Inter-firm power relations and working conditions under new production models

Abstract

In investigating recent changes to the automotive industry production process, such as modularisation, our work emphasises the process of fragmentation of production as a configuring element of inter-firm power relationships, and as an explanatory element in working conditions. From a theoretical framework focused on power relations, we analyse by way of a selected case study how the capabilities of companies and their network positions, together with the agency of labour, shape the power relations that influence the evolution of working conditions. The study does indeed find relevant changes to inter-firm relationships, for example, within networks of assemblers and suppliers, but without a consequent re-balancing of power. This finding serves to explain differences in the evolution of working conditions between distinct companies, these conditions being fully functional to a strategy for profitability and thus difficult to reverse.

Introduction

Historically, automobile manufacturing has been a leader in transitions to new production models (Taylorism, Fordism, Lean Production) that have in turn had important consequences in terms of working conditions (Boyer and Freyssenet, 2000; Braverman, 1974; Coriat, 1991). In the context of the current paradigm (Lean Production, increasingly global), the literature has highlighted as a fundamental feature the segmentation of working conditions among companies (Katz, 1997). This segmentation is largely the result of technical, production and social relations established between the different companies, and these relationships have been interpreted by way of prior analyses that portrayed them in pyramidal terms (Fine, 1998). Thus, working conditions have been generally explained by hierarchical relationships between firms, and the evolution of these conditions has been largely associated with cost-reduction strategies for profitability adopted by leading firms.

Nonetheless, various authors have pointed out that recent transformations in the production model – such as modularisation – would imply a break with the traditional pyramidal structure, due to the emergence of more horizontal relationships among assemblers and certain suppliers (mainly those referred to as global suppliers) (Frigant, 2011; Sturgeon and Memedović, 2011). However, two questions arise: (1) Is this re-balance in the structure of power relations (as addressed from a global perspective) also found in analyses of local networks?; and (2) What are the implications for the evolution of working conditions in the companies involved?

Based on these considerations, the objective of our work is twofold. First, starting from a literature review, we elaborate a framework for the study of inter-firm relations and their connection with the evolution of working conditions in the various companies comprising a local network. Second, we apply this framework to a case study to analyse inter-firm relations and the evolution of working conditions in the context of the current production model in the automotive sector.

The main contributions of this article are also two in number. First, we propose a framework for the analysis of inter-firm (power) relations that distinguishes three interrelated sources of power: the technological and market capabilities of firms; network positions; and the agency of labour. This distinction clarifies the differences among company typologies and permits analysis of the framework of power relations in which the current production model is being deployed. This in turn facilitates understanding of the evolution in working conditions resulting from the profitability strategy of the leading company. Second, from our case study, we show how the traditional pyramidal structure has been altered through the consolidation of a much more complex structure (essentially across the spatial dimension, affecting the supply chain). However, we also find that the structure of power relations among companies remains deeply hierarchical, retaining differences in the labour conditions of workers in a context of generalised deterioration (downgrading). The principal losers in this development will be workers at the logistics, pre-assembly and auxiliary companies, whose presence has increased over recent years. In this sense, we demonstrate that segmentation is fully functional to the strategy of profitability and is therefore difficult to reverse.

The structure of the article is as follows: in the ‘Literature review: Inter-firm relationships and labour conditions’ section, a literature review is provided to establish a framework for the analysis of inter-firm power relations and their links with working conditions. In the ‘Methods’ section, we explain our research methodology. In the next section, we address a particular case study focused on the assembly of a model produced Navarra (Spain) by a manufacturer whom we designate by the pseudonym ‘Carmaker’. Our main conclusions are presented in the final section.

Literature review: Inter-firm relationships and labour conditions

In a context marked by fragmentation and outsourcing of production, the analysis of inter-firm relations has been gaining salience in the literature. In classical political economy, analysis of inter-firm relations has been fundamentally framed in terms of competition. However, given the current situation, it has become necessary to incorporate a perspective that considers the relevance of power structures within networks of companies, understanding power as the ability to make strategic decisions that, consistent with the profitability strategy of the leading company, can affect the entire network (Grimshaw and Rubery, 2005). In short, consideration must be given to the ability to decide who produces, how they produce, for whom they produce and at what cost (Henderson et al., 2002: 450). Moreover, as Sacchetti and Sugden (2003) suggest under a political economy approach, the analysis of power relations places the emphasis on distributive aspects, implying that in a context of production networks, inter-firm power relations must be connected with the evolution of working conditions. (Lakhani et al., 2013). Accordingly, two key issues must be addressed to arrive at a conceptual framework with which to guide the case study: (1) How should inter-firm power relations within global chains/networks be analysed?; and (2) What links can be established between these power relations and working conditions?

How to analyse inter-firm power relations within global chains/networks?

Since the pioneering works on global chains, the existence of unequal distributions of power among companies has been affirmed (Gereffi and Korzeniewicz, 1994). The Global Commodity Chains (GCC) and Global Value Chains (GVC) literature (Gereffi et al., 2005) has examined this distribution of power by focusing analysis on inter-firm relations, developing increasingly sophisticated interpretative frameworks through the introduction of a greater diversity of power structures and typologies (Ponte et al., 2019). Analysis has moved from simpler, static and single-causal interpretative frameworks to schemes that represent governance models with more complex, multipolar and dynamic relationships (Raj-Reichert, 2019).

To capture this variety of relationships from a dynamic perspective, we consider it essential to identify the sources of power, and to analyse how they are specified and how they have evolved in the different companies that comprise the global chain. Given the definition of power proposed above, what we seek to clarify here is the ability to negotiate how, where, at what price production will occur, as well as what factors influence that capacity to negotiate.

According to GCC theory, power is associated with two interrelated elements: the technological capabilities of firms, and market structure (Gereffi et al., 2005; Gereffi and Korzeniewicz, 1994). Thus, companies with better technological capabilities and/or those that specialise in segments with a high degree of business concentration will have a greater negotiation capacity. ¹

The economic geography approach of the Global Production Network (GPN) literature (Coe et al., 2008; Henderson et al., 2002) allows us to complement the study of power relations in two ways. First, the importance attached to the spatial configuration of production processes allows us to identify an additional source of power – the ‘structural’ position, understood as a key position in the production process and the network set-up (Selwyn, 2013). Second, the emphasis placed on the social dimension of the production process underlines the relevance of labour (and labour processes) in the analysis of the GPN and, therefore, the need to include labour agency in the analysis of power relations (Cumbers et al., 2008; Henderson et al., 2002; McGrath-Champ et al., 2015). Thus, structural power that emanates from a firm’s position in the network should be analysed not only from the perspective of inter-firm relationships (client–supplier) but also in consideration of the capital–labour relationship, understanding that this can enhance the agency of labour and the associated power exercised by unions (Selwyn, 2013). In this way, labour agency is introduced into the analysis of power sources, assuming that this agency can condition, and is also strongly conditioned by, the framework of inter-firm relationships, as certain authors have pointed out (Bair and Werner, 2015; McGrath-Champ et al., 2015).

Therefore, understanding inter-firm power relations within a production network requires an analysis of the firms’ technological and market capabilities, the spatial configuration of the production network and the agency of labour. Still, the question remains of how these factors interrelate with one another. This is the context of inter-firm power relations that we want to analyse in our case study – a context where companies with greater power seek to adapt any negotiation processes to their own needs and profitability strategies, thus making decisions that affect the entire network.

What link can be established between power relations and working conditions?

Two main contributions arise from literature. First, the relevance of inter-firm relations within a production network as a determinant of working conditions has been recognised (Doellgast and Greer, 2007; Rawling, 2015; Rubery, 2007), even when subcontracting is limited to the local sphere (Rubery and Grimshaw, 2003). In these works, a direct relationship has been described between (1) better or worse positions in terms of power within inter-firm relations, and (2) better or worse working conditions (especially but not only in the automotive sector). Thus, power relations and working conditions have traditionally been stratified into a pyramidal model with different levels of supply (level 1, level 2, level 3, etc.) (Fine, 1998), with the assembler positioned at the top of the pyramid and the various supply levels constituting a network in physical proximity to the assembler. Thus, certain contributions to the literature have noted that vertical disintegration (typical of Lean Production) through the deterioration of labour’s capacity for negotiation can be seen as a determinant of downgrading in labour conditions (Doellgast and Greer, 2007).

Second, previous analysis is now being questioned by those who point out that the pyramidal structure has been broken by the technological and market strengthening of certain suppliers (Frigant, 2011). Moreover, Ford and Guillan (2015) and Selwyn (2013) speak of the emergence of structural power among the workers of certain supplier companies, emanating from their position in the global production network and thus facilitating improvements in their working conditions. In a similar way, Las Heras (2019) suggests that in a general context characterised by the disempowering impact of GVCs on labour, trade union politics at firm level can make a difference. While we agree with these findings, we further argue that firm-level analysis of capital–labour relations must be placed in the context of inter-firm power relations. We consider that such analysis allows us to capture differences among firms, understanding these differences as inherent to the very existence of a GPN (Bair and Werner, 2015).

In summary, our work aims to link the dynamics of inter-firm power relationships within a local network with the evolution of working conditions in the firms comprising that network. Two research questions arise:

1. 1. What is the framework of power relationships in which the profitability strategy of a leading firm is deployed?

2. 2. What are the implications of this framework in terms of the evolution of working conditions in the different companies?

Methods

Our research uses an interpretive case study methodology (Walsham, 1995) based on a theoretical approach that we seek to validate while making conclusions about the case study. Specifically, the methodology used is based on an integrated multi-modal approach that combines quantitative and qualitative research elements of analysis via the use of multiple sources (statistics, documentaries, interviews), through a triangulation of evidence. The research questions will be answered based on information extracted via different routes, and verification that such information is consistent gives the research greater reliability and robustness (Yin, 2003).

Our research was developed through a combination of tasks, grouped into three phases. First, we carried out exploratory work at three levels: sectoral, territorial and firm-level. For this, we took as sources the academic literature, news reports, audit reports, trade union reports, accounting information from private companies through the Orbis database (Bureau van Dijk, 2015–2020), macroeconomic data, and information extracted from two databases: the National Statistics Institute and the Navarro Statistical Institute. Likewise, in this first phase we studied the technical specificities of the production process (activities, materials, parts, etc.) and of the car model in question (The Carmaker Lacrosse).

After this first stage, we began the interactive phase with the design of our sample. Here, we identified five types of company based on the activities they carry out within the automotive cluster in Navarra: the carmaker, suppliers of parts and components, pre-assemblers of modules, logistics companies (including those with pre-assembly functions) and auxiliary companies (such as those that clean or wrap the finished vehicle). Among the companies installed in the business park, we selected 17 (the Carmaker plant and 16 suppliers) which were analysed through audited accounts, registered collective agreements and the annual reports of the companies. In the end, we selected eight of these (the Carmaker plant and seven suppliers) to develop the study in greater depth by way of visits, interviews and questionnaires (see Appendix A and B for details regarding sources of information and the anonymisation process). This subsample proved representative in terms of the type of company. As required by the Editors, we have anonymised the caremaker and all suppliers: the functions of the pseudonymous suppliers are listed in Appendix A.

Next, between 2015 and 2016, we undertook three stays at Navarra of 10 days each. The objective was to carry out fieldwork both at the Carmaker factory and in the selected companies of the supplier park. We conducted in-depth interviews with workers, trade unionists and managers of the different companies. Specifically, we held interviews at the assembly plant, at two logistics companies, at two pre-assembly companies, and at three suppliers of parts and components. At these companies, we interviewed 35 trade unionists and technical workers, four managers and two members of the local government. All interviews were conducted after having obtained prior information through questionnaires. The interviews and questionnaires were structured into four blocks: general data, production processes, the work organisation model and collective bargaining. As part of our fieldwork, we also visited several factories to observe the production processes: the assembly plant, two pre-assembly companies, three logistics companies and three suppliers of parts and components. Finally, to contrast and verify the information obtained from the different interviews, we took the opportunity to discuss our conclusions with experts on this subject.

Case study: Inter-firm relations and working conditions in the manufacture of the Carmaker model

Background

From the end of the 1980s, the Carmaker Group began to implement the Lean Production philosophy within the framework of its productive organisation model. One of the main objectives of Lean Production has been to promote a permanent reduction in costs (Boyer and Freyssenet, 2000). To this end, many manufacturers (including Carmaker) have developed outsourcing and subcontracting of various production processes – such as logistics, or the manufacture of certain parts and components – that are not at the core of the company’s main activities and which had been previously carried out within the company itself.

With implementation of the Lean Production philosophy from the 1990s onwards, Carmaker Navarra began a process of vertical disintegration that forced the positioning of certain suppliers and auxiliary companies into a radius of proximity. Since that time, the most outstanding changes within the Carmaker supplier park have been:

1. 1. A progressive decrease in the number of supplier companies, mainly as a result of two overlapping trends: the production of standardised parts and components of little complexity have relocated to countries with lower labour costs; and production based on modular platforms has meant that fewer suppliers are now concentrated in a larger volume of parts;

2. 2. The presence of companies specialising in the provision of logistical services and pre-assembly of modules has increased as a consequence of modularisation requirements.

Since 2012, the carmaker has been incorporating a new generation of platforms called MQB, – which corresponds to its German name, Modularer Querbaukasten. The MQB permits the assembly of a larger number of models from different segments. By increasing the versatility of each plant to manufacture different models, greater inter-plant competition has been generated in the process of awarding new models, and this has ultimately influenced relations with suppliers.

The cost-reduction profitability strategy ² promoted by Carmaker Navarra entails an adjustment in working conditions throughout its supply chain. In a context of increasing fragmentation of production, cost reduction can only be successful if promoted throughout the chain, and this can impact the conditions of all workers in the production network depending on the negotiating capacity of each company. Therefore, inter-firm power relations (and more specifically the ability of Carmaker to make strategic decisions around who produces, how they produce, for whom they produce and at what cost) in line with the Carmaker profitability strategy have become a fundamental element in explaining the evolution of working conditions at different companies.

Inter-firm power relations

In this section, following the conceptual framework addressed in the ‘Literature review’ section, we present the elements that serve as a basis for current power relations (technological and market capabilities, network positions and the agency of labour in the different firms). As mentioned above, we distinguish five types of companies: the carmaker, suppliers of parts and components, pre-assemblers of modules, logistics companies and auxiliary companies. In Table 1, we synthesise our conceptual framework regarding sources of power, also collecting the indicators used for the case study (see also Paz and Ruiz Galvez, 2020).

Table 1. Inter-firm power relations in production networks.

PNA: Pre-Assembly Navarra Automotive; JIT: just in time.

Source: Authors’ elaboration.

Technological and market capabilities

The assembly plant in the Navarra cluster belongs to the Carmaker Group, among the largest manufacturers in a highly concentrated market and currently operating 122 plants and employing more than 665,000 workers worldwide. This assembly plant is capital-intensive and highly robotised, and its labour costs represent 10%–12% of its total costs.

Among the supplier companies in the sample (see Paz and Ruiz Galvez, 2020, for more details), worthy of first mention is the group of suppliers of parts and components; these include both national and multinational firms of large size (global suppliers). Their activities are capital-intensive and have capacity for innovation. The number of competitors in this segment of activity has been decreasing as a result of global concentration processes, a process that a priori increases their market power. In our case study, interviews revealed that the contract-awarding process with these suppliers is not conducted by auction (as with other companies), but rather through direct negotiation with Carmaker. Nonetheless, this does not indicate a total re-balancing of power relations, given that Carmaker has forced price adjustments to validate the awarding of a new model, and these have led to restructuring of the companies (which, as we shall see, affects working conditions).

The Carmaker Group approves suppliers, demanding a high degree of adaptation to the company’s standards, and this explains why certain local companies have lately been omitted from the group of suppliers. This was the case of Francius Seatech – because their seat slides were not approved, they were excluded from the group of suppliers for the new Lacrosse A07 model.

Within the logistics companies and pre-assemblers of parts included in our analysis, we find large business groups as well as smaller and national-level companies. However, these differ from the previous category, especially given the segment of activity they occupy within the network, which is both labour intensive and difficult to relocate. This specialisation determines a greater weight of labour costs (for example, 64% in Special Employment Centre and 43% in Pre-Assembly Navarra Automotive (PNA), according to data from Orbis for 2015).

The number of logistics companies has grown significantly with the shift to MQB platforms, as has the number of competitors within this segment of activity. Contracts with Carmaker are awarded through auctions in which a minimum of three companies participate (and in some cases, as many as 20). A higher number of competitors reduces the capability for negotiating conditions with Carmaker.

In the case of auxiliary companies, these are smaller companies, not international and very labour intensive, where the weight of labour costs can reach 80%. They operate within a highly competitive segment of activity, through contracts awarded by very competitive auction which significantly reduces their capacity to negotiate with Carmaker.

The characteristics thus far presented reflect substantial differences between the companies in terms of technological and market capabilities, which determine their greater or lesser capacity to negotiate contracts with Carmaker. This aspect has proven essential, since (as noted) the link between power relations and working conditions is clearly mediated through contracts. However, this analysis must be complemented with the study of network positions and labour agency.

Spatial configuration of network and firm positions

The Carmaker Navarra plant operates under a Lean Production and JIT (just in time) system that, as already indicated, is specified in the CPS (Carmaker Production System) adapted to the particularities of the plant, which produced only one model until 2018. This plant remains in constant motion Monday to Friday, with three daily rotating shifts and, according to demand, an additional shift on Saturdays.

The work organisation is based on the timeshare approach (Coriat, 1991). Through the linearisation of production and the division of labour into modular tasks, the worker shares jobs and responsibilities. This characteristic of work organisation at the Carmaker plant strongly affects proximity suppliers, especially logistics companies, which due to their position in the network are responsible for maintaining flow.

The technical and spatial organisation of the production process is represented in Figure 1 (Paz and Ruiz Galvez, 2020).

Figure 1. Technical and spatial organization of the production process.

Production based on the MQB system, together with the outsourcing of certain activities, has led to an increase in the number of workers from supplier companies that carry out activities within the German company’s own plant. Among these, we find the logistics companies, distributed into the various warehouses located within the factory (see Figure 1), as well as in the Consolidation Centre, in charge of coordinating and synchronising all logistical activities.

A total of five companies are responsible for carrying out all tasks of collection and direct supply to the assembly line. All of the above companies hold the position of ‘intermediaries’, maintaining direct relationships with Carmaker as well as with suppliers of parts and components, and even pre-assemblers. This gives them a structural position which is nonetheless weakened because they develop less-specialised activities, where competition among companies is very high and encouraged by Carmaker itself, thus fragmenting and distributing logistical tasks among several companies. An example from 2015 illustrates this clearly. In that year, Carmaker unexpectedly elected to terminate its contract with LGT which had controlled and coordinated the Logistics Consolidation Center for over 15 years. NLC, a new logistics company, had bid for the work at lower cost, so Carmaker removed LGT from its important function and reduced its bargaining power, awarding the company a residual role despite a long history of collaboration. The decision by Carmaker to place the Logistics Consolidation Centre in the hands of a new company caused the dismissal of some LGT workers. This decision led to a strike by LGT workers, which meant interruption of the assembly line. Despite this, Carmaker kept to its decision, although the strike helped ensure that the new company (NLC) would hire certain workers from the Consolidation Centre. Recently, and partly owing to this sort of action, Carmaker has included in its contracts with suppliers a penalty clause for interruptions in sourcing, which in turn weakens the structural power of workers from certain suppliers.

Moreover, as we will see later, a company’s proximity to the carmaker and the concentration of a good portion of activities within the Carmaker plant implies a loss of autonomy in work organisation, which is subordinated to that of Carmaker.

Pre-assembly companies have also been installed inside the factory – little by little, beginning with parts but, with the arrival of modular platforms, extending to modules. In this way, assembly times are reduced and productivity is improved, in turn allowing the final assembly of more than one model.

In short, this image of companies and workers within the Carmaker plant resembles the structure known as a modular consortium – spaces within the plant, coordinated by the Consolidation Centre, where external companies perform activities that facilitate final assembly. Modular consortia include companies established within the premises of the leading company (client), in so-called islands, where they carry out and allocate work to the requirements of the client (Abreu et al., 2000).

From the geographical point of view, the term ‘outsourcing’ would no longer be valid since activities continue to be executed inside the plant, although by other companies. This has changed the spatial configuration of the production process within the complex and even within the factory itself, with more and more workers from different companies coexisting in a permanent work space. Visually striking are the variety of work teams and work apparel, given that different styles and colours of jumpsuit identify workers from different companies – a range that is illustrative of the complex input supply network.

In spatial terms, an opposite trajectory is represented by companies – mostly global suppliers – which have stopped supplying Carmaker directly and have thus ‘moved away’ from the manufacturer. With the introduction of modular platforms, these suppliers now send their products to one of the various module pre-assemblers.

The causes of ‘coming together’ and ‘moving away’ are associated with the continuous process of fragmentation and outsourcing of production, coupled with the introduction of modular platforms, both of which seek to reduce costs. Of special interest here is that changes in these spatial relationships alter the pyramidal structure of the supply chain, but not the negotiation of supply contracts. These contracts continue to be negotiated directly with Carmaker, although supply is directed to the pre-assembler company in question.

In short, we can verify a break in the concordance between proximity to the assembler and greater negotiation capacity, as the closest providers now develop less-specialised activities in which competition among companies is very high. In particular, we find great dependency and little power of negotiation for the logistics and pre-assembly companies whose presence has been increasing, and which represent a fundamental contribution to productivity gains at the Carmaker plant.

Labour agency in the context of inter-firm power relations

The agency of labour, both at firm-level and throughout the local production network, is conditioned by power relations among firms. Through the interviews conducted, we noted unequal union strength within the chain depending on the type of company.

In the case of the Carmaker Navarra assembly plant, the union affiliation rate is 70%–75% (with six unions represented in the works council). This rate is well above the average in the other companies serving the plant. In the group of suppliers of parts and components, the affiliation rate exceeds 50% of the workforce (similar to the rate at Carmaker Navarra). However, within the logistics companies and pre-assemblers of parts examined in our case study, all have a much lower rate of affiliation (15%–20% union membership), particularly in companies of recent creation and smaller size, such as IPX, PNA, FASTERKER and Mobila. Finally, in the case of companies that perform auxiliary activities, the percentage of affiliation is very low, and some do not operate under a Collective Agreement.

As we have argued, the agency of labour depends on union strength in each company, but at the same time this must be placed within the framework of inter-firm power relations in the production network. In short, labour agency is conditioned by the specialisation and position of each company in the production network, and the case of the LGT workers’ strike mentioned above reinforces this argument.

On the other hand, the framework of unequal inter-firm power relations and differing network positions contributes to the fragmentation of union activity. A paradigmatic example of this can be found in the initiative launched by several unions in 2015 under the name ‘solidarity belt’, with the aim of strengthening the bargaining power of unions to negotiate a basic standard for working conditions within the cluster. A strategy agreed upon by the various company workers’ councils was intended to exert pressure on both Carmaker and the supplier managers, to gain a reconsideration of some of the decisions that had affected working conditions. However, as interviews with unionists have revealed, they encountered great difficulties in carrying out this initiative, since the interests and visions of the workers within the different companies did not always converge. In particular, interviews indicated that the initiative did not have the support of the union-dominated Carmaker, as it did not fit easily into the co-determination strategy carried out at the assembly plant. Furthermore, differences between regional and national unions have likewise diminished the possibilities for strengthening the bargaining power of workers through a joint initiative. As Cumbers et al. (2008: 373) points out, ‘as often as not, unions act to protect a particular vested interest rather than acting in the interest of the class as a whole’.

Working conditions

By analysing the Collective Bargaining Agreements (CBAs) of Carmaker and 11 suppliers, we studied two fundamental aspects: the evolution of wages and the adoption of flexibility measures.

Evolution of salary conditions

In the framework of the cost-reduction strategy adopted by the Carmaker plant, salary adjustment has been a fundamental cost-saving mechanism adopted by most of the companies analysed throughout the period (although, as we shall see, with significant differences between them). First, we consider the evolution experienced by salaries at Carmaker, later focusing on the supplying companies. By drawing this distinction, we move the analysis of inter-firm power relations to the study of wage evolution.

Although the results of the Navarra plant since 2008 have been good, especially in 2010 and 2011, the global economic crisis of that period negatively affected the results of other plants. Faced with that situation, Group management forced a wage pact that involved decoupling salary increases from improvements in productivity.

Another element that should be highlighted in the salary adjustment strategy deployed by Carmaker (and seen in other supplier companies) is the creation of new professional categories with lower salaries, further segmenting the workforce. In this regard, Carmaker Navarra in 2013 introduced a new professional category with a salary 13.5% below the lowest existing salary, and 33% below the average salary. Also, in the IX Collective Agreement signed in 2019, two new categories appeared with a salary 10% below the lowest salaries of 2013. The salaries of middle and senior managers are outside of the agreement and negotiated individually, and are not included in this analysis (owing to lack of access).

With respect to the evolution of salaries within suppliers, interviews have shown that these companies use different mechanisms to reduce or moderate wages to respond to client pressures on prices. What is striking is that many of these companies were not affected by the economic crisis from the point of view of production volume; nevertheless, the cost-reduction strategy of Carmaker, as well as increased national and international competition for the allocation of products and services, has weakened the bargaining power of suppliers vis-à-vis Carmaker, and their ability to negotiate prices in particular. Although this pressure is exerted on the suppliers as a whole, it is especially marked in the case of auctions (award mechanisms for logistics and pre-assembly concerns, as previously described), where salaries become a key variable in the presentation of winning offers. In this sense, the negotiation of contracts between the assembler and the suppliers is the main mechanism by which power asymmetries between companies are transferred to differences in working conditions.

According to information on base salaries extracted from the agreements provided by some companies (and summarised in Figure 2), a general dynamic of stagnation of real wages is clearly visible, with declines in 45% of cases. The variation in real wages – very conditioned by the behaviour of the price index – differs according to the type of company, as presented in the previous section. If we calculate averages over the period, we see that salaries at Carmaker have grown by an average of 0.43%, and salaries at suppliers of parts and components by 0.043%, while the logistics and pre-assembly salaries have decreased by 0.031%. The case of auxiliary companies is the most dramatic, with a fall of −1,809%. This dynamic explains how, according to 2018 data from the Navarra Institute of Statistics, only the average salary at Carmaker (at €28,230 per year) came close to the average of the industrial sector (€28,864 per year), while salaries at the suppliers analysed were between 5% and 10% below the industrial average. In the case of logistics, the difference was 15% under average.

Figure 2. Real wage change.

Source: Derived from REGCON.

Moreover, we should recall that the data in Figure 2 reflect only the evolution of those base salaries from which the companies developed strategies to reduce total wage costs. Thus, in companies with a broader wage structure, not subject to the dynamics of auctions and with a greater degree of union membership, the strategy of reducing wage costs tends to slow the salary increase over the course of a professional career by constructing a model in which, as workers retire, the wage costs are reduced, thanks to the entry of new ‘cheaper’ workers (as in the cases of Carmaker or BPD). These new workers of lower category have commenced in some cases with a lower base salary, but above all, they have experienced a decrease in the variable aspect of pay as well as the elimination of certain bonuses and supplements (for transport, distance, number of children). For the most senior workers, the adjustment has occurred especially in the variable wage corresponding to night shifts and seniority salaries.

The situation has been slightly different in terms of auxiliary companies, pre-assemblers and logistics concerns, since these do not operate under the threat of offshoring but rather under the threat of contract loss, meanwhile maintaining a highly dependent relationship with Carmaker, as mentioned above. These companies are forced to apply more immediate adjustments to their costs when subjected to pressure from the auctions. Increasingly, these pressures have led them to opt for outsourcing of workers with significantly lower salaries through Temporary Employment Companies. Interviews revealed that the volume of such companies has been growing, justified not only in terms of cost reduction but in terms of greater workforce flexibility. This strategy is further facilitated by the low qualification levels required in jobs carried out by these companies.

Labour flexibility

The incorporation of MQB at the Carmaker plant and the context of the struggle to be awarded new car models have motivated the implementation by both ‘Carmaker’ and suppliers of flexibility measures aimed at reducing assembly-time, increasing production and adapting to the manufacture of more than one model.

The adopted flexibility measures include changes of two types: internal flexibility to affect the rhythm and extension of working times; and external flexibility to affect the number of workers on the payroll. Next, we will see how the measures applied by the Carmaker plant require similar or larger measures in suppliers according to the type of company and its position within the network.

In terms of internal flexibility, an essential issue revealed during the fieldwork is the increase in the rhythm and intensity of work. Authors such as Durand (2009) have called this ‘management by stress’. Since the implementation of MQB, speed has become a more relevant element for the competitiveness of the plant, given the inter-plant rivalry in the awarding of new models; more specifically, during 2017–2018 the objective and requirement for awarding a new model (Lacrosse A07) was to reduce assembly-time by 2.4 seconds, to produce five more cars per shift. This fundamentally affected the companies that work within the Carmaker factory (logistics, pre-assemblers and auxiliaries) which had to increase the rhythm and intensity of work.

Moreover, as a consequence of VIII collective agreement signed in 2015, Carmaker increased the number of working days per year at the factory, including through Flexible Work Extensions and ‘competitiveness days’. ³ In addition, work on Saturday was included as mandatory if the circumstances required it. Such measures not only affect Carmaker workers but can have an effect on the workforces of supplier companies, with differentiated impacts. In the case of suppliers of parts and components, agreements make notable mention of measures similar to those used by Carmaker, but their application is not strictly linked to Carmaker production planning. This is the case, for example, with Francius and by supplying the chain indirectly (through logistics companies and pre-assemblers), and by supplying other clients beyond Carmaker, suppliers of parts and components can maintain production in stock which gives them the possibility of ‘cushioning’ against changes in customer demand. As with the situation at Carmaker, such measures of internal flexibility facilitate the adaptation to variations in orders, providing an alternative to worker dismissal, which is applied only in the most extreme cases.

By contrast, logistics companies and pre-assemblers (especially smaller ones) that establish highly dependent relationships with Carmaker find it more difficult to adapt to changes in assembly plant production planning. Strikingly, the commitments assumed in the auctions, where these companies have little bargaining power, force the collective agreements of some of these companies to recognise their explicit subordination to the conditions of Carmaker production. ⁴ In some cases, the internal flexibility measures of these companies go beyond those of Carmaker, ensuring extra time to guarantee the continuous flow of assembly line logistics. One example of this, according to the information obtained in the interviews, has been the increase in the number of days of worker availability, up from 211 days in 2015 to 216 days in 2019.

In the case of companies with a lower level of affiliation, the situation is still less favourable, as they have no formal agreement that establishes internal flexibility measures; there is no limits to the adoption of such measures – without salary compensation – until guaranteeing a perfect adaptation to the rhythms of the carmaker.

In summary, the study confirms that notable differences exist not only between Carmaker and its suppliers but, more sharply, among the suppliers themselves. The structural position of the logistics companies forces them to assume most of the internal flexibility required by the production organisation.

Regarding external flexibility, notable is the consolidation of a stable percentage of temporary workers within the different companies, justified by the need to adapt to changes in demand and to the needs of the chain production model itself. Differences were also found among the companies, since the percentage of temporary contracts at Carmaker is between 10% and 11%, while in the suppliers it reaches 15%–25% (average for period 2012–2018), again highlighting the growing importance in some cases of hiring through Temporary Employment Companies. This percentage of temporary workers helps to save on labour costs, as the permanent rotation within this percentage of the workforce prevents a portion of wage increases due to seniority, as well as certain other remuneration supplements. This increases the segmentation and polarisation of workers, because temporary staff do not share the same rights as permanent staff. Thus, it is verified that the dual nature of the labour market originates not only in labour legislation, but in the characteristics of the production model. This case study demonstrates that such a duality responds to the strategy for profitability, to market factors and to conditions of the production network.

In addition, such flexibility measures, even if they are positive for reaching the production targets asset by Carmaker, mean an increase in the intensity of work and in the temporary employment rate which appear to have had consequences for occupational health and safety, worsening the rates of accident and occupational disease, causing an increase in sick leave. While it has not been possible to obtain information disaggregated by company on this issue, according to data from the Observatory of Occupational Diseases, the average rates of sick leave in the automotive sector in Navarra are the highest in Spain, mainly owing to a high incidence of occupational diseases. According to this study, the Bradford index, ⁵ which takes into account both the incidence and duration of absences, found the automotive industry in Navarra to stand out among all Spanish sectors analysed.

In summary, the analysis of wage dynamics and measures for internal and external flexibility show strong differences among the many pools of labourers involved in the manufacture of the Carmaker model in Navarra. We find that in the context of a cost-reduction strategy affecting all firms, adjustments by suppliers of parts and components can be ‘cushioned’ by certain aspects, including through lower productive dependence with respect to Carmaker through awards of direct contract (without auction), by indirect supply to the assembly line, and by increased negotiating capacity. On the other hand, in the case of logistics companies and pre-assemblers (such as LGT and FASTERKER) that operate in labour-intensive segments, and where awards are made through very competitive auctions and with higher dependence on Carmaker production, the deterioration of working conditions has been greater. This is despite the increased presence of these companies, some of which are large with a trade union presence.

Conclusions

In light of the context of global production and new generations of modular platforms in the automotive sector, our analysis has sought to investigate the links between inter-firm relationships and working conditions.

With respect to inter-firm relations, we have verified that the number of logistics and pre-assembly companies has increased, while other suppliers have ‘moved away’ from the carmaker. There has been a strengthening of firms that have grown into global suppliers, causing a re-balance in power relations with the leading companies. By contrast, we found a strong hierarchy in power relations resulting from the growing role of logistics companies and pre-assemblers, which have continued to occupy a clearly subordinate position (albeit with nuances) in spite of their ‘key’ network position and labour agency. This shows that the negotiation capacity of each firm within a network depends not on any one of the three factors analysed but on the interrelation between them.

Regarding the latter, our case study shows that within the framework of the current production model, the traditional pyramidal hierarchical structure has been replaced by another in which the hierarchy and its links to working conditions have been maintained, this time however without the criterion of proximity to the leading company. In this new model, it is precisely those companies closest to the leading company (logistics and pre-assemblers) whose position has become weaker, as a result of the particularities of supplying directly to the assembly chain on a just-in-time basis; high productive dependency with respect to the leading company; the awarding of contracts through very competitive auctions; and the low degree of qualifications required in the tasks for which they are responsible.

This explains how, from the perspective of working conditions, and in a general context informed by a cost-reduction strategy, the principal losers will be workers at the logistics, pre-assembly and auxiliary companies, although these workers are responsible for a large portion of the productivity gains achieved in the Carmaker assembly process. The evidence shows that, in terms of salary and in other facets of working conditions, more significant deterioration has occurred in these companies.

Most significant is that the dynamics of changing working conditions have occurred within the framework of a positive evolution of the production pace at the Carmaker factory (hitting new production records in 2010 and 2011), and with production guaranteed for years to come, thanks to the awarding of two new models in recognition of the high productivity levels achieved. In this context, labour dynamics are determined fundamentally by changes in the organisation of production that do not respond (or do not respond entirely) to changes in the regulatory framework, focused in many cases on the employment/unemployment duality.

The differences observed among workers from different companies are not novel, but their expression acquires particularities associated with the introduction of modular platforms and the increase in logistical services, which are not exclusive to the automotive sector. Therefore, we have shown that variations in working conditions are the result of the technical and organisational characteristics of the production process, which are fully functional to the profitability strategy, and thus difficult to reverse.