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close this bookJob Quality and Small Enterprise Development - Working Paper No. 4 (ILO, 1999, 35 p.)
close this folder3.0 Practical experiences
View the document(introduction...)
View the document3.1 Changing demands and prerequisites for inter-firm trade
View the document3.2 Internal enterprise transitions
View the document3.3 The community context


Strategies and processes for improvements in job quality and small enterprise development must take cognisance of the context in which small enterprises operate. This includes their relationship with larger enterprises, their participation in networks and the communities in which they are located. This chapter presents practical experiences that small enterprises face in relation to job quality. It identifies a number of factors that influence the improvement of the quality of employment provided by small enterprises.

There are indications that qualitative aspects of work and the environment may be increasing in economic significance as individual enterprises and whole economies seek ways of meeting new competitive requirements. Recent years have witnessed a regime of continuous change as enterprises downsize on a regular basis, outsource, introduce flatter organisational models, promote team working, restructure supply chains and form new kinds of network relationships. They also use a range of new forms of flexible employment contracts. Thus, new forms of industrial organisation and competition strategies are creating new contexts, possibilities, and challenges.

Competition on a simple cost basis, typically associated with low labour costs, is still common. However, increasing globalisation has shown that in many industries, regions and countries these are of transitory advantage and are not sustainable in the longer term. Thus, many enterprises, and indeed whole local economies, are looking for ways of competing in the long term. Instead, they seek to maintain price competitiveness through increased productivity. In addition, they recognise the advantages of innovation and improving the quality and finish of their products. The benefits of superior design and fashion content are recognised, as are better service and greater flexibility and the speed and reliability of delivery.

3.1 Changing demands and prerequisites for inter-firm trade

Increasingly, new competition has involved action within new forms of inter-firm organisation. A particularly significant development is the proliferation of innovative vertical supply chain organisations whereby lead firms, usually larger enterprises, use information technologies to organise their sourcing requirements through tightly linked networks of suppliers and sub-contractors, in many cases on a global scale. Such developments offer small enterprises new market opportunities, and with globalisation, in parts of the world previously poorly connected up to global markets.

Lead firms are expecting new levels of capability from their suppliers. Especially in areas, such as product quality, level of service, productivity, adaptability, and reliability - in many cases delivering just-in-time. Thus, small enterprises unable to achieve the new standards are likely to be cut out of the chains, whereas those that can achieve higher capabilities may experience good opportunities for growth. Even small enterprises not selling on final markets through the mediation of supply chains are finding that increased globalisation is forcing the same competitive requirements upon them, and the same pressures to upgrade their capabilities.

In responding to the need to meet the new competitive requirements qualitative aspects of employment could have important bearings. This may be the case both inside the enterprise or place of work, and in the broader community of which the enterprise is a part. Thus, strategies to address issues of enterprise competitiveness and qualitative conditions of work need to address both contexts. Already, there are signs of a growing awareness of the importance of qualitative factors for meeting new competitive needs, both inside the enterprise and inside the community.

3.2 Internal enterprise transitions

Growing awareness of the need for improvements in certain aspects of job quality can be seen within small enterprises, for example in worker participation and health and safety. The increasing importance of innovation, quality control, flexibility and the need to adapt to continual change has resulted in a new emphasis on shop floor practices such as team working, cooperation and worker participation. Thus, for example, there is a rapid spread of organisational innovations such as self-directed work teams, job rotation, problem solving groups or quality circles, and total quality management (TQM). Such practices are reported to have spread rapidly in industrialised countries, and now seem to be becoming prevalent in developing regions, perhaps especially in those areas connected to global markets and requirements (See Box 1).

Box 1

Spreading Practices

In the USA, a recent review of the use of new organisational practices such as ‘Self-directed Work Teams’, ‘Job Rotation’, ‘Problem Solving Groups or Quality Circles’, and Total Quality Management’ was found to be widespread and apparently increasing (Osterman and Lowe, 1998). For Europe, surveys seem to be suggesting that practices similar to the ones above, as well as other new organisational forms such as just-in-time logistics systems, may be less extensive but still substantial, and again seemingly growing (Cooke et al., 1998; Osterman and Lowe, 1998).

In respect of developing and other countries, there is evidence that new practices are also spreading. For example, in Pakistan, Nadvi and Schmitz (1997) refer to both large and small manufacturers in the Sialkot medical instruments cluster coming under pressure to raise quality levels. In Malaysia, the 1997 World Bank survey indicated that amongst manufacturing firms quality issues and the introduction of new practices such as statistical process control, quality circles, and ISO9000 certification were becoming very important. The extensive 1998 review by the ILO of export processing zones1, found that ‘intensified international competition is forcing zone enterprises to improve their speed and quality of production, and many plants are introducing new technology and organisation of work to raise productivity (ILO, 1998).

As a part of the new principles being introduced, labour is seen as an active input in the change process rather than a static cost of production. As a consequence, the conditions under which workers might be expected to cooperate and give of their best is rising to the fore as an issue. Thus commentators such as Pfeffer (1995; 1998), are noting that under current economic conditions successful companies in the USA and elsewhere are those which pay close attention to the needs of their workforces, providing security, good wages, training and other aspects9. Recently Levine (1998) called for the ‘reinvention of workplace regulation’ to promote greater employee involvement, encourage the development of problem solving skills and help stimulate improvements in quality to meet customer needs (Levine 1998).

9 In Germany, a recent study of over 100 companies in ten industrial sectors in Germany compared firms over a seven year period (1987-94) on aspects such as training expenditure, lay-offs and assistance with relocating redundant workers, promotion opportunities, and the extent to which employees have the freedom to take decisions and maximise individual initiative. It was found that those companies who scored most highly on such criteria also performed best in terms of stock market success (share prices and dividends), and also created the most jobs (Bilmes et al., 1997)

In the recent ILO review of conditions in export processing zones in countries such as Bangladesh, China, Costa Rica, Dominican Republic, Honduras, and others, the better enterprises were found to be pursuing initiatives to involve workers more fully in the challenge to meet new competitive requirements. This included initiatives to promote a better quality of production and service, lower costs, greater flexibility and speed. Typical measures by such enterprises, says the report, include: ‘the introduction of teams, gradual empowerment, increased sharing of information, joint problem solving and target setting, and the encouragement of worker innovation’. Teamwork is growing in zone enterprises. (ILO, 1998).

New participatory approaches appear to be growing in Europe also10. Cooke et al., (1998) have suggested that factors such as ‘trustful labour relations’, ‘shopfloor cooperation’, and ‘a worker welfare orientation’ are more likely to be associated with an innovative firm. In respect of Baden-Wurttemberg, for example, they suggest that the strong innovatory potential exhibited there is associated with factors such as an ‘associative, cooperative and civic culture’ (which results in) ‘high social partnership, low antagonism in labour relations and, through substantial initial vocational, then further training, strong mentoring in the workplace.’ However, concerns have been raised that attempts to introduce greater flexibility, especially those using new forms of precarious employment contracts, may undermine worker security. This in turn might undermine commitment and a readiness to cooperate, and indirectly the goals of increased innovation, quality, modernisation and change. In response, some larger enterprises seem to have recognised that change can be implemented more satisfactorily within a framework of trust and security. One aspect appears to have been an increase in longer term collectively agreed pay deals, which balance flexibility and cooperation for increased job security for the workforce11.

10 In fact within Europe, the promotion of active cooperation within the workplace to introduce new working practices is reported to be an important part of EU policy. The aim is to improve competitiveness and employment through changes in work organisation based on ‘high skill, high trust and high quality’. Some progress has been made. For example, in Denmark, Cooperation Committees have been formed to encourage flexible organisations; in the Netherlands, works councils have been used to encourage trust and innovation in companies; and in Finland the government has launched a workplace development programme with employers and trade unions (Taylor, 1998a).

11 For example, in 1997, Bayer, the German chemicals and pharmaceutical company, signed a deal with 46,000 German workers which runs until 2001, whereby the company gained increased flexibility and cost cutting measures in the context of guarantees on job security (Bowley, 1997). In the UK, a Scottish whisky company, United Distillers, employing 4,500 workers, has made an agreement with the GMB union whereby a management guarantee of job security has been tied to a commitment to flexibility and retraining, and the pegging of pay increases to just above inflation. This agreement is said to have promoted an atmosphere of cooperation towards introducing modernisation, flexibility and increased productivity.

Doubts have been raised as to whether such agreements, valuable as they might be, are adequate for small enterprises and for the increasing numbers of mobile and unstable workers employed on flexible employment contracts. It has been suggested that attention be given to establishing systems for social and welfare protection at the community level for those employees for whom employment is unstable, seasonal and otherwise erratic. (Pyke, 1997b).

Health and safety is another area to receive particular attention in the future because of the increasing implications for modern competitive practices. The detrimental effect on enterprise productivity, morale and absenteeism of poor health, work related stress and inadequate social protection schemes is well understood. For example, a clear relationship between working conditions and productivity was found to exist amongst the self-employed, micro-enterprises employing less than ten people, and people involved in other informal sector activities in the Philippines (Joshi, 1997). In particular, poor working conditions were seen as having an economic effect in terms of wasted time, as well as imposing long term harm on workers.

Other Filipino research projects have been reported as coming to similar conclusions. For example, a study carried out by the Philippines Institute for Labour Studies noted that productivity is often diminished by accidents and illness resulting from poor working conditions (ILS, 1990, cited in Joshi, 1997). Other studies, such as ones connected to the ILO WISE and IWEB programmes have also demonstrated a link in developing countries between working conditions in small and micro enterprises and productivity in those enterprises.

In Europe, the economic cost of poor health has also been recognised. For example, the British Health and Safety Executive calculates that 33 million days are lost at work in the UK annually because of workplace accidents and a further 20 million due to occupational health problems (Taylor, 1998b). It has been suggested that the effect of work related illnesses such as stress undermines the capability to provide the quality products and services now so much in demand, and has an important cost consequence for business Buckby, 1998b; Harris and Arendt (1998).

Further, health and safety are becoming a significant issue in the context of supply chain effectiveness. Recent evidence from the UK indicates that as larger enterprises have restructured their supply chains and pursued new competitive strategies (such as just-in-time deliveries, high quality service, constant costs reductions, rapid product change, and minimum product defect) the reliability of small enterprises further down the chain has risen in importance. This leads many lead firms to take active steps to minimise disruption potentially caused by health and safety hazards. Thus health and safety aspects are becoming discriminating factors when lead firms choose their preferred suppliers (See Box 2). Consequently, more attention should be paid in the future to how small enterprises might be able to achieve adequate health and safety levels.

Box 2

Supply Chain Health and Safety Initiatives

Shell Exploration and Production, which operates production platforms and exploration rigs on behalf of Shell and Esso is reported to tackle health and safety within a Fully Integrated Quality System. This system sets procedure for contractors, which range from big operators carrying out long term contracts, to small companies employed for one-off assignments. Costs and quality are not the only criteria when selecting suppliers. Tenders are now evaluated partly on the bidder’s health and safety record, with more emphasis placed than previously on the importance of health and safety as a selection criteria. If contractors fail to measure up to required standards they are not put on the tender list.

In the UK, Adtranz manufactures and repairs railway rolling stock and signalling equipment. Health and Safety issues are reported to be an important component of the contractual relationship that Adtranz UK strikes with its 2,000 suppliers. The company is highly dependent on ‘just-in-time’ supply and any disruption in supply can have serious financial consequences for Adtranz. Consequently, strategic suppliers must be able to demonstrate good management of health and safety. Once chosen, a supplier has to continue demonstrating that its equipment is reliable and safe.

British Steel has 39,000 permanent employees and is reported to take accident prevention and occupational health issues very seriously. The company has also turned its attention to its suppliers and contractors, which account for an additional 10,000 employees in businesses ranging from computing, industrial and domestic cleaning, catering and security to slag removal. For the past three years the company has pursued a policy of reducing the number on its supplier approved list for which selection is based on performance indicators that include health and safety records. The current policy is to decentralise workplace safety responsibility, handing it down to the company’s individual businesses, and ultimately to work teams. The approach is said to be linked to total quality and the desire to see greater workforce involvement in problem solving. The aim is to integrate health and safety into all aspects of the business as part of the total quality approach.

Sources: Simkins, 1998; Kibazo, 1998; Wood, 1998.

3.3 The community context

The community or geographic location that a small enterprise inhabits presents a dimension to approaching job quality. This includes the participation of social partners and civic organisations in development strategies. Strategies that incorporate access to knowledge and training, as well as those that address concerns related to living and working conditions.

This latter concern reflects awareness of overlapping working and community experiences and conditions. Where a local economy has a strong presence of small and micro-enterprises, the ‘boundary’ between the enterprise and society may be more porous and relationships more likely to intertwine. The ‘world of work’ and the ‘world of society’ are often overlapping. As pointed out by Joshi (1997), for many small-scale operators in the informal sector, and particularly in respect of home-workers, the home and workplace are one and the same, with housing conditions being synonymous with working conditions. Moreover, relationships between workers and employers are more likely to be informal and of a social kind, spreading into non-work settings.

Even in the case of more advanced small enterprises, the dependency on community support and regulatory institutions is likely to be greater than for large enterprises which may have their own resources to call upon. Like larger enterprises, small businesses are under pressure to achieve new competitive abilities, such as high quality and a capacity for constant improvement, which call for solutions small enterprises might by themselves not be able to provide. Consequently, collective community solutions in training, social security and other areas might be necessary. Moreover, as the new competitive requirements potentially demand greater cooperation and involvement from the workforce, community conditions may have a bearing on relationships within the workplace and the propensity to cooperate.

The experience of the Italian region of Emilia-Romagna seems to indicate that good working relationships in the small workplaces there may be an important factor in the success. Here the average size of enterprise is only around five people, and the average for manufacturing alone around ten or eleven. Yet competitiveness and a capacity for innovation is reported to be high. However, such a positive collegial atmosphere may not necessarily be completely attributable to ‘small size’ in itself12. Research in the region has suggested that the readiness to cooperate and for workers to become involved and ‘give of their best’ is influenced by the attitudes they bring to the workplace, which in turn are influenced by conditions in the broader community (Brusco, 1996). The implication is that, for small enterprises in particular, perceptions of social fairness and experiences of social cohesion in the community in general can affect relationships at work and the ability of the enterprise to be competitive.

12 Surveys have suggested that better collegial relationships may be one of the few qualitative advantages which smaller firms may in the aggregate offer.

An important community trend has been a heightened emphasis on the issues of knowledge acquisition and dissemination. Knowledgeable entrepreneurs and adaptable well trained labour are seen by many as key to both the promotion of flexible, innovative, quality conscious and productive enterprises, and to the future employability and security of workers. Such knowledge can be generated locally. It can include ‘on the job’ training in the workplace and in local colleges and other knowledge institutions. It can also be solicited from the global marketplace. Thus, local-global connections are important for improving knowledge.

The creation of a high value adding and high knowledge milieux is a means of, not only creating local enterprises capable of providing good jobs, but also attracting inward investment, particularly of a high value adding type. That is to say, the provision of a quality training and knowledge generating milieux, is an important discriminating factor by potential investors. This is especially so amongst those investors who are not simply seeking to compete on a cheap labour and cheap price basis13.

13 In this regard it might be noted that a recent report by Deloitte Consulting into US foreign investment patterns revealed that in 1998 US manufacturers allocated as much as 65 percent of their foreign direct investment to high-wage and mature labour markets, with Europe being the main recipient. The existence of skilled labour was mentioned as a key reason for the choice, alongside other factors such as stability, well-developed infrastructures, and market opportunities. Moreover, it is instructive to note that in respect of investment into Asia, it was relatively high wage Singapore that captured the greatest investment, ahead of other countries, including China (Mohan, 1999).

Thus, training and knowledge generation and dispersion initiatives at the community level are crucial aspects of broader local and regional development attempts to move economies along a high wage high value adding path. Businesses and representative organisations in community development initiatives have become more involved14 in these efforts as the attention of those concerned with improving the economic environment has shifted from a narrow focus on the enterprise context to that of the broader community. Economic reasons for improving community conditions include a concern for the quality of the labour, the image that communities present to possible incoming investors or incoming people (such as visitors or new residents), and the reputation of individual businesses to consumers and other businesses. In addition, communities have come to recognise that the adequacy and efficiency of community infrastructure and regulations have a significant effect on local business success.

14 For example, in the USA organisations such as the Council for Economic Priorities and Business for Social Responsibility has been established. In Europe, the United Kingdom has seen the creation of Business in the Community, whilst at the broader continental level has arisen the European Business Network for Social Cohesion (Pyke and Henriques, 1997).

Community involvement by business organisations has developed alongside a growth of cooperation and partnership amongst public and private actors. This has often brought together representatives from institutional backgrounds who would not normally act together. Thus representatives of employer and worker organisations might be involved in policy dialogue and joint actions with representatives from educational institutes, research organisations, regulatory authorities, financial institutions, welfare agencies, planning authorities, and others. All with the aim of tackling economic and social issues at local and regional levels.

Pyke (1998) suggests that attempts should be made to achieve coordination and harmonisation of programmes and initiatives at local and regional levels. In addition, resources should be maximised and new synergies created in concert with different actors. This requires the facilitation of consensus within potentially conflicting issues that link ‘economic’ and enterprise issues to broader community and welfare issues. These initiatives are receiving much attention in the context of decentralised competition at the local and regional levels. An important issue within this context is the extent to which small and micro-enterprises and their workers have the institutional organisation and capability to become involved in policy network activities.

In conclusion, major changes in the way individual industries and indeed whole economies are being organised suggest that qualitative aspects of work and the environment may be receiving more attention in the future, both in the workplace and at the broader level of the community. However, the fact that some authorities are pursuing improvements in areas such as health and safety, greater participation and involvement in the workplace and the community for both good social and business reasons, is no guarantee that it will automatically occur. The ILO review of export processing zones, for example, found that there were small enterprises which were responding, at least at first, with short-term cost cutting and work intensification measures, with little or no consultation with the workers. This occurred while the more progressive enterprises responded to new competitive pressures by innovating with new organisational methods, controlling quality and emphasising long-term development and greater employee involvement. Moreover, there are certain trends, such as the movement towards flexible employment contracts, which could actively impede the achievement of the cooperative committed work culture that is now desired. Consequently, there is a need for thought and action to determine what kinds of active policies might bring about the desired results.