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2016/04/02

Mondragon Corporation - Wikipedia, the free encyclopedia

Mondragon Corporation

From Wikipedia, the free encyclopedia

Mondragon Corporation

Type	Worker cooperative federation
Founded	1956
Founder	José María Arizmendiarrieta
Headquarters	Mondragón, Basque Country,Spain
Area served	International
Key people	Javier Sotil (president of the General Council)
Revenue	€ 11,875 million (2014)^[1]
Total assets	€ 24,725 million (2014)^[1]
Number of employees	74,117 (2014)^[2]
Divisions	Finance, Industry, Retail, Knowledge
Website	mondragon-corporation.com

The Mondragon Corporation is acorporation andfederation of worker cooperatives based in the Basque region of Spain. It was founded in the town of Mondragón in 1956 by graduates of a local technical college. Its first product was paraffin heaters. It is the tenth-largest Spanish company in terms of asset turnover and the leading business group in the Basque Country. At the end of 2014, it employed 74,117 people in 257 companies and organizations in four areas of activity: finance, industry, retail and knowledge.^[2]

Mondragon cooperatives operate in accordance with Statement on the Co-operative Identity maintained by the International Co-operative Alliance.

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History[edit]

José María Arizmendiarrieta on a bicycle

The determining factor in the creation of the Mondragón system was the arrival in 1941 of a young Catholic priest, José María Arizmendiarrieta, in Mondragón, a town with a population of 7,000 that had not yet recovered from the Spanish Civil War: poverty, hunger, exile, and tension.^[3] In 1943, Arizmendiarrieta established a technical college that became a training ground for generations of managers, engineers, and skilled labour for local companies, and primarily for the co-operatives.^[4]

Before creating the first co-operative, Arizmendiarrieta spent a number of years educating young people about a form of humanism based on solidarity and participation, in harmony with Catholic social teaching, and the importance of acquiring the necessary technical knowledge. In 1955, he selected five of these young people to set up the first company of the co-operative and industrial beginning of the Mondragon Corporation.^[5] The people were Usatorre, Larrañaga, Gorroñogoitia, Ormaechea, and Ortubay, and the company was called Talleres Ulgor, an acronym derived from their surnames, known today as Fagor Electrodomésticos.

In the first 15 years many co-operatives were established, thanks to the autarky of the market and the awakening of the Spanish economy. During those years, also with the encouragement of Don José María, two bodies were set up that were to play a key role in the development of Mondragon: Caja Laboral (1959) and the Social Welfare Body Lagun Aro (1966). The first local group was created, Ularco, the embryo of the industrial co-operative associativism which has been so important in the corporation’s history. In 1969, Eroski was set up by a merger of ten small local consumer co-operatives.^[6]

During the next 20 years, from 1970 to 1990, the dynamism continued, with a strong increase in turnover, the launch of new co-operatives promoted by Caja Laboral’s Business Division, the promotion of co-operative associativism with the forming of local groups, and the setting up of the Ikerlan Research Centre in 1974.^[7]

With big changes on the horizon like Spain's joining the European Economic Community, scheduled for 1986, it was decided to take an important step in the organisational area by setting up the Mondragon Co-operative Group in 1984, the forerunner to the current corporation. In-service training for managers was also strengthened with the creation of Otalora, which was to dedicate itself to training and co-operative dissemination. The Group had 23,130 workers at the end of 1990.^[8]

On the international stage, the aim was to respond to the growingglobalisation process, strongly promoting expansion abroad by setting up production plants in a number of countries. The first, the Copreci plant in Mexico in 1990 was followed by many others taking the total to 73 by the end of 2008 and 122 at the end of 2013. This was part of a strategy aimed at: increasing competitiveness and market share, bringing component supply closer to important customers’ plants, especially in the automotive and domestic appliance sectors; and strengthening employment in the Basque Country, by promoting the export of products manufactured by the co-operatives by means of the new platforms.^[9]

In October 2009, the United Steelworkers announced an agreement with Mondragon to create worker cooperatives in the United States.^[10]On March 26, 2012, the USW, Mondragon, and the Ohio Employee Ownership Center (OEOC) announced its detailed union co-op model.^[11]

In 2012 its industry component ended the year with international sales that set a new record of €4 billion, beating sales figures from before the crisis. Mondragon consolidated its presence abroad by opening 11 new production subsidiaries. Its international sales that year accounted for 69% (with a 26% increase from 2009 to 2012) and it employed 14,000 people abroad. The increase in Mondragon’s share in the BRIC markets (Brazil, Russia, India, and China) was also particularly significant, around 20% up compared to the previous year.^[12] In 2013, international sales grew by 6.7% and accounted for 71.1% of total sales.^[13]

On 16 October 2013, Fagor filed for bankruptcy under Spanish law in order to renegotiate €1,1 billion of debt, after suffering heavy losses during the eurocrisis and as a consequence of poor financial management, putting 5,600 employees at risk of losing their jobs.^[14]This was followed by the bankruptcy of the whole Fagor group on 6 November 2013.^[15] On July 2013, Fagor was bought by Catalan company Cata for €42.5 million. Cata pledged to create 705 direct jobs in the Basque Country as well as ensuring the continuity of the brand names Fagor, Edesa, Aspes, and Splendid. ^[16]

Business culture[edit]

Javier Sotil, president of the General Council of Mondragon Corporation

Mondragon co-operatives are united by a humanist concept of business, a philosophy of participation and solidarity, and a shared business culture. The culture is rooted in a shared mission and a number of principles, corporate values and business policies.^[17]

Over the years, these links have been embodied in a series of operating rules approved on a majority basis by the Co-operative Congresses, which regulate the activity of the Governing Bodies of the Corporation (Standing Committee, General Council), the Grassroots Co-operatives and the Divisions they belong to, from the organisational, institutional and economic points of view as well as in terms of assets.^[18]

This framework of business culture has been structured based on a common culture derived from the 10 Basic Co-operative Principles, in which Mondragon is rooted: Open Admission, Democratic Organisation, the Sovereignty of Labour, Instrumental and Subordinate Nature of Capital, Participatory Management, Payment Solidarity, Inter-cooperation, Social Transformation, Universality and Education.^[19]

This philosophy is complemented by four corporate values: Co-operation, acting as owners and protagonists; Participation, which takes shape as a commitment to management; Social Responsibility, by means of the distribution of wealth based on solidarity; and Innovation, focusing on constant renewal in all areas.^[20]

This business culture translates into compliance with a number of Basic Objectives (Customer Focus, Development, Innovation, Profitability, People in Co-operation and Involvement in the Community) and General Policies approved by the Co-operative Congress, which are taken on board at all the corporation’s organisational levels and incorporated into the four-year strategic plans and the annual business plans of the individual co-operatives, divisions, and the corporation as a whole.^[21]

Wage regulation[edit]

At Mondragon, there are agreed-upon wage ratios between executive work and field or factory work which earns a minimum wage. These ratios range from 3:1 to 9:1 in different cooperatives and average 5:1. That is, the general manager of an average Mondragon cooperative earns no more than 5 times as much as the theoretical minimum wage paid in his/her cooperative. In reality, this ratio is smaller because there are few Mondragon worker-owners that earn minimum wages, because most jobs are somewhat specialized and are classified at higher wage levels. The wage ratio of a cooperative is decided periodically by its worker-owners through a democratic vote.^[22]

Compared to similar jobs at local industries, Mondragon managers' wages are considerably lower (as some companies pay their best paid managers hundreds of times more than the lowest-paid employee of the company)^[23] and equivalent for middle management, technical and professional levels. Lower wage levels are on average 13% higher than similar jobs at local businesses. Spain's progressive tax rate further reduces any disparity in pay.^[22]

Areas of activity[edit]

The corporation’s companies operate in four areas: finance, industry, retail, and knowledge, with the latter distinguishing Mondragon from other business groups. In 2013, the corporation posted a total revenue of over €12 billion (roughly $16 billion USD), and employed 74,061 workers,^[2] making it Spain's fourth-largest industrial and tenth-largest financial group.^[24]

Finance[edit]

This area includes the banking business of Laboral Kutxa, the insurance company Seguros Lagun Aro, and the Voluntary Social Welfare Body Lagun Aro, which had an asset fund totalling €5.566 million at the end of 2014. The yield obtained from this fund is used to cover long-term retirement, widowhood, and invalidity benefits, complementary to those offered by the Spanish social security system.

Laboral Kutxa, for its part, ended 2014 with €109.2 million in revenue in a year in which it granted loans worth €14.4 billion, mainly to households and small and medium-sized enterprises. Its extensive experience with the Corporation’s Co-operatives enables it to offer SMEs services typical of large companies.^[25]

Industry[edit]

The corporation’s companies manufacture consumer goods, capital goods, industrial components, products and systems for construction, and services to business. In the leisure and sports area, it manufactures Orbea bicycles, exercise equipment and items for camping, the garden and the beach.^[26]

In capital goods, Mondragon posted a turnover of €976 million in 2009, and is the leading Spanish manufacturer of chip-removing (Danobat Group) and sheet metal forming (Fagor Arrasate Group) machine tools. These machines are complemented by automation and control products for machine tools, packaging machinery, machinery for automating assembly processes and processing wood, forklift trucks, electric transformers, integrated equipment for the catering industry, cold stores, and refrigeration equipment. Specifically focusing on the automotive sector, the corporation also manufactures a wide variety of dies, molds and tooling for casting iron and aluminium, and occupies a leading position in machinery for the casting sector.^[27]

In Industrial Components, Mondragon posted a turnover of €1.5 billion in 2009, a sector in which it operates as an integrated supplier for the leading car manufacturers, offering from the design and development of a part to the industrialisation and supply of components and assemblies. It has different business units such as brakes, axles, suspension, transmission, engines, aluminium wheel rims, fluid conduction, and other internal and external vehicle components. It also produces components for the main domestic appliance manufacturers in three business areas: white goods, home comfort, and electronics. And it manufactures flanges and pipe accessories for processing oil-gas, petrochemical plants and power generation, copper and aluminium electrical conductors, and components for conveyors.^[28]

In construction, sales totalled €974 million in 2009. Mondragon has constructed buildings and important infrastructure projects. It designs and builds large metallic (URSSA), laminated wood and prefabricated concrete structures; supplies prefabricated parts in polymer concrete; offers solutions for formwork and structures (ULMA Group) as well as public works machinery and the industrialisation of the construction process, including engineering and assembly services. It also produces elevators (ORONA Group).

In services to business, sales totalled €248 million in 2008, includingbusiness consultancy services, architecture and engineering, property consulting, design and innovation (LKS Group), systems engineering for electromechanical installations, and integrated logistics engineering. It also offers a modern language service, manufactures educational equipment, and provides graphic arts services (MccGraphics).

In 2013, 71.1% of turnover came from international sales. Sales resulting from the export of products abroad and production generated in the 122 subsidiaries located in several different countries: China (15), France (17), Poland (8), Czech Republic (7), Mexico (8), Brazil (5), Germany (4), Italy (4), United Kingdom (3), Romania (3), United States (4), Turkey (2), Portugal (2), Slovakia (2), India (2), Thailand (1) and Morocco (1). Overall, in 2013 these 122 plants provided work for more than 11,000 people. The corporate industrial park in Kunshan, close to Shanghai houses seven subsidiaries.^[29] In 2012, it opened 11 new subsidiaries abroad, employing around 14,000 people. Its international sales that year marked a record number of 69% of its total sales (€5.8bn, with a 2% fall compared to the previous year). Mondragon also participated in 91 international R&D projects.^[30]

In 2014, cooperatives in industrial sector created 1.000 jobs in and the internationalisation continued with 125 production subsidiaries abroad -3 more than the year before-.^[31]

Retail[edit]

Led by Eroski, Mondragon runs one of the leading retail groups in Spain, posting a turnover of €6.6 billion in 2013. It operates all over Spain and in the southern France, and maintains close contacts with the French group Les Mousquetaires and the leading German retailer Edeka, with whom it set up the Alidis international partnership in 2002. The worker-owners and consumer-members are involved in the management of Eroski, with both groups participating in the co-operative’s decision-making bodies.

At the end of 2013, Eroski was operating an extensive chain of 2.069 stores made up of 90 Eroski hypermarkets, 1,211 Eroski/center,Caprabo, Eroski/city, Aliprox, Familia, Onda and Cash & Carry supermarkets, 155 branches of the Eroski/viajes travel agency, 63 petrol stations, 39 Forum Sport stores and 221 IF perfume stores.^[32]Moreover, in the south of France it has 4 hypermarkets, 16 supermarkets and 17 petrol stations, and it has 4 perfume stores in Andorra.^[33]

At an assembly held in 2008, its worker-members approved by a majority vote the process to expand the transformation into co-operatively run businesses to the group as a whole. So work started on turning the group’s subsidiaries into co-operatives, and on making their salaried workers worker-members. This process was to be carried out over the next few years.

The retail area is also home to the food group Erkop, which operates in the catering, cleaning, stock-breeding, and horticulture sectors and has as its leading name Auzo Lagun, a co-operative engaged in group catering and the cleaning of buildings and premises, and also offers an integrated service in the health sector.^[34]

Knowledge[edit]

This area has a dual focus: education-training and innovation, which have both been key elements in the development of the Corporation. Training-education is mainly linked to the dynamism of Mondragon University, the significant role that Politeknika Ikastegia Txorierri, Arizmendi Ikastola and Lea Artibai Ikastetxea play in their respective areas and the activity of the Management and Co-operative Development Centre Otalora.

Mondragon University is a co-operative university, which combines the development of knowledge, skills, and values, and maintains close relations with business, especially Mondragon co-operatives. Technological innovation is generated through the co-operatives’ own R&D departments, the Corporate Science and Technology Plan, the corporation’s 12 technology centres and the Garaia Innovation Park.^[35]

The 15 technology centres play a fundamental role in the development of the sectors of focus. In 2009 they employed 742 people and had a budget of €53.7 million.^[36] In 2013 its network of technology centres and R&D units provided employment for 1,700 people and the commitment to R&D&I matters amounted to 136 million Euros, 8.5% of added value.^[13] Mondragon has 479 families of Patents for Inventions, which accounts for 25% patents in the Basque Country, participating in more than 30 R&D cooperation projects at the European level.^[37]

Reactions[edit]

Scholars such as Richard D. Wolff, American professor of economics, have hailed the Mondragon set of enterprises, including the good wages it provides for employees, the empowerment of ordinary workers in decision making, and the measure of equality for female workers, as a major success and have cited it as a working model of an alternative to the capitalist mode of production.^[38]

Noam Chomsky has said that while Mondragon offers an alternative to capitalism, it is still embedded in a capitalist system which limits Mondragon's decisions:^[39]

“

Take the most advanced case: Mondragon. It’s worker owned, it’s not worker managed, although the management does come from the workforce often, but it’s in a market system and they still exploit workers in South America, and they do things that are harmful to the society as a whole and they have no choice. If you’re in a system where you must make profit in order to survive, you're compelled to ignore negative externalities,effects on others.

”

Vincent Navarro wrote that from a business perspective, Mondragon is successful in matching efficiency with solidarity and democracy. However, he writes that the number of employees who are not owners have increased more rapidly than worker-owners, to a point that in some companies, for example in the supermarket chains owned by Mondragon, the first are a much larger group than the second. In Navarro's view, this establishes a two-tier system - for example, in terms of whom to save in the case the company collapses. In the collapse of Fagor, the relocation of employees to other companies belonging to Mondragon favored those who were worker-owners, which, in Navarro's view, creates a two-tier system that may affect labor relations:^[23]

“

Actually, one of the successes of Mondragon was its ability to create a sense of identity among the workers within the company, encouraging an environment of solidarity and collegiality among them, a feeling that also extended (although to a much lesser degree) to non-worker-owners. The connection felt by the latter group has somewhat weakened, however, exposing a vulnerable point for the cooperative.

”

The Mondragon system is one of four case studies analyzed in Capital and the Debt Trap, which summarized evidence claiming thatcooperatives tend to last longer and are less susceptible to perverse incentives and other problems of organizational governance than more traditionally managed organizations.