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«The appearance of multinational companies in Hungary has, in general, been greeted positively by public opinion. However, some professionals dealing ...»

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Employment Relations in Multinational

Companies: the Hungarian Case

Csaba Makd and Peter Novoszath

The appearance of multinational companies in Hungary has, in

general, been greeted positively by public opinion. However, some

professionals dealing with multinationals have posed several

questions and shown concern with the presence of such companies.

Usually their concerns are well founded, but sometimes they are the

result of a lack of certain knowledge, or they have an ideological bias (for example, that multinationals are destroying the nation’s industry). The most frequently voiced anxiety centres on market sales: namely, there are fears about the apparent elimination of Hungarian-produced goods on the world market. In order to give a more complete picture of the situation it is also necessary to point out those evaluations which appreciate the positive factors of multinationals: the development of different forms of production capacity, the new opportunities for employment, the technological developments, the modernization of the service sector, and the modernization of management methods.

In general, regardless of the positive or negative attitudes, at the moment we have comparatively little knowledge about the activities of multinational companies in Hungary, including information about their policies for manpower resources and, connected with this, labour relations (OECD Seminar, 1993). For example, among the trade unions, only the Vasas Trade Union Federation (iron, metal and electrical energy industry workers) has prepared a ‘domestic’ assessment of the conduct of management towards trade unions in those companies in Hungary owned by foreigners. In the experience of Vasas, attitudes towards trade unions are varied. The selling-off (privatization) of the former large state companies has created many mixed companies (joint ventures) in which the management has acknowledged the existence of the trade unions in the state in which they found them. In some of these, attempts have been made to develop partnership relations. In others, such as the companies established by means of so-called ‘greenfield’ investIndustrial Transformation in Europe Table 12.1 Attitudes o f foreign employers toward the trade unions Number in the Nationality of foreign owner* workforce Name of company

Positive attitude:

Italian 1500 Ganz Ansaldo Swedish Elektrolux-Lehel 600-700 French Ganz Merogyar Ltd A BB Lang Swi

–  –  –

* The share of the foreign ownership in each case is dominant.

Source: Analysis o f the Vasas Trade Union Federation, January 1994.

ments, managements have tended to question the raison d’etre of the trade unions, and have often not acknowledged them as legitimate social partners. Obviously, such managements take industrial relations seriously, but they are of the opinion that the participatory bodies for employees (such as the factory council) can serve as a substitute for trade unions. The managements of the third group of mixed companies seem to be indifferent with regard to labour relations with employees. So far, they have not seen it as important to develop cooperative relations with employees, and have not established proper bodies for the protection of the interests of labour.

Table 12.1 demonstrates clearly the attitude of the managements of certain joint ventures towards relations with trade unions, according to the Vasas trade union survey.

Employment Relations in Multinational Companies 257 In this chapter we discuss two contrasting examples of how foreign firms are managing labour relations in Hungary as illus­ trations of the effects of previously established practices and institutions on transformation processes. In general, the organiz­ ations established by ‘greenfield’ foreign investments can be seen as distinct from the former state-owned companies which have been ‘re-established’ by being sold off. In the first case socialorganizational relations have to be established from zero. In the second case, with the organizational changes which go along with the change of ownership it is necessary to take account of the earlier interest and power relations used for solving conflicts, as well as the more perm anent social and cultural traditions.

We have chosen the Magyar Suzuki company to illustrate the operation of a multinational company of the greenfield investment type, and Aeroplex Ltd to represent the other extreme with a welldeveloped union structure and a highly conflict-ridden relationship between the social partners which led to the only strike in a joint venture established by multinational firms.

Before examining these two cases we will provide some details about the progress of other foreign investments in Hungary and other former socialist countries, as well as some important charac­ teristics of the development of Hungarian labour relations as an indication of the general context in which they developed.

Foreign Capital Investment There is a sharp debate among experts over the extent of the penetration of foreign capital in Hungary. If we consider the privatization conducted by the AVU (State Property Agency) company, then we are able to speak about 10 per cent of ownership being in the hands of foreigners. If we examine the measurement of incoming capital according to the banking system (which includes greenfield investments, the raising of capital and privatization), then we find an approximate figure of US$5.6 billion. Yet according to some experts the figure for foreign capital arriving in Hungary over the past few years is much greater than that. This is because the statistics published by the Hungarian National Bank do not include the capital equipment contributions, and do not consider secondary capital transactions - for example, the selling off of shares. It is also very difficult to assess the number of mixed companies. Officially, at the end of 1993 there were 19,722 joint ventures in Hungary.

However, in this figure we can find companies that are wholly foreign owned, alongside those in which the overseas partner has only a few thousand Hungarian forints (HUF) invested.

Industrial Transformation in Europe Table 12.2 Num ber o f join t ventures and stock o f foreign capital in Hungary, 1989-1993

–  –  –

Source: Hungarian National Bank and National Statistical Office The number of newly established joint ventures and the stock of direct foreign capital investment are illustrated in Table 12.2. With reference to these details, probably the most reliable come from the multinationals themselves, though even with these it is rather the measurement of ownership which is shown, and the real extent of the operation remains vague. (By means of price accounts and daughter companies, the multinationals publish profits in those countries where the tax conditions are most favourable.) According to the data presented by the State Property Agency in 1992, investments from the USA were dominant in Hungary (representing 29 per cent of all investments); next in line were Germany (20 per cent), Austria (14 per cent) and France (7 per cent). On the basis of partial data from 1993, it seems likely that Germany is now the biggest investor in Hungary, with Austria, the USA, Italy and France following in that order.

Among the former socialist countries it is Hungary which has attracted most foreign investment. There is no doubt that the reforms of recent decades have played a role in this. It was in this part of the whole region that the investors found the most up-todate laws of association, a bank system and a capital market. The investors have been attracted by the relatively high-skilled work­ force, the - relative to Western Europe - low wage bills, and the lower costs of infrastructural development. Although the data for 1993 show that Hungary’s favourable position has weakened (because it seems that Poland, the Czech Republic and Slovenia are Employment Relations in Multinational Companies 259 Table 12.3 Foreign capital investments in Central and Eastern Europe

–  –  –

Source: East-W est Investments and Joint-Ventures, U N ECE, G eneva, 1989-1993 closing on Hungary) its relative advantage is still apparent, as is shown in Table 12.3.

In Hungary, the majority of mixed companies formed with the participation of foreign capital investment have, up to now, mainly changed the ownership structure and - albeit to a lesser extent - the process of enterprise activities. M ajor changes in ‘operational capital’ usually appear when the moment comes for extending production capacities by raising the form of the basic capital. For example, 40 per cent of the shares of the Chinoin pharmaceutical company were bought by the French firm Sanofi, but in the first instance this resulted in nothing more than slight structural modifi­ cations for the Hungarian company. In the next stage, an increase of basic capital investment occurred, and US$10 million of this increase contributed to the development of production capacities. A similar example is when General Electric bought shares in the Hungarian Tungsram electrical company.

General Characteristics of Company-level LabourRelations in Hungary

Before looking at certain examples of labour relations in multi­ national firms, we want to outline the key characteristics of trade union participation in enterprises at the beginning of the 1990s. Our observations are based on the results of studies carried out in Hungary by the Japanese Institute of Labour in the summer of 1992 and the spring of 1993. The most important finding of the research was that - despite the appearance of large-membership trade unions Industrial Transformation in Europe in the wake of the political system change, and despite the changing strengths of the political, ideological and personal rivalries - at the company level, cooperation between employers and trade unions remained the dominant feature. This cooperation was influenced by the structural and circumstantial conditions of the economic recession, especially with regard to protection of employees’ inter­ ests and improving the survival chances of companies.

The company-level cooperation of trade unions and employees has a very long tradition in Hungary and among the relatively permanent conditions that existed under state socialism was the employees’ distinct tradition of dual loyalty (Mako, 1993). In other words, the employees supported both the company leadership and the trade union. The management and workers (trade unions) organized themselves into a coalition of interests in a continuing struggle with central organizations (ministries, etc.) over the distri­ bution of centrally supplied resources - although they were often allied with these central organizations as well. The cooperative connections between management and workers in defence of their perceived common interests at the company level were also charac­ teristic of the other former socialist countries. For example, in Poland, as Tatur reports in Chapter 8, workers tend to identify with ‘their’ firms and enterprise survival is a central goal for most employees.

In the analyses carried out by the Japanese Institute of Labour, a decisive majority of the enterprises involved (85 per cent) had some form of worker interest representation, and among these the greatest influence came from the state socialist - but restructured and renewed - trade union confederation (Hungarian Trade Unions National Federation, MSZOSZ). In terms of the topic of labour disputes, privatization and recession have caused major changes. As Table 12.4 indicates, under the state socialist regime most disputes were concerned with wages and other rewards, as well as the organization of work.

Nowadays, besides the still important question of wages, we find privatization, reorganization of companies and, in connection with these, employment protection (included here are redundancy pro­ cedures and the circumstances of redundancy). It is these points that have moved to the centre of disputes.

Another current feature of labour relations is that the trade unions still search for cooperation with management, although this can be upset by such things as cuts in the workforce. For example, from among the trade unions affiliated to MSZOSZ, although 20 have rejected any cutbacks in the workforce, a majority (99) have accepted them and a significant number (64) have even supported Employment Relations in Multinational Companies 261 Table 12.4 Changing topics o f labour disputes

–  –  –

Source: Csaba Mako and Agnes Simonyi, ‘Participation on Firm Level in the Transformation Process’, Paper prepared for the XHIth World Congress of Socio­ logy, RC N o. 10, Session 7, Bielfeld, Germany, 18-23 July 1994 cutbacks. With respect to the first of the independent trade union organizations to be formed - the Democratic Trade Unions National Federation (Liga) - it had one affiliated member organiz­ ation which rejected workforce cuts, while the others demonstrated the acquiescent or even supportive attitude found within the circle of trade unions involved with those companies included in the national sample.

At both a national and local level open conflict was not character­ istic of labour relations. The numbers of strikes and those partici­ pating in strikes are much lower in Hungary than, for example, the numbers occurring due to the construction of a market economy in Poland, as is shown in Table 12.5. The low number of strikes does not indicate that there are no workplace conflicts, but suggests that among the forms of employee participation (direct and indirect) it is the peaceful solutions that are preferred. In the majority of strike cases, the employees spoke about the ‘non-cooperative’ behaviour of management.

Industrial Transformation in Europe Factory Councils instead of Trade Unions: the Example of Magyar Suzuki Corporation The extent of Japanese capital investment in the former socialist countries of Central and Eastern Europe is negligible. This tendency should be seen in the light of the observation that out of the total amount of Japanese investment, almost half has been placed in Hungary and more than a quarter of that has been in form of investments (US$74.4 million). In addition, almost half the invested total was put towards the establishment of the Magyar Suzuki company.

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