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22 April 2020

The behaviour of foreign companies in the new EU member states of eastern and east-central Europe

multinational company in Eastern Europe

Are foreign multinational companies more or less likely than domestically-owned firms to recognise trade unions and engage seriously in collective bargaining? On the face of it, a multinational company is in a stronger position relative to employees as it can play off one group against another. On the other hand, big multinationals often recognise unions in their home countries. The US trade union confederation the AFL-CIO is hoping to improve organisation in branches of European companies in the southern states of the USA. What can be learned in this respect from experience inside Europe?

A new working paper by Martin Myant (associate researcher) looks at the behaviour of foreign companies, mostly western European, in the new EU member states of eastern and east-central Europe. Foreign companies are totally dominant in much of manufacturing industry in these countries and also strong in retail, banking and other service sectors. Manufacturing firms have often come to take advantage of wage rates under half the western European level, exporting products back into western Europe. This working paper analyses these companies’ behaviour and the methods used by unions, following individual cases in several countries. Some are reluctant to accept unions, some use the threat of shifting production to lower-wage countries to weaken the position of their employees’ in western Europe, but some do concede better conditions than could be expected from domestic-owned firms, albeit with wage levels still well below those in western Europe. 

Czech retail, dominated by large western European chains, provides a striking example of how recognition and benefits from collective bargaining can be achieved when employees find the right tactics. Not one of the companies agreed to bargain with union organisations until put under pressure by union representatives in western Europe, sometimes even by those representatives coming to confront local managers in Czechia. Thus, the fact of union recognition elsewhere was important in providing a powerful channel for influencing top managements. Once unions had won the right to bargain, they still confronted managements determined to concede as little as possible. The strike weapon was of little use. Czech employment law sets very high thresholds for a strike to be legal and union membership was anyway never more than a small minority of employees. In the Dutch-owned Ahold chain the union pressed vigorously for higher wages from 2015. It organised demonstrations of employee opinion short of strike action, ensured publicity for their case through the media – something that could be very uncomfortable for a company seeking customer goodwill – and won support from political leaders. A key step was to overcome the company’s secrecy over pay levels by conducting a survey among employees to show how much they really were paid: it was on average only 25% above the statutory minimum wage. Their evidence was convincing. Bohuslav Sobotka, the then prime minister, agreed to take up the issue of their low pay level with the Dutch government. Following some bluster and prevarication, the company finally conceded substantial pay rises.

In this case, and a number of others, foreign ownership strengthened employees’ bargaining power. Domestically-owned firms are often less professional in negotiating and their bad practices are more likely to go unnoticed in the media, not least because of the companies’ smaller size. Achieving the same kind of results in European companies investing outside Europe would be more difficult, but the same factors – employee resolve, good union tactics, support from unions in the companies’ home countries and support from media and politicians - would probably be as relevant.

Download the working paper here

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