Employment relations at Motoco

Motoco is a multinational corporation headquartered in Detroit, Michigan in the United States. The company specialises in the design and manufacture of lighting and signalling components for motor vehicles. Motoco has 15 production facilities in 6 different countries around the world. One year ago, Motoco acquired an already established (‘brownfield’) production facility just outside of Seoul in South Korea (the Republic of Korea, hereafter Korea). The Seoul factory is Motoco’s first Korean subsidiary, although the company owns a number of facilities in different parts of Asia.

In strategic terms the Seoul facility is regarded as very important by headquarters. Motoco has traditionally not had any supply contracts with automobile assemblers in Korea, which is a significant manufacturing base for the global automotive sector. The acquisition of the Seoul operation has thus far enabled the company to negotiate two relatively modest sized contracts with two different large Korean car makers. The original 12-month contracts have recently been extended for a further 12 months. Motoco’s senior management at its Detroit headquarters (HQ) was disappointed that the car makers were not prepared to negotiate more extensive contracts for the production of higher volumes of lighting and signalling components to a wider range of vehicles. The Seoul facility has the operational capacity to increase its production quite significantly. Motoco’s Detroit headquarters viewed its Seoul plant as the first of what would hopefully become a number of different facilities in Korea. Senior management at HQ was of the view that while production performance at the Seoul facility was satisfactory, it was not particularly strong and that output could be increased without compromising quality. HQ felt that steps needed to be taken to improve productivity so that Motoco would be in a position to negotiate a more competitive price for its units to be supplied to the Korean car makers in exchange for bigger volume contracts. HQ believed that if Motoco could get closer to matching the price of their Chinese competitors then the Korean car makers would be prepared to extend their contracts with Motoco to cover many more models and, therefore, significantly increase orders. HQ also saw this as vital to negotiating new contracts in the region.

Local management at the Motoco’s Seoul operation sees the situation differently. They believe that the Korean car makers will come on board for more contracts in due course. They regard the Korean car makers as conservative when it comes to new component suppliers and that they require time to develop a high degree of trust in a new supplier. Managers at Motoco’s Seoul operations believe Korean assemblers are especially wary of a new US multinational supplier, although these views have not been expressed in direct terms. Their advice is to maintain high quality and reliable supply and to continue to meet the demands of the Korean car makers. Local management believes that, in time, this will result in a steady increase in orders.

Just after Motoco’s new extended contracts were signed with the two Korean car makers, you were appointed as HR director at the Seoul plant. You are an Australian national who has worked in the car manufacturing industry for 20 years, first at the Adelaide plant of Osaka Motors, a Japanese-owned car maker. In this role, you played a key role in the successful implementation of Japanese production techniques at the Adelaide plant, in part by working cooperatively with local unions and convincing Osaka Motors headquarters to modify aspects of the company’s production system in order to accommodate local arrangements. Five years ago you moved to Detroit to work for Motoco’s HR strategy unit. In contrast to Osaka Motors, Motoco has a strong preference for a “best practice” rather than “best fit” approach, by “exporting” their preferred management practices to international subsidiaries regardless of local institutional and cultural factors in the host country. Motoco has an antagonist relationship with the United Autoworkers Union that represents segments of the workforce at its Detroit operation and seeks to avoid dealing with unions where possible in its international operations.

You were sent to Seoul with a specific brief to investigate ways of improving productivity at the plant. Senior management at Detroit had made it quite clear that they would like to see the Motoco Performance Management System (MPMS) implemented at the site as soon as possible. HQ believes this is the key to improving productivity at the site. MPMS is highly regarded by HQ and Motoco’s strong position in the US market has been attributed to the high productivity and quality thought to be associated with MPMS system. MPMS has a performance based pay system at its centre. A significant proportion of production workers’ salaries are determined by the productivity of production teams measured and assessed under MPMS. Workers who fail to meet productivity targets are designed as candidates for dismissal. MPMS is well known in the industry and it is an open secret that your appointment is likely to include responsibility for the implementation of MPMS at the Seoul operation. Nevertheless, you have not made any formal statements about this strategy, but neither have you denied that HQ is seeking the introducing of MPMS.

You have been in your new job for just over a month. Most of this time has been spent familiarising yourself with the new environment. A key feature is the strength of unions at the plant. While only around 10% of workers in Korea are members of a trade union, the local automotive assembly sector is highly unionised and the Korean Auto Workers Union (KAWU) has a strong presence at the Seoul facility. While about 50% of the process workers at the plant are union members, the union negotiates pay and conditions for all blue-collar, manufacturing workers at the site. Motoco HQ have reluctantly accepted the reality of dealing with the KAWU given its longstanding presence at the Seoul plant, but have raised with you the possibility of developing a plan to marginalise the union if they do not cooperate with local management.

While you were working away on your plan for implementing MPMS system today, you received a phone call from the head union delegate at the plant, Joon Choi, who explains that his members have heard rumours about the introduction of a new performance management system. You explain that you are still settling in to the new role and have not, as yet, had the chance to properly consider any potential changes to HR policies and practices at the Seoul plant. Joon explains that he has had discussions with senior officials from the national office of the KAWU, before mentioning that the union has successfully fought the introduction of performance based pay systems at other manufacturing companies. He emphasises that, in the past, KAWU has undertaken industrial action including strikes when management has threatened to introduce performance based pay and, in his words, “unfair performance management systems”. He indicates that the senior officials from the national office of the union are watching developments at Motoco’s Seoul plant very closely. Joon also mentions that the national office of the KAWU has been discussing the issue with their

“brothers and sisters from IndustriALL”. IndustriALL is the global union federation based in Geneva representing automotive workers and other manufacturing workers at an international level. It coordinates campaigns among national automotive unions and has been known to organise sympathy strikes with unions in other countries where multinationals have operations as a strategy for imposing pressure on management. This raises the possibility of industrial action not only Motoco’s Seoul operations but also at the company’s operations in the US and perhaps elsewhere. The possibility of IndustriALL taking coordinated industrial action on an international basis over the implementation of a performance management system at a single plant seems to be remote. Nevertheless, Joon’s comments signal that the KAWU is willing to take drastic steps to resist the implementation of the MPMS.

The senior management team from headquarters have asked to you write a report regarding progress with implementing the MPMS system at the Seoul plant. They have requested that the report address the following issues:

• The likely benefits and potential risks of implementing the MPMS system
• The constraints posed by institutional and cultural arrangements in Korea to the planned implementation of the MPMS system and the extent to which these are compatible with the preferred HRM policy preferences of a US multinational
• The various strategic options available to you regarding the implementation of the MPMS or any alternative arrangements for improving productivity at the Korean plant, including the possible ways that Motoco could address resistance from the KAWU
• Your recommendation for which strategic option to pursue, accompanied by a detailed explanation of the factors that you have considered in reaching this recommendation
• Use arguments from IHRM academic literature (especially relating to comparative HRM, multinationals and employment relations) and undertake research using academic and reputable non-academic sources to make your case

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