Mondragon Multilocalisation Strategy (JM Luzarraga PhD Defense 4th June 2008)

Doctoral thesis in Business Management dissertation MONDRAGON MULTI-LOCALISATION STRATEGY: Innovating a Human Centred Globalisation An empirical case study on the Mondragon Co-operatives production plants in emerging countries Sanctis Spiritus – Oñati 4 th June 2008 PhD Candidate: JM Luzarraga Directors: Dr. Iñazio Irizar & Dr. Dionisio Aranzadi

Index
Theoretical framework and research context
Research interest and objectives
Research methodology and field work
Results obtained:
4.1 Phase I: Multi-localisation impact on employment growth
4.2 Phase II: International strategy & mapping production plants by countries and timing
4.3 Phase III: Best practices of production plants in emerging countries
Hypothesis validation and further research

1. Theoretical framework and research context

An industrial migratory phenomenon takes place (N-S, W-E) and new strategies arose: de-localisation, multi-localisation,.
In emerging countries FDI contributes to socio-economic development and poverty reduction
In countries with higher labour costs global competition results in manufacturing firms downsizing and shutting down operations
Place-based ownership models are presented as a better counterforce to globalization’s threats to local community stability
But the traditional local structure of worker cooperatives’ was not adequately prepared to compete in a capitalistic global market
Worker Co-operatives most important social commitment is its commitment to create employment
Theoretical framework – Globalisation impact on the community

Context of Research – Mondragon Industrial Division 1) 2) 3) 5) 4) Source: ex novo - Adaptation from MCC - 2007 Years 1) First production plant abroad 2) MCC holding structure creation 3) 26 Production plants abroad 4) 65 Production plants abroad 1) 2) 3) 4) Total employees Employees abroad (since 99)

To remain competitive Mondragon assumed the global production dimension, opting to use FDI on private companies abroad Context of Research – Mondragon Industrial Division (*) BRANDT Mondragon Industrial Division – Employment growth Source: ex novo

2. Research interest and objectives

Research interest Is this new reality of the Mondragon Group a step forward in the worker co-operative international movement that enables to face globalisation, not only by maintaining jobs’ communitarian wealth at Mondragon traditional environment, but also creating communitarian wealth through employment growth abroad? Does a broad analysis about Mondragon globalisation process sustain that the success of its multi-localisation strategy strengthens its social goal while facing “the business dilemma versus a social imperative”? (Macleod, 2006). Or does it confirm Webb and Webb thesis on co-operative degeneration, which argues that in a capitalist economy long-term economic success is not compatible with the maintenance of co-operative and democratic principles? (Web and Web 1921) Is this an ongoing process, one that follows Vanek’s thesis on natural evolution of Mondragon subsidiaries from infancy, through adolescence to maturity? (Vanek, 2007).

Research objective The main goal of the research is to offer input from the academic field on the Mondragon co-operatives in their “globalisation process”, thus identifying management best practices to foster new international social enterprises structures. The research has also the objective of presenting the case study of the Mondragon Group as a place-based corporation facing human centred globalisation.

Research questions 1) Do Mondragon co-operatives, through FDI multi-localisation, defend better the interests of parent co-operatives on local community employment? (Phase I) 2) What is the FDI impact on member vs. non-member evolution in parent co-operatives, and internationally? (Phase I) 3) Is the Mondragon Group international strategy mostly a HFDI, being competitiveness through international sales growth the main objective of production plants abroad? (Phase II) 4) Is there a social objective in the Mondragon Group international projects? (Phase II) 5) What are the main limitations and incentives to the international expansion of co-operatives principles? (Phase II) 6) Which are those best practices in CSR management performed at the subsidiaries coherent with co-operative philosophy? Are they to be practiced only in specific countries, or is it possible to assume co-operative principles abroad for every country? (Phase III) 7) Is there any subsidiary best practice which assumes every co-operative principle abroad, or until now best practices include co-operative principles partially? (Phase III)

3. Research methodology and field work

Research methodology - framework Context: “Social enterprises operating in global markets” Case study: Mondragon Group Globalisation impact on Mondragon Group net job growth 1996-2006 Case studies: best practices in CSR management in production plants abroad International strategy & mapping subsidiaries by countries and timing IRIZAR TVS (India) ORKLI CH (China) FAGOR MASTERCOOK (Poland) FAGOR EDERLAN (Brazil) COPRECI CZ (Czech R.) INTERNATIONAL CLUSTERS (China, Mexico Czech R. Slovak R.) Secondary source gathering & systematic review: Mondragon Group & Globalisation

Field work – interviews conducted People interviewed (N=176) Source: ex novo Based abroad YES NO Works at Mondragon YES NO Job activity MOI MOD Coop membership YES NO 65% 35% 82% 18% 93% 7% 37% 63% Basque country Spain (rest) India China Mexico Brazil Poland others Interview Location 4% 6% 20% 21% 13% 20% 12% 4% Basque country India China Mexico Brazil Poland Czech Republic Slovak Republic Nationality 49% 4% 16% 5% 5% 15% 2% 4%

Field work – production plants visits & analysis Source: Luzarraga, 2006 Feb – Mar 2007 Jan – Feb 2007 Mar – Dec 2006 Oct – Nov 2006 July 2007 June 2007 Mondragon representative offices 6 (4 visited) Production plants abroad 65 (40 visited) Source: ex novo

Research methodology – main characteristics 1) MCC EMPLOYMENT DATABASE: For the first time a merged database of Mondragon GLOBAL COOPS exists, allowing us to compare their performance with other cooperatives. The sample has been constructed from MCC annual reports. This database includes co-operative activity reports during 1996-2006 for Mondragon industrial co-operatives. 2) PRODUCTION PLANTS ABROAD ANALYSIS: For the first time Mondragon production plants abroad have been analyzed. It has been visited, studied and analysed 40 factories in developing countries 3) EMPLOYEES AND MANAGERS ABROAD INTERVIEWS: For the first time a wide survey on production plants abroad has been conducted interviewing 135 people working on Mondragon production plants abroad

4. Results obtained

4.1- Phase I: research questions 1) Do Mondragon co-operatives, through FDI multi-localisation, defend better the interests of parent co-operatives on local community employment? 2) What is the FDI impact on member vs. non-member evolution in parent co-operatives, and internationally (parent co-operatives + subsidiaries)?

Phase I: test 1 - Global vs. Local Co-ops net-job growth H1: “Those Cooperatives with at least one production plant abroad create more jobs IN THEIR PARENT COOPERATIVE” H2: “Those Cooperatives with at least one production plant abroad create more jobs IN THEIR LOCAL COMMUNITY” Mondragon Industrial Division – “GLOBAL COOPS vs. LOCAL COOPS” ACCEPTED ACCEPTED Source: ex novo

Phase I: test 2 - FDI impact on employment growth H3: “FDI generates a bigger net-job growth IN THEIR PARENT COOPERATIVE during the three years after starting FDI”. H4: “FDI generates a bigger net-job growth IN THEIR LOCAL COMMUNITY during the three years after starting FDI”. ACCEPTED Mondragon Industrial Division – “GLOBAL COOPS vs. LOCAL COOPS” Source: ex novo

Phase I: test 3 - FDI impact on members vs. non members H5: “Those cooperatives with at least one affiliated production plant abroad do not necessarily have a smaller percentage of voting members INTERNATTIONALLY”. H6: “Those cooperatives with at least one affiliated production plant abroad do not necessarily have a smaller percentage of voting members IN THE PARENT COOPERATIVE”. ACCEPTED Mondragon Industrial Division – “GLOBAL COOPS vs. LOCAL COOPS” Source: ex novo REJECT ED

Phase I: research conclusions
Mondragon International multi-localisation is a successful strategy to deal with globalisation’s threats to community stability (downsizing and de-localization)
Mondragon GLOBAL CO-OPS have a bigger net job growth than Local Co-ops in parent cooperative (28% > 14%), in the local community (52%>25%) and in total (141% >21%)
FDI has a direct positive impact on employment growth in the local community (21%>12%) and a similar behaviour in the parent cooperative (7,8% = 7,5%)
In the parent co-operative the percentage of voting members has increased (from 78% to 84%).
In the parent co-operative the percentage of voting members is higher on GLOBAL CO-OPS than LOCAL CO-OPS (84% >75%)
Internationally (parent co-operative + the subsidiaries) the percentage of voting members has been reduced (from 67% to 38%)

4.2 - Phase II: research questions 3) Is the Mondragon Group international strategy mostly a HFDI, being competitiveness through international sales growth the main objective of production plants abroad? 4) Is there a social objective in the Mondragon Group international projects? 5) What are the main limitations and incentives to the international expansion of co-operatives principles?

Phase II: results obtained
A global defensive strategy
Source: ex novo

A market-oriented (HFDI) and fast implemented strategy
0% 50% 60% 70% 80% 90% 100% % EMPPLOYEES ABROAD (PEX/PT) % INTERNATIONAL SALES Serie 1999 – 2002 – 2006 Source: ex novo 10% 20% 30% 40% 50% 60% 70% 80% 90% 0% 10% 20% 30% 40% ( Bubble size = Total sales)

A diversified and multiple strategy
0 10 20 30 40 50 60 70 80 90 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % EMPLOYEES ABROAD % INTERNATIONAL SALES 2006 0 10 20 30 40 50 60 70 80 90 100 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% % EMPLOYEES ABROAD (PEX/PT) % INTERNATIONAL SALES 2002 Source: ex novo 1999 0 10 20 30 40 50 60 70 80 90 100 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% % EMPLOYEES ABROAD (PEX/PT) 1999 (bubble size = Total sales) % INTERNATIONAL SALES

A common interest in establishment of plants in emerging economies
A social and economic strategy
Mondragon global co-ops (N=25) MNE - global co-ops (N=6) SW – global co-ops (N=13) - - Source: ex novo 1999 2002 2006 PT 4,498 6,620 10,598 PEX 0 1,287 3,054 % PEX / PT 0.00% 19.44% 28.82% TOTAL SALES 55,239 727,783 1,472,324 % INTER SALES 32.25% 64.15% 65.06% EBITDA / PT 1.90 10.87 10.09 EBITDA / MEM 2.59 18.79 25.80

Phase II: research conclusions
The main goal of Mondragon multi-localisation strategy is to access new market shares abroad
Mondragon plants abroad do have a social objective, one that possesses a weighty importance: the very defence of social stability at the parent co-operatives
The main limitations for Mondragon co-operative principles international extension are:
The uncertainty and lack of knowledge of the co-operative members
The high workforce turnover at the subsidiaries
And the main incentives are:
Recruiting local employees to the management team of the subsidiaries
MU policy to assume the training and education at the subsidiaries
International professional careers
Subsidiaries clustering

4.3 - Phase III: research questions 6) Which are those best practices in CSR management performed at the subsidiaries coherent with co-operative philosophy? Are they to be practiced only in specific countries, or is it possible to assume co-operative principles abroad for every country? 7) Is there any subsidiary best practice which assumes every co-operative principle abroad, or until now best practices include co-operative principles partially?

4.3 - Phase III: Case studies database Source: ex novo MasterCook Mondragon international clusters Olomouc

Phase III: Case studies database 1) Orkli China 2) Irizar TVS Production plants case studies Mondragon international clusters 3) Copreci CZ 5) Fagor MasterCook 4) Fagor Ederlan Brasileira Source: ex novo

Phase III: main best characteristics
Business management that optimises the synergies between the global and local dimensions of the co-operative
Working conditions
Employee participation in management
Employee participation in profits
Employee participation in ownership
Communication and awareness policy
Inter-cooperation between subsidiaries
Commitment to the local region

Phase III: research conclusions
Success factors in CSR management coherent with co-operative philosophy are evident in all the cases analysed (Brazil, China, India, Mexico, and those of east-central Europe) regardless of the country where the subsidiary is located.
No case has been identified where the principles of employee participation in management, profits and ownership and a commitment to the location have been completely fulfilled. Experiences are partial, and complementary among themselves.

5. Hypothesis validation and further research

Research hypothesis “ The strategy of international production multi-localisation of the Mondragon industrial co-operatives has defended the stability of the local community by creating co-operative and non-co-operative employment, alongside with a concurrent improvement in competitiveness; furthermore, by means of new job creation it has also enabled wealth growth in emerging countries, providing also certain best practices in CSR management coherent with co-operative philosophy” ACCEPTED

Suggested further Research
Development of a Mondragon shared global co-operative model
Monitoring the global co-operatives of the Mondragon Group
A comparative study, examining employment generation at the Mondragon Group alongside other local, national and European MNEs.
Causal analysis and determining factors in employment growth in the Mondragon Group through globalisation
Theoretical formulation of a new global co-operative model

Eskerrik asko Muchas gracias Thank you 谢谢你 “ The economic revolution will be moral or will not be; the moral revolution will be economic or will not be” P. JM Arizmendiarrieta

ULMA Group NOT Included ULMA Group Included in 2001 Mondragon Group industrial d. net-job growth 99-06 IRIZAR Group NOT Included IRIZAR Group Included Source : ex novo Source : ex novo The weight of the IRIZAR Group The weight of the ULMA Group TOTAL COOPS GLOBAL COOPS LOCAL COOPS 94% 141% 21% 78% 125% 6% 41% 53% 25% 29% 42% 10% 22% 28% 14% 10% 17% 0% PT PIN P COOP

Phase II: Mondragon plants best practices
Orkli Ch (China): a proactive strategy as a response to the future threat of China, its management model and commitment to quality control, as well as its innovative capacity in the combination of automated production at the parent co-operative with the manual and flexible of China.
Irizar-TVS (India): the international transfer and assimilation of a participative management model with a high commitment to communication, its own remuneration system and profit sharing schemes. This model features significant progress of success in productivity, quality, sales, innovation and financial results.
Copreci CZ (Czech Republic): a global organisational model has been formulated, involving international professional careers with internationally experienced managers at the parent co-operatives and local managers at the production plants abroad, thus commencing development of the figure of collaborator co-operative member.
Fagor Ederlan Brasileira (Brazil): a social equity with annual monitoring indicators at the subsidiary, its employee health and safety policy, its proximity to the local co-operative movement, and the fact that it is the sole Mondragon production plant abroad where the possibility of transforming it into a second level mixed co-operative has been studied.
Fagor MasterCook (Poland): stands out as the sole example that includes union representatives in the board of directors, the positive consequences of organisational change (towards a global model with local autonomy) on account of the acquisition of Brandt in 2005, as well as its process of adaptation-integration of business culture.

Research methodology – techniques used Methodology Strategy Archival analysis Historic Case study Survey Experiment
Form of research question
Requires control of behavioural events?
Focuses on contemporary events
how, why? who, what, where, how many, how much? how, why? how, why? YES NO who, what, where, how many, how much? NO NO NO YES YES YES / NO YES NO Source: COSMOS Corporation – YIN R., 2003

Research methodology – techniques used

Mondragon Multilocalisation Strategy (JM Luzarraga PhD Defense 4th June 2008)

by Jose Luzarraga on Jan 25, 2009

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