1. MAJOR IR & HR ADJUSTMENTS OF SMITHKLINE
BEECHAM PHARMACEUTICAL & THE RECENT CBA
A Term Paper in IR 204
(Labor and the Economy)
Presented to
Dr. RENE E. OFRENEO
School of Labor and Industrial Relations, University of the Philippines
Diliman, Quezon City
In partial fulfillment of the requirements in
IR 204 First Semester
Academic Year 1999-2000
By
JAIME E. NOBLE, JR.
IR 204 / 6:00-9:00 p.m., Tuesday
October 7, 1999
1

2. Table of Contents
page
I. Introduction. 1
II. Overview of the Company
a) Company’s History 2
b) The Philippine Operations 3
III. Major Industrial Relations and
Human Relations Adjustments 4
IV. The Sandigan and its Collective Bargaining Agreement 9
V. Conclusion. 13
Bibliography 14
I. Introduction
Adjustment problems have occurred in many enterprises as well as the
workers and trade unions due to lowering down of tariffs in some industries much
faster than some economies that the Philippine is competing.
In the Philippines, the most obvious consequences to labor and trade unions
have been the downsizing of some companies to reduce their labor cost. Likewise,
cost-cutting measures and productivity schemes was adopted to improve the global
competitiveness of the company. These consequences have dislocated workers and
their families. As a result of downsizing, heavier workloads are being assumed by
those who are retained. Sad to say, some companies are using globalization to bust
unions.
On the other hand, some re-engineering is painless. These are companies that
offer admirably high early retirement pay either to reduced workforce or hire better
2

3. skilled workers. Some of the separated workers are given livelihood training and
organized into cooperatives.
The SmithKline Beecham, a transnational healthcare company and one of the
leading pharmaceutical industries in the Philippines decided to adopt the latter. This
may be contrary to the current Philippine trends. The year 1984-85 and 1997-98 was
year of massive lay-offs. Numerous companies adopted the involuntary retirement as
a policy and culture of closures among other transnationals.
Clearly, there will always be pains in any adjustments and reengineering
exercise as a consequence to globalization. In this connection, SmithKline Beecham
adopted the Win-win type of reengineering by the management. Likewise, its union
Sandigan adopted the option of participative involvement specifically, in the
collective bargaining agreement because the adjustment programs are also
meaningful to them. Together they will face the challenge of global competitiveness.
The purpose of this paper is threefold: 1) It will present the major IR/HR
adjustments of SmithKline Beecham Pharmaceuticals; 2) it will assess the union and
management response to those adjustments; and finally, 3) it will examine the
December 1998 collective bargaining agreement of the company in the midst of
restructuring.
The facts for this paper are based on interviews with Lito de Guzman (Human
Resources Director), Bobby Sabater (Sandigan-President), and Marlon Pasia
(Sandigan-Boardmember). This was supplemented by published and unpublished
materials and data’s of the company.
The company had undergone a series of adjustments. This includes the
merging of SmithKline and Beecham in 1990, the acquisition of Sterling Corporation
in 1996, and the recent structural adjustment which the focus of this paper.
II. Overview of the Company
a) Company’s History
3

4. SmithKline Beecham, a pharmaceutical company was created by the merger,
on July 26, 1989, of two industry’s most respected names: SmithKline Beckman and
Beecham Group. In just a few short years it has emerged as a global healthcare leader.
SmithKline began as a small chemical business founded in 1830 by
Philadelphia brothers in law, John Smith and John Gilbert. It became Smith, Kline &
Company when Mahlon Kline was named partner in 1875. Many notable discoveries
were made by SmithKline scientist, including research that led to Tagamet. The world
first effective ulcer treatment and the company first $ 1 billion products. For the
achievement John Black was awarded three Nobel prizes in 1989. SmithKline was first
to launch an effective mental health treatment, Thorazine, a sustained- released
medicine, Contac and Engerix-B, the world’s first genetically engineered vaccine
against Hepatitis B.
Beecham was incorporated in 1928, when it buys the Beecham Pills, business
that has been founded in 1842 by Thomas Beecham. The company expanded greatly
during the 1930’s when it purchases the Macleans toothpaste and lucozade energy
drink, and again in the 1940’s when it established research laboratories in Brockham
Park in the U.K. Beecham scientist brought worldwide fame to the Brockham Park
facility in 1957, when they discovered penicillin nucleus called 6-APA. That discovery
made it possible to create an infinite number of new penicillin’s that can be targeted
at a pre-determined range of bacteria.1
b) The Philippine Operations
SmithKline started its operation when it was granted a license on September
25, 1963 to manufacture, sell, and export pharmaceutical related products. It housed
its manufacturing plant and office in Cainta with around 215 workforce.
On the other hand, Beecham Research started in 1966 management of Zuellig
Pharma Corporation based in Makati. It consists of around 90 employees mostly sales
1 Facts are gathered from press release on SmithKline Beecham’s history.
4

5. people. Its products were carried out by a third party manufacturing, Interphil
Laboratories in Sucat.2
Late 1980’s were crucial for both companies due to adverse economic
environment. A number pharmaceutical company has been declining its local
operation. They actualized their first round of structural adjustments by strategic
alliance to improve cashflow, increase profitability, and increase market share in
particular. Likewise, to increase productivity and global competitiveness in general.
The merger of SmithKline Beecham in the Philippines was formalized on January 16,
1990 after series of integration meetings.
In 1996, the company initiated another round of adjustments, the acquisition
of Sterling Corporation and its products. SmithKline Beecham decided to acquire the
said company to accomplish one of its plan to come up with a new consumer
products and consequently maintain the Sterling’s network markets.
Today, it boasts and maintains a manufacturing plant in Cainta that
manufactures premium pharmaceutical related products for local and Asia pacific
market. The company also manufactures product for Sanofi Winthrop, also a
pharmaceutical company. Likewise, Interphil Laboratories was retained to
manufacture other pharmaceutical products. Thus, it came out with a promise of
“Simply Better”3
ways as a corporate culture and values.
III. Major Industrial Resources and Human Resources Adjustments
1)Rightsizing.
This is the most common measure adopted among various enterprises to
reduce the expenses of the company. Also, to reduce inefficiency and redundancy in
the workplace. The idea is to come up with a truly productive company and enhance
efficiency among employees.
To prevent the incidence of layoff, SmithKline Beecham carried out prevention
tactics. The management adopted voluntary separation and early retirement program
2 Ibid.
3 Simply Better is SmithKline Beecham worldwide slogan.
5

6. in response to downsizing. To facilitate the program, SmithKline Beecham offered an
attractive “Early Retirement Programs” (ERPs). This is offered for any employees
who want to avail of program without prior requirements. The company is offering
300% for every year of service for any employees that are interested. On the other
hand, employees that are redundant, non-productive, and unable to reach the quotas
were encourage and offer the same package. However, those who refused the
program despite inefficiency seek refuge with the union. Since there has no urgency
and severity of the need to reduce headcount, the management did not force them.
An example, was the case of the janitor who refused the program despite he is
redundant. At that time, the company has two janitors. So he seeks the opinion of
Sandigan who advised him to stay. Today, that same janitor is with the company and
earning a decent salary.
In like manner, skilled employees who really want to leave the company for
awaiting employment availed. Likewise, those who want to start a new career in
business opted to become entrepreneurs. Let take the case of the Sales Director. To
manage his animosity to his Boss who is the General Manager, he availed of the
program. Also a number of competent employees also resigned and landed a more
prestigious in other company. Still, SmithKline Beecham’s downsizing program was
very minimal and voluntary.
2)Overtime restrictions.
To maximize regular working hours and augment cost cutting overtime
restriction was instituted. As mentioned earlier the company’s “Win-Win” formula
should always be uphold.
In response, the Human Resource comes up with its key initiative. The
program was called TGIF (Thanks God It's Friday). Here, it adopted no overtime
every Friday and employees are encourage to leave the office at 4:00 p.m. to cut
overtime and to be efficient on weekdays. Activities that will spillover beyond 4:00
p.m. are advised to be scheduled on another or better finish work on time. This
prompted work efficiency among the employee because the company expects to have
an output daily without the need for costly overtime.
6

7. On the other side of the coin, it allows the employees to spend more time with
their family, relax, and ease pressure from work by leaving the office early. Thus,
balancing work and family life.
This initiative also encourages employees to embark on other endeavors to
enhance their over-all personality as it is said that a person with balanced outlook in
life is more productive.
3)Freeze hiring.
The Human Resources as the planning body around restructuring comes out
with “Freeze Hiring” policy. This was done to fully implement the reduction of
employees and assess the productivity of the workers. This policy will also minimize
tension with the union. In so far that the company is undergoing a couple of
adjustments specifically, downsizing any hiring program may create animosity
within the organization. Likewise, hiring may oppose the earlier adjustment
programs pertaining to reduction of workers
4)Reduction of expenses.
The company adopted several costs cutting measures. Foremost of which was
the reduction of promotional programs. Advertising being the most expensive
program was largely reduced. A cut on advertising was instituted to limits expenses
of company resources.
Repatriation of expats was likewise adopted. The was to optimize SmithKline
Beecham Philippines workforce and not worry about maintaining expats within the
company. With the advent of advance telecommunications communication is within
reach.
5)Out-sourcing of materials.
SmithKline Beecham’s management came out with work processes' tactics in
support of restructuring. First, is when the prices of some goods are lower in other
country, the tendency is for the company to import because of lower tariff and
cheaper prize. With tariff on imports being low the company adopted this policy of
7

8. outsourcing. Lets consider sugar instance, sugar in Thailand cost if 9 Baht almost 9
pesos in Philippine currency. While the cost of the same in the Philippines is about 25
pesos. Thus, there are no reasons not adopt the latter.
The tendency of the company to import production material is high. This
program is a key element in global competition wherein an organization is
progressive and innovative in various facets of the business.
6)Team building and continued improvement among employees.
To intensify improvement within the organization, the company carried out a
series of team building activities and company wide training to pursue improvement
among all the employees.
Clearly, organizational culture in the company was the main attraction of
sound labor and management relations. It adopted no time-in and out policy for the
field workers. No, on the spot checking, house audit or spot audit.
In any case of grievance the Union and Human resources will discuss details
of the cases.
7)Upgrade quality of products by ISO 9002 certification and Improving customer
service.
SmithKline Beecham involves in manufacturing of premium brands of
product lines for Asia and the Pacific market. Therefore, to assure external and
internal quality standards, the company adopted international quality standards by
adhering to ISO 9002 clauses.
The is now ISO9002 certified and is proud to have passed the certification
audit in its first attempt. With this certification the company's customers are assured
of quality products that pass the international standards.
This can be observed by; first, Establishing quality policy; second, organizing
personnel; third, verify quality; and fourth, review of quality systems. Likewise, the
quality policy must be easy to understand, relevant to organizational goals, and it's
must be ambitious yet achievable.
8

9. The workers should prevent the occurrence of product nonconformity, they
should identify and record any product quality problems, recommend solutions,
verify their implementation, and control other foreseeable problems until it has been
corrected.
Here adequate training for production workers and mangers is needed
including equipments. Moreover, customer satisfactions are well emphasized. To
increase market share to increase customer satisfaction.
However, another form of flexibility that is not given enough attention is the
use of various HRD approaches to upgrade the workers in order to make them multi-
skilled and more productive.4
Also, to fully implement ISO 9002, upgrading of
appropriate equipment is a necessity.
8)Third Party Manufacturing system.
This refers to passing the production of some products to other companies. In
the case of SmithKline Beecham, some pharmaceutical products were given to
Interphil Laboratories because of competitiveness and expertise
To reflect on the above restructuring goals implemented by SmithKline &
Beecham we can notice a dramatic achievement. First, there was a reduction cost or
expenses and inefficiency. Second, there was improve internal communication and
increase in employees autonomy and decision making. Third, improve customer
service and increase sales and profitability. Fourth, there was an apparent increase in
productivity among employees.
However, the impact of restructuring on workforce had increase workloads
and some stress.
Table 1.1
Employees Distribution
Before Downsizing5
Departments No. Managers No. of Rank & File
Sales 35 180
4 Ibid., pp. 6.
5 The figures were obtained through Marlon Pasia, above was estimates because of unavailable
data.
9

10. M manufacturing 15 32
Finance 15 8
Marketing 9 9
Human Resources 12 4
MIS/IT 8 6
Executive Office 3
Total No. of Managers = 97
Total No. of Rank & File = 239 (all Sandigan members)
Total No. of Managers = 336
Table 1.2
Employees Distribution
Post-Downsizing6
Departments No. Managers No. of Rank & File
Sales 22 203
M manufacturing 10 20
Finance 20
Marketing 13
Human Resources 12 2
MIS/IT 12
Executive Office 3
Total No. of Managers = 92
Total No. of Rank & File = 225 (all Sandigan members)
Total No. of Employees = 317
IV. The Sandigan and its Collective Bargaining Agreement
The impact of structural adjustment of labor relations is direct because it is
concerned with rule setting between labor and management is directly affected by the
changes in the rules in making business.7
6 Figures were obtained through SmithKline Beecham’s newsletter..
7 Rene E. Ofreneo, Structural Adjustments and Industrial Relations, Quezon City: UP School of
Labor and Industrial Relations, 1993.
10

11. The Philippine Labor relations system was known to be adversarial in nature
specifically, the collective bargaining agreement (CBA). In fact, in the pharmaceutical
industry CBA was usually done from four months to a year. In the past, the
SmithKline Beecham CBA’s the traditional method of collective bargaining was used
by the company thus, creating undue anxieties caused by heated discussions.
Differences in positions during negotiations were prevalent. In other words, it was a
“Win-Lose” environment. It was noted that this affects the morale and productivity of
the employees. To paved the way of thinking on the union side, joint workshops and
series of team building activities were carried out.8
Likewise, the accepted contradictory nature of labor relationship and capital
characterize the control relations. This should be seen in relation to conflict and
sources of conflict. Therefore, the CBA was embraced for the potential terrain of
compromise, bargaining, and consensus.
Today, the relationship between Sandigan union and management were
transformed. It is said in one of its newsletter that, “SmithKline & Beecham’s Labor-
management relationship may be described as a partnership with willingness on both
sides to embark a new approaches based on mutual trust and drive for improved
performance.”9
SBEC (SmithKline Beecham Employee Council), a labor management
council established in 1996 was strengthened. Its aim was to strongly unify and
harmonized the company through communication, dedication, and participation.
The recently concluded social agreement10
was a very good example of
beneficial relationship between management and employees. The CBA of SmithKline-
Beecham was much celebrated because the negotiation was done in just four days, as
opposed to the industry norm of four months. The company and union agreed to a
performance-based concept of reward system for 220 CBA covered plant and sales
staff, instead of usual across the board increase. This has set the climate for alignment
between management and labor in the organization through more active workers'
participation. This has also instilled a sense of pride and accomplishment in the
company since the CBA team was responsible for introducing a change in labor-
8 An interview with Lito de Guzman
9 SmithKline Beecham’s article on Labor and Management
10 Social agreement was synonymous to collective bargaining, the former was preferred to be used
by the company.
11

12. management scenario in the pharmaceutical industry and in the Philippines. Because
of this achievement, the SmithKline Beecham Philippines was cited on the January
13th 1999 issue of the SCRIP.11
Similarly, it was featured among various local
publications12
on late December 1998.
As an analysis for this condition, we can say that the success of the Social
Agreement was anchored on team’s efforts to establish partnership with labor to shift
the paradigm of the labor management negotiation process. From the traditional style
where concerns of labor are opposed to the directions of management to a
progressive principle-centered style where concerns of both parties are resolved
through a problem solving approach and the “Win-Win” principle.13
factor was the
relationship that the team built with the labor group through constant feedback and
open communication with all concerned.
We can also notice that Sandigan had accepted the concept of individual
performance as manifested by shifting from a guaranteed merit increase of at least 5%
and a productivity bonus for at least 75% against the National Trade Sales14
concept.
We can also say that Sandigan was progressive. On the contrary, it was a sign that the
SmithKline Beecham’s union as servile.
Table 2.
MEMORANDUM OF AGREEMENT BETWEEN SMITHKLINE BEECHAM AND
SANDIGAN15
December 1998
Merit Increases National Trade Sales Productivity Schemes
1 - 12%
2 - 10%
3 - 9%
110%
and above
1 - 250%
2 - 200%
3 - 175%
1 - 11%
2 - 9%
105% - 109% 1 - 200%
2 - 175%
11 SCRIP is an international publication for the pharmaceutical industry.
12 Namely, The Philippine Daily Inquirer, Manila Tines, Manila Standard, and Philippine Star.
13 From one of SmithKline Beecham’s Newsletter article.
14 See appendix
15 SmithKline Beecham CBA negotiations
12

13. 3 - 8% 3 - 150%
1 - 10%
2 - 8%
3 - 7%
100% - 104% 1 - 175%
2 - 150%
3 - 125%
1 - 8%
2 - 7%
3 - 6%
95% - 99% 1 - 150%
2 - 125%
3 - 105%
1 - 7%
2 - 6%
3 - 5.5%
90% - 94% 1 - 125%
2 - 105%
3 - 100%
1 - 6%
2 - 5.5%
3 - 5%
85% - 89% 1 - 110%
2 - 100%
3 - 95%
1 - 5%
2 - 4%
3 - 3%
84%
and below
1 - 100%
2 - Based on Nat’l
3 - Trade Sales
Legend:
1 - Above standard
2 - Standard
3 - Below standard
Merit Increase and Productivity Schemes shall be based on the above parameters.
Particulars of the CBA:
* An estimated increase of 9,000 Php in 3 years or around 3,000 Php a year
* Unproductive members are awarded 5,400 Php in 3 years (minimum)
* Health Insurance
* Life Insurance
VI. Conclusion
There are losers and winners in globalization and liberalization.
Many companies are equally experiencing adjustment pains. The fast pace of
liberalization and deregulation, coupled with coping-up problems under new
13

14. economic regime of global competition (or under Estrada’s Administration) are
dislocating plans and finances of the enterprise.
Because of globalization and intensified competition in both the domestic and
export markets, industries are engage in all kinds of cost-cutting and adjustment
measures. One common measure resorted to, was the search for labor flexibility,
which refers to the adoption of employment practices calibrated to changes in
economic cycle and technological change. More specifically, it means the ability to
change employment and wage levels as the market demands; the ability to increase
labor mobility; the ability to make elastic use of skills; and the ability to introduce
non- conventional working arrangements.16
Internal factors that motivated restructuring are cost containment, long term
financial performance, and desire to grow and excel. External factors include
increases in labor and material cost, competitive pressure, and technological
advances.
Restructuring goals includes, increase profit, increase sales, and increase
productivity. For both enterprise and their workers, there is a need to understand the
dynamics of globalization and competition under this new economic regime so that
both can hurdle the threats and maximize the opportunities. Common understanding
of what the partners' face together can help improves cooperation for mutual gain.
Desire to grow and compete put companies on restructuring mode.
Collective bargaining agreements that were mentioned are solely protection
among employees.
Bibliography
Annaliza B. Calceta. “Sailing in Global Waters: A Case Study of the Strategic Alliance &
IR/HR Adjustments in Three Shipping Companies”. Philippine Journal of Labor
& Industrial Relations. Vol. 17, No. 1&2 (1996-1997): 23 to 43.
Bach Macaraya & Rene E. Ofreneo. Structural Adjustment and Industrial Relations:
The Philippine Experience. Quezon City: UP SOLAIR.
16 UP SOLAIR, Major IR/HR Issues And Problems In The Philippines, Quezon City: UP SOLAIR,
pp. 5.
14

15. Elena A. Enierga. “The Meralco ESOP in the Context of Industrial Relations”. Philippine
Journal of Labor & Industrial Relations. Vol. 17, No. 1&2 (1996-1997): 4 to 22.
Rene E. Ofreneo. Structural Adjustments and Industrial Relations. Quezon City: UP
School of Labor and Industrial Relations.
UP SOLAIR. Major IR/HR Issues And Problems In The Philippines. Quezon City: UP
SOLAIR.
Various SmithKline Beecham Newsletters and Press releases, published and
unpublished
Watson Wyatt Worldwide Philippines. Tactics and Processes of Corporate Restructuring:
The Philippine Experience. A Survey Report in 1999.
15