GLOBALIZATION & SUSTAINABLE DEVELOPMENT Strategies for Poverty eradication & Wealth creation

Dr. JM Luzarraga – ETEO-MU – Sustainable Development - April 2009

La Comercial UD – Sustainable development – Bilbao April 2009

Dr. JM Luzarraga –Mondragon [email protected]

[email protected]

GLOBALIZATION & SUSTAINABLE DEVELOPMENT Strategies for Poverty eradication & Wealth creation

The role of multinationals CSR strategy, the fortune at the bottom of the pyramid & social entrepreneurs


Index1. Introduction to “Globalization & Sustainable

development”:- Globalization context - Current Global Challenges in a Knowledge Economy- Impact on economic developed countries- Impact on developing & emerging countries

2. Three Paths to Poverty eradication & Wealth Creation- Corporations’ CSR strategy: employment creation (Karnani)- Fortune at the Bottom of the Pyramid strategy: new customers

(Prahalad)- Social Entrepreneurs: new socio-economic agents (Bornstein-

Yumus & Schwab)


First Team Activity – Warming up

Who are you and who inspires you?


1. Introduction to “Globalization & Sustainable development”

- Globalization context - Current Global Challenges in a Knowledge Economy- Impact on economic developed countries- Impact on developing & emerging countries


Globalization??...

One definition might be…“Economic Globalization constitutes integration ofnational economies into the international economythrough trade, direct foreign investment, short-termcapital flows, international flows of workers and humanitygenerally, and flows of technology” (Bhagwati 2007: 13)“The technological revolution seems to be one of themost powerful engines of the glbalization process”(Friedman, 1995: 341)


Key elementes to take into account while analysingregions in global markets

GDP: volumen & growth rateLabour cost & unemployment ratePopulationPoverty and income per capitaForeign direct investment:– Horizontal integration: HFDI – Vertical Integration: VFDI


Some of the main impacts of globalization

It breakes companies’ local or national dimension: by will orby forceIt breakes the local community stability in economicdeveloped countries: dilocation, relocation, layoffs & factoriesshut downIt may contribute to socio-economic developmentes ofemerging & developing countriesOthers:– It reduces thevalue of technology– It unifies consuming products globally– It increase the brand value and companies “virtualization”

process– …


Team activity

Select a successfull company for you?Why you considere it successfull?What are their main current challenges?And current risks?In which countries are operating? Doing what? Why?


Challenges of our global knowledge societyLabour force global competition: employment threat

Fuente: ex novo a partir de Behind the China Kaledoiscope - CH-ina Guide 2005, Eustat y MCC.

Compensación medio por hora de trabajadores de línea de producción, 2003–09, USD

0.8 1.271.12 1.681.52.382.45

3.282.73.83

2.753.93.64

5.47

14.29

17.77

21.0120.68

23.91

21.86

25.34

30.6

34.46

0

5

10

15

20

25

30

35

40

2003 2009

16.68

12.32

20.31 20.99

23.73

CHINA

INDIA

RUSIA

MEXICO

POLONIA

BRASIL

R. CHECA

ESPAÑA

FRANCIA

JAPON

USA

ALEMANIA

EUSKADI

MCC

Nota: se aplica tipo de cambio enero 2003 (1 Euro=1.067USD). Los datos actualizados a III-2007 reflejan un incremento superior de coste hora siendo en MCC= 23.7, Euskadi=20.69 y España 15.43.


Western Europe production crises: unemployment threat

2,7 m

1 m

1 m

0,7

0,2

0,2

0,5

1,6 m

0,4

1,7 m

Zona A

Zona B Zona C Zona D

5,3 m

3,7 m

0,2

1,6 m

0,2

0,8

0,2

Zona A:• Cooperativa cubre muy bien

( 0 - 500 km)Zona B:• Cooperativa satisface bien

(500 – 1000 km)Zona C:• Cooperativa satisface mal

(1000 – 1500 Km)

Zona D:• Cooperativa no cubre

(+1500 Km)

Posible ubicación de un hipotético competidor en la zona del Este

AUTOMOTIVE SECTOR PRODUCTION SUPPORTEUSKADI vs. EASTERN EUROPE LOCATION

Source: Roland Berger

PRODUCTION 2008 (Million Units)

Challenges of our global knowledge society


Presence in Emerging countries: the power of BRIC countries

Source: UN Development Report 2006

World population by country %CHINA

INDIA

RUSSIA

MEXICO

POLAND

BRAZIL

CZ REP.

COLOMBIA

JAPAN

USA

0%

5%

10%

15%

20%

25%

1975 2003 2015



Presence in Emerging countries: the power of BRIC countries

Source: Goldman Sachs BRICS Europe & Asia - May 2007

BRIC countries contribution to World GDP growth

BRICs

China

India

Russia

Brazil

0%

10%

20%

30%

40%

50%

2005 2015 2025 2000 05 10 15 20 25 30 35 40

USAJapanGermanyUK

G8

Italy JapanGermanyFrance

Italy GermanyFrance

Italy GermanyFrance

The BRIC’s race to exceed G6 growth



Source: Human Development Report - UN 2005

Population with less than 1$ income a day by region

1981

1987

1993

1999

20010%

10%

20%

30%

40%

50%

60%

WORLD Europe andCentral Asia

LatinaAmerican &

theCaribbean

Middle East& northAfrica

South Asia Sub-SaharanAfrica

Challenges of our global knowledge societyThreat for Local communities: massive urbanization, internal migration & radical social differences among countries


Global & interconected economy



Threat for Local communities: massive urbanization, internal migration & radical social differences among countries



Global economic recession & “short-term” “speculative”, “wasteful consumer” & “neo-liberal” economic society model in crises: unemployment global threat



Global economic recession & “short-term” “speculative”, “wasteful consumer” & “neo-liberal” economic society model in crises: emerging countries opportunities



Sustainability threat due to a fossil energetic model & a wastefull consumer society: green energy & production opportunity



Reaching “bonsai” consumers: Social entrepreneurs & Bottom of the Pyramid strategies



Knowledge competitiveness: change management, learningcommunities, experience economy



Knowledge competitiveness: social networks, open innovation



Knowledge competitiveness: social networks, open innovation



Knowledge competitiveness: learning organizations

SELF-REALIZATION

LEARNINGSELF-MANGED TEAMS

SHAREDVALUES

MENTAL MODELS

SYSTEMTHINKING

FIFTH DISCIPLINE – Peter Senge (MIT)



Knowledge competitiveness: learning schools



Team activity

Which one is the most surprising/important challenge for you? Why? Is there any challenge missing from the previous list?


2. - Three Paths to Poverty eradication & Wealth Creation

- Corporations’ CSR strategy: employment creation (Karnani)- Fortune at the Bottom of the Pyramid strategy: new “bonsai”customers (Prahalad)- Social Entrepreneurs: new socio-economic agents (Bornstein-Yumus & Schwab)


Corporations’ CSR strategy: employment creation (Karnani)

-Case study: MONDRAGONReadings: MCC Harvard BS Case studyIRIZAR 2005 Harvard BS Case study


An industrial migratory phenomenon takes place (N-S, W-E) and new strategies arose challenging local communities stability

In emerging countries FDI contributes to socio-economic development and poverty reduction when based on a proper CSR policy abroad,

In countries with higher labour costs global competition results in manufacturing firms downsizing and shutting down operations

Place-based ownership models are presented as a better counterforce toglobalisation’s threats to local community stability

But the traditional local structure of worker cooperatives’ was not adequately prepared to compete in a capitalistic global market

Worker Co-operatives most important social commitment is its commitment to create employment

Theoretical framework – Globalisation impact on the community


Theoretical framework – Globalisation impact on the community

Economic developed & industrialised

countries:

Downsizing and closing factories,

unemployment

Emerging & non industrialised

countries:

Foreign Direct Investment, industrial

employment creation and

increased local competition

Worker Co-operative

structures:

Hybridisation, de-

mutualisation,

Local communities and citizens :

Urban, Massification,

internal migration, and

greater inequalities in

and across countries

GLOBALISATION IMPACTS ANALYSED


Mondragon background, vision &valuesA worker cooperative network started by Father Arizmendiarrieta in 1956in Mondragon, a 5.000 people village in the Basque Country (Spain)Named by several academics as one of the best examples of democracy at the work place (Macleod, Vanek, Williamson, Malone, Whyte & Whyte,…)

ViSION: The companies that make up MONDRAGON share their commitment to cooperation and democracy in the workplace, backed by a unique system of worker participation.VALUES:


Mondragon background, vision &valuesA worker cooperative network started by Father Arizmendiarrieta in 1956in Mondragon, a 5.000 people village in the Basque Country (Spain)Named by several academics as one of the best examples of democracy at the work place (Macleod, Vanek, Williamson, Malone, Whyte & Whyte,…)

ViSION: The companies that make up MONDRAGON share their commitment to cooperation and democracy in the workplace, backed by a unique system of worker participation.MONDRAGON CO-OPERATIVE PRINCIPLES:1. Open membership 6. Incomes/wages solidarity2. Democratic member control 7. Inter-cooperation3. Work over ownership 8. Social transformation4. Capital as a tool 9. Universal character5. Management participation 10. Education and training


Highlights at Dec 2006Number of worker co-operatives: 107 Workforce: 83.601– Worker members: 80%– Abroad: 14.261Total sales: 13.390 M.eurosBusiness Ranking if listed:– Spain: 7th

– Europe: 32th– Forbes 500: 462

Group activities: Mondragon University, 12 Technology Centers & Garaia Innovation Park

Body Builders

Components

Construction

Elevation

HouseholdGoods

Engineering & Services

MachineTools

Industrial DivisionFinancialDivision

Mondragon Presidency/ General Council

Source: MCC - 2006

Industrial Systems

Tools & Systems

Industrial Automatisation

Automotive

Equipment

Mondragon GroupMondragon Congress/ Permanent Commission

DistributionDivision


Context of Research – Mondragon Industrial Division

1) 2) 3) 5)4)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Source: ex novo - Adaptation from MCC - 2007

Years

1) First production plant abroad2) MCC holding structure creation3) 26 Production plants abroad4) 65 Production plants abroad

1) 2) 3) 4)

Total employeesEmployees abroad (since 99)


To remain competitive Mondragon assumed the global production dimension, opting to use FDI on private companies abroad


(*) BRANDT

Mondragon Industrial Division – Employment growth

1999 2000 2001 2002 2003 2004 2005 2006Total Employees (PT) 21913 25593 27050 31166 32597 33640 40121 41810

Net-growth 9.54% 16.79% 5.69% 15.22% 4.59% 3.20% 19.27% 4.21%

Local employees 19954 21516 22217 25225 25888 26533 27263 27594

Net-growth 7.83% 3.26% 13.54% 2.63% 2.49% 2.75% 1.21%

Employees abroad (PEX) 1959 4077 4833 5941 6709 7107 12858 14216

Incremento 108.12% 18.54% 22.93% 12.93% 5.93% 80.92% 10.56%

% PEX / PT 8.94% 15.93% 17.87% 19.06% 20.58% 21.13% 32.05% 34.00%

NUMBER OF EMPLOYEES at 31/12

Source: ex novo



GLOBAL COOPS by regionsPRODUCTION PLANTS ABROAD

(65) PEOPLE WORKING ABROAD

(14. 261)

9

17

19

7

6

9

7 9

17

19

7

6

9

7R.CZECH & SLO EUROPE 15

INDIA

CHINA

MEXICO

BRAZIL

OTHERS

POLAND

7%

36%

6%8%

10%

10%

9%

14%7%

36%

6%8%

10%

10%

9%

14%


CSR has been broadly study and recently blooming

Fortune at the bottom of the pyramid: Prahalad “It’s clear for us that prosperity can come to the poorest regions only through the direct and sustained involvement of multinational companies. And it’s equally clear that the multinationals can enhance their own prosperity in the process”

The best antidote to poverty is employment creation at a reasonable wages, Karnani: “Creating opportunities of steady employment at reasonable wages is the best way to eradicate poverty”

Reasonable wages?: two criteria: 1) the principle of reciprocal benefits: the value provided by the employee must be equal to that of the monetary settlement received2) “principle of the obligatory family living wage”

Application of worker co-operative principles as a CSR policy

Theoretical framework – Globalisation impact on emerging & developing countries & CSR policy


Application of worker co-operative principles as a CSR policy

MONDRAGON CO-OPERATIVE PRINCIPLES AT RISK:1. Open membership 6. Incomes/wages solidarity2. Democratic member control 7. Inter-cooperation3. Work over ownership 8. Social transformation4. Capital as a tool 9. Universal character5. Management participation 10. Education and training

Theoretical framework – Globalisation impact on emerging & developing countries & CSR policy


Research methodology - frameworkContext: “Social enterprises operating in global markets”

Case study: Mondragon Group

Globalisation impact on Mondragon Group net job growth 1996-2006

Case studies: best practices in CSR management in production plants abroad

International strategy & mapping subsidiaries by countries and timing

IRIZAR TVS(India)ORKLI CH

(China)

FAGORMASTERCOOK

(Poland)FAGOR

EDERLAN(Brazil)

COPRECI CZ(Czech R.)

INTERNATIONALCLUSTERS

(China, MexicoCzech R. Slovak R.)

Secondary source gathering & systematic review: Mondragon Group & Globalisation


People interviewed (N=176)

Field work – interviews conducted

Source: ex novo

Based abroad

YESNO

Works at Mondragon

YESNO

Job activity

MOIMOD

Coop membership

YESNO

65%

35%

82%18%

93%

7%37%

63%

Basque countrySpain (rest)IndiaChinaMexicoBrazilPolandothers

Interview Location4% 6%

20%

21%13%

20%

12%4% Basque country

IndiaChinaMexicoBrazilPolandCzech RepublicSlovak Republic

Nationality

49%

4%

16%

5%

5%

15%

2% 4%

Dr. JM Luzarraga – ETEO-MU – Sustainable Development - April 2009Source: Luzarraga, 2006

Field work – production plants visits & analysis

Feb – Mar 2007

Jan – Feb 2007

Mar – Dec 2006

Oct – Nov 2006

July 2007

June 2007

Mondragon representative offices 6 (4 visited)Production plants abroad 65 (40 visited)

Source: ex novo


1) MONDRAGON EMPLOYMENT DATABASE: For the first time a merged database of Mondragon GLOBAL COOPS exists, allowing us to compare their performance with other cooperatives.The sample has been constructed from MCC annual reports. This database includes co-operative activity reports during 1996-2006 for Mondragon industrial co-operatives.

2) PRODUCTION PLANTS ABROAD ANALYSIS: For the first time Mondragon production plants abroad have been analyzed. It has been visited, studied and analysed 40 factories in developing countries

3) EMPLOYEES AND MANAGERS ABROAD INTERVIEWS: For the first time a wide survey on production plants abroad has been conducted interviewing 135 people working on Mondragon production plants abroad

Research methodology – main characteristics


Responsible at home: multi vs. de-localisationMondragon International multi-localisation is a successful strategy to deal with globalisation’s threats to community stability (downsizing and de-localization)

Mondragon GLOBAL CO-OPS have a bigger net job growth than Local Co-ops in parent cooperative (28% > 14%), in the local community (52%>25%) and in total (141% >21%)

FDI has a direct positive impact on employment growth in the local community (21%>12%) and a similar behaviour in the parent cooperative (7,8% = 7,5%)

In the parent co-operative the percentage of voting members has increased (from 78% to 84%).

In the parent co-operative the percentage of voting members is higher on GLOBAL CO-OPS than LOCAL CO-OPS (84% >75%)


TO MOVE FORWARD ON

COOPERATIVE INTERNATIONAL

EXTENSION

&

GLOBAL CSR POLICY

INDICATORSSTRATEGYOBJETIVE

• Communicate, develop & support

• To study ways of people cooperative integration

• Economic resources for training and education on subsidiaries

• Own & clear salary policy on subsidiaries

• Health, security and ecological guidelines

• % employees with ownership participation on subsidiaries where parent cooperative has 100% control

• % employees participation on profits

• % subsidiary profits dedicated to local environment

• Existence of employees participation systems

• To define a corporative guideline to apply international extension model

• To analyse current experience inside Mondragon Group; to analyse its adaptation and new formulas

Source: MECI 2005 – 2008 – MCC International Department

Co-operative structure international extension

Responsible abroad: objectives 2005-08


Case studies database

Case study Coops involved Location Date

Orkli CH Orkli CHINA - Ningbo Jun 2006

CHINA - KunshanInternational production plants clusters

Dikar Wingroup, Orbea, Orkli, Oiarso Nov 2006

Irizar TVS Irizar INDIA-Tamil Nadu Oct 2006

Ederlan Br Fagor Ederlan BRASIL - Extrema Jan 2007

Irizar, Eika, Matz Erreka, Mondragon Assembly MEXICO -Queretaro Feb 2007

Alidis/Gespa Eroski, Mosqueteros, EgasaSpain – France –Germany - Asia Dec 2005

Wrozamet Fagor Electrodomesticos POLAND - Wroclaw Jun 2007

Copreci CZ Copreci CZECH R. Jul 2007

Fagor Electrodomesticos, Tajo, Eika, Embega, Coinalde POLAND - Wroclaw Jun 2007

Cikautxo, Fagor Ederlan, Maier, Batz, Copreci July 2007CZECH R. Olomouc

Case study Coops involved Location Date

Orkli CH Orkli CHINA - Ningbo Jun 2006

CHINA - KunshanInternational production plants clusters

Dikar Wingroup, Orbea, Orkli, Oiarso Nov 2006

Irizar TVS Irizar INDIA-Tamil Nadu Oct 2006

Ederlan Br Fagor Ederlan BRASIL - Extrema Jan 2007

Irizar, Eika, Matz Erreka, Mondragon Assembly MEXICO -Queretaro Feb 2007

Alidis/Gespa Eroski, Mosqueteros, EgasaSpain – France –Germany - Asia Dec 2005

Wrozamet Fagor Electrodomesticos POLAND - Wroclaw Jun 2007

Copreci CZ Copreci CZECH R. Jul 2007

Fagor Electrodomesticos, Tajo, Eika, Embega, Coinalde POLAND - Wroclaw Jun 2007

Cikautxo, Fagor Ederlan, Maier, Batz, Copreci July 2007CZECH R. Olomouc

Source: ex novo

MasterCook

Mondragon international clusters

Olomouc


Case studies database

1) Orkli China

2) Irizar TVS

Production plants case studiesMondragon international clusters

3) Copreci CZ

5) Fagor MasterCook

4) Fagor EderlanBrasileira

Source: ex novo


Mondragon plants best practices1) Orkli Ch (China): a proactive strategy as a response to the future threat of China, its

management model and commitment to quality control, as well as its innovative capacity in the combination of automated production at the parent co-operative with the manual and flexible of China.

2) Irizar-TVS (India): the international transfer and assimilation of a participative management model with a high commitment to communication, its own remuneration system and profit sharing schemes. This model features significant progress of success in productivity, quality, sales, innovation and financial results.

3) Copreci CZ (Czech Republic): a global organisational model has been formulated, involving international professional careers with internationally experienced managers at the parent co-operatives and local managers at the production plants abroad, thus commencing development of the figure of collaborator co-operative member.

4) Fagor Ederlan Brasileira (Brazil): a social equity with annual monitoring indicators at the subsidiary, its employee health and safety policy, its proximity to the local co-operative movement, and the fact that it is the sole Mondragon production plant abroad where the possibility of transforming it into a second level mixed co-operative has been studied.

5) Fagor MasterCook (Poland): stands out as the sole example that includes union representatives in the board of directors, the positive consequences of organisational change (towards a global model with local autonomy) on account of the acquisition of Brandt in 2005, as well as its process of adaptation-integration of business culture.


Main best practices already implemented1) Business management that optimises the synergies between the global

and local dimensions of the co-operative

2) Working conditions: Social equity

3) Employee participation in management:

4) Employee participation in profits: 30%

5) Employee participation in ownership: “collaborator member”

6) Communication and awareness policy:

7) Inter-cooperation between subsidiaries: Mondragon international clusters

8) Commitment to the local region:


Still many issues to be solved and implemented1) Dealing with the local-global socio-economic synergies

2) Replicate commitment with education within the factories

3) Explore further collaboration with local communities stakeholders on the location where the subsidiaries are placed

4) Increase profits at subsidiaries and keep on sharing them with local employees

5) Implement a common supplier ethical code among the whole group

6) Implement further experiences on employees ownership: from conventional to worker cooperative structures

7) Reinforce and replicate factories clustering abroad


Fortune at the Bottom of the Pyramid strategy: new “bonsai”customers (Prahalad)-Readings: The Fortune at the bottom of the pyramid (Article &/or book) – PrahaladThe Fortune at the bottom of the pyramid- A Mirage - Karnani

Case studies: - Hindustan Lever (India)- Jaipur Foot


Eskerrik askoMuchas graciasThank you谢谢你

“Nuestra fortaleza no se traduce en lucha sino en cooperación”

P. JM Arizmendiarrieta - 1956
