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Multinationals, Institutions

and the Construction of

Transnational Practices
Convergence and Diversity in the Global Economy

Edited by
Anthony Ferner, Javier Quintanilla and
Carlos Sánchez-Runde
Multinationals, Institutions and the Construction of
Transnational Practices
This page intentionally left blank
Multinationals, Institutions
and the Construction of
Transnational Practices
Convergence and Diversity in the Global

Edited by
Anthony Ferner,
Javier Quintanilla
Carlos Sánchez-Runde
© Selection and editorial matter © Anthony Ferner, Javier Quintanilla and
Carlos Sánchez-Runde 2006 Individual chapters © contributors 2006
All rights reserved. No reproduction, copy or transmission of this
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Library of Congress Cataloging-in-Publication Data
Multinationals, institutions and the construction of transnational practices :
convergence and diversity in the global economy / edited by Anthony
Ferner, Javier Quintanilla and Carlos Sánchez-Runde.
p. cm.
Papers presented at a conference held at the IESE Business School in
Barcelona in July 2004.
Includes bibliographical references and index.
ISBN 1–4039–4771–6 (cloth)
1. International business enterprises–Congresses. 2. Globalization–
Congresses. I. Ferner, Anthony. II Quintanilla, Javier. III. Sánchez-Runde,
HD2755.5.M8456 2006
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Printed and bound in Great Britain by
Antony Rowe Ltd, Chippenham and Eastbourne

Preface and Acknowledgements vii

List of Contributors ix
1 Introduction: Multinationals and the Multilevel Politics
of Cross-National Diffusion 1
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde
2 Towards a Political Economy Framework: TNCs as
National and Global Players 24
Jacques Bélanger and Paul Edwards

3 Theorizing the Role of the International Subsidiary:

Transplants, Hybrids and Branch-Plants Revisited 53
Tony Elger and Chris Smith

4 Accommodating Global Capitalism? State Policy and

Industrial Relations in American MNCs in Ireland 86
Patrick Gunnigle, David G. Collings and Michael J. Morley

5 Emerging Motivations for Global HRM Integration 109

Sully Taylor
6 Patterns of Integration in American Multinational
Subsidiaries in Europe 131
Valeria Pulignano
7 Who is Hybridizing What? Insights on MNCs’
Employment Practices in Central Europe 155
Guglielmo Meardi and Andras Tóth
8 Globalization and Labour Market Segmentation:
The Impact of Global Production Networks on
Employment Patterns of German and UK Clothing Firms 184
Christel Lane and Jocelyn Probert
9 Global Networks or Global Firms? The Organizational
Implications of the Internationalization of Law Firms 213
Glenn Morgan and Sigrid Quack

vi Contents

10 Structuring the Transnational Space: Can Europe Resist

Multinational Capital? 239
Richard Hyman

Index 256
Preface and Acknowledgements
This volume presents a selection of papers originally given at a confer-
ence on Multinationals and the International Diffusion of Organizational
Forms and Practices: Convergence and Diversity within the Global Economy.
The conference was held at IESE Business School, Barcelona, in July
2004. It was a companion event to an earlier conference held at
Leicester Business School, De Montfort University in 2001.
The aim of the Barcelona gathering was to push forward the develop-
ment of the burgeoning field of research on the diffusion of practices
and policies within multinationals. The substantive focus was – pre-
dominantly but not exclusively – on the terrain of employment
relations and human resource management practices, policies and
processes. Conceptually the emphasis was on understanding the value
and limitations of a comparative institutionalist approach to the study
of cross-border transfer in multinationals.
Conference contributions explored the processes whereby organiza-
tional structures, policies and practices are diffused internationally in
the context of ‘capitalist variety’; the ways in which structures and
practices are adopted, adapted or hybridized in the host; the ‘politics’
of diffusion, manifested in the interplay of interests, power and negoti-
ation at different levels within the multinational and beyond it; the
way in which the multinational’s behaviour is both shaped by and
shapes institutional arrangements in the spheres in which it operates;
and the interactions between the institutional levels of the company
itself, the national business system, and the global economy. The
papers collected in this volume have been selected from the conference
contributions on these themes. They have been thoroughly revised and
developed by the authors for publication.
We are very grateful to the invited keynote speakers – Professors Ron
Dore, Richard Hyman, Wolfgang Streeck and Sully Taylor – whose pre-
sentations provided a stimulating and provocative framework for dis-
cussion at the conference. Two of their papers are included here. We
owe a considerable debt of gratitude to IESE whose generous support
for the event contributed greatly to its success; and to the administrative
staff of IESE who faultlessly organized the conference. In particular, we
would like to thank Christine Ecker for her dedicated and professional
efforts. Finally, we gratefully acknowledge the financial support
provided by the Departament d’Universitats, Recerca i Societat de la
Informació of the Generalitat de Catalunya, and by the Ministerio de

viii Preface and Acknowledgements

Educación y Ciencia. The conference was held within the ambit of the
international cultural event Forum 2004 hosted by the city of Barcelona.

Leicester Business School and IESE, September 2005

Anthony Ferner
Javier Quintanilla
Carlos Sánchez-Runde
List of Contributors
Jacques Bélanger is Professor in the Département des relations indus-
trielles at Université Laval, in Quebec City. The results of his field
research on multinational firms have appeared in various industrial
relations and sociological journals. He is co-director of the Centre de
recherche interuniversitaire sur la mondialisation et le travail (CRIMT).

David Collings is Lecturer in HRM/OB at Sheffield University Manage-

ment School, and a Visiting Research Fellow in the Strathclyde Interna-
tional Business Unit, University of Strathclyde, Glasgow. He was formerly
in the HRM research group, University of Limerick. His current research
interests centre on HRM and industrial relations in the multinational firm.

Paul Edwards is Professor of Industrial Relations at Warwick Business

School, University of Warwick. He is a Fellow of the British Academy
and in the period 2004–7 is a Senior Fellow of the Advanced Institute
of Management Research. His most recent book, co-authored with Judy
Wajcman, is The Politics of Working Life (2005).

Tony Elger is Professor of Sociology and Director of the Centre for

Comparative Labour Studies at the University of Warwick, UK. His
current research interests concern the interaction between interna-
tional firms and national employment regimes, consent and dissent in
contemporary workplaces, and relations between trade unions and
social movements.

Anthony Ferner is Professor of International Human Resource

Management at Leicester Business School, De Montfort University,
Leicester. His research is concerned with employment relations in multi-
national companies, focusing in particular on the interaction between
multinational behaviour and national employment relations systems.

Patrick Gunnigle is Professor of Business Studies at the University of

Limerick, where he is also Director of the Employment Relations
Research Unit. His main research interests are in the areas of multina-
tional corporations and human resource management, trade union
membership and recognition, and management strategies in employment
industrial relations.

x List of Contributors

Richard Hyman is Professor of Industrial Relations at the London

School of Economics and editor of the European Journal of Industrial
Relations. He has numerous publications, including Understanding
European Trade Unionism (2001). Currently he is researching the ways
in which trade unions at national level engage with the process of
European integration, and the changing interconnections between the
state and industrial relations.

Christel Lane is Professor of Economic Sociology in the Faculty of Social

and Political Sciences (SPS), University of Cambridge, and Fellow of St.
John’s College. Her research interests include varieties of capitalism in
Europe, and global networks of production and innovation in different
industries and countries. Her publications include Industry and Society in
Europe (1995) and (as editor) Trust Within and Between Organizations
(1998), as well as numerous book chapters and refereed journal articles.

Guglielmo Meardi is Lecturer in Industrial Relations at the University of

Warwick, UK. He has been visiting fellow or research associate at the
Centre d’analyse et d’intervention sociologiques (Paris), Universities of
Milan and Warsaw, Université Catholique de Louvain-La-Neuve, and the
Hungarian, Polish and Slovenian Academies of Sciences. His research
focuses on multinationals and trade unions in post-communist countries.

Glenn Morgan is Professor of Organizational Behaviour at Warwick

Business School. He is also a Research Associate at the ESRC Centre for
Globalization and Regionalization at the University of Warwick and
Visiting Professor at Copenhagen Business School. He is the editor of the
journal Organization. Recent publications include Changing Capitalisms,
edited with Richard Whitley and Eli Moen (2005).

Michael J. Morley is Assistant Dean, Research, and Senior Lecturer at the

Kemmy Business School, University of Limerick. His current research inter-
ests include convergence and divergence in European HRM; international
assignments and expatriate management; intercultural transitional adjust-
ment, intercultural sense-making and cross-cultural competence; and
human resource management in US MNCs in Europe.

Jocelyn Probert is Lecturer in International Management and

Organization at Birmingham Business School. She has a PhD from
Judge Business School at the University of Cambridge and until
recently was Research Fellow at the Centre for Business Research,
List of Contributors xi

where she conducted comparative research on global value chains and

the organizational reconfiguration of firms.

Valeria Pulignano is Professor of the Sociology of Labour at the

Katholieke Universiteit Leuven (Belgium). She is Associate Fellow at the
Industrial Relations Research Unit, University of Warwick, UK.
Currently, she is involved in a project on ‘Trade Unions Anticipating
Change in Europe’ at ETUI-REHS, Brussels. Research interests focus on
comparative European industrial relations.

Sigrid Quack (PhD Free University of Berlin) is Research Fellow at

the Social Science Research Centre (WZB), Berlin. Her books include
National Capitalisms, Global Competition and Economic Performance
(2000), which she edited together with Glenn Morgan and Richard
Whitley, and Globalization and Institutions: Redefining the Rules of the
Economic Game (2003), edited with Marie-Laure Djelic. Current
research projects focus on the internationalization of law firms,
international rule-setting in accounting and institutional change
more generally.

Javier Quintanilla is Associate Professor at IESE Business School,

University of Navarra (Spain). His current research interests are the
management of professional service firms and international human
resource management, subjects on which he has published widely.

Carlos Sánchez-Runde is Associate Professor and Associate Dean

for Faculty at IESE Business School, University of Navarra (Spain).
He has held teaching and research appointments in different coun-
tries, and is the author or co-author of several publications on per-
sonnel management, organizational innovation, and cross-cultural

Chris Smith is Professor of Organization Studies, School of Management,

Royal Holloway, University of London. He has published widely in the
areas of management control, the labour process, comparative organi-
zation theory, professions (especially engineers), the transfer of work
organization practices through multinational companies, the organiza-
tion of professions, and call centres. He is researching human resource
management and work organization practices of tele-nursing. His most
recent book is Assembling Work: Remaking Factory Regimes in Japanese
Multinationals in Britain (2005), with Tony Elger.
xii List of Contributors

Sully Taylor is Professor of International Management and Human

Resource Management at Portland State University and Director of the
Master of International Management. Her research interests include
the design of global HRM systems in multinational firms, the manage-
ment of women expatriates, and sustainable HRM. She has authored or
co-authored a number of articles on her research as well as a book
(with Nancy Napier), Western Women Working in Japan: Breaking
Corporate Barriers.

Andras Tóth is senior research fellow at the Institute of Political

Sciences, Hungarian Academy of Sciences, and lecturer in the Faculty
of Sociology at the Eötvös Loránd University, Budapest. He is also an
external collaborator of the Zentralinstitut für sozialwissenschaftliche
Forschung, Freie Universität Berlin, and of the European Trade Union
Institute in Brussels. He has published books and articles on various
aspects of labour relations, and on the impact of multinational invest-
ment, with particular reference to Hungary.
Introduction: Multinationals and the
Multilevel Politics of Cross-National
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde

Over the last decade or two, scholars in the fields of international
employment relations and organizational behaviour have devoted
considerable energies to arguing that systematic differences in the
behaviour of multinational companies (MNCs) are significantly shaped
by their embeddedness in distinctive national-institutional complexes,
both of their country of origin and of the host business systems in
which their subsidiaries operate. More recent analyses have explored
MNCs’ behaviour as the complex outcome of the interaction between
influences from the parent national business system (NBS) and those
deriving from the host NBS. Such work has drawn heavily on the com-
parative institutionalist perspective whose variants include the ‘societal
effects’ school (e.g. Maurice and Sellier, 1986), national business
systems theory (e.g. Whitley, 1992), and the ‘varieties of capitalism’
approach (Hall and Soskice, 2001a).
This approach to MNCs may be seen as a necessary antidote to two
contrasting conceptual tendencies: on the one hand, more deterministic
strands of globalization theory, with their underlying assumption or
implication that a general cross-national convergence of management
styles and practices was in train; on the other, the simplistic analyses
of observable national differences in the behaviour of MNCs in terms
of cultural ‘values’. The comparative institutionalist approach was thus
fighting a war on two fronts, against a lack of attention to continuing
national diversity, and against the analytical impoverishment of existing
attempts to understand the sources of national variety.
However, having at least partially achieved its purpose, and having
won some degree of acknowledgement of its underlying premises at

2 Multinationals, Institutions and the Construction of Transnational Practices

least among European international business scholars, the approach

rapidly ran into conceptual limits. The criticisms have provoked
significant development of the comparative institutionalist approach
over recent years, and this volume brings together some illustrative
strands of thinking. The following sections sketch the main lines of
attack against the limitations of early attempts at understanding MNCs
in institutionalist terms, and set out the ways in which the analytical
arguments are being developed. Thereafter, the contribution of the
chapters in this volume to the development of these themes is discussed.

Multinationals between globalization and diversity: analytical

MNCs and the evolution of national business systems: beyond
comparative statics
The legitimate concern of the national-institutional approach to show
the distinctive historical development paths of different business
systems has been frequently criticized for overemphasizing stability
and continuity at the expense of analysis of the mechanisms of institu-
tional transformation. This was encouraged by the attention paid by
many of the exponents of national business system analysis (e.g. Lane,
1994) to the conditions that maintained the integrity of national
institutional arrangements through the ‘interlocking’ of institutional
complexes. Streeck and Thelen (2005; see also Thelen, 2003; Djelic and
Quack, 2003) suggest that models of system change tended to rely
on ‘punctuated equilibrium’ notions of abrupt systemic breakdown
followed by reinstitutionalization. This bias leads to the danger that
studies of MNCs (and other phenomena) across NBSs become exercises
in ‘comparative statics’.1
In recent years, there has been increasing awareness that compara-
tive analysis must deal with moving targets (e.g. Morgan, 2005), and
that MNCs themselves play an important role in national-institutional
evolution. They are, to adopt the terms of Streeck and Thelen (2005),
institutional ‘rule makers’ as well as ‘rule takers’, shaping system
dynamics through engagement at a number of levels, not least through
their direct or indirect influence over the priorities and strategies of
public policy-makers. This is illustrated in this volume by the chapter
by Gunnigle et al. in the case of US MNCs in Ireland, and that by
Bélanger and Edwards on relationships between Canadian-based MNCs
and their domestic political elite. More indirectly, it is reflected in
Hyman’s analysis EU policy-making and of the ongoing struggle to
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 3

impose a neo-liberal model of European integration in the interests of

transnational capital.
MNCs also operate at the micro-organizational level to shape institu-
tions, by transferring practices that subsequently diffuse to other firms
within their organizational field, through what the new institutionalists
would call ‘mimetic isomorphism’ (DiMaggio and Powell, 1983), even-
tually becoming part of the taken-for-granted cognitive frameworks
concerning appropriate ways of doing things. An example would be
various innovations in the management of employees’ pay and perfor-
mance initially diffused to the UK by American MNCs.
Streeck and Thelen’s (2005) more general point is that institution-
building is not a periodic phase in a cycle of rupture and re-establish-
ment, but rather an ongoing process in which institutions leave ‘space’
for actors to contest the nature and meaning of the institutional
framework they inhabit (see also Morgan, 2005). Even the most highly
regulated systems leave such space, and MNCs, as powerful actors,
have the capacity to exert a strong influence over the evolution of
institutions. An example would be their role in shaping the day-to-day
functioning of the works council in German subsidiaries, eliciting new
behaviours and roles more suited to their purposes (e.g. Muller, 1998).
Despite these shifts in emphasis, however, it is important not to throw
out the NBS baby with the bath water. To say that institutions are
dynamic and evolving, and that institutional creation and re-creation
is a continual process performed by active agents (including MNCs), is
not to deny that there are significant and persistent differences
between national-institutional systems; nor that persistent differences
have a ‘path-dependent’ aspect, in that past institution-building con-
strains present choices (e.g. Mahoney, 2001); nor that, at any given
time, many fundamental elements of an institutional complex are
simply not ‘up for grabs’. Such continuities mean that it still makes
sense to engage in comparative analysis of NBSs, seeing practices in the
context of the ‘institutional complementarities’ (Hall and Soskice,
2001b) that shape alternative ways for economic sectors to organize
themselves within and across national boundaries. At the same time,
it is necessary to be alert to the ways in which the processes and
actors being compared (including MNCs) themselves have a dynamic
impact upon institutional frameworks within which they operate. The
chapters by Lane and Probert, Meardi and Tóth, and Morgan and
Quack in this volume illustrate the continuing importance of attend-
ing to ‘varieties of capitalism’, albeit varieties that are dynamically
4 Multinationals, Institutions and the Construction of Transnational Practices

Multilevel analysis and the interaction of institutional effects

The predominant focus of comparative institutional analysis of MNC
behaviour, for understandable reasons, has been on the institutional
domain authoritatively coordinated by nation-states (e.g. Hall and
Soskice, 2001). But this has been criticized on a number of grounds.
First, the comparative institutionalist approach has been accused of
failing to see the global-systemic wood for the national-institutionalist
trees (e.g. Strange, 1997), overemphasizing national diversity while
underplaying the powerful global dynamics driving the world business
system. Against this it could be argued that national diversity is in fact
a key constitutive mechanism driving innovation within the world
economy: allowing MNCs to ‘leverage’ difference in the search for
competitive advantage, and providing the basis for the emergence of
new poles of innovative development based on local institutional
advantages and specific circumstances.
Nonetheless, the analytical question remains of the relationship
between NBSs and the global system, particularly as supranational
levels of institutional regulation become increasingly important. Not
only do these interact in rather complex ways with national systems
(e.g. Djelic and Quack, 2003), but they also, increasingly, call into
question the analytical distinctiveness of the national business system
level. Underlying this perception is the argument (see e.g. Ó Riain,
2000) that with the decline of the postwar model of international
organization based on ‘embedded liberalism’, the ability of nation
states to insulate national economies from global forces – notably
through the provision of decommodified welfare services – has been
compromised. Increasingly, the role of the ‘competition state’ (Cerny,
2000) has been to prepare national economic actors for the rigours of
international competition, not least through the re-marketization of
state services. However, as Hyman argues in this volume in relation to
the model of European integration, the degree to which such processes
respond to some ineluctable economic logic rather than to the choices
and strategies of social actors, is open to question.
Second, intermediate levels of analysis both above and below the
national business system have tended to be neglected. In the first
place, subnational arrangements may carry as much specific weight as
national institutions in influencing the embeddedness of MNCs.
Peculiarities of local labour markets, power elites, resource bases, and
so on, may generate influences significantly different from, and even
at odds with, those of the national domain. This is particularly the
case where national systems make provision for distinctive formal
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 5

institutional arrangements at subnational level, as, for example, in

federal systems; but also where there are wide disparities in political
culture, economic level, and so on, within a single national state (as
between northern Italy and the Mezzogiorno, or between western and
eastern Germany). Such disparities widen the ‘space’ for actors to
develop variant practices within a given institutional arrangement. In
the second place, processes of regional integration raise questions
about the complex interactions between national, regional and global
levels and the institutional constraints and possibilities that result, an
issue that Hyman’s chapter again explores.
Third, the geographical or territorial dimension of institutional
arrangements – whether global, regional, national or local – is only one
that is relevant for understanding the international diffusion of organi-
zational forms and practices in MNCs: equally important is the way in
which industrial sectors are structured in a way that cuts across territorial
demarcations (e.g. Colling and Clark, 2002). Pressures for convergence
and divergence may occur at the level of the sector rather than at
territorial levels. Nonetheless, sectoral institutionalization may well be
interwoven with national arrangements, as when different business
systems organize sectors according to distinctive national-regulatory
regimes (Hollingsworth et al., 1994).
Finally, the ‘micro-organizational’ level of the individual MNC itself
needs to be seen as a distinct level of analysis, operating within and
across higher-level institutional spaces but not totally shaped by them,
with the MNC acting both as institutional rule taker and rule maker.
This theme of the MNC as an institutional actor is taken up in the
following section.
In summary, therefore, current developments in research on MNCs
seek to construct an integrated analytical framework capable of accom-
modating both the global dynamics of the system and the distinctive
national (and regional, sub-national, and sectoral) dynamics of the
constituent parts. Given the multiplicity of levels of analysis of MNCs
in institutional context, a key conceptual task is to map the complex
linkages between different levels. Some progress has been made in this
respect in recent years, especially in conceptualizing relationships
between the global system and other institutional levels. A key concept,
for example, has been that of ‘dominance effects’ (Smith and Meiksins,
1995), which conveys a sense of hierarchy of national states and
multinational players within the global capitalist system as a whole,
manifested in the way in which MNCs from hegemonic states tend to
diffuse practices to less dominant hosts, while the latter see an interest
6 Multinationals, Institutions and the Construction of Transnational Practices

in emulating such practices. The contributions by Elger and Smith and

by Bélanger and Edwards in this volume tackle the theme of multilevel
analysis explicitly, the latter focusing in particular on the ‘macro-level’.

The MNC as powerful players in transnational institutional space

One of the criticisms that may be levelled at the comparative institu-
tionalist approach to MNCs is that the emphasis on national-institu-
tional influences and their interaction has somewhat obscured the
reality of MNCs as powerful actors operating across institutional
boundaries, with their own transnationally defined organizational
logic, structure and strategy. They are, in short, not merely the micro-
level product of competing macro- and meso-level institutional
influences from sector or NBS.
It is the very fact that MNCs constitute, in the term of Morgan et al.
(2003), ‘transnational social spaces’ that are inherently segmented
across geographies that has impelled them to develop strong bureau-
cratic and ‘cultural’ mechanisms for ensuring their internal organiza-
tional coherence and their ability to act in a coordinated way across
institutional domains.
Moreover, MNCs are capable of considerable influence on the insti-
tutional contexts with which they interact, at times being active
shapers of the rules of the game at global, NBS, and sectoral levels (see
e.g. Sell, 2000). MNCs powerfully shape what the theorists of the ‘new
institutionalism’ refer to as the ‘cognitive’ and ‘normative’ pillars
(Scott, 1995) of global, regional and national institutional frameworks,
moulding perceptions of what are ‘legitimate’ ways of doing things and
the taken-for-granted cognitive schema that underlie models governing
international economic activity.
Streeck (e.g. 1997) has suggested that, at the level of NBSs, MNCs are
increasingly powerful because of their capacity for ‘regime arbitrage’,
that is their ability to move their operations from one NBS to another
in search of institutional conditions that best suit their operating
requirements. NBSs are driven towards more voluntaristic regimes in
response to MNCs’ demands for incentives, and states increasingly lose
the capacity they typically had in the epoch of ‘embedded liberalism’
to build a general regime capable of compensating losing sectors within
the national polity for the detrimental consequences of economic
change and development.
However, it is important also not to exaggerate the extent of MNC
power. There are at least three countervailing tendencies. First, much
foreign direct investment is not efficiency-seeking (e.g. focusing on the
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 7

search for low-labour-cost locations), but market-seeking, and may

have to locate in a particular national territory in order to serve that
territory effectively. Thus the scope for regime arbitrage is constrained.
Against this, however, the creation of regional economic spaces,
notably the EU and NAFTA, has diluted the market-seeking constraint
on MNCs since they have a wider choice of national host within a
unified regional market. But in turn, such regional spaces allow the
possibility of building supranational institutional regulation that can
reduce differences between national arrangements and hence limit the
capacity of MNCs to engage in regime arbitrage (see Hyman’s contribu-
tion in this volume).
Second, as Streeck notes,2 states may actively counter the footloose
tendencies of MNCs by stimulating the growth of development ‘poles’
around scarce and specialized competences for which geographical
proximity generates important agglomerative effects. Thus within
specific sectors in particular geographical locations, FDI, once there,
will be increasingly ‘sticky’. Consequently, the power of states and
political authorities to negotiate with MNCs over the terms of their
presence will be significantly greater. More generally, efficiency-seeking
behaviour may lead MNCs to search for specialized skills, rather than
for the lowest possible labour costs and weakest social regulation. Their
locational strategies do not, therefore, inevitably encourage a ‘race
to the bottom’, especially given the relative success of other actors in
contesting the ideological norms and labour practices associated with
such a race.
Third, while the MNC may be a powerful actor capable of coordi-
nated interventions, it is also a somewhat fragile construct whose unity
of action may be undermined by internal sources of fragmentation and
by strong centrifugal forces. This theme is further developed in the
following section.

Disaggregating the MNC: interests, actors, and the micropolitics of

transnational diffusion of forms and practices
Amoore (2000: 183) has commented on the ‘essentially “contested”
nature of the firm’, riven by tensions between the ‘competing social
forces’ – ‘managers, financiers, shareholders, suppliers and a diverse
range of labour groups’ – who compose it. Internationalization,
moreover, multiplies the points of tensions. This theme has increas-
ingly become a commonplace of studies of MNC behaviour. These
organizations are not unitary, monolithic structures but shifting
coalitions of interests subject to complex micropolitical dynamics
8 Multinationals, Institutions and the Construction of Transnational Practices

(see e.g. Becker-Ritterspach et al., 2002; Edwards et al., 1999; Elger

and Smith in this volume; Ferner and Edwards, 1995; Ferner and
Tempel, forthcoming; Kristensen and Zeitlin, 2005).
The interplay of interests within MNCs is shaped by various, interde-
pendent, dimensions of international operation. First, the power of
different levels or units reflects their structural location within the
global value chain coordinated by the MNC. Units exercising a strategic
role on behalf of the corporation as a whole are likely to have greater
structural power than those whose operations are less central to the
economic objectives of the organization. Likewise, as Pulignano shows
in her contribution to this volume, the relationship with sister plants
and the degree to which the role of a subsidiary is easily transferable
and replicable elsewhere is an important determinant of subsidiary
actors’ strategies, interests, and power resources.
Second, internal micropolitical forces are fundamentally and
specifically shaped by the fact that MNCs operate across, and interact
with, different national-institutional domains. Thus subsidiary actors
draw resources from the national-institutional framework in which
they are embedded in order to negotiate their role and position within
the wider MNC. Such resources may include the provisions of regula-
tory frameworks (e.g. on employee representation) that allow them to
resist or to bargain over the terms of corporate policies; membership in
local networks; traditions of action; location-specific skill-sets, and so
on. Kristensen and Zeitlin (2005), for example, show how managers
and union representatives in the Danish subsidiary of a UK MNC
exploited their links into local institutional arrangements for skills
training and their ability to form alliances of interests with tight local
networks of supplier and customer firms, in order actively to ‘strategize’
over the subsidiary’s role within the MNC as a whole. Likewise, Meardi
and Tóth in this volume show how European subsidiaries were able to
develop useful competences within the MNC on the basis of skills that
had earlier been developed in response to the peculiar institutional
conditions of the command economy.
Third, the growing organizational complexity of MNCs, structured
into international business streams, global business functions (such as
manufacturing, R&D or procurement), geographical regions, and
complex matrix combinations of these, generates the potential for the
further segmentation of interests across and between national institu-
tional domains. MNC actors can, for example, define their interests
at the level of the national subsidiary, or of the global function, of
the global business stream, or of the supranational regional territory
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 9

(or some combination of these). Moreover, such international organi-

zational structures do not merely create interests but are themselves
reflections of the playing out of interests as different groups challenge
for dominance. As the operational challenges facing MNCs create
changing patterns and relationships between these different organiza-
tional levels (see e.g. Ferner et al., 2004), there is scope for kaleidoscopic
variation in the definition and interplay of organizational interests.
In short, therefore, MNCs are diverse coalitions, fragmented not only
between competing social forces but across national-institutional
domains, and along various ‘horizontal’ cross-national organizational
dimensions, leading to the pervasiveness of a micropolitics with dis-
tinct characteristics that reflect the international dimension of MNCs’

Mapping organizational boundaries

The conceptualization of MNCs as segmented transnational arenas of
micropolitical activity links to another emerging strand of literature
which emphasizes the ‘fuzziness’ and permeability of MNC boundaries
as forms of organizing international economic activity. The focus on
MNCs as the prime unit of analysis in the field of employment relations
has been criticized explicitly by writers such as Bair and Ramsay (2003),
and implicitly by much of the recent work on ‘global commodity
chains’, stemming from the insights of Gereffi and Korzeniewicz
(1994). The point is that understanding the global organization of
labour and employment relations requires more attention to boundary-
spanning global value chains, rather than merely to the intra-organiza-
tional management of labour associated with MNCs themselves. MNCs
may be only part, and often a relatively small part, of chains of inter-
national economic activity that encompass a number of firms integrated
by a variety of different mechanisms. As the chapter by Lane and Probert
in this volume demonstrates, such value chains may coordinate
complex international divisions of labour between different specialized
productive functions in the absence of MNCs (in the sense of corporate
actors with productive operations in more than one country).
Dominance within the chain is defined primarily through market
relations between nominally independent actors rather than by classic
internalized ‘hierarchy’.
On the spectrum from the traditional model of the hierarchically
integrated MNC to the internationalized global value chain without
MNCs are a variety of intermediate organizational forms. Joint ventures
and strategic alliances involve MNCs in relatively stable relationships
10 Multinationals, Institutions and the Construction of Transnational Practices

with other actors who may be competitors. Such forms have grown in
importance as a result of a number of economic and political factors,
including the opening up of new markets (notably central and eastern
Europe, and China) to which access may be easier through joint
ventures with local actors; and through the desire of MNCs to share
the investment costs of developing new technology-intensive products
in fast-evolving consumer markets, and/or the costs of penetrating new
geographical territories. Such cooperative relationships give rise to
sophisticated inter-organizational networks (which may extend to other
non-corporate actors such as universities) through which knowledge is
created and diffused (e.g. Tregaskis, 2003).
Finally, even within the boundaries of the MNC, increasing emphasis
is being placed, notably within the organizational learning literature,
on the fuzzy, non-hierarchical network-type linkages necessary for the
creation and dissemination of complex organization-specific forms of
knowledge capable of providing international competitive advantage
for the MNC (e.g. McKern, 2003). Taylor’s contribution to this book
argues for the increasing importance of such network structures in
the future organizational role of the international human resource
management function in MNCs, based more on the creation of ‘social
capital’ and trust relations between different organizational actors than
on hierarchical control systems.

The contributions in this volume

The chapters in this volume examine the above themes from a variety
of analytical and empirical perspectives. Their primary empirical focus
is on the field of employment relations and human resource manage-
ment in relation to the cross-border organization of productive activity
within multilevel institutional contexts. However, some chapters are
concerned with the more generic underlying issue of international
organizational behaviour, rather than with employment relations
issues per se.
Bélanger and Edwards develop a ‘political economy’ framework for
analysing MNCs as ‘political systems’, albeit with a clear emphasis
on capital accumulation. Their focus is on the ‘macro’ level of the
relationship between MNC as a whole and higher institutional levels,
notably the national state. In line with the theme outlined above, they
see MNCs as powerful, active shapers of their transnational environ-
ments, not only through control of material resources, but also through
the ideological power to influence assumptions about how the global
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 11

system should and does operate. Nonetheless, MNCs face states and
other actors with countervailing power and hence must negotiate over
the terms of their relations within a multilevel and contested institu-
tional terrain characterized by competing and sometimes contradictory
logics. Of these, Bélanger and Edwards stress the tensions between
the logic of accumulation and competition – on an international or
global scale – and that of legitimation, the latter generating significant
constraints on MNCs’ freedom of action. The outcome is a complex
pattern of cooperation and rivalry between states and MNCs.
The case of Canada is used to exemplify these themes, and to show
how even a national state as highly integrated economically with its
dominant neighbour is able to generate its own distinct power
resources. The authors point to the active and independent role –
despite the country’s increasing economic integration with the US – of
the Canadian elite, with its dense social networks and strong interper-
sonal ties, in shaping and defining Canada’s place in the world
economy, hence the Canadian state’s room for manoeuvre vis-à-vis
powerful MNCs. Canadian MNCs are able to draw on this national
resource to create support structures as ‘national champions’ in order
to become global players within the international economic system.
The authors end with a plea to carry forward the agenda of a political
economy perspective on MNCs by incorporating more systematic com-
parative analysis of the processes and outcomes of politics not only at
the macro-level but within the MNC itself, including the micro-level of
the relationship between management and employees in the cross-
national ‘politics of production’.
Elger and Smith provide an ambitious synthesis of different levels of
analysis. They stress the importance of a range of influences on man-
agement ‘repertoires’ in MNCs, stemming from the institutional
arrangements of national business systems, the ‘system effects’ gener-
ated by the fundamental social relations underpinning a global system
of competing capitalisms, and the ‘dominance effects’ that express the
influence of practices emanating from dominant economies, sectors or
firms in the global system. The impact of the different types of influence
on work practices depends on micropolitical processes of negotiation
between groups and individuals at different organizational levels
within the MNC.
Elger and Smith deploy this framework of system, society, and domi-
nance effects to analyse the transfer of work and employment relations
practices in Japanese manufacturing MNCs in the UK, using detailed
longitudinal case studies. They show how the distinctive interests and
12 Multinationals, Institutions and the Construction of Transnational Practices

power resources of the protagonists influence policy outcomes in

different subsidiaries. Corporate MNC policy, on new investment or on
rationalization of production internationally, shapes the context of
organizational micropolitics in the subsidiaries, since these occupy
different roles in the MNC and have different relationships with
HQ and with sister operations. Within these structural parameters,
subsidiary managers have significant autonomy to interpret and imple-
ment higher-level policy.
Elger and Smith measure their findings against three contrasting
conventional models of the subsidiary: the transplant, the hybrid and
the branch-plant. The first of these assumes the unproblematic transfer
of competitively superior Japanese practices. The second emphasizes
a mix of home and host societal effects, reflecting the fact that some
elements of the parent system clash with host societal effects. The third
focuses on the subordinate and dependent role of the subsidiary within
the international value chain integrated by the MNC and assumes that
only limited elements of a work organization system are likely to be
First, the authors suggest, there may be wide variation in the degree
to which subsidiaries regard corporate production and work ‘repertoires’
as models for transfer and emulation. This depends on their role
within the wider corporation. But more importantly, the scope and
applicability of dominant repertoires have to be worked out in detail
by subsidiary actors, creating space for negotiation and interpretation.
As a result, transplantation, where it occurs, is a dynamic and con-
tested process.
Second, while the image of ‘hybridization’ is closer to the authors’
conceptual framework, it does not adequately characterize the microp-
olitics of transfer. Elger and Smith emphasize the uncertainties and
tensions of policy formation in subsidiaries, and the differential distri-
bution of benefits that is the source of contestation. Much depends on
the degree to which individual subsidiaries have access to international
corporate networks that provide power resources and means of
influence over the transfer of policy repertoires.
Third, while the authors recognize elements of the branch-plant
image in the creation of routine, vulnerable assembly operations, and
in the power of local management over a subordinate labour force, the
image also has analytical shortcomings. Subsidiaries vary in their rela-
tionship to the wider corporation, and attention to the specific details
of evolving corporate strategy, local product and labour markets, and
power resources of local actors is necessary to explain the pattern.
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 13

Moreover, even in favourable circumstances, and in the absence of col-

lective employee voice, management’s control of the local workforce is
limited and problematic.
Gunnigle, Morley and Collings use detailed case studies to examine
the evolution of the industrial relations practice, especially in relation
to union recognition, of US MNCs in Ireland against the background of
changing state policy toward foreign direct investment. Ireland is a
particularly interesting host given the extreme degree of ‘international-
ization’: almost half the manufacturing workforce is employed in
companies under foreign control, and MNCs are therefore important
shapers of institutional context. Gunnigle et al. find a varied picture of
union recognition, with a strong sectoral effect. MNCs in the ICT
sector, for example, have always been strongly anti-union, a policy
driven from the corporate centre. But the authors also find examples,
in the pharmaceutical and healthcare sector, of MNCs characterized by
‘double-breasting’: their earlier-established plants have union recogni-
tion and collective bargaining, but later facilities were set up on a
non-union basis.
This pattern is related to phases in the evolution of public policy,
and particularly to the stance of the key Irish institution dealing with
inward-investing MNCs, the Industrial Development Agency (currently
known as IDA Ireland). In the early phase of expansion of foreign
investment in Ireland, the IDA and the main employers’ association
adopted a policy of encouraging union recognition and ‘pre-produc-
tion’ agreements laying down the respective spheres of union rights
and management prerogatives. By the 1980s, the IDA had changed to a
more neutral stance towards recognition, downplaying the earlier
pluralist bias of policy. This reflected the Irish state’s desire to compete
for new waves of foreign investment in sectors with non-union tradi-
tions, notably in ICT. The findings underline the fluidity of public
policy and the adaptability of the NBS over time as it accommodates to
the changing interests of MNCs.
The chapter thus illustrates a form of implicit ‘arm’s-length’ bargaining
between MNCs and nation states in which public agencies, sensitive to
the realities of power relations, make the case for modifications in
policy without the necessity for strong and direct pressure from MNCs
Taylor examines two emerging and mutually reinforcing trends that
she sees as likely to further the global integration of the international
HRM function in MNCs. The first is the need to leverage organizational
learning across borders. Knowledge resources and the speed of their
14 Multinationals, Institutions and the Construction of Transnational Practices

development and dissemination are increasingly seen as crucial factors

in the international competitive advantage of MNCs. But organiza-
tional learning poses considerable problems of coordination and
control, given the dispersion of resources throughout the operational
units of the MNC, the instability and complexity of information flows,
and the involvement of multiple organizational levels in cross-border
knowledge diffusion. As a result, Taylor argues, MNCs need to focus on
the creation of social capital within the global internal networks of the
MNC. Social capital is defined as the stock of active connections among
network members, based on trust, and on shared values, behaviours
and meaning systems.
Second, there are increasing pressures on MNCs to pay attention to
the agenda of ‘sustainability’ as part of the company’s global strategic
imperative. Sustainability is seen to encompass the pursuit of economic,
social and environmental goals in such a way as to avoid prejudicing
future capacity to satisfy needs. MNCs are increasingly driven to take
account of the principles of, for example, environmental sustainability,
for reasons to do with organizational competitiveness (e.g. the efficient
use of resources, and the potential market opportunities for ‘green’
products and processes); to maintain organizational ‘legitimization’;
and to satisfy increasing external demands for firms to meet social
obligations as well as to achieve economic goals.
Both tendencies have implications for the international HRM func-
tion. Increasingly, Taylor predicts, it will be drawn into providing the
mechanisms for ensuring that the sustainability and organizational
learning agendas are met. Both, for example, require innovation, with
implications for the nature of organizational skills, and thus for recruit-
ment and training strategies; both imply certain structures of rewards
and incentives for employees; both have implications for the develop-
ment of an international corporate culture.
Taylor sees these two trends as mutually reinforcing tendencies; for
instance, social capital helps both organizational learning and the
innovation needed for sustainability. Her argument is more prescrip-
tive than other contributions, concerned with what HR as a function
should be doing to adapt to the powerful global tendencies she identifies,
more within the international HRM traditions of the international
business literature. Nonetheless, it resonates with several of the themes
outlined above. First it relates to what Bélanger and Edwards describe
as the ‘meso’ level – the dynamics of different core management func-
tions at the global level of the MNC, in this case the global HR func-
tion. Second it shows pathways through which developments at the
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 15

global corporate level, namely the organizational learning and sustain-

ability agendas, are harnessed in the development of functional roles.
Third it implicitly underscores the need for actors at the level of the
firm to engage in purposive action – including micropolitical action –
in order to realize the potential of broad structural trends; for example,
the possibilities of social capital formation depend on overcoming the
reluctance of MNC actors in different locations to share knowledge
widely with counterparts in other locations and at other organizational
Pulignano looks at the international transfer of employment relations
practices in a US MNC. Her concern is with the sources of local sub-
sidiaries’ leverage vis-à-vis their parent, seeking to integrate an institu-
tionalist approach with an organizational perspective. She presents case
studies of five British and Italian subsidiaries in three international
business units whose global headquarters are in Europe. She argues that
local actors in the subsidiaries exploited national-institutional differ-
ences in the regulation of employment relations in order to strengthen
their bargaining position with higher levels of the MNC. But they also
took advantage of cross-subsidiary organizational differences.
While policies on pay and performance, on management–union
relations, and on training and recruitment practices were generally
centralized and standardized, there was scope for local adaptation of
employment practices. The extent of local autonomy depended on
how organizational and institutional effects interacted. Pulignano
points to such organizational factors as whether European or American
managers predominated at international business unit HQ. European
managers tended to have a more refined understanding of institutional
variety within European operations, while US managers tended to be
less tolerant and understanding of such variations.
These organizational factors interact with national-institutional
effects since the approach to employment relations is influenced by the
framework of the country hosting the business unit HQ. Thus the fact
that one HQ was located in the Netherlands, with its statutory frame-
work of employee participation through works councils, was seen as
encouraging positive business attitudes towards the European works
council. At national subsidiary level, organizational factors, such as the
strength of the subsidiary’s performance in comparison to rival plants,
interact with institutional factors, such as the degree of legislative
protection of employees’ rights. Thus the stronger position of Italian
managers in negotiating with business unit HQ partly reflected the
stronger framework of national legal obligations regarding wage
16 Multinationals, Institutions and the Construction of Transnational Practices

determination, collective bargaining and employee representation

rights; while at the same time, central management was more tolerant
of local adaptation of policy given the strong competitive performance
and strategic role of the Italian subsidiary. In short, Pulignano explores
the role of agency and actors’ interests within the interacting structural
determinants of NBS and organization-specific factors.
In their chapter, Meardi and Tóth, in common with Pulignano, high-
light the importance of the agenda and objectives of actors in the
subsidiary. Their study of the transfer of work organization practices,
by an Italian MNC to Poland and by a German company to Hungary,
challenges the assumption common in the literature that corporate
headquarters of MNCs push through their country-of-origin practices
in the face of host-country institutional constraints and subsidiary
resistance. Meardi and Tóth suggest that MNCs may be attracted,
rather, by the ‘permissiveness’ of the environment, allowing them to
experiment and innovate free of the constraints of the home business
system. But the authors’ main contribution is to examine the diffusion
of work practices in situations where transfer is not a goal of corporate
actors. They focus on what they term ‘pull hybridization’, that is diffu-
sion that occurs as a result of the attraction of parent-company prac-
tices by the subsidiary. As they stress, this concept puts the focus on
the agency of different groups within the MNC. The interests, strategies,
and power resources of subsidiary actors may be used to encourage
rather than to inhibit diffusion – even where corporate actors in the
MNC do not intend to diffuse.
Meardi and Tóth also throw interesting light on ideas of regime arbi-
trage, suggesting in their Hungarian case study that the exploitation of
differences in NBS institutional arrangements does not necessarily
involve a levelling down in work conditions, or creation of sweatshops in
low-labour-cost locations, but may entail a ‘levelling-up’ of employment
conditions and skills in the subsidiary.
Through their case studies, Meardi and Tóth refine notions of sub-
sidiary capabilities, finding unexpected sources of competitive advan-
tage in apparently weak hosts. In Fiat’s Polish subsidiaries, for example,
the experience of workers in coping with the chaotic conditions of
state socialism helped them to hone the ability to respond creatively
and flexibly to unforeseen events in production. This unusual skill-set
allowed the Polish plants to become models for innovations in lean
production and quality management for the Italian operations.
The authors demonstrate the subtleties and complexities of the transfer
process, and the ‘layer cake’ of interactions between organizational
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 17

actors and the wider national-institutional context of which they are

part. A question their analysis will raise is how far such a portrayal also
characterizes transfer processes by MNCs from more aggressively self-
confident parent business systems, whose strategic approach to transfer
may be more ‘missionary’ in nature.
Lane and Probert examine an industry – clothing – which is inte-
grated globally by firms that are for the most part not themselves
MNCs. Moreover, production operations that in other industries
would be performed within an integrated global firm are outsourced,
for the most part to firms located in developing countries. The
chapter raises questions, therefore, about the organization of sectors
globally into national and transnational firms, and the interrelation-
ships between them. Unlike most studies of the industry, the research
by Lane and Probert focuses not on the role of developing countries
within the global value chain but on the actors within the developed
countries who orchestrate the chain. Their key argument is that
this general global process of outsourcing does not have a uniform
impact on employment relations and the labour market within the
developed countries. Rather, the impact is profoundly shaped by the
national-institutional context, particularly of skills and competences,
in different countries. This is because institutional context shapes
the sets of business competences available to firms and the range of
competitive strategies open to them. The authors thus explicitly
locate themselves, in this respect, within the ‘varieties of capitalism’
Lane and Probert illustrate their general argument through detailed
studies of the industry in Germany and the UK. They show how the
two countries have responded markedly differently to the general
process of job loss and outsourcing of production to developing
countries that have characterized the industry over recent decades. In
Germany, for example, firms are more likely to possess a high level
of employee skills and qualifications; to have a high proportion of
white-collar and technical staff; to occupy high-value-added niches in
the value chain; to have the ability to create global brands; and to
exercise close control over the outsourced segments of the global value
chains they coordinate. By contrast, firms in the UK industry tend to
have lower-skilled workforces with a higher proportion of blue-collar
employees; have little capability for export; and occupy more subordi-
nate positions in the value chain. Moreover, unlike Germany there
is a significant informal sector in the UK serviced by low-paid and
low-skilled, often ethnic minority, workers.
18 Multinationals, Institutions and the Construction of Transnational Practices

In short, therefore, Lane and Probert’s study underlines the contin-

ued significance of national-institutional support structures in deter-
mining the range of available strategies, including employment
relations strategies, of firms in different institutional contexts. And it
also highlights the importance of exploring the organization of capa-
bilities and roles within an integrated global value chain that spills
beyond the boundaries of any one corporate player, emphasizing the
limits to the coordinating capacity and power resources of the firms
that try to integrate these chains.
Morgan and Quack are concerned, like Lane and Probert, with the
way in which national-institutional contexts influence developments
in an industry. Their focus is the service sector. They examine different
patterns of internationalization of law firms from Britain, Germany
and the US. In the past, law firms have been distinctively national in
their orientation, given the dominance of the nation-state as a source
of law and hence the national contours of professional practice. This
has changed significantly over the last two decades.
Morgan and Quack first explore the changing demands of multina-
tional clients that are increasingly seeking an ‘international capability’
on the part of law firms. They then turn their attention to the emerging
forms of international organization in law firms, and relate these to the
way firms are embedded in their respective national contexts. They
identify a variety of organizational types, ranging from various forms
of global networks that operate as arm’s-length strategic alliances
among law firms, to ‘global law firms’ established through cross-border
mergers and acquisitions.
The authors highlight the significant distinction between ‘global law
firms’ originating from the US business context and those developing
in the European context, particularly out of the mergers of large British
with German law firms. In the former, US headquarters tend to control
foreign offices located in a limited number of ‘global cities’, practising
predominantly US law; they are driven by an ‘export model’, with an
emphasis on providing legal services internationally for multinational
clients originating in the parent country. In contrast, the European
firms pursue what the authors call an ‘integrative model’, operating as
complex federations of national partnerships which, as well as servicing
in Anglo-Saxon law, aim to be strong in the legal jurisdictions of the
host countries in which they operate.
Morgan and Quack acknowledge that the global spread of American
legal norms and procedures is promoted by the close intertwining of
American law firms, MNCs, and political authorities in a powerful
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 19

network that also links closely to supranational institutions such as the

WTO. They doubt, however, that this is resulting in a simple process of
convergence or Americanization. They stress, rather, that the multifaceted
contribution of the different national partnerships in the European
model of the integrated global law firm provides such firms with a
competitive advantage in developing operations, particularly within
the European Union and in central and eastern Europe. Thus complex,
countervailing forces need to be taken into account in order to gain a
more comprehensive understanding of the role of global law firms in
the multilevel politics of cross-national diffusion.
Hyman’s chapter differs in its subject matter from the majority of
contributions to this volume, in that it focuses on policy debates
within the European Union. Nonetheless, it casts light on some of the
major themes of the book, in particular in demonstrating the way in
which power and interests shape the institutional terrain at national
and supranational level, and the extent to which the practical meanings
of notions such as economic integration and ‘globalization’ are contested
through social action. The chapter explores European economic inte-
gration in terms of a struggle between the neo-liberal assumptions that
underpin the current dynamic of ‘globalization’ and the traditions of
national employment regulation within the EU encapsulated in the
notion of ‘social Europe’.
Hyman argues that there is nothing inevitable about the erosion of
social Europe: if the responses of the EU to ‘globalization’ result in the
erosion of traditional worker protections at national level and fail to
strengthen ‘positive’ aspects of employment regulation at the suprana-
tional level, this flows from political choices rather than economic
Hyman notes that the ‘symbolic politics’ of the EU attempts to gloss
over the irreconcilable differences between the free market agenda
and the interests of social Europe. But in practice, the neo-liberal
‘Washington consensus’, with its belief in the efficacious self-regula-
tory capacity of markets, dominates the institutions and the policy-
making processes of the EU in the interests of capital. At the same
time, the institutions of the EU have a structural bias against social reg-
ulation since the body most in favour of it, the European Parliament, is
also the most limited in its powers. Social Europe thus faces an uphill
Moreover, the threats to social regulation in Europe are intensifying.
The growth of cross-border economic activity has increased the
motivation and capacity of multinationals to escape from national
20 Multinationals, Institutions and the Construction of Transnational Practices

arrangements of social regulation. At the same time, the last decade

has seen the growth of neo-liberal agendas in the national politics of
existing member states, and the incorporation of a bloc of eastern
European countries that equate market fundamentalism with political
democracy. These trends have radically shifted the balance of power
within the institutions of the EU, in favour of neo-liberalism and the
interests of capital, against social regulation and the interests of labour.
Hyman sees neo-liberal globalization and the analogous project at
EU level as one of ‘disembedding liberalism’, that is cutting markets
free of their embeddedness in social regulations and protections. This,
he argues, is generating a ‘legitimation crisis’ of the whole EU integration
project and opening the way to alternative paths to EU integration.
While acknowledging the structural advantage of capital, he argues for
the ‘labour of Sisyphus’ required to construct an alternative around
a redefined model of social Europe. Such a path would entail measures
to restrain the power of capital to disrupt social relations, and to re-
empower labour to oppose the current neo-liberal ‘Brussels consensus’.

The papers in this volume are concerned with a set of overlapping
themes about how MNCs organize themselves across institutional
domains at different levels, and how they shape – and are shaped by –
these domains. One key thread running through the contributions is
that the nature of national business systems and of the institutional
arrangements that constitute them is more fluid than rigid stereotypical
portrayals would suggest, leaving space for actors – including MNCs –
to ‘inhabit’ and shape institutions in a wide variety of ways. A second
thread is the need for an understanding of power in relation to the
organization of activity across national borders, both within the MNC
as an organization comprising multiple actors and interests, and
between it and the actors with whom it comes in contact. As a whole,
the collection provides insights into the development of comparative
institutional analysis in relation to MNCs and their management of
employment relations.
In some respects, the contributions also underscore the gaps that
remain. For instance, the increasingly ‘heterarchical’ model of MNCs,
in which key subsidiaries acquire strategic responsibilities and powers
on behalf of the global company, raises questions about the scope for
(and limits of) subsidiary action, and the relationship between net-
works of subsidiaries independent of hierarchical coordination. Such
Anthony Ferner, Javier Quintanilla and Carlos Sánchez-Runde 21

possibilities are hinted at, for example, in Pulignano’s contribution but

further conceptual development and empirical exploration is called for.
The contributions also point to the need for a more systematic and
comprehensive mapping of power relations in and around MNCs.
Many of the chapters comment on the countervailing power of sub-
sidiary actors. Yet not enough is known about the limits to subsidiary
power. Under what conditions, for example, are subsidiaries unable to
challenge HQ interventions? Overwhelmingly, the empirical material
in this volume is drawn from North America and Europe. One may
expect different patterns of intra-corporate power relations to emerge
from observation of subsidiaries in developing countries where structural
and institutional sources of power may be weak, and the capabilities
required for exerting wider corporate influence are likely to be lacking;
but this of course is an empirical question, and unexpected sources of
local actor power in developing countries may be uncovered.
Most fundamentally, while the MNC comprises a complex and mul-
tilayered set of interests, actors and power relations, the underlying
structural ‘antagonism’ within MNCs, in the sense of potential and
actual differences of interest and power, remains that between manage-
ment and employees. More systematic analysis of the structuring of
this fundamental fault line across different institutional spaces is
required, as is a better understanding of the scope for employees and
their representatives to organize and exert influence across borders,
both on MNCs themselves and on the institutional context in which
they operate.

1 A similar problem is evident in another strand of institutionalist analysis,
that associated with the ‘new institutionalism’ of writers such as DiMaggio
and Powell (1983) and Scott (1995) that emphasizes the ‘normative’ and
‘cognitive’ components of institutions, as much as the regulative ones. In
recent years, this approach has increasingly rivalled the previously dominant
Hofstedian cultural values approach in the international comparative man-
agement literature. Kostova (1999; also Rosenzweig and Nohria, 1994), for
example, uses the notion of ‘institutional distance’, based on a comparison
of ‘country institutional profiles’, to understand the degree of cross-national
transfer and adoption of practices within MNCs.
2 This point draws on Streeck’s remarks in a keynote address to the con-
ference on Multinationals from which the contributions to this volume are

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Towards a Political Economy
Framework: TNCs as National and
Global Players
Jacques Bélanger and Paul Edwards

Transnational corporations (TNCs), like all large and complex formal
organizations, have two core features. First, they produce goods and
services that satisfy consumer needs, and in the course of doing so
provide income and employment to large numbers of people. Second,
they are political actors, using power to shape the conditions under
which they conduct their productive activities and as a result pro-
foundly influence the lives of employees, customers and local commu-
nities. Something of these two aspects was captured by The Economist
(27 March 1993) when it called them ‘everybody’s favourite monster’.
The purpose of this chapter is to contribute theoretically to the second
‘political’ view but without losing sight of the first.
Our purpose may be illustrated by two points. First, recent popular
books essentially provide a critique of a political view and a reassertion
of what we will call the revisionist position. Legrain (2002: 137) disputes
the views of those who see TNCs as increasingly large, powerful, and
outside democratic control: they are ‘not the demons they are made
out to be’ and they ‘bring us many bounties’. For Micklethwait and
Wooldridge (2003: 161), though multinational corporations have
‘always aroused suspicion’, they should not be seen as all-powerful and
mighty forces. Critics of globalization, says Wolf (2005: 247), need to
accept that ‘corporations are not more powerful than countries and do
not dominate the world through their brands’. These authors reasonably
underline exaggerated views of TNCs’ power and influence, but they
put little in their place. It is thus an appropriate point at which to offer
a more developed political analysis that is analytically robust and that
is capable of addressing the revisionist position.

Jacques Bélanger and Paul Edwards 25

Second, the need for a political view has been stated in several different
contexts, in which different meanings are given to the word ‘political’.
By developing a political economy framework, we thus aim to show
how such views might be integrated. In this chapter, this framework is
applied to the level of macro politics, taking the Canadian case as an
example. The country is highly economically integrated with the
United States; yet the TNCs operating in it are not mere ciphers of
American capital. The country has a well-organized and influential cor-
porate elite. It neatly illustrates the ways in which TNCs negotiate
global projects on the basis of their embeddedness in national contexts.
We first present very briefly some key points about TNCs’ operations.
We focus throughout on the very large firms, such as those identified
in lists of the largest 100 TNCs (UNCTAD, 2004), as opposed to the
very large number of companies – 65,000 on Micklethwait and
Wooldridge’s figures – having some kind of multinational operations.
It is the large TNCs that have attracted most admiration and suspicion.
We take it as read that only a very small proportion of the 65,000
multinationals have anything like the global power sometimes equated
with the word ‘multinational’.
The second section outlines a political view and indicates three
domains of politics, the macro, meso and micro. We lack the space to
discuss them all in detail. The second and third domains are covered in
several other chapters of this book, and we thus focus mainly on the
first. Sections three to five give illustrations of macro politics. Finally,
we offer pointers as to how a political view can be developed.

TNCs: core features

It is always tempting to offer stereotypical views, against which a more
adequate approach can easily be measured. To avoid this method, we
sketch some core facts that have become reasonably firmly established
and that a framework needs to accommodate. We then indicate some
distinctive features of TNCs.

Not so big, not so monstrous

The first point relates to the size and power of TNCs. Some writers con-
tinue in the long-established tradition of arguing that the largest TNCs
are bigger than many nation states. One such exercise places the largest
TNC at number seven in a list of world economic units, on a par with
France (Sklair, 2002: 37; see also Rubery and Grimshaw, 2003: 198). Yet
the revisionists are correct in noting that like is not being compared
26 Multinationals, Institutions and the Construction of Transnational Practices

with like. Sales are compared with GDP. But GDP is a measure of value
added, not sales. Using a measure for value added for companies, only
37 multinationals appeared in the 100 biggest economies in the world
in 2000; and only two of them scraped into the top 50 (Wal-Mart in
forty-fourth place, and Exxon in forty-eighth) (Micklethwait and
Wooldridge, 2003: 176). Crucially, companies lack the coercive powers
of states (Wolf, 2005: 225).
Second, many of the largest TNCs still have a high proportion of
their assets, revenues and employees in their home country. The
United Nations publish annually such data on the 100 largest transna-
tional corporations worldwide, comparing them on the basis of the
transnationality index (TNI), which is ‘calculated as the average of the
following three ratios: foreign assets to total assets, foreign sales to
total sales and foreign employment to total employment’ (UNCTAD,
2004: 278). Clear patterns are apparent if we compare the data from
1998 to 2002. Hence, General Electric, still the largest corporation in
terms of foreign assets in 2002, ranked eighty-fourth on the TNI index
(UNCTAD, 2004: 276). For 2002, the ten largest TNCs in terms of
foreign assets originate from only four countries, namely the USA (with
four), the UK (with three), France (with two), and Japan with one,
Toyota. But most of these ten firms score rather low on the transna-
tionality index. In contrast, for 2002, nine of the ten most transna-
tional firms (out of this series of the 100 largest TNCs) originate from
small countries (such as Switzerland, with three firms including ABB,
Canada with Thomson Corporation, and the Netherlands with Philips
Electronic), a point also stressed by Dicken (2003: 221–4). The lower
size of their home market obviously means that such firms have to
develop a more global reach in order to sustain growth, but more
complex issues of strategy and institutional support may also be at play
here, a matter we will consider below.
Third, some sectors are less dominated by a few global oligopolists
than was the case in the past. In the highly globalized aluminium
industry, for example, the share of the world market for the top six
producers of primary aluminium fell from 77 per cent in 1969 to
45 per cent in 1989 (Bélanger et al., 1999b: 58). Despite a series of
mergers and take-overs (Alcoa has acquired Reynolds [number three
in 1989] and Alcan has acquired Alusuisse [number six] and Pechiney
[number four]), their share has continued to fall (in the case of Alcan,
from 20 per cent in 1969 to 13 per cent now). The major producers
no longer control prices and production in the quasi-cartel system of
the past. Ownership and production have become much more global,
Jacques Bélanger and Paul Edwards 27

as new countries enter the market: China is now the largest world
producer (with around 18 per cent of market share) while the coun-
tries of the former Soviet Union have 16 per cent of the market. As
Wolf (2005: 225) puts it, markets dominate companies rather than
the reverse.
Fourth, TNCs are subject to countervailing power. Legrain (2002:
141–2) notes that a firm such as General Motors is larger than it was
40 years but that it had more power in the past to ‘produce over-
priced, shoddy cars’. The reasons for its relative weakness include
intensified competition from other firms and the fact that global
brands can be highly vulnerable to pressures from campaign groups
and consumers, as the experiences of firms including Nestlé and Nike
have shown.
Fifth, studies of TNC behaviour within a large number of host coun-
tries have repeatedly shown that employment arrangements are rarely
transferred unaltered from TNCs’ home countries. All kinds of hybrid
arrangements have been observed, reflecting differences of national
regulatory regime, particular labour market circumstances, and different
degrees to which TNC head offices wish to impose standard models
(see Ferner and Quintanilla, 2002). The power to transfer practices is
thus highly contingent.
Finally, Ramsay (2000), from a point of view very different from the
revisionists’, argues that critics of TNCs, particularly those in the
labour movement, have tended to fall into the trap of investing TNCs
with far more power and foresight than they in fact possess. Manage-
ments often misread the environment and have to be sensitive to the
image and reputation of their firms. TNCs are in principle open to
The picture of the TNC is thus a much more nuanced one than that
of the all-powerful juggernaut. TNCs have to negotiate their way
through a complex world. And

the subtle distinctions and complexities of interaction … appear not

as the frills, but as an inherent part of the ‘texture’ of global capital-
ism: the globalization dynamic is intrinsically played out through
the medium of interacting, internally heterogeneous, nationally
rooted MNCs, seeking to draw their international competitive
advantage from the distinctive and variegated institutional
configurations, including systems of employment relations, in
which they are embedded (Ferner and Quintanilla, 2002: 249,
emphasis original).
28 Multinationals, Institutions and the Construction of Transnational Practices

What, then, is so special about TNCs?

One might conclude that TNCs are no different in essence from other
companies of comparable size. It is certainly true that we can apply
ideas developed in relation to large capitalist firms in general. A central
idea is that of the enactment of environments. As opposed to early
ideas of managerial choice, which saw firms as responding to more or
less neutral environments, the emerging view of strategic choice argues
that firms actively shape their environments (Child, 1997). In the
United States, for example, different conceptions of corporate control
emerged as firms defined themselves and their contexts in changing
ways (Fligstein, 2001). Hence a model of managerial capitalism, based
on large firms which secured stable relationships between each other
and with government and labour, prevailed from about 1945 to 1980;
it was devised in response to earlier, competitive, models and was in
turn challenged by models of shareholder value.
The idea of enacting, or negotiating, environments is a powerful
building block for a political view. It recognizes that TNCs have
resources that they deploy in relations with other groups. They have to
mobilize around political projects rather than simply having their own
way. And these projects will have elements that are in tension with
each other. For example, unionized US firms’ accord with labour stabi-
lized relationships but also contributed to slow innovation and a drive
for profits; the accord, in any event an uneasy and partial one, came
under renewed challenge from non-union firms (Jacoby, 1997).
Yet TNCs also have distinct features, that both strengthen and
weaken them (Harzing and Sorge, 2003). Crucially, they operate across
many national regimes. The problem of enacting environments is
quantitatively different from the problem as experienced by firms
based in one country. But it is also qualitatively different, in that
signals from one environment may clash with those from others. TNCs
are subject to different governmental policies, and indeed the require-
ments of supra-national bodies (as in the requirement that firms with
significant cross-border operations in the European Union establish
European Works Councils). TNCs gain some power as a result, as in
arguments that they can threaten to shift production to other countries.
But they also lose to the extent that they have to deal with differing
regimes and absorb the transactions costs of doing so. Similarly, in
terms of their internal relations, TNCs can deploy influence over their
subsidiaries in ways less available to domestic firms, notably through
‘coercive comparisons’ between sites in different countries (Mueller
and Purcell, 1992). Yet they also face particular problems of integrating
operations from contrasting institutional and cultural contexts.
Jacques Bélanger and Paul Edwards 29

It is important, following Dicken (2003: 221–7), to deconstruct the

‘myth of the “placeless” TNC’ and to throw light on the societal
embeddedness of these large firms. This is the line of analysis we
pursue from the political economy perspective developed in this
chapter. This framework draws on recent institutionalist contributions
on national business systems (e.g. Whitley, 1999) and societal analysis
(Maurice and Sorge, 2000). As Lane shows on the basis of a study of
German and British firms, ‘MNCs with different home bases have
adopted divergent structures and strategies and have responded to
intensified global challenges in distinctive ways’ (2000: 189). A political
economy approach would also relate in useful ways to another stream
of institutional research, the ‘varieties of capitalism’ model of analysis.
As noted by Hall and Soskice, ‘the firms located within any political
economy face a set of coordinating institutions whose character is not
fully under their control. These institutions offer firms a particular set
of opportunities; and companies can be expected to gravitate toward
strategies that take advantage of these opportunities’ (2001: 15).
The notion of country-of-origin effects refers to the characteristics of
the institutions and business system of the country from which the
corporation grew up, and which may shape its policies and behaviour
in host countries. These studies go some of the way in showing how
TNCs are embedded in the country where they first developed (Ferner,
1997). An implicit assumption of much of this research stream is that
large corporations originating from the United States and from Japan
tend to be more ‘ethnocentric’ and prone to centralize decision-making
than their counterpart from Europe, in particular (for a review, see
Edwards and Ferner, 2002: 101–6). On the basis of systematic case
studies within US multinationals operating in the UK, Ferner et al.
(2004) assess the extent of centralization and standardization in the
management of human resources. To some extent, they confirm the
view that US MNCs are highly centralized. But their study also intro-
duces nuances by documenting two key mechanisms. First, it describes
contingent patterns of ‘oscillation’ between centralization and decen-
tralization, in a process of adaptation to the environment in the home
and the host countries. Second, the authors go a step further in uncov-
ering the mechanisms through which this balance between centraliza-
tion and decentralization is negotiated (Ferner et al., 2004: 385). The
same research programme also looked at US multinationals in three
other European countries, which allows different host country envi-
ronments to be taken into account. It is thus possible to analyse ‘the
dynamic interplay of the various “embeddedness” effects’ experienced
by a large US corporation in its European operations and the processes
30 Multinationals, Institutions and the Construction of Transnational Practices

of negotiation occurring between various sites of decision-making

within the firm (Almond et al., 2005: 278).
There are, then, distinct political issues facing TNCs, and these entail
continuing uncertainty and negotiation. We now offer a framework to
address these issues.

Power and political processes

Realms of power
TNCs operate in several different political spheres. It is useful concep-
tually to distinguish three of these. Using the terms of Hyman (1995:
43), they can be called the macro, meso and micro; Edwards et al.
(1999) also deploy these terms. In each, calls for a political perspective
have been voiced repeatedly.
In the context of this book, the most familiar is the ‘meso’ level of
politics within the central managerial groups running the TNC. A long-
standing theme has been the set of devices that head offices can use to
control subsidiaries. Yet as Ferner (2000: 524) observes, ‘relatively little
has been said about control as a relationship of power between different
corporate levels and actors’. Morgan et al. (2003: 391) argue that the
resources of national sites ‘provide the power from which the subsidiary
is capable (or not) of developing and enhancing its own position’. For
Morgan and Whitley (2003: 610), the MNC is a ‘political system as well
as an organizational design, with conflicts of interest built into its
configuration’. Ferner et al. (2004: 69–70) detect a neglect of ‘micro-
political’ power in many studies of the relations between head offices
and subsidiaries.
A second level is the ‘macro’ one of relations with governments,
state agencies, pressure groups, and so on. Sally (1994: 165) identifies a
neglect in the business literature of the power relations between TNCs
and governments. This literature ‘rather simplistically exogeniz[es] the
mixture of conflict and cooperation that characterizes bargaining
between the two sets of actors’. More recently, Turner (2003: 4) has
confirmed the absence of a ‘convincing, balanced overview of the
power relations between [multinational] companies and states’.
A third level might be called the micro, but this label could be con-
fusing in that micro politics also refers to the details of negotiations
between managerial groups. The label might also downplay what we
have in mind. This is what Burawoy (1985) termed the politics of pro-
duction, meaning the relations of power, control and consent between
managements and employees. It is importantly additional to the other
Jacques Bélanger and Paul Edwards 31

senses of power, and a level that many accounts of TNCs neglect. Yet
such firms must not only bargain with states and with their own man-
agers but also secure a degree of consent from their employees. This
process, as discussed elsewhere (Edwards, 1986), has its own dynamics
entailing a continuing bargain around control and consent. Whatever
the state of politics in the other two aspects, without a degree of work-
place consent, TNCs will find it hard to function. They face issues
distinct from firms in general. On the one hand, they have resources,
such as threats to shift production and the fact that labour, tradition-
ally organized at national level, has found it hard to establish a direct
voice at global level (Cooke, 2003). Silver (2003: 4) cites a range of
studies that argue that ‘labor’s bargaining power has been weakened’ as
a result of capital mobility. Yet they also have to deal with employees
with their own material and cultural resources, and these resources can
be deployed in distinct ways, as when British workers studied by
Collinson (1992) expressed distrust of American (‘Yankee’) managers.
Sharpe’s (2001) analysis of the transfer of work practices by a Japanese
firm to its UK operations revealed different shopfloor traditions (such
as unionization) and labour market conditions between the two sites
that influenced the extent of transfer.

Forms of power
Debates on power have often become entangled in attempts to identify
distinct forms or bases of power (for a critique, see Thompson and
McHugh, 2002: 17–21). Yet, as Runciman (1999) argues, the many
‘bases’, such as expert knowledge, hierarchical position, and personal
authority, can in fact be reduced to three forms. Runciman terms these
the economic, the political, and the ideological. Economic power
pertains to control of resources; expert knowledge might fall under this
head to the extent that the relevant knowledge allows its holder to
claim or control resources. Political power rests ultimately on physical
force – for example the right of the owner of property to exclude other
people from it; but more normally it embraces the rights of authority
that go with ownership, for example, the right of the owner of a firm
or his agents to direct the firm’s activities. Ideological power relates to
ideas, meaning systems, and symbols.
Ideology is a more precise concept than that of culture. Particular prob-
lems with the latter notion are that ‘culture’ can mean merely a set of
mental states which may be shifting and variable and that it can be, and
often has been, used as a catch-all for national or other traditions. To
explain a phenomenon by the alleged culture of the people concerned is
32 Multinationals, Institutions and the Construction of Transnational Practices

often a non-explanation. A classic case is the success of Japanese TNCs.

To attribute this success to Japanese culture does not explain why some
firms were not successful, treats the success as the result of timeless and
unchanging factors rather than examining historical contexts, and does
not offer any causal mechanisms between culture and concrete outcomes.
The concept of ideology, by contrast, captures the ways in which beliefs
and meaning systems are produced as part of the activity of firms. As
Burawoy (1979) famously insisted, ideology is not a summary term for
free-floating orientations to work (or, in the more modern term, a psy-
chological contract). It relates, rather, to the concrete set of meanings and
symbols that are generated in particular settings.1
The economic and political powers of TNCs are reasonably obvious.
TNCs plainly control resources and have the right to exercise authority
over their employees. Their ideological resources are more varied. At
macro level, TNCs shape assumptions as to how the global economy
does and should operate, for example through arguments about the
value of open markets. At meso level, managers in specific TNCs come
to adopt accepted world views about the aims of the firm and how it
operates (for example, how far it treats managers as global resources,
and how any national manager might behave in order to become such
a resource). And, at the level of the politics of production, TNCs deploy
messages to workers about the state of global competition, the need to
be flexible in order to compete, and so on.

Contradictions of power
We have proceeded thus far by presenting power as an attribute or
property of a social actor such as a TNC. We now qualify this approach
in three key respects.
First, and most obviously, other social actors have countervailing
power. The economic and political aspects are fairly evident, for
example the powers of nation states to enact laws. One familiar line of
argument states that such powers are being weakened through the
growth of global competition. Yet the extent to which the political
powers of various actors are growing or declining is an empirical ques-
tion. Unless it is asserted that the powers of nation states are zero or
negligible, the fact of countervailing power has analytical force.
Empirically, we observe (as economists often loftily remark) all kinds of
actions by nation states to which TNCs object, regulations on pollu-
tion being one example. Ideological powers of other actors are less
obvious, but increasingly apparent, as in campaigns by pressure groups
on such issues as child labour.
Jacques Bélanger and Paul Edwards 33

Now, it might be argued that this kind of power is ‘in the last
instance’ an economic or political power. Thus, campaigns on child
labour obtain some of their force from the fact that consumers may
cease to buy the products of firms accused of bad practice. Yet a self-
interested consumer will be interested in cheap goods, unless we
assume also an interest in treating children better rather than worse
(which is what economics typically has to do, since it deals with fixed
utility functions). The point of ideological power is that it helps to
shape and define preferences, and we can thus explain developments
otherwise treated as exogenous. Campaigns against TNCs are a clear
Second, powers are often ambiguous in their effects, and subject to
the actions of other groups. We asserted above that managers come to
adopt certain world views. In a conventional top-down view of the
TNC, it is taken for granted that ‘top’ managers define the goals of the
firm. This may be qualified by arguments about the power of subsidiaries
to negotiate about their mandates, using such resources as their local
market knowledge and the particular tacit competencies that they have
developed. But this still takes the view that there are objective
resources that are simply mobilized as need arises. Yet, subsidiary
managers may be unaware of a resource, particularly when it is a tacit
competence that is by definition hard to capture. They may also lack
the skills or experience of deploying resources in a bargaining context.
Resources are to a degree constituted through their use. Defining objec-
tives is a process of negotiation, rather than a game with pre-defined
Third, TNCs have contradictory goals, and deploying power in
relation to one goal may interfere with the pursuit of others. Goals
may not appear to be contradictory, and are often stated in such terms
as maximizing shareholder value. But there are many ways in which
such an overarching goal might be defined, for example whether it is
immediate or more long term. And specific strategies to pursue it will
have contradictory aspects. Thus it will be necessary to bargain at
the macro level with various other bodies, while also maintaining
meso-level consent. Making concessions to campaign groups, for
example, could be seen by local managers as weakness or as failing to
appreciate the realities under which they work. Those realities, more-
over, include the TNC’s own demands to meet performance targets, so
that local managers may experience a classic problem of mixed mes-
sages: meet the targets, or pursue a social responsibility agenda, or find
some way of balancing these demands.
34 Multinationals, Institutions and the Construction of Transnational Practices

Conclusion: a political framework

A developed framework building on these remarks would do at least
three things. First, it would give illustrations of processes in the macro,
meso, and micro spheres. Second, it would introduce variations within
each; for example, meso politics occur at different levels, and between
different functions, of management. Third, it would address the inter-
play between these levels. We lack the space to pursue all three issues.
We focus on macro issues, since the other two levels are covered else-
where in this book and have been discussed in previous work (e.g.
Bélanger et al., 1999a and b). We attempt to allow for some variations
at macro level. Thus the following sections address three issues in turn:
TNCs as global players; the national state and its efforts to shape its
environment; and relations between TNCs and the national state.

Global politics: TNCs and globalization2

How far is there a global project involving MNCs based on ‘liberal
market economies’ principles? We argue that there may well be such a
project but that it is far from uniform and that it may well be chal-
lenged by other logics. We start with three examples.
The first is the globalization of telecommunications. According to
Hutton (2002: 200–7), as early as 1962 ‘the US had been alert’ to how
satellite technology would allow its companies to dominate the infor-
mation and communication industries. GATT and then the WTO were
pressurized to ‘accommodate the US’s unilateral ambitions’. In this
account, a nation state promotes a project on behalf of its TNCs, and
this project is successful. But it is then hard to explain why events
turned out to produce, in Hutton’s word, a ‘fiasco’. A more nuanced
account is provided by Comor (1998) in his study of the Digital
Broadcasting Satellite. Between 1962 and 1984, DBS was seen as rather
marginal. The US state had some activity in the field, but this tended
to cut across the interests of existing corporations, notably AT&T, so
that the state was not directly in the control of such capital. Domestic
liberalization started with the breaking up of AT&T in 1982, and it
began to be realized that competition in the US would work only if this
model was exported. Opening the US market to overseas suppliers meant,
in the US view, granting access to firms that were protected in their
home markets. This in turn led to pressures to deregulate other markets,
which was the ‘unintentional’ result of domestic liberalization (p. 193).
There seems to have been an uncertain search for new approaches
rather than a clear plan, and outcomes were often unintended.
Jacques Bélanger and Paul Edwards 35

The second example is intellectual property rights. The power of

TNCs is illustrated by the progress of the Trade-Related aspects of
Intellectual Property (TRIPS) agreement within the WTO. What TRIPs
do is to give to the owner of intellectual property a 20 year monopoly
over its use. The rationale was to recognize the rights of inventors and
to promote economic development, but there was little empirical support
for the latter proposition. TRIPs originated in the demands of 12 large
US firms that established the Intellectual Property Committee in 1986,
which then won changes in domestic law and US support in the WTO.
US trade negotiators, concerned at a lack of national competitiveness,
saw IP as an area in which they could fight back. IP pirates were readily
blamed, and firms claimed extensive damage from a lack of protection,
though these claims were ‘wildly exaggerated’ (Sell, 2000: 97).
This issue is also illustrated by the third example, the well-known
dispute about drugs to combat AIDS, wherein developing countries
accused the major pharmaceuticals companies of charging excessive
prices, while the companies argued that the prices reflected the huge
costs of research and development. The companies also gave relatively
little attention to treatments for major tropical diseases such as
malaria. And they ‘actively try to shape’ market rules, lobbying govern-
ments fiercely (to the tune of $167m in the US presidential election of
2000, more than any other industry: McMillan (2002: 32)). The reason
is that they need their patents protecting through laws on intellectual
property, and intellectual property ‘could not exist without the state’.
These laws, McMillan goes on, ‘represent an uneasy compromise
between the needs of the innovator and the needs of the state’ (p. 34).
Yet he also argues that the terms of the compromise can be altered,
and he gives examples of how some countries, including India and
South Africa, overrode existing intellectual property rights in order to
reduce the costs of AIDS drugs. Importantly, in his view, the benefits of
doing this exceeded the costs. Thus there are competing logics, and
that in some circumstances the preferences of TNCs can and should be
overridden by other logics.
At this point we might recall Claus Offe’s distinction between the
legitimation and accumulation functions of the capitalist state, and the
key point that there is an inherent contradiction between the two (e.g.
Offe and Ronge, 1982). TNCs will be influenced by the degree to which
global and national institutions pursue legitimation, and will also have to
be sensitive to the legitimation challenges of anti-globalization activists.
The idea of competing logics has been taken further in relation to
nation states by Frenkel and Kuruvilla (2002). They identify the logic
36 Multinationals, Institutions and the Construction of Transnational Practices

of competition (clearly linked to globalization though not necessarily

dependent on that process) but also the logics of industrial peace
(important for social and political stability) and employment and
income security (which is important because of the need for social
order and legitimacy). They explain variation between countries in the
strength of the logics in terms of ‘economic development strategies,
the intensity of globalization, government responsiveness to worker
expectations, labor market characteristics, and unions’ strength’ (p. 388).
TNCs will thus have to manage such contradictory logics in the various
countries in which they operate.
The idea of legitimacy can be taken further, conveniently pursuing a
different analysis by Frenkel, this time of global labour standards as
exemplified by two Adidas sub-contractors in China (Frenkel and Scott,
2002). The argument here is that acceptance of standards is promoted
by three factors: consumer pressure and demands for ethical investment;
producers’ own wish to avoid a race to the bottom; and policy-makers’
desire for continued support for the world trading system. Thus TNCs
pursuing a pure accumulation strategy might well find legitimacy
being undermined by external challenges or by attempts to end trade
liberalization through the WTO.
Moran (2002: 24–5, 35–43, 90–1) offers a parallel analysis. His key
points include the following.

• Conditions encouraging the maximization of worker oppression are

quite limited. (We can see these as constraints on the pursuit of a
competition logic, that are in effect internal to that logic). First, as
labour markets in developing countries emerge, alternative forms of
employment will arise and an exploitation strategy will be less able
to attract workers. Second, to meet international product standards
calls for capable workers.
• In countries including the Philippines conditions in export-process-
ing zones have improved. FDI has shifted from poverty-stricken
countries to competitive labour markets offering skilled workers.
• Corporate codes of conduct have become commonplace. In the
US, all Fortune 500 companies have such codes, while a UK survey
in 2000 estimated that 75 per cent of firms had them. They are
widely seen as committing firms to social responsibilities, though
‘actual practice’ in the field ‘is distinctly uneven’ (Sachdev, 2006:

A further logic, therefore, is that of the insertion of a production

chain in the global system. Legitimatory pressures on firms constrain
Jacques Bélanger and Paul Edwards 37

their freedom, even in an economy such as China. Some of these pres-

sures may be consistent with their own preferences (as with the ‘race to
the bottom’ argument), so that it is not a matter of external forces
making firms do what they would otherwise avoid. Complying with
labour standards can be a competitive advantage for some firms, so
that the various logics interact with each other.

Politics at the national level: the example of Canada

In turning to the national state and its relations with TNCs, we focus
on the case of Canada. This country is analysed much less often than
the US or Germany, and is commonly treated as an example of a
‘North American’ pattern. Yet it displays some distinct features, which
show that nation states have their own political resources. It also
reveals a changing balance of forces within the national political elite,
suggesting that there are contested views as to the place of the country
in a global economy.
The very high extent of economic integration with the United States
represents a characteristic feature of the Canadian political economy
which evolved through the twentieth century and was consolidated by
the implementation of the North American Free Trade Agreement in
1994. In 2003, exports to the United States accounted for 84 per cent
of total exports from Canada, compared to 78 per cent in 1996. Imports
from the United States represented 70 per cent of total Canadian
imports in 2003, compared to 76 per cent in 1996.3 The volume of trade
between these two countries grew substantially. Hence, ‘in the 10 years
since the North American Free Trade Agreement (NAFTA) came into
effect in 1994 the removal of tariffs and increased cross-border cooper-
ation paved the way for the doubling of Canadian exports to the
United States while imports from south of the border jumped by 83.7
per cent’ (Statistics Canada, 2004: 7). By contrast, the European Union
accounted for only 6 per cent of total exports from Canada in 2003,
and 10 per cent of imports. Data also confirm that, in the years following
the NAFTA agreement, trade flows within Canada’s home market,
on the east-west axis, were further eroded, while trade flows on the
north-south axis (with the US) expanded in much higher proportion
(Carroll, 2004: 207).
In an influential paper, Arthurs argues that this restructuring of cor-
porate governance in the context of economic integration plays the
major role in the ‘hollowing out of corporate Canada’. US-owned firms
have reduced the autonomy of their main centres of decision-making
in Canada, reducing the resources and power of those corporate man-
38 Multinationals, Institutions and the Construction of Transnational Practices

agers who were more acquainted with distinct Canadian institutions

and culture. The logic of globalization

required a change in the governance of what were formerly ‘minia-

ture replica’ subsidiaries. These subsidiaries were until fairly recently
organized as publicly-held ‘national’ companies whose relative
autonomy was emphasized, symbolically and functionally. … But as
autonomy has increasingly come to be seen as counter-productive,
many of these companies have been wound-up and either closed
down altogether or reconstituted as private companies wholly-owned
by the foreign parent or one of its proxies (Arthurs, 2000: 33).

Arthurs sees this reconfiguration of structures and governance, espe-

cially among US corporations which have long been operating in
Canada, as a matter of major concern. While such corporate restructur-
ing is not specific to this country, Arthurs argues, ‘Canada is more vul-
nerable than most because of its geopolitical location, its dependency
on exports, its willing accession to junior partnership in an integrated
continental economic system, its ongoing constitutional and political
crises and its failure to develop a significant number of home-grown
transnationals’ (2000: 45). In short, Arthurs argues, the consolidation
of corporate control and head office functions in the US has weakened
the position of Canada as a centre of corporate decision-making.4
Yet there have also been counter trends. From a systematic study of
the 250 largest Canadian corporations (on the basis of revenue) in
1976 and 1996, Carroll finds a diminution, from 40 to 19 per cent, in
the proportion of US-controlled corporations, and an increase in the
proportion of Canadian-controlled ones, from 47 to 70 per cent (2004:
74). These somewhat surprising figures are partly explained by his
methodology, which ranks corporations on the basis of revenues on
Canadian soil, hence inflating the importance of large firms operating
mostly in Canada, in particular in the financial and services sectors. In
contrast, many of the foreign-owned multinationals currently playing
a key role in the Canadian economy, such as Honda, Toyota, Bell
Helicopter Textron, Rolls-Royce, and Siemens, are excluded from the
1996 sample. But Carroll’s figures also confirm that a restructuring of
corporate governance between Canada and the US is currently occur-
ring. As he points out: ‘as the developing continental market rendered
branch-plant production for a “Canadian” market obsolete, many
domestically oriented firms controlled in the US disappeared from the
Top 250’ (2004: 74, 206). Ongoing research, in preparation for a survey
Jacques Bélanger and Paul Edwards 39

of all MNCs operating in Canada, confirms the role of US and domestic

capital: out of the 1458 MNCs with at least 500 employees worldwide
and with a minimum of 100 employees in Canada and 100 elsewhere,
754 (52 per cent) are owned by a US corporation, as compared to 331
(23 per cent) by Canadian-owned firms, with Britain coming third with
95 firms (6 per cent).5
Although Carroll’s methodology underplays the importance of
foreign-controlled firms, his work is convincing in showing the social
cohesiveness and lasting influence of the Canadian corporate elite in
controlling large firms and shaping neo-liberal policies. The method
consists mainly in a network analysis of the holders of two or more
directorships within these 250 largest corporations, comparing 1976 and
1996. Over this period, some changes have occurred in the composition
of this population of 489 individuals in 1976 and 426 in 1996, the
‘intercorporate linkers’ (p. 17). In particular, the study confirms that
boards of directors have been reduced in size, and that French-Canadians
have reinforced their presence in the Canadian corporate elite, in spite of
the fact that Toronto has ‘decisively eclipsed Montreal as the country’s
corporate metropolis and terminus for many continental and transna-
tional interlocks’ (p. 201). But in short, ‘we find by the late 1990s a
Canadian corporate elite whose social organization remained “national”
at the level of corporate governance, but whose business strategies were
increasingly continental, if not more fully “global”’ (p. 208).
The author points out that the notion of a separation between own-
ership and control, too easily taken for granted since the classic study
of Berle and Means (1932), may have some hold in countries such as
the US or the UK, but certainly not in Canada, where capital is not
sufficiently dispersed, and relations not sufficiently depersonalized, to
allow for such a development. Carroll’s study rather shows how dense
social networks and ‘thick interpersonal ties’, as well as the high
importance of wealthy families, remain key features of Canadian capi-
talism. This study does not support the thesis of Canada being seen as
a ‘rich dependency’ of the United States. Despite the high extent of
economic integration, Canadian corporate power has much autonomy,
and the elite of these two countries evolve mostly in parallel, in different
networks. Hence, ‘it is intriguing and perhaps paradoxical that, as of
1996, a predominantly “national” corporate elite – arrayed east to west
and linking industry with finance – governed major corporations in an
economy whose trade and investment flows were increasingly moving
north to south’ (Carroll, 2004: 104). While this paradox cannot be
fully explained, Carroll provides part of the answer by documenting
40 Multinationals, Institutions and the Construction of Transnational Practices

how this corporate class has all the means and social organization to
play a leading role on the ‘hegemonic terrain’, elaborating the neo-liberal
discourse in all spheres of society, not least universities, and advocating
‘national corporate interests’ through policy groups and linkages with
political parties and various levels of government (on the pre-eminence
of corporations in broader society, see also Bakan, 2004).
The Canadian case thus illustrates two key themes. First, although
corporate governance in Canada can only be understood by taking
economic integration into account, the Canadian corporate elite
deploys considerable resources in shaping policies regarding the
insertion of the national economy into the global economic system.
Second, a national corporate elite has shaped strategies towards, and also
ideological images of, international competition. We now address how
these strategies have played out, and in particular how TNCs can gain
support from states in their global ambitions as national champions.

The politics of firms and states

Even in a country like Canada, considered by Hall and Soskice (2001:
17–21) as a ‘liberal market economy’, the influence of large corpora-
tions in shaping the political agenda is considerable. This can be easily
understood considering the role of corporations in pursuing research
and development, diffusing technology and innovation, and shaping
the economic infrastructure of any country. The process through
which the views and concerns of large and medium-sized corporations
affect various levels of government is usually beyond public knowledge,
although the media are sometimes used to reach broader audiences.
Relationships between TNCs and states contain elements of both
conflict and collaboration, or rivalry and collusion. ‘TNCs and states
may be rivals but, at the same time, they may collude with one
another. In a real sense, states need firms to help in the process of
material wealth creation while firms need states to provide the necessary
supportive infrastructures, both physical and institutional, on the basis
of which they can pursue their strategic objectives’ (Dicken, 2003: 312).
Negotiations on ‘government support’ to particular firms sometimes
become the object of public debates. Such a situation occurs much
more frequently when a large TNC is seen as a ‘flagship’ for a given
national economy, and even more so when such firms produce public
utilities. In Canada, Bombardier Inc. plays such a role, with both its
aerospace and transportation divisions. From the invention of a light-
weight snowmobile by founder J. A. Bombardier in 1937, this corpora-
Jacques Bélanger and Paul Edwards 41

tion, partly as a result of strategic acquisitions, has developed into the

world leader in rail equipment manufacturing and one of the key
players in the aerospace industry. In each of these two sectors, but with
different patterns, elaborate negotiations with various levels of govern-
ment, in Canada and in many other countries, have also played a
major role. The Annual Report of the corporation shows that for the
fiscal year ended 31 January 2005, the Aerospace Division generated
revenues of US$7.9bn, and the Transportation Division US$7.6bn.
Considering the limited size and characteristic features of the Canadian
political economy, relations between Bombardier Inc. and the Canadian
and Quebec governments (where this family corporation originates
and is still headquartered, except for Bombardier Transportation, of
which the HQ is now located in Berlin) have been a frequent feature of
media coverage (especially but by no means only in daily newspapers),
particularly in recent years when both arms of the corporations
became key players on the world stage (Hadekel, 2004).
It is worth giving examples of political transactions in each of these
two divisions because they do not follow the same pattern. The manu-
facturing of public utilities such as rail transportation equipment, and
especially the mass transit market segment, is much more prone
to political exchange than the manufacturing of mass consumption
products. Besides the importance for governments of attracting major
investment and ‘high-quality jobs’ (a feature of all economic sectors),
the government, as a major customer, directly or through public
agencies, is here in a position to influence and condition corporate
decisions, encouraging them to maintain or increase manufacturing in
their country. A single firm can therefore proceed to such negotiations
with many host countries. We observe another pattern in aerospace,
where negotiations concern mainly (although not exclusively) the
home country. Here, governments are not necessarily key customers.
However, they have to ensure a ‘level playing field’ for their ‘national’
player, in a situation where all major countries support heavily the
other few major competitors, as does Brazil with Embraer in the market
segment of regional and business aircrafts in which Bombardier
operates. Indeed, the issue is not whether or not to provide financial
support but rather to negotiate the level and specific nature of this
support, some of which may be implicit, e.g. relating to fiscal advan-
tages, support for military research, and so on. Such matters can only,
and with difficulty, be clarified by international trade tribunals, as in
the major dispute between Canada and Brazil in the 1990s, when ‘the
WTO found both parties guilty. Neither country applied sanctions.
42 Multinationals, Institutions and the Construction of Transnational Practices

Subsidies continued to flow’ (The Economist, 26 March 2005, p. 62). A

similar dispute between the United States (for Boeing) and the European
Union (for Airbus), concerning the support for a wider range of aircraft,
is currently under adjudication by the WTO after a failure of protracted
international negotiations (The Economist, 4 June 2005, pp. 59–60).
The political ramifications of such a transnational organization are
by no means limited to the ‘home’ country. For instance, when in
August 2003 Bombardier Transportation lost to Siemens what was seen
as a strategic contract to build high-speed trains for service in the north
of England, a Bombardier spokesman was reported as saying: ‘clearly
there will be implications for our industrial footprint in the UK. It is
now obvious that companies do not have to be based in the UK to win
UK orders’ (The Globe and Mail, 23 August 2003, p. B2). Indeed,
Bombardier Transportation is also a major producer in Belgium and
Germany, where similar stories had much more political impact. In
March 2000, the company announced the closure of its railway car plant
at Manage, Belgium, despite having earlier won concessions to put
business in the plant and despite assurances as to its future; the closure
was seen as a betrayal by local politicians and unions (EIRO, 2000).
In November 2001, Bombardier announced its plan to close a railcar
plant located in Ammendorf, a suburb of Halle in eastern Germany,
which it had acquired three years earlier; this reflected excess capacity
following the acquisition of Adtranz from Daimler Chrysler in 2000.
With high unemployment and the coming election (September 2002),
this became a major political issue. Following much political pressure
and even a meeting of Chancellor Schroeder with the chairman of
Bombardier Inc. and the president of Bombardier Transportation, the
company reversed its plan in January 2002 (The Globe and Mail, 24,
28 and 29 January 2002). There was speculation in the press about the
nature of the assurances given by the government in terms of orders
to ensure the plant’s future. But in March 2004, when Bombardier
Transportation unveiled a major ‘restructuring programme’ under
which seven of the 35 plants in Europe and North America were to be
closed, the Ammendorf plant could no longer survive (the announced
closure was planned for late 2005). This reflects the intensity of compe-
tition in this industry and the fact that Bombardier’s rail division then
operated eight more plants in Germany. But it was also reported that
the promised orders from the state-owned railways never materialized
(The Globe and Mail, 18 March 2004).
In the Aerospace Division, elaborate bargaining occurred with many
governments regarding a major project, the development of a new
Jacques Bélanger and Paul Edwards 43

generation of commercial aircraft, of 110 to 130 seats, known as the

C-Series. It illustrates very explicit negotiations with governments
which show all of the features of the ‘locational tournaments’ discussed
by Dicken with examples from the automobile industry (2003: 306–8).
Many countries and levels of government were involved in negotia-
tions by which the corporation sought to have one third of the
US$2.1bn costs of the R&D for this project financed by different levels
of government, another third being financed by suppliers. The company
reviewed financing proposals from over a dozen sites in Canada,
the United States and Europe. In May 2005, Bombardier made the
announcement that ‘the UK and Canadian governments and the
province of Quebec have agreed letters of intent to provide a US$700m
aid package’ (Financial Times, 14–15 May 2005, p. 8). Canada’s and
Quebec’s contributions represent US$262.5m and US$87.5m respec-
tively. That of the UK, amounting to £180m, in the form of launch
investment and financial assistance, ensured that when the project
officially went ahead, expected at the time of writing in autumn 2005,
the wings, composite tailplane and nacelles would be built at the large
Bombardier plant in Belfast, creating 1700 more direct jobs, and a
further 1500 jobs in the UK supply chain. Final assembly will take
place in the Montreal region.
Illustrating links to micro politics, in March 2005, more than 4000
(of the 6300) members of Local 712 of the International Association of
Machinists and Aerospace Workers in Montreal took part in a union
meeting and voted 9 to 1 in favour of a new 6-year collective agreement.
Making concessions, especially on wages and flexibility in work
organization, and accepting a long-term agreement, was seen by all as
a gesture to influence the Bombardier decision, in a context where
possibilities of several other locations were under consideration.
There was much complaint at the extent of government support, not
least from Brazilian rival Embraer and from the United States, to which
Canada’s Industry Minister responded that ‘Canada, unlike most large,
industrialized countries, doesn’t use defence spending to stimulate its
aerospace industry. All countries do it their own way’ (The Globe and
Mail, 14 May 2005, p. B6). In Canada, much of the critique focused on
the dual-class share structure by which the Bombardier family has
retained the majority of voting shares with a minority of the total
equity, by maintaining a lock on the ownership of multiple voting
shares. While this represents a key feature of corporate governance in
many Canadian firms, and a growing object of debate on corporate
governance in the country, the issue was raised publicly and explicitly
44 Multinationals, Institutions and the Construction of Transnational Practices

in the case discussed here, some high-profile institutional investors

suggesting that government’s financial support should be tied to
changes in corporate structure (The Globe and Mail, 18, 19, and 23
March 2005). At the annual meeting of shareholders of Bombardier
Inc., the Chairman and CEO stated there was no intention to change
the corporate structure and went further in explaining its rationale:
‘Bombardier would not be here today if there had not been the multiple
voting shares. We would not have had the growth we had because the
majority shareholders would have objected to certain acquisitions and
… expansion’ (The Globe and Mail, 8 June 2005, p. B3). Interestingly,
such a rationale is usually associated with corporate governance in
coordinated market economies, a category in which Canada is not
usually considered.
By illustrating how this corporation became such a global player,
without relinquishing its local roots and family control but by leverag-
ing its capacity for growth and innovation, we have highlighted how
the divide between elected governments and corporations often
becomes blurred, even (and perhaps more so) in the current globalizing
context. In the process of major acquisitions and growth, over
20 years, in both the aerospace and transportation divisions,
Bombardier was consistently able to take advantage of arguments
around economic development and knowledge-intensive manufactur-
ing to win government support (Hadekel, 2004). In the context of
economic integration with the United States, the development of
leading Canadian corporations on the global stage is seen by many
in influential neo-liberal circles as something to be fostered by the
Canadian federal government. Some of this meaning was expressed by
the government in explaining the letter of intent with Bombardier:

major initiatives like this represent long-term opportunity for

Canadian industry, and our proposed support will provide an
opportunity not only for Bombardier to develop a new series of air-
craft, but will create new and exciting opportunities for aerospace
companies across Canada to develop new technologies and enhance
their competitiveness in the global aerospace business.6

What this statement does not reflect, however, is the complexity of

Canadian politics, with each main region having competitive advan-
tages in different economic sectors. The automobile industry is concen-
trated in Ontario, the oil and energy sectors are based in Alberta, and
the aerospace industry is highly associated with Quebec. As Quebec
Jacques Bélanger and Paul Edwards 45

now has to develop its industrial structure beyond the resource-based

sectors of pulp and paper and aluminium smelting, the growing
aerospace sector is a key lever of development. Such a context is likely
to encourage negotiations between states and large corporations,
particularly so with corporate flagships such as Bombardier. Hence the
negotiations and financial arrangements between Bombardier and the
Canadian government are part of the fabric of Canadian politics and
economic policies.

Conclusions: developing a political economy framework

This chapter has developed a political economy view of the TNC and
applied it at the level of macro politics. While various shades of contin-
gency theory treat politics as more or less exceptional, we see politics
as a fundamental dimension for understanding transnational corpora-
tions. It remains the case that TNCs are driven by capitalism. But they
are neither monolithic nor apolitical organizations. A political economy
perspective rather sees them as complex coalitions of interests, as
political systems with a clear focus on capital accumulation.
The discussion of the Canadian context illustrated the links between
national states and the global economy. New political projects emerged
that allowed the country to re-define its role and to promote its
national champions. While extreme views of the hollowing out of the
nation state are unduly one-sided, it is the case that states such as
Canada are playing a game whose rules are set elsewhere. TNCs are
important influences on the rules, as we saw in discussing their role in
the global economy. New modes of negotiation are emerging through
which many TNCs seek ways of sharing the risks associated with
product development with other agents, and particularly with the
chain of suppliers and national governments. Market risks, and related
corporate decisions associated with global competitiveness, are hence
entering into the sphere of political decisions and government policies.
A political economy perspective, taking account of the three levels of
politics identified above, helps in several other respects. First, it points
to the distinct character of the TNC. Such a firm has to deal with all
three levels, together with the fact that, by definition, it is dealing with
each level across different institutional environments: managing, for
example, micro politics in different national contexts. Each level will
also have sub-divisions, as between national states and supra-national
bodies. And there are inherent contradictions between the processes at
different levels.
46 Multinationals, Institutions and the Construction of Transnational Practices

Second, we can see why evolutionary models of the TNC, such as

that of Bartlett and Ghoshal (1989), do not work. Such models require
a mechanism driving development along the specified path. This is
usually the globalization of markets, perhaps accompanied by a process
of maturation within TNCs. Yet globalization is not an inevitable trend
but is itself a political project, and it throws up conflicting pressures on
TNCs, as our analysis of different logics suggested. TNCs are also riven
by internal contradictions. And existing ones may be challenged by
newcomers. The ‘transnational solution’ is an appealing image but it is
an idealized model and not a practical prescription.
We have not addressed here micro politics or their links with the
other levels of politics. To illustrate how a research programme might
do so, consider first the analysis of Kristensen and Zeitlin (2005),
appropriately entitled Local Players in Global Games. This examines a
single British-owned TNC, drawing on rich and often longitudinal data
on three of its production sites and the head office. It demonstrates
that the head office often lacked any clear strategic view and that its
approach tended to be shifting and uncertain. In many respects the
local sites were more ‘global’ than the head office because they under-
stood the competitive situation in their specific market niches while
the head office was tied into a conception of its role shaped by its own
local context in financial markets. The subsidiaries had substantial
power resources, which included some active choice as to which TNC
they were owned by.
In line with our argument that TNCs achieve production goals, as
well as being bargaining and influence systems, the subsidiaries were
able to deploy their resources so as to improve production systems. For
example, the Danish site, faced with the threat of job losses, used its
embeddedness in the country’s training system to retrain and indeed
upskill its workers. A key actor in this process was the leader of the
local trade union branch. This brought production benefits and also
helped to strengthen its political position within the TNC. In short,
‘micro’ politics around training contributed to a political project at
meso level.
In their lengthy concluding reflections, Kristensen and Zeitlin (2005:
243–9) underline how deeply embedded are the political tensions that
they dissect. It is not the case that these tensions are incidental or mar-
ginal. They constitute the way in which the TNC functions. Technical
solutions, such as staffing the head office with experienced operational
managers so as to build up relations of trust, are insufficient because
they do not address the ‘institutional logic’ of the firm: the TNC has to
Jacques Bélanger and Paul Edwards 47

deal with financial and consumer markets while within its own opera-
tions individual managers have to play political games with the report-
ing of information. It would be ‘foolish for managers to respect the
reports of others … or to report honestly about their own activities and
performance’ (p. 249).
In taking forward a political approach, two issues are crucial. The
first is comparative analysis. The dominant approach to politics has
been the demonstration of their existence and the exploration of
subtle mechanisms of influence. This has been of huge value in
demonstrating the contested and uncertain nature of TNC strategies
and in questioning rationalistic and deterministic models. Yet it has
tended to rely on specific cases. It is not accidental that two of the key
studies of the details of meso and micro level processes are of single
firms (Bélanger et al., 1999a; Kristensen and Zeitlin, 2005), for issues of
access and of the time to collect data are very substantial. None the
less, certain universal themes, such as the centrality of political
processes, are well-established. It is now important to show how such
processes work in different contexts.

• At macro level, do arguments about national champions have more

legitimacy in some nation states (perhaps small ones concerned at
‘hollowing out’) than in others? Can such arguments be sustained
more effectively by some TNCs (e.g. large ones in ‘leading’ sectors)
than others? Do some corporate and national contexts support the
emergence of a transnational capitalist class (Sklair, 2001), and do
they in turn develop leverage over the shape of the world economy?
One might also build on analyses of TNCs’ influences in such areas
as corporate social responsibility and the environment. These have
shown how firms can respond to challenges to their own position
and shape developing agendas, so that they are now often keen to
show off their ‘green’ credentials (Sklair, 2001; Levy and Egan,
2003). Yet these analyses tend to focus on how power was deployed
in a given case. The next key question is whether TNCs find it easier
to shape some issues than others, and why.
• At the meso level, there is already substantial information on the
power resources of head offices and subsidiaries. For example, sub-
sidiaries operating in important markets and having production
systems that are different from those in the rest of the TNC have
bargaining resources (Birkinshaw and Hood, 1998; Edwards et al.,
1999). One might now compare companies with different structures
to address differing political processes such as the role of strategy
48 Multinationals, Institutions and the Construction of Transnational Practices

committees in transmitting ideological messages. How, given their

internal tensions and the shifting external environment, do TNCs
continue to hold together? Or to be more exact, why do some such
as BP do so and continue to grow while others do not? The idea of
the ‘corporate glue’ has been used to explain the maintenance of
bonds within international operations (Evans, 1992; Ferner et al.,
1995). It may be useful to revisit this notion, to consider whether
the glue is becoming more or less effective and, to continue the
metaphor, whether there are new processes that improve bonding.
• At micro level, the influence of TNCs on wages and employment
conditions is a long-standing issue which is becoming, with the
marketization of eastern Europe and China, even more important.
Comparative analysis of different types of MNC in different national
settings will be of major importance.

Second, as writers including Hyman (1995) and Thompson (2003)

have urged, it is crucial to develop studies that move across levels, for
example placing micro politics at the point of production in the context
of firms’ global strategies. The challenges here are evident, but analyti-
cal tools are now in place that permit the issues to be grasped more
clearly than was the case in the past. A political economy view has a
great deal to offer, in moving away from stereotypical views of TNCs
and in examining the dynamics of competing economic and political
logics. If it can now build a linked programme of empirical research, it
can further advance understanding of the complexities of the TNC.

1 Burawoy explicitly based his analysis on Gramsci’s discussion of ideology
and hegemony. Useful studies in this vein on TNCs and global political
projects include Sklair (2001) and Levy and Egan (2003). For application
more generally, see Edwards and Wajcman (2005).
2 This section draws on Edwards and Wajcman (2005: 240–5, 251–3).
3 Statistics Canada, International Merchandise Trade: Annual Review, Catalogue
no. 65-208-XIE, 2004, pp. 7–8. Calculations based on a balance of payment
4 This analysis is not shared or acknowledged by all policy-makers and
researchers in Canada. A research paper by Statistics Canada economists,
based on measures of number of head offices and their employment for the
period 1999–2002, does not confirm such a ‘hollowing out’ tendency
(Baldwin, Beckstead and Brown, 2003).
5 This research is being conducted by a team, from Montreal and Laval
Universities and HEC Montreal, at the Centre de recherche interuniversitaire
sur la mondialisation et le travail (CRIMT).
6 Press release of the Government of Canada, dated 13 May 2005, from the
web site of Industry Canada. Another press release from the Canadian
Jacques Bélanger and Paul Edwards 49

government, dated 28 October 2004, was explicit about Bombardier being

considered as a ‘corporate flagship’: ‘Bombardier is the cornerstone of the
Canadian aerospace industry, maintaining a network of suppliers from all
regions of the country’.

Funding from the Social Sciences and Humanities Research Council
of Canada and the (UK) Economic and Social Research Council,
through the Advanced Institute of Management Research, is
gratefully acknowledged.

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Theorizing the Role of the
International Subsidiary: Transplants,
Hybrids and Branch-Plants Revisited
Tony Elger and Chris Smith

Theoretical orientation: system, society and dominance effects

on organizational politics and workplace relations
The system, society and dominance model (Smith and Meiksins, 1995;
Smith and Elger, 2000; Elger and Smith, 2005; Smith 2005) aims to
capture the complexity of innovations in work organization and
employment relations and their ‘transfer’ within the modern, interna-
tionalized enterprise. By identifying ‘societal effects’ it recognizes the
origins of particular innovations in specific societal settings and the
extent to which those settings (whether in home or host societies) con-
tinue to influence the conduct of managers and workers within the
firm. At the same time, the partial character of such effects is empha-
sized by underlining the extent to which national production regimes
may be characterized by differentiation, conflict and reconstruction.
Moreover, by identifying ‘dominance effects’ it recognizes that prac-
tices that have been developed in leading national economies, indus-
trial sectors or indeed firms have the potential to exert a distinctive
influence on key actors in a wide range of business enterprises situated
in different societies, by virtue of their claimed efficacy.
Finally the concept of ‘system effects’ identifies fundamental social
relations and processes that underpin and condition the specific insti-
tutional patterns and organizational practices that characterize the
evolution of competing capitalisms and competing firms. Despite
national variations between capitalist countries, they share certain
fundamental systemic commonalities that are sometimes overlooked
in discussions of societal differences. When certain management
practices, such as quality control, become generalized as shared stan-
dards of performance they may thus become ‘systemic’. Nevertheless,

54 Multinationals, Institutions and the Construction of Transnational Practices

particular management approaches and techniques rarely attain more

than a provisional systemic status because they remain beset by the
contradictory features of the capital–labour relationship.
As Child (1972) and others have emphasized, the policies and prac-
tices of business enterprises are rarely a direct result of structural forces
and contingencies, as organizational actors are reflexive and strategize
in response to such conditions. Moreover, the system, society and
dominance model highlights the contradictory and shifting pressures
and priorities faced by capitalist firms, and the varied repertoires of
practices that managers may draw upon in response to such pressures.
This notion of varied repertoires suggests that enterprise managers may
draw upon home or host country models, internal corporate or wider
sectoral or network recipes, and/or exemplars drawn from dominant
countries or leading firms. We need to be sensitive to the ways in
which these elements are brought together within specific firms and
workplaces, as managers and employees address and mediate the
effects of globalizing capitalist forces, national institutional rules and
‘world best practice’ work and employment standards within distinctive
local contexts. It is only through micropolitical processes of argument,
interpretation, conflict and compromise that groups and individuals
negotiate how these different (often competing) ways of working,
standards of quality, authority relations and forms of employment will
actually shape particular work situations.
At the same time, of course, the interests and powers of different
actors within the capitalist enterprise differ and conflict (Amoore,
2002). The dominant coalition of owners and top managers will be
differently structured and may have different priorities in different
national variants of capitalism, but in any case will possess some strate-
gic capacity to shape the ways in which the firm organizes itself at
home and abroad. Senior head office managers clearly possess consid-
erable resources to control the activities of subordinate managers, both
at home and in overseas subsidiaries, through the promulgation of
rules and targets, the monitoring of performance, and financial and
career inducements and penalties. It is they who define the objectives
and priorities of newly established subsidiaries, though in circumstances
(such as national regulatory frameworks or the moves of rivals) that
may constrain their options. Furthermore, Bélanger and Edwards (this
volume) highlight the leverage that top managers possess to shape
state policies, either through direct representations or through organized
business lobbying, though they also note the tensions and limitations
that may beset such leverage.
Tony Elger and Chris Smith 55

At the same time, the managers of subsidiaries also possess some

scope to negotiate and modify their position vis-à-vis head office. They
can appeal to local conditions to argue the case for increased autonomy
in detailed policy formulation or develop local organizational capabilities
which justify agreed changes in the objectives of the plant (Birkinshaw
and Hood, 1998; Pulignano, this volume). Such initiatives and nego-
tiations can be pivotal to the consolidation and growth of specific
subsidiaries, though subsidiary managers are not always successful and
local plants may become more precarious rather than more secure
(Birkinshaw and Hood, 1998). Furthermore, the importance of local
management policy initiatives and lobbying activities in the evolution
of subsidiaries does not preclude top management decisions to expand,
contract or close such operations because of changes in wider corporate
priorities over which local management have minimal influence.
Finally, employees other than managers, and perhaps some key tech-
nical or professional workers, are generally excluded from the organiza-
tional processes through which both corporate and subsidiary policies
are formulated (though in some national contexts highly institutional-
ized forms of representation and consultation, such as works councils,
may allow organized labour a limited formal voice in such processes).
Nevertheless workers more generally remain an active presence in
relation to such processes, even when they are weakly organized or
unrepresented by unions. This is partly because formal and informal
bargaining around the consequences of management policy decisions
is likely to influence outcomes and hence future management policy
stances. But it is also because even unbargained worker responses (such
as changing patterns of effort, absenteeism or turnover) will also
impinge on management calculations, especially at the level of the
workplace. Of course, such observations also underline the limits of
worker leverage even in propitious conditions, such as tight labour
markets or advances in collective organization, while in less favourable
circumstances such inequalities of power will be all the more marked.
Still, managers can rarely take employees and their labour power
entirely for granted, and in this sense they remain an active presence
in the workplace, albeit with limited and variable leverage.
In this context both the national provenance and the local relevance
of alternative policy repertoires remain contested within international
subsidiaries. Nationality of ownership differentiates the local from the
international enterprise, but we need empirical research to uncover how
and how far different groups invoke nationality in seeking to legiti-
mate or undermine activities that reconstruct work and employment
56 Multinationals, Institutions and the Construction of Transnational Practices

relations within the workplace. For example, recent research on HRM

practices within US multinationals in Europe suggests that ‘diversity
management’ was diffused to subsidiaries by US corporate management,
but resisted as a strictly American recipe, appropriate for the parent firm
but not the subsidiaries (Ferner et al., 2005). This was especially the case
where such subsidiaries were located in ethnically homogeneous soci-
eties, such as Ireland, where local management resistance drew upon
indigenous societal norms to resist dominant practices, the nationality of
which (Americanness) was highlighted to emphasize their specificity and
inappropriateness. Milkman’s (1991) research on Japanese firms in the
USA provides another example. Japanese managers sometimes used work
sharing, reduced hours, flexible allocation of labour and other practices
to retain labour through downturns in trade, when the first reaction of
the American managers was to lay off workers. In turn, American man-
agers argued that such labour security was inefficient when hire and fire
could weed out unproductive workers. In this contest, Japanese managers
applied home-influenced company practices that conflicted with local
management approaches, but American workers could ally with Japanese
managers in seeking to maintain employment security. Thus nationality
was contested, and societal class divisions between workers and managers
were complicated by competing management practices.
The key objectives of our own research were to explore the different
ways in which nationally designated repertoires of work organization
and HRM practices were debated and deployed within Japanese manu-
facturing subsidiaries in Britain, and to analyse the implications of this
for our understanding of the interplay of system, society and dominance
effects in the operations of such subsidiaries. The next section therefore
outlines three influential but contrasting accounts of the operations of
such Japanese subsidiaries that are to be found in the existing literature.

Conceptualizing Japanese subsidiaries: transplants, hybrids or

Analyses of the operations of Japanese manufacturing subsidiaries
outside Japan have developed three distinctive types of argument,
which treat these subsidiaries as transplants, hybrids or branch-plants.
These three variants do not exhaust the terms of debate as each con-
tains different strands and some authors shift their positions over time,
but they nevertheless represent distinctive and contrasting approaches,
not only to the operations of Japanese overseas subsidiaries but also to
the conceptualization of international subsidiaries more generally.
Tony Elger and Chris Smith 57

The transplant: from dominance to system effects

The first image, that of the transplant, was widely used in the 1980s
and 1990s, especially to characterize Japanese inward investors. This
suggests that such enterprises seek to transfer an unproblematically
superior portfolio of Japanese management and production techniques
quite directly from home factories to overseas subsidiaries. These prac-
tices are seen to provide the basis for the competitive strength of the
parent firm, both at home and in its overseas subsidiaries. This makes
it necessary for transplantation to take place, but also facilitates this
process, because it becomes attractive to all participants by offering
mutual benefits from competitive success. Hence transplantation implies
a convergence of interests between workers and managers which
will overcome mutual suspicions grounded in older class relations or
cultural traditions. At its most benign this may be founded on shared
interests arising from an egalitarian and participative production regime,
as in Kenney and Florida’s (1993) analysis of ‘innovation mediated pro-
duction’. At its most stringent it may be based on shared subordination
to the disciplines of ‘waste elimination’ in pursuit of enhanced job
security, as in the advocacy of lean production by Womack et al.
(1990). Within this approach the trajectory of subsidiary development
tends to be seen as linear and progressive, as the overseas site takes on
a widening range of activities and comes to mirror the capabilities of
parent production clusters.
Thus particular corporate practices of the Japanese parent company
are identified as elements of a hegemonic national repertoire, and are
translated directly into ‘system effects’ across international operations,
readily overriding and subsuming local ‘societal effects’. This approach
tends to work with a reified ‘model of best practice’, formed within but
emancipated from specific national and corporate contexts. It also
glosses over conflicts of interest within the employment relationship,
either by conceptualizing the model as a basis for the reconciliation of
such conflicts or by subsuming remaining tensions within a shared
imperative to adopt the model to allow competitive survival. In this
sense the ‘dominant’ model is translated directly into a transformation
of ‘system’ characteristics.

The hybrid: home and host societal effects with contradictory impli-
cations for dominance
The second image, developed from the late 1990s onwards, is that of
the hybrid factory. This emphasizes the mixing of home and host
58 Multinationals, Institutions and the Construction of Transnational Practices

societal influences to produce a distinctive set of organizational and

production relations, not only in specific subsidiaries and settings but
also in the operations of indigenous competitors. It is evident that an
unqualified model of transplantation makes very strong claims about
the universal pertinence of parent company practices and their ready
transfer overseas. Thus almost any qualification to these assumptions
moves the discussion towards hybrid theorizing, though the transplant
imagery may be challenged in weaker or stronger terms.
The weakest version of hybridization, still close to the universalism
of the transplant approach, identifies distinctive ‘functional equiva-
lents’ for some components of the parent firm’s management model.
In this approach some elements of that model – such as specific pro-
duction arrangements – are identified as core best practices which must
be pursued by the subsidiary, but others – such as payment systems –
are seen as supportive but secondary. The latter are then seen as open
to replacement by alternative arrangements, which are similarly
supportive but tailored to the circumstances of the local subsidiary.
Many of those who use the language of transplantation nevertheless
allow for such limited hybridization, or even see it as central to the
process, as in the influential analyses of Japanese auto transplants in
the US developed by Kenney and Florida (1993) and Japanese trans-
plants in the UK developed by Oliver and Wilkinson (1992). In these
approaches ‘societal effects’ are recognized but are seen to have little
effect on the dominant and increasingly systemic model because of the
availability of functional equivalents.
Other analysts of hybridization depart more clearly from the notion
of transplantation. For example, Abo (1998) charts how subsidiary
operations often deviate from model versions of Japanese work organi-
zation, personnel practices and industrial relations by moving some
way towards local, domestic patterns. In turn, these adaptations to
local conditions are interpreted as dilutions of the Japanese model and
are thus seen as serving to weaken the effectiveness of such sub-
sidiaries. This diagnosis still emphasizes the strength and coherence of
an ideal-type Japanese model, which is seen as compromised and
diluted by pressures and constraints arising from the host society. Here,
then, ‘societal effects’ clash with ‘dominance effects’ and may limit
their translation into systemic features. There is considerable latitude
within this broad approach to highlight different sources of pressure,
involving different institutional complexes – such as training arrange-
ments or supplier networks – and social agents – such as unionized
workers or local managers (as in Broad, 1994). In general, however, this
Tony Elger and Chris Smith 59

view of hybrids construes them as suboptimal operations, which are

thus potentially vulnerable and only survive as second best.
The final important variant in analyses of hybridization challenges
this last assumption, to suggest that institutional constraints and
compromises may impel enterprises to develop new configurations of
work and employment relations with their own distinctive strengths.
Relatively weak versions of this argument have been developed by
Fruin (1999) and Liker et al. (1999) who emphasize that any transfer of
existing socially-embedded workplace practices necessarily involves an
active process of translation for new settings. In some cases, this
process may be channelled in directions which limit subsidiary effec-
tiveness, but in others it may be channelled in ways which enhance
that effectiveness. Adler (1999) develops an interesting variant of this
approach in analysing organizational innovations in unionized
brownfield and non-union greenfield Toyota factories in the United
States. He argues that strategic management responses to local condi-
tions, including distinctive power relations with unions and regulatory
bodies, involved subtle modifications to the Toyota production system
and more marked departures from Japanese employment practices.
Furthermore, these innovations facilitated plant productivity and
viability, though they did not create an unproblematical pattern of
joint benefits for management and employees.
This highlights the capacity of management for active organizational
learning and institution building within overseas subsidiaries, the
varied leverage of unions and state agencies and also the continuing
sources of tension surrounding any emergent hybrid repertoire. Here,
societal effects may challenge and modify a seemingly dominant model,
underlining the provisional character of such dominance. In turn, new
model variants may emerge but their provisional character, and the
unresolved tensions that surround them, qualify their translation into
systemic features.
A stronger argument for innovative hybridization has been devel-
oped by theorists working within the French ‘regulationist’ tradition.
Their analysis builds upon a wide-ranging collaborative research
programme on evolving patterns of corporate strategy and production
organization among the world’s large auto firms and addresses devel-
opments in both parent plants and overseas operations of US, Euro-
pean and Asian producers (Boyer, 1998). This analysis of hybridization
stresses two key points that represent important advances on accounts
of the transplantation of ‘model’ production regimes. Firstly, active
processes of remaking and innovation call into question static models
60 Multinationals, Institutions and the Construction of Transnational Practices

of best practice. Secondly, emergent production models confront sub-

stantial dilemmas that can be addressed in several ways. Thus a range
of relatively coherent configurations of corporate strategy and work
organization are likely to coexist, none resolving all the problems but
several viable at some of the available locations. Thus the interaction
of home and host societal effects underpins a variety of contested but
potentially dominant models, and a feature of the ‘system’ is continu-
ing competition between such evolving and contending models,
rather than a clear resolution of the claims to dominance by any one
Thus Boyer (1998: 27) argues that ‘the notion of hybridization
becomes significant, not just as a more short-term adaptation to envi-
ronmental resistance, but as a principle of transformation, indeed of
genesis, of industrial models themselves, through their interaction
with social and economic systems which are different from those
in which they first developed.’ However, the generation of a new
model represents only one among a range of possible outcomes. Boyer
identifies a spectrum of possible trajectories for the successful opera-
tion of subsidiaries, ranging from effective imitation (transplantation),
through hybridization as the utilization of functional equivalents, to
hybridization as adaptation to local conditions and only finally
hybridization as innovation of a new model with broader potential.
Alongside these possibilities are others, characterized by greater disso-
nance between context and strategy and/or less coherence across ele-
ments of management policy, generating failed imitation, suboptimal
forms of hybrid compromise, or opportunistic but incoherent mixes of
policy. According to Boyer, the prevalence of these various outcomes
will depend on the dynamic interplay between evolving strategies
of the parent companies and the institutional configurations of
constraints and opportunities characteristic of the sites of their
overseas subsidiaries.
The analytical principles emphasized by Boyer and his colleagues,
combined with their substantive research findings, generate a rich map
of possible trajectories of hybridization. This map subsumes many
earlier discussions of ‘functional alternatives’ and compromised forms
of adaptation whilst highlighting the possible emergence of innovative
repertoires. It also converges with other research which emphasizes
significant differences among Japanese companies in their orientations
towards their subsidiaries, especially in regards to their commitment to
the generalizability of their parental model and their willingness to
adapt that model to local circumstances (Beechler et al., 1998).
Tony Elger and Chris Smith 61

However, there are also problems in utilizing this analytical framework,

primarily arising from its high level of abstraction.
Firstly, Boyer discusses the difficulties of adjudicating between those
subsidiaries displaying optimal and suboptimal levels of performance,
emphasizing both the inappropriateness of narrow and abstracted
benchmarking exercises and the pertinence of satisficing rather than
maximizing strategies. Nevertheless, it remains unclear how these
points inform his discussion of different trajectories of hybridization.
Secondly, only brief attention is given to the substantive character of
the production and employment relations involved in these various
forms of hybridization, and this leaves the forms of subordination and
insubordination of labour that may be involved rather opaque. There is
a tendency to divide cases into those characterized by the integration
of labour and those characterized by a crisis of employment relations,
rather than exploring the scope and limits of the subsumption of
labour in each case. Finally, as Meardi and Toth (this volume) also
emphasize, this approach neglects the possibility that the parent
company may pursue a policy of selective transplantation and hybridiza-
tion, conditioned by the specific role that is envisaged for the sub-
sidiary within its overall internationalization strategy. Boyer’s model
addresses the strength or weakness of a parent firm’s commitment to
export its production model, but gives little attention to any principles
of selectivity which might apply to that process.

The branch-plant: the interplay of system, societal and dominance

The third image, that of the branch-plant, returns to debates of the
1970s and 1980s. This metaphor emphasized the subordinate role of
subsidiary operations within wider corporate structures and strategies
orchestrated from the centre, and highlighted the dependency of
regions and localities upon precarious sources of employment because
of the capacity of inward investors to shift their operations and invest-
ments from place to place. By emphasizing corporate power relations,
this approach addresses some of the limitations of the hybridization
approach, while remaining compatible with the important insights of
such authors as Boyer, Adler and Fruin.
Analyses of foreign manufacturing investment sites as branch-plants
(Hudson, 1989) stress two key features which are glossed over in
accounts of transplantation and hybridization. Firstly, the analysis
does not start from the assumption that parent companies are con-
cerned to produce replicas of home operations in their subsidiaries.
62 Multinationals, Institutions and the Construction of Transnational Practices

Instead, subsidiaries are seen as playing specific, selective roles within

a wider international division of operations. Secondly, branch-plant
imagery emphasizes the leverage of the parent company through its
continuing capability to switch investment elsewhere. As a result,
overseas subsidiaries often perform limited assembly operations as
part of an integrated international commodity chain, using a low-
wage, labour-intensive production regime.
This may involve the selective transfer of low-end production
arrangements and employment relations from elsewhere in the parent
company, either from more routinized operations at the parent plant
or from other subsidiaries at home or abroad. For example Dedoussis
(1994) suggests that Japanese firms have selectively transplanted the
work and employment relations of Japan’s subordinate subcontracting
networks and peripheral labour market to their overseas operations. It
could also involve forms of adaptation that draw heavily on the indige-
nous management practices of the host country, especially when they
involve harsh conditions and union exclusion. For example Milkman
(1991) argues that the operations of many Japanese factories in
California depend on a low-wage immigrant workforce and appear to
have self-consciously copied American union-avoidance strategies.
Thus there is a significant fit between the branch-plant argument and
several substantively based challenges to the transplantation model.
It can nevertheless be argued that a substantial weakness of the
branch-plant approach arises from its direct equation of subsidiaries
with routine assembly operations, as variations in the role and character
of such subsidiaries include both upgrading and divergence from basic
assembly (Henderson, 1989; Dicken, 1998). The branch-plant approach
can only accommodate such developments if it addresses the varied
roles of such factories in complex international production arrange-
ments (Dicken, 1998; Castree et al., 2004). However, from this vantage
point such higher value-added operations are seen in relation to the
overall corporate strategies of their parent companies, thus contingent
on the development and modification of such strategies rather than
part of an automatic process of transplantation and upgrading.
Furthermore, the issue of the leverage afforded to employers through
their international, multisite operations remains pertinent, even though
the extent of sunk-costs and ease of relocation will vary according to
the specific roles played by different subsidiaries.
This revised conception of the branch-plant reconnects discussions
of the operations of Japanese overseas subsidiaries with a wider litera-
ture on international manufacturing companies. This focuses on the
Tony Elger and Chris Smith 63

ways in which power relations in subsidiary operations are affected by

the range and character of a firm’s international operations (Edwards
et al., 1996; Dicken, 1998; Castree et al., 2004). It explicitly addresses
how HQ-led comparisons across production operations may be used,
often in quite subtle and incremental ways, to modify how subsidiary
managers conduct their operations. In particular, it highlights the
scope for senior managers to use the allocation of investment streams
to reward and punish subsidiaries over time, and the manner in which
corporate policy debates and guidelines involve both the forcing and
fostering of evolutionary modifications in local management policies.
At the same time, contributors to this literature also recognize that
international companies vary in both their propensity and their capacity
to demand compliance with centrally formulated operating principles.
In particular, vertically integrated production companies are much
more concerned to develop common design principles and production
standards than are conglomerates or multi-domestic firms, while inter-
national firms also differ in the size and experience of the international
management cadre they have available to manage their foreign sub-
sidiaries. Thus the branch-plant approach places a valuable emphasis
on the location of specific subsidiaries within their wider corporate
strategies and structures, whether as low-end assembly operations (the
traditional image of the branch-plant) or in some other role. This
reminds us that any engagement between dominant production models
and local societal effects, and indeed any process of hybridization,
is mediated through distinctive corporate management structures,
strategies and power relations.

Research design and methods

Our own research (Elger and Smith, 2005) focuses entirely on Japanese
manufacturing subsidiaries in Britain. The underlying logic is to focus
on a critical case in terms of the interplay of home and host societies.
Internationalizing Japanese manufacturing firms are potential carriers
of a distinctive and influential home model of work organization and
production relations, while Britain is a particularly open host economy
for inward investment, characterized by a sharp decline in its own
manufacturing base. This combination is therefore a powerful test-case
for arguments about the transfer and implementation of production
models through the foreign subsidiaries of international companies.
Within this ‘one home, one host’ research design, however, we sought
access to a variety of Japanese manufacturing firms, in terms of size,
64 Multinationals, Institutions and the Construction of Transnational Practices

sector and ownership structure, and gained the cooperation of five

rather different Japanese firms and subsidiaries. This allowed us to con-
sider how far such firms differ in their roles and modes of operation,
and address the organizational dynamics that we believed would
mediate interactions between home and host country effects and
dominant and declining production models.
Our research did not represent the full range of Japanese manufac-
turing in Britain. In particular, none of our case-study enterprises was
unionized though many of the earlier inward investors did recognize
unions. However, our cases are more typical of recent greenfield oper-
ations in Britain, while union absence makes them strong test-cases
for transfer arguments because managers ostensibly have more power
as a result. Another distinctive feature of our research is that four of
our firms were located in one new town, Telford, that was particularly
successful in attracting Japanese inward investors to the English
midlands. Their ‘greenfield’ sites gave inward investors particular
scope to innovate, but we also found that the cluster of such firms
had its own dynamic as they interacted with one another and sought
to manage their impact on the local labour market.
We conducted systematic semi-structured interviews with a represen-
tative range of informants in each firm, including Japanese and British
managers and engineers and local supervisors and shopfloor workers.
This involved about 8 per cent of the people in each subsidiary over
three to six-week periods during 1995 and 1996. We combined this
with shopfloor tours, the collection of documents, interviews with other
local informants, and later revisits and telephone interviews between
1997 and 2002, to gain an understanding of policy developments in
each firm from its formation through to the turn of the century.

Organizational policies and management processes in Japanese

Our research enabled us to develop a detailed analysis of the experience,
orientations and actions of managers, supervisors and employees in
five contrasting Japanese manufacturing subsidiaries operating in
the UK, and thus pursue comparisons between these firms over time.
Table 3.1 summarizes our findings and locates them in terms of the
distinctive features of each firm. Concentrating first on the quartet of
greenfield inward investors in Telford, we documented both important
similarities and differences in their operations. In terms of similarities
they were all predominantly involved in routine assembly and materials
Table 3.1 Resume of case-study findings

Pseudonym Part-co Copy-co PCB-co Assembly-co Computer-co

Ownership Japanese (initial Japanese Japanese (parent Japanese/US joint Failing UK specialist
involvement of specialist in high venture (trading firm bought by major
European company value products) company and Japanese firm
as joint venture) sleeping partner
Establishment 1990, continuing 1983, model Opened 1987, 1989, fluctuating Bought 1990,
and current expansion changes but closed 1999 production closed 1999
status relative stability
Number of 1996: 720 1996: 550 1996: 92 1996: 180 1996: 475 on two
employees 2003: 1400 2003: 650 2003: 370 main sites
Products Complex Office equipment Printed circuit Plastic parts/ Computer and server
sub-assemblies for and consumables boards assemblies design, development
cars and manufacture
Role of site in Powerful first tier Specialist Supplier to several Supplier of parts to World product
commodity chains supplier to several producer supplying final assemblers, shifting range of final division, providing
car manufacturers marketing division competing with assemblers, with capability where
across Europe, sister plants in initial advantage of parent company had
operating in highly East Asia, pushed patented mechanism failed
competitive sector towards smaller
batch runs

Table 3.1 Resume of case-study findings – continued

Pseudonym Part-co Copy-co PCB-co Assembly-co Computer-co

Major areas of Moulding and Plastic moulding Automated Plastic moulding and a) design and
task activity machining of shop, process insertion, manual routine assembly, development of
components, production and flow line insertion small ‘amateur’ computers, servers
complex assembly packing of and rectification development effort and IT services;
on flow lines consumable, bench b) automated and
dedicated to assembly of simple manual
specific customers components, flow manufacture of
line assembly of PCBs; assembly bay
complex machinery, and flow line
manufacture of manufacture of
complex component, computers and
minor D&D role servers
Relations between Japanese Collaborative Suspicion and Japanese top manager UK management
Japanese and local management cadre relationship between conflict between liases with parents dominant in R&D
management substantial and Japanese and local small Japanese and customers but with supportive
dominant, drawing management; tensions management cadre management of sites Japanese cadre;
lessons from US about quality crosscut and local managers; delegated to local plant and personnel
subsidiary; groups; key Japanese failure to management management local;
personnel role in liaison with HQ become profitable, Japanese managers
management local and production intra-management active in process
responsibility but management; local conflict and squeeze innovation (but
with limited personnel from competing draw on sector
autonomy; debate management Asian factories recipes); long-term
about breaking from initiatives prompts closure investment strategy
local pay norms
Table 3.1 Resume of case-study findings – continued

Pseudonym Part-co Copy-co PCB-co Assembly-co Computer-co

Dominant Stringent Rotation between Routine, line-paced Extensive and a) matrix

features of work implementation of short cycles on bench assembly; intensive routine organization of
organization productivity and assembly; longer cycle personalized assembly on benches project teams
quality controls; line assembly involves supervision; and lines; with limited
highly routinized foolproofed task idiosyncratic sub-assembly at resources,
assembly work; routines but little selection from small branch factory; juggling quick
training and job rotation; active Japanese production little evidence of delivery and
rotation limited by quality control regime repertoire; no time Japanese production robust design;
production pressures but spasmodic and for quality circles, techniques; NVQ b) extensive
and worker turnover; superficial involvement quality targets varied accreditation of basic routine low paid
process engineers in quality circles by customer; ageing skills assembly work,
prime movers in equipment; crisis with no quality
work reorganization; management circles; some shift
worker scepticism to timed off-line
about spasmodic and ‘build through’
ritualistic quality process; extensive
circles post-production
quality checks
and rectification

Table 3.1 Resume of case-study findings – continued

Pseudonym Part-co Copy-co PCB-co Assembly-co Computer-co

Personnel Union avoidance; Active union avoidance; Non-union; low wages; Non-union; Non-union;
policies and tightly regulated no formal consultation personalized relations; modest wages limited
strategies worker consultation arrangements; modest dramatization of involving payment consultation
process excluding key pay; move from youth competition from by results and through heavily
issues; payment of recruitment to older Chinese factories; use attendance bonus; managed ‘one
local rate but more workers; cultivation of of agency temps to personalized HR goal committee’;
stringent work pace loyalty through ‘caring cover fluctuations and efforts to cool out a) semblance of
and compulsory attitude’ and internal facilitate recruitment problems; use of strong culture;
overtime; cursory promotion (compromised NVQs to document significant
selection process and by external recruitment training; branch training
use of agency labour of new team leaders); factory to escape opportunities,
influenced by commitment to constraints of but terms and
recruitment and employment security, local labour conditions below
retention problems but use of temporary market average for sector;
agency workers b) minimization
of personnel
function through
recruitment and
training; use of
current panaceas,
from agency
temps to zero
hours contracts
Table 3.1 Resume of case-study findings – continued

Pseudonym Part-co Copy-co PCB-co Assembly-co Computer-co

Dominant Widespread shopfloor Management see labour Tensions over work Informal fiddles a) young ‘techies’
features of criticism of turnover as problem; pressure; informal around payment join to gain
employment unfavourable effort process workers critical resistance; significant by results; experience, but
relations and bargain; sceptical of erosion of relative turnover of established significant labour tendency to lose
foci of instrumentalism; indulgency pattern; and newer workers turnover experienced staff
tension informal operator elsewhere tensions b) critical view of
efforts to moderate around quality and management
impact of management productivity and fuelled by
control systems; team criticisms of restructuring increased work
leaders under pressure; of supervision and pressure and
substantial turnover favouritism treatment of

70 Multinationals, Institutions and the Construction of Transnational Practices

processing operations, using a comparatively low-paid, semi-skilled

workforce. Secondly, all continued to avoid union recognition, and
alternative mechanisms of worker consultation and involvement were
at best rudimentary. Thus management–worker relations were primarily
mediated through informal bargaining within firms and by workers’
moves between firms. Thirdly, despite management efforts to coordi-
nate their regulation of employment relations, all found the recruit-
ment and retention of workers more problematical than they expected,
while workers remained critical of important features of management
policies. Finally, while the rhetoric of management sometimes empha-
sized the active involvement of workers in problem-solving and con-
tinuous improvement, management’s own commitment to such policies
appeared patchy and inconsistent, and employees were usually sceptical
about participation in such ‘discretionary’ activities.
The Telford case studies challenge accounts of the innovativeness of
Japanese inward investors in terms of production regimes. They also
question the extent to which managers secured hegemony through
distinctive employment practices. Managers in these firms certainly
gained more control over the organization of the production process
and the flexible deployment of labour than British manufacturers of an
earlier period, but this control should not be overstated. Furthermore,
managements used their power in quite mundane and uneven ways to
maintain quality and output levels, rather than to deliver anything like
innovation-driven production or high commitment, high performance
workplaces. In the terms used by Kenney et al. (1998), our greenfield
subsidiaries look like ‘reproduction’ rather than ‘learning’ factories.
The production operations and employment relations at the manufac-
turing facility of our fifth case study, Computer-co, can be characterized
in similar terms, though it was located in a different new town and was
not a greenfield site. However, its R&D centre operated on a very different
basis, as a relatively poorly resourced but highly innovative design
Turning to the processes of management, our research emphasizes the
extent to which existing templates and repertoires of work organiza-
tion and employment relations, from whatever source, were actively
modified and reworked in efforts to bring them to bear upon the
organization of work and management–worker relations within these
subsidiaries. As we have seen, our research sites were biased in the
direction of conditions that could facilitate the exercise of manage-
ment prerogatives and the transfer of parent company practices to
subsidiaries. Nevertheless, policy formation and implementation in
Tony Elger and Chris Smith 71

each of the factories faced significant problems and uncertainties, and

responses to these challenges involved patterns of debate, alliance and
conflict among managers (in the subsidiaries and in their parent firms)
which were influenced by the distinctive priorities, resources and
powers of the protagonists. As a result, there were important differ-
ences between our case-study firms in the evolution of management
micropolitics and management–worker relations and in the particular
policy mixes and dilemmas that came to characterize each workplace.
The recruitment, retention, control and motivation of shopfloor
workers represented a major focus of management concern across our
case studies, and in this sense labour was an active influence on the
making and remaking of work and employment relations despite the
absence of any collective voice. However, the intractability of labour
was not the only source of uncertainties for management. The specific
product market and commercial relations of the subsidiaries also raised
questions about the relevance of the established production or design
repertoires of some of the parent companies.
Corporate policies beyond the subsidiary, at regional or corporate
headquarters, clearly had a major impact upon the micropolitics of the
workplace. Thus our research documented the ways in which wider cor-
porate decisions on such matters as the terms of new investments, the
allocation of new product lines or wider corporate rationalization
influenced the fate of local operations. We did not explore such wider
social processes and power relations in the same depth as those within
the case-study plants, as we drew primarily on the accounts of subsidiary
managers. While these managers no doubt have a partial, selective view
of policies and politics in their parent firms, just as top managers have
an incomplete understanding of developments within subsidiaries, they
can nevertheless be expected to have a well-developed understanding of
the pressures that impinge on them.
With these qualifications, our case studies document four important
features of the relationship between headquarters and overseas opera-
tions, all of which bear upon differences in the way they operated.
Firstly, these subsidiaries were located within rather different corporate
structures and their roles were defined in terms of distinctive corporate
strategies. Secondly, these different roles not only involved different
relations with headquarters and ‘parent plants’ in Japan but also
distinctive relationships with ‘sister plants’, suppliers, customers and
competitors. Thirdly, there were critical junctures when top corporate
policies overrode the concerns of subsidiary managers, most obviously
when decisions were made to close plants but also when key investment
72 Multinationals, Institutions and the Construction of Transnational Practices

decisions were made or particular performance targets defined. Finally,

however, within these parameters subsidiary managers had a significant
degree of autonomy, as they actively engaged with, interpreted and
negotiated the implications of top corporate policies, including those
that substantially constrained their room for manoeuvre.

Transplants, hybrids or branch-plants?

What, then, are the implications of our analysis for the models of
international subsidiary operations outlined earlier, in regard to the
claims they make about the character of workplace social processes and
the wider structures of social relations that impinge on these processes?

In some of our case studies, certainly, established repertoires of produc-
tion organization, often drawn from influential home country models,
represented central resources and reference points for key actors. In
conditions where leading enterprises in the home economy were
regarded as successful exponents of contemporary ‘best practice’, while
host country practices were viewed as backward and unsuccessful, such
dominant models influenced not only headquarters and expatriate
managers but also locally recruited managers and to some extent
shopfloor workers.
Our research, however, underlines the contingent and contested
impact of such established corporate repertoires. Firstly, our case-study
firms differed markedly in the degree to which existing Japanese
production or design operations were seen as models for the subsidiary.
In this regard they could be ordered on a spectrum, from Part-co,
where parent practices were most closely emulated, through PCB-co
and Copy-co where their appropriateness was more debated and
negotiated, to Assembly-co and finally to Computer-co, where Anglo-
American models were more dominant reference points. These differ-
ences in the salience of parent company recipes can be explained
partly in terms of the role of the subsidiary in wider corporate strate-
gies. For example, among the larger parent firms Electrical-co clearly
sought to acquire key design and development competencies from
Computer-co, its British subsidiary, and this reduced the relevance of
its existing expertise for the British operation. Part-co sought to
provide European-based motor manufacturers with an equivalent
service to that provided to major customers in Japan, making its home
model more directly relevant. Amongst the smaller companies, the
Tony Elger and Chris Smith 73

relevance of Japanese models of best practice was seen differently at

PCB-co and at Assembly-co. At the former, some aspects of the parent’s
production expertise were drawn upon, but in increasingly contentious
circumstances. At the latter, the parent’s limited production experience
provided considerable latitude for British production managers to go
their own way.
Secondly, in each case the salience of parent company practices (and
indeed those drawn from sister subsidiaries or local companies) had to
be worked out in detail among expatriate and local managers within
the subsidiary, albeit influenced by varied levels of guidance and pres-
sure emanating from above. The imputation of ‘dominance’ to leading
sectors or whole national economies may be seductive, not only for
commentators but also for some of the participants in transnational
operations. But rhetorics of dominance still had to be translated into
concrete forms of work organization and employment relations, and it
was here that the ramifications of specific product and labour market
conditions became pertinent.
The terms of debate about these matters varied across our case-study
factories, as did the related evolution of work and employment policies
(Elger and Smith, 2005). At Copy-co, for example, the existing skills of
the workforce, the mix and scale of production, and the resultant
balance of capital investment and labour deployment, were all impli-
cated in the tailoring of production arrangements in terms of such fea-
tures as job rotation and ‘foolproofing’ (the design of tasks to minimize
scope for operator discretion and thus errors). The implications of
these circumstances were explored in discussions among management
specialisms and factions with variable leverage at different levels in the
firm, while the initiatives and responses of employees also had an indi-
rect influence on the outcomes. In these respects ‘transplantation’ was
inevitably a dynamic and contested process. Furthermore, there were
important differences between our case studies in the management
micropolitics through which these matters were addressed, and in the
weight given to these different ‘contingencies’ in the resulting manage-
ment policies. Such differences arose not only from the dynamics of
social organization within the plant but also from the wider field of
forces within which each plant operated.
Thus our engagement with the model of the transplant highlights
two key arguments that contribute towards a more adequate theory of
the operations of international subsidiaries. The first is that sub-
sidiaries vary in the roles they play within broader corporate struc-
tures and this makes a difference to the pertinence of purportedly
74 Multinationals, Institutions and the Construction of Transnational Practices

dominant home country production repertoires. The second is that

efforts to draw upon such home country or company models
inevitably involve tailoring to the specific commercial and labour
market circumstances of the subsidiary. Thus the positioning of the
factory within wider corporate structures and strategies, the micropo-
litical negotiation of the implications of existing management reper-
toires within the enterprise, and specific product and labour market
exigencies, are all implicated in the active making of production and
employment relations within these local workplaces, in ways that are
neglected by the image of the transplant.

Our analysis has important affinities with the image of hybridization,
because it problematizes transplantation and does not treat host
country conditions merely as obstacles to the adoption of home
country practices. However, we have seen that the notion of hybridiza-
tion remains rather ambiguous. At one extreme it simply signifies the
incomplete and diluted character of transplantation, but at the other it
suggests the emergence of new configurations of work and employment
relations that may represent viable competitors to existing dominant
models. At their best, then, analyses of hybridization have moved beyond
the juxtaposition of home and host country effects, to emphasize the
evolution of subsidiary operations over time and the emergence of
distinctive configurations that may depart from both home-based
templates and local practices. Nevertheless, analyses of hybridization
often provide inadequate accounts of the micropolitical processes that
condition such outcomes and neglect the varied roles of subsidiaries
within wider corporate structures and strategies. This section concen-
trates on the first theme but carries the second through into discussion
of the branch-plant approach.
Hybridization has sometimes been conceptualized as a process of
‘organizational learning’ that, in its ideal form, involves both local
learning and proactive adaptation (Beechler et al., 1998). Our research,
however, emphasizes that managers face cross-cutting constraints and
challenges, so that policy formation is often marked by uncertainties,
contradictions, conflicts and limitations, rather than a smooth or con-
sensual process of hybridization. Furthermore, such ‘learning’ cannot
be presumed to offer equivalent benefits to all participants, given
enduring conflicts of class interest between management and workers
and divergences in the status concerns and priorities of different
segments and levels of management.
Tony Elger and Chris Smith 75

Thus the modification and melding of policy repertoires indicated by

the concept of hybridization is inevitably characterized by competing
claims to expertise and by difficulties in deploying these forms of
expertise. In our research, British and Japanese managers typically
claimed different sources of expertise: Japanese managers in most of
the firms could draw upon strong claims to technical expertise
grounded in existing corporate activities, while British managers
invariably claimed particular expertise in managing a British labour
force. However, in neither case could the effectiveness of such claims
be taken for granted, and their leverage varied between firms and over
time. Japanese claims to technical expertise varied in their potency
depending upon the subsidiary’s specific role and evolution, and the
related implications of British product and labour markets. Meanwhile,
the persistence of problems of recruitment and retention in the Telford
factories weakened the efficacy of British management claims. Thus
an adequate theory of subsidiary operations cannot be based on an
idealized account of the emergence of new hybrid production and
employment regimes but must address the conflicts and uncertainties
that commonly characterize subsidiary operations.
Analyses of the micropolitics of hybridization must also address the
varied structures, resources and power relations within which such
fraught forms of organizational learning have developed. Our research
documents a range of organizational networks and exchanges that
could influence policy debates. These included circulating expatriate
managers, problem-solving teams from Japan, local managers visiting
Japanese parent factories, links with sister subsidiaries in other coun-
tries, discussions with other local Japanese firms, and comparisons
with the practices of other firms operating in the UK. Thus Copy-co
managers modified foolproofing ideas from Japan, but their reorganiza-
tion of teamworking was influenced more by British models, while
Part-co managers drew especially on consultative arrangements devel-
oped at their sister plant in the USA. Indeed, in our two major assembly
plants the dominance of the Japanese parent firm and the presumed
superiority of their production practices did not preclude lateral bor-
rowing from sister plants or even, in the case of Copy-co, some modest
reverse transfer of technical innovations. However, at Computer-co a
central rationale of the take-over was ‘reverse learning’ by the parent
Subsidiaries also varied in the extent of such networks and in the
power relations that characterized them. Thus the larger subsidiaries
could draw upon a more developed international management cadre, a
76 Multinationals, Institutions and the Construction of Transnational Practices

wider range of sister plants and more sustained contacts with cluster
firms. By comparison, the major influences on the smaller subsidiaries
tended to be a limited number of parent or sister plants and pressures
emanating from major customers, though this left managers at PCB-co
with much less room for manoeuvre than those at Assembly-co. Even
in the larger firms such networks also involved hierarchies of power,
with headquarters as the dominant partner, sister subsidiaries as more
equal partners/competitors, and other firms having potential influence
more than direct leverage. At Part-co, and to a lesser extent at Copy-co,
the parent company could call upon a cadre of committed expatriate
managers who had experience of managing international operations.
Both could encourage expatriate and local managers to draw upon
recipes and comparisons across parent and sister plants in developing
initiatives within specific workplaces, and both could use funding deci-
sions and performance criteria to guide management priorities. Thus
borrowing from sister plants and occasional reverse transfer took place
within these parameters, though there was some scope for subsidiary
managers to make a case for their own policy preferences. Except for a
period at Computer-co, however, the efforts of subsidiary managers to
widen the ‘charter’ of their plant (for example Copy-co sought to
develop competences in design and development while PCB-co appealed
for a broader product range) were not supported by headquarters.
Processes of hybridization were not simply guided by top manage-
ment imperatives, as they were also influenced by relatively intractable
features of existing work and employment relations in the workplace
and the local labour market. Nevertheless our case studies emphasize
that the evolution of ‘hybrid’ policy repertoires within subsidiaries was
strongly influenced by distinctive organizational networks and power
relations, especially within the management structures of the parent
firms. In this sense they support the argument that corporate organiza-
tion is often a strong mediator of both home- and host-country effects
(Ferner and Quintanilla, 1998), undermining any analysis of hybridiza-
tion as the direct product of the interaction between such effects. Thus
the notion of hybridization may represent a valuable starting point for
developing a theoretical understanding of the operations of interna-
tional subsidiaries, but key features of the dynamics of subsidiary
operations risk being obscured by this metaphor. In particular, we need
to recognize the contested and problematical character of emergent
policy repertoires and to locate processes of management policy forma-
tion within varied and unequal networks of influence and corporate
power relations.
Tony Elger and Chris Smith 77

We draw upon this imagery to underline the importance of the specific
roles played by the various factories within their parent firms and the
importance of top corporate decision-making at critical junctures in
both the expansion and closure of such plants. In line with the branch-
plant metaphor, we also argue that the efforts of national and local
states to capture such manufacturing investment have often created
clusters of routine assembly operations, characterized by low-skilled
and low-paid jobs and relatively vulnerable to closure and relocation.
However, our analyses have also shown that the roles of our case-study
subsidiaries differ significantly in ways that are not easily accommo-
dated within the branch-plant imagery. Indeed different subsidiaries
of the same parent company may differ in their relation to that parent.
This was evident in our research in PCB-co (which was untypical in
being a subcontractor subsidiary of its parent company) and Computer-co
(which was untypical in being designated as a product champion in an
area of parent company weakness). One way to conceptualize such
distinctive operations is in terms of the specific rationales or charters
that informed their formation and the distinctive relationships that
then developed between them and their headquarters, sister companies
and customers (a theme also addressed by Pulignano and by Meardi
and Tóth in this volume).
For all of our firms the establishment of their operations was primarily
an exercise in building market access, rather than delivering immediate
profits to the parent company, and this framed initial relationships with
corporate headquarters. To some extent this may reflect distinctively
Japanese corporate calculations, but it nevertheless underlines the perti-
nence of varied logics of foreign investment across both countries and
firms. Furthermore, the implications were interpreted differently in our
different firms and over time, in ways which were related to the distinc-
tive product markets and relationships with customers and competitors
that each company and subsidiary faced. In this regard the concept of
the production chain (Gereffi and Korzeniewicz, 1994) offers some illu-
mination, as it highlights the salience of distinctions between final
assemblers and various tiers of component suppliers, though it does not
provide a full characterization of the relationships involved.
The three larger companies each performed different roles within
their parent firms. Computer-co was distinctive as it was intended
to provide the parent company with a capability in the design and
production of a specific product range where Japanese operations had
earlier been unsuccessful. Copy-co was the final assembler of major
78 Multinationals, Institutions and the Construction of Transnational Practices

lines for the European region in an oligopolistic market, where leasing

of complex equipment enhanced scope for profitable sales of consum-
ables, but local content continued to be an important consideration to
facilitate market access. Meanwhile, Part-co was the key European
regional supplier of a dominant Japanese first-tier components firm,
supplying powerful and often demanding customers in the highly
competitive motor sector. The remaining two factories were both
smaller subcontractors, more vulnerable to pressures from both their
customer firms and competitor suppliers. However, Assembly-co gained
a degree of protection from its possession of an unexpired patent and
its close relationship with one major customer, while PCB-co occupied
the most precarious position as an outrider operation facing direct
competition from east Asian factories. These varied features are not
readily reduced to a simple continuum, but an understanding of the
different ways in which inward-investing subsidiaries are located in
these terms is essential to any broader theoretical understanding of the
operations and employment relations within such workplaces.
In particular, it is important to locate discussion of the performance
criteria that regulate relationships between parents and subsidiaries in
these terms. In two of our cases, Computer-co and PCB-co, the parent
eventually closed the subsidiary, after each had operated for about ten
years. In both cases the closure decision reflected wider pressures that
encouraged corporate rationalization and changed the calculus that
was applied to the performance of the subsidiary, rather than a distinct
change in that performance itself. In other respects, however, the cases
differed. At Computer-co there had been a long-term commitment to
investment in a loss-making but innovative enterprise in the hope of
developing a viable competitive presence in the PC market, albeit from
a marginal and relatively vulnerable position. However, this commit-
ment was curtailed by a wider crisis of corporate profitability, arising
from changes in other segments of the parent firm’s operations, and it
was this that precipitated closure. By contrast, at PCB-co an initial tol-
erance of poor financial performance was underpinned by the prospect
of developing business with customers of the parent company, driven
by demands for local content in their overseas operations. However,
the relaxation of such regulatory requirements and changes in the
sourcing policies of these customers undercut these prospects and
exposed the factory more directly to competition from China. As a
result the parent company imposed increasingly stringent performance
targets which eventually precipitated closure. By comparison, the three
remaining companies sustained ‘good enough’ production in the
Tony Elger and Chris Smith 79

circumstances of their different corporate and commercial settings,

though none did this on the basis of a high commitment, high perfor-
mance workplace. In this context, subsidiary managers often sought to
consolidate the position of ‘their’ factories both by seeking to extend
the capabilities of the enterprise and bidding for new investment.
While their scope for doing this was limited by the evolving character
of wider corporate strategies, in each case they gained scope for further
investments or new product lines, sufficient to sustain production at
Copy-co and Assembly-co and to continue expansion at Part-co. As a
result, the sunk costs invested in the larger assemblers became substantial,
though this may not fully guarantee their longer-term performance
and viability.
A further aspect of the branch-plant imagery concerns the leverage
that investment decisions offer management over workers. Here,
however, our research exposes some of the problems as well as advan-
tages of greenfield locations and deregulated labour markets for man-
agement. There were a variety of incentives for Japanese companies to
locate in Telford, including new factory sites, good communications
links and the presence of existing Japanese companies. But the most
obvious attraction, emphasized by the local state, was a plentiful
supply of relatively cheap labour for routine manufacturing work,
while trade unions were relatively quiescent and themselves eager to
encourage inward investment. These features promised to facilitate the
construction of management’s preferred production and employment
regimes, and the firms were able to retain favourable wage rates and
avoid unionization throughout the 1990s. However, managers discov-
ered that the regulation of labour remained more challenging than
they had expected (Elger and Smith, 1998; 2005). Labour turnover was
often substantial, workers were often sceptical about management
strategies for worker involvement, and recruitment became difficult as
the pace of inward investment and expansion led to a tighter labour
market. In some respects these subsidiaries became locked into this
pattern. The larger firms sought to sustain their position by actively
collaborating in efforts to manage the local labour market, both by
discouraging the movement of labour between firms and setting
guidelines for wage and non-wage costs, while the smaller firms also
had to operate within this framework. But such concertation con-
strained the options of individual subsidiaries, in terms of pay and to
some extent personnel policies, without delivering workforce stability.
For workers, the arrival of Japanese investors provided increasing job
opportunities in an initially slack labour market. This was a particular
80 Multinationals, Institutions and the Construction of Transnational Practices

attraction to older workers who had experienced redundancy from

better paying jobs or those who had worked in more poorly paid
service sector work, especially when accompanied by promises of
enhanced job security. At the same time the demands of routine
factory work coupled with modest wages fed employee grievances. In
the absence of effective ‘voice’, ‘exit’ in search of modest improve-
ments became a common response, especially for younger or more
skilled workers who were relatively confident about gaining another
job. Furthermore, threats of leaving also provided a basis for significant
informal bargaining over work rates and working conditions in each of
these workplaces. In these circumstances, selective management efforts
to enhance worker involvement through quality circles tended to be
experienced as superficial and inconsistent, while in the more stringent
work regimes they were seen as a further imposition in the context of
an already inequitable effort bargain.
Managers in the larger firms could nurture greater commitment by
offering opportunities to progress up internal job ladders, but the
attractions of these aspects of employment were qualified by the work
pressures involved (especially at Part-co) or by the perceived unfairness
of criteria for progression (especially at Copy-co). Other personnel ini-
tiatives included increasing recruitment of older workers, bussing in
employees and prioritizing attendance in bonus calculations. Such
policies gave distinctive inflections to management–worker relations,
but none overcame a primarily instrumental orientation among workers
or fully stabilized the workforce. Thus there were real limits to manage-
ment hegemony in these workplaces, notwithstanding the leverage
afforded by greenfield investment and concertation between enter-
prises. Moves between firms, instrumental responses to management
policies, and informal bargaining over the pace of work significantly
constrained management power.
Clearly, managers in the factories we studied were in key respects
subordinate to the wider policies of senior management, but also
possessed considerable power resources in managing their workforces.
In these respects the branch-plant model represents an important
corrective to characterizations of processes of transplantation or
hybridization that abstract from such power relations. However, our
case studies also suggest that the leverage of subsidiary management
vis-à-vis headquarters varied significantly according to the specific role
of the subsidiary within wider corporate strategies. Furthermore, even
in favourable circumstances the regulation of labour and especially the
mobilization of worker cooperation remained problematical. Thus a full
Tony Elger and Chris Smith 81

analysis of subsidiary operations must overcome these limitations of the

branch-plant model as well as developing the features we have high-
lighted in our critical engagement with the transplant and hybrid models.

Conclusion: system, society and dominance effects and

subsidiary operations
We wish to emphasize three key themes that emerge from our discus-
sion of transplant, hybrid and branch-plant approaches to the
operations of international subsidiaries. First, any discussion of the
transmission of dominant home country recipes from parent to foreign
subsidiaries, or of the development of hybrid policies which meld
together home- and host-country influences, must give particular atten-
tion to the ways in which specific subsidiaries are positioned within the
wider corporate strategies of their parent firms. Corporate ‘effects’ are
important because ostensibly ‘national’ models and related claims to
dominance are developed within specific sectors and firms, and are
accorded more or less relevance for specific subsidiaries according to the
particular roles that they expected to play within their parent compa-
nies. Corporate effects are also important because different firms are
characterized by rather different networks of resources and power rela-
tions. In turn, these condition the activities of subsidiary managers and
mediate the impact of a variety of home and host management reper-
toires. Furthermore, the role of sister plants highlights the potential
salience of multiple home and host reference points.
Of course, established ‘corporate effects’ are also challenged by sys-
temic processes. New corporate strategies and policy repertoires devel-
oped by competitor firms, or in rival sectors or national economies,
may undermine the existing strategies of parent firms, and this may
indirectly increase the vulnerability of their subsidiary operations.
There is a systemic tendency for corporate rivalry to problematize exist-
ing corporate repertoires and national business systems, even those
with current claims to dominance. But it is important to recognize that
such tendencies (exemplified in our research by the increasing location
of competitor and sister subsidiaries in China) ramify through the
global capitalist system in heavily mediated and uneven ways.
Our second argument is that, wherever inward investors are located,
the management of the labour process and the regulation of labour are
likely to pose significant problems for management. Neither headquar-
ters nor subsidiary managers are likely to discover the ideal location or
the perfect supports for management hegemony. However, the specific
82 Multinationals, Institutions and the Construction of Transnational Practices

tensions and challenges that managers will confront will be strongly

influenced by differentiated host country effects, involving specific
institutional arrangements and class and gender compromises that
characterize particular districts, regions or countries. As labour process
theorists have persistently argued, the underlying intractability of
labour may be regarded as a systemic feature of capitalist employment
relations. But our research also documents the particular forms and
limits of such intractability within a relatively open and supportive site
for capital, a greenfield locality within the fragmented and contradictory
British production regime (Almond and Rubery, 2000).
It is plausible to argue that such localities are becoming more common
internationally, as national states pursue policies of liberalization and
flexibilization, and international companies gain more options for
relocation of their production operations. In this sense, system dynamics
involving both states and corporations are recasting and also weaken-
ing country effects, making it more likely that the challenges facing
management will take the form of an increased volatility of labour and
disorganized discontent, rather than organized challenges and compro-
mises. At the same time, however, it should be recognized that the
specific forms taken by greenfield sites and flexibilized local labour
markets continue to vary substantially. Those in the interstices of leading
capitalist economies (parts of the UK), those on the less developed
periphery of core capitalist regions (say in Mexico or eastern Europe) and
those in the export-processing zones of developing countries (say in
Indonesia or South China) each have distinctive characteristics. These
arise both from different positions in the development hierarchy and
specific national features (such as the complex capitalist/state-socialist
form in China). In this sense, country effects continue to play a sign-
ificant role in constituting the terrain on which even the more mobile
international subsidiaries may operate.
Finally, our third argument is that the policy repertoires and manage-
ment practices in specific subsidiaries necessarily develop through micro-
political processes of management debate, alliance and conflict and
inevitably involve tacit but somewhat contested bargains with employ-
ees. Structures and contexts do not automatically determine outcomes in
the enterprise or workplace. Social relations between managers and
workers and among groups of workers and managers animate, articulate
and interpret structural pressures and contextual conditions in novel and
unanticipated ways. Such processes are clearly framed within wider para-
meters, of distinctive corporate structures, strategies and power relations,
and also the local and national-institutional structuring of labour
Tony Elger and Chris Smith 83

markets. However, our empirical research suggests that these mediating

processes absorb much of the energy and constitute much of the imme-
diate experience of those who work at these subsidiaries. We also
argue that these processes are often more complex than is recognized.
They rarely involve a simple clash between, say, Japanese and British
managers, and they often sustain patterns of conflict and cooperation
between managers and workers that cannot simply be read off from
broader relations of power and dependency. In our more detailed analy-
sis (Elger and Smith, 2005), we have sought to capture these complexities
of lived experience whilst locating them within an understanding of the
wider structures and power relations discussed in this chapter.

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Accommodating Global Capitalism?
State Policy and Industrial Relations in
American MNCs in Ireland1
Patrick Gunnigle, David G. Collings and Michael J. Morley

The impact of multinational corporations (MNCs) on host country indus-
trial relations (IR) has long been a source of academic debate (cf. Bomers and
Peterson, 1977). In evaluating the impact of MNCs, Gennard and Steuer
(1971: 144) argued that it is ‘the foreignness of subsidiary behaviour which
matters’, while, more recently, Ferner and Quintanilla (2002: 245) suggest
that their key influence is that they ‘act as agents of change by introducing
innovations into their subsidiaries and thence into the host business
system’. It is this latter influence with which this chapter is concerned.
The chapter examines the IR approaches of US-owned MNC subsidiaries
in Ireland. Using case study data from five US MNCs located there, we pri-
marily concern ourselves with subsidiary practice on trade union recogni-
tion and avoidance. We review the evolution of subsidiary IR policy and
practice against the backdrop of a changing official context for foreign
direct investment (FDI) in Ireland. Our main objective is to examine the
interaction between the agendas of MNCs and of the Irish host country
authorities and to review some of the implications for IR policy and prac-
tice. Beyond some survey data, relatively few insights are available on the
nature and development of IR in MNCs in Ireland. Our five cases generate
some important findings on the evolution of IR policy and practice over
time in subsidiaries of US MNCs in Ireland, and allow us to speculate on
the impact of FDI on Irish public policy in this key area.

Foreign direct investment (FDI) and industrial relations

MNCs have become key players in the global economy. While one
typically associates the term MNC with global corporations such as
Patrick Gunnigle, David G. Collings and Michael J. Morley 87

McDonald’s or Sony, there are also large numbers of smaller privately

owned firms that operate across national boundaries. In total, MNCs
exert a huge economic and political influence. UNCTAD (2004) data
indicate that total global inflows of FDI in 2003 amounted to $560bn,
driven by some 61,000 MNCs and their 900,000 foreign affiliates.
Ireland is one of Europe’s most FDI-dependent economies, and the
country has continued to attract significant investment despite a recent
global downturn in FDI (cf. UNCTAD, 2004; Collings et al., 2005). It was the
largest net recipient of FDI in the OECD over the period 1993–2003, record-
ing a cumulative balance of inflows over outflows of $71bn, making it the
world’s eleventh largest recipient of FDI (ibid.). It has been estimated that
MNCs in Ireland contribute well over 50 per cent of manufactured output
and some 70 per cent of industrial exports (Tansey, 1998; O’Higgins, 2002).
Furthermore, over 49 per cent of employment in manufacturing is
accounted for by those employed in affiliates under foreign control (OECD,
2005). A 2002 study identified Ireland as the world’s most globalized
economy, placing it ahead of other highly globalized countries such as
Singapore (cf. Kearney, 2002). The US is by far Ireland’s largest source of FDI.
OECD data indicate that US FDI in Ireland increased by a factor of five over
the period 1990–1998, while the Economist (1997) found that FDI stock from
US firms amounted to $3000 per head in Ireland, compared to $2000 in
Britain, $500 in Germany and $200 in Spain. The great bulk of this invest-
ment is located in a small number of export-oriented high technology
sectors, notably electronics, pharmaceuticals and healthcare, software, and
internationally traded services.
The significance of FDI in Ireland is the result of a longstanding and
consistent public policy of providing preferential incentives to MNCs
to locate in the country, dating from the late 1950s (cf. Gunnigle et al.,
2005) (see Table 4.1). This policy stance has given rise to a generous

Table 4.1 MNCs in Ireland by ownership (number of firms), 2004

US 478 (46.7%)
Germany 140 (13.7%)
UK 116 (11.4%)
Rest of Europe 209 (20.5%)
Asia-Pacific 46 (4.5%)
Rest of the World 33 (3.2%)
Total 1022

Source: IDA Ireland, 2004.

88 Multinationals, Institutions and the Construction of Transnational Practices

incentive package to encourage FDI, the most important element of

which is a low level of tax on corporate profits (cf. Gunnigle and
McGuire, 2001).
Given this background of a high level of dependence on FDI, espe-
cially US FDI, it is instructive to examine how American MNCs have
impacted on IR in Ireland over time. Ireland presents an interesting
and somewhat distinctive host country context for examining the
influence of US MNCs. In particular, the Irish IR context contrasts with
the US in a number of regards. The most obvious manifestations of
divergence include: the widely accepted legitimacy and considerable
influence of trade unions in society and the absence of a strong anti-
union ideology or agenda among any of the major political parties; the
high levels of centralization in collective bargaining, involving the
negotiation of a succession of economic and social accords between
government, employers and trade unions; and the substantially
higher levels of union density and recognition (cf. Roche, 1992; 1997;
Gunnigle et al., 2002).
Over the past three decades, Irish governments of all political hues
have been strong advocates of national level accords on pay and other
aspects of economic and social policy, involving negotiations between
the ‘social partners’. Such agreements have ensured that organized
labour has played a prominent role in public policy determination.
This clearly contrasts with the US experience, in which there has often
been a hostile socio-economic and political climate for organized
labour, particularly under Republican-led administrations. Since 1987
Ireland has had a series of centrally negotiated agreements, the most
recent being Sustaining Progress (2003–2005). Centralized bargaining
also operated during the 1970s with a brief return to enterprise level
bargaining in the period 1982–1987. It should be noted that – again in
contrast to the US – the Irish system of collective bargaining is
grounded in voluntary principles, relying on the moral commitment of
the participants to implement agreements achieved through the
bargaining process; there is no legal requirement on employers or trade
unions to adhere to the terms agreed.
In international comparison, Ireland has reasonably high, if falling,
levels of trade union density. The most recent figures suggest that
in 2004 employment density in Ireland was just over 35 per cent, a
figure considerably higher than in the US, where density was 13.4 per
cent in 2001, down from 20 per cent in the early 1980s. In explain-
ing the relative lack – in comparison to the UK – of ideological divi-
sions on the role of trade unions among Ireland’s main political
Patrick Gunnigle, David G. Collings and Michael J. Morley 89

parties, commentators point to the absence of clear class-based

distinctions between the major parties (cf. Roche, 1997). Thus Irish
trade unions have generally operated in a much more benign politi-
cal context and have not been exposed to the dramatic oscillations
that have characterized Britain (or indeed the US) over recent decades
(cf. Roche and Turner, 1994). Indeed, Roche and Ashmore (2002)
concluded that ‘Irish unions occupy a pivotal role in Irish economic
and political governance’.

Case studies of US MNC subsidiaries in Ireland

This chapter draws on data gathered from five detailed studies of IR and
HRM in Irish subsidiaries of US MNCs. Summary information on these is
provided in Box 4.1. Case study data were generated largely through in-
depth interviews with company personnel at subsidiary level and with
trade union officials, while additional information was garnered from
company documentation, web sources and observation. Interviews were
conducted with all the top management team in each subsidiary and

Box 4.1 The case study firms

Pharmaco is one of the world’s top pharmaceutical firms, featuring high on
the Fortune 500 list. It was established in the nineteenth century and
expanded abroad in the 1950s. It currently boasts global employment levels
of 120,000 and annual revenues in the region of US$50bn. Its first Irish
operation was established in the 1960s and it now employs 1800 people in
Ireland at a number of sites. Historically, Ireland has been very significant
within the worldwide portfolio because it was a primary location for the pro-
duction of a number of the corporation’s best selling products.
Healthco manufactures pharmaceutical, medical and diagnostic products.
It was established in the late nineteenth century and first expanded abroad
in the late 1930s. It has global revenues of US$16bn and employs some
70,000 people worldwide. Having had a small sales presence in Ireland since
the 1940s, it opened its first Irish manufacturing operation in the mid-
1970s. It currently employs some 2000 people at a number of Irish sites. In
the recent past Healthco has expanded its Irish investments significantly.
ITco was incorporated in the early 1900s and is by some way the largest of
the companies studied in terms of revenue and employment levels globally. It
is a longstanding Fortune 500 corporation in the information and communica-
tions technology (ICT) sector. While it had a sales presence from the 1950s,
ITco’s Irish operations remained quite small up to the mid-1990s. It then estab-
lished an international technical support and customer service centre and,
soon after, a ‘technology facility’. Total employment in Ireland is currently in
the region of 3700 spread across a number of sites.
90 Multinationals, Institutions and the Construction of Transnational Practices

Box 4.1 The case study firms – continued

Logistico was founded in the early twentieth century and is one of the world’s
leading distribution and transport corporations. It currently operates in 200
countries, employing over 370,000 workers and boasting global revenues of
some US$30bn. Logistico has three primary operations in Ireland: distribution, a
large call centre, and a financial services centre. Its first Irish operation was estab-
lished in the early 1990s, with the other centres opening in the mid- and late-
1990s respectively. Total Irish employment amounts to some 1000 people.
Compuco was established in the early 1980s, boasts global revenues in excess
of US$40bn and employs approximately 53,000 people worldwide. It manufac-
tures and sells computer hardware. It established its first European manufactur-
ing operation in Ireland in the early 1990s and currently has four Irish sites,
employing some 3300 people.

with a cross section of middle and front line managers and team leaders,
lower-ranking employees, employee representatives (shop stewards) and
full-time trade union officials. In total, 63 interviews were conducted.
Each interview was conducted by a minimum of two interviewers.
Interviewees were briefed in advance regarding the research agenda.
With regards to IR, our objective was to evaluate the evolution of policies
in American MNCs in Ireland over time, within the dynamic of a chang-
ing national context for FDI. Although the study is limited to subsidiary-
level perspectives, we are confident that the broad range of people we
spoke with has provided us with a rounded and balanced perspective on
subsidiary-level IR. Moreover, for one of the companies, ITco, our
findings were triangulated by data from interviews at corporate HQ level
conducted by colleagues in the international research project of which
the Irish study was a part; for a second company, Logistico, a broader per-
spective was provided by interview data from the European regional
level. Our main findings are outlined below.

Contrasting strategies on trade union recognition and

A well established characteristic of the IR approach of US firms is
antipathy towards trade unions, a clear preference for union avoidance
and so called ‘individualized’ management–employee relations (cf.
Foulkes, 1980; Kochan et al., 1986). However, our findings on trade
union recognition reflect contrasting approaches among our case firms.
Table 4.2 summarizes the key characteristics of IR in the case firms and
how they developed over time.
Patrick Gunnigle, David G. Collings and Michael J. Morley 91

Table 4.2 Industrial relations in case study companies over time

Pseudonym/ IR approach IR approach on Current IR approach

Period of in US establishment in Ireland
establishment in in Ireland
Compuco 1990s Strongly anti-union Non-union – Tradition of union
union suppression suppression
primarily increasingly
tempered by union
(improved pay and
benefits, employee
development and
Healthco 1940s Strong non-union Union recognition Union avoidance in
(manufacturing preference, welfare and collective all new sites. Union
in 1970s) capitalist traditions bargaining substitution
ITco 1950s Welfare capitalist Non-union – Strong resistance
(manufacturing non-union union substitution to unions via
and call centres primarily union substitution
in 1990s) including policy
of not recognizing
and providing
competitive pay
and working
Logistico 1990s Strong trade union Non-union but Union avoidance
organization subsequently where possible but
conceded ‘limited pragmatic
recognition’ in accommodation of
two sites ‘limited’ trade
representation (on
‘individual issues’).
Pharmaco 1960s Strong non-union Union recognition Union avoidance in
preference, welfare and collective newest site. Recent
capitalist traditions bargaining moves to restrict
union influence,
and row back on
tradition of
conceding ‘above
the norm’ pay deals
92 Multinationals, Institutions and the Construction of Transnational Practices

Ab Initio union avoidance in ITco, Compuco and Logistico

Firstly, we found that our ICT firms, ITco and Compuco, were staunchly
non-union, a finding consistent with the Irish and international
literature (cf. Jacoby, 1997; Gunnigle et al., 2002). All their Irish sites
were established on a non-union basis and remain so to the present
day. However, the policies and practices used to establish and sustain
this approach differed. While ITco pursued a broadly welfare capitalist
strategy, characterized by engaging the commitment of employees
through high levels of material benefits, the provision of long-term
employment opportunities for core groups of employees, and the
development of a strong corporate culture (cf. Jacoby, 1997), Compuco
initially employed a union suppression approach (cf. Dundon, 2002).
While over time Compuco’s approach was tempered by the deployment
of certain HR initiatives, such as improvements in pay and working
conditions, a greater emphasis on two-way communications and
enhanced investment in employee development, the basic tenets of
union suppression remain. Compuco’s direct relationship with its cus-
tomers was central to its highly individualist management philosophy.
Compuco did not recognize trade unions in any of its worldwide opera-
tions including Ireland. Union avoidance was taken very seriously by
management: the company rhetoric linked non-union status and its
direct relationship with both customers and employees as essential for
the continued growth of the company:

The major American influence would have definitely been non-

union. It would have been made known [to local management at set
up] that this was a non-union organization. We do not want to get
involved in the union situation full stop….it would have been put
fairly clearly that if that does happen that could be the downfall of
the company [in Ireland].
(HR Manager, Compuco)

A senior line manager further suggested that any employees identified

with union organizing would not survive within the company:

I think that whoever tried to introduce a union into [Compuco]

would find themselves out the door so fast…it would not be tolerated.

Given that ITco was widely seen as a modern exemplar of welfare

capitalism, it is hardly surprising that all its Irish operations were
non-union. All the interviewees emphasized ITco Ireland’s explicit
Patrick Gunnigle, David G. Collings and Michael J. Morley 93

preference to remain non-union and consistently reiterated the poli-

cies it employed to achieve this end, most notably various steps to
elicit high levels of employee commitment. In this regard, the areas
mentioned included: the pay and benefits package, which was pitched
at levels to ensure ITco attracted high quality personnel; its training
and development system; attractive work environment, social and
sports infrastructure and welfare provision; and finally, its claimed
‘proactive’ approach to handling employee relations issues (griev-
ances, etc.). All interviewees were explicitly asked how both individual
and collective grievances were handled. There was a remarkable level
of consistency in the responses received. Every person we spoke with
was aware that ITco had a corporate policy of trade union avoidance.
Furthermore, all consistently observed that ITco did not acknowledge
‘collective groups’. It was also stated that where a grievance or issue of
collective dispute arose, the ITco approach was to deal with this on an
individual basis. Even where the dispute clearly affected a group, the
approach was to deal with each employee in the group individually
and to attempt to resolve the issue on this basis. Our findings suggest
a remarkably standardized approach across ITco’s Irish operations,
characterized by an overriding desire to remain non-union and avoid
collective bargaining:

If anything [a collective issue or dispute] was raised with us, we

would obviously register that issue but we would deal with that on a
one-on-one basis. We wouldn’t have everybody into a room. Each
issue is treated on an individual basis.
(HR Officer, ITco)

Although ITco Ireland did have certain unionized groups on site

from time to time (e.g. ‘contracted in’ teams), it was repeatedly stated
that the company pursued a ‘system of management’ which was based
on a relationship between the manager and the individual employee as
an alternative to union recognition and collective bargaining. The
reasons given by management for this approach largely relate to the
nature of the ICT sector, particularly the need for high levels of flexibility
in responding to changes in their competitive environment. It was
stated that this approach was ‘quicker’ and more flexible than collective
Like ITco and Compuco, Logistico initially established all its new
Irish operations on a non-union basis. Unlike the former companies,
however, the pursuit of a union avoidance strategy in Ireland
94 Multinationals, Institutions and the Construction of Transnational Practices

deviated from established practice in its US operations which had

traditionally been, and remained, highly unionized. Likewise, the
company had a tradition of union recognition in other European
operations, most notably in Germany. In evaluating the decision to
locate two large back-office service operations in Ireland, senior man-
agement interviewees indicated that the option to go non-union was
an important factor.
The desire to keep unions out of the Irish operation seems to have
originated primarily at corporate HQ, although regional HQ also had
considerable input. In particular, the company’s experience in dealing
with trade unions and works councils in Germany appears to have
been influential in the decision regarding the Irish operation. The call
centre leader noted that one of the primary reasons for establishing the
facility in Ireland was to avoid the difficulties created by unions in
managing the German operation. Likewise, the HR manager reiterated
the desire of senior regional and corporate management to keep the
unions at bay:

It would be strongly held at corporate and region level that they do

not want these two sites to become unionized…. I mean any hint of
union activity and I get phone calls from… the Europe region staff
management about what’s going on.
(HR Manager, Logistico)

Ab initio union engagement in Pharmaco and Healthco

Following a different tack, both Pharmaco and Healthco recognized
unions representing manual and craft categories, and engaged in col-
lective bargaining in all their early plants. Pay and other major IR
issues in these facilities were thus handled via collective bargaining.
Both companies concluded so-called ‘pre-production’ union recogni-
tion agreements at start-up stage. These agreements allowed new
firms to prescribe which unions they wished to deal with. They oper-
ated on the basis of post-entry closed shop arrangements whereby
workers were required to become and remain members of the union
representing their particular occupational category while in the firm’s
employment (cf. Kelly and Brannick, 1985; Enderwick, 1985; Fennell
and Lynch, 1993). The decision to recognize trade unions and engage
in collective bargaining clearly sought to align IR practice with prac-
tice among other inward-investing MNCs of the period. However, the
decision represented a departure from practice in the home country
where both firms were considered ‘solidly non-union’ (cf. Gunnigle
et al., 2005).
Patrick Gunnigle, David G. Collings and Michael J. Morley 95

The decision of both companies to opt for union recognition was based
on the advice of key Irish institutions dealing with inward-investing
MNCs. In particular, Ireland’s major industrial promotions agency of
the time, the Industrial Development Agency (IDA, now known as IDA
Ireland) strongly supported this approach. The main employer associa-
tion, the Federated Union of Employers (FUE), reflecting the conven-
tional wisdom among local HR practitioners of the period, also keenly
favoured it. Another important factor influencing the decision was the
widely publicized but failed attempt of the American firm EI Ltd, to
operate on a non-union basis (cf. McGovern, 1989):

When [Pharmaco] … first came to Ireland in the late 1960s they

would have done an assessment about whether to go union or non-
union, but the climate at the time in Ireland was very much union.
(Head of HR, Pharmaco)

Changing contexts and emerging possibilities

Of the five firms studied, Compuco and ITco have been the most consis-
tent regarding their stance on union recognition, remaining staunchly
non-union. Management respondents in both firms noted the emphasis
placed by HQ on retaining non-union status in Ireland. In contrast,
Logistico was unable to sustain its non-union status, despite having estab-
lished all its Irish operations on a non-union basis and senior manage-
ment’s assertions that this had been one of the attractions of locating in
Ireland. Confronted by a determined union organizing drive, the
company eventually conceded what it claimed was a ‘limited form’ of
union recognition. In essence, the company accepted the union’s right to
represent members on ‘individual issues’, but not in regard to collective
issues. It would appear that Logistico’s approach to trade unions was
essentially pragmatic. Faced with the fact that a substantial number of its
employees in two of its operations had joined a union, it soon acquiesced
and engaged with the union on a ‘limited’ basis:

We are doing OK. They provide check-off at source [of union dues]
and they give us a room for union business. We are also beginning
to get workers into membership in the call centre. They are begin-
ning to like us. They have let us address workers. We seem a better
option to them… the other choice was X [widely perceived as a
more militant union]. They [the company] are smart and you can
do business with them.
(Union official, Logistico)
96 Multinationals, Institutions and the Construction of Transnational Practices

However, both our ab initio heavily unionized firms, Pharmaco and

Healthco, had gone in the opposite direction, opting for non-union
status in their newer sites. This was most evident in Healthco: all its
new plants opened from the early 1990s were non-union. Pharmaco
also established its newest plant on a non-union basis. The parallel
use of union recognition and avoidance in sister plants, generally
termed ‘double-breasting’, represents quite a departure in the con-
text of Irish IR (cf. Beaumont and Harris, 1992). In addition to pro-
viding evidence of a progressive trend of increased union avoidance
among new MNCs in Ireland (cf. Gunnigle, 1995), the widespread
deployment of ‘double-breasting’ among long-established MNCs pre-
sents great challenges to unions, particularly given the recent indus-
trial policy focus on encouraging existing MNCs to deepen their
roots in Ireland.
We explored the reasons why both these long-established US firms
had chosen to opt for non-union status in their new sites. Manage-
ment explanations firstly emphasized the contention that becoming
non-union increased operational flexibility: managers claimed that it
made it easier to progress change in areas such as work practices,
scheduling tasks, etc. Secondly, management respondents stated that
there was little demand for unionization, arguing that the new sites
employed young, well-educated workers who were not predisposed to
seek union membership. Finally, they emphasized their belief that
they would not encounter any great opposition should they choose to
move to a non-union approach. Our discussions with the manage-
ment team further indicated that while local management helped lead
the decision, it was one they knew would be well received at corporate
headquarters. It would thus appear that, unlike the situation three
decades earlier, the viewpoints of local and corporate management
were now in unison:

I think it [union avoidance] is coming from the States but it is also a

new breed of management that’s online [in Ireland]….the problem
today is that there are so many companies [Pharmaco sites] ….and
they are all jockeying for position. [Management’s] attitude is we
will drive as much as we can and we won’t talk to unions …
(Union official, Pharmaco)

More generally, the change in the stance of Ireland’s industrial pro-

motions agencies has undoubtedly contributed to increased union
avoidance. Since the 1980s these agencies have adopted a position that
Patrick Gunnigle, David G. Collings and Michael J. Morley 97

is less favourable to union recognition, indicating to inward-investing

firms that they have the freedom to opt for non-union status should
they so wish:

The IDA never tell us about new companies anymore…. I think the
IDA change is related to broader government change… instigated by
the PDs [Progressive Democrats2]. IBEC [Irish Business and Employers
Confederation] will not talk to us unless there is a problem they
want us to solve.
(Union official, Pharmaco)

In Ireland, the issue of public policy with regards to union recognition
and avoidance is an area of intense current debate. This is largely a
result of the progressive fall in union density. The most recent employ-
ment density figure in Ireland, of 35 per cent in 2004 (Quarterly
National Household Survey), represents a fall of 27 percentage points
since 1980 when employment density in Ireland reached its high water
mark of 62 per cent. It is all the more noteworthy given that this
decline has occurred during a period when IR in Ireland has been dom-
inated by national-level ‘partnership agreements’ negotiated princi-
pally by government, employers and trade unions. While a number of
factors, many of which apply internationally, have been used to
explain this decline, we find broad consensus that FDI has played a key
role. For example, a survey of ‘greenfield’ firms in the manufacturing
and internationally traded services sectors found a high incidence of
union avoidance – 65 per cent of firms were non-union – especially
amongst US MNCs in the ICT sector (cf. Gunnigle et al., 2002).
Looking at our case evidence, we see a pattern of union avoidance in
four of the five case firms. Compuco and ITco began and remained non-
union, while both the traditionally heavily unionized firms, Healthco
and Pharmaco, opted for a non-union strategy in their new sites. This
leaves Logistico as the only company where union penetration
increased over its time in Ireland; even in this case, union recognition
was limited and did not extend to full collective bargaining. In
attempting to explain these findings we can point to a number of
factors. In particular, the changing political context and has progres-
sively shifted from being comparatively prescriptive with regards to the
IR approaches expected from inward-investing MNCs to one which
allows such firms immense scope to pursue their preferred IR approach.
98 Multinationals, Institutions and the Construction of Transnational Practices

Thus the issue of ‘periodization’ emerges as a key factor. We now con-

sider how differing ‘waves’ of US FDI have pursued differing IR arrange-
ments legitimated by the priorities of the system and the state.

Conformity with codification: 1960s and 1970s

Numerous commentators have noted Ireland’s long track record in
competing aggressively for FDI. Having pursued a protectionist
approach to industrial development for much of the period since
independence, Ireland reversed this policy stance in the late 1950s.
With the objective of accelerating industrialization and economic
growth, the government of the day initiated an open economy
model designed to attract FDI through an incentive package includ-
ing grants and subsidies, and a preferential corporate tax regime.
This approach met with considerable success and the 1960s saw a
surge in FDI, primarily in high volume, low cost manufacturing.
Studies of IR in this period indicate a picture of conformity with
what were then seen as pluralist IR traditions. For example, studies
by Kelly and Brannick (1985) and Enderwick (1985) found no evi-
dence that MNC subsidiaries in Ireland were distinguished by their
reluctance to recognize unions. This work formed the basis for the
‘convergence thesis’ which posited that the IR policies and approach
of MNC subsidiaries in Ireland conformed with host country prac-
tice, then characterized by union recognition (among larger firms)
and collective bargaining. Our evidence is very much in line with
this position. Both Pharmaco and Healthco, the only case study firms
to have established significant manufacturing facilities in Ireland
during the 1960s and 1970s, recognized unions representing manual
and craft categories. 3 Subsequently, pay and other major IR issues
were handled through plant-level collective bargaining with each of
these unions. As noted earlier, the practice of entering into ‘pre-
production’ recognition agreements at start-up was a standard char-
acteristic among inward-investing MNCs during the 1960s and
1970s. While this approach ensured that MNCs conformed to host
country traditions in regard to union recognition, it also differed in
certain respects from IR practice in the indigenous sector. The major
difference was in the extent of codification. Pre-production agree-
ments in the MNC sector generally prescribed which unions were to
be recognized, each union’s rights and responsibilities, and the
issues subject to collective bargaining and management prerogative
respectively. In contrast, IR in the indigenous sector was largely
characterized by custom and practice, with little or limited
Patrick Gunnigle, David G. Collings and Michael J. Morley 99

codification. On the one hand, we can trace the preference for

codification to home country traditions. In particular, US firms
would have been more familiar with detailed written legally enforce-
able agreements – a stark contrast to the Irish tradition of minimal
documentation and voluntary agreements. However, Irish public
bodies in the field, and certainly the local IR practitioner commu-
nity, would also have been conscious of the difficulties of multi-
unionism. Pre-production agreements were seen as a means of
avoiding this by allowing MNCs to specify which trade union(s) they
would recognize for bargaining purposes. Thus, while this approach
is widely acknowledged as representing convergence with host
country practice, it also entailed particular and important innova-
tions, some of which became commonplace over time.
A final factor influencing the decision of inward-investing MNCs to
recognise trade unions during this period was the attempt by a large US
subsidiary, EI Ltd, a subsidiary of General Electric, to operate on a non-
union basis in the 1960s (cf. McGovern, 1989; Brady et al., 2002). The
company’s failure to do so was largely attributable to a prolonged strike
but also to a broad political consensus supporting the principle of
union recognition for the workers involved. In government debates on
this issue, the then minister for transport and power stated that ‘the
Industrial Development Authority in America and in Dublin and the
Shannon Free Airport Development Company at Shannon recommend
new firms to engage in trade union relations’ (Dáil Éireann, 1968),
while the Commission of Inquiry Report (1969) on this dispute
concluded that ‘incoming companies should recognize the industrial
relations of this country and the inevitability of union recognition’
(McGovern, 1989: 63).

The ‘US greenfield’ factor: union avoidance in the 1980s

As mentioned earlier, much of the FDI during the 1960s and 1970s
focused on high volume production operations. However, the turn of
the 1980s saw an increase in investment by companies from the ICT
sector. Many of these were of US origin and had a non-union back-
ground. As Wallace (2003) notes, union avoidance in Ireland followed
much the same pattern as identified in America by Kochan and his
colleagues (1986) some years earlier. Here, the vanguard comprised a
small number of American ICT companies, notably Digital, Wang and
Amdahl which set up new greenfield facilities. These firms generally oper-
ated on a union substitution premise, based on good pay and benefits.
This, combined with the prevailing high levels of unemployment, made
100 Multinationals, Institutions and the Construction of Transnational Practices

union recruitment drives in such firms problematic. The demonstration

effect of these early non-union firms, together with the decision of key
MNCs, particularly Intel and later Motorola and Hewlett Packard, to go
non-union did much to legitimize this approach and encourage its
uptake among other new MNCs. Over the decade, union avoidance grew
increasingly common, eventually becoming the typical pattern for new
FDI. Thus the decision of ITco, Logistico and Compuco to go non-union at
their new Irish facilities was very much in conformity with prevailing
norms. The fact that Compuco largely followed a union suppression as
opposed to a union substitution strategy initially highlights the
confidence that had developed among US MNCs in their capacity to
sustain non-union status (cf. Gunnigle, 1995).

Double-breasting in the 1990s: a new orthodoxy?

For some time, the conventional wisdom was that union recognition
in the Irish private sector presented a dichotomous picture in which
union penetration and collective bargaining was widespread in larger
indigenous manufacturing and within the older FDI sector, while
union avoidance and more individualized employment relations were
prevalent among newer MNC subsidiaries. Our findings suggest other-
wise. The fact that both Healthco and Pharmaco chose to operate their
newer facilities on a non-union basis indicates that union avoidance
has taken root and is expanding even among MNCs which have long
dealt with unions and engaged in collective bargaining.
Even the Logistico case, where the company conceded a limited level
of trade union penetration in some locations, is also an example of
‘double-breasting’. The senior union official indicated it was ‘unlikely’
that the union would gain a foothold in one of Logistico’s main Irish
sites, indicating that double-breasting, rather than complete firm-level
recognition, would be the most likely scenario in Logistico in the future.
It would appear that the pattern of union avoidance which began in a
small number of US subsidiaries in the 1980s has now become widely
embedded in the MNC sector, to the extent that it greatly threatens union
presence in this very significant area of the Irish private sector. Analysis of
data on union recognition in new and expanding firms published in
Ireland’s premier IR periodical, Industrial Relations News, underpins
this conclusion. Table 4.3 presents comparative data over two periods,
1994–1995 and 2001–2003. This confirms that union avoidance had
become the prevailing norm among new FDI by the mid-1990s and remains
so. However, by far the most important change has been in relation to
expanding firms: while just under half these opted for non-union status in
the mid-1990s, over eight in ten had chosen this approach by 2001–2003.
Patrick Gunnigle, David G. Collings and Michael J. Morley 101

Table 4.3 Foreign direct investment and trade union recognition, 1994–1995
and 2001–2003

Trade union recognition

New firms Expanding firms
Yes No Yes No
1994–1995 (n = 50) 2 (6%) 30 (94%) 10 (56%) 8 (44%)
2001–2003 (n = 39) 1 (6%) 16 (94%) 4 (18%) 18 (82%)

Source: Industrial Relations News (1996, 2004, 2005).

In assessing the import of this pattern, it is useful to consider recent

developments in Irish public policy on FDI. We saw earlier how Ireland
embarked on a policy of ‘industrialization by invitation’ from the
1960s and how many of the MNCs attracted in this period focused on
high-volume assembly, attracted by Ireland’s low labour costs and
government incentives. While Ireland benefited disproportionately
from the FDI surge in the 1990s, we have concurrently witnessed a
progressive trend of MNC closures and scaling back of operations,
largely due to increased labour and other operational costs in Ireland.
This prospect was not unanticipated. For some years Ireland’s industrial
promotion agencies had forecast that Ireland’s ability to attract FDI
would recede and they instigated important changes in the country’s
overall strategy towards MNCs. The most important decision was to
‘re-balance’: essentially, they sought to reduce their focus on attracting
new greenfield investment and increase the emphasis on retaining
existing MNCs and facilitating their growth, ideally into higher-order
activities. Recent expansions by companies such as Intel and Wyeth,
companies with longstanding Irish operations, suggest that this policy
change has met with some success. However, our data also indicate
that such new facilities will most probably operate on a non-union
basis, further hastening the fall in union penetration on the Irish
private sector.

The primacy of US FDI and the consequences for IR

This chronological review highlights the evolution in key IR aspects of
the Irish business system. It notes some significant changes that have
occurred primarily, we would argue, as a result of the need to attract
and retain foreign capital. This is particularly evident in the changing
strategies of Ireland’s industrial promotion agencies. We saw earlier
that during the 1960s and 1970s, these agencies encouraged collective
bargaining among new FDI, largely by arranging introductions to
union representatives and advising firms to conclude pre-production
102 Multinationals, Institutions and the Construction of Transnational Practices

recognition agreements. However, in the early 1980s, these agencies

adopted a more equivocal stance, refraining from taking an overt posi-
tion on union recognition and thus allowing incoming MNCs the
freedom to make their own choices in this regard. Undoubtedly, the
fact that Irish industrial policy had begun to focus on attracting US
MNCs in the ICT sector, almost all of which were non-union, helps
explain this shift. If Ireland was to compete effectively for this type of
FDI, it had to present an accommodating host environment. The
quote below from a senior Irish industrial promotion executive who
was instrumental in securing two of the largest ICT investments in
Ireland by US MNCs reflects the position.4 Talking about the success
in attracting the larger of these two firms, he stated:

….union recognition would be a major deterrent … If US companies

saw a union environment, many would not come. Company X was a
crucial development in this respect. There was concern about
Ireland as a location for such a large high-tech facility. Would they
be a major target for a large number of workers to join trade unions?
It was difficult for us to deal with this concern. A focus group
approach was put in place whereby company representatives could
talk to young school leavers. The Company X people really pushed
these young people on how they would process grievances, what if
your supervisor won’t listen, what if the HR people won’t listen.
They were looking for the union issue to emerge but it just
wouldn’t. Finally, they said ‘would you go to a union?’…and the
answer was ‘no, they would most likely leave the company’. The
Company X staff were blown away by these young people, their
confidence and attitudes. This was the last barrier we had to overcome
and the focus groups did it.

The fall in union penetration at enterprise level has not gone unchal-
lenged by the labour movement. Amid increasing union concern, a
‘High-Level Group’ was established in 1997 under the prevailing
national accord (Partnership 2000) to examine the issue of trade union
recognition. Comprising representatives of government, the Irish
Congress of Trade Unions (ICTU), IBEC, and IDA Ireland, it recom-
mended the use of voluntary rather than mandatory procedures to deal
with recognition disputes. However, its publication in 1998 coincided
with a major dispute at Ryanair, which refused to recognize a union
representing some of its workers in Dublin Airport. The union side
rejected the report, opting to pursue their goal of mandatory recogni-
Patrick Gunnigle, David G. Collings and Michael J. Morley 103

tion. A final report was subsequently published in 1999 which formed

the basis for the Code of Practice on Voluntary Dispute Resolution and
the Industrial Relations (Amendment) Act 2001. These again provide a
voluntary process for dealing with union recognition disputes. While
cases may ultimately reach the Irish Labour Court, there is no facility
for the Court to finally arbitrate on the issue of union recognition.
On the contrary, the Code of Practice and the Act explicitly exclude
decisions on ‘arrangements for collective bargaining’. As noted by a
number of commentators, the legislation essentially ‘sidestepped’ the
issue of recognition (cf. Twomey, 2001). Again we would argue that the
FDI influence helps explain developments. The Irish government and
public bodies are acutely aware that imposition of mandatory union
recognition mechanisms would act as a disincentive to FDI, both new
and existing. IDA Ireland would most likely have articulated this view
at the High-Level Group, and would have emphasized that it would
put the IDA at a significant disadvantage in selling Ireland as a site for
FDI. From the employers’ perspective, it is likely that IBEC pursued a
similar line, ensuring that the trade union representatives were isolated
as the only likely advocates of mandatory recognition.
This is but one example of the impact of the MNC constituency on
the crafting of policy and legislation. Another is the growing role of
the American Chamber of Commerce (ACC) in articulating the views
of US MNCs in Ireland. The ACC claims to represent some 500 US sub-
sidiaries in the country, including major names such as Intel, Hewlett
Packard and IBM. A particular illustration of its position relates to the
Organization of Working Time legislation (relating to the application of
the EU Working Hours Directive). The ACC submission to government
argued that the proposed legislation would limit company flexibility
and damage Ireland’s efforts to win US investment:

It is no exaggeration to say that the lack of flexibility in this Bill

could represent the single most negative change in Ireland’s flexibility
to win US direct foreign investment that has happened in the past
20 years…
(Irish Times, 22 February 1997)

The submission further criticized what the ACC saw as an inherent

bias in the proposed legislation towards firms that recognized trade
unions: that only bodies recognized under the Irish Trade Union Acts
would be able to negotiate a collective agreement on working hours.
Since many of the MNCs represented by the ACC are non-union, this
104 Multinationals, Institutions and the Construction of Transnational Practices

criterion was unlikely to be met. The ACC’s lobbying met with some
success, prompting the head of IDA Ireland to support the Chamber’s
position in stating that the proposed legislation would make it more
difficult for the IDA to attract international – particularly US – firms to
Donaghy’s (2004) recent work on social partnership further notes the
influence of US MNCs on Irish public policy. Donaghy found that the
MNC sector significantly influenced the social partners’ approach to
institutional change, leading them, for example, to reject any type of
works council arrangements along German lines. Based on interviews
with representatives of IBEC, ICTU, the Services Industrial Professional
and Technical Union and the National Economic Social Council
(NESC), Donaghy (p. 110) found that:

…any sort of legislated mandatory system of European style works

council was dismissed at an early stage due to the potential negative
implications that this could have on attracting inward investment,
especially by US multinationals. These pressures both pushed the
actors away from embracing any sort of compulsory mechanism
towards operating a voluntary system.

He (p. 206) went on conclude to that:

As economic openness has established an incentive system for

foreign direct investment in Ireland, the principal social partners are
reluctant to take any action which could make Ireland a less attrac-
tive site for FDI.

In evaluating the interaction between the agendas of MNCs and of the
Irish host country authorities, our evidence points to an evolutionary
dynamic in this interaction with attendant implications for enterprise-
level IR. Specifically we point to the incidence of ‘double-breasting’
in three of our five case firms, and the success of the remaining two
companies in effectively sustaining non-union status. In essence, the
data demonstrate the fluidity of the Irish business system over time,
particularly in the IR sphere. We argue that this is primarily due to the
country’s openness to, and its remarkable success in attracting, FDI. In
great measure Ireland’s economic fortunes are critically dependent on
the MNC sector and its export performance. To ensure Ireland remains
Patrick Gunnigle, David G. Collings and Michael J. Morley 105

an attractive location for FDI, it has effectively restructured key aspects

of the business system to accommodate the preferred IR (and HR)
approaches of US MNCs. This is most evident in the change in the
position of Ireland’s industrial promotion agencies on the issue of
union recognition and collective bargaining. By shifting from a pro-
union to a union-neutral stance, they have in effect given their impri-
matur to new FDI to follow the non-union route.
Our evidence demonstrates how US MNCs encounter relatively few
impediments in implementing policies that are congruent with home
country traditions. This is the case because many of the Irish institu-
tions important in workplace IR arrangements (centralized bargaining,
promotion of partnership arrangements, encouragement of trade
union–employer engagement) are comparatively toothless, and thus
have little impact on the MNC sector. In this regard the Irish case
seems to resonate with the UK experience where, as Ferner (2003: 99)
notes, ‘the deregulation of swathes of economic life, including labour
markets and industrial relations, has increased the “permeability” of
the British system; that is, it has removed some of the institutional
impediments to the absorption of outside influences’. In their efforts to
promote and sustain economic development, Irish governments and
their agencies have sought to create an open, pro-business, FDI-friendly
economy. One manifestation of these efforts is the package of incen-
tives, including a generous subsidy programme based partly on the
promise of jobs but also including grants and subsidies, together with
an extremely attractive, low tax rate on profits. Another is the compar-
atively open and lightly regulated IR environment. The Irish business
system thus competes for FDI on a number of dimensions, one of which
is the absence of constraining IR institutions which might impose alien
HR/IR host country practices on inward-investing MNCs, as might be
perceived to be the case in countries such as Germany. More generally,
our findings support the emerging literature which suggests that levels
of FDI appear to be higher in countries where levels of constraint with
regard to labour issues are lowest (cf. Cooke, 2003; Kleiner and Ham,
2003). A few years ago the Tánaiste (Deputy Prime Minister) indicated
that it was in Ireland’s best interests to be ‘a lot closer to Boston than
Berlin’. Our research suggests that, in IR terms, this certainly is the case.

1 This article draws on the Irish node of an international study of human
resource management in US MNCs, co-ordinated by Professor Anthony
Ferner, De Montfort University, UK. This study involves a large number of
researchers from De Montfort University and King’s College, London, UK,
106 Multinationals, Institutions and the Construction of Transnational Practices

the Universities of Trier and Erfurt, Germany, IESE Business School, Spain
and the University of Limerick, Ireland. The Irish study is supported by the
University of Limerick Research Office, the Irish Research Council for the
Humanities and Social Sciences and the Labour Relations Commission.
2 The Progressive Democrats are a small centre right party, founded in
the 1980s. They are currently (2005) the junior partner in the coalition
3 Both companies had earlier established non-union sales operations. This was
to be expected given their very small scale.
4 This interview formed part of research undertaken in the US by Patrick
Gunnigle while working as a Fulbright Scholar in the Department of
Management, San Diego State University; see, for example, Gunnigle and
McGuire (2001).

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Emerging Motivations for Global HRM
Sully Taylor

For many years, the field of international human resource management
(IHRM) has struggled with the question of whether or not it is better for a
multinational firm (MNC) to integrate its IHRM practices across the
various geographies in which it operates. The debate revolves around two
issues: whether it is desirable, and whether it is possible. The obstacles to
integration are obvious, and include such barriers as the vast array of
labour law regimes, the enormous divergence in labour market character-
istics and highly divergent cultures, all of which impede global integra-
tion of HRM. Yet MNCs, and the IHR function within them, are likely to
become ever more intent on overcoming the many barriers that exist to
integrating their HRM practices on a global basis. In short, global integra-
tion of HR is becoming more desirable. There are two emerging trends in
particular that are creating strategic imperatives for greater HRM global
integration. These two trends are the increasing need to focus on the cre-
ation of social capital within the MNC’s global internal network, and the
growing need to focus on sustainability as part of the company’s global
strategic imperative. Interestingly, and fortuitously for MNCs and their
management, achieving these two goals is a mutually reinforcing process.
This chapter first reviews the major forces for HRM integration
identified in previous work before turning to a description of these two
new trends in MNCs. It then examines how each is likely to increase
the desire for global integration of HRM, and which set of employees
and which HRM practices are most likely to be affected. The chapter
ends with a look at the barriers to implementation most likely to dis-
courage IHRM integration, as well as a discussion of how the pressures
these trends create for HRM integration are complementary.

110 Multinationals, Institutions and the Construction of Transnational Practices

IHRM integration debates

What motivates MNCs to integrate HRM across their global networks?
Various factors have been hypothesized and studied. One key force is
the need for global integration and coordination of action (Edström
and Galbraith, 1977). If one views the MNC as a network of operations
in various geographies that needs to respond with one voice to clients,
vendors or competitors, then an integrated HRM system can help
ensure that the employees in the relevant units have consulted with
each other and adopted a common stance. Another factor is to ensure
internal equity, so that employees in foreign units do not feel, for
example, that they are receiving different treatment than their peers in
other countries, adjusted for differences in cost of living (Rosenzweig
and Nohria, 1994). This could mean utilizing similar compensation
approaches worldwide, such as a pay for performance policy. A further
motivation is the exploitation of the MNC’s distinctive competence,
such as the desire of Japanese firms to leverage their skill in producing
quality products through effective HR policies such as cross-training
and job rotation (Beechler and Yang, 1994). These HR policies enable
companies to empower assembly line workers to spot and address a
wide range of quality problems in production immediately. There is
also a cost advantage to be gained through avoiding duplication of
design and implementation of HR policies (Gomez-Mejia and Palich,
1997; Schmitt and Sadowski, 2003). Finally, some authors (Kobrin,
1994; Kamoche, 1997) have pointed to the contribution that HR
integration can make to facilitating organizational learning. By having
standardized practices, whether in marketing or HR, it is easier to transfer
knowledge, particularly tacit knowledge (Quintanilla and Bonache,
2002). Similar HR policies increase the commonality of skills, thus
nurturing the absorptive capacity (Cohen and Levinthal, 1990) of
employees to integrate new knowledge.
A great deal of empirical research has been carried out on the inte-
gration of HRM in global companies. Much of the early work focused
on Japanese MNCs, as they were perceived to practise distinct HR
policies that gave them a competitive edge (Ishida, 1986; Yang, 1992;
Beechler and Taylor, 1994) and hence would want to transfer them.
Later studies focused on US firms (e.g. Bae, Chen and Lawler, 1998;
Béret et al., 2003), and more recently there has been interest in European
firms (e.g. Coller and Marginson, 1998). While general conclusions
over such a wide body of research are difficult, in general there has
been some support for the ability of MNCs to transfer human resource
Sully Taylor 111

or industrial relations (HR/IR) policies to foreign affiliates, although it

is rarely a wholesale transfer (Béret et al., 2003; Coller and Marginson,
1998; Ferner et al., 2005; Muller, 1999; Muller-Camen et al., 2004;
Schmitt and Sadowski, 2003; Doeringer et al., 2003). (The various con-
ditions that affect transfer will be discussed later in this chapter.) Yet,
with the exception of Ferner et al. (2005) and Schmitt and Sadowski
(2003), few studies clearly specify the motivation for the transfer of HR
policies in the MNCs they study. Schmitt and Sadowski (2003) examined
the costs of decentralizing HRM/IR versus the costs of centralizing.
Their study focused on the decentralization costs of foregone economies
of scale and of differentiation (due to less internal consistency), and
the centralization costs of slower decision-making, violating external
regulations and norms and frustration of preferences (e.g. cultural
norms). They found that decentralization of HRM is less likely than
that of IR due to the higher costs associated with violating local norms
in IR matters. While one of the most exhaustive empirical examinations
of the motivations for HRM/IR integration, the Schmitt and Sadowski
study does not parse out the individual motivations in their analysis
(e.g. costs of not complying with local regulations versus desire for local
consistency). Thus while it can be safely said based on present empirical
evidence that transfer of HR policies does occur, albeit often moderated
and piecemeal, and occurs more often than the transfer of IR policies,
it is difficult to conclude which motivation of those theorized is the
most important for MNC behaviour, and under which conditions.
This chapter builds on Schmitt and Sadowski (2003) and others to
argue that the reasons for MNCs to integrate HRM globally will probably
increase in the years to come, and hence future studies may need to
look at these emerging motivations for integration of HRM. The first
reason for the growing pressure towards HRM integration that will be
examined builds on the previously observed pressures to coordinate
and control in a way that leverages learning across borders. The concept
of social capital has recently been explored as a major contributor to
the achievement of these goals. In order to explore how social capital is
becoming more important to leveraging learning and increasing co-
ordination across borders, it is important to examine more closely the
overall strategic imperatives that MNCs face in the global arena.
MNCs are subject to increasing pressure to do three things simulta-
neously in order to be successful: integrate across borders, respond to
local demands and leverage the learning in the network (Bartlett and
Ghoshal, 1989; Galbraith, 2000; Nohria and Ghoshal, 1997). The accel-
erating speed of change means that the firm that can do these things
112 Multinationals, Institutions and the Construction of Transnational Practices

fastest in response to changes in the economic, technological and

political environments will be the most competitive. MNCs must adapt
to local conditions, such as consumer tastes, in order to compete with
the growing number of domestic and global competitors they encounter.
They must also locate resources where they are best utilized, building
an interdependency among units that is constantly shifting. At the
same time, the firm must control the utilization of its resources to
maximize returns on them. The ever-widening dispersion of resources
thus means that coordination and control will become ever more chal-
lenging and fluid. At the same time, as noted by Kogut and Zander
(1996) and others, the most valuable resource for competitiveness
today is knowledge. MNCs by virtue of operating in multiple locales
are, in comparison with purely domestic firms, privy to a greater diversity
of knowledge sources that can, if properly managed, help them create
or access greater innovation and learning. And the firm that can create
and share knowledge faster than competitors will be at an advantage.
‘The ability to learn faster than competitors may be the only sustainable
competitive advantage’ (Snell et al., 1996: 68). Recently, several inter-
national management scholars (Inkpen and Tsang, 2005; Kostova and
Roth, 2003; Tsai and Ghoshal, 1998) have claimed that social capital is
critical to effective coordination and control in MNCs and to their
ability to learn faster than competitors.
Social capital can be defined as ‘…the potential value arising from
certain psychological states, perceptions and behavioural expectations
that social actors form as a result of both their being part of social
structures and the nature of their relationships in these structures’
(Kostova and Roth, 2003: 301). Cohen and Prusak (2001: 4) elaborate
on this idea, defining it as ‘…the stock of active connections among
people: the trust, mutual understanding, and shared values and behav-
iours that bind the members of human networks and communities and
make cooperative action possible’. Leana and Van Buren (1999) call
this cooperative action ‘associability’, which they define as ‘…the will-
ingness and ability of participants in an organization to subordinate
individual goals and actions’ (p. 541).
According to Nahapiet and Ghoshal (1998), there are three types of
social capital: cognitive, relational and structural. Structural social
capital is derived from the place an actor occupies in a particular
network, and the contacts he enjoys that provide him access to infor-
mation, jobs or other benefits. In general, this view of social capital is
of a private good, the benefits of which devolve mostly to the person
directly. Relational social capital emphasizes the assets that derive from
Sully Taylor 113

interaction with others in the network, particularly the trust that

builds up over time in others. An interesting, and important aspect
of relational social capital is that in order for someone in the network
to trust another person in the network it is not necessary for those
two particular individuals to have built the trust. Rather, by holding
membership in a network with high social capital, other members
come to expect trust in any new relationship they form within the
firm. This has also been called ‘generalized trust’ (Leana and Van
Buren, 1999). Finally, cognitive social capital has been described as the
‘…resources providing shared representations, interpretations, and
systems of meaning among parties’ (Nahapiet and Ghoshal, 1998:
244). Expectations about proper ways of doing things slowly evolve
over time. Like relational social capital, cognitive social capital is more a
public than a private good. All three kinds of social capital are important
to the creation and sharing of knowledge in the MNC network
(Nahapiet and Ghoshal, 1998; Kostova and Roth, 2003). As Kostova
and Roth (2003) argue, structural social capital can be used to help
create cognitive and relational social capital at the subunit level. They
also argue that as social capital becomes a public good in the firm, the
need for private social capital – that is, structural – will diminish.
In order to build new knowledge, new combinations of existing
knowledge must occur. This means that the holders of the knowledge
must be willing to exchange it with others in the firm. Yet people will
be reluctant to exchange unless they feel it is worth their while.
‘(E)mployees may be unwilling to share knowledge with others, partic-
ularly if they feel it may be detrimental to furthering their own career’
(Currie and Kerrin, 2003: 1029). In addition, holders of knowledge
must have access to others, must anticipate some value in combining
or exchanging information, and must have the human capital or
capability (‘absorptive capacity’) to make the combining of knowledge
work (Nahapiet and Ghoshal, 1998; Cohen and Levinthal, 1990). Social
capital helps MNCs to meet these challenges. For example, relational
social capital enables organizational members to have access to other
organizational members with the desired knowledge, while cognitive
social capital helps create shared codes and language that make absorp-
tion of knowledge easier (Nahapiet and Ghoshal, 1998). Thus firms
high on social capital will, in general, be better at combining and
exchanging knowledge.
Not all MNCs experience the same degree of pressure to combine and
exchange knowledge, nor are all affiliates equally affected. Kostova and
Roth (2003) point out that different models of MNCs are characterized by
114 Multinationals, Institutions and the Construction of Transnational Practices

different kinds and degrees of interdependence or resource flows. The

interdependence varies from very low in the multinational model, with
few technologies, people or products flowing between units, to very exten-
sive, multidirectional and unstable flows in the transnational model.
Resource flows, whether they be of knowledge or product, are thus of most
concern to MNCs with high interdependence. In MNCs with high interde-
pendence, the instability, complexity, and involvement of multiple levels
and functions make it difficult to rely on formal structures to ensure the
successful flow of resources, requiring firms to search for more informal
ways of coordinating and controlling (Bartlett and Ghoshal, 1989). Social
capital provides a more informal means of coordination and knowledge
sharing. As Kostova and Roth (2003: 301) note,

Higher levels of social capital are reflected in a motivation for social

actors to maintain those relationships, a felt obligation to reciprocate
past favors of other social actors, an expectation that other social
actors will also reciprocate, and a psychic comfort in asking others
for resources and in using those resources once acquired, as well as
in the perceived likelihood of providing, receiving, and asking for
help from the other social actors.

Kostova and Roth (2003) go on to argue that while the private good
form of social capital is important for informal coordination and
control as well as knowledge sharing, the public good form of social
capital may be the most important one to develop in MNCs. This is
because MNCs are becoming increasingly complex in their interdepen-
dence, and the fluidity of exchange relationships means that employees
at many different levels and locales constantly need to combine and
exchange knowledge with a new member in the network. ‘New ex-
changes may require contributions by individuals who have not been
previously part of the network and who are geographically and cultur-
ally distant. Yet these employees have to be motivationally predisposed
to participate’ (p. 303).
In sum, given the increasing interdependence in MNCs, particularly
with regard to knowledge creation and sharing, there is greater need to
build social capital, particularly of the public good sort. Social capital
facilitates the access individuals have to others within the network,
their motivation to share with them, and their ability to share. Thus
one of the most crucial tasks of MNCs today, particularly those that are
highly interdependent or moving towards greater interdependence, is
to build social capital throughout the network.
Sully Taylor 115

What builds social capital in firms, including MNCs? Returning to the

three kinds of social capital discussed previously – structural, cognitive
and relational – it is clear that each type requires different conditions
in order to thrive, and these conditions are facilitated by the way the
firm designs its HRM policies (Inkpen and Tsang, 2005; Leana and Van
Buren, 1999). Structural social capital is facilitated by personnel transfer
between network members, as well as decentralization of authority by
headquarters and low personnel turnover organization wide. This is
because you need to encourage the development of social network ties
between people that facilitate knowledge sharing, avoid the loss of
knowledge holders who have built social ties, and facilitate knowledge
exchange by allowing individuals to determine ‘how to make the best
use of the knowledge they possess’ (Inkpen and Tsang, 2005: 156).
Decentralization of authority and commitment of employees can
be facilitated with high investments in training, which supplies a
signalling effect that increases employee commitment as well as
enhances the capability of employees to effectively manage the
exchange of knowledge across the network. Stability of employment
not only helps retain knowledge holders, it is also important in build-
ing cognitive and relational social capital. Stability of employment
encourages the building of associability, and by helping organizational
members keep the ‘greater good’ in mind, results in desirable outcomes
such as greater willingness to share information and decision-making
with other members of the MNC (Leana and Van Buren, 1999). Leana
and Van Buren argue that ‘trust-breaking’ behaviours by firms, such as
contract violations, downsizing and the regular use of temporary
employees, are likely to make the building of trust impossible. Stability
of employment also facilitates the building of shared norms and
values that oils the wheels of knowledge combination and exchange
(Nahapiet and Ghoshal, 1998).
Cognitive social capital is nurtured by shared vision and collective
goals, and accommodation for local or national cultures (Inkpen and
Tsang, 2005). High investments in training, as mentioned previously,
help create common norms, narratives and language that aid in know-
ledge transfer. Accommodation for local or national culture helps to
avoid conflicts from cultural misinterpretations. Cognitive social capital
can be encouraged when firms select new members who share their
values and socialize them into working collectively.
Finally, relational social capital (trust) is facilitated by clear and
transparent reward criteria, which helps to reduce distrust between
organizational members (Inkpen and Tsang, 2005). Promotions can
116 Multinationals, Institutions and the Construction of Transnational Practices

signal what kind of behaviour is desirable (Leana and Van Buren, 1999).
Also, as Leana and Van Buren state, ‘(T)he presence of significant pay
differentials among employees may undermine cooperative behaviour
within the organization as whole’ (1999: 547). They also point out that
compensation policies are important both because they can affect
turnover (Campbell, 1994), and can reward collective over individual
action (Leana and Van Buren, 1999; Campbell et al., 1998).
Table 5.1 presents a summary of the HR areas most likely to be
involved in the creation of social capital in MNCs. A central question,
however, is which employees will be affected by the need to create
social capital. Knowledge exchange and coordination between all
employees in an MNC is highly unlikely, even in the most knowledge-
intensive, interdependent firms. Kostova and Roth (2003) argue for a
focus on key ‘boundary-spanners’ in each affiliate, who through building
greater social capital on an individual basis with headquarters can
transfer their heightened trust and general social capital to the rest of
the members of the unit. In essence, these boundary-spanners turn a
‘private’ social capital into a ‘public’ social capital. While not disputing
the importance of these boundary spanners, theory and research suggest
that consideration should be given to the entire employee population
when deciding which groups of employees to target. This is important
because, as Kostova and Roth themselves note, the interactions
between units occurs at multiple levels and functions, and thus the
attitudes and behaviours of a large number of people affect the successful
combination and exchange of knowledge.
Taylor et al. (1996) suggest that MNCs transfer HRM policies only
when the group of employees is considered ‘critical’ to the functioning
of the affiliate and/or firm. Lepak and Snell (1999) offer a more elabo-
rated approach, in which they designate employees who have a high
degree of uniqueness of human capital combined with high potential
for contributing to the competitive advantage or core competence of
the firm as ‘core’ employees. Utilizing such a heuristic may be more
appropriate than designating one group of employees, such as man-
agers, as the most important group within which social capital should
be built. First, it accommodates research that has found quite varied
groups of employees as targets for HR transfer in MNCs, from R&D
personnel (Béret et al., 2003), higher-level employees (Schmitt and
Sadowski, 2003; Muller, 1999), to shopfloor workers (Doeringer et al.,
2003; Marginson et al., 1995). That is, research has found that MNCs
have attempted, more or less successfully, to transfer or centralize HR
policies with regard to all of these groups. This would indicate that
Sully Taylor 117

Table 5.1 HR Principles most likely to affect the building of social capital in

HR principle HR policy examples Kind of social capital

Build long-term Facilitate personnel Structural
connections between transfer between network
employees members
Decentralize authority
by HQs
High investment in Provide access to training Cognitive
training worldwide Structural
Careful selection and Select new members who Cognitive
socialization of share company’s values
employees Socialize employees to
work collectively
Accommodate for local Submit management Cognitive
and national cultures practices for input and
Create shared vision and Incorporate common goals Cognitive
collective goals into evaluation systems
Create equitable, clear Ensure pay systems Relational
and transparent reward minimize differentials
criteria among employees
Create collective reward Provide some portion of Relational
systems compensation based on
team/unit results
Build long-term Encourage long term Structural, cognitive
connections between employment/job security and relational
company and employees

Source: Partially based on ideas in Inkpen and Tsang (2005) and Leana and Van Buren

these groups are seen as key to the firm’s competitiveness in some way.
Second, by arguing that different groups of employees can be ‘core’ to
the firm’s success, it is possible to encompass the wide diversity of
firms operating in the global arena. Industry as well as individual firm
strategy will influence which group of employees most need to build
social capital in order for coordination and knowledge sharing to
occur. For example, in large multinational consultancy companies, it
can be argued the consultants themselves will have as much need for
high social capital as the managers of the company. Thus, it is not
118 Multinationals, Institutions and the Construction of Transnational Practices

possible to designate one group of employees as most important to

target. However, it is probable that the area of HR policy that is utilized
to build social capital may vary depending on the target group of
employees. For example, if the firm’s core employees are shopfloor
workers, the ability of the MNC to enact collective reward systems is
likely to be constrained. This is because, in general, HR policies regarding
shopfloor workers are more embedded in national IR regimes than
policies toward other employees (Schmitt and Sadowski, 2003).
Finally, it should be noted that when designing the HR policy to be
transferred MNCs will be unlikely to transfer policies without any
modification (Ferner and Quintanilla, 1998; Taylor et al., 1996). Becker
and Gerhart (1996) call this the level of abstraction problem in HR
theory and practice. In essence, there are HR principles, HR policies
and HR practices. While HR principles serve as guideposts to ‘…align
lower, less abstract policies and practices’ (Colbert, 2004: 345), policies
(such as team-based work systems) and specific practices (such as
quality circles) are descending levels of abstraction. Practices can vary by
company and by country, and still attain the goals of the HR principles
that the firm has adopted. In short, transfer of HR may necessitate
finding functional equivalents to the practices used in the parent
company. In Table 5.1, the HR principle and policy levels only are
utilized, as these are the easiest levels for MNCs to integrate.
This discussion has shown the desirability of creating social capital
in MNCs, particularly for some firms and some groups of employees.
For the IHR function, this means that allowing each unit to devise its
own approach to HR independently is simply not an option, particu-
larly if the firm is characterized by high interdependence and its
attendant resource flows. The question that must be asked in design-
ing the global HR system is ‘does this approach encourage the
creation of social capital throughout the global network?’ For ex-
ample, allowing each site to approach the selection process based on
local norms and practices ignores the necessity of selecting people
who are most likely to adopt the philosophy and norms of the total
global firm. The human capital characteristics of each individual,
while important, should not be the only criteria. This wider lens
applies across the HR system. ‘Human resource practices that simulta-
neously encourage stable job tenure and reinforce associability and
trust might well yield better organizational-level results than those
observed in systems that focus exclusively on individual contribu-
tions’ (Leana and Van Buren, 1999: 545). Thus the IHR function must
insist that there be at least some degree of integration of HR across
Sully Taylor 119

borders. The HR system is probably the most potent tool an MNC has
for creating social capital.
Implementation will not be without challenges. Harking back to the
myriad obstacles to integration discussed at the beginning, IHR directors
must address the concerns of local HR directors and local employees
regarding the cultural, institutional and legal differences. This indicates
a critical need for IHR to be involved not only in designing the IHR
system in conjunction with foreign affiliates, but also the imperative
IHR has to communicate what it is up to, and why. IHR must do this in
order not only to avoid resistance simply because HQ is involved, but
also to actively help local people understand the role that certain HR
policies play in creating knowledge valuable to the firm. This is partic-
ularly important if one accepts the argument put forward by Fukuyama
(1995) that the trust levels in unknown others differs widely between
countries. In order to be truly effective, IHR must become a champion
of an integrated HR system, a communicator of the reasons for it, and
a booster for the overarching global vision of the firm that underpins
the need for interdependence.

Sustainability and IHRM integration

There is another reason why a more integrated approach to HRM in
MNCs will be observed in the future. This is what could be called an
emerging motivation, one that is on the radar screens of the IHR func-
tion in only a limited way, but that over the next decade or so will
become more salient in global firm management. This is the concept of
sustainability. While many firms are beginning to deal with certain
limited aspects of sustainability in their global operations, such as
the ethical behaviour of employees worldwide or the environmental
impacts of foreign affiliates, a more systemic, holistic approach to these
concerns is encompassed in the concept of sustainability.
Sustainable development has been defined by the World Commission
on Economic Development as ‘development that meets the needs of
the present without compromising the ability of future generations to
meet their own needs’ (World Watch Institute, 2000). At the firm level,
sustainability is typically defined as pursuing the ‘triple bottom line’ of
economic, environmental, and social goals. The economic principle
emphasizes the necessity of an ‘….adequate production of resources to
maintain a reasonable standard of living’ (Bansal, 2002: 23). The envi-
ronmental principle is based on the assumption that ‘…ecosystems
have limited regenerative capability and that the earth’s land, air,
120 Multinationals, Institutions and the Construction of Transnational Practices

water and biodiversity will be compromised by irresponsible actions’

(Bansal, 2002: 23), while the social-equity principle is focused on treat-
ing everyone fairly, independent of initial endowments (Bansal, 2002:
23). It is generally agreed (Dunphy et al., 2003; Osland et al., 1999;
Phillips and Claus, 2002; Bansal, 2002) that without equal attention to
the social bottom line, the ability of firms to achieve environmental
goals will be undermined. As Bansal states, ‘(I)f people aren’t treated
equitably, they will exploit natural resources’ (2002: 123). Poverty,
inequitable distribution of wealth, and lack of opportunity help create
such ills as high population growth rates, deforestation and social
unrest, all of which make environmental stewardship extremely difficult.
As Osland et al. (1999: 173) state:

The scientific basis for sustainability recognizes that people, and

their economic and social activities, are an integral part of the
ecosphere. It is the ecosphere and its ecosystems that support
human society and economies, not the reverse. Thus human soci-
eties should be designed in a way that does not compromise
natural systems.

Adoption of these three principles is a growing imperative for MNCs

for a variety of reasons. A study by Bansal and Roth (2000), conducted
largely in companies in Britain and Japan, many of which were
multinationals, found three main motivations to adopt a corporate
ecological response: Competitiveness, Legitimization, and Social
Responsibility. The first focuses on obtaining long-term profitability
through such things as increased efficiency of resource utilization,
designing ‘green’ products that gain the company a competitive edge,
or even finding it easier to hire quality employees due to enhanced
reputation. Legitimization is fuelled by a desire to comply, and seeks to
reduce risk through ensuring that laws, industry norms and stakeholder
expectations are met. Finally, social responsibility is a driver born of
the belief that the firm has social obligations that are as important as
economic goals.
Each MNC will be driven by one or a combination of these motiva-
tions to adopt some degree of a sustainability strategy. Yet regardless of
motivation, the fact remains that the IHR function in MNCs is going to
become increasingly embroiled in translating the sustainability goals
into action. Let us examine what kinds of concerns this will create for
the IHR function, and why it will lead to a greater need for integration
of HR within the global firm.
Sully Taylor 121

First, in order to meet the economic imperative it is necessary for

firms to innovate. Finding ways to reduce resource input or to design
products that are non-toxic requires creative thinking and problem
solving. The link between innovation and sustainable business strate-
gies is increasingly recognized. For MNCs, this means that recruitment
must focus on attracting employees who are environmentally con-
cerned and utilizing selection criteria that include consideration of
environmental knowledge and skills (Egri and Hornal, 2001). Part-
icularly as manufacturing is outsourced to a wider array of countries,
the skills and competencies to identify sources of eco-innovation need
to be taught to employees worldwide, and their supervisors trained to
encourage such efforts (Ramus and Steger, 2000). Compensation and
reward policies, which have been found to be effective in encouraging
eco-initiatives by employees (Milliman and Clair, 1996; Lawrence and
Morell, 1995; Ramus and Steger, 2000), need to be instituted world-
wide. Corporate HR is likely to be involved with local affiliates not
only to ensure these things are done, but to share systems and materi-
als developed at HQ or elsewhere.
Second, the legitimization motive will force IHR to focus on such
areas as job design, organizational structure and performance appraisals
throughout the global system. Job descriptions will need to include
responsibilities for environmental goals, and evaluation systems need
to include metrics that measure their attainment. The IHR function
will also need to ensure that a position of environmental officer is
created in affiliates that need them.
Finally, the social responsibility motivation focuses IHR on
employees and other major stakeholders, such as sub-contractors.
One key concern is organization culture and employee socialization.
As Starik and Rands (1995: 920) note, ‘Ecologically Sensitive Organ-
izations will be characterized by numerous cultural artifacts such as
slogans, symbols, rituals and stories which serve to articulate for their
members the importance of ecologically sustainable performance’.
Organizational culture (O’Reilly and Chatman, 1996; Schein, 1985;
Denison and Mishra, 1995) is one of the main instruments for con-
veying the values espoused by key decision-makers to other organiza-
tional members, and IHR can have an important role in creating and
reinforcing the global firm’s culture. Another aspect of the social
responsibility motivation is to ensure the long-term ‘flourishing’
of the company’s employees, through helping employees to achieve a
good work–life balance and continuing to invest in their skills
(Osland et al., 1999).
122 Multinationals, Institutions and the Construction of Transnational Practices

A further important aspect of social responsibility is the reputation

of the company (Hart and Milstein, 2003). On the positive side, a
company such as Hewlett Packard that has increasingly pushed a
sustainability agenda can differentiate itself through, for example, its
efforts to design products that use less non-renewable resources than
competitors. On the negative side, ignoring huge disparities or labour
abuses by subcontractors can severely damage a valuable brand name,
as Nike discovered to its dismay in the early nineties. For an MNC, the
social responsibility motivation in particular is often nurtured by the
need to meet the standards of leading sustainability countries in which
it operates, which can affect its operations and reputation worldwide.
It also can be driven by the values of key decision-makers, whether
owners or top managers, who have adopted a sustainable view of
business (Hart and Milstein, 2003). In Portland, Oregon, for example,
the owner and CEO of Norm Thompson Outfitters returned from a
year’s sabbatical in Latin America with a keen understanding of the
interdependence of the three principles outlined above, and set about
transforming his company to pursue a triple bottom line. Ensuring that
Norm Thompson translates this vision consistently worldwide into
sustainable HR policies is particularly important in order to ensure that
the CEO’s vision is not violated and the company does not become a
target of criticism by NGOs.
Which group of employees will be most affected by a move toward
a sustainability strategy? As can be seen from the discussion above,
sustainability goals are likely to touch all groups of employees in one
way or another. For example, the economic imperative focuses the
company’s attention on reduction in resource utilization as well as on
creativity in design. The first could be affected by input from shopfloor
employees whose daily work brings them close to the production
process and who can thus observe areas where inputs are being wasted.
But equally involved would be administrative staff, who can give input
on ways to increase the efficient utilization of office resources. New
product design, while largely the responsibility of R&D and engineer-
ing staff, can also be influenced by input from sales, marketing and
logistics staff. To reduce transportation and hence energy usage
(as well as costs), logistics staff might suggest more effective ways of
designing a product for more compact packaging. The key is that
personnel share the same sustainability vision for the company, and
have received training on how to think systematically about achieving
the goals within their particular area. While the economic imperative
is just one example, both the legitimization and social responsibility
Sully Taylor 123

motivations of sustainability will also affect a great number of employees

in the firm. In a sense, the sustainability motivation for HRM integration
in global companies may be stronger than the social capital motivation
as it affects more employees, and is closer to the core vision of the
company itself.

Implementation challenges
While the force of these two trends will be strong, it is unlikely that
the IHR function will be able to achieve the level of integration of HR
within the global firm that it sees as most desirable. Various factors can
inhibit the ability of MNCs to transfer their HRM policies across
national borders (Ferner and Quintanilla, 1998). Broadly speaking,
these factors can be grouped into three areas: institutional, cultural and
organizational (Evans et al., 2002). Institutional factors include the
legal, political and labour market facets of the host countries in which
the MNC operates. Legal constraints can include prohibitions on certain
types of compensation schemes, limits on hire-at-will principles, and
requirements for certain kinds of employee benefits (Rosenzweig and
Nohria, 1994). Labour market characteristics may make it necessary for
MNCs to adapt their HRM policies in order to attract local talent, such
as the modification of seniority-based pay by Japanese investment
firms operating in the US. Political history and structures can also
influence HRM adaptation, with foreign firms that need to keep a low
political profile often adapting their HRM policies in order to not stand
out from locally owned and managed companies.
A second key factor is the culture of the host country (Newman and
Nollen, 1996; Schuler and Rogovsky, 1998). Here the premise is that
cultural values and norms so tightly interact with behaviour that
human resource management practices that encourage ‘unnatural’
behaviours – such as individual performance rewards in a collectivistic
society – are destined to fail. Empirical evidence seems to provide some
support for the importance of this factor in constraining integration of
HRM in MNCs (Ngo et al., 1998).
Last is what can be called organizational factors, into which can be
placed the strategic posture and imperatives of the firm as well as the
power relationships of key implementers. Organizational factors
include some moderating variables, such as the role of the affiliates in
the overall MNC network, or how embedded the affiliate is in the
local environment (Rosenzweig and Nohria, 1994) due to the way it
was founded or its age. It also includes the overall strategic orientation
124 Multinationals, Institutions and the Construction of Transnational Practices

of the firm to its international operations. If it tends towards the mul-

tidomestic approach (Bartlett and Ghoshal, 1989) to participation in
the global arena, then there will be greater pressure for local isomor-
phism. Industry of the firm, country of origin, and top management
beliefs have all been discussed or studied as contributing to the chill-
ing effect on global integration of HRM (Taylor et al., 1996; Ferner,
1997). Country of origin, for example, has been found to influence
the kinds of HRM policies that MNCs adopt in the foreign affiliates,
with MNCs from some countries showing greater propensity to adapt
than others (Ngo et al., 1998; Bae et al., 1998). Finally, existing power
relationships can influence the degree to which the corporate IHR
function has enough leverage to achieve the integration it desires.
Various studies (Muller-Camen et al., 2004; Coller and Marginson,
1998; Ferner et al., 2005) have found, for example, that individual
affiliates with successful performance have greater power to resist, or
that individual managers within the affiliate can use their informal
networks to negotiate the how and degree of adoption of corporate-
inspired HR policies. Muller-Camen et al. (2004) found, for example,
that as MNCs increasingly locate their critical operations and
resources outside of their home countries, the role of the affiliates in
creating and influencing corporate-wide HRM has grown.
Some impediments may be stronger than others. For example, legal
constraints, particularly concerning shopfloor workers in highly
regulated countries such as Germany, seem to impede the transfer
of HR policies considerably (Muller, 1999). For managers or R&D
researchers, performance evaluation systems appear to be more
amenable to corporate-inspired HR approaches than say managerial
pay, which tends to be subject to more national influences (Muller,
1999; Béret et al., 2003). In integrating, whether in pursuit of a sustain-
ability strategy or to build social capital for knowledge sharing and
coordination, MNCs will find it easier to integrate some HR policies
than others. As an example, and drawing on Table 5.1, the ability to
adopt a long-term employment approach throughout the global
network can be impeded by local labour market conditions, at least in
the short term. Present day China, for example, is still experiencing
fairly high turnover among experienced managers due to the high
demand and low supply in the market. This necessitates creativity on
the part of the IHR function to find ways of enhancing the value of
long-term employment to local managers, as well as finding alternative
approaches to achieving its goals, at least until the market achieves a
greater balance. It will also increase the need to move away from
Sully Taylor 125

imposing policies from the centre to creating them in tandem with the
global network of affiliates, a desirable goal in any case as it increases
the sense of procedural justice throughout the firm.

Mutually reinforcing motivations

This chapter has examined how two trends – the need for social capital
and for sustainability – are affecting the desirability of integrating HR
within MNCs. Interestingly, it appears that the IHR function may be
facilitated by the fact that many of the HR policies that aid in the
pursuit of social capital for knowledge creation can aid in the pursuit
of sustainability. To take one example, social capital is desirable because
it aids in the creation and sharing of knowledge worldwide. On the
other hand, in order to successfully pursue sustainability it is necessary
for firms to encourage innovation of product, process and basic
technologies. Thus nurturing social capital will in turn enhance the
eco-innovation capability of the firm needed to achieve a sustainability
strategy. To take another example, the careful selection and socializa-
tion of employees to ensure that they share in the firm’s values and to
create common norms, understandings and narratives, which aids
cognitive social capital and in turn knowledge absorption and sharing,
can also include a focus on environmental values. These values will
foster employees’ interest in and commitment to finding ways to save
on non-renewable resources in product design or the production
process itself, as well as other ways of achieving the economic sustain-
ability goal. A third example is building long-term connections with
employees, a key part of building all three types of social capital. This
necessitates that the firm pay attention to factors that can ‘deplete’
human resources, including unbalanced lives that lead to family or
personal problems. This helps achieve the social responsibility aspect
of a sustainability strategy. The HR policies listed in Table 5.2 are not
meant to be an exhaustive list of the ways in which these can provide
support for the attainment of both social capital and sustainability
goals, but rather to be illustrative.
Of course, there can also be cases in which HR policies that support
both social capital and sustainability goals can be in tension with one
another. Building relational social capital, for instance, is often enhanced
by the internal transfer or movement of employees, including across
borders, in order for core employees to build the trust and familiarity
that are characteristic of high social capital. Increasingly common is
the ‘international suitcase employee’, who might spend 50 per cent of
126 Multinationals, Institutions and the Construction of Transnational Practices

Table 5.2 HR policies that foster both social capital and sustainability goals

HR policy Impact on social capital and

sustainability goals
Careful selection and socialization Cognitive social capital
for shared company values, including Fosters economic sustainability
environmental values through eco-innovation
Encourage long-term employment/job Structural, cognitive and relational
security, supported by fostering work/life social capital
balance Fosters social responsibility
sustainability through workforce
stability and health
Training access worldwide, including Cognitive social capital
on environmental skills Fosters economic sustainability
through improved resource
utilization, and legitimization
sustainability through ensuring
standards are met
Ensure pay systems minimize Relational social capital
differentials and compensate team/unit Fosters both economic and social
results, as well as reward econ-initiatives responsibility sustainability
that help firm as a whole through sense of equity and focus
on achieving common goals in
innovation, resource utilization,

his or her time out of the country, often in meetings with global team
members or other stakeholders. While this face-to-face interaction may
build relational social capital, it may also undermine the firm’s attempts
to meet its social sustainability goals by contributing to stress from
travel, family separation and the negative effects on the health of the
traveller. As another example, both social capital and social sustainability
goals may be enhanced by more equitable and egalitarian wage
schemes, but the firm may find that over time it cannot recruit the top
managers it needs to remain economically competitive. This happened
to the Ben and Jerry’s Ice Cream company, which began life with a
very low ratio between the top CEO pay and average worker pay but
was eventually forced to modify its approach in order to attract top
managers. There are equal challenges from trying to support through
HR policies all three sustainability goals simultaneously. For example,
selecting employees who share the firm’s values, including environ-
mental values, could lead to a collective way of thinking about prob-
Sully Taylor 127

lems that admits of little diversity of viewpoint. This could actually

undermine innovation over time, including eco-innovation. Social and
environmental sustainability goals could come into conflict when a
firm replaces an environmentally unfriendly component in its product
(such as a toxic glue or an endangered tree species) with one that is
not. The community that had previously made, and perhaps depended
on, providing the company with the component could be damaged by
the withdrawal of the firm, particularly if it was the major buyer of
that component in the community. As Dunphy et al. (2003) point out,
a company pursuing a sustainability strategy is constantly seeking an
adequate balance between the three sustainability goals, and when it
fails – as when the Body Shop focused too much on environmental and
social goals, to the detriment of its product line and hence economic
goal – the consequences are likely to be severe.
Through careful anticipation of such potential conflicts, MNCs may
be able to put in place policies and practices that help to counter-
balance these sorts of problems. As Norm Thompson found out when
an economic downturn forced it to lay off workers for the first time
since adopting a sustainability strategy, balancing between the three
bottom lines is never an easy task. However, in spite of these conflicts,
it can be argued that, in general, MNCs face a fortuitous situation in
which many of the HR policies that aid in the creation of social capital
also reinforce the attainment of the sustainability goals that will
become ever more important in the coming years.

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Patterns of Integration in American
Multinational Subsidiaries in Europe
Valeria Pulignano

Key elements of multinational behaviour have been attributed to by
observers adopting an institutionalist approach to the interplay of
parent and host national business system pressures (Whitley, 1999).
On the one hand, the behaviour of multinationals (MNCs) is
influenced by ‘country-of-origin’ effects relating to the embeddedness
of companies in a parent national business system with distinctive
characteristics. On the other, different national host environments
impose institutional constraints on MNCs: national legislative frame-
works, labour market regulation and business environments shape to
what degree and in what form employment practices are transferred
across countries. In the terms of the ‘institutionalist’ approach, the
normative or coercive ‘isomorphic pressures’ exerted by host country
legislation or collective bargaining condition the extent to which
such practices are transferred (Brewster and Tregaskis, 2003). Host
institutional constraints on the transfer of HR and IR practices seem
to exist most notably in countries with strong institutional labour
systems. In such cases, there are stronger pressures for adaptation of
transferred Anglo-Saxon HR/IR practices (Muller, 1998). Host-country
isomorphic pressures have also been postulated in the case where
MNCs from highly regulated parent company systems establish
subsidiaries in weak institutional settings (Tüselmann et al., 2003).
Nonetheless, parent country influences may still be present in more
qualified and mediated forms; for example case-study evidence on
German MNCs in Britain shows that despite pressures to adopt
Anglo-Saxon business practice, German influences still persist (Ferner
and Varul, 2000).

132 Multinationals, Institutions and the Construction of Transnational Practices

In a study of the configuration of HRM policies in MNC subsidiaries

in the European retail banks in Spain, Quintanilla (2002) points to
subsidiaries as able to use the local institutional resources in order to
develop a more active and strategic role within the management
process of MNCs. More specifically, it is argued that characteristics of
the national institutional context, such as the pattern of labour law
and labour market features as well as national education and training
systems, offer power resources and strategic choices to subsidiary level
actors that they can use to influence global strategy implementation
(Geppert et al., 2003; Kristensen and Zeitlin, 2005). Moreover, organi-
zational or company-specific structural features are also seen to
impact on local actors’ capacity to influence the process of diffusion
of employment practices within MNCs (Frenkel and Royal, 1998;
Bélanger et al., 2003). Such features include the individual history of
the subsidiary; its embeddedness in a local market environment; its
profitability and performance; its development of specialist expertise;
and its consequent capacity to secure or maintain global ‘charters’, that
is to say the strategic roles exercised on behalf of the MNC as a
whole (Birkinshaw, 2000: 86). In such analyses, subsidiary practices are
explained as a consequence of the variations in subsidiary strategic
relations with corporate headquarters and with other parts of the
global company. These relations are seen to be strongly affected by
institutional and organizational factors which influence the scope for
strategic choice by local actors.
While the significance of a strategic choice perspective is becoming
widely recognized in explaining subsidiary behaviour, it is still relatively
under-researched, and, in particular, there is a lack of truly comparative
research on subsidiary strategy. This chapter focuses on this comparative
dimension while attempting to highlight the interrelationship between
institutional and organizational effects in shaping the transfer of US
multinational employment practices to host country subsidiaries. The
research reported here was conducted as part of a project examining
the evolution of the employment practices in European subsidiaries of
American MNCs.
The aims of the chapter are two-fold: first, to work towards a concep-
tual framework that integrates institutional and organizational factors
in explaining the diffusion of employment practices in MNCs; and,
second, to account for the impact of both factors on the scope for
agency – ‘strategic choice’ – by local actors in subsidiary units. Thus we
examine how far dynamic configurations of institutional and organiza-
tional features influence the diffusion of employment practices, and
Valeria Pulignano 133

explore the processes through which local actors – specifically local

management and trade unions – dynamically adjust the policies of the
parent company to the local contexts.
The study is based on in-depth case studies of five European sub-
sidiaries of one American multinational in the metalworking and the
chemical sectors in Italy and in Britain. The organizational variety
at different sites within the company, and the institutional diversity
of the different national employment relations regimes in which the
subsidiaries operate, together offer a rich and valuable empirical
framework within which to pursue the research aims.
The chapter is organized as follows. After a brief outline of the com-
parative industrial and employment relations framework in Italy and
Britain, the study is presented and the different company-specific orga-
nizational features of the five subsidiaries are underlined. The literature
on the extent of adaptation of American employment practices in host
countries is then examined. The chapter goes on to explore the way in
which the American case-study MNC manages its workforce in Europe.
This is done by examining the processes through which sources of
autonomy for local actors are generated. Comparative case-study analysis
is used to develop the argument for an integration of the institutionalist
and the organizational approaches to the diffusion of employment
practices in MNCs. This is done, first, by analysing how corporate
mechanisms of control in American business work in the European
context. Second, local management and trade union responses to
corporate mechanisms of control are examined, in a comparative
perspective. Finally, the processes through which these responses
impact on final outcomes are identified.

Comparing institutional frameworks of employment relations

in Italy and Britain
The analysis of the factors affecting the international employment
strategies of American MNCs in a cross-country comparison of Italy
and Britain requires an initial understanding of the principal features
of the industrial and employment systems in these two countries. The
Italian system in the post-war period has been described as one of
‘voluntarist’ workplace-based union representation and collective
bargaining (Regalia and Regini, 1998), characterized by a low level of
institutionalization and the absence of formalized and stable rules
governing relations among the social actors. In contrast, ‘voluntarism’
in Britain has generally focused on the principle of abstention of the
134 Multinationals, Institutions and the Construction of Transnational Practices

state from direct intervention in IR and an absence of statutory regula-

tion, a situation known also as ‘collective laissez-faire’. Moreover, the
regulation of individual employee rights has generally been weaker
than in Italy. In the British system, arrangements for participation at
the workplace as well as for collective bargaining have traditionally
been left to the voluntary initiatives of the parties locally.
Hence, despite their apparent similarity, the two systems remain
substantially different when the level of employment protection and
regulation is taken into consideration. This is clearly illustrated by
the combination of legislation protecting employment (such as the
statutory right to strike and unfair dismissal legislation), employee
representation rights and sector-level agreements which are integral
parts of the Italian IR context, in contrast to Britain. ‘Voluntarism’
in Italy is mostly to do with enhancing coordination in collective
bargaining and reinforcing information and consultation rights at
the shopfloor rather than introducing patterns of rules to regulate the
system. Moreover, the divergence between the IR systems is reflected in
contrasting management approaches to employment relations. In
Britain, employment relations have been coloured by the ‘individualistic’
style of Anglo-Saxon business practices in HR and IR, reflected in
standardized policies on appraisal, performance and corporate culture;
whereas the Italian style traditionally reflects the ability of firms to
create flexibility by establishing a socio-economic model of networking
based on the ‘economics of specialization’, while benefiting from infor-
mal mechanisms of governance of the workforce.
During the 1990s both Italy and Britain introduced significant
changes in the IR arena, which contributed further to sharpening
the distinction between the two systems. Despite the shift in the
ruling party from Conservative to Labour in May 1997, there has
been relatively restrained change in the framework of legislation and
government policy. The emphasis continues to be on relative state
abstention, strong labour market flexibility to enhance corporate
competitiveness, and a management culture emphasizing individual-
ism over collectivism (Edwards, 2003). As Hyman (2003) reported,
this has contributed to enhancing the atmosphere of ‘confusion’ –
against a background of underlying deregulation and weak statutory
requirements – that characterizes current British IR.
By contrast, changes in the IR arena in Italy since early 1990s have
introduced increased formality into collective bargaining and union
representation structures, contributing to a consolidation of the
country’s institutions of labour market regulation. The Social Pact
Valeria Pulignano 135

(or tripartite agreement) of 1993 on incomes and labour policy con-

tained the key elements of such change. The main aim was to enhance
flexibility – for example in the distribution of working-time reductions
across the workforce, and in work organization and pay procedures at
company level – while reinforcing coordination among the bargaining
levels and enhancing employee participation on the shopfloor (Alacevich
and Burroni, 2001). Accordingly, the collective bargaining system in
Italy has assumed a more coordinated pattern, in which bargaining is
shifted to the company level but in such a way that control is retained
by the national industry unions and employers’ associations. This is
illustrated by the fact that pay and results bonuses negotiated every
four years at company level have to be linked to the results of the so-
called development programmes agreed by management and unions at
sector level. Thus centrally negotiated guidelines are adapted to circum-
stances at local level, so that agreements at company or plant-level bar-
gaining do not replace strong pattern bargaining in industry. Likewise,
the system of employee representation has been set on a more solid
footing, providing a more reliable basis for negotiating change and reg-
ulating employment relationships at the shopfloor. Thus a unitary
trade union representative body (rappresentanza sindacale unitaria or
RSU) was established by the 1993 Social Pact to foster participatory
workplace relations between employers and unions. Within this
context of institutionalized change, union representatives act as bar-
gaining agents at company and local level on issues explicitly men-
tioned in national agreements. RSUs have recognized consultation and
information rights under the 1993 tripartite agreement, which
identifies them as formal bodies of employees participation.

Research design
The chapter is based on a large case-study analysis of a big American
MNC in two European countries, Italy and Britain, and in two sectors,
metalworking and chemicals. The analysis focuses on three different
business units of the same American corporation, two in the metal-
working (referred to as Metal Electrical co, Metal Power co) and one in
the plastics industry (i.e. Plastic co). Overall, five subsidiaries were
selected for investigation within these business units. Two of five are
based in Britain – Metal Electrical UK and Plastic UK – and three are
based in Italy – Metal Electrical IT, Metal Power IT and Plastic IT.
Within the limits of access granted by the company, operations were
selected according to the following criteria: similarity in the nature of
136 Multinationals, Institutions and the Construction of Transnational Practices

the production process, union presence, and (where possible) size. The
business units are unionized and have headquarters (HQ) in Europe. In
two of the subsidiaries, the European HQ coincides with the global HQ
for that business.
The company selected for investigation is one of the most profitable
in the global economy, with a global workforce of 340,000 employees.
Its innovative success has been dependent on the management of orga-
nizational learning, and on high-skilled professional workers. More
recently, skilled employees have been partly supplanted by unskilled
and manual employees as the result of the expansion of the business in
non-customized products, in particular in the electronics sector. With
the advent of globalization the company executed a new strategy of
integrating its operations internationally while increasing exports and
expanding global sourcing for both products and services. This has
been intertwined with the explicit corporate goal of maximizing
efficiency and profit while minimizing employment levels around the
world through the continuous rationalization of production and
service provision.
The three business units selected for investigation, Metal Electrical
co, Metal Power co and Plastic co, have global HQs in Europe. Each
subsidiary has significance within its host country. For instance, Metal
Power IT is the subsidiary with the highest employment and it is the
European HQ for Metal Power co. Metal Electrical IT and Plastic IT are
smaller but they both focus on the production of specialized products
in the electronics and plastics industry respectively; the electronics
subsidiary is one of three technology centres in Europe. In contrast,
production in Metal Electrical UK does not cover specialized products,
and Plastic UK is a manufacturing site with a large workforce, which
provides assistance on the development of HRM practices to the other
plants within Plastic co in the UK. The subsidiaries in both Britain and
Italy are highly unionized, with union density of more than 50 per cent.
Data collection took place at both the European and the local
subsidiary level. The cross-country and inter-subsidiary comparison
allows examination both of contrasting national patterns of employ-
ment regulation, and of a rich variety of subsidiary organizational
features and structural relationships to the wider corporation. The
primary method of data-gathering was the in-depth interview. A total
of 40 semi-structured interviews were conducted with key local,
European and global managers, international, European and national
union officers, employee representatives at the local and the European
Works Council (EWCs) (see Table 6.1). Attendance at EWC-related
Valeria Pulignano 137

meetings, where possible, was also included as part of the research

methodology, as was analysis of documentary materials.

Table 6.1 Case-study companies and number of interviews conducted

Business Units Metal Electrical co Metal Plastic co Total

Power co interviews
Subsidiaries Metal Metal Metal Plastic Plastic
Electrical Electrical Power UK IT
EU & Global HQ 4 2 3 9
UK subsidiaries 7 – – 8 – 15
Italian subsidiaries – 6 6 – 4 16
Total 17 8 15 40

Overview of the British and Italian subsidiaries

Metal Electrical UK
Metal Electrical UK was a British subsidiary of Metal Electrical co in the
electronics industry. At the time of the research, the European HQ was
in Spain and Metal Electrical UK was still part of the electrical business
unit of the American corporation; subsequently, in January 2004, two
business units (power control, lighting and appliances) were merged
into one larger business unit and as a result, the European HQ moved
from Spain to Hungary. The UK subsidiary was established in 1998,
when a low voltage switchgear business was bought from a traditional
British-owned company. On purchasing the operation, Metal Electrical
co decided to restructure the business to increase efficiency by imple-
menting a regional structure comprising Europe, Americas and Asia-
Pacific. Production units in Europe were located in Germany, Spain,
Netherlands, Belgium, Italy, France, Portugal and the UK. The British
plant manufactured industrial, domestic and commercial commodities,
such as switches and fuses. It also distributed boards for electricity
supply. In May 2003 there were 140 employees in total of whom 20
were sales staff. The plant was highly unionized, with Amicus as the
dominant union. Following the accession of the 10 new members to
the EU in January 2004, and the transfer of the European HQ to
Hungary, in the second half of 2004 the entire production was moved
from the UK to Poland and Hungary.
138 Multinationals, Institutions and the Construction of Transnational Practices

Plastic UK
Plastic UK was established at the beginning of 1990s when the American
corporation took over a big American company in the plastics industry.
At that time the business was integrated with the rest of the manufac-
turing, commercial and financial operations. The global HQ of Plastic
co was in the Netherlands and also functioned as the European HQ.
Overall, operations in Europe were present in seven countries:
Netherlands, Spain, Italy, Germany, Austria, France and the UK.
Production within Plastic UK was prevalently based on panels. The
British-based subsidiary assisted other British operational units with
the implementation and diffusion of HRM practices. The subsidiary
had a total workforce of 170 employees, 70 of whom were shopfloor
workers. It was highly unionized (Amicus and T&G were the most
representative unions).

Metal Electrical IT
Metal Electrical IT was one of three Metal Electrical co subsidiaries in
Italy. It was the one that best survived the huge restructuring plan that
led to a drastic reduction of the labour force in Italy, and more widely
in Europe, in the previous ten years or so. Metal Electrical IT was the
centre for the production of specialized electronics products, such as
electrical control systems for appliances. The Italian subsidiary was also
one of three technology centres in Europe for equipment products (the
others being in Germany and Belgium). The total workforce was
around 400. Union density in the plant was 80 per cent, with members
predominantly represented by FIOM-CGIL (Federazione Italiana Operai
Metalmeccanici), the largest Italian union federation in the metalworking
sector. At the time of the research, the European HQ was based in Spain.

Metal Power IT
Metal Power IT was the largest European subsidiary of Metal Power co,
with both European and global HQ in Italy. The total workforce was
around 3000. The subsidiary produced stem propellers, compressed
spin-driers and equipment for the extraction of oil and gas. Union
coverage was 100 per cent, with FIOM-CGIL as the most representative
union. As in the case of the European HQ of Plastic co, Metal Power IT
had responsibility for coordinating the diverse operations of the busi-
ness across the globe. Production units in Europe were concentrated in
Italy, Spain and the UK. The administration of personnel as well as
training policies, salary planning and management–labour relations
were centrally managed by the European HQ in Italy.
Valeria Pulignano 139

Plastic IT
Plastic IT was a small-medium production unit of Plastic co with both
European and global HQ located in the Netherlands. Its workforce was
about 70 and the level of unionization was around 60 per cent with
FEMCA-CGIL (Federazione Operai Chimici) as the predominant union.
Plastic IT was originally an Italian family-owned company which was
bought by the American corporation at the beginning of the 1990s.
Production in the subsidiary comprised specialized plastic components,
and as a result the workforce included skilled employees. In the prev-
ious two or three years the plant had been affected by a wide-ranging
restructuring plan which contributed to a reduction in the workforce
of nearly 30 per cent.

Employment relations within American corporations: nature

and orientations
American corporations have acquired a reputation of being more
highly centralized, formalized and ‘ethnocentric’, and less adaptive to
local cultures, than MNCs of other nationalities. Various researchers
have found that American MNCs draw on their own management and
IR policies and attempt to adjust them to local rules, procedures and
policies to the extent that is obligatory by law (Bartlett and Ghoshal,
1998; Turner et al., 1997; Young et al., 1985). It has also been found
that they are typically against the recognition of trade union representa-
tion and collective bargaining. The ‘individualistic’ managerial ideology
is seen as one of the main characteristics of the national identity of
American corporations: employment practices are conducted on the
basis of a direct relationship between individual workers and manage-
ment, and the clear preference for performance-related pay and associated
formalized performance appraisal systems to regulate the employment
relationship. The non-union approach of American firms reflects this
individualism. It has often been based on principles of union ‘substitu-
tion’, aiming to ensure that workers will not feel the need to be repre-
sented by the trade unions. Studies of American MNCs in host countries
have also highlighted evidence of more proactive anti-union behaviour
and discouragement of union membership accompanying the estab-
lishment of American subsidiaries abroad (Gunnigle, 1995; Martin and
Beaumont, 1999; Muller, 1998).
Some commentators (notably Dicken, 2003) have argued that the
institutional context within which firms operate shapes the nature of
corporate strategies. The individualistic, anti-union approach of American
140 Multinationals, Institutions and the Construction of Transnational Practices

employers has been seen as embedded in traditions of American

capitalism (Edwards et al., 2004). However, the country-of-origin
institutional legacy is not seen as rigid but rather as evolving over time.
Thus it does not close off the possibility for MNCs to learn from the
host institutional contexts and business systems in which they operate
(Edwards and Ferner, 2002). The extent to which this occurs is partly
shaped by the relative strengths of parent and host business systems, in
terms of economic performance and institutional and cultural charac-
teristics. Smith and Meiksins (1995) refer to the ‘dominance’ of partic-
ular economies over others. Martinez Lucio and Weston (1994) argue
that ‘dominance’ effects encourage inter-subsidiary learning within
MNCs in areas such as work organization, resulting in pressures on
poorly-performing plants to adopt practices from those with superior
performance. In this respect MNCs look to ‘dominant’ systems to act as
the source of new practices. ‘Dominance’ effects interact with legal and
cultural factors in the host country. Hence elements of the legal frame-
work of employment, such as labour law and trade union organization
are seen as shaping the way in which MNCs operate and, in particular,
how some aspects of the employment relationship are conducted. In
countries with highly regulated statutory provisions and clear represen-
tative structures, such as in Germany and the Nordic countries, for
example, it is difficult for MNCs to operate outside such structures.
Thus, the emphasis of this strand of literature is on the impact
of host country institutional determinants on the potential for local
subsidiary autonomy at the expense of wider, corporate influences.
This implies highlighting the impact of employment regulation, labour
market institutions and the management culture of the host country
on the formulation and implementation of parent company policies at
the subsidiary level. More specifically, MNC policies are mediated by
the intervention of local actors as the result of the host country effect.
Ortiz (1999), for example, illustrates how, within national and local
frameworks of labour regulation in Spain, unions could exploit inter-
national management strategies on work organization, such as team-
work, in order to reinforce their position in the IR system.
However, as indicated, studies of MNCs have also highlighted the
importance of organizational or company-specific factors in the analysis
of the influence of local plants on the behaviour of MNCs. This suggests
that a subsidiary may play an active role within the management
process of the wider MNC (see, e.g. Birkinshaw, 2000; Ghoshal and
Bartlett, 1990). Some authors have linked the subsidiary’s capacity to
play an active role in the relationship with the MNC to the power
Valeria Pulignano 141

resources deriving from a particular context. For example, in a study

on the management of employment relations in American MNCs in
the UK, Marginson et al. (2004) have pointed to the business focus,
management organization and pre-existing IR arrangements as relevant
factors which affect how management–labour relations vary amongst
different subsidiaries within the same multinational.
Overall, these approaches follow the long conceptual tradition of
making distinctions between various patterns of authority within
MNCs, drawing on Perlmutter’s (1969) categorization of ethnocentric,
polycentric and geocentric approaches, and on the simpler distinction
between centralized and decentralized authority structures. A growing
body of research on HRM within MNCs currently poses the problem in
terms of the balance between centralized policy-making and subsidiary
autonomy. In particular, drawing on a series of case studies on the
management of human resources it is argued that one important
feature of the balance between parent and subsidiary is the way in
which this balance is negotiated by local actors through micro-political
processes (Ferner et al., 2004). This is because although fairly extensive
centralized and standardized mechanisms are the norm in American
MNCs, the transfer of practices becomes subject to a process of negoti-
ation with local managers and unions and, therefore, centralized
control of subsidiaries is rarely unambiguous. This suggests the impor-
tance of linking the idea of subsidiary autonomy to the broader litera-
ture concerned with the forces shaping the implementation of parent
strategies and policies in local subsidiaries. Hence a more balanced, and
perhaps dialectic, account is envisaged of the factors affecting the
diffusion of employment practices in American MNCs. The chapter
follows this balanced approach in examining the processes through
which local actors derive their leverage vis-à-vis the parent company. It
thus explores patterns of interaction between institutional and organi-
zational factors in shaping locally-grounded responses by management
and labour to the international strategies of diffusion of employment
practices of one American MNC to sites in Italy and the UK. These
responses reflect local actors’ interests as social groups and express the
power that they derive from their relationships to each other within
particular institutional and organizational settings.

Looking at international employment policies in one American

Our field study observation indicates that the determination of man-
agement policies in the areas of pay, management–labour relations,
142 Multinationals, Institutions and the Construction of Transnational Practices

training and recruitment within the American subsidiaries in Italy and

the UK was highly centralized and standardized under the control of
corporate HQ. Policy planning was integral to this and conducted
through powerful corporate functions. Corporate HR/IR policies were
disseminated from the centre and monitored subsequently by the
European regional level to ensure that they were in line with national
legislation across Europe.

Pay and rewards system

The encouragement of direct relationships with employees was a
general characteristic of the American MNC’s approach to employment
relations. The company established formalized norms and values
regarding employee participation and social integration into the orga-
nization. These rules covered the regulation of employment relation-
ships according to ‘individual’ patterns, relations with the customer
and the public administration, and the resolution of disputes and
conflicts of interests when they occurred.
The individualized approach to employment relations was particularly
seen in the linking of pay and performance. The company set the bud-
getary constraints for each business unit in planning salary increase in its
European subsidiaries. Due to variations in national regulation, hourly-
paid employees were not covered by global policies. Bonus systems and
other pay arrangements for these workers were either established directly
by local managers or negotiated with unions and/or works councils as
part of local collective agreements. For non-hourly paid employees, per-
formance was monitored annually at central level through the electronic
completion of a questionnaire by employees themselves. The question-
naire was discussed by senior management and employees within each
business unit, and the results were fed back to central management
within each division. Senior managers were expected to classify non-
hourly paid employees into three categories: ‘weak’, ‘average’ and ‘excel-
lent’. Rewards in the form of salary increases or allocations of company
shares were distributed amongst the employees on the basis of the per-
formance ranking. The poorest performers did not benefit from any pay
increase and in the case of the lowest 10 per cent risked ‘exit’ from the
company (the so-called ‘Work Out’ system). ‘Exit’ was normally ensured
through economic incentives to leave the company for those individuals
who had not performed adequately in the previous two years or so.

Management–labour relations
The pattern of direct relationships with employees was used by the cor-
porate level to undermine the role of unions as bargaining agents and
Valeria Pulignano 143

secure employees’ commitment to company values. The aim was to

marginalize the role of ‘third parties’ – most notably unions – in the
determination of pay increases and working conditions, and in the
handling of organizational changes and the restructuring of production.
As Jacoby (1997) argues, this reflects the tradition of ‘welfare capitalism’:
a sophisticated variety of non-unionism based on encouraging a strong
mutual commitment between the firm and the employee, the promo-
tion of a strong, explicit and inclusive corporate culture, and the use of
policies such as performance-related pay, profit sharing and productivity-
oriented innovations such as team-working. The main thrust of this
model of employment relations is to remove the union role in employee
voice by reducing the employees’ desire for collective representation.
The MNC exploited its global programme of corporate restructuring to
reduce levels of employment in subsidiaries that were more heavily
unionized, and conversely to move production to those geographical
areas with a low union density. This pattern coincided with the corporate
strategy of market expansion and relocation to areas characterized by
high labour force skills and competences.

Personnel policy
Other employment issues, notably training and recruitment practices,
were centrally coordinated and strongly monitored by the parent
company which decided whether future training courses and recruit-
ment were needed and for how long. Decisions on whether subsidiaries
could recruit as well as the process whereby they did so, such as the use
of particular skills and competences as recruitment criteria, needed
central authorization from the parent company, which also had the
right to decide whether changes in standard criteria requested locally
were needed. As with pay and appraisal policies, there was a distinction to
be made between managerial and non-managerial employees. Training
and recruitment policies tended to be highly prescribed for certain
occupational categories, most notably managers and senior managers.
An electronic management system was used to identify employees’
developmental needs, and specific training courses were recommended
by senior managers, following authorization from corporate HQ.
A questionnaire was completed annually by individual employees as
part of self-assessment procedures. The process was centrally monitored
through periodic communication between parent and subsidiary in the
course of which individual cases were discussed and solutions proposed
regarding further development plans. While the financial cost of training
courses was borne locally, courses were normally organized centrally
by corporate HQ in the US, and they involved personnel experts
144 Multinationals, Institutions and the Construction of Transnational Practices

coming directly from corporate HQ. In contrast, decisions regarding

developmental needs of employees in non-managerial positions were
taken at the subsidiary level following authorization from European
HQ. Training courses were usually organized by local managers.

The research findings: a comparative analysis of the

employment practices in five subsidiaries in two European
In the following section, we illustrate a complex picture in which
company-specific features coalesce with host country institutional
forces to open up the scope for local adaptations of employment prac-
tices from the parent company to the Italian and British subsidiaries.
The intention is not to give primacy to company-specific organiza-
tional influences at the expense of host-institutional factors, or vice versa,
but rather to give greater emphasis to both, and to their interaction, in
shaping the power resources of local actors and hence their ability to
increase their room for manoeuvre vis-à-vis the corporate level, and to
moderate the impact of ‘country-of-origin’ influences.
The evidence shows that local actors in the British and Italian sub-
sidiaries exploited both cross-national institutional differences in the
regulation of employment relations and cross-subsidiary organizational
diversity in order to increase their autonomy and strengthen their
negotiating position with respect to central management. In other
words, the subsidiaries’ ability to push for local interests was affected
by a combination of national-institutional and company-specific traits.
Although most employment practices in the five subsidiaries were
determined at the corporate level, the extent to which local manage-
ment tailored these practices to the host environment was affected by
organizational factors mediated by national-institutional effects.
For example, in those business units where the global HQ coincided
with the European HQ, the determination of employment practices
tended to take place at the European level (i.e. Metal Power co and
Plastic co). Three considerations are useful in explaining the rationale
behind the decentralization of authority from the centre to the
European level as well as its implications for the degree of diffusion of
employment practices within Italian and British subsidiaries. First, the
geographical location where coordination takes place (Europe rather
than US) affects management’s conception of how employment prac-
tices should be coordinated across different subsidiaries. Second, the
degree of integration of employment practices within business units is
influenced by the extent to which subsidiaries are spread across several
Valeria Pulignano 145

countries with differentiated IR systems: when the global HQ is in

Europe, for example, subsidiaries tend to be spread across several
European countries, embedded within very diverse IR and employment
regulation systems. Third, in global business unit HQs located in
Europe, the presence of European managers is likely to lead to a higher
degree of decentralization and local coordination of employment
policies, and these will be more ‘European’ in character.
Case-study evidence shows that Metal Electric co, with its global HQ
in the US and subsidiaries spread across less institutionally diverse
countries, had a weaker interest in coordinating employment practices
at European level than the other two business units, Metal Power co
and Plastic co, whose global HQ was in Europe and whose subsidiaries
operated in more diversified institutional settings. In addition, in the
case of Plastic co, the manager responsible for employment relations at
global business unit HQ was from a continental European country,
with intimate knowledge of works councils and of information and
consultation procedures. As a result, the employers’ side had developed
a more coordinated approach to labour issues at European level, which
involved the employees’ side as well.
The presence of European management at the global HQ level as well
as the coincidence between the global and the European HQ are certainly
‘organizational’ factors since they both relate to the relationship between
subsidiary, regional and corporate head offices, but they are also the man-
ifestation of an institutional effect. For example, in Plastic co, the way in
which employment was coordinated at European level was very much
affected by the institutional framework of the country in which the
European HQ was based, the Netherlands. The Dutch system of IR con-
sists of highly regulated management–labour relations with statutory
support for works councils. It gives plant-level worker representatives the
right to influence company decisions and can lead to an alliance of works
councils and local management against parent company plans. This has
important implications for both European and local levels. Regarding the
former, it fosters a positive employer attitude towards bodies of collective
representation. The case of Plastic co was particularly interesting as man-
agement and employee representatives on the EWC explicitly agreed to
negotiate European-level agreements on the implementation of appropri-
ate company-wide procedures and policies. The agreements covered inter-
net policy and the use of the e-mail system, and ‘pre-employment
screening’ or ‘background checks’ for the recruitment and selection of
employees at the European subsidiaries of Plastic co.
Moreover, the existence of a European management structure familiar
with the Dutch culture of information, consultation and collective
146 Multinationals, Institutions and the Construction of Transnational Practices

bargaining also had implications at plant level. In Plastic IT, for

example, Italian local union representatives expressed their interest in
discussing with management the inclusion of the rewards system
within the ambit of company-level bargaining. In Plastic UK, unions
were able to negotiate changes at the subsidiary level to corporate poli-
cies on holidays and disciplinary procedures. Conversely, in Metal
Power IT, the presence of American managers at the global level had a
negative effect on the approach used by local managers. The latter
strictly followed the individualization policies of the corporate level
while establishing a narrow space for communication with local unions.
Further insights into the impact of the interaction of institutional
and organizational effects on the adoption of American practices can
be gained from the British subsidiaries of Metal Electrical co and Plastic
co. The HR director in Metal Electrical UK argued that the weak com-
petitive position of the British plant in comparison to other operations
in Europe had put enormous pressure on the subsidiary. This reflected
subsidiary-specific factors, such as the subsidiary’s less competitive
position in the product market, but it also resulted from institutional
features: while the deregulated labour market conditions of the British
system helped attract cost-sensitive work to the subsidiary, it also made
it easier to make UK employees redundant, and therefore the subsidiary
was more vulnerable to restructuring and relocation of production
(indeed, as noted above, in 2004 production was transferred to plants
in eastern Europe):

One basic problem we have is the duplication of products through-

out Europe. Here, we can make products which are different from
what is produced in Germany, but we likely make the same products
which are made in France, Spain or Portugal. Generally speaking
here we produce non-customized products, which are very simple
and perhaps more convenient to make in Britain than in other parts
of Europe due to deregulated labour market conditions. In Britain
we are very much affected by that, we have always to keep an eye
on the level of plant performance and productivity; it has always to
be high compared to the other plants in Europe because otherwise
this risks to undermine the position of the subsidiary in the process
of negotiation with the corporate and, correspondingly, it increases
for us the risk of closure and redundancy at plant-level.
(director of HRM, Metal Electrical UK)

Moreover, local actors’ narrow room for manoeuvre in Metal

Electrical UK reflected the relatively weak protection accorded to
Valeria Pulignano 147

employees’ rights in the UK host environment. A shop steward in

Metal Electrical UK argued that:

In Britain the bargaining power of unions is very low because of the

legal restraints of the British industrial relations system. This affects
very much the work local unions can do at the plant level.
(shop steward, Metal Electrical UK)

In Plastic UK local managers saw the situation in a different light

because of the stronger competitive position of the subsidiary in the
global product market – Plastic UK was the only manufacturing site
providing HRM support to other British-based subsidiaries within
Plastic co. The competitive position of Plastic UK offered some room
for manoeuvre in negotiating with the parent company over the transfer
of ‘soft’ issues, such as training and recruitment policy. On these
issues, practices in Plastic UK followed a local pattern and were not
subject to authorization from the centre. However, other employment
issues relating to employees’ terms and conditions (e.g. pay systems
and shifts arrangements) were centrally decided by corporate HQ and
then transferred to the local subsidiary. Moreover, despite the conti-
nental European management style at global HQ, the ‘individualiza-
tion’ of employment relations was strictly maintained in Plastic UK as
in the other British-based subsidiaries of the company. Hence, although
Plastic UK had a higher room for manoeuvre than Metal Electrical UK
because of its stronger competitive position, there was evident conver-
gence between the two subsidiaries in terms of the outcomes of negoti-
ation with corporate HQ. This clearly reflects an institutional effect,
notably the deregulated nature of the national domain.
The cross-national comparison between the British and the Italian
subsidiaries illustrates this argument more clearly. Metal Electrical IT
was seen by European HQ as one of the European subsidiaries most
likely to push successfully for the annual percentage pay increase to
be adjusted to local circumstances. The director of HRM in Metal
Electrical IT remarked that:

We often ask for adjustments in the range of salary increases and

appraisal systems diffused by the corporate level. We do that
because we have very experienced people working here who needs
to be fairly rewarded for what they do! Any adjustment is negotiated
with the European HQ. Once you give a good reason for why you
need something different you get it.
(director of HRM, Metal Electrical IT)
148 Multinationals, Institutions and the Construction of Transnational Practices

The greater scope for Italian management to adapt corporate employ-

ment practices to local circumstances within Metal Electrical co is
explained by the combination of host institutional and company organi-
zational features. The stronger position of Italian local managers, com-
pared with their British counterparts, in negotiating local adaptations of
central policies is explained by the stronger competitive position of the
Italian subsidiary, and by local management’s compliance with national
legal obligations regarding wage determination, collective bargaining
and employees’ representation rights. The plant’s competitive advantage
was seen both in the location in the Italian subsidiary of a technology
centre for the development of new electronics products, and in the posi-
tion of Metal Electrical IT within the local product market. The HR
manager at European HQ in Metal Electrical co stated that: ‘Italy is the
country with the highest concentration of major clients for industrial
systems in Europe.’ The more regulated institutional context of IR in
Italy fostered the influence of local managers and unions over the diffu-
sion of practices, while at the same time central management was more
tolerant of such adaptation given the strong competitive position of the
subsidiary. In Metal Electrical IT, for example, local unions at the three
Italian subsidiaries of Metal Electrical co (which included plants at Turin,
Milan and Rovato) coordinated bargaining with Italian management
over terms and conditions. Using the provisions of the 1993 tripartite
agreement (Social Pact), the unions negotiated over the appraisal system
as part of the four-year pay bargaining round at company level. As a
result, there was inter-plant harmonization of pay and working condi-
tions, in contrast to the predominant corporate strategy of individualiza-
tion of employment relations and attempts to confine bargaining to
plant level. An Italian union representative reported that:

Our common response to the corporate individualized strategy was

to establish a common practice to squeeze the margin for individual
negotiation while enlarging union collective agreements at company
level. In doing that we were strongly supported by the provisions
of the 1993 Social Pact in coordinating activity amongst the three
Italian plants; we set up the ‘core’ of the coordination process
at Metal Electrical IT because of its strategic position within the
international company.

The key information about each subsidiary is summarized in

Table 6.2. Overall, the findings show that, despite cross-country and
cross-organizational differences, the extent to which global models
Table 6.2 The adjustment of practices in American-based subsidiaries

Firm Pay, appraisal and rewards Training and recruitment Collective bargaining Trade unions and
employees’ rights

Metal Electric UK Centrally individualized Centrally defined training Plant-level bargaining. Employees’ rights
pay and performance and recruitment practices guaranteed within the
appraisal systems. with low possibility of national context of social
Employees are rewarded on local adjustments. rights indicated by British
the basis of the level of regulation (very low).
Low level of discretion by
local managers over the
implementation of local
Plastic UK Centrally individualized pay UK operation developed Plant-level bargaining. New discipline system and
and performance appraisal local training. holiday scheme and
systems. System aligned to training procedures
Employees rewarded on the requirements of local negotiated at plant-level
basis of performance. labour market. with trade unions. Pay
and working conditions
regulated by British
legislation (very low).

Table 6.2 The adjustment of practices in American-based subsidiaries – continued

Firm Pay, appraisal and rewards Training and recruitment Collective bargaining Trade unions and
employees’ rights

Metal Electric IT No individualization of Centrally defined training Coordination on pay National statutory rules
employment practices. and recruitment practices bargaining at company and collective agreements
Pay and rewards system but for certain managerial level under 1993 cover employees’ rights at
negotiated with trade unions positions (i.e. within tripartite national the shopfloor.
at company-level as part of HR/IR), those practices agreement (Social
pay increase. are adapted locally. Pact).
Metal Power IT Limited space for trade Centrally defined Coordination between National statutory rules
unions to negotiate local recruitment and training sector and company- and collective agreements
adaptations of pay, appraisal practices. level bargaining in cover employees’ rights at
and reward systems with accordance with 1993 the shopfloor.
management. tripartite national
Plastic IT Appraisals at plant-level – Centrally defined training Coordination between National statutory rules
trade unions indicate space and recruitment practices. sector and company- and collective agreements
for discussion on appraisal level bargaining in cover employees’ rights at
and reward systems with accordance with 1993 the shopfloor.
management. Collective tripartite national
agreements regulate pay agreement.
Valeria Pulignano 151

of production and employment practices were successfully imposed

by the parent company on the subsidiary level depends on the
combined effect of institutional and organizational factors. This is
particularly true in cases where the subsidiary could rely both on a
‘competitive advantage’ – for instance a crucial logistical position
within the market, or a leading role in the design or manufacture of
a product – and on a regulated local institutional environment. Both
factors together increase the scope for action and the possibilities of
strategic behaviour by local actors in bargaining with the corporate

The findings from this study confirm the analytical value of arguments
which critically assess the ‘country-of-origin’ influences in American
MNCs (see e.g. Ferner et al., 2000; Almond et al., 2003; Colling and
Clark, 2002). Whilst the five case studies present evidence of centralized
patterns in employment practices, the chapter also highlights host-
institutional and company-specific factors that, rather than being
mutually exclusive, co-exist in complicated and dynamic configurations.
Company-specific factors include whether European subsidiaries are
good or poor performers, and whether they occupy a strategic position
within the international structure of the corporation. The latter often
depends on the nature of the company’s products and business opera-
tions as well as on the relationship between subsidiary, the regional
level and corporate HQ.
Thus institutional and organizational factors together affect the
extent to which local actors at subsidiary level are able to mediate the
diffusion of employment practices from the parent. These factors offer
local actors’ scope for bargaining with the corporate centre over the
transfer of employment practices, at the same time as jointly shaping
local actors’ strategic choices. Thus the chapter is in line with arguments
pointing to ‘trends’ rather than ‘convergences’ in the way in which
patterns of national business systems are transferred overseas (Almond
et al., 2005). For example, a complex picture, in which national and
company-organizational features strongly interact, can be drawn to
explain trends in the diffusion of employment practices in Metal
Electrical IT and Metal Power IT in Italy. The tight integration of the
functions of new product research and manufacturing in Metal
Electrical IT, as well as the position of the subsidiary in the local market,
contributed to an increase in the autonomy of local management. In
152 Multinationals, Institutions and the Construction of Transnational Practices

addition, the regulated system of collective bargaining allowed

local unions to exploit the resources generated by the competitive
advantage of the plant in the product market and, thereby, to nego-
tiate successfully with the subsidiary on pay planning, training
and recruitment polices, and to coordinate pay at company level.
Conversely, in Metal Power IT, although the size and the position
of the plant within the organizational structure of the MNC
were significant, the lack of knowledge at global HQ of European
national IR systems constrained communication between the MNC
and the subsidiary. This argument is confirmed by evidence from
Britain where the implications of the competitive position of Plastic
UK (and Metal UK) were usually mediated by strong institutional
Generally speaking, adaptations were more easily implemented by
subsidiaries where, on the one hand, local managers had an important
role in the implementation of the multinational’s strategies; and
where, on the other, unions were prepared to exploit the strategic
choice of local management by negotiating the process of adaptation.
Thus comparative analysis leads to the emergence of a complex picture
whereby institutional and organizational factors broadly interact to
shape subsidiaries’ policy responses by fostering the creation of scope
for bargaining by local actors in MNCs. The means by which European
subsidiaries dealt with the diffusion of corporate practices within the
same American MNC are seen to be affected by beneficial company-
based and institutional features that local actors in both countries
could exploit within their different national contexts in order to bargain
change with the corporate centre.

The author thanks the British Academy (SG-36170) which funded the
research, and Tony Edwards, Paul Marginson, Paul Edwards and the
editors of this book for the stimulating comments on an earlier version
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Who is Hybridizing What? Insights on
MNCs’ Employment Practices in
Central Europe
Guglielmo Meardi and András Tóth

Within an enlarged and more diverse EU, the opportunities have
increased for international reorganization of production and, with this,
for ‘coercive comparisons’ and efficiency-oriented transfers of practices.
This chapter discusses the dynamics of transfer through longitudinal
case studies of two foreign investors active in the region since the
beginning of the economic transformation in Central Europe (CE). The
two cases represent contrasting situations: a greenfield investment in a
non-union site by a medium-sized German company, compared with a
large Italian multinational company (MNC) investing in strongly
unionized brownfield sites.
Both cases, through different paths, show that the transfer of prac-
tices by MNCs in CE leads to hybridized outcomes, but with dynamics
that are difficult to understand through the lens of prevalent images of
‘hybridization’. Rather than the country of origin pushing through
its models against host-country constraints and resistance, it is the
‘permissive environment’ of the host country that attracts MNCs and
encourages the management of the mother company to innovate. This
recalls what Dörrenbächer (2002) refers to as ‘hybridization at source’.
We argue that management innovation in such cases takes advantage of
the permissive environment of the host country to replace constraining
elements of the home model, developed through decades of state and
union pressure, with host-country assets. In this logic, managers seek
to re-create more flexible, more unilaterally managerial versions of the
production process they operate at home, using human resource (HR)
policies that are ‘functional equivalents’ of home employment regimes.
The importance of host-country dynamics is reflected in the need for

156 Multinationals, Institutions and the Construction of Transnational Practices

local partners – whether managers, employees or even employee

representatives – who embrace some features of the ‘home’ production
model of the company. Nonetheless, such engagement has its limita-
tion and causes tensions.
These processes call into question views of MNCs as ‘missionaries’
and, it will be argued, require a better understanding of power relations
at play and of actors’ strategies (‘who’ is hybridizing and why) as well
as better analytical distinctions between the different practices that are
transferred or adapted (‘what’ is being hybridized).
The chapter first discusses existing debates on hybridization, with
specific consideration of the CE case, leading to the conceptualization
of ‘pull’ hybridization. It then presents the two case studies. The
conclusion will make some theoretical and policy observations.1

Hybridization theory: insights and limits

The original image of hybridization
The most ambitious formulation of ‘hybridization’ is provided by
Robert Boyer on the basis of empirical evidence on production
models in the automotive industry and especially on the problems of
‘Japanization’. For Boyer (1998), hybridization is a third, mid-way
situation between diffusion, that is the transfer of home-country
models abroad, and adaptation, that is the adoption by the foreign
subsidiaries of the pre-existing practices of the host country. The idea
of hybridization does not refer to HR only. It refers to the broader
concept of ‘productive model’, as composed by product policy, produc-
tion organization, and employment relations. A productive model
requires internal coherence (complementarity among different elements)
and external pertinence. It is the idea of external pertinence that offers
the link with institutional analyses and with the idea of socially
embedded forms of capitalism.
This chapter develops the arguments of Dörrenbächer (2002) that,
despite the usefulness and popularity of the concept, most research
on ‘hybridization’ has made too rigid and mechanical a use of it. In
particular, analysis has often been based on the implicit assumption
that MNCs are rooted in a home-country model and therefore only
concerned with ‘diffusion’. This has led to a neglect of situations in
which transferability is not a goal of MNCs and hybridization follows
different patterns. Two aspects of transfer are highlighted by our
research. First, attraction (pull) from abroad rather than diffusion (push)
is an important mechanism at work. Second, while research on
Guglielmo Meardi and András Tóth 157

Japanization provides many examples of MNCs that have to adapt, it

neglects cases where they want to adapt; in contrast, our findings point
to processes in which adaptation is deliberately sought by the parent
company as an outcome of cross-border transfer. In this perspective,
the case of CE is particularly telling.

‘Hybridization at source’: the absence of Germanization

Interestingly enough, Boyer’s first and purest example of hybridization
comes from a post-communist location: the Eisenach Opel factory in
Eastern Germany (1998: 54). In this case the institutions were the same
as in Western Germany, but historical experience was quite different.
This made it a viable location for the company to experiment with
leanest production, which would have been arguably more difficult to
introduce in the old Bundesländer. This interesting observation raises
further questions.
The Eisenach case may be seen as the starting point for a new stream
of research looking at German MNCs and their alleged effort to escape,
rather than diffuse, their original production model (Modell Flucht),
especially with regard to employment relations (Ferner and Varul,
2000; Lane, 2000; Tüselmann et al., 2003; Pries, 2003). The case of
German companies is a distinctive one because of the long-lasting
Standortdebatte on location competitiveness, but it may show with
more clarity processes that can take place in other MNCs.
Tüselmann et al. (2003), while detecting some country-of-origin
effect in industrial relations (IR) and in the emergence of a new
‘German style’ of ‘pluralistic HRM’, interestingly find that ‘German
MNCs, in an Anglo-Saxon context, tend to be at the forefront in adopting
what is frequently assumed to constitute the best practice element of
the Anglo-Saxon approach’ (p. 339). Pries finds that in the BMW plant
in Tuscaloosa (USA) ‘the decision-making process (…) is much faster than
in production sites in Germany, and workers’ participation in process
optimisation is much higher’ (Pries, 2003: 94). Foreign BMW plants
were the frontrunners of Japanization within the corporation: a case of
implementing a model abroad, but not the company’s original one.
Dörrenbächer (2002) has pointed to the shortcomings of institution-
alist approaches to MNCs diffusion and hybridization, based on the
concept of business systems. The focus on the ‘pertinence’ of the
home-country model overestimates the original coherence and under-
estimates host-country effects. Notably, there is a ‘strong strategic
desire of the top management of many MNCs to flee certain aspects of
their country of origin business system and/or to learn from or to
158 Multinationals, Institutions and the Construction of Transnational Practices

experiment with aspects of other business systems’ (p. 3). In some

cases, what happens in the foreign subsidiary is not the more-or-less
mediated outcome of the transfer of home-country models, but deliberate
innovation intended to affect the whole group, as in the Audi case in
Hungary. This subverts ethnocentric views of MNCs: the home country
is not necessarily the ‘model’, and the host country is not necessarily a
passive recipient.
Dickmann (2003) has noted insufficient consideration of the issue of
willingness in the transfer of German HRM abroad. He argues that firms
may consciously be using differences in business systems to pursue
distinct local strategies, enabling a higher flexibility overall. Indeed,
Dickmann’s own findings on German MNCs in the UK and Spain show
that five out of six companies had an international HR strategy, but
none wanted to transfer the German IR approach: the increase in man-
agerial prerogative was seen as outweighing the advantages of codeter-
mination. As one manager puts it: ‘we do not tie a millstone around
our necks’ (p. 274). Yet the implications of such unwillingness to transfer
become most apparent in the case of CE.
Dörrenbächer (2002) admits that German MNCs often declare that
they have transferred their ‘German’ employment practices, but this
usually does not correspond to the reality. And what research shows in
many cases is not just a modification, attenuation or adaptation of the
original model, but a radical and deliberate departure from it. Such
change can be interpreted as a search for functional equivalents (Ferner
and Varul, 2000; Bluhm, 2003), but this does not reduce the importance
of the fact that, against institutional coherence views, the production
system is maintained through a change of the underpinning ‘social
Two aspects are widely considered as pillars of the German co-deter-
mination system. First, there is a division among channels of employee
representation, in order to keep wage determination (arguably the
most disputed issue) outside the firm (sector-level, union-led collective
bargaining) and day-to-day cooperation inside the factory (through
works councils). Second, the system is characterized by a long-term
orientation which translates into employment security, generalized
vocational training and stakeholder voice, in exchange for reliability,
productivity, transferable skills and human capital development.
Behind the specific organizational solutions, one can argue that if these
two pillars are deliberately rejected, it makes little sense to speak of
diffusion or even hybridization in Boyer’s sense: the push element is
not present and there is little ‘Germanness’ left.
Guglielmo Meardi and András Tóth 159

Research on German investment in Hungary by Fichter and

Dörrenbächer (Fichter et al., 2004; Dörrenbächer, 2002) shows exactly
this. Works councils are allowed, but not consulted. Sector-level collec-
tive bargaining not only does not apply, but its possibility is viewed
with repugnance. Employment practices depart even further from
German standards, with the adoption of trial-and-error employee selec-
tion, use of agency workers and frequent unilateral overtime. German
firms in Hungary adopt individual paternalistic communication strate-
gies, rely on on-the-job training more than on vocational training,
introduce innovative forms of teamwork, do not join, and even
actively undermine, employer associations, and keep employee repre-
sentatives at a distance. In other words, they seem more American than
Hybridization, if it happens at all, is then understood not as the
balance between home-country pressures and host-country resistance,
but the outcome of the firm’s selective transfer strategy. The authors
call it ‘hybridization at source’ in contrast with ‘exogenous hybridization’
(Dörrenbächer, 2002). The contrast between very high technological
transfer (with some Hungarian workplaces overtaking their German
counterparts) and very limited IR transfer is striking, and it raises
important questions about both the state of the German model and
the coherence of productive and business models.
Such findings suggest that the home-country model is changing its
meaning, moving away from an emphasis on rigid institutional path-
dependency. As Lane (2000) puts it, hybridization in Germany occurs
through German MNCs’ learning from abroad. On the telling issue of
performance-related pay in Germany, Kurdelbusch (2002) found no
difference between foreign and nationally-owned companies, but an
important effect of internationalization regardless of ownership: inter-
nationalization in general, not FDI inflow alone, matters. German
companies ‘pull’ from abroad as much as foreign companies can
‘push’. The lengthening of working time at Siemens (one of the fastest
internationalizing German companies) in Germany under the threat of
relocation is a rather brutal instance of such ‘pull’ factors.

Towards a ‘pull’ hybridization theory: the case of CE

The important work on German FDI points the way to an improved
conceptualization of mechanisms of hybridization. This chapter argues
for the generalizability of such mechanisms through the discussion of
two contrasting case studies: medium-sized and large, German and
160 Multinationals, Institutions and the Construction of Transnational Practices

The general concept proposed is that of ‘pull’ hybridization. The idea

of ‘pull’ effects is already present in the literature with the narrow and
rather inappropriate meaning of ‘adaptation’ to local practices, for
instance in the case of MNCs in China (Farley et al., 2004). Such meaning
is inappropriate because the image of ‘pulling’ implies a voluntary act
and the drawing-in of practices from another location.
The idea of hybridization as a ‘pull’ rather than ‘push’ process requires
further theoretical revisions. It includes two equally important compo-
nents. First, it brings in the process of ‘reverse diffusion of practices’
detected and analysed by Edwards (1998), whereby headquarters ‘pull’
some elements from host countries. ‘Pull’ hybridization cases show
that such reverse diffusion does not necessarily depend on the relative
power of the subsidiary, as it may actually be planned by the headquar-
ters. Pull hybridization does seem, however, to be influenced by what
Edwards calls hegemony effects, whereby certain models (currently, the
Anglo-Saxon ones) enjoy higher legitimacy than others. Second, it points
at ‘attraction’ processes, whereby the home-country model diffusion is
requested instead of resisted by host-country actors.
Overall, the idea of ‘pull’ hybridization moves from an institutional-
ist paradigm of coherent models to a more actor-centred paradigm
focused on strategies and power of different actors within MNCs and
business systems.
We will look at these dimensions of hybridization in the context of
CE: a region generally expected, as a result of its status on the ‘periphery’,
merely to adapt to external pressures or to resist them. A multidimen-
sional perspective on hybridization, able to overcome the ethnocentric
dualism between central models and peripheral routines, recognizes an
innovative potential for subsidiaries, as well as the selective attractive-
ness of host-country environments for MNCs. Other ‘peripheral’ areas
have proved to be at the cutting edge of MNC innovation, for instance
Mexico for VW (Pries, 2003), South Africa for BMW (Pries, 2003) or
South America and Southern Italy for Fiat (Balcet and Enrietti, 1999;
Pulignano, 2003). In the same way, CE has proved in many regards to
be ‘more Western than the West’ (Meardi, 2000) and its automotive
suppliers sometimes form ‘frontrunner networks’ in terms of organiza-
tional innovation (Ruigrok and van Tulder, 1999).
The position of MNCs in the new member states of the EU is struc-
turally distinct. The unique combination of geographic proximity,
high labour-cost differentials but comparable productivity levels, the
absence of non-tariff barriers, and the existence of some degree of
transnational political and social regulation, makes the enlarged EU
Guglielmo Meardi and András Tóth 161

different from other free trade areas where, as in the case of NAFTA,
non-tariff barriers persist and virtually no supranational labour rights
exist. International pressures and processes are most visible within a
single market like the EU, where the debate has been shaped by the
idea and threat of relocation.
For the reasons discussed in the previous section, change in CE is
particularly visible in the case of German MNCs. Bluhm (2003) has
shown that although some German investors in Poland and the Czech
Republic do transfer parts of the German model, they do not promote
sector-level regulation, even seeking to oppose and undermine sector-
level employer organizations. This applies not only to smaller German
companies but also among larger MNCs, despite the fact that such
regulation should be a pillar of the ‘German model’ for these firms.
Thus German operations in Poland are oriented towards individual-
flexible models of labour relations that have little in common with
German models of representation. Domsch et al. (1999) confirm that
German companies in Poland have the same recruitment strategies and
the same personnel development policies as Polish firms; local actors
do distinguish between Poles and Germans, but more on the basis of
stereotypes than on actual differences.
Our (unpublished) survey of German and US investors in the Polish
automotive sector (N = 30) confirms the departure of German compa-
nies from the classic German model. Controlling for size and mode of
entry, the findings show no significant difference in the presence of
trade unions between US and German subsidiaries, which is itself a
challenge to the meaningfulness of home-country models. Such depar-
tures are not confined to German firms. The French firm Danone
experimented in Poland with non-union employee representation
bodies (Meardi, 2000); although management presented them as a
traditional Danone practice, such bodies are clearly unknown in the
home country. Durand (1997) gives further examples where local
managers in French companies in CE react more quickly to innovation
than their home-country counterparts.
It is important to stress that the attractiveness of the periphery does
not simply derive from low wages, as the traditional New International
Division of Labour theory would have argued. It reflects a broader com-
bination of employee relations, flexibility, organizational fluidity, skills
and work attitudes. As recent studies show, since the second half of
the 1990s, CE has attracted higher-value MNC operations, often not
dissimilar from those of home countries and already at the level of
southern Europe (Baldone et al., 2002; Radosevic et al., 2003). The most
162 Multinationals, Institutions and the Construction of Transnational Practices

important targets for FDI in the region are not the traditional low-skilled,
labour-intensive sectors like textiles, but sectors that are important for
market access or that are technologically advanced (motor vehicles,
chemicals, electronics). Some companies, like Peugeot and Toyota in
the Czech Republic, also locate centres for R&D in the region, and
General Electric is locating all of its European customer services in
Hungary. The fragmentary evidence available shows that as long as
they have made the necessary technological investments, MNCs
usually obtain similar hourly levels of labour productivity in the
region, and hence often achieve higher overall productivity thanks to
longer working time.
Thus it seems that most hybridization research has neglected the
growing power of MNCs, especially in diverse free trade areas like the
enlarged EU. A recent example is Siemens’ new form of organization,
‘Siemens Management System’, whereby all company functions, from
pure research to the simplest operations, should be capable of world-
wide relocation in the name of ‘global value creation’. Interestingly,
Siemens has decided to locate important new operations in Hungary in
spite of the failure of a previous more traditional transfer to the
country. The transfer of practices may still occur in many cases, as a
result of control, integration and quality standardization constraints,
but there are no longer reasons to take it as the natural state of things.
Despite MNC power, other actors must also be included in the analysis.
Even when MNCs want to diversify productive systems instead of
diffusing the original one, the factors influencing the feasibility of
transfer still operate: coercive forces in the host country (laws, institu-
tions, organizations) and the resources of actors at different organiza-
tional levels, including those within the host country (Ferner and
Edwards, 1995). However, such channels may operate to attract rather
than to resist transfer. Public bodies, employee representatives, and
other host-country actors may make use of arguments about ‘fairness’,
product standardization and ‘product reputation’ arguments to attract
home-country practices even when the MNC does not intend to diffuse
them. European works councils, as networks if not as deliberative bodies,
are potentially privileged channels for such bottom-up pull attraction
and even upwards ‘coercive comparisons’ whereby standardization
operates through the upgrading of labour conditions (Meardi, 2004).
A final and particularly ambiguous actor is local management. Local
managers may reject diffusion when employees are requesting it.
Research in progress shows that local managers in German subsidiaries
may be disappointed by the transfer of HR or IR practices as it can reduce
Guglielmo Meardi and András Tóth 163

their status or increase the constraints imposed on them by employee

representatives. But local managers may also be keen implementers of
new practices. In any case resistance, whether by employees or by
managers, is not on the grounds of ‘old routines’, as assumed by Boyer.
Different actors will have different interests as to what to ‘pull’. In
particular, host-country managers are likely to want to pull the legiti-
mating role of technology and of the restructuring/change discourse,
as our case studies will show. Employees may also want to pull techno-
logical expertise, on condition that it does not destroy jobs, but they
will also increasingly wish to attract the social (organizational and IR)
elements of the home-country production system. Requests by host-
country managers, technicians and employee representatives may be
driving transfer to the host much more than headquarters pressures.
On the other hand, home-country managers are increasingly likely,
within a public discourse of globalization and relocation, to attract
elements of host-country flexibility or productivity.
To conclude, Boyer’s model of hybridization based only on home-
country diffusion and host-country resistance (Table 7.1) does not
seem well suited to predict developments in CE. According to the
model, German and Italian companies should fall in the north-west
cell, of pure transplantation of the firm’s original model, given that
they are transferring clearly defined routines to a weak, heteroge-
neous host. As the case studies in the next section will show,
however, this is generally not the case at all.

Table 7.1 Nature and likelihood of hybridization (Boyer, 1998: 38)

Host space Weak and Rather strong, Strongly coherent

Firm’s model heterogeneous compatible with and homogeneous
some diversity

Precisely defined Transplantation Uncertainty Conflict

principles and [expected result
routines of MNCs in CE]
Clear principles Partial Hybridization Hybridization as
but some routine hybridization innovation
Neither principles Incoherence New trajectory Adaptation
nor routines are
164 Multinationals, Institutions and the Construction of Transnational Practices

In order to account for CE, it is necessary to elaborate on Boyer’s

model to allow for the case in which the firm has the power and will-
ingness to diversify its practices across countries and sites. In addition,
the host’s weakness and strength should be understood not only in
relation to the ability to resist transfer, but also to the ability to attract
or innovate. Table 7.2 is an initial configuration of a revised model
with these two additional possibilities. This will be used in the further
discussion of case studies from CE.

Table 7.2 Revised model to take account of efficiency-seeking FDI in CE

Host space Weak and Rather strong, Strongly Institutionally

Firm’s model heterogeneous compatible coherent and weak, but with
with some homogeneous informal
diversity resources
Precisely Transplantation Uncertainty Conflict Low-intensity
defined conflict
and routines
Clear Partial Hybridization Hybridization Low-intensity
principles hybridization as innovation hybridization
but some
Neither Incoherence New trajectory Adaptation Informal
principles distortions and
nor routines resistance
are strongly
Power and Sweatshop Isolated Externally- ‘Pull’
willingness experiments contested hybridization
to diversify hybridization [cases in
Hungary and

‘Pull’ hybridization in contrasting contexts

Methodology and comparative purpose
Two case studies will be presented which, for the sake of theoretical
generalization, display prominent differences. The first is in some
regards representative of ‘greenfield’ situations, in which the investor
enjoys a higher degree of freedom than average in shaping employ-
Guglielmo Meardi and András Tóth 165

ment practices. The second presents the contrasting situation of a

large, brownfield investment in a highly unionized site. The discus-
sion will show the generalizability of our approach. Although they
followed different routes, both cases exhibit similar unexpected
forms of hybridization, reflecting CE-specific resources and dynamics.
The first example is taken from a research project on German investors
in Hungary (Fichter et al., 2004), the second from in-depth research on
Italian investors in Poland, carried out in 1995–99 (Meardi, 2000) and
followed by an update in 2004. Both cases are longitudinal and focus
on the historical sequence of events. The methodology is that of
in-depth qualitative research, including non-participant observation
and document analysis but primarily centred on a high number of
interviews (28 in Hungary, 35 in Poland) with employees, local and
foreign managers, headquarters managers, and home- and host-country
employee representatives.

Greenfield hybridization: an ‘ideal’ German model in Hungary

First steps: entry and early development
The German Tool-Manufacturing Company (GC) is a family-owned
medium-sized company, among the world’s leading producers of
sensors. Its model retained some of the characteristics of paternalistic,
family-like company culture despite the rapid changes of the last
decades and adoption of modern management techniques. The busi-
ness strategy in this product niche combines high-level R&D and low-
cost, high-quality production. In the 1980s, the German plant employed
around 800 employees, of whom 600 were production workers.
The company reached a critical juncture in the late 1980s. In order
to sustain its wide product portfolio, it had to add a low-cost manufac-
turing base. The solution, a new low-cost subsidiary (HS), was located
in a medium-sized industrial city in Western Hungary. The location
was chosen for the close logistical links, allowing a flexible production
network to be operated between the parent company and the new site.
A personal factor also played a role. The engineering director, who
managed the establishment of the new subsidiary, had been born in
Hungary. He personally knew the individual appointed as director of
the subsidiary, a Hungarian engineer who was the head of the R&D
department of a major Hungarian automotive supplier company.
GC opted for a greenfield site and a trial-and-error development
path. It started by relocating old machinery which had been operating
a single shift in Germany owing to the works council’s opposition to
two-shift schemes. Hungarian employees, eager to show their abilities,
166 Multinationals, Institutions and the Construction of Transnational Practices

fixed the machine and secured a continuous flow of production over

two shifts. These early signs of commitment and ability were a key
early positive experience for top managers at GC. The second machine
introduced at HS was a state-of-the-art pick-and-place machine, which
represented a new technology never previously used by the German
A stream of step-by-step relocations of assembly activities from
Germany took place up to 1993. In this period relocation had an ad hoc
character: as opportunity or necessity arose, production in Hungary
was expanded. At the same time, HS took back in-house the production
of some components which had previously been outsourced to smaller
firms in Germany. This increased the autonomy and customer-oriented
flexibility of the company, but also, due to low labour costs, allowed
further cost-cutting. Additionally, HS was assigned new high-tech
activities not previously undertaken in Germany. At the end of this
period, HS employed 77 people. 1993 marked the beginning of a new
phase. Between 1993 and 1994, a major relocation took place with the
transfer to Hungary of the assembly of sensors. By the end of 1994,
employment at HS had risen to 190.

Turning point and qualitative change

In 1996, the company systematically redesigned its division of labour,
concentrating all mass-volume production in Hungary. Employment at
HS rose to some 400. In the new work division, the German plant
retained the relatively small responsibility for assembly of low-volume
customer-specific sensors. The number of production employees in
Germany was reduced to approximately 100, while headquarters and
R&D functions at the German site were reinforced. Subsequent years
saw an increase in R&D, marketing, purchasing and supply chain tasks
at HS.
This international reorganization was successful. HS offered a low-
cost production platform for GC, but also enabled it to develop new
manufacturing activities, building on the high quality of local human
resources and industrial experiences.
The end of the 1990s saw a rapid and seamless reorganization of pro-
duction according to Japanese production principles. Reorganization was
shaped by the engineering director, who had previous direct experience
of Japanese car manufacturing practices. He was assisted by specialized
external consultant firms, especially in the planning of teamwork and the
introduction of kanban in 1998. Reorganization of production was fol-
lowed by revamping of other areas, including the IT network in 2001 and
Guglielmo Meardi and András Tóth 167

more recently the re-shaping of the supplier network, reducing the

dependence of the company on traditional suppliers.

Transfer of production, HRM and IR

In the case of relocation of production, there was a virtual one-to-one
transfer of organization. Hungarian employees were trained in Germany
and German engineers were posted temporarily to Hungary to supervise
the transfer. Certain modifications of the production process were
introduced as a result of technological advances, higher automation
levels in Hungary, or differences in the physical layout of the
Hungarian plant. These modifications, however, were designed by the
engineering department of GC. The Hungarian input to the production
planning process tended to be limited to ergonomics concerns. The
tightness of GC control is shown by the fact that the Hungarian side
had to seek German approval for any process development. The intro-
duction of SAP software system tightened GC control over HS even
further, and the hands of Hungarian management were tied by produc-
tion, quality and cost targets set by central headquarters.
By contrast, Hungarian management enjoyed autonomy in shaping
HR policies. Company policy was to ensure decent wages and working
conditions by local standards. The Hungarian director (HD) exercised
tight control over employment relations in HS. He had a paternalistic
style that emphasized loyalty and commitment balanced by good
working conditions and fair compensation. HS was regarded as a high-
wage company in the local context and had a reputation for being a
‘caring’ company. With its relatively higher wages, it was able to
employ the cream of the local labour market and had a better-trained
workforce than the parent company in Germany. The higher skill levels
of employees in production areas allowed a highly quality-oriented
work culture and job flexibility. In addition to relatively good wages,
the company offered working conditions at least equal to, if not better
than, those at the German plant.
The wage system for production workers encouraged multi-tasking and
multi-skilling. The hourly wage for production employees depended
solely on how many jobs and of what skill level an employee was
capable of performing, regardless of seniority. On top of basic pay, there
was monthly contingent pay of around 20 per cent, based on individual
evaluations of employees’ quality and performance. Those who had not
been on sickness leave during the previous month received an additional
bonus. The salary was accompanied by a wide-range of fringe benefits.
The pay system thus differed significantly from the mainly hourly-based
168 Multinationals, Institutions and the Construction of Transnational Practices

German wage system, fixed by the sector collective agreement of Baden-

Württemberg. The plant’s highly flexible working-time arrangements
allowed it to adjust working hours to production cycles. Flexibility was
unilaterally determined by management, thus departing from the par-
tially employee-led German model (whereby employees may use time-
bank schemes to adjust their daily working schedules to their other
Training had an important place in HS, both on-the-job and in rela-
tion to organizational change. The company supported two vocational
schools and there were schemes to provide financial support for higher
education for employees.
The adaptation of the family style of the company culture was facili-
tated by the fact that HD has a very similar paternalistic conception of
company culture to the German owner-manager of the parent company.
As far as IR were concerned, GC and HS seem to be at opposite ends
of a continuum. HS was run unilaterally by its management and was
not constrained by works council or trade union, or by a sector or
company collective agreement. GC was a typical German company
with an influential works council and a sector collective agreement
limiting managerial prerogative on the pay system. In several inter-
views with headquarters managers it was obvious that inflexibilities
imposed by IR actors were seen as a problem rather than an asset.
Nonetheless, from the 1990s the danger of relocation was an essential
managerial bargaining chip for obtaining concessions from the local
works council. The stream of relocations put the works council on the
defensive. It primarily represented a declining segment of the blue-
collar workforce, and was seemingly unable to establish strong links
with the growing body of white-collar employees.
GC made no attempt to create a copy in HS of the works council
model operating in Germany, although Hungary introduced legislation
on works councils in 1992. On the contrary, the German engineers
who directed the setting-up of production at HS made clear that they
did not want to have constraints such as those exerted by the works
council in Germany. They regarded the works council as an obstacle
to flexibility, efficiency and best practice, and HD seemed to share
this opinion. HS, as a greenfield plant, had not ‘inherited’ a union.
Management built up a paternalistic and high-involvement enterprise
culture which offered no space for autonomous workers’ representa-
tion. It was not covered by a sector or regional collective agreement
and there was no attempt to set up a local union organization, nor any
initiative on the part of employees to establish a works council.
Guglielmo Meardi and András Tóth 169

The ‘pulling’ factors of hybridization and development

HS represents a rare case in which a Hungarian subsidiary’s position
was upgraded, a process that usually meets a number of obstacles
(Dörrenbächer and Gammelgaard, 2004). A number of elements
influenced its development path. First, there were ‘objective’ structural
factors. Lower labour costs and lax labour regulation offered consider-
able cost-cutting advantages. The presence of a well-trained and skilled
local workforce with considerable experience in manufacturing made
the establishment of a greenfield plant less risky. The dual-track invest-
ment strategy (allocating high-tech mass production to HS and retain-
ing labour-intensive customized products in Germany) relied on longer
working time and the greater availability of shiftwork in Hungary,
allowing more intensive exploitation of machinery. This fitted well
with the paternalistic notion of GC top management, which did
not want to have a low-cost ‘sweatshop’, but preferred to build up a
comparable work environment.
A second, more contingent, element was the good personal relation-
ship and high level of trust between engineering director and HD. The
engineering director recognized the local innovative capacity and
valued the Hungarian education system, general knowledge base and
expertise in fields such as software development and machine building.
Hungarian employees were proud to consider themselves more innova-
tive and flexible than their German colleagues.
A third element was that GC employment practices fitted well with
the orientation of Hungarian management. A broad coincidence between
the traditions of GC and the personal culture of HD facilitated the
development of an ‘old German-style’ corporate culture, work ethic
and personal commitment, based on a family-management approach
and high involvement.
Nonetheless, the lack of independent social control over manage-
ment, in the form of works council or trade union, also underlines that
these HR policies were deployed on management’s terms and their
major function was to ensure the untroubled flow of production and
flexible working practices; this was seen for instance in the contingent
pay element related to the assessment of sickness absence. Employees
in HS lacked independent channels of influence over managerial
policies and were more dependent on the benevolence and goodwill of
their managers, an important difference compared to Germany.
Transfer, when it occurred, was selective, institutionally-unconstrained
and led by host-country actors as much as by their home-country
170 Multinationals, Institutions and the Construction of Transnational Practices

Brownfield hybridization: the Fiat case in Poland

First steps: entry and early development
The car-maker Fiat took over two large Polish factories in 1992. Fiat is
rooted in a strongly specific production model in Italy. Although not
representative of the whole of Italian manufacturing, the model is
characterized by cooperative links with the political authorities,
Fordism (in the period between the 1950s and the 1970s), and adver-
sarial but also concessive IR.
Fiat was unique among Western car-makers in its long-standing
involvement in production in communist countries, including the
Soviet Union, Romania and Yugoslavia. Fiat did not therefore enter
Poland after 1989 but was already there, through close cooperation
with the two state-owned car-making companies, FSO and FSM. With
FSM, Fiat had opened a new assembly plant in Tychy, Silesia, in the
1970s. In 1987, it chose Tychy as the world production site for its
smallest model, the Cinquecento. The fall of communism required a
change of strategy, with disengagement from FSO and the take-over of
FSM in 1992.
In spite of the apparently pure transfer of Fordist practices, produc-
tion in FSM before the arrival of Fiat was characterized by state-socialist
peculiarities, which have been defined through the oxymoron of
‘arrhythmic Taylorism’ (Andreff, 1993: 244). One extreme example was
the company’s practice of asking for help from the army to increase
labour supply in order to achieve increases in production. Its depar-
tures from Fordism did not avoid worker unrest – Solidarity was very
active in the 1980s, led initially by technical workers and then increas-
ingly by manual workers – but did impede high quality: in the 1980s,
only 10 per cent of production was suitable for export to Western
markets. After 1992, within a few years Fiat Auto Poland had achieved
world standards and subsequent models, Seicento and Panda, were also
produced there.
After privatization, most workshops (above all assembly line and
paint shop) underwent substantial modernization. Work organization
was redesigned and an enormous increase in productivity followed.
Among the most important changes in the first period of restructuring
were (Ga̧ciarz and Pańków, 1996): the weakening of the position of
Polish executives; the reduction in those employed in R&D activities
(which were transferred to Italy); a massive move from indirect to
direct production jobs; increased internal mobility (including between
the Tychy and Bielsko-Bial⁄ a factories, one hour’s drive apart); working-
time flexibility; workforce rejuvenation; and an impressive drive for
Guglielmo Meardi and András Tóth 171

retraining. Some 3000 workers (25 per cent) were involved in training
in 1992–1993 and hundreds visited the Italian plants, although such
activity often had, in the workers’ view, an ideological rather than a
technical content. A final important change was the widening of pay
differentials, with the pay of a workshop director increasing from three
times that of a manual worker to seven times. The resulting production
system, still Taylorist in nature, generated conflict and adversarial
relations (Meardi, 1996). Overall, between 1992–1996, the Fiat model
was rationalized and many aspects of socialist management and
work practices were rejected.

Turning point and qualitative change

Fiat waited until 1996 before transferring the ‘Japanese’ work organiza-
tion model launched in Italy in 1989, and already implemented in
Brazil. Management believed that a period of clear distinction of roles
was necessary to eradicate former ‘socialist’ modes of participation and
Solidarity self-management traditions before introducing a radically new
form of ‘participation’. In addition, Polish foremen were not considered
ready to take over the responsibilities associated with Japanese lean
production techniques under the label of the ‘integrated factory’, IF.
The new productive principles – Japanese lean production and the
‘modular’ factory based on large-scale in-house outsourcing – started to
be implemented between 1996 and 1998. There were, however, some
important changes with regards to the original IF model, in line with
Italian practice. The number of hierarchical levels was reduced, the
most traditional foreman roles were eliminated, and teamwork was
introduced in the form of Elementary Technology Units (ETUs) under
the new position of ETU heads. However, one important preliminary
step which had been taken in Italy was not taken in Poland. According
to Bonazzi (1994), a crucial reason for the unexpected success of Fiat’s
‘gentler way to Japanization’ lay in the previous ‘high automation’
phase which, by massively reducing physical effort (but also making
work more monotonous), had prepared the ground for worker accep-
tance of reorganization. In Poland, automation had been introduced
very selectively because the much lower labour costs did not justify the
investment. Instead, cheaper functional equivalents for high automa-
tion were found. First, impressive refurbishing of toilets, showers and
locker-rooms were instrumental in building consent to reorganization
just as ergonomic improvement had been in Italy. Second, the much
higher education level of Polish workers in comparison to their Turin
counterparts (typically, 11 years in education rather than five as in
172 Multinationals, Institutions and the Construction of Transnational Practices

Turin) allowed for faster and more direct change, and for better results
from training. Finally, interviews point to the counterintuitive judge-
ment that their past work experience in the planned economy had
made Polish workers more suited to lean production and continuous
improvement. In fact, as Burawoy detected during his Hungarian
research in the 1980s, under the shortage economy workers became
accustomed to responding creatively to unforeseen events in produc-
tion, and were therefore more flexible than their American counterparts
(Burawoy and Lukács, 1985). These capacities turned out to be of value
to the company within a Japanese model that which required workers
to take immediate action on problems instead of leaving them to final
quality control to address, as under traditional Fordism. Fiat managers
both in the Polish plant and at headquarters insisted that Polish
employees were more open to change and innovation than the Italians.
Managers gave a rather uncritical culturalist explanation (Polish mental-
ity versus Italian mentality) and made political use of it to pressurize
Italian unions and employees. A broader look at society and economics
in Italy and Poland would clearly discard a culturalist explanation: the
smooth introduction of Japanization in Poland in 1996–1997 must have
been prepared by workplace-related preconditions.
With time, managerial authority was delegated from Italian to local
managers, many of whom had already been managers under state
socialism, and everyday production management was undertaken by
Polish technicians and ETU heads, with much less intervention by
Italian technicians. Already in the late 1990s, rather than telling Polish
workers to learn from the Italians, supervisors were starting to advocate
the reverse to Italian workers (which was not welcome in Italy). In 2003,
the Polish factories pioneered a new phase of Japanization based on
‘lean manufacturing’ and the introduction of (management-appointed)
team leaders. On both lean manufacturing and quality management, it
was now the Italian factories that followed Polish practice.
The process seems to have achieved its peak in 2003–2004, when
production of the new Panda was introduced in Tychy with minimal
Italian intervention, and with a smoother and more successful outcome
than in the previous cases of the Cinquecento and Seicento. Productivity
and quality levels were the best in the group and were fast approaching
the Toyota benchmark; the Polish factories were the first to obtain ISO
9001 certification. The local union August 80 could proudly claim in
its bulletin to have overtaken the Italians (Mordasiewcz, 2003).
With regards to outsourcing, which had a dramatic impact on IR at
Italian sites (Bonazzi and Pulignano, 2002), change involved an apparent
Guglielmo Meardi and András Tóth 173

transfer of the Italian model. The process was called tercjaryzacja, a

Polish neologism that corresponds to terziarizzazione, the Italian term
for outsourcing. However, the process was not as problematic as in
Italy thanks to an organizational specificity of Polish unions, rooted in
the August 1980 strikes: the horizontal, multi-site organization. Polish
unions reacted to outsourcing by constituting single, multi-employer
union organizations covering both Fiat and outsourced employees
under the same collective agreements (although additional separate
agreements are signed in each company on specific issues). Thus they
avoided the segmentation in status and coverage that has been a major
preoccupation for unions in Italy. In this way, some rigidity was created,
but change could be introduced in a less disruptive way.

Transfer of production, HRM and IR

HRM at Fiat is both strategic (Camuffo and Volpato, 1998), with HR
managers traditionally at the very top of the managerial structure, and
ethnocentric, with extensive use of expatriates. When it started its
internationalization policy in the 1990s, after a history of concentra-
tion on the Italian market, Fiat claimed to have only one model. This
section will, however, contest this claim (which could also be done by
looking at other Fiat investments abroad, in Latin America or India
(Cardoso, 2003; Atzeni, 2001 and 2004). Fiat has historically developed
a number of different models: Valletta’s authoritarian approach in the
1960s, Agnelli’s concessive and political model in the 1970s, high
automation in the 1980s, and the participative ‘Integrated Factory’ in
the 1990s (Camuffo and Volpato, 1998; Pulignano, 2003). The interest-
ing point for our argument is that the newest, integrated model has
not been developed primarily in the traditional sites of Turin and
north-west Italy, but in the greenfield site built in 1993 in Melfi in
southern Italy, which is an extreme case of reversal of the relationship
between core and periphery. Although Melfi is institutionally and
politically in Italy, the socio-economic and cultural gap between Turin
and Melfi is very large, comparable with that between West and East
Germany, and notably with that between Opel’s greenfield Eisenach
site and its plants in Western Germany.
Fiat started implementing Cinquecento production in Poland in 1991,
before formally taking over FSM. Initially, centralization and ethnocen-
trism were extreme. Not only managers (including HR managers) but
also hundreds of Italian workers were sent to Poland to teach local
employees and implement all aspects of production. These efforts to
transfer practices soon caused a deep crisis of rejection. Cultural and
174 Multinationals, Institutions and the Construction of Transnational Practices

status clashes between Italian and Polish workers were so deep that
they created long-lasting anti-Italian feeling, still evident in 2004.
But above all, the ‘Agnelli’ strategy of privileging one trade union,
Solidarity, in order to facilitate dealings with the government (the
Tychy plant Solidarity leader happened to be the former prison cell-
mate of Polish president Lech Wal⁄ ec sa), and to capitalize on the Polish
desire to welcome capitalism, did not produce the expected results in
either Polish site. In Bielsko-Bial⁄ a, Fiat would use the plant branch of
Solidarity as a channel to the regional, Solidarity-inspired government
(Domański, 2001). But in Tychy, where the company even recruited a
leading Solidarity activist as advisor to the personnel director, conflict
erupted and Solidarity collapsed.
Discontent with the privatization procedure, run from Warsaw without
consultation with the workforce apart from two union leaders, led to a
two-month occupation and strike in the summer of 1992. After the first
few days the two largest unions, Solidarity and Metalowcy (the post-com-
munist OPZZ federation), abandoned the strike which was continued by
the smaller organization Solidarity 80. At that point, Fiat was still not the
official owner of the plants, so that the unions formally lacked a negotiat-
ing partner. The strike was totally defeated. Fiat used techniques already
well-tested in Italy: mobilization of non-strikers, legal action against tar-
geted activists, intervention by the political authorities. Eventually,
however, the strike crystallized a militant identity in a situation of intense
conflict (Meardi, 1996; Ga̧ciarz and Pańków, 1996).
The evolution of employment practices following the strike and
privatization was surprising: it reflected a dynamic and shifting attempt
by the company to make the most out of the different forms of union-
ism in Poland and in the factory. Solidarity, the initially favoured
partner, almost collapsed after the strike and was excluded from the
Tychy factory for a decade. Fiat replaced it by strengthening its rela-
tionship with its political rival, Metalowcy, for the rest of the 1990s.
Metalowcy provided the support and loyalty of clerical and core manual
workers, and constituted a solid negotiating partner. The relationship
with Metalowcy recalls Fiat’s support of the company union Sida in
Italy before 1968, echoing the ‘Valletta’ model. August 80 (as Solidarity
80 relabelled itself in 1993) was still, however, the largest union in
Tychy, with a very militant stance. Conflict mostly took the form of
individual, but union-supported, legal action. Two short strikes took
place in 1994, and a ‘work-to-the-rule’ strike was threatened in 1996
(curiously, this form of industrial action is known in Polish as an
‘Italian strike’).
Guglielmo Meardi and András Tóth 175

Gradually, though, August 80 changed its role within the company.

It was a reluctant signatory of the first partial collective agreement in
1996, and did not dare to call a strike after 1994, against management
expectations. In recent years, August 80, which is not part of a sector
federation, has come to resemble a company union, still fiercely inde-
pendent but strongly supportive of Fiat against competitors. In 1998, a
full collective agreement was signed, the most detailed in the Polish
metalworking sector at the time. In 2000, a large restructuring process
involving the lay-off of 1400 workers and the transfer of 500 from
Bielsko-Bial⁄ a to Tychy was managed jointly with the unions (some-
thing rare in Polish IR). By spring 2004, August 80 was the most coop-
erative union in Tychy and it did not join the protest action organized
by Solidarity over pay increases. The relationship between Fiat and
August 80, which was still by far the largest of the ten unions in the
company, at this point is reminiscent of Fiat’s ‘participative’ involve-
ment with the ‘social movement’ union, Fim-Cisl, in Italy in the 1990s.
The reasons for the change in August 80 are complex. The company
mentions collective bargaining and the pluralist approach introduced
since the mid-1990s, and a huge effort in training targeting trade union-
ists. Also a factor was social and demographic change in the union’s
constituency, following new recruitment, lay-offs in 2000–2001, and
the transfer of hundreds of employees from the ‘moderate’ Bielsko-Bial⁄ a
to the ‘radical’ Tychy factory. More deeply, however, it seems that the
strongly ‘workerist’ nature of August 80, rooted in the factory and based
on qualified core workers (e.g. from maintenance) but at the same time
free from links to an external federation, made possible the apparently
surprising change from shopfloor militancy to participation and mobi-
lization in the name of the factory competitiveness. Such a process is
not unknown in labour history: Japanese company unions paradoxi-
cally developed out of the ashes of the communist rank-and-file unions
of the immediate post-war period. In both 1950s Japan and 1990s
Poland, the exhaustion of political utopias left shopfloor unions better
prepared for factory-level cooperation on production issues than for
pluralist collective bargaining or sector-level organization.
From 1997, IR were managed by a Polish manager, and by 2004,
even though the personnel manager of Fiat Auto Poland was still
Italian, HR issues were managed on a day-to-day basis by Polish per-
sonnel staff. The management of pay, working time, internal mobility
and numerical flexibility followed Italian principles, but with greater
flexibility in implementation. Employment relations stabilized in a sort
of layer-cake of different historical models, reflecting the specificities of
176 Multinationals, Institutions and the Construction of Transnational Practices

Polish unionism. While overall unionization remained relatively stable

at 55 per cent, Solidarity, Metalowcy and August 80, representing the
three Polish models of unionism (political, bureaucratic and rank-and-
file), imposed themselves in turn as the main actors, only to be dis-
placed by Fiat’s innovative strategies. In this regard, Fiat’s structural
power as a large employer in a country with 20 per cent unemployment
was an additional important factor. Fiat managed to overcome its
initial image as a ‘bad’ employer (criticized even by the neo-liberal
press) and to build a positive reputation: when it announced new
recruitment in 2004, 4000 applications were received in three days.

The ‘pulling’ factors of hybridization and development

Poland become a successful specialized production platform for Fiat
(Panda in Tychy, engines in Bielsko-Bial⁄ a), in spite of a very difficult
start, through a complex path of reorganization and change. This
trajectory was not simply and mechanically plotted from the head-
quarters, however. Concentration of Polish production on one product
for the global market, in a segment where margins were smaller and
cost considerations more important, meant that the Polish workforce
had to respond to market volatility through greater factor flexibility. By
2003, following the liberalization of the Polish labour code, the unions
had accepted (temporarily at least) overtime of up to 350 hours per
year, as against 150 hours in Italy. Moreover, the pace of the assembly
line was a matter for unilateral management control, in contrast to
Italy where it was negotiated with the unions. Other sites in Europe
could hardly have guaranteed such low costs, high quality and high
Fiat’s path suggests that change in MNCs is a complex, contested
process which cannot be easily portrayed on the home country versus
host country dichotomy. Indeed, Fiat is a good example of change
starting in the periphery (Melfi, Brazil, Poland), but in accordance with
the MNC’s interests and power. Thus it is very difficult to speak of
‘one’ model, since ‘a situation in which the industrial strategy simulta-
neously called for restructuring and downsizing in some plants and
investment in new plants required the design and implementation of
different and segmented IR policies’ (Camuffo and Volpato, 1998: 328).
Fiat was able to turn to its advantage features of the Polish context
(particular forms of unionism, the traditions of the shortage economy,
high levels of education) which were not part of its own original model.
In spite of the apparent success of Fiat Auto Poland, doubts may be
raised about the long-term sustainability of such forms of ‘hybridiza-
Guglielmo Meardi and András Tóth 177

tion’. Doubts have become more compelling following events at Melfi,

the path-breaking southern Italian greenfield site. In April–May 2004
Melfi workers at Fiat and its suppliers, until then seen as unaffected by
union activism, won a three-week strike over harmonization of wages,
working time and line speed with plants in northern Italy. These were
the same issues which also distinguished the Polish sites from the Italian
ones. Given Fiat’s JIT model, the strike almost immediately brought
nearly all Fiat’s Italian plants to a standstill. Even foreign companies
were affected: the Bielsko-Bial⁄ a factory ran out of components, although
interestingly, the reason for the disruption was not communicated to the
workforce. Events at Melfi suggest that segmentation of employment
practices over time creates contradictions with workers’ capacity to
compare conditions with other sites and increased expectations of stabil-
ity. The very success of the ‘periphery’ as a production location makes it
impossible for it to maintain its ‘peripheral’ character indefinitely.
The question for Poland is whether east-west European socialization
may in future be as effective as Italian north-south socialization. In this
regard the European works councils are particularly important. In Fiat,
the company was keen to avoid east-west contacts as long as possible.
Although the EWC was instituted in 1996, Fiat opposed any involve-
ment of Polish representatives. Among Polish unions, however, their
exclusion was blamed on Italian unions (Meardi, 2000; Domański,
2001). A Polish observer was invited only in 2001 and participated in a
meeting for the first time in November 2003, but as an unelected repre-
sentative of the minority union Solidarity (on the grounds that it was
the only union in the company that was a member of the ETUC);
moreover, participation did not lead to any dissemination to local
Polish representation bodies. In May 2004 (our interview), the August
80 company leader still believed that the EWC directive would not
cover Fiat. Interestingly, at that time Polish unions at Fiat were still
demanding the right to external phone lines and e-mail; they had not
heard about the victorious strike at Melfi.

The lessons
The two cases show, under contrasting structural conditions, how
foreign investment within the enlarged European Union follows paths
that cannot be understood in terms of a conception of ‘hybridization’
as a mix between home-country model and host-country constraints.
MNCs adopt a range of models, none of which corresponds to their
home-country dominant practice, and many of which are stimulated
by the host environment.
178 Multinationals, Institutions and the Construction of Transnational Practices

In the case of GC, the emerging model was a mix of traditional

paternalism, craft culture, and ‘Japanese’ organization. The success of
this mix was built on two host-country features: flexibility, especially
working time and multitasking; and lack of effective social control,
especially union control, for instance over the criteria for variable pay.
Neither of these conditions was present in a comparable form in the
German plant. The model was personified by the Hungarian director,
whose pre-World-War-II paternalistic ethic combined a specific family-
management style with parent-company traditions.
In the Fiat case, management responded to the militant trade unions
it faced with a sequence of apparently contradictory strategies that did
not correspond to current Italian practice. While in the mid-1990s
Polish observers (e.g. Ga¸ciarz and Pańków, 1996) saw Fiat as locked
into permanent industrial conflict, all three models of unionism
present in the factory rather quickly turned into social platforms for
manufacturing cooperation, that is into resources for management,
instead of sources of resistance. In each case, it was the strong will for
change among Polish workers that allowed the unions to take on such
roles (Meardi, 2000), and that against expectations led to the imple-
mentation of outsourcing and Japanization in a smoother and more
advanced way than in Italy. Familiarity with the everyday problems of
production under the constraints of the shortage economy paradoxi-
cally turned into a facilitating factor for lean production.
In both cases, flexibility is understood not just as the permissiveness
of institutions, but even more as an attitude and mindset. As an Italian
Fiat manager put it, ‘it is not that we exploit numerical flexibility
opportunities in Poland, but just that people here have the right men-
tality: they do not take their jobs for granted’.
Today, the Hungarian site of GC has taken over almost all of the
company’s manufacturing, and the Polish Fiat factories are the
company’s only profit-generating operations in Europe. In neither case
has there been a strike in the last ten years. Both case studies tell one
story: how local actors, whether managers or trade unions, are adopting
the managerial intentions of investing companies and becoming
instrumental in the reformulation of an ideal and ‘filtered’ version of
the home model. The periphery must be taken much more seriously
than has so far been the case in studies of MNCs.

There are some specific reasons that make actors in CE willing to ‘pull’
selective features of home-country models. These include the reputation of
Guglielmo Meardi and András Tóth 179

investing companies and hopes for personal, local, and national develop-
ment. On a closer look, such factors reflect the actors’ limited power and
their economic dependence as a result of the lack of suitable alternatives
following the collapse of the socialist industrialization model.
Limited power is, however, combined with important resources such
as high levels of education, flexibility, openness to change and innova-
tion, and experience of arrhythmic production. The resulting ‘idealized
managerial model’ is a filtered version of the home one, free of con-
straints imposed by other stakeholders, rationalized and made more
flexible. This works both in high-tech sites, as in the case of GC, or at
relatively lower levels of technology, as in the case of Fiat. This model
is not free from tensions and conflicts, however. In particular, the
problem of its long-term social sustainability remains open. Will the
wage gap with the West remain acceptable? Will the lack of job security
lead, in the event of recession or restructuring, to the destruction of
existing levels of trust and consent? What will be the effects of high
levels of stress, flexibility and insecurity? More generally, will foreign
investors be perceived as ‘fair’ in the long run, or will political and
cultural reactions emerge?
Although only two cases have been presented, they do not seem to
be isolated. Flagships of the German industrial model like VW, Siemens
and Opel are now asking their German employees to look to their
eastern neighbours as benchmarks for productivity, flexibility and
order: something quite new for a country where the idea of polnische
Wirtschaft was a favourite joke.
In both case studies, what is striking is how disparate elements drawn
from past traditions (paternalism, company union) or from contexts
beyond the parent company (Japanization) were reformulated in ways
that fitted with the employer’s interests. Hybridization was not some-
thing to be endured by the MNC: host-country conditions did not
constrain the investor but on the contrary attracted it. A form of
‘hybridization à la management’ was evident, in which elements of
different models were combined by managerial strategies and interests.
MNCs were positively surprised not only by how permissive the new
environment was but also by how welcoming local actors were. MNCs
did not behave like missionaries (the frequent metaphor for their
action in economically weaker countries) but rather, to follow the
simile, like the Quakers fleeing their corrupt land of origin to recreate
an ideal version of their faith, which had never actually existed before,
on more accommodating shores.
What explains such developments? IHRM and ‘global firm’ models
are of limited help. Even the idea of reverse diffusion of practice, for
180 Multinationals, Institutions and the Construction of Transnational Practices

instance, assumes a degree of host-country influence. This is not the

case in CE, a region that economically is still seen as having to learn,
and where host-country practices are not imposed by the local envi-
ronment, but selected and accentuated by the MNCs. Nor is an institu-
tional standpoint of help in explaining the diversification of MNC
models (Quintanilla and Ferner, 2003). It is precisely the weakness of CE’s
institutions, combined with ‘intangible’ resources, that fosters this form
of hybridization. Some perspectives, like resource-based and rational-
choice approaches, have shed some more light on the search for com-
petitive advantage in the subsidiary and on strategies of diversification,
but these must be seen in the structural context of MNCs’ power in CE:
a geographically close and diverse common market, institutional weak-
ness, a lack of alternatives, openness to change and informal resources.
Host-country actors play an important role in ‘pull’ hybridization.
Managers use their local knowledge and public discourse about their
countries’ economic success to foster the upgrading of subsidiaries and
to attract home-country practices; employees and their representatives
seek to balance, on the one hand, their wish to attract technical and
organizational practices necessary for productivity increases and, on
the other, their desire to pull in beneficial social elements of the home-
country’s production model. Nevertheless, employees act within a
frame of reference mostly dictated by management, and their power to
selectively ‘pull’ practices is therefore limited. Only a focus on actors
explains the degree of innovation in CE sites.
Of course, such a view needs to be qualified. In other MNCs, and
possibly particularly in the case of more centralized US-based compa-
nies, ‘push’ hybridization may well remain the most important pattern.
There are MNCs that do try to export their models, including EU-based
companies transferring their Western European social models (e.g.
Volkswagen). These prove to be well-suited to CE employees’ expecta-
tions but often face competitive difficulties or the opposition of local
managers. Also, host-country resistance does occur, whether mobilized
formally through employee representatives or manifested informally
in high turnover and organizational disloyalty. Finally, there are
some attempts at international regulation and harmonization. EWCs,
although they do not in themselves change power relations, allow
central Europeans to realize that the models they are presented with do
not necessarily represent dominant Western practice (Meardi, 2004).
It is important to notice that hybridization à la management is not
just a matter of labour costs. In the first case study, the paradoxical
outcome was that capital-intensive production was transferred to the
Guglielmo Meardi and András Tóth 181

east, and skilled labour-intensive production retained in Germany. In

the second case, it should be remembered that labour costs were around
10 per cent of total production costs. It is a more complex mix of
resources, including flexibility, openness to change, industrial culture
and lack of effective representation that creates the employer-friendly
environment that invites Quaker-like ‘settlers’ with their new models.
The future of such MNC Quakerism is uncertain, and its long-term
social sustainability doubtful. These forms of hybridization, although
attractive for cost reasons, may eventually be unsustainable, because of
internal incoherence or of employee rejection in the long term.
Previous experiences of belated employee rejection (as with the 2004
strike 10 years after the new ‘Melfi’ model had been introduced) suggest
that this is not an unlikely scenario. It is also possible to foresee more
constraints, especially from the spread of ideas among employee groups
in different countries through such bodies as the EWC.

1 Some parts of this paper draw on two international projects on FDI in
Central Europe, sponsored by VW Foundation and the UK Economic and
Social Research Council. The authors are therefore grateful to the coopera-
tion of research team colleagues, without whom these parts would not have
existed: Mike Fichter, Christoph Dörrenbächer, László Neumann, Martin
Wortmann, Paul Marginson, Miroslav Stanojević, Marcin Frybes and Adam
Mielczarek. However, the authors are solely responsible for the content and
mistakes of this paper.

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Globalization and Labour Market
Segmentation: The Impact of Global
Production Networks on Employment
Patterns of German and UK Clothing
Christel Lane and Jocelyn Probert

The clothing industry in developed economies was among the first to
take on a global dimension, and is today geographically dispersed
around the world (Dicken, 2003). As the industry has not been amenable
to technological rationalization, its low capital and relatively high
labour intensity1 have made it an obvious candidate for development
in newly industrializing countries. Due to huge discrepancies in wage
levels between developing and developed countries (Figure 8.1), firms
in the latter have had to reorganize their value chain. The result has
been the steadily increasing (in some European countries, almost total)
outsourcing of production to lower-wage developing countries and
drastic employment cuts in developed countries, particularly of semi-
skilled jobs like sewing. Nevertheless, the clothing industry remains a
significant employer.
The literature on this industry in developed countries has mainly
focused on how organization of the supply chain (conceptualized
both as global commodity chain (GCC) and as global production
network) has affected developing countries (e.g. Gereffi, 1994, 1999;
Henderson et al., 2002). Firms in developed countries that construct
and coordinate global commodity chains have received far less acade-
mic attention, particularly with regards to the impact of foreign
sourcing on domestic employment. The established wisdom is that
the loss of low-skilled manual jobs in developed countries is compen-
sated for by a general upgrading of the occupational structure

Christel Lane and Jocelyn Probert 185

€uro 0.50 Germany

€uro 0.25 Most industrialized countries

€uro 0.15 Threshold countries

€uro 0.10 Low wage countries

Figure 8.1 Clothing industry costs per working minute in different countries (in
Source: Volksbanken/Raffeisenbanken, 2003

towards more capital- and/or more skill-intensive jobs, mainly in

service activities (Dicken, 2003: 542–3). The UK, with its highly
developed service sector, is generally regarded as at the forefront
of these developments. This chapter will show that the effect of
foreign sourcing is by no means homogeneous across firms and
countries. Informed discussion of the impact of globalization should
examine employment effects in different developed and developing
The chapter argues that the role of clothing firms in global produc-
tion networks and the consequences of their outsourcing practices for
employment and labour markets cannot be fully understood unless
we first analyse firms’ competitive strategy and their competences to
implement it. Hence we begin by considering clothing firms in their
domestic context. We refer to them as ‘coordinating firms’, that is as
firms which coordinate the whole value chain from design to distribu-
tion of final products but which no longer execute all steps in-house.
The paper reveals how the competences developed within firms shape
their product strategy and market position and how both, in turn,
affect the quantity and quality of employment in firms and in the
industry as a whole. Although the prime interest is in employment
consequences in two developed countries, we also briefly consider the
impact of differing sourcing strategies on labour markets in developing
186 Multinationals, Institutions and the Construction of Transnational Practices

Our study compares the competitive strategies of coordinating firms

in the German and UK clothing industries, by viewing firms in their
national institutional environment. It examines the contrasting sets
of core competences these firms command and the way these have
structured the organization of the value chain and relationships with
suppliers. This contextualization shows that embeddedness in different
national institutional structures leads to divergent strategies, with
markedly different consequences for the organization of the industry’s
labour market and the quality of employment.
Last, detailed analysis of clothing firms in their domestic context
reveals that, contrary to the claims of both the GCC literature and the
wider analyses of global production networks in the globalization
literature (e.g. Dicken, 2003; Held et al., 1999), these are not powerful
multinational companies (MNCs). Instead, we find mostly medium-sized
and even small domestic firms, struggling to reconcile their insertion
into global supplier networks with their mainly national structures and
modest organizational, financial and human resources. Our analysis
identifies a sometimes incongruous mixture of national dependencies
and global ambitions. This is most pronounced in the UK, whereas our
German sample contained two very large global companies for which
we found no British equivalent.
Our analysis of domestically anchored firms inserted into a network
of national, international and global relationships with customers and
suppliers is informed by, and seeks to integrate, three sets of theoretical
literature. (Here we gratefully acknowledge inspiration from Palpacuer’s
(2000) work, particularly her thoughts on the new labour market seg-
mentation.) We seek to link the strategic management literature on the
capabilities that firms develop in response to competition, with political
economy literature. This shifts the analytical focus to global chains/
networks and points to their consequences in terms of a new labour
market segmentation. Finally, our emphasis on coordinating firms’
embeddedness in contrasting national institutional environments is
informed by the literature on Varieties of Capitalism (VoC), particularly
the work of Hall and Soskice (2001), which takes firms’ capability-based
competitive strategies as its analytical point of departure.
The chapter has the following structure. The first section outlines the
theoretical framework adopted. The following section describes and
analyses the German and UK clothing firms in their global and national
context. It deals with five issues. First, it considers the size and owner-
ship of firms in the two national industries. Second, it examines the
capabilities and skill profiles of firms and their employees. Third, it
Christel Lane and Jocelyn Probert 187

looks at how these competences have shaped product and market

strategies. Fourth, it explores the locational aspects of the networks
that have been constructed and the differing sourcing strategies
adopted. Fifth, it discusses the consequences for labour market segmen-
tation and for the quality of the remaining domestic employment, and
concludes by indicating the effects for labour market segmentation in
global networks. The conclusion highlights the findings and theoretical
insights developed.
Our data draw on early impressions from 50 in-depth interviews
with high-level managers/owners of British and German firms and
associations in the textiles and clothing industries, as well as with
retailers and a small number of supplier firms located in China,
during 2003–2004. They are supplemented by official statistics and
secondary data from both countries. This work forms part of a much
larger comparative research project, run in collaboration with researchers
at MIT, that examines how firms in different countries and indus-
tries fragment their value chains in response to the pressures of
We used the Klar-Text (2003) annual rankings of men’s and women’s
wear companies to identify the most important players in Germany; in
the absence of similar listings for the UK, we compiled our own list of
firms by searching commercial general databases such as Fame and
Factiva, conducting extensive internet searches, and consulting major
retailers about their important domestic suppliers. Although the UK
search process was more ad hoc, we are confident that we missed no
major player. We deliberately targeted larger firms, since our objective
was to investigate firms inserted in some way into global networks.
Among the firms targeted for interview, we achieved success rates of
35 per cent in the UK and 43 per cent in Germany; access to retailers
was slightly higher, at 55 per cent and 45 per cent, respectively. Most
interviews lasted 60–90 minutes, although some lasted three hours or
more, and were recorded and transcribed. While we lack survey data to
provide a snapshot of the industry, we use the richness of our qualita-
tive data to illuminate discussion about the behaviour of firms in both

Theoretical considerations
The competence-based approach in strategic management
To gain competitive advantage, managers develop organizational com-
petences/or capabilities2 which facilitate not only technologically and
188 Multinationals, Institutions and the Construction of Transnational Practices

organizationally innovative responses to market pressures, but also

flexible adaptation to unstable and rapidly changing markets (Grant,
1996; Hamel and Prahalad, 1994; Stalk et al., 1992; Teece et al., 1997).
Competences/capabilities have been variously defined, but most
authors emphasize the development and combination of various types
of knowledge which, when embodied in products, are difficult for com-
petitors to imitate and thus ensure a firm’s competitive advantage.
Such idiosyncratic, value-generating competences vary between indus-
tries and may be connected with high-technology development, or be
relatively mundane, such as the ‘quick-response’ capability of some
clothing firms (Richardson, 1996). More often than not they now take
the form of ‘services’, such as technological improvements, styling
features, product images and other attributes that only services can
create (Quinn et al., 1991: 302). Additionally, the effective coordination
of internal and external competences may be considered a valuable
managerial capability (Teece et al., 1997: 515). Although the knowledge
sedimented in competences is often described as experiential, it is clear
that it cannot develop unless management and society have laid the
foundations through the provision of relevant educational qualifications
and skills (Quinn et al., 1991: 301; Teece et al., 1997). Thus, although
capabilities are broader than skills and are embodied in organizational
processes, they cannot be completely divorced from them. Furthermore,
the recruitment and development of employees with high qualification
levels and the ability to continue learning requires both longer-term
financial investment in human resources (Stalk et al., 1992: 59) and their
adequate reward, which is often beyond the capability of small firms.
Managers’ competitive strategy has to determine core and non-core
capabilities. They must distinguish between capabilities unique to the
firm and fundamental to its competitive advantage, and those which
may be externalized, acquired either through market links or in
networks (Grant, 1996).

Competences and the organization of the value chain

The following examination of steps in the value chain and the skills
required to execute them efficiently and effectively forms the basis for
a delineation of different types of clothing firm, depending both on
the capabilities considered core and non-core, and on the degree to
which requisite core capabilities support internally retained functions.
The clothing industry value chain embraces several different sets of
activity, roles and occupations, the characteristics of which shape the
profile of the sector. (The following adapts and develops ideas from
Christel Lane and Jocelyn Probert 189

Planning & Design & Production Manufacture

development prototyping design & assembly of Marketing Distribution Retailing
of collection of models garments

Figure 8.2 Steps in the clothing value chain

Dunford (2002: 1–2).) A stylized analysis of the value chain identifies

the following steps (Figure 8.2).
The first step in the chain, development and planning of the entire
collection, involves such skilled activities as knowledge of market
trends and fabric availability, the integration of both into develop-
ment of product lines, and the costing of the planned collection.
The second step is the design and prototyping of new models. In
addition to understanding market demand and cost structures, this
requires both creativity and technical aptitude. In a third step, the
production design and sample-making function devises the most
cost-efficient means of producing the item, taking into account
quality standards. Decisions on manufacturing location are also
considered. Steps one to three thus rely on highly skilled occupa-
tions, involving various combinations of technical, creative and
financial capabilities.
The fourth major step is the actual manufacture of garments, gener-
ally known as CMT (cut-make-trim). This involves mainly semi-skilled
sewing and assembly operations, using simple machines and requiring
elementary skills.
The fifth step, the marketing of garments, seeks to match retail
outlets to the quality and character of the clothes, and to achieve the
broadest possible market access in a given segment. In practice, this
function operates in parallel with earlier steps since most clothing
firms try to spread risk by seeking expressions of interest from buyers
before moving into full production. The sixth step, distribution, entails
an increasingly sophisticated logistics operation based on computer-
ized order tracking and inventory control systems. The seventh and
final step is that of selling the garments to consumers through various
retail channels.
These seven steps, involving, on the one hand, different sets of capa-
bilities and occupations, and on the other, clearly identified costs, can,
in principle, be separated from each other and performed in different
locations. This process of fragmentation of the value chain and its distri-
bution over different locations and functions can occur in a number of
ways, depending on available competences, cost considerations and
product strategy.
190 Multinationals, Institutions and the Construction of Transnational Practices

There are at least five ways of organizing the clothing value chain,
resulting in five different types of clothing enterprise (Table 8.1). Each
type, as we elaborate below, involves different decisions about the
activities and capabilities to be externalized through markets or within
networks, and about their geographical location.
These five types of clothing enterprise evidently differ in the capabil-
ities and capital invested, and in the resulting products and hence the
markets they can enter. Consequently, each type also has different
consequences for the quantity and quality of employment created both
within coordinating firms and in the network as a whole.

Labour market segmentation and employment

This section adapts Palpacuer’s (2000) work on the consequences of
competence-based organizational strategies and global network forms
of organization for labour market segmentation. We focus on the way
in which different degrees of labour market segmentation between firms
in developed countries, together with divergent product strategies and
sourcing arrangements, influence the overall quality of employment
in the clothing industries of developed economies. In particular, we
investigate what degree of upgrading has occurred in the status and
conditions of the labour remaining in Western European firms. Last,
we briefly indicate how these firms’ product and sourcing strategies
affect employment development in foreign supplier firms in newly
industrializing and threshold economies.
Within coordinating firms in developed economies, fragmentation of
the value chain and the now widespread outsourcing of manufacturing
tasks have shifted demand for labour from predominantly semi-skilled
operators not only to highly skilled and well paid staff in technical and
creative design, product development, finance and marketing, but also
to mainly less skilled employees in logistics and distribution functions.
Where firms have integrated forward into retail operations, employees
with retail skills are an additional requirement. The extent of the shift
to higher-level employment depends, however, on the product strategy
and the way this shapes and is shaped by relations between coordinat-
ing firms and retailers in domestic and foreign markets. Branded mer-
chandisers (see Table 8.1) serving both domestic and export markets
retain a high level of competence in creative and technical design, and
in supply chain management, marketing and complex logistics func-
tions. In contrast, firms selling mainly to large domestic retailers have
lower demand for highly qualified staff in both the high-level functions
of design and marketing and in logistics, since retailers themselves are
Table 8.1 Five types of clothing firms+, based on different combinations of steps in the value chain*

Type of firm Steps combined Type of product Competences Costs incurred

and market utilized

Type 1 Branded merchandisers High emphasis on High quality brands, Creative and technical High
steps 1–3 and 5–6 oordinated collections design; technical
preparation of
production; marketing
Type 2 Domestic suppliers to Same steps as type 1, Standardized made to Lower design, technical Low
large retailers but steps 1,2 and order for retailers and marketing
5 receive low capability than type 1
Type 3 ‘Cut, Make and Trim’ Step 4** All types Managerial coordination Medium
firms *** of semi-skilled operators
Type 4 Branded/high fashion A. Steps 1–3, 5–7 As in type 1 A. Combines competences Very high
merchandisers with B. Steps 1–7 of type 1 with retailing
forward integration capability.
into retailing B. As A, plus manufacturing
Type 5 Retailers, with backward Steps 1, 2 and 7 Standard clothing, Mainly retailing Medium
integration into design full package or competences, combined
and supply chain imported with some design and
organization supply chain management
Includes retailers
* Steps in value chain: 1. Development of collection; 2. Design; 3. Prototyping of models; 4. Manufacturing; 5. Marketing; 6. Distribution/logistics;
7. Retailing.
** If ‘full package’ suppliers, also buy fabric and trim.

*** Located in developing countries or in informal sector of developed ones.
192 Multinationals, Institutions and the Construction of Transnational Practices

increasingly developing internal design capabilities and have their own

distribution structures. Firms mainly supplying domestic retailers,
unlike branded merchandisers, do not integrate forward into retail man-
agement. The different sourcing strategies of these two types of coordi-
nating firms furthermore call for different levels of expertise among,
and different numbers of, supply chain managers.
At the inter-firm level, different sourcing strategies generate a seg-
mented network structure between coordinating firms, first-tier and
second-tier suppliers, with important implications for the quality and
stability of jobs in subordinate firms (Palpacuer, 2000: 385). Second-tier
suppliers or ‘periphery’ firms are usually small units with limited
managerial and financial capabilities, which cannot rely on large-scale
stable demand. They provide a buffer for coordinating firms by respond-
ing to demand for quick replenishment orders at low prices. Whereas
first-tier suppliers offer relatively good wages, employment stability
and health and safety conditions, second-tier suppliers offer inferior
employment conditions and may descend to the level of sweatshops.
While the existence of such segmentation is widely taken for granted
in low-wage countries, it is less widely known that, in some industries,
it also remains important in developed countries. Whether or not a
segmented labour market strategy develops in advanced countries
depends partly on the product and sourcing strategy of coordinating
firms. But the latter is shaped in important ways by societies’ institu-
tional framework, particularly by the degree and kind of regulation of
employment conditions applied by industrial relations actors and by
the state. These determine whether or not an informal, little regulated
and often geographically concentrated sector can develop within a
national industry. Last, a drastic reduction in the industry’s manual
employment and the difficulty unions face in gaining access to firms
in the unstable informal sector translate into severe problems for
organized labour in terms of size of membership and ease of recruiting
new members (personal communication from a British union repre-
senting the clothing industry).
In newly industrializing countries, too, a more discriminating approach
to employment conditions needs to be developed. As Gereffi (1999),
Gereffi et al. (2005) Palpacuer (2000) and Yoruk (2002) make clear, in
some semi-periphery or threshold industrialized countries industrial
upgrading has been significant, with obvious consequences for wage
levels and employment conditions. In some developing countries such
as China, greatly intensified internal competition for labour in certain
parts of the country no longer makes ‘sweatshop’ conditions viable.
Christel Lane and Jocelyn Probert 193

Explaining cross-national differences

The Varieties of Capitalism approach (Hall and Soskice, 2001) suggests
that the comparative advantage of firms in differing industries has its
origin in the institutional foundations of their home nations. Teece
et al. (1997) view firms as actors seeking to develop and exploit core
competences or dynamic capabilities. In contrast to most management
theories, they view firms in their institutional environment, thus
facilitating cross-national comparison. Hall and Soskice (2001) conceive
of firms as developing competences in interaction with other actors,
compelling them to solve a number of coordination problems central
to the development of their core competences. Of the five areas of
interaction they outline, national systems of vocational training and
education, institutions of industrial relations, and rules on ‘new firm’
establishment are of particular importance for this paper. Reference
will be made also to the impact of financial systems on industry com-
position in terms of size and ownership structure of constituent firms.
Hall and Soskice (2001) further suggest that different national political
economies resolve these coordination problems in contrasting ways,
due to the divergent manner in which their institutional frameworks
provide support for dealing with particular problems. Firms in different
national political economies, they argue, gravitate towards the mode of
coordination for which there exists institutional support. Institutions
are defined as a set of rules, formal or informal, that actors generally
follow, whether for normative, cognitive or material reasons. Hall and
Soskice accordingly develop two basic types of political economy:
in liberal market economies, markets and hierarchies are the most
prevalent coordinating mechanisms, whereas in coordinated market
economies, firms depend more heavily on non-market mechanisms,
entailing more extensive relational contracting. Whereas the first type
describes the UK variety of capitalism, Germany is typically seen as
representing coordinated market capitalism.
This theory is useful for analysing the behaviour of firms from
different national origins and will inform the analysis below. When we
turn to outsourcing and the building of global production networks,
however, the mainly national focus of the Hall and Soskice (2001)
approach needs amending to allow for the adoption of a hybrid model
of productive system (see Meardi and Tóth, this volume). It has to
be recognized that firms create global production systems to escape
constraints exerted by national institutions and, therefore, that host
country institutions and practices will become influential. The degree
of this influence is, however, diminished by the fact that suppliers, by
194 Multinationals, Institutions and the Construction of Transnational Practices

and large, are able to exert little or no power over their customer firms.
Additionally, the impact of international institutions and rules systems,
particularly those relating to trade, needs to be incorporated into the
theory. Here we consider the Multifibre Arrangement (MFA)/Agreement
on Textiles and Clothing (ATC) under the World Trade Organization
(WTO), and import tariffs. (Although defunct since January 2005, the
ATC was still operative at the time of our empirical study.) Tariffs are
differentially enforced for different regions and countries, and have been
completely abolished for a significant number of exporting countries.

The national industries and firms in their changing global and

domestic contexts
Shielded by the MFA/ATC until January 2005, the UK and German cloth-
ing industries have been important employers and contributors to GNP
throughout most of the post-war decades. Yet global competition has
sharply increased with the phasing out of the ATC, the introduction of
regional agreements and the lowering of tariffs. It is clear from available
statistics and from our interviews that, in the last five years or so, the
position of textile and clothing firms in both Britain and Germany has
significantly worsened as a result of increasing competitive pressure from
newly industrializing countries. Gradual decline in both national indus-
tries since the 1970s turned precipitous only in the 1990s.
In the UK between 1995 and 2000, employment fell 58.8 per cent to
127,000 (BATC, 2003, estimates based on ONS Labour Market Trends
2002), and a further ten thousand jobs were lost in 2001. Production
value fell by 40 per cent to £4.8bn between 1996 and 2002 (BATC esti-
mates, based on ONS data). In Germany, although employment nearly
halved between 1995 and 2002 among firms with over 20 people,
turnover declined by a much smaller 19 per cent (IHK Bielefeld, undated).
As figures for the two countries are from different sources and cover
slightly different periods, straightforward comparison is problematic,
beyond diagnosing a very strong decline in employment in both coun-
tries but a lesser decline in turnover among German firms in recent years.
The following assessment of the contemporary British and German
clothing industry shows their fundamentally different structure and
organization, due to divergent institutional environments.

Firm size, turnover and ownership

Data in Table 8.2 indicate that the German industry achieves a higher
turnover with a significantly lower number of employees, demonstrat-
Christel Lane and Jocelyn Probert 195

Table 8.2 Structure of the German and UK clothing industries, 2001/2

No. of firms Turnover No. of

(€ billion) employees
German industry 560 9.65 53,901
(firms with >20 employees)*
German industry (all firms)** 6,159 14.4 –
UK industry (all firms)* 5,820 8.92 127,000

* Data for 2002; ** data for 2001.

Sources: Volksbanken Raiffeisenbanken, 2003; IHK Bielefeld data, 2002; ONS Annual
Business Inquiry, 2001 and BATC estimates.

ing the widely acknowledged productivity deficit of the UK industry

(e.g. Euratex 1998, cited by Stengg (2001): figure 7, p. 16). This appears
to be linked to significant differences in industry structure, in terms of
firm size, between the two countries.
In 2002, in the German industry, 560 firms with 20 or more employees
achieved a turnover of €9.7bn and employed 54,000 people (Volks-
banken Raiffeisenbanken, 2003: 1). Including micro enterprises, the
total number of firms rises to 6159 and turnover to €14.4bn
(Volksbanken Raiffeisenbanken, 2003: 1, figures for 2001). This indus-
trial sector is structured on the Mittelstand pattern. There are many very
small and a few very large firms in the German clothing industry, but
the bulk of employment and turnover is generated by medium-sized
firms employing between 100 and 999 people. The 100 largest firms,
which are internationally competitive and have over €25mn in annual
sales, generate nearly two thirds of the sector’s turnover (Volksbanken
Raiffeisenbanken, 2003: 2). Large and medium firms account for 85 per
cent of turnover, a high level of concentration compared with the rest
of Europe (Euratex, 2002). The relatively high number of small firms
includes mainly artisanal establishments, as well as alteration tailoring
shops, i.e. not industrial firms (Volksbanken Raiffeisenbanken, 2003: 1).
Until the late 1990s, the UK clothing industry was polarized between
a tiny number of giant manufacturers and a vast number of very small
firms. There was no equivalent of the medium-sized Mittelstand firms
(Owen and Cannon Jones, 2003: 61; TCSG, 2000: 11). Following the
break-up of the two giant public companies, Coats Viyella and Courtauld,
at the end of the 1990s, the industry divided into a tiny group of
medium-sized to large firms and many very small firms (CAPITB Trust,
2001: 8). A particularly large tail of micro firms constitutes an informal
196 Multinationals, Institutions and the Construction of Transnational Practices

sector. Nearly three-quarters of clothing manufacturers have reported

average annual turnover of less than £250,000 (Warren, 2003: 233).
Thus, although statistics for both countries reveal a large number of
micro firms, their nature differs and their weight in the industry is
much more pronounced in the UK than in Germany.
Rates of industry concentration offer a more straightforward compar-
ison of the two national industries (Table 8.3). These data pre-date the
break-up of Coats Viyella and Courtauld, and the difference in degree
of concentration will subsequently have become more marked.

Table 8.3 Share of turnover of companies in the UK and German clothing

industries, in 1999, in per cent

Top 3 Top 5 Top 10

Germany 32.9 45.2 62.2
UK 19.4 27.7 37.0

Source: Euratex, 2001, cited by Dunford, 2001.

These different size structures indicate firms’ differing access to

financial resources, and hence their potential to invest in capability-
building. They are reinforced by divergent ownership profiles. In
Germany, total or substantial family ownership is widespread, even
among large firms such as Triumph, Escada, Betty Barclay and Steilmann.
During interviews several owners emphasized that, beyond paying
themselves a salary, all profits are reinvested. In the UK, inherited
family firms are rarer than in Germany. A small number of firms remain
listed on the stock exchange, for example Burberry, Martin International
and Wensum, but since the 1990s sizeable companies have been
delisted and sometimes broken up by private equity funds, or through
management buy-outs (MBOs). Reinvestment of profits is then reduced
to satisfy investors. MBO firms, according to our interviews, are highly
geared and hence short of investment capital. A recent industry report
confirms the prevalence of low capital investment (TCSG, 2000: 7).
Ownership of the many smaller UK clothing firms is less well docu-
mented but industry insiders (interview notes, 2004) indicate that ethnic
minority owners are prominent, giving the section of the industry
concentrated in cities like Leicester and in the east of London its
special character (EMDA, 2001). Germany appears not to have a region-
ally concentrated, largely informal sector, despite the presence of large
ethnic minority regional concentrations. The consequences of this
Christel Lane and Jocelyn Probert 197

differential development for outsourcing and employment respectively

are discussed below.

Capabilities and skill profiles

A mapping of available skills and capabilities reveals which production
and market strategies are viable in each national industry. No sectoral
statistics on managerial education and capabilities exist, and the
following draws largely on interview material. Two industry insiders
spontaneously described British managers in the clothing industry as
‘generally of very low calibre’. Levels of education and specialist exper-
tise, with a few exceptions, appear to be significantly lower than those
of their German counterparts. Graduate recruitment is problematic for
the UK clothing industry as a whole (PSS, 2000). The German managers
we interviewed, in contrast, were mainly graduates with relevant
tertiary education.
British clothing firms are said to attach relatively lower importance
to design (Owen and Cannon Jones, 2003), because their large retail
customers usually employ their own design teams (interview notes,
2003). Additionally, available designers are not rated well on technical
and commercial understanding, although they sometimes score highly
on creativity (EMDA, 2001: 29; interview notes, 2003; TCSG, 2000: 12).
German designers, in contrast, appear to be better at integrating
creative with technical design (interview notes, 2003).
More systematic information about general skill structures in the two
national clothing industries suggests that differences in skill levels
between UK and German employees mirror, in somewhat exaggerated
form, the difference in UK and German training systems for intermedi-
ate-level occupations (Gospel, 1998). A detailed sector comparison by
Steedman and Wagner (1989: 47–9), covering an earlier period of sharp
UK industry contraction, found that, at higher levels of training, more
than ten times as many German as British employees had passed voca-
tional examinations. According to CAPITB Trust (2001: 16), technical
specialists constituted a mere 4 per cent of British employees. Our own
impressions, too, were that there seemed to be more – and more tech-
nically qualified – designers and technical staff in German than British
Further down the hierarchy, among British supervisory staff and oper-
atives, levels of qualification are low to non-existent, and training
budgets constrained. Only 20 per cent of operatives have NVQ level 1
and 2 qualifications (TCSG, 2000: 27) and in 2001–2002 fewer than one
thousand such certificates were awarded, while in clothing supervisory
198 Multinationals, Institutions and the Construction of Transnational Practices

studies there were none at all (Owen and Cannon Jones, 2003: 60). The
German industry’s ratio of trainees to total employees of 7.5 per cent in
2001, mostly in sewing and tailoring (BBI, 2002), is in a different league.
To sum up, these striking differences in qualifications and skills in
the two national clothing industries indicate that capability-building
by UK managers meets much greater constraints, and that some capa-
bilities, like the combination of creative and technical competences
to develop brands, have been achieved only in exceptional cases.
Finegold and Soskice’s (1988) characterization of the general British
situation in terms of a low-skill equilibrium where, given low quality
and technology specifications, the demand for skilled labour remains
low, is pertinent also to this industry.

Product and market strategy

These capability structures crucially determine both product and market
strategy. According to Steedman and Wagner (1989: 41), whose work
pre-dates the full-scale shift of manufacturing work overseas and the
break-up of the UK’s Coats Viyella and Courtauld, the German industry
produces small batches of high-quality goods in great variety (produc-
tion runs of 150–300 garments), while British firms depend to a great
extent on long runs (usually 15,000 garments) of standard items. They
pinpoint differences in technical design (greater complexity in Germany),
and in fabrics and trim used (higher quality in Germany). Euratex
figures cited by EMDA (2001: 7) also show that the UK exports low-
value clothing, whereas German clothing exports achieve more than
twice the price per kilo. German producers cater mainly for the upper-
middle market, with an emphasis on quality and, in most cases, brand.
BBI (2002: 11) speaks of 20–30 globally traded brands in the German
industry. This market strategy – and the capabilities on which it builds
– depends on the presence of high skill levels at the upper end of the
value chain and on a high level of control over suppliers.
In the UK, a very small number of firms concentrate on brands with
high margins. The majority make fairly standard clothes in the middle
to low market segment. Branding capability has been abandoned in
favour of the apparently greater security, but lower margins, of contract
clothing production for retailers’ own labels. Close relationships to
powerful domestic retailers relieve these firms of design and marketing
issues (TCSG, 2000), ‘but at the cost of leaving them invisible to the
consumer and with a limited capacity to innovate’ (Owen and Cannon
Jones, 2003: 56). Large firms that owned both branded and contract
clothing businesses, such as Coats Viyella and William Baird, seemed
Christel Lane and Jocelyn Probert 199

unable to manage the different investment and marketing strategies

required. Under-investment also plays a part. Compared to foreign
competitors, British firms appear reluctant or unable to make the up-
front marketing investments required to build a branded presence (e.g.
EMDA, 2001, speaking of the mainly small East Midlands clothing firms).
Export performance reflects these divergent production paradigms
and market strategies. German firms achieve the relatively high export
ratio of 32 per cent (Volksbanken Raiffeisenbanken, 2003) and are
increasing their efforts. Their export growth rate of 6 per cent per
annum since 1995 exceeds that of the UK, the US and even Italy
(Groemling and Matthes, 2003: 77). Analysis by Euratex (2002: 86)
suggests that Germany is one of the EU’s most successful clothing
exporters, with a 19 per cent share of EU sales to non-EU countries in
2000. Their relatively high export ratio makes firms less dependent on
domestic retailers and better able to resist the latter’s price-cutting
British exports stood at only half the German level in 2000 (Trends
Business Research, cited by EMDA, 2001: 21). Euratex (2002: 105–6)
notes that UK trade with both EU and non-EU countries is below the
EU average. The majority of large firms we interviewed neither exported
nor intended to do so, and even at the higher-quality end such activity
was low or non-existent. Brands such as Paul Smith and Burberry are
the exception, as are firms making medium- to highly-priced men’s
suits, such as BMB and Berwin & Berwin. This comparatively low export
intensity leaves British firms, with few exceptions, more vulnerable to
large domestic retailers’ cost reductions.
From this overview it is clear that the two countries contain very dif-
ferent populations of clothing firms, possessing divergent capabilities
and seeking competitive advantage at different geographical levels. In
terms of the firm types introduced above (see Table 8.1), type 1, the
branded merchandiser, is predominant in Germany, whereas type 2,
the supplier to large retailers, and (in the informal sector) type 3, the
CMT firm, are most frequently found in the UK. Type 5, the backward-
integrating retailer, is growing in both countries. The emergence in
Germany, but not in the UK, of type 4, the high-fashion merchandiser,
is still a relatively new trend. In both countries, firms are challenged by
the new vertically integrated international firms such as Zara and
Hennes & Mauritz.
Despite their global sourcing practices, the majority of coordinating
firms were not global players. Although a small group of UK firms oper-
ated some foreign manufacturing subsidiaries, as a whole UK firms in
200 Multinationals, Institutions and the Construction of Transnational Practices

our sample hardly corresponded to the image of global firms. They

were mainly small in terms of employment (except those with foreign
manufacturing subsidiaries) and turnover and, with three exceptions,
had no sales activity outside Britain. Among the German firms were
two global players and several internationally active firms with sales
offices in mainly European locations. Although German firms’ turnover
was, on average, significantly larger, employment levels were low, and
overall most were national firms with some international operations.

Development of global production networks

The clothing industry is highly labour-intensive and wages for rela-
tively low-skilled workers account for a significant share of the produc-
tion costs. With intensification of competitive pressures from low-wage
countries, the manufacturing function has relocated to low-wage
countries in Asia-Pacific, North Africa and Central and Eastern Europe
(see Figure 8.3). This section explores German and UK firms’ sourcing
strategies, and points to some interdependencies with firms’ capabilities,
industrial relations system and product strategy. External factors also
shape the building of global production networks, in particular European
and global regulation of the industry.
Not only labour costs but also quotas and tariffs have influenced
relocation decisions. More recently, with the acceleration in fashion
cycles, outsourcing has further enhanced buyer firms’ flexibility.
Although many of our interviewees in both Germany and the UK
recognized that the highly successful ‘quick response’ strategy of com-
panies such as Zara rested on vertical integration, they firmly ruled out

Hourly labour costs (US$)

Tu d
M ey

um o
Tu ia

Sa la

Th as

Bu nd

In ndia

Vi na

Pa pt
H ado

C cc

ua ni


El ema






G is






Figure 8.3 Hourly labour costs in the clothing industry, 2002

Source: Werner International Inc., Hourly Labor Cost in the Apparel Industry.
Christel Lane and Jocelyn Probert 201

this model. Since both countries are relatively high labour cost loca-
tions, ownership of domestic manufacturing is no longer regarded
positively and the availability of subcontractors offering the right price
at the right quality levels provides a more attractive alternative. A lack
of suitable domestic subcontractor networks pushed the search for
flexibility abroad. Although some ‘quick response’ manufacturing does
occur in the UK, as explained below, this could sometimes descend
towards the informal sector.
The competences externalized by firms may be described as standard,
facilitating easy substitution of one supplier firm by another. But
suppliers of CMT garments must nevertheless be considered as having
complementary capabilities. The quantitative coordination of output
volume and the qualitative coordination of product features, all under
intense time pressure, could not take place through purely market links.
Coordinating firms have four options when considering the location
of their production:

1. Retaining production in the home country, either in self-owned

production facilities or via domestic outsourcing.
2. Retaining production in fully or partially-owned manufacturing
facilities through FDI in lower-wage countries.
3. Manufacturing to order by third-party contractors, in the form of
either outward processing or ‘full package’ supply.3
4. Direct importing (‘buying in’) from lower-wage countries, often
through an agent.

Combined strategies are, of course, adopted in many cases.

German coordinating firms began to abandon strategy 1, home
country production, from the 1970s onwards, due to high domestic
wage costs and more stringent employment regulation (Froebel et al.,
1980). Our interviewing revealed that, with one notable exception,
complete domestic manufacturing in self-owned facilities no longer
exists in Germany’s larger firms. There were a few cases of partial reten-
tion of the manufacturing function in-house, particularly of sample-
making facilities. Strategy 3, third-party manufacturing in the form of
outward processing, has been by far their most prevalent strategy, and
one that has gained in importance since the end of the 1980s. In 1998,
Germany had easily the largest share – in terms of value – of outward
processed clothing among major European countries (Dunford and
Greco, 2004). As outward processing involves coordinating firms in the
buying of fabric and trim, and in many cases also in the cutting of
202 Multinationals, Institutions and the Construction of Transnational Practices

garment parts, they have greater control over the appearance and
quality of the garment – a course of action congruent with an empha-
sis on high quality and branding. In distant second place for German
firms are both direct importing and full package manufacturing,
although the latter is growing; and in third place, manufacturing in
lower-wage countries through direct investment in their own manufac-
turing subsidiaries (Adler, 2003, interview notes 2003). Domestic sourcing
for short runs and re-orders in Germany is infrequent, presumably due
to the absence of an informal sector, and instead occurs in neighbouring
CEE countries (Donath, 2004).
UK firms’ outsourcing of manufacturing to low-wage countries, in
contrast, started only from the mid-1990s onwards (BATC, 2003), due
both to lower wage levels and to dependence on Marks & Spencer,
which maintained a ‘Buy British’ policy well into the 1990s. There are
no systematic studies of the mode of outsourcing, and we rely on our
interviews to present an account. Manufacturing exclusively in self-
owned domestic plants no longer exists following numerous plant
closures in recent years, and even partial domestic manufacturing is
very rare (interview notes, 2003). A few larger firms own production
facilities in low-wage countries, both in CEE and in Asia. This strategy
is more prevalent than in Germany, especially among the large M&S
suppliers, which have sought to obviate adoption by M&S of large-scale
direct importing. Outsourcing to independent third-party suppliers is
by far the dominant UK strategy. Concerning the mode of foreign
sourcing, the ‘full package’ option is more prevalent and outward
processing much rarer than for German firms. The volume of outward
processing of clothing in 1998, to the value of €444m, was one-seventh
that of Germany’s (Dunford and Greco, 2004). The ‘full-package’ strat-
egy shifts costs and risks onto the supplier (Richardson, 1996) but also
permits the latter to upgrade its capabilities; it also results in loss of
expertise and control over the final product for coordinating firms.
Where clothing firms supply to a dominant retailer, the latter now
more frequently specifies the fabric source, depriving clothing firms of
another area of expertise (Baden and Velia, 2002).
German coordinating firms source four-fifths of outward processed
garments from Poland, Romania and other CEE states, plus Turkey
(Groemling and Matthes, 2003: 80). According to BBI (2002: 24), in
2001 only eight non-CEE countries – namely Tunisia, Turkey, Morocco,
Portugal, Greece, Vietnam, Malaysia and China – figured among the
23 largest German suppliers. ‘Full package’ production is most likely to
occur in Turkey and China (Volksbanken Raiffeisenbanken, 2003: 4).
This locational pattern is also supported by our interviews.
Christel Lane and Jocelyn Probert 203

Preliminary evaluation of our interview data on UK firms’ sourcing

strategies shows a clear focus on Asia-Pacific, especially China, and
some Mediterranean rim countries. Larger firms use CEE locations to
supplement distant suppliers, while a few smaller firms either exclu-
sively use CEE third-party contractors or own manufacturing facilities
there. As with German firms, Turkey is popular, not least because of an
EU tariff-free trade agreement since 1996. But countries such as Sri
Lanka, Mauritius and Cambodia, which were hardly mentioned by our
German interviewees and which have no obvious locational advan-
tages beyond low cost, also attract UK investment and/or third-party
manufacturing orders. The choice of more distant suppliers is conso-
nant with the preference for full-package or direct imports, rather than
outward processing. However, long historical association with countries
such as Hong Kong/China and the Indian subcontinent also partially
explains this geographic focus.
More widespread in the UK than in Germany is outsourcing to
domestic suppliers for replenishment and experimental short runs.
This work is still being carried out by smaller firms, which themselves
often have several tiers of their own suppliers and use home work
(Warren, 2003). This explains the large and continually shifting popu-
lation of micro firms in a largely informal sector (KFAT et al., 2000;
Warren, 2003).
Managers in both countries give the following reasons for the popu-
larity of foreign sourcing, as against production in their own foreign
subsidiaries. It offers sufficient, if not complete, control; requires low
capital commitment; and provides a high degree of flexibility, that is
the possibility of moving from one supplier to another. Moves between
suppliers occur either for efficiency reasons or, more often in recent years,
because even lower-wage countries develop viable facilities. Although
such footloose behaviour is not rampant, it is nevertheless a strategy
that many firms in both countries adhere to – even those whose
managers strongly subscribe to the notion of close, long-term relations
with suppliers (interview notes, 2003). (However, a few firms in both
countries explicitly repudiated such footloose behaviour.) A glance at
historical shifts in sourcing locations confirms this interpretation.
Thus German firms in the 1970s started sourcing from southern
European firms, as well as Turkey and some Asian firms (Groemling
and Matthes, 2003: 80) and only later moved into CEE. More recently,
due to price rises in CEE countries ahead of accession to the EU, there
has been a strong trend to move further east to Romania, and a weaker
trend towards Bulgaria, Lithuania and Ukraine. China is the most
popular Asian country, the source of about 4.1 per cent of clothing
204 Multinationals, Institutions and the Construction of Transnational Practices

imports over the period 1990–2000 (Groemling and Matthes, 2003: 49,
figure 13b; interview notes, 2003). British firms are also moving east-
ward in CEE countries and have become more focused on China, but
Turkey and Morocco have also gained greatly in popularity (interview
notes, 2003; BATC, 2003).
To what degree and how do German and UK coordinating firms
exert control over their nominally independent suppliers and thus over
the quality of the finished product? Although coordination of the
relationship by German firms occurs through contractual agreements,
production remains ‘to a high degree’ under the influence of the
German coordinating firm (Wrona, 1999: 161; interview notes, 2003).
Our interviews confirm the use of strategies to retain control, such as
placing the coordinating firm’s own technical staff with the supplier.
British firms employ mixed methods of control, ranging from the use
of agents to employing roving inspectors who conduct quality con-
trols. Since British firms are more distant geographically from their
suppliers and employ fewer trained technical staff compared with
German firms, it appears that ‘virtual’ vertical integration is more
rarely achieved and control less fully maintained than in the German
Firms from both countries demand from their suppliers a combina-
tion of high quality, low price and timely delivery. It might be conjec-
tured that these are now global standards from which suppliers cannot
depart, or that quality means very different things to firms from these
two countries. Our knowledge of the different quality standards in final
products, as well as of the preferred mode of sourcing – outward
processing (OPT) versus full package – leads us to think the latter
interpretation more probable.

Implications for labour market segmentation and the nature of

The most widely noted consequence of the large volume of outsourcing
has been a huge reduction in manufacturing employment in developed
countries, yet the restructuring of overall employment has so far received
scant attention. Outsourcing of manufacturing to supplier countries by
both German and UK coordinating firms has led to an inter-firm labour
market segmentation both within developed countries and between
developed and developing countries. This process has had very differ-
ent consequences for labour force composition in the German and UK
domestic clothing industry and for the quantity and quality of
remaining employment, as well as for employee representation.
Christel Lane and Jocelyn Probert 205

Interviews with industry insiders and the literature on the UK indus-

try suggest that outsourcing of manufacturing operations to domestic
lower-tier suppliers remains prevalent, sustaining an informal sector
and a segmented labour market. German industry insiders, in contrast,
claim that neither an informal sector nor the ensuing labour market
segmentation are found in the German industry. An informal sector in
the UK clothing industry historically evolved in geographical areas
with a high concentration of immigrants, such as east London and
parts of the East Midlands. Despite the introduction of a compulsory
minimum wage in the late 1990s and the much increased global sourc-
ing, this informal sector and the accompanying labour market segmen-
tation continue to thrive. This development has been favoured by
relatively lax employment regulation and the inability of unions to
enforce the adoption of adequate, industry-wide wage rates. Absence of
legal support for ‘extension rules’, whereby terms and conditions of a
collective agreement can be made legally binding over non-unionized
employees in the industry or bargaining unit (Brown et al., 1997: 75),
partly explains this impotence.
Ethnic minority ownership (constituting around 35 per cent of owners,
according to CAPITB Trust (2001: 5)) of predominantly small and
often unstable firms has been combined with employment of ethnic
minority, usually female, labour, frequently as home workers (Heyes
and Gray, 2000; Warren, 2003). Conditions in such firms have been
labelled as ‘sweatshop’, with low wages, poor and often unsafe working
conditions, and numerically flexible hours (ibid.; interview notes,
2004). KFAT et al. (2000) comment as follows: ‘Some employers in the
industry run what can only be called sweatshops. They break many of
the UK laws on the minimum wage, health and safety and employment
protection.’ By its very nature, assessment of the size of this sector can
only be approximate, and it cannot be established whether it has
suffered a significant decline in recent years. Industry insiders confirm
its continued existence, also indicated by the survival and continual
renewal of a large ‘tail’ of small and unstable clothing firms. Large
coordinating firms, strongly concerned with their reputation, do not
seem to buy directly from firms in the informal sector. But, according
to one industry insider, some of their first-tier suppliers surreptitiously
source their top-up and quick-response supplies from such cheap-
labour firms.
In Germany, despite the existence of regional concentrations of ethnic
minority populations, such an informal sector has not been created.
Stricter legal regulation of wage determination and employment
206 Multinationals, Institutions and the Construction of Transnational Practices

conditions, including ‘extension rules’, has precluded the development

of labour market segmentation and has consequently ‘squeezed out’
small, inefficient firms. Although the rate of unionization now is only
slightly higher in the German than the British industry, legal regulation
of collective bargaining agreements continues to secure industry-wide
diffusion of wage rates.4 Importantly also, legal regulations stipulate that
employers must have a master craftsman (Meister) qualification (Rath,
2002) – a requirement that excludes most ethnic minority aspirants.
Presence or absence of labour market segmentation, in interaction
with skill structure and product and market strategy of firms, in turn
have determined what kind of labour remains in these two developed
countries, given the almost total relocation of the production function
by larger coordinating firms. Government policy decisions on whether
to support the maintenance of a clothing industry in these two coun-
tries must closely examine the quality of remaining employment –
whether there has occurred an upgrading and a shift from manual to
higher-level non-manual jobs, and whether jobs are well-paid and
relatively stable.
Given the disappearance of most manufacturing jobs in both
countries, one would expect remaining employment to be concen-
trated disproportionately at a higher level, that is in human capital
intensive jobs in management, finance, marketing, technical work and
design. But this development is marked only in the German industry.
Thus, whereas in the UK clothing industry white-collar staff in the
managerial, technical and supervisory categories account for a mere
20 per cent of all employees (CAPITB Trust, 2001: 16), in German
clothing firms white-collar workers amount to a massive 45 per cent.
The remaining 55 per cent of employees are mainly in logistics and
finishing processes (Donath, 2004). These differing employment
profiles are due in part to the predominance in Germany of type 1
firms, branded merchandisers, and in the UK of type 2 firms, suppliers
to domestic retailers, without their own brand (see Table 8.1). The large
proportion of manual workers in the UK industry is also a consequence
of labour market segmentation.
Last, what have been the implications of the development of global
production networks for labour market segmentation between devel-
oped countries, on the one hand, and threshold and developing coun-
tries, on the other? As this question has not informed our research
design, we can provide only a brief and general answer. The clothing
industries of developing countries are widely portrayed in a very static
manner as representing the very worst of sweatshop conditions, and
Christel Lane and Jocelyn Probert 207

the underlying labour market segmentation between developed and

developing countries is seen to be at the base of this. While this
undoubtedly is correct for many of the poorest developing countries, it
is nevertheless a one-sided picture that ignores the dynamic aspects of
this globally-integrated industry. Both Gereffi (1999) Gereffi et al.
(2005) and Palpacuer (2000) have shown that significant upgrading of
clothing firms has occurred in threshold countries. The example of
Hong Kong is particularly striking, but similar developments may be
expected in the most advanced CEE countries (Wrona, 1999). In Hong
Kong, many firms have exploited their former status of ‘full package’
supplier to advance to the status of branded merchandisers who even
export to Western markets. This enables them to charge higher prices
and pay higher wages (Gereffi et al., 2005). Yoruk (2002) shows that a
process of upgrading is already under way in a few Polish firms that
have developed ‘own brands’ for the domestic market only.
Transformations have also occurred in China, the foremost clothing
producer among newly industrializing countries. As figures on interna-
tional trade show, its volume of clothing exports more than quadrupled
between 1980 and 2000 (WTO 2001, quoted by Dicken, 2003: 325).
As supplier firms are highly concentrated in a few geographical regions,
mainly close to Hong Kong, competition for labour has become
intense. Female sewing workers, usually recruited in the poorer agricul-
tural provinces and living in dormitories, are no longer dependent on
any particular firm, but benefit from an active regional labour market.
They move frequently between firms, depending on the benefits and
working conditions offered, creating a ‘labour problem’ even for the
larger Hong Kong owned firms (interview notes, 2004). In this situa-
tion, sweatshop wages and conditions cannot be sustained. But, at the
same time, with the changing political world map, new and even
lower-wage countries, both in Asia and Eastern Europe and Russia,
have entered the world market. Following the expiry of the Agreement
on Textiles and Clothing in 2005, tempered by the introduction in
2001 of a ‘China safeguard’ (until 2008), further movement in this
global kaleidoscope may be expected.

This chapter has advanced a number of theoretical claims and has sub-
stantiated them in the light of data on the organization of German and
UK clothing firms. It has been suggested that, to understand the
impact of global production networks on labour market segmentation
208 Multinationals, Institutions and the Construction of Transnational Practices

and employment, one first needs to study firms in their domestic

contexts, focusing on their competitive strategies and the different sets
of capabilities they have developed to pursue them. Capabilities, we
have argued, are not developed in the voluntaristic manner that
the management literature suggests but, in line with Varieties of
Capitalism (VoC) theory, are crucially shaped by available institutional
support structures. We have demonstrated that capabilities shape
product and market strategy. This, in turn, influences the kind of
employment that remains in developed countries after the building of
global production networks has eliminated many mainly semi-skilled
manual jobs. Contrary to received wisdom which views the UK as
an advanced service economy, a movement to higher service jobs is
not evident in the UK clothing industry. In the German industry, in
contrast, such a trend to more skill- and knowledge-intensive jobs has
Our contextualization of firm strategy has lent some support to the
VoC framework. We have confirmed the claim that British firms are
more atomistic in their development of resources and capabilities.
Among the many small and medium-sized, and often under-capitalized,
firms the resulting product and market strategy, together with the
industrial relations system and degree of employment regulation, give
scope to the continuation of an informal sector and the segmentation
of the labour market between firms. This development has prevented
the upgrading of employment. The British clothing industry thus has
not only lost many jobs over the last ten years or so, but has also failed
to achieve the upgrading of employment which the new international
division of labour is held to favour in developed countries. Labour in
the German clothing industry, in contrast, has benefited more from
institutional support structures, particularly in the area of skill devel-
opment and wage determination. Restrictive regulation of qualification
levels for employers also played a crucial part in preventing creation of
an ‘ethnic’ segment of the clothing industry that thrives on exploita-
tion of self and of fellow ethnic employees. Consequently, similarly
high job loss in Germany at least can be counterposed to a significant
upgrading of the employment structure. This preserves a much higher
proportion of domestic jobs in professional, technical and managerial
But we also suggest that the VoC approach may not offer sufficient
explanation for the analysis of cross-border networks. Global produc-
tion networks have been established specifically to escape national
institutional constraints, such as industrial relations systems,
Christel Lane and Jocelyn Probert 209

employment regulation and pay structures. Both global regulation of

trade and political/institutional factors in supplier countries are
important additional influences on the structures of GPNs. As Meardi
and Tóth (this volume) suggest, Western firms are seeking to diver-
sify, rather than diffuse, their domestic model, but they still strive to
retain elements crucial to the product model. Thus, German firms try
to maintain the skills necessary for efficient production, as well as
disciplined work attitudes, without incurring costs in terms of high
wages and the establishment of formal training programmes. In the
case of British firms such effort is less evident, with cost reduction as
the only or dominant motive. Due to the generally low level of skill
and technological sophistication in production processes, suppliers
generally possess a low level of power. Hence the process of ‘reverse
diffusion of practices’ noted by Meardi and Tóth is altogether absent
in our study.
Last, in neither country are coordinating firms powerful multina-
tional companies. They are mainly medium-sized firms which, with a
few notable exceptions in Germany, lack the resources and managerial
capabilities to become truly global players. German firms, we showed,
have developed at least European sales offices and relationships. In the
UK, in contrast, most firms maintain an incongruous mixture of purely
national relationships together with insertion into global networks.
Moreover, supplier firms are even further removed from being MNCs.
Of the approximately 350,000 clothing manufacturers in low-wage
countries, 98 per cent are companies with only one factory and very
few have their own sales offices in buyer countries (Flanagan, 2004:
28). The description in the literature of the clothing industry as one of
the most globalized needs some correction, as does the adoption, for
example by Held et al. (1999), of global production networks as one of
the main indicators that globalization has occurred.

This paper is an output of the project, The Globalising Behaviour of UK
Firms in Comparative Context, undertaken in collaboration with the
Industrial Performance Center at MIT and funded by the Cambridge-
MIT Institute (CMI).

1 This discussion ignores the high-end knitwear sector, where the capital
intensity of the machinery utilized can be high and labour intensity low.
2 Some writers distinguish between the two concepts (e.g. Teece et al., 1997)
but most use them interchangeably as we do in this paper.
210 Multinationals, Institutions and the Construction of Transnational Practices

3 For ‘full package’ manufacturing, the supplier purchases the fabric and trim
specified by the coordinating firm and makes up the garment.
4 In the German clothing industry, now organized by a section under IG
Metall, the degree of industrial organization is 22 per cent, compared with
an overall union density of 28 per cent (figures supplied by P. Donath, IG
Metall), whereas for the UK unions with membership from the clothing
industry – KFAT, T&G and GMB – a density of under 20 per cent has been
estimated, which is well below the general level of organization (personal
communication from W. Brown, Professor of Industrial Relations, University
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Global Networks or Global Firms?
The Organizational Implications of
the Internationalization of Law Firms
Glenn Morgan and Sigrid Quack

The 2004 World Investment Report produced by UNCTAD was entitled
‘The Shift towards Services’. The report stated that ‘the structure of FDI
has shifted towards services. In the early 1970s, this sector accounted
for only one-quarter of the world FDI stock; in 1990 this share was less
than one-half; and by 2002, it had risen to about 60 per cent or an
estimated $4 trillion’ (p. xx). The report also noted that ‘despite the
growth and dominance of services FDI, the services sector is less
transnationalized than the manufacturing sector’. In this chapter, we
examine one particular services sector that is a fast growing area for
FDI – that of legal services. As the UNCTAD report states, ‘the legal
business is skills oriented and strongly host-country specific. Each
country has its own legal code upon which firms operate’ (p. 112).
This raises three issues which we seek to explore and which constitute
the three core sections of the paper. Firstly, what has changed in the
legal business that makes internationalization an important issue, given
that nation-states remain the predominant source of law and, as a pro-
fession, lawyers are predominantly educated, regulated and controlled by
national associations? Our main argument here concerns the changing
nature of client demands on legal firms pushing them to find ways of
evolving more international capacities for advice. Secondly, how have
legal firms sought to become international against the backdrop of
national legal systems and national forms of professional regulation?
Here we describe two basic models of internationalization which we
label the ‘global firm’ model and the ‘network model’. We differentiate
each of these models further in order to capture the broad range of inter-
nationalization models currently being pursued. We also consider the

214 Multinationals, Institutions and the Construction of Transnational Practices

extent to which these different models emerge from a segmentation of

the market or are alternative models within the same market segment. In
our final discussion section we relate this to the general issue of the
social embeddedness of firms in particular national contexts and con-
sider how different are the forms of internationalization of legal firms
across different ‘varieties of capitalism’?
Our analysis draws partially on data derived from publicly available
sources concerning the growth and development of law firms. These
data are increasingly available through the websites of the firms them-
selves and through legal directories, the most important of which is
Martindale-Hubbell (http://www.martindale.com). As well as providing
data on individual law firms from different countries, Martindale’s
provide a list of law firms, associations and their members (with
website addresses in many cases). These sources have been a major
resource for us in developing an understanding of different types of
firms and networks within the legal industry. We have supplemented
this with two other sources of information. The first is the flourishing
legal press in which issues of internationalization appear regularly (e.g.
The Lawyer, in the UK and the American Lawyer). These magazines
provide important information on the latest developments within
firms and networks, frequently revealing the tensions and difficulties
which partners and their firms face as they try to internationalize. The
second source derives from academic accounts of law firms from
outside the arena of business and management. As well as the obvious
literature in the field of socio-legal studies, there are also significant
discussions of the internationalization of law and law practice in the
fields of international politics and international relations. Although
these literatures rarely examine the dynamics of firms, they are excellent
sources for an understanding of how law and the demand for law is
internationalizing. More recently the growing policy interest in the
internationalization of services has also led organizations such as
UNCTAD to look at law firms. In conclusion there is a substantial
amount of primary and secondary data that enables us to develop a
systematic framework for understanding the diversity of ways in which
law firms are internationalizing.

Lawyers and their clients: the impact of globalization

Boyle and Meyer (2002: 68) state that ‘legal systems are a constitutive
element of that form of society known as the modern nation-state. The
two arose concomitantly, each lending legitimacy to the other.’ Each
Glenn Morgan and Sigrid Quack 215

society evolved its own particular pattern of law, law-making and

lawyering on the basis of longer-standing traditions and institutions
that in the European and Japanese contexts stretched back to previous
forms of what Weber termed ‘traditional authority’. Stryker (2003: 339)
describes the inter-relationship between law and the economy in
classical institutionalist terms as follows:

When there are stable sets of rules providing legal rights and guar-
antees to parties to exchange, this enhances certainty and pre-
dictability in contractual relations. Because guaranteeing enforcement
of contracts according to known rules increases the probability that
promises are kept, law encourages making contracts and also other
forms of business activity on which market exchange depends….
Full-blown capitalist economic systems are unlikely without legal
enforcement of contracts.

The manner in which the characteristics of professionalism, such as

licensing, exclusion, certification and organization, were constructed
was dependent on the nature of the relationship established between
the state and the profession (Johnson, 1972; Thorstendahl and Burrage,
1991) in various countries as was the relationship between lawyers and
other professional groups, such as accountants and tax consultants.
As far as most clients of law firms were concerned, up to the latter
years of the twentieth century their needs would be predominantly
national. Only with the largest multinationals (MNCs) was there likely
to be any requirement for advice that spanned national boundaries.
However, as globalization became more significant, this began to
change. The UNCTAD report states that ‘FDI in services has tradition-
ally been and continues to be, market-seeking’ (UNCTAD, 2004: xxii).
In legal services, however, this has to be modified somewhat as
frequently the goal of the law firm is not seeking new markets per se
(which is difficult where skills and reputation lack cross-national trans-
ferability) but rather following the home client, i.e. trying to ensure
that business is not lost when clients have legal needs overseas. However,
even this is not sufficient to understand the internationalization of law
where it is the nature of law itself and how it is evolving which are
crucial factors.
One way to approach this is to pose the following question which is
increasingly common in the era of globalization: when MNCs make
contracts with each other or with national governments, what system
of law governs the transactions? The answer to this is that corporate
216 Multinationals, Institutions and the Construction of Transnational Practices

law has increasingly become ‘de-territorialized’. In other words, the law

which governs a contract does not automatically emerge from the
physical place in which the contract is signed. In many circumstances,
companies can and will exercise ‘choice of law’, that is they will agree
that the law under which the contract takes place is US law even
though the contract refers to business being undertaken in China.
Indeed, companies may seek to establish that the contract is under
‘international’ law, what is known as lex mercatoria in the arena of
corporate law. De Ly (2001: 161) describes these debates as follows:

(The) basic proposition was that national sources (primarily codes

and statutes and case law) did not reflect the realities of interna-
tional business life… they argued that national sources were to a
large extent inappropriate to cope with the problems and needs of
international trade. They claimed that a new system was required
and that… a new law merchant or lex mercatoria had emerged and
was developing. This lex mercatoria may be defined… as a set of rules
finding their origins outside domestic legal systems which is
applicable to international business transactions. By and large, it is
composed of international sources of law and self-regulatory rules.

De Ly points out that lawyers disagreed about the degree to which

this system was a separate autonomous legal system of its own, different
and apart from national legal systems. If it is such a system, then ‘it is an
outright attack on domestic law as the basis for international business
adjudication. Thus, it challenges and disputes the traditional national
state paradigm of international business law and its underlying
assumptions’ (De Ly, 2001: 162). What is clear is that the nature of law
regulating international business was gradually changing and that the
debate over a new lex mercatoria was one symptom of this. Law was
becoming more multi-layered, not just national. It was becoming less
constrained by the state and the sphere of public law and it was
moving into various private or semi-private arenas. The range of actors
involved was also becoming more diverse. This web of institutions,
actors and interactions reflected a new form of governance without
The consensus amongst legal scholars is that international business
transactions are governed at a variety of levels, not just the ‘national’.
Martiny (2001: 126) states that ‘for most legal questions, even today,
there exists only national statute and case law… nevertheless the
respective national statutes often simply do not fit with international
Glenn Morgan and Sigrid Quack 217

cases.’ States have tried to overcome these differences by signing up to

international conventions and treaties. However, the complexity and
diversity of international economic activity goes beyond this and the
result has been a range of public, private and semi-public arenas for
managing the legal issues arising. Slaughter (2002: 15) describes this in
terms of ‘not only the devolution of state power upward to suprana-
tional institutions and downward to regional or local governments but
also sideways to a fast-growing array of non-state actors, both civic and
corporate.’ The consequences of this for processes of international
economic coordination are not that the state is no longer significant.
Indeed, the state remains at the heart of many of the coordinating
mechanisms across borders but now the state is overlaid and networked
with many other mechanisms. This in turn leads to uncertainty and
ambiguity. How do these mechanisms connect together, which have
priority and how is this enforced? Answers to these questions emerge
out of processes, rather than being imposed by structures. In that
sense, they remain fluid, temporarily useful but subject to change,
challenge and reinterpretation – an era of governance, not without
government per se, but with government (and its principles of hierar-
chical coordination and control) as but one part of a more complex
scene of processual coordination. Much of this change can be captured
in the concept of ‘governance without government’. Zürn’s account
(2001: 49–50) neatly sums this up:

Governance refers to the governing of purposive systems of norms

and rules. In this sense, ‘governance is order plus intentionality’.
Modern governance has best been provided within the nation-state
by a government claiming a monopoly of legitimate force and that
thus ruled by hierarchical orders…. International governance,
specifically, lacks a central authority or a ‘world state’ equipped with
a legitimate monopoly over the use of force. Thus governance
beyond the nation-state cannot take the form of governance by
government, but rather it needs to be governance with governments,
as in international institutions, or governance without government,
as in transnational institutions.

These developments are invariably pushed forward by MNCs. The

growing diversity of possible legal arenas inevitably offers opportuni-
ties for the large firms. The shift, for example, from public to private
arenas of law has various advantages. For firms involved in disputes,
public confrontations can irreparably damage commercial relationships
218 Multinationals, Institutions and the Construction of Transnational Practices

and therefore more private processes are often preferred. In arenas of

high complexity and rapid change (e.g. around financial markets),
public law may be slow to respond and conservative compared to prac-
titioners. Lying behind this, more generally, is clearly a shift into the
private arena of issues that might become ‘political’ and damage the
standing of companies and sectors in some ways. Similarly, an exten-
sion of ‘choice of law’ principles or the new lex mercatoria will enable
companies to reach deals and compromises away from broader political
accountability or scrutiny.
For those law firms traditionally involved in corporate business, this
extends considerably the legal arenas in which they operate and the
activities which their clients may expect them to undertake. We can
distinguish four levels of lawyering in this era which reflect these
changes. We present these in increasing order of complexity from the
point of view of the organizational coordination processes necessary to
achieve them effectively (see also Morgan and Quack, 2005a, b, for a
more general analysis of these processes):

• Cross-border referral business. This refers to contexts where a client in

one jurisdiction requires advice in order to undertake some legal
process in another country. This is essentially bilateral business that
emerges from the ongoing internationalization of trade. It may
include advice on debt recovery, contract enforcement, incorporation
procedures, regulatory barriers to goods and services, and so on.
This is the arena of corporate law that most affects small and
medium-sized enterprises in their effort to internationalize.
• Doing law simultaneously and in a coordinated way in multiple jurisdic-
tions – for example, competition law referrals arising out of merger
and acquisitions activity. This sort of law requires central coordina-
tion and the provision of standardized services in local offices.
However, it does not require high degrees of flows of information
and expertise across the firm as a whole.
• Arbitraging legal systems. MNCs also require their lawyers to be able to
judge and compare the impact of different regulatory frameworks on
the firm’s operations. Given a multi-jurisdictional world in which
there is an element of ‘choice’ of law, of incorporation, of taxation, it
is crucial to the firm that there are experts capable of helping them to
maximize the advantages that can be gained from this. This is a
highly complex process and requires the ability to create intensive
flows of communication, knowledge and understanding between
experts in different national jurisdictions.
Glenn Morgan and Sigrid Quack 219

• Building new systems of public and private law at the transnational level.
This final process reflects the fact that law and institution-building
is a continual process at the international level. MNCs require their
law firms to be active in this process not just through acting for
them in specific cases but through their participation in the
processes of institution-building itself. International law firms gain
reputation and position (and through this the ability to charge
premium fees) by their ability to interact with powerful lawmakers.
This is reflected at all sorts of levels. In formal terms, it is demon-
strated by the law firm’s ability to respond to consultative exercises
launched by various governments or international bodies on matters
of corporate law. In informal terms, it is reflected in the c.v.’s of the
lawyers present in these firms – for example, their education in top
institutions, their experience in government or politics, their role in
prestigious international bodies.

In conclusion, the clients of lawyers increasingly demand an interna-

tional capability on the part of the firm. The idea of ‘international
capability’, however conceals some significant differences. The capability
to handle referral business for clients is much easier to develop than is
the capability to influence the development of international institu-
tions and international law-building. Thus there are different levels of
capability, not all of which are required by all firms involved in inter-
national activity. Finally, it is important to note that as tasks become
more complex, the ability to perform them requires more resources. In
this respect, there is a clear cost hierarchy in this system. The more
coordination is required across expert groups located in different
national contexts, the higher will be the costs. Where these experts are
also supposed to be an elite engaging regularly and directly with law-
makers and the process of institution-building, the higher the costs will
be for clients. This reflects a move away from standardized processes
and procedures such as referrals and multiple registrations towards
more open-ended arbitraging and influencing types of processes. In the
latter case, the gains from success may be huge to the company con-
cerned but often it may be that the gains (particularly in terms of
‘influence’) are hard to identify and quantify and also ‘lumpy’ in terms
of their timing (maybe influencing the climate of opinion in a way
that only reaches fruition some time in the future). What this diversity
of activity and costs implies, however, is a similar diversity in the
nature of the organizational solutions that emerge to compete for this
business. In the next section, we explore this in more detail.
220 Multinationals, Institutions and the Construction of Transnational Practices

The development of organizational forms: global law firms and

global networks of law firms
In this section, we examine how law firms have responded to these
changes. Our basic argument is that there have been two main devel-
opments in the past decades. The first we label the ‘networks’ model
and the second the ‘global firm’ model. In the networks model, firms
retain their independence in national contexts but advertise and effect
a longer transnational reach by establishing relationships with other
firms. In the past, much international legal work was in effect conducted
through such informal, friendship networks of this sort. From an
organizational point of view, the continued centrality of the partner-
ship structure to the organization of law firms is of paramount impor-
tance. In spite of some reforms in particular jurisdictions (such as the
establishment of the limited liability partnership), law firms belong to
their partners. The partnership structure is difficult to internationalize
particularly in areas like law for at least two reasons.
Firstly, for most partnerships the issue of liability is naturally a
central one. Unlike the public limited company model, where liability
is strictly contained, in the partnership the partners are jointly and
severally liable for the debts of the firm. For legal partnerships liability
is usually contained in two ways: by avoiding involvement in other
jurisdictions; and by purchasing professional indemnity insurance
which is often mediated by the national professional association and is
dependent on conformity to national standards. Thus in the UK, the
issue of having lawyers qualified in other jurisdictions (such as the
USA) as partners in the UK-based firm required Law Society approval as
it raised questions of liability insurance.
Secondly, partnerships are delicate institutions in terms of the distri-
bution of rewards. It is the partners themselves (or a sub-group of
them) who take the decisions about how to distribute surplus. In most
cases, this requires a relative visibility of the performance of various
partners and the fees they are earning. In general, there are two different
mechanisms for this. One system known as the ‘lock-step’ model and
favoured in the past in the UK has been effectively a seniority-based
model. The other model, favoured more in the US is the ‘kill what you
eat’ system where rewards go to partners according to performance. In
both cases, however, systems are modified in order to deal with specific
instances and to make sure that the firm does not lose particular talent
which may be disadvantaged by the rules. This creates difficulty in
international ventures. Firstly, it is difficult to create the mechanisms
Glenn Morgan and Sigrid Quack 221

of visibility that can provide the legitimacy for decisions on distribution.

Secondly, the earning power of lawyers across different jurisdictions
varies enormously and therefore any redistribution system which sought
to be ‘transnational’ would create major tensions amongst winners and
losers. For all these reasons, therefore, any steps to internationalize the
firm require careful handling. Many law firms will prefer to remain
independent as that ensures that their partners retain their autonomy
in terms of their own work and also they retain oversight and control
over how surpluses are distributed. Giving up independence through
becoming a part of a global firm brings into question how to organize
roles and responsibilities as well as the distribution of surplus amongst
partners even when it promises the possibility of a hugely enlarged
surplus. It is these tensions which are reflected in the various models
discussed in the following section. We begin from situations where
least autonomy has been given up through to global firms where issues
of managing across borders become more central.

Types of networks
We identify four types of networks, that is to say where law firms in
different countries retain their independence but become part of a
network of cooperating firms. The degree of cooperation is the pre-
dominant factor of difference between the different types of networks.

International referral networks

International referral networks have become established since the early
1990s as the scale of international law business has increased. Two of the
most well-known are Multilaw, with its 4500 lawyers in 130 commercial
centres, and Lex Mundi with its 15,000 lawyers in 161 countries. Any
law firm can join these organizations on payment of a small fee. Such
networks run various events but given the global spread of members
these tend to be regional or local in their impact. Their governance struc-
ture reflects a mix of principles. Thus there is both professional involve-
ment in oversight and a permanent secretariat. The network itself
is likely to be a profit-seeking organization. This can create tensions
between, on the one hand, an urge to keep costs low and revenue high
and, on the other, a more professional agenda of developing the capaci-
ties of the network and its members. The standards of members in these
networks, for example, are very difficult to monitor although the net-
works do claim to do this. This kind of network gives any individual
member firm relatively little. The firm gains an additional logo or
identity that can be placed on its publicity materials. It also receives a
222 Multinationals, Institutions and the Construction of Transnational Practices

listing on a website or in a catalogue. Ideally this gains the firm referral

business but as there is little effort to ensure that members are in princi-
ple not competing this is an uncertain and limited gain. This type of
network is as much about reassuring clients as it is about actual practice.
Nevertheless the ease of access to such networks does mean that SMEs in
different countries can find their way to advice and expertise that may
help them overcome difficulties in international transactions.

The integrative network

The second tier, ‘integrative networks’, consists of linkages between
large provincial firms in different countries where the heart of the
network has been built and sustained by strong personal links between
senior partners. Such networks are often characterized by membership
in the region of 20–30 firms formalized on the basis of initial strong
contacts between a core group. Membership is by invitation only and
requires payment of a fee, though this is usually quite small. The invi-
tation is usually extended on the basis of an agreement of existing
members that they need to develop into new markets; for example, a
number of such networks are seeking new members in the recent EU
accession countries. Generally representation will be just one firm per
country, but where there are clear boundaries between court areas in
large countries more than one member may be permitted. The network
works primarily on the basis of referrals, in other words a firm with a
client in one country refers the client to a law firm in another country
where the firm has an established need. There may be some effort to
move to the level of a coordinated cross-border service for relatively
standardized tasks so that, for example, an MNC could go to the lead
member of such a network with a task that has to be done roughly
simultaneously in a number of countries and the law firm will coordi-
nate its contacts through the network to ensure that this is achieved
promptly and at the same quality level. This may be relatively mundane
in terms of issues such as debt recovery or corporate registration. There
are no commissions on ‘introducing’, just an expectation of reciprocity
in terms of referrals. Such networks may act quite strongly against
members who either do not deliver mutual referrals (though this may
be difficult for a firm in a small country compared to a firm in a large
one and is not always a case of free-riding), or who consistently fail to
deliver good service to a client thus undermining the introducer’s
reputation and that of the network as a whole. These networks can
become heavy consumers of the time of a small number of partners in
particular firms who may run the administration of the network.
Glenn Morgan and Sigrid Quack 223

Generally, personal contacts are essential to sustaining the social rela-

tionships necessary for making the network run. As a result network
activities are often based around social events with a small amount of
formal legal activity – for example, annual conferences with partners in
exotic locations where social activity is interspersed with sessions on
topics of legal interest. The sharing of a technology platform is increas-
ingly part of networks like this. Within Europe, these networks are
becoming increasingly common for mid-level provincial law firms,
reflecting the growing intensity of cross-border business governed by
EU law. They often reflect a conviction of some of the partners within
the firms that an international presence is essential. Hard evidence in
terms of new revenues arising from these activities may be difficult to

The tightly coordinated quasi-firm network

Tightly coordinated networks emerge from a process of interaction
between independent firms in different jurisdictions, where the need
to build more complex business propositions for multinational
clients pushes towards greater formal integration both in terms of
marketing activities and in the use of cross-border work teams. The
most significant network model of the formal sort amongst the top
law firms in Europe is the CMS network (known as CMS Hasche Sigle
in Germany, where it is the fifth largest firm, and CMS Cameron
McKenna in the UK, where it is the fourteenth largest). The CMS
network is concentrated in Europe and consists of partners in Italy,
France, UK, Netherlands, Switzerland, Belgium and Austria. Another
example of such a network is DLA, headquartered in the UK (where
it is the ninth largest firm), with network members in eight EU
countries as well as in Singapore and Hong Kong.
These networks have emerged from large provincial firms that
might be described as second-tier law firms in their national setting.
Such firms face the prospect of gradually losing their major clients to
larger firms if they cannot deliver international services. Creating
tight networks enables them to offer these services to clients whilst
retaining their independence. Such networks have some of the
potential of the global law firm in terms of sharing information and
developing international practice groups. However, because they
lack a strong coordinating headquarters and also the levels of
revenue achieved by the global firms, it is not clear that they are
likely to progress very far in this direction unless they become more
centrally integrated.
224 Multinationals, Institutions and the Construction of Transnational Practices

‘Best friend’ networks

‘Best friend’ networks tend to be very small and to involve highly pres-
tigious firms in big markets that wish to retain their independence but
recognize the need to offer their international clients a range of services
that go beyond referral and simple coordination systems towards
advice that was characterized above in terms of ‘regulatory arbitrage’.
In the UK, one ‘Magic Circle’ firm,2 Slaughter & May, is characterized
by the development of a best friends network. It has limited its expan-
sion of offices to a few key places – Brussels, Hong Kong, New York,
Paris and Singapore – whilst describing itself as networked with a small
number of high prestige firms in other countries, the most important
being in New York and Frankfurt. Two other UK-based firms which
have developed in this way are Herbert Smith (in a network with Gleiss
Lutz, seventh largest in Germany and Stibbe, a Brussels-based firm with
offices in Amsterdam and New York) and Eversheds which provides
service through a combination of its own offices in Europe and associ-
ated firms in Europe and Asia, constituting a network of ‘best friend’
and preferred law firms across the globe that have been used in the
past. In Germany, two of the top ten firms, Hengeler Müller and Gleiss
Lutz, have gone down this route. These informal networks, however,
remain tightly controlled within the top firms of particular societies.
There is a concern to link with other firms of similarly high reputation
and in the past this has often been seen as a precursor to a formal
merger, as appears to be the case with the Herbert Smith/Gleiss Lutz
In conclusion, network models have significant diversity. They are
clearly of increasing importance for standardized services where the
client simply requires referral to another competent law firm in a dif-
ferent jurisdiction. For many SMEs whose international business has
been increasing, the sorts of legal issues that they may encounter can
usually be dealt with by such networks. The smaller and more inte-
grated networks with tighter control of the performance of members
are likely to be most valuable in this respect. Law firms that potentially
want to engage with bigger clients through developing a more complex
international law capability soon find that coordination costs start to
rise as attempts are made to increase communication across different
firms, develop common business strategies through the establishment
of practice group working parties, and so on. This immediately raises
the question of the independence of the different national constituent
parts. In some cases, integration is going further and may eventually
lead to a single firm though at the moment the network is a ‘brand
Glenn Morgan and Sigrid Quack 225

identity’ rather than a single organization. In very small ‘best friend’

networks of prestigious firms, it may be possible to engage in ad hoc
high levels of cooperation based on reputation and trust. Overall,
therefore, it is clear that there is a certain segmentation in the market
but there are also areas of overlap and competition between the differ-
ent types of networks as well as between similar types of networks.

The global firm model

The ‘global firm’ model refers to law firms which attain an interna-
tional reach by having their own offices in different jurisdictions and
which have a presence in the key global cities. The term ‘global cities’
was first coined by Sassen 2001 to refer to the key nodes in the emerg-
ing international flow of capital during the 1980s. In her original
specification it referred to London, New York and Tokyo. More
recently, the work of Taylor (2004) and others has developed this into
an analysis of ‘world cities’ which refers to a more diverse but intercon-
nected web of relations between cities, mainly still constructed around
flows of capital. These cities are the sites of emerging economic and
political power in the global economy. They connect together the US
with Europe and Asia. In the US the main centres are New York and
Wall Street, but also Chicago; in Europe, London plays a special role
due to its position in international capital and commodities markets,
but Brussels, Paris, Frankfurt and Berlin are other crucial nodes. In Asia,
Hong Kong and Singapore link into China which in turn has its own
emerging ‘world cities’ of Shanghai and Beijing; Tokyo remains a key
part but is not as central as in Sassen’s model. In all these cities, to
varying degrees, corporate financing and corporate restructuring
(mergers and acquisitions, IPOs, and privatizations) are key areas of
business for corporate law firms. These cities are also the key sites for
the development of international institutions in the sphere of corpo-
rate law. Having a central role in these processes requires access to the
key decision-makers, participating in the discussions and analyses of
how to develop the system, and being proactive on behalf of clients in
building new private systems of law and identifying areas of develop-
ment in public law.
Global law firms are those firms which construct a permanent and
significant presence over these cities in the US, Europe and Asia. This is
clearly a concentrated form of ‘global’; it does not refer to offices in all
countries, but to those areas where the bulk of corporate law activities
take place. The idea of the global firm is still very distinctive in law com-
pared to other professional services such as accounting or management
226 Multinationals, Institutions and the Construction of Transnational Practices

consultancy. Even the largest law firms tend to be present in only 20–30
countries compared to the big four accounting firms which have offices
in around 150 countries (Table 9.1). We distinguish two types of global
firms, according to the degree to which the firm is seeking to incorporate
different forms of law and expertise within its boundaries or is rather
seeking to export a particular form of law to other countries.

Table 9.1 Top 10 law firms in the world by gross revenue in 2002–3

Rank Name Home Number of Number of

location partners/lawyers countries
1 Clifford Chance UK 580/2600 24
2 Skadden Arps US 314/1366 14
3 Freshfields UK 277/1327 20
4 Linklaters UK 229/1036 22
5 Baker & McKenzie US 621/3141 38
6 Allen & Overy UK 265/1285 20
7 Jones Day US 416/1319 13
8 Latham & Watkins US 322/984 10
9 Sidley, Austin, Brown US 412/886 8
& Wood
10 Mayer, Brown US 317/827 9

Sources: for gross revenue, see American Lawyer, November 2003; numbers of partners,
lawyers and countries taken from UNCTAD, 2004: 326.

The exporting global law firm

This model of the global law firm is characterized by a strong central
headquarters that establishes overseas offices primarily to support its
home-based clients. It does this not so much by practising local law in
the overseas jurisdiction, though it will probably have some capacity to
do so. Rather it primarily services its home-based clients through the
application and development of its home-based system of law in the
overseas setting. This model is particularly associated with US law firms.
According to UNCTAD (2004), US outward FDI stock in legal services
has grown over 30 times in less than a decade and a half. In these sorts
of firms, the overseas offices are mainly sites in which US law is
practised. Therefore, the managing partners in such offices tend to be
American, often relatively recent partners, sent abroad in order to get
Glenn Morgan and Sigrid Quack 227

management experience and a knowledge of international issues. Their

most likely career trajectory, if they are successful, is to return to the
US practice after a few years. Reflecting this, such partners will remain
covered by the US partnership’s reward systems. Their job in overseas
branches is threefold, though the exact balance between the different
elements will vary significantly. Firstly, they serve their US multina-
tional clients operating overseas. Secondly, they serve firms from other
jurisdictions who choose to operate under US law. Thirdly, they engage
with local and/or regional law systems in ways that seek to push these
further towards compatibility with US law.
Such firms may acquire local law firms in order to access a certain
jurisdiction but they will also hire local lawyers directly into their
office, confident that their global reputation, the fees they can charge
and the salaries they can therefore pay, and the opportunities they
make available will bring them high quality local recruits. These
recruits can provide local legal advice but ideally, they should be
sufficiently well connected to be able to mediate between the US
model of law and the local and regional legal system in ways that can
push forward US interests. Often this is achieved by such local lawyers
spending time in the US doing a postgraduate degree in law (LLM) and
undertaking work experience in a US firm (Silver, 2002).
These law firms offer some integration of activities across borders but
this tends to be very much under the guidance of the US head office.
By keeping US control, they avoid the possibility of alternative power
bases emerging within the organization. They retain their strong
linkages with the US system and seek to reproduce this model of elite
connections overseas. US law firms have in this way become powerful
forces for the overseas expansion of US law and the US model of
capitalism more generally. They concentrate on very high value business
in a small number of world city centres where US firms are highly
involved and profits are derived primarily through the application of
US law.

The integrative model of the global firm

Alongside this, however, there is another model of the global firm which
we describe as the integrative model. Although there are variations within
the model, it has a sufficiently strong shared set of presuppositions as to
make it worth analysing in its own right.
The organization of this type of global law firm can be characterized
on two dimensions. The first consists of the national partnerships
within the firm. Thus this type of firm is a federation of national
228 Multinationals, Institutions and the Construction of Transnational Practices

partnerships. Rewards and careers derive predominantly from perfor-

mance of the individual within the national partnership. This makes it
easy to refer clients across national boundaries and still capture at least
for the firm as a whole the value of the advice given. However, global
law firms claim to do more than this. They provide not just expertise
about different national jurisdictions but also a wider knowledge of the
transnational context described in the first section of this paper. This
primarily comes through the organization of practice groups. Any
partner in such a firm has membership not just of the national partner-
ship but also of at least one practice group. The large international law
firms tend to have between ten to 20 practice areas which vary in their
degree of specificity. These can include areas like mergers and acquisi-
tions, capital markets, banking, corporate finance, tax law, employment
law, intellectual property rights, and so on. Practice groups have their
own leaders in particular offices but also their own managing partners
at the global level of the firm. Practice groups are the repositories of the
firm’s diverse knowledge of institutions and actors.
The practice group level of organization can be reinforced in various
ways. It is broadly possible to distinguish two aspects. The first consists
of the formal activities of the practice group to ensure that knowledge
is spread across the firm. This includes annual meetings, the formation
of task groups to investigate particular issues, and the creation of
knowledge databases that hold information on the practice area across
the global firm. The second consists of the actual practices of the firm
which create shared knowledge. At junior levels, lawyers may shift for
more or less extended times into the practice group in different coun-
tries. Partners leading projects on particular issues will become familiar
with cooperating with partners in the practice group in other countries
as well as gaining a knowledge of associates in other countries.
The scale and importance of the global firms gives some of the key
partners the influence to be involved in the development of interna-
tional law mechanisms not just through their practice but through
their membership of other sorts of networks. These may be profession-
based, for example in parts of the International Bar Association or
similar bodies, or more directly through their participation in consulta-
tion processes set up by organizations such as the European Union or
the World Trade Organization. They may also become part of the elite
group of notables called in to work on international arbitration or
advice on law-making in emergent economies. As advisers to national
governments and the largest MNCs, these lawyers are fundamental to
constructing transnational institutions. Unlike the exporting global
Glenn Morgan and Sigrid Quack 229

firm, a greater diversity of advice is propounded within these firms

than in the heavily centralized US model.
From 1999 to 2002, mergers between Anglo-Saxon and German law
firms gained a surprising momentum and transformed the landscape of
business law firms in Germany. Whereas independent German firms
still dominated the scene in 1998, by 2002 the list of the top 15 law
firms in Germany was populated predominantly by German firms that
had become part of large British law firms (see Table 9.2). By contrast,
none of the top US Wall Street firms appears in this list, reflecting their
adherence to the exporting model discussed earlier. Similarly, the
numbers of lawyers in Clifford Chance, Freshfields and Allen & Overy
grew by over 100 per cent between 1993–2002 as a result of this strategy
of merging with and acquiring a variety of overseas law firms, compared
to a growth rate of 35 per cent in Skadden Arps and just 24 per cent in
Jones Day Reavis and Pogue, two of the most important and most
international Wall Street firms (UNCTAD, 2004: 326). Both Clifford
Chance Pünder and Freshfields Bruckhaus Deringer now employ more
than half of their lawyers outside the UK and more than 90 per cent of
their offices are located abroad. In Freshfields, the group of German
partners is almost as big as that of UK partners. Even in Clifford
Chance, the law firm with the largest US presence, German partners
make up the second largest grouping. In Freshfields, Germany is
responsible for 23 per cent of global turnover and the London office for
41 per cent. The next largest office, Paris, has about 9 per cent of the
total, while the US has less than 3 per cent. Clifford Chance has the
most developed position in the US, with US turnover contributing
around 23 per cent of total (compared to London 41 per cent and
Germany 11 per cent).
These firms seek to combine the capacity to deal in as many key legal
jurisdictions as possible with a consistent and coherent quality of
service across national boundaries. The exporting model of the global
firm has some involvement in local law but this is subsidiary to their
role in exporting and utilizing US law in as many contexts as possible.
The integrative global law firm, however, aims to be strong in the local
market at the same time as offering complex legal services to its inter-
national clients. Building a global law firm such as this is a highly
complex and delicate operation. It requires sustaining the national
partnership structure but inserting above it a managerial level with
access to sufficient funds (which in turn have to be granted by the
national partnerships) to enable the building-up of cross-national capa-
bilities. However, in doing so, the firm risks diminishing the individual
Table 9.2 Top 15 law firms in Germany, ranked by turnover, 2002

Rank Law firm Total turnover National origins Ratio of local to Geographical International
(mil. €) total offices spread of foreign networks

1 Freshfields 285 UK–Germany 6:28 Global –

2 Clifford Chance 151 UK–Germany 4:30 Global –
3 Hengeler Müller 149 Germany 3:7 Brussels, London, Relationships with
Budapest, Prague Slaughter & May
(UK) and Davis Polk
(US) among others
4 Linklaters 145 UK–Germany 4:30 Global –
Oppenhoff &
5 CMS Hasche 125 German firm 9:14** Brussels, Prague, CMS is an
Sigle Hasche Sigle Belgrad, Moscow, exclusively
founded CMS Shanghai ** European mix of
together with accounting and
law firms from legal professionals
UK, Austria, registered in
Netherlands and Brussels
Table 9.2 Top 15 law firms in Germany, ranked by turnover, 2002 – continued

Rank Law firm Total turnover National origins Ratio of local Geographical International
(mil. €) to total offices spread of foreign networks

6 Lovells 106 UK–Germany 5:25 Global Associated offices in

Budapest, Vienna, Zagreb
7 Gleiss Lutz 93.8 Germany 4:7 Brussels, Prague, Close relationship with
Warsaw Herbert Smith (UK) and
Stibbe (NL/Belgium); loose
relationship with a number
US firms including Cravath
8 Baker & 83 US 4:61 Global Five associated offices in
McKenzie Asia and Latin America,
two correspondent law
firms in Asia
9 EY Law Luther 82.8 US–Germany 12:16 Brussels, Budapest, International network of
Menold (1) New York, independently practising
Singapore law firms in 30 countries,
associated with E&Y; best
friends relationships with
law firms in jurisdictions
not covered by EY Law
10 Nörr Stiefenhofer 82.5 Germany 5:10 CEE Member of lex mundi, best
Lutz friends relationships with
law firms in West Europe

and US
Table 9.2 Top 15 law firms in Germany, ranked by turnover, 2002 – continued

Rank Law firm Total turnover National origins Ratio of local Geographical International
(mil. €) to total offices spread of foreign networks

11 Haarmann 78.5 Germany 9:22 Europe, CEE, Asia Cooperation with law firms
Hemmelrath in Austria, Singapore and
12 Shearman & 73 US–Germany 4:19 Global –
13 Taylor Wessing 73 UK–Germany 6:12 Europe, Middle Member of EEN, TechLaw
East, Asia Group, Unilaw and World
Law Group*
14 Beiten Burkhardt 70 Germany 8:17 Europe, CEE, Asia –
15 White & Case, 67 US–Germany 6:38 Global –

* EEN (European Environmental Network) is a network of nine European and US law firms specialized in environmental law; TechLaw Group com-
bines worldwide 4000 lawyers from US and European law firms which have a strong practice in new technologies, media, health system, and so on;
collaboration is limited to individual mandates; UNILAW is an international non-exclusive network of European law firms which was already
founded in the 1970s to facilitate referrals; membership is restricted to one firm per country; the World Law Group combines more than 30 indepen-
dent international law practices worldwide on a non-exclusive basis; membership is restricted to one firm per country.
** offices of German law firm CMS Hasche Sigle.
Sources: Websites and annual reports of law firms, downloaded from June 2004; figures on turnover are based on JUVE Rechtsmarkt, October 2003.
Glenn Morgan and Sigrid Quack 233

professional’s feeling of control and involvement. The costs of coordi-

nation across national boundaries and practice groups are high, and
knowledge flows can be inhibited by all sorts of practical, technical and
political issues. Often such firms are likely to be dependent on a few
key alliances at senior partner levels between the dominant earning
streams in the firm, in practice between the UK, the US and the German
senior partners. So long as this alliance can be sustained, developments
in other national partnerships are less important. The fact that only a
few firms have emerged in the integrative global firm category reveals
the difficulty of pursuing this model.

Discussion and conclusions

In this concluding discussion, we wish to relate our argument to the
broader question of the development of different ‘varieties of capitalism’.
Drawing primarily on a comparison of the US, the UK and Germany,
we consider this question in three stages. Firstly, which law firms from
which countries are becoming dominant in the era of internationaliza-
tion? Secondly, which law is becoming dominant in global transac-
tions, why and with what effect? Thirdly, how are firms within different
varieties of capitalism being served by these changes in the organiza-
tion of law at the international and national levels? Our discussion
here is not presented as a definitive statement but rather as a set of
issues which require further research.
Which law firms from which countries are becoming dominant? Any
listing of the largest international law firms is dominated by firms of
US and UK origin. Looking beneath the surface, however, there are two
important qualifications. The first, which has already been discussed, is
that the UK firms are no longer ‘UK’ firms. They are now more likely to
be alliances between three or four key national partnerships. For
example, Freshfields has been described ‘as one-third English, one-third
German and one-third the rest of the world’. Since its merger with
Deringer-Bruckhaus, it has had ‘two of almost everything: two senior
partners and two heads of every practice group, one English, one
German’ (The Lawyer, 19 January 2004). The internal dynamics of these
firms needs further investigation. For example, German partners may
hope to play a lead role in opening up emerging legal markets, particu-
larly in Eastern and Central Europe, based on their historical links.
Similarly, because of this internal complexity and the central position
of German partners, it cannot be assumed that these firms will
unequivocally back UK- or US-inspired developments of EU law. As a
234 Multinationals, Institutions and the Construction of Transnational Practices

consequence, we would expect complex negotiations and conflicts to

evolve within the global firms as the various groupings seek to exert
influence on the internal governance of the firm and its external policy
positions in relation to the development of transnational regulatory
environments. In our view, therefore, the global firm does not repre-
sent the ultimate triumph of English law and lawyering over German
law but on the contrary a rather unstable and potentially uncertain
organizational governance structure.
The second qualification is that independent German law firms are by
no means out of the game with regards to international law. Rather they
are being selective in the areas in which they wish to compete. They
have little hope of competing in London and New York against the dom-
inant players in those markets, but in emerging markets, again particu-
larly Eastern and Central Europe, they do appear to be present and to be
successful. There are two key elements in this process. The first is the size
of the German home market for law and the fact that German law firms
successfully changed the regulations at the start of the 1990s in order to
allow themselves to form supra-local firms. Whereas none of the largest
corporate law firms had employed more than 50 lawyers (including part-
ners and associates) in 1989, many of them doubled in size during the
following three years, the largest employing 112 lawyers in 1992
(Rogowski, 1995: 124). This rapid growth was facilitated by German
unification which in 1990 opened up business opportunities for law
firms in the privatization of Eastern German state enterprises and thus
allowed them to establish a body of knowledge and practice which was
transferable to the transformation processes in Central and Eastern
European countries. It was also linked to a strategy of following the
client, as German MNCs became increasingly active in Central and
Eastern Europe. Legal opportunities also arise because most of these
systems are based on the civil law tradition, and legal advisors from
Germany and other continental European countries were quite
influential in shaping legal reforms during the transformation process
(Höland, 1996; Boulanger, 2002). Therefore some of the principles of the
German model of law-making can be transferred into this context more
easily than can the US or UK tradition of common law. Nörr Stiefenhofer
Lutz, for example, fits this model as do Haarmann and Hemmelrath and
Beiten Burkhardt Goerdeler. These firms have additionally opened offices
in Asia in order to serve German corporate clients that have invested
there (see Table 9.2 for more details).
The second question which we raised concerns which law is becom-
ing dominant in global transactions. Here, the most important issue to
Glenn Morgan and Sigrid Quack 235

recognize is the role of US law firms as exporters of the US model.

There is a close relationship between US law firms, the US government
and its foreign policy, and US MNCs. In international terms, this is
reinforced by the close connection between this network and that
which links significant transnational institutions such as WTO, the
IMF and the World Bank. These inter-linkages reflect a powerful set of
actors and institutions (supported by political, military and economic
power) which have a relatively coherent agenda of opening up
markets, establishing free trade in manufacturing and services, and
doing so under the banner of a legal system which protects private
property and freedom of contract. Dezalay and Garth (2002b; see also
Dezalay and Garth, 1996; 2002a) present a powerful analysis of how
these forces came together to transform Latin American states (similar
processes have been traced in more detail, in the context of US
influence over competition law in Europe, by Djelic and Quack, 2005;
Morgan, 2006; Quack and Djelic, 2005). The diversity of international
legal firms discussed earlier will obviously still contribute to the diversity
of laws in the international and national arenas but there is no strong
and direct countervailing force to that embodied in the institutions of
the Washington consensus. The most obvious place for such an alter-
native is the European Union and although there may be some moves
in this direction, there remain many differences between countries
which support the spread of US-style economic law and those which
wish to evolve a more European version of law in which the rights of
private property are embedded within a broader stakeholder model.
Thus there is pressure towards a convergence on a single model of law
and, as ‘choice of law’ and the emergence of private legal arenas
increase in significance, this is likely to lead to more US dominance.
Finally, what does this mean for firms from the different ‘varieties of
capitalism’? One aspect is that the emerging diversity in network firms
enables small and medium-sized enterprises to engage in international
activities in the knowledge that they can receive legal advice from local
law firms without having to pay the high price of the global firms. In
countries such as Germany where the internationalization of the SME
sector is of central importance, this is clearly a valuable development.
The diversity of networks and firms also means that firms can experi-
ment with various forms of legal representation depending on the
price they can afford and the services they require. More negatively,
however, the largest and most powerful MNCs will be able to get the
best advice on arbitraging between legal jurisdictions and evolving new
forms of private law-making. This has the potential to weaken the
236 Multinationals, Institutions and the Construction of Transnational Practices

state, undermining further, for example, its ability to sustain its tax
base or its regulatory system as firms move profits around internally or
restructure their legal incorporation in order to avoid certain restric-
tions. The extension of US law also pressurizes firms from different
varieties of capitalism to utilize that as their ‘choice of law’ in emerging
markets. This in turn may facilitate a broader change towards US law
with consequent effects on how the firm is structured more generally.
In conclusion, our argument has been that legal arenas have become
more internationalized. Clients demand more of their lawyers than
they have done in the past, from easy systems of referrals through to
lobbying on the development of international institutions. Whilst still
predominantly based on the national partnership structure, law firms
have found various ways of responding to these changes. This variety
of models of internationalization relates to different sorts of client
needs in complex ways. Whilst simple referral systems allow SMEs to
enter international markets with relative ease, the capabilities of global
law firms are increasingly being utilized to free the largest MNCs from
regulation. Whether this can be interpreted as a simple process of
convergence or Americanization is to be doubted. Undoubtedly, there
are strong pressures for law to move in that direction. US law firms
are predominantly built on a model of exporting US law and they
therefore support this. However, other global law firms are more
complex in structure and more like alliances of different national part-
nerships. Their role in the nature and establishment of international
corporate law is therefore likely to be more complex. These issues
remain open and are fruitful contexts for further research on processes
of internationalization.

1 The authors are grateful to Paul Conville (WBS) and Maria Konrad (WZB) for
their support in collecting and analysing data used in this paper.
2 This term arose in the 1990s to describe what were perceived to be the five
elite corporate law firms in London – Slaughter & May, Clifford Chance,
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Structuring the Transnational Space:
Can Europe Resist Multinational
Richard Hyman

In this contribution I focus on some tensions between ‘globalization’
(as we all know, an imprecise and contested concept) and established
mechanisms of employment regulation at national level. To this end I
draw on a number of recent explorations in the comparative political
economy of capitalism, and apply these to the specific arena of the
European Union (EU). I first offer a broad-brush account of the conflict
between neoliberal globalization and the established regulatory
processes of ‘social Europe’, and discuss in particular the role of multi-
national capital in challenging nationally-specific ‘post-war compro-
mises’ between governments, trade unions and employers. Next I link
this to the advance of a new ‘Brussels consensus’ driven by the overar-
ching priority of competitiveness and a shift to ‘social Europe lite’.
After this I ask whether ‘embedded liberalization’, to borrow from
Ruggie (1982), is an option for Europe; and finally, I explore other
alternatives for resistance.

‘Social Europe’ and neoliberal globalization

The notion of a European social model is at one and the same time an
analytical category, an ideological construct and an object of contest.
As Ebbinghaus (1999) has demonstrated, the concept can be viewed as
both reality and myth. Across continental Western Europe, industrial
relations institutions and processes (note here that in most European
languages the adjective ‘social’ points, sometimes primarily, to the
employment relationship) are structured very differently from the pre-
vailing patterns elsewhere in the world. Markets, and not least labour

240 Multinationals, Institutions and the Construction of Transnational Practices

markets, are embedded (Granovetter, 1985; Polanyi, 1944) in a dense

web of social regulation. As a rule, there is broad social and political
acceptance of the need for collective regulation of the employment
relationship in order to protect labour as the weaker party; individual
contracts are thus subordinate to collective ones; representative institu-
tions of both employers and workers enjoy a recognized public status;
collective employee voice is typically articulated within standardized
systems of workplace representation, relatively independent of the
employer (established by law or peak-level collective agreement, or
both); both socialist and Catholic traditions have encouraged welfare
regimes which substantially ‘decommodify’ labour (Esping-Andersen,
1990); and the ‘social partners’ are often key actors in the development
and implementation of these welfare regimes.
Yet employment regulation takes many different forms, embodying
‘state traditions’ (Crouch, 1993) which are nationally specific and have
contrasting implications for the relative power of workers and their
employers, for the relative autonomy of the ‘social partners’ from polit-
ical authority, and for the balance of elements within the ‘social wage’.
In addition, the established architecture of regulation typically reflects
distinctive ‘post-war political-economic settlements’ (Lange et al., 1982:
209), themselves the outcome of nationally varying combinations of
forces: to differing degrees the discrediting of the old ruling class, the
status won by labour movements in the struggle against fascism, the
recognition of the need for systematic state intervention to prevent
another collapse into mass unemployment. The idea of ‘Social Europe’, a
key element in the official discourse of the EU for more than a decade,
is a myth precisely because it suppresses such differentiating features
(which, in turn, have posed substantial obstacles to any ‘harmonization’
of employment regulation at European level).
The idea of social Europe is an object of contest in part as a result of
this very ambiguity: precisely because there is no unique European
social model, it is possible to approve the concept without signing up
to any specific institutional arrangement. The probability of contention
is multiplied by changes in the framework conditions within which
social regulation previously developed. As Howell has insisted (2005:
35), drawing on régulationniste analysis, ‘the transition from one pattern
of economic growth to another will create a set of problems that are
not easily resolvable using existing institutions.’ The completion of the
Single European Market, followed by Economic and Monetary Union,
evidently constitutes a qualitative shift in the growth regime at
European level. The crucial question has been whether economic
Richard Hyman 241

integration should occur within or against existing systems of social

regulation; or more specifically, which institutional arrangements are
defined as complementary to the ‘free movement of goods, services,
capital and labour’ across the EU, and which as antagonistic. This has
been the central policy confrontation, sometimes overt but more often
latent, for more than a decade.
Albert (1993) has presented a stark vision of a clash of capitalisms:
between an encroaching Anglo-American model in which market
forces are subject to minimal constraint through social regulation, and
a ‘Rhineland’ model (continental Western Europe, but also, perhaps
incongruously, Japan) in which market power is systematically steered
and attenuated by law, collective bargaining and/or social norms. This
dichotomy is echoed in the ‘varieties of capitalism’ literature (Hall and
Soskice, 2001) with its opposing categories of ‘liberal’ and ‘coordinated’
market economies. One may question whether Britain and the USA
should be bracketed as a single variant, or whether the form and degree
of social regulation elsewhere are such that the similarities outweigh
the differences; but certainly, both countries are closer to what Polanyi
(1944) termed market societies – where market dynamics are little con-
strained by alternative socio-political priorities – than are the ‘social
market economies’ of Western Europe.
Is ‘globalization’ transforming all market economies into market
societies, in which the economically powerful shape national policy
while the external coercive laws of competition overwhelm human
choice? In this context I will address only briefly the ambiguities of
‘globalization’, which I have discussed in more detail elsewhere (Hyman,
1999; 2003). Among the pioneers of the concept is Ohmae, who writes
(1991) of the emergence of a ‘borderless world’ or ‘interlinked economy’
in which the cross-national extension of production chains, product
markets, corporate structures and financial flows makes national
boundaries and the nation-state largely irrelevant. Reich (1991: 3)
likewise anticipates an era with ‘no national products or technologies,
no national corporations, no national industries. There will no longer
be national economies, at least as we have come to understand that
concept.’ Whether such a prospect is welcomed or deplored, its
inevitability has been widely agreed.
Recent decades have indeed seen clear trends towards the liberaliza-
tion of cross-national trade through the reduction or removal of tariff
barriers; and while international trade is nothing new – some indeed
argue that the international economy today is no more globalized in
this respect than a century ago (Hirst and Thompson, 1996) – the
242 Multinationals, Institutions and the Construction of Transnational Practices

cross-national integration of production within multinational compa-

nies (MNCs) certainly is. Again, while there may be debates concerning
how far MNCs are genuinely multinational (Ruigkrok and van Tulder,
1995) – in most cases their activities are concentrated close to home –
the potential for large firms in particular to move operations across
frontiers, partly to escape restrictive industrial relations regimes or to
exploit cross-nation