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 Corporation 3.Internationalisation and globalisation 4.Conclusion 5.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 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 Co-op Principles 1.Voluntary and open membership 2.Democratic member control 3.Member economic participation 4.Autonomy and independence 5.Education, training and information 6.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. accessed 29 September 2011.

Co-operatives globally (2)

The UK co-operative sector (1) Source: Co-operatives UK. The UK co-operative economy 2011: Britains return to co- operation (Manchester: Co-operatives UK), 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: Britains return to co-operation (Manchester: Co-operatives UK), p. 23.

The UK co-operative sector (3) Source: Co-operatives UK. The UK co-operative economy 2011: Britains return to co-operation (Manchester: Co-operatives UK), pp

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 AuthorityTool Conventional Enterprise CapitalLabour Worker Co-operative Enterprise LabourCapital

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 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: (Guipúzcoa: Mondragon Corporacion Cooperativa, 2001), p. 87.

A Mondragon Co-operative Source: D. P. Ellerman, The Mondragon Cooperative Movement. Harvard Business School Case No (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 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 Protect against the threat of de-localisation.

Conclusion The challenge of doing whats 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 One year in three minutes,