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Munich Personal RePEc Archive
CONDITIONS OF INTER-FIRM
CO-OPERATION IN A VIRTUAL
ENTERPRISE CONCEPT : THE CASE
OF AUTOMOTIVE SECTOR IN
PORTUGAL
Moniz, Anto´nio and Kova´cs, Ilona
IET, UNL-FCT, ISEG, Technical University of Lisbon
June 2000
Online at http://mpra.ub.uni-muenchen.de/5658/
MPRA Paper No. 5658, posted 08. November 2007 / 09:54

CONDITIONS OF INTER-FIRM CO-OPERATION
IN A VIRTUAL ENTERPRISE CONCEPT :
THE CASE OF AUTOMOTIVE SECTOR IN PORTUGAL

António Brandão Moniz*
Ilona Kovács**
ne can assist to significant changes in the organisation of manufacturing systems
during the last years. Lean production, network enterprise or the virtual enterprises
are reference concepts of the re-organisation of manufacturing systems. Some
authors mention a new enterprise paradigm, of generalisation of intelligent manufacture, organised
in networks and assisted by information and communication technologies.
The first part of the paper develops a critical approach to the illusion connected to these
concepts, calling the attention to the diversity of the type of relationships among firms. If virtual
enterprises (VE) are networks of firms with intensive usage of ICT, one can verify a predominance
of a technicist perspective. This one considers that the development of VEs is a technological
problem, of development and management of information systems, and of entrepreneurial share of
different databases. Sociology can be useful, even fundamental in an anthropocentric approach.
The last part of the paper is on the Portuguese situation in the automobile sector,
approaching the types of entrepreneurial organisation.
THE CHANGE OF MANUFACTURING AND ORGANISATION PATTERNS:
THE EMERGENCE OF THE NETWORK ENTERPRISE AND THE VIRTUAL
ENTERPRISE
In the explanation of the deep changes in the manufacturing organisation, the new market
conditions and the ICT occupy a central role.
Organisational renewal is on the “ordre du jour”, on the management agenda, because is
understood as an essential mean to improve competitivity of firms, especially in the automotive

*
Professor at FCT-UNL, abm@fct.unl.pt
**
Professor at ISEG-UTL, ilona@iseg.utl.pt
O

2sector. The European Commission launched a debate on this issue, i.e., on the renewal of the work
organisation in 1997 1
The 80ies were demarked with the strong influence of the Japanese influence. An increasing
number of experts disseminated the organisational principles and the Japanese management
methods. For many appeared a new model, known as “lean production” since the publication and
wide dissemination of the MIT reports on the future of the automotive industry 2. This diffusion
and acceptance of the idea that the universal adoption of the lean production model/principles
guarantee an improvement of competitivity, explains a step back in the innovative experiences
related to the European traditions of work humanisation end industrial democracy that characterised
the 60’s and 70’s.
Thus, the European experiences related to anthropocentric production systems were
forgotten and displaced by the lean production movement. The first mentioned production system is
based on the use of skilled workers and flexible technologies adapted to de-centralised and
participative organisational forms 3. This model responds efficiently to the new market demands,
but mainly, allows a substantial improvement of the quality of working life. The competitive
advantages of the anthropocentric production systems and verified by several industrial experiences
(cf. Lehner, 1992).
The first half of the 90’s was strongly influenced by re-engineering (BPR): “to manufacture
more and better with less” was the main objective. The rationalisation of operational processes,
through the maximum grouping of jobs and tasks, the vertical compression and de-centralisation of
decision for an increased flexibilisation, the suppression of wastes, there are the American
alternatives to the Japanese challenge. Although a substantial part of re-engineering experiences
was not well succeeded, those ideas continued to be largely disseminated (cf. Hammer, Champy,
1996).
The new enterprise model is presented now as advancement in relation to the Taylorist-
Fordist model. The importance of firm’s culture, mutual confidence, job autonomy and
participation, is underlined. As well as the co-operation relation among individuals, groups, units,
firms for the increase of productivity and quality improvement.
But there are some technical and organisational pre-conditions for a sustainable
development of a Virtual Enterprise concept in a globalised framework.
Most of the times innovation involves the implementation of new tools leading to process
changes, it is difficult to be understood and accept by the workers. The right strategy points out to
the involvement of workers since from the beginning of the process, participating with technology
designers and developers in the definition of the best paths to innovation. However, these
innovations are not disseminated at a significant level, especially in SMEs.
The technical approach of industrial sociology, on the work organisations and technology
developments, has to overcome a set of new challenges in order to clarify the behavioural changes
resulting from this new “virtual enterprise” concept. A virtual enterprise can be understood as a
structure, organised around a multicultural and “multilingual”4 wide working groups (technicians,

1
cf. CCE: Green Book on a Partnership for a New Work Organisation, Brussels, CCE, 1997, COM (97)
128 final.
2
cf. WOMACK, JONES, ROOS, The Machine That Changed the World, 1990
3
Cf. KOVÁCS, I.; CASTILLO, J.J.: Novos Modelos de Produção: Trabalho e pessoas, Oeiras, Celta,
1998.
4
In the sense of different technical “languages”, concepts, sets of references.

3operators, office workers, managers, engineers, etc.). This is valid for all organisational structures
(virtual or not). But factors like, different contractual rules for new products, different rules inside
enterprise nodes, different management structures and the resulting decision making shortening, are
only a few examples of the complexities this new concept has to deal with.
Like in other changes that happened during the past industrial manufacturing technological
evolution, the success of the introduction of virtual enterprise paradigm is also strongly dependent
on the workers commitment.
However the complexity of social dependencies beyond internal enterprise borders brings
new challenges. It is necessary to define, in a new social framework modelling, including all the
characteristics of an effective co-operation among persons belonging to different firms, different
organisational structures and, maybe located in different countries. This new framework brings a
new set of demands at societal level, e.g., at organisations, and even for each social actor, the
necessity to incorporate a “network” culture, that is not exclusively technological but has strong
social and cultural implications, is becoming more and more evident.
The sociological contribution aims to define a set of recommendations that will guide the
implementation of the new emergent Virtual Enterprise concept. It is expected that those
recommendations contribute to the development of the supporting technology according the socio-
technical and anthropocentric theories and also guide those involved in its implementation,
preventing productivity reduction and unemployment, consequences to an incorrect application of
the technologies and re-structuring strategies.
Although most authors use in an almost undefined way these concepts of “network
enterprise”, “Virtual Enterprise” or “flexible enterprise”, it is being used to classify a new emergent
approach to the organisation of temporary networks of independent enterprise. Most of the
products are not any more exclusively produced in one physical enterprise, and they are connected
among each other through ICTs to reduce costs and share markets. Subcontracting is intensively
used to get market opportunities, minimising the investments that are necessary to completely fulfil
the development and production needs.
The word “virtual” was originally applied as a derivative of “virtual memory” that allows
computers to use more memory than they effectively have. “Virtual” means also something that is
real, but implemented by some strategy or system that provides a simulated reality. Based on this
assumption it is possible to say that a product that has many contributions from many real
enterprises was manufactured/produced in a Virtual Enterprise 5. Therefore a Virtual Enterprise is
an association of a distributed set of production/development resources. These resources are
managed by real enterprises connected by a co-operation facilitator that can go from weak
connections like route, surface mail, etc. to electronic connections building intra- and inter-
enterprise electronic communication networks. In fact, enterprise networks exist since long ago,
however co-operation has been bounded to restricted areas until the last developments of
information and communication technologies.
Thus, this VE concept follows the theories developed around the concept of enterprise
networking. Limited co-operation areas like the northern Italian “industrial districts”, the Basque
Mondragón case, or the Ruhr valley networks, from many other examples, are even today positive
examples of local co-operation among enterprises joining synergies. The main difference that
emerges with this new VE concept is the availability of an infrastructure able to give firms in a
network equal opportunities.

5
MONIZ, A. B.; URZE, P.: “Empresa Virtual significa Trabalho Virtual? Definições do conceito, limites,
implicações”, VIII Encontro Nacional de Sociologia Industrial, das Organizações e do Trabalho, APSIOT, 1999.

4Internet, as an infrastructure to support flexible co-operation, is an emergent technology that
is receiving much attention and it is being transformed into a mass media mechanism for exchange
and sharing information. It is possible to see Internet as an information and communication
technology facilitator of a global co-operation, and that could play an important role to the
development of an industrial democracy. Sub-contracting firms should be able to access other client
firms (final enterprises or, in automotive industry, the assembly enterprises), to access innovative
knowledge, to organise new relationships with other firms operating in the sector, and so forth.
As some authors mentions, the new ICT-enabled variables may be totally distinct from
traditional design variables, as it is the case when virtual corporations are compared with traditional
organisational subunits. The ICT-enabled variables may also be an extension of a traditional
variable, as in the case of developing linking mechanisms. These functionalities reduce barriers
towards distance and localisation, allowing firms in different regions (and countries) to get
involved in the development of a same product, co-operating in a network.
Complex enterprise arrangements and/or agreements are being established to easily get
market opportunities. This kind of arrangements is always fired by a business opportunity, and it
usually has a co-ordinator at the enterprise that manages such goal. A domain until now reserved to
large enterprises, the intensive utilisation of information of technologies, is being extended to
SME’s. As an example, the electronic information interchange, the commercial information in EDI
is until now quasi exclusively implemented in large enterprises. This networking can rely on the
production of a product by a group of enterprises, but it is transparent to the end-user how the
production runs. Therefore, from this distributed production perspective, it is possible to say that a
Virtual Enterprise has produced a product.
The enterprise co-operation arrangements can take many organisational forms. It is possible
to find from completely dependent sub-contracting enterprises, most common in automotive
industry, to more independent enterprises playing the role of sub-contractors, but always directing
their productive resources to alternative markets. It is not possible to find, in most of the cases, a
specific behavioural pattern neither at regional level nor dependant of the industrial sector. As a
matter of fact it is possible to say that a virtual enterprise is grounded on a diversity of
organisational models, those of each enterprise member.
A major financial integration and economical concentration is being a characteristic of the
automotive industry. This is the case of large car-builders, as Nissan-Renault, Mercedes-Chrysler-
Ford or BMW-Rover, but also the case of components producers (Delphi, Valeo), or among
suppliers. Some authors refer then the existence of different types of automobile production
networks 6.
Nevertheless, a long way needs to be transposed before an effective virtual enterprise can
be established. There are many constraints conditioning such tendency:
Ø Lack of an integrating infrastructure guaranteeing a global interoperability among SMEs.
Ø Reengineering of the internal enterprises business processes in order to deal naturally
with the virtual enterprise.
Ø Reorganisation of the social and organisational structures again to fulfil the virtual
enterprise requirements.

6
TULDER, R.; RUIGROK, W.: “The integration of Central and Eastern Europe in car production
networks”, in Actes du GERPISA, No. 25, Feb. 1999

5As it happens with the networks emerged from direct contact deeply supported on mutual
trust relation, the virtual enterprises crossing the physical accessible borders need also to get such
confidence from entrepreneurs. It is not easy to overcome the absence of a physical presence.
When people are face to face, many informal and symbolic information items are exchanged
or acquired by each interlocutor. It is not an easy task to model such ancestral confidence relations
by using the new information and communication tools. The sociological intervention is essential to
guide the changes referred to integrate organisations into a co-operative world.
As some authors point out, the new organisational design variables made possible through
information technology are the following: structural, work process, communicational, and inter-
organisational relations variables. “With co-production, the aim is to easy exchanges, individual
and collective contributes to knowledge. This sonorisation is also the federator of cosmopolitan
cultures of de-localised research, manufacturing, marketing and sales teams” 7.
In fact the virtual organisation creates new management and co-ordination challenges. In
most cases, traditional organisations are using technology to make partial changes in their structure
without making major modifications to the entire organisation. For example, electronic or metal
engineering manufacturers can set up just in time EDI links with parts suppliers, changing just one
component of the organisation. At the same time, the supplier can then be viewed as part of the
manufacturer's raw material inventory. Nevertheless, the organisational design variables should be
the same as those mentioned above usually applied to more advance virtual enterprise concepts.
In what human resources are concerned there are two main drawbacks: on one hand the
technology evolves on a small step by step basis; on the other hand the persons inside the
organisations are only able to make changes also in a step by step basis. These two vectors -
technologists on one hand and human resources (at different levels, from management, consulting,
engineering, production, etc.), on the other hand -, all of them need to be involved in the movement
of the changes. To get their adherence they must be informed about the changes and more than that,
they must be considered as active contributors to the changes.
These constraints can be observed from another level - the technology design point of view.
In fact, there are two main approaches: the technocentric, exclusively centred on technological
aspects without considering sociological constraints and the anthropocentric that brings to the
conception phase the sociological constraints. The technocentric strategy is focused on technical
and technological issues. Instead, in the anthropocentric approach, the technological conceptions
toward enterprise innovations shall involve organisational and social constraints, in order to allow a
better integration between the technical and human aspects. “The anthropocentric option involves
on the development of systems based on specific architectures conceived according to the human
factor valorisation and new organisational principles such as: autonomy, creativity, participation,
co-operation, decentralisation and professional skills” (KOVÁCS, 1993).
Therefore, the virtual enterprise is in some extent the conceptualisation of a production
system based on a set of distributed enterprises following some co-ordination enterprise node to
realise some business goal. Geographic distribution, different cultures (organisation, language,
processes, etc.), flexible communication and co-operation mechanisms, privacy integrity and
authentication, are some of the issues that need further research to achieve a reliable network of
enterprises as the basis to create many virtual enterprises.
Another perspective of the problem is on the design of the technological solutions to
support many of the enterprise functional needs. Information computational tools tend to be

7
ETTIGHOFFER, D.: A empresa virtual ou os novos modelos de trabalho, Lisbon, Piaget, 1999, p. 234.

6general, to cover an increasing number of the enterprise needs. However this generality implies on
some changes into the enterprises adopting the technology.
These changes sometimes don’t follow the most advised path and as a consequence, they
are classified as the main negative contributions to the innovation failure. This is a complex subject
mainly for SME’s those that cannot support internal developments, to customise the ICT tools to
the reality of the enterprises. For large enterprises the situation don’t apply because they usually
have their own internal development departments or at least they have internal capacity and power
to customise the new tools they are adopting.
DEVELOPMENT OF A VE IN THE PORTUGUESE AUTOMOTIVE INDUSTRY?
In the Portuguese automotive industry there are four types of entrepreneurial organisation:
Ø the CHD/vehicle assembler, where the design is located outside the country, and with an
incipient network of SMEs;
Ø a local network of firms leaded by an important component company, strongly
dependent from a car builder located outside the country;
Ø a car company com three-tier network, adopting a JIT regime for the first tier. The 2nd
tier has only indirect participation (and mostly medium-sized firms). SMEs of the 3rd
tier are suppliers of the 2nd tier firms, with indirect relations with the final assembler;
Ø component producers for outside markets.
In Portugal, the automotive sector is implementing a strong and standardised system of
inter-firm co-operation applying the JIT techniques, and the specialised layers.
In the first case, the Fordist organisation model dominates (large batches, scale economies,
standardisation of tasks, strong hierarchies, weak organisational flexibility). They can have
problems with expected quality and productivity levels. This was the specific case of the former
Renault factory at Setúbal was closed down and moved to a new factory at Slovenia. Other cases
are exemplified with Ford (that is also closing down the Azambuja factory), and to a less extend
with Opel and Mitsubishi. These cases are also not founded on local/regional sub-contracting
networks.
The second type of organisation is illustrated also with Renault, but with a different factory.
The one mentioned is located at Cacia-Aveiro, and produces gearboxes and motor components. It
introduced concepts of JIT and quality control during the 80s. The analysis was developed by
Moniz and Castillo research teams 8, and a clear trend continued from that period: there exists an
articulation of this firm with a local network of firms, acting as an extension of the components
company.

8
CASTILLO, J.J.: “Renault-Valladolid: construire l’organisation du travail de demain” in DURAND, J.-P.,
STEWART, P.; CASTILLO, J.J.: L’avenir tu travail à la chaîne, Paris, La Découverte, 1998; and MONIZ, A.B.;
OLIVEIRA, P.; RUIVO, M.S.: Fábrica líder em Aveiro? (research report), UNL, 1995.

7The third type of enterprise is perhaps the one with a larger impact in the productive
structure in Portugal. And is the one that could express better the VE model. The case is the
AutoEuropa factory that assembles multi-propose vehicles from Ford, VW and Seat. Its
implantation as a Greenfield site originated substantial changes in the way as firms relate
themselves in a network 9, although it didn’t produced a modern industrial district. In other words,
it didn’t create a true manufacturing “system” that stimulated externalities and synergies,
influencing all the local entrepreneurial fabric 10 . Nevertheless, it was a case that assumed its
functions on the qualification and training process, articulating also with the regional vocational
training institutions.
The fourth case, reefers to the components companies (or supplier leaders), that have their
market almost exclusively dependent from the larger car builders, or assemblers, located outside the
country. Those are the Delphi case (subsidiary of GM), that in Portugal have several factories for
cabling, seats, steering wheels, the Ford Electronics case (cabling, auto-radios), among others.
They build-up components groups, that are increasingly complex, using their own suppliers layers.
In some case they are even using joint ventures. These companies include logistic concepts, quality
management, and price competitivity.
CONCLUSIONS
A virtual enterprise (VE) can be considered as an temporary network, with some stability,
of independent firms, connected through ICT, with the aim of reducing costs and market share.
This concept follows the theories developed around the enterprise-networking concept. But here is
underlined de development of a perspective of co-operation network, aggregating competencies and
resources from different firms.
The division of company competencies is unbalanced between firms, founded on
asymmetrical relation among them. Larger firms concentrate activities with more added values (as
R&D, product design, planning, marketing, commerce). The less central tasks (as maintenance,
distribution, security) are outsourced to specialised firms. Finally, are de-localised the routine tasks
(manufacturing, transformation) towards regions with cheaper workforce, and to smaller firms at
the 2nd tier, or even to leader suppliers.
But a common trend to the different regions (Europe, US, Latin America, Southeast Asia)
is the cost control and the adhesion to dominant principles of competitivity, that push firms to
diminish their employment volume. The de-valuation of work and skills is even associated to the
increase of qualitative investments of technology transfer. “Transplants” or de-localised firms are
rarely followed by an employment increase.
But the VE concept implies the re-construction of entrepreneurial co-operation systems
funded on confidence and information share related with a common product developed through a
network. The social and cultural implications of this new organisation concept are very clear:
definition of functions, co-operation principles, competence localisation, informal and symbolical
inter-change of information.

9
cf. MONIZ, A. B.: Estratégias de empresas trans-nacionais (TNE) em economias periféricas: O sector
automóvel e o projecto da VW/Ford em Portugal, relatório FAST/FINE, Anex 3, Brussels-Gelsenkirchen, IAT,
1993.
10
FERRÃO, J.; VALE, M.: “People carriers, a new opportunity for the European periphery? Lessons from
the Ford/VW project (Portugal)” in HUDSON, R.; SCHAMP. E. (eds.): Towards a New Map of Automobile
Manufacturing in Europe? New Production Concepts and Regional Restructuring, Springer Verlag, 1994.

8The investment of computational networks does not create co-operation networks, but
requires an increasing investment on human and organisational networks. For that reason, co-
operation networks with symmetrical relations, as the VE would demand, are very rare in the
automobile industry.
In production re-organisation processes, that have such variety of situations, the choices are
multiple. But, the main conclusion is that choices are possible. There should be no one best way
that limits our search of viable alternatives towards a better quality of working life.