Internationalisation and Co-operatives:
Protecting Local Jobs
Diarmuid McDonnell
Co-operative Education Trust Scotland
03/12/2012
Outline
1.
2.
3.
4.
5.
What is a co-operative?
Mondragon Corporation
Internationalisation and globalisation
Conclusion
Discussion Qs
Introduction
Despite the wide-ranging successes of cooperatives, 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 Values
Solidarity
Equity
Equality
Democracy
Self-help
Self-responsibility
Ethical Values
Openness
Honesty
Social responsibility
Caring for others
BUT... Google, Tesco and Barclays
have values as well...
Values in action
1.
2.
3.
4.
5.
6.
7.
Co-op Principles
Voluntary and open membership
Democratic member control
Member economic participation
Autonomy and independence
Education, training and information
Co-operation amongst co-operatives
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)
No. of co-operative businesses in the
UK:
5,450
No. of members:
12.8m
Turnover of co-operatives:
No. of people
operatives:
employed
£32.2bn
by
co-
236,000
Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return to cooperation (Manchester: Co-operatives UK), 2011.
The UK co-operative sector (2)
Number of co-operatives by country
239
386
473
England
Scotland
Wales
Northern Ireland
4352
Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return to co-operation
(Manchester: Co-operatives UK), 2011. p. 23.
The UK co-operative sector (3)
% Growth of the UK co-operative movement
16
14
12
10
8
Growth % 6
4
2
0
-2
2008
2009
-4
2010
Year
Turnover
Membership
Co-operatives
Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return to co-operation
(Manchester: Co-operatives UK), 2011. pp. 20-2.
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 cooperatives 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).
The Mondragon Cooperative Experience
MONDRAGON today
 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
Mondragon Corporation
Source: J. R. Fernández, La Experiencia Cooperativa de Mondragón: 19562000 (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.