local players in global games

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Local Players in Global Games:
The Strategic Constitution of a
Multinational Corporation

peer hull kristensen and jonathan zeitlin

1
 3
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 For Chuck
Il miglior fabbro, a benchmark for us all
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 CONTENTS

Acknowledgments ix
Preface: Small Worlds of Globalization xii

1. Introduction: Multinational Corporations as

Lead Agents of Globalization? 1

Part I. Local Pathways to Multinational Enterprise

2. Associating Local Strategies of Global Reach:

Horsens, Lake Mills, Eastbourne, and APV 27

Part II: A Global Game Enacted by Local Players

3. Horsens: Local Strategies on a Global Stage 73

4. Lake Mills: Self-limiting Strategies of a Solidaristic
Plant Community 103
5. Howard: A Sleeping Beauty Awakes to the Nightmare
of a Global Enterprise 124
6. Lygon Place: A Corporate Headquarters at War with Itself 135
7. Strategic Positions and Positional Strategies 157

Part III: Managerial Challenges and Human

Promises of Globalization

8. Managing the Multinational: Administrative and

Human Challenges 187
9. The Functions of the Executive Revisited: Contributions,
Inducements, and Constitutional Ordering 212
viii Contents

10. Pragmatic Solutions: From Procedural Justice to Learning by

Monitoring 243
11. Creating a Multinational Public for the Corporation 264
12. Conclusion: Sideshadowing the Future of Globalization 301

Bibliography 323
Index 345
 ACKNOWLEDGMENTS

This book is a product of ongoing interactions in many small worlds of the

international business and research communities. In the process, we have
incurred numerous debts, which we are pleased to acknowledge here.
First and foremost, we would like to thank the community of practitioners
within APV, from shop-floor workers, engineers, and technicians to plant-
level managers, supervisors, and corporate executives, who generously
gave us their time and attention, and shared their experiences and interpret-
ations of life in the multinational corporation (MNC). Individually
and collectively, they taught us more about the complexities of strategic
behavior than any scholarly research program ever could. We have
slowly learned the art of reading the world as they did, and we deeply
appreciate the way they reciprocated our persistence with trust so that
we could travel from one part of the small world of the multinational to
the next.
Scarcely less important to the completion of this project was funding for
field research, travel, and meetings, as well as time off for writing and revision
of the manuscript. Peer’s first visit to Wisconsin in 1995, which began our
joint field work at Lake Mills, was financed by the University of Wisconsin-
Madison’s Research Initiative (now Center) for World Affairs and the Global
Economy (WAGE). During subsequent stages of the project, WAGE also
provided vital funding to Jonathan for fieldwork, research expenses, and
writing time. We are grateful to Dave Trubek and Don Nichols, co-directors
of WAGE, for their moral and material support. Generous grants to Peer
from the Danish Social Science Research Council (DSRC) likewise provided
crucial support for the research and writing, as well as for numerous meet-
ings between the authors. The internal training fund of the Danish Trade
Union Confederation (LO) allowed Peer to expand the scope of inquiry
among shop stewards in Danish MNC subsidiaries and provided a valuable
platform for discussing the particularities of our case study in relation to
their broader experience of other multinationals. Jonathan would also like to
thank the faculty sabbatical program and the Office of International Studies
and Programs at the University of Wisconsin-Madison for supporting his
year off from teaching in 2002/3. Peer would similarly like to thank Copen-
hagen Business School for the generous support given to its researchers when
they are engaged in demanding projects.
x Acknowledgments

This would have been an infinitely poorer work without the critical input
and encouragement of numerous friends and colleagues from different
countries and academic disciplines. We particularly want to thank the Euro-
pean Science Foundation, Danish Social Science Research Council, and
Copenhagen Business School for financing the European Summer Research
Institute for the Comparative Study of Economic Organization (ESRI) in
1999–2001, which provided a platform, deadlines, and pressure for us to
write over three successive years a draft of each of the three parts that
constitute this book. We also presented our work-in-progress to conferences,
workshops, and seminars organized by the Institute of International Business
at the Stockholm School of Economics; the Swedish Council for the Co-
ordination and Initiation of Research (FRN); the US Council for European
Studies; the Transnational Communities Programme of the UK Economic
and Social Research Council; the American Sociological Association; the
Economic, Labor, and Organization section of the Italian Sociological Asso-
ciation (AIS-ELO); the Danish Trade Union Confederation (LO) School;
WAGE, and the Economic Sociology Program of the University of Wiscon-
sin-Madison. We are grateful to the participants in these meetings for their
many stimulating criticisms and suggestions. Among them we would espe-
cially like to thank Steven Casper, Anthony Ferner, Henrik Glimstedt, Glenn
Morgan, Valeria Pulignano, Carlo Trigilia, Richard Whitley, and Erik Wright.
We are likewise extremely grateful to those friends and colleagues who
commented on draft papers and chapters, especially Finn Borum, Alex
Bowie, Luigi Burroni, John Mathews, Philippe Pochet, David Soskice,
David Stark, Josh Whitford, and Mira Wilkins. We also want to thank
those who shared with us their own unpublished drafts and research mater-
ials, especially Dong-One Kim, Patchen Markell, and Ken Mericle. Gary
Herrigel and Chuck Sabel read the entire manuscript—some parts several
times—and gave us more valuable criticism and advice than we were fully
able to integrate into our revisions. We would also like to thank three
anonymous reviewers for their careful critical reading of the manuscript,
and we respond in the Preface to some of the methodological issues
they raised. Responsibility for any remaining shortcomings is naturally our
own.
During the course of this project, we have received great support from our
respective departments and institutions. We would particularly like to thank
Marianne Risberg of the Institute for Organization and Industrial Sociology
at the Copenhagen Business School for assistance in arranging workshops,
seminars, and meetings, as well as for facilitating our communication by
revising Peer’s English drafts. We also want to thank Darya Vassina of the
European Union Center and the Industrial Relations Research Institute at the
 Acknowledgments xi

University of Wisconsin-Madison for help with the Bibliography and the

preparation of the manuscript more generally.
At Oxford University Press, David Musson has warmly encouraged this
project from the outset, and we are grateful to him and his colleagues for
their helpful advice and support.
Our families deserve the greatest appreciation for putting up with our
numerous absences and ongoing preoccupation during the many years this
book has taken us to research and write, as well as for welcoming each of us
into the other’s home and forging strong bonds of affection between our own
small worlds.
 PREFACE: SMALL WORLDS OF GLOBALIZATION

What do Horsens (Denmark), Lake Mills (USA), and Eastbourne (UK) have
in common? At first glance, there might appear to be no meaningful connec-
tion between a medium-sized industrial/commercial center in eastern Jut-
land (population 56,000), a small semi-rural factory town in south-central
Wisconsin (population 5,000), and a seaside resort on the south coast of
England (population 90,000). Yet as we discovered in the course of our
research for this book, all three of these communities were historic centers
of food, drink, and dairy processing equipment manufacture, home to
prominent local firms with proud records of technological innovation and
international trading, whose origins could be traced back a century or more.
Each of these firms, as we also learned, was deeply embedded in its home
community through a multiplicity of ties, not only to employees and their
families, but also to other local actors and institutions, such as component
suppliers, vocational training schools, trade unions, and municipal govern-
ments. These leading local firms both depended on their home communities
for a variety of critical resources and served as gateways for the latter to the
wider national and world economy.
During the 1970s and 1980s, however, each of these communities’ flagship
firms was transformed into a subsidiary of the same British-owned multi-
national corporation, APV. This London-based company, itself a long-
established producer of food- and drink-processing systems, had expanded
through mergers and acquisitions to become the world’s largest manufac-
turer of such equipment by the late 1980s, with nearly £1bn in sales and some
15,000 employees on five continents, mainly in Europe and North America.1
These formerly independent firms were by no means total strangers, having
competed directly or indirectly with one another and APV itself in markets
abroad and at home over many decades. But now the Horsens, Lake Mills,
and Eastbourne subsidiaries found themselves simultaneously collaborating
on company-wide projects and contending alongside other APV units, some
home-grown and others recently acquired, for product mandates, capital
investment, and coordinating authority from the London headquarters
(HQ). In this way, not only these firms themselves, but also the local
communities to which they belonged, became more closely linked to one
1
Readers will find a detailed presentation of APV’s historical development, organizational
structure, and operational scope in Chs 2 and 6 below.
 Preface xiii

another, their fortunes bound up with the subsidiaries’ struggle for position
within the multinational corporation.
None of this may seem especially remarkable to anyone familiar with
recent debates over globalization. Are not the compression of spatial dis-
tance, the intensification of cross-border interdependencies, and the ascend-
ancy of mobile capital over immobile labor and communities all defining
features of the globalization process, which has been so widely discussed by
popular and academic commentators alike over the past two decades? Per-
haps so. Yet as we investigated the relationship between these three local
subsidiaries and APV’s corporate HQ, a more complex picture of the multi-
national began to emerge, provoking a series of novel and disconcerting
questions. What happens when a number of previously autonomous firms
from different countries, each with their own historically constituted iden-
tities, routines, and capabilities, come together inside a single multinational
corporation (MNC)? And what happens when each of the participants in this
new global game, including top management at the corporate HQ, starts to
play by the rules of their national business systems, mobilizing local allies and
resources to defend and advance their position within the MNC? Can a
unified cooperative game be established that positively advances the devel-
opment of the multinational as a whole, and if so through what organiza-
tional mechanisms? Or may mutual misunderstandings and the unintended
consequences of strategic interaction among the players lead instead to
endemic conflict and disintegration? The answers to such questions, as we
discovered once we began to confront our case study of an ‘actually existing’
multinational with the wider scholarly and managerial literature, are surpris-
ingly hard to determine theoretically, and pose a profound challenge to
established views not only of the MNC but also of the globalization process
more broadly.
The evolution of our study mirrors in striking ways that of its subject,
both intellectually and practically. By the early 1990s, both authors had
been working for many years separately (and in collaboration with
our mutual friend Charles Sabel) on the historical development, internal
dynamics, and innovative capabilities of industrial districts or regional
clusters organized around flexibly specialized networks of small and
medium-sized firms.2 Hence the two of us met occasionally at international
gatherings of researchers and policy practitioners convened to discuss these
issues.3
2
See for example Sabel and Zeitlin (1985); Kristensen (1992b); Zeitlin (1992); Kristensen
(1995a, b); Zeitlin (1995); Sabel and Zeitlin (1997a, b); Kristensen and Sabel (1997).
3
Notably the industrial districts research program organized by the ILO’s International Institute
for Labour Studies: see Pyke et al. (1990); Pyke and Sengenberger (1992).
xiv Preface

At one such gathering, held improbably in a lotus-shaped conference

center on the grounds of the Futuroscope advanced media park outside
Poitiers, France,4 Peer passed on to Jonathan a recent paper on the strategic
initiatives of local actors at a Danish manufacturing plant that he had been
studying on and off for nearly a decade (Kristensen 1994; Kristensen and
Petersen 1993; Kristensen 1986). This plant had undergone a far-reaching
restructuring during the early 1980s from a functional to a product-based
layout, in which small groups of skilled workers integrated multiple tasks on
modern computer-controlled machinery, while complementary parts were
subcontracted to a dense network of specialized local suppliers. The result
was a highly flexible organization in which many types and variants of
pumps, valves, and fittings could be manufactured in small batches to
customer specifications with low overheads and short lead times. In the
late 1980s, however, the dairy equipment group to which the plant belonged
experienced large losses due to setbacks in international markets, and was
put up for sale by its owner, a Danish holding company. Drawing on a variety
of local institutional resources, from statutory codetermination rights to
labor investment funds, the convener of shop stewards5 helped to ensure
that the group was bought by a British multinational rather than a rival
foreign company that would have been more likely to close the plant down as
a dangerous competitor. In alliance with the union convener, the new
managing director, who had overseen the Danish plant’s earlier reorganiza-
tion as production manager, utilized the flexibility of its internal workforce
and external suppliers first to block the efforts of another foreign subsidiary
of the British MNC to take away its customers and then to win a company-
wide competition to manufacture a new generation of pumps.
As described in Peer’s paper (Kristensen 1994), the MNC’s arm’s-length
management style, based like that of many British companies primarily on
financial accounting performance criteria, appeared paradoxically to have
enhanced the Danish local actors’ scope for pursuing autonomous strategies.
So long as the plant produced good financial results, the parent firm seemed
unlikely to interfere in its affairs, and might even be prepared to sanction new
investment in both physical and human capital. While the collaboration of
local suppliers and institutions such as municipal vocational training schools
proved a crucial resource for the plant in its struggle for position within the

4
The proceedings of this conference, organized in 1993 by the Observatoire du changement
social en Europe occidentale of the Fondation pour la prospective et l’innovation, were published in
French and English as Bagnasco and Sabel (1994, 1995).
5
In Denmark, where multiple unions are often present in the same plant, members of each union
elect shop stewards (Tillidsreprœsentanter), who in turn select a convener (Fœlles-tillidsmand) to
negotiate with management on general issues concerning them all.
 Preface xv

multinational, so conversely the plant enabled its local partners to gain access
to the global internal market of the parent multinational from which the
latter would otherwise have been excluded. In this way, Peer’s study sug-
gested that the wider industrial district to which the Danish plant belonged
had been making ‘local use of global networks’, since workers, managers,
suppliers, and the municipality were all in various ways exploiting its take-
over by the British MNC to further endogenous development. This finding
struck us as extremely important, because it undercut current arguments
about the negative impact of globalization on industrial districts (e.g. Amin
and Robins 1990), while at the same time offering new and potentially
promising tools for the latter’s revitalization.
Beyond its general theoretical and policy implications, Jonathan was in-
trigued by one particular aspect of Peer’s story: his account of the positive role
played by the arm’s-length management style of the Danish plant’s new British
multinational owner. For Jonathan was also deeply engaged with historical
and comparative debates on the performance of British manufacturing firms,
where the very same management style—especially their heavy reliance on
financial accounting criteria for investment decisions—was widely regarded
as a major contributory factor in national industrial decline.6 Inquiring into
the identity of the British MNC—which had remained anonymous in Peer’s
paper—Jonathan discovered a startling coincidence: he himself had recently
visited another plant owned by the same company, just thirty miles from the
University of Wisconsin-Madison, where he was now teaching after a long
academic sojourn in the UK. And like the Danish plant Peer had studied, the
Wisconsin APV facility, which Jonathan had visited along with a small
delegation of European trade unionists organized by the university’s Indus-
trial Relations Research Institute, was also involved in ambitious experiments
with work reorganization and ‘win–win’ bargaining, orchestrated primarily
by local actors, including its Labor Relations Manager, a former union presi-
dent. The new world of globalization seemed small indeed.7 This unexpected
tie between the two plants raised fascinating questions for us about their
relationship both to the parent multinational and their local environments.
A comparison between the ability of local actors in the very different social and
institutional settings of Denmark and the United States to foster endogenous
development through participation in global networks seemed especially
interesting in light of the emerging literature on divergent national business
systems, behind which Peer was a prime mover.8
6
See for example Williams et al. (1983); Armstrong (1987); Hirst and Zeitlin (1989).
7
For a theoretical discussion of ‘small-world networks’ in which apparently remote clusters of
individuals are connected through a few common ties, see Watts (2003).
8
See for example Whitley (1992); Kristensen (1995b); Whitley and Kristensen (1996, 1997).
xvi Preface

This was too good a research opportunity to pass up. In the spring of 1995,
Jonathan therefore arranged for Peer to come to Wisconsin to conduct a joint
field study at APV’s Lake Mills plant. With the Labor Relations Manager
smoothing our path, we were able to interview a wide range of workers,
managers, and white-collar employees at all levels across the plant’s various
functional departments and product-focused business units, followed up
through several return visits over the next few years. From these interviews
we learned that the Lake Mills plant had undergone in the early 1990s a
similar reorganization to that experienced by APV’s Horsens plant a decade
earlier, in which product-based cells replaced the previous functional layout
and a ‘just-in-time’ component supply system was introduced. By agreement
between local managers and unions, a ‘pay-for-knowledge’ system was also
implemented, based on extensive cross-training and task rotation, which
drastically reduced the number of job classifications.9 As at Horsens, such
reforms enabled the Lake Mills plant not only to cut costs, but also to
improve deliveries, upgrade quality, and accelerate the development of new
products. Like Horsens, too, if somewhat more modestly, the Lake Mills
plant was therefore able to enhance its competitive position within the MNC,
bidding successfully for work from group facilities which had been closed,
winning the right to participate as a junior partner in the manufacture of a
new generation of pumps, and becoming the corporate leader for a new
family of locally developed ice-cream freezers.
As at Horsens, moreover, the reorganization of Lake Mills was primarily
the work of local actors. Cellular manufacturing, just-in-time component
supply, job rotation, and other related reforms were introduced by local
managers without explicit support from higher levels of corporate authority.
Although the blue-collar workforce was initially divided about the pay-for-
knowledge system, local union officials played a key part in its negotiation,
implementation, and subsequent evolution, maximizing training opportun-
ities, persuading recalcitrant workers to rotate, and resolving grievances
arising from the system’s operation. Compared to Horsens, the interdepend-
ence between the Lake Mills plant and its local environment was less intense.
The Wisconsin plant was historically much more vertically integrated than
its Danish counterpart, and much of the performance improvement of the
mid-’90s was directed towards bringing back in-house parts production
outsourced a few years earlier to smaller non-union shops paying lower
wages. Unlike at Horsens, too, most further training at Lake Mills took
place within the plant rather than through participation in external courses
9
In a pay-for-knowledge system, workers’ wages are based on the tasks they are capable of
performing, rather than the job they are actually doing at any given moment. For further explan-
ation, see Ch. 4 below.
 Preface xvii

at municipal vocational training schools. Yet on closer inspection, the social

and institutional resources of the local environment turned out to have
contributed significantly to the restructuring of the Lake Mills plant in
other ways. The plant had long been regarded as the best place in the area
to work, and the absence of comparable employment opportunities nearby
both motivated workers to participate actively in reforms aimed at safe-
guarding its future and reassured management that investments in employee
skills would not be appropriated by competitors. The seniority provisions of
the local union contracts, backed up by legally enforceable grievance arbitra-
tion procedures, also provided a powerful incentive for both sides to pursue
greater flexibility by expanding the skills and versatility of the existing
workforce.
From the perspective of the local actors at both plants, the MNC head-
quarters and its regional/product divisions appeared to have played little
positive role in the restructuring processes and initiatives on which their
survival depended. As a loss-making unit, the Lake Mills plant had attracted
closer attention from the London HQ than its Horsens counterpart, largely
of a negative kind, while requests for new capital investment and increases in
headcount at both plants were tightly controlled from the center. Managerial
turnover in both cases had been high, and lines of communication with the
MNC HQ had been in flux for several years as a result of ongoing efforts to
rationalize the diverse and overlapping portfolio of companies acquired
during the 1970s and ’80s. Viewed from below, the parent multinational
thus resembled a distant Gulliver surrounded by dense fog, seeking to govern
the Lilliputians at his feet with a limited set of rather blunt instruments.
Our research at Horsens and Lake Mills raised a new series of intriguing
questions about the strategies and organization of their multinational parent.
How did APV’s top management conceive the evolving relationship between
the MNC headquarters, the regional and product divisions, and the local
operating units? To what extent did the London corporate center see itself as
pursuing explicit strategies to promote plant-level restructuring, and how far
was it content to rely on financial targets and disciplines, leaving the operat-
ing units to find their own solutions? Was its arm’s-length management style
consciously intended to foster plant-level experimentation, and had the HQ
developed a more sophisticated system for monitoring developments at the
operating units beyond its apparently stochastic interventions? Did London
have any means of learning from these local experiments? How far and in
what ways was APV seeking to foster collaboration between operating units
manufacturing related products in different countries, and where was res-
ponsibility for such initiatives located? To what extent had APV’s top
management come to regard its subsidiaries in countries like Denmark as a
xviii Preface

means of tapping into the resources of the local environment—such as the

technical capabilities of the Horsens supplier network—which might other-
wise be difficult to access externally?
To explore such questions, we needed to gain access to APV’s London HQ.
And here again, we followed the emergent social and personal ties linking
local actors inside the global firm. As we shall see in subsequent chapters,
people from Horsens had risen during the mid-1990s to prominent positions
within APV’s worldwide organization. One of these managers, whom Peer
had known since his original research on the restructuring of the plant in the
early 1980s, arranged an invitation for us to conduct a brief field study at the
MNC’s London HQ in January 1997. There we were permitted not only to
interview top managers and their staff in some depth but also to read key
strategic planning documents and consultancy reports dealing with succes-
sive efforts to reorganize the entire MNC going back to the early 1990s.
From these sources, we began to realize that far from having resolved its
own structure, the multinational we were investigating was rather in a state of
continuous experimentation where it was not at all clear who directed whom.
A far more complex game than the one we had originally anticipated between
subsidiaries and headquarters was taking place. The HQ itself was riven by
endemic struggles over power and authority, in which individual managerial
ambitions, strategic disagreements, and functional conflicts (between sales,
engineering, manufacturing, and finance) were all closely intertwined. At the
same time, moreover, an intermediate layer of strategic business units (with
responsibilities for up to 25 subsidiary plants around the world) appeared to
be playing an increasingly significant role within the global game of the
MNC. From our researches we learned that Danish plant managers had
succeeded in winning control over many of APV’s major SBUs. This ‘Danish
mafia’ had thus acquired effective influence over much of the multinational’s
‘operational core’, while leaving financial management and relations with
institutional investors, fund managers, and stock market analysts to the
London headquarters. Instead of a well-informed HQ pulling the strings of
a global enterprise, our field interviews led us to conclude that APV’s top
management possessed only a rather limited knowledge of the individual
plants comprising their far-flung empire.
Inspired by questions about home- and host-country effects arising from
the national business systems framework, we also wanted to study an APV
subsidiary based in the UK itself. Through the auspices of one Danish SBU
manager, we were allowed in January 1997 to conduct a detailed field study
of a pump plant in Eastbourne belonging to his global fluid handling
business. There we discovered that APV’s London headquarters had little
practical knowledge about what was happening not only in its foreign plants,
 Preface xix

but even in its domestic subsidiaries. In Eastbourne, as at Horsens and Lake

Mills, we found a hive of innovation in products, processes, and work
organization, but the interaction between the plant and the corporate head-
quarters seemed no closer or more intimate than in Denmark or the US.
From the perspective of the local actors in Eastbourne, their key reference
point in the corporate game was not the London HQ, but rather the Danish
SBU manager to which the plant reported.
It therefore became apparent that to understand how APV was actually
controlled and coordinated, we would need to learn more about the inter-
actions among SBU managers. Initial inquiries suggested that discontent
with the functioning of the multinational had led some SBU managers—
including but not confined to the ‘Danish mafia’—to seek improvements in
its global structure as a means of fostering the continuous development of
the local plants. Thus paradoxically it seemed at this stage of our research to
be local managers who also held the key to improvements in global coordin-
ation and cooperation within the MNC.
But before we could carry this line of investigation further, APV itself was
taken over in May of 1997 by a larger British engineering group. As a result,
we were obliged to suspend our field work, though we continued to keep in
touch with some of our local informants. This enforced break in primary
data collection pushed us to reflect more deeply on two more fundamental
issues raised by our preliminary findings. We began to reconsider the nature
of the multinational corporation and the processes through which it comes
into being; and we likewise began to reconsider what is actually involved in
managing, controlling, and coordinating such an enterprise. Having previ-
ously spoken ironically of ‘Gulliver befogged’, we were struck by a new
humility in contemplating the immense challenges of turning the MNC
into a coordinated actor at all.
These reflections led us in two complementary directions. The first was
towards an historical reconstruction of the multinational’s development.
From our research we learned that the story was not simply one of the
shark eating the smaller fish, since each of the three local subsidiaries in
different ways had joined APV as a result of its own deliberate strategic
action. Thus we knew that the construction of this MNC had to be inter-
preted as the outcome of many independent strategic actors’ search for
solutions to varied local problems rather than as the unfolding of a grand
design pursued by a single global player. But we also wanted to understand
the strategic choices involved in joining or creating the multinational in
terms of the long-term evolution of each of these formerly independent
firms. For this we needed to supplement our field interviews with additional
evidence about the historical development of each of the four ‘local players’.
xx Preface

Fortunately, with the help of our local informants, we were able to collect a
small but sufficient body of primary and secondary materials on each of the
four firms, including published business histories of the Creamery Package
Company, the Lake Mills plant’s original owner (Godfrey 1937), and the APV
Group itself (Dummett 1981). From 1982, moreover, we could follow the
development of APV in considerable detail through the online archives of the
Financial Times and other British periodicals (electronically searchable
through Lexis/Nexis) which covered the group’s affairs regularly as a major
public company listed on the London stock exchange. These historical
materials not only revealed four quite distinct evolutionary patterns of
business development, but also provided a vital clue as to why one player
had eventually become the headquarters and the other three subsidiaries. The
answer to this puzzle turned out to depend not on any competitive superior-
ity in product markets, technology, or production processes, but rather on
relationships with financial institutions. This discovery in turn prepared the
ground for a clearer understanding of the strategic interactions among the
four players once they had become part of a single MNC.
The other new direction was towards a more systematic engagement with
the existing literature on the multinational corporation, both classic and
contemporary. Only then did we come to realize how exceptional our
empirical material really was. For there were few studies that looked at the
MNC from the ‘bottom up’ as well as the ‘top down’, and fewer still that
could match ours in terms of detailed observations across multiple organiza-
tional levels and geographical sites over a sustained period of time. And with
good reason. In constructing our study to focus on the relationship between
a multinational headquarters and three subsidiaries within the same division
from different countries (including the MNC’s home country), we were
following a logic of inquiry grounded in current debates about the impact
of globalization on local economies and national business systems. But it
would have been practically impossible to design such a study in advance of
the opportunities and contacts that emerged during the course of the re-
search itself, in terms of both the range and degree of access we were able to
achieve within the multinational, and the prior contextual knowledge we
brought to the project from our own earlier work on these issues in Den-
mark, Wisconsin, and the UK.10
Our study has evolved from the conviction that it is important to get the
details right and find coherent ways of recounting them that do not violate
the actors’ own efforts to make sense of their experience. In order to
10
For an insightful discussion of the crucial role of personal contacts in securing research access
to the upper echelons of large corporations even in a purely domestic setting, see Morrill (1995:
229–55), app. A: ‘Anatomy of an Ethnography of Business Elites’.
 Preface xxi

accomplish this task, field researchers must engage in extended contact with
their subjects, so that the actors’ self-understanding can counterbalance the
scholar’s theoretical assumptions. Such detailed analysis and extended ex-
change with multiple actors are particularly essential in a field where it is
widely accepted that there are more generalities than empirical research and
where some of the most influential studies have been sharply criticized for
drawing their findings from headquarters interviews only and accepting top
management’s views at face value.11
But do the serenditipitous origins of our case study and the exceptional
detail of the research limit the possibilities of generalizing from it theoretic-
ally and empirically? We believe not, provided that the case material is
handled intelligently, and have followed two complementary strategies in
this book to maximize its analytical impact. The first is theoretical: by
carefully confronting the organizational strategies and mechanisms for the
coordination and control of the multinational proposed in the managerial
literature with the experience of APV, we can assess their effectiveness in
meeting the challenges of running an actually existing MNC. APV functions
in this respect as a limiting case, capable of demonstrating the inadequacy of
standard models of multinational management, whether or not its experi-
ence can be taken as representative of other global firms. Our second strategy
is comparative: we draw on wide reading of the secondary literature on
HQ–subsidiary relations to situate APV in relation to other multinationals,
in order to highlight both common and distinctive features, and identify
alternative approaches to the coordination and integration of MNCs that
might contribute to overcoming the problems observed in our case. We
conclude from our reading of this literature that much of what we observed
at APV (and at its successor Siebe/Invensys, examined in the book’s final
chapter) is in fact fairly typical of Anglo-Saxon MNCs with subsidiaries in
developed countries that have grown through mergers and acquisitions.
This conclusion suggests in turn some empirical qualifications to our
ability to generalize from the APV case. One concerns the applicability of
our analysis to MNCs that have grown organically through new greenfield
investments. Recent studies show that cross-border mergers and acquisitions
have become the predominant form of MNC growth, accounting for three-
quarters of all foreign direct investment between 1988 and 1998 (Wortmann
2001a: 2, 2001b, 2000). But even in the case of organic multinational growth,
the burgeoning literature on subsidiary initiatives and product mandates
discussed at greater length in subsequent chapters demonstrates that similar
11
See, for example, the trenchant critique by Bélanger and Björkman (1999: 249) of the
presentation of ABB as a trendsetting multinational by prominent management scholars such as
Ghoshal and Bartlett (1995) and Peters (1992).
xxii Preface

processes of autonomous strategizing by local actors are likely to emerge over

time at greenfield sites.12 A second qualification concerns possible differences
between APV and MNCs from national business systems organized along
contrasting lines such as those of Germany or Japan. The key point here,
which is consistent with our broader argument, is that MNCs from these
countries face similar problems of integrating and coordinating subsidiaries
based in other national business systems to those experienced by APV, but
may bring to them different orientations and resources, based on their own
past histories and institutional contexts. Moreover, insofar as MNCs from
other national business systems may be adopting or borrowing selectively
from Anglo-Saxon practice, our analysis of the APV case has broader rele-
vance for them as well.13 A final qualification concerns the range of host
countries in which the MNC subsidiaries we analyze are located. Clearly, our
study deals with the interaction between MNCs and subsidiaries in demo-
cratic polities that provide various forms of institutional support for em-
ployee rights (though these differ widely across the three cases of Denmark,
the US, and the UK), rather than in developing countries with failed states
and/or authoritarian employment regimes. Although parallels could doubt-
less be drawn with the emergence of independent MNC subsidiary capabil-
ities in various East Asian economies,14 these fall beyond the scope of this
book.

12
See for example Birkinshaw and Hood (1998); Birkinshaw (2000).
13
On variations in organization and coordination patterns across MNCs from different national
business systems, see Whitley (2001); Lane (2001); Ferner (1996). On adaptation and selective
borrowing from Anglo-Saxon practices by German multinationals, see Ferner and Quintanilla
(1998); Ferner and Varul (1999, 2000). For the distinctiveness of US multinationals even in relation
to their UK counterparts, see Edwards and Ferner (2002); Colling and Clark (2002); Ferner
(forthcoming).
14
For the suggestive case of hard disk drive production in Singapore, see Wong (1997).
 1
Introduction: Multinational
Corporations as Lead Agents of
Globalization?

1. Multinational Corporations vs Industrial Districts?

During the final decades of the twentieth century, international discussions

of industrial organization and competitive dynamics focused particularly on
two striking developments. On the one hand, industrial districts or regional
clusters of smaller firms gained ground in many market segments against the
large, vertically integrated corporations that had been seen as templates of
industrial modernity in the previous period. Such districts or clusters, it was
widely argued, could achieve exceptional productive flexibility and continu-
ous innovation without substantial cost penalties through external econ-
omies of scale and scope arising from a fluid division of labor among many
geographically localized enterprises specialized in complementary phases of a
single industrial sector.1 On the other hand, and seemingly in deep contra-
diction to the first development, large multinational corporations expanded
their global reach, while simultaneously focusing on a narrower range of core
businesses, in which they sought to control, if not necessarily to own, as
much of the value chain as possible. As these giant firms reallocated their
various activities around the world in search of cost and efficiency gains, they
set off a new wave of rapid economic internationalization. By integrating a
growing share of cross-border investment, production, and trade within their
boundaries, MNCs increasingly came to be viewed as the lead agents of the
globalization process.2
At first, research on each development largely ignored the other. But as
they came into closer contact, researchers on both multinational corpor-

1
Among the vast literature, see especially Piore and Sabel (1984); Sabel (1989); Pyke and
Sengenberger (1992); Porter (2000).
2
For overviews of this even vaster literature, see Dicken (1998/1986); Chesnais (1997/1994);
Held et al. (1999: ch. 5).
2 Introduction

ations and industrial districts often postulated that the two were on a
collision course. Thus, for example, Amin and Robins (1990) and Harrison
(1994) presented MNCs as a menace to the industrial districts of the ‘Third
Italy’, arguing that foreign acquisitions of key local companies would destroy
the informal collaborative ties among specialists that had underpinned these
districts’ innovative capabilities and historic success in world markets.3
But as some participants in this debate quickly recognized, MNCs could
also be viewed as potentially complementary to existing industrial districts or
regional clusters of firms, between which a variety of hybrid forms could be
envisaged.4 From this perspective, the multinational corporation might
appear as a valuable organizational device, which could help to solve many
of the problems currently facing locally based business enterprises. If a
previously independent firm within an industrial district were to calculate
its gains from seeking membership in a multinational group, these might
look very promising indeed.
First, most MNCs provide their subsidiaries with a centralized headquar-
ters, staffed by professional managers and accountants, who are better able
than smaller independent firms to deal with international financial markets
and institutions, and can thereby secure easier access to low-cost capital for
investment and growth.
Second, by maintaining a more diversified product portfolio and spread-
ing their activities across multiple markets, MNCs are often able to compen-
sate for the radical fluctuations that each of its more narrowly specialized
constituent firms may experience. Thus membership in an MNC may be seen
as a form of insurance against the increasing volatility that has come to
characterize most product and factor markets.
Third, since many MNCs have internalized large sections of industrial
markets through greenfield investments and mergers and acquisitions,
joining a leading multinational group often appears the best option for
independent firms wishing to expand their sales to these customers. In so
doing, moreover, such ‘flagship firms’ (Rugman and D’Cruz 2000) might
help in turn to open up the internal market of the MNC to their own
suppliers, thereby expanding the global reach of the industrial district or
region in which they are rooted.
Fourth, by operating across a multiplicity of different regional labor
markets characterized by wide variations in skills and wages, MNCs create
new possibilities for member firms to cultivate their own distinctive com-
3
For a recent case study in this vein, focused on the mechanical engineering cluster of Jæren in
southern Norway, see Asheim and Herstad (2003a, b).
4
See, for example, Sabel (1989); Hirst and Zeitlin (1991); Zeitlin (1992); and for a revised
formulation, Sabel (2002).
 Introduction 3

parative advantages without losing access to complementary assets and

competencies. Each subsidiary may thereby improve its ability to develop
in a way suited to the resources and comparative advantages provided by its
regional labor market. This not only enhances short-term cost effectiveness,
but also provides access to a wide variety of capabilities and skills across
member firms that may yield highly innovative combinations in the long
run, and help the MNC as a whole to cope more effectively with the pervasive
technological and commercial uncertainty of the current world economy.
Fifth, the internal diversity of the MNC gives each of its member firms
access to a multiplicity of cognitive perspectives and problem-solving app-
roaches. Hence the MNC can be seen as a reservoir of tacit knowledge that
can stimulate a learning process among its subsidiaries, capable of leading
not only to breakthrough innovations in some cases, but also to continuous
improvement of existing products and processes. Such continuous improve-
ment processes, moreover, may benefit not only the employees of the
member firms themselves, but also their local suppliers, thereby helping
to modernize entire regional economies or industrial districts. Thus the
MNC may become a vehicle for giving smaller firms and localities practical
access to the developmental capabilities of the wider world.
In this way, MNCs might be seen by the small firms of an industrial district
as a promising form of organization that could help to protect them against
some of the many perils posed by the contemporary world economy, while
simultaneously giving their host regions access to a vastly enlarged innovative
potential. On the other side, an MNC that buys into a number of different
industrial districts by acquiring local firms thereby gains access to an abun-
dance of practical know-how and skills, which it may then put to good use
for all its existing subsidiaries. Gunnar Hedlund (1999) has advanced a
visionary conceptualization of the MNC as a Nearly Recomposable System
or ‘heterarchy’ that combines and recombines local knowledge on a global
scale, turning the MNC into a worldwide laboratory for innovation. At least
in a few cases, moreover, the possibility of such a symbiosis has been
empirically supported. Thus, for example, Fiorenza Belussi (2003) found
that foreign MNCs which purchased key local firms in the Montebelluna
district of north-east Italy, a world leader in winter sports footwear and
equipment, increased their competences and role in both production and
R&D, while also stimulating a parallel movement towards enhanced inter-
nationalization and competitiveness among indigenously owned companies
and their suppliers.
In studying whether and how the global hierarchy of one particular
multinational might have served the development of its local subsidiaries
and their home communities, we made a number of surprising observations.
4 Introduction

These observations, though based on a single case study, raise more general
questions about MNCs’ ability to foster mutually beneficial synergies among
their constituent units, while at the same time challenging established theor-
etical views of such firms’ economic rationality and organizational effective-
ness. Elaborated at greater length in subsequent chapters of this book, these
observations may serve to illustrate the empirical challenge and resulting
need for a better understanding of MNCs’ organizational problems, the
difficulty of overcoming them, and the implications of both for the process
of globalization, which seems more self-contradictory and uncertain than is
often claimed.5
As explained in the Preface, our initial observations of a Danish subsidiary
of APV, a British engineering group which had become the world’s largest
manufacturer of food- and drink-processing equipment through a series of
mergers and acquisitions at the end of the 1980s, seemed to confirm that an
MNC could in fact play such a mutually beneficial role for a local firm and its
home district (Kristensen 1994). But the Horsens plant did not gain these
benefits simply by becoming a member of the multinational. It obtained
them by strategizing autonomously in a highly intelligent way and playing a
rather subversive game which took advantage of multiple and contradictory
lines of authority within APV. A strategic business unit based in Germany
was supposed to coordinate the plant’s marketing and technological activ-
ities; a Danish holding company was to control its financial performance;
and the London headquarters retained ultimate authority over all investment
decisions. By mobilizing local suppliers, exploiting domestic vocational
training institutions, and changing its own internal work organization, the
Horsens plant could undermine its assigned role and serve its new owner in a
very innovative way that also improved its position within APV. This subver-
sive strategy enabled the Danish subsidiary to reduce lead times for its pumps
and valves drastically, while also tailoring them more closely to customer
requirements. The resulting innovations enabled APV as a whole to supply
turnkey food-processing plants to tighter deadlines than most of its multi-
national competitors. In a similar way, APV’s subsidiary in Lake Mills,
Wisconsin had likewise initiated an autonomous process of work reorganiza-
tion and workforce upskilling, resulting in radical improvements in the
plant’s ability to develop and introduce new products.
Had we anticipated, following the new view of MNCs advanced above,
that APV’s London headquarters was deliberately pressuring its various
subsidiaries to innovate in order to reveal their organizational capabilities

5
For a preliminary discussion of the generalizability of our case study and its limits, see the
Preface, pp. xii–xxii.
 Introduction 5

and those of their home districts, such expectations were quickly disap-
pointed. Surprisingly, the HQ only had a very diffuse knowledge of these
subsidiaries’ innovative projects, the ensuing shifts in their positions within
the multinational, and how APV could make best use of their contributions
in terms of its own global strategies. This apparent ignorance had something
to do with differences in language. Headquarters and subsidiaries spoke in a
polyphony of voices and terminologies, making it much more probable that
they would experience a centrifugal enlargement of distance than a centri-
petal move towards a mutual recognition of legitimate diversity. Subsidiaries
spoke of progress and development in terms of technological innovation and
improvements, recounted as narratives that also integrated the biographies of
significant persons. Headquarters drew instead on the generalizing idioms of
management journals and MBA programs for global and financial managers,
becoming truly specific only when dealing with the expected behavior of
major investors and the stock market.
It would be misleading, however, to interpret this difference in language
and perspectives as confirming the expected view that the HQ was pursuing a
global vision of global issues, whereas subsidiaries focused instead on local
technical and personal concerns. The headquarters spoke the local language
of nearby business schools, consultancy firms, and other MNC HQs scattered
around the metropolis, while the financial markets could easily be monitored
through everyday relations and gossip as the City of London was part of the
neighborhood. And it would have been foolish if not dangerous for individ-
ual executives from the London HQ to try to learn the language spoken in
subsidiaries. Top managers’ careers and positions within the HQ depended
primarily on their participation in the construction of a discourse capable of
convincing boards of directors, financial analysts, fund managers, and insti-
tutional investors that the firm’s actions were beneficial to shareholders and
represented the most advanced strategic maneuvers of the day. Contributing
to the ongoing construction of this discourse would determine such man-
agers’ future careers, not only in the HQ, where they were currently
employed and could easily wind up being fired as scapegoats for past failures,
but also in the larger district/cluster of MNC HQs, financial institutions, and
consulting firms. These were organizational nodes of a labor market in which
corporate executives had to change jobs, often very frequently. Paradoxically,
HQ managers were therefore reluctant to leave London to acquire deeper
knowledge of the subsidiaries. It would be a waste of time for them, which
might also jeopardize their opportunities for promotion.
The knowledge and the language deployed in the subsidiaries, on the other
hand, carried strikingly international connotations. When employees in the
subsidiaries recounted the firm’s victories, these were measured against the
6 Introduction

rival technologies of leading competitors, wherever they might be located in

the world. And when individual biographies were incorporated into these
tales, they involved persons from many continents. The detailed knowledge
about which persons around the world were believed to be most qualified for
a particular job in any project shows that the geographical scope of assess-
ment and cooperation was indeed global. The sense of rivalry and competi-
tion was also high in the subsidiaries, but focused on other APV subsidiaries
or on competitors belonging to other MNCs. Both ordinary employees and
managers were highly informed about how well they performed compared to
similar units, whether nearby or far away.
We found among some subsidiaries a high global mobility extending
down to skilled blue-collar workers, who participated in a shifting array of
projects across multiple continents, and many employees in the subsidiaries
had proposals about how synergies could be created across the different
national constituent firms of the MNC. But they lacked the social and
organizational space for communicating this information, since such
detailed concrete knowledge could not be conveyed and understood within
the language of the headquarters. In this way, the HQ seemed both to restrict
the range of variance among its subsidiaries’ comparative advantages and the
possibilities for innovative cross-fertilization between them.
Thus it seemed as if some of the advantages that an independent firm from
an industrial district might hope to gain by becoming an MNC subsidiary
were mutually contradictory. Both the language spoken and the internal
power game within the London HQ appeared to depend on proficiency in
local interactions with City institutional investors and financial analysts. But
such proficiency in playing these local games appeared to undermine HQ
managers’ ability to discover the subsidiaries’ innovative capabilities, making
it difficult if not impossible for the MNC to cultivate their comparative
advantages, promote cross-fertilization between them, and stimulate mutual
learning across regions and nations.
Instead, we discovered that the HQ had often followed the idioms of
current business thinking, seeking to please their interlocutors in the London
financial district, and imposed decisions on its subsidiaries that produced
huge unanticipated costs. One example is particularly striking. Inspired by
the fashionable trend in strategic management for downsizing non-core
activities, APV’s London headquarters instructed its Lake Mills subsidiary
to lay off some 25 per cent of its blue-collar employees. Because of strong
seniority rules in the plant’s collective bargaining agreement, a high-seniority
worker could ‘bump’ from his or her job any worker with lower seniority,
and so on down the line. A veritable chain reaction was triggered until the
layoffs reached a group of recently recruited young machinists whom
 Introduction 7

the subsidiary had recently trained on computerized equipment at high cost.

In short the layoffs fell on the holders of exactly those competencies that the
subsidiary considered vital for its future core activities. Only by ‘farming out’
a large part of its production to external suppliers at premium prices could
the plant fulfill urgent orders for key parts from internal customers elsewhere
within the MNC. Thus membership of the MNC in this case led to the
creation of volatility, destruction of skills, loss of strategic assets, and add-
itional needs for liquid capital, while very few of the potential benefits
seemed to have been achieved. In this way the HQ engineered a loss with
double consequences. It first lowered current earnings and other perform-
ance benchmarks, which then contributed to a fall in the company’s share
price, raising the cost of the capital needed to repair the damage. Our
observations revealed many such vicious circles, casting doubt on the under-
lying economic efficiency and organizational effectiveness of the MNC, as
well as on its broader capacity to serve as the lead agent of the globalization
process.

2. The Construction of MNCs in the Current Globalization Debate

In this book, we examine the constitution of the lead agents who are believed
to be driving globalization. We do this by tracing the historical construction
of an ‘actually existing’ MNC from the confluence of multiple, formerly
independent firms and analyzing the interacting web of strategies pursued
by different actors within it. From our perspective, it is surprising how little
attention the theoretical literature on MNCs has paid to the self-understand-
ing of the actors actually engaged in constructing such enterprises. It has
largely been taken for granted that the MNC should be seen as a highly
rational entity, whose purported comparative advantages most of the litera-
ture then sets out to explain.
Stephen Hymer’s 1960 Ph.D. thesis (Hymer 1960) is often taken to be a
breakthrough in modern theorizing about MNCs. Until then, as Geoffrey
Jones (1996: 7) observes, MNCs were seen simply as ‘arbitrageurs of capital,
moving equity from countries where returns were low to those where it was
higher’. Hymer ‘asserted that FDI [foreign direct investment] involved the
transfer of a whole package of resources and not simply finance’. The package
involved technology, management skills, entrepreneurship, etc., and firms
were ‘motivated to produce abroad by the expectation of earning an eco-
nomic rent on the totality of their resources, including the way in which they
were organized’ (Dunning 1993: 69). Hymer’s basic view of the international
firm was thus that it internalizes or supersedes the market, thereby allowing
8 Introduction

for the cross-border transfer of knowledge, business techniques, and skilled

personnel (Dunning 1993: 69). By transferring this package of resources to a
foreign country, the MNC gains a comparative advantage over local firms in
the host economy. In particular, a firm that has gained a dominant position
in its home market—for instance through exploiting a technological, cost,
financial, or marketing advantage—may use territorial expansion to extend
the range of its operation. The MNC thus becomes a means of advancing
oligopoly power and profits.
As is already evident in Hymer’s theory, a firm becomes an MNC by
exploiting some kind of superiority not only in its home country but also
in a number of host countries. The basic idea is thus that it spreads from a
single national center to operate in a basically similar manner in new
countries. A related idea underlies the product-cycle theory proposed by
Vernon (1966). Vernon explained how the US competitive environment
created comparative advantages with respect to technological innovation,
which allowed domestic firms continuously to upgrade their assets. But to
protect their competitive technological advantage from erosion by other
firms in later phases of the product cycle, US companies were forced first
to export, and then, as products and production processes became standard-
ized, to manufacture overseas in order to reduce costs. This dialectic of the
competitive process may even continue to the point where US-based firms
export from foreign countries back to the domestic market, thereby gaining a
new comparative advantage in the oligopolistic competitive game at home.
Whereas in Hymer’s theory it is the offensive expansion of market power to
foreign countries that makes the oligopolist go multinational, for Vernon this
is instead a defensive strategy. In both cases, however, it is important that
the firms are large, as this strategy depends on their ability to take big risks
and to pay high costs for information, search, negotiation, and learning,
which smaller companies usually cannot afford (Aharoni 1966; Dunning
1993: 73). Consequently, only firms that may benefit from considerable
ownership advantages and can afford the costs wind up going multinational.
Again the emergence of MNCs is explained as the outcome of oligopolistic
competition, the dominant paradigm of industrial organization in that
period. In such a competitive game, multinationalization is believed to be
an advantageous strategy, which in turn reinforces the oligopolistic dynamic,
leading to an irreversible transformation of the relationship among the
players, both in home and host markets.
By the late 1970s, the MNC literature drew further inspiration from Coase
(1937) and Williamson’s (1975) work on markets and hierarchies, along with
Chandler’s (1977) historical account of the evolution of the modern corpor-
ation. From this theoretical perspective, the MNC was regarded as an ideal
 Introduction 9

agency for reducing transaction costs on a global scale (Buckley and Casson
1976), since it could be held to solve cross-border market failures (Hymer
1968) to the benefit of both the firms themselves and their host economies
(Dunning 2001: 43).
Beyond oligopoly rents and transaction-cost economies, theorists of the
MNC expected firms to gain additional ownership advantages from the
internationalization process:
These advantages of common governance derive from the ability to co-ordinate
separate value-added activities across national boundaries. Multinationality can
enhance operational flexibility by offering wider opportunities for global sources
of input. It can provide more favored access to international markets. It can provide
the ability to diversify or reduce risk. (Jones 1996: 9; Caves 1971, 1974)
Adding to this picture, Bartlett and Ghoshal (1989, 1990) argued that MNCs
operating in a variety of environments are exposed to external stimuli that
enable them to develop competencies and learning opportunities not avail-
able to domestic firms. Armed with such advantages, it is hardly surprising
that the formation of MNCs becomes cumulative and that globalization is
seen as an irreversible process. This organizational learning perspective is
highly complementary to the transaction-cost reduction view, as the latter
sees the MNC as able to curb market opportunism, shirking, and free riding,
while the former takes for granted that the MNC does actually cultivate
ownership advantages radically different from those of firms that have not
internationalized. But it is difficult to find empirical studies which show that
MNCs do not also evolve new forms of opportunism, shirking, and free
riding to offset these theoretical advantages. Instead, these two lines of
theoretical argument, which provided a rationale for the growing role of
MNCs in both Europe and the US in the 1970s and ’80s, remained largely
uncontested.
A Penrosian ‘resource-based’ perspective on the growth of the firm (Pen-
rose 1958) underlies most views of this process of initiating and learning
from internationalization. It is the firm’s calculating managerial apex which
autocratically decides to internationalize, and when it does, the MNC’s
comparative advantage derives in turn from exploiting initial ownership
advantages developed by this corporate center. Internationalization may
then engage the center in a learning process through which it gains additional
ownership and internalization advantages from exposure to a multiplicity of
different environments. In this way, the MNC is expected to develop a
broader and more diverse set of administrative routines, following the
evolutionary process theorized by Nelson and Winter (1982).
10 Introduction

Such expectations of a smooth and gradual learning process were re-

inforced by Scandinavian researchers, who analyzed internationalization as
unfolding through a number of typical phases, in which a firm first begins to
export from its home base, usually through commission agents, then sets up
foreign sales and marketing offices, and finally establishes production facil-
ities in host countries abroad. When choosing host economies, firms tend to
choose those that look the most similar to their home markets, and then later
extend their reach, so that the transformation to a truly multinational
company emerges gradually from a series of small incremental changes in
administrative routines. After a certain period, the MNC then begins to
integrate its regional and global activities more systematically by developing
a new set of routines (Johanson and Valne 1977; Dunning 1993: 193–204).
It is remarkable how little emphasis the international business literature
places on the difficulties involved in taking these steps. It is easy to imagine
how complicated the necessary calculations are at each stage, and it is also
apparent that with each new step there will be a need to develop new
administrative routines to run the emergent MNC. But we have seen very
little discussion of such calculations or the administrative routines that were
actually put in place. Nor are there many close investigations of the possible
problems involved in actively learning from the experience of going global.
The literature is rich on the theoretical learning opportunities for firms
opened up by internationalization, but surprisingly silent on how such
learning actually takes place.6 The postulated learning opportunities from
diverse environments are simply transported by assumption into the learning
curves of the centrally located managers, who are also presumed to be able to
coordinate and control the intersecting value chains as a coherent whole and
efficiently orchestrate knowledge transfer across the firm’s constituent units.
Similarly, with the rise of a transaction-cost focus, MNCs were assumed to be
masters of the art of their reduction. Although some careful analysts recog-
nized that the governance problems of ‘enforcing contracts and monitoring
behaviour . . . are particularly acute in firms operating across borders’
(Jones 1996: 20), their organizational structures were typically regarded as
efficient mechanisms for minimizing the resulting costs. Many observers
took it for granted that since MNCs continued to expand and prosper, they
must have learned to cultivate and exploit what Bartlett and Ghoshal (1989)
term their ‘administrative heritage’.

6
For an overview of current research, see Macharzina (2001). One of the few detailed historical
case studies of knowledge transfer in a large multinational concludes that ‘knowledge was decidedly
‘‘sticky’’ ’, even within Unilever, ‘one of the world’s most international firms’, into the 1980s: see
Jones (2002: 478).
 Introduction 11

In our case study, we found very little evidence for any of these theoretical
‘rationalizations’ of the MNC. APV’s London HQ was not diffusing a super-
ior technology across a number of foreign markets, nor was it trying to
survive on the British market through reducing production costs by allocat-
ing mature products to low-wage countries. Rather than serving as an
efficient governance mechanism for curbing opportunistic behavior, the
MNC had become an arena for internecine rivalries in which the normal
opportunism of the market was compounded by ongoing political struggles
over the allocation of resources and responsibility for success or failure. Nor
did we see any signs that the HQ was consciously developing administrative
routines that could foster mutual learning and innovative cross-fertilization.
The turnover among top management seemed far too high to permit such a
systematic, long-term endeavor.
Some of these missing elements of rationality in the APV case need not
worry us. As Dunning (2001) has argued, the Hymer–Vernon rationalization
of MNCs applies more to their expansion during the 1960s and early ’70s
than to the more recent era of globalization. It is thus hardly surprising that
the picture we report in this book displays very different logics than would
have previously been expected. Typically, during the postwar period, we
would have observed a MNC internationalizing by transferring technologies,
production processes, and sales and marketing organizations from its home
base to foreign host economies, believing that these capabilities would
quickly enable its new subsidiaries to oust their local competitors. Yet this
expectation hardly applies to APV and other contemporary multinationals.
For example, when APV entered the Danish market the major local competi-
tor it encountered was the Swedish MNC Tetra-Laval, with which the British
multinational’s newly acquired Danish subsidiaries already had long experi-
ence of strategic interaction. Hence it would have been counter-productive in
this case for APV to have insisted on the transfer of its home-based adminis-
trative heritage. Gone too is the belief that MNCs will necessarily prosper by
internalizing market transactions. Outsourcing has become a new mana-
gerial mantra which makes it far less certain where transactions should be
conducted.
Such observations also raise the question of where to search for confirm-
ation of the widespread claim that the accumulated administrative heritage
of the multinational was becoming one of its ‘core competences’ for the
future. According to this view, the MNC might reduce its equity ownership
of assets but its role as ‘orchestrator of production and transactions within a
system of cross-border internal and external relationships’ would increase.
Following Bartlett and Ghoshal (1989), Dunning saw firms’ ‘competence to
12 Introduction

develop and manage a cross-border network of separate but interrelated

value-added activities’ as three-pronged:
First, it involves taking full advantage of the economies of scale and scope arising
from global integration. Second, it involves a proper appreciation of differences in
the supply capabilities and consumer needs in different countries. Third, it involves
using the experience gained in global and national markets to strengthen the
resource base of the firm as a whole. (Dunning 1993: 602)
Dunning’s (1993, 2001) influential ‘eclectic’ or OLI paradigm provides a
powerful synthesis of the MNC’s organizational (O), locational (L), and
internalization (I) or combinatorial advantages. But it is difficult to see
how one should evaluate the multinational’s ability to make use of its
organizational capabilities, if these are fragmented across multiple geo-
graphic sites; of its locational advantages, if these may be ignored by head-
quarters as well as by sister firms in other countries; or of its capacity for
combining internal and external resources, if there is no agency or routine
within the MNC responsible for their systematic cultivation.
Nor do other organizational and managerial studies of multinational
enterprises offer a clear solution to the problem of how their theoretical
potential can be realized in practice. Such studies, like those of business
historians, have uncovered multiple forms of organizing rather than a single
optimal organizational structure for the MNC.7 Their discussions of organ-
izational and managerial processes in MNCs have largely followed a similar
pattern to that of scholarly analysis of coordination and control in business
firms more generally. If the MNC was conceived as a significant form of
organization, this was because of its complexity and the dilemmas it posed
for established managerial concepts and recipes. One such dilemma con-
cerned the basis for divisionalization: by product or by geographical market
area? Another concerned the relationship between the competing needs for
global integration and local responsiveness to different national markets and
government demands (Prahalad and Doz 1987). But the problems envisaged
by this literature flowed more from broader debates in organizational theory
than from critical observation of the many layers and players within MNCs.
More recently, as organizational analysts have emphasized the influence of
culture, norms, and institutions, so too awareness has grown that multi-
nationals from different home countries will rely on different types of formal
and informal control mechanisms (see for example Bartlett and Ghoshal
1989, 1998; Whitley 2001). Even our own contribution ironically follows
this trajectory of the multinational debate. We will discuss some of these
7
For an overview of the organizational and managerial literature, see Hedlund (1993). For
reviews of the work of business historians, see Wilkins (2001); Jones (2003).
 Introduction 13

contributions to the managerial and organizational literature on MNCs

more extensively in Chapter 8, where we compare our findings about the
APV case to those of other studies. As we shall see, a number of recent
empirical studies do try to penetrate beyond the headquarters’ self-
understanding of the MNC’s operations, but few have really succeeded in
capturing the interplay among its multiple levels.
As Eleanor Westney (2001: 365) points out, organizational theorists have
been reluctant to engage more actively in research on MNCs for a number of
reasons:
the difficulty of assembling in the international domain the kinds of data to which
OT [organizational theory] researchers are accustomed domestically, the sheer
complexity of MNE [multinational enterprise] organization, and a visceral resist-
ance to the strong pressures for normative or ‘useful’ theory that could guide the
actions of managers.
It should be added that negotiating access to a multinational for interviews
and ethnographic observations across a multiplicity of sites is even more
difficult than in the case of a domestic firm.
In the absence of sufficiently detailed studies of the historical construction
of MNCs through strategic interactions among multiple actors and levels, it
is difficult to separate the unfolding logic of their organizational develop-
ment from its shifting theoretical rationalizations. Dunning (2001) has made
a valiant attempt to distinguish the ‘main intellectual strands’ of scholarship
on international business from the ‘external conditions’ influencing multi-
national activity. But this leaves out precisely the actors’ own understanding
of what they were doing. At a general level, Dunning’s analysis confirms the
genealogy developed by Hedlund (1986; Hedlund and Kogut 1993), which
draws on Perlmutter’s (1965, 1969) typology of multinational organization
to explain how the current confusing situation can be seen as an outcome
of the broader historical transformation of the MNC itself. According to
this view, organizational and managerial complexity emerges when MNCs
develop past the first ethnocentric or ‘missionary’ phase, as described by
Hymer and Vernon, and enter into a new phase of polycentrism:
As time goes by, foreign business may become dominant rather than marginal, the
subsidiaries get more activities and become more self-sufficient, management be-
comes more host-country oriented and consisting of host-country nationals. The
MNC becomes an assemblage of semi-independent units. . . . The tendency in
terms of control mode is to move toward looser coupling between units and from
the hierarchy . . . of ethnocentrism to market solutions. Transfer pricing based on
market prices rather than internal costs, freedom to choose external suppliers,
rewards and punishment in monetary terms, and elaborate bonus payment systems
14 Introduction
accompany greater turnover rates of personnel and organizational units being sold
off and bought. Internationalization is more and more conducted through acquisi-
tions rather than greenfield ventures. (Hedlund 1986: 13–14)
This polycentric phase, which more accurately describes the situation we
encountered in our case study, is claimed to have emerged in the 1970s and
1980s, when the individual units of the MNC gained increased leeway for
autonomous action in order to enhance national market responsiveness. As
we shall see in Chapter 8, this phase was believed by observers like Bartlett
and Ghoshal (1989) to have drawn to a close at the end of the 1980s.
The third phase of geocentrism, which follows ethnocentrism and poly-
centrism in Perlmutter’s typology, is seen as one in which the MNC ‘internal-
izes the exploitation of (country) comparative advantages’. In this phase,
The subsidiaries have to implement strategies formulated according to a global logic,
they have to be able to act quickly in response to competitive conditions, they must
be encouraged to look at a wider picture. Most writings on global strategy give
the subsidiaries a less independent role than that implied in a polycentric MNC.
A re-centralization of authority to HQ often follows . . . a globalization of compe-
tition . . . . [T]he trend towards markets in the polycentric MNC is reversed. Also
reversed is the tendency to duplicate activities in various subsidiaries. (Hedlund
1986: 16)
The most striking aspect of this third phase is not the expectation that it
will be sharply different from its predecessors, but rather that the resulting
evolutionary break is not seen to contradict previous theoretical views of
how MNCs develop their ownership advantages. Hierarchy transforms into
market regulation and then back to hierarchy again. In this evolution it is
difficult to conceive the ‘administrative heritage’ as a gradual accumulation
of experience and routines for successfully running the MNC. This suggests
that the organization of ‘mature’ MNCs must today be in a rather experi-
mental phase, where a number of normative templates compete. Thus
Hedlund himself proposed that ‘hierarchy’ should be replaced by ‘heterarchy’
in the third—and final—evolutionary stage, in order to improve the MNC’s
ability to foster mutual learning. With such a transformation to a flexible
network of ‘many centres, of different kinds’, Hedlund envisaged the emer-
gence of ‘a meta-institution, whose unique role is the effective design, on the
basis of experience, of institutional arrangements for specific tasks’ (Hedlund
and Rolander 1990: 25; cf. Bartlett and Ghoshal 1998: ch. 11). Obviously,
many of the potential gains for the individual member firms of the MNC
imagined at the beginning of this chapter, together with the MNC’s com-
petitive superiority relative to other forms of economic organization, would
emerge if MNCs were able to transform the hierarchy into such a heterarchy.
 Introduction 15

But who shall initiate this transformation and how it should implemented
remains very unclear in Hedlund’s writings, whereas in Bartlett and
Ghoshal’s ‘transnational solution’ it is the HQ executives who are expected
to perform this alchemy by socializing subsidiary managers across the MNC
in common corporate values and objectives. These scholars imply that MNCs
have gained their initial competitive advantages by following the hierarchical
logic sketched by Hymer and Vernon, but to exploit these advantages more
fully they must change their mode of organizing to enable their constituent
units to benefit from the potential cooperative gains discussed above. In our
view, this would mean that the executive officers of the HQ should deliber-
ately empower subsidiary managers, while reducing their own decision-
making authority.
As soon as the MNC evolves beyond the initial missionary phase, it thus
becomes extremely unclear what type of logic is unfolding. Perhaps the
contradictions between the polycentric and the geocentric phase are a signal
that many contradictory logics are at play simultaneously? Might the MNC
be in a state of schizophrenia? Or is it our theoretical discourse that generates
these paradoxes? Our case study observations presented above suggest at a
minimum that the orderly, well-informed, and highly rational managerial
process usually attributed to the MNC is empirically questionable.
Yet foreign direct investment (FDI) among the highly developed countries
grew explosively during the 1990s (Dunning 2001: 56–61). While the MNC
has become an organizational enigma, it has simultaneously become the
primary vehicle for moving assets of all kinds across borders. At the same
time, moreover, as Dunning (2001: 57) observes:
the imperatives of new technologies and global competitive pressures are leading to
an explosion of cross-border acquisitions and mergers (A&Ms) and strategic alli-
ances. . . . [T]he volume of the former has risen eight times over the past decade,
and . . . is growing at twice the rate of fdi flows.
These developments, Dunning (2001: 61) contends, present major chal-
lenges to scholars of the multinational firm, and are ‘necessitating a reappraisal
of the roles played, and the relationships between, the myriad of decision-
taking entities comprising these enterprises’. The novel questions he raises are
perfectly coherent with those we have posed throughout this chapter:
How can one accommodate the increasing significance of A&Ms, and the constant
reconfiguration of assets and capabilities owned or controlled by MNEs into the
established theories of the MNE, and of MNE activity? . . . How does the increasing
instability of financial and exchange markets . . . affect their ability to organize and
shift inputs and outputs across the globe, and to price these appropriately? And how,
indeed, can such tasks be accomplished in a way which balances the advantages of
16 Introduction
flexibility and organizational cohesion with a coordinated yet specialized trajectory
of asset enhancement?
Thus the coming of a geocentric phase—if we have indeed started to move
in that direction—seems to occur together with the injection of increased
polycentrism into MNCs through mergers and acquisitions (M&As), espe-
cially since these often involve not only small plants in industrial districts but
other large, multidivisional corporations with many diverse assets. If man-
agers in surviving HQs find themselves up to their necks in problems as
suggested by the initial observations from our case study presented above,
this could be for good reasons.
Why has external growth through mergers and acquisitions become the
dominant form of multinational expansion in developed economies? Many
authors believe that this development represents a response to the new
imperatives of global competition and knowledge-based technologies. For
instance, Rugman and Verbeke (2001: 161–2) argue that the investment
decisions of MNCs are oriented increasingly towards the pursuit of strategic
assets, such as access to R&D and localized innovation systems, rather than
towards access to natural resources, market access, or cost efficiencies as in
the past, even if the latter considerations still play the largest role in absolute
terms. Following Dunning (1998, 2000), they see this increase in strategic-
asset-seeking FDI through M&As as an outcome of (1) ‘the emergence of
knowledge as the ‘‘key wealth creating asset’’ ’; (2) ‘the rise of ‘‘transactional
benefits’’ of spatial proximity in the knowledge development process’, which
‘have led affiliates of MNEs to become increasingly embedded in host
country innovation systems’; and (3) ‘the emergence of ‘‘alliance capitalism’’,
i.e. a collaborative, stakeholder approach guiding both intra-firm relation-
ships and inter-firm cooperative agreements in knowledge creation’.
Interestingly, this brings us back to where we started in this chapter, with a
new twist. Now we are not trying to explain why an independent firm in an
industrial district or cluster might seek membership of a MNC, but rather
why the MNC must seek a foothold in such localized innovation systems.
Economic geographers and industrial economists, as we saw, are debating
why MNC entry leads to a reinforcement of agglomeration advantages in
some places, and to the gradual destruction of localized innovation systems
in others (Belussi 2003; Asheim and Herstad 2003a, b). Rugman and Verbeke
(2001: 164) see the outcome as dependent on the synergies between firm and
country-specific advantages. If these create a virtuous circle of cumulative
causation, they will attract MNCs and independent firms alike around a
‘pool of workers with specialized skills, the non-business infrastructure, etc.’,
giving rise to ‘technological and organizational spill-over effects benefiting
 Introduction 17

the entire, localized industrial district’. In this way MNCs are believed to
benefit both themselves and the district, which becomes a sustainable ‘sticky
place’ (Markusen 1996) and a site for further FDI. These processes in turn
may lead to the emergence of MNCs with multiple homebases organized as a
‘global web’, which acts as ‘a link between sticky, localized innovation clus-
ters’, thereby promoting ‘international cross-fertilization’ and the ‘global
diffusion of knowledge’ (Rugman and Verbeke 2001: 166–72).
Our case study observations cast doubt on whether the managerial apex of
MNC HQs is currently capable of deliberately organizing the construction of
such a global web. In our case, at least, the HQ seemed to ignore the
possibilities for cross-border learning and knowledge transfer that local
subsidiaries sought to reveal through their actions. We found no procedures
in the HQ for assessing the ‘stickiness’ of their subsidiaries’ locations. Nor
did we find any awareness among top managers of how the subsidiaries
utilized or contributed to the localized innovation systems of such sticky
places. Thus as Rugman and Verbecke (2001: 172) themselves acknowledge,
the theoretical potential of ‘such a diffusion process may be tempered by the
MNE’s limited capabilities to absorb and transfer knowledge . . . within
their own internal network, especially when multiple home bases are used,
with distinct approaches to knowledge development and transfer.’
Other recent empirical research on MNCs does help to explain how they
might become ‘global webs’ and unintentionally acquire such local know-
ledge. But this would be less an outcome of the HQ’s locational decisions
than of a chaotic struggle for survival, expansion, and mutual positioning
among its subsidiaries. A growing number of studies focusing on subsidiary–
HQ relations in Canada, Ireland, and Scotland (Birkinshaw and Hood 1998)
show that over time a large proportion of subsidiaries develop strategies for
expanding their ‘mandate’ (Delany 1998). They do this primarily by taking
subversive steps to broaden the scope of their activities relative to the initial
assignment received from the HQ. If these entrepreneurial subsidiaries
succeed in earning higher returns for the HQ than their more passive
counterparts which stick to their assigned mandate, they will generally be
given greater autonomy. The unintended consequences of such an evolution
within MNCs could easily be that those who pursue subversive strategies
and move beyond their original mandate will grow quickly while the ‘boy
scouts’ who stick to a given mandate will stagnate. Thus, even within
multinationals that base growth primarily on greenfield investments, this
literature suggests that an increasing diversity of evolutionary logics will
emerge from the unintended consequences of MNCs’ global expansion. It
would be natural to expect that acquired subsidiaries that originated as
independent firms in industrial districts or as part of other corporate groups
18 Introduction

would have an even greater propensity to strategize subversively towards

the MNC.
As Birkinshaw (2001: 383–8) shows, the literature on MNC subsidiaries
has gradually moved from taking their hierarchical subordination to the HQ
for granted to a much more complex picture, where subsidiaries are pos-
itioned in a heterarchical network. Such studies initially addressed the MNC
as a whole rather than the subsidiaries per se. But more recent work has
focused on the subsidiaries in their own right, demonstrating that they may
develop a variety of roles, such as centers of excellence in specialized areas
(Forsgren 1990), and that their position within the multinational may also
change over time. Some analysts see this as an outcome of HQ policies, while
others see it as an outcome of subsidiary initiatives (Birkinshaw 1997). The
latter research stream has discovered substantial perception gaps on this
question between managers at different levels of the MNC (Arvidsson
1999; Birkinshaw et al. 2000; Holm and Pedersen 1995). These studies call
into question standard hierarchical views of the multinational, and present
MNCs as bundles of quasi-independent firms in a market system, or as
quasi-independent nodes in a network or global web. Birkinshaw (2001:
389) finds it useful to distinguish between the role assigned to the subsidiary
by the HQ and its own autonomous development strategy. The more these
two diverge, the greater the tension and the less predictable the outcome. In
his analysis, subsidiary strategy can be defined as ‘the positioning of the
subsidiary vis-à-vis its competitors and customers . . . with regard to its
underlying resources and capabilities’. Whereas previously positioning in a
local market seemed to be the most important raison d’être for subsidiaries,
today marketing, sales, and customer contacts are often organized on an
international scale, whereas subsidiaries are achieving increasing entrepre-
neurial discretion in managing their ‘resource base’, including both their own
internal resources and those of the local context in which they are embedded.
This literature on subsidiary strategies has so far concentrated on studies
of firms owned by different MNCs within a single country (Birkinshaw and
Hood 1998). Within each of the countries examined, a variety of subsidiary
strategies towards the parent firm has been identified. The explanatory focus
has fallen on individual managers and the room for maneuver that they have
been able to discover and exploit. Sölvell and Zander (1998) reach a similar
conclusion regarding the gradual disintegration of MNCs through a deduc-
tion from two theoretical premises. Against the traditional view that MNCs
have special advantages in the development and diffusion of new technolo-
gies, they reinterpret the literature on innovation. They suggest that subsid-
iaries engaged in technological innovation will be able to achieve greater
cost-effectiveness in R&D investments (through which they gain independ-
 Introduction 19

ence in the short term from the HQ) by communicating with external actors
in their local context rather than using the international network of the
MNC. This in turn will have long-term consequences:
As foreign units over time become more firmly established in their local innovation
system, they gain to an increasing extent unique and insider access to local know-
ledge exchange. This unique access to the local innovation system will create inde-
pendence and simultaneously make the foreign unit more difficult to control from
headquarters. Thus, while increasing commitments to operations in foreign coun-
tries provides the MNE with one of the prerequisites for assimilating knowledge on
an international scale, integrating activities and exercising control becomes more
difficult. Put somewhat differently, as the MNE becomes an insider in local innov-
ation systems, it will at the same time become an outsider within itself. (Sölvell and
Zander 1998: 411)
And this process of mutual alienation is then reinforced by HQ–subsidiary
power struggles within the MNC.
Birkinshaw (2001: 394) argues that this combination of global marketing
and local resource/capability development creates an unresolved dilemma for
the MNC because ‘strategy making is all about ensuring that the market and
resource sides of the equation fit together. Corporate-level managers are ill-
equipped to do this because they do not understand the unique resources
and capabilities in the subsidiary, whereas subsidiary managers have the
knowledge, but not necessarily the power to fulfill this role.’ He therefore
proposes that researchers should start looking at how MNCs are resolving
this dilemma in practice, and suggests some answers from his own findings,
such as subsidiary representation on global marketing teams, world product
mandates, internal market structures, and corporate knowledge sharing
systems. We will consider such proposed organizational solutions in Chap-
ters 8 and 10 below. But our observations in the case of APV suggest that the
knowledge–power dilemma in HQ–subsidiary relations has not been suc-
cessfully resolved. Why this may be so is very important in understanding the
nature of the problems with which MNCs are currently struggling.
One reason could be that HQ–subsidiary relations are becoming increas-
ingly complex not only because the latter’s entrepreneurial role has changed.
When subsidiaries enter MNCs in swarms through mergers and acquisitions,
which as we saw is becoming more and more typically the case, then neither
can be expected to grow through stepwise adjustments to coherently evolving
administrative routines, but instead will experience a sudden and repeated
confluence of heterogeneous and mutually contradictory organizational
structures and practices. If so, why should it be easy to find a solution to
the knowledge–power dilemma identified by Birkinshaw? Should we not
20 Introduction

expect it to create a host of other problems and a diversity of possible

outcomes?8
Our analysis indicates that MNCs currently find themselves in a poly-
centric and a geocentric phase simultaneously. Whether such a situation
provides the basis for the construction of a viable form of heterarchy is
highly questionable. A multinational comprised of entrepreneurial subsid-
iaries that have been merged together after cultivating their own indigenous
routines and capabilities in symbiosis with their home communities seems a
very unstable mixture. In principle such a grouping could offer the potential
for creative recombination. But does it meet the conditions necessary to
become a ‘Nearly Recomposable System’ (NRS), as Hedlund (1999) renamed
the heterarchy? Contemporary acquisition-driven MNCs, as we found in the
case of APV, lack a number of the critical requirements Hedlund (1999)
postulated for a NRS, such as a common language, rich ‘know-how’ net-
works, a strong knowledge vision, a shared identity, effective cross-border
communication, and a system that rewards new compositions.
Such a diagnosis would point, as Hedlund himself advocates, to the need
for deliberate action to be taken to improve the MNC’s ability to integrate
knowledge across its globally dispersed and diversified constituent units. But
then a typical short-cut, which has been taken many times before in the
literature on multinationals, is repeated, whereby the author simply postu-
lates the emergence of a new stage of business organization, in this case
the N-form firm, in response to the limits of its predecessors (Hedlund 1999:
31–3; cf. Hedlund 1994). Normative-theoretical views have guided both the
object of study and the analysis itself, which thereby leads us to a series of
more or less predetermined conclusions.
Ironically, it is precisely where organization theory has tended to prescribe
in advance the conclusion of empirical studies that it has in recent years
contributed to enhanced comprehension of MNC behavior. The new socio-
logical institutionalism, which emphasizes isomorphic pressures on organ-
8
In a recent article, Sölvell (2003) argues that this dynamic is leading to the emergence of
different types of MNCs—multi-domestic, transnational, and multi-home-based—depending on
the way they combine global competitiveness and local innovativeness. Doz et al. propose the
‘metanational’ form as the ‘next step in the evolution of the multinational enterprise’, based on
global scanning, melding, and exploiting dispersed knowledge from the periphery of the organiza-
tion rather than outwards projection from the headquarters or home base. But ‘the full-fledged
metanational corporation’, they acknowledge, ‘does not yet exist’, while many of the best current
examples of this emerging organizational form are companies that were ‘born in the ‘‘wrong
place’’ ’, far from the geographical centers of their industries. As they point out, established
companies seeking to move beyond traditional multinational forms often fall into the symmetrical
traps of ‘trying to ‘‘shoehorn’’ the new [metanational] capabilities into an existing organization’,
or ‘investing in costly communications channels between existing units only to end up with a
‘‘global debating society’’ instead of a powerful new innovation engine’: see Doz et al. (2001: 5, ch. 3;
2003: 166).
 Introduction 21

izations to adapt to the cultural and behavioral norms followed by other

surrounding organizations (Powell and DiMaggio 1991), has in this way
contributed to a growth in understanding. Though studies in this vein
have focused particularly on the adoption of modern human resource
management (HRM) practices at different levels of the MNC, this approach
could also provide a partial explanation of why in the APV case, the HQ was
eagerly seeking to make itself look good in the eyes of institutional investors,
fund managers, securities analysts, and financial journalists in the City of
London, rather than trying to promote synergies and cross-fertilization of
knowledge among its constituent units. From this perspective, it could also
be expected, as Westney (2001: 365) points out, that each unit within the
MNC would seek to adapt isomorphically to the local organizational fields in
which it is embedded.
Thus every time we try to capture and make sense of the MNC, it
disappears back into a multiplicity of local contexts, leaving us with the
question: what kind of organizational entity is it becoming? Compared to the
1960s, when academic analysts had a clear view of the nature of MNCs based
on various forms of economic rationality, today this question leads us instead
to a series of dilemmas and paradoxes about the relationship between the
global and the local, in which it is far from obvious which players are engaged
in what games.

3. The Architecture of the Book

Dilemmas, paradoxes, and schizophrenia may be overcome if we adopt a

polycentric perspective to describe a polycentric situation, as we do in this
book. From this perspective, the construction of an MNC should not be
narrated solely in terms of the core firm’s gradual extension from a local
through a national to an international phase. Rather, a number of intersect-
ing narratives concerning formerly independent firms from several countries
may be told to explain how and why they joined the MNC; how they perceive
the experience of membership in this new ‘association’ and what they expect
from it; and how they struggle with one another over the internal division of
labor to determine what social space each shall occupy within the multi-
national.
It is misleading to present the development of a multinational in terms of a
singular evolutionary path when it has been constituted through mergers
among previously autonomous firms. In such cases, organizational learning
and the evolution of successful routines and competencies have all followed
multiple paths, whose varied courses give the actors concerned strong
22 Introduction

impetus to follow distinct strategies. In Porter’s (1990) terminology, the MNC

is a firm with multiple home bases. The evolution of the MNC then becomes
dependent on the pattern of interaction among formerly independent stra-
tegic actors and their abilities to associate with one another and negotiate a
mutually acceptable division of labor. How far this association can be con-
trolled from the HQ depends on whether the core firm was able to internalize
the art of control and coordination as a past routine or may gradually obtain
this capacity through its subsequent actions. Other parts of the MNC, how-
ever, may come to assume these functions either by chance or design, leaving
the formal HQ with quite different tasks, as will be the case in our story.
In Part I of this book, we show that contrary to the predominant concep-
tualization of MNCs as expanding outwards from a single center of origin,
their formation often occurs, as in the case of APV, by associating multiple
local firms which have each learned to pursue strategies of global reach
within their own national business system. Thus each firm’s narrative
is followed up to the point of acquisition. It was never very likely that
this process of narration, which represents the actors’ own attempts to
make sense of their world, would end with a sudden loss of memory, whereby
the formerly independent company immediately comes to identify with the
master narrative of its new multinational owner. Thus we conceptualize
the globalization process as a coming together of multiple narratives which
simultaneously co-exist, rather than merging automatically into a single
unity. Our fundamental point is that it is the unending process of mutually
aligning these multiple narratives that constitutes the core challenge of
coordination and ‘control’ for the MNC, and only to the extent that this
process is effective will its global operations become successful.
In Part II, we focus more closely on the process of mutually aligning such
multiple narratives. We analyze this process as a reciprocal strategic game,
which the actors have each learned to play in their own local and national
context, adapting their strategic skills to deal with players coming from other
parts of the world where different rules prevail. In framing the situation this
way, it becomes apparent that learning to read one another’s moves, experi-
menting heuristically with guesses about when a particular rule applies, is no
simple matter, as is typically assumed in the literature on MNCs. Our aim is
to spell out the difficulties involved in transforming these non-cooperative
games into ones based on mutual collaboration among organizational units.
Such collaboration is essential if the MNC’s potential for global synergy and
cross-fertilization is to be realized, but it seems to be undermined by the very
players who should create it.
In Part III, by comparing our findings to those of the broader literature, we
try to reach a deeper understanding of the administrative and human
 Introduction 23

challenges of managing the multinational under conditions of globalization.

We show that this task looks insoluble through conventional organizational
methods and structures. It appears as though the very organizational struc-
tures which were expected to solve the key problems make them instead far
worse. Thus efforts to contain opportunism appear rather to have institu-
tionalized such behavior, while attempts to exercise the residual rights of
ownership tend to delegitimize the MNC in the eyes of its constituent units.
Hence we search for new procedural solutions through which local and
global sense-making can be brought together to foster mutual recognition
and cross-border knowledge exchange, and propose a set of ‘learning by
monitoring’ mechanisms to resolve the managerial challenges we have iden-
tified. As such solutions entail an effective redistribution of authority within
the corporation, we then go on to explore how a new multinational public
may be created to mobilize pressure for step-by-step reforms in its organiza-
tion and governance, while simultaneously gaining power to negotiate on
behalf of the localities on more and more equal terms with HQ executives.
This is an ambitious and demanding project, whose success is far from
preordained or even probable. In the book’s concluding chapter, we first
take stock of the destruction of capital, jobs, and enterprises produced by
running MNCs along existing lines, and then consider a set of alternative
long-term scenarios that may result from local responses to their current
organization and behavior. These scenarios illustrate not only the many
difficulties of harnessing the creative potential of multinational enterprise,
but also the serious obstacles to a smooth continuation of the globalization
process in its present form.
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 Part I
Local Pathways to
Multinational Enterprise
This page intentionally left blank
 2
Associating Local Strategies
of Global Reach: Horsens, Lake Mills,
Eastbourne, and APV

Our picture of the multinational changes radically when the story of its
formation is told from a polycentric point of view. In most empirical studies
of MNCs, the stage is set by the strategy attributed to the managerial apex of
the firm that comes to constitute the HQ. The growth of the MNC, by
establishing new overseas branches and acquiring or merging with foreign
firms, is thus typically recounted as the enactment of a single logic which
embraces both the incorporation and ascribed role of each of its subsidiaries.
In this chapter we tell such a story instead from the perspective of four distinct
firms, which after struggling for survival as more or less independent entities
for over a century, came together in the 1970s and 80s to form a single MNC.
In reality, this polycentric narrative should not be limited to the histories of
the four firms covered in this book. Rather the constitution of such an MNC
should ideally be recounted as the confluence of dozens if not hundreds of
formerly independent enterprises. But to tell this full story in all its complex-
ity would be beyond our capabilities. By recounting four of these many more
possible histories, we hope nonetheless to cast fundamental doubt on received
ways of thinking about the formation and functioning of MNCs.
As we will show, these independent firms each entered into the MNC for
their own reasons, seeing this as the preferred alternative among several
possibilities. In two out of three cases, the firms in question were already
pursuing a multinational strategy of their own, whether individually or as part
of a larger group. Since these efforts had failed or their prospects looked bleak,
each firm opted instead to become part of APV. But as their separate histories
reveal, it was by no means predetermined that APV would become the firm
that constituted the MNC headquarters and thereby saw itself as acquiring the
right to manage the others. As we shall see, APV’s historical legacy gave it
some comparative advantages in financial and accounting skills, but these
were more the result of a distinctive pattern of failure and damage repair than
28 Local Pathways to Multinational Enterprise

the outcome of a successful strategic logic. Nor was APV’s ‘administrative

heritage’ fundamentally oriented towards controlling and coordinating for-
eign subsidiaries; it focused instead on managing relationships with capital
markets and institutional investors. Other constituent firms had developed a
complementary legacy of engineering their own purchase and sale, using this
strategic capability to fight for a desirable position or role in a multinational of
choice. Both legacies—together with a multitude of possible others—form
part of what may be called the MNC’s collective administrative heritage. But
would the confluence of these different legacies touch off a positional struggle
within the MNC rather than enabling the HQ to aggregate the subsidiaries’
experiences into a common heritage subordinated to its own strategy?
In this chapter, we tell the story of how a Danish, an American, and a
British firm entered into APV, before narrating in a similar and parallel way
the history of the original firm that happened to constitute the MNC
headquarters. What becomes very clear as a result is that each firm had
developed distinctive capabilities, brought very different expectations as to
what kind of association they were joining, and drew on very different past
experiences in tackling new situations. Consequently, depending on which
vision and strategy prevailed over the others, the MNC could have evolved in
four very different directions. The separate tales recounted here immediately
call into question any expectation that these firms’ distinctive pathways
would be subordinated to that of the HQ merely as a consequence of joining
the multinational association. In Part II of the book, we shall see how
consistently these historical legacies continued to influence each player’s
moves within the global game of the MNC.

1. Technical Success and Commercial Failure in Global Competition:

From a Heterogeneous Danish Machine Shop
to a Pump and Valve Subsidiary1

A Machine Shop in Evolutionary Harmony

The Danish firm, which we will refer to in this story as APV’s Horsens plant,
from the town in eastern Jutland where it is located, owes its early formation
1
In this account of how a Danish firm became an affiliate of APV we cannot simply refer back
to its official company history, since this has not been written. This account is based primarily
on oral interviews with long-serving managers, workers, and union officials, together with a
small collection of newspaper articles, photographs, catalogues, and brochures lent to us by the
firm itself. Among the most important of the latter are: Thorup (1998); ‘part 1’ of the Personnel
Handbook, APV Fluid Handling Horsens (n.d.); Mælketidende (1893: 417–19, 1901: 745–6);
Arbejder, Håndværker og Industrimuseet, Horsens, ‘Maskinindustri til det danske mejeribrug—
Med udgangspunkt i tre udvalgte virksomheder’ (1996, mimeographed).
 Associating Local Strategies of Global Reach 29

to the successful development of Danish cooperative dairies, of which nearly

1,200 were established between 1880 and 1914 (Kristensen and Sabel 1997).
The APV Horsens plant can trace its origin back to 1874, when Wilhelm
Paasch, a traveling plumber from the southern province of Schleswig (which
had recently been forcibly ceded by Denmark to Germany), took over his
father-in-law’s plumbing shop. Paasch soon announced that, in addition to
normal plumbing jobs, he would produce and sell equipment for farm
dairies. In contrast to Paasch’s excellent talents as a merchant, his reputation
as a craftsman seems to have been very humble. The firm’s reputation began
to change when Paasch met two fitters, Lars Peter Larsen and Valdemar
Petersen, who were working for a Copenhagen firm specializing in agricul-
tural and dairy equipment. Together they formed the firm Larsen, Petersen
and Co., which continued until 1898, when the three men created a new
joint-stock company called Paasch & Larsen, Petersen (PLP) A/S. In the early
1880s the firm came into contact with Docent N. J. Fjord, one of the foremost
pioneers of modern dairy practice in Denmark, whose assistance enabled it
to become a prime mover in producing pasteurization equipment and
devices for measuring the butterfat content of milk. As a result, between
1888 and 1894 the Horsens firm won a series of prizes for excellent machi-
nery and equipment, thereby securing a leading position in supplying the
cooperative dairy movement during its formative years (Thorup 1998).
In 1893, the Danish Dairy News (Mælkeritidende) called attention to the
opening of Paasch’s new factory, which comprised a number of different
shops, each specializing in certain of the firm’s many products. The forge
served the factory as a whole but specialized also in cheese vats (both ‘round
and American’), and vessels to make sour cream and milk coolers. A machine
room made steel vessels for milk. The coppersmith shop made pasteurization
equipment, while a special shop was devoted to the manufacture of Docent
Fjord’s measurement and control devices. There was a shop for milk coolers,
another for milk pails, and finally a large shop for all sorts of other products
outside the firm’s normal specialties. In these shops Paasch employed about
30 workers, said to be highly skilled and better paid than normal, enabling
the firm to improve the quality of its products, in accordance with the needs
of its dairy customers, to whom it was always willing to listen. It was precisely
this above-average skill and customer responsiveness, according to the art-
icle, that made Paasch’s new factory worth mentioning in the Dairy News
(Mælkeritidende 1893: 417–19).
Already in 1888, Paasch’s price list described the firm as a ‘supplier to most
of the established cooperative dairies’. Though Wilhelm Paasch himself died
in 1901, PLP A/S continued to grow under new managing directors, partly by
setting up subsidiaries in other Danish towns, and partly by patenting and
30 Local Pathways to Multinational Enterprise

selling its products abroad. Before 1914, the firm could communicate in the
native language of customers from Britain, Germany, France, and Spain. In
this period the products became increasingly sophisticated, including innov-
ations such as sour-cream vessels with coolers which could be hydraulically
raised and lowered, or easy-to-clean pumps and pasteurization equipment.
During the interwar years, too, PLP seemed to excel in manufacturing new,
highly sophisticated products like plate pasteurizers (1923) and a revolution-
ary cubic churn (1938), both made of stainless steel, increasingly the material
of choice for dairy equipment. In the 1950s this development path continued
with smarter weights, cheese mixers, plate heat exchangers, pumps, milk
tanks, and milk pail transporters. By the late 1950s, the Horsens plant was
moving towards the integration of discrete processing equipment into a
rational flow layout. At an exhibition in 1961, the firm presented images of
what a fully modern dairy might look like, including designs for a standard
turnkey installation.
Running through this history is a mutual rivalry between PLP and its
domestic competitors in the Danish business system aimed at gaining the
highest reputation among its customers: dairymen and farmers (Kristensen
1996, 1997). To achieve such a reputation, the machine shop used its
accumulated experience and skills to make the specific equipment demanded
by each particular dairy, and through this process it continuously elaborated
its range of products and services. As local dairies at first varied greatly in size
and in mix of activities between milk, cheese, and butter, each order was
qualitatively different. Thus to meet these varying demands, PLP would have
to make use of an increasingly rich network of subcontractors, suppliers of
motors, centrifuges, blenders, freezers, etc. on the one hand, and its work-
force’s ability to carry out different projects by integrating planning and
execution processes on the shop floor and at the customer’s premises on
the other.
Since PLP was located in a district in which there was competition for
highly skilled workers, this business strategy was reinforced by the fact that
the firm could offer its skilled workers plenty of shifting craft challenges both
in-house and while assembling and installing equipment at its customers’
premises. Thus in seeking a distinctive reputation among its customers, the
firm was simultaneously building a reputation as a good workplace in the
local labor market. For that reason it could easily man its shop with a high-
quality team of craftsmen, which again became the basis for serving its
customers in the best and most flexible way. Very competent professionalism
during the installation of a dairy made customers ask the Horsens plant to
take on the after-sales service, and when servicing dairies these competent
workers could easily suggest improvements, which led in turn to orders for
 Associating Local Strategies of Global Reach 31

new equipment. Thus to many customers, PLP became a continuous partner

in the gradual improvement of a dairy or other food-processing plant and
was even called in for consultation when the customer was experimenting
with new products and processes.
Being locally acknowledged as an excellent workplace, the Horsens plant
had easy access not only to established craftsmen but also to new apprentices.
Horsens could choose among the most promising candidates to such an
extent that many more than were needed to reproduce its own workforce
finished their apprenticeship in the plant’s shop and offices. This surplus of
journeymen, however, had easy access to other manufacturers, vocational
training institutions, public services, etc. as they carried the high reputation
of Horsens’s workteam with them. Often other firms and organizations
would promise highly trusted positions and promising careers to attract
Horsens’s excess journeymen. In consequence it was very easy for Horsens
to establish cooperative relations with subcontractors, vocational training
centers, public services, and sometimes even competitors through this net-
work of former apprentices. This entire process also helped Horsens’s
workers to become established as the first among peers in its community
and often craftsmen from the firm became candidates for elected positions in
the local labor unions and on the municipal council. Thus, in the eponymous
provincial town where Horsens was founded and is still located, the firm
became an ‘institution’, whose survival was considered important across
many political and social divides.
Positioned in this way in its locality, PLP managed to meet competition
from other Danish suppliers of food-processing equipment for 80 years until
the beginning of the 1960s. Some competitors, of course, occupied an
analogous position in their own home towns and in this way whole commu-
nities became engaged in a reputational rivalry. A few Danish machinery
firms also engaged in vertical integration and experiments with American-
inspired management and production methods, but for a long time this
alternative mode of organization seemed not to yield much extra compara-
tive advantage. Such firms were often established in localities that lacked a
surrounding district of sub-suppliers, so that their vertical integration was
rather to be seen as a compensation for the external resources which plants
like Horsens enjoyed.
Thus up to the early 1960s, PLP was able to support its customers in their
gradual modernization and upscaling of production facilities, as well as to
assist them in developing process equipment for their product differentiation
strategies. Like some of its competitors, the firm became involved in the
export of food-processing equipment and plants to foreign countries, which
often saw Danish food manufacturers as worth copying or, as in the case of
32 Local Pathways to Multinational Enterprise

Third World countries, received development aid from Denmark to establish

their own dairy systems.

The Emergence of Oligopolistic Competition

But in the 1960s and early 1970s, the competitive environment in Denmark
changed dramatically. Among both dairies and breweries a huge concen-
tration and centralization process was set in motion, as a result of which MD
Foods and Carlsberg would eventually wind up dominating the two indus-
tries. This concentration process demanded a radical upscaling of equipment
and a wholesale shift towards continuous processes in all areas (for instance
in butter and cheese production and through the use of filtration). To make
this quantum leap in process, technologies demanded high R&D budgets,
risky investments, and a sharp change in the marketing facilities of the
industry in which PLP operated. Previously, customers would typically pay
for the technological improvements they demanded through individual
orders, and in exchange receive the improvements that other customers
had financed in the past. Now the industry had to take financial risks by
engaging in larger R&D projects while its home market was simultaneously
shrinking with the rapidly reduced number of dairies and breweries. In
addition, the closure of many dairies and breweries meant the loss of long-
established, close customer–supplier relations. Thus the whole social net-
work, within which these transactions had been previously embedded and
whereby a balance of reciprocity had been secured, was destroyed. In short,
risks increased and there were fewer customers with whom to share them.
In 1962, these growing challenges led to a merger between PLP and Silke-
borg Maskinfabrik A/S, another highly reputed Jutland dairy-equipment
producer, to form ‘A/S Paasch og Silkeborg Maskinfabrik’ (PSM). The
newly merged firm then began to collaborate more closely with De Danske
Mejeriers Maskinfabrik (the Danish Dairies Machinery Works) in Kolding,
which also owned Rannie, a homogenizer manufacturer in Copenhagen.
By 1977 this resulted in a full merger, creating a new group known as Pasilac
A/S, headquartered in Silkeborg.
Another key player was Alfa-Laval, a Swedish multinational, which had
played a major role on the Danish market since the turn of the century.2 In
this way the competitive game soon became oligopolistic, and it was obvious
that Pasilac was financially too weak to play effectively against its Swedish
competitor. Moreover, the Swedish MNC already had access to an inter-

2
For the historical development of Alfa-Laval and its international activities, see Bondeson
(1983); Zander (1994); and Zander and Zander (1997).
 Associating Local Strategies of Global Reach 33

national organization in which it could sell its inventions and amortize

development costs, unlike its purely Danish-based rival. Soon after Pasilac’s
creation, therefore, the group negotiated its own takeover by the Danish
Sugar Factories, a Copenhagen-based holding company and the country’s
largest privately owned food producer, in order to secure the financial
resources that would allow it to adapt to the new competitive regime.
During this period the Horsens plant was in a weak and very dependent
position. And yet a curiously balanced game soon became established bet-
ween Horsens and the Pasilac headquarters in Silkeborg. Acknowledging
Horsens’s reputation for technological and craft ingenuity, Silkeborg would
often use its affiliate as a facility for solving some of its customers’ more
complicated problems, if these fell outside the specialized competences of its
R&D department, which was centralized in Silkeborg together with sales and
marketing, accounting, construction, and the service department. Whereas
previously Horsens had experienced a balanced game of give-and-take with
its customers, Silkeborg now paid below full cost for complicated orders and
only used Horsens as a supplier for more remunerative standardized work
when it needed extra capacity. The double effect was that Horsens was able to
maintain itself as a manufacturer of rapidly changing products, making it an
attractive workplace for skilled workers and apprentices, but was also re-
duced to a mere workshop unable to take any action towards the market on
its own, and thereby having no defense when its accounts showed losses due
to very low transfer prices. This ambiguous situation was further reinforced
when Silkeborg started to allocate to Horsens those managers who had lost
their place in the power struggles within the dominant coalition at company
headquarters. For these managers, their exile to Horsens was the last station
before being sacked. Consequently they were only too eager to confirm any
critique that Silkeborg might make against Horsens. Thus Horsens was
gradually losing, if not its technological capabilities, then its reputation as
a viable company, making some workers and its network of suppliers skep-
tical about its future. In other words Silkeborg had prepared a role for
Horsens as a sacrificial lamb should a situation emerge in which one
was needed.

Finding a New Way to Play the Traditional Game

Such a situation emerged in the early 1980s when the Danish Sugar Factories
became impatient about the seemingly permanent red bottom line of
Silkeborg’s accounts. A more thorough restructuring was demanded. But
Silkeborg had its own plans ready. A number of sacrificial lambs had
been prepared among the newly acquired subsidiaries. Now it was simply
34 Local Pathways to Multinational Enterprise

suggested that activities should be concentrated in the vertically integrated

home plant in Silkeborg and many of the acquired factories should be closed.
But the Silkeborg managers had miscalculated the reaction of the workers
and for that reason also of its Copenhagen owners. With the passage of the
Aktieselskabslov (Joint-Stock Company Law) in 1973, employees had been
granted the right to elect their own representatives to the boards of com-
panies beyond a certain size.3 Since Horsens’s skilled workers, as mentioned
earlier, were very active in local union politics, they had considered it an
obligation to exploit this new legal opportunity and gain experience of the
new rights, and could use their control over the local section of the Metal-
workers’ Union to have the plant’s convener of shop stewards elected
as a representative of the company’s blue-collar workers to the board in
Silkeborg. For that reason a fairly new voice was soon explaining to the
Copenhagen owners that the distribution of loss and profit-makers among
different plants within the Silkeborg-based holding company might be the
outcome of internal transfer-pricing practices rather than a reflection of their
comparative efficiency. Consequently, if the board decided to close most of
the newly acquired plants, a year later they might discover that the large
vertically integrated plant in Silkeborg would incur greater losses itself than
the whole business group had been making up to that point.
These warnings fell on attentive ears. Possible alternatives were analyzed
and the outcome was a much more radical restructuring than anyone from
the dominant managerial coalition in Silkeborg had been able to imagine
even in their worst nightmares. First, the Copenhagen owners wanted to
create a system in which it was possible to assess the individual performance
of each plant. Thus each plant would have its own accounts, its own sales and
marketing, a small development department, and such functional depart-
ments as they themselves believed would help improve their internal per-
formance. Second, each of the subsidiaries would operate as independent
firms with their own boards on which the Copenhagen owners were repre-
sented directly. Third, the board of the Silkeborg holding company was to
oversee the treasury and flow of resources, decide on transfer prices, and
allocate investments in new machines and factories. Fourth, a radical change
in the intrafirm division of labor was instituted. The Silkeborg plant would
be considered the center for tank and other large constructions and would at
the same time produce some of the group’s most technically complicated

3
Unusually for Danish industrial relations, this right was introduced through legislation rather
than a voluntary collective agreement. Initially, the size threshold for election of representatives to
company boards was set at 50 employees, but that was reduced to 35 in 1989. Employees may
participate in the election of board representatives even if they are not union members and/or are
not covered by collective agreements. See Westenholz (1999); Asmussen (1998).
 Associating Local Strategies of Global Reach 35

machines (such as continuous butter makers). Danish Turnkey Dairies in

Aarhus, which had been established by the Danish Sugar Factories group in
1969, would concentrate on engineering and designing turnkey food-
processing plants for external customers. The former Danish Dairies
Machinery Works plant in Kolding was to specialize in plate heat exchangers
and Rannie in Copenhagen in homogenizers, while Horsens was assigned
to specialize in stainless-steel pumps, valves and fittings for all types of
integrated food-processing establishments.
Many of the exiled managers from Silkeborg were simply fired, thereby in
one stroke cutting the old ties of dependence to the former parent plant.
Horsens instead hired a new CEO who came from a position entirely outside
the business group and read the situation as one in which he could create a
new company out of the flesh, bones, and soul of the former firm with its
high technical reputation. As is typical for many Danish managers within this
industry, the new CEO had started his career as an apprentice machinist.
After having worked for a while as a journeyman machinist worker, he was
employed as a meister or foreman in different factories. He then undertook
further training as a ship engineer (maskinmester) and sailed for some years.
From this experience he had learned to manage a small team of workers in
critical situations, which he used in his next job as team leader for a group of
oil workers, many with very odd or extreme personalities, which he had to be
able to ‘read’ in order to be able to manage them. Then he became a salesman
for a number of years and built up an extensive network of contacts across
firms throughout Denmark. When his family demanded from him a less
vagrant life, he settled for a while as a business consultant, and from this
position he gained a job in a Danish subsidiary of a British MNC. In this
post, he suddenly became aware of the radical differences between British
and Danish ways of managing, in particular the far greater degree of auton-
omy practised by Danish workers.
When this manager came to Horsens, he was thus able to assess the human
potential of its workforce, and dared to initiate a number of very radical
organizational changes. A huge seminar room was created in the cellar to
institute an in-house version of the Danish ‘folk high school’. For several
evenings each week over a period of a year, this room became a stage for
discussing strategy, organization, and personal careers, open to all employees
who wanted to participate.
Out of these meetings emerged a number of functional departments: a
new product development department, manned primarily by former skilled
workers and a couple of engineers recruited from other firms within the
Silkeborg-centered business group, collected from all other affiliates draw-
ings and construction principles for pumps, valves, and fittings and started
36 Local Pathways to Multinational Enterprise

to group these into product families. A new methods department, manned the
same way, started to investigate which group of products could be produced
on which machines, which products would demand new machines, and
which could be farmed out to the numerous subcontractors of the region
or within the business group to which Horsens belonged. A new purchasing
department, tightly integrated with the new production planning department,
started to plan output of about 3–4,000 products built up from 30–40,000
components, based on the conviction that the normal throughput time of
33 weeks for pumps and 15 weeks for valves had to be drastically reduced.
A new sales department started to anticipate a world in which it should not
only learn to service the business group itself in a better way, but also try to
capture as much of the external market as possible. All these departments
were serviced by a centralized computer system, using an adapted version
of IBM software, which it was believed could assist them in establishing
rapid cooperation.
As many of the new white-collar workers and managers who now manned
these new functions had extensive shop-floor experience, they were highly
focused on how to speed up production. But Horsens’s production was then
organized functionally, as was typical for many machine shops at that time in
Denmark: machines were grouped according to process (welding, turning,
drilling, etc.), so that components had to zig-zag back and forth in many
combinations. For that reason, a new production manager who had experi-
ence of changing such plant layouts into integrated groups was hired, and a
huge factory reorganization process soon became the focus for the lively
evening debates in the cellar seminar room.
From all this, the concept of a highly flexible factory developed. It was to
be based on equipment at hand and a substantial number of newly acquired
computer-numerically-controlled (CNC) machines. The idea was to place
these machines in product groups (one for pumps, another for valves, and a
third for fittings), to be serviced by other functional operations, such as
polishing. The factory was re-equipped to allow for easy reallocation of
machines between and within product groups, since everybody admitted
that no one could have any idea what the groups’ capacity needs would be,
either in the short or longer term. Though the new production manager
basically drew on American-inspired ideas about the integration of mass-
production flow factories, he was convinced that—at least during an initial
period—they would have to make highly flexible use of the new machines.
This allowed skilled shop-floor workers to imagine the new production
layout as a huge and very inspiring craft challenge in which they were
ready to cooperate both practically and formally. Thus the convener and
the production manager formed a very tight team that together implemented
 Associating Local Strategies of Global Reach 37

this revolution in a very short period. Individual workers were inspired to

take evening classes in programming techniques and before long they were
competing within and across product groups over who would gain the
highest reputation in commanding the new technologies, in changing rapidly
from one batch to the next, and in finding new ways to use the old and new
CNC machines. In short, Horsens had re-created a situation which unleashed
the old competition over reputational skills.
This competitive game occurred in a factory that again was able to attract
admiration locally and sectorally, but more important still the technical
reputation could be gained in concert with commercial and economic
success. In 1981–2 Horsens reached a turnover of 37 million Danish kroner
(DKK) and turned a huge loss into a small surplus. In 1983–4 it reached a
turnover of DKK93.5m and its pre-tax profits had reached DKK9m, while for
1985/6 the turnover reached DKK158m. Instead of 33 weeks, the lead time
for pumps was now 2–3 weeks. Instead of 15 weeks, valves could now be
produced within 4–5 weeks. And this new strategy implied that due to
capacity limitations, Horsens had to restrain its external sales compared to
what would have been possible. By 1985 Horsens was a highly self-confident
actor within a business group that seemingly had recovered from a severe
crisis in a very short time.

The Failed Danish Attempt to Conquer the World

What Horsens had accomplished on a small scale seemed matched if not
exceeded by what the whole group was accomplishing on a large scale. Its
turnkey engineering subsidiary had proven highly successful in gaining
orders both from the large cooperative dairy group, MD Food, and for
projects in Third World countries. With the new group of specialty suppliers
and with Silkeborg’s ability to deliver large constructions and continuous-
flow machines within radically reduced lead times, the entire business group
felt prepared to conquer the world.
Its strategy for becoming an offensive player followed the pattern which we
have already had the opportunity to learn from the case of Horsens. The
turnkey engineering subsidiary’s idea was that they should try to cater for the
most technically demanding and difficult market. When that proved success-
ful they would then have established a global reputation as the leading
engineers and manufacturers of large-scale dairies.
The most difficult and demanding market was considered to be North
America. Rather than just opting for small and middle-sized dairies, the
Danish holding company sought to win a contract for one of the largest and
most advanced dairies being planned on the US market, and in 1982 they
38 Local Pathways to Multinational Enterprise

were successful. In Denmark, the press celebrated this contract as a national

victory carrying the promise of future global expansion.
But soon the Danish business group was entangled in a seemingly familiar
game, where only the rules were unfamiliar. Probably stimulated by lobbying
from the US food-processing equipment manufacturers, the American
authorities took on a highly active role in investigating and overseeing the
Danish contractors and the technical requirements of the dairy that was
about to be constructed in the US. The Danes welcomed these demands
because they were formulated in technical terms, and expected that their new
organization would be able to meet any reasonable standards that could be
imagined. In other words the Danes expected that the higher the standards
they would prove able to meet, the greater the reputation and the larger the
global market they would gain in the process.
The American authorities, however, were playing a game in which success
was not defined by satisfying technical requirements. Rather what mattered
for them was to prove it impossible for a foreign equipment producer to
enter the US market. In short, even if the Danish business group met the
most stringent technical requirements, requirements which had never been
demanded from any US suppliers, the authorities would simply raise them
and invent new standards in areas where none had previously existed. Of
course, the game could only be played this way because the contract had been
cleverly written from the very beginning. Otherwise the new costs would
have had to be paid for in part by the American customer. In the actual
contract, the customer shared a common interest with the American author-
ities and the more that was demanded by the latter, the more the former
would get free of charge.
It is interesting to note on the one hand how seriously the Danes sought to
meet the technological demands, based on a firm expectation that these were
reasonable in light of some kind of health and safety considerations, and on
the other hand how the diverse plants engaged in all sorts of technical
experiments in order to reach levels of polishing that had never been
achieved before, or to find a new washing material to allow for pressures
that had never been previously observed in any dairy. They carried the
development costs of these new and unexpected demands in the conviction
that they would later save marketing costs, as customers from all over the
world would line up to buy from them after having a chance to inspect what
they had accomplished in the US. During the entire process the Danish
company never understood that they were merely involved in a game
about the terms of their contract, and that in such games it is not engineers
but lawyers that are the frontline soldiers. So the Americans were playing a
game according to their own traditional rules while the Danes were also
 Associating Local Strategies of Global Reach 39

players in this game, but following Danish rules. Not surprisingly, the
Americans won according to their own rules, and not surprisingly, too,
the Danes also won according to their own rules. But the Danish victories
were very costly, whereas the American victories were very profitable. In
1987 the Copenhagen owners found that they wanted to get out of this game
and decided to sell the Silkeborg business group to a foreign giant.

A Convener Strategizing in High Politics: Exchanging Survival for

Membership in a British Multinational Company
By participating in numerous games of redefining the structural position of
Horsens, its convener and skilled workers’ shop steward had learned how to
act as a strategist in this volatile world. As will become clear in a moment,
these skills were used primarily to shape Horsens’s internal organization; but
he had also had a say on the board of the Silkeborg business group and had
gained enough experience to read between the lines and to catch the signs of
minor deceit in the eyes of speakers. For that reason alone he realized very
early that a takeover was being prepared. Even boards with formal recording
rules are normally considered too public to share in the preparatory steps of
takeovers. By asking questions to be recorded, however, he forced the chair-
man to tell the truth at a moment when he would probably have chosen to
lie. The chairman, who represented the Copenhagen owners, was negotiating
with a specific buyer, which happened to be Alfa-Laval, the Swedish multi-
national, which already owned many plants in Denmark.
Comparing Alfa-Laval’s plants in Denmark with those of Pasilac immedi-
ately convinced the convener that the takeover would become a bloodbath, in
which the Swedish MNC would primarily destroy a competitor and close
down its plants, including Horsens. The convener was therefore convinced
that his group of skilled workers and their business unit were in great danger.
Knowing that Copenhagen would pay only lip service to any obligation to
preserve the jobs of workers, he characterized the takeover as a threat to the
Danish Sugar Factories itself. Would not the stock price decline when the
media became involved? Would not the public image of the holding com-
pany, one of the oldest and most highly respected corporations in Denmark,
also decline when the media were informed about how it had managed the
American adventure? Speaking as a responsible board member, he created
images that were disconcerting to both stockholders and the managers of the
holding company, and they probably felt relief when he asked them whether
they had carefully considered alternatives among foreign corporations. The
CEO in Silkeborg replied that APV, a British multinational, had shown
some interest, but no contacts had been made.
40 Local Pathways to Multinational Enterprise

Between two board meetings the convener, together with other employee
representatives, convinced their union to initiate an investigation of the
British multinational. This showed that its structure and distribution of
plants, and particularly its weak presence in Scandinavia, would at least
offer better opportunities for the Danish business group than would the
Swedes. So the employee representatives were well prepared for the next
board meeting.
For whatever reason, however, their preparation proved unnecessary. The
alliance within the holding company that had chosen the ‘bloody’ alternative
had already been broken. Contacts with APV had been initiated and a much
more promising takeover was being negotiated.
In order to transform the takeover question into more than merely a
financial affair, the convener wanted the potential British owners to visit
every plant of the business group in order to see for themselves what jewelry
they were going to buy. From his knowledge of British plants he knew that
the outcome of such a tour would be very convincing. Even more so, this
tour convinced the British owners that they were buying facilities which
ought to be expanded rather than closed down. At the same time, the
employee representatives were able to mobilize unions and their financial
institutions to buy a considerable packet of shares, ‘just to show how unions
function in Denmark’. The share purchase instantly made the Danish unions
one of the major shareholders of the business group, and the British owner
immediately felt an obligation to keep them informed about their plans
and policies.

2. Dairy Co. and Dairytown: National Marketing and

External Takeovers as Local Strategies4

From Local Dairy Equipment Shops to a National Full-Service Firm

As in the case of Horsens, the origins of today’s Lake Mills plant can be traced
back to the late nineteenth century. During the long period of rapid eco-
nomic growth and transcontinental expansion which followed the end of the
American Civil War in 1865, the rich pasturelands of the upper Midwest in
general and those of south-central Wisconsin in particular became the site of
a flourishing dairy industry serving regional markets of urban and small-
4
This section is based primarily on company histories of CP (Godfrey 1937) and APV Crepaco
(1987), together with information from APV’s own company history (Dummett 1981), the
financial press, and interviews conducted at the plant by us and by researchers from the University
of Wisconsin School for Workers from 1994 onwards. Citations to specific passages in the Crepaco
and APV company histories are given only for direct quotations.
 Associating Local Strategies of Global Reach 41

town consumers. Of all the American states at that time, Wisconsin perhaps
bore the closest resemblance to Denmark, with its numerous small family
farms, vibrant dairymen’s associations and cooperatives, agricultural experi-
mental stations supported by the state land-grant college (now the University
of Wisconsin-Madison), and self-consciously progressive government, active
both in national struggles over issues such as railway rate regulation and
monetary policy, and in the local promotion of apprenticeship and voca-
tional education, social insurance, and cooperative industrial relations.5
Within this milieu, a host of machine shops sprang up to supply the
equipment needs of local dairy farmers, capitalizing on a series of labor-
saving devices invented by self-taught mechanic-tinkerers, as well as on the
innovative research of the land-grant colleges, such as the Babcock Test
developed at the University of Wisconsin in 1890 for determining the precise
butterfat content of milk supplied to cooperative creameries from each
individual farm. Among these local dairy equipment shops were F. B. Fargo
and Co., founded at Sterling, Illinois around 1870, but soon transplanted
to Lake Mills, Wisconsin, and the Cornish, Curtis & Greene (CC&G)
Manufacturing Co., established at the nearby town of Fort Atkinson in
1868. Both firms rose to prominence on the basis of a successful proprietary
design—rectangular butter churns for CC&G and a combined churn and
butter working machine for Fargo—but both soon expanded into a wider
range of dairy machinery as they strove to meet the evolving needs of their
local customers. CC&G’s founder in particular was a leading figure in the
Wisconsin Dairymen’s Association, who played an active part in its efforts to
promote the adoption of improved dairying practices across the state, and
his firm was among the first to bring out milk pasteurizing equipment based
on bacteriological research conducted at the university. Both companies also
became the dominant enterprise in their small towns, on which the latter’s
prosperity and development increasingly depended, an association most
graphically illustrated by Fargo’s long-standing provision of electric light
and power to Lake Mills until the facility was sold to the town several decades
later. Despite these deep local attachments, however, there was apparently a
‘friendly rivalry’ between the two neighboring firms, in which each occasion-
ally used the other’s shop to produce work for which it lacked the right
machinery (Godfrey 1937: 20).
In 1898, both Fargo and CC&G were bought up along with a number
of other leading Midwestern suppliers of dairy equipment by a larger
enterprise, the Illinois-based Creamery Package Manufacturing Co. These
5
On the economic and political development of Wisconsin in the late 19th and early 20th
centuries, see Nesbit (1985), esp. chs 1, 3, 4; Buenker (1998), esp. chs 2–4, 6, 8, 11–13. For the state’s
emergence as ‘America’s Dairyland’ during this period, see also Lampard (1963).
42 Local Pathways to Multinational Enterprise

acquisitions formed part of the great merger wave which swept across US
industry at the turn of the century, but they also reflected a specific strategic
logic: the subsumption of local user–producer interaction in equipment
manufacture under a wider sales and service organization able to reach the
numerous regional clusters of dairy farmers dispersed across the vast
national territory. Both Fargo and CC&G, for example, had established
commercial subsidiaries in the adjacent state of Minnesota at the time of
the merger, but depended on outside firms, including Creamery Package, for
the distribution of their products in other states. The Creamery Package Co.
had itself been founded in 1882 at Rock Falls, Illinois, by a college-educated
Wisconsinite with retail lumber-yard experience and an ex-cooper mechanic-
inventor, for the mechanized manufacture of wooden butter tubs, a key dairy
trade staple. But the new firm quickly expanded into additional regions and
products, opening branch factories and sales offices across the Midwest,
and seeking to provide the full range of the equipment and supplies needed
by their dairy farming customers through agency sales agreements with other
manufacturers, followed in some cases by mergers and acquisitions. By the
time of its reincorporation as a public joint-stock company in 1887, Cream-
ery Package had thus become known not only as a wooden-ware manufac-
turer but also as ‘an aggressive merchandiser of other dairy needs in its
territory’, which spanned the entire upper Mississippi valley. The 1898
merger in turn transformed the firm, according to its official history,
‘from a local manufacturing and distributing concern serving only the
mid-continent area’ into ‘the country’s largest dairy equipment and supply
company . . . national in scope’ (Godfrey 1937: 12, 21).
Over the next three decades following the merger, Creamery Package (or
CP as it became known from its trademark) extended its sales and distribu-
tion network to a truly national scale, and consolidated its manufacturing
operations at a restricted number of locations, closing down the remaining
plants. Lake Mills and Ft. Atkinson were two of the major winners in this
rationalization process, receiving new modern factories in 1910 and 1919
respectively, both of which were substantially extended in 1931. During the
early years of the merged company, CP continued to improve and supple-
ment the products developed by its constituent firms in collaboration with
the land-grant colleges and their agricultural experiment stations. From the
mid-1920s onwards, however, CP began to establish an in-house research
and design engineering function as it acquired additional companies and
moved into new and more technically demanding fields such as heat transfer
and temperature control, milk bottle washing machinery, and continuous
ice-cream freezers. Crucial to this process was CP’s early embrace of stainless
steel for equipment manufacture, necessitating a comprehensive redesign of
 Associating Local Strategies of Global Reach 43

its product line, which also coincided with progressive broadening of the
primary customer base from creameries or butter makers to the dairy and
ice-cream industries as a whole. The new R&D Department, located first at
CP’s Chicago headquarters and then at its main machining facility in
Ft. Atkinson, also played a key part in safeguarding and expanding the
market for the company’s products by actively participating in the develop-
ment of 3-A Sanitary Standards for US dairy equipment, the forerunners of
those which would later waylay Pasilac’s American offensive of the early
1980s. As CP’s products became more distinctive and technologically sophis-
ticated, new opportunities for export sales emerged, and the company
established its first overseas subsidiaries in Britain and Canada during the
early 1930s, the former in association with their local agents and the latter as
a wholly owned operation.
Thus at the heart of CP’s growth and development from the 1900s through
the 1950s lay its strong national marketing organization based at the Chicago
company headquarters, with a network of wholly-owned branch sales offices
strategically located in key cities across the dairy-producing regions of the
United States. To meet the current and prospective needs of its customers, CP
obtained distribution rights to new products through agency agreements and
acquisitions, maintained its own specialized plants, and developed an inde-
pendent R&D capability. The company’s factories and the communities
dependent on them prospered in turn by providing a good service to the
marketing organization, expanding their production facilities to manufac-
ture new types of equipment, and collaborating with R&D engineers in
product improvement and development.

External Takeovers as Strategic Alliances for Local Development

At the end of the 1950s, the Creamery Package Co. ran into an unexpected
crisis as a by-product of its own success. In exchange for one of its unwanted
subsidiaries, CP had accepted shares in the acquiring company which subse-
quently appreciated sharply, driving up the book value of its own stock well
above the current market price. The resulting opportunity for a quick paper
profit began to attract concentrated purchasing of CP shares by groups of
stock market speculators, causing the company management to fear an
eventual hostile takeover. The solution the managers hit upon was to arrange
a takeover of their own by a major corporation that would ‘allow CP to
operate and grow as a more or less independent subsidiary’ (APV Crepaco
1987: 56). They soon found a suitable white knight in the form of the St. Regis
Paper Co., one of a number of Wisconsin-based paper manufacturers which
was then in the process of expansion into a conglomerate. A voluntary stock
44 Local Pathways to Multinational Enterprise

exchange between the two companies was consummated in January 1960,

and CP became a free-standing division of St. Regis in 1964.
With CP’s autonomy secured within the St. Regis group, the company
managers could now turn their attention to the urgent need for new facilities.
As the firm broadened its focus from the dairy sector to the food industry
more generally and became a supplier of automated systems for ‘total
concept’ plants as well as stand-alone pieces of equipment (APV Crepaco
1987: 61), its growing output and the increasing physical size of its products
could no longer be contained within aging multi-story plants like that at
Ft. Atkinson where all its machine tool processing had been concentrated.
During the early 1960s, a national search ensued for a new manufacturing
location. The winner was the City of Lake Mills, which made a large
greenfield site available near the company’s existing plant. A key consider-
ation in this locational choice was that it allowed ‘easy access [to] the
Company’s qualified and experienced workforce’ (APV Crepaco 1987: 62),
including the machinists from the former Ft. Atkinson factory, who brought
with them to Lake Mills their own separate local union and collective
bargaining contract. All purchasing, accounting, engineering, and sales ser-
vice activities were centralized at the new complex, which incorporated a
complete testing and development lab, including a pilot plant that could be
set up to run customers’ products on CP equipment, as a lever for entering
new markets. From a relatively peripheral facility principally engaged in tank
and sheet-metal fabrication, the city’s initiative thus transformed Lake Mills
at a stroke into the very core of the company. By the late 1960s, the national
marketing organization and the central production facility at Lake Mills had
together come to replace the old local plants as vectors of user–producer
innovation. Under this new structure, regionally based sales staff, themselves
capable of designing and building complete dairy and food processing plants
with limited headquarters assistance, actively monitored their customer
contacts for promising unmet needs, which were then picked up by the
central R&D Department and jointly transformed into successful new prod-
ucts, as in the cases of liquid sponge fermentation systems for the baking
industry and vacuum heat systems for milk processing.
While the domestic market always remained CP’s central focus, inter-
national sales became increasingly important to its growth during the
1950s and ’60s, as the company expanded its export organization from its
historic orientation towards Latin America, Canada, and Britain, to take in
Australia, the Far East, and continental Europe. By 1970, CP management
had concluded that the firm needed to acquire a European dairy equipment
manufacturer with its own production facilities to facilitate its penetration of
the continental market, and were exploring the possibility of buying a Danish
 Associating Local Strategies of Global Reach 45

company. In the event, however, the integration of CP into a full-scale

international sales and manufacturing network came from the opposite
direction. During the mid-1950s, CP had come into contact through its
Australian distributors with the British dairy and food-processing equipment
group APV, which already had manufacturing facilities in the US and raised
the possibility of a merger. In the early 1970s, APV renewed its interest, and
receiving a favorable reaction from the CP management, directly approached
its parent firm. The St. Regis Paper Co., by now a diversified conglomerate,
was anxious at that time to expand its holdings in the booming UK stock
market, and in 1973 agreed to sell its subsidiary to APV in exchange for a
28 per cent stake in the latter.
Although CP’s role in this transaction was clearly less proactive than in the
company’s earlier acquisition by St. Regis, the friendly nature of the takeover
is confirmed by the fact that the entire US management team remained in
place. There was considerable commercial synergy between the two com-
panies, and Crepaco, as it was now called, quickly secured a pair of major US
dairy contracts on the basis of APV’s computerized plant automation system.
In addition to its powerful US sales network, Crepaco brought superior
technological capabilities to the merger in areas like ice-cream machinery
and food processing equipment, for which it became the official center of
group development, as well as filling significant gaps in APV’s offerings for
key items such as positive pumps. While there were also substantial overlaps
between the two companies’ product lines, notably in the case of plate heat
exchangers and homogenizers, the group’s management ‘then took the
position that there was sufficient worldwide market present to allow for
healthy internal competition to exist, and so it did for many years’ (APV
Crepaco 1987: 70). With the centralization of most domestic management
functions at Lake Mills, Crepaco’s Chicago headquarters was replaced by a
smaller new facility near the international transportation hub of O’Hare
Airport, but only the company’s Canadian operations were fully consolidated
with those of APV. Thus, in many respects, the relationship between the two
firms resembled a strategic alliance more closely than it did a fully integrated
multinational hierarchy.
These federal arrangements remained largely unchanged for more than a
decade. Throughout the 1970s, the Lake Mills complex continued to expand
its sales volumes, product range, equipment park (including substantial
investments in computer-controlled machinery), and physical production
space, following the established logic of vertical integration and employ-
ment growth as mutually reinforcing strategies of company and community
development. During the deep US recession of 1981–2, however, it became
apparent that Lake Mills’s expansion had been carried too far, as the
46 Local Pathways to Multinational Enterprise

termination of a major sales agreement for farm bulk milk cooling tanks left
the plant with large surplus capacity, resulting in high fixed overhead costs
which have remained a critical problem for the complex despite successive
layoffs and reorganizations. In 1983, a new company president was recruited
from the US subsidiary of Baker Perkins, another British-owned food equip-
ment multinational itself acquired by APV a few years later. This president,
the first outside top manager, brought with him a strong US marketing
background which reinforced Crepaco’s established orientation, and imme-
diately embarked on an autonomous program of mergers and acquisitions.
These additions mainly involved companies with long previous associations
with Crepaco, and were directed at strengthening its capacity to supply
complete ice-cream production and packaging lines.
It was only during the early 1980s, when APV itself came under new
outside top management, that the UK group, as we shall see, began serious
efforts to integrate its various international operations into a single unified
organization. Following a group-wide profit crisis in 1984, Crepaco was
merged the following year with APV’s long-established subsidiary based in
Buffalo, New York to create a new entity known as APV-Crepaco, Inc.
Among the first steps taken under the new regime was to phase out Crepaco’s
proprietary line of heat exchange equipment, which competed directly with
one of APV’s core specialties, whose elimination represented a long-held
ambition of the latter. APV’s R&D/production complex at Crawley, which
occupied an analogous place in the organization of the UK company to that
of Lake Mills in Crepaco, had been designated the official group center for
heat exchange technology after the original merger, and Crepaco had de-
veloped a special frame to use APV plates during the late 1970s while also
continuing to manufacture its own rival equipment. The creation of APV-
Crepaco also resulted in the unification of the two companies’ engineering
and sales operations. Long-serving top executives from the US APV Equip-
ment Co. were placed in charge of new company-wide groups responsible for
development engineering, technical service, and automation on the one
hand, and for sales and marketing on the other. Crepaco’s nine regional
sales offices were consolidated into five for the group as a whole, three of
which remained under the control of their previous managers, presumably in
deference to the company’s superior penetration of the US market. The
international operations of the two firms were likewise merged under the
direction of a senior Crepaco manager originally recruited from a leading UK
ice-cream manufacturer.
The 1985 merger thus represented a significant setback and challenge for
Crepaco’s core Lake Mills plant. From its pivotal position as the center of
research, product development, and production for a largely autonomous
 Associating Local Strategies of Global Reach 47

domestic and international sales network, Lake Mills now found itself
formally subordinated in both technical and marketing terms to the US
management of its UK parent group, with its own core factories, products,
and strategic priorities. The Lake Mills plant also carried a heavy overhead
burden of surplus capacity and excess physical space as a result of its own
past over-expansion. On the other hand, however, closer cooperation with
APV opened up new opportunities for the sale of Crepaco pumps, processing
tanks, and other equipment. Neither were the various actors who made up
the Lake Mills complex devoid of strategic resources of their own in the
struggle for position within the British-owned multinational. Among the
most prominent of these were a broad installed customer base, with its
associated demand for replacement equipment and spare parts; long-stand-
ing collaborative relationships between regional sales staff and plant-based
R&D engineers; accumulated product development capabilities in particular
fields such as ice-cream machinery; the skills and experience of the manual
workforce (much of which, as we will later see, remained underutilized); and
the seniority-based collective bargaining agreement, described in Chapter 1,
which bound together the fortunes of the plant, its long-serving employees,
and the local union. How and with what results different local actors
deployed these various resources to defend the Lake Mills plant during the
1990s, when the APV group as a whole ran into increasingly severe competi-
tive pressures, will be taken up in subsequent chapters.

3. The Sleeping Beauty of Pump Valley: Absentee Ownership, Techno-

logical Capabilities, and the Formation of a Local Cluster6

The resort town of Eastbourne on England’s south coast, renowned for

its international women’s tennis tournament and its grand but decaying
nineteenth-century seaside hotels, is perhaps the last place anyone might
look for a localized cluster of precision engineering manufacture. Yet when
we visited Eastbourne in 1997, four of the UK’s leading pump manufacturing
plants, each owned by a different multinational group, were situated within a
five-mile radius of the town, along with a number of specialized subcon-
tractors and suppliers. Each of these plants, moreover, had begun life as
independent owner-managed firms, spun off directly or indirectly from a
single small enterprise, the Howard Pneumatic Engineering Co., which in
1932 had developed the first rotary lobe positive pump, widely used today for
6
This section is based on interviews conducted at the plant and its suppliers in January 1997,
together with a brief historical sketch prepared by the technical director and the report of a
sociological field study of new pump design (Sanderson 1996).
48 Local Pathways to Multinational Enterprise

the propulsion of viscous liquids by the food processing, chemical, pharma-

ceutical, and personal care product industries. So striking in fact was the
localization of pump manufacturing around Eastbourne that the area had
become widely known—at least to those in the business—as ‘Pump Valley’.7
Unlike both Horsens and Lake Mills, Howard Pumps did not become part
of a larger national or multinational manufacturing group until the end of
the 1980s. Unlike Lake Mills, too, the specialized technical competencies
and craft skills produced at Howard over the years did not give rise to a
process of internalizing growth, but instead spilled over into new-firm
formation and worker mobility in the local labor market. In this respect
Howard bore a closer resemblance to Horsens, though as we shall see,
its relationships to other local firms and institutions were both less inter-
dependent and less collaborative than those of the East Jutland machine
shop.
The Howard Pneumatic Engineering Co. was established in 1897 by the
eponymous founder and moved to Eastbourne in 1903, where its early
products included chipping hammers and pneumatic grinding machines.
In 1922, the firm was incorporated as a limited company with a modest
capital of £13,000, focusing primarily on pneumatic machinery and rail
equipment. By 1930, Howard had begun to specialize in mechanical pumps
of several different types, with particular emphasis on petrochemical appli-
cations. In 1932, as we have already noted, Howard Pneumatic Engineering
introduced the first rotary lobe pump, with two trefoil-shaped heads
counter-rotating and meshing to drive a liquid, developing it into a full
range of sizes for different applications, which the firm continued to produce
for more than two decades. In 1936, the company was bought by the Pettit
family, who regarded it principally as an investment, leaving day-to-day
operations in the hands of the existing management. Following temporary
wartime diversification into alternative products such as bomb bars and
machine gun barrels, Howard Pumps, as it became known, concentrated
after the war on the manufacture of rotary lobe and reciprocating ram
designs. The company built up substantial technical expertise and shop-
floor skills in the design and production of these types of pump, for which
it acquired a high reputation among a variety of industrial customers.
But Howard Pumps was inherited in the 1940s by Miss Pettit and her
sister, who according to an interview with one long-serving worker,

7
A well-informed colleague studying local clusters of specialized manufacturers in the UK told
us that an analysis of official data showed a concentration of precision engineering equipment firms
around Eastbourne which he had previously dismissed as a statistical artifact on the grounds of its
intrinsic implausibility. For the published study and its methodology, see Crouch and Farrell
(2000).
 Associating Local Strategies of Global Reach 49
just used the firm as a hobby, as something to do. She wasn’t really into big business
like we are today. . . . but she just used to keep it—she used to come ’round and
speak to everybody and laugh and joke. But she was a little old lady, long grey hair,
you know, bent up, but she loved to speak to everybody. . . . She had her old
favorites, the old gentlemen in the rear, but it wasn’t really called business. Each
pump was hand-painted with a paintbrush and a set of paints, you know. . . . [I]f
she got short of work, Miss Pettit, or short of money, she’d re-mortgage her house to
keep the firm going, often.
This easygoing paternalistic style endeared Miss Pettit to much of the
workforce, enabling the firm to operate on a non-union basis, and Howard
Pumps became a magnet for whole families of skilled craftsmen, many of
whom were still employed there nearly forty years later. But lacking inde-
pendent business knowledge, Miss Pettit sought to maintain control over the
firm, according to the technical director, who had worked there since 1946,
by following a policy of ‘divide and conquer’, playing each manager off
against the others. The result was an effective strategic vacuum, in which
underinvestment and commercial stagnation went hand-in-hand. Ambitious
Howard employees thus naturally looked elsewhere to develop their enter-
preneurial visions. In 1958, the plant manager left to set up a rival rotary lobe
pump manufacturing enterprise across the road, using Howard’s own cast-
ings and suppliers, from which several additional new firms in turn spun off
during the 1960s and ’70s. In 1981, another disgruntled Howard employee
struck out on his own to form the last of the UK’s major positive pump
manufacturers, located this time outside the region, some twenty miles north
of London.
Given the acrimonious circumstances of their birth, relationships among
the Eastbourne family of pump manufacturers were more competitive than
cooperative. Most of these firms specialized in the same type of product,
rotary lobe pumps, pitting interchangeable designs head-to-head against
one another in the marketplace. Each of these firms ran their own in-house
apprenticeship programs for craftsmen and technicians in conjunction with
the local technical colleges and the Engineering Industry Training Board
(until the latter’s abolition in the early 1990s). But each firm also sought,
through individualized bonuses and wage increases, to poach skilled workers
and managers from one another whenever they became scarce, creating a
highly mobile and ‘incestuous’ local labor market beyond the collective
control of the regional Engineering Employers’ Association. The only field
in which the rival manufacturers of Pump Valley consciously collaborated,
beyond sending their apprentices to common technical college courses,
was through participation in domestic delegations to international standard-
ization bodies, where they worked together to promote the adoption
50 Local Pathways to Multinational Enterprise

of British technical standards over those of other countries. In other cases,

effective cooperation among local firms remained dependent on the un-
acknowledged initiative of third parties. Thus in the mid-1990s, three of
the four major local pump manufacturers had shafts, lobes, and other key
components made by the same small subcontractor, whose CNC machinery
and highly skilled operators thus served as a virtual common production
facility, with each customer’s personnel banned from the premises while
the others’ work was being processed to prevent unwanted circulation
of technical and commercial secrets. In this non-collaborative environment,
it is scarcely surprising that each of the region’s pump manufacturers
was bought up one by one during the 1970s and ’80s by leading US,
Swedish, and British-owned multinational engineering groups seeking
to integrate their products into larger processing systems and turnkey
projects according to the logic of oligopolistic competition outlined in the
Horsens story.8
In 1982, Howard Pumps was itself acquired by a South African-based
holding company, which regarded the firm primarily as a portfolio invest-
ment. The absentee owners’ insistence on improved financial returns from
their new asset had both negative and positive implications for the firm’s
technological and human capabilities, which had languished as a sort of
Sleeping Beauty under the Miss Pettit regime. On the one hand, the South
African holding company sold off Howard’s reciprocating ram pump busi-
ness to a former employee as a means of raising extra cash. On the other
hand, however, they also allowed the firm’s managers to invest in new CNC
machine tools and begin a comprehensive redesign of its core rotary lobe
pump range for the first time since the mid-1950s.
When APV approached Howard’s owners about a possible acquisition in
1989, the Eastbourne company could thus offer a relatively up-to-date range
of positive pump designs as a dowry for entry into the multinational, a
prospect openly welcomed by its senior managers, like their counterparts at
Horsens and Lake Mills. Thus Howard’s technical director actively encour-
aged APV’s CEO to buy his firm as ‘an ideal opportunity’:
All the time I worked here at Howard’s, up until APV took us over, I felt that my
future really, and the future of all the people here, was really on a knife edge. We
never made a lot of money, sometimes we lost a lot of money. And you know, clearly
a company couldn’t go on like that. And so personally, I encouraged going into this
group . . . because I felt this would give us a branch of security. . . . I also saw

8
A prominent German pump manufacturer had also established a nearby branch plant,
presumably to tap into the local pool of specialized skills and suppliers. Among its other global
operations was a factory located in a Madison suburb not far from Lake Mills.
 Associating Local Strategies of Global Reach 51
within the group greater opportunities for research and development, and resources
available to me.9
As in the past, therefore, the technical director and his engineering staff
would seek to enhance Howard’s attractiveness to its new owners and
safeguard the company’s future by renewing its products. The results of
this strategy, together with the unexpected impact on the plant’s internal
organization and performance of conflicting policies pursued by a succession
of outside managers from different countries appointed by the parent multi-
national, will be examined in subsequent chapters.

4. APV: Born Cosmopolitan, Reborn Acquisitive10

The International Origins of a Family Engineering Firm

The last of our four firms stands out at first glance from the others by its inter-
national origins, rooted in merchant banking, university science, and foreign
technology licensing. Surely it is no accident that such a cosmopolitan-born
enterprise eventually grew into a full-blown multinational and swallowed up
the other three more locally rooted companies, rather than the other way
round? Yet for much of its history, as we shall see, APV in fact operated as a
family engineering firm, pursuing a similar set of social, technical, and
commercial logics focused around a local plant complex of design engineers,
craftsmen, and domestic sales staff.
Undoubtedly the central figure in the first half-century of APV’s develop-
ment was that of its founder, Richard Seligman. Born in 1878, Richard was
the son of Isaac Seligman, head of the London branch of the well-known New
York-based German Jewish merchant banking family network. His mother,
Lina Messel, was the daughter of a German banking family and the sister of
an innovative industrial chemist and Fellow of the Royal Society. Richard
thus came from a close-knit and strongly entrepreneurial family active in

9
Another reason why Howard managers welcomed the takeover was that their archrival across
the road had just been acquired by Alfa-Laval, APV’s leading global competitor, which they feared
might mount a hostile offer. Already at the time of Howard’s purchase by the South African holding
company seven years earlier, their local rival had sent surveyors round to appraise the plant’s assets,
leaving ‘no doubt’ in the technical director’s mind that they ‘would have really closed us down’.
10
This section is based primarily on an excellent company history of APV, written by its long-
term Research Director (Dummett 1981), supplemented by that of Crepaco (APV-Crepaco 1987).
For the origins and development of Seligman Bros., see Chapman (1984) and Kynaston
(1994–2001). For the APV group’s more recent history, we have drawn extensively on articles in
the financial and management press, consultancy reports, and other company documents, as well
as on interviews conducted at both group headquarters and subsidiary plants. Citations to specific
passages in the APV company history are given only for direct quotations.
52 Local Pathways to Multinational Enterprise

banking, science, and industry, with international ties to both the United
States and Germany.11 After initial studies at Harrow public school and the
Central Technical College of the City and Guilds Institute in London (now
part of Imperial College), Richard earned a doctorate in chemistry from the
University of Heidelberg, supplemented by additional research at the Federal
Technical High School in Zurich. Through personal connections to the
Guggenheims, another prominent New York Jewish banking family, he
obtained his first paid job as chief chemist to the US Zinc Co. in Pueblo,
Colorado, from which he moved to a similar post at the British Aluminium
Co. in the UK. There Richard began to develop a welding process for
aluminum, whose fabrication presented special metallurgical difficulties,
only to discover that a similar technique had already been patented in
Germany.
In 1910, having acquired agency rights to the competing Schoop welding
process, Richard Seligman set up a business of his own to exploit it, in
collaboration with a leading British brewery consultant who believed that
aluminum would take off as a construction material for tanks and condi-
tioning vessels if the problems associated with its fabrication could be
satisfactorily resolved. A new factory was built for the Aluminium Plate
and Vessel Co. in a disused maltings in Wandsworth, South London, which
would remain the company’s home for the next forty years. True to his
scientific background, Seligman insisted that the plant include its own
laboratory with a full-time chemist to carry out experimental investigations
as well as control tests on the metallurgical structure of welded aluminum. In
the event, however, the brewery business never proved sufficient to occupy
the factory, and APV soon began to diversify into equipment for the chem-
ical and food processing industries, including occasionally complete plants as
well as individual tanks and equipment. Among the main lines of business
during the firm’s first decade were yeast process plant based on patent-
protected vessels for which APV had acquired the UK rights, and fermenta-
tion plant for producing acetone and butyl alcohol, developed by Seligman in
collaboration with the industrial chemist and fellow Zionist Dr. Chaim
Weizmann.
Three bright threads run through this first phase of APV’s history. The first
is the firm’s heavy reliance on family finance and connections. All of APV’s
initial capital was provided by Richard Seligman and his brother Gerald, who
joined the board in 1911 and became sales manager in 1919. But a growing
proportion of loan funds for expansion was informally underwritten by the

11
On the Seligman family and their transnational social and banking connections, see also
Cassis (1994) and Birmingham (1967).
 Associating Local Strategies of Global Reach 53

family merchant banking house Seligman Bros., which also helped to put the
company back on its feet after a disastrous post-war reorganization on
Taylorist lines by an outside professional manager. A second striking feature
is APV’s dependence on the acquisition of outside patent or license rights to
chemical and metallurgical processes for industrial exploitation under the
direction of Richard Seligman and his technical staff. The final strand in the
story is the key role of skilled craftsmen in the fabrication of the company’s
products, as evidenced by its rigorous apprenticeship program, which in-
cluded three months in the drawing office, two months in the foundry, and
three nights a week compulsory attendance at Battersea Polytechnic, as well
as instruction in welding techniques from Seligman himself. Both the first
and the third of these features would continue to characterize APV right
through the 1950s, but the second underwent a dramatic change in the 1920s
which transformed the company’s fortunes.
In the early 1920s, Richard Seligman decided to move APV into the dairy
business as a hedge against possible fall-off in demand for yeast process plant,
the firm’s main earner. Focusing on quality and hygienic issues, together with
opportunities for displacing imported machinery, Seligman studied the
pasteurization process and dairy equipment in Europe and North America.
On his return to the UK, Seligman proposed manufacturing a primitive flow-
holder, which was radically improved with assistance from an outside dairy
consultant, and then focused on devising suitable heating and cooling
equipment to comprise a complete milk pasteurization plant. In 1923, Selig-
man invented the plate heat exchanger, a device based on alternating flows of
mutually isolated liquids through zig-zag channels in a pair of rectangular
metal plates, which in improved form is still widely used today in dairy, food,
and chemical process plants. Seligman worked closely with engineers from
one of the major London dairy groups to demonstrate the merits of his heat
exchanger and to incorporate it into a large-scale vacuum pasteurization
process plant, which became the basis for British-standard technical specifi-
cations that the inventor himself helped to write. Over the next decade,
under Seligman’s leadership, APV quickly diversified into related plant and
techniques such as filters, tanks, and tipping and weighing equipment, which
enabled the company ‘to install virtually complete dairy processing lines’
(Dummett 1981: 57); discovered new applications for the heat exchanger in
the production of butter, cheese, and beer; and developed the first plate
evaporator, based on the same basic principle. The company also moved
rapidly to replace aluminum with stainless steel, which as in Denmark and
the United States was becoming the material of choice for food processing
equipment of all types, necessitating a comprehensive redesign of its heat
exchanger plates to overcome low conductivity and casting problems
54 Local Pathways to Multinational Enterprise

through the use of thin pressed sheets. ‘With the advent of the plate heat
exchanger’, as the company’s official history observes, ‘the business . . .
changed from one of metallurgical engineers primarily involved with the
construction of vessels to one of process engineers supplying complete plant
lines, even equipping complete factories in which fabrication work, however
important, played only a subsidiary part’ (Dummett 1981: 52).
The development of the plate heat exchanger and its derivatives also
transformed APV from an importer to an exporter of products and technol-
ogy. During the late 1920s and early ’30s, APV licensed its designs for foreign
manufacture in the United States and Canada, while also establishing new
sales agency agreements in the Netherlands, Australia, Scandinavia, and
Canada. In 1929, a foreign sales manager was appointed, and by 1937 foreign
sales and license fees accounted for nearly 25 per cent of the company’s
turnover. In 1939, APV created its first part-owned overseas subsidiary to
market the firm’s equipment to the non-dairy industries in the United States.
Despite these apparent steps towards multinationalization, APV remained
very much a family engineering firm, centered around the innovative chair-
man and joint managing director Richard Seligman, his relations in banking
and management, and a core nucleus of research staff, engineers, technicians,
and craftsmen at its Wandsworth factory. Thus when the firm needed
additional capital for expansion in 1938, Seligman Bros. stepped in as it
had in the past, extending generous credit facilities to finance raw materials
purchases and sales. Richard’s son Peter, a Cambridge engineering graduate,
joined the firm in 1936 on the commercial side, and was elected to the board
a few years afterwards, as was Seligman’s son-in-law, Geoffrey Blackman,
then employed by Imperial Chemical Industries but later to become Profes-
sor of Agricultural Economy at Oxford University and Vice-President of the
Royal Society. Although the scale and sophistication of APV’s research
facilities steadily increased to meet the rising demands of new process
applications, especially for the chemical industry, Seligman made ‘a point
of visiting his technical staff every day if possible, rather like a Professor
doing the rounds of his research students’ (Dummett 1981: 67). The Wands-
worth works manager, appointed in 1924 and promoted to the board in
1942, was originally a ‘brilliant coppersmith’ and ‘trade union socialist of
the old school’ (Dummett 1981: 66), who like his counterparts at Horsens
served as a local borough councillor and eventually alderman. This works
manager, not surprisingly, also ‘had a deep appreciation of the importance of
apprentice training’ (Dummett 1981: 68), and among his first acts was the
establishment of an improved formal scheme. The first signs of labor conflict
in the company’s history appeared towards the end of the Second World War,
when national wage awards, negotiated between the Engineering Employers’
 Associating Local Strategies of Global Reach 55

Federation and the unions, wiped out the local pay differential which the
workforce had been accustomed to receiving. The solution, proposed at a
meeting between Seligman and the shop stewards, was the creation of a
Standing Consultative Committee with representatives from both sides to
improve labor–management communication, which was later converted into
a permanent Joint Production Advisory Committee.

Post-war Expansion and Financial Crisis

During World War II, APV continued to expand, diversifying into vital
military work such as TNT distillation plant and welded alloy fuel tanks
for Spitfire fighters, while at the same time redesigning its core dairy equip-
ment lines to take account of significant new technical developments such as
‘high temperature, short time’ (HTST) pasteurization. By 1945, bank over-
drafts and loans totalled five times the firm’s nominal issued capital, and APV
went public the following year, a step the family owners had hitherto resisted,
with the successful share flotation taken up mainly by institutional investors
managed by Seligman Bros. But the resulting influx of new cash quickly
proved inadequate, as APV’s capital requirements continued to rise steadily
during the late 1940s and early ’50s. The company’s turnover more than
tripled between 1946 and 1951, but the ratio of capital to sales soared from
1.0 to 1.7 during the same period. Much of this was due to skyrocketing levels
of stocks and work-in-progress, a product partly of post-war materials
shortages and lack of factory space, but also of falling productivity and
difficulties in controlling APV’s larger and more diverse production pro-
gram. Despite high profitability during the post-war seller’s market, the
result was a persistent capital shortage filled by a succession of further
stock flotations, rights issues, and short-term loans, all handled once again
by the family merchant bankers.
The rapid and unplanned growth of the 1940s had far outrun the absorp-
tive capacity of APV’s original Wandsworth plant, resulting in the dispersal
of the firm’s production facilities across a series of unsatisfactory rented
premises scattered around south and west London. Much of APV’s strategic
energies and financial resources accordingly came to be focused on the
creation of a new plant complex at the New Town of Crawley in Sussex,
which would allow all of its production, engineering, and research activities
to be reunited on a single site. The decisive factor behind this choice was the
Crawley Corporation’s commitment to provide housing for transferring
employees, since ‘the need to ensure that most of the company’s skilled work-
force and staff should move to a new place with it had been a cardinal point
in all considerations of new localities’ (Dummett 1981: 140). The project began
56 Local Pathways to Multinational Enterprise

in 1950, but was not fully completed until the beginning of 1956, by which
point it had cost over £1.5 million, more than twice the original estimate and
more than the company’s entire issued share capital at the outset.
The construction of the Crawley complex and the gradual transfer to it of
APV’s personnel and production coincided with the advent of a much more
difficult commercial and financial environment. The company’s sales held
steady and even increased somewhat during the early and mid-1950s, but its
profitability dropped by two-thirds as a combined result of increased over-
head charges, higher interest rates, overseas import restrictions, tougher
price competition, and customers’ reluctance to make progress payments
in what was no longer a seller’s market. Nor had the centralization of
production at a modern factory with new equipment yielded the anticipated
reduction in costs, despite the appointment of an outside manager recruited
from AEC, a London bus and truck manufacturer with an innovative record
of developing flexible automation techniques for diversified engineering
products.12 The underlying problem, as at Lake Mills during the 1960s and
’70s and following a similar logic, was that APV’s ‘main policy had been to
try and get sufficient orders to provide enough productive hours to recover
the overheads and service the capital as well as fill the new factory’, while ‘the
level of profits and means of reducing overheads seems to have taken a
second place’ (Dummett 1981: 151).
During the late 1940s and early 1950s, the company’s R&D activities had
been reorganized into a separate department run by university-educated
scientists and engineers, and a graduate training scheme had been intro-
duced. Although APV successfully continued to enter new markets by
updating and extending its core plate heat exchange and evaporation tech-
nologies, the expanded R&D staff came under intense pressure to boost the
firm’s turnover by bringing onstream a host of new products as quickly as
possible. Alongside these internal efforts, APV also began to license outside
products and know-how on a considerable scale in order to fill gaps in
the company’s product range and improve capacity utilization at the new
Crawley plant. But the proliferation of competing projects overloaded the
technical staff, slowing down the completion rate, while management’s
hunger for new products resulted in the release of designs before they had
been fully tested in the field, leading to a number of commercially damaging
flaws. Many of the outside products manufactured under license also proved
to require technical skills and market knowledge which the company lacked,
thereby adding to its financial and organizational problems.
12
On AEC’s innovative approach to flexible automation in the 1950s, see ‘Machining Engine
Casings and Cylinder Heads: AEC Transfer Lines for Flow Production on Alternative-Sized Com-
ponents’, Automobile Engineer, Jan. 1956; Maxcy and Silberston (1959: 61).
 Associating Local Strategies of Global Reach 57

To pay for the mounting financial burden of the Crawley project, along
with its ambitious product development and technology licensing programs,
APV more than doubled its capital again between 1952 and 1956 to nearly 15
times the 1945 level. But new fixed investments, unrecovered overheads, and
excessive stocks and work-in-progress soon absorbed the new money, neces-
sitating further large loans and interest charges. The company responded to
these signs of impending crisis during the years 1955–6 by introducing strict
departmental budgeting for the first time, cutting back its R&D staff, and
reducing productivity bonuses to the workforce—but not by skipping the
dividend, which the board feared would send a bad signal to investors so
soon after raising additional capital. These measures also precipitated APV’s
first major strike, which further undercut the firm’s output and profitability.
But the real crunch came from a change of heart on the part of the
company’s long-term family bankers. With APV’s stock price in free fall
during the summer of 1956, Seligman Bros. requested immediate repayment
of the firm’s revolving credit line, ostensibly because of a government credit
squeeze, but in fact because they were themselves negotiating a merger with
another leading merchant bank, S. & G. Warburg, which refused to take on
this apparently risky obligation. Since APV was manifestly in no position to
return the cash, Seligman Bros. suggested a top-to-bottom review of the
company’s structure and operations by a leading accountant, which might
identify measures for turning around its performance that would reassure
their new partners at Warburg’s. The investigation, conducted by a member
of the prominent auditing firm Peat, Marwick, Mitchell and Co., which was
frequently called in to advise on the reorganization of other British manu-
facturers during this period, recommended a series of changes in accounting
practices, including a write-down of existing inventory that released a sub-
stantial tax rebate. In conjunction with a partial dividend moratorium, these
steps were sufficient to halt the immediate cash hemorrhage and persuade
APV’s bankers to resume credit, but the long-term impact on the company’s
organization and management proved much more significant. Following the
advice of the Peat, Marwick, Mitchell auditor, who continued to serve as a
consultant to the board for the next twenty years, an outside chartered
accountant with experience in the civil engineering industry was appointed
‘to take control of the financial organisation’ (Dummet 1981: 177); works
management and sales were each placed under a unified chain of adminis-
trative command; and a new chairman was recruited from Esso Petroleum to
replace Richard Seligman, who finally retired at the age of 78. When sales and
overhead recovery fell below budget targets during the 1958 recession,
the new management’s first step was to impose across-the-board staff redun-
dancies, including a number of long-serving employees who had begun their
58 Local Pathways to Multinational Enterprise

careers as apprentices, as well as to reduce cost-generating diversification

and concentrate more on the company’s standard products. Although several
Seligmans remained active in the firm, including Richard’s son Peter,
who would eventually become chairman, APV, as its official historian ob-
serves, ‘had now ceased in any way to be a family concern’ (Dummett
1981: 180).

The Birth of an Acquisitive Multinational: Fear of Takeover and

Search for Synergy
Following its frightening near-death experience during the mid-1950s, APV
was thus reborn as a ‘fully fledged public company’ under more or less
orthodox British professional management—‘albeit with strong and valuable
traditions’ (Dummett 1981: 180–1). A notable feature of APV’s post-war
expansion—and a contributory factor in its cash crisis—had been the growth
and proliferation of its overseas subsidiaries, including manufacturing oper-
ations in India, Ireland, and for a time Canada, as well as sales and engineer-
ing companies in Australia, the United States, Brazil, Japan, and most of
Western Europe. In 1962, the APV group was transformed into a holding
company, with the APV Company as its principal subsidiary, while a separate
export company was established to handle the latter’s foreign sales, which
now accounted for nearly half of Crawley’s output. These shifts in company
structure and financial control in turn had a pronounced impact on both
management and labor at all levels. Board proceedings, as the official history
reports, became less concerned than in the past with technical issues and
more with financial performance, based on information and analyses pre-
pared by the new finance director Peter Benson, who became joint managing
director in 1961; while ‘labour relations in the works, partly as a result of the
move to Crawley and partly as a result of the new organisation, became
steadily less patriarchal and rather stormier’ (Dummett 1981: 183).
In 1963, an outside firm of industrial consultants was brought in to
investigate the continuing problem of long lead times and missed delivery
dates. They recommended reorganizing the works into four separate sections
corresponding to the main categories of manufacture, each to be run as an
autonomous product group. Although the consultants’ suggestions were
faithfully implemented, including the computerization of stock control,
they did not produce striking results, since production in each section
remained organized on functional process lines, as at Horsens and Lake
Mills before the introduction of cellular manufacturing in the 1980s and
’90s. With skilled labor becoming increasingly scarce around Crawley, APV
thus began to shift a growing proportion of fabrication work to new subcon-
 Associating Local Strategies of Global Reach 59

tractors and subsidiaries outside the district, adding to the complexity and
impersonality of its operations.
As a result of careful financial management and continuous plowback of
retained earnings into product development and plant modernization, APV’s
fortunes resumed their upward climb, with steady increases in group turn-
over and profit in every year but one over the two decades to 1977. With the
resolution of the company’s financial problems, a new danger appeared: ‘the
haunting spectre of take-over by a large organization’ (Dummett 1981: 184).
At the end of the 1950s, the Conservative government and the Bank of
England relaxed restrictions on new securities issues and reversed their
previous negative view of hostile takeovers, which became subject only to a
voluntary code of conduct drawn up by City practitioners themselves,
thereby touching off an unprecedented upsurge of mergers and acquisitions
(Roberts, 1992; Kynaston 1994–2001, vol. IV). To avoid becoming a target,
APV itself had to expand, either through internal growth or through take-
overs of its own, leading to the adoption of a deliberate acquisitions policy.
According to the company’s official historian and long-term research dir-
ector, ‘The Board did not follow [a policy] of acquisition for acquisition’s
sake as did so many of the conglomerates that were growing up at that time.
If a firm was to be taken over then it must fit in with the technical or
marketing expertise of the group. The take-over had to follow reasonable
industrial logic’ (Dummett 1981: 184). But such a policy, as we shall
see, would prove easier to formulate in principle than to implement in
practice.
The acquisition process started off slowly during the 1960s with purchases
of smaller British companies manufacturing complementary products such
as distillation plant, ice-cream freezers, and swept-surface heat exchangers.
But it gathered speed during the boom years of 1972–3, when APV bought
up a number of much larger overseas businesses, including not only CP, but
also two of its long-time collaborators, the Gaulin Corporation, a US hom-
ogenizer manufacturer, and Anhydro A/S, a Danish maker of spray-drying
equipment. Behind APV’s shopping spree lay not only takeover fears rooted
in the domestic market for corporate control, but also growing demand from
customers at home and abroad for the design and construction of entire
automated process plants, such as turnkey dairies, incorporating a wide
range of related technologies and equipment. These shifts in turn gave rise
to an increasingly complex and polycentric international division of labor
within the group itself. As its official history reports:
The overseas subsidiaries and associated companies, particularly those in Australia,
France, Japan and the US, began to engineer large and complex contracts themselves
60 Local Pathways to Multinational Enterprise
and required less and less help from Crawley. Indeed, even in new products and
R&D, a reverse flow of ideas began to take place. More and more the tendency grew
to establish particular companies as centres of excellence for certain technologies in
the group; Crawley’s particular spheres included heat exchange, evaporation, auto-
mation, sterile processing and large scale fabrication, though in none of these was
their position an exclusive one. . . . Moreover, as the subsidiary companies under-
took more and more of their own engineering, so they ordered more material from
Crawley for stock and less specifically for a specific duty. By 1975 the ultimate use of
some 60% of the total export material from Crawley was not known when it was
dispatched. (Dummett 1981: 214)
The expansion of the early 1970s thus transformed APV from a British
firm with overseas sales and manufacturing subsidiaries centered around a
single home plant complex to a multinational group incorporating substan-
tial companies from several countries, each with their own distinct products,
markets, production facilities, and organizational histories. It also created
formidable problems of integration and coordination of their activities, with
which the group would continue to wrestle throughout the remainder of its
independent existence.
APV’s acquisitions during the 1960s and early ’70s did in fact follow a
more or less clear-cut industrial logic. But this approach became increasingly
difficult to sustain in the more turbulent and uncertain commercial, techno-
logical, and financial environment which emerged from the upheavals in the
world economy over the succeeding decade. In 1976, APV bought Hall-
Thermotank, a prominent British-based international manufacturer of refri-
geration and compression equipment for the food processing and other
industries dating back to the eighteenth century, whose acquisition increased
the group’s turnover by more than 50 per cent at a single stroke, carrying it
into a variety of new markets.
This quantum leap in size and complexity soon placed increasing strains
on APV’s reporting systems and organizational structure. Peter Benson, the
group’s long-serving managing director, ‘grew up with it’ and thus found it
‘no problem to look after lots of companies without formal controls and
accounting procedures’, as APV’s US top executive later recalled. ‘An un-
usually perceptive accountant’, according to his own former finance director,
Benson ‘succeeded in directly controlling his loose association of fiefdoms’
by spending half the year traveling the world to see the heads of the various
companies and ‘thumbing through’ their statistics in case anything ‘looked a
bit odd’, often receiving and approving capital investment requests over
the phone. Following the Hall-Thermotank acquisition, however, Benson
himself gradually recognized the limitations of this informal approach and
 Associating Local Strategies of Global Reach 61

began to introduce more systematic budgeting, planning, and control pro-

cedures.13
After Benson’s retirement in 1980, his successor Peter Hamilton, who had
been recruited from the much larger UK engineering conglomerate GKN,
soon sought to push through more radical organizational changes. ‘An
engineer turned general manager . . . with the inexorable confidence of a
Harvard MBA’, Hamilton set out to inject greater cohesion into the multi-
national group by imposing a new divisional structure, tighter budgeting and
reporting systems, and rationalization of products and marketing. To this
end, Hamilton reorganized the group into five divisions each with their own
CEO, breaking up the original British APV Company into four distinct
subsidiaries and moving the head office from Crawley to London. Operating
decisions were henceforth to be taken at a higher level, with greater involve-
ment of divisional management, a move aimed at improving APV’s ability to
anticipate and deal with local crises such as those experienced by Crepaco
during the US recession of 1981–2. All subsidiaries, whatever their size or the
length of their order-to-delivery cycles, were required to submit detailed
monthly balance sheets based on GKN’s ‘notoriously tight financial controls’.
Constituent companies likewise came under strong central pressure to add
the APV prefix to their individual names, adopt common group designs for
key products like pumps and plate heat exchangers, integrate their sales
networks, and avoid internecine competition. While some of these reform
measures, such as reciprocal tendering preferences and joint product-
development programs, met with widespread approval across the group,
others aroused a storm of discontent among subsidiary managers, who
complained in particular about the weight of their new reporting obligations
and the risk of losing customers to competitors by dropping established
designs. Whatever the merits of these objections, Hamilton himself did not
last long, resigning in 1984 when APV’s profits plunged by more than 50 per
cent as a result of low contract margins and rising overhead costs. His
replacement Fred Smith, an Australian who had previously headed APV’s
US operations, was presumably more sensitive to the subsidiaries’ concerns,
but relied on a similar combination of tighter financial controls on engineer-
ing contracts and rationalization of loss-making operations—including the
amalgamation of Crepaco with APV’s US organization—to revive the
group’s profit levels the following year.14
The real turning point for the multinational group came in 1986, when
APV found itself for the first time the object of a hostile takeover bid. Siebe,
13
Christopher Lorenz, ‘Why APV is Ditching its Winning Formula’, Financial Times (FT ), 28
Nov. 1983.
14
Ibid.; Charles Batchelor, ‘Proposal for a ‘‘Magical Marriage’’ ’, FT, 25 Apr. 1986.
62 Local Pathways to Multinational Enterprise

the group’s unwelcome suitor, whose second approach to APV would even-
tually succeed eleven years later, was then a much smaller British engineering
‘mini-conglomerate’ pursuing a strategy of rapid growth through audacious
and heavily leveraged takeovers. APV’s institutional shareholders (mainly
British-based insurance companies, pension funds, and investment trusts)
did not find Siebe’s bid credible at that time, preferring to back the estab-
lished management’s more focused approach, especially since the group’s
profits had already bounced back to historic levels.15 APV’s top management
then embarked on a frenzied series of domestic and international acquisi-
tions designed to provide enhanced security against future takeover threats,
more than doubling its turnover again within a few years. Foremost among
these acquisitions was Baker Perkins, a leading manufacturer of baking,
confectionery, and packaging machinery with extensive operations both in
Britain and the United States. But it was also during this period that APV
acquired both Howard Pumps and the Pasilac group, Horsens’s parent
company, along with Rosista, a large German producer of valves and brewery
equipment, and a quartet of US ice-cream and packaging machinery firms.
By the end of 1987, APV had thus become the world’s largest manufacturer
of food- and drink-making equipment, overtaking its historic rival, the
Swedish multinational Alfa-Laval.16
As in the 1960s and early ’70s, APV’s new phase of multinational growth
was driven by the rising scale and scope of its international customers’
demands for integrating design and construction of automated process
plants, as well as by domestic takeover fears. But it had now become increas-
ingly difficult to work out which of the many technologies and equipment
types involved in such engineering contracts should be produced in-house by
wholly-owned subsidiaries, and which bought in from outside subcontract-
ors and suppliers. More challenging still was the task of establishing effective
order and cooperation—let alone real synergy—among APV’s multinational
constituents, many of which had overlapping products and competed for the
same customers. These structural and organizational problems festered
during the expansion of the late 1980s, but erupted into open inter-
necine warfare during the early 1990s, as international recession, growing

15
A key reason that APV found itself vulnerable to a bid in the first place, apart from its recent
profits crisis, was that the St. Regis Paper Co. had just disposed of the remainder of the 28% stake in
the group it had acquired through the divestment of Crepaco in 1973: ‘St. Regis Sells Stake in APV’,
FT, 28 Sept. 1985.
16
Batchelor, ‘Proposal for a ‘‘Magical Marriage’’ ’; David Goodhart, ‘The Would-Be Hansons:
UK Mini-Conglomerates’, FT, 31 May 1986; Charles Batchelor, ‘Specialist Faces an All-Rounder’, FT,
16 June 1986; Lex, ‘Siebe/APV’, FT, 26 June 1986; David Goodhart, ‘Siebe Fails to Take Over APV’,
FT, 28 June 1986; Nick Garnett, ‘Industrial Synergy in the Making’, FT, 15 Jan. 1987; Nick Garnett,
‘Food Equipment Battle Heats Up’, FT, 31 Dec. 1987.
 Associating Local Strategies of Global Reach 63

concentration among its customers, and increasing competition from other

equipment groups all came together to place intense pressure on APV’s
market position and financial performance. How APV headquarters—or
various factions within it—sought to manage this process by pursuing
different visions of a multinational firm, how our three plants each sought
to defend and advance their interests within the resulting framework, and
how the strategies of these local players interacted with one another to
constitute a global game, will be analyzed in subsequent chapters.

5. The Polycentric Construction of an ‘Actually Existing’ MNC

By telling the story of an ‘actually existing’ MNC as a set of initially inde-

pendent and later interwoven subsidiary narratives, we find that the process
of constructing a global firm appears in a clear new perspective. Among the
most striking findings to emerge from this polycentric narrative is that each
of the three subsidiaries joined APV partly as a result of its own strategic
efforts. The local strategists were looking for a new owner because the old
one wanted to sell (Howard). They might have considered acquisition by the
British MNC as a low-cost method of expanding their presence in foreign
markets (Crepaco). Or they might have orchestrated their purchase by APV
after carefully contemplating how they would fit into the portfolios of
factories and markets belonging to different MNCs (Horsens). This suggests
that rather than simply being driven by sharks which eat the small fish,
globalization is also propelled by small birds seeking protection under the
eagle’s wings. Consequently, a multinational happens to associate actors who
reflect in very different ways on their own situation and join the global firm
partly as a result of their own strategic choices. Howard made its choice from
the conviction that in exchange for stabilization of ownership it would have
to surrender independence to a new feudal lord and prepare itself to receive
orders. In contrast, Crepaco regarded what for more than a decade appeared
to be a merger of equals or a strategic alliance as an opportunity to enhance
penetration into European markets so that it could continue to expand as a
vertically integrated organization. Finally, in entering APVD Horsens cele-
brated gaining a foothold on a new continent which it planned to conquer.
Thus it seems as if subsidiaries enter into an MNC and into mutual com-
petition carrying along a variety of aspirations and goals that make them a
highly ambiguous and heterogeneous group of actors. Would not the con-
tinuous success of this association depend on how well they interact,
compete, and cooperate—despite their differences? And would that not in
turn decide what the MNC could become?
64 Local Pathways to Multinational Enterprise

Thus there is no single standpoint from which to deduce what constitutes

the multinational. It is widely assumed that firms which become MNCs are
successes, whereas those which are acquired as subsidiaries in this way prove
their failure. Our narrative tells a very different story. Each of our four firms
had proved to be successful strategists capable of surviving in the world
market for more than a century. Howard struggled for many years to remain
the leading UK producer of rotary lobe pumps and became a fountainhead of
many local imitators. Crepaco became a prominent vertically integrated
production and marketing firm in the oligopolistic game of the American
market. Horsens earned a very high reputation, even among its domestic
competitors, as a skilled supplier of competent and flexible tailor-made
technical solutions for advanced customers. Consequently, it had no prob-
lems in recruiting the best workers and technicians. For each of these firms,
their strategizing led to incorporation into a foreign MNC as the best
possible alternative in a given situation during the 1970s or 1980s. Even
their transformation into subsidiaries may be considered a success measured
against their local aspirations. One may say that they secured their acquisi-
tion by the MNC precisely in order to continue pursuing the evolutionary
logic of their localities, technologies, and organizations.
The story of APV—which happened to become the formal owner of the
others—is not very different. The peculiarity of this firm is that from the
beginning it was linked through family relations to the international banking
community. This offered APV the opportunity to expand more than the
average firm without such connections. But this opportunity also paved the
way for its failure. Stimulated by high engineering aspirations, APV engaged
in large-scale investments that led to over-capacity; over-capacity led to
losses; and losses reinforced its ties to, and dependence on, the family
bank. With the weakening of the family presence in both the firm and the
banking community, this virtuous circle gradually evolved into a vicious one.
APV resolved this crisis during the late 1950s and the early 1960s by institu-
tionalizing modern accounting routines and professional rather than family
ties to the financial community. In this way, APV acquired the core compe-
tence that would not only enable it to continue on its original fast-growth
track but also to function as a sort of consultant to other firms which were
themselves experiencing difficulties in obtaining financial capital to solve
similar crises. Often this service was reciprocated by the establishment of
formal ownership stakes in its ‘clients’. So long as engineering dominated
accounting aspirations, such ties often built on a collegial community among
engineers, but as the accounting and financial professions gained a larger say
over its strategies such situations were increasingly considered strategically
important in their own terms. During the period when engineers and finance
 Associating Local Strategies of Global Reach 65

specialists struggled over the control of the firm, the heterogeneous reflec-
tions by which different clients anticipated their incorporation could each be
reinforced by the heterogeneous and ambiguous reactions from the emergent
HQ. Subsidiaries would simply receive the signals they wanted to hear.
Obviously, such an HQ might be considered very attractive to join. A firm
considering whether to become a member might indulge in receptive con-
versations about engineering projects with understanding colleagues who
have access to people in high positions, who can connect ideas with money. It
is difficult to see who is the most successful in such conversations.
In our case study, it is obvious that the MNC headquarters needed the
prospective subsidiaries as much as they needed the HQ. Was not APV trying
to defend itself against the threat of hostile takeover by an expansionary
strategy of growth through acquisitions? And in so doing, was not the HQ
just as defensively positioned as the prospective subsidiaries which app-
roached APV for help?
The process of cumulative multinationalization we observe in this story
breaks in many ways with the received expectation that the MNC expands
from an advanced technological and administrative home economy to grad-
ually conquer the world. Instead, we see an MNC headquarters being
approached through an engineering network, which then mobilizes its
HQ’s intangible assets of financial experience when a new firm is considered
for membership. How cheaply can controlling equity be transferred to the
new owner and what resources are necessary to bail the entering firm out of
its current troubles in order for it to remain a going concern? This price
depends on how the assets of the entering firm can be used to finance its own
entrance, how the merger is considered by the financial community, and how
creatively the financial markets may be induced to provide the required
capital. Thus instead of the mutual exchange of engineering ideas, the stage
is set by the finance and accounting departments and the discussions
between the HQ and the new ‘subsidiary’ change. The paradox is that the
more the engineers attract colleagues in other firms for conversations about
membership, the more the engineers become dependent on financial and
accounting competences. These competences grow by giving further training
to engineers and by hiring new managers trained at business schools and
with experience at financial and consultancy firms or the finance depart-
ments of other MNCs. Through this hybridization process, the HQ becomes
a serious player in the London corporate headquarters and financial district.
Concepts of strategy and organizational concerns change from the possible
synergies of cross-national engineering and production to focus on managing
internal financial flows in order to smooth relations with institutional inves-
tors, banks, and the stock market. This latter game is highly competitive, as
66 Local Pathways to Multinational Enterprise

the audience in the City of London is continuously comparing the finance

departments of different MNCs. With this pressure, the scene may be set for
an ongoing battle between engineering and financial concerns, a battle that
may go on within individual persons, among professional groups, and across
subsidiaries, making it very unclear which strategic lines are dominant and
which principles shall govern administrative control and coordination of the
division of labor within the MNC. This battle may never cease and therefore
could explain why the MNC oscillates between polycentric and geocentric
principles for a considerable period.
In this confusing play around the HQ, how much room the individual
subsidiary has for maneuver may well be determined by its indigenous
reflections on its own situation. If the subsidiary decides to move only on
orders from the HQ, it may gradually lose all chances. If it enjoys its new
stability as a subsidiary and concentrates on defending its existing position
against the international division of labor in the MNC, it may experience
stagnation. If instead it approaches its new membership as a world of endless
possibilities, the MNC may become exactly this for the subsidiary.
The subsidiary’s disposition towards reflective activity may not be deter-
mined solely by the managers that happen to be in charge at the moment the
firm is admitted into the MNC. Rather this reflection could be shaped by the
subsidiary’s own narrative, the collective self-representation through which
its members have historically interpreted the firm’s practices and capabilities,
and learned how to assess new situations. Thus whether the ambiguous
situation of the entire MNC should ‘objectively’ be described as a hierarchy,
a market, or a heterarchy need not determine how each of the subsidiaries
anticipates the situation. It could instead be that by continuing their histor-
ically patterned strategic reflections some will continue to live in a hierarchy,
others in a market, and still others in a heterarchy. If so, an objective
description of the MNC would need to include the narratives and forms of
strategic reflection among the subsidiaries rather than sticking to the formal
design of the organization as seen by the top executives at the HQ.
In our case, Howard had learned to live with idiosyncratic owners, for
whom their ownership role was more important than growth and profitabil-
ity. In such a scenario, luck comes and goes depending on the current mood
of the owners, and when luck came the workshop and engineering depart-
ment would spend time improving the product on which the entire pride of
the factory rested: the rotary lobe pump. This ‘sleeping beauty’ existence was
possible because the owners never initiated a systematic Taylorization of
work. Hence it was easy for the firm to recruit or train highly skilled
craftsmen who could work on the rotary lobe pump when improvements
could be afforded. As the firm had given birth to several spin-offs and
 Associating Local Strategies of Global Reach 67

imitators, owners and managers lived in hostility with their neighboring

colleagues, but workers in the local labor market were related to one another
through family ties spanning company boundaries. The ‘sleeping beauty’
thus became a meeting place for individualistic skilled workers (the firm was
not unionized), especially in good times. These workers could always return
to other firms in the region when times turned less promising, because of the
subsidiary’s reputation for employing excellent workers and for the technical
superiority of its products. In this way, the ‘sleeping beauty’ always helped to
re-establish the old equilibrium among firms in the rotary lobe pump
district, where she was recognized as the source of many technical improve-
ments from which the others could profit. During the 1970s and 1980s these
neighboring firms had been taken over by other foreign multinationals. By
preparing to take orders from a new owner after being acquired by the
London-based MNC, the ‘sleeping beauty’ therefore appeared to be actively
seeking to continue the life to which she had gradually become accustomed
since the Second World War.
In a similar manner, Crepaco had seen its own productive and commercial
potential gradually improved by including more and more differentiated
functional departments and manufacturing units within its own organiza-
tion. To continue this type of growth was not only the essence of what the
firm considered success, but also where it had invested in routines for
creating new routines. Hence any attempt by the MNC to circumscribe the
firm’s functional role would seem harmful and destructive in the eyes of local
beholders, betraying the very joint venture into which they thought they had
entered by selling off their formal independence.
Horsens could likewise be expected to approach APV as a new arena within
which it could expand and improve its superior technical reputation, as it
had been accustomed to doing in the past with Danish owners, customers,
colleagues, suppliers and the labor market for skilled technicians and ma-
chinists. Would not Horsens’s staff anticipate the new situation as one in
which it had all the employees and customers of the MNC as an audience
before whom to demonstrate their skills? If Horsens could mobilize resources
from the Danish labor market, vocational institutions, traditional customers,
suppliers, and especially its own workers behind such a strategy, this could
eventually help it gain a high reputation in the global engineering circles of
the MNC. And if the Danish subsidiary could keep London happy by
providing the flow of funds and earnings promised in the annual budget
negotiations, it hoped to gain substantial freedom of maneuver on the
engineering and manufacturing front. It might thus be possible for Horsens
to make local use of APV’s global network along the lines of the ideal vision
of the MNC presented at the beginning of Chapter 1.
68 Local Pathways to Multinational Enterprise

An important point emerging from this polycentric narrative of the initial

association of formerly independent firms into a single MNC is that
the ‘administrative heritage’ might continue to be diverse and rooted in the
experience that local actors had gained from their involvement in the games
of diverse regional and national business systems. For none of our protagon-
ists, including the HQ, had managed to gain experience in coordinating a
multitude of local players, whereas the latter had gained experience in dealing
with the capital market through the City of London.
If the HQ begins to coordinate activities among and between its subsid-
iaries, this could then lead to a range of unintended consequences. Though
such initiatives might be seen by the subsidiaries as the owner’s legitimate
role, our initial observations presented in Chapter 1 illustrate how the HQ
risks losing this formal authority precisely by exercising it. Such actions
might simply look foolish and wrong when measured according to the
local rationality and ‘administrative heritage’ underlying each of the subsid-
iaries’ individual strategies. Would it not be extremely difficult for Crepaco,
Horsens/Pasilac, or even Howard to imagine that what had made them
successful—or at least enabled them to survive—in the past should now be
simply abandoned in response to an order from London?
Hedlund’s concept of heterarchy, like many of the other visionary ap-
proaches to the organizational structure of emergent MNCs examined in
Chapter 1, tries to resolve the paradoxes and contradictions we have fore-
shadowed here. By creating a common unitary corporate culture, securing
long-term employment for its members, building up shared experience
among employees, shaping interlocking directorates, and fostering global
project teams and meetings across subsidiaries and divisions, it is proposed
that these problems might be solved. The aim is to build up an MNC that
functions ‘as one integrated brain’, rather than as a system in which ‘one
brain’ controls and coordinates globally dispersed organs (Sölvell and Zander
1995: table 3; Hedlund and Rolander 1990: 25–6). Such propositions rest on
the premise that a common corporate culture can be constructed which
overshadows the effects of the national cultures and regional contexts from
which subsidiaries act. The question is whether attempts to create such a
culture may run up against exactly the same centrifugal processes at play
among different units of the MNC—whether, in other words, they are
moving towards increasing mutual misunderstandings in their reciprocal
game. If so, we badly need detailed studies of the games going on within
multinationals before anything can be said about whether, in what sense, and
through which interventions such a common culture can be constructed.
Without such a common culture, or some alternative set of mechanisms for
orchestrating cooperation among partially autonomous subsidiaries and
 Associating Local Strategies of Global Reach 69

functional units, would not the other elements of the heterarchy simply
provide further battlefields for games such as those we analyze in the next
part of this book? And if this turns out to be the case, what type of organiza-
tional reforms might then be able to remedy the situation? We will return to
this latter question in Part III below.
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 Part II
A Global Game Enacted by Local Players
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 3
Horsens: Local Strategies on
a Global Stage

1. Strategic Moves in the Local Arena

Earlier we left the Horsens plant in Denmark at the point where the convener
had successfully prepared the Danish business group Pasilac for acquisition
by APV. But no one in Horsens believed that the plant’s destiny was decided
by these high-political strategies. On the contrary, the convener saw them as
preparing the ground for the strategies that would really decide the game.
However, in considering the plant’s internal situation, the convener had two
reasons for believing that the new situation could be successfully exploited.
First, the plant’s managing director was now the former production manager,
with whom the convener and the rest of the blue-collar workforce enjoyed
strong relations of mutual trust based on the successful turnaround of the
early 1980s. Second, APV-Horsens’s collaboration with the local district was
well established. While the plant itself specialized in certain processes, having
invested primarily in flexible universal machine tools, it systematically sub-
contracted for other operations and components, such as electro-motors,
presswork, and deep drawing of cabinets in stainless steel. A number of local
suppliers, specializing in the same processes as the plant, served as short-term
capacity subcontractors on contracts negotiated jointly by Horsens’s man-
agers and shop stewards. With the plant’s increasing turnover, not only had
its subcontractors profited from larger sales, but relations had also become
much more collaborative as Horsens’s flexible strategy required delivering
many products and variants at short notice. The intensity of interconnec-
tions within this local business system can be seen from the fact that the
production manager, who had now become the managing director, had
initially been recruited from Horsens’s strongest competitor, had been
working with the same local suppliers, and had formerly worked in the
production management of its electro-motor supplier.1 On top of such social
1
His experience illustrates well how Danish enterprises are interconnected via persons who
move upward in their careers by external job changes (see Kristensen 1992a, b).
74 A Global Game Enacted by Local Players

ties, Horsens’s planning system effectively coordinated the flow of parts

produced by its many suppliers.
With Pasilac’s failure on the American market, the Horsens plant’s period
of good fortune had abruptly been brought to an end. The uncertainty of its
future role and the low demand for its products threatened to result in
layoffs, by which the plant risked losing its core assets: skilled workers and
white-collar staff recruited from their ranks. The convener normally con-
sidered periods of both rapid growth and rapid decline as a threat to his
constituency. To protect the skilled workers’ claims to the manning of work
cells, especially those involving the programming of machines, he would have
to ensure that they were broadly trained, so that neither a few layoffs in bad
times nor a demand for an extra shift in good times would threaten their
ability to run the factory along the lines described in Chapter 2. Conse-
quently, he had long wished to sign a ‘training agreement’, but during the
plant’s good years it would have been impossible to allow workers with
critical skills to leave their workplaces for training in technical schools.
Thus the current crisis could be transformed into a new opportunity, espe-
cially with the newly recruited managing director in place.
By showing how the Danish welfare state would reimburse a significant
share of the wages of workers undergoing external training as well as their
course fees,2 the convener could offer the managing director a cheap way of
holding on to employees with critical skills in return for a ‘training agree-
ment’. The managing director, on the other hand, who knew from experience
that periods of low demand often jeopardize productivity, saw in such a
scheme a countervailing factor which he wanted to connect with a reform of
the wage system from hourly pay back to one based more on piece rates.
With this new social contract the two men had not only found a formula for
stabilizing employment but also a way of preparing for a coming boom. They
could reduce economic losses, keep highly skilled workers attached to
the plant, and even increase Horsens’s capabilities for flexibility and prod-
uctivity.
What seemed favorable to the workers and the plant manager, however,
could easily have been received with skepticism by the local stakeholders and
institutions that were being asked to provide and finance the proposed
training. The contrary proved to be the case. Drawing on its high reputation
2
In Denmark during the 1980s and early ’90s, the state paid for both the course fee and up to
90% of workers’ normal hourly wage, or unemployment benefit entitlement, if they enrolled in
training courses at technical schools or specialized workers’ training centers. At the time APV-
Horsens reached this agreement, workers needed the employer’s permission to enroll in
such courses. In the late 1990s, employees obtained the right to participate in up to two weeks of
further training each year as a result of collective agreements between the unions and employers’
associations.
 Horsens 75

and networks within the wider locality, the Horsens plant could use its
‘training agreement’, formally signed in 1987, as a tool for reforming
the broader functioning of the vocational training system. In this respect, the
close personal relations between the plant convener and the local chairman of
the Metalworkers’ Union served the plant especially well. The local union
decided to adopt such agreements and the gradual reform of the vocational
training system as one of their basic strategies for fighting the sharply
increasing unemployment that had been emerging in Denmark since 1987.
First, the local union office was active in pushing for and setting up an online
system through which they could immediately check the availability of
courses on a national scale. Second, the local union used its direct represen-
tation on the board of local schools—together with its indirect influence on
other unions, which were represented on boards of other local training
centers—to make these more responsive to workers’ needs for systematic
further training. Since Horsens had an exceptional array of training and
vocational education facilities, including a very large technical school
offering a wide range of training courses in the metalworking sector, one
of the largest specialized workers’ training schools or AMU Centers3 in
Denmark, a commercial school, an agricultural school, a large adult educa-
tion center, a technical college, and various technical high schools, the
network of local union offices could jointly push many elements in the
same direction simultaneously. In effect, these institutions started to com-
pete with one another to provide sequences of training modules which could
serve the long-term needs of employees in firms that were adopting new
technologies, abandoning old hierarchical divisions between planning and
execution, or looking for new markets and products. The vocational schools
soon began to send out consultants to individual firms to help them set up
systematic customized training plans, stimulating and facilitating a broad
movement towards the negotiation of training agreements. In short, APV’s
Horsens plant helped trigger a process through which the entire local labor
market was radically upgraded. While only 15 per cent of the members of the
local metalworkers’ unions had attended further training courses in 1985,
within just three years the proportion had doubled. And whereas in 1987
3
AMU Centers have developed gradually from initiatives taken by unskilled workers to compete
for skills and jobs with apprenticed craft workers. As early as the 1930s, the unskilled workers’ union
organized evening courses for their members. Then after the Second World War, they succeeded in
setting up state-financed day schools for ‘specialized workers’ and changed the name of the union
accordingly. Through these schools, the union gradually built up an extensive system of training
modules so that specialized workers would often wind up with qualifications similar to those held
by skilled workers. As the schools became more heterogeneous, they opened their doors to all
groups of workers, especially the unemployed, and changed their name to AMU Centers (Labor-
Market Vocational Centers). But they still basically competed with the technical schools for skilled
workers in developing new curricula for further training.
76 A Global Game Enacted by Local Players

most participants in further training courses had been drawn from the ranks
of the unemployed, by 1992 their principal constituency had shifted to
employed workers. The result was the emergence of a virtuous circle in
which vocational schools competed with one another to propose new and
improved curricula, different groups of workers competed to acquire new
skills, and firms competed to hire workers with these new skills. This positive
new dynamic could in turn be seen to point the way towards a broader
incremental reform of the Danish welfare state, which would radically up-
grade its capacities to contribute to the reskilling of the workforce, without
departing from its historic commitments to solidarity and universal protec-
tion against labor market risks (Kristensen and Petersen 1993).
In 1987, APV’s Horsens plant, along with two other firms, had been the
first in Denmark to sign a training agreement. Five years later, six firms in the
town of Horsens alone had such agreements, and shortly thereafter, the right
to further training was incorporated into the central agreement between
unions and employers’ associations for the entire country. At APV-Horsens,
it was the skilled metalworkers who had played the leading part and opened
the way for the participation of their ‘unskilled’ colleagues from the Special-
ized Workers’ Union (SiD). But in the town of Horsens and in Denmark
more generally, it was SiD and ‘its’ vocational training institution, the AMU
centers, that played the most important part, putting pressure from below on
all skilled unions and the technical schools to become more active in the
upskilling process.4
Ironically, whereas the APV-Horsens ‘training agreement’ had initially
been seen as a defensive device to maintain workers’ attachment to the plant
in a period of low labor demand, it soon became an offensive measure.
Because of restrictions on capital investment imposed by APV’s London
headquarters, the Horsens plant could no longer attract highly skilled
workers by promising them challenges from the newest machines and tech-
nology. But the advanced training scheme became in itself an argument for
4
As mentioned earlier, skilled and specialized workers in Denmark have long been engaged in a
mutual rivalry through competitive skill formation to capture new positions created by techno-
logical change. In the APV-Horsens plant, the skilled workers had gained the upper hand in this
rivalry, and the training agreement could be seen as their attempt to secure the control of new CNC
technologies in relation both to white-collar technicians ‘above’ them and the specialized workers
‘below’ them in the occupational hierarchy. Due to their majority position in the plant, the skilled
workers at APV-Horsens were able to elect their shop stewards as convener and chairman of the
local union club. But shop stewards representing other unions such as the specialized and female
workers could negotiate similar training agreements, and had the same opportunity if not the same
incentive to upgrade skills, since the skilled workers could dominate job definitions to their
advantage. In other factories, where the relative strength among the various unions differed from
that at APV-Horsens, this dynamic might have been shaped instead by the specialized workers,
especially where the latter were able to elect their own members as chair of the local union club and
plant convener.
 Horsens 77

retaining and recruiting the best skilled workers. And this was indeed a
favorable arrangement, since it allowed individual workers to propose their
own desired further training, which formed the collective starting point for
planning the entire plant’s yearly training schedule. Simultaneously, as the
plant reintegrated many of the jobs it used to outsource, production runs
became shorter, while resetting and programming time took a larger propor-
tion of the day’s work, thereby helping to bring into active use the workers’
newly acquired skills.
The individual work stations at Horsens demanded not only greater skills,
but also increasing abilities to coordinate them. By agreement all vacant jobs
were to be offered internally before they were advertised on the external labor
market. Consequently, a larger number of workers than formerly gained
experience in planning, product development, and sales, together with a
general ability to cooperate according to the rules of expertise. Many blue-
and white-collar workers soon learned how the organization worked from a
multiplicity of different positions. In short, the training agreement not only
helped to maintain the attachment of core employees to the plant across the
business cycle, but the learning process it fostered also led many workers to
increase their knowledge and employability.
As upskilling and increasing internal flexibility went hand-in-hand with
the withdrawal of work from suppliers. These measures might have been
expected to destroy the plant’s ability to mobilize the external resources of
the latter when these again became necessary. Informants at the plant
explained why this rupture did not occur by reference to personal contacts
with the old network of subcontractors, which consisted of small, non-
bureaucratized enterprises. It was said that subcontractors always received
a thorough explanation of why contracts were cancelled or changed. Conse-
quently, by using institutional rules and rights and by acting according to the
codes of the local business system, the Horsens plant found a way to preserve
and even develop its internal and external capabilities in a time of crisis.

2. Strategizing Silently on a Global Stage

Thus after its incorporation into the British multinational, APV-Horsens was
ready to begin anew. But what were the challenges it faced? First, it was
facing a complicated ‘system’ of control and coordination from its new
owner. Gone were the days when Horsens as a firm referred to its own
independent board. The new British owners wanted to make the Danish
business group Pasilac, to which Horsens belonged, independently respon-
sible to its shareholders. Thus APV’s London headquarters integrated the
78 A Global Game Enacted by Local Players

entire Pasilac group, of which Horsens was just a small part, into a single
‘profit center’. As a consequence, from a de jure point of view, Horsens again
ceased to exist as an independent firm. Its status was that of a plant, referring
in budget and accounting terms to a Danish holding company, headquar-
tered in another town in Jutland. On the other hand, since the British
multinational comprised a large number of facilities around the world,
many of them producing similar products, technological and commercial
coordination of Horsens was assigned to APV Rosista, a recently acquired
German subsidiary based in the Ruhr town of Unna, formerly one of
Horsens’s main international competitors. Finally, all investment decisions
were to be approved by APV’s London headquarters, since as we shall see in
Chapter 6, the heavy debts taken on as a result of the merger process impelled
the company’s top executives to keep a tight rein on new capital expenditure.
Thus the Germans, in spite of their well-attested propensity to coordinate
and integrate corporations technically (Lane 1992), could not use economic
means to force Horsens to follow their direction.
These seeming ambiguities among different organizational levels were
caused by strategic efforts to control and audit the behavior of each single
plant by subjecting it to as many controlling and coordinating agencies as
possible. Whether such intentions would be realized, however, depended—as
we shall see—on the individual plant’s ability and its willingness to swim in
ambiguous waters.
Although these arrangements looked complicated at first sight, there was
nonetheless an underlying logic to them. First, the British owners appear to
have structured the ‘system’ to maximize short-term cash flows into the
London corporate treasury by making the Danish holding company Pasilac
responsible for Horsens’s budgets and accounts and by directly controlling its
investments. Second, to the managers of Pasilac, the rule of thumb seemed
very consistent with this central policy: the more money they earned, the
faster they would gain some form of discretion. Third, to Horsens’s man-
aging director the rules of the game appeared very obvious and easy to
comprehend: earn as much as possible and you will be left alone. If you
wanted to make new capital investments, then you had to achieve high profits
and reduce the amortization time for such investments.
Problems piled up, however, and were complicated by the role which the
Germans were supposed to play vis-à-vis Horsens. Rosista was supposed to
integrate Horsens in terms of marketing, division of labor, and technology,
yet it had no direct means by which it could influence or sanction Horsens’s
behavior. If the Germans wanted to intervene they had to do so either via
London or the Danish holding company. As competitive producers of valves
within APV’s internal market, the legitimacy of the Germans’ position was
 Horsens 79

dubious should they want the British—or even worse the Danes—to discip-
line Horsens.
Like the British owners, the Danes believed that getting to know each other
would be the best strategy to promote future cooperation between Unna and
Horsens. Horsens therefore invited Unna to send a busload of employees to
Denmark to visit the plant; when that proposal was rejected, they suggested
instead that a busload of representatives from all employee groups in Hor-
sens should come to Unna to visit the plant, the town, and its unions. In
response to the latter initiative, they received only silence, which as we shall
see opened the way to a very different game.
Instead, and in keeping with Lane’s (1992) description of how authority is
pursued in technically well-integrated German corporations, Unna informed
Horsens that its position would gradually become that of a plant producing
equipment and parts assigned and marketed by the German firm. Further-
more, the Danish plant was to wind down its production of valves and to
focus on pumps. To execute its decisions without involving the British
owners, sales people from the German subsidiary were instructed to tell
customers that Horsens would soon stop producing and selling valves.
Horsens received this message almost as a declaration of war, but had they
known more about how the rules of the game of inter-firm collaboration
functioned in Germany, they might have interpreted it very differently. As
Gary Herrigel (1996) has emphasized, it is normal procedure for German
firms to engage in mutual collaboration by establishing a division of labor
through a formal or informal specialization agreement. Probably the Unna
management was simply offering the Danish plant what they regarded as a
normal basis for collaboration, but Horsens did not recognize this because
such agreements do not exist in Denmark, and because they had learned to
balance internal employment by flexibly reallocating workers between pump
and valve production depending on the ups and downs of these two markets.
Horsens, which was accustomed to being in the forefront of introducing
new CNC machines, suspected that if it asked London for investment funds,
the division of labor between Germany and Denmark would become a
formal item on the agenda of high politics. Hence the managing director
adopted a dual motto: ‘he who lives quietly lives well’ and ‘it is easier to ask
for forgiveness than for permission’, and decided to challenge the decisions
and position of Germany silently without increasing the plant’s own
fixed assets.
But Horsens did not simply stand pat. The plant’s former experience of
dealing with multi-level Danish holding companies had taught its leaders
that they had to find a way of becoming a valued partner within the new
worldwide business group, and that they had to do this through the resources
80 A Global Game Enacted by Local Players

they controlled themselves and through local stakeholder relations. This

reflexivity made them decide to challenge their German principal head on.
So while German salespeople traveled to APV’s subsidiaries all over the
world, informing them that Horsens was ceasing the production of valves,
the Danish plant’s own salespeople followed in their wake announcing that
they planned to stay in business. Furthermore, Horsens informed potential
new customers that its valves, pumps, and components could be delivered on
very short notice, in just one-third of the Germans’ three-month delivery
time. For constructors of turnkey food-processing equipment, this was an
offer they could not afford to refuse. For designers and suppliers of turnkey
facilities it is very helpful indeed if the specification of valves, pumps, and
other components can be deferred to a late stage in the design and planning
process so that it is possible to correct for miscalculations in the final testing.
However, missing a delivery date means that a project director incurs sub-
stantial penalties and so risks turning a profit into a loss for a huge turnkey
facility. Thus solving this dilemma by reducing delivery time was a very
efficient sales strategy. Needless to say this strategy had its source in the
flexibility of Horsens’s factory organization and the effectiveness of its
planning system, which facilitated the coordination of a large network of
sub-suppliers. This proved an excellent strategy. It provided Horsens with
numerous occasions for demonstrating its flexibility and cooperative atti-
tudes towards its new group of partners within APV’s global network.
As indicated so far, this strategy had to be defensive, and Horsens neither
dared nor could afford at that time to let its future possibilities become a
matter for the top decision-makers of the British multinational. Hence a new
question arose: was Horsens only adapted for survival in a bleak market,
whereas it would lose position to the German Rosista within the MNC when
demand recovered? In fact, Horsens soon discovered that its work organiza-
tion was well configured for a growing market. As demand for valves and
other products once again began to increase, Horsens was in a position to
expand by contracting with local and national suppliers from the business
system to which it belonged. Moreover, continuous further training had
made highly skilled production workers a more plentiful resource, which
now allowed the firm immediately to expand from two to three working shifts
without increasing the number of employees. Consequently, the same
number of machines and equipment, combined with an intensified use of
subcontractors, could produce a larger output. Production in this multi-plant
system was coordinated logistically by the planning office, which had learned
how to handle such a task during the previously successful years 1982–6.
Within a very few years, earlier periods of prosperity looked like recessions.
By the beginning of the 1990s, Horsens prepared to make the decision on the
 Horsens 81

location of valve production an explicit issue within APV, as it now wanted to

become the producer of a new generation of these valves for the entire multi-
national conglomerate. This was partly due to the fact that Horsens had been
able to demonstrate additional capabilities in pump production. Shortly after
being incorporated into the British multinational, Horsens was invited to
participate with British and American corporate partners in a joint develop-
ment project on the new generation of pumps. Horsens succeeded in negoti-
ating the rights to produce the new pumps by demonstrating that its plant was
technically and financially superior. Even though Danish wages were very
high compared to the other countries involved, Horsens could prove that its
overheads were among the lowest. This argument decided the game.
Preparing the new generation of pumps for efficient production proved to
be an easy task due to the flexible factory organization. Problems could be
broken down and handled expertly by the workers, who saw hardly any
difference between such tasks and their daily activities, and by the subcon-
tractors responsible for electro-motors, deep-drawing, etc. Consequently,
after an extremely short period the new product program was ready for the
market. Not only had the lead time been very short, but investments in
additional machines, tooling, and equipment were kept extremely low.
Horsens wanted to demonstrate its superiority to its British owners by
simply making money.
That Horsens’s strategy had proven successful, preparing the plant for the
more difficult move of directly challenging its German principal in the eyes
of their common British owner, could easily be seen from the facts that the
managing director in Horsens was planning to present in the coming nego-
tiations with London. In 1990 turnover had passed DKK170m and thus far
exceeded the previous peak of DKK113m in 1985, which had then fallen to
well under DKK100m in 1986 and 1987, when Horsens was taken over by
London. Since 1987 turnover had nearly doubled, profits had trebled, and the
workforce had only increased by 8 per cent. Investment had been negligible.
During the difficult days in the 1980s, the firm had been forced to run up an
overdraft facility, which in the bleakest periods showed a negative balance of
DKK30m. By 1990 the balance was very positive indeed. No wonder that
Horsens expected to have a say in determining its own destiny, demanding a
voice in corporate politics. The silent war had already been won.

3. Internationalization and Horsens’s Local System

Horsens’s strategy would have been impossible without its traditional rela-
tionship with a system of local and national subcontractors who had
82 A Global Game Enacted by Local Players

developed the skills to play in concert with the plant. The structure of the
stainless-steel district to which Horsens belongs had not changed much
in terms of size of enterprise, number of firms, etc. over the previous fifteen
years. However, according to local observers, the internal organization
of work in these firms had evolved pretty much along the same lines as
that of Horsens. Many enterprises had chosen to specialize in a smaller
number of processes, which they could flexibly and swiftly adapt to
customers’ changing needs. Some had even started to collaborate in groups
which together could undertake the coordination of several industrial pro-
cesses across plants. Consequently both the internal characteristics of
firms and the linkages among them changed considerably during the
period, during which the local labor market also experienced an upskilling
dynamic.
Whereas the ties between local firms from the 1960s to the first oil crisis
gradually became less intensive due to growing imports of standardized
components from abroad, they have intensified since then. The cause is
simple. While before the 1970s, local firms worked closely together in
developing parts and components for new or customized products, the shifts
in final demand following the oil crises meant that these types of collabor-
ation-intensive products increased as a proportion of total output. In this
respect, one may say that the stainless-steel district to which Horsens belongs
increasingly resembles an Italian industrial district, though the ties between
firms may differ in certain respects.
As in the classic industrial districts of the ‘Third Italy’, subcontracting
relations in Horsens are fluid and dynamic, rather than fixed and hierarch-
ical. Sometimes local firms act as principal suppliers, sending out work to
their neighbors, and sometimes as sub-suppliers helping to fulfill orders
obtained by others. Whereas cooperation and trust in the Third Italy used
to be attributed at least in part to family relations, these have always played a
minor role in Denmark. Far more important in the distribution of orders is
professional reputation. As everyone in the district is engaged in establishing
a reputation as highly skilled, firms’ relative standing in this game depends
more on their work teams than on their owner/entrepreneurs or technical
functionaries. Companies therefore contend with one another to recruit
the best workers, so that upward career mobility often occurs across, rather
than within, firms. Many individuals thereby acquire a very personal network
of ties to a multiplicity of firms, which makes mutual collaboration
possible in very informal and decentralized ways. Finally, the expansion of
further training during the late 1980s added new dimensions to these ties,
as workers from many different firms now had new opportunities to meet
and exchange information about each others’ jobs, the machines they
 Horsens 83

were manning, and the functioning of the companies in which they were
employed.5
It is the prior existence of this local system of supplier relations that
explains how the APV-Horsens plant could manage its production schedule
with very low inventories, while knowing only one-third of each month’s
orders in advance and outsourcing DKK100m of its DKK170m turnover in
1990. The intensive flow of information throughout the system about each
plant’s capabilities likewise enabled APV-Horsens to draw effectively on its
collective resources when introducing new products. The nature of these ties
between local firms also explains how the system continued to be able to
work in concert, despite seemingly drastic changes in its ownership and
governance structure. Measured in terms of ownership, it certainly does
not display a very local orientation. The motor producer that assisted
Horsens in developing the new pumps by modifying and improving its
product had been taken over by the large Swiss-Swedish multinational
ABB. Nevertheless, ‘local, non-bureaucratic, personal ties among small en-
terprises’ were said to characterize APV-Horsens’s relations to such firms as
well. The plant’s closest competitor in the district was also owned by a
Swedish MNC and related to the local system in pretty much the same way
as did APV-Horsens. The two competitors even occasionally exchanged
experience at the local level about the quality of subcontractors, while the
overlapping career paths of their managers made it very difficult for them to
imagine each other as enemies rather than rivals. Thus the growing inter-
nationalization of ownership did not appear to have changed the network
structure of relationships among enterprises or their internal organization in
ways harmful to the local dynamic of collaborative rivalry.
Looking at the system from a slightly different angle thus reveals that it
meant a great deal for the district that firms like APV-Horsens were incorp-
orated into large multinationals. By fighting for its own existence, the plant
was also fighting on behalf of the entire locality for a share of the closed
internal market of the London-based multinational. Thus the various multi-
national subsidiaries may be seen as gateways to many controlled global
markets for the local stainless-steel district. In Denmark, specifically, such
subsidiaries could be seen as solving a major problem for the business
system. As argued elsewhere (Kristensen 1990, 1992a) a large number of
Danish production firms are adept at flexibly turning their process specialties
to different uses, much like a traditional craftsman. However, the highly
praised skills of a particular craftsman are not easily brought to the attention
5
For similarities and differences between the nature of interfirm relations in Italian and Danish
industrial districts during the early 1990s, compare Trigilia (1992, 1995) and Kristensen (1992b,
1995). For the recent transformations of the Italian districts, see Whitford (2001).
84 A Global Game Enacted by Local Players

of the global market. MNC subsidiaries solve this dilemma by calling upon
the system’s capabilities in order to pursue their own strategies, and in the
long run by serving as a point of reference should any of their new partners
in the global firm ever need the services of particular specialized sub-
contractors.6 For these reasons it could have been a deliberate policy on
the part of Horsens’s subcontractors to help smooth out the cycles of the
APV-owned plant, though that decision was probably rooted more in
local customs.

4. Groups Positioning in Social Space: Local or Global Aspirations?

The analysis thus far has shown how Horsens was able to create and per-
petuate its unity by the local use of national institutions and the larger
business system, thereby reproducing its position within the social space of
its new multinational owner. But how could the Horsens plant maintain its
unity as different internal groups and their members pursued their individ-
ual and collective strategies? How could these strategies be combined into a
coherent totality?
Obviously this is not a trivial question, especially in MNCs. Joining a
multinational opens up a seemingly endless space of career options for local
managers, and they may often be tempted to pursue such options by focusing
on their personal aspirations rather than by giving collective form to the
aspirations of the various groups they manage. Such a change in attitude may
easily lead to short-termism, since radical cost reductions may quickly
advance managers’ reputations, resulting in rapid promotion, while leaving
their successors to inherit the long-term negative consequences. Most radical
cost-reduction plans in any case will harm other groups’ positions and
aspirations within the plant, touching off a war of each against all. This
pattern is often deliberately chosen by MNC headquarters to govern the
ladder of principal–agent relations and to institutionalize a regime of divide
and conquer, as we will see in more detail in Chapters 7–9 below. Conse-
quently our next turn in the analytical helix aims to understand why the
specific logic of the strategies by which different groups produced and
reproduced themselves was not transformed by their incorporation into
the social space of the multinational corporation.

6
When we later visited the Lake Mills plant we discovered that it used several of Horsens’s
subcontractors for special jobs which could not be farmed out within the American system. But we
also learned that the Lake Mills managers—to their regret—had to deal with these subcontractors
indirectly through Horsens, who insisted on controlling the chain of negotiations for fear that the
Americans might damage their own relations of trust with the subcontractors.
 Horsens 85

First, let us consider the managing director. He won his position in

Horsens by gaining a reputation—locally and within the sector—for being
able to change functionally divided workshops into flow production cells. As
an engineer he was convinced that this organizational and technological
principle was superior to all others. In general, he attributed his force in
external negotiations to the fact that he knew every nut and bolt within
the Horsens plant, though he gained his experience and reputation by
redesigning many factories within the sector along the same lines. Although
this technological principle was first developed for mass production, he
considered it to be in total harmony with a shop manned by high-discretion
skilled workers, as they could use their capabilities and initiative gradually
to improve every link in the chain. In many ways this production philo-
sophy resembled what later became known as ‘lean production’ or Japanese
manufacturing practice, but he had developed his own version long
before it became widespread and had already installed it in the Horsens
plant during the early 1980s, when he was first employed as a production
manager.
The managing director’s practical approach, furthermore, was based on
the fact that he had a very substantial knowledge of the successes and failures
of each of his workers, which gave him a hands-on experience about which
parts of the overall organization assisted them in making improvements and
which not. He was keen to make changes by improving organization and
incentives if it would reduce throughput time, processing time, and costs.
Interactions among the management team were basically defined as serving
or refining this principle. For the same reasons he was in favor of tight
collaboration between production and research and development, so that
new products could take advantage of all possible gains from past experience
of shop-floor improvements.
Since the different products made by the Horsens plant were fundamental
for defining the division of labor among work teams, it becomes evident why
the managing director followed the strategy discussed earlier towards
the global APV group. Winning the battles over valves and pumps within
the MNC was thus seen as important to protect the flexible system of
work allocation on which the plant’s functioning was based, and defending
its existing product mandates seemed to be the only way that the manage-
ment team could perpetuate their own position within the British-
owned corporation.
But if the Horsens management team could protect the plant’s product
mandates, this system was ideal for making gradual improvements that
would yield reduced costs and shorter throughput times, which would in
any case conform very easily with the expectations of its British owners,
86 A Global Game Enacted by Local Players

thereby allowing the managers the possibilities of promotion within

the MNC.
Was, then, the local management team in Horsens just playing individual-
istic and opportunistic short-term games from a more advantageous pos-
ition than might at first appear? A closer look will reveal that for a long time
they did quite the contrary. Though productivity improved and costs
were reduced considerably, managers manipulated the presentation of final
accounts so that they would only show small but fortunate improvements in
relation to budget targets. Reducing real costs dramatically instead allowed
the managers to finance through working capital small investments such as
paid further training for employees, incremental scaling-up of tools and
machines, and new product development, all of which is quite easy within
this type of factory organization. In short, the management team in Horsens
might have used the plant much more offensively to improve their personal
career prospects within the MNC. That these managers did not exploit such
opportunities can be explained by their embeddedness in local games, whose
rules they felt obliged to follow in order to preserve their chances for local
careers and avoid potentially damaging reprisals from the plant’s powerful
skilled workers.
Just as the British owners largely ignored and were even deliberately kept
ignorant of the extent of the plant’s gradual technological and organizational
improvements and the upskilling of the workforce, these accomplishments
were widely recognized among its employees and through them diffused to
firms and colleagues in the district and the sector nationwide. Consequently,
Horsens’s management team was gradually improving its reputation within
the local and national space and thereby improving its chances in this
landscape of career ladders. In other words, to strike the aforementioned
balance in final accounts and between the local and the global was a very
smart strategy for holding on to chances for ‘promotion’ in both worlds.
Of course, the power to appoint a new managing director of Horsens
rested with its owners, and there was the permanent risk that a general
manager, engaged in or looking for an international career, would be
appointed. This, however, would probably change only marginally the
strategic logic among the management team.
Most white-collar workers, middle managers, technicians, and even sales-
people in Horsens owed their present position to a characteristic local career
pattern. Many managers had started their working life as skilled machinists,
gradually gaining shop-floor experience in several firms, and actively
engaging in further training, before they embarked on a white-collar career.
The resulting friendships with blue-collar workers were very important for
understanding the ease by which Horsens coordinated its activities. With
 Horsens 87

this background, however, these managers neither aspired to nor expected

any prospects of success in the social space of the multinational company. For
them there was no other strategy than to improve their local reputation and
the easiest way of doing that was simply to improve Horsens’s image in the
local system.7
At the same time, the composition of the management group was an
outcome of the struggle for space undertaken by the group of skilled workers,
and the habitual patterns of interaction resulting from their strategies. Hence
the management group’s own room for maneuver was partly defined by the
strategies of the skilled workers.
These strategies ran partly contrary to managers’ wishes. For instance, in
the early 1980s production management intended that the workers within a
mini-factory or product group should continuously rotate and become
capable of replacing one another, depending on which workplaces were
subject to peak loads, etc. However, the workers concentrated instead on
making their own workplaces as efficient and flexible as possible. The
production groups came to consist of a set of fairly discrete and ‘independ-
ent’ work stations, where the workers operated as ‘subcontractors’ respon-
sible for all the tasks, including one or more machines or other pieces of
equipment. The workers displayed significant initiative and commitment in
their efforts to make their particular station function as flexibly as possible in
relation to the continuous needs for changes from one batch to another and
from one product to another. This pattern was reinforced in the early 1980s
through the introduction of new, computer-based technology (for turning,
milling, and welding), whose planning and programming were devolved to
individual work stations.
The fast, successful implementation of the new technology occurred partly
because of the workers’ significant ability to organize this learning process
among themselves. The programming of the new computer-numerically-
controlled (CNC) machines was entrusted to skilled machine operators
who volunteered for this task. To some of them, the task offered the oppor-
tunity to extend their hobby into working hours. A few attended evening
classes to learn skills such as machine coding that were automatically trans-
ferred to the firm, which in turn was able to profit from new ‘tricks’
unknown even to the equipment vendors. All the CNC operators attended
7
However, local career prospects did not look bleak compared to what could be achieved
globally. Since we first began our investigations we have encountered former machinist apprentices
from Pasilac plants at every level of Danish society. The CEO of the largest producer of food
ingredients, a vice-president from Danfoss, a number of production managers among the largest
plants in Denmark, business consultants, administrative staff and teachers at technical schools, and
numerous middle-managers in firms, together with the mayor of Horsens, all share such an
apprenticeship background.
88 A Global Game Enacted by Local Players

vendors’ courses and acquired a basic knowledge of the machines for which
they were to be responsible. But above all, the workers were engaged in a
mutual rivalry among themselves across production group boundaries to
find new, increasingly sophisticated ways of using the equipment. Experience
flowed smoothly among the individual workers on the factory floor,
although they had to communicate across ‘dividing lines’ created by the
fact that the various production groups were supervised by different foremen
who each had their own budgets and financial responsibilities. The catalyst
for this self-organized, regular continuing training was the newly established
position of programming technician. A former machine operator who had
been with the plant since the CNC machines were introduced was offered a
white-collar job as internal consultant assisting in solving the programming
problems experienced by the individual machine operators.
The work organization introduced at this time provided an ideal basis for
continuous improvement. The ‘owner’ of the specific work station interacted
actively with the rest of the organization to ensure that his station functioned
flexibly and effectively. Consequently, experience was acquired ‘on the job’
and possible improvements were also defined there. The plant institutional-
ized routines for consulting the workers, thus making use of their experiences
when planning for future investments. Cross-boundary communications
among work stations were strengthened by replacing the piece-rate system
with a pay system based on a fixed hourly wage plus a bonus. The philosophy
was that the ‘owners’ of each individual work station should take the
initiative to make other parts of the organization function better if the latter
were obstructing the efficiency of their own operations. In short, the indi-
vidual work stations on the factory floor were granted very broad competen-
cies and were empowered to try to make the other functions in the plant
interact effectively with them. The workers at these stations increased their
skills and became more adept at changing their workplaces quickly and
independently, as well as at coordinating their varying tasks with the rest of
the production group and the entire organization. One effect of this was to
make the operation of each work station so complicated and the skills needed
so considerable that it was practically impossible to rotate workers among
them. Another effect was that managers had very limited control over the
performance of each station.
However, as other forms of flexibility were achieved, these effects seemed a
small price to pay. The firm often needed to reduce capacity in one produc-
tion group and raise it in another as the market for different products
fluctuated. These capacity adjustments could be made quite easily by moving
a worker and his machines from one production group to another, where the
machine operator would be capable of integrating his station into its new
 Horsens 89

context. This capability also makes it understandable why it was so import-

ant to produce pumps, valves, and fittings, as this diversified portfolio could
help balance employment across the different groups, so that Horsens did
not risk losing highly skilled workers. A particularly collegial spirit prevailed
in the factory, due in no small part to the conscious efforts of the plant
convener to ‘monitor’ his members’ mutual collaboration. The introduction
of fixed hourly wages reinforced the spirit of solidarity, which made the
workers agree to engage in the necessary mutual training of new members of
the groups so that the highly cultivated skills of each work station did not
lead to positional war games, and could instead be used continuously to
improve the flow of products through the production process.
Such a work system leaves little discretion for managers who want to
administer it contrary to workers’ interests. The managers who took over
from those that had introduced the new system during the volatile period of
the mid-1980s would discover how limited a space had been created for
exercising managerial discretion. When these managers with more trad-
itional interpretations of hierarchical authority arrived on the scene, the
skilled workers quickly discovered their own power and ability to constrain
their behavior. Managers who tried to introduce new practices that ran
counter to the skilled workers’ aspirations could simply be counteracted by
running some of the work stations at sub-optimal levels, thereby reducing
the economic performance of whole sections or even the entire factory.
Workers had discovered that their discretion allowed them to determine
which managers should be allowed to achieve high performance indicators
and which instead should be saddled with low marks. This was a method
through which they could strongly influence CEOs and their boards to sack
managers whose strategies they disliked, or alternatively to promote those
pursuing strategies they favored. Orchestrated by the convener, this process
allowed for the selective evaluation by the shop floor of a shifting stream of
managing directors during the mid-1980s, until the old production manager
was recalled to his new position, where he naturally sought to strike a balance
between short-and long-term objectives, as well as between local and global
concerns.
With the training agreement initiated in 1987, the position of the ‘work-
place’ or station as the basic organizational unit in Horsens was further
reinforced, as it became the nucleus of skill acquisition. But further training
also enabled skilled workers to exhaust the challenges of their current work
stations more quickly, and many therefore took courses enabling them to
operate more complicated stations when they became vacant.
Thus gradual horizontal mobility in the factory became a dominant career
pattern for Horsens workers. But horizontal mobility also stimulated and
90 A Global Game Enacted by Local Players

reinforced the traditional pattern of vertical mobility. Whereas it had trad-

itionally been possible for a few of the most skilled workers to become
foremen and members of the technical staff, the continuous upskilling of
the workforce and their pioneering role in the acquisition of new techno-
logical and transversal competencies now made it essential for the plant to
promote such workers. On the one hand, without such promotions the
management team feared that they would lose these key workers to other
firms in the district, while on the other, their services and skills were ever
more necessary for the plant to manage a production system increasingly
based on outsourcing and continuous innovation.
The job of foreman was increasingly taken over by much younger workers,
who following their apprenticeship had worked in both the production and
planning departments. Quality control was carried out by former machine
operators who knew the ins and outs of CNC machining. New prototypes
were built by machinists who were intimately familiar with the shop’s
facilities. In sales, too, increasing use was made of former workers who
knew all the details of how the products were manufactured and how they
could be improved or modified according to specific customers’ wishes. The
storekeeper was a former machine operator. ISO 9000 certification was
entrusted to a former machine operator who had extended his training by
three years of full-time education to become a machine technician. An
increasing number of staff departments were manned by heterogeneous
groups, some with typical white-collar educations, others with shop-floor
experience supplemented by an impressive number of further training
courses. The engineering department is a good illustration of this set-up. It
comprised two externally recruited engineers and two internal recruits. One
of the latter functioned as a ‘consultant’ to machine operators when they
encountered difficulties in programming their machines. Among the basic
tasks of the engineering department was continuously to challenge the
division of labor between the plant and its suppliers by making alternative
calculations of the costs of producing in-house or outsourcing. Thus
Horsens’s place in the technical division of labor of the district was continu-
ously contested, but by a group that had a very deep knowledge of the plant’s
own capabilities.
Though the convener and the shop stewards were heavily involved in
constructing this new organization, their own jobs became increasingly
complicated. On the one hand they continually had to evoke the division
between ‘them’ (the white-collar functionaries) and ‘us’ (the hourly-paid
blue-collar workers) to make their constituency fight for their right to take
training courses in areas which ensured that workers and not functionaries
achieved the most advanced technical skills. On the other hand, in the very
 Horsens 91

act of doing so they also ensured that their members embarked on careers
that crossed these boundaries and left the rank and file—and thereby their
own union.
It could be said that the local union representatives’ new role was to
monitor the careers of their members in such a way that they continuously
improved their life chances in the plant and in the entire labor market.
Thus the union representatives served as scouts and gatekeepers for new
vocational training and benefit schemes that could make possible a more
promising future. It was they who could mobilize external resources and
rules to support the plant in its struggles, not least through their institu-
tional, union, and political networks, as we saw at the beginning of this
chapter.
Hence it is obvious that the convener and shop stewards were actively
institutionalizing the social processes that would help the managing director
fulfill his aspirations, but only if he in turn made the concessions in terms of
wages that would enable the plant to recruit and retain highly skilled people,
in terms of resources for further training that would allow them to pursue
new careers, and in terms of discretion for these union representatives
themselves to teach both managers and workers, inside and outside their
legal membership base, about the new rules of the local game.
With this picture of the pattern of interacting group strategies in mind, it is
not difficult to imagine the problems a purely opportunistic career-hopping
manager would have faced had he wanted to turn Horsens into a tool of
personal promotion within the larger British multinational. Potential local
allies would have been very limited and so would his chances of survival
when faced with finely honed strategies of ‘obstruction’ from the skilled
workers (Kristensen 1992: 130–1). Maintaining a balance between local and
multinational interests, as the new managing director did, thus seemed more
an outcome of the structure of social interactions within the plant than a
matter of personal conscience. As a social space, the Horsens plant seemed
highly unfavorable terrain for pursuing a typical Western white-collar career
(Sabel 1982: ch. 3). The scope for pursuing ‘departmental’ strategies (like
those analyzed in classic texts such as March and Simon 1958 and Cyert
and March 1963) was also extremely limited. The very structure of the
organization seemingly left possessors of such world-views and aspirations
with few hierarchical steps to climb. By contrast, Horsens provided such an
ideal social space for pursuing a skilled worker’s career (Sabel 1982) that one
could easily classify it as a microcosmic craft community, albeit one which
also gave its members access to many high-level careers in Danish business
and society. Thus it was doubtless from his own local career perspective that
Horsens’s managing director was planning to negotiate with APV’s London
92 A Global Game Enacted by Local Players

headquarters about where valve production within the MNC should be

allocated in the future.

5. The Transformation of a Local into a Global Player

Consultations with London over this matter, however, became much more
difficult than anyone could have imagined. While by the mid-1990s Horsens
had earned a high reputation among engineers throughout the global organ-
ization, its managing director himself was regarded as a veritable ‘miracle-
worker’ in London. With virtually no resources, he had, in headquarters’
view, transformed a deficit into a surplus, doubling turnover with almost no
increase in employees or investments.
Far from having to defend or ask forgiveness for the subversive strategies
that Horsens had been pursuing for almost ten years, the managing director
was regarded instead as the incarnation of the modern principles—such as
just-in-time logistics, cellular manufacturing, teamworking, outsourcing,
and business process re-engineering—which APV’s top executives, influ-
enced by current managerial fashions, wanted to implement in their plants
worldwide. Suddenly, the decision about who should control and coordin-
ate the production of valves—whether Germans as principals and Danes
as agents or the other way round—which used to be of cardinal import-
ance for Horsens, looked like a petty detail within a much greater and
more profound problem. Would it be possible to transform APV’s world-
wide organization to operate along the lines of these modern managerial
principles?
Though Horsens’s managing director was surprised to be regarded in this
way, and though his career aspirations remained national (or even local)
rather than global, he was nonetheless intellectually prepared. For a number
of years he and the convener had been wondering whether the plant’s
subversive strategy was proving so successful after all. Obviously, this strategy
had enabled Horsens to become an active and independent player with its
own identity within the global company, but to what effect? Was not Horsens
just earning money to finance the deficits created by other parts of the
organization or—worse—feeding the London HQ with the flows of financial
capital that enabled its executive officers to play their games in the City? For a
long time now, Horsens had been seeing itself as a full member of an
association which its leaders increasingly felt needed to be improved if the
plant itself were to develop in the longer run. In other words, Horsens had
begun to doubt whether it had been such a good idea to seek membership of
the APV Group in the first place.
 Horsens 93

What London was now offering Horsens, its managing director believed,
was a chance to re-engineer this worldwide association. Some very dramatic
years followed in the wake of this offer. At first, Horsens’s managing director
was involved in continuous consultations with London, after which he was
sent on a number of missions to assist local managers in different locations
throughout the world in initiating projects of reform. Then during one of the
numerous restructurings of APV’s worldwide organization chart, he was
placed in charge of the corporation’s new global Strategic Business Unit
(SBU) for ‘Fluid Handling’. This comprised Horsens, the German Rosista,
and approximately twenty other factories in different parts of the world,
including the Howard rotary lobe pump factory in Eastbourne and parts of
the Crepaco plant in Lake Mills. Furthermore, he was appointed CEO of
Pasilac, the holding company to which all the Danish subsidiaries reported.
Since he also remained Horsens’s managing director, the plant was thus
suddenly transformed from a local production site into a global SBU head-
quarters, where the economic performance of all the activities of the Danish
Business Group could also be evaluated and compared.
As Fluid Handling SBU manager, Horsens’s director now found himself
placed in much the same situation as that which the German Rosista had
previously held in relation to the Danish plant. However, his approach was
very different from that of the Germans. Whereas Rosista had made plans
which it had no authority to implement, Horsens’s managing director tried
to win support for his projected reforms through frequent visits to local
plants and by positioning workers and middle managers from Horsens as
agents of change in these plants. Soon ordinary but competent CNC machine
operators were sent abroad on missions to oversee the introduction of
cellular manufacturing and programmable equipment. Machine technicians
became production managers placed in charge of foreign plants. And a few
engineers were appointed managing directors of foreign subsidiaries not
much smaller than Horsens itself.
The approach of Horsens’s managing director was as admirable as it was
impossible. Convinced that he should now learn ‘every nut and bolt’ of his
SBU as he had formerly known the Horsens plant, he tried to make ‘his’
business units aware of their strengths, and how they could improve their
proficiencies by mobilizing internal and external resources.
Though these missions greatly improved the SBU manager’s global vision
about how the entire association could be improved, they also helped
complicate his expectations about how to bring about this gradual improve-
ment. So far he had believed that it would be easy to determine the world-
wide allocation of responsibilities for activities such as valve production.
Now it became obvious that Unna had to be allocated some responsibilities,
94 A Global Game Enacted by Local Players

if for no other reason than because laying off workers and closing the
plant would have been a very lengthy and costly process, due to the employ-
ment protection and codetermination rules that govern the German labor
market. Suddenly, he found himself in the position of arguing in favor
of allocating the responsibility for valve production to the Germans, while
in exchange gradually transferring worldwide responsibility for pumps to
Horsens.
By appointing an engineer from Horsens to run the Eastbourne plant, as
we will see in Chapter 5, the SBU manager experienced the rebirth of a worn-
out plant, whereas all attempts to work with Lake Mills fell on stony ground.
His expectations from dealing with unions in the collaborative Danish
environment were suddenly challenged. In Lake Mills, he faced unions
which, for reasons he did not understand, treated him with what he felt
was suspicion and distrust. The ease with which plans were implemented and
good intentions followed through in East Asia and China made him—like
many others involved in global management—wonder whether there was
any real future for a plant like Horsens in a high-wage country like Denmark,
to say nothing of Germany, Britain, or the US. Any such future, in his view,
would be highly dependent on the ability to collaborate trustfully at all levels.
This collaboration had come easily in Denmark. In most other cases it was
much more difficult.
In this respect, too, the SBU manager’s continuous interaction with APV’s
London headquarters became highly frustrating. London could give him a
mandate, but seemed never to follow a meaningful and consistent course of
action. Each new strategic plan seemed to pursue a different logic. Promises
he had made to encourage local plants to restructure suddenly could not be
kept because priorities had changed. Decisions and deals made with the
executive director of the division to which his SBU belonged could suddenly
be overturned simply because either the name of the boss, the divisional
grouping, or the managerial flavor of the month had changed. In short, the
same game that had initially brought him to ‘power’ had suddenly stripped
him of any influence on London and had forced him to break bonds of trust
towards the affiliates of ‘his’ SBU.
Reflecting on these experiences, the SBU manager came to the conclusion
that London was not really interested in the long-term coordinated evolution
of APV’s worldwide operations. Rather the headquarters was primarily
engaged in the merger and takeover games being played in the City of
London. This was a game in which APV’s top executives risked becoming
the first victims, as he firmly believed that a merger or hostile takeover would
result in a change of names at most positions in London, whereas most of
APV’s productive facilities would continue their business as usual.
 Horsens 95

Thus what seemed important to the SBU manager was to ensure that
London’s participation in the City game did not harm the long-term devel-
opment of APV’s productive operations or its ability to compete in the global
plant-contracting business. For this reason, he thought it worthwhile to build
up the internal coherence of Pasilac, APV’s Danish holding company,
through an institution called the ‘Danish Forum’, which paved the way for
the formation of an informal circle of Danish managers within the wider
MNC, which later became known as the ‘Danish Mafia’. And he likewise
encouraged the union conveners of APV’s Danish plants to coordinate
among themselves in negotiating one of the first European Works Council
agreements. But this agreement, as we shall see, also depended on the
initiatives of other local players engaged in global games of their own within
the British-owned multinational.

6. Organizing from Below: The Danish APV Forum, the Danish Mafia,
and the APV European Forum

The Danish APV Forum

What the joint maneuvers of Horsens’s managing director and convener had
achieved was a better feel for the workings of the global game within APV,
learning which channels to influence and how to secure information about
the plant’s destiny. That, after all, was their primary aim from the outset.
Influencing the destiny of the larger multinational association as a whole was
an objective which emerged from the unintended effects of this strategy
rather than from any deliberate plan on their part.
Other Danish subsidiaries had found themselves less fortunately pos-
itioned in this game. Consider the case of Rannie, the Copenhagen-based
producer of homogenizers. For this facility, it would initially have been a
much better option to be taken over by Alfa-Laval, which had no homogen-
izer plants, whereas APV already owned several. For Rannie’s convener in
particular, the APV takeover and the end of the firm’s formally independent
status meant the loss of his seat on its board, through which he had been able
to participate in decisions over how to allocate the significant profits earned
each year. For some years, he tried to fight his way back on to the Pasilac
board, succeeding for a time in alliance with the Horsens convener, until a
coalition of the other plant conveners returned him to ‘exile’.
This frustrating situation led the Rannie convener to assume the role of a
local player with the specific agenda of proposing new representation agree-
ments in the global game of the MNC. Feeling very bored and dissatisfied
96 A Global Game Enacted by Local Players

back in his job as an ordinary convener, not least because his board member-
ship had raised his power in relation to local management, he came up with
the idea of creating a Danish APV Forum, in which worker representatives
from all the subsidiaries could meet regularly with managers at various levels
within Pasilac. This idea was supported by the conveners at Horsens and
Silkeborg, so together with the secretariat of CO-industry (Centralorganisa-
tionen af Industriansatte, a union cartel for coordination of collective bar-
gaining within manufacturing), he prepared a draft agreement. With this in
hand, he approached the then managing director of Pasilac, who responded
positively, with the proviso that participation in the proposed forum should
not be confined to blue-collar workers alone.
Consequently, the Rannie convener prepared a revised proposal according
to which all professional and union groups in each of the Danish subsidiaries
should be represented together with different levels of Pasilac management in
a future APV Forum. At an initial meeting, the Rannie convener ran into
opposition from his old rivals in Kolding, but with support both from his
blue-collar allies at Horsens and Silkeborg and from other professional
groups elsewhere, he was able to win approval for the Forum and set up a
small secretariat to administer it. CO-industry backed them up by arranging
a five-day course at one of the Danish labor movement’s folk high schools.
During this course, employees from many different categories discovered
how they could combine a multitude of practical competencies with the
organizing skills of conveners to initiate a new and promising dialogue with
the group’s management. The fact that Horsens’s managing director had just
become Pasilac’s CEO only reinforced the positive sentiment, and a general
feeling emerged that it would be possible not only for the Danish subsidiaries
to respond to policies emanating from London, but also for them to take
initiatives of their own.
With four meetings a year, the Danish APV Forum soon showed its
potential. First it created an extended collective identity across both occupa-
tional groups and subsidiaries. People discovered that they actually knew
nothing about the other firms in the group, whereas the Forum offered a
chance to explain what went on in these subsidiaries, why people acted the
way they did, and how this connected to their past histories. Suddenly they
discovered the underlying rationales of the behavior of different subsidiaries,
and old misunderstandings could be overcome. Second, the diversity of
positions among professions and subsidiaries within the Forum made it
possible to interpret the London HQ from many different angles so that its
strategies could be more competently and comprehensively evaluated. Finally,
the Forum led to the publication of a house journal, which, unlike the
normal glossy newsletters put out by corporate headquarters, was intended
 Horsens 97

to include informative articles about the histories, activities, and strategies of

the subsidiaries, which could gradually lead to the emergence of a unified
identity within the Danish APV group, an identity that had never previously
transcended the boundaries of the individual subsidiaries. Finally, the Danish
Forum became a place where possible alternatives could be discussed when
strategies decided in London were to be implemented in Denmark. Through
these discussions it became increasingly clear that the questions had many
possible solutions, and that choosing among them could have long-term
strategic implications. And these reflections in themselves enabled APV’s
Danish subsidiaries to play the global game in concert.

The ‘Danish Mafia’

One of the unintended consequences of the Danish APV Forum was that
Danish managers had occasion to meet across subsidiaries and hierarchical
levels. The fact that they did so while London was laying off many man-
agers—including those at high level—who protested for various reasons
against the headquarters’ policy and strategy probably lent a distinct tone
to these meetings. The Danish APV Forum created a social space for discus-
sions to reflect on and reach general conclusions about what made sense in
London’s strategies. And from these conclusions a collective response could
follow, in the form of selective implementation of the headquarters’ strat-
egies, as well as perhaps a more convincing chorus of voices in discussions
with London.
The ‘Danish Mafia’ is a metaphor, but what it actually refers to is unclear.
We first encountered it during interviews in Britain. No doubt the term
originated in the discovery by British managers that a good half of the dozen
or so SBU management positions in the APV Group had been taken over by
Danes during the mid-1990s. But whether this was an outcome or the cause
of the informal organizing process described above remains unclear. We
know very little about the activities of the Danish Mafia, only that it met
regularly, discussed the headquarters’ strategies and initiatives, and
often tried to reach a consensus on which initiatives to pursue and which
to ignore.
Like Horsens’s managing director, all the other Danish SBU managers had
climbed up the internal hierarchy from within, and they shared a highly
detailed knowledge of products, production techniques, competitors, and
customers worldwide. Thus we suspect that they attempted to establish an
industrial as opposed to financially orientated coordination network. This
network acted not on behalf of the formal owners, but instead saw the firm’s
employees—from managers to blue-collar workers—as its constituency. We
98 A Global Game Enacted by Local Players

suspect that they may have been trying to continue the global strategy of the
1980s, which, as we saw in Chapter 2, Pasilac had failed to accomplish as a
Danish-owned company, but which now could be so much more effectively
pursued within the global association of APV.

The APV European Forum (AEF)

By taking the lead in creating the Danish APV Forum, the Rannie convener,
as we have already observed, had embarked on a new career trajectory.
Scarcely had he got the Danish Forum up and running when CO-industry
suggested that he should try to create a European Works Council for APV as a
whole according to the provisions of the EU’s 1994 Directive on information
and consultation rights for employees in multinational enterprises.8 By using
CO-industry as a legal consultant, mobilizing the network of plant represen-
tatives within the Danish Forum, and contacting employees in other Euro-
pean APV subsidiaries in Germany, Belgium, and the UK, the convener
arranged a conference in Denmark to discuss a draft agreement. By inviting
an APV Human Resource Manager located in Hamburg, the conference also
prepared the ground for the HQ’s approval. A committee consisting of two
Danes and two Germans was selected to negotiate the agreement. This
proved more difficult than initially anticipated, since the Germans were
anxious to formulate the formal agreement so that it stipulated procedures,
rights, and duties in great detail, while the Danes wanted instead to create a
flexible framework for consultations rather than to prescribe their nature.
Hence the Danish employee representatives and managers alike came to see

8
Following many years of inconclusive negotiations and an abortive attempt to reach a binding
European framework agreement between trade unions and employers’ associations under the Social
Dialogue procedure introduced by the 1992 Maastricht Treaty, the EU Council of Ministers adopted
Directive 94/45/EC on 22 September 1994. This Directive created a procedure for establishing
European Works Councils (EWCs) with information and consultation (but not codetermination)
rights in enterprises with 1,000 or more employees of whom at least 150 worked in two or more EU
member states. Article 13 of the Directive provided a window of opportunity for the negotiation of
‘voluntary’ EWC agreements during the two-year period before the statutory procedure was due to
come into operation in 1996. Such voluntary agreements were exempted from certain of the
mandatory provisions or ‘subsidiary requirements’ of the statutory procedure concerning the
composition, operation, and powers of EWCs. All voluntary EWC agreements nonetheless had to
cover the company’s entire workforce within the European Economic Area (including Norway,
Iceland, and Liechtenstein) and provide for transnational information and consultation; they could
then be renegotiated under the statutory procedure after three years. Altogether, some 460 volun-
tary EWC agreements were concluded by late 1996, a significant proportion during the months
immediately preceding the deadline. Although the UK did not ratify the Maastricht Social Protocol
until 1997, the provisions of the Works Council Directive nevertheless applied to the European
employees of British-owned MNCs like APV which met the criteria. On the origins, provisions, and
initial take-up of the EWC Directive, see Falkner (1998: 97–114); Lecher et al. (1999: chs. 4–5);
Lecher et al. (2001); Gilman and Marginson (2002).
 Horsens 99

the German unions as more of an opponent than a partner in the negoti-

ations.9 Despite these complications, however, an agreement gradually
emerged, while at the same time the British HQ gradually came to respect
the Danish attitude of partnership and pragmatic collaboration. The Rannie
convener was invited to London to discuss the matter with the CEO and his
staff. This quickly became an exercise in which the CEO posed questions and
the convener responded, rather than a real discussion. But as the convener
had come well-prepared, the final question was naturally about who should
sign the agreement for the other side. Here again, the convener had an answer
ready, having already lined up the president of the European Metalworkers’
Federation (EMF) to assume this role. A seemingly impossible task was
thus quickly accomplished, while a new bond of trust had been established
with the CEO which was nearly as valuable to the convener as the agreement
itself.
As the APV European Forum was among the first European Works
Council agreements to be signed in Denmark, it soon became a model for
others in bringing order to the mutual consultations among multinationals
and their employees. The AEF was set up to:
. provide information concerning the performance of the business, and stra-
tegic transnational issues of importance to employees;
. promote an exchange of views between corporate management and employee
representatives concerning these issues; and
. give employee representatives an opportunity to comment on these issues
before decisions are made.
It was stated explicitly that the AEF should exchange information and
points of view on the following issues:
. the Group’s financial performance, future prospects, and investment
strategy;

9
The negotiating stance adopted by the Rannie convener and other Danish employee represen-
tatives, like that of their German counterparts, reflected their own domestic experience of work-
place industrial relations. As one academic study of EWCs in the Nordic countries reports: ‘In this
respect the high degree of informality within Nordic workplace relations is . . . of importance. In
the experience of shop stewards, influence is often obtained through informal arrangements rather
than by sticking to the formal rules and procedures. This tends to make them focus more on ‘‘the
essence’’, the creation of a new body for participation, rather than on the exact formal rights granted
to this body.’ According to the authors of this study, ‘because [Nordic] shop stewards are deeply
enmeshed in continuous company-specific give-and-take they have to a certain extent been ready to
sign EWC agreements of dubious quality,’ in the sense that the voluntary agreements reached before
1996 often did not include all of the ‘subsidiary requirements’ and powers mandated by the
statutory procedure (Knudsen and Bruun 1998: 152). For the pervasive influence of statutory
codetermination rights on the outlook and behavior of German representatives within EWCs, see
Lecher et al. (1999); Lecker et al. (2001).
100 A Global Game Enacted by Local Players
. the international economic environment and its impact on the Group’s
future direction;
. the international competitive environment and areas for potential develop-
ment of the Group;
. development of the Group’s vision, values, and culture;
. substantial changes concerning the structure of the Group;
. employment issues;
. strategic human resource management;
. new ways of working;
. training and development;
. use of new technology;
. health and safety;
. environmental issues;
. all other business to be agreed.
One employee representative was to be elected from each country (apart
from Denmark, Germany, and the UK, which were allocated three divisional
seats each), and the AEF was to meet once every year. Surprisingly, perhaps,
the agreement was based on Danish labor law and ‘the common practice of
the Danish labour market’, with an explicit proviso that any conflicts of
interpretation should be resolved through arbitration according to Danish
legislation.10
There is no doubt that by striking this agreement the Danish conveners
were harking back to the simpler days when they alone had been strugg-
ling for the survival of plants in Horsens and Copenhagen from quite
a different perspective, where the division between ‘us’ and ‘them’ was
becoming blurred, which was exactly what the Rannie convener wanted to
accomplish:
In my opinion, it was a question of building trust among persons who meet
regularly, so they could make use of each other, and that is not accomplished
through an agreement, only by personal acquaintance, which was exactly what the
agreements made possible. It gave us an opportunity to become faces and human
beings to the top executives.
Though the AEF was only supposed to meet once a year, at its first meeting it
created a secretariat consisting of three to four persons who could meet
regularly (four times a year), which promised gradually to improve the
climate within APV. Soon, however, it proved instead to be an organ that
kept communication lines open to shifting owners.

10
‘Agreement on the Establishment of an APV European Forum’, 17 Sept. 1996, available online
at <http://www.eurofound.ie/ewc/pdf/en/apv.pdf>.
 Horsens 101

7. In Search of a Better World

It is difficult to imagine actors transforming their aspirations, orientation,

and outlook more radically than did Horsens’s managing director and
convener. Within a few years they put their most creative and constructive
potential in the service of a global rather than a local firm. In many ways their
perspective and reflexive practices had undergone a transformation, and
their career prospects looked brighter than ever. Another way to assess
their situation would be to evaluate how many of the potential advantages
from joining an MNC that we outlined in Chapter 1 had been realized by
Horsens. In our view, Horsens had capitalized on all five dimensions.
Yet the managing director and convener of Horsens were highly dissatis-
fied. By working actively for the takeover by APV they had originally aspired
to acquire an owner who understood the long-term issues involved in
building up a high-quality engineering firm. In other words, they had
expected an owner devoted to the same target as they themselves were. It
therefore came as a shock to them that one of London’s first actions after
APV had taken over the Danish business group was to sell and release as
many fixed assets as possible. To the people in London this step was just a
smart way of financing the takeover. Rannie’s convener had learned to
admire London for this trick, but Horsens was never informed about it. To
the people in Horsens and other Danish facilities, it was a signal that the new
owner was not really committed to developing their business, but rather was
preparing to be able to move out at short notice.
Another consequence was that production costs suddenly changed. As
Horsens was planning a strategy in which the plant would prove its profit-
ability to the new owners, it was a great disadvantage that they would now
have to pay ‘leasing fees’ for the buildings and machines that they had almost
amortized. Thus London seemed to take decisions that made it difficult for
the plant to satisfy its owners. When Horsens later learned that investment
would be kept as low as possible, a pattern emerged that radically conflicted
with their original expectations of the London HQ. Both the ‘Danish Mafia’
and the ‘APV European Forum’ can be seen to have been created as a means
of defending an industrial system against its owners.
However, the most frustrating experience in dealing with London was that
the headquarters did not follow the rules of its own game. Horsens had
interpreted these rules simply: if they met or exceeded the profit targets
stipulated in the annual budget, they would be left alone to pursue their
own options within the framework of APV’s global strategy. On several
occasions in the game London was simply cheating in Horsens’s eyes. One
year London reduced the plant’s profitability by suddenly demanding a
102 A Global Game Enacted by Local Players

royalty for the use of the APV name. Another year London ordered them to
give an interest-free loan to a plant in France.
To London, no doubt, such interventions seemed totally harmless: what
difference did it make whether they received revenues as profits, royalties, or
loans? To Horsens it made a significant difference. Their profit record over
the years was the only means by which they could systematically rank
themselves in comparison with other factories within the APV Group. It
was their track record of how much they had contributed to the Group’s
development, the ultimate metric by which they could prove their reputation
and measure how far they had been able to improve continuously.
There were several reasons why Horsens took this figure so seriously. First,
as we saw in Chapter 2, the plant had formerly been engaged in a game in
which low profit scores were intended to legitimize its closure. Second, they
were now engaged in a game with London, where the divisional executive
directors changed so often that written records became more important than
oral narratives. Third, Horsens believed that London was doing such a bad
job in coordinating and developing itself as an engineering group that it was
highly likely that a new takeover of the whole multinational company would
result sooner or later. How should the new owner evaluate the current assets
if not by looking into the historical profit records? Finally, as London openly
proclaimed that every non-core business within its corporate empire was for
sale should the right buyer turn up, Horsens wanted eventually to be sold to a
new owner that would recognize its performance level from the beginning.
By playing its little tricks in engineering financial flows, London was
merely harming the ability of its affiliates to create respect in their own and
others’ eyes, thus dissatisfying those who had possibly worked most intensely
for the improvement of the entire MNC. As for the Horsens managing
director, though London had—at least for a while—reoriented his career
away from its local destiny and given him a global reach, it never circum-
scribed his aspirations, thereby dissatisfying the headquarters and arousing
suspicions among its principals about how and even whether they could
control their agent.
 4
Lake Mills: Self-limiting Strategies of a
Solidaristic Plant Community

As we saw in Chapter 2, Crepaco and its core Lake Mills plant remained
substantially independent despite the company’s formal takeover by the APV
Group in 1973 until its forced merger with the British multinational’s other
US operations in 1985. Up to that point, Lake Mills had continued on its
established growth path as a largely self-sufficient, vertically integrated com-
plex designing and manufacturing proprietary food and process plant equip-
ment in collaboration with a regional network of sales engineers focused
principally on the US market. The common strategy pursued by all local
actors had long been to expand the plant’s technological capabilities and
employment potential by developing new product lines and internalizing
additional productive activities. As in the case of similar vertically integrated
complexes elsewhere, such as Horsens’s former Silkeborg parent or APV’s
own historic UK R&D/production center at Crawley, this autarkic develop-
ment strategy had a crucial weakness: an immanent tendency towards the
generation of excess capacity and rising overhead costs, which left the plant
vulnerable to any severe downturn in demand such as the deep recessions
that struck the US economy during the 1980s and early ’90s.
The 1985 APV–Crepaco merger thus posed a major challenge to the
historically autonomous Lake Mills plant. With the reorganization of APV
Group sales and engineering on a national and increasingly international
basis, Lake Mills found itself progressively cut off from the close contact with
customers and user–producer collaboration which had fueled its innovative,
problem-solving capabilities. Some Crepaco designs such as heat exchangers
were phased out and replaced by those of other APV companies; others such
as ice-cream freezers acquired a global mandate as lead products for the
group as a whole; while others such as pumps and homogenizers still
continued to compete with rival lines from elsewhere within the multi-
national. A rising share of Lake Mills’ production capacity was devoted to
turning out components for other APV businesses based elsewhere, but
quick-turnaround manufacture of spare parts to service the plant’s large
104 A Global Game Enacted by Local Players

domestic-installed customer base also remained critical. Far from simplify-

ing the plant’s manufacturing task, therefore, these centrally directed efforts
at product rationalization instead added to the complexity of production,
with more than 300,000 distinct part numbers under manufacture in the
early 1990s. In other respects, too, periodic interventions by APV’s London
headquarters that were aimed at improving the plant’s financial performance
often proved counterproductive from a local perspective. Thus in the late
1980s, for example, the London head office ordered Lake Mills to stop
producing tanks larger than 1,000 gallons because they were unprofitable
according to the group’s accounting system. But this decision had to be
abruptly reversed a few years later when sales of related equipment dropped
off, as customers increasingly wanted all their needs met by a single manu-
facturer, while the ability to supply large tanks turned out to be a key selling
point in clinching the whole order.1
In responding to the challenges of tighter integration into a multinational
division of labor and administrative hierarchy, the Lake Mills plant, like
many large unionized manufacturing facilities in the United States, displayed
an intricate mix of solidarity and segmentation. The workforce as a whole
identified strongly with the plant, which has long been recognized as the best
place to work in this small, semi-rural community situated midway between
Milwaukee and Madison, Wisconsin’s two main urban centers. Job tenure
among blue-collar employees averaged more than fifteen years in the mid-
1990s, and it was not unusual to find several generations of the same
extended family scattered across the various departments and shops. At the
same time, however, a fundamental social cleavage, underwritten by US labor
law, distinguished unionized hourly-paid workers from non-union salaried
staff, who enjoyed greater job security, superior fringe benefits, and more
attractive working conditions, though not necessarily higher earnings. Blue-
collar workers themselves belonged to two union locals, the International
Association of Machinists (IAM), which organized the majority of manufac-
turing operations, and the United Steel Workers of America (USWA), which
controlled the tank and sheet-metal fabricating shop, the result of a fusion a
generation earlier between two formerly separate plants. Within each union
jurisdiction, workers were divided into a myriad of detailed job classifica-
tions and labor grades, each paid at a different hourly rate, reflecting a typical

1
The narrative in this chapter draws not only on our own interviews at Lake Mills and APV’s
London headquarters in 1995–7, but also on the transcripts of interviews conducted in 1994 by Ken
Mericle and Dong-One Kim of the University of Wisconsin Extension’s School for Workers as part
of a comparative project on the introduction of pay-for-knowledge systems in unionized establish-
ments (see Mericle and Kim, 1999a, b). We are grateful to Professors Mericle and Kim for sharing
these materials with us.
 Lake Mills 105

Taylorist division of labor in which people might be confined for many years
to a single narrowly defined machining, fabrication, or assembly task.2 Lay-
offs, re-calls, promotion, and transfer were all governed by strict seniority
under union agreements. Long-service employees could bid for vacant jobs
and ‘bump’ junior colleagues from any position they were qualified to
perform, producing job-switching chain reactions in case of layoffs, while
legally binding grievance arbitration placed the burden of proof on manage-
ment to justify out-of-seniority assignments. High-seniority workers thus
tended to gravitate into positions which were less physically demanding or
offered greater opportunities for overtime earnings, progressively diluting
any correlation between seniority and skill or between skill and pay on the
shop floor. Any external threat to the plant would thus evoke a powerful
collective response from the entire workforce; but any attempt to reorganize
its operations for improved performance would likewise run up against a
deeply entrenched set of internal divisions and parcelized job rights backed
up by long-standing provisions of union labor contracts. Given these con-
straints, immobility was always the most likely outcome, at least in the short
term, and little seems to have changed in the plant during the late 1980s.

1. Restructuring for Flexibility: External Interventions

and Local Initiatives

By the end of the 1980s, however, the Lake Mills plant, like the APV Group as
a whole, found itself in mounting difficulties. Market volatility and growing
customer demands for supplier responsiveness compounded the complexity
of production planning and scheduling left by past waves of partial rational-
ization, while narrowly defined job classifications and seniority lines re-
stricted transfers of work and workers around the plant. The resulting lack
of flexibility in turn gave rise to long and unpredictable lead times, high levels
of stocks and work-in-progress, declining product quality, and rising over-
head charges, along with high levels of union grievances and workman’s
compensation costs. With competition over both price and quality intensi-
fying in process equipment markets at home and abroad, losses began to pile
up at Lake Mills, attracting unwelcome attention from APV’s London head
office. One characteristic response from the center to the plant’s unsatis-
factory performance was to impose cost reduction measures such as contrac-
tion of apparently unprofitable activities; but given the scale of the Lake Mills

2
Until the late 1970s, the plant had operated under a piecework incentive system, but this was
phased out at that time due to management’s inability to control bonus earnings of 200–300%.
106 A Global Game Enacted by Local Players

site, this merely raised overheads further for the rest of the plant, and could
actually yield perverse effects for other parts of the business, as we saw in the
case of large tanks.
Another characteristic central response to Lake Mills’ mounting difficul-
ties was to purge the local managers and replace them with new, externally
recruited appointees. In 1990–1, a new management team was installed with
a mandate to turn the plant’s performance around but no other clear
strategic direction from APV’s corporate headquarters. The key figure within
the new regime was the vice-president for operations, an enthusiast of W. E.
Deming’s Total Quality Management philosophy and exponent of devolved
responsibility with previous experience at Ford and Harley-Davidson, both
companies which had reorganized production along Japanese-influenced
lines during the preceding decade. Another important new arrival was the
vice-president for human resources, who had introduced gain-sharing and
pay-for-knowledge schemes at a number of other companies.
Together this odd couple—a ‘slash-and-burn guru’ and a ‘used-car sales-
man’, as one local union officer later called them—set out to reorganize the
plant around the Japanese-inspired approach to flexible manufacturing
which was then sweeping through American industry. Most fundamentally,
the new operations manager sought to replace the plant’s traditional func-
tional layout by a product-based organization in which as many operations
as possible were gathered into self-contained production cells turning out a
common family of parts, with multi-skilled workers rotating across the
various tasks. Hand-in-hand with this reorganization, in which every piece
of equipment in the plant was reportedly moved at least once, went a series of
dramatic gestures aimed at paving the way for the implementation of just-in-
time logistics. At the operations manager’s orders, storage bins were removed
from the shop floor, warehouse space closed down, forklift trucks sold off,
and inventory thrown away as part of a new ‘Components as Required’ or
CAR system involving set-up reduction for small lot production using
Japanese-style kanban cards to order parts from upstream work stations.
Procurement of components from outside suppliers was placed on a similar
footing, with purchasing responsibilities devolved to direct production
workers themselves on a ‘KanFax’ basis, and customers were promised free
service parts if they did not receive them within 24 hours. Within each cell or
work area, indirect tasks such as housekeeping, inspection, and routine
maintenance were reintegrated into the production line, while work teams
were trained in statistical process control and group problem-solving tech-
niques, and the number of supervisors sharply reduced. Although the oper-
ations manager’s intolerance for ‘whiners’ and ‘deadwood’ soon became
notorious, so too did his support for shop-floor initiatives even where
 Lake Mills 107

these cut across established lines of status and authority, as in the case of a
female blue-collar worker who exposed the purchasing department’s system-
atic failure to ensure that the plant received credit for defective parts from
certain favored suppliers.
None of these reforms, however, could work effectively without comple-
mentary changes to the narrow job classifications and seniority rules
governing the allocation and mobility of labor within the plant. Early in
1991, therefore, the new management team asked the local unions to reopen
the plant’s labor contracts, which were not due to expire until the end of the
year. Negotiations began with the Machinists, as the largest and most im-
portant union on the site, but proceeded extremely slowly for a variety of
reasons: the absence of a sense of crisis in this part of the plant, which had not
suffered significant job losses in the recent past; widespread suspicion and
mistrust of the new outside management; and vocal opposition from the
IAM headquarters in Washington to pay-for-knowledge systems and other
departures from traditional job control practices.3 The initiative thus passed
instead to the Steelworkers, a much smaller and more cohesive local union,
whose membership had fallen from 400 at the beginning of the 1980s to just
64 in 1991, with further cuts threatened, and whose national and regional
leadership was far more supportive of cooperation with management in
restructuring plans in order to prevent job losses and plant closures.4 Once
the USWA had cut a deal with management, the IAM quickly followed suit in
March 1991, but the ensuing agreement was only ratified by a razor-thin
majority of five out of 435 votes in a membership ballot.
Although the details of the agreement, as we shall see, proved devilishly
complicated, its underlying principles were simple enough. Both unions
accepted a drastic reduction in the number of job classifications: from
thirty-five to one for the USWA, and from sixty to three for the IAM
(machinists, assemblers, and maintenance). Seniority rights were redefined
on a plant-wide basis within each union, with guaranteed retraining for laid-
off workers bumping into unfamiliar jobs. The plant’s nine labor grades were
replaced by a pay-for-knowledge system known as ‘Learn & Earn’, under
which each of the new job classifications or trades was broken down into a
series of distinct skill blocks, whose mastery carried a pay increment of 50
cents above the basic hourly rate. All individual wage rates were ‘red-circled’
3
The IAM changed its national policy towards workplace innovations in 1994 and has become
more supportive of local union involvement in reorganization efforts (Mericle and Kim 1999a:
561).
4
An added spur to the Steelworkers’ seizure of the initiative in these negotiations came from the
local’s previous near-death experience with restructuring: when the South Plant had closed in 1981,
the USWA only succeeded in fighting off a joint attempt by management and the IAM to exclude it
from the Lake Mills site with the support of the National Labor Relations Board.
108 A Global Game Enacted by Local Players

or ‘grandfathered in’, so no one would lose money directly from the change;
opportunities to learn new skills (and thereby qualify for extra pay) were to
be allocated by seniority; skills once acquired were to be kept sharp through
regular job rotation; overtime opportunities would be equalized within each
skill block; and management committed itself to keep at least 5 per cent of
the workforce in training at any given time. The design of the new system
reflected a genuine compromise between the two sides. Management would
originally have liked to simplify jobs as far as possible, with rotation concen-
trated within cells or natural work areas, but the unions opposed creating a
set of ‘button pushers’ without externally marketable skills, and successfully
insisted on arrangements which would encourage workers to master and
rotate through a wider range of tasks. Some groups within the union, such as
maintenance craftsmen, wanted to set up a formal apprenticeship program,
but management vetoed this proposal for fear of losing skilled people to
better-paying jobs in Milwaukee once they became certified. No closure was
reached on gain-sharing arrangements, but both sides accepted the principle
and undertook to keep negotiating until a mutually satisfactory settlement
could be reached. Underpinning the bargain was a hard-fought sense of
personal trust between local union leaders and managers: the USWA letter
of understanding, incorporated into the 1992 labor contract, explicitly stipu-
lated that ‘if two of the top three executives in the building at the time were to
leave—for whatever reason—the Steelworkers had the right to revert to their
old contract’.
While local managers and union leaders were hammering out their
restructuring deal, APV headquarters in London became increasingly restless
about the long delays, endless meetings, and high training costs involved in
the transition to teamworking and pay-for-knowledge. Although corporate
management had endorsed the broad outlines of the reorganization plan,
their commitment to the underlying approach was superficial at best. As one
Machinists’ official commented: ‘they understood the idea of reducing
inventory from $40 million to $15 million, but not the other stuff ’. The
Steelworkers’ president was even more scathing: ‘If I were to take a wild
guess, I would say that our owners in England read some articles which said
that these were the things all manufacturing facilities were going to go
to . . . . They were convinced that [this] is the way to do business. ’Cause
somebody told them that. But they had absolutely no idea what it meant,
how to do it, where to go with it. . . . But somebody convinced them that
they needed to do these things in order to stay top of the market.’
During the negotiations, therefore, the London headquarters commis-
sioned a consultancy report, which concluded that the IAM sections of the
Lake Mills plant could be run with 280 people instead of the 435 currently
 Lake Mills 109

employed. Armed with this ammunition, London then ordered the Lake
Mills managers to lay off more than 100 IAM members in May 1991, just two
months after signing the pay-for-knowledge agreement. The redundant
workers displaced by plant reorganization had mainly been employed in
indirect jobs, such as stocktaking, receiving, crate packing, and forklift
truck operation: people ‘who had a lot of seniority but not necessarily a lot
of skill’, as the IAM bargaining committee chairman observed. Under the
terms of the agreement, these senior workers now had the right to bump
more junior workers anywhere in the plant, irrespective of whether they were
able to do the latter’s jobs without further training. The impact on the plant’s
skill base was devastating, since ‘all our skilled help was in the . . . junior
people’, especially CNC machinists and certified welders. ‘So you can imagine
what happened,’ he continued: ‘No second shift . . . and all the critical
machinery was sitting empty. . . . It looked to me like they didn’t have a
clue where seniority lay.’ Among middle managers unprotected by union
seniority rules, the opposite occurred but with equally perverse effects: by
laying off long-serving employees while keeping on more recent arrivals, the
plant wound up paying out $6m (including legal fees) to settle the ensuing
age discrimination suits. The predictable consequence was a massive destruc-
tion of trust not only in management’s good faith but also in its competence.
To rank-and-file workers, it looked as if the local managers had reneged on
their commitment to retrain rather than lay off those displaced by the
reorganization, though some union officers recognized that ‘it was partially
due to our parent company not giving them the opportunity to follow
through on what they said they were gonna do’. Either way, however, the
damage was done, and cooperation from the workforce ground to a standstill
for the next six months.
With an acute shortage of skilled machinists, the plant soon fell behind in
shipments of key parts, eliciting new threats from corporate headquarters to
move work to other APV facilities if the situation did not improve. In the face
of this dilemma, local managers’ only recourse was a vast outsourcing
program. Over the year following the layoffs, 130,000 hours of Lake Mills’
work was farmed out to small non-union machine shops in the area, which
often employed former APV operators to do their old jobs at two-thirds their
normal wages, while charging the plant an additional set-up fee for just-in-
time deliveries even when supplying from inventory. The IAM filed a griev-
ance under the union contract charging management with causing a layoff
through outsourcing, inappropriate transfers, working overtime with people
laid off, and other contractual violations. But the operations manager
successfully convinced the arbitrator that given the many bottlenecks in
the plant’s production system, he couldn’t tell what they could really build
110 A Global Game Enacted by Local Players

in-house ‘unless they dumped everything out on the floor and tried to bring
it back in as it made sense’—a claim which representatives from both unions
later accepted.
Even before the mass layoffs, the Machinists’ tenuous commitment to the
reorganization plan had already begun to fray. In April 1991, less than a
month after the approval of the pay-for-knowledge agreement, eight of the
ten IAM officers were turned out of office in local elections, including the
bargaining committee chairman and chief negotiator, who received only 35
votes. The issues were at once processual and substantive: union members
felt they had been kept in the dark during the negotiations, while the
opposition candidates argued that the new pay and seniority arrangements
could never work and ‘ran against the company’. Within a year, however, the
victorious chairman was also voted out and replaced by the other opposition
candidate from the preceding election, a long-serving CNC machinist who
had also worked as a foreman for a number of years before voluntarily
returning to his trade. Like the Steelworkers’ president who had engineered
the original agreement, this new IAM bargaining committee chairman grad-
ually became convinced that making the new arrangements succeed was the
only way to safeguard the plant’s future. Under his leadership, the Machinists
even became willing to permit out-of-seniority recalls of junior workers with
key skills in order to bring subcontracted work back in-house.
Support from the local unions proved crucial in making the new pay-for-
knowledge system work in the face of determined resistance from groups
within the workforce disadvantaged by the new arrangements. Learn & Earn
significantly upset the established earnings and prestige hierarchy among the
plant’s blue-collar workers: thus machinists, considered by management and
the IAM leadership alike to be the most highly skilled manual group, could
earn a maximum of six skill blocks; maintenance workers could earn five
blocks; but assemblers, historic ‘bonus babies’ used to high overtime earnings,
could only earn four blocks, equivalent to a full dollar below the machinists’
maximum hourly rate.5 No one was formally obliged to rotate or accept
training on new jobs, since ‘grandfathering’ arrangements protected pre-
existing wage rates, but those who refused could find themselves overtaken
by more junior colleagues who had mastered additional skill blocks, while the
smoother flow of work through the shop resulting from the shift to cellular
production and just-in-time logistics sharply reduced opportunities for over-
time earnings. Perhaps the most discontented group was the freezer assem-
blers, a concentration of high-seniority workers accustomed to exploiting
their strategic position at the end of the production process to extract high
5
Basic hourly rates for machinists and maintenance craftsmen in the 1992 contract ranged from
$12.05 to $15.94, while the top rate for assemblers was $14.83.
 Lake Mills 111

levels of overtime by refusing to cooperate in getting out urgent shipments

during regular working hours.6 Soon after the introduction of Learn & Earn,
the freezer department elected a new shop steward, who demanded a $1,000
bonus for the assembly area to restore parity with the machinists, while also
firing up the welders, who were unhappy about their non-recognition as a
distinct trade within the new job classifications. But the IAM leadership stood
its ground, refusing to support changes to the pay-for-knowledge system;
junior workers who were willing to train and rotate increased their relative
earnings; and the opposition steward resigned. The bargaining committee
chairman then appointed a new steward from an adjacent shop who actively
pushed his constituents to train and rotate, while collaborating in the reduc-
tion of overtime even to his own personal disadvantage.7 Opposition to the
system began to crumble, as senior workers who announced their willingness
to rotate into skill blocks they had not previously claimed received back-pay
bonuses, while those who did not saw their earnings fall by nearly 50 per cent
due to the drop in overtime. To cut off the possibility of further resistance,
individual grievances about the operation of the agreement were referred to a
joint union–management review committee; those dissatisfied with the deci-
sion could in principle appeal to the union’s own steering committee, but
since this was composed of the same people, dissidents’ access to the contract-
ual arbitration procedure was effectively closed down.
The new pay and classification system thus had a profound impact on the
internal social order of the plant. As the IAM bargaining committee chair-
man observed:
It’s been an opportunity for some people. It’s been an absolute nightmare for other
people. We forced them into a position that . . . for the people who don’t want to
train, we forced them into a position where junior people will be paid more money
and have more skills if they decide to stay where they’re at and not train. . . . And if
they continue to look at layoffs, bumps, and recalls by skill, they could be looking at
being laid off and out the door, and not being recalled because they’re not skilled.
Conversely, however, with widespread increases in basic hourly rates through
pay-for-knowledge and concomitant improvements in work organization and
scheduling, most blue-collar employees could earn as much as they had
previously without any need for overtime: a broadly appreciated outcome.

6
Before the reorganization of the plant and the introduction of pay-for-knowledge, the freezer
assemblers had averaged 1,400 hours a year per capita in overtime, which at time-and-a-half rates
could double their annual earnings, while more skilled groups like the machinists might only
receive 300 hours.
7
The new freezer steward’s alimony payments from a recent divorce settlement were based on an
annual average of 600 hours of overtime above his basic salary, so by reducing overtime he was
‘cutting his own throat’.
112 A Global Game Enacted by Local Players

Equally crucial in consolidating support for the new system was the
growing role of self-managing teams in improving the plant’s performance
and reviving employment. Teams of blue-collar workers took over an
increasingly wide range of responsibilities, including day-to-day staffing
and production scheduling, overtime allocation, vacation planning, purchas-
ing, shipping, and customer liaison, as well as participating in hiring deci-
sions. With leaders chosen by the groups themselves, the number of frontline
supervisors fell from 32 to 12 between 1991 and 1994. The cumulative result
of these reforms in the context of the plant’s broader reorganization was a
substantial improvement in performance across a variety of measures:
reduction of inventory and work-in-progress; higher quality and lower
rework rates; fewer interruptions to production due to staffing bottlenecks;
and a jump in on-time delivery rates from 20–30 per cent in the mid-1980s to
80 per cent in 1994.
All this brought Lake Mills back into the black for the first time in half
a decade. As the plant’s performance improved, the same collaborative
approach was directed towards bringing outsourced work back in-house.
Thus CNC lathe operators and salaried engineers worked together in cross-
disciplinary set-up reduction teams to design a cell for insourcing of
homogenizer parts, and similar examples were replicated across the plant.
With increased revenues from lower costs, the plant hired additional sales
and marketing staff to promote its products, while service engineers and
craftsmen also helped to generate new business by going out of their way to
inquire about customer problems with the company’s equipment. Even more
promising for the future, the plant developed a prize-winning new ice-cream
freezer from scratch in a record time of 18 months (as opposed to three to
four years in the past) by involving blue-collar assemblers alongside white-
collar engineers in simultaneous engineering and design for manufactur-
ability, despite the latter’s historic reluctance to alter their blueprints to
reflect shop-floor modifications. Most crucially of all from the workforce’s
perspective, the fruits of the plant’s improved performance could be seen in a
sustained revival of employment: thus the USWA’s numbers rose from 64 to
130 between mid-1991 and mid-1994, while that of the IAM recovered from
280 to 340 over the same period.

2. The Unions Take Command

Although the original initiative behind plant restructuring had come from
the externally appointed management team, the local unions became increas-
ingly committed to the new system in their own right. For both the USWA
 Lake Mills 113

and the IAM, pay-for-knowledge and job rotation formed the basis of a two-
pronged hedging strategy, aimed at improving the plant’s performance,
bringing work back in-house, and reviving employment on the one hand,
while simultaneously broadening members’ skills to enhance their external
marketability in case of future layoffs on the other. Beyond the hard knocks
of the restructuring process itself, interaction with outside consultants also
played an important part in the conversion of the union leadership. Thus the
Steelworkers’ president was strongly influenced by an independent consult-
ant brought in to facilitate the pay-for-knowledge and gain-sharing negoti-
ations, who taught him some basic principles of managing interpersonal
relations. More significant, however, was the participation by a group of eight
officers from the two unions in an intensive three-week course on managing
for continuous improvement, at a cost to the company of $10,000 per head.
This course was intended to train union officials in the same techniques used
by plant managers so they could negotiate with them on an equal footing,
much as an earlier generation of US unionists had learned Taylorist work-
study and incentive-pay-setting methods. But this training also gave union
leaders a new externally validated vocabulary and conceptual framework
within which they could defend worker empowerment and participatory
decision-making as essential elements of modern efficient production. Even
continuing political volatility within the IAM did not threaten the unions’
support for the new arrangements, since victorious dissidents were quickly
socialized into the emerging culture of labor–management cooperation, as in
the case of the former chairman, who returned to the bargaining committee
in 1994.
The unions’ commitment to the new system soon became critical given the
continuing high rate of managerial turnover inside APV. All three of the
managers involved in the original restructuring plan left Lake Mills within a
few months of each other in 1993: both the president and the human
resources manager were dismissed amid rumors of financial irregularities
when the plant nearly failed an audit, while the operations manager was
redeployed as a troubleshooter and consultant to APV companies in Europe.
The new British-born plant president had previously worked at Lake Mills as
a development engineer, but had then gone on to get a US accounting degree,
turning into what one union official called ‘the worst possible combination: a
bean-counting engineer’. Based at APV Americas’ sales and engineering
center in Rosemont, Illinois (formerly APV Crepaco’s corporate headquar-
ters) and visiting Lake Mills only a couple of days a week, the new president
did not really understand or support the principles underlying the plant’s
restructured operations, nor in the unions’ view did the new area human
resources director. To counterbalance these outside appointees and reassure
114 A Global Game Enacted by Local Players

the unions, APV hired an experienced local labor relations manager based at
the plant, but he soon quit the job for another position in the area because of
continuing interference from the Chicago office.
According to the Steelworkers’ original agreement, the union now had the
right to revert to its original contract since all the managers involved in the
deal had left. Faced with the possibility of a complete breakdown in union–
management cooperation, APV took an extraordinary step: the company
hired the Steelworkers’ president as the plant labor relations manager, with
the full support of both local unions. Everything at Lake Mills soon began to
work more smoothly under the new labor relations manager, who explicitly
saw the job as a continuation of his earlier union role, and enjoyed great trust
among his former colleagues. As another long-time member of the USWA
bargaining committee later observed: ‘[He] hasn’t forgotten that he used to be
the union president. He’s still telling us some of the things that we should be
doing, which helps us quite a bit.’ With both unions increasingly involved in
the day-to-day administration of the pay-for-knowledge system and given
access to confidential information about the plant’s financial performance,
the IAM bargaining committee chairman likewise saw his role change signifi-
cantly ‘from being a union representative to almost being a manager’, while
the number of formal grievances filed plunged from 28 in 1992 to just five in
1994. Contract renewal negotiations proceeded with unusual serenity in
1994–5, with innovative ‘win–win’ bargaining techniques used to address
each side’s most urgent concerns with a minimum of acrimony and posturing.
The local union officers and the new labor relations director also used
their political connections through the broader labor movement to secure a
three-year grant for a workplace Skills Enhancement Center under a state-
wide program. This grant paid for an on-site instructor from a local technical
college to offer courses in numeracy, literacy, communications, blueprint
reading, computing, and other basic skills. Workers could sign up for these
courses outside work time, without alerting management to their deficiencies
in these areas, and evaluations likewise remained strictly confidential to the
participants. As at other Wisconsin plants, these features of the program
helped to ensure not only that older incumbent workers with educational
deficiencies felt safe in acquiring the basic skills they needed to participate
effectively in teams and continuous improvement activities, but also helped
to consolidate support for the local unions’ cooperation with management in
work reorganization.8
8
For a discussion of this program and its broader role in union–management cooperation over
incumbent worker training and work reorganization in Wisconsin, see Neuenfeldt and Parker
(1996). The proportion of state funding for the Skills Enhancement Center was degressive, with
the company picking up the full cost at the end of the grant period.
 Lake Mills 115

To defend this emergent system of effective codetermination in the face of

continuing turnover among plant management, the Lake Mills unions
turned the tables on the company by mobilizing support from outside
consultants. Thus local union leaders and the new labor relations manager
successfully insisted that not only the new plant president but also the area
human resources director go through the same training course on manage-
ment for continuous improvement which had been instrumental in their
own conversion to the business virtues of post-Taylorist work organization
and employee empowerment. Whether as a result of the consultants’ training
or their own persuasive powers, the labor relations manager and his union
allies considered this strategy to have been reasonably successful through late
1995 in bringing round Lake Mills’ new bosses to a growing if not yet
complete acceptance of the jointly administered pay-for-knowledge system
negotiated with their predecessors.

3. Plant Community or Global Business Park?

Five years of continuous restructuring at Lake Mills had thus produced a

thoroughly paradoxical outcome, in which local unionists assumed increas-
ing responsibility for a reformed system of flexible work organization and
pay-for-knowledge, originally initiated by outside managers with the half-
hearted support of APV corporate headquarters, a system which was deliver-
ing substantial improvements in the plant’s performance on a variety of
measures. Yet the paradox did not stop there. For the driving force behind
collaborative restructuring and the ensuing performance improvements lay
in employees’ commitment to Lake Mills as a plant community. Thus it was
the seniority provisions of the local union contracts which bound long-
serving workers to the plant and forced management to retrain rather than
replace them; and it was the deep attachment to the plant among white- and
blue-collar employees alike which enabled the unions to assume their new
role of overcoming historic divisions, dislodging entrenched sectional inter-
ests, and orchestrating cooperation for the common good. But the financial
success of Lake Mills’ restructuring efforts from the parent multinational’s
perspective always remained constrained by the high overhead costs associ-
ated with the plant’s vast size and high degree of vertical integration. The
solution to this problem, in London’s view, lay in sharpening the plant’s
market and production focus by breaking it up into distinct business units as
part of the broader restructuring of APV’s global operations described
earlier. Such an approach, whatever its commercial or technical merits,
posed a clear threat to the collective identity and shared interests of the
116 A Global Game Enacted by Local Players

Lake Mills workforce, among whom it was bound to arouse distrust and
resistance. Hence despite the local unions’ many remarkable accomplish-
ments, their strategy of defending the unity and integration of this plant
community through collaborative restructuring would ultimately prove self-
limiting.
During the restructuring of Lake Mills at the beginning of the 1990s, the
plant was divided into a series of distinct business units, each with its own
manager. Although each unit was asked to draw up its own business plan, a
process in which the workforce actively participated, the new structure
remained more administrative than financial for the first several years.
Only the homogenizer unit, which produced parts for other APV units
located elsewhere, was ostensibly operating on an independent profit-and-
loss basis; but even there its performance was obscured by transfer pricing
and underallocation of overhead costs. In 1993–4, as we shall see in more
detail in Chapter 6, APV worldwide was reorganized into three major
divisions: sales and engineering, manufactured products, and specialist busi-
nesses. The distinction between the latter two divisions was based on their
degree of interdependence identified by outside consultants with APV’s
project engineering business: those manufacturing activities whose output
formed a major input into the multinational’s process plant contracting
work became core product businesses, while those with a smaller overlap
were classified instead as free-standing specialist businesses to be divested if
an attractive price could be obtained. The products division, as we have
already seen in the case of Fluid Handling, was broken down in turn into a
number of distinct Strategic Business Units with separate profit-and-loss
accounts, each reporting to a single global manager backed up by a new
functional organization with its own sales and marketing staff.
None of these new global SBUs was based at Lake Mills, which as a
vertically integrated multi-activity complex fits poorly into the reorganized
structure of APV’s products division. Worse still, the ice-cream equipment
business, for which Lake Mills had long been APV’s group center of excel-
lence, was designated a peripheral specialist activity under the new corporate
structure, while the plant’s R&D section, with its prized pilot facility for
product and process testing, was now increasingly isolated from the group’s
project engineering business based in Rosemont, Illinois. So stark was this
structural misalignment that a consultancy study commissioned by the
incoming executive director of the products division devoted consider-
able space to the question of closing down Lake Mills altogether, only to
conclude that such a step would be too costly in terms of asset write-offs,
severance pay, negative publicity, and likely community resistance, while
APV would still need a US manufacturing and service base to sustain
 Lake Mills 117

confidence among the company’s numerous domestic customers, which

could not be achieved through exports alone.
Faced with this impasse, the new product divisional management sought
to reconceive Lake Mills as a ‘global business park’ instead of a single
integrated business. Thus the plant’s six business units were transformed
into separate financial entities, four with independent profit-and-loss
responsibility reporting to global SBU managers located elsewhere (fluid
handling, homogenizers, tanks and fabricated products, freezers and
scraped-surface heat exchangers), and two servicing mainly internal
customers on a cost-plus basis (maintenance and the machine shop). To
oversee the new structure and ensure coordination across the site, a new
plant president from another recently divested APV business was appointed
in early 1996 and given equal status within the divisional hierarchy to the
other global SBU managers, who were not permitted to initiate radical
process changes in their areas without his approval.
Implementation of the new business park concept, with external reporting
and separate financial accounts for the plant’s constituent units, soon set off
centrifugal forces within the Lake Mills complex. Prominent among these
were growing pressures to reduce shared overheads, which fell from 50 per
cent of business-unit costs in 1993 to 20 per cent in 1996. By the end of that
year, several business unit managers were contemplating contracting out
some central services, though they remained conscious of the need to take
account of the potential impact of such decisions on the plant as a whole.
The most difficult problem, however, lay in the machine shop, the heart of
the plant’s historic vertically integrated structure. A major part of the Lake
Mills machine park was too large, too expensive, and too widely used by
different units to be reallocated into dedicated product cells. Some fifty
pieces of equipment were therefore grouped into a separate machine shop
servicing the other business units, which were allowed to procure parts from
external suppliers, but discouraged from doing so not only by the conveni-
ence of co-location, but also by cost-based pricing policies that included no
allowance for profit or depreciation. Both the new plant president and the
machine shop manager were interested in developing third-party subcon-
tracting as a means of improving the low capacity utilization of key equip-
ment, such as large vertical boring machines originally acquired for chemical
work, but had not been able to expand this business beyond 10 per cent of
the unit’s turnover because of its high cost base and lack of an independent
sales force.
In other respects, too, the machine shop remained an anomaly within Lake
Mills’ flexible, product-based organization as it had developed during the
1990s. Thus, for example, the shop had never been fully integrated into the
118 A Global Game Enacted by Local Players

Learn & Earn system. This was partly due to the fact that as at Horsens a
number of skilled machinists who had put a lot of effort into building up
flexible and well-equipped work stations did not want other workers rotating
onto ‘their’ machines. But it was also due to the shop manager’s reluctance to
allow machinists to rotate despite persistent pressure from the IAM, the labor
relations manager, and the joint review committee, because he did not trust
workers qualified through the pay-for-knowledge system to operate key
pieces of equipment. This distrust in turn became a self-fulfilling prophecy
as workers from other units failed to build up the necessary skills or allowed
them to become rusty through lack of practice. Yet the machine shop’s
dependence on a small number of skilled operators controlling key pieces
of equipment became a source of inflexibility and bottlenecks in case of
absenteeism or unanticipated variations in the flow of work, a problem
exacerbated by demands from rival business unit managers to expedite
their own priority orders. Although outsourced work was still being brought
back in-house, dissatisfaction with the machine shop’s performance meant
that despite the evident advantages of on-site service, the other business unit
managers were continually tempted by the possibility of finding more reli-
able outside suppliers for key parts.
Elsewhere, too, the new business park structure brought to the surface
long-standing tensions within Lake Mills’ Learn & Earn system. Most of the
plant’s management, including the new president, recognized that the pay-
for-knowledge arrangements had brought vital operational flexibility com-
pared to the old narrow job classifications and seniority rules, to which there
was no desire to return. Some business unit managers, notably in Fluid
Handling where production was most fully cellularized, actively praised
Learn & Earn for its help in coping with fluctuations in work scheduling
and labor demand, and had developed a self-policing ‘skills credit card’ to
ensure that workers rotated regularly through the jobs for which they were
receiving pay increments. But other business unit managers and the new
plant president remained highly critical of several fundamental aspects of the
Learn & Earn system. Training, they complained, was based more on em-
ployee choices than on the company’s needs: too many people, for example,
wanted to learn CNC machining, an externally marketable skill. The design
of the skill block system placed too much emphasis on breadth rather than
depth of knowledge, since workers could earn additional pay increments for
learning a new job outside their own area but not for mastering one of
equivalent difficulty within it. In other respects, too, pay and skill hierarchies
remained misaligned, since assemblers could earn nearly as much as boring
mill operators, and junior employees were still concentrated in hard, heavy,
but critical machine shop work. Managers made the charge that with
 Lake Mills 119

shortages of strategic skills, it was wasteful to force top workers to do less

demanding tasks, while it was impossible to rely on trainees to operate key
machines given peer pressure on trainers to certify their co-workers as skilled
on particular jobs even if they were not really able to perform them under
normal production conditions.
Whatever the merits of these criticisms, some of which were being
addressed by the joint Learn & Earn review committee, it was apparent
that the advent of the new business park structure had intensified managers’
determination to tailor the pay and job rotation system more closely to the
needs of their individual unit. But only the tank shop, whose manager, a
former metal fabricator promoted from the shop floor, was among the most
aggressive in seeking to develop his unit as an independent business,9 had
made much practical progress in reforming the Learn & Earn system. From a
single broad classification in the original pay-for-knowledge agreement, the
shop had been redivided into three skills areas or natural work groups, with
frequent rotation among these more closely related tasks to keep workers’
skills sharp. At the same time, too, the pay hierarchy within each of these
areas was carefully revised to place the most demanding tasks, such as
certified welding, at the top of the ladder. As everyone recognized, however,
these model reforms were far easier to implement in the tank shop than in
the rest of the plant, not only because of the former’s greater homogeneity
and cohesiveness, but also because of its separate labor agreement with the
USWA.
The logic of the global business park structure pointed clearly towards
separate labor agreements for each business unit within the plant, rather than
a single IAM contract for everything but the tank shop. The existing union
agreement was in fact regarded as a major handicap by the new plant
president and some of the business unit executives, notably the homogenizer
manager who had long pressed for unit rather than plant-wide seniority, as
well as by the London head office. Any suggestion, however, that manage-
ment might be seeking to break up the Machinists’ bargaining unit was
regarded by the union as a betrayal of solemn undertakings, to be resisted
at all costs. Thus gain-sharing plans proposed by APV’s London headquar-
ters repeatedly foundered because they were based on production cells or
business units rather than on the plant as a whole. But opposition to frag-
mentation of the plant into fully separate units was not confined to the IAM.
Not surprisingly, the labor relations manager remained a firm believer in the
integrative virtues of the plant-wide pay system, arguing that a decentralized
9
The tank shop manager, an avid bear hunter from Pennsylvania’s coal and steel country, was
the only one of Lake Mills’ business unit heads to be classified as a ‘young high-potential manager’
in the worldwide personnel evaluations conducted by the product divisional head office in London.
120 A Global Game Enacted by Local Players

gain-sharing plan would never work because of inter-union rivalry and

unequal opportunities for productivity improvement in different units. ‘If
we had our way here,’ he declared, ‘we would say ‘‘APV in Lake Mills is APV,
we’ll all be one here.’’ ’ Even some of the business unit managers, however,
shared these sentiments. The freezer manager, for example, whose unit had
continued down the path of worker–engineer collaboration in developing a
new ingredient feeder to follow its prize-winning ice-cream freezer, empha-
sized the danger of undermining the plant’s cohesiveness and joint problem-
solving capabilities:
Through the transition stage, it will be very critical that we keep some kind of
homogeneous culture here. If you build the walls too fast, the business park structure
too fast, you’ll start cutting off some of the communication channels . . . . If they
move to streamlined direct reporting too fast, you’re going to lose this overall
homogeneous capability that this facility has, that’s made us so strong, that you
can rely on anybody and you don’t have to worry about this comes from one pocket
and this from the other pocket.
For the new plant president, by contrast, the strength of Lake Mills’ collective
identity posed a fundamental obstacle to its successful integration into the
product division’s global business unit structure. The global business park
concept, he contended, worked better at other formerly integrated APV
plants such as Silkeborg in Denmark, partly because the multiple business
units there (tanks, automation, freezers, and scrapes assembly) were less
intertwined than at Lake Mills. But the business park concept also worked
better there, he claimed in a surprising reversal of standard national stereo-
types, because the Danes were more independent and less community-
minded, and thus more willing to transfer their loyalty from the plant as a
whole to the individual business units. ‘That’s the difference here,’ the plant
president observed, ‘while they are working in the tank division, they are
APV Crepaco Lake Mills.’ The healthy rivalry between the IAM and the
USWA ensured that the split bargaining unit worked well, he concluded,
‘but we celebrate wins and victories as a unit.’
Beyond this evident threat to Lake Mills’ deep-rooted collective identity,
participation in APV’s new global business structure presented a complex
mix of opportunities and risks for the plant’s constituent units. On the
upside lay the prospect of more effective marketing of new or existing
products through the creation of a dedicated sales staff for each business
unit and the possibility of breaking into new industrial markets outside
APV’s traditional process-plant customers, while a single global management
team for each business, local managers and unionists alike believed, should
help Lake Mills to get better-quality parts and service than in the past from
 Lake Mills 121

sister plants abroad. On the downside, however, the strategies and priorities
of the global product businesses did not necessarily mesh well with Lake
Mills’ historic strengths. Thus the corporate decision to downgrade the ice-
cream business and transfer the freezer unit to the heat exchange group
resulted in a predictable loss of momentum, as the key person responsible for
the development of its innovative ice-cream freezer left abruptly in the
middle of the next project, setting it back by several months. In the tank
shop, similarly, the business unit manager’s energetic efforts to carve out a
global product mandate by developing new ancillary equipment and selling it
round the world ran into resistance from APV’s London financial controllers
to increased investment in what they regarded as an intrinsically low-value
activity at a high-cost location. In Fluid Handling, too, the global product
strategy pursued by the London divisional director and the Danish SBU
manager clashed with Lake Mills’ continuing regional orientation. In 1996,
for example, APV Lake Mills became the first American company to design
and build a valve capable of meeting a new set of AAA regulations, but this
was entirely aimed at domestic rather than export consumption because
of persistent differences in technical standards and sanitary requirements
between the US and Europe. While the divisional director and SBU manager
envisioned a standardized range of pumps and valves, with key parts such as
impellers manufactured in volume at a single site and divergent national
requirements met through modular variations in external housings, the Lake
Mills business unit manager saw instead an ongoing tendency to service each
regional market from a local base, despite increased cooperation in design
and production between affiliated plants within the multinational. With such
divergent visions and interests, possibilities for mutual misunderstanding
and distrust were rife, so that notwithstanding repeated attempts by the
Danish SBU manager to enlist their cooperation, both managers and union-
ists at Lake Mills continued to believe that crucial information was not being
freely shared within the business.

4. Isolation and Impasse

In contrast to Horsens, the strength of Lake Mills’ plant–community identity,

its historic vertical integration, and its domestic market orientation all
combined to inhibit cooperation with other plants within APV to improve
the effectiveness of the parent company as a multinational association. There
was, in short, no American equivalent to the Danish Mafia, nor could such a
network be easily imagined from the perspective of Lake Mills. Even within
their home region, moreover, local actors at the Lake Mills plant could call
122 A Global Game Enacted by Local Players

upon a fewer external allies and institutional resources than their Danish
counterparts. Thus one conceivable strategy for cutting overhead costs,
easing production bottlenecks, and reducing lead times at Lake Mills
would have been to develop a collaborative division of labor with an external
network of suppliers in the region, like that which had helped Horsens to
become a rising star within the APV corporate universe. But such collabor-
ation was ruled out, at least in the short run, by the substantial wage gap
between Lake Mills and the smaller non-union machine shops in the sur-
rounding area, as well as by the plant’s evident determination to bring
outsourced work back in-house as soon as possible, which deterred suppliers
from making any long-term investments in the relationship. Not only did
Lake Mills workers lack the boardroom representation rights conferred by
law on their Danish counterparts, but the guidance and support provided by
their national unions were also more limited, as can be seen from the fact
that the local officers’ principal training in negotiating over work reorganiza-
tion came from management-financed consultants rather than from their
own organizations. Labor movement connections did help Lake Mills to
secure state funding for the plant’s Skill Enhancement Center, and local
union leaders enthusiastically joined the Wisconsin Regional Training Part-
nership (WRTP), a labor–management alliance of mainly unionized metal-
working plants in and around metropolitan Milwaukee dedicated to
promoting industry-wide training and workplace innovation. Although
Lake Mills quickly became a WRTP poster child for union collaboration in
workplace reform, and workers from the plant participated in drafting the
organization’s peer training manual, local union leaders were disappointed
to find few similarly advanced companies within the group from whose
experiences they could themselves learn.10
Without the institutional resources and external allies to support a more
expansive vision of the plant’s future, local unionists and managers under-
standably fell back on a slew of defensive carrot-and-stick strategies for
maintaining its position within APV. On the positive side, they sought to
reinforce Lake Mills’ indispensability to the multinational by providing a
quick turnaround service to the company’s large US customer base, and by
developing new products tailored to US technical standards. On the negative
side, they relied on worker solidarity and the legally binding provisions of the
union labor contracts to protect the plant’s integrity against the centrifugal
forces of the global business park concept, while at the same time enlisting
the support of external consultants in the Sisyphean task of socializing each
10
On the WRTP, which now has a membership of 60 firms with a collective workforce of 60,000,
and has been recognized by the US Department of Labor as a model for replication elsewhere, see
Neuenfeldt and Parker (1996); Parker and Rogers (1999); Dresser and Rogers (2003).
 Lake Mills 123

new outside manager into the business virtues of worker empowerment. So

long as the plant remained under APVownership, the ensuing impasse would
prove relatively stable. But despite the performance improvements of the
1990s, Lake Mills’ high overhead costs, lack of external allies, and strategic
disjuncture from the parent multinational cast a shadow over its future,
while the ensuing mistrust of corporate management constantly threatened
to subvert the plant’s fragile cooperative equilibrium. Thus few of the
advantages of joining an MNC imagined in Chapter 1 had come through
for Lake Mills. Membership in APV had instead increased volatility, cut
the plant off from its historic learning path, and restricted its range of
operations.
 5
Howard: A Sleeping Beauty Awakes to
the Nightmare of a Global Enterprise

Had Howard Pumps hoped that being acquired by APV in 1989 would bring
the company more direct attention from its owner, it would soon feel
dissatisfied. Instead of being run by its new British parent, the Eastbourne
plant first came under the aegis of APV Crepaco in Lake Mills. By American
standards, Howard’s production system must have looked very odd indeed.
Manufacture often occurred in a less than controlled way, so that the fitters,
for instance, would often have to take a file to parts which did not match up
properly when assembling and testing pumps. Each pump thus effectively
became unique, and spare parts could not easily be supplied, while both
machining and assembly were often delayed. The Americans responded to
this problem by attempting to standardize production and increase output
quantities dramatically in order to reach a level where machinery and
workers could be dedicated to fixed tasks. Although the new managing
director installed by Lake Mills was a local man recruited from one of
Howard’s chief rivals, the production strategy he imposed was that of
‘moving the metal’ at all costs, as employees who suffered through this period
recall: ‘The bottom line’, one observed, was ‘sales must go out’, whatever the
quality of the product; ‘as long as the pump went round and it worked, it
would go out the door’, complained another.
This strategy, however, as the preceding quotations indicate, frustrated
both sales and production staff. Though old-fashioned and undynamic,
Howard had been operating within a virtuous circle. One of the main reasons
why customers would order from Howard was that within its specialized field
of rotary lobe pumps, the firm had a wide model range (fifteen different sizes,
stretching from the size of a hand to three feet long and several hundred
pounds in weight, available in close to a million combinations, including a
variety of lobes, seals, and finishes), which the technical department would
then customize by adding on peripheral devices such as valves or pressure
transducers, continually modifying the designs. This meant that the shop
floor would receive constantly shifting tasks, which suited the workforce well,
 Howard 125

as Howard’s flexibility had attracted those craftsmen who found the more
standardized routines of other factories in the region too monotonous. By
breaking up this virtuous if not particularly remunerative circle, the new
American-inspired management approach thus had the perverse effects of
undermining customers’ confidence in the company’s product, increasing
lead times by trying to produce for stock while receiving largely customized
orders, and destroying workforce morale. Nor did it help that Howard was
obliged to take on the name of Crepaco, whose products they considered far
inferior to their own, as the company’s long-serving technical director
explained:
Well, prior to us being APV, the Crepaco pump was looked upon as one of the lower
grades of pump, okay? . . . Because it wasn’t a precision pump, we viewed that as
being a sort of, they were below our level then, and rather lowly. And so when we got,
now, you know, getting the name Crepaco, that really did, that . . . the ego just died
right there like that. And here we are associated with the, what we called the
crap pumps. So we had two problems, we had quality, we had the association
with Crepaco.
By 1993, the management had decided that the problem was partly one of
design and that a new pump was needed. Reducing the ‘parts count’ could
cure many problems by cutting inventory and total component costs. The
numerous diverse components of the existing design needed extensive
machining, and were far from easy to assemble. At the same time, the
finished pumps often proved unreliable when installed at customers’ plants,
while rust stains would sometimes appear on the outside after a few years of
use, so it was natural to try to cure Howard’s problems in this way. The
technical director saw the new pump as a new chance for him and his
department and recruited a local university to submit a joint project for
co-financing under the UK government’s Teaching Company Scheme. The
proposal was successful, and two graduate engineers began work at Howard
on the new pump in 1994, to be joined by a third in 1996.
At the end of 1993, however, Howard came under the authority of the
Fluid Handling SBU and was henceforth to be overseen by Horsens rather
than Lake Mills. From that change in management followed a sharp change
in strategy. Rather than quantity, the focus was now on quality. Throughput
times were to be reduced as far as possible. Rather than producing for
inventory, production should only be initiated to meet specific orders.
Everything should be done to restore Howard’s reputation among its cus-
tomers. To achieve these goals, the Horsens-based SBU manager sent one
of his own technical staff to become Howard’s managing director. Since two of
the other rotary lobe pump factories in Eastbourne were already being run by
126 A Global Game Enacted by Local Players

Swedes, Howard employees referred to the new situation as the Second

Norman Conquest and to the influential position of Danes within APV as
the Danish Mafia.
And it certainly signaled new times. Instead of an American formula came a
Danish recipe. The new managing director wanted people to clean their
workplaces themselves and initiated rather surprising games—such as
offering a bottle of whiskey as a weekly prize for the cleanest machine
station—in order to push English shop-floor routines—or lack of same—in
the direction of Horsens. The production layout was reorganized on cellular
lines and a kanban system introduced.1 Whereas previously management had
concentrated authority in the technical and production engineering depart-
ments to enforce ‘Americanization’, direct mobilization of the shop floor was
now emphasized. As at Horsens, the Danish manager found it important for
different levels and functions within the plant to work much more closely
together. To this end, he promoted two of the best CNC machinists to key staff
positions in the production engineering department, placing them under the
direction of a British manufacturing engineer who had spent the better part of
a year at Horsens preparing for the introduction of APV’s new world centri-
fugal pump. In collaboration with the technical director, they quickly began to
iron out the problems with the existing pump designs and initiated a system
of engineering change requests, whereby shop-floor workers could suggest
alterations in production techniques, leading to continuous reductions in
cycle times and improvements in the product itself. For the shop-floor
workers, the Second Norman Conquest more than restored their past craft
honor and working morale, awakening in them entirely new career aspir-
ations, and offering them an environment that emphasized learning,
flexibility, and quality. Howard again became reputed for its craft quality
and was able to attract whole new teams of highly capable machinists from
neighboring factories, while customers were kept happier than ever before.
This turnaround period, however, ended after two years, when the man-
aging director was offered a high position at the world’s leading pump
manufacturer back in Denmark. Thus even his service in Eastbourne appeared
to him first and foremost as a step in the advancement of his local Danish
career. Following his departure, the management of Howard passed to a very
young Scots accountant, who had been serving as the firm’s financial control-
ler and whom the Danish managing director and the Fluid Handling CEO
believed capable of advancing along the path they had already marked out.
1
By this stage, as we saw in the previous chapter, Lake Mills had undergone its own ‘just-in-
time’ transformation, and the US plant was involved in helping Howard introduce a similar
‘KanFax’ system, whereby shop-floor workers could order new parts directly from suppliers as
needed.
 Howard 127

1. A Manager without Portfolio?

It is hardly surprising that the new managing director, having been

appointed in this way, adopted a long-term strategy aimed at enhancing
the plant’s flexibility, quality, and training. This approach would enable him
to show progress in meeting the product division’s key non-financial per-
formance indicators (reducing customer complaints, lead times, inventory,
and scrap levels), along with the standard financial goals of increasing sales,
raising profits, and improving operating effectiveness. No less importantly, it
would also allow him to continue the popular reform process initiated by his
predecessor. But the young Scots managing director found himself in a
strange double-sided game, where his powers were very limited and his
position contradictory. He came under pressure from the Fluid Handling
SBU manager and the Product Business divisional director to produce
optimistic budget forecasts in order to help them meet their own corporate
targets. Similarly, to secure investments in new machinery, he had to promise
very short payback periods of no more than two years. The achievement of all
these targets depended essentially on the progress of sales. But Howard’s sales
organization was very small and was basically organized to assist customers
in formulating their technical needs when they approached the company on
their own initiative in Eastbourne. The majority of sales went through APV’s
own Sales and Engineering division and the rest of the Fluid Handling SBU.
Most of the units within the latter such as Horsens, Unna, and Lake Mills
were primarily engaged in meeting their own targets and would only recom-
mend Howard pumps if they could not meet customer needs with their own
products. In theory, the situation should have been improved by integrating
the sales force from each of the companies into a single SBU-wide organiza-
tion—as had already begun to occur in the case of pumps—but even the new
‘Global Product Manager’, whose office was located at Howard, conceded
that it would be ‘asking a heck of a lot’ to expect formerly specialized
salespeople ‘to learn everything . . . in the fluid handling catalog overnight’
in order to match each product to the right market application. Thus at the
beginning of a year, Howard’s managing director found himself obliged to
place a bet on a sales target which he could not greatly influence, though he
would nonetheless be held accountable for it at the end of the year.
This dilemma in turn forced the managing director to concentrate on
internal operational effectiveness and on improving the plant’s standing in
relation to the divisional key performance indicators. In this respect, he was
greatly handicapped by the legacy inherited from his predecessors. First, the
fastest way to reduce costs and improve operating effectiveness would have
been to cut overheads, but that would have required pruning the R&D
128 A Global Game Enacted by Local Players

budget and placing at risk the new pump project, which was crucial to
Howard’s profile within APV. This option would destroy his best card for
the longer term. Second, not being a technician and lacking experience in
handling production people, he had little chance of emulating the hands-on
managerial style of his Horsens predecessor. He was obliged to exercise
authority through people appointed by his predecessor, whose own prestige
had been based on converting the plant’s difficulties into practical technical
problems that employees could successfully solve through ad hoc cooper-
ation. Being unable to follow in his predecessor’s footsteps, the managing
director experienced a series of unsatisfying motivational and disciplinary
problems, which he felt that neither his production manager nor his super-
visors were prepared to handle. None of them seemed willing to assume
responsibility for ‘confronting others’, since they were used to motivating
people by mobilizing their cooperation on small projects. Surrounded by
hostile competitors in the district and running a union-free shop, he could
expect no support—rather the contrary—if he tried to fire people. Should he
decide to do so, he would probably be hauled before an industrial tribunal
for unfair dismissal—or so he feared. Finally, as Howard paid above-average
wages for the area, he could not motivate people by increasing pay levels
without jeopardizing the plant’s expected profits.2
Consequently, his was indeed a very difficult situation. Seen from the
perspective of the SBU manager, he had inherited a plant that had success-
fully been turned around and well-prepared to show rapid improvement on
key performance indicators in the future. Seen from his own position, he was
running a machine without any effective control levers at his disposal, fearing
that he could easily lose what had already been achieved, with few possibil-
ities beyond good luck to help him prove successful by any performance
criteria. The managing director’s own interpretation was that his predecessor
had received a patient suffering from low morale. By reorganizing the plant,
he had been able to cure the most critical symptoms, but this had not taught
the patient to live in a way that would overcome the disease itself. The new
managing director wanted instead to develop an ‘I want to be here culture’ at
Howard, in which ‘people solve their own problems’. To create such a culture,
he wanted managers and supervisors to ‘confront’ those employees who did
not live up to these ideals.
2
Another possible strategy for cutting costs would have been to increase the proportion of
outsourced components, but here the plant manager was himself reluctant to confront other
managers who remained attached to ‘company traditions’ of in-house machining, especially as he
lacked expertise about suppliers’ technical capabilities. One striking indication of this was that he
had paid over the odds on the open market for a replacement set of wire wheels for his own vintage
MG sportscar without realizing that they were made by the plant’s key supplier of machined
components.
 Howard 129

The managing director himself tried to play by these rules, as he would

often confront subordinates at any level in the organization, preferably in the
presence of a third party. To do so, he depended on those who would loyally
reveal gossip to his willing ears. But such persons were few and often badly
placed to make fair judgements, as most had learned from the rapid turnover
of managing directors that persons in such positions were more interested in
their own career than in Howard’s prosperity. How could a person who is
expected to exit at the first opportunity institutionalize an ‘I want to be here’
feeling in people?
It appeared to be an impossible mission. But the solution seemed to be
to continue on an expanded scale what his predecessor from Horsens
had begun. Thus for apprentices, the managing director institutionalized a
scheme enabling them not only to rotate among different production
groups on the shop floor, but also to spend several months in different
staff functions, such as the drawing office, production engineering, and the
technical department. He then extended this scheme into a general training
program, Howard Investing in People (HIP), which encouraged employees at
all levels to rotate into different jobs around the plant for up to two weeks at a
time so they could learn how things functioned in other departments. HIP
was thus meant to systematize what had been achieved on an ad hoc
basis under his predecessor, and the managing director hoped that it
might lead employees to think of themselves as working for Howard rather
than for just a single department. By allowing employees to explore jobs
outside their normal routine, moreover, the managing director built on
his predecessor’s example in opening up new cross-functional career paths
within the firm: thus as a direct result of their HIP experiences, he
appointed a CAD draughtsman with extensive technical knowledge of
pumps as a sales engineer, while replacing him in the drawing office with
an enthusiastic craft apprentice who showed special aptitude for geometric
tolerancing.
To reinforce the HIP program one step further, the managing director
initiated a new payment system. In hopes of reducing compartmentalization
within the plant and improving individual motivation, he decided to intro-
duce a merit review system, similar to the annual appraisal of managers in
APV more generally. According to this system, people were rated on twelve
criteria, such as flexibility, skills, responsibility, and openness to training.
The aim was to furnish HIP with a carrot and a stick. People rated above
average would receive higher wage increases, those rated average would
receive the plantwide norm, and those rated below average would receive
lower increases and be called in for a serious conversation about how to
improve their performance. Thus the managing director not unreasonably
130 A Global Game Enacted by Local Players

believed that despite his impossible situation he had devised a means of

pushing Howard in a direction that would look promising, both in terms of
the plant’s overall performance reported to London, and of his annual review
by the SBU manager.

2. Howard’s Place in an ‘Incestuous’ Labor Market

But what looked like a move worthy of a Zen master, when viewing Howard
as an isolated entity playing the game of comparative positioning within the
global organization of APV, turned out to have disastrous effects in the local
game of the Eastbourne labor market and the mutual positioning among the
various global pump competitors operating within it.
The employee reviews for the new wage system were conducted by the
departing production manager—who had explicitly not earned the respect
of ‘his’ crew—and the merit ratings were conducted without consulting the
supervisors directly responsible for each department. Furthermore, since
most people had to be rated ‘average’ if Howard were not to jeopardize its
operating performance by sharply increasing the total wage bill, many
workers and managers learned that they were just average and received
the standard annual increase. Only a few people learned that they were
above average and received an extra percentage point or two. To most
the whole experience was thus seen as a direct insult—even though the
average wage rise was nearly a full per cent above that of the rival plant
across the road. Many—including the supervisors—knew that most of
Howard’s workers at all levels were far above average compared to the
general level in the local pump district. The machine-shop supervisor
graphically demonstrated this fact by resigning his job at Howard to
become a CNC operator-programmer at a competing plant, where in his
lower position he would earn an extra £4,000 a year (including paid
overtime).
Though he was a stranger to the district, the other production supervisor
(responsible for assembly) read the problems of authority quite differently
from the Scots managing director:
In the pump industry here, there’s four major manufacturers in Eastbourne, all
spawned originally from here. So you tend to have a very incestuous group of people,
everybody’s married to everybody’s brother, sister, uncle, aunt . . .
Hence everybody—apart from the imported managers— knew who were the
good and bad guys for any particular job, and recruitment was as much an
exercise in seduction as an economic transaction:
 Howard 131
[Y]ou target the people that you want. It’s just a question whether you can wheedle
them away from where they are. Because obviously, the better the person, the better
he gets looked after, the more difficult it is to get him. But yes, it’s very much a
formal exercise to say, ‘I want a fitter. What I really want is you. [Chuckles.] I know
your name, I know where you work, I probably know what you’re getting paid. But
I’ve got to get you out.’. . . I’ll put the word out with my fitters that, you know, I
would like to know whether this guy is interested. And they’ll come back and say,
‘Yeah, I met him the other night. And he was saying . . .’ It’s a game, you know, it’s a
game, that’s all.
If a person with an outstanding reputation—like the machine-shop super-
visor—left Howard it would therefore send out very damaging signals to the
local environment and make it difficult to recruit the other good guys. Since
the Horsens manager had left Howard, the plant had changed from a
situation where it could easily recruit the good guys to a situation where it
lost precisely them. The review exercise thus exacerbated an already unstable
situation.
In such an incestuous labor market it was difficult to manage under the
best of circumstances. At any given level, a new manager or supervisor would
first have to earn the respect of his crew and would then perhaps be able to
establish some—inevitably limited—friendships. Eastbourne people were
generally playing out one-sided roles in compartmentalized worlds with
sharp demarcations between work and social life, which made team-building
difficult and encouraged individualized wage systems by which they could
measure their worth against others. A new payment system which
ranked most of Howard’s workers ‘average’ was thus not only insulting to
people within the world of the plant. It was also damaging to their reputa-
tions within the compartmentalized but interconnecting worlds of the wider
community.
It was therefore obvious to the immigrant supervisor that the only way
Howard could form a cohesive team culture would be to create an external
enemy that could unite employees across their compartmentalized social
worlds. Such externally focused mobilization had sometimes occurred, for
example, when a local competitor had beaten them out for an order from one
of Howard’s major customers. With the managing director’s recent moves,
Howard itself instead seemed to become the very enemy that could unite the
community across compartments. The machine-shop supervisor was not the
first to leave. A former sales manager had already shifted over to one of
the local global competitors and taken with him his customer contacts
from Howard. And another Howard sales engineer, who had seized the
opportunity to move up into the Fluid Handling organization as a global
product manager, emphasized his personal distance from the company
132 A Global Game Enacted by Local Players

despite the fact that his office was still located there. To those who left—and
those who planned to leave in the future—it was obvious that their career
prospects outside Howard had been greatly improved by the fact that they
had already moved across levels and departments within the company.
People rated average within Howard were rated far higher on the local
labor market and had a great deal of bargaining power, while ties to family
and friends could easily be mobilized to solicit alternative recruitment offers.

3. Why Not Take Pride in a New Product?

What could be more obvious than gradually to build up a new pride in

Howard by working together across departmental divides within the firm on
the new generation of pumps? Such an approach would enable people to
make visible their experience and tacit knowledge, to meet each other in new
roles, and to recombine tasks on an ad hoc basis: in short the route that had
been so successful under the former Horsens manager.
To most of those employees who had already crossed the barriers between
levels and departments, this seemed the natural solution to Howard’s current
and long-term problems. Rather than mobilizing against a common enemy,
they saw unity emerging out of a collaborative process and spirit. Yet the
long-serving technical director responsible for developing the new gener-
ation of rotary pumps systematically ignored this option. Such neglect was
partly due to his residual skepticism about blurring established professional
boundaries and lines of authority: a man of ‘the old school’ who liked to
control technical knowledge, as the ex-draftsman who had moved to the
sales office described him, he had never worked on the shop floor himself and
was unaware, for example, of the extent to which Howard machinists had
become involved in CNC programming. But more fundamental was the
technical director’s ‘desire to limit the circulation of information about the
pump design so as to minimize the risk that local competitors would learn
about the project or design choices’ (Sanderson 1996: 17). Thus in recount-
ing Howard’s historical narrative, he emphasized to us that all the other
competitors in the district had been created by former employees imitating
the company’s own designs using the experience gained while they were
working there. And the production engineering manager, who served as
the main interface with the development team on design for manufacture,
was even more explicit on this count:
[T]he people on the shop floor haven’t been too much involved. That, in the early
days, was necessary because at Eastbourne you have APV, HMD, SSP, Alfa-Laval . . .
 Howard 133
Viking, Micro pumps. So this town is a pumping town, fluid industry. And it’s true
to say that they all know each other, they talk, they go to the pubs and they drink. So
consequently, things are kept very close and very quiet. They know we’re developing,
we know they’re developing products, it’s got to happen. You know, life goes on. So
this is the way of life. But it is a problem, obviously, in this town.
For these reasons, the technical director kept the Howard development group
narrow, deliberately not involving shop-floor workers and supervisors in its
progress or asking their advice on machining or assembly. In this way, he
provoked hard feelings among long-serving Howard employees, many of
whom felt they had something to contribute to the new pump development
process and knew enough to keep quiet about it in social discussions with
friends employed at rival firms in the area. As the chief pump tester, who had
worked at Howard for 37 years and regarded it as ‘his company’, explained:
[Y]ou don’t sort of let too many secrets out of the bag . . . you don’t tell them for
instance that we’ve got a new pump on a project for instance. No you don’t tell them
that. You don’t say that.3
Instead of drawing on Howard’s internal resources, however, the technical
director organized far-flung networks to tap into the worldwide competen-
cies of APV. He consulted Lake Mills on final element analysis, Unna on
elastomers, and Horsens on mechanical seals, as well as various outside
component specialists and testing agencies. But he also had other motives
for positioning the project in the larger APV framework. One was to secure
the adoption of the new rotary lobe pump as a global product across the
Fluid Handling SBU, by getting people from the other plants to buy into the
design and incorporating their advice about the technical and commercial
requirements prevailing in different national markets. Given his skepticism
about the competence and commitment of the revolving plant managers at
Howard, however, the technical director also appears to have been trying to
safeguard the new pump project from shifting local circumstances by
enlisting a large number of people from different countries and plants within
APV on its steering committee. Such a coalition-building strategy no doubt
seemed to him the way to protect Howard’s best card for the future, but
called into question whose hands would be allowed to play it, since no
decision had yet been taken within APV about where the new pump would
ultimately be built.
Although logical, comprehensible, and entirely honorable in its own
terms, the technical director’s strategy was also self-limiting in two crucial

3
Lack of interest in his input on manufacturability of the new pump design was also cited by the
machine-shop supervisor as one of his reasons for leaving Howard.
134 A Global Game Enacted by Local Players

respects. First, he simultaneously re-created and reinforced the compartmen-

talization of roles and allegiances, which other key actors were trying their
best to overcome both inside and outside Howard. Second, the technical
director was strongly committed to seeing the new pumps built at Howard:
I have a gut feel that we should continue to make this pump here. I really do, and I
can’t believe that we, I should be honestly very, very disappointed if it is that way
after I have done all this work. You know, because I have a certain, well, I have a
loyalty to APV, also a loyalty to the people here as well, working all these years here.
It would be really, really disappointing if in fact they took the manufacture away
from here.
But by denying the Howard workforce the opportunity to incorporate their
production knowledge into the new design, and relying instead on advice
from a multinational coalition of engineers within APV, he also ensured that
there would be no particular reason for the group to build the next gener-
ation of rotary lobe pumps in Eastbourne.4 And sure enough, when it came
to the time for a corporate decision, manufacture of the new pumps was
allocated to Horsens. Without a new product to justify further investment,
the Eastbourne plant was accordingly closed in 1998, one year after Howard’s
centenary.
Howard may be seen as a case that managed to exploit most of the
advantages that a multinational may offer member firms, as outlined at the
beginning of Chapter 1. But since its technical director consciously sought to
separate internal improvements from relationships with other local firms and
skilled workers, Howard’s membership in the multinational association
reduced the intensity of the plant’s ties to Eastbourne’s ‘pump valley’ rather
than reinforcing the ‘stickiness’ of the locality (Rugman and Verbeke 2001:
164). By learning from Horsens about how best to manufacture the pump,
Howard instead reinforced the former’s locational stickiness and prepared
the ground for its own demise.
4
The technical director’s strategy also proved self-limiting in a third and narrower sense, insofar
as the failure to incorporate manufacturing expertise into the development team from the outset
resulted in the specification of impractically tight dimensional tolerances and thus excessive
production cost projections, which then had to be corrected at a later stage, significantly delaying
completion of the project (Sanderson 1996: 8–9).
 6
Lygon Place: A Corporate
Headquarters at War with Itself

So far we have considered APV and its London headquarters from the
perspective of three different national subsidiaries, each with their own
historically based capabilities, aspirations, and strategies. But how did the
multinational’s top management conceive the problem of welding the
disparate companies and plants acquired by merger and takeover into a
coherent whole? Through what organizational structures and governance
mechanisms did they seek to coordinate and control the diverse activities
of the multinational’s many local operating units? And how were the strat-
egies and behavior of actors within the corporate headquarters themselves
influenced by the rules of the game prevailing in their own immediate
environment, notably those of the London financial and managerial labor
markets? To answer these questions will require a shift in our narrative focus
from the far-flung peripheries of APV’s multinational empire to its corporate
center, but the outlook of the actors to be found there, as we observed earlier,
will prove if anything more local.1

1. From Industrial Diplomacy to Financial Crisis

By the end of 1987, as we saw in Chapter 2, APV had become the world’s
largest food and drink equipment manufacturer as the result of a bold series
of friendly mergers and acquisitions of other leading British, Danish,
German, and American companies. This dash for growth was aimed in
1
This chapter is based primarily on interviews conducted at APV’s London headquarters in
January 1997, consultancy reports and other internal company documents, and a comprehensive
Lexis Nexis review of press coverage in the Financial Times and the Investors’ Chronicle from 1982
onwards. The financial press coverage should be understood not merely as a more or less reliable
source of objective information about APV’s history, but also as a central component of its
corporate narrative, reflecting the successive ‘stories’ about the company’s strategy and performance
told by top management to key City interlocutors such as institutional investors, fund managers,
bankers, analysts, and journalists, together with the reception and reinterpretation of those stories
by the latter.
136 A Global Game Enacted by Local Players

part at elevating APV beyond the reach of domestic predators such as the
aggressive British mini-conglomerate Siebe, whose hostile takeover bid for
the company had narrowly failed the previous year. But APV’s expansionary
strategy was no less driven by the top managers’ conviction, shared by their
merger partners, that a dramatic increase in scale and scope would enable
the multinational group to meet customer demands for integrated design
and construction of automated process plants across a range of converg-
ing technologies and markets. As APV’s CEO Fred Smith confidently
proclaimed: ‘We need businesses of over £100m in sales to impress our
customers—even £80m isn’t big enough to talk to Unilever’ and other
international food and beverage giants like Nabisco, Campbell’s Soup,
or Anheuser-Busch, which were themselves growing rapidly through
merger and acquisition. ‘They’re most excited about what we’re doing,’ he
concluded, since ‘they don’t like dealing with small companies.’2
Financial analysts and journalists acclaimed APV’s acquisitions, particu-
larly the Baker Perkins merger, for their ‘unbeatable industrial logic’, hailing
the latter as ‘an attempt to marry the strengths and dilute the weaknesses of
two of the foremost UK-based engineering companies’. Thus APV specialized
primarily in liquid processing equipment for cold or freezing operations,
while Baker Perkins specialized in machinery for hot operations in making
solid foods, hitherto distinct technological fields which were becoming
increasingly interdependent as consolidation among their customers blurred
the boundaries between industries like brewing and baking. APV wanted to
move into growth markets with higher margins such as snack foods where
Baker Perkins was better positioned, as well as to find new outlets for its valves,
pumps, and control equipment in the latter’s process plant. Baker Perkins
hoped to learn from APV’s greater experience in turnkey contracting, as well
as to benefit from the latter’s lower financial gearing or debt–equity ratio in
funding its own high R&D costs. Baker managers, by their own account, were
very keen on ‘the idea of a marriage with APV, which had been discussed on
and off for years’, as too were their counterparts at Pasilac, Horsens’s Danish
parent, who noted after the merger that they previously ‘couldn’t afford a
worldwide sales and service network’ for their dairy equipment.3
By all outward appearances, APV moved quickly to implement this
common vision of constructing a truly multinational association of food
and drink equipment manufacturers, ‘world leaders in process technology’
according to the new corporate slogan. Thus of thirteen senior operating
2
Interview with Fred Smith, Management Page, FT, 6 Jan. 1988.
3
Nick Garnett, ‘Industrial Synergy in the Making’, FT, 15 Jan. 1987; Nick Garnett, ‘Food
Equipment Battle Hots Up’, FT, 31 Dec. 1987; Christopher Lorenz, ‘How APV Rewrote its Recipe’,
FT, 6 Jan. 1988 (quotations).
 Lygon Place 137

managers on the new merged board, only five were ex-APV (including one
from its recently acquired German Rosista subsidiary), six were drawn from
Baker Perkins, and five were entirely new, while a representative of Pasilac
was added the following year. The five-man executive committee likewise
included two top Baker managers and a new finance director alongside APV’s
CEO Fred Smith and the head of its US Crepaco operations (himself
recruited from Baker five years earlier).4
By early 1988, ‘after a hectic, Lego-like process of dismantling, reshuffling
and reassembly’, the group’s more than 200 constituent companies had
been reallocated into seven primary manufacturing subsidiaries, with global
product development, production, and marketing responsibilities; two inter-
national sales companies (responsible for Asia and Australia respectively);
and ten secondary distribution units around the world. Each of the primary
manufacturing subsidiaries was to serve as the ‘lead company’ or ‘centre of
excellence’ for particular technologies, products, and industries: so Baker was
assigned responsibility for dry food processing, Crepaco for ice cream,
Pasilac for dairy equipment, and Rosista for brewing, with ‘co-ordination
conducted informally, especially at the local level’. The idea, following fash-
ionable current thinking about MNC structure, was to avoid the ‘difficult
ambiguity’ of managers ‘reporting to two different bosses at the same time,
one locally and the other at product headquarters’.5
By building the new system of product specialization around the old
geographically based companies, APV’s London executives no doubt believed
that they had given Silkeborg (Pasilac) chief responsibility for spearheading
the group’s sales in the Danish and Scandinavian markets, Unna (Rosista) in
the German market, Lake Mills (Crepaco) in the US market, and so on. They
hoped that each affiliate and regional headquarters, when selling their own
indigenous products, would simultaneously try to sell other products from
the wider multinational family, thereby assisting each other in driving up
sales and profits through a more extensive use of established customer
relations. They also expected that the group’s increasingly broad set of
competencies would attract new customers who would find APV an attract-
ive partner when establishing new process facilities.

4
Lorenz, ‘How APV Rewrote its Recipe’ (quotations); Clay Harris, ‘Baker Perkins Agrees to
£30m Cut in APV Bid’, FT, 7 Feb. 1987. Baker Perkins’ CEO Mike Smith was originally designated to
become joint chief executive of the merged group, but had to settle for a lesser role after his
company revealed large unexpected cost overruns and sharply downgraded its profit forecasts
during the negotiations, leading APV to reduce the offer price by 17% to £147m. Smith nonetheless
acquired responsibility for ‘sizeable parts of the old APV’ as well as much of what had been Baker
Perkins, while another ex-Baker man became group technical director with ‘a crucial role to play in
the standardisation of technologies and products’.
5
Lorenz, ‘How APV Rewrote its Recipe’.
138 A Global Game Enacted by Local Players

As the case of Horsens shows, however, this organizational design did

not always work out in practice as planned, since financial reporting and
accounting responsibilities within the group remained focused on the
regional or country-based headquarters of its surviving constituent
companies. The most ‘sensitive decisions’ in this multinational ‘industrial
diplomacy’, as APV top managers were well aware, concerned ‘which over-
lapping designs of pumps, valves and other components should be dropped’.6
Thus Horsens’s initial technical subordination to Unna in Germany, which
ordered the Danish factory to cease manufacturing its competing lines of
valves, was presumably the outcome of this complex bargaining process
among Pasilac, Rosista, and APV’s other constituent companies. Yet because
Horsens continued to report primarily to Pasilac’s financial controllers in
Silkeborg, Rosista’s German managers had few effective sanctions through
which to enforce their informal technical and marketing coordination
powers over the Danish plant.
Horsens was far from the only plant whose interests were threatened by the
multinational’s new organizational structure. The heaviest sacrifices fell on
APV’s own historic production complex at Crawley, which had been the site
of its world headquarters until 1982. Following comparisons with other
facilities within the merged group, APV closed Crawley’s foundry and
manufacturing operations in early 1988, transferring the production of the
plate heat exchangers invented by the company’s founder Richard Seligman
to Baker and Pasilac plants in Goldsboro, North Carolina and Kolding,
Denmark, respectively. Pump and valve making at Crawley likewise came
to an end, to be replaced by a new generation of fluid handling equipment
produced at other APV plants. Thus after benchmarking alternative designs
and locations for a new group centrifugal pump, Horsens, as we saw earlier,
was designated the lead manufacturing site. As a British engineer who was
sent out to inspect Horsens later told us: ‘as soon as I saw the site, I felt that
the days of the project at Crawley were numbered. Because they had a very
modern site, they had quite forward-thinking engineering people and so on,
and a fairly good range of products.’ As a result of these various decisions,
APV sold off the 27-acre site, laying off 600 people and leaving only a design
and process engineering center with 370 employees at its former corporate
heart in Crawley. By that time, the group had reduced its capacity from 57 to
39 factories, cutting its worldwide payroll by more than 10 per cent to just
under 14,000.7
6
Ibid.
7
Nick Garnett, ‘APV Sheds 500 Jobs as it Closes Plant’, FT, 25 Mar. 1988; Vanessa Houlder, ‘APV
Advances 48 Per Cent to £40.7m: Integration of Last Year’s Acquisitions ‘‘Off to a Flying Start’’ ’, FT,
14 Apr. 1988; Lorenz, ‘How APV Rewrote its Recipe’. According to the British engineer involved in
 Lygon Place 139

Beyond the prospect of future cost savings from rationalization of overlap-

ping products and facilities, an immediate motive behind such closures and
divestments was to reduce the weight of financial obligations encumbering
the new merged group. Although APV had paid for most of its acquisitions
with the company’s own highly valued stock, a number of its merger partners
had substantial debts, which raised the new group’s gearing ratio to the
dangerous level of 70 per cent at the beginning of 1988. The architects of
APV’s expansion had always intended to cover some of the merger costs by
selling off non-core businesses, and swiftly disposed of former Baker Perkins
subsidiaries in fields like cable coatings and aircraft bearings. But other newly
acquired Baker units proved to be in worse than expected shape, notably its
large printing machinery business, whose 1989 sale required a £32m goodwill
write-off, while APV was also forced to absorb £20m of provisions against
expected contract losses at two further Baker subsidiaries, leaving the group’s
end-of-year gearing at 42 per cent. To make matters worse, the group’s
revenue growth was hit by the falling value of its US sales due to the
weakening dollar, and more fundamentally by a demand slump in a number
of its major markets, as food manufacturers facing recessionary conditions
cut investment and postponed equipment replacement. The deterioration of
APV’s balance sheet had already shaken the City’s confidence, so that when
management issued a profits warning in September 1990, the share price lost
a quarter of its value in a single day, plunging to just 43 per cent of the 1988
high. APV’s underlying problem, City analysts concluded, stemmed from the
excessive costs of its acquisitions: ‘They got themselves into something of a
pickle’, one observed, ‘because they did not pay too much attention to the
financial implications.’ But City critics also drew attention to what they
regarded as the weakness of the group’s financial controls and treasury
management, which had allowed stocks and debtor levels to rise alarmingly.8
APV’s response to its financial fall from grace contained all the main
elements which would recur throughout the group’s subsequent history.
Under a new finance director appointed in 1989, the fourth in as many
years, APV promised to concentrate on core businesses, restructure its
divisions along product rather than geographical lines, cut a further 10 per
cent of its global workforce, bring in consultants to increase productivity and

the project, who was later employed at Howard, a design jointly developed by Crawley and Lake
Mills won out in competitive tests over an alternative design which had been developed at Horsens
as ‘the vehicle for the next generation of centrifugal pumps within APV’, but the latter became the
‘site of excellence in manufacture’.
8
Houlder, ‘APV Advances 48%’; Universal News Services, ‘APV Plc: Preliminary Results’, 5 Apr.
1990; Andrew Jack, ‘APV Static Midway and Gloomy on Outlook’, FT, 21 Sept. 1990; Patrick
Harverson, ‘A Stalled Engineer in Need of a Quick Kick-Start’, FT, 19 Oct. 1990.
140 A Global Game Enacted by Local Players

reduce operational costs, as well as of course to impose stricter financial

disciplines and reporting procedures aimed at improving cash flow and
return on assets. In the face of open speculation about the possibility of
another hostile takeover bid, the group’s top management would henceforth
focus ever more attentively on maintaining the confidence of City investors
and analysts. But in so doing, paradoxically, their outlook became increas-
ingly parochial and their relationship with the rest of the group increasingly
distant.9

2. Black Holes and Blunt Instruments

Already in the early 1980s, APV’s subsidiaries had complained about the
bureaucratic weight of new financial reporting procedures imposed by the
group’s CEO Peter Hamilton, openly questioning how he and his small
central staff could ‘find the time to plough through all the paperwork’.
Hamilton’s response was not entirely reassuring to those doubtful about
the corporate center’s capacity to make good use of the ensuing data flow:
‘A lot of the information I don’t want at all. I just want to be sure that the
people down the line have that information and use it properly. Managers
need that information to run their business.’10 By the mid-1990s, after
successive waves of corporate reorganization and progressive tightening of
financial controls, plant-level managers still saw Lygon Place, APV’s head-
quarters in the Belgravia district of London, as ‘a black hole for information’,
though Hamilton’s policy of benign neglect had been replaced by much more
intensive central scrutiny of the resulting figures. ‘Requests for information
in this group’, a recently arrived divisional finance director told us in 1997,
are, in my experience, quite extreme, and . . . very, very detailed, very frequent, and
often inappropriate to the type of management that would be recommended by
plant management. . . . Some of the information gets used productively for decision-
making, but a lot of it is used in my view for the sole purpose of checking, double-
checking and further double-checking.
In the contrasting view of the group finance director, who had also recently
joined APV from another large UK engineering conglomerate, ‘managers
here’ were ‘actually getting off quite lightly compared to other companies’:
If you sit in the center of a large corporation, it’s very difficult to actually manage
unless you’ve got a standard set of criteria. If you sit in the field it can be seen
9
Jack, ‘APV Static Midway’; Harverson, ‘A Stalled Engineer’; David Owen, ‘Major Restructur-
ing at APV’, FT, 21 Nov. 1990.
10
Christopher Lorenz, ‘Why APV is Ditching its Winning Formula’, FT, 28 Nov. 1983.
 Lygon Place 141
somewhat as a blunt instrument at times but you have to pick the right tools. . . . So
what we’re trying to do is to force their performance through a standard set of
reports. . . . Broad sets of criteria which are not prescriptive but make managers look
very, very carefully at what they’re actually doing.
Whether or not APV’s central reporting disciplines by this time were in fact
more onerous than those of comparable companies, there can be little doubt,
as we have seen in the case of Horsens, Eastbourne, and Lake Mills, that these
appeared to the local subsidiaries intrusive, opaque, and remote from their
own day-to-day problems.11 Reinforcing this circuit of alienation was the fact
that London neither would nor could explain the importance of this flow of
data or the rationale for many of the ensuing decisions which affected the
subsidiary plants. For such explanations would only make sense to those
familiar with the intimate details of the group’s financial position, as well as
with the commitments, formal and informal, made by top management to
investors, fund managers, bankers, and City analysts. Circulation of ‘price-
sensitive’ information with potential impact on the value of the group’s
shares could damage delicate relations of trust with financial institutions
should revealing rumors emanating from APV’s constituent units reach the
latter’s ears. Nothing could be more important from the headquarters’
perspective, moreover, than to ensure that the City received a single coherent
‘story’ about the company’s performance, strategy, and prospects, conveying
the image of a well-managed business. Relationships with investors, fund
managers, analysts, and debt providers therefore focused on the chairman,
the CEO, and the group finance director in order to avoid any ambiguities or
misunderstandings, while top management did not share the contents of
such discussions with lower-level units. There was thus ‘a complete disjunc-
tion’ or ‘divorce’, as the divisional finance director told us, ‘between the City
and the operational sides of the business’. Hence top management never
explained to plants like Horsens why data were collected in a particular form,
nor the reasoning behind decisions such as selling and leasing back the
group’s Danish fixed assets or transferring cash from Pasilac to London or
APV France through royalty charges and interest-free loans. In any case,
those responsible for financial management in London firmly believed—
perhaps rightly—that such matters were too complex and sensitive for
subsidiaries to worry about. The operational units, they believed, should

11
According to the group human resource director, who had joined APV in 1991, ‘what really
gets up people’s noses’ in the subsidiaries is the ‘very heavy financial reporting load’. But the main
difference he saw between APV and other large American or British companies where he had
previously worked was less in the level of detail demanded from operational managers than in the
greater slickness of the latter’s information systems, which enabled them to meet their reporting
requirements more easily.
142 A Global Game Enacted by Local Players

concentrate instead on different issues, notably those which would improve

the profits and cash flow which Lygon Place could report to its own local
audience in the City.
As can be seen from this account, APV’s top management took numerous
initiatives that made perfect sense in terms of the need to sustain the
multinational group’s credibility in the eyes of the local City financial
community. In so doing, however, they simultaneously neglected both the
potentially alienating effect on the group’s subsidiaries and the need to
understand what was going on beneath the surface of its shifting organiza-
tion chart, where these very same steps helped to institutionalize a savage
competitive game.
If prospective subsidiaries had initially been motivated to seek member-
ship of APV’s multinational association in order to benefit from its London
headquarters’ skill in dealing with the financial community, their second
aspiration had been to gain a strong position within the group’s worldwide
internal market. As we saw in Chapter 2, both Crepaco and Pasilac saw
joining APV as the next step in their own ‘independent’ global expansion
strategies, and the same was no less true of Rosista, Baker, and even, on a
more modest scale, Howard. Thus different subsidiaries of APV were fighting
not only for the same external customers, but also for the group’s own
internal business in a game in which their position vis-à-vis London would
depend on their comparative financial performance. Hence their struggle for
position depended not only on how well they performed themselves, but also
on how badly they could make the other members perform—or seem to
perform. In such a game it was more than naı̈ve to expect that the Danish
subsidiaries, for instance, would cater primarily for the Scandinavian market
and in marketing their own projects try to sell as much as possible from other
APV subsidiaries. Instead they would try—as we have seen—to capture as
many markets as possible from their competitors within APV, since that
would serve their interests doubly vis-à-vis London.
Even if data reported to Lygon Place were technically ‘correct’, they would
say little about why the individual plant or subsidiary company showed good
or bad results. Had Rosista succeeded in its strategy towards Horsens, Unna
would have proven able to deliver high increases in sales and profits, whereas
Horsens’s performance would soon have looked sufficiently bleak to be
closed down. As it turned out, Horsens did better not only because it earned
high profits and increased its sales volume, but also because the Danish plant
actually helped to construct Unna’s bad results by taking away its customers.
It is thus possible within such a game to imagine extreme cases in which evil
opportunistic subsidiaries could outperform serious firms working for the
common welfare of the entire multinational association.
 Lygon Place 143

Even in much less extreme cases, however, it is difficult to imagine why any
subsidiary could fail to be stimulated by its management to try to steal as
much business as possible from other regionally or nationally based com-
panies within the group, to reduce as much as possible the orders and
earnings which they transferred to ‘foreign’ accounting nodes of the multi-
national ‘family’. The result was that costs rose, primarily in the form of
increased overheads to pay for a growing sales force, since several subsidiaries
were fighting for the same customers, while prices and margins fell, partly
because the sales forces from many APV subsidiaries undercut each other by
submitting competing bids for the same contracts, ‘a joyous, if slightly
confusing experience for the customer’, as one City analyst later observed.
Hence the dominant color in the flow of reports and cash reaching Lygon
Place progressively changed from black to red.12

3. The Local Politics of Global Restructuring

During the early 1990s, APV’s performance steadily continued to deteriorate

despite repeated application of standard corporate therapies such as tighter
financial controls, divestment of non-core assets, across-the-board redun-
dancies, and replacement of top management. Beyond the effects of APV’s
own internecine struggles, recessions in key countries such as the UK and
Germany, and the slowdown in global demand across Western economies in
the wake of the Gulf War, the markets for its core products were changing in
ways that presented an increasingly serious threat to the multinational
group’s fortunes. Growing concentration and consolidation across the food
and drink industries of Europe and North America, from retailing through to
manufacturing, was enhancing the bargaining power of downstream cus-
tomers for capital equipment and eroding the traditionally high margins
earned by their suppliers. At the same time, moreover, APV’s leading inter-
national rivals themselves responded to these trends through mergers and
acquisitions that strengthened their marketing clout and price competitive-
ness, thereby intensifying the pressures on the British-based company’s sales
and profits. Thus in 1991, Alfa-Laval, APV’s great historic rival, merged with
Tetra Pak, a highly successful Swedish manufacturer of carton-packaging
machinery, whose deep pockets and exclusive patents helped to open new
doors for Alfa’s equipment as a single-source supplier of complete liquid-
food processing systems—so much so that the new group was later fined by

12
Andrew Bolger, ‘Making a Whole of the Parts: Why a Restructuring Plan is in Progress at APV’,
FT, 12 Aug. 1993.
144 A Global Game Enacted by Local Players

the European Commission for abusing its dominant position in the EU

market through restrictive practices and predatory pricing. At the opposite
end of the spectrum, APV found its markets invaded by GEA, a medium-
sized private German company which grew rapidly by acquisition during the
late 1980s and early ’90s, following an aggressive strategy of price competi-
tion targeted on the liquid-food processing equipment sector.13
Faced with this highly unfavorable combination of demand- and supply-
side pressures, APV’s financial position spiraled downwards alarmingly.
Between 1989 and 1993, the group’s pre-tax profits fell from £60.6m
to £13.4m on a slightly increased turnover of £906m, while operating
margins plunged from 7.8 per cent to 3.8 per cent in 1992. Even these meager
results depended on a continuous stream of asset disposals and redundan-
cies, which reduced APV’s global head count from 14,000 in 1989 to 11,600
by the spring of 1993, while the group’s balance sheet during these years was
marred by recurrent extraordinary charges to cover the costs of plant closures
and downsizing. APV’s share price bounced up and down as its earnings
repeatedly disappointed analysts’ expectations of an imminent profit
recovery, and the group was routinely mentioned as a potential bid target
in City commentary.14
Few management teams in an Anglo-Saxon publicly quoted company
could survive such a sequence of reverses, and APV proved no exception to
this rule. In June 1992, Fred Smith, the architect of the group’s late-’80s
expansion, was forced into early retirement and replaced as CEO by Clive
Strowger, former chief executive of a troubled property group and previously
finance director of the international food, retailing, and consumer services
conglomerate Grand Metropolitan. APV had already acquired a new chair-
man and finance director in 1989, and Strowger soon brought in
new executive directors recruited from Grand Met and other international

13
Nick Garnett, ‘Food: Continuing to Restructure’, FT, 1 Feb. 1988; David Goodhart, ‘Public
Solution to a Private Dilemma’, FT, 3 Apr. 1989 (on GEA); John Burton and Andrew Baxter, ‘Tetra
Pak Changes Course to Wrap Up Alfa Laval’, FT, 30 Jan. 1991; Andrew Baxter, ‘The Food Industry:
Eastern Markets Expand’, FT, 10 May 1991; Bolger, ‘Making a Whole of the Parts’; Andrew Bolger,
‘Paddling Upstream to Escape the Falls’, FT, 16 Sept. 1994; Lex Column, ‘APV’, FT, 16 Sept. 1994.
According to a subsequent report by the FT, Alfa-Laval had been in detailed merger talks with APV,
which were sufficiently advanced for competition lawyers to have been consulted, before it decided
to join forces with Tetra Pak instead: ‘Tetrapak: The Inside Story’, FT, 16 Dec. 1998.
14
Andrew Jack, ‘APV Static Midway and Gloomy on Outlook’, FT, 21 Sept. 1990; Charles
Leadbetter, ‘Tighter Margins in Europe Lead to a 34% Setback at APV’, FT, 28 Mar. 1991; Peter
Pearse, ‘APV Declines 17% to £12m’, FT, 18 Sept. 1992; Bolger, ‘Making a Whole of the Parts’; ‘APV
Company Results’, Investor’s Chronicle, 1 Apr. 1994. In 1992, it became known that GEA had built
up a 2.8% stake in APV, with a view to a possible takeover, but the German group took no decisive
action and had run down its holding to 1% by 1994. Tetra Laval, APV’s other major competitor, was
widely believed to be inhibited by regulatory obstacles from making an offer for the British
company. See Bolger, ‘Paddling Upstream to Avoid the Falls’.
 Lygon Place 145

engineering and consumer companies. By early 1994, when Baker’s Mike

Smith retired, the original management team responsible for putting
together the new merged group in 1986–7 had entirely vanished, while
none of the executive directors at APV’s London headquarters had been
with the company for more than five years.15
As APV’s external position worsened during the early 1990s, so the
internal competitive game among its subsidiaries intensified. Tighter finan-
cial controls, heavier reporting obligations, redundancies, and plant closures
all made the subsidiaries ever more attentive and jealous in scrutinizing the
smallest moves of their rival ‘colleagues’. The departure of experienced
executives able to communicate with the subsidiaries on the basis of shared
personal histories made the dictates of the London headquarters appear
increasingly arbitrary in the eyes of the latter, while the new outside top
managers who replaced them faced enormous difficulties in assessing what
was really happening in the plants. It was in these circumstances that the
Horsens manager approached London to negotiate the future allocation of
valve production within the group. And it immediately becomes obvious
how well chosen his timing was and why he received so much attention, as
the manager of a subsidiary which had achieved high profits, increased sales,
and an improved reputation, when many other subsidiaries were in a far
different position. No doubt such consultations also offered a chance for
Lygon Place’s new masters to acquire a better-informed view of the processes
going on beneath APV’s formal organization and reporting system, rein-
forcing the widespread impression that more radical restructuring had
indeed become necessary.
As part of their efforts to rehabilitate the group in the eyes of the financial
markets, APV’s new management team announced in 1993 that it would
launch a radical restructuring plan aimed at reducing internecine competi-
tion and improving operational effectiveness throughout the organization.
To develop this plan, APV hired a prominent consultancy firm to undertake a
top-to-bottom review of the group’s structure and strategy, benchmarking it
against its leading competitors and currently fashionable views of ‘best
practice’ in international management. ‘Project Star’, as this undertaking
was optimistically dubbed, enlisted managers from a wide range of func-
tional and geographical areas across the group in the production of a massive
set of working party reports orchestrated by the consultants. Going back to
first principles, these reports sought to identify which of APV’s vast and
diverse holdings might represent its true ‘core competencies’, and to devise a
15
FT, 18 June 1992, p. 18; Angus McCrone, ‘Strowger’s Food for Thought at APV’, Sunday
Telegraph, 16 Aug. 1992; Pearse, ‘APV Declines 17%’; Extel Examiner, 14 Feb. 1994; FT, 12 Apr. 1994,
p. 15.
146 A Global Game Enacted by Local Players

new organizational structure for the group capable of reducing duplication,

controlling internal competition, and promoting genuine synergies among
its remaining constituent parts. At the same time, however, the high political
stakes involved in this restructuring exercise meant that powerful players
were inevitably tempted to rig the game in their favor. Thus, for example,
despite raw figures of revenue per person-hour suggesting that Danish
Turnkey Dairies in Aarhus was by far the most productive engineering unit
in the group, the consultants’ report proposed that Crawley be selected as
APV’s future world process engineering center, triggering an angry memo
from one of the company’s Danish executives which ripped apart the tortu-
ous calculations needed to reach this conclusion.
As can be seen from Figure 6.1, the new organizational chart which
emerged from Project Star, nonetheless cut across some of the boundaries
that had stimulated the vicious circles previously evident within APV. Instead
of entrusting lead product responsibilities to regionally based companies,
APV now introduced a thoroughgoing divisional structure. All affiliates were
now reallocated to three divisions—Product Business, Specialist Businesses,
Chief
Executive

Human
Finance
Resources

Product Specialist Sales and

Business Businesses Engineering
Businesses

Products Heat Europe,

APV Baker Cheese Middle East, Americas
USA Exchangers
and Africa

Fluid Homogen- APV

Ice Cream Australasia Asia
Handling isers Anhydro

Distribution Keg Industrial Sector,

and Racking Extruder Marketing, and
Logistics Key Account

Silkeborg
Tank

Source: APV: Our Company (1996)

Figure 6.1. APV organizational chart, 1996

 Lygon Place 147

and Sales and Engineering Businesses—each headed by an executive director

in London. The Product and Sales and Engineering Businesses constituted
the group’s new core, based on the consultants’ estimates of the degree of
functional interdependence between them, while Specialist Businesses, a
smaller proportion of whose output went into APV’s process engineering
activities, were henceforth to be managed on a stand-alone portfolio basis.
Each of these three divisions was in turn subdivided into a number of distinct
Strategic Business Units, based on products, markets, and geographical
territories respectively. And yet there are certain interesting exceptions.
Lake Mills still figures in this chart as a single business unit (‘Products
USA’), as does Silkeborg Tank, both of which would later be redistributed
among the global product SBUs, while their core areas of process engineering
expertise in ice-cream and cheese respectively had already been hived off into
separate specialist businesses.
The underlying idea was that the Product and Sales and Engineering
divisions should compete to increase their sales and earnings by independ-
ently seeking to break into new markets and improve their operating effect-
iveness, while continuing to collaborate on large process engineering projects
involving a high proportion of APV components. Thus SEB was expected to
counter the margin squeeze in dairy and liquid foods by attacking other, less
competitive process plant markets such as brewing, while the Product Busi-
ness was directed to expand its component sales to general industry and
outside engineering contractors. Within the Product division, each SBU
manager acquired worldwide control of all APV facilities manufacturing
similar components, thereby cutting off in principle the ongoing warfare
among the former national companies. The SBU managers for homogeni-
zers, fluid handling, heat exchangers, and eventually tanks were each given
global responsibility for their own marketing, distribution, research, and
product development, as well as running their own accounting systems.
Each of these SBUs thus became a functionally integrated but globally
distributed company. In this system formerly ‘independent’, vertically inte-
grated plant complexes—such as Silkeborg and Lake Mills—were recon-
ceived as heterogeneous ‘global business parks’, hosting a number of
distinct but co-located facilities belonging to different SBUs. In the case of
Lake Mills, as we have seen, its homogenizers, tanks, and fluid handling
products were placed under the authority of their respective global SBU
managers, while the machine shop and maintenance department remained
part of a separate SBU administered by the locally based plant president.
Within only two years after its implementation, this restructuring had led
to significant improvements in turnover and profits in both the Product and
Specialist Businesses divisions, whereas Sales and Engineering Businesses was
148 A Global Game Enacted by Local Players

barely breaking even or running at a loss. To the regret of many at Lygon

Place, however, APV’s new organizational structure had not ended the
endemic conflicts within the group but instead redirected them. Some
explained the situation as a consequence of a dysfunctional company culture
‘based on suspicion, mistrust, and internal competition’; others spoke of
continuing ‘values issues’ rooted in APV’s ‘Wild West’ past, ‘where there were
no rules at all except the rule of the gun’, or simply of ‘complete fighting’ and
‘open warfare’ within particular national markets.
Some of the reasons for this continuing warfare are easily understood. For
a company as precariously positioned as APV in the mid-1990s, restructuring
necessarily entailed painful cuts and sacrifices throughout the organization,
while any misstep in meeting the City’s performance expectations could lead
to imperative demands for heads to roll at the top. In 1994, as APV began to
implement its restructuring program, incurring further extraordinary
charges for plant closures and redundancies, GEA stepped up its price-
cutting campaign, squeezing margins in the group’s core liquid-foods busi-
ness. With limited immediate scope for realizing cash through further asset
disposals, APV issued an interim profits warning in September 1994 and cut
in half its dividend, which had remained uncovered for the previous four
years. This unexpected blow proved too much for APV’s long-suffering
institutional investors, who withdrew their confidence in CEO Clive Strow-
ger and engineered his ouster the following month by bringing ‘strong
pressure’ to bear on the group’s chairman and non-executive directors.
After a six-month search, APV’s finance director, who had been serving as
acting CEO, was confirmed as the group’s new chief executive in March 1995,
beating out the executive directors of the Specialist and Sales and Engineer-
ing Businesses, who had also been discussed as possible candidates for the
top job. The ex-finance director, who was widely respected in the City as a
safe pair of hands, had successfully calmed the markets in January 1995 by
announcing a two-year ‘profit improvement programme’ involving an ex-
ceptional charge of £32.5m, 850 redundancies, and plans to dispose of seven
non-core businesses, while at the same time negotiating a three-year loan of
£85m from the group’s existing syndicate of banks.16 The new CEO’s eleva-
tion thus reflected less a change in APV’s business strategy than a provisional
grant of personal confidence by the financial institutions, whose retention
would depend on his ability to deliver the promised performance improve-
ments, while rivals both internal and external lay in wait to pounce on any
16
Bolger, ‘Paddling Upstream to Avoid the Falls’; Lex Column, ‘APV’, 16 Sept. 1994; Andrew
Baxter, ‘Struggling APV Ousts Strowger’, FT, 19 Oct. 1994; Andrew Baxter, ‘APV Issues Statement to
Stabilize Shares’, FT, 28 Oct. 1994; Geoff Dyer, ‘APV Proposes Restructuring’, FT, 14–15 Jan. 1995;
FT, 18 Mar. 1995, p. 10.
 Lygon Place 149

sign of weakness. ‘Uneasy lies the head that wears a crown’ might thus have
served as an apt epigraph for Lygon Place, the gracious Regency townhouse
which held APV’s worldwide headquarters.
Beyond market pressures and personal rivalries, APV’s new organizational
structure itself proved a bitter source of ambiguity and conflict. Some of the
group’s most internationally successful companies like APV Baker, a regular
winner of the Queen’s Awards for Export and Technological Achievement
which had absorbed much of the free cash-flow available for new capital
investment since the merger (including £20m for a new factory and office
complex at Peterborough in 1991),17 now found themselves declared non-
core businesses, ready to be sold off to the first attractive bidder. More
fundamentally still, 50–60 per cent of the Product Business’s sales still came
through Sales and Engineering. Hence if SEB incurred losses while Products
harvested profits, the former might plausibly claim that this situation was
due to excessively high transfer prices rather than superior efficiency. Thus
according to SEB, the Product Business had been sheltered from the
‘real world’ by the guaranteed market within the group, and had not
therefore been obliged to meet internationally competitive price and per-
formance standards. Within the previous organizational structure, such
cross-functional conflicts had been handled at the regional level—not neces-
sarily more easily—but in the new system, they entered directly into the head
office itself, where their resolution involved negotiation among the divisional
directors. As the directors’ own struggle for position within the group
depended in turn on the relative performance of their divisions, there was
a natural tendency for them to push these conflicts up to the next hierarch-
ical level, composed of the ex-finance director CEO and the new finance
director (recently recruited from another British engineering conglomerate),
neither of whom had the detailed hands-on knowledge of the group’s oper-
ations needed to adjudicate independently among the rival plausible inter-
pretations advanced by the contending parties. Under these conditions, not
even a bonus scheme tying the executive directors’ remuneration to the
performance of APV as a whole proved sufficient to restrain the divisional
infighting. In this Machiavellian game no players found it easy to make
moves for the right reasons. But they all had to be always prepared to take
immediate steps for the wrong reasons, because it seemed impossible to
reflect seriously on how to improve the business in a ‘fair’ way, accept-
able to all.

17
‘New Factory and Offices for Peterborough’, FT, 20 Aug. 1990; ‘The Queen’s Award Winners
1991’, The Independent, 21 Apr. 1991; ‘The Queen’s Awards, 1992’, The Independent, 21 Apr. 1992;
David Wighton, ‘The Queen’s Awards 1994: APV’s Hot Competition’, FT, 21 Apr. 1994.
150 A Global Game Enacted by Local Players

One reason was that although the routing of the previous reporting system
had changed, it continued to dominate the content of financial and operating
performance data required from the subsidiaries, as the CEO and finance
director still insisted on an abundant supply of such material for their local
London audience. Obliged to increase operating effectiveness, the executive
and finance directors of the Product Business, themselves recently recruited
from other British engineering companies, felt that they lacked appropriate
tools for measuring performance improvements, since they were forced to
compare old regionally aggregated data with new SBU-based figures. At-
tempts to reform the reporting system to suit the needs of the Product
Business executives were frustrated as these would bring them into conflict
with their principals at the top of the organization and raise tensions among
their agents deeper down in the system, who already felt overloaded by
reporting obligations. Thus every apparently sensible step they might take
would immediately increase tensions in a system riddled with mistrust and
ready to wage war at any moment.
Cut off from controlling such a complex structure by the absence of an
appropriate information and reporting system within APV, the Product
Business executives and SBU managers had few alternatives other than to
proceed by adopting some generic rules of thumb which could reduce the
complexity of their environment and give them a basis for taking decisions.
Thus the new executive director immediately commissioned another leading
international consultancy to prepare a quick-and-dirty report on strategic
options facing APV’s Product Business, whose recommendations, drawn
from currently fashionable recipes for ‘world-class’ manufacturing practice,
coincided neatly with the predispositions carried over from his prior career
at British and American high-volume producers of automobile, aerospace,
and electronic components.
The new ‘global vision’ for APV’s Product Business which emerged from
this bounded process of strategic reflection focused on four main objectives.
First, the divisional management team wanted to reduce overlap between
plants in different countries by creating ‘focused factories’. If, for instance,
pumps were concentrated in Horsens and valves in Unna, each plant would
gain economies of scale, overheads could be reduced, and mutual rivalry
would thereby disappear. Paradoxically, having now become responsible for
running a global SBU, even the Horsens manager was arguing for allocating
valves to Unna, though he had entered the game for exactly the opposite
purpose. His argument to Horsens would be that in return the Danish plant
would be allocated the worldwide responsibility for pumps, thereby gaining
another global mandate in exchange for its losses.
 Lygon Place 151

Second, since APV’s top executives had realized that one reason for low
operating effectiveness could be the low level of capital investment during the
previous period, they allowed the SBU managers to submit proposals for
investment in new equipment. However, the general rule applied to invest-
ment decisions was very tough and highly selective. The shorter the payback
period, the more likely the chances of approval. Especially during a process of
radical restructuring, when it is uncertain which products are to be produced
where, such a rule of thumb makes sense. But it conveyed to the subsidiaries
the impression that even in the spheres in which they were supposedly
granted worldwide mandates, Lygon Place was not really accepting long-
term investments. The divisional executives meanwhile concentrated their
own discretionary capital investments on new IT and logistics systems to be
installed throughout the product businesses, which they hoped would allow
the SBUs to run their far-flung production and R&D resources as ‘virtually
integrated’ facilities managed and scheduled on a centralized basis, with
only marketing, distribution, and after-sales service still to be organized
regionally.
Third, the divisional managers sought to introduce new standardized
global products wherever possible, with the specific requirements of individ-
ual regional markets such as the US or the EU to be met through the addition
of customized modules. In this way, they hoped to reduce or eliminate the
diversity associated with the fact that not only had each of APV’s constituent
companies manufactured its own competing products, but also they had
done so in a high number of variants as a result of adapting them to
specialized customer demands. In pumps, for example, 90 per cent of the
10,000 variants available from the group accounted for just 10 per cent of
total turnover. Hence if new products were designed to cover the remaining
90 per cent of the market, the Product Business would be able not only to
reduce costs, but also to expand its sales much more aggressively outside the
APV family. In the case of homogenizers, such a situation had long made this
product area a ‘golden egg’, and similar aspirations were now to inspire both
fluid handling and heat exchangers, where 75 per cent of output was still
made to order. Even the Horsens manager in his SBU role started to argue
that ‘we can’t sell transition time’, no doubt hoping that Horsens could then
become a fairly independent producer of pumps for the world market, which
would gradually reduce its dependence on the fortunes of APV as a whole.
Finally, the Product Business divisional management added a new layer to
the reporting system, asking each plant to provide regular information on
such standard key performance indicators as the level of customer com-
plaints, on-time deliveries, throughput time, and stocks in order to give
some comparative measure of improvements among the subsidiaries. Here
152 A Global Game Enacted by Local Players

too, however, a rule-of-thumb dimension could be readily discerned, both in

the justification for the key performance indicators and in their application.
‘ ‘‘Get the non-financials right and the financials will follow’’, as my old boss
at Motorola used to say,’ the executive director of the Product Business told
us in explaining the new reporting system, before going on to observe that
‘We’ve had wonderful arguments and debates [among the SBU managers in]
defining what is an on-time delivery.’
If APV’s top London executives had learned a single lesson about its
constituent parts during the recurrent crises that had followed the mergers,
it was above all that the group’s subsidiary managers had retained a local
vision and mentality. ‘Why has this company underperformed? I don’t
believe that the managers in the field are actually general managers in the
true sense of the word,’ the new group finance director insisted, for example.
‘Unless you train these people to think in a global sense, to look at the
resources and cash in a global way, we will never get true global managers . . . .
Thinking about business globally to me means not being stuck in one
country. That’s been quite hard. You have to be able to think beyond the
bounds of what you know.’ To stimulate the emergence of such a global
vision, Lygon Place decided to engage local managers in cross-country, cross-
functional careers, and in further training courses at business schools and
other educational institutions that would introduce them to the language
spoken and the issues discussed at the group’s London headquarters.
To spot those who had the potential for such a career and deserved these
investments in courses at expensive and prestigious management training
institutions, a position of group director for human resources was created. It
was his responsibility to institutionalize a system for annual evaluations of
the performance and career prospects of each manager down the line, based
on common practice among Anglo-American multinationals.18 Integrated
with a grading system for salaries and perks such as company cars, this
evaluation system should also suggest which career steps should be encour-
aged and hence which training schemes would seem appropriate. These
evaluations had to be filled in annually for each manager by his immediate
superior (there appeared to be no female managers in APV). But the results
should be passed all the way up the hierarchy so that it would be possible to
compare candidates at the same level, say a production manager in Horsens
and a production manager at Lake Mills. As this tool was used for both
promotion and training as well as for decisions on layoffs, it soon attracted
18
The Hay grading scheme and annual evaluation system for identification of ‘young high-
potential managers’ introduced by APV in the early 1990s are widely used in varying forms by
American and British multinationals, and have been spreading to their European counterparts in
recent years. See Ferner and Varul (1999: 19–22); Hayden and Edwards (2001).
 Lygon Place 153

widespread attention, to the extent that Lygon Place had the impression that
everyone would be prepared to ‘give their left arm’ for being granted access to
their own and their colleagues’ evaluations. Soon, this system came to be seen
by both its defenders and its critics as the major tool for exercising power,
should managers at any level feel weak for other reasons in the games played
towards their subordinates.
Perhaps this system more than anything else helped Lygon Place conceive of
itself as playing the role of a multinational headquarters, yet it hardly helped to
improve the depth of insight or increase the HQ managers’ ability to learn
from experience. On the basis of these personal files, layoffs of managers at all
levels became a regular practice, not least inside the executive committee itself.
Sometimes managers were laid off or encouraged to resign because they had
not performed to the same degree as others, while in other cases it was because
they performed so well that they were perceived as a threat by their superiors.
Hiring and firing thus could be seen by all those not involved in taking the
decision to depend on a roll of the dice. None of those promoted or fired could
check the reasonableness of a decision—sometimes for good reasons. For
instance, would a high-performing manager who openly declared that he
preferred a ‘local’ career be evaluated as of limited potential by his superiors,
if for no other reason than that such aspirations would reduce the fear these
superiors associated with their own annual evaluations?

4. End Game

The succession of layoffs at APV’s managerial apex during the mid-1990s

seems to have institutionalized a new dimension within the group’s multi-
national war game. During our stay at the corporate headquarters in
January 1997, the executive director of the Product Business, whose division
had achieved the highest profits in the group over the previous two years,
was fired and replaced by the director of Sales and Engineering. In the
wake of his departure, APV announced another major revision of its organ-
izational chart (see Figure 6.2, over), whose ad hoc and political character
was readily apparent to employees at the subsidiary plant where this
news reached us the following week. By coupling the forced resignation of
a divisional executive with this further restructuring, the headquarters
sought to legitimize its own internal Machiavellian warfare in broader
organizational terms. At the same, however, this move made it all the more
obvious to those operating at subordinate levels across the multinational
that any deals and understandings negotiated with Lygon Place rested on
shaky ground.
154 A Global Game Enacted by Local Players

Chief
Executive

Finance Human
Resources

Product Engineering Sales and Service

Business Businesses Business
Heat Fluid Contracting Baker Europe and Americas
Exchangers Handling Africa

Homogenisers Tanks Dairy Brewery Australasia Asia

and Japan
Processed
Lake Mills Distribution Beverage
Foods
Pharmaceutical Unit Systems
and Healthcare

Automation

Anhydro Ice Cream

Cheese Industrial
Extruders

Keg Racking
Source: APV: Company Documents.

Figure 6.2. APV REORGANIZATION, JANUARY 1997

Beyond the internal rivalries within APV’s executive committee, this latest
reorganization move appears also to have been directed at the headquarters’
local City audience, which was becoming increasingly disillusioned with
the new management team’s performance. After more than a year of
steadily improving results, APV suddenly issued a profits warning in May
1996, citing renewed pressure on the group’s margins, the loss of a
major order, and the need for further provisions of at least £8m to cover
redundancy costs on top of the £10.9m already set aside for restructuring
that year and the £36m in charges taken over the previous two years. This
abrupt dashing of carefully cultivated profit expectations knocked 17 per
cent off the group’s share price, while undermining investors’ confidence
in the management’s forecasts and story. As one analyst complained: ‘We
are mystified. We knew orders were weaker, but were led to believe
that margins on them would be higher not lower—you are left wonder-
ing what is going on.’19 Since ‘new management coming into a difficult
situation’ are normally given a ‘grace period’ of no more than 18 months
19
Tim Burt, ‘APV Surges Back into the Black with £26.9m’, FT, 22 Mar. 1996; Tim Burt,
‘Warning Hits APV Shares’, 21 Mar. 1996; Terence Wilkinson, ‘Warning and £8m Charge Takes
Toll of APV Shares’, Daily Telegraph, 21 May 1996 (quotation).
 Lygon Place 155

to three years before being expected to provide ‘hard evidence of improve-

ment’, as a recent authoritative guide to City practice reports, time was
running out for APV’s top executives—unless they could somehow identify
a scapegoat from within their own ranks to blame for the group’s disappoint-
ing performance. Some two months after the departure of the Product
Business divisional director, APV announced that the group’s 1996 pre-tax
profits had plummeted 44 per cent to £15m from £26.9m the preceding year
on 12.5 per cent lower sales, while operating profits before restructuring
charges had dropped to £26.9m from £32.9m over the same period. Since
operating profits in the Product Business had fallen from £22.1m to £16.1m
while those in SEB had recovered to £0.5m from a loss of £1.8m, the
divisional director of the former may thus have appeared a plausible candi-
date to carry the can for APV’s earnings shortfall, thereby breathing add-
itional life into the ‘restructuring under new management’ story.20
But with APV’s share price languishing at half its value ten years earlier,
having underperformed the London stock market by 80 per cent, and no
sustained profits recovery despite restructuring charges of more than £50m
over three years, this story could hardly be expected to sway the group’s
unhappy institutional investors if an exit opportunity presented itself. At the
end of April 1997, APV received a renewed takeover offer from Siebe, which
had grown since its previous bid for the company eleven years earlier into a
£3bn diversified international engineering group with 46,000 employees
through a series of bold North American acquisitions, underpinned by
frequent new rights issues, rigorous cost controls, and creative accounting
practices such as upwards revaluation of acquired assets. Siebe now offered a
61 per cent premium for APV, based on its own high-flying share price, with
a lower cash alternative. Leading analysts recommended acceptance, citing
APV’s ‘incoherent structure’, with ‘lots of businesses fighting each other’.
Siebe spokesmen claimed that the takeover would enable the company
to incorporate its industrial control and automation systems into the
APV’s process engineering contracts, while also using the latter’s far-flung
marketing and distribution network to push its products to new customers.
But such strategic justifications, whatever their merits, were hardly necessary
under the circumstances. ‘Let’s not pretend this is a great synergistic exercise,’
commented one analyst. ‘For years APV has been a badly managed company.
Siebe will run it better.’ Investors for their part were glad to sell up: ‘Being a

20
Tim Burt, ‘APV Unveils Revamp as Director Departs’, FT, 15 Jan. 1997; Peter Marsh, ‘More
Jobs Cuts Likely at APV’, FT, 21 Mar. 1997; Golding (2001: 171, quotation). Dismissal of top
managers just below the chief executive level is a common response to poor performance in firms
where the CEO maintains strong support within the board of directors, as at APV: see Boeker
(1992).
156 A Global Game Enacted by Local Players

shareholder in APV has been an unpleasant experience and now we would

rather get out,’ said one; ‘It’s been endless jam tomorrow. It would be a
difficult defence to run,’ complained another disaffected institution. APV’s
own directors saw the writing on the wall and agreed to support the takeover,
having voted themselves a generous incentive package based on the group’s
future share value the day before Siebe’s offer was announced. This final
move was reported to have left ‘a very sour taste in the mouth’ of insti-
tutional investors, though one can only imagine how it must have been
received by the employees of APV’s subsidiaries around the world, whose
numbers had been slashed from more than 14,000 to just 7,000 in less than a
decade.21

21
Charis Gresser, ‘APV Receives Surprise Approach’, FT, 30 Apr. 1997 (quotation); Charis
Gresser, ‘A Slimmer APV Proves Attractive to Predators’, FT, 3 May 1997 (quotations); Charis
Gresser, ‘APV Agrees £331m Offer’, FT, 10 May 1997; Ross Tieman, ‘Siebe Gets Lucky Second Time
Around’, FT, 10 May 1997 (quotation); Charis Gresser, ‘APV Incentive Plan Criticised by Share-
holders’, FT, 21 May 1997 (quotation). On Siebe and its acquisitive growth strategy, see also Andrew
Lorenz, ‘Siebe’s Snowball’, Management Today, Apr. 1995.
 7
Strategic Positions and
Positional Strategies

The preceding chapters have narrated the ongoing struggles for position
within APV as a global game seen from the perspective of four local
players: three national subsidiaries and the corporate headquarters itself.
In each of the subsidiary plants, we found significant innovations in pro-
ductive organization and new product development, driven primarily by the
initiatives of local actors seeking to secure and advance their unit’s place
within the multinational, rather than by overarching plans or directives
orchestrated from the corporate center. Beneath these commonalities, how-
ever, important differences can also be discerned among the Danish, Ameri-
can, and British plants, both in the specific forms taken by their positional
strategies, and in the relative effectiveness of these local strategies within
the wider MNC. This chapter develops a comparative analysis of the sub-
sidiaries’ positional strategies and struggles for place across three distinct
levels of action:
. in relation to other units within the MNC;
. in relation to other actors and institutions within the regional and national
business system;
. in relation to the various actors within the local site itself.
The central finding emerging from our comparative analysis is that the
strategic possibilities and capacities for action of local players within the
global game of the MNC depended crucially on their ability to establish
collaborative relationships at each of these three levels. In the final section of
the chapter, we return to APV’s London headquarters, considered as another
local player in the global game, and analyze its capacities for strategic action
within the same comparative multi-level framework. The surprising results
of this exercise suggest new insights into the task of managing a multi-
national association like APV, which will be elaborated further in Part III
of the book.
158 A Global Game Enacted by Local Players

1. Local Strategies in Multinational Space

Examined from a comparative perspective, each of the three national subsid-

iaries varied significantly both in their initial strategic position within APV
and in the positional strategies they pursued on joining the multinational
association. Thus Lake Mills, which had once been a corporate center in its
own right, was gradually transformed into a peripheral branch plant by the
1985 internal merger of Crepaco into APV’s worldwide organization. In the
course of this process, what had been an integrated, synergistic design,
engineering, and production complex was likewise transformed in the eyes
of headquarters into a disparate collection of co-located activities weighed
down by the burden of excessive overhead costs. During the first half of the
1990s, Lake Mills achieved sharp improvements in performance through the
reorganization of production on cellular lines and the introduction of a new
pay-for-knowledge system, while also developing a new ice-cream freezer in
record time through collaboration between design engineers and shop-floor
workers. But the plant’s innovative capabilities were devalued by the desig-
nation in APV’s 1993–4 corporate reorganization of ice-cream equipment
manufacture, for which Lake Mills had long served as the group center of
excellence, as a peripheral specialist business to be sold off to the highest
bidder. At the heart of Lake Mills’ turnaround in the early ’90s stood a strong
but autarkic collective identity, underpinned by the plant-based labor con-
tract and seniority system. Although this collective identity bound local
actors together into a solidaristic community of fate, facilitating the reso-
lution of internal conflicts, it simultaneously inhibited the plant from estab-
lishing collaborative relationships with external partners, whether outside
subcontractors, other APV subsidiaries, or the new global product SBUs
created by the group’s corporate reorganization.1
If Lake Mills as a former independent corporate center struggled to come
to terms with its downgraded status in the new global order, Howard, by
contrast, as a self-acknowledged peripheral unit strove to win a place of any
kind in APV’s multinational association. One possible strategy, pursued by
the young Scots accountant who took over the plant after it had been
successfully turned around by a Danish production manager in the ‘Second
Norman Conquest’, was to build up Howard as a quasi-independent manu-
facturer of rotary lobe pumps with its own brand based on excellent product

1
Although we did not have an opportunity to study their history in any detail, structural
parallels with the situation and behavior of Lake Mills could be observed in the case of other
former corporate centers and integrated plant complexes like Silkeborg (Pasilac) and especially
Unna (Rosista).
 Strategic Positions, Positional Strategies 159

quality and customer service. But this autonomous path was obstructed by
Howard’s lack of an independent sales force and its commercial subordin-
ation to APV’s Fluid Handling SBU. An alternative strategy, pursued by the
plant’s long-serving technical director, was to secure the plant’s future by
developing a new family of rotary lobe pumps as a global corporate standard
within APV. This second strategy sought to compensate for Howard’s limited
internal resources by enlisting a series of external allies: thus the technical
director first obtained a British government grant to employ a team of
engineering graduates from a local university to work on the new pump
design and then deliberately brought in colleagues from other APV units
around the world to mobilize their specialized competencies and build a
cross-national coalition in support of the project. But the project’s narrow
focus on Howard’s technical department and its external allies shut out the
shop floor and recompartmentalized the internal division of labor, which
had been opened up by interdepartmental promotions and job rotation
schemes under the Danish manager and his Scots successor. The result was
that issues of manufacturability and cost were not taken sufficiently into
account, leading to delays and budgetary overruns, while the demands of
short-run operational efficiency and long-run product positioning began to
diverge, thereby undermining the strategy of using the new pump develop-
ment project to ensure Howard’s productive future.
Like Howard, Horsens initially sought to carve out a place in APV’s
multinational association through a combination of technical virtuosity
(the ability to make a wide range of high-quality customized products at
low total cost), excellent customer service (quick-response supply of non-
standard pumps and valves), and new product development (winning a lead
role in the design and manufacture of a new global family of centrifugal
pumps). Unlike Howard, however, Horsens pursued this strategy by mobil-
izing its entire internal workforce and through them a variety of external
resources. Hence short-term operational efficiency and long-term product
positioning reinforced rather than competed with one another, since
Horsens’s low overhead costs underpinned its bid to become the lead plant
for the new world centrifugal pumps, while its polyvalent workforce and
their ability to create internal slack enabled the management to finance initial
R&D work without formally allocating resources to the project. Horsens’s
positional strategy, though breaking all formal corporate rules during its
initiation and implementation, thus resulted in a vast expansion of the
plant’s power and influence within the wider MNC. This was the case to
such a degree that Horsens’s managing director—now CEO of the Fluid
Handling SBU—and other key local actors felt obliged to sacrifice some of
the plant’s short-term interests in the name of the greater corporate good, for
160 A Global Game Enacted by Local Players

example by accepting the allocation of a new generation of world valves to

Unna, which they had originally contested, because of the high costs of
German redundancies that the group would otherwise incur. Hence Horsens
became a role model and source of authority within APV as a whole.2 But
even in this situation, Horsens operated as a collectivity, mobilizing actors
within the plant at many different levels. Thus managers, supervisors, and
blue-collar workers from Horsens were sent out as consultants to help
implement change projects in other plants belonging to ‘their’ SBU. Man-
agers from Horsens greatly expanded their careers by taking up new positions
of responsibility in APV’s operations abroad, and by taking a lead role in the
emergence of the ‘Danish Mafia’ as an informal coalition of SBU managers
seeking to compensate for the lack of effective coordination by the MNC’s
headquarters. And the plant convener likewise took the lead in extending
union activities to the transnational level through a pioneering agreement to
create a European Forum or Works Council.

2. Local Strategies and National Business Systems:

Working under Different Rules

Perhaps the most striking contrast in the positional strategies pursued by the
three subsidiary plants concerns their relationship to external actors within
the local environment, where Horsens and Lake Mills in particular can be
located at opposite poles. Thus operational flexibility at Horsens depended
on long-established collaborative relationships with an extended network
of specialized subcontractors in the surrounding ‘stainless steel corridor’.
These subcontracting relationships were conducted on a high-trust, high-
communication basis which therefore proved capable of sustaining the
temporary withdrawal of orders and insourcing of work during the initial
crisis accompanying the APV takeover.3 At Lake Mills, conversely, the plant’s
high overheads and endemic production bottlenecks resulted in no small
part from its antagonistic relationship with external suppliers. Outsourcing
of key parts was viewed by the workforce, union leaders, and even local

2
In this respect, Horsens operated less as a Mecca for acolytes of advanced technology and
design, like ABB’s historic transformer complex in Ludvika, Sweden, than as a great seminary from
which industrial missionaries fanned out to spread the gospel of good practice and cooperation
around the world, like ABB’s Vaasa plant in Finland, acquired from the Strömberg group in 1986,
which quickly became an exemplar of cross-functional organization and short-cycle production for
the Swiss-Swedish group’s transformer division as a whole (Bélanger et al. 1999). For a more
extensive comparative discussion of APV and ABB, see Ch. 8 below.
3
For a more detailed examination of Horsens’s relationship with its suppliers, see Nygaard
(1999: esp. chs. 4–5).
 Strategic Positions, Positional Strategies 161

management as a temporary expedient to be reversed as quickly as possible,

evoking opportunistic pricing behavior by suppliers and reluctance to invest
in specialized tooling and equipment necessary to meet tight tolerances and
other technical requirements.
This stark contrast in the two plants’ relationships with external suppliers
stemmed not only from the strategies adopted by local actors, but also from
the very different rules governing their respective labor markets, rooted in
the broader institutional structure of the Danish and American national
business systems. Thus the organization of industrial relations, skill forma-
tion, job security, and social welfare provision all combined to focus Lake
Mills workers on the defense of employment within the plant, while instead
integrating their counterparts at Horsens more smoothly into the wider local
and regional labor market.
Yet these were not the only possible outcomes in each country. Thus, for
example, at John Deere & Co.’s lawn and garden equipment works in
Horicon, Wisconsin, during the early 1990s, unionized workers initially
resisted outsourcing of machining operations to external suppliers while
collaborating in an internal reorganization of production layout and pay
systems similar to that at Lake Mills. But once it became clear that plant
management was determined to go ahead with the outsourcing as part of its
broader ‘extended enterprise’ strategy, the local union accepted the new
arrangements in return for a voice in the process, and has supported efforts
to upgrade suppliers’ productive capabilities (and thus their ability to
pay higher wages) through the Wisconsin Regional Training Partner-
ship (WRTP) and the Wisconsin Manufacturing Extension Partnership
(WMEP), a state-funded agency which includes both labor and business
representation. As quality, efficiency, and lead times improved at Horicon
due to the restructuring, new product lines were brought into the plant, and
employment increased despite the outsourcing from 700 in 1989 to 1,000 in
1995.4
In the US, as is well known, union density declined from 35 per cent of the
workforce in the mid-1950s to 15 per cent overall and less than 10 per cent in
the private sector by the mid-1990s. In Wisconsin, the decline in union
density has been only slightly less steep than the national pattern, falling
from 33 per cent in the early 1970s to less than 19 per cent in the late 1990s.
With few exceptions, collective bargaining agreements in the US, like union
representation rights, are confined to individual plants or companies, with
no formal mechanisms for extending their provision to non-signatory
4
On outsourcing and restructuring at Horicon, see Luker (1998); Rickert (1999). On WMEP
and the Wisconsin Manufacturers’ Development Consortium, in whose creation Horicon managers
played a key role, see Ch. 11 below.
162 A Global Game Enacted by Local Players

employers, and their coverage likewise dropped from 26 per cent of the
workforce (23 per cent of the private sector) in 1980 to 16 per cent (11 per
cent of the private sector) in 1996. Informal mechanisms for inter-firm wage
coordination such as pattern bargaining and ‘spillovers’ of union pay settle-
ments to non-union employers have also lost most of their effectiveness over
the past two decades. The result of these trends has been a substantial if
eroding wage gap for similar work between union and non-union plants
in the same industry and region. In Wisconsin, average hourly wages for
union workers were 23 per cent higher than for the average non-union
worker in 1998, while at Lake Mills, as we saw in Chapter 4, wage rates in
non-union subcontractors were one-third below those in the plant itself.5
In Denmark, where unemployment insurance is administered by unions
under the so-called ‘Ghent system’, membership density rose from 60 per
cent of the workforce in 1970 to 78 per cent in 1995. Formal collective
bargaining coverage remains much higher than in the US, at 69 per cent
overall and 52 per cent in the private sector in 1996, and rose substantially
during the late 1990s after a slight decline during the preceding decade. Even
among employees not covered by collective agreements, widespread spillover
effects ensure that their pay and conditions tend in practice to follow those
negotiated for comparable covered groups. Since the late 1980s, minimum
wage rates for metalworking occupations have been agreed between
employers and unions, at first at sectoral and more recently at industry-
wide level, with varying levels of coordination by national confederations on
each side and a public conciliator empowered to ‘concatenate’ proposed
settlements into a single package which must be voted up or down as a
whole. Actual earnings, however, are negotiated between managers and shop
stewards at plant level, with informal coordination through the publication
of regional league tables and competition for skilled workers combining to
limit the range of inter-firm pay differentials. The creation of codetermina-
tion councils (Samarbejdsudvalg) after the Second World War and the
provision for employee representatives on enterprise boards by the Joint
Stock Company Law (Aktieselskabslov) of 1973 progressively enlarged the
role within the firm played by shop stewards and conveners, who are elected
at plant level, but approved and actively trained by the external unions.
According to a recent study (Kristensen 2002), these reforms had prepared
the ground for workplace representatives to form highly active partnerships

5
For overviews of changing patterns of unionization and wage determination in the US, see
Osterman (1999: esp. ch. 2); Osterman et al. (2001). Figures on national union density and
collective bargaining coverage are drawn from Traxler et al. (2001: tables II.11, III.15) and Osterman
et al. (2001: 46). Figures for Wisconsin union density and wage differentials are drawn from Dresser
and Rogers (2000: 35).
 Strategic Positions, Positional Strategies 163

with management from the beginning of the 1990s. By supporting the shift to
new bonus-based wage systems, intensifying further training for incumbent
workers, and participating in factory reorganization, many conveners and
shop stewards were actually taking over a multiplicity of managerial roles.
The effect of this active partnership role was that wage negotiations took on a
new orientation. It became obvious to managers that rapid improvements in
plant performance owed a lot to the shop-floor workers, whom they wanted
to compensate accordingly. But employers’ associations in this period sought
through moral suasion and other sanctions to prevent their members from
conceding large wage increases in local negotiations, summoning offenders
when discovered for consultation and criticism. Thus in many plants, the
convener and shop stewards tried to achieve wage increases that would
clearly signal reciprocation of workers’ commitment by the employers, but
would not expose the latter to their colleagues’ opprobrium. As a result of
these trends, blue-collar employees, particularly the ‘specialized’ workers,
experienced a decade of continuous wage increases above the level of many
salaried groups, contributing to the overall Danish exceptionalism in moving
towards still greater income equality during the 1990s.6
These sharp disparities between Danish and American patterns of wage
determination and employee representation are echoed and reinforced by
related differences in the formal and informal rules governing skill forma-
tion, career mobility, job security, and social welfare provision in the two
countries. Thus in the United States, most vocational education and training
is conducted either in schools or in firms, with little relation between
them. Outside of professional occupations and the building trades, few
non-supervisory employees possess transferable qualifications such as certi-
fied apprenticeships, in part because of employer fears of the poaching of
skilled labor by their competitors. On-the-job training in firm-specific skills
typically does not yield increased earnings with other employers, and
workers without a college degree who lose their jobs therefore experience
great difficulty in finding new employment at comparable wages and bene-
fits. There are no statutory restrictions on individual or collective layoffs
(apart from those imposed by anti-discrimination legislation); hence job
security for workers in unionized plants depends crucially on the seniority
provisions of legally binding local labor contracts. The stakes for American
workers in holding on to particular union jobs are raised still further by the

6
On the recent evolution of unionization, collective bargaining, and wage determination in
Denmark, see Due et al. (1994); Scheuer (1998); and Jørgensen (2000). Figures on union density
and collective bargaining coverage are drawn from Traxler et al. (2001: tables II.11, III.15), which
also reviews the robust cross-national comparative evidence on the role of the Ghent system in
sustaining high levels of union membership over the past two decades (pp. 85, 89–92).
164 A Global Game Enacted by Local Players

fact that health insurance and supplementary pensions are tied to employ-
ment in individual firms, while unemployment insurance provides only a
relatively low level of replacement income for no more than six months
under restrictive eligibility conditions which effectively exclude the majority
of those out of work.7
In Denmark, by contrast, a large proportion of the workforce has general,
transferable skills which enable them to change jobs easily without suffering a
loss of earnings or career prospects. Initial vocational training for skilled
workers is organized through an institutionalized system of craft apprentice-
ship, supplemented by off-the-job classroom instruction, under the joint
governance of employers and occupational unions. In response, the Special-
ized Workers’ Union (SiD) has developed its own network of training schools
or AMU Centers to assist its members in competing for jobs with appren-
ticed craftsmen. Both groups benefit, moreover, from an elaborate system of
continued education and training supported by plant-level training agree-
ments and public educational-leave programs, which has expanded consider-
ably since the late 1980s. Frequent job-changing by employees at all levels is
underpinned not only by the resulting diffusion of transferable qualifica-
tions, but also by Denmark’s decentralized industrial structure, dominated
by small and medium-sized enterprises; by craft traditions of journeymen
perfecting their skills through working at a series of different firms; and by
local reputational networks. In this setting, there are few statutory restric-
tions on hiring and firing, and Denmark is regularly ranked alongside the US
and the UK among those developed economies with the lowest levels of
formal employment protection. But employers are legally required to inform
shop stewards before laying people off, and often negotiate with the latter
about how to minimize the impact on individuals and work teams, while
maximizing the use of various Danish welfare-state programs to reposition
displaced employees without allowing them to become formally un-
employed. For those who do lose their jobs, moreover, the impact is cush-
ioned by a high floor of universal, tax-financed welfare benefits such as health
care and pensions, together with a generous system of state-subsidized
unemployment insurance administered through the unions themselves.
Since the early 1990s, public support for the unemployed has been increas-
ingly channeled into activation schemes aimed at getting them back into
work, training, or education, thereby reinforcing the virtuous circle between
skill formation, job mobility, and the welfare state. Thus Danish labor market
arrangements over the past decade are widely considered to constitute a de
7
For overviews of skill formation, job security, and social welfare provision (including ‘private’
but tax-subsidized fringe benefits) in the US labor market, see Osterman (1999); Osterman et al.
(2001); Lynch (1994); Crouch et al. (1999: esp. 205–13).
 Strategic Positions, Positional Strategies 165

facto system of ‘flexibility with security’ or ‘flexicurity’, comparable to the

Netherlands’ de jure regime based on legislation and collective agreements.8
The relationship between Howard and its local economic environment
was closer than in Lake Mills, but less collaborative than in Horsens. The
neighboring pump firms which had spun off from Howard over the preced-
ing forty years were linked to one another through competition for mobile
skilled workers in an ‘incestuous’ labor market. These pump firms also
shared common specialized suppliers, such as a precision parts machine
shop, half of whose capacity they jointly utilized and effectively co-owned.
But unlike in Italian or Danish industrial districts, mutual suspicion blocked
any direct sharing of information or joint learning among rivals in East-
bourne’s ‘pump valley’. Thus, for example, to prevent any possible leakage of
design secrets, local pump firms were prohibited from entering their joint
supplier’s premises when competitors’ parts were being processed.
As in the case of Horsens and Lake Mills, the peculiar relationship between
Howard and its local environment was rooted in institutional features of the
British national business system as it evolved during the post-war period.
One key factor in shaping the antagonistic relations between Howard and its
local competitors was the long-standing weakness of trade associations as
mechanisms for inter-firm cooperation and information sharing in the UK,
exacerbated by the imposition of strict legal controls on cartel agreements
from the late 1950s onwards. Both of these features of the institutional
environment encouraged British manufacturers to compete head-to-head
on price for the same customers rather than to specialize on complementary
products, in contrast to the specialization cartels permitted by the West
German anti-trust legislation of 1957 or the less formal sanctioning mech-
anisms based on collegial codes of conduct prevalent among Danish firms in
some districts to discourage rivals from poaching one another’s customers
(Nygaard 1999). In the UK labor market, too, institutional mechanisms for
inter-firm coordination of wages and employment conditions, though more
significant than in the US, lost much of their force during the post-war
period, especially after the advent of Thatcherism in 1979. Union density,
whose incidence had always been highly uneven given the absence of a

8
On the interplay between skill formation, industrial structure, and career mobility in the
Danish business system, see Kristensen (1995). For the development of the Danish system of
continuing education and training during the late 1980s and ’90s, see Kristensen and Petersen
(1996). On the recent evolution of the Danish welfare state and labor market policies, see Madsen
(2002: 243–65); Madsen (1999); Torfing (1999). For the high level of job-changing and low formal
employment protection, see Madsen (1999: 246–9); ‘Employment Protection and Labour Market
Performance’, OECD Employment Outlook, July 1999, ch. 2; Nickell (1997: esp. table 4). For Danish
labor market arrangements as a de facto system of ‘flexicurity’, see also Ferrera and Hemerijck
(2003).
166 A Global Game Enacted by Local Players

statutory recognition procedure before New Labour’s 1999 Employment

Relations Act, fell sharply from just over 50 per cent of the workforce in
1980 to 32 per cent in 1995. British sectoral employers’ associations, which
had historically been less cohesive and solidaristic than their northern and
central European counterparts, lost most of their bargaining functions and
much of their membership during the 1970s and ’80s, accounting for just one
in eight workplaces by 1990. Closely related to both developments was the
diminishing influence of industry-wide wage agreements over the determin-
ation of plant-level earnings from the 1950s onwards, a process which
culminated in the abolition of national bargaining in engineering altogether
in 1989. Collective bargaining coverage at any level likewise plummeted from
72 per cent of the workforce (66 per cent in the private sector) in 1978 to 37
per cent (22 per cent in the private sector) in 1996. The widely documented
result has been a dramatic increase in wage dispersion during the 1980s and
’90s, tempered by inter-firm competition for skilled workers, union coordin-
ation of plant-level bargaining, and managers’ continuing reliance on the
sector as an informal frame of reference, especially for working-time arrange-
ments.9
Yet Eastbourne workers also remained more strongly attached to the
external labor market than their Lake Mills counterparts. Despite the aboli-
tion in the 1980s of the Engineering Industry Training Board, which had
provided a tripartite framework for funding and design of sectoral VET
programs, several of Eastbourne’s pump firms, like many British metalwork-
ing employers, continued to train craft apprentices in collaboration with the
local technical college. Hence a significant proportion of the town’s manual
workers had obtained recognized occupational qualifications such as appren-
ticeship lines and City and Guilds certificates which enabled them to change
jobs easily, buttressed as in Horsens by the diffusion of reputational know-
ledge about individuals within the local labor market.10 As in the US and
Danish cases, moreover, these patterns of skill formation and career mobility
were reinforced by the wider institutional arrangements governing job
9
On the historic weakness and post-war decline of British trade and employers’ associations,
see Tolliday and Zeitlin (1991: esp. 296–302); Zeitlin (1995); Sisson (1987); Turner (1988). On the
impact of competition policy on inter-firm agreements in post-war British engineering, see Zeitlin
(forthcoming); on German specialization cartels, see Herrigel (1996: esp. 170–4). For changing
patterns of wage determination and the decline of multi-employer bargaining in post-war Britain,
see Gospel (1992: esp. ch. 7); Brown et al. (1995); Arrowsmith and Sisson (1999). Figures for union
density and collective bargaining coverage are drawn from Traxler et al. (2001: tables II.11, III.15).
10
For the paradoxical combination of the decline of craft apprenticeship with the continued if
eroding salience of occupational skills and identities in the UK, which has inspired a variety of
reform efforts in the 1990s such as the introduction of Modern Apprenticeships and National
Vocational Qualifications, see Marsden and Ryan (1995); Marsden (1995); Gospel (1995, 1998);
Crouch et al. (1999: esp. 126–33, 157–61, 183–92).
 Strategic Positions, Positional Strategies 167

security and social welfare provision in the British national business system.
Thus legal constraints on layoffs are substantially weaker than in most of
continental Europe, with no pre-notification or consultation requirements,
though long-serving employees are entitled to redundancy payments, and
unfair dismissal claims may be appealed to an industrial tribunal with powers
to order compensation but not reinstatement. Unlike the US, seniority
arrangements for layoffs and promotion are rare even in unionized metal-
working firms in Britain, though firm-based supplementary pensions and
other fringe benefits have become an increasingly significant element of
compensation during the post-war period. Despite nearly two decades of
Conservative welfare state retrenchment in the 1980s and ’90s, the UK’s
National Health Service, state pension, unemployment benefit, and social
assistance systems still provide a more robust safety net than in the US,
though markedly less universal and less generous than in Denmark. The
combined result of these institutional patterns has been a segmented labor
market characterized by substantial external mobility but also significant
costs of job loss for workers without transferable skills, especially as they
grow older, intensifying the ambivalent relationship between the inside and
the outside of the firm observed at Howard.11

3. The Micro-political Constitution of Local Players as Collective Actors

The capacity of local players to pursue successful positional strategies within

the multinational association, however, depended not only on their initial
strategic position or the resources they could draw on from their local
environment and national business system, but also on their micro-political
constitution as collective actors. This is clearest in the case of Horsens, where
all the various groups in the plant, whatever their differences, converged on a
single coherent narrative of its historical trajectory. This living narrative
served as a cognitive framework for overcoming internal conflicts and inte-
grating personal and institutional biographies into a common story, thereby
constructing the plant as a collective actor or ‘we’ with whom its members
could individually identify, as Carr (1991) has argued for the narrative
constitution of identity more generally. The narrative, in other words, pro-
vided the means for each individual who entered Horsens to ‘take on the role

11
For job security arrangements, the limited development of internal labor markets, and rising
costs of employment loss to unskilled workers in post-war Britain, see Dickens and Hall (1995: esp.
259–73); Gospel (1992: ch. 8); Siebert and Addison (1991); Gregg and Wadsworth (1995); Green et
al. (2000). For comparative overviews of the British welfare state in the 1990s, see Ferrera and
Hemerijck (2003); Rhodes (2000).
168 A Global Game Enacted by Local Players

of others’, to become a ‘me’ and to reflect on oneself as an ‘I’ in symbolic

interactionist terms (Mead 1967/1934; Blumer 1969).
To take on the role of others and become a ‘me’ enables a person to
become an object for him- or herself, thereby opening up a self-reflective
capacity, i.e. establishing the very possibility of ‘taking an ‘‘I’’ against ‘‘me’’ ’.
In the Horsens plant, the overarching narrative helped each person continu-
ously to ask themselves how their improved qualifications measured up to
those of others in the ongoing contestation through which individuals
gradually built up their own biographies as a distinctive contribution to
the common upskilling story. But within this larger narrative, the worker
collectivity always questioned whether the individual acquired further quali-
fications in order to secure personal promotion to managerial jobs or
conversely to protect the blue-collar group as a whole from losing control
over new skills—and thereby social space—to the white-collar staff. In other
words, individual workers could not respond reflexively to their own role-
taking without arousing doubt about their status as either friend or enemy to
the larger collectivity. This second wave of self-reflection most often gave
rise to another role-taking—a ‘me’—that was very active in symbolically
demonstrating where the individual’s bonds of loyalty and commitment
lay: most likely to the worker collectivity. Ironically, however, this sequence
of role-taking and self-reflection inspiring active symbolic identification
with the workers’ collectivity could only encourage management still
further to recruit workers for managerial tasks, thereby reinforcing the entire
circle.
No less importantly, this collective ‘we’ at Horsens was able to delegate the
authority to act strategically on its behalf to a collective ‘I’, above all the
convener and shop steward of the skilled metalworkers. Since the early 1980s,
the convener had played the lead role in strategizing on behalf of the plant as
a whole in collaboration with successive managers, while simultaneously
maintaining his position as chief representative of the manual workforce.
Crucial to this process was the convener’s ability to select managers willing to
play along with the reputational dynamic of skill improvement within the
plant and to get rid of those unwilling to do so, by supplying or withholding
the cooperation of the workforce necessary to achieve positive business
results. The convener was likewise acutely aware that if he were to collaborate
with management in deciding the actions of Horsens’s collective ‘I’, he had
to remain an aggressive worker representative, demanding wage increases at
the high end of the scale whenever possible, extending the rights of his
constituency, and speaking with a radical voice in local union politics. In
engineering the further training agreement, the APV European Forum,
and many other achievements, the convener earned a reputation that could
 Strategic Positions, Positional Strategies 169

be cashed in when needed. No one was ever able to campaign against him
as a ‘class traitor’, even though he worked closely with management in
reorganizing the plant. Whether by chance or by design, the convener
played this double role effectively, in part because negotiations over wages
and working conditions were never conducted directly with the managing
director. Demands in this area were raised, often in a highly conflictual
manner, with the production manager of the day, allowing the managing
director to step in as a ‘supreme judge’ able to strike a just compromise
in which no one—except sometimes the production manager—would
lose face.
Despite their involvement in APV’s global games, neither Horsens’s
managing director nor the convener ever lost touch with the life of
the plant. The managing director’s philosophy of knowing ‘every nut
and bolt in the factory’, which he sought to extend to the Fluid Handling
SBU as a whole on becoming its CEO, represents the polar opposite of
the ‘bureaucratic phenomenon’ in France as analyzed by Crozier (1964).
In the latter’s well-known view, French firms’ heavy and often dysfunctional
reliance on bureaucratic rules stemmed largely from the avoidance of
face-to-face relationships by different groups within the organization. At
Horsens, conversely, such relations were continuously maintained by
allowing people to integrate their biographies into the larger unfolding
narrative of the plant’s history which gave meaning to the actions of the
managing director and the convener alike, even when their careers achieved a
global reach.
Unlike Howard, moreover, Horsens had no need for a common enemy to
transform itself into a collective actor. Although it of course faced ‘enemies’
at particular moments, the plant typically managed to transform such
conflictual relationships into collaborative compromises whenever its own
existence was no longer threatened. In the case of Unna, for example, the
Horsens workers initially proposed to send a delegation to establish coopera-
tive relations with their German counterparts, and only began to fight back
after their friendly overtures were rejected. Even then, as we have seen, the
Horsens managing director and convener eventually accepted the need to
allocate the new generation of world valves to Unna in the wider interests of
the Fluid Handling SBU.
Howard, by contrast, had developed an elaborate but exclusive narrative of
innovation, betrayal, and suspicion sustained by the long-serving technical
director. As archivist and semi-official steward of the plant’s collective
memory, he kept a careful record of the products it had invented and the
ideas that had been stolen by former employees to set up their own com-
panies, which had gradually been acquired by new multinational owners,
170 A Global Game Enacted by Local Players

while continuing to compete fiercely with one another within a narrow

geographical area. This narrative in turn gave rise to a collective identity
based on common enmity towards the rival pump firms within the district,
from which the mobile workforce was excluded as potential defectors. The
technical director, as we have seen, served as a self-appointed strategist, but
was unwilling to mobilize this narrative to become a full-fledged collective ‘I’
for Howard’s ‘we’, partly because of distrust of the workforce and fear of
information leakage within Eastbourne’s ‘incestuous’ labor market. This in
turn undermined his own project of safeguarding the plant’s future as a
world production location for a new generation of rotary lobe pumps.
Neither was there another leader who could reinterpret Howard’s narrative
and harness it to an alternative strategic vision. Unlike at Horsens and Lake
Mills there were no union representatives to speak for the workforce, while
the Danish manager who had presided over the plant’s turn-around and
decompartmentalization of work roles quickly departed to pursue the next
step in his career back home, and the Scottish accountant who replaced him
lacked the technical expertise and shop-floor understanding necessary to
continue along the same path.
Lake Mills, finally, had successfully constructed a collective identity based
on a shared narrative about the plant community, which proved a powerful
resource for overcoming internal divisions and conflicts among social and
occupational groups. This collective identity involved not only rivalry with
competing firms in the same locality producing similar products, as at
Eastbourne, but also hostile relations with external subcontractors in the
surrounding region.
Moreover, unlike both Horsens and Howard, Lake Mills’ collective identity
also placed it in conflict with APV’s London headquarters and other units
within the multinational association insofar as their restructuring plans
threatened the plant’s integrity as an integrated productive complex. As at
Horsens, it was union leaders who served as the plant’s collective ‘I’ and
the guardians of its shared narrative, particularly the former steelworkers’
president, who had been promoted to labor relations manager. But union
leaders’ ability to carry out the plant’s strategic project was undercut by the
absence of a management partner: while, at Horsens, the steelworkers’
president actually had to become a manager in order to pursue the work-
force’s interests in restructuring. In light of the frequent shifts in plant
management, the unions’ strategy of socializing each new arrival through
the use of consultants appeared Sisyphean, while externally imposed changes
in personnel and policies constantly threatened to undermine the work-
force’s fragile support for collaboration with management and trust in
their own leaders.
 Strategic Positions, Positional Strategies 171

4. Strategic Capabilities of Local Players: A Comparative

Multi-level Analysis

We are now in a position to compare the strategic capabilities of the three

local subsidiaries at each level of action within the global game of the
multinational association. The most fundamental contrast which emerges
from the preceding analysis is that between Horsens on the one hand and
Howard and Lake Mills on the other. Thus Horsens continually expanded the
scale and scope of its action within APV, transforming itself from a peripheral
component-manufacturing plant to the home base of an alternative global
center of coordination and integration, the focal point for the Fluid Hand-
ling SBU, the Danish Mafia, and the European Forum. Despite their impres-
sive performance improvements and new product development initiatives,
both Howard and Lake Mills found themselves instead trapped in self-
limiting strategies, each for different reasons. The successful pursuit of
positional strategies by local players in the longer term thus appears to
have required the development of a capacity for collaborative action at
each of three distinct levels:
. within the site itself (constitution of a collective actor);
. within the local economy (establishment of collaborative relations with
supplier firms and supporting institutions);
. within the MNC (establishment of collaborative relations with other units).
Table 8.1 sets out the results of this comparison in schematic form. Thus
only Horsens, as we have seen, was capable of collaborative action across each
level. Lake Mills was capable of collaborative action within the plant, but not
within the local economy or the MNC. Howard was capable of collaborative

Table 8.1. Strategic Capabilities of Local Players: A Comparative

Multi-level Analysis
Site Capacity for collaborative action
Within the site Within the local economy Within the MNC
Horsens þ þ þ
Lake Mills þ


Howard þ=

þ
Innovative foreign þ þ

subsidiary (Sölvell
and Zander 1998)
172 A Global Game Enacted by Local Players

action within the MNC, and to a more limited extent within the plant, but
not within the local economy. This comparative analysis also suggests the
possibility of a missing combination, shown in the final row: the case of an
innovative foreign subsidiary, proposed by Sölvell and Zander (1998) and
discussed in Chapter 1 above, which becomes an insider within the local
innovation system but an outsider within the parent MNC itself.

5. Lygon Place: Corporate Headquarters as a Local Player

What happens when we consider APV’s London headquarters as another local

player in the global game of the MNC following the same comparative frame-
work? A first striking contrast with all three subsidiary plants was the absence of
any common narrative or collective identity at Lygon Place, the elegant
Regency townhouse complex in London’s Belgravia which served as APV’s
global headquarters. Thus unlike at Horsens, Lake Mills, or Howard, none of
our London interviewees explained current strategic developments in terms of
the long-term history of APV or its acquired companies—not surprisingly,
given their own recent arrival on the scene. Only one of the secretaries, who had
worked there far longer than the executives she served, saw the dividing line
between the previous directors and their successors in terms of the intersection
of individual biographies with the passing of the old APV. Lygon Place did not
even contain a copy of the company’s official history (Dummett 1981), which
was given to us by the technical director at Howard, who had collected a
treasure trove of materials about APV in hopes of gaining a better understand-
ing of the peculiar multinational association his firm had joined.12
The London headquarters was riven by open conflicts between divisions,
functions, and the individuals responsible for them (sales and engineering vs
products, finance vs production, to name only the most salient), even though
many of the persons concerned had hybrid careers involving qualifications
spanning more than one professional field.13 Careers at Lygon Place were

12
It is striking that would-be ‘global managers’ seem to despise ‘history’. Once one of us visited a
new APV plant which does not form part of the current study, and was introduced to the new
foreign plant manager as ‘a researcher familiar with APV’s history’. This made the plant manager
exasperated, and he sought to convince this ‘academic’ that the past played no role, only the present
and the immediate future. For reasons which were then not clear to us, such country-hopping
managers seem offended by the very fact of collective narration, which they cannot control though
they may figure in such narratives as both enemies and heroes.
13
Thus the CEO and former finance director had a Ph.D. in theoretical chemistry; the executive
director of the Specialist Businesses division had a degree in chemical engineering as well as an
MBA; the executive director of the Product Business division had been trained in production
engineering and marketing as well as in general management; and many of the engineers at SBU
level had received advanced training in finance and international management.
 Strategic Positions, Positional Strategies 173

always recounted in individual terms, involving mobility across different

MNCs rather than within them. Even when elements of a common narrative
could be detected, as in the case of Product Business, where the executive
director had brought along a key aide from his previous company, this did
not serve as a basis for broader collaborative action within the headquarters,
but instead reinforced the division’s identity in opposition to the rest of the
group leadership.
As in the case of the subsidiary plants, Lygon Place’s capacity for strategic
action within the multinational was also shaped by its relationship to other
key actors in the local economic environment. Despite being an MNC with
global competitors and operations around the world, most of APV’s stock
and corporate debt was in fact held by a relatively small number of London-
based institutional investors and banks, operating according to the rules of
what City insider John Golding (2001) has termed the ‘institutional equity
nexus’. The key external point of reference for APV’s top executives, as we
have seen, was this local financial community of fund managers, analysts,
brokers, bankers, and journalists, whose confidence and support were crucial
to sustaining the group’s share price and credit rating, and thus the head-
quarters’ ability to defend its autonomy against potential takeover threats.
The brutal rules of this local game were well-known to all the players. Top
managers of large, publicly quoted companies such as APV were expected to
set and meet ambitious financial performance targets in the short as well as
the long term, with plausible explanations for any setbacks. At the same time,
they were expected to be able to tell a clear and consistent story about
company strategy, fitting neatly into well-established categories such as
‘growth’, ‘consolidation’, ‘restructuring’, and ‘recovery’. Senior executives
were then held responsible for any failure to meet market expectations,
with a ‘grace period’ of no more than 18 months to three years for new
incumbents before being required to show tangible evidence of improved
performance. Deviations from these rules were regularly punished by stock
price falls, vocal demands for replacement of top management, and the
ultimate sanction of support for hostile takeovers. Since few managers
could hope to transform company performance by reorganizing existing
operations within such a short time frame, CEOs facing the pressures of
what financial journalist John Plender has called ‘the game of ambush’ felt
increasingly pushed to pursue ambitious but high-risk takeover and divest-
ment strategies. And corporate executives were also pulled in this direction
by a constant stream of deal-making proposals from investment banks,
which stood to benefit financially from such transactions; by unsolicited
public advice from analysts employed by these same banks; and by generous
‘golden parachutes’ and incentive pay packages linked to the share price,
174 A Global Game Enacted by Local Players

which skewed the balance of potential risks and rewards to such acquisitive
strategies even further towards the upside.14
The codification of these rules and their internalization by British corpor-
ate managers reflected in turn the distinctive evolution of the broader
national business system during the post-war period. Among the key steps
in this process was the emergence of an active market for corporate control
from the late 1950s onwards, spurred by shifts in public financial regulation
on the one hand and the expanding role of institutions such as insurance
companies, pension funds, and investment trusts in managing private
savings on the other. Between the mid-1950s and the early 1980s, many
UK industrial firms experienced periodic financial crises like that which
struck APV in 1956–8, due in no small part to the instability of domestic
demand, interest rates, and credit availability induced by Britain’s distinctive
pattern of stop–go macroeconomic management. A characteristic response
to such crises, promoted by company auditors and outside consultants often
acting at creditors’ behest, was to strengthen the finance function, resulting
in the ascendancy of accountants over engineers within British manufactur-
ing firms, and heavy reliance by international standards on financial controls
in their management. As mergers and acquisitions reached new peaks in each
successive boom, British top managers increasingly began to build their
careers by moving upwards, across rather than within, firms—a tendency
reinforced by the spread of the US business-school model of general man-
agement education beginning in the mid-1960s.15
With the abolition of exchange controls, deregulation of domestic capital
markets, and consolidation of share ownership in the hands of large insti-
tutional investors, the remaining pieces of the system were set in place by the
end of the 1980s. City institutions, whether British or foreign-owned, often
found themselves ‘locked in’ to investments in large, publicly quoted com-
panies, whose shares they could not sell off without moving the price against
them. Since fund managers employed by institutional investors were them-
selves benchmarked quarterly against their competitors and the overall share
14
For incisive analyses of the rules of the City investment game from the perspective of an
academically trained practitioner with wide experience of different roles and sectors, and a
prominent financial journalist and corporate governance reform advocate, respectively, see Golding
(2001) and Plender (2003).
15
For overviews of the shifting relationship between British industrial firms and City financial
institutions during the post-war period, see Golding (2001: ch. 1); Kynaston (1994–2001: vol. IV);
Wilson (1995: 181–204). On the linkage between stop–go macroeconomic management and
demand instability in post-war Britain, see Zeitlin (2000b, forthcoming). On the changing structure
of British industrial firms, the ascendancy within them of accountants and the finance function, the
diffusion of formal management education, and the evolution of management career patterns, see
Wilson (1995: 204–41); Matthews et al. (1998: esp. ch. 6); Larson (2003); Stewart et al. (1994);
Storey et al. (1997).
 Strategic Positions, Positional Strategies 175

index, with draconian consequences for any persistent shortfall, they became
increasingly aggressive in orchestrating the departure of top managers from
companies believed to be underperforming. By the 1990s, as authoritative
observers noted, public criticism of City ‘short-termism’ by British industri-
alists had effectively disappeared, largely because CEOs and finance directors
of quoted companies now shared the time-scales and priorities of the finan-
cial institutions themselves.16
As they maneuvered within the multi-level game of the MNC, APV’s top
managers thus found themselves facing a series of countervailing impera-
tives. First, they had to defend their individual positions against rival col-
leagues within the Lygon Place headquarters. Second, they had to meet
the short-term financial performance expectations of City institutions and
avoid hostile takeover by potential predators. Third, they had to orchestrate
cooperation among the group’s constituent units to compete successfully
with other MNCs operating in the same markets.
How to reconcile these countervailing imperatives was a genuinely diffi-
cult task which consistently bedeviled APV’s successive efforts at organiza-
tional restructuring. Real uncertainty, as we have seen, surrounded the
question of developing an appropriate organizational structure for an
MNC of this type which had expanded rapidly through mergers and acqui-
sitions rather than organic growth. Since it no longer seemed possible or
efficient to internalize all the activities involved in the design and construc-
tion of turnkey process engineering projects, which should be kept inside the
group and which sold off? And how should the remaining parts of the MNC
be coordinated? Consultancy projects and continuous restructuring of APV’s
organizational chart represented a genuine attempt to resolve these problems
on the one hand, but also a political football in the internecine power
struggle within the MNC headquarters on the other. Perhaps the clearest
example was the reorganization which followed the purge of the Product
Business divisional director in January 1997: as we saw in Chapter 6, this
tortuous exercise appeared to follow a political logic of redistribution of
power among persons within the executive board rather than an organiza-
tional logic of redistribution of functional responsibilities for improved
coordination.
This politicization of APV’s organizational restructuring was merely one
symptom of a deeper problem: namely that top managers’ preoccupation
with local games within the MNC headquarters and the surrounding finan-
cial district inhibited them from developing the intimate knowledge and

16
For the anatomy of these developments and their perverse effects on investment decisions and
performance, see Golding (2001) and Plender (2003).
176 A Global Game Enacted by Local Players

collaborative relationships needed to coordinate the subsidiaries more effect-

ively. Rather than allocating standard pumps to Horsens and standard valves
to Unna, for example, it would have been possible to allocate standardized
production of both pumps and valves to Unna, while reserving Horsens’s
more flexible capacity for customized products and development projects
with critical time schedules. Howard similarly could have played an import-
ant role in expanding the group’s access to markets outside its current reach.
Had the plant been able to attract a continuing flow of employees from the
other pump producers in the district, it would have been able to draw on
their tight relations with existing customers. But without corporate support
for measures aimed at employee retention, Howard continued instead to lose
ground to its local competitors, as it had been doing since the first hostile
spin-off in the late 1950s. In the case of Lake Mills, too, a better-informed top
management, concerned to build on local strengths for broader corporate
objectives, could have focused the plant on quick turnaround service parts
for domestic customers and for the development of new models or product
variants to meet US technical standards; it might also have used the custo-
mization capabilities of the tank shop as a front-office mechanism for
marketing other related APV equipment. Finally, had APV’s headquarters
been serious about turning Lake Mills into a global business park, it could
have encouraged a spin-off of the ice-cream equipment business as an
independent venture, rather than allowing the plant’s strongest technological
capabilities to atrophy simply because they now fell outside the MNC’s
redefined core business.
Analyzing APV’s London headquarters within the same comparative
multi-level framework previously applied to the three subsidiary plants
thus yields a distinctive and rather surprising configuration of strategic
capabilities, as can be seen in Table 8.2.
In contrast to the other local players, especially Horsens, Lygon Place was
able to establish collaborative relations with other external actors in the local
environment, but not within the site nor with other units within the MNC.
This configuration seems inherently unstable, since top managers’ mainten-
ance of positive relations with other external actors in the local financial
district was dependent on the group’s ability to meet the expected perform-
ance targets, which in turn required, at least in the longer term, the establish-
ment of effective collaboration not only within the headquarters itself but
especially with other units within the wider MNC. Persistent failure to meet
performance expectations would thus lead to a loss of confidence and
withdrawal of support for corporate management by the financial commu-
nity, which no internal power games or scapegoating could counteract. And
this is, in fact, precisely what happened to APV following the dismissal of the
 Strategic Positions, Positional Strategies 177
Table 8.2. Strategic Capabilities of Local Players: A Comparative
Multi-level Analysis
Site Capacity for collaborative action
Within the site Within the local economy Within the MNC
Horsens þ þ þ
Lake Mills þ


Howard þ=

þ
Innovative foreign þ þ

subsidiary (Sölvell
and Zander, 1998)
Lygon Place
þ

Product Business director and its final organizational restructuring in the

spring of 1997, leading to the success of Siebe’s renewed takeover bid a few
months later.
This analysis of Lygon Place stands in stark contrast to the widely held
view in the literature that one of MNCs’ major advantages is the gradual
creation of administrative routines and heritages, which constitute the very
ownership advantages that make the multinationalization process cumula-
tive in character (see Chapter 1). Thus our findings appear highly enigmatic
compared to such theoretical expectations.
But there is a perfectly rational explanation of the fact that Lygon Place
directed its energies primarily towards the City investment game. As Golding
(2001) and Plender (2003) show, fund managers imitate each other in the
portfolios they build up, in order to avoid the risk of underperforming stock
market indices and other relative performance benchmarks set by their
internal or external employers. This is essential to survive the next contract
negotiations. The result is that the demand for and price of those equities
which form key components of the London and New York stock market
indices becomes disproportionately high. For companies to be included in
fund managers’ portfolios thus raises their share price and reduces the cost of
capital, whether in the form of new rights issues, corporate bonds, bank
loans, or commercial paper. But it is far from easy to enter or remain on this
elite list. The company’s shares have to be highly liquid and available in
sufficiently large volumes that they can be bought and sold without affecting
their price. So to be included in the stock market index, a company must be
large enough to match the others on the list. And to stay there, a corporation
178 A Global Game Enacted by Local Players

must also grow at a pace equal to that of other listed firms and also of the
rising stars which are constantly trying to displace it. Either way, mergers and
acquisitions are the name of the game. Conversely, companies whose share
price is falling become obvious targets for hostile takeovers by other firms
seeking to break into the charmed circle. Thus compared to the earlier
theoretical rationalizations for the growth of MNCs discussed in Chapter
1, this ‘institutional equity nexus’ now carries greater explanatory weight.
Hence it becomes understandable why the City investment game absorbed so
much of APV’s top managers’ attention.

6. Narratives of Power and the Power of Narratives: Games,

Players, and Strategies

In this chapter, we have provided an overview of strategic positions and

positional strategies among the local players in the global game of APV as an
MNC. Participants were clearly entangled in sets of games at multiple levels
that increasingly influenced their moves, plans, and perspectives. Interest-
ingly, the aggregate or ‘master’ narrative—the dominant interpretation
shared by almost all players within APV—was to characterize the interactions
among subsidiaries and headquarters as ‘warfare’ or a ‘war game’. Such a
master narrative does not emerge simply from past actions and interactions,
nor from the structure of the interdependencies among the participants. In
many instances, it would have been perfectly possible to narrate particular
actions otherwise and thereby ‘sideshadow’ towards a ‘world of possibilities’
(Morson 1994; Bernstein 1994; Sabel and Zeitlin 1997).17 Even the opposite
‘collaborative’ narrative would have been possible. In the case of APV, the
warfare narrative became dominant because the HQ gradually lost those
executives who were able to create an alternative master narrative of collabor-
ation from the specific local narratives of its subsidiaries. By playing the local
game of the City cooperatively, the London HQ transformed its executives
into ‘scapegoats’ and thus lost those players who could indeed narrate
alternatively, configuring instead a reciprocal Machiavellian game. With

17
‘Sideshadowing’, a term coined by literary theorists Gary Saul Morson (1994) and Michael
André Bernstein (1994), refers to narratives which represent historical events (whether real or
fictional) as the contingent outcome of a process of more or less deliberate choice among an open
(though not of course infinite) set of alternative possibilities, more than one of which might in fact
have been realized. ‘Foreshadowing’ and ‘backshadowing’ narratives, by contrast, abuse hindsight
to recount events as if their outcome were predetermined and could be used to judge the choices of
actors irrespective of what the latter could realistically have been expected to know at the time. For
an adaptation of Morson and Bernstein’s concepts to an historiographical context, see Zeitlin
(2000a, 2003).
 Strategic Positions, Positional Strategies 179

poorly developed mechanisms of communicative interaction with ‘others’ in

the subsidiaries and internal enmity within Lygon Place, warfare could easily
be writ large and used to extend the local perspective of the HQ to the master
narrative.18
Narratives, however, are addictive. They not only help make sense of a
situation, but also help constitute the situation itself: first, by characterizing
the game; second, by selecting the set of possible or rational moves for
various players; third, by orienting the players’ expectations of each others’
moves; and, finally, by shaping the moral standards according to which the
actors evaluate their own actions as good or bad. In short, the way in which a
game is narrated gives it identity and helps to stabilize its path. Narration
thus easily risks becoming self-reinforcing. It specifies ‘how the sequence of
experience is punctuated’ (to borrow an expression from Bateson 1972: 293)
and what type of ‘emplotment’ of events is imaginable. It ascribes the status
of heroes and winners to certain actors rather than to others.
In the game we witnessed, there seemed to be no self-corrective mechan-
ism that might have steered the players away from their mutually self-
destructive path as guided by the self-defeating master narrative. APV
followed this pattern of strategic interaction until the path ended when
City investors withdrew their support and endorsed the firm’s takeover by
Siebe, which leading analysts justified by reference to APV’s ‘incoherent
structure’ with ‘lots of businesses fighting each other’ (see Chapter 6). This
plotline in which APV became the victim of its own overarching narrative,
the reader may respond, should have been predicted and therefore corrected
by the HQ executives. Had they not imagined that such a denouement might
end their story? But of course they had. Fear and the risk of a ‘hostile
takeover’ were the primary motivations for continual attempts to reform
and restructure both the architecture of the organization and its operations.
To a certain extent, the role and powers of the HQ within APV themselves
depended on the permanent risk of external hostile takeovers and the
consequent need to sort out the mess created by internal warfare. Partly
motivated by the goal of restoring a unitary meaning and order to the MNC,
APV’s executives brought in one consultancy firm after another to provide
them with an ongoing stream of changing strategic plans. We could see this
use of external consultants as a serious effort to alter the way in which
18
Eero Vara (2002) has discussed the importance of narration in understanding post-merger
integration. Depending on whether a merger is narrated as a success or failure, this may lead to
overly optimistic or pessimistic views of what managers can do in such a post-merger situation.
While Vara’s study focuses on managers’ narration of post-merger situations, which as at Lygon
Place emphasize the allocation of blame to scapegoats and praise to heroes, he neglects employee
and subsidiary narratives, which in our case seem to have played a more active role in ‘sense-
making’ within the corporation.
180 A Global Game Enacted by Local Players

experience was punctuated within the MNC from the logic of internal
warfare to the discourse of modern, global corporate strategies. But
according to their own indigenous narrative, the consultants struggled in
vain, since the subsidiary managers were stuck in a local perspective and
continued to pursue their own parochial interests rather than the common
global vision. Ironically, the consultants thereby reinforced the warfare
narrative within APV and thus the internal roles and self-narrative of
the HQ executives. The latter’s own collective power rested precisely with
these failed restructuring attempts and their active narrative through which
the situation of the MNC became increasingly defined as us (the HQ) against
them (the subsidiaries).
However, these restructuring plans also reinforced the feeling of mutual
warfare between the subsidiaries themselves and of arbitrary decision-making
by the HQ. For instance within the local narrative of Lake Mills, the develop-
ment of the prize-winning new ice-cream freezer was a major victory, and the
Wisconsinites hardly understood that such an achievement represented in-
stead a mistaken investment in ‘non-core business’ in the discourse of the new
HQ strategy. In the eyes of Lake Mills, the HQ had thus declared war. Probably,
it came as just as big a surprise to Horsens that their hidden subversive strategy
when revealed made them the new manufacturing heroes, because the same
discourse was now favoring ‘lean production’. When managerial discourses
and subsidiary narratives only occasionally intersect, as in these situations, they
might collide and render some players in the power game of the MNC power-
less. In other cases, however, narration and discourse may suddenly comple-
ment one another and lead to a quantum leap in power for certain players.
Thus the corrective measures taken by the HQ were fully in line with the
best professional advice of the day on how to improve the management of
global engineering firms. Yet far from correcting the situation, these mea-
sures instead reinforced the dominant narrative of internal warfare. But the
‘emplotment’ of the firm’s story as a tale of external takeover due to internal
warfare did not lead to an unhappy ending for the HQ’s executives. Their
track record was not considered bad in terms of managerial initiatives. What
was ‘rotten’ in the APV narrative, as interpreted by the financial press, was
the state of internal warfare within the company with which its top managers
had to contend. After the Siebe takeover, many of APV’s executives could
therefore continue to work in high-level positions either there or at other
London HQs.19
19
Insofar as APV’s top managers may have ‘blotted their copybooks’ in the eyes of the City, it
was by voting themselves a generous incentive package based on the group’s future share value the
day before Siebe’s offer was announced, a move which was reported to have left ‘a very sour taste in
the mouth’ of institutional investors. See Ch. 6 above.
 Strategic Positions, Positional Strategies 181

In interpreting the APV story, it is indeed paradoxical that all the partici-
pants seemed to agree in their assessment of the firm’s predicament and its
possible outcome in the form of a hostile takeover. Hence it is all the more
intriguing that no one tried to transform the situation by taking on a new
role. From the perspective of symbolic interactionism, the great social-
psychological branch of American pragmatism (Mead 1967/1934, 1956;
Blumer 1969; Joas 1997/1985, 1993), we might expect actors in such a
situation to have mutually aligned their behavior in a stabilized if self-
destructive pattern by taking on the role of others within the ‘warfare’ master
narrative, since they lacked access to the local narratives of the other players.
This may help to explain why there was no further ‘stimulus’ in the situation
for these actors to ‘take an ‘‘I’’ against ‘‘me’’ ’ through self-reflection that
could lead to the adoption of a changed role. On the other hand, it remains
nonetheless enigmatic why none of the players was motivated to engage in
such self-reflection and role-changing, given the ubiquitous tensions
throughout APV (except perhaps the HQ) between the corporation’s gener-
alized master narrative and the various local narratives.
From a symbolic interactionist standpoint, it is this possibility of internal
tensions and self-reflection even within seemingly stabilized behavioral roles
that allows situations to be seen as, and thereby become, open and experi-
mental, while it is through the sequence of mutually defining and corrective
role-taking that ‘normal’ behavior is renegotiated and redefined. From this
perspective, the entire social process takes on an experimental character in
which the community of role-takers and their interaction can both stabilize
and destabilize situations. New developments may emerge simply because
the existing situation changes, but a situation may also be transformed by the
fact that certain individuals, by reflecting on their role or ‘taking an ‘‘I’’
against ‘‘me’’ ’, change their relationship to other role-takers and in so doing
initiate a chain reaction of mutual role redefinition, by which the partici-
pants become ‘new’ objects to themselves and others.20
Within APV, it appears as if the narratives that characterized the game,
ascribed players a role, and defined a plot, had a poisonous effect on the
experimental nature of situations and self-reflection about role-taking. First,
because achieved or ascribed roles were carried over into the next situation,
the latter in turn were already narrated into a given past (backshadowing)
20
In contrast to atomistic perspectives that see individuals as naturally self-seeking, symbolic
interactionism offers an account of the development of the self in which persons only become
objects to themselves—i.e. individual ‘me’s—through a process of socialization whereby they take
on the role of others to define their own (see for example Mead 1956: 349, or Blumer 1969: 2). In
this chapter we have followed a similar approach to the constitution of positional strategies, which
have been presented as emerging from the way that individual actors and groups ‘read’ the strategies
of other actors and groups in their own context.
182 A Global Game Enacted by Local Players

and projected towards a predetermined future (foreshadowing), whereby it

was easy to ignore or misinterpret individual perturbations of the established
pattern of interaction. Actors might have evoked potentially novel situations
by revising their own roles, but other role-takers might easily interpret this as
just another move in the ongoing war game. Thus the taking of ‘I’s against
‘me’s may have occurred in vain. This mechanism, of course, is part of the
explanation of how situations can become stabilized into a sequence by
which a game is played out in a predictable way. But the second reason for
this poisonous effect is possibly even more interesting. If narratives attribute
unpleasant characteristics to a game, they define ‘situations’ by inducing
people in predefined roles to try to avoid such encounters, and instead make
the participants imagine what might happen if they were actually to occur.
Thus role-takers seek to avoid meeting each other face-to-face, and no
corrective role-taking is possible to redefine the situation. In this way narra-
tives may eventually gain weight as much from imagined as from actual
encounters.
These two poisonous effects were mutually reinforcing at many levels
within APV, in such a way that misunderstandings increased, the properties
of the game became reified, and a structure of power positions emerged. The
phenomenon of narratives structuring power positions and behavioral pat-
terns can be observed at both local and central levels within the MNC.
The narrative of the Lake Mills plant focused on creating an ‘us’, in which
participants imagined each other’s roles in such a seamlessly comprehensive
way that the coherence of the community depended on the coherence of the
plant—and vice versa. The plant’s internal labor market was wide open
for advancement—either through seniority or through training—but the
regional, external labor market was rather closed. Either you were part of
the company and the community or you had to leave both. There was no
wider local system of job mobility that could make contacts to other firms
emerge gradually, and ‘farming out’ work to other companies—if not an
unavoidable expedient—was seen as betraying the internal balance between
blue-and white-collar positions. In the same manner, there were no active
attempts to explore an alternative possible story within which Lake Mills
could get something from other parts of APV in exchange for providing new
services for the MNC as a whole. Interactions with the external world were
narrated in such a way as to reinforce the path of an isolated vertically
integrated company, and few people at Lake Mills sought to engage in
situations that contested this self-narrative.
The narrative of the Eastbourne plant focused on former employees who
defected, imitated the plant’s products, and became competitors. The div-
ision between ‘us’ and ‘them’ ran partly through the plant itself, as the
 Strategic Positions, Positional Strategies 183

technical staff regarded players from other departments as potential traitors.

Competitors were believed by nature to be inclined to steal the plant’s ideas
and for that reason, suspicion should guide any interaction with rivals or
suppliers. Consequently, internal and external interaction became very
limited, being seen as subversive yet continuously going on because by its
very nature it had to be concealed. Interestingly the town’s mobile labor
market was not characterized as open or flexible, but rather as ‘incestuous’.
This narrative allowed the technical department to collaborate quite con-
structively with other units of the MNC, but even the most generous and
intensive collaboration nonetheless became coded negatively as a foreign
‘conquest’.
Both Lake Mills and Eastbourne seem to have become victims in terms of
power and position within the MNC by the way in which they narrated the
behavior of actors in their local context and/or within their internal organ-
ization. The way in which local actors took on the role of others meant that
their narratives could not open up the possibility of alternative forms of
interaction and allow them to imagine a variety of possible plots for their
story. ‘Stay the same or lose’ seemed to be the message of the longue durée in
these plants, and any action that broke with that golden rule would only serve
to end the story.
At Horsens, the self-narrative was both more unifying and more surpris-
ing. Whether it was because as a firm and as a labor market Horsens was
‘forced’ to interact much more with its surroundings, since its people moved
about more frequently and had their role-taking towards others continually
contested, or whether it was because Horsens’s narrative focused on the
reputation ascribed by others to the firm and its members is difficult to
determine. In any case the firm’s long history went through a dramatic
sequence of ‘novel situations’ where its members had to change their under-
standing of both themselves and others. The division between ‘us’ and ‘them’
became a motive for engaging in interaction and mutual communication,
through which the firm’s horizon was continually changed, forcing partici-
pants to redefine the game in which they were engaged and to reflect on
whether their reading of it was necessarily the right one. In Horsens it was
possible to engage in ‘sideshadowing’ and think of oneself and others as a
‘world of possibilities’, in which roles may shift when the actors get to know
each other better. By institutionalizing first the Danish and then the Euro-
pean Forum, the Horsens convener and managing director did in fact try to
create new mechanisms for producing alternative narratives. But the many
benefits Horsens gained from altering its definition of others probably made
it all the easier for others to see the plant as the worst of the corporation’s
warlords.
184 A Global Game Enacted by Local Players

If this mode of narration did the job for Horsens, the HQ should also have
looked for a way of changing its self-narrative as an MNC. But this was not
easily done, with executives coming and going, and, because of the nature of
the game itself, acquiring too little knowledge of the MNC as a whole to be
able to author convincing versions of a shared master narrative. The alterna-
tive would have been to orchestrate an intensive set of communicative
encounters and interactive situations among the MNC’s constituent players,
which could have challenged their prejudices about one other and eventually
forced them to discover alternative possibilities of mutual role-taking. But
such a process might easily have risked empowering APV as a collectivity in
the eyes of its shareholders and its subsidiaries alike, while destabilizing the
volatile power game among the executives at the HQ. Since one of the key
functions of the executive in any corporation, as we shall see in the next part
of this book, is to orchestrate the firm’s master narrative, such a process of
mutual interaction would probably have had to be evoked from outside the
HQ and directed against its existing top managers, who legitimated their
interventions by the existing war-game story.
 Part III
Managerial Challenges and Human
Promises of Globalization
This page intentionally left blank
 Chapter 8
Managing the Multinational:
Administrative and Human Challenges

Our study of the making of a global firm and its constitution through
strategic interaction among subsidiaries and headquarters has revealed a
process in which these actors play roles that break with the received expect-
ations of how they should behave towards one another within an organiza-
tion. The most surprising finding is perhaps that the London HQ was able to
establish collaborative relations with other external actors in the local finan-
cial district, but was able neither to integrate itself effectively, nor to establish
collaborative relations with subsidiaries that would have enabled it to
orchestrate the process of unifying the MNC as such.
One possible reaction to the findings of our study is that they actually
confirm the received wisdom in the field. On this reading, APV was under-
mined by the incapacity of its HQ to do a proper job in controlling and
coordinating its subsidiaries so as to create a stable and rational division of
labor within the MNC whereby each could optimally exploit the comparative
advantages of its locality and cooperate with one another to reap possible
synergies. No wonder then that this MNC became the target of a hostile
takeover. Thus according to this line of reasoning, our study could be seen to
demonstrate precisely that the process of mergers and acquisitions basically
operates to impose the rationality of the market, through which the more
successful MNCs take over the less successful ones, to the benefit of share-
holders, (most) subsidiaries, and their various stakeholders. In this way our
story would become a textbook case of how some MNCs fail and lose their
independence to more efficient and powerful competitors with superior
ownership advantages, thereby advancing the international economy’s pro-
gress towards globalization.
This view of the London headquarters is admittedly not far from one
which we initially shared with certain observers in APV’s subsidiaries. But as
we gradually began to understand the complexities and ambiguities involved
in managing even a comparatively small MNC like APV, we came to adopt a
humbler perspective. This part of our book seeks to develop this humbler
188 Challenges and Promises of Globalization

perspective into a theoretical approach that can reframe the managerial

problems of globalization and sketch out a way of reconstituting the function
of executives in a global setting. In developing this approach, we will be
seeking answers to a number of fundamental questions about the challenges
involved in managing contemporary MNCs. How is it possible to civilize the
reciprocal game among the players within an MNC? How can a headquarters
establish a legitimate role for itself in relation to the other constituent parts of
the MNC? In what sense might it be possible to think of an MNC as unifying
itself ?
As we have seen in earlier chapters, subsidiaries from different locations
differ considerably in how they play their cards in the reciprocal game within
the MNC. Some observers may consider the very fact that such games are
being played as the problem, believing that managers’ primary task is to
reduce such ‘opportunism’ and ‘shirking’ to the lowest possible level.
According to Williamson (1975, 1986), finding effective means to reduce
opportunism, shirking, and free riding is exactly what led firms to seek out
and adopt new organizational forms such as vertical integration and multi-
divisionalization. But applying the prescriptions of the standard strategy–
structure–performance literature to MNCs is far from easy. There is wide
agreement in the organizational and managerial literature that MNCs face a
huge structural dilemma: ‘On the one hand, you need to co-ordinate over
product lines, on the other over geographical territories’ (Bartlett et al. 1990:
19). The difficulties encountered by APV’s HQ in developing an appropriate
corporate structure are thus illustrative of the deeper problem of organizing
across national and product divides, which creates a rich array of internal
contradictions and paradoxes, as discussed in Chapter 1.
But should the HQ necessarily try to eliminate the reciprocal strategic
game among subsidiaries by developing a specific organizational structure
capable of controlling and coordinating such internal competition? It is
apparent from our analysis in previous chapters that under pressure from
internal rivalries, APV’s various subsidiaries were able to mobilize local
resources effectively in support of their struggle for social space to improve
their position within the MNC. This strategic game could thus be seen as an
unintended method for the HQ to intensify exploitation and exploration of
given foreign social territories by playing off its subsidiaries against one
other; and it seems as if the more advanced this game becomes, the better
the potential long-term outcome for the MNC as a whole. Horsens, for
example, was exploiting and exploring the advantages of Denmark as a
production location more efficiently than the headquarters could plan or
imagine, in no small measure due to its own offensive strategy of self-defense
against the proposed reduction of the plant’s product mandate by its German
 Managing the Multinational 189

controllers. But in pursuing this strategy, the subsidiary invented new com-
parative advantages that enabled the MNC as such to undertake turnkey
projects in a smarter way. In a similar manner, the Lake Mills plant developed
a prize-winning new ice-cream freezer in record time by creating a cross-
functional product team of engineers and blue-collar workers, while East-
bourne initiated a state-subsidized development project for a new worldwide
generation of rotary lobe pumps.
In each of these cases, the actors responded to the challenges of life within
the MNC by mobilizing local resources in continuation of a pattern of
strategic behavior that had gradually evolved in the past. Thus it could be
said that APV did not fail to stimulate the particular abilities of each
subsidiary to solve problems, initiate search processes, and improve its
performance in relation to its own internal and external points of reference.
Even the strategic actions of the HQ can be seen in this light as an expression
of its own distinctive path and context-dependent behavior pattern. Having
established itself through mergers and acquisitions among formerly compet-
ing firms, it is difficult to imagine that the HQ could indeed overcome the
mutual rivalries and tensions among subsidiaries within a short period after
their inclusion into the MNC. Such a transformation would be all the more
difficult because each of the players involved might interpret the behavior of
other actors as opportunistic, rent-seeking, shirking, or free-riding, while
considering their own actions as the most rational way of managing the
situation facing them. Thus if asked to change their ways, each player could
be expected to revolt openly or secretly, since in their eyes they were being
asked to act against their own best knowledge and experience, thus damaging
both themselves and the wider interests of the MNC.

1. Modern Multinationals: Integrated Networks or Warring Fiefdoms?

From another perspective, APV could be said to have inherited the very
mutual competition which more centrally coordinated MNCs are said to
have initiated and sought to institutionalize since the first oil crisis of the
1970s. The academic debate on how MNCs should be managed has changed
significantly over the past two decades, during which the market and internal
competition have come to play predominant roles. Terms such as ‘integrated
network’ (Bartlett and Ghoshal 1989), ‘differentiated network’ (Nohria and
Ghoshal 1997), ‘heterarchy’ (Hedlund 1986), ‘multi-focus firm’ (Prahalad
and Doz 1987), and ‘multi-center firm’ (Forsgren 1990) all signal the fact that
the relations among MNC units have been undergoing radical changes not
captured by conventional hierarchical conceptions of the organization. In the
190 Challenges and Promises of Globalization

remainder of this chapter we compare our observations with a number of

studies of MNCs that have emerged from this recent turn in the literature.
Our purpose in so doing is twofold: first, to situate our findings in a wider
empirical landscape, and second, to assess their generalizability.
Whether this new turn in the literature is due to the fact that the academic
community has only recently begun to study MNCs in sufficient empirical
detail or to the fact that major changes have indeed taken place within such
firms themselves is impossible to say. But many observers believe that they
reflect important changes within the objects of study themselves. According
to Bartlett and Ghoshal (1989), intensified competition and global restruc-
turing challenged MNCs in the 1980s to such an extent that their traditional
forms of organization proved inappropriate and unable to cope effectively.
The decentralized federation of the classic European MNC, which had
advantages in responding to national differences, was unable to capture
global economies of scale and other necessary cost-reduction advantages;
the centrally coordinated American and Japanese international and
global corporations had advantages in cost efficiency and knowledge transfer
from their home bases but were unable to respond to and learn from
local circumstances sufficiently. All three forms had simultaneously to cope
with ‘global efficiency, multinational flexibility, and worldwide learning’
to stay competitive in the new global climate (Bartlett and Ghoshal
1989: 137).
In this situation, worldwide companies from all developed regions simul-
taneously faced crises in the coordinating principles derived from their
‘administrative heritage’. The Americans, relying on formalization and stand-
ardization, were unable to cope with the growing need for flexibility in host-
country markets. The Japanese saw their centralization breaking apart due to
the overload of information and decisions at HQ as they expanded overseas.
At the same time, the Europeans were facing huge costs in trying to adapt
their traditional methods of international coordination through socialization
of key managers to a world of rapid growth through mergers and acquisi-
tions. Thus, none of the coordination methods for worldwide corporations
that had evolved from different traditions in Europe, the US, and Japan was
able to cope effectively with the new circumstances in which the corporations
found themselves.
It is in this context that HQs are said to have deliberately introduced the
governance principle of the ‘invisible hand’ of the market inside the MNC
itself, a method advocated by Bartlett and Ghoshal as a low-cost mechanism
requiring less direct management supervision. On top of this ‘self-regulating’
coordination through internal markets, Bartlett and Ghoshal think that a
differentiated portfolio of coordination tools should be directed towards
 Managing the Multinational 191

each individual subsidiary, depending on its assigned role as ‘an imple-

menter, a contributor, a black hole or a strategic leader’. To support this
diversity of subsidiary roles and coordination methods, the HQ should also
control the allocation of capital, both human and financial. It is also note-
worthy that the strategic roles that subsidiaries can play depend in this view
on the host market in which they operate, rather than on the capacity of the
host environment to provide resources for their entrepreneurial develop-
ment (Bartlett and Ghoshal 1989: 105–13, 166–73).
But Bartlett and Ghoshal also argue that a successful HQ must be able to
strike balances and make countermoves in response to the continuous
process of immanent, ongoing change in the relationship between the
MNC and its environment. They illustrate this point with reference to the
case of the Swedish telecommunications company Ericsson:
Maintaining a balance among business, geographic, and functional management
capabilities is a continuing challenge for the transnational company. . . . Ericsson’s
organization has never allowed one organizational perspective to dominate and
others to atrophy. Management has not hesitated to adapt its organizational pro-
cesses and management structures to respond to environmental change. But rather
than search for an idealized, static concept of organizational fit, Ericsson has
pragmatically accepted that ambiguity, overlap, and change in management respon-
sibilities are inevitable. The resulting organizational diversity and flux generates
internal tensions and management conflicts, and Ericsson and other companies
that have been successful in maintaining diversity have found various means to
resolve the differences that arise. . . . [W]hen its overseas units became too independ-
ent, it increased headquarters’ control; and when product divisions seemed too
parochial or short term oriented, it built up the role of the functional groups. Rather
than search for unidimensional strategy-structure fit, Ericsson management has
historically focused on environment-organization flexibility. . . . Indeed, the com-
pany seemed almost to encourage a degree of misfit, to create dynamic tension in
the organization . . . [which] seemed to encourage an entrepreneurial spirit in the
units. (Bartlett and Ghoshal 1989: 152, 154)
Bartlett and Ghoshal’s ideal of an ‘integrated network’ or a ‘transnational
solution’ is far from being a stable structure marked by clear divisions of
labor, lines of authority, and hierarchical levels. First, the volatile definition
of roles may cause problems: ‘Instead of encouraging innovative flexibility,
ambiguous roles and overlapping responsibilities could lead to anarchy,
yielding unproductive conflict rather than creative tension’ (Bartlett and
Ghoshal 1989: 155). But the organizational devices suggested for escaping
from anarchy—task forces, project teams, and committees that can take
conflicts ‘off-line’—seem rather weak compared to the challenges that
MNCs face in their analysis. Second, the authors openly acknowledge the
192 Challenges and Promises of Globalization

limitations of the invisible hand of the market as a coordinating mechanism

within the MNC:
The risk was that if participants in the self-regulating system were not thoroughly
indoctrinated in broader organizational objectives, parochial attitudes or self-
serving behavior could turn the process negotiations into horse trading, which
produces acceptable compromises and trade-offs rather than shared commitments.
But if management can protect the process against such risks, the ‘invisible hand’
mechanisms can be powerful supplements to the managed tools we have described.
(Bartlett and Ghoshal 1989: 169)
Bartlett and Ghoshal’s study focuses primarily on the overarching organ-
izational structure and strategies of firms operating across national borders,
as seen from the managerial apexes of their HQs over the last three decades of
the twentieth century. Nonetheless, the experimental processes which they
observe among the ‘worldwide’ corporations in their study seem very similar
to the games played by the actors in ours. What they describe is a constant
search for new ways of doing things, and the resolution of some conflicts by
provoking others. When they speak of ambiguity, it is for good reason, since
none of the firms they investigated seemed to have found stable solutions,
and when they had done something ‘positive’ in one area, they had to balance
its negative side effects by countermoves in others. Thus we get a lively
picture of an endless stream of challenges experienced by managers populat-
ing the HQs of worldwide corporations.
Compared to Bartlett and Ghoshal, our study reveals similar experimental
processes, but we give much greater weight to how the subsidiaries perceive
the situation. And this change in perspective makes an important difference.
Certainly Bartlett and Ghoshal recognize the need to find differentiated ways
of dealing with subsidiaries as strategic needs change, and that balanced
responses may require subsidiaries to play different roles. But in focusing
on problems as experienced at the HQ, Bartlett and Ghoshal largely neglect
how this experimental process is experienced and may lead to an accumula-
tion of frustrations within the subsidiaries.
But their study puts ours in perspective. Many of the principles of how to
manage the transnational company that Bartlett and Ghoshal prescribe come
close to the reforms implemented by APV’s London HQ. So is there a specific
reason why these reforms did not seem to work in the firm we studied? As
Bartlett and Ghoshal frankly admit, the transnational company ‘risks deteri-
orating into organizational anarchy—or worse, an international network of
warring fiefdoms’. In their view, the basic protective device for escaping this
situation is to ensure that managers share common perceptions and behavior
based on an understanding of, and identification with, company purposes,
 Managing the Multinational 193

values, goals, and agendas: ‘Such a management mentality becomes the

‘‘global glue’’ that counterbalances the centrifugal forces of the transnational
structure and processes’. Creating such a mentality involves communicating
the company’s goals and slogans across borders through systematic proced-
ures for the recruitment, training, and career development of managers—in
short global human resource management (HRM)—through which the
latter are ‘co-opted’ into the transnational solution (Bartlett and Ghoshal
1989: 175 and ch. 10, passim; cf. also the new ch. 11 on ‘developing trans-
national managers’ added to the second, 1998 edition). Thus in comparing
Bartlett and Ghoshal’s concrete recommendations with what happened in
APV, one might think that the top managers at Lygon Place had simply
copied these authors’ program step-by-step. And yet the outcome in this
case was something much closer to ‘warring fiefdoms’ than an ‘integrated
network’.
What made the difference? Compared to the worldwide corporations that
Bartlett and Ghoshal studied, APV did not introduce these reforms into a
well-established organizational structure and shared administrative heritage,
whether of US formalization and standardization, Japanese centralization, or
European socialization. So when the HQ managers at APV introduced the
new managerial principles advocated by Bartlett and Ghoshal, these could
not be seen as an incremental reform of a pre-existing system. They repre-
sented instead a radical transformation of many distinct local systems, which
had very different effects in different parts of the MNC. Whereas other
worldwide corporations may experiment within a pre-existing structure of
subsidiaries well-known to the HQ, APV had to experiment with modifying
many different administrative heritages and forms of coordination of which
its top managers had little knowledge. In this respect our case might be
extreme, but today in many worldwide corporations, which grow primarily
through acquisitions and mergers, a similar state of warring fiefdoms may
easily emerge despite all the countermoves suggested by Bartlett and
Ghoshal.
Most of the worldwide corporations studied by Bartlett and Ghoshal had
been operating for many decades, gradually imposing their coordination
principles—whether based on socialization, centralization, or standardiza-
tion and formalization—on new establishments as they expanded. These
coordinating principles indicated that the game had rules, and at least
there was a system defining when rules were broken. With the situation in
the 1980s many worldwide corporations are reported to have felt a need to
modify and change these rules. If that is true, it is important that these
changes could be communicated effectively to the subsidiaries because they
occurred against a background of pre-existing structures and practices. In
194 Challenges and Promises of Globalization

this new situation, it would perhaps have been possible for some HQs to take
on the new role of actively attributing new roles to the subsidiaries, under-
pinned by control over the direction of capital flows, through which such
corporations are claimed to have become an ‘integrated network’. In other
words, a ‘new logic’ could be communicated because an ‘old logic’ existed
and could serve to define ‘difference’ and ‘sameness’.
Obviously, this situation was far from the case at APV. Through their own
initiatives, the subsidiaries engaged in a game in which each observed their
own indigenous rules and saw them violated by the other players, though the
latter too doubtless played their cards in accordance with their own rules.
Superimposed on this game, the HQ itself played a game of reforming
structures and rules, but how the many interactive processes taking place
within the MNC were integrated into a narrative depended entirely on the
position from which it was being told. Through that process, a distribution
of roles among the subsidiaries was gradually emerging, but as this could be
rationalized neither from an overarching central perspective, nor from that
of the various local perspectives, it did not serve to create a mutually accepted
division of labor among the subsidiaries.
It was through its own actions that Horsens captured a role in developing
the new generation of centrifugal pumps, Eastbourne the new rotary lobe
pump, and Lake Mills the new ice-cream freezer. It was through local action
that Horsens experimented with new, flexible ways of organizing work, and
Lake Mills the new ‘pay-for-knowledge’ system to reform its seniority rules.
That Horsens by this move won an extraordinary role as a ‘strategic leader’
whereas Lake Mills largely lost out to become an ‘implementer’ seems to have
been the result of selective attention on the part of the HQ rather than
informed decisions and foresight. As the Horsens manager was placed in
charge of the global Fluid Handling SBU, he was able to transfer lessons
learned in the Danish plant to other subsidiaries by assigning managers
whom he trusted personally to implement them. Thus though unplanned
by the HQ, APV in a strange conflictual way seemed to be moving towards a
heterarchy or integrated network. But this state was reached by resistance
rather than by design, and there was no agreed framework for defining the
pre-existing corporate order so that the players could recognize and evaluate
each other’s moves towards a new framework based on a new set of roles.
Such a ‘compromise’ may seem just as volatile as any intermediary move in
the process that led to this state.
Our study is not the first to emphasize subsidiary initiatives and
HQ–subsidiary relations. The changing image of the MNC has triggered
new interest first in the different roles played by subsidiaries, and then in the
relatively autonomous nature of their development: a literature which em-
 Managing the Multinational 195

phasizes the possibility for subsidiaries to capture new roles or mandates

partly through their own strategic actions (Birkinshaw and Hood 1998). Ed
Delany (1998: 242) in particular emphasizes that what the traditional parent-
centered literature sees as a distribution of roles from the corporate center,
the new subsidiary-centered literature views as a question of local ‘strategies’
and ‘strategic initiatives’, in which the ‘subversive strategists’ win out over the
‘boy scouts’ who ‘simply wait for orders from head office’, especially if the
former seek out actions that benefit both the subsidiary and the parent. From
this perspective, the parent does not distribute roles, but subsidiaries instead
win them, which is clearly much more in line with the process which our
study reveals. This entire process may be obscured if there is no pre-existing
order or framework of expectations within the MNC against which strategic
maneuvers can be interpreted by the other players. In that case, ‘warring
fiefdoms’ may be not merely a risk, but the most likely outcome.
Just as parent-centered MNC studies focus on the distribution of roles
among subsidiaries and the overall functioning of corporate organization,
but neglect how subsidiaries might experience such role allocation and
functioning, subsidiary-centered studies seldom analyze how the system as
a whole actually functions—or does not. The result is that a gap has emerged
within current discussions of MNC organization between empirical studies
of how subsidiaries behave on the one hand and the literature proposing
normative solutions or models of how these worldwide enterprises should
ideally function on the other—whether in the form of ‘integrated networks’,
‘heterarchies’, or ‘multi-centered/multi-focus firms’. Our study seems to
be located precisely in this gap, as it investigates both the implications
of the subsidiaries’ strategizing behavior for the larger corporate federation
on the one hand and the (mal)functioning of the integrated network/heter-
archy on the other. From our perspective, it becomes easy to see that the
MNC needs to create a role distribution to stabilize the processes of its
evolution, but that such a role distribution may easily become arbitrary—
and therefore destabilizing—in the subsidiaries’ eyes when it is engineered by
HQs that have little or no knowledge about what goes on in the latter.
This observation calls into question another of the normative foundations
of the ‘integrated network’ or ‘heterarchy’: its purported ability to organize
worldwide flows of local learning and innovations. In recent years, a growing
number of researchers have studied this issue. Examining German ‘vanguard’
subsidiaries in Britain and the ‘reverse diffusion’ of new practices to their
parent companies, Ferner and Varul (2000) found that this occurred in half
of the cases studied. These authors focused on HRM practices such as the
management of performance, careers, and ‘culture’, as well as Japanese-
influenced ‘lean production’ techniques based on inventory reduction,
196 Challenges and Promises of Globalization

continuous improvement, and teamworking. They found that reverse diffu-

sion of these practices from British subsidiaries to German parents occurred
more strongly in corporations with worldwide product markets rather than
in polycentric subsidiaries serving national markets. In most cases such
diffusion took place ‘casually as a result of informal information flows’
(Ferner and Varul 2000: 130), but they also came across a few examples of
more formalized transfer mechanisms proactively coordinated by the cor-
porate center, such as management audits of operations in different parts of
the world through which innovations in the periphery could be identified by
the central HQ; cross-national flows of personnel; and human resource
committees with representatives from many countries. In other cases, how-
ever, subsidiaries themselves had to take an active role in diffusing new ideas:
[S]ome of the case-study companies revealed an important lesson for subsidiary
management: in order to influence the centre, they had to understand and even
assimilate the management style and thought processes of the German company. It
was almost as if the subsidiary had to ‘Germanize’ itself before it could ‘Anglo-
Saxonize’ the parent. One way this was achieved was through individuals who had an
intimate knowledge of how the centre worked, perhaps because they were German
themselves, or had spent time there. This allowed them to innovate successfully
without falling foul of the micropolitics of the subsidiary-HQ relationship. (Ferner
and Varul 2000: 135)
In other words, subsidiaries must learn ‘how to play the game’ of the HQ if
they want to influence and inform their corporate parent. Furthermore,
according to Edwards (1998; cf. also Ferner and Varul 2000: 133), this
‘vanguard’ role is more likely to be played by larger, brownfield subsidiaries
than small greenfield plants, suggesting that it takes experience and power for
a subsidiary to succeed in imposing on HQs the processes of the ‘integrated
network’ or ‘heterarchy’. The organization does not spontaneously function
in that way, but may be induced to do so by local action.
In a recent study Tony Edwards (2000) comes almost to the opposite
conclusion. Like Ferner and Varul, Edwards also looked for reverse diffusion
from subsidiary to parent in ten British-owned plants. He divided the
MNCs in his study into four categories: (1) small conglomerates (structured
around national subsidiaries with little integration across borders); (2) small
single-product MNCs (with a moderate degree of production integration);
(3) medium and large related-product MNCs (possessing a matrix structure
and moderate production integration within each division); and (4) globally
integrated firms (with highly integrated production within divisions). In
neither of the first two categories did he find examples of reverse diffusion.
Even more surprisingly, reverse diffusion was hardly visible in the third
 Managing the Multinational 197

category either. Only in the two MNCs which fell into the fourth category
were there clear signs of reverse diffusion. Edwards uses these findings to
dispute how widespread in practice are transnational heterarchies or integ-
rated networks among MNCs. He believes reverse diffusion to be almost
unthinkable in young MNCs, as a lengthy process is required to build the ties
that allow for such integration, and in most cases (the only exception he
mentions is ABB) it also takes a centralized authority to get the job done. In
other words, in order for a heterarchy to function in practice as it is supposed
to in theory, must it be a hierarchy?
Measured against both Ferner and Varul’s and Edwards’ findings, APV,
though falling somewhere between the second and third categories of the
latter’s typology, seems to demonstrate an abundance of cross-border learn-
ing and reverse diffusion. In this light, our case could be understood as one in
which global integration and cross-border diffusion of innovations and
practices has been very successful, rather than being interpreted as a case of
confused experimentation. But insofar as APV was successful in this regard,
it was obviously because the local players carried their local learning to other
localities and involved them willingly or reluctantly in their own experi-
ments. The central HQ in London, by contrast, was basically cut off both
from this process of experimentation and from the communication of its
results. What emerges, however, from our case as well as from these studies
on reverse diffusion is the fact that MNCs only rarely seem to have built up
formal systems capable of tracking subsidiaries’ contributions to company-
wide learning, process improvement, and product development. Mechan-
isms seem to be lacking through which different organizational units might
learn to recognize or to fear the creative contributions each actually makes
within the ongoing stream of reciprocal strategic interaction within the
MNC.
If this is true, then instead of engaging in an endless process of integrating
the MNC, HQs may be occupied instead in orchestrating the mutual rivalry
among its constituent subsidiaries, seeking thereby to diffuse centrally de-
veloped innovation and management concepts. This view emerges most
clearly from a number of studies conducted during the first half of the
1990s (Mueller and Purcell 1992; Mueller 1996; Martı́nez Lucio and Weston
1994). The core of the argument is that as a result of globalization and
especially the completion of the single European market, firms in industries
facing strong competitive pressure and high capital costs—notably automo-
bile manufacturers—are striving to integrate their operations along just-in-
time principles at a regional level as well as in individual plants. This
cross-border logistical integration makes such firms more vulnerable to
disruption through strikes. But it also enables central management to use
198 Challenges and Promises of Globalization

the threat of withholding future investment to discourage strike action,

ensure compliance with corporate policies, and put pressure on local bar-
gainers. In addition, ‘such ‘‘reward-and-punish tactics’’ can be backed up by
cross-border quality and productivity comparisons’ (Mueller and Purcell
1992: 20).
Primarily to increase capital utilization and machine running time, but
also to secure rapid diffusion of Japanese-style work organization, European
automobile manufacturers are reported to have pressured their subsidiaries
in different countries to compete with one another in concession bargaining
with local unions over flexible working practices through selective allocation
of new investments vital for plants’ current and future viability. In this case it
is the HQ that diffuses new practices from the center to the periphery in a
very forceful way, sweeping aside local regulations and constitutional order-
ings. Thus the concepts of ‘the invisible hand’ and internal competition
within the MNC are orchestrated and intelligently exploited by the central
HQ, which could be said to impose a centrally developed rationality on the
subsidiaries, who benefit if they abandon their local rationalities. In a subse-
quent article, Mueller (1996) sees the strategic negotiations involved in this
process as capable of securing both efficiency and commitment through a
contingent use of ‘fostering’ and ‘forcing’ tactics, thereby eliminating the
need for the normative integration and cultural cohesion postulated by
Hedlund’s model of heterarchy. To advance such a process HQs, rather
than seeking to understand their subsidiaries, have allowed themselves to
ignore their distinctiveness. As Mueller observes in relation to the automo-
bile industry:
[D]ependence upon local resources, need to gain local legitimacy, and reliance on
sales in local markets have not significantly changed. What has changed, however, is
MNCs’ increasing willingness to engage in ‘regime shopping’ irrespective of the
consequences for their legitimacy or even sales in certain national markets. This
heightened readiness may be due in part to the uncertainty surrounding the multi-
tude of factors influencing either of those variables. (Mueller 1996: 353)
Although we did not observe much competition for investment at APV,
primarily because few new projects were being authorized during a pro-
longed period of divestments and head-count reduction, it is nonetheless
obvious that HQ managers were not greatly concerned to ensure the legitim-
acy of their actions in the eyes of subsidiaries and host countries. Perhaps this
reflects a shift from a situation in which populations and governments were
skeptical towards foreign investments and takeovers towards one in which
states, regions, municipalities, and unions compete with one another to
attract such investments. Our case provides an extreme illustration of this
 Managing the Multinational 199

tendency, as it was the national business groups, including the unions, who
took the initiative in seeking to be acquired by the foreign MNC.
If this general diagnosis is correct, it may be the case that during the same
period when internationalization of business has intensified, favorable polit-
ical conjunctures have allowed central HQ managers to neglect or ignore the
more difficult managerial challenges of running an MNC. And this may also
explain the limitations of the managerial approaches reported in the litera-
ture. The research on both investment bargaining and reverse diffusion
observes that managers are mainly trying to diffuse certain ‘Anglo-Saxon’
adaptations of Japanese HRM and work organization practices, together with
various benchmarking and performance measurement procedures. Some
commentators such as Mueller (1996) see this process as leading to a new
wave of convergence in which established national patterns of work organiza-
tion and industrial relations are being destroyed. If this were true, one could
say that the consequence of this specific political conjuncture, which allows
MNC managers to ignore the diversity of the subsidiaries they are managing,
would ultimately be to destroy the foundations of that diversity itself.
But other recent studies of these issues are more careful in their empirical
observations and more nuanced in the conclusions they draw. Thus for
example Martı́nez Lucio and Weston (1994), who also studied the European
automobile industry, show that MNC HQs may strengthen unions and
works councils in host countries through the very process of investment
bargaining by giving local workforce representatives access to new types of
company information, thereby unintentionally triggering demands for fur-
ther information and participation rights, as well as the establishment of
‘loose organizational networking’ with their counterparts in other plants to
advance these goals. Management efforts to change working practices, these
authors report, not only ‘continued to confront the reality of externally and
historically constructed legacies of individual worker rights’ in countries like
Germany, Spain, and the UK, but through the responses they evoke from the
workforce and its representatives may even reinforce the distinctiveness of
national industrial relations systems (Martı́nez Lucio and Weston 1994: 120).
In a similar manner Ferner and Varul (2000: 137) are careful not to overesti-
mate the tendency towards convergence resulting from reverse diffusion:
[T]here is some evidence that the practices disseminated from vanguard subsidiaries
of German MNCs may become transmuted into elements within a managerial
repertoire that remains basically German. For example . . . components of the
Anglo-Saxon notion of business ‘culture’ are being adopted (sometimes enthusias-
tically) by German MNCs, but they are being assimilated in such a way as to change
their significance. . . . In other words, one may be witnessing a process of ‘Anglo-
Saxonization in the German manner’. . . rather than the radical weakening of the
200 Challenges and Promises of Globalization
German model . . . . To appropriate the terms of cultural anthropology, borrowed
elements may be regarded as objets trouvés, whose original purpose is transformed as
they are inserted into a preexisting set of structures and values. This is the business
equivalent of Levi-Strauss’s notion (1966) of ‘bricolage’—using ready-made elem-
ents to construct very different cultural artefacts.
Thus what emerges from these studies and from the contrasting positions
in the broader debate is a hazy if not altogether contradictory picture, but
also one in which few participants have felt the need to address the full
intensity of the challenges involved in managing diversity within global
firms. Thus at one extreme, MNCs can be seen as ‘warring fiefdoms’, while
at the opposite pole they appear highly centralized, able to provoke mutual
rivalry among subsidiaries and to discipline divergence into convergence. In
some MNCs, primarily of Anglo-Saxon origin, there has been a clear policy
of seeking to diffuse Japanese-inspired practices by ‘forcing’ and ‘fostering’
through investment and concession bargaining, i.e. a policy based on tech-
niques of domination. In others, primarily of continental European origin,
there has been a willingness to learn from subsidiaries’ experimentation with
new practices, or rather the subsidiaries have learned to strategize in such a
way as to impose on HQs practices they have discovered that might help to
improve the performance of the MNC as a whole. But in neither case do there
seem to have emerged structures or deliberate administrative processes that
could tame the interaction among the various parts of an MNC. Even the
more normative literature, when examined closely, seems to be easy to
dislodge from its idealized vision of smoothly functioning organizational
design into a social space of ‘warring fiefdoms’. Consequently, the pro-
cesses we encountered at APV seem not at all exceptional but rather
pretty well in line with the larger experimental setting in which MNCs have
sought to construct themselves as organizational actors over the past two
decades.

2. ABB: The Transnational Solution in Action?

In the absence of a robust intellectual template for organizing the socio-

political processes within MNCs, managers have often looked for inspiration
to companies which the business press has identified as especially excellent.
Jack Welch of General Electric and his ‘fix it or leave it’ recipe of retaining
only those businesses which could be ‘either number one or number two’ in
the world market for their product attracted a lot of admiration, and
probably caused many HQs to sell off products and subsidiaries, despite
 Managing the Multinational 201

the fact that Welch and GE actually spent many years developing businesses
that did not originally meet these criteria.1 Similarly the Swiss-Swedish
multinational Asea Brown Boveri was among the most widely admired
companies of the 1990s, and has often been considered one of the best living
examples of the integrated network or heterarchy. Thus as Bartlett and
Ghoshal (1998: 259) remark in the second edition of their book:
ABB . . . was putting in place many of the concepts we were describing in Managing
Across Borders at precisely the same time we were writing about them. Formed in
1998 through the merger of the $7 billion Swedish power equipment giant, Asea (a
truly international organization in our terminology) and its $6 billion Swiss-based
rival, Brown Boveri (an archetype of the multinational organization), ABB has
developed into a classic transnational organization.2
In one of the most careful and detailed studies available on any MNC,
Bélanger et al. (1999) paint a very different picture, focusing particularly on
ABB’s power transformers business. This Business Area (BA) was created
through a succession of mergers and acquisitions involving not only ASEA
and Brown Boveri but also Westinghouse, GE, and various local contenders.
This is an industry in which there used to be strong national linkages between
equipment suppliers and electrical utilities, who developed the technology in
close interaction. At a higher level, transformer manufacturers used to
collaborate through international cartel agreements, and in recent years
this business has experienced a rapid process of consolidation as ABB,
GEC/Alsthom, and Siemens enhanced their presence on the global scene.
With the gradual privatization and deregulation of electricity suppliers in
many countries, this business has undergone a dramatic change, resulting
among other things in declining demand for power transformers.
ABB may be seen as distinct within the family of MNCs insofar as it has
stuck to a matrix structure in which each subsidiary is connected to two lines
of authority, the national ABB managers and the international BA managers:
Jokingly, but only partly so, the BA managers are called the ‘bad guys’, looking for
results expressed in profits and physical performance, throughput times in particu-
lar. The BA managers are blamed for initiating downsizing and closedowns. The
national ABB managers, on the other hand, are called ‘the good guys’, taking
responsibility for local customers and their own employees and honored for
defending threatened workplaces. (Bélanger et al. 1999: 37)
1
In 1995, Welch was opposed by a group of middle managers who rejected his general policy and
convinced him through dialogue of the need to develop new businesses which would only achieve
these goals at a later date. According to Hansen (2001), a major share of GE’s 64% growth between
1996 and 2001 can be attributed to this policy shift.
2
Cf. also Bartlett and Ghoshal (1993); and Ruigrok et al. (2000), who term ABB a ‘network
multidivisional organization’.
202 Challenges and Promises of Globalization

In the Bélanger et al. study we learn primarily about the strategic interplay
between the BA and subsidiaries. Compared to our study of APV, the BA
managers were able to assume a very powerful and strategic role. This was no
doubt rooted in the fact that the subsidiaries were each forced to focus on
their own national market, whereas responsibility for the allocation of export
orders rested with the BA, which thus functioned like a powerful secretariat
for implementing international cartel agreements. In addition to this key
task, however, the BA also assumed the role of promoting a synthesis between
localized manufacture and global economies of scale. As a means of achiev-
ing this synthesis, it adopted American-inspired techniques, partly borrowed
from General Electric, Westinghouse, and Motorola. Despite possessing only
a small headquarters staff ‘with a handful of vice presidents and a secretary’,
the Power Transformers BA embarked on an ambitious set of worldwide
performance improvement initiatives: the Common Product Program, the
Lean Supply Program, the Six Sigma Total Quality Management Program,
the Model Factory Program, and the Customer Focus Program. Across these
programs ran a coherent philosophy of Time-Based Management, coupled
with a performance measurement system known as ‘Seven Ups’ (a fore-
runner of the Balanced Scorecard), which benchmarked each plant and
subsidiary according to return on capital employed, result margin, revenues,
failure rates, throughput times (both manufacturing and total), along with
other quality and efficiency indicators. In other words, the BA chose seven
measurement fields: quality, efficiency, production, supply management,
training, sigma rating, and customer satisfaction, while the metrics dealt
with total throughput time, test failure rate, Six Sigma value, training statis-
tics, etc. To administer this performance benchmarking process, the BA
operated a computerized reporting system, and subsidiaries paid a ‘tax’ to
the BA to cover the cost of running the centrally initiated programs (Bélanger
et al. 1999: 54–6, 251).
From Bélanger et al.’s account it becomes quite evident that this form of
program management in association with benchmarking provided the sub-
sidiaries with a common framework that created a comprehensive set of rules
for their reciprocal strategic game. Especially for plants coming from the
Westinghouse legacy of low investment, membership in ABB offered a
chance of catching up with the higher performance standards of the former
ASEA facilities, while the Seven Ups system gave them a chance to prove that
new investments combined with downsizing could improve their bench-
marking scores. Some managers used this system to put pressure on local
industrial relations, in accordance with the findings reported by Mueller
(1996) and Mueller and Purcell (1992). But interestingly enough, certain
subsidiaries, able to earn high profits due either to especially favorable local
 Managing the Multinational 203

customer relations (one plant in Canada and the plant in Australia) or to

technological superiority (the old ASEA core plant in Ludvika, Sweden) were
reluctant to participate in the general game, and only started to participate
when performance at some of the former laggards started to outpace their
own benchmarks. And this system also gave another plant (Vaasa in Finland)
the opportunity to move from a peripheral role to become the template-
maker for an entire new program, the ‘Model Factory’, for the BA as a whole,
and as in the case of Horsens to take on broader international responsibilities
(initiating and managing a new plant in Vietnam).
When comparing our study with that of Bélanger et al., there is a striking
contrast in the BA’s effectiveness in implementing its plans on the ground,
which in the case of APV often remained little more than blueprints confined
to its London HQ. Part of the explanation is no doubt that ABB’s Power
Transformers BA had much more efficient sanctions available to punish
disobedience:
BA headquarters has two potent means of correcting unsatisfactory plant perform-
ance, namely, export allocation and management promotion, notwithstanding the
matrix. Export allocation carries a lot of weight. If no exports are given, it might
mean the end of a plant. A good reason for allocating export orders according to the
BA management would be superior plant performance in general, especially swift-
ness and on-time delivery record. When a plant is performing below the norm and
expectations, the allocation is normally withheld. The local plant has to get its house
in order before it gets orders. Exports are not used as a way out of local crises.
Management promotion is a riskier way of influencing plant performance. There is a
considerable turnover of plant managers, especially in important and consequently
‘hot’ positions. Ludvika has, for example, seen seven plant managers during fifteen
years without dramatic improvement in performance . . . . The very successful plant
manager of Vaasa was in that position for eight years but is now in charge of the
Hanoi venture. (Bélanger et al. 1999: 58–9)
In Bartlett and Ghoshal’s (1989, 1998) own terms, ABB’s Power Transmis-
sion BA may thus be said to have changed a multinational federation into an
international or global rather than a transnational organization. Adopting
American-influenced variants of Japanese management practices led to
standardization and formalization of the subsidiaries’ operations rather
than to attempts to identify a differentiated set of roles for them to play
towards one other in the international game. The major achievement was to
furnish many national markets with modernized, world-class plants that
could each cater for their domestic customers in a competitive way. But as
most of these national markets have declined or stagnated following privat-
ization and deregulation, ABB seems to have created a highly efficient and
standardized system of plants that could deal in a similar way with a rapidly
204 Challenges and Promises of Globalization

declining market. For each of the plants involved, the situation looks increas-
ingly difficult, because today more than ever export markets are held by well-
performing plants. Especially for the former ASEA plant in Bad Honnef,
Germany, Rainer Schutz-Wild (1999) paints a picture where there was no
obvious way out. The Ludvika plant, which hardly conformed to the
BA’s policy and tried instead to take the technological lead in developing a
new type of power transformer, seemed to have much better options.
And the Vaasa plant, by outperforming all others in benchmarking rivalry,
put a small player in a very favorable situation. But as the modernization
of laggard plants came to an end and most survivors were performing
fairly well, the business of allocating exports was becoming less and less
important, which also means that the BA’s position was becoming weaker.
Thus by the end of Bélanger et al.’s study, ABB’s Power Transformers
BA appeared to be entering a much less clear reciprocal game among its
players.
This development has significant consequences for the balance between
convergence and diversity. It is obvious in the case of ABB’s Power Trans-
formers BA that a set of American-inspired management techniques led to
a high degree of uniformity and standardization, which may dominate for a
certain period how the subsidiaries operate in their national settings. But as
the study of ABB makes clear, benchmarking competition among subsid-
iaries also leads to renewed divergence even in a mature industry like power
transformers, as innovative plants like Vaasa draw on their local customer
relationships, social arrangements, and institutional resources to develop
new ‘best practices’, which in turn become ‘role models’ for the others
(Bélanger et al. 1999: 262–3). In more innovative Business Areas, such as
Automation, or more skill-based ones, such as Power Plant Production,
Behr (1999) and Berggren (1999) show that ABB functioned much less
coherently, and resembled more closely the situation we found at
APV. Though these businesses were also managed according to ABB’s
central benchmarking system, this seems to have had much less direct
impact there than in the Power Transformers BA. Thus as Behr (1999:
221) observes:
The result of my research is that specific incentives for improvement are not derived
from centrally espoused programs such as Customer Focus, TBM and TQM, but
mainly from increasing customer demands regarding delivery times and precision,
price and quality. Another principal factor is the dramatic increase in competitive
pressure, both from external competitors and other plants in the network. From this
perspective, implementing central programs means ‘translating’ actions, which are
in any case necessary, into the terms of a relevant program and reporting them as
program activities.
 Managing the Multinational 205

For Behr it is an important part of the life of a multinational that managers

adopt similar terminologies, but what these terms cover differs sharply from
one plant to the next. To demonstrate this point he shows how the common
concept of ‘group work’ or ‘teams’ means very different things in ABB plants
in Poland, Switzerland, Germany, and Sweden, each of which ‘pursues
different organizational objectives, different degrees of decentralization,
and different approaches to reorganization’, leading to wide variations in
outcomes, which run the gamut from ‘traditional’ and ‘structurally conser-
vative’ to ‘polarized’ and ‘innovative’ (Behr 1999: 222–8).
It is significant that such differences in the local interpretation and appli-
cation of apparently general concepts such as ‘group work’ find no place
within the corporate reporting system, nor do they appear to be understood
or acknowledged by the lean, program-oriented BA managers. If subsidiary
managers seek to articulate such differences, they are perceived instead as
making ‘bad excuses’. When the authors of the ABB study summarize how
learning has taken place within the MNC, they conclude:
Bad ratings do not only inspire learning and improvements but a lot of excuses as
well. One of the most frequent ones is to question the measurement system.
Creativity is triggered on explaining away bad results, not on planning and taking
action with the aim of improving them. This unlucky outcome seems to be most
likely when the ranking list is revolving, that is, when plants and companies that
used to look on themselves as the very best, as teachers and missionaries, have
difficulties in readjusting to new roles as hopeful pupils. Denial and repression are
two well-known psychological defense mechanisms that apparently function on an
organizational level as well. How to handle falling former stars is a challenge that the
Seven Ups approach has difficulties in coping with, but it has worked very well for
some of those in an early catch-up position. (Bélanger et al. 1999: 254)
Whether this is the authors’ interpretation or expresses the views of the BA
managers (as seems likely) is of crucial importance. If it echoes the latter, it
illustrates that the BA not only had institutionalized a language that obscures
differences in contexts and practices, but also was determined not to under-
stand the critical responses of the subsidiaries as anything other than ‘bad
excuses’. To the analysts, however, this should immediately raise a red flag.
For it might be difficult for innovative subsidiaries to have their performance
properly assessed and recognized if they have developed entrepreneurial
abilities that do not fit the standard metrics. In our study of APV it was
considered an important problem, especially in Horsens, that the London
HQ did not properly account for the plants’ track records. Though the ABB
Seven Ups system is no doubt much more elaborate, the dismissal of ‘bad
excuses’ could be a sign that it has similar defects. At ABB, moreover, the
206 Challenges and Promises of Globalization

performance measurement system was applied with great consistency for

nearly a decade, whereas at APV, new metrics seemed to come and go in
response to changing managerial fads embraced by new executives or con-
sultants. Paradoxically this could mean that the BA policy in ABB was much
more efficient in producing damaging effects. No doubt this policy institu-
tionalized reciprocal competition among its subsidiaries, but it also focused
this competition very narrowly on a small range of issues. In the ABB case,
the BA was able to recognize subsidiaries’ contributions, but only to the
extent that they fit within the limited framework according to which the HQ
measured the world. Indeed, as the HQ appears to have translated all critical
messages into bad excuses, it systematically ignored whatever alternative
paths of development might have been possible.3 And it may thus come as
less of a surprise to discover that over the past few years ABB has fallen
rapidly off the list of ‘most admired’ companies amidst a collapse in its share
price triggered by mounting financial liabilities and corporate governance
scandals, which analysts now consider symptomatic of deeper and long-
standing structural and strategic weaknesses.4

3. Balancing Competition and Cooperation

Thus much of the recent empirical literature on MNCs concurs that HQ

managers either institutionalize or accept competitive rivalry among subsid-
iaries and that the latter engage quite willingly in such reciprocal games. But

3
For a parallel critique of the limited ability of ABB’s transnational matrix organization to
mobilize dispersed knowledge from its operating units, largely because of the way its performance
measures and incentive systems rewarded ‘farmers’ rather than ‘explorers’, see Doz et al. (2001:
90–100).
4
The proximate cause of ABB’s recent difficulties was the exposure of vast asbestos liabilities
stemming from the acquisition of the US Combustion Engineering group in 1989, followed by a
highly public dispute over pension payments to the company’s former star managers Percy Barnevik
and Göran Lindahl. But ABB also lost hundreds of millions of dollars during the late 1990s on a new
generation of gas turbines which were rushed to market without proper testing in order to meet
ambitious corporate growth targets, leading to the sale of the group’s entire power generation
business to Alsthom in 2000. Financial analysts attributed these debacles to continuing board-level
infighting among nationally rooted managers and investors, together with structural weaknesses in
ABB’s product-country matrix organization, which was modified in 1998 and replaced in 2001 by a
new structure based on a combination of four customer and two product segments. As the new
chief executive Jorgen Centerman himself now argues, ‘Our problem was that we worked as a loose
federation of businesses rather than one company. We need to concentrate on the synergies’—a
refrain strikingly similar to that voiced by top managers during successive waves of corporate
reorganization at APV. See Christopher Brown-Humes et al., ‘From Admired to Mired: A Power-
house Adrift’, FT, 11 Mar. 2002; Peter Marsh and Dan Roberts, ‘ABB Chief Offers Lesson in Being
Upbeat’, FT, 7 June 2002 (quotation); William Hall, ‘ABB Entrusts its Future to ‘‘Brain Power’’ ’, FT,
12 Jan. 2001.
 Managing the Multinational 207

compared to this literature, our case seems more profound, as the strategies
adopted by APV’s subsidiaries were more offensive and farther-reaching than
anything we have seen described elsewhere, demonstrating the persistence of
an independent entrepreneurial spirit in each of the units. In our case, for
example, both Eastbourne and Horsens autonomously initiated the develop-
ment of a new generation of ‘world pumps’ in advance of any central
guidance or direction. The case of APV likewise demonstrates that this
competitive game may in fact develop into ‘warring fiefdoms’. Competitive
positioning and struggle for social space among the subsidiaries and SBUs in
this case not only led them to pursue improvements in their own perform-
ance, but simultaneously to attempt to harm their counterparts elsewhere.
As the studies by Bélanger et al. (1999), Mueller and Purcell (1992), and
Mueller (1996) demonstrate, centrally orchestrated competitive rivalry may
be controlled (at least for a time), but only at the cost of limiting the
innovative potential of subsidiaries to the implementation of HQ-invented
or-initiated ‘programs’. It is strange that none of these studies try to explore in
greater depth how multinationals may strike a balance between competition
and cooperation, and how such a balance may be monitored. And there do
indeed seem to be important mechanisms meriting further exploration. In
discussing the studies by Ferner and Varul (2000) and Edwards (2000) earlier,
we did not call attention to the fact that the former found evidence of reverse
diffusion in 50 per cent of the German-owned subsidiaries in their sample,
whereas the latter encountered this phenomenon in only two of ten British-
owned MNCs. This could indicate that the very diverse managerial practices
of the two countries (cf. Stewart et al. 1994) may give rise to very different ways
of balancing competition and cooperation, but to our knowledge no study has
investigated how and why. It could be, for example, that the cooperative
hierarchy said to characterize German MNCs made it easier to strike such a
balance (Whitley 2001).5 This might also suggest an empirical limitation on
the generalizability of our findings from the APV case. As Morgan (2001:
17–18) points out, British and American MNCs may be distinctive for the
absence of social and technological ‘integrating mechanisms’ around which
cooperation and learning can be deliberately constructed.
In the literature on industrial districts, by contrast, there is broad agree-
ment that the most successful regions have been able to strike a balance
5
Alternatively, as Edwards and Ferner (2002: 98) argue in a recent article on employment
practices in American multinationals, the greater incidence of reverse diffusion in German MNCs
may be due to the tendency for firms to use their subsidiaries in more successful or ‘dominant’
economies such as the US (or by extension the UK) ‘to gain access to new practices which are
subsequently diffused across their operations’. But such ‘dominance effects’ do not satisfactorily
explain why UK firms should not be more interested in reverse diffusion from their foreign
subsidiaries, including those in the US.
208 Challenges and Promises of Globalization

between competition and cooperation. But here too there is little consensus
on how and why this balance becomes established and is maintained. Some
commentators focus on how trust has emerged through historical accidents
and serves to embed economic transactions within a larger set of social
relations in which advancement becomes impossible if individuals aim
only at instrumental gain. Others emphasize instead the distinctive evolution
in particular places of network ties among local actors based on a common
culture of mutual obligation and respect. Either way, however, industrial
districts are presented as unique historical artifacts which can be found but
not made, whose example only serves to underline the difficulty of harness-
ing self-interest to cooperation through conscious design.6
At the opposite end of the theoretical spectrum, as Charles Sabel observes,
rational-choice analysts have responded to the widely acknowledged impos-
sibility of ‘devising optimal incentive schemes that align the interests of
principals and agents’ by falling back
on the idea of cooperation as the result of self-validating expectations of long-term
mutual gains among potential collaborators. This is the theme of the theory of
repeated games: If each actor calculates substantial gains from long-term cooper-
ation with the others, and puts a high value on future as against immediate returns,
then none will put these returns at risk by defecting opportunistically from current
agreements. From this point of view a reputation for fair dealing is the equivalent of
a performance bond posted at the beginning of each transaction. . . . If the actor is
caught cheating, the bond is forfeit; thus fear enforces fidelity to promises. The
limitation of the view, of course, is that cooperation can unravel as quickly as it is
woven: Any change in expectations about the likelihood of future dealings, their
return (as valued in the present), or the possibilities of undetected cheating . . . can
abruptly make cheating attractive for some of the potential collaborators so that the
prospect deters the others from proceeding. (Sabel 1997: 114)
When an MNC is created through mergers and acquisitions of former rivals,
no historical bonds of trust or networks of mutual obligation and respect are
likely to exist among its constituent units. Thus collaboration might be more
6
Other analysts, including one of the authors of this book, have argued instead that relations of
trust within industrial districts should be seen more as a consequence than a precondition of
practical cooperation among local actors. Institutional mechanisms for dispute resolution and
provision of collective services, on this view, have historically played a key role in balancing
competition and cooperation within industrial districts. While the social consensus necessary for
the smooth operation of a decentralized industrial structure may build on common formative
experiences in the past, it can only be sustained over the longer term through the creation of conflict
resolution procedures whose operation is considered fair by all the parties concerned. For this
perspective and a critical review of the literature, see Zeitlin (1992); Sabel (1992); Sabel and Zeitlin
(1997). We will return to these arguments in discussing the need for organizational mechanisms to
ensure procedural justice and mutual commitment in HQ–subsidiary relationships within MNCs
in Chs. 10–11.
 Managing the Multinational 209

plausibly fostered by the expectations of longer-term gains from repeated

games. In our case study, such expectations did in fact motivate the individual
national entities to seek membership of the multinational federation, but
something seemingly went wrong in the process and the reputational bond
became forfeit. From this perspective, it may be interpreted as a very strong
symbolic action in favor of cooperation that the British MNC structured itself
as a conglomerate association of rather independent national corporations/
holding companies in the first place, only distributing cross-country coordin-
ating responsibilities at a secondary level. By so doing, the London HQ
signaled that these national corporations could continue to operate as in the
past, but would gradually learn to benefit more and more from working
together within the larger association. And APV’s painful decision to close
down its own home manufacturing facilities at Crawley could also have been
interpreted as a sacrificial offering to stimulate the development of cross-
national collaboration and trust within the new multinational association. It
was doubtless with the best of intentions, similarly, that the German Rosista
managers launched their plan progressively to reduce valve production at
Horsens and to concentrate it in the Unna plant, believing that the resulting
specialization and economies of scale would in the longer term benefit APVas a
whole. For that very same reason, as we have seen, Horsens too was eager to
cooperate and to prove its worth as an excellent provider of pumps and valves
for the entire APV group, resulting in a head-on clash between these two
competing projects of collaboration. This is a highly revealing example, which
illustrates that actions intended cooperatively may be interpreted by others as
the opposite—if not as deliberate cheating then as an act of enmity.
Another case in point is the fact that the HQ sold and leased back its fixed
assets after having acquired the Danish business group. From London’s
perspective, this was no doubt seen as a highly responsible action, since the
HQ could thereby expand the resources available for its subsidiaries while
reducing corporate debt, thereby minimizing the potential threat to the
multinational association as a whole of a hostile takeover bid. But this
protective act, as we saw earlier, was interpreted by Horsens as a sign of
APV’s limited loyalty towards its Danish subsidiaries. Within Horsens’s own
particular narrative, this act served as a strong indicator of the British MNC’s
lack of long-term commitment to Denmark, and thereby provoked its radical
suspicion. It did not help reduce this suspicion that the HQ simultaneously
admitted openly that it was prepared to sell off any ‘non-core’ subsidiary
if offered an appropriate price. Even external observers may imagine that
such a declaration could be read as an open declaration of the war of each
against all. Yet this was also seen in London as a very responsible act, which
could increase the HQ’s ability to stabilize the situation for the remaining
210 Challenges and Promises of Globalization

subsidiaries. That the HQ would be prepared to sell off its loss-making

activities is comprehensible to most of the profit-earning entities, but that
they were also prepared to sell off even its best-performing subsidiaries
seemed to represent a total imbalance between inducements and contribu-
tions. Nor did the division of units into ‘core’ and ‘non-core’ activities make
the process appear less arbitrary, since this classification changed repeatedly
with each successive corporate reorganization. As we have seen, moreover,
losses and profits were not necessarily distributed among the subsidiaries in
line with their actual performance, so from this perspective, too, the divest-
ment policy could be considered beneficial for the entire group in London’s
eyes. And it might also be possible to imagine situations in which it would be
reasonable for the HQ to transfer resources from profit- to loss-making
subsidiaries in order to be able to sell off the latter at a better price for the
benefit of the remaining group.
What we see in this process is that bonds of cooperation are forfeit not as a
result of deliberate cheating but because of the inability of the players to
make proper sense of what lies behind and motivates each other’s actions.
Each actor did indeed reflect intensively upon the other’s actions, but since
they attempted to make sense of these from their own local narrative
perspective, they arrived at highly distorted interpretations. None of them
ever tried—or were given the chance—to explain to the others the reasons
for their actions. As external observers, we have done our best in the
preceding analysis to make sense of how the actions taken in London could
be seen as collaborative. But the HQ hardly sought to do so, nor did
managers try to explain the basis for their actions to the subsidiaries. Thus
Lygon Place seems to have been just as encapsulated within its own indigen-
ous self-referential world as were its subsidiaries. But it was even more
harmful that rather than using misunderstandings to initiate corrective
reflection on each other’s behavior, the individual actors seemed to accumu-
late one misunderstanding after another. In effect, each subsidiary’s aspir-
ation to contribute cooperatively to the association was transformed into
suspicious expectations. Fairness and balance were assumed to be scarce
resources.
Such vicious circles of non-cooperation might be expected between actors
engaged in arm’s-length market transactions. But would we expect to find
them so systematically entrenched inside an organization such as an MNC?
Should this not be seen as a case of managerial failure? If so, the problem is to
establish what the failure is all about. Thus Weberians would see it as a failure
to institutionalize proper bureaucratic regulations for the office-holders’
behavior and to delegate the right authority to the proper levels within
this huge organization. Culturalists would see it as a failure to infuse the
 Managing the Multinational 211

organization with the values through which people could participate in

actions in a consistent way, making it possible to harvest the gains of an
emerging heterarchy.
In the next chapter, we will argue instead that these failures should be
understood as a consequence of APV’s adoption of a multidivisional organ-
ization characterized by a sharp separation between strategic and operational
decision-making. Confronting this organizational form with the necessary
functions of the executive identified in the classic work of Chester Barnard
(1968/1938) will offer us a better clue to determining what went wrong. Far
from being exceptional, as we shall see, APV’s difficulties in orchestrating
collaboration among its constituent units seem thus to have originated in an
administrative heritage common to many MNCs which have developed
along multidivisional lines.
 9
The Functions of the Executive
Revisited: Contributions, Inducements,
and Constitutional Ordering

1. The Multidivisional Form: Part of the Solution or Part of the Problem?

Multinational corporations, as we have seen in previous chapters, are widely

agreed to pose a thorny challenge to organizational theory, since there is no
obvious structural solution when a firm needs to be coordinated both across
product lines and geographical territories (Bartlett et al. 1990: 19). Doz and
Prahalad argue that the distinctive management problems of diversified
multinational corporations (DMNCs) compared to simpler forms of busi-
ness organization stem from the fact that they are not only multidimensional
but also internally heterogeneous:
Multidimensionality results from the very nature of DMNCs: they cover multiple
geographical markets with multiple product lines in typically multifunction activities
such as sales, manufacturing, service, R&D, and so on. DMNCs therefore face the
problem of structuring the interfaces among multiple dimensions intrinsic to their
activities. In turn, multidimensionality means that no simple, unidimensional, hier-
archical solution to the issue of structuring the DMNC exists . . . . Beyond the struc-
tural indeterminacy of DMNCs lies the need to handle multiple stakeholders,
externally and by reflection internally, and multiple perspectives on choices and
decisions. Simple concepts of centralized versus decentralized organizations break
down in the face of structural, strategic and political multidimensionality, calling for
more complex, ‘multifocal’ approaches that constantly reach trade-offs among pri-
orities expressed in different dimensions . . . and embodied in different management
subgroups. Heterogeneity results from the differences between the optimal tradeoffs
for different businesses, countries, functions and tasks as a function of a whole range
of economic and political characteristics that differ between countries and affect
individual businesses and tasks in quite varied ways . . . . To be applied to DMNCs an
organizational theory must therefore incorporate a differentiated approach to busi-
nesses, countries and functions and provide enough flexibility for different trade-offs
among multiple dimensions to be made. (Doz and Prahalad 1993: 25–6)
 The Functions of the Executive Revisited 213

Beyond this multidimensionality and heterogeneity, however, the variabil-

ity of necessary ‘trade-offs’ across countries and subsidiaries simultaneously
makes it difficult if not impossible for the different parts of a diversified MNC
to recognize and understand each other’s behavior. It may not be readily
apparent to others within the MNC how far each unit is engaged in appropri-
ate trade-offs, as opposed to shirking, free-riding, or pursuing opportunistic
goals, since balances among conflicting objectives that seem reasonable in one
context do not immediately make sense in another. Thus subsidiaries and
other units within a diversified MNC can be expected to behave differently
and may not easily be able to interpret one another’s strategies and actions
correctly.
From this line of reasoning, it could be inferred that MNCs call for
innovations in organizational structure similar to the transformations that
large domestic corporations underwent when they sought to resolve their
internal governance problems by changing over from the functional or uni-
tary (U) form to the multidivisional (M) form. By devolving responsibility for
operational decision-making and routine administration to divisional and
plant managers, the M-form structure was supposed to have enabled top
executives and their staff to focus on long-term strategy and planning, while
at the same time facilitating the headquarters’ ability to monitor, coordinate,
and control the corporation’s constituent units (Chandler 1962, 1977).
Williamson summarized the promises of the M-form as follows:
1. The responsibility for operating decisions is assigned to (essentially self-
contained) operating divisions or quasifirms.
2. The elite staff attached to the general office performs both advisory and
auditing functions. Both have the effect of securing greater control over
operating division behavior.
3. The general office is principally concerned with strategic decisions, in-
volving planning, appraisal, and control, including the allocation of
resources among the (competing) operating divisions.
4. The separation of the general office from operations provides general
office executives with the psychological commitment to be concerned
with the overall performance of the organization rather than become
absorbed in the affairs of the functional parts.
5. The resulting structure displays both rationality and synergy: the whole
is greater (more effective, more efficient) than the sum of the parts.
(Williamson 1975: 137)
Another major advantage attributed to the M-form by Williamson and others
was its role as a ‘miniature capital market’, allowing the top executives and
the general office to allocate cash flows impartially to the most promising
214 Challenges and Promises of Globalization

projects or quasi-firms, in contrast to the U-form, where such investment

decisions were believed to be more easily influenced by vested interests
and political pressures from the corporation’s constituent units (cf. also
Williamson 1986: ch. 11).1
Much of the literature takes for granted that the M-form does in fact work
this way and attributes the widespread diffusion of this organizational form
to its demonstrated functional advantages (see for example Whittington and
Mayer 2001; Kogut and Parkinson 1998). The M-form corporation is thus
presented as having struck an effective balance between competition and
collaboration among its various quasi-firms. Yet our account of APV calls
into question the wisdom of this sharp separation between ‘strategic’ and
‘operational’ decision-making, since it was precisely the gulf between
the headquarters and the operating units that made possible the cumulative
process of mutual misinterpretation which turned the MNC into a war
of each against all. A growing body of work re-evaluating the diffusion of
the M-form and its impact on firm performance has begun to question
whether divisionalization really has solved the problems associated with
the growing size and diversity of corporations, or just framed them
differently.2
In a recent pioneering study, Robert Freeland (2001) has challenged many
of the empirical premises on which the beneficial qualities attributed to the
M-form rest. Digging deeper into the history of General Motors (GM), the
critical case for Chandler’s (1962) original study celebrating the advantages
of divisionalization, Freeland shows that the separation and division of labor
between the general office and the divisions was initially neither so clear nor
so radical as the pure or ‘textbook’ M-form prescribed. Despite public
statements to the contrary by Alfred P. Sloan (1986/1963) in his autobiog-
raphy (on which Chandler himself collaborated) and elsewhere, the chief
architect of GM’s M-form structure deliberately included division managers
on committees that approved policy, authorized appropriations, and
reviewed divisional performance when he was allowed to do so by the du
Pont family, the corporation’s influential owners. Even more surprisingly,
Freeland (2001: 6) discovered that

1
Williamson also explicitly argues that the M-form structure was well-suited to the task of
‘extend[ing] asset management from a domestic base to include foreign operations’. Because ‘the
transformation of the corporation along M-form lines came earlier in the United States than in
Europe and elsewhere’, he contends, ‘U.S. corporations were for that reason better qualified to
engage in foreign direct investments at an earlier date than were foreign-based firms. Only as
the latter took on the M-form structure did that multinational management capability appear’
(Williamson 1986: 291).
2
For an extensive and balanced review of the literature through the early 1990s, see Hoskisson et
al. (1993).
 The Functions of the Executive Revisited 215
GM’s long decline began only after it reintroduced a textbook M-form in 1958,
following the most profitable and successful decade in its history. For most of its
corporate life, GM was governed by an M-form that violated the principles of
efficient organization and, according to prevailing theories, should have failed
miserably. Yet during those periods, GM succeeded magnificently, becoming one
of the largest, most profitable corporations in the world. In 1958, following decades
of struggle between owners and managers, GM finally implemented an M-form that
established a firm distinction between strategic planning and daily operations. The
new organization kept division managers out of planning by putting executives at
headquarters firmly in control of top committees responsible for strategy formula-
tion. But the new structure created internal dissension and contestation that played a
key role in GM’s eventual economic decline. Not only had GM’s success defied the
prescriptions of organization theory, so too did its failure.
One of Freeland’s major findings is that so long as there were organiza-
tional mechanisms that enabled lower-level managers to participate in a
dialogue where they could question the policies and decisions of top man-
agers, General Motors seemed to develop prosperously; but when corporate
headquarters relied excessively on fiat, it risked transforming the consensual
exercise of authority over subordinates into a mutually destructive power
struggle. Creating space for voice and consultation in one form or another
seems to have made the difference, while also institutionalizing new ‘rules of
the game’ for ‘selling’ decisions that made justification, rational argument,
and well-informed criticism legitimate ways to contest formal, hierarchical
authority among managers (Freeland 2001: 66). Freeland’s account shows
how Sloan and GM eagerly experimented with different types of committees
and policy groups for institutionalizing such discourses and reconciling the
conflicting position of different stakeholders within them. In other words,
within this so-called multidivisional corporation, continuous experimenta-
tion with constitutional ordering seems to have occurred, to such a degree
that the principles of the M-form organization itself were periodically called
into question.
Thus in a 1945 letter, Sloan clearly identified the dangers for the corpor-
ation’s constitutional order of the textbook M-form advocated by the du
Ponts:
I accept the fact that there are on the Administration Committee executives who
[have conflicting interests]. However, I believe . . . it is far better to have differences
. . . identified, laid on the table face up and discussed. No good is ever accomplished
by trying to keep differences away from people because they always know about
them anyway. It leads to suspicion and lack of confidence. . . . [Y]ou urge that we set
up a group of supermen who have no direct operating responsibility but who lay
down the major policies of the Corporation. As I said before, that is legislation
216 Challenges and Promises of Globalization
without representation . . . . No group of supermen are [sic] so super that they know
all the answers to all intricate problems involved in the business of the magnitude of
General Motors. If we set up an organization of supermen, you will find, as sure as
night follows day, that this super-organization . . . will become more and more
separated from what is going on in the business . . . . That gets to the point that we
have not only legislation without representation, but legislation without knowledge.
And that is worse. . . . [S]uch supermen would, of necessity, become academic,
hence would be a greater liability to the business than an asset. (Sloan to Walter
S. Carpenter, 14 June 1945, cited in Freeland 2001: 172)
As Freeland observes, Sloan’s warnings did not go unnoticed by the owners.
But they did not convince the latter, who held the contrary view, expressed
by Lammot du Pont, that ‘the governing committee of a corporation is
not . . . set up to secure cooperation, but is set up to rule the business of the
corporation’ (cited in Freeland 2001: 173).
During the late 1950s and ’60s, the situation that Sloan had warned against
came to pass. In response to an antitrust suit that would eventually force the
du Ponts to divest their GM holdings and the owners’ growing dissatisfaction
with the ‘autocratic centralization’ of power in the hands of operational
management, the corporation was reorganized on textbook M-form lines
in 1958. Authority was concentrated in an Executive Committee dominated
by financial men without much previous operational experience, and
divisional managers were excluded from participation in strategic decision-
making. The consequence of these changes was that strategy and accounts
were increasingly discussed within a purely financial framework, where
operational concerns could hardly be expressed. This resulted in the central-
ization of key decisions concerning product pricing, parts standardization,
and creation of a common assembly division despite warnings from
operational management, whose right to participate in policy-making was
explicitly rejected. Divisional managers gave up trying to influence corporate
decisions and began to resist central directives, leading the general office to
rely more and more heavily on fiat, while lacking the detailed operational
knowledge to assess how far its orders were really being carried out. As
Freeland (2001: 286) points out:
the absence of operating men on the corporation’s top planning committees
made it more difficult for New York to audit the operating side of the business;
lacking experience in and knowledge of operations, these men found them-
selves unable to evaluate divisional proposals using anything except financial
criteria. With headquarters unable to ‘evaluate [operating] programs on any
basis except the numbers,’ divisional management ‘learned how to make the
numbers ‘‘come out right’’ ’ by manipulating the plans they submitted to the general
office.
 The Functions of the Executive Revisited 217

Freeland thus depicts the institutionalization of a vicious circle of mutual

distrust and destruction of subordinates’ consent to top management
authority very similar to what we encountered in the case of APV. Far
from representing a solution to the problems of balancing competition
and cooperation within large diversified corporations, Freeland sees the
implementation of a textbook M-form structure at GM after 1958 as a
source of organizational degeneration due to the loss of influence and
participation in decision-making by managers with operational knowledge
and experience.
Chandler (1994) himself comes to a very similar conclusion about the
degeneration of the M-form in post-war US industrial corporations, but by a
different causal route. In his view, the growing proportion of MBA-trained
executives fostered the belief that managerial skills were unrelated to specific
products or industries. In the face of intensifying international competition
and increasingly tight antitrust restrictions on vertical and horizontal inte-
gration, this outlook led to a huge wave of mergers and acquisitions during
the 1960s that carried US corporations into ever more distantly related
activities. Such ‘freewheeling diversification’ in turn separated top managers
more sharply than in the past from middle managers with operating respon-
sibilities, not least because of the much greater size and complexity of the
expanding companies, which now could embrace forty to seventy divisions,
compared to the ten to twenty-five typical of large, diversified international
enterprises before the war. ‘[F]ew senior executives’, as Chandler (1994:
18–19) observes, ‘had either the training or the experience to evaluate the
proposals and monitor the performance of so many divisions in so many
different activities’; hence they and their corporate offices ‘increasingly had
to rely on statistics’. But such statistical data and analytical techniques, as
developed by academic institutions and practiced by professional account-
ants, were themselves becoming increasingly divorced from direct oper-
ational knowledge and concerns.
The generalized consequence of these developments, according to Chand-
ler (1994: 19–20), was more or less identical to what Freeland observed in the
specific case of GM:
Statistical ROI [Return on Investment] data about performance, profit, and long-
term plans were no longer the basis for discussion between corporate and operating
management. Instead, ROI became a reality in itself—a target sent down from the
corporate office for division managers to meet. Since managers’ compensation and
promotion prospects depended on the ability to meet targets, these middle managers
had a strong incentive to adjust their data accordingly. . . . Top management was
basing decisions on numbers, not on knowledge, a practice that made it all the more
difficult for the corporate office to carry out their basic functions of monitoring
218 Challenges and Promises of Globalization
current operations and allocating resources for future activities and that exacerbated
the separation between top and operating management in many companies.
Even before the publication of Freeland’s and Chandler’s studies, an
important current in the strategic management literature had already
begun to conclude that the realization of economies of scope from related
diversification required closer cooperation between divisions than that pos-
tulated by the pure or textbook M-form model. Under conditions of related
diversification, as Hoskisson et al. (1993) point out in their insightful review
article, ‘there is a need to coordinate the activities of otherwise independent
divisions so that skills can be transferred, resources shared, and comple-
mentary investments made.’ Such coordination, this literature suggests,
requires in turn not only ‘some degree of centralized control over the
strategic and operating decisions of interdependent divisions’ but also ‘inte-
grating mechanisms to achieve lateral communication between divisions’ of
varying complexity depending on the degree of mutual interdependence,
‘from simple liaison roles and temporary task forces to permanent teams.’ Far
from resulting in inferior performance, as Williamson predicted, some em-
pirical studies have found that ‘cooperative’ or ‘corrupted’ M-form struc-
tures actually yield superior financial results in related diversified firms
(Hoskisson et al. 1993: 281).
But such efforts to promote coordination between interdependent div-
isions, as Hoskisson et al. (1993: 282) emphasize, also create serious per-
formance ambiguities:
[W]hen divisions lack complete autonomy with regard to operating and strategic
decisions, objective rate of return criteria, which might be used to assess divisional
performance, do not constitute an unambiguous signal of divisional efficiency. Poor
financial performance of a certain division might be due to inefficiencies within that
division, inefficiencies within another division with which it is tightly coupled, or
poor central input into key operating decisions. Without access to more infor-
mation, it can be difficult to assign accountability.
The strategic management literature proposes two major solutions to this
problem of performance ambiguity under conditions of divisional interde-
pendence. One is to ensure that ‘reward and incentive systems emphasize
interdivisional cooperation rather than the performance of each division as
an independent unit’, for example by linking bonus schemes for managers to
corporate rather than divisional profitability. The other general solution is
for top management to widen the range of criteria used in evaluating
divisional performance and allocating cash-flows, emphasizing ‘more sub-
jective measures’, such as ‘ability to innovate’, alongside ‘objective’ measures
like rate of return (Hoskisson et al. 1993: 282).
 The Functions of the Executive Revisited 219

Both of these solutions to the problem of performance ambiguity, how-

ever, depend on the ability and willingness of managers at different hierarch-
ical levels to take a broad view of the corporation’s interests and the ways they
might be furthered by interdivisional cooperation. But as we have seen from
the work of both Freeland and Chandler, the transformations of professional
training and career patterns associated with the rise of the financially dom-
inated textbook M-form and unrelated diversification have rendered it
increasingly unlikely that managers, whether in the corporate headquarters
or the divisions, possess either the knowledge or the behavioral orientation
necessary to make such cooperative solutions work effectively. Under these
conditions, far from taming opportunism and shirking, the adoption of the
M-form can instead be expected to institutionalize a new self-seeking game
in which numbers and statistics that more or less misrepresent the under-
lying operational reality become a tool for advancing individual managerial
earnings and career prospects.3
In one of the very few recent studies that we have found of how the new
world of corporate organization structures managers’ behavior, Jackall
(1988) paints a related but slightly different picture. In this world, as Jackall’s
managerial informants themselves told him, ‘people know their own short-
comings’ and often feel that they ‘are sitting in jobs . . . bigger than they
should be in.’ Hence there is simultaneously a lot of fear and anxiety
among managers about making mistakes for which they could be held
responsible, and a code of behavior where such uncertainty is concealed
beneath ‘carefully nurtured images of competence and know-how’. As a
result of the contradictory situation in which they find themselves, ‘many
managers become extremely adept at sidestepping decisions altogether and
shrugging off responsibility, all the while projecting an air of command,
authority, and decisiveness, leaving those who actually do decide to carry the
ball alone in the open field’ (Jackall 1988: 79–80).
One of the effects may be that managers choose short-term safety over
long-term gain. Both Jackall (1988: 82–3) and Chandler (1994: 19–20) link
this to the way the numbers game was being played. As corporations adopted
capital-budgeting models that took into account the cost of time and
through this the risk involved (the longer the time horizon, the greater the
risk, and the higher the necessary rate of return), managers could speak with
greater authority and decisiveness when arguing in favor of projects with a
short payback, while it became easy to criticize projects with a longer-term
vision. To argue in favor of high thresholds of return could thus allow

3
For a discussion of these problems within extensively diversified M-form firms, see Hoskisson
et al. (1993: 276–8).
220 Challenges and Promises of Globalization

managers simultaneously to present a tough-guy image and protect them-

selves from responsibility for projects and decisions that might later run into
trouble for one reason or another.
Adding to this source of short-termism, Jackall describes how corporate
managers’ working days are fragmented by a stream of unconnected events
that must be dealt with immediately, so that issues are seldom dealt with in
an integrated, holistic way. For this reason
[t]he very consciousness of managers gets fragmented at work. Fragmentation of
consciousness makes the history and structural roots of problems unimportant and
therefore long-term solutions unlikely . . . . [O]ne focuses attention on important
problems of the moment that must be solved. Since these are always plentiful, they
justify postponing less pressing concerns . . . . [T]he pressure for annual, quarterly,
monthly, daily, and even hourly ‘results’, that is measurable progress plausibly
attributed to one’s own efforts, crowds out reflection about the future . . . . This
goes to the heart of the problem. Managers think in the short run because they are
evaluated by both their superiors and peers on their short-term results. Those who
are not seen to be producing requisite short-run gains come to be thought of as
embarrassing liabilities. Of course, past work gets downgraded in such a process . . . .
Managers feel that if they do not survive the short run, the long run hardly matters,
and one can only buy time for the future by attending to short-term goals. (Jackall
1988: 84)
Such a system is bound to produce failures in large numbers, while at the
same time lacking ‘any tracking system to trace responsibility’. This does not
mean that there is no allocation of blame, but rather that it is directed to ‘fall
on unwary and inexperienced underlings’, who become scapegoats when
things go wrong. In Jackall’s view, this is why top managers systematically
diffuse responsibility down the ladder. In this way ‘bureaucracy expands the
freedom of those on top precisely by giving them the power to restrict the
freedom of those beneath’ (Jackall 1988: 86–8).
In such systems, managers have to busy themselves with covering their
own asses and becoming part of powerful coalitions to protect themselves
from being blamed and scapegoated. At the same time, they can also take
precautions against responsibility for their own errors. ‘Most important, they
can ‘‘outrun their mistakes’’ so that when blame time arrives, the burden will
fall on someone else’ (Jackall 1988: 90). The most promising strategy for
individual managers is to get on the ‘fast track’ of career promotions, so that
the consequences of any failures will fall as blame on their successors. To
manage one’s image by moving into a new position, making a fast change
that results in hitting desired numbers, and then leaving responsibility for
hidden failures to a successor, seems to have a double effect, i.e. to advance
rapidly oneself and at the same time harm a potential competitor. The best
 The Functions of the Executive Revisited 221

way to do this is by ‘milking’ plants and assets under one’s control in the
expectation of moving quickly to a new position:
Some managers become very adept at milking businesses and showing a consistent
record of high returns. They move from one job to another in a company, always
upward, rarely staying more than two years in any post. They may leave behind them
deteriorating plants and unsafe working conditions or . . . in marketing areas where
fixed assets are not at issue, depleted lines of credit and neglected lists of customers,
but they know if they move quickly enough, the blame will fall on others. The ideal
situation, of course, is to end up in a position where one can fire one’s successors for
one’s own previous mistakes. (Jackall 1988: 94)
At GM in the 1980s and ’90s, knowledgeable observers similarly reported a
widespread pattern of rapid job movement and promotion among young
‘high potential’ managers or ‘HI-POTS’ being ‘groomed for executive or
senior staff positions in the general office’, which resulted in ‘a lack of
accountability for anything but short-term results’ and undermined plant
and divisional performance across a series of functional activities from
product development to industrial relations (MacDuffie 1996: 95, 103). As
one retired executive bitterly complained to a prominent industry journalist:
[Y]ou get promoted because you’re sponsored by someone; you get promoted before
they catch up with you. I can go through a litany of those clowns. They go from this
plant to that complex and then, all of a sudden, they’ve got plaques all over their
walls that say how great they’ve done—but the plant’s falling apart and the division’s
falling apart. (Keller 1988: 34; quoted in MacDuffie 1996: 103)4
Jackall (1988: 95) goes so far as to call such behavior the ‘institutional logic
of the corporation’. If this is so, it is easy to see what characterizes managers
who are promoted to top positions and how they must view others at
comparable levels, if they imagine that their own perspectives may be
ascribed to these colleagues. Yet there seems to be a way of creating mutual
trust even within such a group of self-seeking managers, by demonstrating an
ability to keep secrets and to be discreet when necessary in relation to
superiors and powerful peers.
To master this game takes a highly developed ‘dexterity with symbols’,
where innuendo is more effective than direct statements and where it is
helpful to be able to speak in a euphemistic language. ‘In this sense, the

4
In recent research on metal and plastic component manufacturing in the US Midwest,
suppliers similarly complained about frequent turnover among purchasing managers as a key
barrier to developing and sustaining collaborative relationships with their large OEM (original
equipment manufacturer) customers across a wide range of end-use industries from motor vehicles,
electrical appliances, and industrial machinery to agricultural and construction equipment: see
Whitford and Zeitlin (2004).
222 Challenges and Promises of Globalization

corporation is a place where people are not held to what they say because it is
generally understood that their word is always provisional’ (Jackall 1988:
136). The advantage of this is not only to demonstrate an ability to keep
secrets and be discreet, but also to maintain the maximum possible space for
alternative subsequent interpretations and ex post rationalizations. But such
use of language of course has serious implications:
For example, an upper-middle level manager in ‘Covenant Corporation’ points out
what he observes among his peers: ‘What’s interesting and confusing at the same
time is the way guys around here will switch explanations of things from day to day
and not even notice it. It is astonishing to hear the things people say. Like they
explain the current stagnation of our stock one day by referring to the Falkland
Islands war; the next day, it’s the bearish stock market . . . . And so on and on. And
they don’t remember the explanations they gave a month ago. They end up going
around believing in fairy tales that might have no relationship to reality at all.
(Jackall 1988: 146–7)
Thus from Jackall’s study, we might conclude that the corporate game is
being played to create an impression of truth by persons who have no higher
ambition than to take on and fill the attitudes and roles that will bring them
the gains such a constructed truth may produce.
To draw the arguments of this section together, it could be said that when
the numbers game was unleashed by the separation between top and oper-
ational management within the M-form corporation, opportunism became
generalized and self-referential. In this game, managers behave collabora-
tively towards those whom they perceive as belonging to the upper echelon of
their own coalition or clan, while they jointly fight one another. But it is also
obvious that it would be very difficult to talk within such a game about
establishing collaborative relations between different collective entities
within the corporation, such as divisions and subsidiaries. In Jackall’s analy-
sis, these entities become mere instruments to be manipulated to achieve
high or low numbers and fast or slow promotion for managers. Thus insofar
as the bleak portrait drawn by Jackall can be generalized, organizational units
such as headquarters, divisions, and subsidiaries have lost their role as vital
instruments for the collective development of the M-form corporation and
become mere tools for the mutual positioning of managers.
In our study, we have not focused interest on this particular game among
individual managers, but rather on the positional game among quasi-firms
as collective entities. But if managers within APV perceived their mutual
game in Jackall’s terms, it would indeed be understandable that the
headquarters never succeeded in promoting effective collaboration among
its constituent units, despite having implemented several of the key
 The Functions of the Executive Revisited 223

recommendations of the strategic management literature for governing re-

lated diversification such as incorporating divisional representatives on the
executive committee, tying their bonuses to the profitability of the corpor-
ation as a whole, and developing a range of non-financial key performance
measures. If Jackall is right, then rapidly promoted top managers are pre-
cisely those who experience the corporation as a series of different settings for
short-term relations, which according to game theory create incentives for
cheating rather than cooperation. It may be that these managers had man-
aged to play repeated games with certain stable principals (e.g. in the City
financial community) with whom they developed some mutual understand-
ing, but in relation to subordinates and colleagues at similar levels, Jackall’s
analysis suggests that in their experience it appeared smart to cheat in order
to outrun others. And it would be strange if this experience had no enduring
effect on how such managers made sense of their own actions. The other side
of this coin, of course, is that the potential for cooperation based on lived
experience can be expected to be much more prevalent at the lower levels of
an organization, because this is where people who have never managed to
outrun or outsmart their colleagues have wound up. Here they will be more
likely to engage in long-term social relations and for that reason the likeli-
hood, again from a game-theoretic point of view, of repeated interactions
may give cooperation a chance. It is under these conditions that possibilities
for common knowledge about actors’ willingness to cooperate, norms of
reciprocity, and modes of punishment can all be established (Miller 1992:
186–7).
From this line of reasoning, it is no enigma that the capacities for collab-
orative action within APV were distributed as shown in Table 8.2 (p. 177).
We would expect most if not all subsidiaries to collaborate internally, while
contending with one another and the HQ even in purely domestic diversified
corporations organized along M-form lines which had experienced the
transformations traced by Freeland and Chandler. But it is also very obvious
that any attempt by subsidiary managers to explain the real situation of their
units would fall on stony ground at corporate headquarters, where top
executives would see such efforts as attempts to escape the blame that must
be carried by subordinates according to the unwritten rules of the bureauc-
racy. Here the alien language of voices speaking from the subsidiaries’ world
would add to the communication barriers already erected by the fact that
even within a single country senior middle-level managers belong to a very
different social-psychological world than do the ‘high-flyers’ who come to
populate corporate headquarters.
On the one hand, one could say that by establishing an organizational
structure aimed at minimizing transaction costs and by installing incentive
224 Challenges and Promises of Globalization

systems and accounting rules based on the teachings of principal–agent

theory, managers are indeed trying to the best of their abilities to advance
the interests of the corporation’s owners. In so doing, on the other hand, they
also create a system of mutual competition in which it becomes extremely
difficult to establish vertical and horizontal cooperation among the corpor-
ation’s constituent units. Under these conditions, as Jackall’s study demon-
strates, it is likely that in struggling for position individual managers will seek
to create an image of their own performance that will favor them compared
with their colleagues and that in so doing they will distort the rationale of the
governance system that was initially installed. Furthermore, it is highly
probable that the very working of the governance system will distort its
own internal ability to repair the resulting damage. Gradually, indeed, it
becomes increasingly unlikely that the managers who reach the top by
creatively playing the system will be able to imagine the advantages of
implementing collaborative relations at lower levels, or for that matter will
dare to see them develop, as such cooperative ties might eventually call into
question the very premises on which they themselves were promoted in the
first place.
From this perspective, the situation we observed in APV fully conforms to
what might be expected from recent analyses of M-form corporations that
have tried their best to install modern incentive systems and promotional
practices. On this view, adding in the multinational dimension merely
reinforces a set of dilemmas that had already emerged within large diversified
domestic corporations.
In his analysis of the organizational economics literature, Miller (1992: 3)
concludes
that results described in the literature of social choice theory, principal-agency
theory, and incentive compatibility reveal built-in logical inconsistencies that
make it impossible to design an incentive/control system that simultaneously dis-
ciplines the self-interested behavior of both superiors and subordinates. For every
incentive system that has other desirable characteristics, there will always be an
incentive for some individuals to ‘shirk’—to pursue a narrower definition of interest
that results in equilibrium outcomes that everyone in the organization can recognize
as deficient.
The paradox is thus that large M-form organizations created to establish
efficient principal–agent relations at the same time create a system of incen-
tives whose overall performance is far from optimal, thereby dissatisfying all
the participants. The consequence, for Miller, is ‘that those organizations
whose managers can inspire members to transcend short-term self-interest
will always have a competitive advantage’ (Miller 1992: 3). Having developed
 The Functions of the Executive Revisited 225

this claim using game-theoretic arguments drawn from neo-classically in-

spired organizational economics, Miller goes on to suggest that we should
look to a very different stream of literature—initiated by Chester Barnard’s
treatise on The Functions of the Executive (1968/1938)—to understand how
to remedy the characteristic dilemmas of modern large-scale organizations
such as APV.

2. Barnard Writ Large: A New Vision for Managing the MNC

Chester Barnard identifies four functions of the executive that may help
foster or reproduce cooperation within an organization. The first, balancing
contributions and inducements, we have already referred to above by observ-
ing that the members of APV did not experience such a balance. The second
lies at the system-building level, where it is the function of the executive to
design a formal ‘scheme of organization’ or constitutional order that pro-
motes collaboration. In Barnard’s vision, managers leave day-to-day coord-
ination and collaboration within and between work groups to the informal
organization of the company. But if these groups develop new routines
according to their own professional aspirations and ethos, they will eventu-
ally provoke conflicts with one another over how to do a proper job. When
this happens it is the function of the executive to create a constitutional order
that enables conflicts to be resolved and the various groups within the
organization to pursue their professional aspirations. Thirdly, managers
must learn that authority does not flow from holding an office but is ascribed
to its holders by those over whom authority is exercised. Hence they must
exercise authority with great care so that it falls within subordinates’ zone of
indifference, where ‘orders are acceptable without conscious questioning’ of
their legitimacy (Barnard 1968/1938: 167). Finally, it is the function of the
executive to define goals for the organization in such a way that they provide
the informal cooperative groups with appropriate guidance as to how they
can pursue their own professional aspirations while at the same time advanc-
ing the broader collective purpose.
From this perspective, it is obvious that top managers within APV and
other MNCs that evolved out of the M-form as described above failed to
fulfill all four of the key functions identified by Barnard. Rather than acting
as executives in his sense, they behaved instead like a ‘partisan’ professional
group struggling for individual positions and collective social space, leaving
the MNC without ‘constitutional fathers’, unless others took on that role in
their stead. In the discussion below we will examine in greater detail how
these failures manifest themselves within the setting of a multinational
226 Challenges and Promises of Globalization

corporation in order to identify what would be required to overcome them

by executive action. As will become apparent, we do not believe it possible for
executives alone to perform the functions necessary for promoting cooper-
ation within the MNC, since these turn out to require the institutionalization
of a different style of decision-making processes involving a broader range of
actors at multiple levels.
Balancing contributions and inducements belongs through the design of
incentive systems to one of the most classic themes in management science.
Yet it is clear that in the case we studied, as probably in many MNCs, the
system for striking these balances was poorly developed if not indeed coun-
terproductive to fostering cooperation. In APV, the system of annual evalu-
ations was supposed to rate managers at all levels according to their
contributions provided that their boss behaved fairly. This evaluation process
would give individuals access to better careers, training, and salary raises if
their ratings were above average. The HQ executives believed these evalu-
ations to be of cardinal importance, remarking that their subordinates
‘would give their left arm’ to know how they were individually rated. But
no scheme existed whereby a high-contributing subsidiary organization as a
whole could benefit because it had been able to cooperate internally, with its
regional partners, and with the entire MNC. As we saw earlier, it was possible
for managers at subsidiaries like Howard to extend the annual evaluation
system to blue-collar employees, but as the total payroll was not automatic-
ally raised if a subsidiary had performed well, the implementation of this
system risked offending rather than rewarding workers. A collective contri-
bution was thus translated into individual inducements, and might risk
disastrous effects for the collectivity and the cooperative orientation of a
subsidiary. Often it might be the experience of a highly cooperative subsid-
iary that its collective contributions pushed a few individuals up the ladder in
the opportunistic game of mutual positioning among managers, and by
so doing the collaborative game at the bottom fed into and reinforced the
self-destructive and short-sighted fight over executive positions described
by Jackall.
This dilemma is serious, since subsidiaries, as we saw in Part I above,
joined the MNC for the mutual long-term benefit of both parties. Yet, after
their incorporation into the MNC, it is difficult to see any systematic
relation between the contributions subsidiaries made and the induce-
ments they received in terms of salary increases, capital investments,
employment growth, or increased decisional and allocative autonomy.
Sometimes there was such a relation, sometimes not. Sometimes high
performance showed up in the accounting records, sometimes these were
deliberately distorted by the HQ. Good subsidiary performance might lead
 The Functions of the Executive Revisited 227

to the promotion of managers who had orchestrated or at least played their

part in the local cooperation responsible for such success, and their replace-
ment by less able managers, so that a former high-performing subsidiary
might suddenly see itself outperformed by one that was now managed by its
former manager. Or worse still, workers having made extraordinary contri-
butions to an improvement in plant performance might in return be
met with extraordinary demands for downsizing of the yearly ‘head count’
in budget negotiations. The result is that rather than eliminating the
possible gains from opportunism, shirking, and free-riding, the HQ
seemed in the eyes of subsidiaries to have institutionalized this behavior,
since there seemed to be no predictable relation between contributions and
rewards.
Balancing inducements and contributions across a heterogeneous set of
subsidiaries is no simple problem for HQ executives, and it is connected to
the deeper question of how to define an ‘enterprise’ itself. This issue has been
hotly debated in recent years, but received considerable attention during the
last quarter of the nineteenth century, when political economy discussed it in
relation to the wider issues of the distribution of income among entrepre-
neurial profits, interest, and wages. In 1890, the German historical economist
Gustav Schmoller commented on the debate as follows:
Every enterprise originates in the context of existing customs and legal relations and
as such has a particular function and legal status . . . . We are in need, at the present
moment, of a deeper insight into the social context of the enterprise. We ought to
know where it originates, under what conditions it takes various forms, what are the
psychological determinants and legal regulations that govern its existence, who are
the persons and groups that play a role in it . . . . Finally, we should discover its
consequences for social and cultural life, and the interrelations of the enterprise with
other organs and institutions of society. (Schmoller 1953/1890: 6)
What Schmoller makes clear is that if we have no clue about the history of
its formation, the society from which it emerged, and the division of prop-
erty rights among the groups involved in running it, we are simply unable to
understand how this or that enterprise evolved in symbiosis with its local
community. And we would add that it is exactly in this symbiosis that the
balancing of contributions and inducements are assessed by the social groups
which constitute a local enterprise. No wonder then that the distant meas-
urements of contributions and decisions on rewards by HQs will often be
seen by the subsidiaries as arbitrary at best. And it is easy to see from the few
cases we have studied that the detailed knowledge of subsidiary operations
that a headquarters would need to make fair measurements and decisions
may be unattainable.
228 Challenges and Promises of Globalization

Schmoller’s analysis offers an avenue for understanding the variances in

play from one subsidiary to another. From the research program stated
above, Schmoller set out to describe ‘the typical forms of enterprises in
their developmental sequence’. To him one important source of enterprise
came from clans, in the form of Arbeitsgenossenschaften (English equivalents
are associations, communities, comradeships, brotherhoods, cooperatives,
and gangs) and Schwurgenossenschaften developed to organize ‘plundering
expeditions, raids for acquiring slaves and cattle’ etc., of which the bandit-
warrior organization of the Cossacks, the artel, is an archetypal example.
Such associations were also used for more peaceful purposes, when cooper-
ating groups of larger size were needed for tasks like building houses and
ships or clearing forests. ‘These groups came together’, Schmoller (1953/
1890: 11) observed,
not on the basis on written contracts, but on the basis of tradition and ceremonies,
which were regarded as binding. They united for the specific purpose of hunting,
fishing, or other common action, and the proceeds were to be divided according to
traditional rules (per capita division, or in certain numerical proportions). The
fraternal bond was established by kissing the icon, for instance, or by sharing a
common drink. There existed no treasury, no common fund, no businesslike
character, and no solid corporate organization.
Schmoller (1953/1890: 18) traces these associative principles for organi-
zing enterprises into more modern periods where it was especially character-
istic of Nordic communities, and found these forms of organization in
activities such as shipbuilding, fishing, seafaring, and other forms of trans-
port where the participating stakeholders had rules for dividing gains and
losses:
Such organizations have in many places been preserved up to the present, probably
because the members realized clearly that the total proceeds depended upon the
devotion and skill of every individual in the boats, and that the successful fishing
demanded subordination and sacrifices for the common welfare. When boats
became larger and more valuable, the only change was that the real co-operative
was replaced by a profit-sharing arrangement.
Obviously in such a system, tradition created very strong expectations
among the individual participants in an enterprise that the more capital,
skill, and working time they contributed, the greater would be their rewards.
It was taken for granted in such ventures that participants could assess each
others’ relative contributions and that rewards and legitimate authority in
leading the cooperative had to be closely linked to the ability to strike such a
balance if the entire enterprise were not to fall apart. But according to
Schmoller (1953/1890: 21), such enterprises
 The Functions of the Executive Revisited 229
later . . . disappeared to a large extent or altogether and made room for other forms.
The underlying spirit could never quite vanish. It has been vigorously restored in the
modern co-operative movement, in labor unions, in collective agreements, and in
large enterprises pervaded by a sense of moral responsibility. Any method of wage
payment which through bonuses, premiums, profit participation, and welfare
arrangements creates a moral bond among the workers follows the same principle.
. . . In other places, however, the natural process of history has brought about their
decline. This happened wherever leadership became more difficult and had to adopt
wider views, where distant markets were to be discovered, and where business
demanded larger capital and more complex techniques.
In contrast to this clan- and community-based form of organization,
Schmoller identified a second source of enterprise, the oikos, which became
the typical form growing out of aristocratic household economies, where
large properties in land and capital coexisted with cheap slaves. Here the rule
was rather ‘ruthless utilization of property for maximum profit’, concen-
trated in the hands of the family patriarch, laying the foundation for the
European conquest of colonies with overseas plantations based on slavery, by
which ‘absolute authority’ could be applied. In such enterprises, obviously, it
was customary that slaves and later wage laborers remained highly depend-
ent on the individual mood and decisions of the patriarch, which could often
be influenced by his special relations with particular individuals. Thus the
notion of fairness was constituted very differently in an oikos than in an artel.
To Schmoller (1953/1890: 24), it was obvious that since oikoi could use, or
depend on the state to use military and political power to build and control
large entities they would outperform artels. Hence in his view
[t]he question why large enterprises have not generally been associations of equal
partners is almost identical with the question why social organization in general has
not been based on the partnership principle. To ask such questions seriously is to
betray historical naı̈veté, and also complete ignorance of psychology.
While Schmoller thus almost entirely rules out the possibility of analyzing
the MNC as a form of partnership, he simultaneously makes it clear that
these two very diverse sources of ‘the enterprise’ have served to create very
different expectations in various parts of the world about the proper balance
between contributions and inducements, the delimitation of ‘zones of indif-
ference’, and the legitimate exercise of authority.
Although we do not believe that all subsidiary firms could literally be
classified as either oikoi or artels, it is important to understand that reactions
to HQ inducements will differ depending on which of these two broad
sources of enterprise has helped shape their world-view and expectations.
While both types may have gradually incorporated elements from one
230 Challenges and Promises of Globalization

another, the specific mix between them will nonetheless vary across subsid-
iaries, countries, and regions, as we saw in Parts I and II above. However
rough and ready as an historical generalization, this conceptual distinction
among the sources and forms of enterprise opens up a number of new lines
of interrogation uncommon in the literature on MNCs, where formal own-
ership is generally taken for granted as legitimating command and authority
from a center.
First, because the different subsidiaries of an MNC come out of very
different national contexts, they will differ in the extent to which they operate
internally according to the principles of the oikos or the artel. When they
join an MNC, each no doubt will assume that the larger association
operates according to the same principle as they do themselves. Thus if
they see themselves as an oikos, they will no doubt see the association as an
oikos, while if they operate more like an artel, they will look upon the
association as one in which the rules of artels apply. Second, as some of
these subsidiary enterprises internally are far from the hierarchical consti-
tution usually associated with oikos-type firms, this will necessarily lead to
mutual misunderstanding if the MNC association is managed according
to the traditions of an oikos. Whereas in the past oikoi could (at least in
theory) depend on the military and political power of the national state to
enforce on their subjects acceptance of their executives’ authority, MNCs
generally cannot count on such external support to ensure subsidiaries’
cooperation.
Why then have MNCs not been forced to change their ways? The accept-
ance by social groups within subsidiaries of the oikos type of behavior by
MNC HQs today, said to be enforced through top-down benchmarking and
competition for investment (e.g. Mueller 1992), might be explained by
conjuncturally depressed labor markets or a tradition of acceptance of such
external pressures (as at the ABB plants in Córdoba, Spain and Guelph,
Canada, described by Bélanger et al. 1999: chs 5, 7). One question that arises
in the former case is whether such behavior by the MNC would have
provoked greater labor difficulties had the local employment situation been
better. But another question is whether the positional strategies we have
observed in our study of APV should not be seen as evidence of a silent
pattern of opposition that is taking place deep down within the body of
MNCs. In our case, we saw that the protest was not dependent just on labor
unions. The ‘Danish Mafia’ may be seen as the collective protest of a whole
network of SBU managers, belonging to a tradition based more on the artel,
who rose in concert to protect the MNC against its HQ executives. But
beyond this point, we could say that the more or less subversive strategies
which some subsidiaries in our study undertook reflected their efforts to
 The Functions of the Executive Revisited 231

compensate themselves for the perceived lack of fairness by the MNC HQ in

balancing contributions with inducements.
To us it is an enigma that the general literature on MNCs assumes that a
complex organization such as an MNC should be envisaged as an oikos rather
than an artel, despite the fact that many MNCs are constituted by associating
formerly independent enterprises with a century or more of history. Even
general organization theory, exemplified by the writings of March and Simon
(1958) and Cyert and March (1963), would suggest that keeping such
complex enterprises associated would require some form of profit-sharing
or distribution of slack resources to keep different coalitions together.
It is remarkable that profit-sharing in whatever form receives very little
attention not only in our case, but also in the general literature on the
organization of MNCs. Only occasionally do we encounter this question
when the relations between different organizational levels are studied. For
instance Bélanger et al. (1999) mention that the subsidiaries are taxed by the
BA, and so it seems that the entire profit is not appropriated by the central
headquarters. More astonishing in the case of APV is that there was no sign
of critical reflection indicating that this issue had been formally addressed to
institutionalize collaboration within and among the constituent units of the
MNC by economic means. There was no mechanism, for example, through
which workers could secure stable or increased employment if they restricted
their wage bargaining demands. Nor was there any indication that a bonus
was achieved if a development project was accomplished more quickly or less
expensively than originally planned. This seemed to be a world with no rules
for reciprocity among collectivities, but only at best among managers.
It may be that we are looking in the wrong place for an answer to how
contribution and inducements are balanced. It may be that it is not when
negotiations on the distribution of profits are going on at the end of the year
that this balance is reached, but rather when negotiations over the future
budget are conducted at the beginning of the year that some measure of
fairness is achieved. But to our knowledge no field researchers have yet
observed how budget negotiations may be used to strike a collective balance
between contributions and inducements, which would seem strange if such
negotiations were where the larger balance is indeed created. In our case
study, at any rate, there was no sign that such broader concerns guided these
negotiations.5
In the same way, there was no indication that the HQ managers were busy
experimenting with constitutional orders aimed at enabling different groups

5
Cf. also the case studies of the informal politics of budget negotiations in British and German
MNCs in Ferner (2000: esp. 535–6).
232 Challenges and Promises of Globalization

to collaborate without the emergence of manifest conflicts. Developing such

constitutional orders is in essence the problem created by the division of
labor which Durkheim (1984/1893) originally addressed. In Durkheim’s
view, as summarized by Charles Sabel, the precondition for decentralized
cooperation among groups performing differentiated but interdependent
functions was a ‘common moral framework, embodied and established in
law and sanctified by palpable social consensus, upon which actors can rely in
the case of disputes arising from their dealings’ (Sabel 1997: 102). For a
national enterprise, such moral frameworks and regulations could be said to
have gradually emerged partly as collectively negotiated rights and duties for
each group within the individual enterprise, partly in the labor market or
directly institutionalized by the state in various ways in different countries.
Within the cross-national framework of an MNC, the challenge from
this Durkheimian perspective is to create a constitutional order that
allows for representation, negotiation, and peaceful collaboration among
differently constituted organizational entities, each in turn constituted by a
multitude of professions, guided by their own moral framework and distinct
national laws.
In the case of APV, there was indeed a clear consciousness that ‘a state of
warfare’ existed among the constituent parts of the MNC, a state of affairs
which Durkheim (1984/1893: xxxiii) also found to be general in Western
societies at the end of the nineteenth century. But rather than seeking to
create institutions in which underlying conflicts and misunderstandings
could be sorted out through negotiations, the MNC tried to impose new
organizational structures in the belief that such conflicts stemmed from
failures in organizational design and could be remedied by new designs.
Furthermore, if subordinate managers were measured by short-term ac-
counting results, promoted for their ability to free superiors from blame
and escape from blame themselves, it is very difficult to see how they could
initiate discussions over constitutional orders with the HQ without jeopard-
izing their own future in the organization. The result was that instead of
triggering symbolic interaction in negotiations from which mutual under-
standing might also emerge, the HQ issued orders that yielded effects—
intended and unintended. No doubt Horsens and Unna were in conflict over
the allocation of valve production, but in the absence of a constitutional
order in which opponents could negotiate, neither of the parties ever learned
that both had indeed tried to resolve their differences according to the rules
of the game in their own national context.
In our case it is astonishing that the HQ initiated actions without the
slightest feeling for their potential impact on the balances among groups
within each of the subsidiaries, and without an administrative apparatus
 The Functions of the Executive Revisited 233

capable of monitoring whether these constructed imbalances serve the pro-

cess of gradual improvement and mutual understanding that may simultan-
eously be achieved. The HQ may have considered it necessary for the MNC
to stir up the institutional arrangements and to contest the regulations by
which professional groups had stabilized their place in the division of labor
in different host countries, but it is striking that such steps were taken
without any consciousness of the uncontrollable social processes that they
might touch off. And this omission is not confined to the case of APV, but as
we have seen runs through the entire literature on MNCs.
Related to these national constitutional orders is the issue of authority. At
APV, orders were issued by the HQ and expected to be implemented in the
same way in each of the subsidiaries, no matter how the latter were consti-
tuted historically as enterprises. If Bendix (1974) is right, however, authority
systems vary greatly across different national systems, and managerial action
that falls within the zone of indifference in one country may be highly
provocative in a different national setting. It would demand an enormous
quantity of intelligence for an HQ to know in advance how different group-
ings in each national subsidiary might react to its initiatives. The surprise is
that there appeared to be no system or organizational mechanism established
to capture and comprehend such reactions in order to foster a gradual
learning process by the HQ about how to proceed in different countries.
On the contrary, with the ascendancy of the view that managers should
embark on international careers and progress according to their ability to
meet universal benchmarks, it becomes almost impossible to imagine that
they could learn to manage within the zone of indifference in a distinct
subsidiary. Thus rather than gradually cultivating knowledge about how
authority may be exercised differently in different countries, the organizing
principles of the MNC seem gradually but systematically to destroy the
grounds for such learning.
Finally, the task for HQ managers is to set the goals for the multinational
association. At first it seems as if this task was taken care of by the HQ, but
again it seems to have be done in a very strange and awkward way. Rather
than consulting the associated organizational units and negotiating with
them as to what goals and values should guide actions in its diverse parts,
the HQ called in a shifting array of external consultants to perform this task,
effectively ignoring the aspirations of local groups and entire subsidiaries.
This approach could be seen to reflect modern philosophies of how to
provoke the initiation of the strategy-setting process, but only the most recent
iteration, as we saw, seemed to aggregate the strategy through a process
that could be characterized as logical incrementalism (Quinn 1980). In
general, principles of ordering such discursive processes were absent, which
234 Challenges and Promises of Globalization

might in itself have helped establish a universal feeling of living in ‘a state of

warfare’.
By reading Chester Barnard’s work (1968/1938) in this way, we discover
that the HQ of APV—and possibly also many other MNC HQs—did not
participate in the managerial processes whereby contributions and induce-
ments may be balanced, constitutional ordering may proceed, authority
may be exercised without overstepping the boundaries of zones of indiffer-
ence, and goal setting may generate mutual commitment. Thus they did
not create or cultivate the infrastructure for institutionalizing the collabor-
ation that may emerge spontaneously from the informal organization
of their subsidiaries or by their mutual interactions potentially con-
ducive to cooperation, such as those associated with repeated games. HQ
managers seem to suffer from the same deficiencies that have traditionally
characterized absentee ownership according to Veblen’s (1997/1923) classic
analysis.

3. Social Balances and Collaborative Entrepreneurial

Capability of Subsidiaries

The problem with absentee owners is that they may measure the productive
and innovative performance of an enterprise without realizing that the
activities involved are simultaneously an experimental process by which the
economic unit in question continuously constructs and reconstructs itself as
an integrated social community. Constitutional ordering that allows a multi-
plicity of professional and social groupings to coexist peacefully, though not
necessarily without conflict, within a single enterprise constitutes the back-
bone for developing effective divisions of labor and joining together unique
competencies that enable firms to innovate in distinctive ways (Whitley
2000). In practice, contra Durkheim, constitutional orders are very seldom
found as static stages or structures. Instead, it is through the ongoing process
of striking balances among social groups, their contributions and induce-
ments, and by experimenting with the exercise of authority and goal-setting
that constitutional ordering emerges. An absentee owner’s intervention into
this ongoing experimental process no doubt adds an extra impetus to it. But
by ignoring the rules governing the experimental process, the absentee owner
simultaneously risks destroying through these interventions the whole local
trajectory through which such constitutional orderings have emerged. The
century of organizational experimentation in each of APV’s constituent
quasi-firms, as described in Chapter 2, had launched them on particular
pathways for creating such social balances, which in turn underpinned
 The Functions of the Executive Revisited 235

distinctive modes both of exploiting established routines and of exploring

future prospects.
Paths of constitutional ordering may be reached in many different ways. In
some countries, these may be negotiated in a highly visible and formalized
way. Germany is usually seen as a typical example of such a formalized order,
where central negotiations between unions and employers, together with
statutory codetermination arrangements within the firm, give rise to binding
agreements among the contending parties. In France, by contrast, it is
educational qualifications that largely determine access to particular types
of jobs, relations among which are governed by formal bureaucratic hier-
archies within the firm on the one hand and national wage grids underwrit-
ten by the state on the other (Maurice et al. 1986).
In the three APV subsidiaries we studied, the paths of constitutional
orderings were much less formal and constrained by the institutional frame-
work of the wider society, within which each firm positioned itself in a
distinctive way. Social groups in each firm had constituted themselves in a
particular relation to the surrounding locality and wider society, making
creative use of available institutions. Thus, for instance, workers in the US
firm occupied a privileged place within the local community due to the
strength of their union organization in a largely de-unionized labor market.
Loyalty to the enterprise was reciprocated by seniority rules that rewarded
long-term service. The skilled workers in the British subsidiary, by contrast,
occupied a strong and unquestioned position in an unorganized shop within
an environment that used to be highly regulated by union activity. In
this way they traded lower pay for high discretion and a craft organization
at work.
Thus, what evolved in these firms during the course of their development
were distinctive modes of balancing social positions, whose holders came to
exercise distinct strategies. On the one hand, these positional strategies could
be said to reflect the contextual rationalities of the larger society, since the
actors who pursued them belonged to broader social groups with particular
institutional rights and duties. On the other hand, however, the actors
pursued these strategies in distinctive ways, as a result of how each firm
had achieved a distinctive internal balance as a micro-society while making
use of the institutions of the wider macro-society to which it belonged. This
was true not least because within all three firms, the positional strategies of
each social group had developed in relation to those of the others, resulting
in a pattern of mutual checks and balances. Though formed from the local
context, the precise configuration of positional strategies and their mutual
interrelationship was thus distinct for each enterprise. This mode of striking
reciprocal balances was due much more to the ways different social groups
236 Challenges and Promises of Globalization

engaged in an ongoing experimental process than to an established moral

and legal framework as postulated by Durkheim, even if the latter may
nonetheless have contributed to establishing the forms of constitutional
ordering that he considered necessary to support an organic division of labor.
The case of the APV subsidiary in Horsens provides an especially illumin-
ating example of how such informal systems of checks and balances among
positional strategies come together in the course of history to constitute a
path of constitutional ordering. One might say that in the Horsens plant, the
core, or defining, positional strategy has been that of the skilled workers. As
these have been recruited and selected from the very best of skilled workers in
the district, their retention by the firm has depended on its ability to offer
opportunities for constantly improving or maintaining their professional
reputation. In this way, a balance has been achieved between inducements
and contributions, whereby skilled workers are offered the chance to improve
and maintain their property— the plant’s skill base—in exchange for using it
to improve the firm’s performance. In this way, the plant helps the skilled
workers in struggling for social space both within the local group of crafts-
men and in the larger regional, national, and now international labor market,
whereas the firm continuously improves its position in the competence
hierarchy within its trade, district, and now the multinational group.
Within this path of constitutional ordering of the mutual relations among
workers and managers, different conjunctures have given rise to the con-
struction of shifting and opposed positional strategies. In general, the skilled
workers sought to maintain and even continuously to expand their social
space within the factory both in relation to the unskilled workers and the
managerial staff, by constantly trying to make their individual work stations
more sophisticated. This enabled the work stations to be run more easily and
to be readily redeployed on an increasingly wide range of tasks, thereby
simultaneously protecting the skilled workers from encroachment by other
groups and from speed-up.
During the period when production managers believed in Taylorist tech-
niques, especially in the form of piece-rate systems, they developed a new
positional strategy towards this reputational game among the skilled
workers. To managers of this generation, workers striving for ease and
appropriateness on their work station appeared to be engaged in a cheating
strategy by not revealing productivity gains for the benefit of the enterprise.
Consequently managers saw the new Taylorist techniques as the basis for a
positional strategy of their own as a countermove to harness workers’
entrepreneurial activities to the profitability of the firm. Time measurement
could thus be seen as a tool for managers to ensure that improvements in
working methods invented by the workers would also benefit the firm. On
 The Functions of the Executive Revisited 237

the other hand, by institutionalizing such measures it undoubtedly became

possible for workers to gain a high reputation among their peers if they
developed their work station in such a way that they could earn a high piece-
rate without excessive effort. In a sense, mutual deception became the
dynamic behind the traditional struggle for a skilled reputation. In retrospect
it seems obvious that both positional strategies were needed in order to reach
a balance between profitability and the wage bill on the one hand and
between inducements and contributions on the other. It is noteworthy,
however, that the development of new working methods was not handed
over to a technical department that was also responsible for time measure-
ment. Had this occurred, one might imagine that a major conflict over social
space would have broken out, as the workers would have lost their property
rights over manual skills, which in turn could have eventually resulted in the
breakdown of this basic path of constitutional ordering altogether.
Yet it is remarkable how much change this path of constitutional ordering
permitted so long as mutuality, reciprocity, and balances between induce-
ments and contributions were maintained and authority exercised within the
actors’ ‘zones of indifference’. With the shift in the 1980s to new payment
systems based on hourly wages, the balance between the two positional
strategies at Horsens was shaken, but the eventual solution did not disturb
the underlying path of constitutional ordering. At this time a technical
department was created to serve as a new positional strategy that changed
the competitive game over skill reputation among workers. The task of the
technical department was not to define in detail how new and old work
stations should function, but rather to calculate whether there might be
comparative cost-advantages to be gained by outsourcing some of the jobs
performed within the factory. Skilled workers continued to engage in their
traditional reputational rivalry, and the technical department simply evalu-
ated the resulting performance of each work station in economic terms and
compared it with what could be offered by potential subcontractors. Thus
within this new setting, the reputational rivalry among skilled workers
suddenly took on a larger scope. Now it could be seen not only as a way of
securing one’s own technical reputation and the ability to develop one’s own
job to be more intelligent and less ‘laborious’. Rather, by developing individ-
ual work stations beyond the level of the rest of the district, craftsmen would
keep jobs in-house and ensure the reproduction of the firm’s team of skilled
workers.
This change also altered the positional strategy of the convener and shop
stewards. Where they had earlier policed wage negotiations and the piece-
rate system, they now took on the role of systematically enhancing workers’
ability to develop the relative competitiveness of their work stations. Whereas
238 Challenges and Promises of Globalization

previously, further training had been left to the private initiative of individ-
ual workers, in the new situation the convener and shop stewards made
it an obligatory right and duty for workers, thereby unintentionally intensi-
fying reputational competition, enabling the firm continuously to absorb
new technology and use it experimentally in advanced and highly
flexible ways. The cumulative effect of these changes was thus a firm
that constantly questioned and improved on its own routines, through
the initiatives not only of the technical and managerial staff, but also shop-
floor operations, where these routines were simultaneously exercised.
As may be seen from this account, it was not through carefully institu-
tionalized collaboration that these positional strategies came to interact in a
cooperative way. Rather it was through an institutionalization of positional
strategies that mutually checked one another in such a way that both the
workers and the firm benefited from the reputational race. Obviously, man-
agers and workers were bound together by their positional strategies so that
a balance between the prosperity of the firm, the number of jobs, and
workers’ skill levels and thus their bargaining power was constantly repro-
duced at a higher level. Yet those engaged in this reputational race and those
monitoring it were engaged in endless conflicts. Workers were jealously
watching managers trying to reduce their own autonomy, whereas managers
saw the workers as always trying to use their autonomy for their personal
advantage. Skilled workers sought to resist the growing influence of both
specialized workers and technicians, but the name of this game was mutual
rivalry over each group’s ability to achieve superior skills, so that individuals
within all three groups simultaneously made gains as they challenged
one other.
It could be argued that the interactions among these positional strategies
represent nothing more than successive faces of a continuous ‘class war’. Yet
each of these patterns of ordering simultaneously found a way to balance
contributions and inducements, exercise authority within the zone of indif-
ference of the skilled workers, and set goals for the development of the firm.
This successful outcome, by which open clashes became very rare, was not
created by a deliberate reflexive process, but rather through a complicated
system of alliances, power relations, and institutionalization of conflict. Part
of the explanation is that the majority of managers, whom the workers
watched so jealously, had been recruited from their own ranks. Some of
these managers no doubt sought promotion because they wanted to rule over
their former peers, but most advanced to staff positions because they had
achieved such high skill levels that the firm wanted to be sure of retaining
their services. Some of these managers thus positioned themselves against the
 The Functions of the Executive Revisited 239

workers, whereas others instead saw themselves as peers who had been
obliged to leave their original group.
Depicted this way, the capacities for collaborative action attributed to
Horsens in Chapter 7—within the site, within the local economy and national
business system, and within the wider federation of the MNC—result from
the fact that competing positional strategies have mutually checked
one another, yet have each been able to satisfy their own aspirations. They
have thereby been able to reproduce a set of social balances, and thus recipro-
cally create the dynamics by which the Horsens plant has met the challenges
facing it in a particular entrepreneurial way. If a sense of collaboration has
emerged, it is because the different groups in Horsens can now tell a story in
which many parties’ contributions are jointly celebrated and retrospectively
seen as responsible for the plant’s success. This narrative does not enable
Horsens to foresee the next turn in the path of constitutional ordering, but it
undoubtedly creates great sensitivity to any sign of change in the balance
between social groups. From this awareness arises the possibility of construct-
ing new positional strategies in response to potential imbalances.
Neither the Lake Mills nor the Eastbourne plants was able to narrate a
similar successful story. In their cases the local actors were just as innovative
as Horsens in trying to strike new balances within their own paths of consti-
tutional ordering, but the interventions or lack thereof from the London HQ
seemed to distort the very path that had been established. Downsizing
production operatives in a vertically integrated plant where contributions
are rewarded according to seniority rules, as occurred at Lake Mills, obvi-
ously risked stirring up the whole social pattern and creating a vicious circle.
The plant tried to repair this damage by developing new products in
an organizationally innovative way that could have simultaneously stabilized
employment across the production, engineering, and sales functions. Simul-
taneously, the ‘pay-for-knowledge’ scheme could have created a new
reward structure in place of the seniority system to encourage experimen-
tation with a more flexible organization capable of reallocating workers
and equipment across a shifting portfolio of products in response to their
relative sales performance. By selling off the property rights of Lake
Mills’ innovative new product to another corporation, however, London
destroyed this highly developed approach to restoring the plant’s path of
constitutional ordering, while the transferable skills that had been created
in this process made it easier for employees to leave altogether. In a similar
way, the reform of Eastbourne’s craft organization of production by pro-
moting skilled workers’ to technical staff functions could have formed
the basis for an offensive market strategy. But by restricting the plant’s
240 Challenges and Promises of Globalization

growth, London simultaneously insured that internal promotions within

the plant were used instead as individual assets to obtain new jobs as
competitors.
The discussion so far has been quite revealing. It has shown that local
managers may change their positional strategy towards subordinates within a
plant, and may even provoke short-term conflicts with other social groups in
a subsidiary. But rather than destroying cooperation, this may generate an
innovative search for a new balance or compromise between the positions
involved. What seems to determine whether or not this balance can be found
is whether the actors involved recognize that the innovative process must
allow each group to find a way of satisfying certain core aspirations associ-
ated with its position within the plant and the wider society. One could say
that what workers, managers, and technical staff demonstrate in striking
these balances is their ability to take on the role of others in constituting their
own role (Mead 1967/1934). They are even able reflexively to change their
own role in a way that contributes to the integration of the enterprise so long
as in so doing they allow others to take a role that makes it possible to
improve their position in the wider society. In this sense, each of the three
subsidiaries studied seems to have displayed artel-like features. But it is
equally obvious that when a large number of role-holders within a subsidiary
become frustrated at being unable to improve their position in the wider
society through strategies that reflect their broader aspirations, then this
provokes a negative reaction in the form of exit.
Absentee owners who do not originate from, or are not continuously
involved with a particular subsidiary may play a positive role towards such
micro-communities by disturbing existing balances and thus provoking a
search for a new compromise among a reformed set of positional strategies
that better allows for continuous improvement both of economic perform-
ance and worker skills—as in the Horsens case. The problem is that such
owners will not be able to tell whether their interventions simultaneously
prevent the position-holders from finding such a balance. By appointing
managers to implement such changes on a short-term basis and promoting
them according to their numerical results, absentee owners are represented
by position-holders who risk being just as blind to the roles of the other
positions within a subsidiary. And if these representatives of the absentee
owners hold a monopoly in reporting back to the owners about their
achievements, there is no way that numbers alone can reveal whether
short-term improvements in performance result from the discovery of a
successful new balance between positional strategies or simply from the
realization of short-term savings from the exit of positional role-holders on
whom its long-term performance depends.
 The Functions of the Executive Revisited 241

It is the continuous work of the constitutional ordering within a firm that

makes it possible to define new options and thus allows for gradual improve-
ments. And it is the collective defense of the path of constitutional ordering
that makes enterprises successful in developing innovations through joint
entrepreneurial activities. The HQ of an MNC as an absentee owner inter-
venes blindly in this process, and therefore risks destroying its own assets. If,
for instance, London had initiated a program of short-term cost reduction
and layoffs at Horsens, as they did at Lake Mills, this would have totally
distorted the positional balance. No doubt Horsens benefited from playing
its oppositional game and capturing the benchmarking role, as a result of
which it was even given the right of imposing its own ordering on other
subsidiaries. But Horsens’s ultimate victory in winning the world-
pump mandate may be precisely the wrong reward that could initiate a
self-destructive circle for its very path of constitutional ordering, as it risks
reducing demand for the offensive skill achievements of its workers.
It follows from the preceding analysis that in order to perform effectively
the Barnardian functions of the executive, the HQ of an MNC would require
some conception—perhaps wrong, perhaps modest, but at least hypothet-
ical—about how the distinctive operation of each subsidiary results from
balances among positional strategies pursued in a distinct institutional
context. It is this balance that gives each unit or quasi-firm its distinctive
entrepreneurial capability and vitality. It is also this balance that shapes its
strategies within the MNC and that may offer a clue as to which possible roles
this unit could play in the longer-term division of labor among subsidiaries.
Without such a conception the MNC’s top executives run the risk of allocat-
ing tasks, duties, and investments blindly, while destroying valuable assets
that have taken decades to create and cultivate within subsidiaries. Obvi-
ously, an account of such dynamic balances for each subsidiary could be a
precondition for auditing future strengths and weaknesses in order to choose
a strategy and set goals for the entire MNC. But it could also be a tool for
redistributing profits because what will be a reward in some subsidiaries will
be the opposite in others. Without such a conception, authority is exercised
blindly, and risks provoking exit where voice and loyalty are needed, and
conflict where collaboration might be preferable.
From this perspective, the key managerial task of the HQ would be to assist
the local subsidiaries in maintaining and adjusting the internal balance
among positional strategies within them, and to create a portfolio of differ-
ently balanced subsidiaries—a balance of balances—enabling the MNC to
stabilize a flexible federation of firms based on a division of labor that
benefits each of its members. In such a continuously evolving framework,
it should be possible to institutionalize a collaborative spirit in which the
242 Challenges and Promises of Globalization

roles taken on by subsidiaries recognize those of other units, even if this may
be maintained through continuous rivalries. Another way to view the bal-
ances within subsidiary firms is to see them as de facto artels in which
contributors receive a fair share of the proceeds from the enterprise’s entre-
preneurial explorations, allowing each of them to develop its own emergent
identity through the MNC federation.
The biggest barrier to such a development, however, seems to be the
separation of strategic and operational decision-making within the M-form
structure and the managerial processes thereby institutionalized. Through
this separation, the HQ becomes isolated from and ignorant of the ongoing
social processes within subsidiaries on the basis of which it could eventually
build up the detailed knowledge necessary to perform a genuinely productive
managerial role for the MNC as a whole. In its place, MNCs have institu-
tionalized a standardized set of benchmarks by which their HQs seek to
stimulate mutual rivalry among subsidiaries, which pushes the latter to
develop more and more similar characteristics, thereby threatening to des-
troy the entrepreneurial diversity on which the adaptability and innovative
capabilities of the federation as a whole depends.
The effects of this process in APV, however, were both surprising and
paradoxical. Although the HQ tried to integrate the MNC through shifting
organizational designs and pressured individual subsidiaries to meet prede-
termined performance benchmarks, the response in each of the three plants
we studied was the development of an increased capacity for adaptation and
innovation. In all three cases, work organization became more flexible and
hierarchical roles less rigid, while careers began to traverse occupational and
departmental divides. In each case, moreover (with the partial exception of
Lake Mills), the redefinition of the space occupied by the subsidiary within
its own locality also resulted in expanded interdependencies, as it made more
intensive use of a wider range of potential resources from the surrounding
environment, with which it thus became more intimately involved. If such
creative exploitation of differentiated local resources could be provoked by
the unintended effects of HQ efforts to impose uniformity on its subsidiaries,
how much more might they contribute to the MNC’s collective capacity for
adaptability and innovation within an organizational framework explicitly
designed to help each local unit develop its own distinctive capabilities?
 10
Pragmatic Solutions: From Procedural
Justice to Learning by Monitoring

1. Procedural Justice and Mutual Commitment Processes within MNCs

Both our own case study and the broader organizational literature suggest
that no purely structural solution can be found to the problems of managing
diversified multinational corporations. Nor does it seem realistic to expect
that MNC HQs could build up the detailed knowledge of the social balances
among positional strategies across each subsidiary which would be necessary
to perform effectively the Barnardian functions of the executive on behalf of
the multinational association as a whole. For this would require the develop-
ment of a central intelligence function that could codify how to balance
contributions and inducements across the MNC, while at the same time
keeping track of local paths of constitutional ordering, and providing
guidance to lower-level managers about how authority may be exercised
within zones of indifference and goal-setting carried out distinctively in
each subsidiary. Such a role for the HQ seems all the more daunting insofar
as it would also involve taking account of possible tradeoffs between each
subsidiary and its local stakeholders, both internal and external. These trade-
offs, which, as we have seen, are becoming increasingly important as subsid-
iaries engage in innovative activities to defend and expand their place within
the social space of the MNC, itself continuously redefined by mergers,
acquisitions, and divestments.
One might imagine that these problems could be overcome if MNCs
reverted to their older traditions of staffing the HQ with experienced oper-
ational managers promoted from the subsidiaries and allowing them to build
up long periods of service in such positions—as in the Swedish MNCs that
inspired Hedlund’s model of heterarchy. But it seems unlikely that such
promoted operational managers would simultaneously be able to strike the
right tradeoffs with the external capital markets, a core relationship for the
MNC and a critical test of the association’s ability to defend the interests of
its subsidiary members. It is also difficult to see how such career patterns
244 Challenges and Promises of Globalization

could avoid distorting the HQ’s ability to function as a miniature internal

capital market, if mergers and acquisitions continued and executives had
selective relations only with the few subsidiaries from which they themselves
had originated. Finally, it is evident that balancing inducements and contri-
butions, constitutional ordering, exercising authority, and goal-setting in
subsidiaries have become an ongoing experimental process closely connected
with subsidiaries’ broader efforts to achieve continuous improvement across
their operations. Hence any knowledge of particular subsidiaries that pro-
moted operational managers might have, when they reached top executive
positions in the HQ, would inevitably be partial and outdated in any case.
These dilemmas seem quite fundamental as they call into question whether
MNCs can actually develop into heterarchies or integrated networks of
specialized centers of excellence.
We agree with Doz and Prahalad (1993: 26) that structural theories of
diversified MNCs and the matrix organizational forms they advocate have
‘little to offer’ beyond an acknowledgement of ‘structural indeterminacy’.
And we likewise concur that analysts of MNCs should therefore ‘transcend
the structural dimension’ and ‘focus on underlying processes’ of information
flow, influence, and power that determine ‘how the tradeoffs among multiple
stake-holders and multiple perspectives are made’.
But if we focus on such processes, it becomes apparent that neither in the
firm we studied nor in the other cases reviewed in the preceding chapters
were these institutionalized in any well-developed way. Both APV and ABB
created excessively formalized reporting and management information
systems, and yet these seemed unable to help in establishing distinctive
tradeoffs or balances across their various subsidiaries. Perhaps what went
wrong is easier to discover in the case of ABB than in that of APV. In ABB
those not conforming to the standardized benchmarking system were
assumed to be making ‘bad excuses’. Nowhere do we see any willingness on
the part of the BA to reconsider its Seven Ups or to question its own ability to
understand all the different tradeoffs and contextual factors that should be
taken into account in order for the benchmarking system to work effectively
in each subsidiary. Local disagreements with the reporting system were
simply seen as ‘bad excuses’ by central managers, even though they often
came from some of the most profitable subsidiaries of the entire BA. This, of
course, makes perfect sense within Jackall’s (1988) terms, as ‘bad excuses’ are
seen by higher-level managers as a way for subordinates to escape from
‘blame time’, which should be prevented at all costs. Hence, neither in ABB
nor in APV was anyone forced to question their own understanding of the
‘others’; each position-holder was allowed—or even encouraged—to con-
tinue interpreting others’ actions from his or her own perspective, and never
 Pragmatic Solutions 245

sought to understand how these actions might look from the other’s stand-
point. Thus what seemed to happen is that the struggle for influence and
power within these MNCs simultaneously destroyed the process of infor-
mation flow and the capacity for real mutual learning.
It is possible to identify causal reasons why MNCs have failed to institu-
tionalize such processes that might enable them, if not to build up mutual
understanding, then at least to reduce the rate of accumulating misunder-
standings. Both the cases discussed above and the broader literature on
corporate restructuring report how HQs at all administrative levels have
been downsized and have adopted new techniques of program management
and performance measurement. Often, especially in cases of acquisitions and
divestments, such restructuring has involved a double process of clearing out
‘old managers’ who had reached HQ staff positions by progressing up a long
career ladder through local subsidiaries, functional departments, and SBUs
on the one hand, and hiring in their place MBAs trained in the latest business
school concepts on the other.1 The process of building mutual understanding
had previously been institutionalized within the career ladders and internal
labor markets of MNCs. But when these began to be restructured in the
1980s and early ’90s, the unfavorable economic conjuncture made it difficult
for unions and other stakeholders to press for alternative modes of institu-
tionalization. If this interpretation is correct, it suggests that a whole cohort
of modern HQ managers can only maintain their outward self-assurance—
whatever their inward uncertainties—by sticking rigorously and unreflec-
tively to the concepts and techniques to which they owe their careers. In
short, the situation which Alfred P. Sloan warned against at GM in 1945
seems to have come to pass more generally.
An obvious question then is whether this problem might be overcome
through the construction of specific organizational mechanisms, such as
jurisdiction-spanning committees, where managers from different levels,
functions, and units within the MNC could jointly discuss policy and
strategy and participate in decision-making. No doubt there are and always
will be fundamental conflicts among different interests over how to allocate
‘downsizing’ and investments among subsidiaries, and it is impossible to
imagine that such mutual rivalry will ever come to an end. The solution to
this dilemma, however, could be to recognize that acceptance of such deci-
sions by the contending parties depends not only on the substantive out-
come, but also on the legitimacy of the procedures through which they are
reached.
1
For reviews of recent research on changes in managerial career patterns and the role of
headquarters in large corporations respectively, see Osterman (1996) and Ferlie and Pettigrew
(1996).
246 Challenges and Promises of Globalization

Drawing on procedural justice theory, Kim and Mauborgne (1993a: 238)

have investigated whether procedural fairness ‘can act as a catalyst to the
effective execution of global strategies’ by focusing on the relationship
between HQ and subsidiaries in strategic decision-making. Procedural just-
ice theory, they observe,
indicates that if the process by which decisions are made is viewed by those affected
to be procedurally just, then the organizational members involved in the decision
process exhibit the higher order attitudinal forces of commitment, trust and social
harmony as well as the lower-order force of outcome satisfaction.
Since the work of Thibaut and Walker (1975), procedural justice research has
focused on ‘how individuals’ evaluations of decisions are shaped by the
dynamics of social interaction’ (Kim and Maubourgne 1993a: 239): in
other words, what makes participants consider that decision-making pro-
cesses are fair and should be complied with, even when their immediate
outcome is personally unfavorable. This is particularly important for subsid-
iaries, whose managerial discretion and capacity for autonomous action
has generally increased, but who are often expected to accept short-run
sacrifices both for the benefit of the larger MNC and in their own long-
term interests.
In an empirical study of nineteen MNCs spread across seven industrial
sectors, Kim and Mauborgne (1993a, b) found that what makes subsidiary
top managers consider strategic decision-making processes to be procedur-
ally just, depends on the following criteria:
the extent to which bilateral communication exists between managers of head offices
and subsidiary units involved in global strategic decision-making; the extent to
which head offices do not discriminate but apply consistent decision-making pro-
cedures across subsidiary units; the extent to which subsidiary units can challenge
and refute the strategic views of head office managers; the extent to which subsidiary
units are provided with a full account for the final strategic decision of the head
office; and the degree to which head office managers involved in strategic decision-
making are well informed and familiar with the local situations of subsidiary units.
(Kim and Mauborgne 1993a: 253)
The more fully these procedural criteria were respected by the HQs of the
multinationals investigated, the greater were the levels of organizational
commitment, trust in corporate management, social harmony, and out-
come satisfaction reported by the subsidiary managers concerned. This
was especially true in more globalized industries, ‘wherein the need for
extensive intersubsidiary exchanges and cooperations, for swift actions in a
globally coordinated manner, and for the sacrifice of subsystem for system
priorities and considerations ranks supreme’ (Kim and Mauborgne
 Pragmatic Solutions 247

1993a: 252).2 These findings confirm Sloan’s belief in the value of bringing
conflicting interests in the strategy-making process out into the open where
they can be identified and discussed, in order to create an atmosphere of
trust, confidence, and mutual commitment which can help to secure willing
compliance or ‘consummate cooperation’ by the participants even with
decisions whose outcome they consider unfavorable.3
Karl Weick has studied processes of mutual commitment in greater detail.
In his 1993 article on ‘Sensemaking in Organizations’ (cf. also Weick 1995)
he observes that even dissatisfied expectations can create behavioral commit-
ment, and under certain conditions behavioral commitment can produce
broader social commitment. The critical conditions for this virtuous circle of
commitment-building, according to Weick (1993a: 12), are high choice, high
irreversibility, and high visibility, while the key process is that of justification.
In the case of APV, the absence of such a justification process is obvious on
the side of the HQ, which interpreted the MNC’s property rights over its
subsidiaries as sufficient grounds for making decisions without further
notice or explanation. But it is perhaps less obvious that the subsidiaries
suffered similarly by not justifying their own strategizing. In the process of
justifying themselves, the subsidiaries might have acquired the tools through
which they could discover what we have called their path of constitutional
ordering, the national and/or regional contextual rationalities behind it, the
social balances among positional strategies shaping its current dynamics, and
even new possibilities for modifying the latter. Up until now, we have
developed these concepts as external analysts, but they have neither been
discovered nor internalized by the subsidiaries themselves as tools of self-
understanding. Had this justification process occurred in such a way that the
subsidiaries’ behavior became more mutually comprehensible, it would have
been possible to create a communicative space where each could have begun
to identify their comparative advantages and hence to develop new pos-
itional strategies that built on their respective strengths. Obviously, had the
HQ simultaneously justified its own decisions, this would also have allowed
the subsidiaries to develop local positional strategies which could have served
the interests of the multinational association as a whole in providing short-
term cash-flow and information to satisfy the London capital markets.
Weick (1993a, 1995) himself presents organizing as a process that could
effectively perform the four Barnardian ‘functions of the executive’ without
concentrating them in a specific group of top executives. Thus the creation
of a broad process of communicative participation might accomplish a
2
Kim and Mauborgne (1993a: 254) also emphasize, however, that what is considered procedur-
ally fair might easily vary between different cultures and also at different levels of the subsidiaries.
3
This is a central theme of Freeland’s (2001) analysis of organizational change at GM.
248 Challenges and Promises of Globalization

managerial task that seems almost impossible to institutionalize through

hierarchical means when the Barnardian functions of the executive are writ
large in the global world of the MNC. It might also offer a solution to the
paradox identified in the APV case, that the HQ by exercising its property
rights actually delegitimated the very notion of such rights—as absentee
owners have so often done. In Weick’s view, circles of participation are also
circles of ownership (since ‘ownership’ is simply a synonym for commit-
ment). Hence it becomes apparent that if the headquarters uses its formal
status to take decisions about projects towards which it has not been com-
mitted, then this will be received by those directly involved as the act of an
intruding stranger and enemy.
This perspective supports a further observation. It could be argued that in
APV the subsidiaries themselves led the mutual commitment process astray
from the outset. All their projects were initiated as strategies for the parti-
cularistic defense of local interests, and for that reason the plans concerned
were only revealed to a narrow circle. Revealing these projects to a narrow
circle was precisely a way of building mutual commitment within it, leading
to the formation of secret brotherhoods aimed at subverting official HQ
policies. This at least was the interpretation adopted by APV’s top managers
in London, an interpretation which simultaneously allowed them to ignore
the collaborative contributions to the overall performance of the MNC,
which, as we have demonstrated, were also a key feature of all these local
projects. Thus the subsidiaries partly engineered the HQ’s non-participation,
and thereby prepared its delegitimation, when, for example, London unilat-
erally decided to sell off Lake Mills’ innovative ice-cream freezer business.
But had such circles of participatory communication existed within APV,
then the very same local projects might have been received quite differently,
as a collaborative contribution to the collective goals of the multinational
association. For as Weick (1993a: 21) explains:
Committed interpretation . . . is a sense-making process that introduces stability
into an equivocal flow of events by means of justifications that increase social order.
Confused people pay closer attention to those interdependent acts that occur
in conjunction with some combination of choice and/or publicity and/or irrevoc-
ability . . . . As they become more fully bound to these interdependent actions, people
are more likely to invoke some larger social entity to justify the commitment. This
act of justification, which often resembles reification, invokes a presupposed order
such as role system, institution, organization, group, or imputed interest group that
explains the action, and on the other hand the residue from an episode of committed
interpretation is a slight increase in social order plus a partial articulation of what
that order consists of (e.g. role system, professional norms, group pressure, collective
preference).
 Pragmatic Solutions 249

If Weick is right that such micro-processes of mutual commitment can

contribute in this way to the creation of a macro-social collaborative order,
then it follows that many of the problems in making APV—and the descend-
ants of the M-form corporation more generally—function effectively as an
organization stem from the absence of committed interpretation. Through
committed interpretation, a multitude of players may not only learn about
each other’s different positional strategies and contextual rationalities, but
they may also be able—through repeated reflexive interaction—to construct
a shared understanding of the global game in which they are engaged,
whereby they might come to recognize one another’s moves as collaborative
and adjust their own strategies accordingly.
While the outcomes of such mutual commitment processes thus seem very
promising, they also appear easy and inexpensive to initiate. All it would take
would be for participants to be prepared to interpret any committed act or
statement by other players as a sign of a larger underlying collaborative
pattern. When for instance ABB’s Ludvika plant criticized the Seven Ups
benchmarking system, this would have been the time for the BA to ask
questions rather than to conclude summarily: ‘bad excuses’. Elsewhere
Weick (1993b: 642–3) identifies the requirements for such mutual recogni-
tion in terms of ‘three imperatives for social life’:
(1) Respect the reports of others and be willing to base beliefs and actions on them
(trust); (2) Report honestly so that others may use your observations in coming to
valid beliefs (honesty); and (3) Respect your own perceptions and beliefs and seek to
integrate them with the reports of others without depreciating them or yourselves
(self-respect).
This triangle of trust, honesty, and self-respect, he observes, was a critical
missing ingredient in a number of well-known organizational disasters; and
it likewise appears to have been absent in APV, ABB, and most of
the relationships between HQs and subsidiaries reported in the broader
literature.
The problem, however, is not simply how to institutionalize participatory
communication and committed interpretation as new processual practices in
MNCs, but how to overcome the ‘institutional logic of the corporation’, as
analyzed by Jackall and rooted in the structural transformations traced by
Freeland and Chandler. Within this institutional logic it would be foolish for
managers to respect the reports of others (since these may have been pre-
pared by opportunistic colleagues seeking to outrun their previous mistakes),
or to report honestly about their own activities and performance (since that
might make them a scapegoat when some future blame is allocated). And
how is it possible for managers to respect their own perceptions if, as Jackall
250 Challenges and Promises of Globalization

reports, they have systematically been trained to speak in a euphemistic

language, where innuendo is more effective than direct statements?

2. Learning by Monitoring: Pragmatic Solutions to Global Managerial

Challenges

Were it not for this difficulty, to which we will return below, the next step in
our argument would follow almost of its own accord without much need for
further explication. Mutual commitment within MNCs could be evoked by
initiating a set of interdependent changes in organizational practice at three
levels. At a first level of analysis, the strategizing subunits within an MNC
would simply need to stop operating in secrecy and start communicating
openly with one another about their respective strategies. At a second level, it
would be necessary to recognize the right and duty of all organizational
subunits to participate in setting goals, defining benchmarks, and proposing
performance measures for the multinational association as whole, as well as
to explain, justify, question, and criticize suggestions brought forward
by themselves and others. At a third level, this organizational transforma-
tion would be completed by attributing the responsibility of performing
the functions of the executive for the multinational association as a
whole to all the subunits participating in this process rather than to the
HQ alone.
From a purely technical standpoint, these changes are neither particularly
complex nor difficult to implement. Take ABB as an example. The group’s
power transformer BA has institutionalized an interlinked system of pro-
gram management, benchmarking, and performance measurement among
its various subsidiaries. A deliberative process of joint goal-setting, infor-
mation sharing, evaluation, and mutual learning could easily be organized
around these techniques. But rather than simply blaming those subsidiaries
which do not meet existing benchmarks for offering bad excuses, the BA
should ask them to explain and justify why this is the case. Such a process
might reveal that the applicability of the BA’s performance measurement
system is limited in certain respects, and that its programs are not fully
adequate to meet the challenges and opportunities that some subsidiaries see
emerging in their local contexts. These subsidiaries could then propose
appropriate revisions to the metrics or even an entirely new BA-wide con-
tinuous improvement program. Inherent in such a process, of course, would
be an equal right to ask the BA to justify itself and eventually formulate a
program with associated metrics for the continuous improvement of its own
internal management and services to the subsidiaries.
 Pragmatic Solutions 251

Although in technical terms only a few organizational innovations would

thus be necessary to institutionalize such a process of mutual commitment,
this could nonetheless be seen as a giant step towards transforming the
nature and governance of the MNC. The change required at the first level
of analysis could be compared with the ‘civilizing process’ in late medieval
and early modern Europe which transformed feudal knights and their
warring fiefdoms into the pacified ‘court society’ of absolutist monarchs
like Louis XIV in France, focused on intriguing games played out with
sophisticated manners (Elias 2000).
As Elias (2000: 398) shows, court society meant a huge transformation in
how positional games were played, as life there followed rules very different
to those of the preceding warrior society:
Life in this circle is in no way placid. Very many people are continuously dependent
on each other. Competition for prestige and royal favour is intense. ‘Affaires’,
disputes over rank and favour, do not cease. If the sword no longer plays so great
a role as the means of decision, it is replaced by intrigue, conflicts in which careers
and social success are contested with words. They demand and produce other
qualities than did the armed struggles that had to be fought out with weapons in
one’s hand. Continuous reflection, foresight, and calculation, self-control, precise
and articulate regulation of one’s own affects, become more and more indispensable
preconditions for social success . . . . Every individual belongs to a ‘clique’, a social
circle, which supports him when necessary; but the groupings change. He enters
alliances, if possible with people ranking high at court.
In their mutual rivalry, the nobility no longer mobilized their own landhold-
ings, peasants, and armies, but tried instead to position themselves favorably
at court in relation to one another and the king. In the same way, subsidiary
managers, rather than strategizing tacitly with their local resources, should be
brought together to discuss their respective roles and positions in joint
committees at the MNC HQ. This may bring about a cumulative process—
if not of mutual understanding, then at least of mutual assessment. But it also
creates the countervailing possibility that subsidiary managers, like the court
nobility, may fail to manage their fiefs effectively, as their best abilities are
redirected towards discursive rivalry at the corporate center. This in turn may
lead to a renewed subsidiary revolt against absentee managers—just as the
absenteeism of the court nobility helped to provoke the popular Protestant
movements and peasant revolts of sixteenth- and seventeenth-century
Europe (Te Brake 1998). To resolve the ensuing paradox would require
wider participation in MNC decision-making by representatives of the
subsidiaries themselves, as when European court society was gradually trans-
formed to parliamentary rule.
252 Challenges and Promises of Globalization

The change involved at the second level of analysis could be compared to

Hegel’s famous discussion of the dialectic of mutual recognition between
master and slave in the Phenomenology of Spirit (1977/1807: 111–19). Hegel’s
problem, on Carr’s (1991) reading, is: what happens between independent
selves when they encounter one another? In the first stage of Hegel’s stylized
evolutionary story, the two independent selves try to eliminate each other. In
the second stage, they each seek to dominate or enslave the other. Only in the
final stage—which may or may not be reached—do the independent selves
recognize one another, and acknowledge their reciprocal right to exist and to
enjoy the fruits of their labor. The path to this final stage, a community of
mutual recognition among reflexive, independent individuals, as Hegel pre-
sents it, must pass through a series of rebellions in which the enslaved or
dominated party tries to take over the role of the master. For Carr, at least, we
are still living in the second phase of Hegel’s story. But the resulting forms of
domination
are inherently unstable, whether they ever actually explode or not. When they do,
they can revert to the pattern of death and destruction or they can fall into their own
cycle of domination and counter-domination. (Carr 1991: 143)
On the other hand, however, this destructive cycle may be broken if it gives
rise to mutual recognition among the contending parties. For as Carr (1991:
143) summarizes the denouement of Hegel’s story:
Each sought this recognition from the other all along, but failed to realize that
it had to be mutual, that recognition had to come from one who himself was
granted the legitimate status of an independent existence. Instead of disputing
their territory or exploiting each other for its use, the parties now cooperate in its
enjoyment.
Anyone familiar with modern European history knows how many wars have
been fought to overcome such cycles of domination and how many consti-
tutional designs have failed to contain them. Hence it is obvious that to go
from the second to the third stage in this progression is far from easy. Recent
Hegel scholarship tends in fact to view the outcome of the master–slave
dialectic as a fragile and incomplete process of mutual recognition rather
than as a progression to a finite and fully accomplished stage or end state.
And this rereading of Hegel in turn feeds into a broader reconceptualization
of mutual recognition within multinational societies by political theorists
like James Tully as an ongoing, provisional, and contested activity: ‘Any form
of mutual recognition should be viewed as an experiment, open to review
and reform in the future in response to legitimate demands against it, and so
viewed as part of the continuous process rather than as the telos towards
 Pragmatic Solutions 253

which the activity aims and at which it ends’ (Tully 2001: 20; see also Tully
2000: 477).4
The proposed transformation of the corporation at the third level of
analysis implies that the functions of the executive, properly understood,
would become a joint responsibility of all members of the multinational
association, not just a small group at the center. Continuing along the line of
Hegel’s, Carr’s, and Tully’s analyses, this would mean that the independent
selves not only mutually recognized one another but also reciprocally
obliged each other to share ongoing responsibility for monitoring everyone’s
contributions—including their own—to advancing the community’s
common goals. By tying ‘mutual assessments of reliability to joint explor-
ations of capability’, this step would, as Charles Sabel has proposed, simul-
taneously institutionalize a powerful new collaborative process of ‘learning
by monitoring’ (Helper et al. 2000: 466; Sabel 1994). Through such a process,
he argues, the apparently contradictory demands of learning and monitoring
can be reconciled
by creating institutions that make discussion of what to do inextricable from
discussion of what is being done and the discussion of standards for apportioning
gains and losses inextricable from apportionment. Through these institutions,
discrete transactions among independent actors become continual, joint, formula-
tions of common ends in which the participants’ identities are reciprocally defining.
(Sabel 1994: 138)
Comparing our remarks about how easy it would be to turn organizational
techniques such as benchmarking and performance measurement to the
support of a transformed MNC with the philosophical and political consider-
ations raised at our three levels of analysis, creates a paradoxical impression:
the transformation envisaged appears so near and yet so far. This paradoxical
impression is reinforced by our own account in earlier chapters of how
the globalization process in this sector was initiated by a series of independent
enterprises which later came to be seen as dependent subsidiaries of a foreign-
owned MNC, but continued to behave as if they were autonomous
while challenging the absentee-ownership behavior of the HQ. And it is
deepened still further by consideration of the investment bargaining
processes described by Mueller and others, in which MNC HQs have indeed
been using program management, benchmarking, and performance meas-
urement as technologies of dominance. Yet as we have seen from our analysis
4
For a comprehensive and illuminating review of recent debates over Hegel’s concept of mutual
recognition, see Markell (2003), who argues for its replacement by that of a ‘politics of mutual
acknowledgement’ in order to avoid any possible ascription to others of a stable, predetermined
identity. We are grateful to Professor Markell for sharing his book manuscript with us in advance of
publication.
254 Challenges and Promises of Globalization

of ABB, growing experience with these practices also makes it increasingly

likely that small experimental twists in their application could turn them
instead into techniques for mutual recognition.
In a series of seminal works, Sabel and colleagues have shown how such
practices may be used to advance processes of learning by monitoring and
‘directly deliberative polyarchy’ or ‘democratic experimentalism’ in firms,
public institutions, and the wider polity (Sabel 1994, 1996a, 1997; Helper
et al. 2000; Cohen and Sabel 1997, 2003; Dorf and Sabel 1998). They take as
their point of departure the ‘pragmatic collaborations’ and new organiza-
tional disciplines which have been spreading among profit-seeking firms as
the latter struggle to adjust to the ongoing shift from a relatively stable to an
increasingly volatile and uncertain economy. The new ‘non-standard’ firms
emerging from this transformation, these authors argue, are ‘federated, not
centralized’ and ‘open, not vertically integrated’. At the core of such firms are
teams or work groups with ‘responsibility to achieve goals mutually agreed
upon with [their] collaborators, by means that are mutually determined
through group deliberation’, and thus enjoying substantial autonomy to
alter their own internal organization and choose inputs from suppliers inside
or outside the company. Coordination within these work groups—and with
their internal and external suppliers and customers— proceeds through an
interrelated set of novel organizational disciplines based on iterative goal-
setting, problem-solving, and information pooling, from benchmarking and
simultaneous engineering to just-in-time production and ‘five-why’ systems
of error detection and correction (Helper et al. 2000: 465–7). These new
disciplines and the collaborations they enable may be understood as prag-
matic insofar as they oblige the participants routinely to question the suit-
ability of their current routines and continuously readjust their ends and
means to one another in light of the results of such questioning. And they are
likewise deliberative insofar as they depend on group discussion among a
wide range of participants with diverse capacities, experiences, and perspec-
tives to adjudicate among the many alternative solutions thrown up at each
iteration of this process (Helper et al. 2000: 467–9).
A key element of these pragmatic collaborations is the diffusion of new
methods of performance measurement and assessment that permit ends and
means to be continually discussed and revised by the collaborating teams at
each level. Within such a learning-by-monitoring regime, as Sabel (1996a:
284) has argued, assessment plays a very different role than in more central-
ized and hierarchical forms of organization:
In a stable economic world, performance measurement is a retrospective assessment
of the relation between headquarters’ expectations and the operating units’ accom-
 Pragmatic Solutions 255
plishments in the light of general standards of achievement, and hence an instru-
ment to adjust institutional means to established ends. But the more decentralized
decision making, the more important that goals and the indicators by which their
achievement is measured be continuously revised to reflect learning through exercise
of local autonomy. Assessment becomes the continual adjustment of performance
measures in the light of experience as a way to redefine joint goals while simultan-
eously evaluating progress.
Hence the problem of assessment becomes not one of identifying an optimal
set of performance measures for any given situation, but rather of institu-
tionalizing an ongoing (re-)evaluation of the metrics themselves by the
participating units:
Assessment thus grows out of and is meant to reflect upon and coordinate localized
adjustment of means and ends to new circumstances throughout the firm; the task of
assessment so understood is not to define once and for all the performance indica-
tors appropriate to a particular setting, but to construct an institution that, in
evaluating performance metrics, furthers coordinated, self-reflective adjustment.
(Sabel 1996a: 288)
Such an institutional regime, it seems, could indeed be established through
incremental steps and micro-level initiatives. Earlier we noted ironically that
Bartlett and Ghoshal (1989: 155) thought it possible to escape from the
anarchic world of warring fiefdoms within the MNC by creating ‘task forces,
project teams, and committees that can take conflicts ‘‘off-line’’ ’. But such
devices could accomplish precisely this task if they were simultaneously used
to institutionalize the evaluation of performance metrics in the service of
coordinated self-reflective adjustment. Their purpose, however, would then
be very different than that of socializing managers to believe in the company’s
values, goals, and agendas, which according to Bartlett and Ghoshal (1989:
175) are the ‘global glue’ that holds the MNC together. For the participants in
such pragmatic collaborations, as we have seen, must be (or become) willing
to challenge and redefine established organizational goals as a result of
comparing alternative means of advancing them in discussion with one
another. Hence the institutionalization of such routines for questioning
current routines through disciplined deliberation simultaneously becomes
a mechanism for jointly determining the future strategic orientation of the
collaborating units. In this way, the learning-by-monitoring process itself
could serve as an integrated framework for performing the Barnardian
functions of the executive across all levels within the MNC.
But this optimistic vision of transforming the MNC into an open, feder-
ated firm through step-by-step implementation of the new pragmatic dis-
ciplines of learning by monitoring raises in turn two crucial questions. The
256 Challenges and Promises of Globalization

first is how to insure that participation in the process of mutual learning and
strategic deliberation is opened up to all the various units and levels of the
corporation, rather than confined within a narrow circle or coalition of
actors. For in the case of APV, as we have seen, it was a major problem
that subsidiaries could not define their own role within the MNC by com-
paring themselves to other similar units according to commonly agreed
criteria, nor did the information necessary for such comparisons seem to
accumulate anywhere within the system. A second closely related question, to
which we have already drawn attention, is how to prevent the emergent
collaboration among the MNC’s constituent units from being undermined
by opportunistic behavior on the part of managers at various levels seeking to
advance their careers according to the pre-existing ‘institutional logic’ of the
corporation.
Helper et al. (2000: 472) suggest as a common answer to both questions
that the process of learning by monitoring can itself be expected to expand
the circle of information exchange while simultaneously controlling oppor-
tunism among the collaborating parties. Thus ‘the pooling of proposals and
perspectives’ required by the new pragmatic disciplines
breaks down distinctions between mutually ignorant specialists, each tempted to
exploit the ignorance of the other. Where hierarchy produces the information
asymmetries of mutual ignorance, learning by monitoring in effect creates an infor-
mation-symmetricizing machine in which actors must keep one another abreast of
their intentions and capacities. In simultaneous engineering and error-correction by
the ‘five whys’, for example, actors must teach each other important elements of their
respective specialties and reveal the logic of their intentions in order to make
themselves comprehensible.
Moreover, as the collaborating parties enhance their command of ‘the search
routines, the problem solving disciplines, and the re-configuring of flexible
equipment’ involved in learning by monitoring, ‘product-specific resources
are ‘‘de-specified’’, coming increasingly to resemble general purpose assets,
and thus no longer the instruments or object of hold up’. The continuous
information exchange and performance monitoring intrinsic to the whole
process further protects the participating units against the risks of ‘engaging
an incompetent or unreliable partner’ by ‘alert[ing] them to this danger
before the consequences [become] ruinous’ (Helper et al. 2000: 472; see also
Whitford and Zeitlin 2004).
The problem with this view is that Helper et al. do not appear to recognize
that the ‘mutually ignorant specialists’ may already be engaged in a pre-
existing game, which continues within and between firms despite deliberate
efforts to move towards pragmatic collaboration and learning by monitoring.
 Pragmatic Solutions 257

Whitford and Zeitlin’s (2004) study of the changing relations between ori-
ginal equipment manufacturers (OEMs) and component suppliers in the US
Midwest shows how even companies seeking to cooperate in good faith often
find their efforts subverted by internal organizational obstacles such as high
staff turnover, poor communication, cross-functional conflicts, and disjunc-
tion between plant and corporate-level policies. Particularly important in
this context were individual managers’ search for short-term results in order
to meet cost-reduction targets imposed from above—which frequently
played a critical role in determining their own annual bonuses—and thereby
advance their promotion prospects. Thus far from automatically containing
opportunism, the transition to learning by monitoring and pragmatic col-
laboration may itself be obstructed by the ongoing strategic games within
large multidivisional corporations.
Our study of APV likewise makes us skeptical about the ability of this
model to insure without further institutional support that ‘mutual assess-
ments of reliability’ do indeed result in ‘joint explorations of capability’. If
learning by monitoring were to lead, for example, to the allocation of the
APV world-pump mandate to Horsens, then this might reflect the participa-
tion of the plant’s engineers in multi-level negotiating processes, without
necessary taking account of the positional strategies and capabilities of its
workers or the constitutional ordering under which they currently operate.
In this respect, Denmark is indeed a good test case, since one of its historical
peculiarities is that industrial specialist knowledge has effectively become the
‘property’ of its workers (Kristensen and Sabel 1997), so that the latter would
need to participate fully in any realistic mutual assessment of reliability and
joint exploration of capability.
As mentioned above, the process of learning by monitoring may be
initiated at many different levels within an MNC, but the key question is to
what extent it spreads to involve all relevant parties. Laurence O’Connell’s
(2001) case study of the Barlo Group, an Irish-owned MNC, is very illumin-
ating about both how learning by monitoring may be organized and the
unanticipated consequences to which it may give rise. This study demon-
strates how the two networks of engineers located close to the SBU level of
the MNC contributed both to initiating the questioning of current practices
and to integrating different parties into deliberation about the alternative
solutions emerging from this process. The first network, ‘Engineering Barlo’,
had no formal constitution or name, but was a ‘diverse, mobile group of
skilled engineers report[ing] to the technical director of Barlo Radiators’
whose formal remit had nonetheless expanded to include technical responsi-
bility for all the group’s manufacturing plants (O’Connell 2001: 169–70).
Participation in the network’s activities was fluid and variable, depending on
258 Challenges and Promises of Globalization

the precise nature of the problem to be solved in particular plants and the
priorities and targets established by divisional management. Although the
group worked closely with senior management, following loosely defined
‘rules resembl[ing] guidelines’, its members spent ‘significant periods of time
at the various plants’, where they developed close relationships with local
managers, technical specialists, and external suppliers in helping to solve and
in some cases redefine the operational problems experienced at this level. In
so doing, moreover, the network’s members could learn from one another’s
experiences through both informal communication processes and more
formal arrangements such as the circulation of memos, quarterly off-site
seminars, and collective assessment of plant-level performance data (O’Con-
nell 2001: 171–7).
The second network was formed through a Young Engineers Programme
established by Barlo Plastics to train engineering graduates by rotating them
through a series of different plants working on the same project, such as the
implementation of ‘World Class Manufacturing’ (WCM) techniques. The
purpose of this program was to provide the SBU with engineers who
understood and were trained ‘in all aspects of the division’s businesses,
including the various processes, materials and cultures’ (O’Connell 2001:
179). Since the Young Engineers’ time was divided between the SBU project
and tasks defined by plant managers (e.g staff training, marketing and
finance activities), they acquired direct personal experience of the relation-
ship between corporate policies and local practices. Participants in the
program also shared these experiences with one another through a variety
of communication channels, including monthly meetings, video conferences,
and daily phone or e-mail conversations. Among the division-wide assign-
ments carried out by this network was a ‘Key Measurements Project’ aimed
at developing common metrics to improve cross-national communication
and performance comparisons among operating units. In drawing up these
performance measures and benchmarking them against international stand-
ards, the Young Engineers consulted industry experts and the relevant tech-
nical literature, as well as the individual plants. But their experience in the
local operating units simultaneously enabled these engineers to see how the
same measures might work differently when confronted with the variety of
approaches to production within each plant. Thus they discovered the
complexities involved, and began to develop practical solutions to the prob-
lem of applying common metrics to the diversity of practices in the various
operating units:
To impose a set of rules or common metrics would ignore the substantial commit-
ment that managers and employees may have to their existing approach. Thus while
 Pragmatic Solutions 259
creation of a global list of measurements is possible, to implement these significant
local knowledge is required. The suggested measures and ideas must gain acceptance
from local management and the Young Engineers addressed this issue of shared
understanding at a local level. The importance of detailed understanding of the
individual plants assumed a vital role as the team worked to achieve a common
understanding of measurements across the plants, for example exploring with
managers how to gather particular information. This process is ongoing and prob-
lems are arising; nonetheless the project is achieving inter-plant or multilevel
dialogue. A series of measures now exist which enable comparisons across plants
and this facilitates, for example, the implementation of WCM across the division
which can provide scope for significant improvement in performance. (O’Connell
2001: 183–4)
The creation of such metrics that combine WCM benchmarking standards
with detailed local knowledge has allowed the various plants to engage in a
genuine process of mutual learning, which can be properly categorized as
learning by monitoring. The Barlo case could hardly stand in starker contrast
to our observations of the program management and performance measure-
ment processes in ABB and APV, where the metrics were almost entirely
defined at the central level on the basis of generalized international bench-
marking techniques.5 Sabel (1996a: 282) himself insists that learning by
monitoring—whether in the firm or the wider polity—depends on finding
ways to orchestrate information pooling and comparison of alternative local
solutions to common problems which do not suffocate decentralized experi-
mentation:
The prospect . . . is that solutions emerge as local units learn from each other, and
that no model becomes so dominant that it is immune to challenge from successful
local innovation. How, precisely, information about successes and failures is to be
circulated among the local units and successes generalized without becoming insti-
tutionally entrenched are the increasingly urgent questions of the alternative reform
projects, and the ones on which the decentralization in firms most directly bears.
According to O’Connell (2001), the Barlo Group has found an experimental
solution to just this problem, despite the potential for resistance from central
managers who ‘stand to lose by decentralization of authority’ and move-
ment away from the ‘hierarchies that ownership establishes’ (Sabel 1996a:
289–90). In their place, a standard for discourses and a discursive standard is

5
The executive director and SBU managers of APV’s Product Business did hold regular discus-
sions during the mid-1990s of the division’s key performance indicators to resolve differences across
the operating units in the definition of measures such as ‘on-time delivery’. But this was counter-
balanced by the divisional director’s heavy reliance on decontextualized evaluations by outside
consultants in allocating product mandates and manufacturing responsibilities across the different
plants. See Ch. 6, 150–2.
260 Challenges and Promises of Globalization
established, where the language of certification becomes the language for
discussing and evaluating joint projects. And it is this discourse and language
that the Barlo Group is said to have succeeded in creating experimentally
without provoking negative reactions by central managers and from the
hierarchy of ownership.
This is indeed an achievement, since learning by monitoring challenges
standard principal–agent models of enterprise governance and economic
coordination:
[T]he new forms of collaboration are neither markets nor hierarchies . . . . In contrast
to hierarchy, there is no principal among the collaborators who can definitively
partition tasks for others. Moreover, the collaborators’ positions within the new
arrangements are contestable in a way that the places of hierarchical subordinates
would not be. In contrast to markets, the collaborators do not merely signal each
other through prices. They jointly explore what they want to do even as they are
doing it. (Helper et al. 2000: 481–2)
More important still, learning by monitoring also challenges familiar con-
ceptions of ownership as ‘residual control: the right to dispose of an asset
insofar as its disposition is not subject to contract. Put another way, residual
control is the owner’s right to fill gaps in an existing contract to her liking, or
to determine how to redeploy an asset once contracts controlling its current
use have run their course.’ In the new pragmatic collaborations between
customers and suppliers, however, which often involve co-development of
products and manufacturing processes by engineers co-located in each
others’ facilities, ‘joint control of the assets . . . shades into joint residual
control, and thus a novel form of ownership’ (Helper et al. 2000: 482).
In O’Connell’s study of the Barlo Group, however, there is no report that
central managers have ceased to play the role of principals and learned
to behave according to new rules of shared ownership. On the contrary,
O’Connell finds it important that central managers lent their authority to
both ‘Engineering Barlo’ and the Young Engineers. Why then did these
initiatives seem not to provoke the emergence of ‘warring fiefdoms’? Con-
trasting the Barlo Group with APV might provide important clues as to how
learning by monitoring may become established. First, there is no doubt that
the behavior of both networks of engineers in Barlo contributed—apparently
unintentionally—to the realization of the criteria for what we have previ-
ously referred to as ‘procedural justice’ within the MNC. Second, the flow of
information institutionalized in this way may simultaneously have induced
central managers to behave as if they had accepted and understood their new
role and the new ‘rules’ of ownership. Through such processes, mutual
commitment may in turn be created. In short, once institutionalized, the
 Pragmatic Solutions 261

new processes of participatory communication and procedural justice may

help to create their own foundations.
But this does not overcome the problem of how to initiate the institution-
alization of these processes in the first place, which would undoubtedly have
been difficult in the case of APV. O’Connell offers one possible interpretation
of how this problem was overcome at Barlo. Following Laffan’s (2000)
analysis of Ireland’s participation in the European Union, he suggests that
Irish cultural and social traits create an ability ‘to engage in experimentation
and micro-social interactions’ (O’Connell 2001: 206). If this is true, then
Irish managers, in contrast to their counterparts at APV’s London HQ, may
be predisposed to adopt experimentalist perspectives on internationalization
by the fact that they are accustomed to view the world through the lenses of
‘peripherality’, and hence to approach their ‘subordinates’ or subsidiaries as
potentially equal partners.
Such an interpretation closely resembles the historical and cultural explan-
ations of how competition and cooperation are balanced within successful
industrial districts discussed in Chapter 8. Such explanations, we saw,
present industrial districts as unique social artifacts which can be found
but not made, and thus only serve to underlie the difficulties of establishing
similar processes in other settings through conscious institutional design.
But a rather different reading of the Barlo case to that proposed by O’Connell
is also possible. It is evident that the networks responsible for institutional-
izing learning-by-monitoring processes in Barlo consisted of engineers, who
occupied similar or lower hierarchical ranks and career levels than the
subsidiary managers with whom they collaborated locally. The institutional-
ization of learning by monitoring therefore appears to have been under-
pinned by an egalitarian community of reflexive individuals who mutually
recognized each other as members of the same professional group. Perhaps
the ‘Danish Mafia’ at APV represented the emergence of the same type of
public, i.e. engineers as a group mobilizing an alternative discourse of their
own against the language spoken by shareowners and HQ managers. But
whereas the networks of engineers in Barlo were authorized, so that they
communicated back to the (consequently shrinking) center, the ‘Danish
Mafia’ instead was deliberately constituted in such a way as to cut out the
HQ. Learning by monitoring may thus have been occurring at APV without
being noticed by the HQ managers, whose actions would therefore have
appeared uninformed and contemptible to the subsidiaries.
At both Barlo and APV, albeit in different ways, engineers seemed to be
the professional group responsible for creating a new organizational space
within the MNC. If that is true, it raises the question whether such a
profession is capable of creating a constitutional ordering that leaves space
262 Challenges and Promises of Globalization

for the positional strategies and struggles of other social groups. If not, it may
be that only a small part of the positional strategies in play is appropriately
measured by the metrics adopted, which could mean that new warring
fiefdoms may be likely to emerge, because engineers in redefining their
own role ignore those of other players. Such a scenario might even run the
risk that by taking over responsibility for learning by monitoring, engineers
may come to monopolize this function and transform it into a mechanism
for reinforcing their own professional identity that simultaneously excludes
the participation of other groups.
But if learning by monitoring is to make full use of the tacit and informal
knowledge available within the firm, employees and their representatives
must also be able to play an active part in shaping the discursive standards
used in the mutual assessment of projects and performance. Without such
involvement, what can be learned through monitoring may be restricted to
certain positional strategies and routines whose effects depend on being
balanced by other positional strategies that remain unrecognized. And with-
out broad participation by the workforce and its representatives in the
learning-by-monitoring process, it may prove difficult to overcome the
organizational barriers to the development of pragmatic collaboration pre-
sented by managerial opportunism and traditional conceptions of ownership
rights.
The full-scale adoption of such a learning-by-monitoring regime would
effectively transform the MNC into what Cohen and Sabel (2003: 366) call a
‘deliberative polyarchy’, in which ‘the constituent units are given autonomy
to experiment with their own solutions to broadly defined problems’ in
return for furnishing the center with ‘rich information about their goals
and the progress they are making towards achieving them’, as a basis for
‘elaboration of standards for comparing local achievements, exposing poor
performers to criticism from within and without, and making . . . good (tem-
porary) models for emulation.’ Contrary to the view presented in Helper et al.
(2000), such an organizational transformation cannot be expected to be self-
actualizing as a result of the step-by-step application of the new pragmatic
disciplines (such as benchmarking, simultaneous engineering, just-in-time
production, and ‘five-why’ error correction), but depends instead on the
initiatives of specific actors, individual and collective, which must in turn be
institutionalized and extended throughout the MNC.6

6
In a recent reply to such criticisms, Sabel 2004: abstract, v–vi acknowledges that ‘pragmatic
collaborations are indeed less stable than some formulations in the original Helper, MacDuffie, and
Sabel paper suggest’, but goes on to argue that ‘the instability derives at least as much from
constitutive features of iterative cooperative design properly understood as from power imbalances’.
From this he concludes that ‘Because of the inherent instability of iterated co-design as exasperated
 Pragmatic Solutions 263

Both the practical effectiveness of such a federated MNC and its legitimacy
in the eyes of its members further depend, as Cohen and Sabel (2003: 367)
argue in relation to deliberative polyarchy more generally, on the broad
participation of different actors in order to subject ‘its dispersed and coord-
inated decision-making to . . . the ‘‘full blast’’ of diverse opinions and inter-
ests . . . . Meeting the full-blast condition requires open-ended, informed
discussion about the decisions taken by separate units and the coordinating
center’. And this condition likewise means that the process of constructing
discursive frameworks and institutional fora within the MNC for discussing
and evaluating organizational goals and performance measures cannot be
confined to engineers or other professional groups (as in different ways at
Barlo and APV), but must also involve the participation of employees and
their representatives more generally. By encouraging a free flow of infor-
mation and voices from outside the circle of management, moreover, such
full-blast participation may civilize the strategic game within the MNC and
create an organizational framework for exposing and disciplining opportun-
istic behavior. And finally, the resulting engagement with voices from outside
their own circle may also enable HQ managers to understand better what
different social groups in the various subsidiaries expect from, and can
contribute to, the development of the multinational association.

by power imbalances, governance mechanisms are indeed required to stabilize emergent forms of
collaboration. But these governance mechanisms can themselves be interpreted as embodying many
of the features of the iterative co-design process itself ’—a position convergent with ours in this
chapter.
 11
Creating a Multinational Public
for the Corporation

If the MNC is to become a genuine vehicle for mutually beneficial collabor-

ation and learning by monitoring among its constituent units, as we argued
in the previous chapter, organizational channels must be constructed to
involve employees and their representatives in ongoing practical deliberation
about the strategic objectives of the global firm and the performance meas-
ures used to assess progress towards them. Accomplishing such a transform-
ation would entail the creation of a new multinational ‘public’ for the
corporation, understood pragmatically as ‘an open group of actors . . . which
constitutes itself as such in coming together to address a common problem,
and reconstitutes itself as its efforts at problem solving redefine the task at
hand’ (Cohen and Sabel 2003: 362; see also Dewey 1954/1927). In this
chapter, we examine a series of experimental projects and institutions
which could give rise to the development of such a multinational public,
beginning with European Works Councils (EWCs). As we shall see, the
ambiguous experience of participation in these Councils, coupled with the
contradictory effects of recent trends towards the coordination and decen-
tralization of collective bargaining, have stimulated the appearance in Den-
mark and other European countries of efforts to create interregional
networks of local actors operating at the interface between MNC subsidiaries
and their host communities. Such interregional networks, we argue, could
build on and reinforce the emergent multi-level architecture of experimental
governance in the European Union, and could be extended to link up with
more modest but analogous attempts to develop mutually beneficial rela-
tionships between MNCs and local communities in the United States.
Finally, we suggest that, by instituting new procedures for open coordination
within MNCs, these interregional networks and the new multinational
public associated with them could engage the existing financial public in a
constructive dialogue and thereby help to civilize the ongoing game between
global companies and capital markets.
 Creating a Multinational Public for the Corporation 265

1. European Works Councils: A New Public for the MNC?

From this perspective, APV’s employee representatives showed remarkable

foresight in seizing the opportunity to establish a pioneering European
Works Council just two years after the passage of the EU Directive in 1994.
In principle, they thereby created a forum for social interaction within the
MNC, where different views could be exchanged, roles played and eventually
changed, projects negotiated, performance measures re-evaluated, and
mutual commitment rather than ownership authority developed. Indeed,
according to the founding agreement, as we saw in Chapter 3, the APV
European Forum was explicitly conceived as an institution in which strategic
intentions could be discussed rather than simply announced and enacted.
In general, expectations ran high when the EU adopted the European
Works Council Directive, and implementation took off rapidly, spurred by
the incentive for corporate managements to negotiate ‘voluntary’ agreements
under a more flexible procedure available before the statutory provisions
came into full legal effect in 1996.1 As Jane Wills (2000: 85) observed,
In just five years, more than 500 international networks of employee representatives
and senior managers have been established in firms across Europe. Each of these
networks meets at least once a year to discuss the changing firm, its business
environment, employment issues and future plans. Senior managers present infor-
mation to employee representatives who are asked to respond, and (in theory at
least) consultation takes place over corporate decisions that affect workers in more
than one country. Most EWCs allow employee representatives to hold their own
meetings, with translation services, before and/or after the main session, and some
are developing new forms of communication between annual events.2
Many European trade unionists viewed the EWC Directive as a significant
step towards greater industrial democracy which would facilitate trans-
national collaboration among workers and their organizations in a global
economy. Though EWCs have no power to block or alter management
decisions, they are widely seen by unions, especially at European level, as a
valuable tool for understanding and responding to corporate change (see, for
example, Hoffmann 2000: 644–7). And from our perspective, EWCs could
potentially serve as an institutional framework for enabling the various
1
For the legal provisions of the EWC Directive and the distinction between Article 13 (volun-
tary) and Article 6 (statutory) agreements, see Ch. 3, n. 8 above, and the references cited therein.
2
By the end of 2001, nearly 700 EWCs had been created, covering approximately 10 million
employees (Kerckhofs and Cox 2002: 154). For a recent survey of their organizational characteristics
and operations, based on information from union EWC representatives in five countries, and which
generally confirms the overview provided by Wills, see Waddington (2002).
266 Challenges and Promises of Globalization

parties within an MNC to challenge each other’s overarching narratives and

initiate a mutual commitment-building process by explaining and justifying
their actions and strategies.
But empirical studies of the operation and development of EWCs suggest
that the hopes invested in them have so far been realized only to a limited
extent. Thus a detailed comparative research project covering 23 EWCs in the
metalworking, chemical, food, banking, and insurance sectors found that
only a minority of high-profile Councils, some pre-dating the Directive itself,
could be considered ‘project-oriented’ or ‘participative’, with an autonomous
capacity to define tasks for themselves or negotiate with group management,
whether on procedural or substantive issues. Many of the EWCs examined
functioned primarily as ‘service agencies’, allowing participants to access,
process, and exchange information about the MNC’s operations which
would not otherwise have been available nationally. Even in such cases,
however, there was often a substantial asymmetry of influence and infor-
mation between representatives from the parent company’s home base and
those from its foreign subsidiaries. And nearly half of the EWCs studied
remained largely ‘symbolic’, with little ability to engage corporate manage-
ment, influence the agenda for joint meetings, or build cohesive relationships
among employee representatives from different countries (Lecher et al. 2001;
Lecher et al. 1999).3
Reports of the work of EWCs often therefore reveal a high level of
frustration among the participants. Wills (2000) describes the case of an
EWC which operated mainly as a forum where HQ management could
inform employee representatives about corporate decisions after the fact
and respond to the latter’s criticisms and concerns. Nor did this EWC
function effectively as a vehicle for transnational information exchange and
solidarity among the employee representatives themselves. Thus the French
representatives, who were already accustomed to dealing with issues of
corporate strategy and decision-making through their national works coun-
cil, always brought along an expert consultant whose independent analysis of
the company’s situation enabled them to challenge senior managers on their
own terrain. The UK representatives, by contrast, who lacked such domestic
works council experience and external support, found it difficult to respond
in more than purely local terms to the company-level information and
managerial discourses presented at the EWC meetings. In cases of this type,
which the broader literature suggests are neither universal nor unusual,
EWCs do not appear to be fostering a bottom-up communication about

3
For a comprehensive review of published research on EWCs, which largely supports the picture
drawn by Lecher et al., see Müller and Hoffmann (2003).
 Creating a Multinational Public for the Corporation 267

subsidiary concerns and capabilities which could compensate for the HQ’s
lack of detailed operational knowledge of the MNCs’ constituent units.
Instead such EWCs may function more as a vehicle for one-way communi-
cation of HQ strategy, aimed at securing acceptance by workforce represen-
tatives of top management policies and decisions, as well as at promoting the
emergence of a common European corporate culture (Wills 2000: 101;
Lecher et al. 1999: 214; Lecher et al. 2001: 61).
Not only employee representatives, but also lower-level managers may be
frustrated by corporate executives’ efforts to control the agenda of EWCs,
limit the flow of confidential information, and restrict the range of issues
discussed. Thus Weston and Martinez Lucio (1997: 776), who studied several
EWCs during their formative years, observe that local management
were increasingly keen to enhance their knowledge of the broader operations of their
companies. There was a feeling among many managers that such structures as EWCs
would help them understand what was happening in other areas of their company in
terms of production, investment and personnel management; and that their forma-
tion might force corporate HQs to reconsider the whole question of company
information.
The potential value of EWCs in this regard is underlined by the experience of
several cases studied by Lecher et al. (1999), where the employee representa-
tives received strategic information on group development plans which only
reached local management later, if at all. At Rhône-Poulenc, for example,
representatives of local subsidiaries were allowed to participate in EWC
meetings as observers, which provided them with ‘one of the rare opportu-
nities . . . to be informed about corporate strategy directly by group manage-
ment’, but they were not granted speaking rights. Conversely, managers of
foreign subsidiaries of the Schmalbach-Lubeca group who were excluded
from such meetings complained that they were less well informed about
aspects of group policy than EWC members (Lecher et al. 1999: 149, 95).
Thus even where the formation of EWCs did result in sharing of strategic
information on corporate policies with employee representatives, this did
not automatically lead to the institutionalization of a multi-level dialogue
that could aggregate locally narrated positional strategies and integrate them
with universal strategy discourses emanating from the HQ into a shared
master narrative for the multinational association.
Responding to such frustrations within European labor circles, Bob
Hancké (2000: 38) has criticized the underlying assumption that EWCs
should be ‘uniquely or predominantly seen as trade union instruments’.
MNC managements, he argues, ‘increasingly regard the EWC as a forum
for consulting workers’ representatives on difficult issues of restructuring’,
268 Challenges and Promises of Globalization

through which they can institutionalize ‘regime shopping’ and competition

among plants in different countries and regions. Hancké’s observations are
drawn from the European car industry, where, as we saw in earlier chapters,
multinational firms have been particularly aggressive over the past decade in
using competitive benchmarking and investment bargaining to extract con-
cessions from local unions and impose convergence around common organ-
izational principles across plants. In his view, European MNC managers have
thereby succeeded in turning the EWC into ‘one of the main institutional
carriers of the new competitive regime in the European car industry’, whereas
union representatives have so far failed to use it effectively as an instrument
‘for combating competition over working conditions’ (Hancké 2000: 39, 54).
Hancké is clearly pessimistic about unions’ capacity to transform EWCs
into organs where local actors could inform one another about their respect-
ive positional strategies, improve their mutual understanding, and enhance
their ability to act cooperatively. But he also emphasizes that such a possibil-
ity is by no means ruled out by the structure of the institution itself. Whittall
(2000) demonstrates how easily the situation may change as unionists from
different countries get to know each other and ‘break down the trust barrier’
by acting in a non-chauvinistic way, as when German employee representa-
tives on the BMW EWC helped to prevent the closure of the British Rover
plant at Longbridge in 1998–9. In such cases, as recent research on the
European operations of US multinational automobile firms shows, EWCs
can effectively disrupt management’s efforts to divide and conquer by imple-
menting a common restructuring project in parallel across different sites
without central consultation and negotiation. Thus, for example, ‘as a result
of EWC activities, management at General Motors was obliged . . . to involve
employee representatives in the process of conducting a benchmarking
exercise which they had originally hoped to implement entirely site-by-site
in keeping with varying industrial relations systems and existing agreements.’
And EWCs at Ford and GM similarly succeeded in negotiating pioneering
agreements with regional management which fixed ‘common terms and
conditions for all European employees affected by outsourcing and a joint
venture respectively’ (Müller and Hoffmann 2001: 90, 116).
But it is widely recognized that EWCs are not easy to turn into stepping
stones for international labour solidarity. In a recent survey of Danish EWC
representatives, many remarked that the Councils were used as a tool for
‘workplace egoism’, and the longer representatives had served and the higher
their position, the more they emphasized that participants look after par-
ticular interests (Knudsen and Sørensen 2000: 77–88). Paradoxically, how-
ever, the participants also found the climate of EWCs collaborative and
trustful both among employee representatives and towards management,
 Creating a Multinational Public for the Corporation 269

again to an increasing extent the longer they had served and the higher their
organizational position (Knudsen and Sørensen 2000: 77ff., 94).
According to this survey, Danish EWCs do seem to function reasonably
well in terms of information and consultation. A surprisingly large propor-
tion of participants, for example, had succeeded in getting issues of concern
to them placed on the EWC agenda for discussion. At the same time,
however, the overwhelming majority of employee representatives also felt
that their side could do much more to gain influence over corporate man-
agement and were dissatisfied with the way they played their own role—a
sentiment that intensified with seniority and level of participation. And the
managerial side simultaneously reported that employee representatives
needed increased competencies to be able to participate more effectively in
EWC consultations (Knudsen and Sørensen 2000: 52, 97ff.). These survey
results could indicate that the EWCs have simply not yet found their appro-
priate form, as employee representatives have not learned to use them
properly.
One might expect from the widely reported tendency for MNCs to use
EWCs as a tool for communicating managerial discourses that employee
representatives would feel a strong need for additional training in dealing
with budgeting, accounting, investments, corporate organization, and strat-
egy, i.e. issues placed on the agenda by top executives. Such training issues do
rank high among the concerns of the Danish employee representatives
surveyed, but below ‘language’ and ‘knowledge about labour markets and
working conditions in other countries’, the last of which they considered the
most urgent priority (Knudsen and Sørensen 2000: 142). In other countries,
too, EWC representatives likewise suffer from communication problems that
are not simply caused by language difficulties but also by the lack of knowledge
about the differing industrial relations systems represented at meetings. Translation
implies far more than rendering meaning from one language into another. It entails
understanding specific national logics and patterns of behaviour, and the problems
these can generate. Different industrial relations systems also bring with them
different styles of politics—some of which may be perceived to be incompatible,
with consequent conflicts and factionalism within the EWC. Being able to put such
political styles—which can range from co-operative and informal approaches to
demonstrative and conflictual displays of power—to good use presupposes an
understanding of the sources of power which employee representatives draw on in
their respective national systems of industrial relations. (Lecher et al. 1999: 222)
Hence some unionists have called for a new ‘pedagogy of transnationality’ to
prepare employee representatives for the challenges posed by the multicul-
tural environment of the EWC through a combination of instruction in
270 Challenges and Promises of Globalization

‘basic knowledge about . . . different national industrial relations systems and

collective bargaining arrangements, the legal background, and the broader
economic context in which EWCs operate’ on the one hand and ‘communi-
cation and conflict resolution skills, which facilitate the aggregation of
potentially differing interests’ on the other (Müller and Hoffmann 2001: 72).
These observations suggest that the establishment of EWCs has stimulated
the emergence of a new multinational public, despite the absence of some of
the tools needed to support this process. Danish EWC representatives report
that they build trust very quickly in unofficial settings outside the formal
Council meetings. But these informal meetings are conducted without trans-
lation facilities, so command of foreign languages suddenly becomes crucial
to understanding what others are saying, and it likewise becomes of great
interest to the participants to learn more about the labor market and working
conditions which lie behind each others’ statements. Differences in culture
and ways of thinking make it difficult for representatives from different
countries to collaborate within EWCs, a feeling which does not improve
over time, but rather increases with greater involvement in their activities.
This could indicate that the more employee representatives participate in
EWCs, the more they discover these differences, but without understanding
what they are all about (Knudsen and Sørensen 2000: 84–7). The EWCs are
thus raising questions rather than providing answers or enabling participants
to explain and justify their actions. Probably for these reasons, many Danish
EWC representatives feel the need to increase the frequency and length of
meetings, in order as some put it ‘to discuss each other’s problems’ but also
so that the process of consultation can change gradually into something
more like codetermination (Knudsen and Sørensen 2000: 121–31).
The situation revealed by these reports is extremely interesting. On the one
hand, it seems that EWC representatives could easily form a new multi-
national public if they could gain access to the tools needed to support this
process. On the other hand, however, it is also apparent that so long as such a
public does not emerge, the management side may easily play employee
representatives off against one another in competitive rivalry for jobs and
investments. In such cases, rather than developing into a process of mutual
justification, commitment building, and codetermination, employee con-
sultation within EWCs may be transformed, as Hancké (2000) argues, into
a vehicle for managerial regime shopping and investment bargaining, leading
to a downward spiral of competitive underbidding through plant-level
concessions (see also Zagelmeyer 2001).
But Martinez Lucio and Weston, who have studied such processes of
investment bargaining across a number of European MNCs, emphasize
that the increasing flow of information from management to unions and
 Creating a Multinational Public for the Corporation 271

employee representatives which these processes generate often creates new

opportunities for strategic responses by the latter. In a number of cases, for
example, these authors report that the practices of competitive benchmark-
ing associated with this ‘politics of investment’ have ‘given rise to a loose
organizational network between certain unions in different plants who have
been exchanging information on production issues and investment’ (Martı́nez
Lucio and Weston 1994: 120; see also Weston and Martı́nez Lucio 1997).
Where managements have ‘intentionally increased employee representatives’
interests in and awareness of . . . performance and productivity measure-
ments’, they further observe, ‘EWCs may provide a forum and a point of
reference for exchanges of information across different plants which the new
managerial regime attempts to divide and rule’ (Martinez Lucio and Weston
2000: 210). But even in such cases, they argue, ‘a key issue is . . . the underpin-
ning of EWCs through alternative networks and relationships’ with unions
and other actors at national and European level (Martinez Lucio and Weston
2000: 211).4
Hancké (2000: 55) agrees that ‘management’s strategy of involving the
EWC in decision-making structures may lead to a situation where its
members start to use information on strategic issues in a cooperative way’.
Unions, he argues, could foster and build on such developments, but only
if they reorganize their own structures to strengthen the links between
local branches, national unions, and EWCs. ‘What ultimately matters’, he
concludes,
is what the relevant actors make of the EWC. If management has been able to turn
what was conceived as a means to control them into a useful instrument to facilitate
industrial restructuring, unions are at least in principle equally able to apply EWCs
to their own ends. If European trade unionists become convinced of the necessity for
mutual links and for coordination between their local agendas (which also requires
that they realize the shortcomings of their current ‘nationalist’ competition) they
may start to engage in EWCs on their own terms. (Hancké 2000: 56)
European sectoral trade union organizations like the European Metal-
workers’ Federation (EMF) played a crucial role in establishing European
Works Councils from the outset, drawing up a set of minimum standards or
benchmarks for EWC agreements based on existing ‘best practice’ during the
‘voluntary’ initial phase following the 1994 Directive. As a result, these
European Industry Federations (EIFs) co-signed nearly one-third of the
agreements concluded before 1996. But the EIFs did not always receive in

4
Similarly, in the collaboration between employee representatives at BMW and Rover, Whittall
(2000: 78) remarks that ‘It was the networking process that emerged from these contacts, rather
than the EWC as an institution, that played a decisive role in transnational negotiations.’
272 Challenges and Promises of Globalization

return a formal right to participate in EWC meetings, thereby limiting their

ability to provide follow-up support (Sisson et al. 2001: 10; Lecher et al. 1999:
229; Lecher et al. 2001: 16, 24). At the national level, unions were slower to
endorse the creation of EWCs until after the passage of the Directive, when
they concentrated on helping to set up as many as possible. This quantitative
approach and emphasis on the ‘foundation period’ has created difficulties in
maintaining subsequent contact between national unions and EWC repre-
sentatives (Lecher et al. 1999: 229–31). Unions have focused primarily on the
provision of training support, especially in foreign languages, while leaving
responsibility for strategizing to individual employee representatives based
on their local orientation and place within the social space of the MNC.
Lecher et al. stress that unions in many countries have become confused
about the status and role of EWCs within their overall strategy, particularly
about whether they should be allowed to negotiate agreements with corpor-
ate managements at European level. ‘Such a step’, they observe,
would confront the trade unions with a host of new problems as it would imply an
upheaval in established national structures. One of the consequences would be that
responsibility for an EWC—located with the largest trade union at the group’s
headquarters—would no longer coincide with the geographically-defined national
negotiating powers of trade unions. Trade unions, whose geographical scope may
embrace many multinationals but only a few corporate headquarters, would find
themselves confronted with a substantial European presence within their bargaining
area. (Lecher et al. 1999: 233)
From this perspective, national unions find themselves simultaneously
pushed towards greater European-level coordination and towards increased
support for and acceptance of local specificities, which they often regard as a
‘double bind’.

2. Coordinated Decentralization: Reconciling Local Flexibility

and European Standards?

For some observers, however, this emergent combination of horizontal

coordination and vertical decentralization may itself provide a solution to
the unions’ dilemma. Thus quite early in the EWC debate, Marginson
and Sisson (1996, 1998) argued that the likely outcome of their diffusion
would be
the development of ‘arms-length bargaining’, in which negotiations continue to be
conducted through existing industry and enterprise structures at national and sub-
national level, but where the positions of the parties are increasingly coordinated
 Creating a Multinational Public for the Corporation 273
across European borders and outcomes are increasingly similar. (Marginson and
Sisson 1996: 230)
Such an approach may appear most plausible if the goal is to defend certain
minimum labor standards against the ‘social dumping’ that European unions
fear to be emerging from investment bargaining and competitive bench-
marking processes within MNCs, especially following the completion of
Economic and Monetary Union (EMU) and the introduction of the Euro.
The European Trade Union Confederation (ETUC) passed a resolution on
the ‘Europeanization of industrial relations’ at its 1999 Helsinki Congress
stressing the urgent need to develop new procedures for cross-national
coordination of collective bargaining. The central responsibility for imple-
menting this strategy was assigned in turn to the ETUC’s industry feder-
ations, who were expected to create appropriate structures and instruments,
adapted to the needs of each sector. Faced with the unwillingness of employ-
ers to negotiate at a European level, whether directly or through the EU’s
sectoral social dialogue committees, the European Metalworkers’ Federation
has been particularly active in promoting unilateral cooperation among its
national affiliates. In addition to adopting a common guideline or ‘coordin-
ation rule’ for wage increases, as recommended by the ETUC Executive
Committee, the EMF is also seeking to establish European minimum stand-
ards for annual working time, vocational training rights, and other qualitative
issues to be pursued through national negotiations. To reinforce coordin-
ation among its affiliates, the EMF has created an online European Collective
Bargaining Information Network (EUCOB@) for continuous exchange and
monitoring of data on current developments, and has encouraged the for-
mation of cross-border collective bargaining networks in which union
representatives in neighboring regions sit in on each other’s negotiations
with employers. And the Federation also maintains a Task Force aimed at
coordinating the policies of the 200 or so European Works Councils in the
sector, though its impact remains unclear (Sisson and Marginson 2000;
Schulten 2001a,b; Mermet and Hoffmann 2001; Mermet 2002).
But even as the EMF and other EIFs are stepping up their efforts to
coordinate national negotiations across borders, Marginson and Sisson
(2002a: 341) point out that ‘the nature of sector-level agreements has been
changing away from enumerating detailed provisions and towards establish-
ing core pay and conditions along with guiding principles for subsequent
negotiations at lower levels’ in response to the growing complexity of issues
to be resolved at plant and company level. In most European countries apart
from the UK, these authors contend, such ‘organized’ or ‘centrally coordin-
ated’ decentralization is leading to a profound shift not only in the form of
274 Challenges and Promises of Globalization

collective agreements, from standard substantive rules to more flexible pro-

cedural frameworks, but also in the negotiating process itself, from ‘distri-
butive’ bargaining in which there are winners and losers to ‘integrative’
bargaining (Walton and McKersie 1965) in which joint problem-solving
can yield mutual gains (Marginson and Sisson 2002b: 674–80; Sisson and
Marginson 2000, 2001).
Ironically, however, Sisson and Marginson also see unilateral management
coordination within MNCs as perhaps the strongest force pushing towards
greater ‘Europeanization’ of industrial relations. By promoting isomorphism
across their subsidiaries, they argue, the benchmarking process initiated by
MNC HQs ‘is directly leading to the harmonization of many of the condi-
tions of employment and indirectly encouraging trade unions to respond’
through their own coordinated bargaining efforts at different levels (Sisson
and Marginson 2000: 38). The greater the convergence or ‘sameness’ pro-
duced by this process of harmonization, moreover, the easier it should
become to orchestrate collective action through such coordination mechan-
isms. Sisson and Marginson’s work provides an illuminating analysis of the
multiple pathways through which bargaining may be coordinated, and of
how individual initiatives by small groups can evoke complementary
responses from other quarters in an integrative process of mutual learning
across the labor movement. In other words, they supply all the premises for
showing how such a process of coordinated action and mutual learning
could operate cross-nationally. But what is mistaken in their analysis from
our perspective is the unilinear direction attributed to this process.
MNC HQs may be conducting their competitive benchmarking processes
in the way that Hancké, Mueller, and others have depicted them. And such
investment bargaining may also have forced workers and unions to accept
reduced rights and increased duties, although as Sisson (2001: 608) observes
in relation to a large-scale European survey of plant-level Pacts for Employ-
ment and Competitiveness (PECs), ‘virtually all . . . involved some form of
‘‘concession’’ on the part of the employer as well as employees’. But our study
of APV demonstrates conversely how workers and union representatives
have taken the offensive in experimenting with innovative ways of expanding
their plants’ developmental possibilities, sometimes in collaboration with
local management, but always outside the notice of the HQ. So while
corporate centers are pressing for greater uniformity, their local subsidiaries
are inventing new forms of difference.
These observations suggest that although offensive local development
strategies may emerge within each plant through informal patterns of inter-
action, these need to be communicated and justified through some form of
coordinated bargaining if they are to become mutually understood and
 Creating a Multinational Public for the Corporation 275

recognized within the MNC. By formulating explicitly the varying objectives

of each plant, it would become possible to change the orientation of the
benchmarking process into a mechanism enabling the MNC to discover the
diverse capabilities of its subsidiaries and thereby institutionalize a more
effective division of labor between them. The same could occur within
and across unions, as they discovered that members engaged in a variety
of regional and national labor markets, rather than competing with one
another, could draw on complementary sources of comparative advantage.
In this way the MNC would become an association of different plants
following a diversity of paths, depending on the varying resources they
were able to mobilize through their respective localities and labor markets.
Unfortunately, however, the discovery of offensive local developmental
possibilities and the formulation of defensive union bargaining strategies are
very different processes, and shop stewards and conveners in both Horsens
and Lake Mills sometimes had to oppose their own wider unions in order to
find experimental solutions to the challenges they felt themselves to be
facing. Integrative bargaining processes, in which local managers and
union representatives simultaneously seek to forge new plant-level develop-
ment strategies and strike a balance between the different groups’ positions
and roles within them, are difficult to aggregate and may be seriously
disrupted by more centralized distributive bargaining aimed at defending
uniform standards. As Sisson himself acknowledges, the shift to ‘such inte-
grative bargaining does not necessarily replace the more traditional forms of
distributive or adversarial bargaining. Rather they sit side-by-side’ (Sisson
2001: 609). In some countries, this situation may explain why unions have
come into conflict with their local constituencies. In other countries where
unions have been less prescriptive, this has left their local representatives
relatively isolated. Since national unions are not known for their willingness
to take risks and initiate experiments, shop stewards and EWC representa-
tives have often felt that when they began to participate in offensive change
projects through an integrative bargaining process, they found themselves
engaged not only in a game they did not understand, but also one in which
they became more isolated from their union than ever. In such cases, local
union representatives within MNCs have often felt themselves to be suffering
from what Traxler (1995) terms ‘disorganized decentralization’, in which it is
extremely difficult to learn from one another and thereby expand the inte-
grative bargaining process from the individual subsidiary to the MNC as a
whole. In other words, the social space where shop stewards and other
employee representatives could meet, discover shared experiences, and
develop common strategies is already occupied by national unions that are
geared more towards distributive than integrative bargaining, creating
276 Challenges and Promises of Globalization

a double bind for the actors concerned. But if a growing number of shop
stewards, conveners, EWC representatives, and local union officers come to
realize that they are in the same situation, they may engage in mutual
interaction and dialogue through which they can experimentally discover
how to break out of this double bind and simultaneously invent new ways of
organizing collective action within both unions and MNCs.

3. Integrative Bargaining and Disorganized Decentralization

in Danish MNC Subsidiaries

Denmark is often taken to be a paradigmatic case of ‘organized decentral-

ization’ (Sisson and Marginson 2000: 11–12; Traxler et al. 2001). But in an
interview-based study of ten conveners and shop stewards from Danish
MNC subsidiaries (Kristensen 2002), we found that the spread of integrative
bargaining at plant level was creating a situation of disorganized decentral-
ization, and with it a deeply felt need for mutual learning. The general
pattern observed among these conveners and shop stewards closely resem-
bles the behavior of the convener at the APV-Horsens plant described in
Chapters 2–3 (pp. 27, 73). By engaging in various forms of integrative
bargaining at the local level, these conveners and shop stewards have grad-
ually developed a partnership with production management to allow ups-
killing of machine operators, integration of planning and execution at the
level of the individual worker, and the creation of a lean managerial hierarchy.
In many cases these partnerships have given rise to new forms of teamwork-
ing and group bonus payment systems, which permit performance measure-
ment at the level of the work group and encourage the pursuit of continuous
improvement. Under such conditions, front-line workers, whether initially
‘skilled’ or ‘unskilled’, become infused with a new professionalism and enter
into a new dynamic of cooperation and rivalry that places conveners and
shop stewards in a crucial monitoring role. This new dynamic and monitor-
ing role in turn makes it apparent how individual, group, and plant perform-
ance may be linked and upgraded. In other words, shop stewards and
conveners learn how local performance may be improved from below,
while they are simultaneously pressured from above by the benchmarking
processes initiated by the MNC HQ. As a result, they feel an increasing need
to influence managerial behavior and corporate politics within the MNC as a
whole, and often find that their position offers them an experimental plat-
form for this purpose. In so doing, the conveners and shop stewards may
discover entirely new roles for themselves and for their unions by extending
 Creating a Multinational Public for the Corporation 277

the reach of their partnership to the highest managerial levels. A few

examples may indicate the range of strategic options which thereby open up.
A convener from a subsidiary plant producing plastic containers for food
products had collaborated with local management to raise skills, flexibility,
and quality, while also reducing scrap and cycle times, and doubling the
number of machines each operator could control. An incipient corporate
crisis then brought him into direct contact with the MNC headquarters.
The sales department of the MNC had promised a customer a special high-
profile container for a new product launch which had been prepared through
an extensive marketing campaign involving magazine advertisements and
television spots. Only a few weeks before the campaign was to begin, it was
discovered that the sales department had forgotten to communicate its needs
to the production subsidiary. The HQ therefore ordered the plant to work
overtime for the next few weeks, including the Easter holidays. Since the
reorganization of production had already led to a large-scale accumulation of
overtime in the plant, many workers had already planned and booked
extended Easter holidays. Hence the abrupt edict from above could be
expected to arouse great anger and thereby risked destroying the sense of
loyalty to the plant that the convener had carefully been nurturing. On behalf
of the workforce as a whole, the convener therefore rejected the HQ’s
demand for compulsory overtime, and opened negotiations about what
would be offered to those operators who voluntarily agreed to give up their
holidays. With a very attractive offer in hand, the convener then asked each
operator individually if he or she would be able to work overtime during this
period. In this way, he simultaneously reinforced both the individual loyalty
and the collective solidarity of the workers, while also solving the problem
facing the headquarters, which would otherwise have faced large penalties for
failing to fulfill its contract with the customer.
This incident served as a platform for subsequent action. As the plant had
improved its products and reduced costs to far below the MNC average,
other subsidiaries increasingly began to sell its products rather than those
produced in their own factories. But corporate transfer-pricing rules stipu-
lated that subsidiaries should sell their products to one another at a cost-
based price to create incentives for the emergence of a rational division of
labor within the MNC. Meeting such internal demand, however, left this
plant with too little capacity to sell products through its own distribution
channels at a higher profit. In other words, the better its technical and
organizational performance, the less it could meet the HQ’s targets for profit
improvement. The convener therefore wrote a letter to the CEO of the MNC
explaining this dilemma, and was able to obtain a reform of the transfer
pricing system.
278 Challenges and Promises of Globalization

An organizational restructuring later forced the convener to write again to

the CEO. The MNC had adopted a divisional structure that centralized
authority and budgets in the hands of SBU rather than subsidiary managers.
For the subsidiary in question, this reorganization meant that they could no
longer collaborate with their local customers to design, develop, and experi-
ment with new containers, which the plant saw as the royal road to continu-
ous upgrading. The convener then simply asked the HQ to increase the
autonomy and budgetary discretion of the local managers, thereby engineer-
ing at the same time a change in the division of labor among managers at
different levels within the MNC.
Whereas the convener in this case protected the local managers from
structural changes within the larger MNC, on another occasion he inter-
vened to protect the plant from the career aspirations of its own local
manager. As a result of his successful partnership with the convener,
the plant manager had gradually increased his personal aspirations and
begun to engage in corporate politics at the HQ level. To further an
empire-building strategy, he hired a number of additional managers
for new positions in the local subsidiary. Their high wages in turn ham-
pered the ability of the convener and the work teams to meet the profit-
improvement targets they believed necessary to secure increased capital
investment in the plant. Hence the convener wrote once again to the CEO,
asking for an explanation of the intended role of these new managers, as he
wondered how they were expected to contribute to the plant’s long-term
viability. The answer arrived promptly in the form of an HQ delegation that
investigated the local managerial team, resulting in its replacement and
radical downsizing.
This example shows how an entirely new role for conveners may emerge as
they become capable not only of helping reorganized high-performance
plants solve urgent new problems, but also of influencing wider corporate
policies and constitutional ordering by pointing out where higher-level
organizational structures and rules undercut the micro-dynamics of continu-
ous improvement in individual subsidiaries. It is obvious that the higher the
performance of the convener’s own plant, the more his voice will be heard
and his influence increase. This voice is independent of individual career
aspirations and may be used to regulate relations between managers at
different levels more effectively than can the voices of the latter, which are
seldom heard by their superiors without an opportunistic overtone. Perhaps
the most radical feature of this story is that the convener may even break a
local partnership which proves counter-productive after some years, and in
so doing bring himself into a much more direct and intensive partnership
with the HQ.
 Creating a Multinational Public for the Corporation 279

This is precisely what happened to another convener interviewed in our

study. He had been involved in a partnership with the managing director
of a factory producing agricultural machinery to implement a similar
continuous-improvement regime. Workers had put great energy into
upgrading their skills as part of a new group-based production system and
were eagerly learning how to rotate among numerous complicated work
stations. But the managing director continued to introduce new concepts
and production principles into this system, so the task facing the operators
became nearly impossible. Fearing that the workers’ commitment would
be transformed through despair into resentment and labor turnover, the
convener unsuccessfully tried to convince his partner to slow down. Rebuffed
by the managing director, he decided to write a letter to the HQ explaining
the situation. The HQ took him seriously, and as his case proved convincing,
the managing director was replaced by a new candidate selected in consul-
tation with the convener for his openness to local partnerships.
Both conveners later became involved in constituting EWCs, as these
interchanges had helped to convince top managers at the HQ that they
could benefit from higher-level participation by workforce representatives.
As a result, one of the conveners discovered a new and very important role in
helping to re-evaluate and re-design the performance measurement system
to ensure that rather than becoming a tool in the opportunistic game among
managers it could enable the EWC to assess realistically the comparative
performance of the MNC’s constituent plants. This then became one of the
key ongoing tasks for the EWC in question.
Interestingly enough, the participative dynamic of these two cases seems
much more intense than those starting with the constitution of an EWC as a
formal body. The literature we examined earlier reports few instances of
serious participation by EWC representatives that have led to radical changes
in MNCs’ organizational structures, management appointment patterns, or
benchmarking systems. The experience of the APV European Forum might
help to explain why. First, just to get such a body up and running confronted
the participants with a formidable set of obstacles to cooperation (language,
training, cultural/institutional differences, trust-building) that diverted
attention from putting that body to work to influence corporate policies.
And as we have already seen, managers may easily exploit such obstacles
by using the EWC to institutionalize rivalry among representatives from
different countries and plants. Second, as illustrated by the convener from
Copenhagen who originally served as the ‘constitutional father’ of APV’s
European Forum, fighting for the mere survival of the EWC can become a
full-time engagement. In his case, it was only due to steady and continuous
work with shifting headquarters interlocutors that the Copenhagen convener
280 Challenges and Promises of Globalization

was able to preserve the EWC after Siebe took over APV in May 1997 and
then again when it merged with BTR to form Invensys in November 1998.5
In a global economy where mergers and acquisitions are common, such
work depends in no small part on individuals’ ability to inspire credibility
and trust among changing top managers, who may often be hostile to worker
participation from the outset. Yet without such patient work, participation
may never be fully institutionalized in global companies, despite the legal
support provided by the EU Works Councils Directive, and will thus depend
on individual conveners’ ability to build personal trust up the managerial
hierarchy. Support from representatives of other plants, works councils, and
unions is also crucial in such struggles to preserve an EWC through a series of
mergers and acquisitions. Hence it is vital to find ways of neutralizing the
rivalry among different plants in the face of corporate restructuring which
might otherwise undermine their capacity to cooperate within the EWC.
Thus, for example, the Copenhagen convener was able to use the EWC to
ensure that when Invensys was preparing to close one of its two homogenizer
plants in Denmark and Germany, the decision would be entrusted to
a manager independent of both facilities who would be able to undertake a
neutral assessment. By establishing a level playing field in this way, he helped
both to civilize the managerial game within the MNC and to prevent the
plants’ struggle for survival from damaging the EWC.
From these cases, we can see that by engaging in decentralized integrative
bargaining conveners and shop stewards have been accumulating a great deal
of experience in running factories, organizing collaboration within and
across teams, extending partnerships, and monitoring managerial roles for
the entire MNC. But they also find themselves increasingly isolated as a
result. According to our interviews, these conveners and shop stewards feel
isolated not only from their unions, since their activities often go beyond
what is permitted by formal rules, but also from their own local constituents,
who hardly understand their interest in the broader structure and design of
global firms. Obviously, such figures are increasingly interested in discussing
and developing strategies with other employee representatives in similar
situations, and it is precisely through such exchanges that unions may
learn how to redefine their own roles and contributions. Other thoughtful
observers of EWCs like Lecher et al. (2001: 138–40) have argued that net-
working through exchanges of information, experience, and good practice is
the most promising path to strengthening their activities, enabling them to
become an actor in their own right, and establishing more constructive
relationships with trade unions at national and European level. In the next

5
On the Invensys merger and its outcome, see Ch. 12 below (p. 301).
 Creating a Multinational Public for the Corporation 281

section we report on a specific Danish case, where a group of conveners in

MNC subsidiaries have discovered that they share common situations and
have come together to discuss ways to change them.

4. The Cross-Border Activity Group: A Danish Conveners’ Initiative

In the spring of 1998, a three-day European conference on new work

organization, local pacts, and strategies for continuous training brought
together a group of conveners, shop stewards, and local union leaders on
the island of Funen in southern Denmark. Discussions soon focused on the
strategic challenge that these actors faced in coordinating the development of
MNCs with that of the locality. The participants thereby came to realize that
they occupied a crucial position at the intersection between two complex,
heterogeneous, and often volatile spheres of economic activity, neither of
which they fully understood. Willingly or unwillingly, these conveners and
shop stewards, many of whom were employed in foreign-owned MNC
subsidiaries, had become strategic actors at a nodal point of the new global
economy, but neither their own experiences nor the impressive training
system for plant-level representatives organized by the Danish unions had
prepared them for this role. Their discussions revealed that many such
conveners and shop stewards felt themselves similarly isolated, since few
union officials or professional staff seemed able to understand their situ-
ation. It gradually became clear as a result that the conveners and shop
stewards were the real experts in this case, so that the best thing they could
do as a group would be to exchange experiences about their work in different
companies and thereby expand their mutual understanding of the strategic
games in which they were involved.
In the first phase of its work, what became known as the Cross-Border
Activity (CBA) Group concentrated mainly on exchanges of plant visits,
arranging full-day discussions about the local subsidiary’s position within
the larger multinational, usually based on presentations from managers and
conveners. They also organized an experimental learning workshop in col-
laboration with the Danish Trade Union Confederation (LO) School in
Elsinore, focused initially on enhancing conveners’ knowledge of strategic
planning, and later on improving their information technology skills and
English-language proficiency. Inspired by this collaboration with the CBA
group, the LO School went on to develop a special training curriculum for
conveners and shop stewards on regional and global strategies and participa-
tion in European Works Councils, and began to organize a high-profile
282 Challenges and Promises of Globalization

program of educational courses and international conferences jointly with

researchers from Danish universities.
This first phase revealed that the conveners and shop stewards shared a
mixture of positive and negative experiences from working on the border
between localities and global firms. Following the collaborative strategy of
Danish unions and their members, these plant-level representatives had
generally managed to help transform their respective MNC subsidiaries
into very flexible and efficient high-performance workplaces. They had
contributed to this transformation by mobilizing the vocational training
systems of the wider community to support a highly dynamic process of
skill upgrading and continuing education by which many workers became
committed to lifelong learning. In some localities, this process had resulted
in increased influence for the conveners and shop stewards over the strategies
and decisions of the MNC. In other places, however, they were unable to
prevent plant closures by poorly informed HQs, which made it apparent that
both their own efforts and the resources of the locality and the state had been
wasted. The overall picture which emerged from these discussions was that
the harmonization of local and global developments was a highly contingent
hit-or-miss process whose outcome depended excessively on chance events.
Only systematic dialogue in both directions—upwards to the MNC HQ and
outwards to the local community—could change this situation. In learning
how to organize such dialogues effectively, the group concluded, they would
benefit greatly from continuous exchange of information and experience
with local actors in different countries.
In the second phase of its activity, the CBA group therefore began
to operate internationally. They visited other European countries, trying to
extend their network to workers and managers in Swedish MNCs and
to British unions involved in local social pacts. They also approached the EU
Commission and the European Parliament to investigate possible means of
institutionalizing such cross-border collaboration and experimentation on a
more systematic basis. In Denmark, the group arranged meetings with
national union representatives and government officials to discuss how
these institutions could assist actors like themselves in linking local and
global developments more effectively.
Together with an internationally oriented Danish research group (to which
one of the authors of this book belongs), the CBA group then formulated a
proposal for a third-phase project on ‘Experimentalist Regions and Global
Collaboration’, Project REGLO, aimed at stimulating the emergence of a new
European-wide public to address the problems of governing the interface
between MNCs and their host localities. In the following section, we present
a brief sketch of this project as envisioned by the CBA group.
 Creating a Multinational Public for the Corporation 283

5. Visions for Project REGLO: From Local Dialogue

to Interregional Cooperation

The focal actors of Project REGLO are individuals and organizations of

various types strategizing to maintain and develop the place of their local
communities in the global strategies of MNCs. In working to insure that the
host community benefits from the presence of the MNC, these actors simul-
taneously seek to develop local resources, skills, and relationships in ways
which can benefit the global firm. Such focal actors could be conveners or
shop stewards employed in MNC subsidiaries, as in Funen; but in regions
where unions are less active, they also could be plant managers, employee
representatives, or European Works Council members. In other localities, the
focal actors might be suppliers to MNCs or associations of small and
medium-sized firms; and in still other cases, they might instead be NGOs
or public agencies.
The primary task of Project REGLO as envisaged by the Danish CBA
group is to create a trans-European network among these heterogeneous
focal actors as a basis for systematic exchange of experience, mutual learning,
and benchmarking of how best to perform this strategic role in different local
settings. By bringing these focal actors together across regional and national
boundaries, Project REGLO would establish a forum for dialogue among
potential rivals, thereby stimulating the open communication and mutual
respect which is a precondition for joint learning. Through this network,
Project REGLO hopes to stimulate and empower each focal actor to establish
a multilateral dialogue involving not only the MNC and their own organiza-
tion or unit, but also the entire web of relevant bodies and stakeholders in the
local community, both public and private.
The aims of establishing such a dialogue between local actors and the
MNC are to help each side to understand better the other’s strategic position,
to build mutual trust, and to negotiate agreed standards or codes of practice
for one another’s behavior. Where European Work Councils already exist,
this local dialogue could catalyze the participants’ experimental efforts to
make more intensive and constructive use of this institution. Where EWCs
are absent, for whatever reason, this local dialogue could encourage their
creation. By participating in Project REGLO, the MNC would gain access to
knowledge about how such local dialogues function in other communities
and firms, and could thereby be inspired to develop more effective ways of
coordinating its own activities on a global scale. By participating in such a
multilateral dialogue, local actors could likewise be spurred to formulate
their aspirations for community development in the medium to long
term. This process in turn could stimulate a variety of local organizations,
284 Challenges and Promises of Globalization

authorities, and agencies to establish new objectives and benchmarks for

their own activities, and to initiate concerted experiments or social pacts to
increase employment, upgrade workforce skills, and improve support ser-
vices to firms. It could also help the focal actors of Project REGLO to discover
more specifically how the local community could play a more proactive role
in relation to the MNC on the one hand and how the MNC could reinforce
and benefit from local development on the other. Finally, through participa-
tion in a trans-European network like Project REGLO, its focal actors could
further enrich these local dialogues by drawing on innovative ideas and
practices developed by their counterparts in other regions.

6. Building on and Reinforcing European Experimental Governance

Project REGLO remains for the moment more an aspiration on the part of a
group of Danish conveners and their academic and union advisers than a
functioning collaborative network. But an interregional network of this type,
linking focal actors engaged in local dialogues with MNC subsidiaries, could
both build on and help to reinforce the emerging multi-level architecture of
experimental governance in the European Union in a number of ways.6

Territorial Employment Pacts

First, an interregional network like Project REGLO could build on the
experimental program of ‘Territorial Employment Pacts’ launched by the
European Commission. This program was intended to stimulate local devel-
opment and improve the effective use of EU structural funds by supporting
innovative ‘bottom-up’ projects based on inclusive partnerships of public
and private actors and an integrated approach addressing both the supply
and demand sides of employment creation. In order to qualify for EU
support, these projects were expected to involve an agreement or ‘pact’
among the broadest possible array of stakeholders, such as local authorities,
employers, unions, banks, educational and training institutions, community
groups, voluntary associations, and NGOs. As in the case of Project REGLO,
however, both the practical objectives of these pacts and the focal actors
responsible for their coordination did not follow a single model, but could
vary widely depending on pre-existing patterns of collaboration and percep-
tions of local needs. Between 1997 and 2000, the Commission approved 89

6
For an overview of this experimental governance architecture from the EU through the
national to the local level, see Zeitlin and Trubek (2003).
 Creating a Multinational Public for the Corporation 285

such territorial employment pacts across the EU’s fifteen member states. In
some countries, notably Italy, which was already in the process of introdu-
cing a similar experimental program at national level, the number of terri-
torial pacts rapidly expanded far beyond the coverage of the EU scheme. In
other European countries, such as Ireland, these pacts were often assimilated
into the existing network of local area-based partnerships established with
support from the EU’s anti-poverty programs and structural cohesion
funds.7
In reviewing the experience of the territorial employment pacts from the
perspective of Project REGLO and the Danish CBA group, two limitations
stand out. One concerns the range of issues addressed. Beyond the formation
or strengthening of local partnerships themselves, many of the pacts focused
on initiatives central to the agenda of Project REGLO, such as promoting
lifelong learning or adapting public training programs and labor market
services to local needs. Yet few if any of these European pacts incorporated
multinational subsidiaries as key partners or devoted explicit attention to the
problems of reconciling local development initiatives with MNCs’ global
strategies—perhaps, paradoxically, because of the program’s overarching
emphasis on valorizing endogenous territorial resources. Only in cases like
those of Turin in Italy (which was not sponsored by the EU) or Dundalk in
Ireland (which built on an existing area-based partnership) did such terri-
torial pacts focus directly on actions aimed at working with MNCs to
upgrade the capabilities of local supplier firms or the skills of their employees
(Pichierri 2001: 253–5; Sabel 1996). A second limitation of the European
territorial employment pacts program concerns the restricted interaction
among the participants themselves. The European Commission was con-
cerned from the outset to promote mutual learning and the diffusion of
‘good practice’ across the pacts through informational seminars and work-
shops, publications, and a dedicated website and ‘innovation unit’ run by a
group of external consultants. But interaction among the pact coordinators
themselves was largely confined to participation in occasional conferences,
and the Commission’s review of the program’s initial phase highlighted the
need to support ‘more intensive exchange of experience among the pact
partnerships and between them and all the regions interested in this
approach’ (European Commission 1999a: 8, 15). By linking local develop-
ment partnerships to one another and encouraging them to benchmark their

7
For an academic overview of the territorial employment pacts and their operation, see Regalia
(2003). For official presentations and evaluations of the program, see European Commission
(1999a, b, 2001a, b). On the Italian case, see also Pichierri (2001); Trigilia (2001); Cersosimo and
Wolleb (2001); Negrelli (forthcoming). On local area-based partnerships in Ireland and other
European countries, see Sabel (1996b); Benington and Geddes (2001); Evers (2003).
286 Challenges and Promises of Globalization

respective approaches for tackling the global challenge of MNCs, an inter-

regional network like Project REGLO could thus contribute significantly to
that ‘opening up to the world’ of local communities’ survival strategies which
Commission officials themselves identified as an underlying goal of the
territorial employment pacts (Lönroth 1999: 3).

The European Employment Strategy and the Open Method of Coordination

More important still as a reference point and potential resource is the
European Employment Strategy (EES), the institutionalized framework
through which the EU and its member states have coordinated their employ-
ment policies since the late 1990s. Anchored in the new employment title of
the Amsterdam Treaty and launched at the Luxembourg ‘jobs summit’ in
1997, the EES (or ‘Luxembourg Process’ as it is also known) has developed
into an iterative process of experimental governance comprising the
following steps in a regular multi-year cycle:
. Joint definition of common objectives, indicators, and policy guidelines,
based on benchmarking among EU member states and other advanced
economies;
. National Action Plans (NAPs) which assess performance in meeting the
objectives, as measured against both common indicators and country-
specific metrics, and propose reforms accordingly;
. Peer review of these plans, including mutual criticism and exchange of good
practices, backed up by country-specific recommendations for corrective
action from the Commission and the Council;
. Annual re-elaboration of the NAPs, and at less frequent intervals, of the
common objectives, indicators, and guidelines in light of the experience
gained in their implementation.
Because the EES encourages convergence of national objectives, perform-
ance, and policy approaches rather than of specific institutions, rules, or
programs, this experimental governance mechanism is particularly well-
suited to identifying and advancing the common concerns and interests of
EU member states while simultaneously respecting their autonomy and
diversity. By committing the member states to sharing information, compar-
ing themselves to one another, and reassessing current policies against their
relative performance, the Open Method of Coordination (OMC) pioneered
by the EES is also proving to be a valuable tool for promoting deliberative
problem-solving and cross-national learning across the EU. Hence the OMC
has rapidly become a virtual template for EU policy-making in complex,
domestically sensitive areas where diversity among the member states pre-
cludes harmonization but inaction is politically unacceptable, and where
 Creating a Multinational Public for the Corporation 287

widespread strategic uncertainty recommends mutual learning at the

national as well as the European level. Embraced at the Lisbon socio-
economic summit in March 2000 as a new governance instrument with
broad applicability, the OMC has since been extended in different forms
into a variety of policy domains such as social inclusion, pensions, structural
economic reforms, immigration/asylum, and education/training.8
Not only the OMC approach, but also many of the EES’s substantive goals
are closely aligned with those of Project REGLO. During its first five years
of operation, for example, the EES embraced new ‘horizontal’ objectives of
enhancing quality in work, promoting lifelong learning, extending social
partnership, and raising the employment rate, alongside the four original
vertical ‘pillars’ of improving employability, developing entrepreneurship,
encouraging adaptability of businesses and their employees, and strengthen-
ing equal gender opportunities (each of which incorporated a number of
more specific guidelines).9
Empirical research on the EES, including the vast body of evaluation
reports produced for the 2002 mid-term review (European Commission
2002a, b), suggests that it has raised the profile and ambitions of employment
policy at both European and national levels, while enhancing awareness
across the EU of programs, experiences, and problems in other member
states. In practical terms, the strategy appears to have been most effective in
promoting administrative reorganization and revised approaches to employ-
ment policy at a national level. Thus in most, though not all EU countries,
the EES has contributed to better horizontal integration among formally
separate but interdependent administrative domains (e.g. labor market
policies, social assistance, pensions, taxation), greater decentralization (espe-
cially of the public employment services), and increased attention to vertical
8
There is now a vast literature on the EES and the OMC. For overviews, see Zeitlin (2002, 2003);
Cohen and Sabel (2003); Sabel and Zeitlin (2003); Trubek and Mosher (2003); Goetschy (2003);
Jacobsson (2002); de la Porte and Pochet (2002). For a more extensive collection of papers and
reports, see the OMC Research Forum of the University of Wisconsin-Madison European Union
Center, accessible at <http://eucenter.wisc.edu/>. OMC processes vary in their precise modalities
and procedures depending on the specific characteristics of the policy field, the Treaty basis of EU
competence, and the willingness of the member states to undertake joint action.
9
For the 2002 guidelines, see Official Journal of the European Communities 1.3.02, L. 60–9,
available on the website of the European Commission’s Directorate-General for Employment and
Social Affairs (DG EMPL), <http://europa.eu.int/comm/employment_social/index_en.htm>. Beg-
inning in 2003, the EES will concentrate on three overarching objectives: achieving full employment
by raising the employment rate, improving quality and productivity at work, and promoting
cohesion and an inclusive labor market. The employment guidelines will focus on a reduced
number of priorities supporting these objectives, such as active and preventative measures for the
unemployed, fostering entrepreneurship to create more and better jobs, promoting adaptability in
the labor market, developing investment in human capital and strategies for lifelong learning,
increasing gender equality, and addressing regional disparities. See European Commission (2003a,
b) and European Council (2003: 18–21).
288 Challenges and Promises of Globalization

coordination between levels of government. In many areas, such as active

aging, lifelong learning, gender mainstreaming, and the adoption of a pre-
ventative approach to combating unemployment, there is likewise evidence
of broad shifts in national policy thinking, even if it seems better to speak of a
two-way interaction rather than a one-way impact, since member states had
begun to shift in many cases before the creation of the EES, whose guidelines
they also helped to define themselves.10
At the same time, however, this empirical research also indicates that the
EES has not fully capitalized on the theoretical promise of the OMC as a
mechanism for mutual learning. Thus, for example, EU member states do
not seem to have made much tangible progress in learning from one another
at the level of local practice about how best to integrate labor market
activation with social inclusion, balance flexibility with security in modern-
izing work organization, or extend the scope of lifelong learning to reach a
wider section of the population. Moreover, according to the Commission’s
own technical evaluation of the territorial dimension of the EES, there are no
(or at least very few) examples of upward transfer of promising local solu-
tions, nor is there evidence that national programs or EU guidelines have
been modified in response to sub-national experiences and needs. ‘[T]o
date information has flowed only one-way,’ the report concludes, ‘from the
national to other levels’ (European Commission 2002c: 11–12).
Much of the problem, as this last observation suggests, appears to stem
from the fact that in many (though not all) member states, the EES remains
little known or regarded as a narrow, technocratic reporting process primarily
involving higher civil servants working in direct contact with EU institutions,
rather than a broad, inclusive process of public policy-making, accessible to
the participation of all stakeholders. Such criticisms have given rise to persist-
ent calls from many quarters to ‘open up’ the EES to a wider range of actors,
which have influenced both its guidelines and its procedures. Thus following
pressure from the ETUC, the European Parliament, and the Commission,
most member states have sought with varying degrees of success to involve
central unions and employers’ associations more fully in the formulation of
their NAPs, though the very tight timetable and the formality of the procedure
along with disagreements among the parties over the objectives themselves,
have remained continuing obstacles (Winterton and Foden 2001; Raveaud
2001; European Commission 2002d).
From an early stage in the process, local and regional authorities, which
often have direct responsibilities for employment and economic development
10
In addition to the sources cited in n. 8 above, see Zeitlin et al. (forthcoming). The national and
Commission evaluation reports from the 2002 mid-term review of the EES may be consulted on the
DG EMPL website (see n. 9 above).
 Creating a Multinational Public for the Corporation 289

policies, also began to demand the right to participate more actively in the EES,
lobbying at a European level through horizontal networks like the EU’s
Committee of the Regions, the Council of European Municipalities and
Regions (CEMR), and EUROCITIES. Between 1998 and 2001, the employ-
ment guidelines were progressively revised to call for the mobilization of ‘all
actors at regional and local levels’ in the implementation of the EES; local and
regional authorities in particular were encouraged to develop their own terri-
torial employment strategies and to ‘promote partnerships between all actors
concerned’ in carrying them out. The Commission organized a year-long
campaign and consultation process on ‘Acting Locally for Employment’, and
the European Parliament created a new budget line to support pilot projects
that would ‘encourage cooperation, improve knowledge, develop exchanges of
information, promote best practices, support innovative approaches and
evaluate experience gained in implementing the National Action Plans for
Employment at local and regional level’ (European Commission 2000, 2001c;
Committee of the Regions 2001: esp. 20–4; CEMR 2001; EUROCITIES 2001).
In response to these pressures, many member states have sought to involve
subnational actors in the implementation and dissemination of their
NAPs—often through the formulation of local and regional action plans
(LAPs and RAPs), which have largely supplanted territorial employment
pacts as the focus of EU support for innovative local development projects
and partnerships. Few member states, however, have seriously attempted
to broaden participation in the EES beyond the traditional social partners to
civil society groups and NGOs, or to involve local and regional authorities in
the formulation and monitoring of the NAPs themselves (European Com-
mission 2002c, d; EAPN 2002; Zeitlin 2002; Pochet 2003). In its January
2003 communication on ‘The Future of the European Employment Strategy’,
which echoed an earlier resolution by the European Parliament, the Com-
mission explicitly called upon member states to ‘actively involve all stake-
holders . . . in the development and implementation of national strategies’,
including civil society and territorial authorities, as well as to encourage and
support ‘partnership-based local and regional employment strategies’ (Euro-
pean Commission 2003a: 18). It remains to be seen how far national govern-
ments will prove willing in practice to open up their own policy-making
processes to fuller participation from non-state actors and lower levels of
governance.11 Whatever the ultimate outcome, however, it seems clear both

11
These injunctions were incorporated directly into the draft 2003 Employment Guidelines
proposed by the Commission. But member state representatives in the EU Employment Committee
insisted on deleting any explicit reference to civil society, acknowledging only that ‘relevant actors in
the field of employment at national and regional level have important contributions to make’.
Compare European Commission (2003b) with European Union Council of Ministers (2003).
290 Challenges and Promises of Globalization

that the EES will provide a promising platform for cross-national public
mobilization in support of local development strategies, and that inter-
regional networks like Project REGLO could in turn help to fulfill the OMC’s
promise as a experimental mechanism for mutual learning by creating an
autonomous framework for regular horizontal exchanges of experience and
strategic benchmarking among local actors themselves.
Indeed, the potential value of such an approach has already been demon-
strated by an experimental network of local and national social partners
associated with the EES, which was supported by the European Commission
in 2001–2. The COPARSOC project was coordinated by the European Terri-
torial Excellence Association (EUREXCTER), a pre-existing action-research
network sponsored by the European Centre of Enterprises with Public Partici-
pation (CEEP), one of the three main organizations participating in the
European Social Dialogue alongside ETUC and UNICE (the European private
employers’ confederation).12 This project brought local and regional repre-
sentatives of unions and employers from a dozen EU countries to France for a
number of thematic workshops to share experiences, exchange good practices,
and critically review the territorial dimension of the EES. It also involved a
series of networked meetings between national union and employer represen-
tatives from nine EU member states to evaluate jointly the operation of the EES
through comparative discussion of each country’s NAP. The project’s meth-
odology drew explicitly on the peer review and multilateral monitoring de-
veloped within the OMC, emphasizing the importance of improving mutual
understanding of cross-national differences in employment practices through
reciprocal information about the institutional context and explanation of the
local concerns motivating participants’ questions. Among the ‘good practices’
discussed by the ‘local players’ in these meetings were innovative approaches to
working with MNCs like Volkswagen and Philips in cushioning the employ-
ment effects of industrial restructuring, supporting lifelong learning, and
promoting regional development. Based on the experience of the COPARSOC
project, social partner representatives from a number of the participating
countries expressed their support for establishing ongoing networks at both
local and national levels for peer review, exchange of good practices, and
multilateral monitoring of employment action plans (EUREXCTER 2002).

Promoting Corporate Social Responsibility

As this last example suggests, interregional networks like COPARSOC and
Project REGLO could also build on and reinforce the development of an

12
On EUREXCTER and its activities, see EUREXCTER (2001).
 Creating a Multinational Public for the Corporation 291

emergent field of European experimental governance: promoting corporate

social responsibility (CSR). Following a year-long consultation process, the
Commission published a communication in July 2002 outlining a European
action framework for CSR, defined as the integration by companies of social
and environmental concerns into their business operations and interaction
with stakeholders on a voluntary basis over and above legal requirements.
The Commission proposed a wide range of actions, including the main-
streaming of CSR into all EU policies and the creation of a Multi-Stakeholder
Forum comprised of high-level representatives from business and employers’
associations, trade unions, and NGOs to promote innovation, convergence,
and transparency in CSR tools and instruments; to exchange experiences and
good practices; and to assess the appropriateness of establishing a common
European approach and guiding principles, which could also serve as a basis
for international dialogue.
Much of this CSR activity is aimed at influencing the global labor, environ-
mental, and human rights practices of European MNCs, especially in develop-
ing countries, which like those of their US counterparts have come under
increasing critical pressure from unions, NGOs, and consumer groups. But
the EU action framework also emphasizes the social responsibilities of large
enterprises towards their employees, suppliers, and local communities. Hence
the Commission has launched a new initiative on ‘socially responsible
restructuring’, aimed ‘at stimulating dialogue between [the] social partners
in order to identify and develop best practices on anticipating and managing
restructuring’, supported by the establishment of a European Observatory on
Industrial Change attached to the European Foundation for the Improvement
of Living and Working Conditions based in Dublin. The European social
partner organizations have been formally consulted about the usefulness of
establishing a set of principles to support ‘good restructuring practices’, and
the desirability of embodying these principles in framework agreements at
cross-industry or sectoral level. But whether or not this initiative eventually
results in a something like an agreed European code of practice on socially
responsible restructuring, it will surely fuel public debate and mobilization
over the role of MNCs in community development across the EU, to which
interregional networks of ‘local players’ like those envisaged by COPARSOC
and Project REGLO could in turn make a vital contribution.13

13
For the emergent European action framework for corporate social responsibility, see Euro-
pean Commission (2001d, e), Bronchain (2003), and the website of the EU Multi-Stakeholder
Forum on CSR, <http://Forum.europa.eu.int/irc/emp1/csr_eu_multi_stakeholder_forum/info/
data/en/csr%20ems%20forum.htm>. For the Commission’s initiative on socially responsible
restructuring, see also European Commission (2002f). In June 2003, the European-level social
partners agreed a joint text on ‘managing change and its social consequences’: see EIRO (2003).
292 Challenges and Promises of Globalization

7. Developing Transatlantic Dialogue

European efforts to construct a multinational public for the corporation

through interregional networking can thus build on a rich array of EU
institutions and policies, from EWCs and territorial pacts to the EES and
the Commission’s recent initiative on ‘socially responsible restructuring’.
Interregional networking of this type could in turn help to overcome a
major weakness in the EU’s emerging multi-level architecture of experimen-
tal governance by creating new channels for horizontal coordination and
mutual learning among local actors.
How can such networking of local actors be extended to MNC subsidiaries
and their host communities in other world regions, notably the United
States, which attracted more than 40 per cent of all foreign direct investment
(FDI) in the OECD during the late 1990s (OECD 2002: 14)? Here again, the
case of APV exemplifies broader international trends. Thus at the end of the
millennium, domestic affiliates of foreign MNCs accounted for 14 per cent of
US manufacturing employment and 18 per cent of industrial production (US
Bureau of Economic Analysis 2002: 156; OECD 2002: 14). Nearly two-thirds
of all inward manufacturing FDI in the US originated from Europe, with the
UK as the largest single investing country, while the US in turn absorbed
some two-thirds of EU FDI outflows (OECD 2002: 369, 371; US Bureau of
Economic Analysis 2002: 153; European Commission 2001e: 12).14 Hence US
manufacturing subsidiaries have become increasingly significant for both
their European parent MNCs and their American host communities. And
they are no less important for any project aimed at constructing a multi-
national public to engage these corporations.
American MNCs operating in Europe are in principle obliged to permit
the formation of EWCs if they meet the employment criteria of the 1994 EU
Directive, though some have succeeded so far in evading this requirement.15
But there is no comparable obligation for European MNCs to include their
US employees in EWCs or other representative arrangements, and few have
chosen to do so. The most conspicuous exception is the German-American
automobile manufacturer DaimlerChrysler, which established a World
Employee Committee in July 2002 with members from six countries, con-
ceived as a forum for global networking among workforce representatives,

14
Some of this high proportion of European foreign investment directed to the US reflected the
cyclical attraction of the fin-de-siècle boom. Thus the US share of European outward FDI jumped
from 37% in 1996 to 66% in 1999 (European Commission 2001e : 12).
15
For the notorious case of McDonalds, see Royle and Towers (2003).
 Creating a Multinational Public for the Corporation 293

for information exchange, and for consultation with top management.16 This
committee built on earlier efforts by German and US trade unions to
institutionalize international cooperation among worker representatives
following the 1998 Daimler Benz–Chrysler merger. But the spur for its
creation came from DaimlerChrysler’s adherence to the ‘Global Compact’,
a ‘multi-level, multi-actor policy network’ based on voluntary commitment
to nine fundamental principles of human rights, labor rights, and environ-
mental stewardship launched by United Nations Secretary General Kofi
Annan in July 2000. The ‘Global Compact’ initiative is intended to serve as
a ‘value-based platform for institutional learning’ and dialogue between
private companies and other ‘critical stakeholders’ such as unions and
NGOs about how these principles can best be implemented. In line with
this approach, the first task of the DaimlerChrysler World Employee Com-
mittee was to agree with management on a common set of principles for
worldwide corporate social responsibility.17
Apart from exceptional cases like DaimlerChrysler, however, efforts to
extend social dialogue and interregional networking across the Atlantic
would have to engage a heterogeneous array of focal actors and organizations
experimenting with strategies for developing mutually beneficial relation-
ships between MNCs and local communities—in the manner envisaged by
Project REGLO. One such body is the Wisconsin Regional Training Partner-
ship (WRTP), briefly described in Chapter 4 above, in which APV’s Lake
Mills plant participated in the mid-1990s. The WRTP, as we saw, is a labor–
management alliance dominated by large, mainly unionized metalworking
plants in south-east Wisconsin (many of them affiliated to US and foreign-
owned MNCs), which has been active for more than a decade in promoting
collaborative workplace restructuring, cross-firm learning, vocational
training, and recruitment of disadvantaged inner-city and ethnic minority
workers into well-paying manufacturing jobs.18
Another closely related initiative with still greater potential impact on
the relationship between MNC subsidiaries and their host regions
is the Wisconsin Manufacturers’ Development Consortium (WMDC).

16
Volkswagen also agreed with its EWC in 1998 to create a World Group Council including
representatives from the company’s sites in South Africa, the Americas, and Asia. But following the
closure of VW’s US manufacturing operations in the 1980s, it no longer has any production
employees in that country. See EIRO (1998).
17
For DaimlerChrysler’s World Employee Committee, see EIRO (2002), and ‘World Employee
Committee Founded at Daimler Chrysler’, < www.daimlerchrysler.com/news/top/t20717_e.htm >.
On the Global Compact, see also Khagram et al. (2002: 15–23); <http://www.unglobalcompact.org/
Portal/>.
18
On the WRTP’s activities as an intermediary between large firms and local communities, see
especially Dresser and Rogers (2003: 280–2).
294 Challenges and Promises of Globalization

The WMDC is a public–private partnership of six large original equipment

manufacturers (OEMs)19 and the Wisconsin Manufacturing Extension Part-
nership (WMEP).20 Originally known as the Wisconsin Supplier Training
Consortium, the WMDC began in 1998 as a joint effort between WMEP and
John Deere’s Horicon Works, where unlike at APV Lake Mills, as we saw in
Chapter 7, the local union eventually accepted permanent outsourcing of
machining operations to external suppliers as part of a collaborative restruc-
turing process that eventually led to increased in-house employment. As a
result of this experience, a Deere supplier development manager on the
WMEP governing board became convinced of the growing importance of
OEM–supplier relations not only to his own company but also to the
Wisconsin economy more generally. He therefore joined with the director
of WMEP in recruiting representatives from other leading OEMs to form a
consortium aimed at upgrading the capabilities of small and medium-sized
suppliers to meet the rising performance expectations of their customers.
The Consortium partners also drew support from the state technical college
system, with which WMEP already had a close relationship, and from the
state budget, which provided a public subsidy enabling ‘strategic’ suppliers
nominated by the OEMs to participate in high-quality training classes at a 50
per cent discount.21
The Consortium focused initially on training suppliers to achieve concrete
performance goals such as cutting lead and cycle times, improving product
quality and delivery, and reducing costs. It also sought to increase suppliers’
19
The six original OEMs are the Ariens Corporation (a maker of snow-blowers and lawn and
garden equipment), John Deere Horicon works (lawn and garden tractors), Harley-Davidson
(motorcycles and motorcycle power-trains), Trane Corporation (industrial water chillers), Mercury
Marine (boat motors), and Case-New Holland (agricultural equipment). Several of these OEMs are
divisions of larger corporations producing for other markets from out-of-state plants (e.g. Deere
construction and forestry and agricultural implements, Case construction, Harley assembly facil-
ities), and nominate Wisconsin suppliers to these out-of-state plants. In 2001, these six OEMs
purchased $844m in materials from more than 250 nominated suppliers employing close to 50,000
people. The consortium was previously called the ‘Wisconsin Supplier Training Consortium’. In
early 2002, it added Oshkosh Truck, a manufacturer of truck and truck bodies for the fire and
emergency, defense, concrete-placement, and refuse-hauling markets. Mercury Marine has since
withdrawn, leaving six participating OEMs.
20
WMEP is a public–private partnership that receives some funding from the National Institute
of Standards and Technology, through the federal Manufacturing Extension Partnership (MEP)
program, but also draws funding from other sources, including the State of Wisconsin, and earns
revenue by selling consultancy services. Both unions and business are represented on its governing
board. Although some manufacturing extension programs go back to the 1950s and 1960s, the
Clinton administration made them into an important part of US industrial policy and provided
considerable new funding. As a result, many new MEPs sprang up across the US in the 1990s
(Turner 1999).
21
On the WMDC’s origins, activities, and development, see Whitford and Zeitlin (2004);
Whitford (2003: ch. 7); and the reports by Rickert et al. (2000), Whitford et al. (2001), and Vidal
et al. (2003), available at <http://www.cows.org/>.
 Creating a Multinational Public for the Corporation 295

understanding of OEM expectations, improve OEM–supplier relationships,

and enhance suppliers’ abilities to win new customers. Over the course of
time, both the training provided and the goals of the Consortium itself have
become progressively broader. Thus the training demanded by suppliers
increasingly concentrates on instruction in the general principles of flexible
manufacturing, and often goes together with more extended plant reorgan-
ization projects conducted with the assistance of OEM supplier development
engineers or WMEP consultants (whose services are also subsidized). The
course offerings have been rationalized to conform more closely to the
Consortium’s original mission of consolidating their performance expec-
tations into a common ‘curriculum of emphasis’ for suppliers, many of
whom work for several participating OEMs. More recently, Consortium
members have begun to discuss the possibility of harmonizing their supplier
certification procedures, beginning with a pilot project comparing their
respective auditing systems. In January 2001, the Consortium reframed its
mission in terms of becoming the lead organization for collaborative supplier
development in the state and renamed itself the Wisconsin Manufacturers’
Development Consortium (WMDC 2001).
These shifts in the Consortium’s objectives and activities have gone hand-
in-hand with parallel transformations in its governance. The Consortium
initially drew on Deere’s existing supplier development infrastructure for
administrative services and much of the training itself. After the first year,
WMEP took over full management of the supplier training program, thereby
enabling the other Consortium members to contribute more actively to
shaping the curriculum. The WMEP’s enhanced role also allows the agency
to serve as an ‘honest broker’ to ensure that the costs and benefits of
consortial activities are shared out fairly among the participants, discour-
aging opportunistic behavior by firms which often compete for the same
customers and suppliers.22 In response to calls for more systematic incorpor-
ation of supplier perspectives, WMDC has added two supplier representa-
tives to its governing body. To encourage cross-firm learning, horizontal
information exchange, and joint problem-solving, as well as to provide an
opportunity for collective voice in relation to the OEMs, the supplier repre-
sentatives on the WMDC have recently organized a number of networking
meetings, with a view to creating a regular discussion forum which could
eventually evolve into an autonomous suppliers’ association (Whitford 2003:
ch. 7).

22
This ‘honest broker’ role of public agencies has elsewhere been found to facilitate the success
of collaborative partnerships among competitors in related areas of common interest such as joint
research and development (Tripsas et al. 1995).
296 Challenges and Promises of Globalization

The WMDC is already a key institutional interface between the procure-

ment departments of large Wisconsin-based MNCs, local supplier firms,
technical colleges, and state economic development agencies. But to become
a focal actor for the kind of interregional networking envisaged by Project
REGLO, the Consortium would need both to deepen its impact and widen its
reach in ways which so far remain at the discussion stage among participants.
Thus the WMDC does a relatively good job in providing access to effective
training and development resources for small and medium-sized suppliers.
Yet the latter’s greatest problem, as we observed in Chapter 10, is that even
OEMs ostensibly seeking to develop open and collaborative relations with
suppliers often find their efforts subverted by internal organizational
barriers, conflicting incentives, and opportunistic behavior by managers
pursuing short-term results for career advancement. But there are ways in
which a public–private consortium like the WMDC could be used to help
member firms to overcome these internal dilemmas. The Consortium
already serves as an external support network for procurement managers
within OEMs committed to working collaboratively with suppliers. More
ambitiously, it could push participating OEMs to draw up a common code of
good supplier relations practice, based on their own official procurement
policies. The compilation of such a code could stimulate the identification
and diffusion of good practice among member firms, while also guiding
suppliers towards common performance expectations. Implementation of
this code within the Consortium, along with data about the tangible impact
of training provided on supplier performance, could be assessed by inde-
pendent third-party monitors, as in the case of ISO 9000 and other quality
assurance programs. OEMs found to be in breach of the Consortium’s code
of practice could be asked to submit plans for correcting the problems
identified by the external monitors within a reasonable time period. In
cases of persistent uncorrected breaches of the code, Consortium members
and the WMEP could then consider a range of possible sanctions, culminat-
ing in exclusion and loss of access to publicly subsidized training and other
services. The third-party monitoring process could itself be harnessed to
mutual learning through benchmarking of supplier development practices,
thereby providing a systematic mechanism for generating continuous
improvement in both the Consortium’s services and the code itself. Third-
party reporting on the OEMs’ performance in implementing the collabora-
tive supplier relations policies to which they are formally committed could
potentially mitigate many of the organizational dysfunctions discussed
above, while at the same time strengthening the position of reforming
managers in these companies. As in the case of the emerging relationship
between Danish union conveners and MNC CEOs described earlier, top
 Creating a Multinational Public for the Corporation 297

management in these companies might thus come to see such external

monitoring and reporting arrangements as a valuable tool for exposing
opportunism among lower-level managers and reinforcing adherence to
official procurement policies across the corporation.
Important as the WMDC’s participating OEMs and suppliers are to
Wisconsin’s economy, they represent only a small proportion of the state’s
manufacturing base. Because the very effectiveness of the model is premised
on finding groups of locally rooted OEMs with similar supply bases that are
willing to work together to formulate common training curricula and per-
formance expectations, substantial expansion of this particular consortium is
probably not the best path to follow. A more promising approach would thus
be to stimulate the formation of similar partnerships between OEMs, sup-
pliers, and state economic development agencies in other sectors and/or
geographical areas—as US states like Pennsylvania, itself influenced by the
WMDC example, are doing. Supply chains do not stop at state lines, and
there is evident scope for cooperation among manufacturing extension
partnerships and consortia in neighboring states—especially in the Midwest
manufacturing belt—to ensure the continued viability of this ‘supply base
region’ by benchmarking each other’s programs, exchanging good practices,
and discouraging counter-productive competition for inward investment or
‘smokestack chasing’.23 And such cooperative networking and mutual learn-
ing can and is beginning to be extended to local players further afield—
including in Europe—facing similar challenges and experimenting with
similar solutions, as in the case of the ‘Crescita Guidata’ or ‘Guided Growth’
consortial supplier-training initiative established during the late 1990s by
Fiat and other large OEMs in the Piedmont region of northern Italy.24 Hence
all the pieces are in place for developing a transatlantic dialogue between

23
For these proposals to widen the reach of the WMDC, see, in addition to the sources cited in
n. 21 above, Ericksen et al. (2002).
24
On the ‘Crescita Guidata’ consortium, which formed part of the proposed territorial employ-
ment pact in the province of Turin mentioned above (p. 285), see Whitford (2003: ch. 8); Enrietti et
al. (2002); Follis et al. (2004); Pichierri (2001: 253–5). In September 2002, the Center on Wisconsin
Strategy (COWS) at the University of Wisconsin-Madison and the Advanced Manufacturing
Project (AMP), an inter-university research consortium on the component manufacturing sector
(to which one of the authors of this book belongs), convened a two-day conference on ‘Supply
Chain Governance and Regional Development in the Global Economy’, with researchers, managers,
unionists, and economic development policy practitioners from five US states, Italy, Germany,
Denmark, and Mexico, including representatives from WMDC and consultants from the Piedmont
regional administration involved in the ‘Crescita guidata’ consortium; for the conference program
and papers, see <http://www.cows.org/supplychain/>. AMP researchers then attended a follow-up
conference in Turin from 28 Feb. to 1 Mar., 2003. The WMDC is explicitly cited by Italian
participants in these discussions as a source of inspiration for proposals to create a regional ‘Agency
for the Promotion and Development of the Piedmontese Automotive Components Industry’: see
Enrietti et al. (2003); Enrietti and Lanzetti (forthcoming); Whitford (2003: 202–7).
298 Challenges and Promises of Globalization

regional networks of local actors operating at the interface between multi-

national subsidiaries and their host communities in both Europe and the
United States.25

8. Engaging the Financial Markets

The underlying aim of interregional networks like Project REGLO is to create

a new multinational public for the corporation by instituting procedures for
open coordination and social dialogue between headquarters, subsidiaries,
and their host communities. Though such networks do not currently exist in
anything like a fully developed form, we have seen in this chapter that many
different actors on both sides of the Atlantic are experimenting with insti-
tutional responses to the local challenges of globalization that point in this
direction. Through the capillary pressure and opportunities for constructive
interchange resulting from these experiments, some MNCs at least could find
themselves in situations where a balanced assessment of risks renders collab-
oration with local players an attractive option. The ultimate victory would be
attained if MNC HQs began to compete with one another to be recognized
by the business press and the wider public for their efforts to create ever more
advanced forms of open coordination and social dialogue as mechanisms for
orchestrating a coherent strategy and promoting continuous improvement
across their constituent units. Such internal pressures on MNCs from local
subsidiaries to upgrade their procedures for consultation, participation, and
accountability could also dovetail with external pressures from consumer
groups, NGOs, and international organizations to raise their labor, environ-
mental, and human rights standards, which, as Sabel and others observe,
have led a growing number of companies worldwide to compete with one
another in proclaiming their adherence to increasingly stringent codes of
conduct certified by independent monitoring bodies.26
The new multinational public created by these convergent internal and
external pressures could thus begin to engage in a constructive dialogue with
the existing public of the financial markets, which, as we have seen in
previous chapters, has helped to trap MNCs like APV in vicious circles of
internecine rivalry and mutual misunderstanding. As discussed in Chapter 7

25
Such interregional networking could, but is not likely to, be a subject for the Transatlantic
Labor Dialogue initiated under the Clinton administration, which as Knauss and Trubek (2001)
show has so far borne meager fruit due to the lack of substantive interest in the process from the
peak labor confederations on both sides.
26
For the dynamics of such ‘ratcheting standards’ in the garment/footwear and forestry indus-
tries respectively, see Fung et al. (2001b) and Overdevest (2003).
 Creating a Multinational Public for the Corporation 299

and analyzed in greater detail by thoughtful insiders such as Golding (2001)

and Plender (2003), this Anglo-American financial public gradually emerged
during the post-war period through complex interactions among institu-
tional investors, professional fund managers, analysts, financial journalists,
and corporate HQs. As these writers show, what Golding calls the ‘insti-
tutional equity nexus’ forms a behavioral system in which the actors are
entangled in multiple interlocking games that increasingly influence each
others’ moves, plans, and perspectives. It is the mutual benchmarking within
these games that pushes MNC HQs to hire and fire executive officers; to
acquire, divest, and downsize subsidiaries; and to subject the latter to top-
down benchmarking and investment bargaining.
The key test facing the multinational public emerging from Project
REGLO and other experimental projects for reforming the MNC is whether
they can build new coalitions of actors inside and outside the corporation
able to counter and eventually redirect the pressures on executive officers
coming from the institutional equity nexus. The architecture envisaged by
Project REGLO is exemplary in this respect since it seeks to construct an
alternative game between networks of local focal actors and top managers
which challenges the latter’s established pattern of behavior while simultan-
eously laying the foundations for new partnerships. For a considerable
period, the intersection between these different types of games would place
the executive officers of MNCs in a cross-fire and increase the ambiguity of
their situation. At first, the race for managerial career advancement would
doubtless become even tougher and more difficult to navigate. But we could
gradually expect that the winners of such contests would be those best able to
play both sets of games at the same time and to reconcile their competing
demands. The upper echelons of MNCs would thereby become filled with
managers capable of integrating these apparently countervailing consider-
ations—the global and the local, the financial and the industrial—into their
own moves, plans, and perspectives.
What experiments like Project REGLO could hope to accomplish by
instituting new procedures for open coordination and social dialogue within
MNCs is the construction of organizational channels for involving local focal
actors in ongoing practical deliberation about the strategic objectives of the
global firm and the performance measures used to assess progress towards
them. These are the very conditions, identified at the beginning of this
chapter, for transforming MNCs into vehicles for mutually beneficial collab-
oration and learning by monitoring among their constituent units.
The outcome of such a process would thus be a jointly agreed strategy
for the MNC based on mutual commitments to common goals, metrics,
and monitoring procedures. Such a strategic plan would be very different
300 Challenges and Promises of Globalization

from the current style of strategy documents, which are often produced by
external consultants recycling the managerial fashions of the day to suit
the imagined tastes of financial journalists, analysts, fund managers, and
investors. But the financial public could gradually be expected to learn that
strategic plans generated in this way are more likely to be implemented and
offer more trustworthy predictors of medium-term performance than those
produced by the conventional process of corporate strategy formation.27 And
this public may also discover that such participatory goal-setting and moni-
toring procedures provide better mechanisms for exposing and disciplining
opportunistic behavior at all levels than current practices of ‘independent’
auditing by large accounting firms financially beholden to top management
(Berenson 2003; Plender 2003: ch. 7). In these ways, institutionalizing open
coordination and social dialogue within MNCs may help to civilize the
ongoing game between them and the financial markets.
In such a scenario, executive officers at MNC HQs would gradually learn
to see their role as bringing together a series of local narratives and projects
into a coherent master narrative and mutually binding strategic plan that
could give a much more realistic picture of how the long-term division of
labor within the corporation should develop. Such an understanding would
simultaneously make it possible to identify which components required for
such a global strategy are missing and what competencies should be added to
the MNC to carry it out successfully. In this case top managers would be able
not only to explain more effectively how the corporation’s current activities
may evolve in the future, but also to tell more convincing stories about why
they need support from the financial markets for specific mergers and
acquisitions. Such stories already have a major impact on relative share prices
through their influence on the decisions of fund managers and individual
investors (Shiller 2000; Golding 2001). By learning to construct convincing
narratives in a very different way, some MNCs may thereby become able to
set new standards for storytelling within the institutional equity nexus. This
nexus itself could thereby be transformed into a force pressing companies to
formulate their plans through open coordination and social dialogue rather
than by following the standardized templates of the latest strategy texts.
27
CalPERS, the California Public Employees’ Retirement System pension fund, already seeks to
‘promote high-performance workplaces’ and ‘prevent short term vision’ by considering in its
investment analysis ‘the availability of employee training and the degree of responsibility given to
lower-level workers’ and pressing companies to develop ‘measures of performance that are
based not simply on quarterly earnings and the most recent rise in the stock price’ (O’Connor
2001: 91–2). Cf. also the account of the collaborative approach to corporate governance pursued by
Hermes Investment Management Ltd, a large UK fund manager owned by the British Telecom
pension fund, in Armour et al. (2003: 548).
 12
Conclusion: Sideshadowing the
Future of Globalization

Strong versions of the globalization thesis have been widely criticized by

other social scientists. Paul Hirst and Grahame Thompson (1999/1996) in
particular have convincingly debunked the myth of a fully globalized
economy that subsumes and subordinates national-level processes, empha-
sizing instead the continuing role of nation-states in supporting and
governing economic activity.1 Our study, by focusing on multinational
corporations as the putative lead agent of globalization, reinforces these
critiques by demonstrating that some of the international competitive
rivalry which previously existed between firms from different countries
has now been internalized within MNCs themselves. This in itself is hardly
surprising. The real surprise is that neither APV nor the other MNCs
described in the recent empirical literature seemed able to establish a
workable balance between competition and collaboration among their
subsidiaries and affiliates. Without establishing such a balance, it is doubt-
ful that these corporations—whether multinational, global, or transnational
—could successfully perform the leading role attributed to them. If this
conclusion is even partly correct, then the strong globalization thesis re-
quires modification not only because of the continuing importance of the
nation-state in economic governance, but also because of its mischaracter-
ization of the key mechanisms underpinning the growth of multinational
enterprises.
In our view, what Bartlett and Ghoshal (1989, 1998) termed the ‘trans-
national solution’—reinterpreted as a deliberative polyarchy based on open
coordination and social dialogue—offers a promising approach to the
organization of collaborative competition among the globally dispersed
units of a multinational federation. Within such a federation, as outlined
in Chapter 1, local units in different countries could assist one another in
securing access to markets, providing complementary competencies, enhan-
1
For related critiques of the ‘myth of the global firm’, see Ruigrok et al. (1995: chs 6–7); Doremus
et al. (1998).
302 Challenges and Promises of Globalization

cing flexibility, diversifying risks, and stimulating mutual learning. By

tapping into a wide variety of regional economies, labor markets, and the
institutional frameworks that underpin them, multinationals organized
along these lines could also create new opportunities for innovative cross-
fertilization in products and processes.
In our case, for instance, APV could have taken greater advantage of the
distinctive concentration of specialized skills in its various locations, such as
rotary lobe pump-making and design in Eastbourne, complex systemic
innovations and just-in-time component supply in Lake Mills, and integra-
tion of new product development with flexible manufacturing in Horsens.
Such capabilities are highly dependent, among other things, on the different
ways employees organize their professional careers and progression through
internal and external labor markets in various countries. It is often claimed,
for example, that radical technological innovation is easier to accomplish
with a highly mobile labor force like that of the US, while incremental
improvements to established products and processes are facilitated by the
internalized career ladders of German and Japanese enterprises (Hall and
Soskice 2001; Whitley 2000; Casper 2000).2
By combining these different types of institutionally rooted capabilities
and developing new forms of hybridization between them, multinational
corporations could thus benefit not only themselves but also the many local
communities which they tap into and interconnect. Such innovative hybrid-
ization is a well-attested outcome of cross-national transfer and adaptation
of technologies and organizational practices. But like mutual learning more
generally, its successful exploitation depends on access to a variety of cogni-
tive perspectives and problem-solving approaches among local actors oper-
ating in different institutional settings.3
Unfortunately, however, the findings of our study suggest that MNCs left
to their own devices have been working in the opposite direction. Thus as we
saw in previous chapters, investment bargaining and top-down competitive
benchmarking by MNC HQs have pushed subsidiaries to adopt similar
operating practices or else to develop subversive strategies that weaken
their ties to the parent firm while integrating them more tightly into the
local economy.

2
For suggestive comparative studies of variations in team dynamics among development engi-
neers in different countries, see also Lam (1996, 1997).
3
On innovative hybridization as an outcome of cross-national transfer and adaptation
of technologies and organizational practices, see Boyer et al. (1998); Zeitlin and Herrigel
(2000); Boyer (2002); Zeitlin (2003). For diversity as an aid to mutual learning through com-
parative evaluation of alternative solutions to common problems, see also Sabel and Cohen
(2003).
 Conclusion 303

1. Pathologies of the Institutional Equity Nexus

An explanation for this paradox in the case of APV and other Anglo-
American MNCs may be found in the interactions between corporate HQs
and the financial markets within the ‘institutional equity nexus’ (Golding
2001). These interactions, as we also saw, have resulted in the ascendancy of
‘fast-track’ HQ managers, with limited experience of the wider MNC, pur-
suing short-term visions directed primarily towards driving up reported
earnings for the benefit not only of shareholders but also of their personal
careers and fortunes. Such MNCs are increasingly run by executives who
have specialized in sending the right signals to the financial markets, thereby
enabling fund managers employed by institutional investors to meet the
tough short-term relative performance benchmarks required for their own
survival. Together these actors have configured a brutal high-stakes game in
which individual executives may acquire a local reputation capable of posi-
tively influencing share prices when they change jobs, but enjoy a ‘grace
period’ of no more than 18 months to three years to achieve the promised
turn-around in corporate performance before becoming vulnerable them-
selves to ambush and ouster by disgruntled institutional investors. Under
these conditions, corporate executives equipped with ‘golden parachutes’
and generous incentive-pay packages linked to the share price are under-
standably attracted to high-risk, high-payoff merger and acquisition strat-
egies promoted by investment banks, which benefit financially from such
transactions whatever their eventual results, and are publicly encouraged by
the latter’s in-house analysts (Golding 2001; Plender 2003). Compared to the
rewards of this game with the financial markets, profits and losses from
manufacturing activities may appear to be of secondary importance, even if
the figures they generate are crucial to satisfying the expectations of analysts
and fund managers.
Ironically, this game continually draws in new players, since the better
situated the HQ in relation to the institutional equity nexus, the more
attractive membership in the MNC becomes to other industrial firms
which lack these connections. It was this relationship to the financial markets
(among other assets) that initially made APV a desirable partner for Howard,
Crepaco (Lake Mills), and the Danish Pasilac group. And it was when Lygon
Place lost its reputation in the City for delivering the goods that APV itself
became a target for acquisition by still more capable ‘courtiers’. However, the
story of APV’s new owner, briefly recounted below, illustrates even more
clearly how the economic fate of an MNC may be determined more by its
position in the City investment game than by the competitive performance of
its subsidiaries in particular industrial markets—at least in the short term.
304 Challenges and Promises of Globalization

2. From APV to Invensys: The First Time as

Tragedy, the Second as Farce?

When Siebe took over APV in May 1997, as we saw in Chapter 6, the
acquiring company benefited from its high standing in City financial circles.
Under long-term CEO Barrie Stephens and his hand-picked successor Allen
Yurko, Siebe had grown over the previous 15 years from an insignificant
maker of safety equipment into the UK’s second-largest engineering group
and a global leader in industrial control and automation systems through an
aggressive series of acquisitions supported by frequent rights issues and a
rising share price. Despite reservations about some of Siebe’s accounting
practices (such as capitalization of intangible assets and revaluation of
acquired firms), City analysts and financial journalists regularly praised the
company for its high margins, rigorous cost controls, and pioneering adop-
tion of ‘lean manufacturing’ techniques like the ‘Six Sigma’ defect reduction
system. And as we also saw, it was Siebe’s reputation for managerial efficiency
and financial performance, much more than any expected productive and
commercial synergies, which underpinned the City’s support for the APV
takeover.4
But long before the impact of this acquisition on either company could be
assessed, it was overshadowed by a much bigger deal. In November 1998,
Siebe merged with BTR, another large British manufacturing conglomerate,
to create the UK’s largest engineering group and the world’s biggest control
systems and automation company, with a combined capitalization of £9.4bn,
125,000 employees worldwide, and more than 10 per cent of the global
market. Yurko, who became group CEO in what was effectively an agreed
takeover of BTR by Siebe, justified the move as a response to global consoli-
dation of the controls industry, arguing that the merged company would be
‘capable of going toe to toe’ with foreign giants such as Emerson Electric,
Siemens, and ABB: ‘This is a big market and it needs big players.’ City
analysts and journalists reacted skeptically to the deal, in part because of
widespread disillusionment with BTR, once the seventh-largest company on
the UK stock exchange, whose shares had lost 80 per cent of their value since
1994. ‘If BTR were a horse, it would be taken out and shot,’ one trader had
remarked about the company two months before the merger was announced.
But the lukewarm reception also reflected a shift of City sentiment against

4
On Siebe’s development and reputation at the time of the APV takeover, see the sources cited in
Ch. 6, n. 20 above. On Siebe’s adoption of ‘Six Sigma’, now increasingly regarded as a fading
management fad, see Peter Marsh, ‘Black Belts Combat High Costs, Poor Standards’, FT, 27 Apr.
1998; Simon London, ‘Why are the Fads Fading Away?’ and ‘The Cult of Six Sigma is So Last
Business Cycle’, FT, 12 June 2003.
 Conclusion 305

acquisitive conglomerates, together with murmurs that Siebe needed the deal
to compensate for the slowing growth of its own core businesses. Despite
such reservations, however, Siebe’s reputation—and stock price—were more
than sufficient to persuade investors to accept the terms of the merger, based
on an exchange of shares accompanied by a small cash payment.5
At first, the performance of the merged group, rebranded as Invensys,
appeared to vindicate the hopes of its architects. Following an initial slump
in price, Invensys shares outperformed the UK engineering sector by 10 per
cent during the first half of 1999, raising the company’s market value to more
than £13bn. To appease critics and sustain the share price, Invensys aban-
doned Siebe’s unorthodox accounting policies, pushed forward cost savings
and head-count reductions in the merged operations, raised cash by selling
off non-core businesses, offered to buy back 10 per cent of its own stock, and
projected double-digit earnings growth.6
By early 2000, Invensys had returned to the acquisition trail, with rumors
of a possible bid for the French Schneider Electrical group to boost its global
standing. In the event, however, Yurko bet on a very different horse, paying
£467m in June 2000 for Baan, Europe’s second-largest business software
firm, in pursuit of a visionary strategy aimed at enabling Invensys to provide
complete ‘off-the-shelf ’ systems integrating online supply chain management
with factory automation and process controls. Although City analysts ap-
plauded Yurko’s bold technological vision, they highlighted the commercial
risks of taking over the near-bankrupt Baan, and questioned Invensys’s
ability to absorb the software company effectively just 18 months after the
Siebe–BTR merger. Invensys shares fell sharply in response to the Baan deal,
but the real collapse came in September 2000, when the group unexpectedly
issued a profits warning, blaming weak markets and competitive pressure on
margins, only a few months after upbeat reports of trading prospects from
top management. The stock price plunged by 44 per cent in two days, leaving
Yurko’s credibility in shreds amidst shareholder fury about the creation of

5
Anthony Edgecliffe-Johnson and Peter Marsh, ‘Siebe is to Join Forces with BTR in $15bn deal’
(quotation) and Tony Jackson, ‘One-Man Shows’, FT, 23 Nov. 1998; Lex Column, ‘BTR/Siebe’, FT,
18 Dec. 1998; Peter Thal Larsen and Andrew Edgecliffe-Johnson, ‘Re-engineered Invensys Goes
under the Analyst’s Microscope’, FT, 2 June 1999; Peter Marsh, ‘One Step Backwards in Pursuit of
the Future’, FT, 19 Feb. 2002 (quotation).
6
Thorold Barker, ‘BTR Siebe to be Invensys in Rebrand Move’, FT, 24 Mar. 1999; Larsen and
Edgecliffe-Johnson, ‘Re-engineered Invensys Goes under the Analyst’s Microscope’, FT, 2 June 1999;
Peter Thal Larsen, ‘Invensys Set to Return £1bn to Shareholders: UK-based Engineering Group
Aims for Double-Digit Earnings Growth’ and ‘Invensys Makes Maiden Adjustment to Answer
Critics’, FT, 3 June 1999; Larsen, ‘Exasperated Autocrat Confronts City’s Challenge: Critical Doubts
about Invensys Have Made Allen Yurko Even More Determined to Prove Them Wrong’, FT, 10 June
1999; ‘Peter Marsh Assesses the First Year of Progress at Invensys since it was Forged from the
Merger of Siebe and BTR’, FT, 22 Nov. 1999.
306 Challenges and Promises of Globalization

misleading expectations and the timing of the Baan purchase, completed just
nine days before the profits warning. Invensys management sought to stem
the slide by floating or selling off the group’s profitable power systems
division and cutting costs and jobs elsewhere. But this defensive strategy
was overwhelmed by the continuing deterioration of Invensys’s margins,
cash-flow, and market valuation as the global downturn in business capital
investment deepened. After issuing three profits warnings in ten months,
Yurko resigned in July 2001 with concerns mounting about a possible breach
of banking covenants on interest cover for the group’s £3.2bn net debt. Since
its formation, Invensys had underperformed the UK index of electronic and
electrical equipment shares by 65 per cent, while shedding 23 per cent of its
initial workforce. Just as with APV a few years earlier, analysts and investors
now excoriated management’s inability to integrate Siebe/Invensys’s dispar-
ate acquisitions into a unified company, together with their complete mis-
judgment of conditions in key markets. ‘We are paying managers to
anticipate the future,’ complained one embittered shareholder at the group’s
annual meeting. ‘Yet Invensys seems to have made no provision whatsoever
for the future.’7
Crucial to Invensys’s survival was the appointment of a new CEO who
could develop a credible turn-around plan to reassure the financial markets
and stave off the group’s creditors. Highly regarded by the City as a ‘cool
head’ for his recent success in salvaging the Blue Circle cement group, Rick
Haythornthwaite seemed like a perfect choice to replace the mercurial Yurko.
Following Haythornthwaite’s first public briefing, Invensys shares surged by
34 per cent despite a sharp cut in the interim dividend, as investors welcomed
his promises to repair the group’s balance sheet, improve cash-flow, and raise
margins through a combination of asset disposals, tighter cash management,
and closer attention to customers. In February 2002, Haythornthwaite
unveiled his new strategic vision for turning Invensys into a ‘compact,
integrated company that would deliver more to its customers’ by focusing

7
David Owen and Gautam Malkani, ‘Schneider Shares Jump on Bid Talk’ and Gautam Malkani,
‘After Disposals, the Focus Shifts to Acquisitions: Invensys Aims to be a Leader in Automation and
Controls’, FT, 4 Feb. 2000; Gautam Malkani, ‘Invensys Plans Supply Chain Shake-up’, FT, 1 June
2000; Martin Dickson, ‘Allen Yurko Sets Investors a Risk and Reward Puzzle’, FT, 3 June 2000;
Gautam Malkani, ‘Share Price Fall Turns Invensys from Predator to Prey’, FT, 8 Sept. 2000; Gautam
Malkani, ‘Investors Turn Up the Heat on Allen Yurko’, FT, 9 Sept. 2000; Lina Saigol and Charles
Pretzlik, ‘Invensys May Spin Off Power Systems Side’ and Gautam Malkani and Charles Pretzlik,
‘Suitors Run Careful Eye over Group’s Uncertain Attractions’, FT, 27 Oct. 2000; Peter Marsh, ‘For
Allen Yurko, it’s Tough at the Top, but Tougher Getting There’, FT, 25 June 2001; Charles Batchelor
and Peter Marsh, ‘Invensys Chief Hands Challenge to Successor’ and ‘Invensys Chief Executive
Resigns’, FT, 25 July 2001; Peter Marsh, ‘Yurko Beats Retreat with Ears Ringing’ and ‘O’Donovan
Agrees to Stay at Invensys’ (quotation), FT, 26 July 2001; ‘Inner Conflict of Man Who Built
Invensys’, FT, 28 July 2001.
 Conclusion 307

on factory automation and energy management systems, selling off non-core

assets, and increasing the share of revenues derived from value-added ser-
vices. Unlike the past, Invensys would henceforth ‘use our brain rather than
our wallets’, concentrating on organic growth rather than acquisitions. Al-
though the workforce was projected to shrink by a further 28,000 to a new
total of 48,000 employees, this would be achieved primarily through the sale
of non-core businesses as going concerns rather than through head-count
reductions and factory closures, a policy supported by the group’s European
Works Council. This time, however, the City was less enthusiastic. Invensys’s
share price fell by 12 per cent amidst persistent worries about its finances—
‘the banks are becoming sweaty,’ one analyst noted—and disappointment
with Haythornthwaite’s four-to five-year recovery timetable: ‘We could all be
dead by then,’ another commented. ‘The markets care about margins in 2003,
not 2006.’8
Whatever the underlying merits of this strategic vision, whose credibility
some analysts acknowledged, it was soon overtaken by the continuing weak-
ness of demand for the group’s products. As Haythornthwaite pushed ahead
successfully with his asset disposal program and as he set demanding targets
for increased operating profits in the remaining businesses, bankers renewed
Invensys’s credit facilities and analysts began to promote it as a promising
recovery stock during the spring and summer of 2002. But the group’s share
price dropped by 25 per cent in November on lackluster interim results and
halved again in February 2003 on a profits warning attributed to deteriorating
trading conditions in key capital equipment markets. Invensys was then
ejected from the FTSE 100 and its debt downgraded to sub-junk levels as it
became apparent that substantial further asset sales would be required to
avoid breaching banking covenants and to cover a huge hole in the group’s
pension fund exposed by new accounting standards. (On top of everything
else, it turned out that Siebe/Invensys had taken a 12-year pension contribu-
tion holiday.) As sales declined, margins eroded, and losses mounted, Inven-
sys’s market value plummeted in April 2003 to just 5 per cent of its 1999 peak.
To staunch the hemorrhage of cash and confidence, Haythornthwaite now
proposed to sell off two-thirds of the group’s businesses for whatever they
would fetch—beginning with the loss-making Baan, divested in June
for £83m, a fraction of the original purchase price. To defuse mounting
8
Peter Marsh, Florian Gimbel, and Lina Saigol, ‘Cool Head Takes Charge to Guide Invensys
Forward’, FT, 1 Oct. 2001; Florian Gimbel, ‘Invensys Shares Soar as Cash Flow Improves’ and Lex
Column, ‘Out of the Clink’, FT, 16 Nov. 2001; Marsh, ‘One Step Backwards in Pursuit of the Future’,
already cited; Peter Marsh and Peter Kipphoff, ‘Engineering a New Vision for Invensys’ and
‘Invensys Will Shrink in Restructuring’, FT, 20 Feb. 2002 (multiple quotations). Haythornthwaite’s
principal achievement at Blue Circle was to have negotiated a friendly takeover by the French
Lafarge group several months after fending off a hostile bid from the same company at a lower price.
308 Challenges and Promises of Globalization

shareholder complaints about ‘rewards for failure’, Haythornthwaite also took

the extraordinary step of placing himself on a one-month rolling contract,
thereby reducing his potential severance compensation by £800,000. This
last-ditch survival plan sought to create a ‘smaller, more agile’ group focused
on factory automation and rail signaling systems, with some 15,000 employ-
ees—just 12 per cent of the original total—of which the former APV oper-
ations would comprise the largest single component. But it remained far from
certain whether even these drastic steps would prove sufficient to preserve
Invensys’s independence. The more likely outcome at the time of writing
appeared to be an eventual takeover by another large multinational engineer-
ing group like Emerson, GE, or Siemens—which had already expressed a
predatory interest in its core automation and rail signaling businesses.9
By mid-2003, Invensys had become ‘a byword for poor management and
destruction of shareholder value’. Its outgoing chairman, Lord Marshall,
openly confessed the group’s failure: ‘After the merger we found we had
companies (the individual BTR and Siebe groups) of a certain size. But once
we doubled the business they had trouble coping.’ Thus APV, as
Haythornthwaite had earlier complained, ‘had been ‘‘sucked dry’’ through
a series of botched management changes’. Equally fundamentally, Marshall
admitted, ‘the merged group had failed to understand the need for invest-
ment on new products and capital equipment. This . . . caused Invensys to fall
behind competitors such as Siemens and US group Emerson.’ Even many of
the group’s own sales force cheered plans for its break-up, ‘welcoming the
chance to rid themselves of unwelcome ‘‘bureaucracy’’ in London, and
escape the shadow of bankruptcy that was scaring away future customers.’10

9
Marsh and Kipphoff, ‘Engineering a New Vision for Invensys’; Lex Column, ‘Invensys’, FT, 6
and 31 May 2002; Peter Marsh, ‘Invensys ‘‘Stabilized and On Track’’ for Recovery’, FT, 31 May 2002;
‘Invensys’, Investors Chronicle, 20 Sept. 2002; Peter Marsh, ‘Invensys Recovery Comes Ahead of
Schedule: Disposals Have Secured the Future of the Company’, FT, 2 Oct. 2002; Marsh, ‘Rough Day
for ‘‘Slick Rick’’ ’, FT, 15 Nov. 2002; John Kipphoff, ‘Invensys Shares Halve on Profit Warning’, FT, 14
Feb. 2003; ‘Crisis Strikes at the Heart of Industry: Engineering Concerns Are Selling Profitable
Assets Under Pressure from a Credit Squeeze and Vanishing Customers’, FT, 12 Mar. 2003; Peter
Kipphoff, ‘Invensys Unveils Plans for De Facto Break-Up of Group’, Tony Jackson, ‘The Long,
Unwinding Road to the End of Invensys’, and Dan Roberts, ‘Breaking Up Proves So Very Straight-
forward To Do’, FT, 16 Apr. 2003; Peter Marsh, ‘Lord Marshall Owns Up to Failings at Invensys’, FT,
19 Apr. 2003; ‘Farewell Invensys’, Investors Chronicle, 25 Apr. 2003; Martin Arnold and Peter Marsh,
‘Siemens ‘‘Can Wait’’ for an Invensys Bid’, FT, 29 Apr. 2003; Liz Vaughan-Adams, ‘Invensys Gloom
Deepens as Losses Reach £1.4bn’, Observer, ‘Roll With It’, Peter Marsh, ‘The Second Chance at
Invensys: Rick Haythornthwaite Has Introduced his Latest Survival Plan’ and ‘Invensys Chief Heeds
Critics with New Deal’, FT, 30 May 2003; ‘Invensys’, Investors Chronicle, 6 and 12 June 2003; Peter
Kipphoff, ‘Invensys Hails ‘‘Good Start’’ to Sale Process’, FT, 24 July 2003; Michael Jikov, ‘Invensys
Rumours Keep Bid Talk Bubbling’, The Independent, 10 Mar. 2004.
10
Quotations from: ‘Invensys’, Investors Chronicle, 12 June 2003; Marsh, ‘Lord Marshall Owns
Up to Failings at Invensys’; Marsh and Kipphoff, ‘Engineering a New Vision for Invensys’; Roberts,
‘Breaking Up Proves So Very Straightforward To Do’.
 Conclusion 309

Comparing the fates of APV and Invensys might recall Karl Marx’s cele-
brated dictum that history repeats itself ‘the first time as tragedy, the second
as farce’ (Marx 1974/1869: 146)—were it not for the far greater scale of
human and financial damage wrought by Invensys. Taken together, more-
over, the stories of these companies—and others like them—offer little
assurance that the financial markets are likely to produce new owners better
able to manage Invensys’s surviving assets—including the remains of APV—
without reforms in the organization and governance of MNCs such as those
proposed in this book.11

3. Civilizing the City Investment Game

We argued in previous chapters that if MNCs are to become genuine vehicles

for mutually beneficial collaboration and learning by monitoring among
their constituent units, they need to create new organizational channels for
involving employee representatives and other local focal actors in practical
deliberation about the firm’s strategic objectives and the performance meas-
ures used to assess progress towards them. We further suggested that, by
improving the reliability of corporate strategic plans and disciplining man-
agerial opportunism through participatory goal-setting and monitoring
procedures, the institutionalization of open coordination and social dialogue
within MNCs could also help to civilize the ongoing game between them and
the financial markets.
Yet such internal organizational reforms may prove of limited effectiveness
in overcoming the pathologies of the institutional equity nexus discussed
above without complementary changes in the rules and incentives facing key
players on each side. Much of the recent Anglo-American debate on reform
of capital markets and corporate governance in the wake of Enron and other
high-profile financial scandals has understandably focused on urgently
needed measures to reduce conflicts of interest and strengthen the independ-
ence of third-party gatekeepers like auditors and investment analysts.12 By
themselves, however, such proposed reforms—which remain hotly contested
on both sides of the Atlantic—would not necessarily help to avert corporate
debacles like those described in this book. Neither at APV nor at Siebe/
Invensys, for example, does there appear to have been any evidence of fraud.
Siebe’s aggressive accounting practices were widely discussed in the financial
11
For similar meltdowns at two other large UK-owned manufacturing groups during the fin-de-
siècle boom–bust cycle, see also the case studies of ICI and Marconi in Plender (2003: ch. 5).
12
For overviews of the debate and reform proposals, see Plender (2003: ch. 11); Coffee (2003,
2001); Healy and Palepu (2003, 2002).
310 Challenges and Promises of Globalization

press before the APV takeover, and the newly formed Invensys adopted more
conservative asset valuation methods to reassure skittish investors. Similarly,
although bullish analysts employed by self-interested brokers and investment
banks egged on the acquisitive growth strategies of APV and Siebe through
much of their histories, most nonetheless greeted the ill-fated BTR and Baan
mergers with open skepticism from the outset.
A more significant impact in such cases may come from proposed reforms
in executive pay. Both APV and Siebe/Invensys would likely have benefited
from tying top managers’ compensation to long-term improvements in
corporate performance rather than to short-term increases in the share
price. Such measures, coupled with restrictions on ‘golden parachutes’ for
outgoing executives increasingly demanded by institutional investors angry
about ‘rewards for failure’, could help to contain CEOs’ fatal attraction under
the current rules of the game to high-risk, high-payoff merger and acquisi-
tion strategies. But the problem of misaligned incentives goes well beyond
stock options, the central target of executive pay reformers in both the US
and the UK. Thus, for example, stock options for top managers appear to
have played no role at all in the rise and fall of APV, and only a secondary part
in that of Siebe/Invensys.13
Corporate executives’ strategic behavior, as we have seen, is strongly
conditioned by their need to satisfy the short-term financial expectations
of institutional fund managers, whose own survival depends on matching the
performance of their rivals and the overall share index in quarterly bench-
marking exercises. Hence any comprehensive reform of the institutional
equity nexus, as a growing body of informed commentators argue, must
include measures to lengthen investors’ time horizons and discourage
‘herding’ by fund managers.14
Among the most promising proposals in this area are those advanced by
the recent review of institutional investment conducted for the UK Treasury
by Paul Myners, former chairman of Gartmore Fund Management. His
report (Myners 2001) recommended that pension funds (and with appro-
priate adjustments other institutional investors like insurance companies and
unit trusts or mutual funds) should set explicit investment objectives for
13
For critical discussions and proposed reforms of executive compensation, see Daniel Altman,
‘How to Tie Pay to Goals, Instead of the Stock Price’, New York Times, 8 Sept. 2002; Healy and
Palepu (2002: 32); Plender (2003: 263); Coffee (2003: 49). Yurko, who was CEO of Siebe/Invensys
from 1995 to 2001, received some 4m share options in the new group in the years following the 1998
BTR merger, but was never able to exercise them due to the fall in its stock price. See Marsh, ‘For
Allen Yurko it’s Tough at the Top, but Tougher Getting There’; and for subsequent controversy
about share options and incentives for Invensys finance directors, ‘Invensys Under Fire over ‘‘Fat
Cat’’ Pay’, eFinancial News (FT Information), 13 July 2003.
14
See for example OECD (1997: 35–6, 39–40); Golding (2001: ch. 6); Plender (2003: 259–61);
Healy and Palepu (2002: 38); Coffee (2003: 51); Healy and Palepu (2003: 79–80, 84–5).
 Conclusion 311

fund managers, based on meeting their own future liabilities; select bench-
marks and indices appropriate to those objectives, without imposing exces-
sively narrow divergence limits that could create incentives to follow sub-
optimal strategies; and adhere to clearly defined time-scales for assessing
fund managers’ performance, normally extending over several years. The
review also recommended that fund managers be mandated to engage
actively with companies in which they hold shares ‘by voting or other-
wise—where there is a reasonable expectation that doing so might raise the
value of the investment’.15 To ensure the implementation of these principles,
Myners proposed that institutional investors be encouraged to adopt a code
of good practice, backed up by regular public disclosure of compliance. Such
periodic reporting, he suggested, ‘should evolve into a forum where decision-
makers explain and justify their approach (including the relevant investment
outcomes), and stakeholders oversee the decisions made on their behalf.’ But
given ‘the scale of distortions identified’, Myners concluded, institutional
investors should be legally required to report their compliance with these
principles if the industry proved unwilling to embrace them voluntarily
(Myners 2001: 15–16).
Following broad consultation with institutional investors, fund managers,
and other interested parties, the UK government formally endorsed the
Myners principles with minimal modifications, and urged the industry to
implement them rapidly if it hoped to avert legislative compulsion (UK
Treasury/Department for Work and Pensions 2001). Pending the findings
of the two-year review recommended by Myners, due in the autumn of
2003, it is difficult to assess ‘the effectiveness of the principles in bringing
about behavioural change’ (Myners 2001: 16). Surveys conducted for the
pension fund industry claimed that the overwhelming majority of schemes
had discussed the Myners principles and begun to implement certain key
elements, such as the abandonment of peer group benchmarks. The Insti-
tutional Shareholders’ Committee, an umbrella organization of financial
industry associations, likewise adopted a code of good practice committing
its members to develop and disclose clear policies for active engagement with
companies in which they invest. But independent survey evidence suggests
that many institutional investors remain reluctant fully to embrace the
Myners principles and that their implementation was ‘moving at a glacial
pace’. And it is also far from certain whether the New Labour government
would ultimately be prepared to enforce compliance through legislation—
15
Myners (2001: quotations 14, 16). The active shareholder requirement for institutional
investors, which Myners recommended should be incorporated into UK company law, is based
on the US Department of Labor’s Interpretative Bulletin on the 1974 Employment Retirement
Income Security Act (ERISA): see ibid., 16, 22, 92–3.
312 Challenges and Promises of Globalization

which some of the largest pension funds have come to believe necessary—in
the face of intensive lobbying campaigns by the rest of the investment
industry.16

4. Sideshadowing the Future: Five Alternative Scenarios

With such far-reaching and interconnected needs for reform not only of
MNCs themselves but also of national and international capital markets, it
is very difficult indeed to foreshadow how the globalization process may
develop. Hence ‘sideshadowing’ the future becomes even more essential
than in conventional narratives whose outcome is known in advance (Mor-
son 1994; Bernstein 1994).17 In our view, a number of different local
responses to a globalization process driven by top-down competitive bench-
marking, investment bargaining, and corporate downsizing are at least as
probable as our own preferred strategy of step-by-step reform through open
coordination, social dialogue, and interregional networking. Hence we will
conclude this book by briefly considering five alternative scenarios or possible
futures of how the relationship between MNCs and local communities might
evolve under the current unreformed international regime.

Producing Disasters through Passivity

Among the worst scenarios would be one in which local subsidiaries unques-
tioningly accept central benchmarks and programs while passively waiting to

16
Martin Dickson, ‘The Looming Dispute over Investor Activism: Opposition to Government
Plan’, FT, 18 Apr. 2002; Tony Tassell, ‘Report Jolts Industry into Self Analysis’, FT, 5 June 2002;
Institutional Shareholders’ Committee (2002); Florian Gimbel, ‘UK Funds Split over Regulation:
Leading Schemes Advocate Mandatory Scheme Based on Myners Report’, FT, 10 March 2003; ‘UK
Government Launches Probe into Investment Industry Compliance on Myners’, eFinancial News,
12 Mar. 2003; ‘Pension Funds’ Myners Compliance Reviewed: Surveys Reveal Schemes Are
Changing Behaviour’, Manifest-I, Apr. 2003; Ben Wright, ‘Pension Funds Slow To Follow Myners’,
eFinancial News, 18 May 2003; Ben Wright and Alistair Graham, ‘Pension Guidelines Legislation
On Hold’, eFinancial News, 25 May 2003; ‘A Lasting Influence’, FT Pensions Week, 21 July 2003;
Plender (2003: 259–60); Williamson (2003: 525–7). In the US, where defined contribution pension
plans and mutual funds account for a larger proportion of institutional shareholding than in the
UK (Golding 2001: ch. 4; Plender 2003: 142–3), the most prominent proposals for lengthening
investors’ time horizons have focused on the idea of a stock market transaction tax or a temporally
graduated capital gains tax to discourage churning. See Hebb (2001: 4); Healy and Palepu (2002:
38); Healy and Palepu (2003: 84–5). These proposals would reduce liquidity both for individual
shareholders and the market as a whole, thereby imposing a competitive disadvantage on any
financial center which adopted them in isolation. Hence they are likely to meet with fierce resist-
ance, especially in the current American political climate.
17
For a definition of sideshadowing as opposed to fore- and backshadowing forms of narration,
see Ch. 7, n. 17.
 Conclusion 313

do as they are told. Such a scenario would not only extrapolate the current
processes of top-down benchmarking described by Mueller et al. but also
extend the centralized management practices of the Taylorist era by making
multinational HQs the driving force for rationalization and entrepreneurial
activity across the corporation as a whole. A good example of the disasters
that can be produced by passively following corporate orders is Schultz-
Wild’s (1999) account of ABB’s transformer subsidiary in Bad Honnef,
Germany. This plant already performs well in terms of the transformer
business area’s performance benchmarks and product/process standardiza-
tion program, which it also helped to develop. Yet Bad Honnef is under
intense competitive pressure from other modernizing transformer plants
within ABB, especially those based in lower-cost regions, while company-
wide standardization threatens to undermine its established capabilities for
innovation through incremental product and process improvements by
highly skilled workers, technicians, and engineers. By agreeing to measure
itself by the rules of centralized benchmarking and by faithfully implement-
ing corporate rationalization programs even where these undercut its historic
sources of competitive advantage, such a ‘boy scout’ subsidiary may come to
ignore, at first deliberately and later as a matter of habit, any innovative idea
which may emerge from its everyday dealings with production problems and
customer demands. Gradually, the only way such a subsidiary can remain
competitive in the eyes of its absentee owners is by agreeing to reductions in
wages and working conditions, while abandoning the path of constitutional
ordering that has offered employees long-term payoffs in the shape of future
career prospects. Compared to the three APV subsidiaries we studied, the
more conformist behavior of such plants may also limit the alternative
strategies available to corporate management. Under these conditions,
there is a serious risk that rationalization and cost reduction rather than
innovation in products and processes will become the only game in town.
Such subsidiaries send few impulses for new development to the localities
in which they operate, so their suppliers will be pushed to keep down wages
in order to help meet increasing demands for cost reductions. Thus it is
imaginable that the foreign-owned subsidiary may maintain its position as
the most desirable local employer, continuing to attract the best and the
brightest employees in the area. In this way, the MNC may inadvertently
become a wind tunnel unleashing gales of uncreative destruction on the
innovative and entrepreneurial talent of such localities.
In some places, this pattern of development may provoke no frustration,
but simply be conceived as part of the natural order: people who want
something different may leave, while the local success stories celebrate
those who have been promoted to high positions within the foreign-owned
314 Challenges and Promises of Globalization

multinational. The middle ranks of MNC hierarchies may become populated

by those who have been especially successful in forcing employees in their
own home towns to accept unfavorable conditions in global investment
bargaining. MNCs would accumulate such experience from many quarters
and cross-fertilize knowledge across localities to develop new and as yet
unknown moves in the game of regime shopping. And no doubt such a
scenario would also help to instill in employees that attitude of passive
resistance and ‘businesslike’ pursuit of short-term self-interest which Veblen
(1997/1923) saw as a natural response to absentee ownership.

Producing Passivity through Disasters

Whereas disaster through passivity can result from mechanically following
the parent company’s rules, passivity through disaster may be produced
when a subsidiary finds that its innovative activities and readiness to make
radical changes are ignored and discounted by the MNC HQ. APV’s Lake
Mills plant offers a striking example. Following the Siebe takeover in 1997,
APV Ice Cream, which included Lake Mills’ innovative freezer business, was
sold off to Waukesha Cherry-Burrell, a local competitor owned by a rival
multinational, the United Dominion Industries group, resulting in the loss of
nearly one-third of the plant’s 500 remaining jobs. In 1998, the Steelworkers’
union local agreed a new flexible labor contract aimed at keeping the plant’s
tank shop in business. But in March 2000, Invensys abruptly decided to close
the shop without further negotiations, laying off the last of Lake Mills’ high-
seniority Steelworkers, none of whom had reached retirement age. ‘We were
told the job eliminations were a corporate decision and nothing could be
done,’ reported the local union representative.18
In contrast to the previous case, passivity in this scenario leads not to the
reinforcement of the principal–agent relationship between headquarters and
subsidiary, but rather to its ironic subversion by the host community. Local
narratives may be told in which individual workers and managers appear as
heroes despite having lost their struggles against the MNC HQ. Such stories
may serve to remind the members of the subsidiary community of their
entrepreneurial capabilities, which under different organizational arrange-
ments might have led to a more successful future. Thus in this case the MNC
in its present form comes to appear as one of several possible worlds, and not
the most promising from a local perspective. The entrepreneurial heroes of
18
Judy Newman, ‘Largest Employer in Lake Mills, Wis., Could Cut up to 175 Jobs’, Wisconsin
State Journal, 20 Dec. 1997; ‘United Dominion to Acquire Ice Cream Equipment Producer’, PR
Newswire, 16 Mar. 1998; Rick Barrett, ‘Lake Mills, Wis., Plant to Lay Off 50 Steelworkers’, Wisconsin
State Journal, 29 Mar. 2000.
 Conclusion 315

the locality may be unrecognized, unpromoted, and even unemployed within

the multinational, while enjoying a thriving reputation as informal leaders
whose potential contribution to community prosperity was suppressed
before it could be properly explored. Their aura of unfulfilled possibility in
turn casts a shadow over the formal plant leaders, who come to be seen as
representatives of the forces holding back the locality, further delegitimizing
the absentee owner. In such a climate, principal–agent relations become
highly volatile, as any newly appointed managers will face a severe dilemma.
Either they may choose loyally to enforce HQ policies on the subsidiary, in
which case they will catalyze all the local factions into forming a single
oppositional coalition. Or such managers may form an alliance with particu-
lar local factions to win support for their own personal initiatives, but this
strategy can only succeed if they are prepared to signal clearly their own
detachment from the HQ.
In a cynical version of this last scenario (for which there is no evidence in
the Lake Mills case), the local subsidiary may be able to manipulate its
reports in order to satisfy the absentee owners. Shirking is thereby extended
from a private game for a few free riders to a widespread collective sport. And
each time an MNC HQ falls victim to a hostile takeover, is a time for
celebration. Not only have the locality’s distant enemies lost a war, but now
a whole new bunch of inexperienced controllers and managers will arrive,
on whom not only the same old game, but even the same old tricks, can be
successfully played. Ironically, this local strategy is highly adapted to a world
in which CEOs and top managers are preoccupied with playing the games of
the institutional equity nexus. The organizational space between the local
and central levels of such an MNC will gradually become populated with
thoroughly pragmatic characters who know that they have been promoted
for dubious reasons and are almost forced to behave opportunistically
towards their closest colleagues, subordinates, and superiors. Ironically, the
most legitimate action that a headquarters may take under these circum-
stances is to close plants and offices, which may be privately recognized as
highly inefficient by all concerned.

Social Terrorism
According to Alain Supiot (2001: 1; see also Supiot 2003), the real dynamic of
labor law is constituted by balancing and counterbalancing the economic
action of entrepreneurs with collective action by employees. In order to strike
this balance effectively, ‘it is not sufficient to recognize employees’ right to be
represented, to act and to bargain collectively’; ‘it is also necessary’, he argues,
‘that they can take action where employers do. In other words, the collective
316 Challenges and Promises of Globalization

rights of the workers must be able to match the forms that the entrepreneurs
stamp on the organization of work’. Our suggestions on open coordination
and interregional networking may be seen as a way of enabling employees to
do this in an age of globalization, where many of the traditional forms of
collective action against firms have lost their effectiveness.
Without an effective right to strike, Supiot (2001: 3) wonders ‘whether the
industrial countries would have ever succeeded in civilizing economic liber-
alism’. But this weapon is less and less well-adapted to global firms that can
shift production from one place to another and where workers’ immediate
employer may not be the key decision-making agent in the supply chain. In
Supiot’s view, under conditions of globalization workers also have to mobil-
ize other stakeholders to take action on their behalf. Consumers may be
persuaded to boycott products if they learn that they are produced under
sweatshop conditions. Shareholders—especially employee pension funds—
may be convinced to divest the stock of MNCs that do not respect inter-
national social, labor, and environmental standards or codes of conduct.
According to Supiot, this form of collective action depends above all on the
diffusion of information, for which the Internet and other new communi-
cation technologies may serve as promising organizing tools.
In these forms of protest, however, if you do not attract broad attention
through the media or other means, no public is created and no collective
action takes place. To secure this initial attention, workers might feel them-
selves forced into a vicious circle of ‘social terrorism’. Supiot (2001: 5) cites as
an example the Callatex case, where ‘the workers in a textile factory in the
Ardennes, threatened with closure after an endless succession of takeovers
and ‘‘social plans’’, counter-attacked by emptying tanks of sulfuric acid into
the Meuse, although it flowed right through their own town’. This type of
action, he argues, has often proved relatively successful (at least in France) in
securing media attention and government assistance, so that it has widely
been repeated by employees of firms in comparable situations.
An obvious problem with this strategy is that it would gradually put
pressure on workers to take more and more extreme steps in order to capture
media attention. Furthermore it is difficult to imagine how it could be
collectivized, as it would be legally suicidal in most countries for unions to
adopt such a strategy of escalating sabotage as a form of protest. But
following the logic of the two first scenarios, it seems extremely likely that
many employees will find themselves in situations where the MNC’s lack of
local legitimacy appears sufficient to justify embarking on a path of ‘social
terrorism’, thereby reinforcing the antagonistic relationship between the
global firm and its host communities. Ironically, these employee actions
may prove so effective that they not only force employers into local negoti-
 Conclusion 317

ations but eventually destroy the MNC itself, either by driving it into
outright bankruptcy or by depressing the stock price so much that it becomes
easy prey for a hostile takeover.

Engines of Industrial Districts

One of the ironic possible consequences of MNC HQs’ managerial behavior
is that they may unintentionally foster the emergence of dynamic and
innovative industrial districts. Thus, for example, many of the small and
medium-sized firms responsible for the international success of the indus-
trial districts of the ‘Third Italy’ in the 1970s and ’80s were founded by skilled
workers laid off from large manufacturing groups during the late 1940s and
’50s.19 Something like this could in principle have occurred in the case of
Lake Mills, where downsizing imposed from London led to the sacking of
many highly trained CNC machinists at the beginning of the 1990s, who were
then re-employed by the plants’ external suppliers to meet the resulting
demand for outsourced parts. But our study of APV suggests that the
conditions for MNCs to act as unintended engines of industrial district
formation may be much more widespread. Each of the subsidiaries we
studied had experienced a period of extensive investment in cross-training
and multi-skilling of their workforce. While this development could be seen
as an extension of existing practices at Horsens, where employees were used
to operating in a highly mobile labor market that enabled the locality to
function as an industrial district (the ‘stainless steel corridor’), it was instead
quite new to both Howard and Lake Mills. At Howard in particular, the skills
and experience acquired through such cross-training and internal promotion
had encouraged employees to develop novel career aspirations, which could
then be further advanced by seeking jobs at other similar firms within East-
bourne’s ‘rotary lobe pump district’. If Mueller, Hancké, and other observers
are correct, however, MNCs more generally have taken the lead within their
subsidiaries in introducing new forms of flexible work organization based on
teams of multi-skilled operatives exercising direct managerial responsibility.
In this way, the skills and experience these team members acquire could
eventually enable them to become highly successful independent suppliers to
MNCs, since they have learned from within how to meet the latter’s quality
and price demands, while also being familiar with their global benchmarking
practices.

19
For overviews of this phenomenon and its contribution to the rise of Italian industrial
districts, see Sabel (1982: 220–1); Alaimo (1999: 179–81); and for a detailed case study, Solinas
(1993).
318 Challenges and Promises of Globalization

Along with new technical and administrative skills, these former employ-
ees will also have acquired extensive experience of dealing with the MNC HQ
as an unstable, short-term-oriented principal. Hence in starting up or
signing on with new spin-off supplier companies, they will know from the
outset that these should avoid excessive dependence on orders from the
parent MNC, whose loyalty cannot be taken for granted. Thus many of
the social and political conditions for creating self-conscious and collabora-
tive inter-firm networks are present in these local communities, as in the
industrial districts of post-war Italy. Unlike the latter, however, where orders
from big companies were often difficult to obtain before the ‘productive
decentralization’ of the late 1960s and ’70s, small and medium-sized enter-
prises (SMEs) in these emergent districts can take advantage from the very
outset of the large-scale outsourcing policies adopted by global firms.20 Such
developments, moreover, could push the second scenario described above
(‘producing passivity through disasters’) in a more positive direction, as
disaffected leaders of the subsidiaries (whether formal or informal) learn to
make local use of the MNC’s global networks as a resource for the economic
development of their communities.

Mobilizing Regional Finance for Global Reach

The mystique of globalization has been closely associated with the inter-
nationalization of financial markets. During the 1990s, holdings of foreign
equities by US pension funds and other institutional investors increased
rapidly from a low initial base, and similar trends could be observed in a
number of OECD countries. But even in the most internationalized econ-
omies such as the UK and the Netherlands, foreign holdings rarely exceed 30
per cent either as a share of domestic institutional investors’ assets or of
national stock market capitalization, while in others like Germany, Japan, or
the US itself, the foreign share of both inward and outward portfolio invest-
ment is still significantly lower.21 Hence as Hirst and Thompson (1999: 38–
42) among others have emphasized, the correlation between domestic
savings and investment remains high across the OECD.
In some countries, like France, Germany, and Japan, foreign equity invest-
ors have pressed with varying success for changes in corporate governance
20
For contemporary examples of the emergence of such local networks in the pharmaceutical,
biotechnology, wireless telecommunications, and software industries from the restructuring of
Swedish MNCs such as Astra, Pharmacia, and Ericsson, see Berggren (2003: 188); Glimstedt and
Zander (2003).
21
For cross-national variations in financial internationalization, see OECD (1997: 18–19); Hirst
and Thompson (1999: 42–52; 2000); Myners (2001: 27–8); Monks (2001: 80–96); Schmidt (2003:
119–25).
 Conclusion 319

and management practice to align them with Anglo-Saxon procedural norms

and commitment to maximizing ‘shareholder value’.22 But more significant
than the direct impact of US and UK financial markets has been their indirect
influence on other national systems. Just as the French court of Louis XIV
and his successors set the style which smaller and less prestigious royal
capitals tried to imitate, so Wall Street and to a lesser extent the City of
London have become the fashionable models which other financial centers
now seek to copy. As in the case of the French nobility, who believed
themselves truly recognized and esteemed when granted access to Versailles,
corporate CEOs and financial institutions today only feel fully valued if they
are able to participate in the high-stakes positional game of Wall Street and
the City. And like the court nobility in Norbert Elias’s (2000) classic analysis
discussed in Chapter 10, who found that they could improve their social and
material standing more easily by cultivating relations with the king than by
seeking to conquer land from other nobles, modern CEOs and financial
institutions discovered that they could gain access to unprecedented rewards
by joining this international game.23 Not only could such CEOs thereby
command much higher levels of personal compensation than previously
considered legitimate at home, but by obtaining a cross-listing on a US or
UK stock exchange, their company’s shares would also then become accept-
able to foreign institutional investors as valid currency for cross-border
mergers and acquisitions.24
This dynamic contributed to the international contagion of the millen-
nium boom, the largest bull market in history, which is now widely recog-
nized as having been an unsustainable bubble, a product of herd behavior and
‘irrational exuberance’ (Shiller 2000; Plender 2003). Even during the boom
itself, moreover, careful observers of Anglo-American financial markets regu-
larly pointed out that the collective behavior of actors within the institutional
equity nexus caused both Wall Street and the City systematically to neglect
potentially profitable investments in small and medium-sized companies
(Golding 2001: 181–91; Carey et al. 1993, quoted in Hebb 2001: 7).
Such defects may become very important in the coming rivalry among the
world’s financial centers. Whereas most of these centers sought to learn how
Wall Street worked, copying its techniques and developing new financial
22
For careful reviews of the debate, which emphasize the relatively limited impact of foreign
equity investment on corporate governance in these countries, see O’Sullivan (2000); Jackson
(2003); Schmidt (2003: 119–25).
23
Elias himself (2000: 398) explicitly compares the court to a stock market.
24
O’Sullivan (2000: 167–8); Jackson (2003: 295–6); Coffee (1999: 676–83; 2002: 1815). Coffee
(1999, 2002) also sees such cross-listing of foreign stocks on ‘high-disclosure’ exchanges as a
mechanism whereby firms can signal to investors worldwide their superior attractiveness and
growth prospects.
320 Challenges and Promises of Globalization

instruments, they embarked on this process from very different starting

points. As Lindgren (1994) shows, for example, the Wallenberg family
imitated Wall Street in many respects in restructuring its banks and holding
company Investor. But in the process, the family turned these financial
institutions into providers of services that could protect its sphere of influ-
ence in a small number of increasingly large-scale Swedish MNCs, which
were thereby furnished with ‘patient capital’.
In many countries, over the past two decades local and regional govern-
ments have sought to create new financial institutions to serve the needs of
SMEs more effectively. Thus in Emilia-Romagna, the economic development
agency ERVET (Ente regionale per la valorizzazione economica del territorio)
proposed in the early 1990s to ‘serve as the primary interface between the
region’s SMEs and national and international sources of investment capital’,
while at the same time opening up the extensive network of business services
it already provided to Italian firms outside the region (Cooke and Morgan
1994: 112; see also Cooke and Morgan 1998: ch. 5). In Germany, similarly,
federal, state, and local governments since the late 1980s have encouraged
both public and private banks to create capital participation corporations
(Kapitalbeteilungsgesellschaften or KBGs) to supply limited-term equity
finance to SMEs. Some KBGs operate like venture capital funds, investing
in new technology projects that can later be taken public, but most have
concentrated on financing innovative local Mittelstand firms in established
industries, which can also draw on the increasingly sophisticated export
marketing support capabilities developed by national savings and coopera-
tive banking associations (Deeg 1999: 118–21, 153–4, 235–6). In France,
where a major decentralization of economic and industrial development
policy has taken place since the mid-1980s, local and regional authorities
have invested heavily in venture companies and sociétés de développement
regional aimed at providing risk capital to SMEs in both new and established
industries, often in partnership with business networks and national govern-
ment agencies (Aniello and Le Galès 2001: 133–4). And even the UK, with its
historically over-centralized financial system (Zeitlin 1995), has recently
created a new system of ‘regional venture capital funds’ aimed at filling the
‘equity gap’ for ‘small businesses with growth potential’, to which local
authority pension funds have contributed in partnership with national
government, private banks, and the European Investment Fund (Mason
and Harrison 2003).
Perhaps the most remarkable step in this direction has been the develop-
ment of Labour Sponsored Investment Funds (LSIFs) in Canada. Beginning
with the creation of the Quebec Solidarity Fund in 1983, these funds have
expanded rapidly with the support of tax credits from federal and provincial
 Conclusion 321

governments, to account by 2000 for 50 per cent of the Canadian venture

capital market (broadly defined as investments in firms with assets of less than
$50 million and fewer than 500 employees). Some LSIFs, based mainly in
Ontario, Canada’s largest province and financial center, were formed by
existing investment firms purely to take advantage of tax concessions, with
only a nominal connection to the sponsoring union. But others, notably the
members of the LSIF Alliance, whose boards are directly controlled by union
bodies, are committed to meeting broader economic and social objectives,
including regional development, employee participation, and labor–manage-
ment cooperation in investee firms. In provinces like Quebec and Manitoba,
for example, Alliance member funds, operating in collaboration with local and
regional networks of public authorities, banks, and other institutional invest-
ors, have become an increasingly important source of working capital and
expansion finance for SMEs, especially those located outside the main finan-
cial centers. Union members in Alliance LSIFs are encouraged to develop
financial expertise, sell shares in the funds to fellow workers and neighbors,
contribute to social audits, and participate in corporate governance and
decision-making. These labor-sponsored funds also work with investee firms
to enhance management capabilities, adopt new forms of work organization,
improve communication with the workforce, build trust with the local union,
and foster employee stock ownership. Taken together, the participatory invest-
ment and decision-making processes promoted by these funds may lead to
an effective joint control of assets, thereby redefining the practical meaning
of industrial property rights, while at the same time providing a powerful
tool for local communities to tap into broader financial markets.25
Such regionally based investment funds and financial institutions have
attracted wide interest among unions and other social constituencies in a
variety of countries, including the United States (Fung et al. 2001a). Their
expansion, fueled by growing disillusionment with the local impact of
globalization, could have a double impact on the dynamics and orientation
of MNCs. First, they would provide an alternative shelter for firms that
currently feel obliged to seek protection from MNCs against the volatile
financial markets. As we have seen, this was a key motivation for all three of
the subsidiaries in our story to join APV, and similar considerations continue
to fuel the merger-and-acquisitions game so crucial to the dominance of the

25
For more detailed discussions of the Canadian LSIFs, see Lincoln (2000); Hebb and MacKen-
zie (2001); Carmichael and Quarter (2003). The Canadian system could be improved through
provision for reciprocity agreements between regional funds, as proposed by US advocates of a
national center for economically targeted investments. Such reciprocity agreements would enable
funds to invest in their general geographical region without concentrating too high a proportion of
plan assets in a single area. See Zanglein (2001: 201).
322 Challenges and Promises of Globalization

equity–investment nexus between MNC HQs and the financial institutions

of Wall Street and the City. Second, they would offer an alternative source of
finance to subsidiaries following a ‘subversive strategy’ of engaging in local
knowledge exchange in order to innovate in products and/or processes and
enlarge their global mandate without the HQ’s formal approval. Like con-
ventional ‘merchant’ venture capital companies, such regional funds would
be well-placed to finance spin-offs of innovative local subsidiaries from their
parent MNCs, whether in the form of management buy-ins/buy-outs or of
employee-owned enterprises. In other cases, MNC HQs might allow subsid-
iaries to raise additional capital locally for innovative projects, thereby not
only enhancing the latter’s scope for strategic initiative, but also compromis-
ing their own exclusive property rights through the development of cross-
cutting obligations to regional investors and financial institutions. In the
longer term, it might even become possible for some subsidiaries to serve as
alternative funding channels for others in ways that begin to challenge the
centrality of the HQ itself within the MNC.26

Any of these five scenarios—either individually or in combination—would

not only serve to disrupt the smoothness of the globalization process, but
would simultaneously undercut the ascendancy of its putative lead agent, the
multinational corporation. Compared to our own preferred strategy of step-
by-step reform of the MNC and its relationship to the financial markets
through open coordination, social dialogue, and interregional networking,
these alternatives seem at least as likely but their consequences much less
desirable. Civilizing globalization through the experimental reform process
proposed above would transform the MNC into an institution that could
extend the possibilities open to local communities pursuing their own
distinctive paths of development while enabling the world to maintain and
expand the diversity from which humanity has always prospered. If observers
like Castells (2000) and Held et al. (1999) are correct, MNCs achieved a new
dominant role in the 1990s, not by themselves organizing an increasing
proportion of world production, but rather by becoming the central nodes
of transnational production networks, tying together the capabilities of many
localities. As presently constituted, however, these organizations lack both
the intelligence and the humility, as well as the civility, to master such a
tremendous responsibility.

26
This would mark a partial return to the inter-war pattern, when multinationals often ‘felt
some pressure to give their subsidiaries a more ‘‘local’’ appearance by selling part of the equity to
local investors or appointing nationals to local boards’, and foreign units not only sometimes
undertook their own R&D but also made independent third-country investments (Jones 1996: 122,
115; Wilkins 1974).
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 INDEX

ABB 197, 200–3, 230, 243–4, 249, 250, artel 228–31, 240, 242
254, 259, 304, 313 authority 4, 14, 15, 23
accountability 218, 221, 298
administrative heritage 10, 11, 14, 27–8, backshadowing 181, 312
68, 190, 193, 211 bad excuses 205–6, 244, 249, 250
aims and interests, trade-off 192, 212, 213 Baker Perkins 62, 136–7, 149
Alfa-Laval 32, 39, 62, 95, 143 bargaining:
Aluminium Plate and Vessel Co. 52 collective 6, 264, 270, 273
Amin, A. 2 distributive 274–5
APV: integrative 274–5, 276, 280
apprenticeships 53 Barnard, C. 211, 225, 234, 241, 243,
core competencies 145 247–8, 256
European Forum (AEF) 98–100, 101, Bartlett, C. A. 9, 10, 11, 14, 15, 190–3,
160, 168, 183 201–3, 301
family finance 52 Behr, M. von 204–5
financial crisis 57 Bélanger, J. 201, 205, 207, 231
friendly takeover 39–40, 45, 50 Belussi, F. 3
gearing ratio 139 benchmarking 199, 202, 205, 241, 244,
going public 55 258, 279, 283, 286, 310
history 51–63, 64–5 in ABB 203–5, 244, 249–50, 253–4,
internecine conflict 5–7, 19, 142–3, 259
145, 148 competitive 268, 271, 273–5,
investor confidence 139, 141–2, 148, 312–13
173, 177 global 317
Joint Production Advisory mutual learning 296–7, 299, 302
Committee 55 negotiated 253–4
local mentality 152 Seven Ups 249
market pressures 143–4 standardized 244, 259
master narrative 178, 179, 181 strategic 290
move to Crawley 55–6 top down 230
multinationalization 53, 58–63 Bendix, R. 233
patents and licenses 53, 56 Benson, P. 58, 60–1
polycentric construct 63–9 Berggren, C. 204
reason for expansion 135–6 Birkinshaw, J. 18, 19
reorganizations 61, 137–8, 139–40, Blackman, G. 54
145–7, 154, 175–6 blame 201, 232
strategic capabilities 176–7 allocation of 244, 249
see also HQ and bureaucracy 220–1, 223
346 Index
Canada 320–1
Carr, D. 252, 253
cartel 201, 202
Castells, M. 322
CC&G 41–2
Chandler, A. D. 8, 214, 217–18, 219,
249
Coase, R. H. 8
Cohen, J. 262, 263
collaboration, pragmatic 254–7, 260,
262
collaborative action, capability for 2,
16, 22, 223, 239
collective bargaining 6, 264, 270, 273
commitment 19, 198, 209, 213, 246,
258, 279, 293, 319
as property right 248
shared or mutual 192, 208, 234,
243–51, 260, 265–6, 270, 299
communication, cross-country 20, 258,
269
comparative advantages 3, 6, 7, 8, 14,
187, 189, 247
competition and cooperation,
local 49–50
competition-cooperation balance 6, 8,
14, 16, 188, 206–11, 214, 224, 261,
301
computer-numerically-controlled
(CNC) machine tools 87–8, 317
constitutional ordering 198, 215, 234–9,
241, 243–4, 247, 261, 279, 313
consultants 150, 175, 179–80, 206, 233,
266, 285, 295, 300
continuous improvement 3, 196, 240,
244, 250, 276, 278–9, 298
contributions, collective 226
control and coordination 22, 187,
188–9, 213, 215, 218, 225, 256, 260
convenors and shop stewards 36, 39,
73–4, 90–2, 101, 237–8, 275–6,
280–3
convergence 199, 200, 204, 268, 274,
286, 291
cooperation 6
see also competition-cooperation
balance
coordinated bargaining 274
coordination:
open 287–8, 290, 298–9, 300–1, 309,
312, 322
see also control and coordination
corporate culture 195, 258, 267, 270
as global glue 193, 255
Creamery Package Co. (CP) 42–5
Crepaco 45–7, 61, 63–4, 67, 93, 94, 124,
125
see also Lake Mills
Cyert, R. M. 231
Danish APV Forum 95–7
Danish Mafia 95, 97–8, 101, 126, 160,
261
Danish Sugar Factories 33, 35, 39
decisions, non-legitimate 248, 316
Delany, E. 195
democratic experimentalism 254
Denmark 276–82
flexible labor market 164–5
Joint Stock Company Law 162
social welfare 74, 164–5
training 164
unionization and wage
bargaining 162–3
see also Horsens; Pasilac
directly-deliberative polyarchy 302,
254, 262–3
directors, struggle for position 149–50
distorted interpretation of acts 210
divergence 200, 204, 311
diversity, managing 200
division of labor 187, 194, 214, 232,
233, 236, 241, 275, 277–8, 300
downsizing 6, 201–2, 227, 239, 245, 278,
312, 317
Doz, Y. 244
Dunning, J. H. 11–12, 13, 15, 16
Durkheim, E. 232
 Index
Eastbourne 93, 94
competition and cooperation 49–50
friendly takeover 50
history 47–51
see also Howard
Edwards, T. 196–7, 207
Elias, N. 251, 319
empirical studies 9, 13, 20
bottom-up 266, 284
top-down 230, 302, 312, 313
employee-representatives 276, 279–80,
284–5, 289–90, 297, 299
see also convenors and shop stewards;
unions
Engineering Employers’
Federation 53–4
European Employment Strategy
(EES) 286–9, 290–1, 292
European Metalworkers’ Federation
(EMF) 99, 271, 273
European Works Council 95, 98, 160,
264, 265–9, 271, 280–1
executive function 5, 15, 23
Barnard on 211, 225, 234, 241, 243,
247–8, 256
exploitation 14, 188, 242, 302
exploration 188, 207, 242, 253, 257
F. B. Fargo and Co. 41–2
Ferner, A. 195, 197, 207
financial and accounting
dependencies 65–6
financial systems 320
firms’ context 18–19, 21–2, 190, 205,
213, 227–8, 230, 232, 235, 241, 250,
257, 270, 290
see also relationship with local
environment
five-why system 254, 256, 262
Fjord, Docent N. J. 29
flexible working practises 83, 85, 88,
115, 125, 198
foreign direct investment (FDI) 7,
15–16, 292
347
foreshadowing 182, 312
Freeland, R. 214, 215–17, 249
fund managers 5, 21, 177–8, 299–300,
303, 310–11
General Electric 200–1
General Motors 214–15, 221
geocentrism 14, 16, 20, 66
Germany 98–9
see also Rosista
Ghoshal, S. 9, 10, 11, 14, 15, 190–3,
201–3, 301
global business park 117–21
Global Product Manager 127
global web 17
Golding, T. 299
governance methods:
experimental 14, 264, 284–91, 291–2
invisible hand 190, 192, 198
group deliberation 254
Hamilton, Peter 61, 140
Hancké, B. 267–8, 270, 271
Harrison, B. 2
Haythornthwaite, Rick 306–8
head count reductions 305, 307
Hedlund, G. 3, 13, 14–15
Hegel, G. W. F. 252, 253
Held, D. 322
Helper, S. 256, 262
Herrigel, G. 79
heterarchy 3, 20, 189, 194–8, 201, 211,
243
hierarchical levels 191, 219
Hirst, P. 301, 318
Horsens 63–4, 67, 73–102, 133, 138,
276–82
career prospects 84, 86
convenor and shop stewards 36, 39,
73–4, 90–2, 101, 168–9
friendly acquisition 39–40
history 28–40
local relationships 73, 81–4, 86–7,
160–1
348
Horsens (cont. )
local strategy 159–60
managing director 73, 85, 92–3, 96,
101, 169
narrative of identity 167–70, 183
oversee Howard 125–6
profit record 101–2
reorganization 35–6
reputation 183
subversive strategy 4, 86–92, 180
training agreement 74–7, 89
union 91
US contract 37–9
see also Pasilac
Hoskisson, R. E. 218
Howard 93, 124–34
closure 134, 138
in the local labor market 130–2,
165
local strategy 158–9
managing director 124, 127–30
narrative of identity 167–70, 182–3
overseen by Horsens 125–6
technical director 132–4
see also Eastbourne
Howard Investing in People (HIP)
129
Howard Pneumatic Engineering
Co. 47–51
Howard Pumps 62, 63–4, 66
HQ 135–56
budgetary controls 78
internal conflict 172–3
narrative of identity 172
power struggle with subsidiaries 5,
6–7, 19
relationship with local
environment 173–4
reporting to 140–1, 204
unintended consequences 68
see also APV
human resource management
(HRM) 21, 121, 193, 195, 199
Hymer, S. 7–8, 13, 15
Index
incentives 204, 223, 224, 277, 296,
309–11
inducements, collective 226
industrial districts 1–3, 16–17, 82,
207–8, 260–1, 317–18
industrial relations 199, 202, 221,
268–70, 273–4
information, process of 12, 244–5, 259,
260
Institutional Equity Nexus 299, 300,
303, 309–10, 315
integrating MNCs 1, 19, 197, 207, 218,
257, 299
inter-subsidiary game 207
interregional network of local
actors 264, 284, 286, 290, 292–3,
296, 298, 312, 316, 322
Invensys 305–9, 314
investment bargaining 199, 253, 268,
270, 273–4, 299, 302, 312, 324
investment decisions 151, 214
investors, institutional 5, 6, 21
iterative goal setting 254
Jackall, R. 219–24, 244, 249
John Deere & Co. 161
Jones, G. 7
just-in-time 254, 302
Kim, W. C. 246
Kolding 96
labor:
global mobility 6
mobility 182, 183
multinational solidarity 268
Laffan, B. 261
Lake Mills 103–23, 133, 137
friendly takeover 45
history 40–7
local strategy 158–60
machine shop 117–19
management 106–7, 113–14, 115
narrative of identity 170, 180, 182
 Index 349
pay-for-knowledge 107–11, 113, 115, mergers and acquisitions 4, 16, 19, 20,
118–19, 194, 239 27, 94, 135, 187, 189–90, 193, 201,
relationship with local 208, 217, 243–4, 280, 300, 310, 319
environment 160–1 Messel, L. 51
restructuring 105–12, 116 Miller, G. 224–5
Skill Enhancement Center 122 misunderstandings 210, 230, 232, 245,
subversive strategy 4 298
see also Crepaco Morgan, G. 207
Lane, C. 79 Mueller, F. 198, 199, 202, 207, 313
language 5–6, 205, 221–3, 250, 260–1, multinational corporations (MNCs):
269–70, 272, 279, 281 bureaucracy 220, 223, 308
Larsen, L. P. 29 as centrally coordinated firm 189,
lean production 195 190, 273
learning: civilizing 257, 281
by monitoring 23, 250, 253–7, as decentralized federation 190
259–62, 264, 299, 309 as heterarchy 3, 14, 20, 189, 194–8,
and innovation: cross-border 197, 201, 211, 243
281–2; reverse diffusion 195, as integrated network 189, 191,
196–7, 199, 207 193–7, 201, 244
organizational 9–10 integrating 1, 19, 197, 207, 218, 257,
Lecher, W. 267, 280 299
legitimacy of procedures 188, 198, 230, the literature 7–21
245, 252, 315 M-form 213–18, 222–5, 242, 249
Lygon Place see HQ as multi-focus firm 189, 195
new role 260
managerial committees: as valuable organizational device 2–3
in GM 214–15 as Warring Fiefdoms 189, 192–3, 195,
Sloan on 215–16, 245, 247 200, 207, 251, 255, 260, 262
managerial game 207 multinational public 23, 265, 270, 292,
managers: 298–9
career prospects 84, 86 mutual commitment 234, 246–9, 247,
and employee-representatives 276, 250–1, 260, 265–6, 299
279, 280, 284–5, 289, 290, 297, mutual recognition 235, 249, 252, 254
299 Myners, P. 310–11
evaluated 152–3
laid off 153 narratives 22
promotion 5, 203 of identity 167–70, 172, 182–3
turnover 11, 14, 203 master 178, 179, 181, 287, 300
March, J. 231 self-reinforcing 179
Marginson, P. 272, 274 structuring power positions 182
Marshall, Lord 308 warfare 178–80
Martı́nez Lucio, M. 199, 267, 270–1 negotiation 8, 192, 198, 227, 231–2,
Marx, K. 309 235, 237, 268, 272–3, 277, 314
Mauborgne, R. A. 246 Nelson, R. R. 9
350
O’Connell, L. 257, 259
offensive local strategies 8, 274–5
oikos 229, 230–1
OLI paradigm 12
Open Method of Coordination
(OMC) 286–8, 290
opportunism 9, 11, 23, 188, 219, 222,
227, 256–7, 262, 297, 309
organizational learning 9–10
organizational structure 10, 12, 19, 23
matrix structure 196, 202, 203, 209,
244
ownership:
absentee 240, 253
advantages of 8, 9, 14, 187
novel form of 260
Paasch, W. 29
Paasch & Larsen (PLP) A/S 29–32
Pasilac 32–3, 39, 62, 78, 93, 95, 96, 136
see also Horsens
pay-for-knowledge 107–11, 113, 115,
118–19, 194, 239
Peat, Marwick, Mitchell and Co. 57
Penrose, E. 9–10
performance ambiguity 218–19
performance measurement:
balanced scorecard 202
and opportunism 188, 219, 222, 227,
256–7, 262, 297, 309
seven ups 202, 205, 244, 249
Perlmutter, H. V. 13
Petersen, V. 29
Petit, Miss 48–9
Plender, J. 299
politicization 175–6
polycentrism 13–14, 16, 20, 27, 63–9,
196
positional strategies 230, 235–41, 243,
247, 251, 258, 262, 267–8
power game, HQ-subsidiaries 5, 6–7, 19
Prahalad, C. K. 244
procedural justice 243, 246, 260–1
Product Businesses 147–52, 155, 175
Index
product mandates 19, 188
product rationalization 103–4
product specialization 137–8
product-cycle theory 8
products, standardized global 151
Project Star 145–6
protest 230, 316
Purcell, J. 202, 207
Rannie 95–6, 98–9, 101
reciprocity rules 223, 231
regime shopping 198, 268, 270, 314
relationship with local environment:
Horsens 73, 81–4, 86–7, 160–1
Howard 130–2, 165
HQ 173–4
Lake Mills 160–1
see also firms’ context
repeated games 208–9, 223, 234
reporting actions 204
representation 19, 216, 232
reputation rivalry 236, 237–8
responsibility 11
tracking system of 221
Robins, K. 2
role, others’ 181–2, 240, 249, 252–4
Rosista 78–9, 137–8
see also Germany
Rugman, A. M. 16, 17
S&G Warburg 57
Sabel, C. 208, 254–6, 259–61, 262, 263
St. Regis Paper Co. 43–5
scapegoats 5, 155, 176, 178, 220, 249
Schmoller, G. 227–9
Schutz-Wild, R. 204, 313
Seligman Bros. 53, 57
Seligman, G. 52
Seligman, I. 51
Seligman, P. 54, 58
Seligman, R. 51, 53–4, 55, 57
sense-making 248
shirking 9, 188, 189, 213, 219, 227,
315
 Index 351
shop stewards and convenors see subversive strategies 4, 17, 18–19, 195,
convenors and shop stewards 230, 302, 322
short-termism 84, 220 Supiot, A. 315–16
sideshadowing 178, 183, 312
Siebe 61–2, 136, 304–5 taking on the role of others 181–2, 240,
takeover bid 155–6, 177, 179 249, 252–4
Silkeborg 32–5, 37, 39, 96, 103, 137–8 teams 19, 191, 205, 218, 254–5, 278,
Simon, H. 231 280, 317
simultaneous engineering 254, 256, 262 see also work groups
Sisson, K. 272, 274, 275 terminologies 5, 22
Sloan, A. P. 214–16, 245, 247 local use of 205
Smith, F. 61, 136, 137, 144 TerritorialEmploymentPacts 284–6,289
Smith, M. 145 Tetra Pak 143
social commitment 247 Thibout, J. 246
social position 235 Thompson, G. 301, 318
social terrorism 315–17 time-based management 202
social/professional groups 2, 227, 230, transaction costs 9
233–6, 239–40, 262–3 Traxler, F. 275
Sölvell, O. 18 trust 194, 208–9, 221, 245–7, 249, 268,
Specialized Workers’ Union (SiD) 76 270, 279–80, 283, 321
state of warfare see warfare Tully, J. 253
Stephens, B. 304
Strategic Business Units (SBUs) 93, 116, unionization 161–3
125–6, 133, 147, 159, 169 unions 198–9, 229, 230, 235, 245,
managers 93–5, 97, 121, 127, 150, 264–72, 280–4, 288, 290–1, 293–4,
151 296, 314, 316, 321
strategic capabilities 171–2, 176–7 European 271–3
strategies: International Association of
local 158–60 Machinists (IAM) 104, 107–12,
offensive 8, 174–5 112–15, 119
positional 230, 235–41, 243, 247, 258, Specialized Workers’ Union (SiD) 76
262, 267–8 United Steel Workers of America
subversive 4, 17, 18, 195, 230, 302, (USWA) 104, 107–12, 112–15,
322 119
strikes 197 United Kingdom:
Strowger, Clive 144, 148 economic climate 174–5
subsidiaries: Employment Relations Act
diversity among 3, 5, 101, 199–200, (1999) 166
204, 242, 258, 275, 322 flexible labor market 166–7
independence 66 social welfare 166–7
polycentric 196 Teaching Company Scheme 125
power struggle with HQ 5–7, 19 training 166
strategic capabilities compared 171–2 unionization and wage
subsidiary centered studies 195 negotiating 165–6
352
United States of America:
financial markets 319, 322
training 163–4
unionization and wage
negotiating 161–2, 163
Varul, M. 195, 197, 207
Veblen, T. 314
Verbeke 16, 17
Vernon, R. 8, 13, 15
Walker, L. 246
war games 153, 178, 181, 184
warfare 147–8, 153, 178–81, 232, 234
Warring Fiefdoms 189, 192–3, 195, 200,
207, 251, 255, 260, 262
Weick, K. 247–9
Weizman, Dr. Chaim 52
Westney, E. 13, 21
Weston, S. 199, 267, 270–1
Whitford, J. 257
Index
Whittall, M. 268
Williamson, O. E. 8, 188, 213
Wills, J. 265–6
Winter, S. 9
Wisconsin Manufacturers’ Development
Consortium (WMDC) 293–8
Wisconsin Manufacturing Extension
Partnership (WMEP) 161, 294–5
Wisconsin Regional Training
Partnership (WRTP) 122, 161, 293
work groups 225, 254
see also teams
workplace egoism 268
Works Councils 200
European (EWC) 95, 98, 160, 264,
265–9, 271, 273, 280, 281
world view 229
Yurko, Allen 304
Zander, I. 18