NOVEMBER/DECEMBER 1987 - VOLUME 8 - NUMBERS 11 & 12
T H E F R O N T
Working for Big Mac
There are 9,410 McDonald's spread throughout 45 countries serving 19 million people per day. The fast food chain which employs 560,000 earned $1.32 million in profits per day in 1986. It is also the world's largest owner of retail property with a book value of $4.88 billion (the market value is even higher).
To a large extent McDonald's success is due to the standardization and computerization of the daily work in each individual outlet. Few skills are needed to work in a McDonald's - all tasks are timed and each chore is broken down into the smallest and simplest of steps. By standardizing and deskilling jobs McDonald's is able to pay minimum wages and easily hire and fire employees.
McDonald's keeps labor costs below 15 percent of sales by employing a "flexible" workforce of parttime and temporary workers. As a store manager explained, "We don't have full and part-timers here. Everyone at McDonald's works flexible hours."
At any typical McDonald's outlet 80 people are on payroll and 80 percent of those employees are part-time staff. This means that an average work week should be 25 hours, however, many employees work much longer hours. The practice of hiring a "part-time" workforce for full-time hours allows McDonald's to cover overtime work without paying overtime wages. Workers' schedules are adjusted on a daily basis depending upon sales.
The McDonald's Crew Handbook explains: "Your hours of work cannot be permanently guaranteed because the number of staff we can employ depends on how busy the restaurant is. Sometimes it is necessary to increase or reduce the number of hours you work to take these fluctuations into account."
"Labor is the big one we hear about from head office," explained a store manager, "a really high volume store could run at 10 percent labor because the bodies are always in motion. But in a quiet store you still have to keep a foundation crew, which is why labor slips up occasionally to 16 percent. The pressure to keep labor costs down means having less bodies in the store, so we're running around all day, all night."
The demanding work hours, erratic schedules and low pay cause much employment turnover at McDonald's. Within a month, 7 out of 10 starters drop out; old-timers have worked four months. As one store manager explains, " No one ever stays more than nine months unless they want to go into management. It's the pressure, heavy hours, awful pay and it's a degrading job having to clean tables and scrub floors in front of all the customers and always having to smile. People get really fed up."
McDonald's does not mind having a 200-250 percent turnover rate because a changing workforce allows "flexibility" to be maintained, while paying the lowest wages possible, and completely shutting out unions.
Dave Turnbull, of the Transport and General Workers Union, (TGWU) and Service Workers Advisory & Action Project (SWAAP), explains that "The main problem to building any organized [union] base is the massive staff turnover which means (union) membership turnover is going to be equally high. You've also the difficulty that the majority of jobs are part-time. So it's difficult to make [workers] conscious of their problems and the need to organize." In the words of Jim Kuhn, McDonald's chief management consultant, "If the unions succeed at McDonald's then my job has failed."
Historically McDonald's has engaged in a variety of anti- union practices, including:
- Marilyn Zola
Reversing the Flow
U.S. Industry Finds New Technology in the East
Observers of East-West trade issues are accustomed to hearing about the flow of technology from West to East. A far lesser known fact is that Western companies have benefited substantially from the flow of technology in the opposite direction, from East to West.
The Western perception of the Soviets and East Europeans as technologically inept is occasionally rattled by startling revelations of their actual achievements. The Sputnik case is one widely known example of the West underestimating the technological capabilities of the East bloc countries, but the list of licenses for technologies with commercial applications purchased from East bloc countries by Western companies (See table, page 18) reveals many more examples of technological achievements in the East.
Some of the Eastern technologies acquired through the purchase of licenses have applications that would prevent their transfer from West to East. General Dynamics uses a photogrammetric positioning device acquired from East Germany for wing subassembly work for F-16 aircraft. Cabot Corporation uses the electroslag casting technology to cast parts for jet engine casings.
John Kiser, president of a Washington-based firm specializing in the transfer of technology from East bloc countries to the U.S. cites several reasons for the limited number of East bloc technologies purchased by U.S. and other Western companies.
One reason, Kiser explains, is because, "Selling is not part of the economic culture of these [Eastern] societies. Marketing materials are usually poorly written and uninformative." The socialist economic system does not provide adequate material rewards for individuals to do the work and take the risks necessary to sell their technologies.
The most significant factor limiting the sale of Eastern technologies to the West, according to Kiser, is "the lack of commercial contact." Discovery of commercially viable technology available in the East bloc countries requires "person-to-person contacts." Since trade and exchanges of scientific or technical personnel between East and West is suppressed by political barriers, the flow of essential information is quite limited.
Discovery of useful technology and research activities in the East often depends on the initiative of a Western companyor individual. Due to the relative isolation of Eastern economies, individuals conducting research and development activities are often completely unaware of what is saleable in the West.
An example of this is the most commercially successful Eastern license sold to the U.S., the soft contact lens. The National Patent Development Company learned of research on the hydrophilic polymer conducted by Otto Wichtesle at the Institute of Macromolecular Chemistry in Czechoslovakia. Had the American company not taken the initiative to inform the Czech licensing organization of the research's commercial potential, this product, which has launched an entire industry, may never have reached the West.
Kiser points out that since "a significant portion of the potentially useful technologies from East bloc countries are process technologies or in an R&D stage, personal contact becomes even more important." Final products from the East may have the same appearance as their counterparts produced in West. This similarity of end products may hide the fact that the Eastern version was produced using a more efficient, innovative technology. One example of this is Czech technology for casting high-speed steel cutting tools.
In the West, a competitive marketplace and proprietary rights play critical roles in providing an economic climate supportive of technological innovation. While centrally planned socialist economies may be lacking in these areas, certain conditions evident in the Eastern bloc do, however, promote the development of technological efficiency.
One such condition is the labor shortage facing the East bloc countries, forcing central planners in the region to adopt an "intensive" growth policy based on increasing the productivity of labor, capital and natural resources. Advances in technology play a pivotal role in achieving this higher level of productivity.
Second, long-term centralized planning for entire industries combined with increased efforts to promote industrial specialization through the regional trade association, the Council for Mutual Economic Assistance (CMEA), allows even smaller East European countries to commit substantial investments in productive technologies that might be too risky in Western markets. Examples of relatively successful specialization programs include machine tools in East Germany, Czechoslovakia and Hungary, textile machinery in Czechoslovakia, shipbuilding in Poland, medical equipment in Hungary and robots in Bulgaria.
Third, government support for scientific research and education is ; strong throughout the region. Eastern Europe is home to one-third of the world's scientific community. According to Kiser, "In the Soviet Union alone, more than 60,000 patents are published each year along with tens of thousands of technical publications."
Global competitiveness of a nation's industries depends greatly on its technological capabilities and innovation. If the climate for an expansion of East-West economic cooperation evolves, more people in the U.S. and other Western countries may realize that important technologies flow in both directions, not just from West to East. The flow of technology from East to West can help U.S. industries remain competitive. And, cooperation rather than confrontation with the Soviets and Eastern Europe can help preserve the long-term strength of this muntry.0
(This article relies on the written workand assistance of John Kiser of Kiser Research, Inc., a Washington, D.C-.based technology transfer firm.)
Where Toshiba Went Wrong
A report to the President and Directors of the Toshiba Corporation reveals that Toshiba Machine Co. Ltd. violated Japanese export regulations by shipping sensitive submarine technology to the Soviet Union, and then engaged in an extensive coverup by destroying documents and silencing employees when they complained of illegalities. The report was prepared by a team of lawyers and accountants from the United States and Japan, headed by Donald J. Zoeller, chief of the litigation section at the New York law firm, Mudge, Rose, Guthrie, Alexander & Ferdon.
The report clears the Toshiba Corporation of any wrongdoing in connection with the sales by its subsidiary Toshiba Machine Co. Ltd. Toshiba Corporation owns 50.08 percent of Toshiba Machine. The internal report was released in an apparent effort to head off congressional moves to prohibit the sale of Toshiba Corporation products in the United States. Toshiba argues that punishing the parent company for the sins of a subsidiary would be unfair and that the company has implemented aggressive new management controls over subsidiaries engaged in technologically sensitive exports. The new controls were announced in a separate 62-page document detailing Toshiba's "Strategic Products Control Program."
The introduction and summary of the Mudge, Rose report states:
The investigation was commenced in June 1987 at the request of Toshiba Corporation, following public disclosure that Toshiba Machine Co. Ltd., a company in which it holds a 50.08 percent stock interest, had violated Japan's export control laws and regulations by making two sales of multi-axis propeller milling machines to the U.S.S.R. Because Toshiba Corporation held a majority stock interest in Toshiba Machine Co., it determined that it was imperative that there be a thorough, independent investigation into, and public disclosure of, all of the facts relating to Toshiba Machine Co.'s wrongful acts, and whether anyone at Toshiba Corporation participated in those acts, or knew, or should have known, of those acts.
Summary of Findings and Recommendations.
Toshiba Machine Co. delivered four nine-axis propeller milling machines to the U.S.S.R. in 1983 and four five-axis propeller milling machines to the U.S.S.R. in 1984 in violation of the export control laws and regulations of Japan. No issue of United States law was involved. The sale of the nine-axis machines was made in collusion with the Norwegian company, Kongsberg Vaapenfabrikk, which manufactured the numerical controllers for the machines. Both sales were made in collusion with the trading company, Wako Koeki, which, among other things, introduced Toshiba Machine Co. to the Russian customers. Another trading company, C. Itoh, acted as exporter of record on both sales. The record is ambiguous as to whether C. Itoh knew or should have known the true nature of the transactions or their illegality. Resolution of that issue is beyond the scope of this report.
The illegal exports were of equipment and related software for the automated milling of marine propellers. There was no transmission of a propeller design or propeller design data, or of Japanese or United States defense secrets or of United States technology or products.
The key decision to proceed with the sales in violation of Japanese export control laws was made by the president of Toshiba Machine Co. A small group of upper management personnel within the Export Sales and Machine Tool divisions of Toshiba Machine Co. evolved the overall plan for exporting the equipment in circumvention of Japan's export control regulations. At their direction that plan was carried out by lower level technical and sales personnel in the two divisions. Pursuant to the plan Toshiba Machine Co. employees secured the approval of the Ministry of International Trade and Industry (MITI) for the exports by knowingly filing false applications with MITI. In each case the applications falsely designated the machines as other than propeller milling machines and falsely claimed that the machines, when copied with the numerical controllers, were capable of only two-axis simultaneous control.
When disclosure to COCOM of their activities led to an inquiry by MITI in late 1985 and 1986, Toshiba Machine Co. employees, again with the knowledge and approval of their superiors, filed a false report and made false statements to MITI to conceal their wrongdoing. [COCOM is an acronym for the Coordinating Committee for Multilateral Export Controls. COCOM was established in 1949 among the NATO nations (with the exception of Iceland), plus Japan. It is essentially a voluntary informal arrangement that each nation will by its own laws and regulations limit sensitive exports to certain nations. The exact understanding among the COCOM members as to which goods and destinations are covered (the COCOM list) is not available to businesspeople in either Japan or the United States. The COCOM rules and procedures are kept secret by member countries.] Later, when the first public disclosure occurred in March 1987 and MITI commenced a second investigation, Toshiba Machine Co. employees again filed false reports and false statements to MITI.
No one at Toshiba Corporation knew of, or had reason to know of, the wrongful activities of Toshiba Machine Co. As a world leader in its own field of business, Toshiba Machine Co. conducted its business independently of Toshiba Corporation and therefore Toshiba Machine Co. did not report to or consult with Toshiba Corporation about individual business transactions. When MITI first inquired into the sales in December 1985, neither Toshiba Machine Co. nor MITI advised Toshiba Corporation of the inquiry. The fact that diversionary sales may have taken place first came to Toshiba Corporation's attention from press accounts in late March 1987 of information provided by a U.S. government source. In response to Toshiba Corporation's immediate and repeated demand for a full explanation, Toshiba Machine Co. flatly denied to Toshiba Corporation that there had been any violation of law, stating that there had been no wrongdoing and that the matter was purely a misunderstanding that Toshiba Machine Co. would be able to clarify to MITI. The wrongdoing was exposed, and finally admitted by Toshiba Machine Co., only when the Tokyo Metropolitan Police seized Toshiba Machine Co.'s company files, and the personal diaries of involved employees, and conducted intensive interrogations of the personnel involved.
In May of this year, MITI imposed on Toshiba Machine Co. the maximum civil penalty then available under Japanese law, a one year ban on exports to the communist bloc. The president of Toshiba Machine Co. resigned. In June, Toshiba Machine Co. and two of its employees were indicted for shipments of replacement parts and software made in June, 1984 and are awaiting trial in the fall. (Apparently, the three-year statute of limitations barred additional prosecutions for earlier shipments). Also in June, Toshiba Corporation required additional management personnel of Toshiba Machine Co. to step down and demanded that Toshiba Machine Co. eliminate the sections engaged in exports to communist countries for an unspecified period until it is clear that there is no possibility of a recurrence. Toshiba Machine Co. also adopted internal compliance measures and discharged and disciplined additional personnel. And in July Toshiba Corporation obtained Toshiba Machine Co.'s commitment to stop all exports to Soviet bloc countries for an unlimited time.
Toshiba Corporation requested this investigation and report so that it could determine what further actions and preventive measures would be appropriate to ensure that there would never be a repetition of such unlawful acts, whether by Toshiba Machine Co. or by Toshiba Corporation or any of its subsidiaries. Concurrently with this investigation and report, a separate team has prepared and is submitting to Toshiba Corporation a detailed Export Control Compliance Program for Toshiba Corporation and all of its subsidiaries and affiliates.
The report recommends:
Based on "Toshiba Report Outlines Violations of Japanese Export Rules and Cover-Up" September 14, 1987 Corporate Crime Reporter article on this study.