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Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
Maruti’s  lanka—a sensational ir case in an industry
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Maruti’s lanka—a sensational ir case in an industry

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  • 1. MARUTI’S LANKA—A SENSATIONAL IR CASE IN AN INDUSTRYBy Dr. Sibram Nisonko,Associate Professor(MBA),IBMRcollege,chinchwad,Pune,09272337048,snisonko@sify.com.Maruti Suzuki is a subsidiary company of Japanese automaker Suzuki Motor Corporation. It has a marketshare of 44.9% of the Indian passenger car market as of March 2011. In February 2012, the companysold its 10th million vehicle in India. It is India and Nepals leading automobile manufacturer and themarket leader in the car segment, both in terms of volume of vehicles sold and revenue earned. Untilrecently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan.The government of India held an initial public offering of 25% of the company in June 2003. As of 10May 2007, the government of India sold its complete share to Indian financial institutions and no longerhas any stake in Maruti Udyog.The Indian labour it hired readily accepted Japanese work culture and the modern manufacturingprocess. In 1997, there was a change in ownership, and Maruti became predominantlygovernment controlled. Shortly thereafter, conflict between the Government and Suzuki started.Labour unrest started under management of Indian central government. In 2000, a majorindustrial relations issue began and employees of Maruti went on an indefinite strike, demandingamong other things, major revisions to their wages, incentives and pensions.After elections in 2000 the new central government pursued a disinvestments policy. Itproposed to sell part of its stake in Maruti Suzuki in a public offering. The workers unionopposed this sell-off plan on the grounds that the company will lose a major business advantageof being subsidized by the Government, and the union has better protection while the companyremains in control of the government.The standoff between the union and the management continued through 2001. The managementrefused union demands citing increased competition and lower margins. The central governmentprevailed and privatized Maruti in 2002. Suzuki became the majority owner of Maruti UdyogLimited.Maruti-Suzuki workers went on strike first on 12th October 2000 when nearly 4,700 employees ofMaruti Suzuki (MSIL), formerly Maruti Udyog Limited boycotted work, protesting the companys demandfor an undertaking from them .Daily output was cut by 86% as the company forbade entry to workersnot signing the undertaking. The MU Employees Union treasurer said that signing it would have meantlosing their fundamental rights. It was also a protest against the managements decision to link bonusand incentives to productivity and efficiency. The primary concern of the management was thatproduction should not stop on account of the agitation. Workers from suppliers were roped in to do the1 | Dr.SibramP a g e
  • 2. work and along with supervisors and managers, Maruti got the plant started within a weeks time. Therewas also indirect (political) pressure from the BJP Government on the Union and the issue came up fordiscussion in Parliament. The management meanwhile agreed to drop insistence on individual workersto furnish a good conduct undertaking, but sought certain safeguards, and stipulated that the law wouldtake its own course in regard to disciplinary action. The deadlock continued for 90 days. Finally on 9thJanuary 2001, the strike broke on the managements terms. The Union had to accept the new terms onproduction linked incentives and bonus. The face saver was that no undertaking had to be given.However, the 2000-01 confrontation did not die down .In August, 2005, the Maruti Udyog Employees Union (MUEU) sought the Prime Minister Dr ManmohanSinghs intervention to resolve several issues with Suzuki management since the Suzuki managementhad summarily dismissed 24 Union activists without holding any enquiry, another 36 after ex-parteenquiry, and 32 more for not signing the undertakings imposed by the management. Twenty-six werecharge-sheeted and "compelled" to take VRS, while hundreds of other employees also took VRS. TheUnion also alleged that Maruti Udyog had replaced over 2000 permanent employees with contractworkers, following the October 2000 dispute. The PM met them on 3rd August and voiced apprehensionin taking up the issue, as the echo of the labour trouble at Hondas facility had barely died down.A Maruti spokesperson said the companys Union (formed by ex-employees of the company) had longsince been de-recognized and therefore was not representative of the workers. The workmen had beennotified that only those workers could enter the factory who gave an undertaking in writing that theywould not indulge in any activity which adversely affected the production and discipline and that"workmen who do not give the undertaking would be deemed to be on illegal strike. In terms of thecontract of employment the workmen are duty-bound to adhere to norms of discipline and give normaloutput". Suzuki, which had already increased production from 5,50,000 in 2005-06 to nearly 8,00,000 in2008-09, decided to step up capacity further to one million per annum by 2009, earmarking Rs 9000crores investment for 2008-2011. Exports had also risen significantly (The Economic Times 5/5/09).Why Companies Don’t Like UnionsUnions are politicised, messy and the management is never quite sure of their motivation. “Anybodywho has dealt with a labour union knows how ridiculous it can get at times. The balance rests on a verythin line and most of the times it is a compromise. All your theories of motivation go out of the windowand it is mostly horse trading,” says a former plant manager of an automotive manufacturing companywho did not want to be named.2 | Dr.SibramP a g e
  • 3. Almost every strike at the numerous factories in the Gurgaon-Manesar region in the past decade hasstarted with companies refusing to recognize the demand of workers to form a union. From the strike atMaruti in 2000 to the one at Honda Motorcycles and Scooters India (HMSI) in 2005 and the one at RicoAuto in 2009, the one common demand was to form a union. . Maruti has stated publicly that it doesnot want to deal with more than one union. The company says it already has a union, the Maruti UdyogKamamgar Union (MUKU), at its Gurgaon plant and if workers at Manesar want a union, they shouldcome under the MUKU umbrella.Shiv Kumar is supposed to be the general secretary of the new union at the company’s Manesar plant.The new union’s registration is still pending and the Maruti management has made it quite clear thatthey will not allow a new union.“Labour unions are a reality and companies have to accept it sooner or later”, said Anil Kumar,General Secretary of AITUC, Gurgaon,MANESAR VIOLENCE JULY 2012On 18th July 2012, Marutis Manesar plant was hit by violence as workers at one of its autofactories attacked supervisors and started a fire that killed a company official and injured 100managers, including two Japanese expatriates. The violent mob also injured 9 policemen.Thecompanys General Manager of Human Resources had both arms and legs broken by hisattackers, unable to leave the building that was set ablaze, and was charred to death. The incidentis the worst-ever for Suzuki since the company began operations in India in 1983.Since April 2012, the Manesar union had demanded a five-fold increase in basic salary, amonthly conveyance allowance of 10,000, a laundry allowance of 3,000, a gift with everynew car launch, and a house for every worker who wants one or cheaper home loans for thosewho want to build their own houses. In addition to this compensation and normalweekend/holidays, the union demanded the current 4 paid weeks of vacation be increased to 7weeks, plus each worker have 40 days allowance of sick and casual leave - for a total of 75 days.Maruti said the unrest began, not over wage discussions, but after the workers union demandedthe reinstatement of a worker who had been suspended for beating a supervisor. The workersclaim harsh working conditions and extensive hiring of low-paid contract workers .Themanagement insisted that they must wait for completion of inquiry underway before they cantake any action on the employee suspended for beating up his supervisor. The management wasthen told, "you will be beaten up after we get a signal." Thereafter, the workers broke up intogroups, went on to set the shop floor as well as all offices afire. They searched for managementofficials and proceeded with a barbaric beating of the officials at the site with iron rods.3 | Dr.SibramP a g e
  • 4. The police, in its First Information Report (FIR), claimed on 21 July that Manesar violence maybe the result of a planned violence by a section of workers and union leaders. The report claimedthe workers action was recorded on close circuit cameras installed within the company premises.The workers took several managers and high ranked management officials hostage. Theresponsible Special Investigative Team official claimed, "some union leaders may be aware ofthe facts, so they burnt down the main servers and more than 700 computers." The recordedCCTV footage has been used to determine the sequence of events and people involved.As per the FIR, police have arrested 91 people and are searching for 55 additional accused.Haryana Government has started investigation and 90 odd workers have already picked up FIR by Mrutinamed 55 workers 600 others.Satbir, President of Centre of Indian Trade Unions hope that there should be a fair probe.”The tendencyto demonize all workers is not good for industrial relations. The problemis that 21st century Corporationshave 15th century mindset when it comes to treating workers”, he said.Maruti Suzuki in its statement on the unrest, announced that all work at the Manesar plant hasbeen suspended indefinitely. A Suzuki spokesman said Manesar violence wont affect the automakers business plans for India. The shut down of Manesar plant is leading to a loss of about Rs75 crore per day. On July 21, 2012, citing safety concerns, the company announced a lockoutunder The Industrial Disputes Act, 1947.On July 26 2012, Maruti announced employees would not be paid for the period of lock-out inaccordance with labour laws of India. The company further announced that it will stop usingcontract workers by March 2013. The report claimed the salary difference between contractworkers and permanent workers has been much smaller than initial media reports - the contractworker at Maruti received about 11,500 per month, while a permanent worker received about12,500 a month at start, which increased in three years to 21,000-22,000 per month. In aseparate report, a contractor who was providing contract employees to Maruti claimed thecompany gave its contract employees the best wage, allowances and benefits package in theregion.Contact workers complain that they are made to work on all heavy and laborious work whilepermanent workers don‟t. At the same time workers impose their authority on them. Thepermanent workers are paid more than twice of what the contract workers get.GLOBALIZATION AND CORPORATE CONCERNS4 | Dr.SibramP a g e
  • 5. Shinzo Nakanishi, managing director and chief executive of Maruti Suzuki India, went to eachvictim apologising for the miseries inflicted on them by fellow workers, and in press interviewrequested the central and Haryana state governments to help stop such ghastly violence bylegislating decisive rules to restore corporate confidence amid emergence of this new militantworkforce in Indian factories. He announced, "we are going to de-recognise Maruti SuzukiWorkers‟ Union and dismiss all workers named in connection with the incident. We will notcompromise at all in such instances of barbaric, unprovoked violence." He also announcedMaruti plans to continue manufacturing in Manesar, that Gujarat was an expansion opportunityand not an alternative to Manesar.Government procedures for labour dispute resolution are currently very slow, with tens ofthousands of cases pending for years. The government of India is being asked to recognise thatincidents such as Manesar violence indicate a structural sickness which must be solvednationally.The peace of the last twenty years in Industrial Relations (IR) has been ruffled by the current,bitterly fought Maruti Suzuki strike. It stands out as one of four strikes that caught the attentionof the nation in the past three decades - the textile strike, the 1989 strike at Telco, now calledTata Motors, and the more recent strike at Jet Airways.FINANCIAL IMPACTMaruti unrest has hit its net realization .For the quarter ended June 2012 its operating margins slid bymore than 200 basis points year-on-year(YOY).At 7.3% the company reported its lowest Q1 margins inthe past 4 years.Input cost(raw material )increased by 25%YOYEmployee cost increased by 33%Employee cost/Sales =2.2%(highest in past 4 years)INDUSTRIALIZATION5 | Dr.SibramP a g e
  • 6. Maruti stands at the highest end of a technological development which India can be proud of theculture around represents a traditional village culture. For the people of the village around Manesarwhose land was acquired the industrial relations problem created a formidable crisis for workers,management and the society as a whole. Earlier the local people were the producers. A good buffalowas better than a car for them since it gave them milk, a means of transport and livelihood. Now theyare at the mercy of the company. The company is providing a source of income to hundreds of vendorand suppliers. As long as the plant an Manesar ran smoothly there was no self-reflection .Due to fixedincome the villagers never thought of becoming entrepreneurs.The villagers grumble by saying , “They(Maruti company) keep us away. They don’t give us contracts.They adopted our village but have done little substantial.” The Factory owners don’t hire them becausethey are afraid of their community backed disruptive power. Education could improve their mindset.Since they don’t have jobs in the factory the young fellows have no inclination to study. ANALYSIS OF HR EXPERTS AND RESEARCHERSAfter scutinising the Maruti Suzuki strike has brought to the fore several issues that have beensilently plaguing IR over the years, of which the following are of particular interest.Maruti Suzuki, like many other companies, engages over 50 per cent of its workforce as contractlabour and temporary workers. This is a common practice used by employers to save on costs.The problem is that in a country with great unemployment, the desire for permanentemployment, particularly in a blue chip company like Maruti Suzuki, is understandably high. Forindustrial organisations to reduce their permanent workforce, is found extremely difficult giventhe legal implications and business obligations. Consequently, employers have realized that thearchaic labour laws of the country are out of tune with the times and changing businessenvironment. Another factor that predisposes organisations to use contract labour is that althoughthe reduction of workforce or closure is allowed by law, it is only after permission is granted bythe Government which often isAs per reports, Maruti Suzuki did not recognise the union at its Manesar plant and the authoritiesdid not register it. While the right of association is guaranteed by the Constitution of India, thereis no concomitant right to represent at the bargaining table. In other words, it is not mandatoryfor the employers to bargain with a union, except in the State of Maharashtra, where the Courtdecides the representative status.6 | Dr.SibramP a g e
  • 7. Another reason collective bargaining is not welcome in the Indian context is that unions oftenhave political connections. Multinational organisations operating in the country need to besensitive to these cultural nuances.The young workforce in India is marked by high aspirations and flexibility. This gives rise to anopportunity to practice and shape industrial relations proactively. Gone are the days whenincreasing productivity was resisted tooth and nail. There is, on the contrary, a greaterappreciation of the need to increase productivity. That several organisations have productivitylinked incentives for workmen in new industries around Pune is a testimony to the fact that anew era in industrial relations has arrived.Organisations are increasingly appreciating that not just communication but a dialogue withemployees is essential. It calls for willingness to empathetically understand the other point ofview and act on it. This is the enlightened practice of industrial democracy.High level of „control‟ exercised by managements is an anathema to industrial democracy. Thesoul of proactively managing industrial relations is promoting trust. Research shows thatincreasing trust between the managers and workforce will lead to strengthening corporategovernance.Many industrial organizations have experimented with redesigning jobs of employees to makethem meaningful, and allowing greater discretion in their hands.The golden rule in resolving conflicts is that even disagreement must be arrived at after an effortis made to understand the position of the other party. Sometimes there are irreconcilabledifferences. Patience must be shown to talk, negotiate and resolve the dispute.Any party‟s conduct during the strife is indicative of its corporate persona, and a certain brand iscreated in the minds of people at large. Moreover, it also creates a mindset which employees atvarious levels tend to follow. It is imperative, therefore, that the leadership knowingly takes stepsto resolve the dispute.Handling conflict does not end when people return to work. It is important to make theemployees feel engaged.RISE OF INDUSTRIAL UNREST IN INDIAThe latest Labour Bureau data point out that industrial disputes leading to strikes and lockouts are onthe rise ,after registering a decline in 2011, and officials expect the trend to worsen in the comingmongths.The table below gives a the detailed figures:STRIKES &LOCKOUTS PSU FIRMS PRIVATE FIRMS TOTAL TOTAL MANDAYSYEAR STRIKES LOCKOUTS STRIKES LOCKOUTS STRIKES LOCKOUTS LOST7 | Dr.SibramP a g e
  • 8. 2010 121 2 141 166 262 168 179356372011 63 0 118 36 176 36 49678232012(Jan- 58 0 32 13 95 13 960089May)Is it the beginning of the end of our dream to be a developed country?QUESTIONS1.What are the possible causes for reversing the posititive trend in industrial relations inIndia,particularly,In Maruti ?2.Has the social milieu made any impact on the worker and management behavior?3.Do you see any failure on the part of other bodies ,besides union and management to bring thesituation to this level in Maruti Udyog Ltd?REFERENCES 1. Indo Asian News Service (21 July 2011). "Maruti violence may be planned: cops". New York Daily News. 2. "Police collect CCTV clips from Manesar MSIL plant". The Times of India. 21 July 2012. 3. "Maruti Suzukis statement on Manesar unrest". CNN-IBN. July 19 2012. 4. Chanchal Pal Chauhan (July 22, 2012). "Maruti Suzuki declares lockout at Manesar factory". The Economic Times. Retrieved July 21, 2012. 5. "Marutis Manesar plant closed for third day, Rs 210cr loss so far". Retrieved 21-07- 2012. 6. "Maruti Suzuki to Stop Using Contract Workers in Direct Manufacturing". The Wall Street Journal. July 26 2012. 7. "Violence at Marutis Manesar plant: Bloodlust had taken over, eyewitness says". The Times of India. July 26 2012. 8. .Maruti Suzuki, Wikipedia, 9. Sharmistha Mukherjee & Surajeet Das Gupta (July 22, 2012),"We will de-recognise Maruti SuzukiWorkers Union: Shinzo Nakanishi". Business Standard. 10. "Manesar Red Alert". Indian Express. 23 July 2012. 11. "Beyond Maruti: India’s progress calls for a new set of labour laws and labour relations". TheEconomic Times. 23 July 2012. 12. Vivek Patwardhan, Ex- Head of HR , Asian Paints. , Four Industrial Relations insights from theMaruti Suzuki Strike,Published in SHRM INDIA,21.11.20118 | Dr.SibramP a g e
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