Carla I. Koen. Comparative International Management

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MANAGING RESOURCES: PRODUCTION MANAGEMENT 341

development of skills have some continuity with corporate associations, which histori-

cally have strongly supported and sponsored vocational training. Vocational education

has long been important as a precondition for access to certain sectors of the labor market

in Germany, whereas historically Japan has had a much more limited public vocational

training program’ (Hollingsworth, 1997: 288).*

‘This type of long-term relationship between ﬁrms and banks has encouraged ﬁrms

to be much more immune to the short-run ﬂuctuations of the price of equities than their

competitors in the US and to take a long-term perspective concerning their industry

needs. This capacity on the part of management has meant that German ﬁrms have had

more incentive to engage in the long-term development of products and have been less

likely to lay off workers during a modest economic downturn, as has so often been the

case with their American competitors who have been more constrained by short-term

ﬂuctuations in the ﬁnancial markets’ (Hollingsworth, 1997: 285).* However, unlike

Japan, in Germany there is no keiretsu structure, which means that during economic

downturns, temporarily redundant workers cannot be placed within friendly companies.

‘Unlike Japan, another set of institutional arrangements, which contribute to long-

term strategic thinking within German companies, is the country’s industrial relations

system.’* The key to the German industrial relations system is that it is shaped by the highly

developed centralized employer and business associations as well as the trade unions. ‘Peak

association bargaining, mediated by the state, not only has played an important role in

shaping distributional issues but also has played a role of great importance in inﬂuencing

the quality and international competitiveness of German products’ (Hollingsworth,

1997: 286).* As indicated, in contrast to Japan, German trade unions have relatively

encompassing and centralized organizational structures (see Chapter 5 for a more com-

plete explanation of this topic). ‘Unions are responsible for collective bargaining and

participation – through policies of codetermination – in corporate boardrooms, while

elected work councils participate in organizing working conditions inside ﬁrms and

ensuring that protection laws are obeyed by management. . . . Collectively, these arrange-

ments have been instrumental in reducing conﬂict between labor and management, and

in enhancing ﬂexible production inside ﬁrms’ (Hollingsworth, 1997: 286).*

‘The job security enjoyed by labor, under codetermination policies, has encouraged

ﬁrms to invest in the long-term training of their labor force. When management has real-

ized that it cannot easily dismiss workers in the event of economic adversity, it has had an

incentive to engage in the investment of employees with skills high and broad enough to

adjust to complex and rapidly changing technologies and unstable markets. And in

Germany, the rigidity imposed by strongly organized industrial unionism and works coun-

cils has encouraged ﬁrms to invest in more skills and social peace than management

would otherwise have invested under ﬂexible external market conditions, a process which

has directly contributed to a diversiﬁed quality, ﬂexible social system of production – the

key to Germany’s high level of competitiveness in the world economy’ (Hollingsworth,

1997: 286–7).* Moreover, the lack of employer freedom in hiring and ﬁring has largely

been counteracted by the fact that unions and works councils support a ﬂexible

* Hollingsworth, R. (1997) Continuities and changes in social systems of production: the cases of Japan,

Germany, and the United States. In Contemporary Capitalism: the Embeddedness of Institutions, edited by J. Rogers

Hollingsworth and Robert Boyer, Cambridge: Cambridge University Press © J. Rogers Hollingsworth and Robert

Boyer 1997, reproduced with permission of the author and publisher.

MG9353 ch07.qxp 10/3/05 8:45 am Page 341

deployment in qualitative terms. The move to greater functional ﬂexibility in labour

deployment is not regarded as a threat to union power as unions are neither organized

along craft lines nor do they support demarcation between crafts.

The new technology involved in ﬂexible production also requires that management

possess the necessary technical skill to assess the feasibility of investing in this technology,

as well as the ability to understand the implications for the organization of work, for man-

power requirements and for training needs. The engineering and technical educational

background of most German managers (see Chapter 5) explains their high level of mana-

gerial technical competence.

‘Managers of many German ﬁrms found the system quite distasteful. They would like

to have followed the practices of their American colleagues in the face of stiff international

competitiveness by cutting wages and reducing the size of the workforce.Yet, because they

were constrained by the system of codetermination (regulated at the plant level by the

Works Constitution Act of 1972 and at the enterprise level by the Works Constitutions Act

of 1952, superseded in 1976) which resulted in a high wage system, German ﬁrms were

forced – with little choice – to become engineering and highly skill intensive, with diversi-

ﬁed and high quality producers. With the rigidities that ﬁrms faced in dealing with job

protection and high wages for their workers, it was highly rational for management to

342 COMPARATIVE INTERNATIONAL MANAGEMENT

Source: Jürgens (1995: 204).

Table 7.4 Models of flexible production organization

Swedish model German model Japanese model

Semi-skilled workers with

high initial training (quasi-

apprenticeship)

Skilled workers deployed on

direct production jobs after

full apprenticeship

Semi-skilled workers with

generally high starting

qualification

Work totally uncoupled from

the production cycle

Work (partially) uncoupled

from the production cycle

Work tied to the production

cycle

Holistic tasks with long work

cycles ( one hour)

Job enlargement with work

cycles below one hour

Highly repetitive work; cycle

times around one minute on

the assembly lines, around

five minutes in the machining

areas where multimachine

work is the norm

Homogenous groups Mixed teams of ‘specialists’ Homogenous groups

High partial autonomy for

teams through process layout

Little partial autonomy for

team through automation and

module production

No partial autonomy for the

teams through JIT design

De-hierarchization with

elected speaker and self-

regulation of group affairs

Controversial role of group

speaker/leader and of degree

of self-regulation

Strong hierarchical

structures, group leader

appointed by management,

no group self-regulation

* Hollingsworth, R. (1997) Continuities and changes in social systems of production: the cases of Japan,

Germany, and the United States. In Contemporary Capitalism: the Embeddedness of Institutions, edited by J. Rogers

Hollingsworth and Robert Boyer, Cambridge: Cambridge University Press © J. Rogers Hollingsworth and Robert

Boyer 1997, reproduced with permission of the author and publisher.

MG9353 ch07.qxp 10/3/05 8:45 am Page 342

MANAGING RESOURCES: PRODUCTION MANAGEMENT 343

invest more in the training of their workforce than they would have been inclined to do

were they simply following market signals. Almost unintentionally, German ﬁrms were

pushed to develop one of the world’s most skilled labor forces’ (Hollingsworth, 1997:

287).*

The Swedish societal system and Uddevallaism

Rather like the situations in Japan and Germany, the case of Sweden conﬁrms that there

are various conﬁgurations of production that come under the umbrella of ﬂexible produc-

tion (see Table 7.4 for a comparison of the main traits of these three ﬂexible production

models). In many respects the societal data on Scandinavian economies are closely related

to those on Germany: the role and importance of strong unions, the range of issues

covered by collective bargaining, inclusion of the need for competitiveness in employment

negotiations, widespread acceptance of technical change as a means of promoting better

standards of living and maintaining employment levels, and the signiﬁcance accorded to

quality and product differentiation.

Yet the German and the Swedish production models are not identical, as is demon-

strated by the way skill development and work is organized (Table 7.4). Whereas in

Germany, the nature of training is theoretical and practical, in Sweden it is theoretical

and technical (see Chapter 5). Whereas in Germany, training takes place within the edu-

cational system, but also in the company through full apprenticeships, in Sweden, the

state and regional institutions offer training. Moreover, issues that in Germany are

handled by negotiations between employers’ associations and trade unions are organized

in Sweden by regional or national bodies that adopt an integrated approach to the man-

agement of restructuring, unemployment beneﬁts, training and retraining, and even the

placement of workers in new jobs. In both instances, the societal context encourages ﬂexi-

bility aimed at the continuous improvement of skills, yet they are far from identical (Boyer

and Durand, 1997).

By fully decoupling work from the production cycle and the rhythm of the machines

Sweden has evolved at a level beyond Germany and far beyond Japan in enriching and

enlarging work content. Uncoupling work from the ﬂow of production is the prerequisite

for a type of labour that holds increased possibilities for self-regulation and offers

increased levels of responsibility. Hence, Swedish teams have more autonomy than their

German and Japanese counterparts, and have the freedom to elect a speaker and self-

regulate their own affairs. The latter appears more controversial in Germany between

those social partners who can offer different solutions at the various local sites. In stark

contrast to the Swedish model, the Japanese teams have little autonomy in organizing the

work process due to the JIT principle of production control, and there is no democratic

system of regulating teams’ internal affairs or of electing a team speaker (Jürgens,

1995).

The simultaneous pressure from product and labour markets in Sweden helps to

explain the creation of a production system adapted to human demands. Unlike most of the

* Hollingsworth, R. (1997) Continuities and changes in social systems of production: the cases of Japan,

Germany, and the United States. In Contemporary Capitalism: the Embeddedness of Institutions, edited by J. Rogers

Hollingsworth and Robert Boyer, Cambridge: Cambridge University Press © J. Rogers Hollingsworth and Robert

Boyer 1997, reproduced with permission of the author and publisher.

MG9353 ch07.qxp 10/3/05 8:45 am Page 343

rest of the world, from the 1970s onwards in Swedenthere has been constant pressure from

the labour market. At the close of the 1980s, more than 85 per cent of the population

between 16 and 64 years of age was in the labour force. ‘At the same time, the wage differ-

entials between different sectors and companies were small. This made it very hard for

companies to compensate for a bad working environment and arduous work with high

wages and good beneﬁts. It also increased the engagement and interest of the trade unions

in the work environment and organization. The greatly increased product variation in the

auto industry during the 1980s was yet another motive for developing more ﬂexible and

integrated production systems.The heightened demand for ﬂexibility and quality increased

companies’ dependence on a stable and committed workforce. Concurrently, the high

employment level made it difﬁcult to recruit and keep workers in Taylorized industrial jobs’.

Creating new production systems adapted to human needs – such as in Uddevalla – came to

be seen as a strategic necessity for coping with personnel problems. Under these conditions,

of course, the inﬂuence of the unions in the companies’ planning and investment decisions

also increased (Berggren, 1992: 11). Once more we arrive at the important idea that, to be

viable, a production system must cohere with the societal context and organizational forms

governing the rest of the economy.The next section offers a further example of this.

Short-termism and institutional inertia: the difficult

transition in the USA

While Taylorism and Fordism have been developed within the US societal system of pro-

duction, US manufacturers have had a hard time shifting to ﬂexible production. The

ability of the USA to move towards a societal system of ﬂexible production is argued to be

limited by its prevailing practices of industrial relations, its education system and its

ﬁnancial markets – or, in short, by the constraints of its past societal system of production

(Hollingsworth, 1997: 292). ‘And while these types of incentive and skill systems have

become quite widespread in the core of the Japanese and German economies, in the

United States manufacturing employment has tended to be much more job-speciﬁc,

workers have been less broadly trained, internal labor markets have been much more

rigid, and employers have had much less incentive to invest in their workers’ skill develop-

ment. Because the US has one of the world’s most ﬂexible external job markets, it has been

much easier for American workers to leave jobs for other ﬁrms than is the case in coun-

tries where workers have long-term job security’ (Hollingsworth, 1997: 292).*

Unsurprisingly, this has provided a disincentive for US employers to invest in worker

training.

A reorganization of the productive apparatus from mass to ﬂexible production

requires a management committed to technological innovation, conﬁdent to forge ahead,

and competent both to acquire the right type of equipment, and to put it into operation

and maintain it without too much disruption of the production process. Such an

approach, however, requires a high level of technical expertise among management and

344 COMPARATIVE INTERNATIONAL MANAGEMENT

* Hollingsworth, R. (1997) Continuities and changes in social systems of production: the cases of Japan,

Germany, and the United States. In Contemporary Capitalism: the Embeddedness of Institutions, edited by J. Rogers

Hollingsworth and Robert Boyer, Cambridge: Cambridge University Press © J. Rogers Hollingsworth and Robert

Boyer 1997, reproduced with permission of the author and publisher.

MG9353 ch07.qxp 10/3/05 8:45 am Page 344

support staff at all levels, which is not sufﬁciently present in US manufacturing

companies.

‘The American industrial relations system is shaped in large part by the weakly devel-

oped business associations and trade unions. The large size and complexity of the

American economy, combined with the racial, ethnic, and religious diversity of the

working class have created substantial heterogeneity of interests among both labor and

capital, making it difﬁcult for each to engage in collective action. And the weak capacity

of both capital and labor to organize collectively has placed severe limits on the ability of

the United States to move more rapidly in developing a social system of ﬂexible produc-

tion’ (Hollingsworth, 1997: 292).*

‘Countries with ﬁrms tightly integrated into highly institutionalized systems of busi-

ness associations (e.g. Japan and Germany) have rather rigid external labor markets but

ﬂexible internal labor markets. The United States, with weak associative structures, tends

to have more ﬂexible external labor markets but more rigid internal labor markets’

(Hollingsworth, 1997: 292–3).*

‘The capital markets in the United States have also placed constraints on the develop-

ment of broad employee skills by encouraging ﬁrms to engage in short-term maximization

of proﬁts. In the United States, the equity markets were highly institutionalized by the end

of World War I, and managers of large ﬁrms have subsequently had low dependence on

commercial banks for ﬁnancing. . . . However, the Clayton Antitrust Act of 1914 made

interlocking directorships among large banks and trusts illegal. Moreover, it also forbade

a corporation to acquire the stock of another if the acquisition reduced competition in the

industry. In the longer term, the Clayton Act tended to reduce the ability of investment

banks and ﬁrms to carry out a long-term strategy of promoting a community of interests

among ﬁrms either in the same or in complementary industries. In addition, the

American government in 1933 forced a sharp separation between commercial and invest-

ment banking. From that point on, investment banks lost much of their access to capital.

As a consequence, American nonﬁnancial corporations became dependent for raising

capital on liquid ﬁnancial markets rather than on banks. Increasingly, corporate man-

agers became dependent on the whims and strategies of stockholders and bond owners.

This resulted in an emphasis on a short-term horizon for large ﬁrms which has limited the

capacity of American management to develop long-term stable relations between

employers and their employees – a prerequisite for a highly skilled and broadly trained

work force and a ﬂexible or diversiﬁed quality social system of production’

(Hollingsworth, 1997: 293).*

7.4 Conclusions

Different societal conditions may give rise to different production patterns that may repre-

sent functionally alternative, and sometimes functionally equivalent, responses to common

economic challenges. It seems that markets and hierarchies work well when ﬁrms are

MANAGING RESOURCES: PRODUCTION MANAGEMENT 345

* Hollingsworth, R. (1997) Continuities and changes in social systems of production: the cases of Japan,

Germany, and the United States. In Contemporary Capitalism: the Embeddedness of Institutions, edited by J. Rogers

Hollingsworth and Robert Boyer, Cambridge: Cambridge University Press © J. Rogers Hollingsworth and Robert

Boyer 1997, reproduced with permission of the author and publisher.

MG9353 ch07.qxp 10/3/05 8:45 am Page 345

embedded in a societal environment impoverished by collective forms of economic coordi-

nation. However, institutionally impoverished economies that rely solely on markets and

hierarchies for the governance of economic activities (such as the USA and the UK) do not

necessarily perform better than societies where economic behaviour is more socially regu-

lated (Streeck, 1991). ‘But the Japanese and German cases demonstrate that diversiﬁed

quality forms of production work best when they are embedded in an environment with

institutional arrangements which promote cooperation between producers and suppliers,

and among competitors, especially an environment which facilitates the exchange of

information among competitors. It requires ﬁrms to engage in collective behavior far in

excess to what is needed for markets and hierarchies to function effectively and in excess

of what single ﬁrms are likely to develop for themselves. Flexible and diversiﬁed quality

production systems function best when they are embedded in an institutional environ-

ment with rich multilateral or collective dimensions: cooperative action on the part of

competitors, rich training centers for workers and managers, and ﬁnancial institutions

willing to provide capital on a long-term basis’ (Hollingsworth, 1997: 295).* Hence, it

could be argued that a repertory of social institutions that exceeds the neoclassical minimum

may in speciﬁc conditions make a positive contribution to competitive market performance

(Streeck, 1991).

‘Because of the low levels of skill of American labor in most manufacturing sectors

and because American management has tended to be recruited from marketing,

ﬁnancial, and legal rather than engineering and production backgrounds, American

manufacturing ﬁrms have been less successful in improving upon products once devel-

oped than their Japanese and German competitors. And because American consumers

are less demanding of product quality than the Japanese and Germans, American ﬁrms –

particularly in the consumer goods industries – have been more competitive in the pro-

duction of low-cost standardized products which can be mass marketed and easily

discarded. Also, in contrast to the German and Japanese, the Americans – particularly in

many manufacturing industries – have been more willing to compromise on design,

quality, and service and to compete in terms of price’ (Hollingsworth, 1997: 296).*

‘Relationships among producers and suppliers in the United States have been more

opportunistic and based more on hard-nosed bargaining over prices than in Japan and

Germany. This kind of intense bargaining over price has also had an adverse effect on the

Americans’ ability to sustain product quality and to achieve a high level of competitive-

ness in global markets. There are industries in which the technology is not very complex

and does not change, and, given the large size of the American market, mass standardized

production is still effective in such industrial sectors. For example, paper products, break-

fast cereals, soft drinks, bug sprays, ﬂoor wax, deodorants, soaps, shaving cream, and

hundreds of other products remain symbolic of the familiar hierarchical form of cor-

porate America’ (Hollingsworth, 1997: 296).*

However, Germany and Japan, like all other countries, have ﬁrms that compete and

perform well in some industrialized sectors, but not very well in others. ‘By focusing atten-

tion on Japan, Germany, and the United States, it becomes quite obvious that why

346 COMPARATIVE INTERNATIONAL MANAGEMENT

* Hollingsworth, R. (1997) Continuities and changes in social systems of production: the cases of Japan,

Germany, and the United States. In Contemporary Capitalism: the Embeddedness of Institutions, edited by J. Rogers

Boyer 1997, reproduced with permission of the author and publisher.

MG9353 ch07.qxp 10/3/05 8:45 am Page 346

MANAGING RESOURCES: PRODUCTION MANAGEMENT 347

countries succeed in certain sectors depends less on such classic factor endowments as

climate, natural resources, and land than on their national traditions, values, insti-

tutional arrangements, quality of labor and management, and the nature of capital

markets’ (Hollingsworth, 1997: 283).*

The crowded living conditions and tight space constraints throughout Japan have

stimulated the Japanese to produce compact, portable, quiet and multifunctional prod-

ucts. ‘They have excelled in producing compact cars and trucks, small consumer

electronic equipment (TV sets, copiers, radios, and video sets), motorcycles, machine tools,

watches and clocks, and a number of business related products such as small computers,

fans, pumps, and tools’ (Hollingsworth, 1997: 283).* ‘Even though the Japanese have

been enormously successful in improving upon existing products, they have been less suc-

cessful in developing new products – primarily because of their particular institutional

conﬁguration. Their educational system emphasizes rote learning rather than creative

synthesis or critical analysis. Their universities are structured to facilitate consensus

decision-making and group conformity’ (Hollingsworth, 1997: 284).* The overall weak-

ness of Japanese universities as research institutions is an important reason why the

Japanese have lagged behind in industries involving chemistry and biotechnology, and

other ﬁelds heavily dependent on basic science (see Chapter 8 for a discussion of this issue).

The structure of the German institutional landscape also helps to explain why

Germany has excelled in competing in the production of machine tools, automobiles and

chemical products, as well as in many traditional nineteenth-century industrial products.

‘They have been especially successful in applying the latest microelectronic tech-

nology to the production of traditional products and to new production processes. On the

other hand, the Germans have been less competitive in many newer industries, e.g. com-

puters, semiconductors, and consumer electronics. In other words, the Germans have

placed less emphasis on developing entirely new technologies and industries than in

applying the latest technologies to the production of more traditional products. And it is

the speciﬁc type of German industrial relations system (high job security, the high levels

of qualiﬁcation, and continuous training of German workers) which is conducive to the

rapid diffusion of the latest technology to the production of more traditional but high

quality products. In addition the strong engineering and technical background of senior

management, the high levels of skill of the workforce, and a strong consumer demand for

high-precision manufacturing processes have contributed to the development of various

manufacturing sectors with very high quality products’ (Hollingsworth, 1997: 289–90).*

As explained extensively in Chapter 5, Sweden is different from Germany and Japan

in that it has both a large traditional Taylorist industry as well as modern ﬂexible produc-

tion in some sectors (such as the car industry). The fact that the Swedish societal

environment is relatively similar to that of Germany explains that some Swedish sectors

(such as the car and truck industries, and the machinery industry) could easily shift to

ﬂexible production. Traditional production methods and low-skilled workers are used in

the traditional industries, which successfully exploit Sweden’s main raw material

resources: wood and iron ore.

* Hollingsworth, R. (1997) Continuities and changes in social systems of production: the cases of Japan,

Germany, and the United States. In Contemporary Capitalism: the Embeddedness of Institutions, edited by J. Rogers

Boyer 1997, reproduced with permission of the author and publisher.

MG9353 ch07.qxp 10/3/05 8:45 am Page 347

348 COMPARATIVE INTERNATIONAL MANAGEMENT

Study Questions

1. Which societal features could help to explain why Taylorism and Fordism devel-

oped in the USA?

2. Why do you think Toyotism, or lean production, developed in Japan long before

flexible production was recognized in the West?

3. Explain how lean supply chain management fits the societal features of Japan

and Germany.

4. Explain the links between human resource management systems and corporate

governance modes to mass production, and to the lean and flexible modes of pro-

duction.

5. Explain why lean production is more difficult to implement in the USA.

6. Explain the main differences between mass and flexible production systems, and

link these differences in features to the differences in the societal institutions

that are needed to develop these models.

7. Explain the concept of Uddevallaism and explain how it is linked to the Swedish

societal system and the specific socio-economic circumstances at the time of its

development.

8. Explain whether the German diversified quality production model was able to

function in Sweden. If so, why? If not, why not?

9. Explain whether Swedish Uddevallaism could be implemented in Germany. If so,

why? If not, why not?

10. Explain whether, in your opinion, convergence can occur in the areas of produc-

tion systems and production management.