s reward systems. Their job in overseas branches is threefold, though the exact balance between the different elements will vary significantly. Firstly, they serve their US multinational clients operating overseas. Secondly, they serve firms from other jurisdictions who choose to operate under US law. Thirdly, they engage with local and/or regional law systems in ways that seek to push these further towards compatibility with US law. Such firms may acquire local law firms in order to access a certain jurisdiction but they will also hire local lawyers directly into their office, confident that their global reputation, the fees they can charge and the salaries they can therefore pay, and the opportunities they make available will bring them high quality local recruits. These recruits can provide local legal advice but ideally, they should be sufficiently well connected to be able to mediate between the US model of law and the local and regional legal system in ways that can push forward US interests. Often this is achieved by such local lawyers spending time in the US doing a postgraduate degree in law (LLM) and undertaking work experience in a US firm (Silver, 2002). These law firms offer some integration of activities across borders but this tends to be very much under the guidance of the US head office. By keeping US control, they avoid the possibility of alternative power bases emerging within the organization. They retain their strong linkages with the US system and seek to reproduce this model of elite connections overseas. US law firms have in this way become powerful forces for the overseas expansion of US law and the US model of capitalism more generally. They concentrate on very high value business in a small number of world city centres where US firms are highly involved and profits are derived primarily through the application of US law.

The integrative model of the global firm Alongside this, however, there is another model of the global firm which we describe as the integrative model. Although there are variations within the model, it has a sufficiently strong shared set of presuppositions as to make it worth analysing in its own right. The organization of this type of global law firm can be characterized on two dimensions. The first consists of the national partnerships within the firm. Thus this type of firm is a federation of national

228 Multinationals, Institutions and the Construction of Transnational Practices

partnerships. Rewards and careers derive predominantly from performance of the individual within the national partnership. This makes it easy to refer clients across national boundaries and still capture at least for the firm as a whole the value of the advice given. However, global law firms claim to do more than this. They provide not just expertise about different national jurisdictions but also a wider knowledge of the transnational context described in the first section of this paper. This primarily comes through the organization of practice groups. Any partner in such a firm has membership not just of the national partnership but also of at least one practice group. The large international law firms tend to have between ten to 20 practice areas which vary in their degree of specificity. These can include areas like mergers and acquisitions, capital markets, banking, corporate finance, tax law, employment law, intellectual property rights, and so on. Practice groups have their own leaders in particular offices but also their own managing partners at the global level of the firm. Practice groups are the repositories of the firm’s diverse knowledge of institutions and actors. The practice group level of organization can be reinforced in various ways. It is broadly possible to distinguish two aspects. The first consists of the formal activities of the practice group to ensure that knowledge is spread across the firm. This includes annual meetings, the formation of task groups to investigate particular issues, and the creation of knowledge databases that hold information on the practice area across the global firm. The second consists of the actual practices of the firm which create shared knowledge. At junior levels, lawyers may shift for more or less extended times into the practice group in different countries. Partners leading projects on particular issues will become familiar with cooperating with partners in the practice group in other countries as well as gaining a knowledge of associates in other countries. The scale and importance of the global firms gives some of the key partners the influence to be involved in the development of international law mechanisms not just through their practice but through their membership of other sorts of networks. These may be professionbased, for example in parts of the International Bar Association or similar bodies, or more directly through their participation in consultation processes set up by organizations such as the European Union or the World Trade Organization. They may also become part of the elite group of notables called in to work on international arbitration or advice on law-making in emergent economies. As advisers to national governments and the largest MNCs, these lawyers are fundamental to constructing transnational institutions. Unlike the exporting global

Glenn Morgan and Sigrid Quack 229

firm, a greater diversity of advice is propounded within these firms than in the heavily centralized US model. From 1999 to 2002, mergers between Anglo-Saxon and German law firms gained a surprising momentum and transformed the landscape of business law firms in Germany. Whereas independent German firms still dominated the scene in 1998, by 2002 the list of the top 15 law firms in Germany was populated predominantly by German firms that had become part of large British law firms (see Table 9.2). By contrast, none of the top US Wall Street firms appears in this list, reflecting their adherence to the exporting model discussed earlier. Similarly, the numbers of lawyers in Clifford Chance, Freshfields and Allen & Overy grew by over 100 per cent between 1993–2002 as a result of this strategy of merging with and acquiring a variety of overseas law firms, compared to a growth rate of 35 per cent in Skadden Arps and just 24 per cent in Jones Day Reavis and Pogue, two of the most important and most international Wall Street firms (UNCTAD, 2004: 326). Both Clifford Chance Pünder and Freshfields Bruckhaus Deringer now employ more than half of their lawyers outside the UK and more than 90 per cent of their offices are located abroad. In Freshfields, the group of German partners is almost as big as that of UK partners. Even in Clifford Chance, the law firm with the largest US presence, German partners make up the second largest grouping. In Freshfields, Germany is responsible for 23 per cent of global turnover and the London office for 41 per cent. The next largest office, Paris, has about 9 per cent of the total, while the US has less than 3 per cent. Clifford Chance has the most developed position in the US, with US turnover contributing around 23 per cent of total (compared to London 41 per cent and Germany 11 per cent). These firms seek to combine the capacity to deal in as many key legal jurisdictions as possible with a consistent and coherent quality of service across national boundaries. The exporting model of the global firm has some involvement in local law but this is subsidiary to their role in exporting and utilizing US law in as many contexts as possible. The integrative global law firm, however, aims to be strong in the local market at the same time as offering complex legal services to its international clients. Building a global law firm such as this is a highly complex and delicate operation. It requires sustaining the national partnership structure but inserting above it a managerial level with access to sufficient funds (which in turn have to be granted by the national partnerships) to enable the building-up of cross-national capabilities. However, in doing so, the firm risks diminishing the individual

230

Table 9.2

Top 15 law firms in Germany, ranked by turnover, 2002

Law firm

Total turnover (mil. €)

National origins

Ratio of local to total offices

Geographical spread of foreign offices

International networks

1

Freshfields Bruckhaus Deringer

285

UK–Germany

6:28

Global

–

2

Clifford Chance Pünder

151

UK–Germany

4:30

Global

–

3

Hengeler Müller

149

Germany

3:7

Brussels, London, Budapest, Prague

Relationships with Slaughter & May (UK) and Davis Polk (US) among others

4

Linklaters Oppenhoff & Rädler

145

UK–Germany

4:30

Global

–

5

CMS Hasche Sigle

125

German firm Hasche Sigle founded CMS together with law firms from UK, Austria, Netherlands and Belgium

9:14**

Brussels, Prague, Belgrad, Moscow, Shanghai **

CMS is an exclusively European mix of accounting and legal professionals registered in Brussels

Rank

Table 9.2

Top 15 law firms in Germany, ranked by turnover, 2002 – continued

Law firm

Total turnover (mil. €)

National origins

Ratio of local to total offices

Geographical spread of foreign offices

International networks

6

Lovells

106

UK–Germany

5:25

Global

Associated offices in Budapest, Vienna, Zagreb

7

Gleiss Lutz

93.8

Germany

4:7

Brussels, Prague, Warsaw

Close relationship with Herbert Smith (UK) and Stibbe (NL/Belgium); loose relationship with a number US firms including Cravath

8

Baker & McKenzie

83

US

4:61

Global

Five associated offices in Asia and Latin America, two correspondent law firms in Asia

9

EY Law Luther Menold (1)

82.8

US–Germany

12:16

Brussels, Budapest, International network of New York, independently practising Singapore law firms in 30 countries, associated with E&Y; best friends relationships with law firms in jurisdictions not covered by EY Law

Germany

5:10

CEE

Rank

10

Nörr Stiefenhofer 82.5 Lutz

231

Member of lex mundi, best friends relationships with law firms in West Europe and US

232

Table 9.2

Top 15 law firms in Germany, ranked by turnover, 2002 – continued

Rank

Law firm

Total turnover (mil. €)

National origins

Ratio of local to total offices

Geographical spread of foreign offices

International networks

11

Haarmann Hemmelrath

78.5

Germany

9:22

Europe, CEE, Asia

Cooperation with law firms in Austria, Singapore and Shanghai

12

Shearman & Sterling

73

US–Germany

4:19

Global

–

13

Taylor Wessing

73

UK–Germany

6:12

Europe, Middle East, Asia

Member of EEN, TechLaw Group, Unilaw and World Law Group*

14

Beiten Burkhardt Goerdeler

70

Germany

8:17

Europe, CEE, Asia

–

15

White & Case, Feddersen

67

US–Germany

6:38

Global

–

* EEN (European Environmental Network) is a network of nine European and US law firms specialized in environmental law; TechLaw Group combines worldwide 4000 lawyers from US and European law firms which have a strong practice in new technologies, media, health system, and so on; collaboration is limited to individual mandates; UNILAW is an international non-exclusive network of European law firms which was already founded in the 1970s to facilitate referrals; membership is restricted to one firm per country; the World Law Group combines more than 30 independent international law practices worldwide on a non-exclusive basis; membership is restricted to one firm per country. ** offices of German law firm CMS Hasche Sigle. Sources: Websites and annual reports of law firms, downloaded from June 2004; figures on turnover are based on JUVE Rechtsmarkt, October 2003.

Glenn Morgan and Sigrid Quack 233

professional’s feeling of control and involvement. The costs of coordination across national boundaries and practice groups are high, and knowledge flows can be inhibited by all sorts of practical, technical and political issues. Often such firms are likely to be dependent on a few key alliances at senior partner levels between the dominant earning streams in the firm, in practice between the UK, the US and the German senior partners. So long as this alliance can be sustained, developments in other national partnerships are less important. The fact that only a few firms have emerged in the integrative global firm category reveals the difficulty of pursuing this model.

Discussion and conclusions In this concluding discussion, we wish to relate our argument to the broader question of the development of different ‘varieties of capitalism’. Drawing primarily on a comparison of the US, the UK and Germany, we consider this question in three stages. Firstly, which law firms from which countries are becoming dominant in the era of internationalization? Secondly, which law is becoming dominant in global transactions, why and with what effect? Thirdly, how are firms within different varieties of capitalism being served by these changes in the organization of law at the international and national levels? Our discussion here is not presented as a definitive statement but rather as a set of issues which require further research. Which law firms from which countries are becoming dominant? Any listing of the largest international law firms is dominated by firms of US and UK origin. Looking beneath the surface, however, there are two important qualifications. The first, which has already been discussed, is that the UK firms are no longer ‘UK’ firms. They are now more likely to be alliances between three or four key national partnerships. For example, Freshfields has been described ‘as one-third English, one-third German and one-third the rest of the world’. Since its merger with Deringer-Bruckhaus, it has had ‘two of almost everything: two senior partners and two heads of every practice group, one English, one German’ (The Lawyer, 19 January 2004). The internal dynamics of these firms needs further investigation. For example, German partners may hope to play a lead role in opening up emerging legal markets, particularly in Eastern and Central Europe, based on their historical links. Similarly, because of this internal complexity and the central position of German partners, it cannot be assumed that these firms will unequivocally back UK- or US-inspired developments of EU law. As a

234 Multinationals, Institutions and the Construction of Transnational Practices

consequence, we would expect complex negotiations and conflicts to evolve within the global firms as the various groupings seek to exert influence on the internal governance of the firm and its external policy positions in relation to the development of transnational regulatory environments. In our view, therefore, the global firm does not represent the ultimate triumph of English law and lawyering over German law but on the contrary a rather unstable and potentially uncertain organizational governance structure. The second qualification is that independent German law firms are by no means out of the game with regards to international law. Rather they are being selective in the areas in which they wish to compete. They have little hope of competing in London and New York against the dominant players in those markets, but in emerging markets, again particularly Eastern and Central Europe, they do appear to be present and to be successful. There are two key elements in this process. The first is the size of the German home market for law and the fact that German law firms successfully changed the regulations at the start of the 1990s in order to allow themselves to form supra-local firms. Whereas none of the largest corporate law firms had employed more than 50 lawyers (including partners and associates) in 1989, many of them doubled in size during the following three years, the largest employing 112 lawyers in 1992 (Rogowski, 1995: 124). This rapid growth was facilitated by German unification which in 1990 opened up business opportunities for law firms in the privatization of Eastern German state enterprises and thus allowed them to establish a body of knowledge and practice which was transferable to the transformation processes in Central and Eastern European countries. It was also linked to a strategy of following the client, as German MNCs became increasingly active in Central and Eastern Europe. Legal opportunities also arise because most of these systems are based on the civil law tradition, and legal advisors from Germany and other continental European countries were quite influential in shaping legal reforms during the transformation process (Höland, 1996; Boulanger, 2002). Therefore some of the principles of the German model of law-making can be transferred into this context more easily than can the US or UK tradition of common law. No¨rr Stiefenhofer Lutz, for example, fits this model as do Haarmann and Hemmelrath and Beiten Burkhardt Goerdeler. These firms have additionally opened offices in Asia in order to serve German corporate clients that have invested there (see Table 9.2 for more details). The second question which we raised concerns which law is becoming dominant in global transactions. Here, the most important issue to

Glenn Morgan and Sigrid Quack 235

recognize is the role of US law firms as exporters of the US model. There is a close relationship between US law firms, the US government and its foreign policy, and US MNCs. In international terms, this is reinforced by the close connection between this network and that which links significant transnational institutions such as WTO, the IMF and the World Bank. These inter-linkages reflect a powerful set of actors and institutions (supported by political, military and economic power) which have a relatively coherent agenda of opening up markets, establishing free trade in manufacturing and services, and doing so under the banner of a legal system which protects private property and freedom of contract. Dezalay and Garth (2002b; see also Dezalay and Garth, 1996; 2002a) present a powerful analysis of how these forces came together to transform Latin American states (similar processes have been traced in more detail, in the context of US influence over competition law in Europe, by Djelic and Quack, 2005; Morgan, 2006; Quack and Djelic, 2005). The diversity of international legal firms discussed earlier will obviously still contribute to the diversity of laws in the international and national arenas but there is no strong and direct countervailing force to that embodied in the institutions of the Washington consensus. The most obvious place for such an alternative is the European Union and although there may be some moves in this direction, there remain many differences between countries which support the spread of US-style economic law and those which wish to evolve a more European version of law in which the rights of private property are embedded within a broader stakeholder model. Thus there is pressure towards a convergence on a single model of law and, as ‘choice of law’ and the emergence of private legal arenas increase in significance, this is likely to lead to more US dominance. Finally, what does this mean for firms from the different ‘varieties of capitalism’? One aspect is that the emerging diversity in network firms enables small and medium-sized enterprises to engage in international activities in the knowledge that they can receive legal advice from local law firms without having to pay the high price of the global firms. In countries such as Germany where the internationalization of the SME sector is of central importance, this is clearly a valuable development. The diversity of networks and firms also means that firms can experiment with various forms of legal representation depending on the price they can afford and the services they require. More negatively, however, the largest and most powerful MNCs will be able to get the best advice on arbitraging between legal jurisdictions and evolving new forms of private law-making. This has the potential to weaken the

236 Multinationals, Institutions and the Construction of Transnational Practices

state, undermining further, for example, its ability to sustain its tax base or its regulatory system as firms move profits around internally or restructure their legal incorporation in order to avoid certain restrictions. The extension of US law also pressurizes firms from different varieties of capitalism to utilize that as their ‘choice of law’ in emerging markets. This in turn may facilitate a broader change towards US law with consequent effects on how the firm is structured more generally. In conclusion, our argument has been that legal arenas have become more internationalized. Clients demand more of their lawyers than they have done in the past, from easy systems of referrals through to lobbying on the development of international institutions. Whilst still predominantly based on the national partnership structure, law firms have found various ways of responding to these changes. This variety of models of internationalization relates to different sorts of client needs in complex ways. Whilst simple referral systems allow SMEs to enter international markets with relative ease, the capabilities of global law firms are increasingly being utilized to free the largest MNCs from regulation. Whether this can be interpreted as a simple process of convergence or Americanization is to be doubted. Undoubtedly, there are strong pressures for law to move in that direction. US law firms are predominantly built on a model of exporting US law and they therefore support this. However, other global law firms are more complex in structure and more like alliances of different national partnerships. Their role in the nature and establishment of international corporate law is therefore likely to be more complex. These issues remain open and are fruitful contexts for further research on processes of internationalization.

Notes 1 The authors are grateful to Paul Conville (WBS) and Maria Konrad (WZB) for their support in collecting and analysing data used in this paper. 2 This term arose in the 1990s to describe what were perceived to be the five elite corporate law firms in London – Slaughter & May, Clifford Chance, Freshfields, Linklaters and Allen & Overy. Whilst the other four Magic Circle firms engaged in acquisitions and mergers overseas, Slaughter & May remained a UK-based partnership with a network of high quality contacts in other major markets for corporate law. These were its ‘best friends’.

References Boyle, E. H. and Meyer, J. W. (2002) ‘Modern Law as a Secularized and Global Model: Implications for the Sociology of Law’, in Dezalay, Y. and Garth, B. G. (eds), Global Prescriptions: The Production, Exportation and Importation of a New Legal Orthodoxy, Ann Arbor: University of Michigan Press, 65–95.

Glenn Morgan and Sigrid Quack 237 Boulanger, C. (ed.) (2002) Recht in der Transformation, Berlin: Wissenschaftsverlag. De Ly, F. (2001) ‘Lex Mercatoria (New Merchant Law): Globalization and International self-regulation’, in Appelbaum, R. P., Felstiner, W. and Gessner, V. (eds) Rules and Networks: The Legal Culture of Global Business Transactions, Oxford: Hart Publishing, 159–88. Dezalay, Y. and Garth, B. G. (1996) Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order, Chicago: University of Chicago Press. Dezalay, Y. and Garth, B. G. (2002a) Global Prescriptions: The Production, Exportation and Importation of a New Legal Orthodoxy, Ann Arbor: University of Michigan Press. Dezalay, Y. and Garth, B. G. (2002b) The Internationalization of Palace Wars: Lawyers, Economists and the Contest to Transform the Latin American States, Chicago: University of Chicago Press. Djelic, M.-L. and Quack, S. (2005) ‘Rethinking Path Dependency: The Crooked Path of Institutional Change in Post-war Germany’, in Morgan, G., Whitley, R. and Moen, E. (eds), Changing Capitalisms? Internationalisation, Institutional Change and Systems of economic organization, Oxford: Oxford University Press, 137–66. Höland, A. (1996) ‘The Evolution of Law in Central and Eastern Europe: Are we Witnessing a Renaissance of Law and Development?’, in Gessner, V., Höland, A. and Varga, C. (eds), European Legal Cultures, Aldershot: Dartmouth, 482–4. Johnson, T. (1972) Professions and Power, London: Macmillan. Martiny, D. (2001) ‘Traditional Private and Commercial Law Rules under the Pressure of Global Transactions: The Role for an International Order’, in Appelbaum, R. P., Felstiner, W. and Gessner, V. (eds), Rules and Networks: The Legal Culture of Global Business Transactions, Oxford: Hart Publishing, 123–55. Morgan, G. (2006) ‘Transnational Actors, Transnational Institutions, Transnational Spaces: The Role of Law Firms in the Internationalisation of Competition Regulation’, in Djelic, M.-L. and Sahlin-Anderson, K. (eds), Transnational Regulation in the Making, Cambridge: Cambridge University Press, 139–60. Morgan, G. and Quack, S. (2005a) ‘Internationalization and Capability Development in Professional Service Firms’, in Morgan, G., Whitley, R. and Moen, E. (eds), Changing Capitalisms? Internationalization, Institutional Change and Systems of Economic Organization, Oxford: Oxford University Press, 277–311. Morgan, G. and Quack, S. (2005b) ‘Institutional Legacies and Firm Dynamics: The Growth and Internationalization of British and German Law Firms’, Organization Studies, 26, 12, 1765–85. Quack, S. and Djelic, M.-L. (2005) ‘Adaptation, Recombination and Reinforcement: The Story of Antitrust and Competition Law in Germany and Europe’, in Streeck, W. and Thelen, K. (eds), Beyond Continuity: Institutional Change in Advanced Political Economies, Oxford: Oxford University Press, 255–81. Rogowski, R. (1995) ‘German Corporate Lawyers. Social Closure in Autopoietic Perspective’, in Dezalay, Y., Sugarman, D. and Bourdieu, P. (eds), Professional Competition and Professional Power, London: Routledge, 114–35. Sassen, S. (2001) [1991] The Global City, Princeton: Princeton University Press. Silver, C. (2002) ‘The Case of the Foreign Lawyer: Internationalizing the US Legal Profession’, Fordham International Law Journal, 25, 1039–84.

238 Multinationals, Institutions and the Construction of Transnational Practices Slaughter, A.-M. (2002) ‘Breaking Out: the Proliferation of Actors in the International System’, in Dezalay, Y. and Garth, B. G. (eds), Global Prescriptions: The Production, Exportation and Importation of a New Legal Orthodoxy, Ann Arbor: University of Michigan Press, 12–36. Stryker, R. (2003) ‘Mind the Gap: Law, Institutional Analysis and Socioeconomics’, Socio-Economic Review, 1, 335–67. Taylor, P. J. (2004) World City Network, London: Routledge. Thorstendahl, T. and Burrage, M. (1991) The Formation of Professions, London: Sage. UNCTAD (2004) World Investment Report 2004: The Shift Towards Services, Geneva: UNCTAD. Zürn, M. (2001) ‘Sovereignty and Law in a Denationalised World’, in Appelbaum, R. P., Felstiner, W. and Gessner, V. (eds), Rules and Networks: The Legal Culture of Global Business Transactions, Oxford: Hart Publishing, 39–72.

10 Structuring the Transnational Space: Can Europe Resist Multinational Capital? Richard Hyman

Introduction In this contribution I focus on some tensions between ‘globalization’ (as we all know, an imprecise and contested concept) and established mechanisms of employment regulation at national level. To this end I draw on a number of recent explorations in the comparative political economy of capitalism, and apply these to the specific arena of the European Union (EU). I first offer a broad-brush account of the conflict between neoliberal globalization and the established regulatory processes of ‘social Europe’, and discuss in particular the role of multinational capital in challenging nationally-specific ‘post-war compromises’ between governments, trade unions and employers. Next I link this to the advance of a new ‘Brussels consensus’ driven by the overarching priority of competitiveness and a shift to ‘social Europe lite’. After this I ask whether ‘embedded liberalization’, to borrow from Ruggie (1982), is an option for Europe; and finally, I explore other alternatives for resistance.

‘Social Europe’ and neoliberal globalization The notion of a European social model is at one and the same time an analytical category, an ideological construct and an object of contest. As Ebbinghaus (1999) has demonstrated, the concept can be viewed as both reality and myth. Across continental Western Europe, industrial relations institutions and processes (note here that in most European languages the adjective ‘social’ points, sometimes primarily, to the employment relationship) are structured very differently from the prevailing patterns elsewhere in the world. Markets, and not least labour 239

240 Multinationals, Institutions and the Construction of Transnational Practices

markets, are embedded (Granovetter, 1985; Polanyi, 1944) in a dense web of social regulation. As a rule, there is broad social and political acceptance of the need for collective regulation of the employment relationship in order to protect labour as the weaker party; individual contracts are thus subordinate to collective ones; representative institutions of both employers and workers enjoy a recognized public status; collective employee voice is typically articulated within standardized systems of workplace representation, relatively independent of the employer (established by law or peak-level collective agreement, or both); both socialist and Catholic traditions have encouraged welfare regimes which substantially ‘decommodify’ labour (Esping-Andersen, 1990); and the ‘social partners’ are often key actors in the development and implementation of these welfare regimes. Yet employment regulation takes many different forms, embodying ‘state traditions’ (Crouch, 1993) which are nationally specific and have contrasting implications for the relative power of workers and their employers, for the relative autonomy of the ‘social partners’ from political authority, and for the balance of elements within the ‘social wage’. In addition, the established architecture of regulation typically reflects distinctive ‘post-war political-economic settlements’ (Lange et al., 1982: 209), themselves the outcome of nationally varying combinations of forces: to differing degrees the discrediting of the old ruling class, the status won by labour movements in the struggle against fascism, the recognition of the need for systematic state intervention to prevent another collapse into mass unemployment. The idea of ‘Social Europe’, a key element in the official discourse of the EU for more than a decade, is a myth precisely because it suppresses such differentiating features (which, in turn, have posed substantial obstacles to any ‘harmonization’ of employment regulation at European level). The idea of social Europe is an object of contest in part as a result of this very ambiguity: precisely because there is no unique European social model, it is possible to approve the concept without signing up to any specific institutional arrangement. The probability of contention is multiplied by changes in the framework conditions within which social regulation previously developed. As Howell has insisted (2005: 35), drawing on régulationniste analysis, ‘the transition from one pattern of economic growth to another will create a set of problems that are not easily resolvable using existing institutions.’ The completion of the Single European Market, followed by Economic and Monetary Union, evidently constitutes a qualitative shift in the growth regime at European level. The crucial question has been whether economic

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integration should occur within or against existing systems of social regulation; or more specifically, which institutional arrangements are defined as complementary to the ‘free movement of goods, services, capital and labour’ across the EU, and which as antagonistic. This has been the central policy confrontation, sometimes overt but more often latent, for more than a decade. Albert (1993) has presented a stark vision of a clash of capitalisms: between an encroaching Anglo-American model in which market forces are subject to minimal constraint through social regulation, and a ‘Rhineland’ model (continental Western Europe, but also, perhaps incongruously, Japan) in which market power is systematically steered and attenuated by law, collective bargaining and/or social norms. This dichotomy is echoed in the ‘varieties of capitalism’ literature (Hall and Soskice, 2001) with its opposing categories of ‘liberal’ and ‘coordinated’ market economies. One may question whether Britain and the USA should be bracketed as a single variant, or whether the form and degree of social regulation elsewhere are such that the similarities outweigh the differences; but certainly, both countries are closer to what Polanyi (1944) termed market societies – where market dynamics are little constrained by alternative socio-political priorities – than are the ‘social market economies’ of Western Europe. Is ‘globalization’ transforming all market economies into market societies, in which the economically powerful shape national policy while the external coercive laws of competition overwhelm human choice? In this context I will address only briefly the ambiguities of ‘globalization’, which I have discussed in more detail elsewhere (Hyman, 1999; 2003). Among the pioneers of the concept is Ohmae, who writes (1991) of the emergence of a ‘borderless world’ or ‘interlinked economy’ in which the cross-national extension of production chains, product markets, corporate structures and financial flows makes national boundaries and the nation-state largely irrelevant. Reich (1991: 3) likewise anticipates an era with ‘no national products or technologies, no national corporations, no national industries. There will no longer be national economies, at least as we have come to understand that concept.’ Whether such a prospect is welcomed or deplored, its inevitability has been widely agreed. Recent decades have indeed seen clear trends towards the liberalization of cross-national trade through the reduction or removal of tariff barriers; and while international trade is nothing new – some indeed argue that the international economy today is no more globalized in this respect than a century ago (Hirst and Thompson, 1996) – the

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cross-national integration of production within multinational companies (MNCs) certainly is. Again, while there may be debates concerning how far MNCs are genuinely multinational (Ruigkrok and van Tulder, 1995) – in most cases their activities are concentrated close to home – the potential for large firms in particular to move operations across frontiers, partly to escape restrictive industrial relations regimes or to exploit cross-national differentiation, certainly poses new challenges. Such mobility is facilitated by the removal, sometimes forcible, of obstacles to cross-national investment and by the more general liberalization of financial flows across borders. Given the advances in information technology and telecommunications, transactions in shares and currencies have become continuous and instantaneous. ‘Finance capital has forged its own instruments of expansion and a momentum of accumulation that are increasingly independent of what is happening in the sphere of production’ (Burbach et al., 1997: 67). The increasingly autonomous dynamic of financial flows destabilizes material economies and allows capital-holders to ‘punish’ national regimes and governments the policies of which fail to match the criteria of rectitude embraced in financial markets. The corollary, it is often argued, is that individual companies are increasingly free – and given the pressures of competitiveness, are obliged – to escape the regulatory force of national industrial relations systems and establish employment regimes which suit their distinctive market strengths and weaknesses (Katz and Darbishire, 2000; Kochan et al., 1997). The result, some suggest (Crouch and Streeck, 1997; Gray, 1998), is that ‘bad’ economic systems (those with the least regulated social outcomes) drive out ‘good’ (the more socially regulated can no longer compete). The counter-arguments are threefold. First, the locational decisions of MNCs reflect a complex of factors: access to markets, infrastructural advantages, political stability, availability of skilled labour. Levels of wages and corporate taxation are not necessarily the most important determinants, at least in some areas of production. Second, within any society the evolution of one set of institutions is affected by that of others: labour markets, education systems, welfare regimes and family structures are interdependent in their operation. Hollingsworth and Boyer (1997: 2–3) use the notion of ‘social systems of production’ to denote a multiplicity of interdependent regulatory mechanisms: ‘the industrial relations system; the system of training…; the internal structure of corporate firms; the structured relationships among firms…; the financial markets of a society; the conceptions of fairness and justice held by capital and labor; the structure of the state

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and its policies; and a society’s idiosyncratic customs and traditions as well as norms, moral principles, rules, laws and recipes for action’. These, they suggest, may be ‘tightly coupled with each other’ and thus ‘coalesce into a complex social configuration’. Similarly, Dore (2000: 45–7) writes of ‘institutional interlock’ as typical of national economies and the relationship between economy and broader society. While one may be sceptical of some of the functionalist assumptions underlying such arguments – the effects of diverse institutions may be contradictory rather than complementary – the path-dependent evolution of national institutional arrangements may well constitute an obstacle to radical change. Third, many arguments for a ‘race to the bottom’ rest on a rather simplistic form of economic determinism (ironically a theory often attributed, somewhat misleadingly, to Marx). But politics have to be considered as in part an independent factor, for at least two reasons (Boyer, 1996; Boyer and Drache, 1996; Streeck, 1998). On the one hand, the thesis of institutional interlock implies that there are pressures to maintain a ‘fit’ between property and production regimes on the one hand, political processes on the other. Thus Hall and Soskice (2001: 57–8) dispute ‘the monolithic political dynamic conventionally associated with globalization’: intensified international competition is likely to evoke one set of political responses in liberal market economies, another in coordinated systems. On the other hand, though related to this point, any attempt to dismantle the protections embodied in systems of ‘welfare capitalism’ provokes inevitable resistance. ‘In all industrial countries processes of economic integration and globalization are generating a backwash of reaction and resistance in national politics…. New political alliances are beginning to coalesce around these issues…. A new politics is in the making’ (Berger, 1996: 23–5). The electoral cycle is shorter than the business cycle (Dyson and Padgett, 2005), and the contradictory interaction between economic analysis and political survival results in significantly different policy outcomes cross-nationally. European economic integration itself can be viewed in part as an expression of globalization, in part as a defence against it; which face predominates is itself a political decision. Even though individual national economies may be increasingly internationally open, some 90 per cent of trade is within the boundaries of the EU itself: European economies have become Europeanized rather than globalized. There is no compelling reason why the remaining 10 per cent of trade should dominate policy (Hoffmann, 2002). As Wallace suggests (2000: 381),

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‘Europeanization is sufficiently embedded to act as a filter for globalization.’ This implies that if the relatively integrated European market is sufficiently self-contained to be potentially insulated from ‘global’ challenges to the ‘European social model’; if the ‘four freedoms’ of economic activity within this space nevertheless pose a threat to many traditional safeguards for the status and standards of workers at national level; and if positive supranational regulation remains weak and ‘negative integration’ is the norm (Scharpf, 1999), this is the result of political contingencies rather than economic imperatives.

The spectre of Euro-liberalism: is the Washington consensus alive and well in Brussels? At international level, faith in the self-regulatory virtues of ‘free markets’ is under growing challenge. What Stiglitz (1998) has termed a ‘post-Washington consensus’ is evident even in such institutions as the World Bank. Closer to home, the OECD – for so long the arch-advocate of the demolition of social protections for employees – appears to be changing its tune, since its own research has systematically failed to substantiate the thesis that protective legislation and encompassing collective bargaining result in poor economic growth and high unemployment. As it was recently forced to concede (2004: 130), ‘quite different institutional arrangements are capable of obtaining similar levels of macroeconomic performance’. Ironically, however, what Soros (1998) has called ‘market fundamentalism’ and Dore (2003) the ‘market mindset’ has become part of a growing consensus at the heart of EU governance. Though rhetorical commitment to the European social model persists, there is increasing pressure to redefine this in terms of its opposite: the mantra of competitiveness which allows minimal legitimate space for employment protection and public welfare. Commonly this policy shift is masked by what elsewhere (Hyman, 2005a), with reference to a familiar practice in British trade union conference management, I have termed the ‘composite resolution’. At the annual Trades Union Congress it is common for different member unions to submit conflicting proposals on a contentious policy issue, but then be pressed to agree through backroom negotiation a form of words which somehow embraces the opposing viewpoints. In this way, potentially embarrassing disputation is removed from the public arena, in effect taking the politics out of policy.

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The decision-making process within the EU – often termed ‘comitology’ – has a similar bias. There is a strong tendency to adopt ‘symbolic politics’ (Streeck, 1998: 447). Initiatives are formulated, analysed, revised, debated, further amended and reformulated, within an elaborate network of interacting committees, until an outcome emerges (or fails to emerge). This process has a strong technocratic bias: the focus of argument is diverted from principle to detail. The product of Brussels comitology thus resembles the composite resolution. One important example is the European Employment Strategy (EES): a political compromise, and as such an attempt to achieve the unity of opposites. The very title of the 1993 Delors white paper, Growth, Competitiveness and Employment, signalled the political need to accommodate the desire by some Member States to foster a common European programme of employment growth based on expansionary macroeconomic policy and a substantial commitment from the EU budget, and the UK government’s insistence that enhanced competitiveness and fiscal discipline offered the only route to reduced unemployment. In the latter, neoliberal view, the only recipe for success was to make European business leaner and fitter, a strategy which in the short term at least meant destroying rather than creating jobs. Yet through Essen, Amsterdam, Luxembourg and all subsequent elaborations of the EES, the underlying message was in effect that the prescriptions of Keynesianism and monetarism, of social regulation and of deregulation, could somehow be harmonized through a technocratic fix transcending hard political choices. The Lisbon European Council in March 2000 famously declared that ‘the Union has today set itself a new strategic goal for the next decade: to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion’. Yet can all these desirable goals be achieved simultaneously; and if not, what are the priorities? In the evolution of policy since Lisbon, the goal of ‘better jobs’ has been transformed into the slogan of quality, which has in turn been redefined primarily in terms of productivity. Competitiveness links directly to the ‘adaptability’ pillar of the EES, with its synonym flexibility: at first sight, a challenge to the social protections achieved with such difficulty over many decades. Yet happily, flexibility can by verbal magic be reconciled with security: comitology has generated a new term, ‘flexicurity’, a composite resolution in a single word! Nevertheless, such attempts to square the circle open the way to abandoning the ‘European social model’ by stealth, since the balance of

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forces within the real policy-making processes may ensure that quite different priorities prevail. In these real policy-making processes, it is an uphill struggle to defend a meaningful social Europe against the threats of neoliberal globalization. There is an evident imbalance of influence between labour and capital. Employers and industrialists work with the grain of entrenched EU policy to encourage the free movement of goods, services, labour and capital and for the interpretation of these freedoms as requiring a diminution of nationally embedded social regulation, while defenders of ‘social Europe’ seek a major change of course in the priorities of economic integration. In such a context, veto power is typically both effective and discreet. Recall the argument of Offe and Wiesenthal (1985: 191–3) concerning the ‘structural asymmetry’ of capital and labour in their relationship with the state. Since governments are dependent on the investment decisions of a multiplicity of individual firms, capital exerts political pressure without the need to mobilize collectively. The normal economic rationality of company decision-makers has a political significance which may not even be intended. Against this background, at European level the relative organizational weakness of UNICE in comparison with the ETUC may constitute a strength for capital: even if its professional representatives were inclined to compromise on principles which some employers consider sacrosanct, it lacks the capacity to commit those it supposedly represents. There is also a familiar imbalance within the institutions of the EU: the Parliament, the most ‘popular’ (directly elected) element in the decision-making architecture, is the most reliable supporter of an effective social dimension to European integration, but is also the most limited in its powers (in no way matching those of any national legislature). The Commission, while dependent for its own status on the extent of EU regulatory capacity, is at best an ambiguous supporter of the European social model(s). While the Commission’s DirectorateGeneral for employment matters, DG EMPL, may be sympathetic to aspirations for social regulation, its own influence is subordinate to that of the many Directorates-General with a primarily market-making mission. Note that for several decades, DG EMPL has always been assigned a Commissioner from a ‘peripheral’ country, after the more influential briefs have been carved up amongst the heavyweights. And within the Council, in effect the decisive policy-making instance, veto power is strongly entrenched despite the limited advance of scope for qualified majority voting on social issues.

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In the past decade the threats to ‘social Europe’ have intensified. Three main developments are involved. First, in most countries in Western Europe, national employers were in the past more or less willingly locked in to national social compromises; but as capital increasingly transcends national boundaries, to a degree previously familiar in only a minority of cases (notably Britain), the motivation to escape the national regulatory net has intensified. The more so in an era when European companies, seeking listing on the New York Stock Exchange, adopt US accounting procedures which assign overriding priority to short-term ‘shareholder value’. Second, within the Council, the balance of forces has shifted radically since the late 1990s with a turn to the right in the composition of many national governments and a lurch towards market fundamentalism even among those notionally on the left. Third, the eastern enlargement of the EU has brought in countries where the equation of market liberalism and political democracy remains a point of faith. Meanwhile, the Commission has displayed a relentless advance of free market fanaticism. Under Prodi, it pressed for a Takeovers Directive which would facilitate hostile takeovers and thus challenge ‘stakeholder’ models of capitalism. Initially rejected by the European Parliament (EP) in 2001, the proposals were resubmitted a year later and again resisted by the EP. The compromise adopted in 2004 was described by the UK government as ‘applying many of the core values of the UK system at the EU level’ (DTI, 2005: 7). A year after Prodi’s denunciation of the 1997 Stability and Growth Pact as a ‘stupidity pact’, his Commission threatened legal sanctions against the Council for refusing to enforce its deflationary requirements on France and Germany. Under his presidency, it pursued a campaign of ‘removing national barriers to competition within the EU, sometimes even opening up markets… which hardly existed before’ (Wickham, 2002: 15). Perhaps most notoriously, Trade Commissioner Bolkestein worked unremittingly to achieve a Directive liberalizing (and marketizing) the provision of services across the EU. Since 2004, under the presidency of Barroso – a born-again neoliberal – the attempt to generalize the ‘core values of the UK system’ has received renewed impetus, with increased pressure to implement the Bolkestein Directive its most potent symbolic expression. If we move beyond the discreet etiquette of comitology to hard social realities, what is at issue is a radical shift in the balance of forces between labour and capital. Dore (2003: 32), a writer not given to overdramatization or leftist rhetoric, has described the attack at national

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level on established employment protections as the outcome of ‘not only flexibility/efficiency objectives but also the political objective of breaking the power of the trade unions and their ability to influence the electorate’. In his assessment, ‘politicians who responded with the legislation demanded by the powerful managerial class, were not just concerned with creating the conditions for national competitiveness. They were also engaged in class struggle.’ Class struggle is a good description of the Washington consensus, and it is equally fitting as a characterization of its current enthusiasts in Brussels. Is there an alternative route to European integration?

Embedding European liberalization? The concept of a free market is an oxymoron. The existence of contracts, as Durkheim taught us, rests on social norms which are noncontractual. As Polanyi stressed, the creation of a market economy required a massive effort of state intervention; by the same token, economic activity is universally regulated within and through society. His thesis that markets are socially embedded, later elaborated by Granovetter (1985), has also been applied to the post-1945 international order by Ruggie (1982). The latter’s thesis is that the economic organization at national and at international levels can follow different logics. Polanyi had anticipated a parallel reaction to the excesses of market-making in the interwar decades: renewed state regulation of the domestic economy linked to a retreat from ‘capitalist internationalism’. What occurred, however, was a new form of international regime, involving a bounded liberalization of external trade, but linked to Keynesian economic management and a partial decommodification of labour at national level. ‘The principles of multilateralism and tariff reductions were affirmed, but so were safeguards, exemptions, exceptions, and restrictions – all designed to protect the balance of payments and a variety of domestic social policies’ (Ruggie, 1982: 396). Ruggie termed this regime ‘embedded liberalism’, though this might be considered a misnomer. Liberalism is indeed relative, though simple dichotomies of liberal’ versus ‘coordinated’ market economies suppress such complexities. To paraphrase Streeck’s argument (2001: 6–7), all markets are institutionally embedded, but some are more embedded than others. As Ruggie defines it (1982: 381), ‘in the organization of a liberal order, pride of place is given to market rationality’; on this definition, the post-war order was only partially liberal at international

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level, while typically non-liberal at national level. As he later summarized it (Ruggie, 2003: 93–4), embedded liberalism involved a social compromise, ‘a grand social bargain’, which combined ‘the efficiency of markets with the values of social community’. How can we apply this analysis to the process of European economic integration in the context of the broader liberalization dynamic of international trade and capital flows? Most evidently, neoliberal globalization and its analogues at EU level involve an effort directed to disembedding liberalism. The project of negative integration is precisely a drive to weaken or remove those nationally embedded social regulations which constitute obstacles to transactions across boundaries. The recommodification of life-chances, with an inevitable increase in insecurity and inequality, is an essential element of disembedded liberalization. Disembedding entails a radical restructuring of the rights and obligations of economic actors: a more anodyne rendering of Dore’s reference to class struggle. As Ruggie puts it (2003: 106, 116), ‘the rights enjoyed by transnational corporations have increased manyfold over the past two decades, as a result of multilateral trade agreements, bilateral investment pacts and domestic liberalization…. Globalization was a one-way bet for the business community: governments were needed to create the space within which business could expand and integrate, but they were not otherwise welcome.’ The corollary of freedom for multinational capital – enhanced rights with fewer obligations – is a commensurate deterioration in the circumstances of nationally bounded workers and citizens. The predictable consequence has been a legitimation crisis for the whole process of cross-national economic integration. Its most striking manifestation is the rejection of the draft EU Constitutional Treaty in the French and Dutch referendums of May and June 2005. The opposition, not only to actually existing Europeanization but to virtually the whole political elite at national level, was complex and contradictory. Undeniably it attracted reactionary nationalist and xenophobic currents. Yet much of the impetus came from a refusal to accept further disembedding of market competition from social regulation. Admittedly, some supporters of the draft Treaty insist that it offers a modest increase in EU competence to regulate on social issues, notably by incorporating the ‘Charter of Fundamental Rights’ of 2000; yet even more decisively it reaffirms and consolidates ‘the overarching and all-encompassing framework of competition which is imposed upon almost every area of economic and social activity and gives private

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profit priority over individual and public welfare’. The latter aspect of the Treaty serves ‘to elevate this contested pattern of failed and harmful policies into a constitutional imperative’ (EuroMemorandum, 2005: 1–2). In a recent assessment, Ruggie (2003: 95–7) argues that the ‘antiglobalization backlash’ derives to an important extent from the fact ‘that the social embeddedness side of the equation is losing out to the dictates of globalization’. He diagnoses ‘a growing imbalance in global rule making. Those rules that favor global market expansion have become more robust and enforceable in the last decade or two… but rules intended to promote equally valid social objectives, be they labor standards, human rights, environmental quality or poverty reduction, lag behind and in some instances actually have become weaker.’ This imbalance, he suggested, has stimulated ‘civil society actors’ to engage in an effort to re-regulate terrain which national governments have increasingly abandoned. At least some of the processes of EU integration, and resistance to the EU Constitutional Treaty, can be interpreted in similar terms. However, ‘civil society’ is a notoriously diffuse concept. Traditionally it was often interpreted as presupposing competitive markets and the unfettered rights of private capital, and thus was employed as a slogan against social and political regulation of economic transactions (Hyman, 2001: 57–9). If, alternatively, it is understood as the whole non-government sphere, multinational companies seeking to maximize their freedom of action are as much ‘civil society actors’ as are those who campaign to limit such freedoms. Accordingly, civil society is a terrain of conflict and contention. From this divided character stem two implications. The first is a contest between mindsets. Within the market mindset, economic transactions are ideologically neutral: but this proposition is itself an ideological rallying cry. To transform social relations into commodities – in many cases, as Polanyi put it, ‘fictitious commodities’ – is a political process of dehumanization. Krippner (2004: 112) has made an analogous point with great cogency: ‘congealed into every market exchange is a history of struggle and contestation that has produced actors with certain understandings of themselves and the world which predispose them to exchange under a certain set of social rules and not another. In this sense, the state, culture and politics are contained in every market act.’ I see clear affinities between this argument and Thompson’s account of popular resistance to the growing dominance of purely market principles over social relations in eighteenth-century England.

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He argued that the frequent upsurges of violent mass protest were an expression of a ‘moral economy of the poor’ which embodied ‘a consistent traditional view of social norms and obligations’ and supported a ‘popular consensus [which] was so strong that it overrode motives of fear or deference’ (1971: 78–9). So, for example, the sharp increases in bread prices in periods of scarcity provoked riots fired by the fact that ‘millers and… bakers were considered as servants of the community, working not for a profit but for a fair allowance’ (1971: 83). Society was deemed to rest on a stable network of established rights and obligations; and in consequence, buying and selling should be governed by these established norms rather than by the vagaries of supply and demand. While Thompson’s discussion was not explicitly directed beyond the specificities of time and place which here concern him, there are evident implications of a more general character. Against the capitalist insistence that welfare is maximized where there is unfettered freedom to buy all commodities (including labour power) in the cheapest markets and sell in the dearest, popular opinion across nations and over centuries has tended to the view that there is a principle of equity which should be set against the priorities of profit, and hence that there is a need for social control of markets. This popular consensus (which has possible connections to contemporary references to civil society) insisted that economic actors must accept responsibility for the consequences of their behaviour; the pursuit of market advantage was no excuse or alibi. That there are norms of moral economy which should be imposed by force if necessary was fundamental to the socialist movements of the late nineteenth and twentieth centuries, but also to Christian-Democratic tendencies which in some countries have exerted an important influence on labour movements. It remains an important element in contemporary industrial relations, as Swenson (1989) has shown in applying the notion of moral economy in his comparative study of trade union policy in Germany and Sweden. Does current EU genuflection at the altar of competitiveness indicate that this morality is now passé? On the contrary, it has much in common with the growing resistance to the market mindset, and could help inform the task of constructing a counter-ideology encompassing a vision of an alternative Europe to the free market of the multinationals and the Eurocrats. The second implication is related. Ruggie’s original concept of embedded liberalism, and his more recent aspirations to civilize neoliberal globalization, assume the possibility of a more or less consensual

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acceptance of a ‘grand social bargain’. His commendatory discussion of the theme of ‘corporate social responsibility’ (strongly endorsed, one might add, by the European Commission) is consistent with this sanguine assessment of the gap between what are in fact irresolubly opposing visions of the relationship between economy and society. Again, Dore’s reference to class struggle shows greater realism: against the class struggle from above which characterizes neoliberal globalization, effective resistance requires class struggle from below, a struggle which demands a cool assessment of both allies and opponents.

A labour of Sisyphus For Luxemburg, trade union action was ‘a sort of labour of Sisyphus, which is nevertheless indispensable’. Opposition to the neoliberal Brussels consensus may be viewed in similar terms. To create an alternative form of European integration, to defend the idea of social Europe by (re-)inventing it, is to struggle against the odds. Central to such a struggle must be an effort to shift the balance of forces. In part, this must mean an attempt at containment of the prerogatives of capital. An initial point of attack could well be the very mobility of capital – one, and in practice the most decisive, of the EU’s four freedoms – and its capacity to disrupt embedded social relations. Such a proposal is no longer an ‘extremist’ idea. Dore, for example, suggests (2003: 70) that ‘the globalization of financial markets… is by no means irreversible, and it is not clear that financial protectionism would damage the world trading system for goods and non-financial services.’ In similar vein, Stiglitz (2002: 236–7, 265–6) stresses that ‘short-term financial flows (“hot money”) impose huge externalities, costs borne by those not directly party to the transaction…. Whenever there are such large externalities, interventions – including those that are done through the banking and tax systems – are desirable.’ He endorses the idea of a ‘Tobin tax’ to curb short-term speculative financial flows. What seems clear is that such a tax, at global level, is politically out of the question. At the EU level, given the existing regulatory architecture, a Euro-Tobin is less politically fanciful. It could be a starting point for a counter-offensive to market fanaticism. The converse of constraining capital is empowering labour. This topic requires a chapter (indeed a book, or a whole library) in its own right. Let me simply remark, before concluding, that while constraining capital must be primarily a task of external imposition, empowering labour must be in large measure a task for workers and their unions

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themselves. Three major handicaps for trade unions when confronted by multinational capital are to some extent self-imposed. The first is that, despite all the rhetoric of international solidarity, national perceptions of interests have typically proved highly divisive (Hyman, 2005b: 142). Second, international (and more recently, European) affairs have been largely the preserve of international experts within the headquarters of labour movements, detached from both from the ‘core’ policy agenda and from the rank and file. Third, official European trade unionism (and most notably, the ETUC) has embraced the role of ‘social partner’ absorbed in the elite activities of Brussels comitology – as reflected, for example, in its endorsement of the draft constitutional Treaty. To build a counter-power to ascendant European capital requires new, more contentious approaches to structuring the transnational space. Actually existing European integration, with its threats to established social models, is provoking widespread disaffection, alienation and resistance which may prove either destructive or constructive in their consequences. If the official representatives of labour and of ‘civil society’ fail to lead vigorous opposition to the Brussels consensus, the destructive outcomes will surely prevail. If multinational capital is to be re-embedded, a strategic reorientation is essential. Scholars have a role to play in such a process.

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Index ABB, 26 Abo, T., 58 acquisitions and mergers, see mergers and acquisitions Adidas, 36 Adler, P. S., 59, 61 Adtranz, 42 Advanced Institute of Management Research, 49 Agreement on Textiles and Clothing in 2005, see ATC AIDS, 35 Airbus, 42 Albert, M., 241 Alcan, 26 Alcoa, 26 Allen & Overy, 229 Alusuisse, 26 Amdahl, 99 American Chamber of Commerce (ACC), 103 Organization of Working Time, 103 American managers, 15, 56, 146 American MNCs, 29, 56, 100, 105, 133 consequences for IR, 101, 88, 139 ‘country-of-origin’ influences in, 151 diffusion of employment practices in, 141 employment practices in European subsidiaries of, 132 FDI primacy of, 101 international employment strategies of, 133 management–labour relations, 142–3, see also IR; labour; trade unions; unions pay and rewards system, 142, see also HRM personnel policy, 143–4 practices, organizational effects on, 146 strategies of, 133

subsidiaries in Ireland, 2, 13, 89–98, see also under Ireland training courses, 143 transfer of practices, 141, see also under transfer in the UK, management of employment relations in, 141, see also under UK union-avoidance strategies, 62, 139, see also unions workers, seeking to maintain employment security, 56 Americas, 137 Amicus, 137–8 Amoore, L., 7, 54 Anglo-American models, 72, 241 Anglo Saxon, 131 approach, 157 business practices, 131, 134 HR/IR practices, 131 law, 18 arbitraging between legal systems, 218, 219, 235 arrhythmic production, 179 ‘arrhythmic Taylorism’, 170 Arthurs, H. W., 37–8 Ashmore, J., 88–9, 97 AT&T, 34 ATC, phasing out of, 194 Audi, 158 Austria, 138, 230 Bair, J., 9 Bansal, P., 120 Barroso, J. M., 247 Bartlett, C. A., 46 Becker, B., 118 Beiten Burkhardt Goerdeler, 234 Bélanger, J., 2, 6, 10–11, 14, 54 Belgium, 42, 137, 223 Bell Helicopter Textron, 38 Ben and Jerry’s Ice Cream company, 126

256

Index 257 Berle, A., 39 Berwin & Berwin, 199 Betty Barclay, 196 Bluhm, K., 161 BMB, 199 BMW, 160 Body Shop, 127 Boeing, 42 Bombardier Inc., 40–5, 49 Bombardier J. A., 40 Bonazzi, G., 171 ‘borderless world’ see under globalization boundary spanners see under social capital Boyer, R., 60–1, 156–8, 163–4, 242 Boyle, E. H., 214 BP (British Petroleum), 48 branch-plants, 61, 80–1 approach, 62 imagery, 77, 79 model, 80 weakness of, 62 ‘brand identity’, 225 Brannick, T., 98 Brazil, 41 Britain, 63, 87, 194, see also England; UK British clothing firms/industry, see UK brownfield hybridization, entry and early development, 170 non-unionized, 59 unionized, 155 Brussels, 224–5, 244 comitology, see under EU consensus see EU; neoliberal/neoliberalism Bulgaria, 203 Bundesländer, 157 Burawoy, M., 30, 32, 48, 172 Burberry, 196, 199 Canada, 37–8, 40–1, 43 capitalism/capitalisms, 241 embedded forms of, 156 internationalism, 248 see also varieties of capitalism (VoC) capital–labour relationship, 54 CAPITB Trust, 197, 205

Carroll, W. K., 38, 39 case-study analysis of a big American MNC, 135 CE, 155–81 CEE countries/states, 202, 207 Central Europe (CE), see CE Centre de recherche interuniversitaire sur la mondialisation et le travail (CRIMT), 48 Child, J., 54 child labour, 33 China, 27, 36–7, 48, 78, 124, 160, 187, 192, 202–3, 207, 216 Christian-Democratic, 251 civil society, 250–1, 253 class struggle, 248–9, 252 Clifford Chance Pünder, 229 clothing enterprise/industry, 184 branding capability abandoned, 198 CMT (cut-make-trim), 189 competences/capabilities, 187–8, 208 competitive strategies, 208 development and planning, 189 divergent ownership profiles, 196 domestically anchored firms, analysis of, 186 firm size, turnover and ownership, 194–7 five types of, 190 German see under German/Germany global production networks, development of, 200–4 labour market segmentation, 190, 204 low-wage countries, 200 outward processing (OPT) versus full package, 204 popularity of foreign sourcing, 203 powerful domestic retailers, close relationships to, 198 product and market strategy, 189, 198–200 quotas and tariffs, 200 segmentation of the labour market, 208 skill profiles, 197–8 UK firms, see under UK clothing/industry firms value chain, five ways of organizing, 190, see also value chains

258 Index CMS network, 223 CMT, 199, 201 Coats Viyella, 195–6 Code of Practice on Voluntary Dispute Resolution and the Industrial Relations (Amendment) Act, 103 Cohen, D., 112 collective bargaining see under trade unions Collings, D. G., 87 Collings, S. T., 22 Collings, T., 13 Collinson, D., 31 comitology, see under EU Commission of Inquiry Report, 99, 246 communism, 170, 247 Comor, E. A., 34 company decision-makers, 246 commitment to, 143 compensation and reward policies, 121 core vision of, 123 culture, 168 values, 143 competitive/competitiveness, 46, 151, 244–5, 251 conglomerates, 63 contingency theory, 45 Conville, P., 236 coordinating firms, 192, 201 competitive strategies of, 186 in developed economies, 190 employment practices, case-study evidence, 145 four options, 201 German and UK, 204 networks, lack a strong coordinating headquarters, 223 outsourcing of manufacturing, 204, see also outsourcing product strategy, 190 sourcing strategies of, 192 core competence of the firm, 116, 186, 193 core employees, 116, 118, 125 corporate/corporations

American, 139–41, see also American MNCs codes of conduct, 36 crisis of, 78 culture, 143, 169 ecological response, 120 goal of maximizing efficiency and profit, 136 HR, 121, see also HRM policy repertoires, 81 profitability, 78 restructuring of, 37–8 restructuring, global programme of, 143 strategies/strategy, 60, 72, 74, 81 corporate law/law firms, see law firms corporate social responsibility, 47, 252, see also under social Courtauld, 195–6 cross-border, 10, 19, 218, 222 cooperation, 37 knowledge diffusion, 14 merger, 18 networks, 208 transfer, 157 cross-national comparison, 147, 193 institutional differences, 144 trade liberalization of, 241 transferability, 21, 215 Czech Republic, 161–2 Daimler Chrysler, 42 Danone, 161 DBS (Digital Broadcasting Satellite), 34 De Ly, F., 216 Digital, 99 Dedoussis, V., 62 Delors, J., 245 Growth, Competitiveness and Employment, 245 Deringer-Bruckhaus, 233 developing and developed countries, 82, 184 Dezelay, Y., 235 DG EMPL, 246 Dicken, P., 26, 29, 43 Dickman, M., 158 DiMaggio, P. J., 21

Index 259 disembedded/disembedding, see also embedded liberalism, 20 liberalization, 249 of market competition, 249 Djelic, M.-L., 235 dominance/dominant effects, 5, 53, 58, 140 practices, 56 reference points, 72 systems, 140 UK strategy, 202 Domsch, M., 161 Donaghy, J. M., 104 Dore, R., 243–4, 247, 252 Dörrenbächer, C., 155–9, 181 ‘double-breasting’, 96, 100–1, see also IR draft EU Constitutional Treaty, 249 Dunphy, 127 Durand, C., 161 Durkheim, E., 248 eastern Europe, 48 eastern Germany, 42 Ebbinghaus, B., 239 economic activity, four freedoms of, 244 determinism, 243 imperative, 121–2 integration, 246 socio-economic model of networking, 134 Economic and Monetary Union, 240 Economic and Social Research Council, 49 Economist, The, 87 Edwards, P., 2, 6, 10, 11, 14, 48, 54 Edwards, T., 160 EEN (European Environmental Network), 232 EES, 245 Egan, D., 48 EI Ltd, a subsidiary of General Electric, 99 Eisenach Opel factory, 157, see also Opel Elementary Technology Units (ETUs), see ETUs Elger, T., 6, 11–12

embedded/embeddedness, 25, 46, 123, 132, 140 of companies, 131 divergent strategies, 186 effects’, 29 ‘liberalism/ liberalization’, 4, 6, 239, 248–9, 251 Embraer (Empresa Brasileira de Aeronáutica SA), 41 EMDA (Electrical Manufacturers and Distributors Association of Ireland), 198–9 empirical research, 48, 55, 83 employment practices comparing institutional frameworks of, 133–5 corporate strategy of individualization of, 148 crisis of, 61 diffusion of, 132 dynamic configurations of, 132 employment relations, 70, 134 individualization of, 147 integration of, within business units, 144 layer-cake of different historical models, 175 in MNCs, 132 regulation of, 70, 136, 240 scope for local adaptations of, 144 segmentation of, 177 Enderwick, P., 98 England, 42, see also UK environmental values, 125–6 EP, 247 Escada, 196 ethnocentric, see under MNCs ETUs, 171, 172, 177, 246, 253 EU, 2, 7, 19, 28, 37, 42 137, 155, 160, 199, 228, 235, 240 accession countries, 222 Bolkestein Directive, 247 Brussels comitology, 245, 247, 253 Brussels consensus, 20, 239, 252–3 Constitutional Treaty, 250 Charter of Fundamental Rights of 2000, 249 decision-making process, 245 economic integration, 241 governance, 244

260 Index EU – continued imbalance within institutions, 246 key element in the official discourse of, 240 market liberalism, 247 ‘symbolic politics’ of the, 19 tariff-free trade agreement, 203 trade, 243 Euratex, 198 Eurocrats, 251 Euro-liberalism, spectre of, 244–53 Europe, 43, 56, 137, 178, 225 European Commission, 252 ‘European social model’, 239, 244–5 insulated from ‘global’ challenges to, 244 rhetorical commitment to the, 244 integration, 243, 246, 248 European Employment Strategy, see EES European Parliament, see EP European Union, see EU European Works Councils, see EWC Euro-Tobib, 252 EWC, 26, 136, 145, 177, 180–1 Exxon, 26 Fame and Factiva, 187 FDI, 7, 36, 162, 181 developments in Irish public policy on, 101 FDI-dependent economies, 87 global downturn in, 87 in Ireland, see also under Ireland Ferner, A., 30, 86, 105, 111 Fiat, 160, 170–1, 174, 178 Fichter, M., 159, 181 Finegold, D., 198 Florida, R., 57–8 flexicurity, 245 Fordism, 170, 172 Foreign direct investment (FDI), see FDI Fortune 500 companies, 36, 89 France, 26, 137–8 free market agenda, 19 concept of, 248 self-regulatory virtues of, 244

French-Canadians, 39 Frenkel, S. J., 35–6 Freshfields, 229, 233 Freshfields Bruckhaus Deringer, 229 Fruin, M., 59, 61 Frybes, M., 181 Fukuyama, 119 Garth, B. G., 235 GATT (General Agreements on Trade and Tariffs), 34 GCC, 184, see also global commodity chain GDP, measure of value added, not sales, 26 General Electric, 26, 162 General Motors, 27 Gennard, J., 86 Gereffi, G., 9, 192 Gerhart, B., 118 German/Germany, 37 42, 87, 105, 137–8, 140, 179, 196, 200 clothing firms/industry comparison with UK, 186, 194–5, 198, 206, 208 co-determination system, pillars of, 158 concentrations of ethnic minority populations, 205 coordinating firms, 201, 204, see also coordinating firms FDI, 159, see also FDI firms, in Hungary, 159, see also Hungary firms, direct importing and full package manufacturing, 202 MNCs, 157–8 in Britain/UK, 131, 156 hybridization, 159, see also hybridization pluralistic HRM, Anglo Saxon context, 157, see also HRM; IR in Spain, 158 Standortdebatte, 157 transfer of, 158 and UK coordinating firms, see under coordinating firms Ghoshal, S., 46, 112 Gleiss Lutz, 224

Index 261 global competition, growth of, 32 firms, 213–36 HRM, see under HRM intellectual property rights see intellectual property rights law firms, see global law firms MNCs, key players, 86 models, 179 networks, 213–36 politics, 34–5 production networks, 186, see also global commodity chain (GCC) global commodity chain (GCC), 184, see also clothing industry global law firms, 18, 222, 236 advisers to national governments and the largest MNCs, 228 characterized on two dimensions, 227 ‘choice of law’ principle, 216, 218, 235–6 complex federations of national partnerships, 18 convergence or Americanization, 236 coordinated quasi-firm network, 223 distribution of rewards, 220 global firm model, 225 intellectual property rights, see intellectual property rights levels of cooperation, 225 networks, types of, 220–3 partnership structure, 220 practice groups, 228 referral systems/networks, 221, 236 rewards, 220, 228 ‘regulatory arbitrage’, see under arbitrage globalization/anti-globalization, 40, 246, 249, 252 activists, anti-globalization, 35 ambiguities of, 241 backlash, anti-globalization, 250 ‘borderless world’ emergence of, 241 critics of, 24 current dynamic of, 19 effects of, 54 era of, 215

established regulatory processes of ‘social Europe’, 239 impact of, 185 labour market segmentation, 184–209 logic of, 38 neoliberal/neoliberalism, see neoliberal/neoliberalism theory, deterministic strands of, 1 ‘governance without government’, concept of, 217 government and corporations, divide between, 44 have to ensure ‘level playing field’, 41 support, extent of, 43 Gramsci, A., 48 Granovetter, M., 248 greenfield hybridization, 166, see also hybridization international reorganization, 166 investment, cases, 155 Italian, 177 operations, 64 situations, 164 subsidiaries, 70 Toyota, 59 US factor, 99 Gunnigle, P., 2, 13, 106 Haarmann and Hemmelrath, 234 Hall, P. A., 29, 40, 193, 243 Held, D., 209 Hengeler Müller, 224 Hennas & Mauritz, 199 Herbert Smith, 224 Hewlett Packard, 122 Hofstede, G., 21 Hollingsworth, J. R., 242 ‘hollowing out’, 47–8 home country diffusion and host-country resistance, 163 models, 178 versus host country dichotomy, 176 home and host country, interactions between, 64 management repertoires, 81 societies, 63

262 Index Honda, 38 host country alien HR/IR, 105 context, 88 convergence with, 99 dynamics, importance of, 155 institutional determinants, impact of, 140 isomorphic pressures exerted, 131 local isomorphism, 124 practices, 99, 105 resistance, 180 Howell, C., 240 HRM/HR/IHR, 14, 179, see also IR; labour; trade unions; unions alternative approaches to achieving its goals, 124 barriers to implementation, 109 decentralization of, 111 diversity management, 56 global HRM integration, 109–27 implementation challenges, 123–5, 138 ‘international suitcase employee’, 125 labour abuses, 122 principles, policies and practices, 13, 26, 56, 111, 118, 123, 138 social responsibility motivation, 121 theory and practice, 118 three areas: institutional, cultural and organizational, 123 three sustainability goals, 126 unbalanced lives, 125 human capital or capability (absorptive capacity), 113, 116, 118 Hungary, 137, 158, 162, 165 Hutton, W., 34 hybrid/hybridized/hybridization, 58, 63, 76–81, see also brownfield; greenfield; Japanese/Japanization; MNCs adaptation to local conditions, 60 analyses of, 59, 74 development, 169, 176 existing debates on, 155 exogenous hybridization, 159, see also hybridization

forms of, 61 home-and host-country effects, see home-and host-country home and host societal effects, 57 limitations of, 61 models of, 156, 163 multidimensional perspective on, 160 outcomes, 155 policy repertoires, 76 problematizes transplantation, 74 process of, 63,74 pull hybridization, 16, 160, 164–9, 180 reverse diffusion of practices, 160 theory, insights and limits, 156–7 variant in analyses of, 59 Hyman, R., 2, 4–5, 19, 30, 48, 134 IDA, 13, 95, 99 IMF, 235 India, 35 industrial development employment relations framework, 133 peace, logics of, 36 protectionist approach to, 98 Industrial Development Agency (IDA), see IDA Industrial Development Authority (IDA), see IDA industrial relations (IR), see IR Industrial Relations News, 100 information and communications technology (ICT) sector, 89 innovations, 53, 59, 180 integrative networks, see networks Intellectual Property Committee, 35 intellectual property rights (IP), 35 International Association of Machinists and Aerospace Workers in Montreal, 43 International Bar Association, 228, see also global law firms international business law, 216, see also global law firms international human resource management (IHRM), see HRM/HR/IHRM

Index 263 international law, internationalization of legal firms, see global law firms internationalization global firm model, 213, see global firms network model, 213 of trade, 218 Intervention Board Executive Agency (IBEA), 102 IPOs (initial public offerings), 225 IR, see also labour; trade unions; unions actors, 192 approach, 98 current British IR, 134 differentiated, 145 double-breasting, 96 implications for, 86 Irish, see under Irish policy and practice, 86 principle of abstention of the state, 133 systems, 145 Ireland/Irish, 56, 86–8, 97, 99, 101, 104–5 accommodating host environment, 102 American MNCs in, 86–106 Congress on Trade Unions (ICTU), 102 contrasting strategies on trade union recognition, 90–5 Global Capitalism, State Policy and Industrial Relations, 86–106 union avoidance, 92–4 changing strategies, 101 corporate profits, low level of tax on, 88 industrial promotion agencies, 101 inward-investing MNCs, 97, 99, 105 open, pro-business, FDI-friendly economy, 105 series of centrally negotiated agreements, Sustaining Progress (2003–2005), 88 strong advocates of national level accords, 88 trade unions, 89

union-neutral stance, 105 world’s eleventh largest recipient of FDI, 87 world’s most globalized economy, 87 ISO 9001 certification, 172 Italy/Italian, 138 collective bargaining system in, 135 MNC, 16 Social Pact (or tripartite agreement) of 1993, 134 Jacoby, S. M., 143 Japan/Japanese/‘Japanization’, 26, 31, 56, 63, 156, 178 companies, generalizability of their parental model, 60 home-influenced company practices, 56 hybrids/hybridization, branch-plants, 64, see also hybrids/hybridization TNCs, 32 work organization, 58 management/managers, 56–7 model, 58, 73, 171 parent company, corporate practices of the, 57 problems of, 156 production principles, introduction of kanban, 166 subsidiaries, 56, 64–72, see also transplants/transplantations Jones Day Reavis, 229 Kelly, A., 98 Kenney, M., 57–8 Keynesian economic management, 248 monetarism, 245 KFAT, T&G and GMB, see under UK clothing firms/industry Klar-Text (2003) annual rankings, 187 Kochan, T. A., 99 Kogut, B., 112 Konrad, M., 236 Korzeniewicz, M., 9 Kostova, T., 21, 113–14, 116 Krippner, G., 250 Kristensen, P. H., 8, 46–7 Local Players in Global Games, 46

264 Index Kurdelbusch, A., 159 Kuruvilla, S., 35 labour, 131, see also HRM; IR; trade unions; unions conditions, 162 decommodify, 240 empowering, 252 global production networks for, 206 impact of sourcing strategies, 185 individual flexible models, 161 lack of job security, 179 law and trade union organization, 140, see also under global law firms market characteristics, 123 organized, 55, 88, 192 power, 55 regulation of, 79 segmentation, 186, 206–7 Lane, C., 3, 9, 17–18, 29, 159 law, 216 convergence on a single model of, 235 ‘choice of law’, 235 and the economy, interrelationship between, 215 firms, 224, 229, see also global law firms Clifford Chance, 236 four Magic Circle firms, 236 Linklaters and Allen & Overy, 236 Slaughter & May, 236 law-making and lawyering, 215, 218 more US dominance, 235 Leana, C., 112, 115–16 Legrain, P., 24 Lepak, D., 116 Levy, D. L., 48 lex mercatoria, 216, 218 Lex Mundi, 221 Liker, J. K., 59 Lisbon, European Council in, 245 Lithuania, 203 management, 59, 70, 167–9, 178 case studies, 11, 71–3, 133 culture, individualism over collectivism, 134

family-management, 178 hegemony, 80–1 –labour relations, 141, 145 micropolitics, 71–3 paternalistic, 167–9 prerogatives, 70, 98 rhetoric of, 70 –worker relations, 71 management buy-outs (MBOs), 196 managerial and non-managerial employees, 143 Marginson, P., 141, 181 market alternative socio-political priorities, strained by, 241 fundamentalism, 20 principles, dominance of, 250 social control of, need for, 251 socially embedded, 248 societies, 241 Marks & Spencer, 202 Martin International, 196 Martindale-Hubbell, 214 Martinez Lucio, M., 140 Martiny, D., 216 Marx, Karl, 243 McDonalds, 87 McHugh, D., 31 McMillan, J., 35 Means, G., 39 Meardi, G., 3, 8, 16, 61, 77, 209 Meiksins, P., 140 mergers and acquisitions, 18, 225, 228, 236 Mexico, 160 Meyer, J. W., 214 Mickethwait, J., 24–5 micro firms, 195–6, 203 micropolitics/micropolitical, 7, 9, 12, 71, 73, 75 action, 15 activity, arenas of, 9 organizational, 12 pervasiveness of, 9 processes, 54, 74, 141, 82 of the workplace, 71 Mielczarek, A., 181 Milkman, R., 56, 62 MIT (Massachusetts Institute of Technology), 187

Index 265 MNCs, 2, 5–6, 8, 14, 86, 112, 114, 120, 157, 160, 162, 177, 243 agglomerative effects, 7 autonomous dynamic of financial flows, 242 behaviour, studies of, 4, 7, 140 case studies/data, 86, 178 case-study analysis, 133, 135 corporate ecological response, three main motivations to adopt, 120 countervailing power, 6, 11 decentralization of authority, three considerations, 144 diffusion and hybridization, 157, see also hybridization diffusion of work practices in MNCs, 16, 132–3 effects of diverse institutions, 243 embeddedness of, 4, see also embeddedness escape restrictive industrial relations regimes, 242 ethnocentric, 29, 139, 141, 158, 160, 173 fragmentation, internal sources of, 134 home-country dominant practice, 177 HRM policies in, 132, see also HRM; HR/IHR ‘hybridization à la management’, 179–80, see also hybridization internal micropolitical forces, 8 international competitive advantage, 14 inward-investing, 13, 94–5, 97–9, 105 IR policies and approach of, 98 Italian, 16 local actors, 10, 140 locational decisions, 242 mimetic isomorphism, 3 policies/policy, 2, 140 Quakerism, 181 research design, 135–7 resource flows, 114 social capital, creation of, 14 subsidiaries, 98, 132, see also subsidiaries transnational social spaces, 6

Modell Flucht, 157 Montreal, 39, 43 Moran, T. H., 36 Morgan, G., 3, 6, 18, 30 Morley, M. J., 13 Muller-Camen, M., 124 Multifibre Arrangement (MFA)/Agreement on Textiles and Clothing (ATC), 194 multi-skilling, 167 multi-tasking, 167, 178 multi-unionism, difficulties of, 99, see also unionism multinational corporations, see MNCs Multilaw, 221 NAFTA, 7, 43, 161 Nahapiet, J., 112 national business systems, see NBSs National Economic Social Council (NESC), 104 NBSs, 3–4, 6, 11, 16, 20, 29, 81 adaptability of, 13 analytical distinctiveness of, 4 Brussels consensus, 20 change of course in the priorities of, 246 comparative analysis of, 3 conflict between, 239 disembedding liberalism, 249 evolution of, 2 MNCs, regime arbitrage capacity for, 6 neo-liberal/neo-liberalism, see also globalization patterns of, 151 structural determinants of, 16 theory, 1 see also varieties of capitalism (VoC) voluntaristic regimes, 6 Nestlé and Nike, 27 Netherlands, 137–9 networks, 8,10, 58, 111, 221 four types of, 221 global internal, 14, 18, 109 inter-organizational, 10 organizational, 75–6 social, 11, 39 of subsidiaries, 20 of suppliers, 49, 56

266 Index Neumann, L., 181 New International Division of Labour theory, 161 New York Stock Exchange, 247 NGOs (non-governmental organizations), 122 Nike, 122 Nohria, N., 21 Nordic countries, 140 Norm Thompson Outfitters, 122, 127 Norr Steifenhofer Lutz, 234 North American Free Trade Agreement, see NAFTA OECD (Organisation for Economic Cooperation and Development), 87, 244 Offe, C., 35, 246 Ohmae, K., 241 Oliver, N., 58 ONS Labour Market Trends, 194 Opel, 179 organizational development competence-based strategies for, 190 culture and employee socialization, 121 factors, 123 forms of, 220–33 politics, 53 Osland, J., 120 outsourcing, 173 implementation of, 178 practices for employment, 185 tercjaryzacja, a Polish neologism, 173 terziarizzazione, the Italian term, 173 Palpacuer, F., 186, 190, 192 parent/parent company central authorization from the, 143 and host business systems, relative strengths of, 140 periodic communication between, 143 practices, salience of, 73 production network, 165 and subsidiary, 143 systems, 131

Paul S., 199 Pechiney, 26 performance criteria, 78 ranking, 142 -related pay, 159 Perlmutter, H., 141 Peugeot, 162 pharmaceuticals companies, 35 Pharmaco, 89 Philippines, 36 Philips Electronic, 26 Pogue, 229 Poland, 137, 161, 165, 170–1, 178, 202 Polanyi, K., 241, 248, 250 Polish trade unions, 174, 177 political economy framework, 24–49 economy, two basic types of, 193 processes, 47 transactions examples of, 41 politics of cross-national diffusion multinationals, 1–21 of production, 30 three domains of, macro, meso and micro spheres/processes, 25, 30, 34, 47 three levels of, 45 Portugal, 137 post-Washington consensus, 244 Powell, W., 21 power contradictions of, 32–4 forms of, 30–1 Pries, L., 157 privatization, 170, 174, 225 Probert, J., 3, 9, 17–18 Prodi, R., 247 production organization, established repertoires of, 72 process, organization of, 70 Taylorist, system, 171 workers wage, system for, 167 Prusak, L., 112 Pulignano, V., 8, 15–16, 21, 77 Quack, S., 3, 18, 179 quality circles, 80, 116

Index 267 quasi-cartel system, 26 Quintanilla, J., 86 Ramsay, H., 9, 27 Rands, G., 121 Reich, R. B., 241 research design and methods, 63–4 Reynolds, 26 Roche, W. K., 89 Rolls-Royce, 38 Romania, 170, 202–3 Rosenzweig, P., 21 Roth, K., 113–14, 116, 120 Ruggie, J. G., 239, 248, 250–1 Runciman, W. G., 31 Sadowski, D., 111 Sally, R., 30 Sassen, S., 225 Schmitt, M., 111 Schroeder, Chancellor, 42 Scott, W. R., 21 Shannon Free Airport Development Company, 99 Sharpe, D. R., 31 Siemens, 38, 42, 159, 162 Silver, B., 31 Singapore, 87 Single European Market, 240 Skadden Arps, 229 Sklair, L., 48 Slaughter, A.-M., 217 SMEs (small and medium enterprises), 222, 224, 235–6 Smith, C., 6, 11–12, 140 Snell, S., 116 social Europe, 19, 240, 247 industrialization model, collapse of, 179 management and work practices, rejected, 171 motivation, 121–3 reputation of the company, 122 responsibility, 33, 120–2, 125 sustainable strategy, 125 social capital, 118, 124–5 boundary-spanners, 116 building all three types of, 125 cognitive, 113, 125

creation and sharing of knowledge worldwide, 116, 118, 125 critical to effective coordination and control, 112 defined, 14, 112 described as, 113 knowledge exchange of/knowledge absorption and sharing, 115, 125 in MNCs, 116 relational, 112–13, 115, 125–6 structural, 113, 115 socialist, 171, 179 peculiarities defined, 170 societal effects, 53 society analysis of, 29 effects of, 53 Sony, 87 Soros, G., 244 Soskice, D. W., 29, 40, 193, 198, 243 South Africa, 35, 160 South America, 160 Southern Italy, 160 Soviet Union, 27, 170 Spain, 87, 132, 137–8, 140, 158 Stability and Growth Pact, 1997, Prodi’s denunciation of, 247 standardization, 16, 29, 162 Stanojevic´, M., 181 Starik, M., 121 states policies of liberalization and flexibilization, 82 process of material wealth creation, 40 socialism, chaotic conditions of, 16 Statistics Canada, International Merchandise Trade: Annual Review, 48 Steedman, H., 197–8 Steilmann, 196 Steuer, M. D., 86 Stibbe, 224 Stiglitz, J., 244, 252 strategic management, competence-based approach, 187–8 Streeck, W., 2–3, 6–7, 21n2 Stryker, R., 215

268 Index subsidiaries/subsidiary, 12, 54, 56, 72 actors, 21 American/US multinationals, 103, 131–2 behaviour, 132 British/UK, 137 commercial and labour market circumstances of, 74 countervailing power of, 21 development trajectory of, 57 effectiveness, 59 embedded/embeddedness, 132, 145, see also embedded/embeddedness evolution of, 55 foreign, mediated outcome, 158 greenfield see greenfield (order) hierarchies of power, 76 at home or abroad, 62 international subsidiaries, 53–83 inward-investing, 78 Italian, 137 key features of the dynamics of, 76 networks of, 20 objectives and priorities of newly established, 5 operations of, 61, 71, 73, 76 optimal and suboptimal levels of performance, 61 organization of work and management–worker relations, 70, see also IR; labour; trade unions; unions overseas, 62 relationship between headquarters and overseas operations, 71 roles of, 74 subordinate role of, 61 three contrasting conventional models of, 12 transfer of parent company practices to, 70 transplants, hybrids and branch-plants, 56 very diverse IR and employment regulation systems, 145, see also HRM; IR supply chain, 184 sustainable/sustainability, 125 agenda of, 14

concept of, 119 development, defined, 119 eco-innovation, 127 identify sources of eco-innovation, 121 link between, 121 motivations of, 123 new product design, 122 strategies/strategy, 120, 121, 124, 127 three goals, 127 three principles, 120 ‘sweatshop’, 192, 205 Swenson, P., 251 systems effects, 58 systems, society and dominance model, 54 dominance effects, see under dominance dominance provisional character of such, 59 from dominance to system effects transplant, 57 highlights the contradictory and shifting pressures, 54 interplay, 56, 61 see also societal effects see also system effects T&G, 138 Takeovers Directive, 247 Tariffs, 194 Taylor, S., 13–14, 116 Teece, D., 193 Thelen, K., 2–3 Thompson, E. P., 250 Thompson, P., 31, 48 Thomson Corporation, 26 TNCs, 29, 31 acceptance of standards, three factors, 36 complex coalitions of interests, 45 complex issues of strategy, 26 ‘corporate glue’, 48 country-of-origin effects, 29 critics of, 27 distinctive features, 25 economic and political powers of, 32

Index 269 evolutionary models of, 46 global ambitions, 40 global oligopolists, 26 hybrid arrangements, 27 as National and Global Players, 24–49 are political actors, 24 transnational solution, 46 transnational space, structuring the, 239–53 two core features, 24 Tobin tax, 252 Toronto, 39 Tóth, A., 3, 8, 16, 61, 77, 209 Toyota, 26, 38, 162, 172 Trade Commissioner Bolkestein, 247, see also EU trade unions/unionism, see unions Trade-Related aspects of Intellectual Property (TRIPS), 35 Trades Union Congress, 244 transfer, 156, 169, 173 attraction (pull) from abroad, 156 diffusion (push), 156 dynamics of, 155 HRM and IR, 124, 174–6, see also HRM; IR, trade unions; unions micropolitics of, 12 outcome of cross-border, 157 process, 16 selective, 169 two aspects of, 156 transnational corporations/organizations, see TNCs transnationality index (TNI), 26 transplant/transplantation, 57–9, 72–4, see also international subsidiary convergence of interests between workers and managers, 57 directly from home factories to overseas subsidiaries, 57 dynamic and contested process, 73 and hybridization, 61 ‘model’ production regimes, of, 59, 73 policy of selective, 61

three key themes, 81 two key arguments, 73 transplants, hybrids or branch-plants, 72–81 Triumph, 196 ‘trust-breaking’ behaviours, 115 Turkey, 202 Turner, L., 30 Tuscaloosa (USA), 157 Tüselmann, H.-J., 157 UK, 26, 29, 31, 42, 58, 137–8, 185, 187, 196, 200 American MNCs in, 3 clothing/industry firms, 195–7, 205, 208 comparison with Germany, 194 ethnic minority owners, 196 graduate recruitment problematic, 197 immigrants in, 205 polarized, 195 shielded by MFA/ATC, 194 sourcing strategies of, 203 unions, under KFAT, T&G and GMB, 205 white-collar staff, 206 current British IR, 134 industry, outsourcing of manufacturing operations, 205 UK law firms, see global law firms UK Economic and Social Research Council, 181 Ukraine, 203 UNCTAD, 213–14, 87, 226 UNICE (Union of Industrial and Employers Confederations of Europe), 246 unions, 88, 92, 94, 171, 174–5, 253 avoid/avoidance, 70, 99–100 collective bargaining, 94, 97–8, 100, 131, 134, 148 communist rank-and-file, 175 contemporary industrial relations, 251 density, 88, 97, 136–7, 143 in Ireland, 99 Federated Union of Employers (FUE), 95

270 Index unions – continued in Italy, 135–9 FEMCA-CGIL (Federazione Operai Chimici), 139 Fim-Cisl, ‘social movement’ union, 175 FIOM-CGIL (Federazione Italiana Operai Metalmeccanici), 138 unitary trade union representative body (rappresentanza sindacale unitaria or RSU), 135 levels of, 88 pattern of, 100 in Poland, 174–6 Solidarity, 171, 174, 177 policy, 251 recognition, 70, 97, 100 and avoidance contrasting strategies on, 90–5, 102 remove the, 143 representation and collective bargaining, 133 rights and responsibilities of, 98 role of, 88, 142 role in employee voice, 143 suppression approach, 92 system of employee representation, 135 three major handicaps for, 253 ‘US greenfield’ factor, 99, see also American corporations; American MNCs wages, harmonization of, 177 work force, 168 unionization, rate of, 96, 206 United Nations, 26 United States, 25–6, 28, 37, 42–4, 59 MNCs, see American corporations; American MNCs multinationals, see American MNCs value chains, 9, 17, 186, 188–9 Van Buren III, H., 112, 115–16

varieties of capitalism (VoC), 3, 17, 29, 54, 186, 193, 208, 214, 233, 236 Volkswagen, 160, 180–1 Foundation, 10 voluntarism/voluntarist, in Britain, 133, 134 Wagner, K., 197–8 Wang, 99 Wajcman, J., 48 Walesa, L., 174 Wal-Mart, 26 Wallace, H., 243 Wallace, J., 99 Washington consensus, 244–53 Weber, M., 215 welfare capitalism, 4, 143 Wensum, 196 Western European, 190 Weston, S., 140 Whitley, R., 30 Wiesenthal, H., 246 Wilkinson, B., 58 Wolf, M., 24 Womack, J. D., 57 Woolridge, A., 24–5 World Bank, 235, 244 World Commission on Economic Development, 119 World Investment Report, 2004, 213 World Trade Organization (WTO), 19, 34–6, 41–2, 194, 228, 235 supranational institutions, 19 Wortmann, M., 181 Yoruk, D. E., 192 Yugoslavia, 170 Zander, U., 112 Zara, 199 Zeitlin, J., 8, 46–7 Zurn, M., 217