Internationalisation and Co-operatives: Protecting Local Jobs Diarmuid McDonnell Co-operative Education Trust Scotland 03/12/2012.

Internationalisation and Co-operatives: Protecting Local Jobs

Diarmuid McDonnell Co-operative Education Trust Scotland

03/12/2012

Outline

1. What is a co-operative?2. Mondragon Corporation3. Internationalisation and globalisation4. Conclusion5. Discussion Qs

Introduction

Despite the wide-ranging successes of co-operatives, in financial terms as well as in the development of sustainable communities, the study of these democratic forms of enterprise remains surprisingly absent from the curricula of most university business schools around the world.

The Invisible Giant

Co-ops defined

Co-operatives are businesses

• Member-owned• Democratically controlled• Distributes surplus to members

Value-driven

Co-op ValuesSolidarityEquityEqualityDemocracySelf-helpSelf-responsibility

Ethical ValuesOpennessHonestySocial responsibilityCaring for others

BUT... Google, Tesco and Barclays have values as well...

Values in action

Co-op Principles1. Voluntary and open membership2. Democratic member control3. Member economic participation4. Autonomy and independence5. Education, training and information6. Co-operation amongst co-operatives 7. Concern for community

All* co-ops subscribe to these principles – firm ethical foundation

Co-operatives globally (1)

Source: ‘Statistical Information on the Co-operative Movement’ ICA.

http://www.ica.coop/coop/statistics.html, accessed 29 September 2011.

Co-operatives globally (2)

The UK co-operative sector (1)

Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return

to co-operation (Manchester: Co-operatives UK), 2011.

No. of co-operative businesses in the UK:

5,450

No. of members: 12.8m

Turnover of co-operatives: £32.2bn

No. of people employed by co-operatives:

236,000

The UK co-operative sector (2)

Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return to co-

operation (Manchester: Co-operatives UK), 2011. p. 23.

4352

473

386239

Number of co-operatives by country

EnglandScotlandWalesNorthern Ireland

The UK co-operative sector (3)

Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return to co-

operation (Manchester: Co-operatives UK), 2011. pp. 20-2.

2008 2009 2010

-4

-2

0

2

4

6

8

10

12

14

16

% Growth of the UK co-operative movement

Turnover Membership Co-operatives

Year

Growth %

Co-op benefits

• increased productivity and organisational stability (Blair, Kruse and Blasi, 2000; Lampel, Bhalla and Pushkar, 2010);

• increased levels of innovation and growth (Erdal, 2011); • more equitable societies and reduced inequality (Wilkinson

and Pickett, 2009);• benefits to community (Erdal, 2000); • impact during times of economic crisis and poverty reduction

(Birchall and Ketilson, 2009); • as well as more normative conjectures based on notions of

economic democracy (Dahl, 1986).

Worker co-operatives

What is a worker co-operative?

A business that is jointly owned and democratically controlled by the people who

work in it.

Ellerman defines a worker co-operative as ‘a co-operative where the members are

the people working in the company, and where patronage is based on their

labour as measured by hours or pay. Thus a worker co-operative is a company

where the membership rights, voting rights, and the profit rights are assigned

to the people working in the company.’

Economic theory

Status of Factors of Production

Final Authority Tool

Conventional Enterprise

Capital Labour

Worker Co-operative Enterprise

Labour Capital

Finance

Worker co-operatives are heavily reliant on equity provided by members and

loans/grants.

It is possible to offer non-voting equity shares in the co-operative but is this attractive

to investors, especially coupled with the limited return on capital (principle 3)?

Mellor and others also argued that the unique financial challenges faced by worker co-

operatives resulted in ‘a vicious circle where under capitalisation and lack of access

to investment finance relegates them to a marginal existence’.

Member equity is vital to the creation and sustainability of the worker co-operative.

Implications for expansion and entrepreneurship

Internationalisation?

Co-operatives tend to be local organisations, bound by

geographical constraints (regional and national organisations –

Scotwest credit union, The Co-operative Group).

Co-operatives focus on their members, who share a common

need (again usually geographically constrained)

Some co-operatives do operate across geographical boundaries

but it presents significant challenges (mainly legal).

Mondragon Corporation

One of the largest and most successful worker co-operative movements in the

world – headquartered in Mondragón in the Basque country.

Mondragon Corporation

• 5 graduates of the local polytechnic acquired a bankrupt factory in 1955 and

established it as a worker co-operative in 1956.

• Heavily influenced by the teachings of the local priest, Father Jose Maria

Arizmendiarrieta.

• Original factory quickly became successful and a number of spin-out

enterprises were created.

• Rapid expansion in the number of worker co-operatives in the region led to the

creation of a secondary co-operative, Mondragón Co-operative Corporation

(late 1980s and early 1990s).

Formed by 258 cooperative enterprises, subsidiaries and affiliated organisations

Total jobs: 83,859 (2010)

Total sales: 13,989 million euros (2010)

International sales: 3,594 million euros (2010), 63% of industrial sales

Divided into 4 Groups: Finance, Industry, Retail and Knowledge

Within the Industrial Group, 12 Divisions

Its own set 10 basic principles based on its experience and on ICA's principles

Source: Elortza, N. (2012) Crisis Management: The Case of Mondragon Corporation

The Mondragon Cooperative Experience

MONDRAGON today

Mondragon Corporation

Source: J. R. Fernández, La Experiencia Cooperativa de Mondragón: 1956-2000 (Guipúzcoa: Mondragon Corporacion Cooperativa,

2001), p. 87.

A Mondragon Co-operative

Source: D. P. Ellerman, The Mondragon Cooperative Movement. Harvard Business

School Case No. 1-384-270. (Boston: Harvard Business School, 1984).

International presence

Internationalisation

‘In any case, it should be pointed out that external expansion has not been

detrimental to cooperative employment nor to cooperative autonomy. In other

words, the principles guiding the internationalisation strategy are to preserve

MCC cooperatives jobs and sustain the profitability of MCC firms’ (p. 560)

Source: Errasti, A. M. et al (2003) ‘The Internationalisation of Cooperatives: The Case of the Mondragon Cooperative

Corporation’ Annals of Public and Cooperative Economics, 74, 4, pp. 553-84

Internationalisation has to be compatible with co-operative values and

principles.

Strategies

1. Multi-localisation - “How many new jobs do we need to create

abroad to maintain one job at home?”

2. Utilise the existing co-operative network – cooperation amongst co-

operatives.

3. Convert subsidiaries into (or close to) co-operatives.

4. Sensitivity to the local conditions.

Source: Monasterio et al (2007) ‘Understanding Mondragon Globalisation Process’

Features

Investing in Greenfield sites, joint ventures and acquisitions.

Over 140 subsidiaries globally.

Mainly the industrial co-ops which are undertaking

internationalisation.

Present in growth markets: China, India, Brazil, Russia, Czech Republic

Strategy (in terms of outsourcing production) is not very different to

multinational competitors.

Employment

Issues

Criticism that the affiliated organisations and subsidiaries are not run

as co-ops (though do have profit-sharing and participatory

management).

Creates different ‘classes’ of workers.

Increasing their overseas presence could eventually lead to significant

job losses in the Basque Country (conflict with social goals).• Co-operatives: 111• International subsidiaries: 143

Why internationalisation?

It is ‘the price that has to be paid in order to consolidate

competitive positions and to guarantee the social-economic

development of the core cooperative companies.’ (p. 578)

Source: Errasti, A. M. et al (2003) ‘The Internationalisation of Cooperatives: The Case of the Mondragon Cooperative Corporation’ Annals of Public and Cooperative Economics, 74, 4, pp. 553-84

Protect against the threat of de-localisation.

Conclusion

The challenge of doing what’s right for the business and members (always the same?)

Lessons for other SMEs to follow?

Discussion Qs

1. Do worker co-operatives mediate the tensions between

globalisation and local economies?

2. Why do you think there is so little worker ownership in the

UK?

3. Why is democracy not widespread in corporations, but is

nonetheless something we strive for in society (and for

which people in some countries sacrifice their life)?

Reading

McDonnell, D., Macknight, E. and Donnelly, H. (2012) Democratic Enterprise: Ethical Business

for the 21st Century, Glasgow: Co-operative Education Trust Scotland (see Chapters 5 &

6).

Erdal, D. (2011) Beyond the Corporation: Humanity Working, London: The Bodley Head (see

Part III.

Luzarraga, J.M., D. Aranzadi and I. Irizar (2007), Understanding the Mondragón Globalization

Process: Local Job Creation through Multi-Localization: Facing Globalization Threats to

Community Stability, paper presented at the 1st CIRIEC International Research

Conference on Social Economy, Victoria, Canada.

Mondragon Corporation ‘MONDRAGON Corporation in 2011. One year in three minutes’,

http://vimeo.com/43888493.