The industrial relations chameleon: collective bargaining in the facility management business

1. Introduction

The outsourcing of companies' activities not only has become a defining trait of post-Fordist organizations but also has experienced an important diversification in its mechanisms, the actors involved and its outcomes (Harrison and Kelley, 1993). Currently, we are witnessing the extension of new modalities and mechanisms based on the opportunities opened by new technologies, including the growth of (bogus) self-employment, crowd employment through platforms and the expansion of facility management (FM) companies, among others (Drahokoupil, 2015). It is increasingly common to find companies relying on several of these mechanisms, depending on the characteristics of the activities outsourced. Moreover, it is not rare to observe provider companies further outsourcing some of the services/activities they provide to clients, therefore contributing to a cascading outsourcing effect. Together, these developments have contributed to blurring organizational boundaries and have made organizational structures increasingly complex.

The changing and varied nature of outsourcing practices is a result of several factors, including companies' characteristics, the sectoral context, the introduction of new technologies facilitating remote control and work and the institutional and regulatory environments. Moreover, the factors driving outsourcing decisions are equally diverse, ranging from gaining flexibility and enhancing efficiency to reducing costs and avoiding fiscal or labor market regulations (Doellgast and Gospel, 2013).

In this context, the growth and expansion of facilities and multi-service companies is probably one of the most interesting developments in relation to outsourcing and its implications for industrial relations and employment. Outsourcing is far from being a new phenomenon, but only since the early 2000s has there been a significant expansion of FM companies in Europe, though uneven across countries. FM companies provide integrated services and the management of those services to other companies or facilities. Even though the integration and management components constitute the distinctive traits of this form of outsourcing, the reality is that FM firms very often compete as any other service company providing just one service to client companies. As a matter of fact, rather than competing in the integrated service providers market, FM companies often take advantage of the diversity of services provided to engage in cost competition, thus undermining the working conditions of some groups of workers through the application of lower standards in collective bargaining.

This paper analyzes collective bargaining in the FM sectors of six countries to explore the similarities and differences between them. The analysis serves to illustrate the differential impact of the national institutional setting in conjunction with the development of the FM sector on the protection enjoyed by FM workers through collective bargaining. It is, moreover, argued that the extension of the FM business model has not always adopted a high-road strategy enhancing the quality and efficiency through the integrated management and delivery of services. Rather, it has, in many cases, been a deliberate low-road strategy taking advantage of the multiple services provided and the opportunities offered by decentralization in collective bargaining to reduce costs and deteriorate employment conditions.

Section 1 of the paper discusses FM in light of the literature on the characteristics and impact of outsourcing and the specific characteristics of FM, including a typology of FM companies. Section 2 then discusses the methodology and the analytical strategy used. Section 3 shows the development of FM in the six countries compared. This is then followed by the analysis of FM actors and collective bargaining processes across the six countries.

2. Outsourcing and facility management in the global value chain

Most production and service provision processes are sequential and require establishing the so-called value chain, i.e. a relationship between the different processes required to produce a good or service (Huws and Podro, 2012; Antràs and Chor, 2013). The design of the economic value-added formula in the 1990s advocated that companies were more efficient when they removed as many items as possible from their balance sheets (Marchington et al., 2005). Outsourcing should accordingly be interpreted first and foremost as a business strategy with a financial/economic rationale. First, outsourcing is aimed at reducing costs in the short term (suppliers base their business on economies of scale, reusing models already developed for different clients). Second, it is also aimed at transforming companies' long-term cost structures by eliminating the fixed structures that support the internal control of the outsourced processes. Third, outsourcing constitutes a mechanism to enhance organizational flexibility, as it allows for a quicker adaptation to production requirements. Finally, the greater specialization of provider companies allows for efficiency gains (Kotlarsky et al., 2011; Doellgast and Gospel, 2013).

Since the 1980s, the modularization of tasks and processes in the value chain has been required to eliminate workers engaged in ancillary activities through outsourcing practices (Harrison and Kelley, 1993; Flecker and Meil, 2010). In turn, this allowed the organization of production around networks of supplier companies, increasingly favoring the market over organizations' internal competences (Ricart et al., 2011; Kirchner, 2015).

Through outsourcing, the delivery of non-core activities is extracted from the central organizations as well as the responsibility over labor and social issues of the workers completing these activities, thus dualizing workers' organizational and employment relations (Rivero et al., 2006; Doerflinger and Pulignano, 2015; Mori, 2015; Moreno et al., 2014). In this way, the reduction of labor-related risks and costs (including wages, absenteeism and conflicts, among others) mainly through vertical disintegration strategies is an important driver for outsourcing, which moves workers out of well-organized sectors and/or organizations to spaces with weaker structures of worker representation and lower capacity for collective action (Doellgast et al., 2009; Huws and Podro, 2012; Recio et al., 2015; Mori, 2015; Hyman, 2015; Benassi and Dorigatti, 2020). Therefore, client companies tend to trade the control of some internal work processes for low-pay strategies.

FM businesses appear to be opportunities for companies to compensate for this organizational fragmentation of work processes by integrating most of their outsourced activities in the same supplier firm. Therefore, FM allows simplification of interorganizational coordination and reduction of transaction costs; either FM firms provide the outsourced services or they procure services from external suppliers and manage the output from the service providers. Moreover, the management and delivery of these integrated outsourced services is increasing with the internationalization of contract procurement by multinationals, as FM companies sign contracts with large clients at the European level, facilitating standard processes with providers.

The literature on outsourcing has accordingly focused on the extension of decentralizing business strategies and their (negative) impact on employment conditions (Flecker and Meil, 2010; Flecker and Hermann, 2011; Batt and Nohara, 2009). More specifically, this literature assumes a universal adoption of these practices in labor-intensive activities. With notable exceptions (Doellgast et al., 2009; Geishecker et al., 2010, Grimshaw et al., 2015, Mori, 2017), the interaction between these strategies and industrial relations institutions and, more specifically, the role of collective bargaining, has been largely overlooked in comparative analyses. According to most works (Drahokoupil, 2015), certain activities will be, regardless of the country or the sector, outsourced. This article contributes to this literature and the theoretical debates accompanying the development of outsourcing by providing evidence on the ways whereby institutions mediate business strategies in relation to outsourcing.

3. Methodology and analytical strategy

This paper analyzes collective bargaining in the FM activities of six countries to explore the similarities and differences between them and shed light on the following questions: what is the role of industrial relations institutions in shaping the strategies of FM companies? More specifically, how does collective bargaining ensure the adequate coverage of FM workers across countries with different industrial relations institutions and levels of development of the FM sector?

The analysis was carried out for an FM multinational company providing services in six European countries (France, Italy, The Netherlands, Poland, Spain and the UK). Taking into consideration the classification by Ferri and Pala (2009) and Teichmann (2009) (Table 1), the six countries studied represent most of the market stages in the FM business, showing the first steps of the FM market (Poland), its business maturity (France, Italy and Spain) and its consolidation (The Netherlands and the UK). The general trend within developed and advanced markets is the consolidation of integrated services delivery within the same business group (facility services) coexisting with its management by the same company (FM).

Moreover, the six countries cover most of the types of industrial relations systems in Europe whether we use national models (Visser, 2009) relying on the typologies of national production and employment regimes; sectoral composition models (Bechter et al., 2012), which reduce the importance of the national IR setting to pay more attention to the increasing global coordination of sectors; or typologies that adopt a broader scope (Eurofound, 2018), including not only the main actors, institutions and processes but also their impacts on relevant socioeconomic fields such as equity and efficiency. This article considers the contributions of this debate, incorporating the three typologies to understand the various cases in relation to the national model, the sectoral composition and the socioeconomic outputs, and provides a better understanding of the implications for FM workers.

According to these typologies (Table 2), Italy, France and Spain are generally categorized under the same system, which entails high collective bargaining coverage within relatively centralized collective bargaining institutions and where the state plays an important role in regulating and coordinating employment relations (Molina, 2014; Eurofound, 2018, p. 39). In this group of countries, sectoral agreements play a strong role and extensions are widely used (OECD, 2017; Garnero, 2020). The social partnership model of The Netherlands is characterized by centralized collective bargaining, a high degree of coordination, high collective bargaining coverage rates and the institutionalized involvement of social partners in policymaking (Eurofound, 2018, p. 37). In this model, sectoral collective bargaining also plays a key role, but they also leave significant room for lower level agreements to set standards, either by limiting extensions or allowing opt-outs from sectoral collective agreements (OECD, 2017; Garnero, 2020). Finally, Poland and the UK, though belonging to different systems (Liberal and Centre-East, respectively, see Visser, 2009), share some common features (Bechter et al., 2012, p. 198). In fact, Eurofound (2018) classifies both countries within the same IR model defined by the weakness of social partners, the minor role played by the state in industrial relations, the low level of bargaining coverage and the uncoordinated and decentralized nature of the collective bargaining (Eurofound, 2018, p. 40; OECD, 2017; Garnero, 2020).

The structure of the representation of FM actors at the European and national levels reflects the relatively recent and differentiated development FM has had across the European Union (EU) countries. At the European level, the European Facility Management Network (EuroFM) and International Facility Management Association – Europe (IFMA Europe) are the largest business associations for FM activity. EuroFM also works as a professional association representing individual facility managers. There are no employer organizations at the European level representing the interests of national-level organizations and participating in European social dialogue. Regarding workers' representation, employees engaging in FM activities are represented in the European Trade Union Confederation (ETUC) through its sectoral federations and through European works councils (EWCs) in cases where FM multinational firms are present in several EU member states. That is the case of some of the largest FM multinationals operating in Europe: Aramark, Compass Group, Integrated Service Solutions (ISS), Johnson Controls International and Sodexo all have EWCs, though the activities and role of EWCs differ significantly across them (Aramark only had one agreement in 1996, while ISS bargained for one original agreement in 1996 and four renegotiations between 1998 and 2013). Other large FM multinationals have not developed any social dialogue through EWCs: CBRE Group, Cushman and Wakefield, Dussmann Group and Jones Lang Lasalle Incorporated (The European Works Councils database, 2020).

In each country analyzed, semi-structured interviews were carried out with the sectoral trade union representatives (seven), the employer organization managers (three), the FM multinational workers' committee members (seven), the FM company's national human resources or management departments (nine), the multinational's European works council members (one) and experts in IR and FM (four). The interviews were carried out following a standardized questionnaire adapted to the national conditions. Moreover, the FM multinational analysis adopted a case study methodology, focusing on empirical and general cases (Ragin and Becker, 1992; Byrne and Ragin, 2009) of industrial relations practices in a business organization. Several sources of information were used to implement the case study analysis, triangulating interview data with internal data provided, documentary sources from publicly available company and national reports to validate our findings.

4. Playing under different rules: collective bargaining and industrial relations in facility management

As a business model, FM cuts across traditional sector-based boundaries in industrial relations. The “chameleonic” character of FM companies provides them an advantageous position in relation to traditional firms/competitors. However, the opportunities and incentives to follow a low-road competition critically depend on the interaction between the development of FM activities and the institutional setting. It is, therefore, important to understand under which conditions the extension of the FM model in a country has facilitated the adoption of a low- or a high-road strategy. These conditions are related to the national systems of collective bargaining, the mechanisms of extension and coordination of agreements, the inclusion of certain social clauses and the strategies deployed by employers and trade unions (mostly based on organizational and institutional resources).

To address this question, we analyzed the role of an FM multinational company operating in the six European countries identified above. This will shed light on the importance of the institutional setting in shaping national practices/strategies. Multiserv [1] is a multinational firm with a history of more than 100 years and with a presence in Europe, Asia, America and Australia. Originally, it was a cleaning company that underwent an important international expansion during the 1990 and 2000s. Currently, Multiserv provides a wide range of services in 50 countries and has more than 530,000 employees. In Europe, Multiserv's presence is more important in the UK (43,000), Spain (30,000) and France (22,000) and has smaller workforces in The Netherlands (6,500), Poland (2,100) and Italy (762).

Multiserv began its operations in all six countries in the highly cost-competitive cleaning sector, where short-term contracts and low wages were common. However, it gradually shifted toward the FM sector and currently provides a wide range of services beyond cleaning: catering, security, housekeeping, reception, maintenance, mailroom, information and communication technology (ICT), etc. Multiserv provides and manages all the general services that a facility or company may require. The strategy of the company is to offer these services in an integrated way to its clients by not just supplying these services but also coordinating them with the core activities of the client organizations through the implementation of standard business processes at the global level. According to Multiserv, knowledge about different sectoral principles is key to provide tailored solutions to its clients' needs. This strategy has led to the acquisition of national companies in all the countries analyzed and has allowed Multiserv to expand the activities and areas it covers while accessing new markets.

Employees in Multiserv consist of a large number of women (57–80%, depending on the country, reflecting the feminization of the main activity of the company: cleaning) and a high rate of migrant workers (e.g. 70% in Italy). Open-ended contracts are predominant (e.g. 95% in Spain) because of the limitations imposed by the Transfer of Undertakings regulation at the national level. However, job turnover is high, especially in the case of cleaning personnel. In addition, career development prospects or training activities are rather limited. Approximately 60–80% of the workforce have part-time contracts, which are particularly frequent among women and in some cases can be for as low as 10 h a week. Notwithstanding the predominance of open-ended contracts, the company frequently uses overtime work as a form of quantitative adjustment. The services provided by the company are predominantly low skilled and very often low pay: wages fluctuate between the minimum wage established in each country and 20% above the minimum wage. Even though Multiserv claims that it would like to pay better wages, the strong competition in the FM market constitutes a major obstacle.

The evidence collected shows that Multiserv is a better employer in general terms compared to other FM companies in the countries included in the analysis. In this way, Multiserv tends to set working conditions above statutory minima. Therefore, the low quality of employment conditions described above seems to be inherent to employment in the bottom of the labor market, of which FM activities are a part. Nevertheless, this environment does not totally determine a company's strategy. As Multiserv's case clearly shows, companies retain some capacity to adopt a different approach leading to better employment conditions. This can increase job quality and upward mobility instead of leading FM workers toward bundles of low-wage tasks.

5. Conclusions

The objective of this article was to explore the interaction between industrial relations institutions and the type of FM markets in shaping companies' strategies and the impact on employment standards. More specifically, the analysis of an FM multinational operating in six countries serves to illustrate the differential impact of domestic institutions in shaping the protection of collective agreements to these workers. As a form of outsourcing, FM companies offer a wide range of services and the integrated management of those services to their client companies. Similar to other forms of outsourcing, FM might lead to further fragmentation of employment relations: it complicates the organization and representation of the workers, crosses sectoral boundaries and makes the application of collective agreements more uncertain. By contrast, the concentration of outsourced workers under the same supplier organization introduces a distinctive element that can also facilitate the adoption of mechanisms to ensure the protection of workers and improve their positions.

The analysis first reveals marked differences across countries in the ways FM companies are represented and engage in collective bargaining. These differences do not correspond to the stages of development of the FM business, therefore highlighting the role of the institutional setting in shaping the strategies of FM companies and their role in collective bargaining. The chameleonic character of FM companies' reliance on the wide range of services they provide has allowed them to easily adapt to different domestic institutional environments and find the best way to compete with other service providers. Second, the results also show the importance of strong sectoral collective bargaining institutions to protect workers in outsourced services, including those in FM companies. However, the effectiveness of multi-employer collective bargaining in avoiding a race to the bottom and wage competition has been undermined in some countries as a result of decentralization. This has allowed FM companies to sign collective agreements that opt out of the conditions established at the sectoral levels and set lower standards for all their workers, irrespective of the activity performed or their skill level.

The paper also contains important policy insights. More specifically, it is showed that moving from a cost-competition strategy toward a high-quality road in the FM industry requires combining several elements and policies. First, it requires a stronger managerial focus on the integrated coordination of services. This would contribute to increasing the value added by the services provided by FM companies, hence contributing to shifting the view of those services from costs to resources. Second, ensuring the predominance of sectoral collective bargaining would also help to set limits on wage-undercutting strategies. Another element contributing to reaching this goal is the implementation of national and EU regulations on tendering, public procurement and codes of conduct.

Finally, the paper provides relevant theoretical insights to the industrial relations field. In particular, by combining the extant literatures on multinationals and outsourcing, it shows the crucial role of national institutions in mediating the effects of outsourcing strategies by multinational companies. Based on comparative evidence from a multinational company in the FM business, the paper shows adaptation to the domestic institutional framework, and more specifically, to the collective bargaining system and the boundaries it poses for outsourcing. Notwithstanding the erosion experienced by industrial relations during the Great Recession, the evidence shows how collective bargaining institutions still play a crucial regulatory role, in this case by shaping outsourcing practices and its impact on working conditions.