GLOBALIZATION & SUSTAINABLE DEVELOPMENT Strategies for Poverty eradication & Wealth creation

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

La Comercial UD – Sustainable development – Bilbao April 2009

Dr. JM Luzarraga –Mondragon University
jmluzarraga@gmail.com
jmluzarraga@eteo.mondragon.edu

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

Index
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

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 of
national economies into the international economy
through trade, direct foreign investment, short-term
capital flows, international flows of workers and humanity
generally, and flows of technology” (Bhagwati 2007: 13)
“The technological revolution seems to be one of the
most powerful engines of the glbalization process”
(Friedman, 1995: 341)


Key elementes to take into account while analysing
regions in global markets
GDP: volumen & growth rate
Labour cost & unemployment rate
Population
Poverty and income per capita
Foreign direct investment:
– Horizontal integration: HFDI
– Vertical Integration: VFDI


Some of the main impacts of globalization
It breakes companies’ local or national dimension: by will or
by force
It breakes the local community stability in economic
developed countries: dilocation, relocation, layoffs & factories
shut down
It may contribute to socio-economic developmentes of
emerging & developing countries
Others:
– 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 society
Labour force global competition: employment threat
Compensación medio por hora de trabajadores de línea de producción, 2003–09, USD
40 CHINA

INDIA
34.46
35
RUSIA
30.6

30
MEXICO
25.34
POLONIA
23.91
25
23.73
21.86
20.68 BRASIL
21.01
20.31 20.99
20 17.77
R. CHECA
16.68

14.29
ESPAÑA
15
12.32
EUSKADI
10 FRANCIA
5.47 MCC
3.83 3.9
5 3.64 3.28
2.45 2.7 2.75 2.38
JAPON
1.271.68
1.5
0.8 1.12
USA
0
2003 2009
ALEMANIA
Fuente: ex novo a partir de Behind the China Kaledoiscope - CH-ina Guide 2005, Eustat y 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

AUTOMOTIVE SECTOR PRODUCTION SUPPORT
EUSKADI vs. EASTERN EUROPE LOCATION
0,4

1,6 m
1,7 m
Zona A: 0,2
• Cooperativa cubre muy bien 0,5 Posible ubicación de
5,3 m
( 0 - 500 km) 1m
un hipotético
Zona B: competidor en la zona
0,7
• Cooperativa satisface bien 3,7 m del Este
0,8
(500 – 1000 km)
Zona C: Zona A 0,2
0,2
• Cooperativa satisface mal 0,2
(1000 – 1500 Km)
1,6 m
Zona D:
• Cooperativa no cubre 0,2
2,7 m
(+1500 Km)
1m

Zona B Zona C Zona D

PRODUCTION 2008 (Million Units)
Source: Roland Berger


Presence in Emerging countries: the power of BRIC countries
World population by country %
25%
CHINA

INDIA
20%
RUSSIA

MEXICO
15% POLAND

BRAZIL
CZ REP.
10%

COLOMBIA

JAPAN
5%
USA

0%
1975 2003 2015
Source: UN Development Report 2006


Presence in Emerging countries: the power of BRIC countries

BRIC countries contribution to World GDP growth The BRIC’s race to exceed G6 growth

50%
Italy France Germany
Brazil
40%
Italy France Germany
Russia
30% Germany
Italy France Japan
India
20%
UKGermany Japan USA
China
10%
G8
BRICs
0%
2005 2015 2025 2000 05 10 15 20 25 30 35 40

Source: Goldman Sachs BRICS Europe & Asia - May 2007


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

Population with less than 1$ income a day by region

60%
1981
50%
1987
40%

30%
1993
20%
1999
10%

0%
2001
WORLD Europe and Latina Middle East South Asia Sub-Saharan
Central Asia American & & north Africa
the Africa
Caribbean
Source: Human Development Report - UN 2005


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, learning
communities, experience economy


Knowledge competitiveness: social networks, open innovation


Knowledge competitiveness: learning organizations

SELF-REALIZATION

SHARED
MENTAL SYSTEM
VALUES
MODELS THINKING

LEARNING
SELF-MANGED TEAMS

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: MONDRAGON
Readings:
MCC Harvard BS Case study
IRIZAR 2005 Harvard BS Case study


Theoretical framework – Globalisation impact on the community
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 to
globalisation’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

GLOBALISATION IMPACTS ANALYSED

Local Worker Co-
Economic Emerging & non communities operative
developed & industrialised and citizens : structures:
industrialised countries:
countries:
Urban, Hybridisation,
Foreign Direct Massification, de-
Downsizing Investment, internal mutualisation,
and closing industrial migration, and
factories, employment greater
unemployment creation and inequalities in
increased local and across
competition countries


Mondragon background, vision &values
A worker cooperative network started by Father Arizmendiarrieta in 1956
in 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 &values
A worker cooperative network started by Father Arizmendiarrieta in 1956
in 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 solidarity
2. Democratic member control 7. Inter-cooperation
3. Work over ownership 8. Social transformation
4. Capital as a tool 9. Universal character
5. Management participation 10. Education and training


Highlights at Dec 2006 Mondragon Group
Mondragon Congress/ Permanent Commission

Number of worker co- Mondragon Presidency/ General Council

operatives: 107 Financial Industrial Division Distribution
Division
Division Industrial Automatisation
Workforce: 83.601 Automotive

– Worker members: 80% Body Builders

Components
– Abroad: 14.261 Construction

Elevation
Total sales: 13.390 M.euros Equipment

Business Ranking if listed: HouseholdGoods

Engineering & Services
– Spain: 7th Machine Tools

– Europe: 32th Industrial Systems

Tools & Systems
– Forbes 500: 462
Group activities: Mondragon University,
12 Technology Centers & Garaia Innovation Park
Source: MCC 2006
-


Context of Research – Mondragon Industrial Division
45,000

40,000
1) First production plant abroad
2) MCC holding structure creation
35,000
3) 26 Production plants abroad
30,000
4) 65 Production plants abroad
Total employees
25,000
Employees abroad (since 99)
20,000

15,000

10,000

5,000

0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Years 1) 2) 3) 4) 5)
Source: ex novo - Adaptation from MCC - 2007 1) 2) 3) 4)


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

Mondragon Industrial Division – Employment growth
NUMBER OF EMPLOYEES at 31/12
2003 2004 2005 2006
1999 2000 2001 2002
Total 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%
(*)
Source: ex novo
BRANDT



GLOBAL COOPS by regions
PRODUCTION PLANTS ABROAD PEOPLE WORKING ABROAD
(65) (14. 261)
7% EUROPE 15
14%
7 9
R.CZECH & SLO
9 POLAND
9%
INDIA
36%
CHINA
17
10%
6 MEXICO

BRAZIL
10%
7
OTHERS
1
8% 6%
9


Theoretical framework – Globalisation impact on emerging &
developing countries & CSR policy
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 received
2) “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 solidarity
2. Democratic member control 7. Inter-cooperation
3. Work over ownership 8. Social transformation
4. Capital as a tool 9. Universal character
5. Management participation 10. Education and training


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

Case study: Mondragon Group
Secondary source gathering & systematic review: Mondragon Group & Globalisation

Globalisation impact on Mondragon Group net job growth 1996-2006
International strategy & mapping subsidiaries by countries and timing

Case studies: best practices in CSR management in production plants abroad
FAGOR INTERNATIONAL
IRIZAR TVS MASTERCOOK CLUSTERS
FAGOR
ORKLI CH COPRECI CZ
(India) (Poland) (China, Mexico
EDERLAN
(China) (Czech R.)
Czech R. Slovak R.)
(Brazil)


Field work – interviews conducted
People interviewed (N=176)
Interview Location
Nationality
Basque country
2% 4% 4% 4% 6% Basque country
12%
Spain (rest) India
15%
India China
20%
China Mexico
5% 49% Mexico 20% Brazil
Brazil Poland
5%
Poland Czech Republic
others Slovak Republic
16% 21%
13%
4%

Coop membership
Based abroad
Job activity
Works at Mondragon
7%
18% 37%
65% 93%
82%
YES
YES MOI
35% YES NO
NO MOD
NO
63%
Source: ex novo


Field work – production plants visits & analysis
June 2007

Feb – Mar 2007 Mar – Dec 2006
July 2007

Oct – Nov 2006

Jan – Feb 2007

Mondragon representative offices 6 (4 visited)
Production plants abroad 65 (40 visited)
Source: ex novo

Source: Luzarraga, 2006

Research methodology – main characteristics
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


Responsible at home: multi vs. de-localisation
Mondragon 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%)


Responsible abroad: objectives 2005-08
Co-operative structure international extension

OBJETIVE STRATEGY INDICATORS

• Communicate, develop & support • % employees with ownership
participation on subsidiaries where
• To study ways of people cooperative
TO MOVE FORWARD parent cooperative has 100% control
integration
ON • % employees participation on profits
• Economic resources for training and
COOPERATIVE education on subsidiaries • % subsidiary profits dedicated to local
INTERNATIONAL environment
• Own & clear salary policy on
EXTENSION
subsidiaries • Existence of employees participation
& systems
• Health, security and ecological
GLOBAL CSR guidelines • To define a corporative guideline to
POLICY 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


Case studies database
Coops involved Location Date
Case study
Orkli CH Orkli CHINA - Ningbo Jun 2006

Irizar TVS Irizar INDIA-Tamil Nadu Oct 2006

Ederlan Br Fagor Ederlan BRASIL - Extrema Jan 2007

Wrozamet
MasterCook POLAND - Wroclaw Jun 2007
Fagor Electrodomesticos
CZECH R.Olomouc Jul 2007
Copreci CZ Copreci
Dikar Wingroup, Orbea,
CHINA - Kunshan Nov 2006
International
Mondragon Orkli, Oiarso
international Irizar, Eika, Matz Erreka,
production MEXICO -Queretaro Feb 2007
Mondragon Assembly
clusters
plants Fagor Electrodomesticos, Tajo,
POLAND - Wroclaw Jun 2007
clusters Eika, Embega, Coinalde
Cikautxo, Fagor Ederlan,
CZECH R. Olomouc July 2007
Maier, Batz, Copreci
Spain – France –
Alidis/Gespa Dec 2005
Eroski, Mosqueteros, Egasa
Source: ex novo
Germany - Asia


Case studies database

5) Fagor MasterCook
1) Orkli China
3) Copreci CZ

2) Irizar TVS

4) Fagor Ederlan
Brasileira

Production plants case studies
Mondragon international clusters
Source: ex novo


Mondragon plants best practices
1) 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 implemented
1) 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 implemented
1) 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) – Prahalad
The Fortune at the bottom of the pyramid- A Mirage - Karnani
Case studies:
- Hindustan Lever (India)
- Jaipur Foot


Eskerrik asko
Muchas gracias
Thank you
谢谢你

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

P. JM Arizmendiarrieta - 1956


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