Electronic copy available at: http://ssrn.com/abstract=2454669 Electronic copy available at: http://ssrn.com/abstract=2454669

The politics of flexibility: Employment practices in automotive multinationals in Central and Eastern Europe

Jan Drahokoupil European Trade Union Institute, Brussels, Belgium and Universitt Mannheim,Germany

Martin Myant European Trade Union Institute, Brussels, Belgium

Stefan Domonkos Universitt Mannheim, Germany

Corresponding author:Jan Drahokoupil, ETUI, Boulevard du Roi Albert II, 5, 1210 Brussels, Belgium.Email: jdrahokoupil@etui.org

Abstract

In this article we investigate the flexibility strategies of foreign automobile producers in three Central and Eastern Europe countries, where employment flexibility has become a major issue and an area of conflict with unions. We focus on nine subsidiaries in the Czech Republic, Slovakia and Hungary, and argue that flexibility strategies were shaped by parent company practices, the flexibility needs of individual affiliates and therelative strength of labour in negotiating the implementation of these practices. Given the relatively weak industrial relations institutions in the region, the relative strength of labour is conditioned primarily by market factors and parent company contexts. The findings thus highlight the importance of political resources and agency of actors in shaping employment policies.

Keywordsmultinational companies; employment relations; flexibility; Central and Eastern Europe; Czech Republic; Slovakia; Hungary; automotive sector

June 2014

European Journal of Industrial Relations, December 2015, Forthcoming

1

Electronic copy available at: http://ssrn.com/abstract=2454669 Electronic copy available at: http://ssrn.com/abstract=2454669

The employment flexibility strategies of automobile producers in Central and Eastern Europe (CEE) constitute an issue of considerable importance in its own right, but also represent a test case for the factors influencing the development of employment relations in multinational corporations (MNCs) and hence for the development of thinking on comparative employment relations. We examine nine assembly subsidiaries in the Czech Republic, Slovakia and Hungary and focus on the influences on their employment flexibility practices.

Employment flexibility is central to companies because they have undertaken large-scale investment and need to recruit and maintain an adequately skilled and motivated labour force. At the same time, firms cannot guarantee a steady level of demand for individual productsand therefore require variable labour inputs. How companies reconcile these potentially conflicting needs varies, reflecting to some extent the different market conditions they face but also their different approaches towards employment relations. The aim of this article is to investigate and explain these variations.

Below we discuss the determinants of employment flexibility practices, then describe the plants analysed and the research methods used. We then investigate the need for employment flexibility in general and how that is conditioned by the strategy of the parent company in terms of its production profile, network and models. We proceed to address the power resources available to employees and hence their ability to influence developing forms offlexibility, and set out the issues relating to flexibility that arose and were addressed in different companies. The concluding section brings our arguments together, confirming the importance ofa broad approach that takes account, first, of firms market situations, strategies and influences from their home countries; second, of employees ability to wield influence; and third, the specific developments, negotiations and conflicts that determined final outcomes.

Background: Literature and explanatory framework

Interpretations of MNC employment strategies in CEE have involved three broad perspectives. The first is the role of the business systems, home country institutions and specific strategies of the incoming companies. The second is the established institutional framework in the host country. The third is the possibility of more complex interaction, involving different sets of actors, between the first two.

The first has produced a body of literature that sees firm strategies as determining practices in subsidiaries (Boxall and Purcell, 2011) or that attributes employment practices in affiliates to influences of the business systems and other home-country institutions (Harzing, 1999; Whitley, 2001). However, the extent of transfer of practices varies with the particular fieldof activity. Technology is most likely to be centrally decided and closely integrated production systems require coordinated control. MNCs are less likely to integrate employment policies, as these also depend on nationally specific legal, institutional and historical circumstances (Cooke,2007).

Nevertheless, a central issue in this literature has been how far MNCs transfer their domestic employment relations systems to host countries, and the difficulties they may face in so doing. The literature on home-country effects typically expects strong central control over employment practices among North American MNCs, employment practices linked to the

2

participatory German model are considered difficult to transfer beyond the institutional milieu of coordinated capitalism. MNCs from coordinated economies, however, can develop a distinct approach to employment relations in affiliates, , adapted to the constraints and opportunities of the host environment (Ferner, 1997; Ferner et al., 2001). In CEE, the host-homecountry distinction informed an empirical controversy over whether German companies, representing the bulk of investors in the region, imported their models of employment practices and industrial relations or acted strategically and took advantage of CEE locations to evade the constraints of coordinated capitalism; evidence could be found for either possibility (Jrgens and Krzywdzinski, 2009b; Meardi et al., 2009). Thus the question remains open how far MNCs attempt, or succeed, in transferring a system of employment relations practised in their home country. It also remains unclear whether they locate in CEE as part of a deliberate attempt to escape from their domestic system.

The importance of domestic environments has received relatively little direct attention, possibly reflecting a view that they represented a blank slate onto which MNCs could impose their chosen models. However, MNCs need to cope with the systems of employee relations that developed out of reforms from state socialism. These incorporated central specification of minimum wage levels, holiday entitlements and maximum permissible working hours and overtime (Myant, 2014). More favourable conditions for employees were permitted, and could be negotiated by collective bargaining. Trade union representatives were given some legal protection and collective agreements, usually signed annually, were binding on both parties. Thus this was not a picture of unconstrained flexibility, and employers were required to negotiate with employee representatives over issues of irregular working hours. However, unionmembership fell below 20% in all countries, from close to 100% under the former regime, and bargaining coverage to below 50%.1 However, whether or not collective bargaining existed, many conditions were generally above the minimum standards. That was less true for issues of working time and its flexibility, over which there were frequent conflicts and recourse to legal action (Bluhm, 2007).

This points to the value of an approach that takes account both of MNC strategies and of domestic environments and actors (Drahokoupil, 2014). Actor-centred institutionalist approaches have analysed employment practices as outcomes of micro-political struggles between actors (Drrenbcher and Geppert, 2011), with transfer of work practices conditioned by how these affect the interests of local actors and by their capabilities and resources (Ferner etal., 2012). A congruence of interests could lead to the implementation of a work practice even when it does not match host country regulations (which could be changed through lobbying or reinterpreted in the affiliate). When there is opposition, outcomes are conditioned by the resources individual actors can mobilize in the negotiation, with power resources available to labour playing a key role.

This provides the basis for the issues addressed in this article. The complexity and variety of factors influencing the development of employment relations points to the need for a broad political economy approach (Edwards et al., 2007) that integrates the institutional, market-based and political influences. Our application of the approach to the study of flexibility strategies puts particular emphasis on the power of labour, as is appropriate for what has been one of the most prominent issues in negotiations between employers and employee representatives, and on the market contexts in which MNCs operate. Product demand conditions

3

are of central importance for general company strategies, while local labour markets condition both the need for flexibility and the relative power of labour.

Cases and methods

Production of motor vehicles and components represents a leading sector in CEE (Myant and Drahokoupil, 2011). It grew partly from the transformation of a base inherited from the past andpartly from scratch, thanks to inward investment by major MNCs (Pavlnek et al., 2009). We conducted case study research in 2012-13 nine motor-vehicle assembly plants in the three countries, which are those most dominated by the automotive industry. Table 1 presents an overview of the companies studied. They include those involved in the first wave of foreign investment in the early 1990s (koda Mlad Boleslav, VW Bratislava, Suzuki Esztregom and Audi Gyr) and the production plants established on greenfield sites after the EU accession in 2004 (TPCA Koln, Kia ilina, PCA Trnava, Hyundai Noovice and Daimler Kecskemt). VW played a leading role in exploiting the opportunities in CEE in the early transition years, acquiring the Czech car producer koda in 1991 and a much smaller, Bratislava-based producer BAZ. Only koda retained its own brand and development functions. In 1993, VW subsidiary Audi established a greenfield operation in Gyr. The history of Suzukis activity in Esztregom goes back to a 1986 joint venture with a group of Hungarian producers and international banks. The early entrants gradually expanded production capacity. VW also upgraded and diversified the product portfolio in Mlad Boleslav and Bratislava. The diversity of countries and companies, themselves with differing countries of origin, gives scope for demonstrating the effects of variations in company approaches and of legal and institutional influences.

[Table 1 about here]

We chose to analyse industrial relations and flexibility policies in MNCs that set benchmarks for the sector. While this article does not allow us to present each case in detail, the case study approach is well suited for analyses of the micro-political processes, actor constellation and preference formation in the evolving niche institutional micro-climates through which employment practices in MNC affiliates are established (Ferner et al., 2012).

Case studies involved triangulating information obtained from published sources and interviews with plant-level trade union leaders and, where possible, management.2 Automotive specialists in the relevant union federations in each country were also interviewed. Interviews were semi-structured, allowing for consistency as well as the exploration of emerging themes, with questions covering labour market conditions, trade union organization, bargaining history, the organization of flexibility and the views of the different parties involved. Interviews typically lasted two hours and were conducted in the interviewees native languages; they were transcribed and often followed up with questions of clarification. Information from interviews was checked against published sources, mostly from company and union publications, employeeand employer web sites and also from the daily and weekly press. In this way, information in great depth on individual policies (pay structures, working time systems, frequency and nature

4

of improvement proposals) and processes through which they were introduced was collected and presented in internal case-study documents.

The need for flexibility: The market context and business strategy

The need for employment flexibility can be conditioned by the production profile, as demand fluctuation for individual models can vary. A diversified production portfolio should provide some cushion against changing demand. Moreover, differences between production models mayimply different skill requirements and thus employment needs. The importance of these factors in conditioning employment flexibility strategies is considered below.

Product profiles and production models

There are differences in product specialization which had important implications for approachesto flexibility. TPCA, PCA, and Suzuki were narrowly specialized in single platform, small cars. koda, Hyundai and Kia produced a wider range of models, with koda the most diversified. The significance of these differences is taken up below.

The companies also brought differences in their human-resource management (HRM) strategies.Toyota is considered as a paradigmatic example of a quality production model relying on specific skills, flexibility, team work, and worker input (Monden, 2011; Suzuki, 2004). It imported its payment system and features such as quality circles into its Czech operation. Similarly, from the 1980s, German car-makers followed a diversified quality model aiming at non-price competition (Sorge and Streeck, 1988) and introduced an elaborate structure to encourage ideas for innovation from the shop floor into its central European plants. Hyundai brought a history of adversarial labour relations, characterized by frequent strikes in its Korean plants (Lee and Jo, 2007) and a reputation for an engineering-led automation method of perfecting technology before production which was said to minimize skill requirements and worker input (Jo and You, 2011; Lee and Kang, 2012). However, it adopted in total the Toyota payment system and, like the others, developed programmes for rewarding innovative ideas from employees.

The differences in HRM were broadly confirmed in the companies central European plants, but they did not appear to outweigh greater similarities in the employment problems the companies faced. Skill levels required appeared very similar, despite claims of significantly different production models. In fact employees could start on an assembly line after a few days relevant training in all cases. There was published evidence from all cases of measures to encourage and reward suggestions from shop-floor workers. There were different approaches to employee input, but the nature of innovations suggested by employees does not suggest much impact on productivity. The structures of employment in the production plants were broadly similar, with roughly two thirds of employees performing blue-collar jobs with very basic initial training requirements. All plants implemented some form of team work, not presented as job

5

enrichment, or a means of stimulating innovation, but rather to allow task rotation for ergonomic reasons. Indeed, in all cases, the overarching employment-relations problems appeared to be the recruitment and maintenance of an adequately committed labour force under conditions of fluctuating demand. These production models were at best an aid to that while much depended on how employment relations were negotiated between employers and employees.

Demand fluctuation

Automobile assembly requires a large fixed investment and a large labour force, ranging in our cases up to 24,000. However, fluctuations in product demand have a significant impact on labour requirements. shows changes in annual output in the nine plants over the period 2007-12. There was continual expansion in only one, reflecting the relatively recent initiation of production by Hyundai; decline over the whole period in three; and in five, a significant fall in 2009, the worst year of the economic crisis. It should be added that this understates the fluctuations in output which were significant within individual years, notably 2009, as well as between years. These fluctuations require variations in the number of hours worked, which often means varying total employment levels. Managements need to find means to combine this with maintenance of a secure and committed labour force.

[Table 2 about here]

There were also shifts in demand for individual models. Smaller cars did well in 2009, thanks to scrapping schemes introduced by governments in a number of European countries which favoured smaller, more energy-efficient vehicles. That helped TPCA and PCA, where production continued to increase in 2008-9. But such cars fared worse in later years. In TPCA, falling output turned into a long-term decline from 2010. PCA also experienced a drop in outputin 2010, but sustained expansion followed. Suzuki suffered a permanent fall in output after 2008.

There is also a need for flexibility to adjust to demand over shorter time periods, requiring extra shifts or short periods without production. This depends on employee acquiescence (an extra shift will require acceptance by a large enough part of the labour force tomake production possible) and on labour law affecting working hours. In all countries there were restrictions on permissible overtime and specifications for the terms required and provision for payment of a part of a normal salary during down time. However, in every case there was some flexibility around legal provisions: the employer either tried to ignore these or was prepared to negotiate better terms with employees.

Power resources available to employees

Trade unions have a major role in enabling employees to exert their voice within the companies.In general, unions in CEE suffered a steady and almost uninterrupted decline in density from

6

near universal levels in 1990 to significantly below the western European average. Strikes were very rare, but the motor-vehicle sector was an area of relative strength, though the majority of the workforce was unionized in only a few cases; collective bargaining was almost universal. provides information on union in the plants and the number of officials released from work --- an important indicator of union power. In all three countries, labour law provided a basis for such release, and the conditions were subject to collective agreements.

The Czech Republic and Slovakia each had one dominant union centre, but there was considerable decentralization of power to local organizations and considerable fragmentation, exacerbated by specificities of their employment laws. The initial framework from 1990 guaranteeing union independence encouraged union pluralism, allowing any union with three members to claim the right to sign any collective agreement that might apply. This gave support to very small organization, which existed at various times in all the Czech plants studied. Hungary differed, having adopted a system of works councils, which Czech and Slovak unions resisted, seeing this as a threat to union dominance in collective bargaining. The relative affinityof German and Hungarian institutions was reflected in greater direct involvement by German unions in developing the Hungarian industrial relations system. In the other countries, foreign unions were active only at the very general level by giving implicit support to collective bargaining.

Trade union strength, in the sense of ability to persuade management to concede to union demands, reflected five key influences. The first was the product market, which affected both long-term company investment strategies and approaches to collective bargaining. When demand was high, unions felt in a stronger position; when it was low or unstable, they were more likely to concede, or to moderate their demands. Employee representatives consistently wanted higher investment, over which they had no significant direct influence, and also wanted security for those already employed. Companies could choose where to place new investment and how to share out short-term output variations. This was a background consideration in all bargaining; unions were aware, even if these points were rarely explicitly covered in collective agreements, that concessions on pay, conditions and flexibility could bring benefits in employment security and perhaps investment.

The second influence was the local labour market: labours power was enhanced when management had to offer attractive conditions to secure an adequate labour force. Hyundai, Kia and Suzuki were in areas of high unemployment and had no difficulty recruiting; koda, VW Bratislava TPCA were in areas of labour shortage, which made them more likely to concede to union demands. PCA experienced recruitment and turnover problems in the boom years of 2006-07, which it addressed by using agency workers from abroad. TPCA suffered extremely high labour turnover in its first months of operation when demand for products was high, and responded by providing accommodation to attract workers from further afield (851 flats were promised for core workers), subsequently improving pay and other conditions as demanded by union representatives. VW Bratislava found the local labour market tight and offered conditions to attract workers from a wider region.

The third influence was the historical legacies. Workplaces inherited from state socialism started with universal union membership, and it was much easier to keep a high level than to build it up from scratch in a context of employee scepticism and of possible confusion from competing organizations. This gave the koda plants the largest union organizations and

7

enabled them to appear as leaders in setting union agendas. By contrast, Hyundai and Kia Suzuki were relatively recent greenfield investments; union representatives complained of initially strong hostility and of continuing extreme difficulties in operating within these plants. In Hyundai no union representative was released from work, there was no union office on the premises, no union activity was allowed during working hours and the media reported periodic complaints of threats to union members, typically of reclassification into a lower bonus band.

The fourth influence was the labour relations policy of the parent MNC. Investors came with different conceptions, both in terms of detailed employment practices and of the value theyattached to good relations with employee representatives. However, the transfer of any practicesalso depended on a fifth influence, the scope for employee international contacts, including the ability to influence trade union, and more generally public, opinion in the MNCs home country.This marked an important difference between Asian and European MNCs. German automotive multinationals possess developed systems of codetermination with strong union presence (Haipeter et al., 2012), and they recognised trade unions in all our cases. That was practically inevitable in koda as the plant inherited near universal union membership; elsewhere it was a reflection of the power of local union organizations, in the sense of their ability to impose heavycosts on MNCs that dragged their feet over recognition. Indeed, two prominent German companies, Bosch and Siemens, had resisted unions in the Czech Republic (Bluhm, 2007; Myant, 2014), but were hit by adverse publicity, both locally and in Germany. This proved an important weapon in persuading them to choose a more conciliatory approach, but did not determine the precise forms of employee representation. It meant accepting the system already emerging in the CCE countries, with collective agreements negotiated annually with union representatives. These negotiations were conducted by local personnel managers, often natives of the country concerned. Union representatives felt able to negotiate over almost any issue without their negotiating partners needing to refer to a higher authority, with the one clear exception of the total wage bill.

The point here is not that German companies automatically transferred practices from home. Geographical proximity, ease of contact, legacies of past history and powerful unions in the home country ensured a practice of recognising and negotiating with employee representatives (Bluhm, 2007; Krzywdzinski, 2011). There was more scope for transfer of practices to Hungary, with its system of employee representation closer to that of Germany. In atleast one case, that of Daimler, the whole structure of employment relations in the parent company shaped that of the affiliate, with its European Works Council and the Rastatt works council heavily involved in helping to establish German-style institutions of employee representation.

Structures of social dialogue had an important role also in Toyota, the dominant parent of TPCA, and in PSA (Delteil and Dieuaide, 2012), and those employers accepted from the startthat they would recognise and negotiate with unions. In contrast, Hyundai and Kia had a background of adversarial labour relations, with pervasive distrust between management and strong unions in Korea (Lee and Kang, 2012). Union representatives in the Czech Republic and Slovakia had minimal, and largely unproductive, contacts with their colleagues in Korea and could not threaten their employing companys image in its home country. Suzuki also practised adversarial industrial relations in its operations outside Japan and could effectively prevent

8

unions from operating in the Hungarian plant, resorting in 2006 and 2009 to what courts later confirmed to be unlawful dismissal of union organizers.

Flexibility regimes

Companies can respond to demand fluctuations in three ways. First, numerical flexibility can beachieved through adjusting the total number of employees. Specific policies reflected company-level practices, but the detailed forms depended on local negotiations. The unions were most concerned with protecting the core workforce. Their negotiating power was weak when product demand plummeted, making them more likely to make concessions on other flexibility issues and pay. Second, production or employees can be moved between models and/or plants. The scope for such adjustments depends on the type of production network and thus the general business strategy. Third, work-time flexibility can be achieved by adjusting hours across a period. Here, the role of local negotiations and the relative power of unions was the strongest. MNCs tended to pursue their default policies, but were prepared to adjust these when faced witheffective resistance from the unions. This section discusses developments of each type of measures across the cases. Error: Reference source not found provides an overview of their use.

[Table 3 about here]

Numerical flexibility

All firms used agency workers, who were the first to be dismissed in times of falling demand. Under EU law, agency workers should have comparable working conditions to core workers (Schmann and Guedes, 2013), but their pay levels in CEE are hardly ever set by collective bargaining and are therefore not made public. Evidence from koda revealed pay and conditionsthat were clearly inferior; agency workers were often from another country and, not being directemployees of the MNC, were not expected to join a union. Trade union representatives in practice accepted their presence without seriously questioning numbers and typically without taking up their complaints.

Numbers varied, as employers used this source of labour to meet temporary shortages and to provide a cushion for times of falling demand. Only Audi followed the rule of capping agency workers at 5% of the labour force, set for the VW group as a whole in an agreement between management and international union representatives in November 2012.3 In VW Bratislava, a higher ceiling of 12% was agreed in 2013. In PCA, in the absence of a global agreement, the unions negotiated a 20% cap. Again without any formal agreement, Hyundai increased agency workers to around 25% of the total labour force in 2012 and 2013. Most were from the local area, and agency work was used not just for numerical flexibility but as a probationary period before an employee could graduate into the core labour force.

Only in koda was there open conflict over the status of agency workers, after a complaint from the Polish Ombudsman in 2008, representing Polish agency workers.

9

Investigations by the Czech Ombudsman and the Czech Labour Inspectorate left no doubt that the law on equal pay for agency employees had been broken, with some employees being paid below the legal minimum. This led to a threat of strike action by some agency workers and to a fine imposed on one of the agencies. Managements reaction, in view of bad publicity and of theneed for good relations with a stable core labour force, was to seek to reduce its dependence on agency workers, even setting at one point a target of zero. Indeed, with rapidly falling demand at the end of 2008, almost all agency workers were dismissed and their work was taken by the core employees, following only one-day retraining courses. However, as demand recovered through 2009, so the number of agency workers quickly grew again, averaging 8% of the total labour force in 2012. Management then agreed, after negotiation with the union, to regularize the conditions of agency workers, to consult with unions over employment conditions and to hire mostly Czech employees. As agency workers did gradually join the main union, so they could raise their complaints, the most frequent of which was that their pay had been inaccurately calculated or that they were entitled to only very limited holidays given their short-term contracts.

Achieving numerical flexibility by varying the core labour force proved more difficult. Outcomes again reflected negotiation between employers and trade unions. The latter were more determined on this issue, but had little by way of sanctions with which to threaten employers. Unions were therefore likely to make concessions on other flexibility policies and pay when faced with threats of lay-offs. Thus VW Bratislava experienced a particularly severe drop in demand in 2008-09 and, after dispensing with agency workers, sought 700 voluntary redundancies from the core workforce. The unions later attributed their support for the Flexikonto, implemented with their support from 2009, to their experience with the downturn. In contrast, Suzuki took a less accommodating approach to employees: in 2009, 1200 core workers were forced to leave, together with 400 agency workers.

The issue was acute in TPCA as demand fell for its small car. This plant also had great potential difficulties in recruiting labour when demand was expected to recover, with a completely new model due to be introduced in 2014. Unions accepted wage deals in 2010-12 below the levels agreed in koda --- the usual benchmark --- in return for commitments of no redundancies among the core workforce. By 2012, the remaining 150 agency workers were to leave and 250 core workers accepted voluntary severance on terms better than those required bylaw. Other core workers left through natural wastage, and employment fell rapidly from its peakof 3600 in March 2010 to 2400 in 2012. Negotiations for the 2013 collective agreement, following falling output and deteriorating financial results, ended with another low pay rise (1.9% for most employees) but improved compensation for compulsory redundancies. There was no serious possibility of pressing for more by threatening strike action, as advocated by a group of employees, when compulsory redundancies seemed inevitable to many employees.

In PCA, stagnating demand threatened the viability of a third shift, introduced in May 2012. The collective agreement for 2009-11 included an employment guarantee, which reflectedthe requirements of investment subsidies that the firm negotiated with the government. In the 2013 negotiations, unions accepted a wage freeze, work time reductions and concessions on the terms of work-time accounts in exchange for maintaining three shifts. As elsewhere, the primaryconcern was security for the core workforce, and a great deal was conceded to protect that.

10

Shifting production and employees across plants

Flexibility was also achieved by shifting between models within a plant or shifting production between plants. These were frequent practices within the VW group. Part of Octavia production was transferred to Bratislava in 2008, because of inadequate capacity in the Czech plants. Shifting between models within a plant, an option available only to plants with multi-model capacity such as koda, was so useful for protecting core workforce stability that the Hyundai and Kia plants exchanged production of models in summer 2011, despite costs involved in the ensuing duplication of some capacity. Each plant then had one larger and one smaller car. As these moves represented no threat to any core labour force, it was relatively easy to secure employee acquiescence.

Moving employees within or between plants would appear more difficult, but was relatively easy for Volkswagen and PCA. In April 2009, when the car-scrap scheme in Germany enabled a return to full production in koda, Volkswagen started transferring workers to the Czech Republic from its plants in Slovakia. TPCA was also able to ease labour problems in 2009 by bringing workers from Toyotas Polish plant, which was facing falling demand. In 2012, employees were moved to PCA and its suppliers, although this proved only a temporary solution. Enough employees were willing to accept the moves when the alternative was possibleredundancy. In some cases it was quite attractive: VW workers in koda enjoyed a higher pay given the appreciation of Czech currency, TPCA employees moving from the Czech Republic were themselves originally from Slovakia.

Work-time flexibility

The strength of labour and legal provisions all played parts in determining the use of work-time flexibility. National legislation specified a minimum percentage of normal pay to be received during downtime and maximum permitted hours, plus requirements for employee acceptance of overtime. Actual practice varied between improved terms for downtime and overtime pay abovethe legal minimum, as demanded by unions, and attempts to ignore the legal requirements altogether. The former was the more usual. Where unions were relatively strong, as at koda, TPCA and VW Bratislava, both downtime and extra shifts were compensated well beyond legal minima.

An ongoing theme for German MNCs was the introduction of the Flexikonto, a flexible work account within which downtime could be set against overtime. This helps the employer to cope with short-term demand fluctuations by cutting costs of downtime and by ensuring an adequate turnout from regular employees for extra shifts. The alternative, paying a fixed proportion of regular pay during downtime and tempting volunteers into extra shifts by offering supplements to stipulated overtime pay, would either be less reliable or more expensive. The Flexikonto is therefore desirable for management, but not a necessity in countries where pay levels are considerably below those in Germany and where labour is a small share of total costs.4 Any benefits depend on the time period over which plus and minus shifts are required to

11

balance because, if extra shifts are not made available after a certain period, then all schemes require substantial compensation for down time.

German law allows various forms of work-time accounts and German companies soughtto introduce the same solution in CEE. VW Bratislava negotiated a Flexikonto in the second halfof 2008 in the absence of an appropriate legal framework, and then persuaded the government to change the legislation, allowing for flexible work accounts with a four-year reference period. In Hungary, Audi persuaded the government in 2009 to allow extensions beyond the existing 12-month accounting periods. In PSA, the parent of PCA, work-time accounts were negotiated after 2008 (Delteil and Dieuaide, 2012). In Slovakia, PCA implemented a Flexikonto from 2009 and negotiated an extension of the accounting period to 30 months in 2013, in exchange for employment guarantees. In TPCA, without any explicit reference to the German model, there was a system for 203 shifts per year with some flexibility over when they would be required.

In koda, despite enthusiasm and apparent determination from the personnel director, aneffective Flexikonto system was blocked by employee opposition. Employment law allowed collective agreements to include flexible work accounts over a 12-month period, but the large and well-organized trade union had a strong bargaining position and, unlike unions in other automotive plants, had staged successful strikes. This partly reflected the importance of koda within the VW groups production plans and the need for management to tread carefully to ensure an adequate core labour force. In 2010, agreement was reached on a trial system with a one-year accounting period, but employees did not like the loss of bonuses for extra shifts and the need to work at weekends with only a few days notice. The union thus entered negotiations on the basis of a total rejection of flexibility. As a compromise, a 4-month Flexikonto was agreed for 2011. This very limited flexibility could hardly ever be of practical use to the employer, which continued to rely on compensation for downtime and bonuses for voluntary extra shifts.

An opposite extreme is represented by Hyundai, which in Korea relied on ad hoc solutions and long working hours (Lee and Kang, 2012). The same approach in the Czech Republic provoked open conflict shortly after the plant was opened in 2009. Following a failure to meet production targets, the company imposed extra overtime of 2 hours practically every day. Its own publicity confirmed that often it not give even two days notice of overtime requirements, but refusing to work extra hours was treated as unexcused absence. Under Czech employment law, compulsory extra overtime was permitted only for serious operational reasons. The response was a one-hour strike by 400 employees, an extremely rare event in a country with hardly any strikes. The union, although not the initiator, quickly stepped in to negotiate an agreement for no victimization of those involved, an end to compulsory overtime outside quite exceptional cases, investigation of cases of alleged bullying and better consultationin future. The legal position was soon clarified as the local Labour Inspectorate, having seen reports of the dispute, undertook an investigation in early 2010 and found the company to be in serious breach of almost 50 laws and regulations, and imposed a fine. From then on, extra shifts were a matter for negotiation, with higher payments to encourage participation.

However, demand levels continued to fluctuate, raising the possibility of abolishing a recently-introduced third shift or otherwise reducing in working hours. By law any down time had to be compensated at 60% of average pay, but in late 2012 the management proposed additional days of closure which would be unpaid, with employees using existing holiday

12

entitlements or requesting unpaid holidays. The union felt unable to offer serious opposition. Its position was weak, with only about 15% of employees in its ranks, and it saw no chance of calling a strike or even a protest meeting. Using the law to oppose management plans, since voluntary holidays under Czech law cannot be imposed on employees who do not want to take them, was also not favoured. A veiled threat from management was that the alternative would betotal abolition of the third shift and significant job losses; and, without seeking agreement from union representatives, it quickly sought and found volunteers. The union judged it very difficult to do more than reach the best agreement possible when, as a union leader explained, some managers have wooden heads and interpret labour law as they like, or as somebody is telling them to (Forum Hyundai Noovice, 2012).

Finally, Suzuki implemented a Flexikonto with a 4-month accounting period, claiming no urgent need for a more substantial flexibility policy. In any case, an extension of the accounting period was complicated by its hostile approach to the union, as the extension would require negotiation of a collective agreement.

Discussion and conclusion

The theme of labour flexibility demonstrates how employee ability to exercise a degree of power over employment relations was developed in, and varied between, plants of foreign MNCs in the automotive industry. We can set out two ideal-type extreme cases. In one there is respect for the provisions of employment law, full union recognition and prior consultation on all employment relations issues, general security of employment, restrictions on numbers of temporary or agency employees (if used at all), full compensation for any time not worked and substantial extra pay for extra shifts which are undertaken fully voluntarily. At the other extremethere is opposition or reluctance to recognise and consult with trade unions, high levels of instability and a high share of clearly insecure temporary or agency workers. Variations in working hours are at best subject to the minimum of legal protection and laws may be circumvented or ignored. This would seem a lower cost option for an employer, but one more likely to lead to conflict and less likely to ensure an adequate and stable labour force.

These extremes are loosely approximated on the one side by German multinationals andon the other by some Asian companies. The outcomes could be set on a scale, with Suzuki at one end and koda at the other. The differentiating factors are the five influences on power resources set out above: product and labour market conditions, historical legacies, labour relations in the parent MNC and employee ability to influence opinion in the companys home country. These factors explain key features of firms strategies related to our three themes: how far they recognise and accept established legal positions, or conversely try to modify or ignore them; how far they choose to recognise and negotiate with employee representatives; and how far they seek to bring ready-made systems for employee relations from their home countries.

In no case did incoming MNCs seek major changes in employment law. Changes they argued for were essentially incremental, allowing greater scope for flexibility in forms that their specific experiences led them to favour, the obvious example being the Flexikonto. Beyond that,they did not advocate systematic liberalization, and preferred either to accept what existed or to try to ignore it. Accepting the established legal framework appeared to be automatic where

13

unions were well established, albeit with one big reservation: agency workers, whom unions were implicitly happy not to represent. The case of koda shows that agency workers had to find their own levers of power, with the use of law and the threat of damaging publicity against the employer.

Work-time flexibility was an important issue for ensuring the law was respected. Where employees were in a strong position they had little difficulty securing conditions more favourable than those set out in the law. Where they were weaker, as in Hyundai, they had to usea degree of collective strength to enable effective intervention from the legal authorities, and even then full respect for the law remained an issue of conflict.

Recognising trade unions as negotiating partners was not a legal requirement, but became fairly automatic for MNCs either coming from, or heavily committed in, western Europe. Their plants also tended to be in areas where labour markets were tighter and employee power was correspondingly greater, making it impossible to assess the relative importance of different causal factors. Trade union recognition was less automatic for Hyundai, Kia and Suzuki, coming as greenfield investments in areas of high unemployment, but proved unavoidable in the first two of these. It is worth noting that, whether or not unions were recognised, some employment relations issues seemed not to cause conflict. Payment and grading systems, developed in the firms home countries, were imported without offending employees interests and therefore did not depend on a particular balance of power.

However, flexibility practices were an obvious area of interest conflict, and they were conditioned by negotiations between management and unions, with outcomes dependent on the overall power relations. That included all the elements mentioned above, including market conditions, international contacts and historical legacies. These set the broad power relations, while the course of the negotiations and particular approaches of negotiators at the time determined the final outcomes. Thus differences in flexibility regimes reflected to some extent choices made by negotiators as they balanced this issue against others: pay increases, short-termemployment security and prospects for new investment or the run-down of existing plants.

The development of flexibility regimes needs to be understood in the context of trends in employment relations as a whole. It was not a simple matter of firms transferring practices from their home country, nor of their choosing CEE countries to escape from employment relations in their home countries. They were attracted by lower wage levels; but beyond that, their approach to employment relations required a degree of adaptation and improvisation as they negotiated with established local actors.

Notes

References

Bluhm K (2007) Experimentierfeld Ostmitteleuropa? Deutsche Unternehmen in Polen und der Tschechischen Republik. Wiesbaden: VS Verlag.

14

Boxall P and Purcell J (2011) Strategy and human resource management. 3rd ed. Basingstoke: Palgrave Macmillan.

Cooke WN (2007) Multinational companies and global human resource strategy. In: Boxall PF, Purcell J, and Wright PM (eds), The Oxford handbook of human resource management, Oxford: Oxford University Press, pp. 489508.

Delteil V and Dieuaide P (2012) French multinational companies, new state regulations and changes in the employment relationship during the crisis: the exemplary case of the automobile sector. Transfer 18(4): 429446.

Drrenbcher C and Geppert M (eds) (2011) Politics and Power in the Multinational Corporation: The Role of Institutions, Interests and Identities. Cambridge: Cambridge University Press.

Drahokoupil J (2014) Decision-making in multinational corporations: key issues in internationalbusiness strategy. Transfer 20(2): 199215.

Dudenhffer F and Bttner C (2006) Der Wettbewerbsfaktor Zeitarbeit in der Automobilindustrie. Ifo Schnelldienst 59(9): 3036.

Edwards T, Colling T and Ferner A (2007) Conceptual approaches to the transfer of employmentpractices in multinational companies: an integrated approach. Human Resource Management Journal 17(3): 201217.

Ferner A (1997) Country of origin effects and HRM in multinational companies. Human Resource Management Journal 7(1): 1937.

Ferner A, Quintanilla J and Varul MZ (2001) Country-of-origin effects, host-country effects, andthe management of HR in multinationals: German companies in Britain and Spain. Journal of World Business 36(2): 107127.

Ferner A, Edwards T and Tempel A (2012) Power, institutions and the cross-national transfer of employment practices in multinationals. Human Relations 65(2): 163187.

Haipeter T, Jrgens U and Wagner K (2012) Employment relations in the banking and automotive industries in Germany. International Journal of Human Resource Management 23(10): 20162033.

Harzing A-W (1999) Managing the multinationals: an international study of control mechanisms. Cheltenham: Edward Elgar.

Forum Hyundai Noovice (2012) Odstvka v prosinci 2012, zakzky, omezen vroby, 2 November. http://www.hyundai.phorum.cz/viewtopic.php?f=5&t=2064&start=30

Jo HJ and You J-S (2011) Transferring Production Systems: An Institutionalist Account of Hyundai Motor Company in the United States. Journal of East Asian Studies 11(1): 4173.

Jrgens U and Krzywdzinski M (2009a) Changing EastWest Division of Labour in the European Automotive Industry. European Urban and Regional Studies 16(1): 2742.

Jrgens U and Krzywdzinski M (2009b) Work models in the Central Eastern European car industry: towards the high road? Industrial Relations Journal 40(6): 471490.

Krzywdzinski M (2011) Exporting the German work model to Central and Eastern Europe. In: Contrepois S, Delteil V, Dieuaide P, and Jefferys S (eds), Globalizing Employment Relations: Multinational Firms and Central and Eastern Europe Transitions, Basingstoke: Palgrave, pp. 99116.

15

Lee B-H and Jo H-J (2007) The mutation of the Toyota Production System: adapting the TPS at Hyundai Motor Company. International Journal of Production Research 45(16): 36653679.

Lee B-H and Kang H-Y (2012) Hybridisation of employment relations in the era of globalisation? A comparative case study of the automotive and banking industries in South Korea. International Journal of Human Resource Management 23(10): 20342050.

Meardi G, Marginson P, Fichter M, Frybes, M, Stanojevi, M and Tth, A (2009) Varieties of Multinationals: Adapting Employment Practices in Central Eastern Europe. Industrial Relations 48(3): 489511.

Monden Y (2011) Toyota Production System: An Integrated Approach to Just-In-Time. 4th ed. Productivity Press.

Myant M and Drahokoupil J (2011) Transition economies: Political economy in Russia, EasternEurope, and Central Asia. Hoboken: Wiley-Blackwell.

Myant M (2014) Economies undergoing long transition: Employment relations in Central and Eastern Europe. In: Wilkinson A, Wood G, and Deeg R (eds), Oxford handbook of employment relations: comparative employment systems, Oxford: Oxford University Press, pp. 359384.

Pavlnek P (2012) The impact of the 20082009 crisis on the automotive industry: global trends and firm-level effects in Central Europe. European Urban and Regional Studies. http://eur.sagepub.com/content/early/2012/10/23/0969776412460534.

Pavlnek P, Domaski B and Guzik R (2009) Industrial Upgrading Through Foreign Direct Investment in Central European Automotive Manufacturing. European Urban and Regional Studies 16(1): 4363.

Schmann I and Guedes C (2013) Temporary agency work in the European Union: Implementation of Directive 2008/104/EC in the Member States. ETUI Report 125. http://www.etui.org/Publications2/Reports/Temporary-agency-work-in-the-European-Union.

Sorge A and Streeck W (1988) Industrial Relations and Technical Change: The Case for an Extended Perspective. In: Hyman R and Streeck W (eds), New Technology and Industrial Relations, Oxford: Blackwell, pp. 1947.

Suzuki Y (2004) Structure of the Japanese Production System: Elusiveness and Reality. Asian Business & Management 3(2): 201219.

Visser J (2013) ICTWSS database. www.uva-aias.net/207Whitley R (2001) How and why are international firms different?: the consequences of cross-

border managerial coordination for firm characteristics and behaviour. In: Morgan G, Kristensen PH, and Whitley R (eds), The Multinational Firm: Organizing Across Institutional and National Divides, Oxford: Oxford University Press, pp. 2768.

Author biographies:Jan Drahokoupil is Senior Researchers at the European Trade Union Institute, Brussels,Belgium.

16

Martin Myant is Senior Researcher and Head of Unit for European Economic, Employment andSocial Policy at the European Trade Union Institute, Brussels, Belgium.

Stefan Domonkos is Researcher at the Mannheim Centre for European Social Research(MZES), Germany, where Jan Drahokoupil also directs a research project.

17

Table 1. Plant overview

Location Home country of MNC

Site profile Employment 2013a

Union density (%)

Officials released from work

koda Mlad Boleslav, Kvasiny and Vrchlab (CZ)

Germany (VWgroup)

VW acquisition from 1991, own brand with independent functions

24,000 70 15+

TPCA (Toyota PeugeotCitron Automobile)

Koln (CZ) Japan (Toyota,joint venture with PSA)

Assembly from 2005 (mini car)

2,000 24 1 (difficulties caused by internal divisions)

Hyundai Noovice (CZ) South Korea, links with Kia

Assembly from 2008 (various platforms)

3,400 15 0

Volkswagen Bratislava(SK) Germany Assembly from 1992 (various platforms)

10,400 70 10

PCA (PSA Peugeot Citron)

Trnava (SK) France (PSA) Assembly from 2007 (small cars)

3,400 32 2

Kia ilina (SK) South Korea (33% owned by Hyundai)

Assembly and engines from 2005 (various platforms)

3,800 28 0 (1 from mid-2013)

Suzuki Esztregom (HU) Japan Assembly from 1992 (subcompact platform)

2,950 5 0 (union not recognised)

Audi Gyr (HU) Germany (VWgroup)

Engines from 1993, assemblyfrom 1998 (Golf V platform)

9,500 56 3 (5 from Oct 2013)

Daimler Kecskemt (HU)

Germany Assembly from 2012 (focus on compact cars)

3,200 30 2 (plus works council chair)

a including agency workers

Table 2. Output change relative to previous year (%)

2008 2009 2010 2011 2012koda 3.02 12.48 9.04 16.79 2.58TPCA 5.13 2.53 11.06 8.46 20.58Hyundai 879.25 69.61 25.49 20.66VW 24.41 44.52 38.55 45.62 99.53PCA 5.56 7.89 9.20 10.13 4.88Kia 38.93 22.95 50.59 9.80 15.89Suzuki 21.36 34.19 7.72 0.76 9.00Audi cars 5.93 45.98 18.21 2.53 15.09Audi engines 0.66 27.18 19.09 14.30 1.69

Table 3, Flexibility regimes

Agency workers Model/plant flexibility Employee transfers Work-time flexibilitykoda 2007: 16%

then reducedOctavia to VW Bratislava,a Seat model to Mlad Boleslav

From VW Bratislava 2010: Flexikonto trial2012: improved bonus forextra shifts

TPCA peak 17%2013: none

To PCA 203 shifts per year system

Hyundai 24% Swaps with Kia Unsystematic, including compulsory overtime/holiday

VW 12% Octavia from koda To koda Flexikonto from 2009PCA 12% From TPCA From 2009Kia 6% Swaps with Hyundai UnsystematicSuzuki Peak 20%

2013: noneFlexikonto used minimally

Audi 3%capped at 5%

Internal (to supporting activities)

Flexikonto agreed 2001.

Daimler 8% Flexikonto since 2012

1 See Visser (2013). The figures for CEE are, however, imprecise and probably overestimate the actual unionization rate.

2 HR managers were interviewed in Audi, Daimler, PCA, Suzuki and VW Bratislava, where a member of the executive board was also interviewed. In Kia, the head of employee relations was interviewed.

3 Individual plants can, under certain conditions, deviate from the rule, if agreed with employee representatives. See http://www.labournet.de/wp-content/uploads/2013/04/VW-Charta-der-Zeitarbeit-2012-.pdf.

4 Labour costs in koda amounted to only 7.7% of total production costs in 2012.

Background: Literature and explanatory frameworkCases and methodsThe need for flexibility: The market context and business strategyProduct profiles and production modelsDemand fluctuation

Power resources available to employeesFlexibility regimesNumerical flexibilityShifting production and employees across plantsWork-time flexibility

Discussion and conclusionReferences