Published by MBA Skool Team, Published on June 25, 2013
Labor force in India is the second largest in the world after China. Majority of the Indian labor force is in the unorganized sector. Less than 10% works in the organized sector that comprises of government and other public and private registered companies.
Labor and labor related issues are not new to India. All the sectors of Indian economy have been affected by labor disputes and unrest. India had been a country with largest number of labor disputes for years. Labor disputes leads to loss of man hours which in turn affects productivity adversely. Many companies have been badly affected by the strikes and had to be locked out due to the severe labour issues. The legendary strikes in Indian history are that of Railway workers in 1974(largest known strike) and the Great Bombay Textile Strike. India has come along way from those legendary strikes.
As years passed, the nature and color of disputes and unrest also changed. In 1970s and 1980s, manufacturing, mining and quarrying sectors were most affected by industrial disputes. But today, financial services sector and other services sector dominates industrial disputes. But, on a whole, the number of strikes have decreased tremendously. While the average number of strikes in 1970s was 7 per day, now it is only one every two days. The major reasons for such a decline in strikes has been attributed to the change in relationship between workers and employees. This has led to improved productivity. Another positive aspect for this reduced number of strikes is the better negotiation strategies and the ways of handling the disputes employed by the employer because of the better business prospects. The change in global shift in values from collectivist to individualistic has also led to such a decrease in the number of strikes. Another negative aspect which is attributed to this is the growing contractual labor employed in factories. They are in most cases not given freedom to form their unions or to protest against the unjust practices of the company. Another fact is that the increased growth of service sector firms and private firms especially the IT, the concept of labor disputes or labor union or employees union is unheard of. Although there has been a decline in the number of labor disputes in the last decade or so, the year 2012 is slowly becoming an exception. The data from the Labor bureau of the government indicate an increase compared to last year. The number of strikes might have increased or decreased. But the effects and impacts have increased. Many incidents of strikes leading to wide destruction of property and even incidents of murders of officers and managers have been reported from various parts of the country in the last few years. These incidents have wide effects on the economy of the country. This article focuses on one of the major sectors which has been affected by strikes in the recent past the most – Automobile Sector
“Honda Motorcycles staff, police clash, over 100 hurt”
Economic Times 26th July 2005
“Sacked workers beat CEO to death in Noida; 50 Hurt, 10 Execs in ICU As 200-Strong Mob Runs Riot”
Economic Times, 23rd September 2008
“Labour unrest slams brakes on auto hub”
Economic Times, 21st October, 2009
“Workers kill VP of Coimbatore firm”
Economic Times, 23rd September, 2009
“India’s strike, riots become fatal for auto parts outsourcing”
Economic Times, 16th November 2009
“Strikes cost over 500 crore in 2011”
Times of India, 22nd May, 2012
“1 killed in labour strife at Maruti plant; 90 Injured As Workers Attack Executives, Set Fire To Company Office At Manesar”
Times of India 19th July, 2012
“Strike at Hyundai enters sixth day”
Economic Times, 5th November, 2012
The above exhibits give a general idea about the alarming situation that prevails in Indian automobile industry with respect to labor disputes. Labor disputes are no longer disputes that end up in strike, but they are repeatedly crossing every possible limit. It was in 2005 that the agitating workers of Honda Motorcycle and Scooter India were brutally attacked by police. This labor unrest was followed by labor unrest at several other manufacturing plants, including Sunbeam, Micro-Tech, Rico Daruhera, Rico Auto, FCC Rico, Hema Engineering, HMSI, Hi Lux, AG Industries, Hero Honda, Sona Steering, Bajaj and Denso Haryana
As is evident from the newspaper exhibits, deaths have occurred even before on account of labor disputes, but it did not catch media attention as much as the recent case of Mr.Awanish Kumar a General Manager of the Maruti plant in Manesar. It gained popularity mainly because of the brand name ‘Maruti’. Concerns have been raised from all sectors of the country about the increasing occurrence of such incidents and its impact on the country. Various panel discussions, meetings and deliberations have taken place on the same. It might be true that laborers agitate because of unfair treatment. But killing a person cannot be justified on any account. Here we try to analyse different cases of labor unrest that has happened in the automobile industry and try to draw a conclusion about the probable causes, impact and future concerns regarding the same.
Labor disputes have always happened due to the lack of trust of the employee in the employer. But at times, it can also happen due to the vested interests of a few people in the trade unions. But in general, almost all the cases are reported due to the bad employee-employer relation and lack of proper communication between the management and laborers.
The major cause of unrest or protest has risen from the fact that the companies does not allow the formation of labor unions. As can be seen in the case of Rico Auto incident which happened in October 2009, it all started when the company expelled 17 people on grounds of discipline, who are believed to be victimized for helping form trade unions in the company. The labor strike lead to violent protests and confrontations between employees and finally ended up in the death of an employee. Even the Maruti Gurgaon plant issue also had similar problems of trade unions where company was against formation of trade unions.
Another major cause is the low wage issue. India has one of the most rigid laws for employment. But it is not still strong enough to meet the requirements of the present day economy. The laws are archaic. While all laws are aimed at protecting the interests of the workers, it does not always happen so. One law which protects the workers indirectly paves way to some other practice by the employer. For example, there are strict regulations regarding the wages, rights and other facilities which are applicable to permanent employees. To avoid giving them, companies prefer to employ more contract laborers. Thus law which should protect workers does not always do so. Wage inequality has been the major cause of labor unrest in Maruti plant in Manesar. The contract laborers who were almost 40% of the total labor force were given almost half of the salary of the permanent workers when the work performed by them were similar to the permanent workers. This is a clear negligence of the Contract Labor Act 1970 which states that “contract labor cannot be employed if the work is of perennial nature that is to say, it is of sufficient duration having regard to the nature of industry, trade, business, manufacture or occupation carried on in that establishment”. Contract Labor Act 1970 prohibits employment of contract labor in any work similar to that of permanent employees. But the workers were not able to raise the issue because of the absence of a strong union for contract laborers.
Another cause of many industrial disputes is the unfair and ill treatment of workers by the employees. It happens not only in case of wages, but also in the nature of work and facilities provided. In Manesar plant, the work was so hectic that they hardly got time to go to toilet In between. They were given too short breaks. The pressure on them was so high. They were penalized heavily for late comings and absenteeism. The facilities provided to the workers was also inadequate as per the laws. They worked harder every day to increase the productivity of the plant, but they were not paid as per the work. Half the work force was employed to do the work than the actual requirement. The same cause can also be seen in the case of the unfortunate and tragic incident that happened in Pricol, an auto company in Coimbathore. The VP HR was killed in a labor agitation that happened in September 2009. He was blamed for freezing the salaries of the workers.
The other cause is the changing economic environment. Consumerisation is the slogan of the time. Aspirations of the present generation whether a daily wage contract laborer or a CEO is now comparable. An Apple iPhone is now aspired by anyone irrespective of his financial background. Hence such aspirations make them restless and they get easily agitated on grounds of unfair treatment and poor wages. This problem aggravates especially when the company makes huge profit and the workers feel the same does not penetrate till the lower level. They feel that they work hard (made to do double the work) to gain such profits, but they does not benefit from the profit they earned for the company. Similarity can be drawn in the incident at Graziano Trasmissioni, Noida when the CEO was beaten to death by workers who were retrenched due to a partial lock out. People are not able to accept such facts like unemployment especially in hard economic situations of rising prices. The highly competitive economic and business environment creates an insecurity and uncertainty in the minds of the employees also. This paradigm shift in the cultural background and the economic conditions also has had an impact on the labor disputes.
Another cause can be the mismanagement and failure to understand the culture of the location by the top level management. Maruti puts forward the example again. The Manesar plant issue proves that the entire machinery was a failure to anticipate such an unrest. The new MD who was a Japanese was no way able to establish a rapport with the Indian machinery. The middle level management also failed to communicate between the high level management and the laborers. So the entire machinery was in dire straits within the company. Strikes had been so frequent within the company, still they were not able to anticipate such an extreme incident. The incident also made clear the absence of a strong Industrial Relations team in the organization. With the boom of the services industry, industrial relations has become a neglected space in management education. The lack of skills and expertise in the industrial relations department became clear with the Maruti incident and even with similar incidents that took place in the recent past.
Having seen the various probable causes of the labor disputes in India, it is high time to discuss some solutions to tackle these issues so that such notorious incidents do not repeat. Although incidents have occurred in the past, labor and labor related issues have attained much more attention and research following the Maruti Manesar plant incident.
The highest impact of any labor issue falls first on the affected company. The prdocution gets affected and the sales come down which in turn affects profits. Manesar plant issue became severe to such an extent that the company had to think of locking out the plant. The incident also hit the component manufacturers who depended solely on Maruti. The local economy of the region also gets adversely affected due to such incident.
Another major impact is on the investment climate and economy of the country. Such incidents when increasingly reported sullies the image of the country. These incidents would be seen as alarming signs by many potential investors who consider India as a place for investment. These incidents would affect the investments at a time when India is becoming a manufacturing base for many of the foreign automobile manufacturers. India is already ranked bad (132) in the Ease of Doing Business Index List. These repeated incidents showcase the complex labor scenario to the outside world.
While it was the suppliers who bear the impact in case of Maruti incident, it was the manufacturer who got the impact in case of Rico Auto strike. A strike at a factory in India affected the global value chain and it impacts India in the long term perspective. The Rico strike that extended 45 days led to closure of factories of Ford and GM abroad since the supply to these factories was affected. Such incidents raise questions about the credibility of India as a location for industries and many companies would look for alternate locations like China and Thailand.
The Manesar plant incident has led to serious thoughts not only in the manufacturing industry, but also in the academic field. Industrial Relations has gained popularity after the incident. It has long been a neglected field. The top B-schools are revamping their curriculum to give emphasis to this subject which was forgotten for a long time especially after the economic reforms of 1991. Various conclaves have taken place in almost every B-school across the country to create awareness and to emphasize on the increasing need for industrial relations in the present scenario. Companies also pushed the management institutions to include industrial relations and rebalance the human resource courses so that those skills are not neglected.
“B-schools including IIMs reviewing human resource curriculum after Maruti's Manesar violence”
Economic Times, 29th August 2012
How to tackle ?
The Indian economy is growing rapidly and labor related issues should not hinder its growth. It is high time we revisit our archaic labor laws. Indian labor laws are rated as one of the most rigid laws in the world by World Bank. Labor laws should be amended with respect to the present day industrial requirement at the same time safeguarding the interest of the employees and employers. Minimum Wages Act should be amended to include effects of inflation. Labor laws should be amended not only to protect workers but also to create more employment in a growing country like India. Trade union laws also should be amended so that they don’t become hyper powerful. It is necessary to protect the interest of all parties by law.
The major concern still stays with employment of contract labor. Maruti after the Manesar incident told that it will revisit its contract labor policy. Employment of Contract labor should be minimized. At present, the contract laborers face lot of discrimination and they are still unorganized. They do not have unions to represent them. There is a lack of security and social welfare for them. They do not enjoy rights or facilities at par with permanent employees though they do the same kind of job. Such discrimination should be stopped. It is this discrimination, exploitation and deprivation that leads to labor unrest and riots. The laws and legal framework regarding the contract labor should be clear and straight forward. Bending of laws for cost cutting should be dealt by law. Contract laborers should not be considered as cost cutting elements, but as partners in the production process as any other employee of the company. ‘Equal pay for Equal Work’ should be the norm.
It is time that we consider laborers as part of the company rather than cost elements. They should feel empowered. The laborers should be educated and made aware of the industrial scenario of the country and how important their contribution is to the progress of the industry and nation. The increasing aspirations of the present working class should be understood by the management. The HR department should be more proactive in dealing with the laborers. Promotion of trust between the manager and the managed is necessary. More discretionary power should be given to employees. The management should have dialogues with the workers. It is not an archaic society where every attempt to increase productivity leads to disputes and strikes. The industrial set up should be improved in such a way with the inclusion of employees such that they get incentives for increased productivity. Capacity development should be given importance not only in the high level and middle level management, but also in the shop floor level. Such actions would surely make the employees more empowered and self-valued.
The role of labor unions in the industrial scenario of our country cannot be negated. It is the approach towards the trade unions that determines how well they are managed. Companies which always restrict and control the formation of trade unions have always suffered at their hands. Companies should allow formation of trade unions on democratic grounds. Toyota is an excellent example for their approach to employees. They are considered as a company which do not build only cars, but people too. Toyota explains their approach model to HR: “Being heard is the foundation of the Toyota culture of continuous improvement. So, Toyota sets up mechanisms through the HR department to allow team members to be heard. We saw that even the HR department can be viewed as biased. The counter measure was to set up a separate “I” team representing a cross section of the plant to investigate employee issues”. It is time companies learn from their counterparts and benchmark themselves not only in financial growth but also in intangible dimensions also. The formation of labor unions can also be considered as a failure of a company to address the issues of the laborers. If the company pursues proper employee engagement, employee development and transparent conversations with the employees, they would not seek the help of an external agency for help like a labor union. So it is required that every company has a 360o feedback system so that even the lightest issue is addressed before it gets serious.
It is not only the companies which should revisit their approach to trade unions. Trade unions should have a second thought on why and what they exist for. They should safeguard the interest of the workers, but at the same time, they have the responsibility to promote the growth of the industry and the country. They should understand the changed industrial scenario. Trade unions should not become franchisees of politicians.
Another area where thrust has to be given is the handling of the labor issues. Whatever industries do, disputes will continue to occur. But the success depends on how smoothly the company handles it. Even in cases of disagreement, companies should make sure that a disagreement is reached after discussions and negotiations. A failed negotiation is always better than confrontation. The ability to listen and negotiate with patience should be there in every management. The way a dispute is handled creates an image of the company in the minds of the workers. It is very important to create a good image because the image persists even after the conflict is over and the worker returns to work. It is far more important to create an inclusive work atmosphere for workers returning after strikes. It is a herculean task which might sometimes take years. There are companies which are still bearing the wound of strikes which happened years ago. It requires an open mind from both parties to share the blame and the gain of a dispute and the negotiations.
It is time we retrospect and take swift actions. It is time to stop discussions and take actions. All the stakeholders – the government, industrialists, laborers, society and whoever concerned should converge their thoughts and focus for the progress of the nation. People should understand that violence is not the solution for any problem. We want permanent solutions that can take the industry and the Indian economy ahead. Maintaining a harmonious industrial relation involves collective effort by all the stakeholders. The fate of Roy, Chaudhary and Awanish should not happen to anyone again. The whole world looks forward to India since the future of the world is here. We should not destroy our future by our stupid and heinous acts. India should and will remain a country of great potential and a country which taps its potential to pave way to growth.
The article has been authored by Bastian K Ittyavirah - Loyola Institute of Business Administration, Chennai