Labor Backlash: Multinationals Feel the Heat of Worker Dissatisfaction in IndiaPublished: July 29, 2010 in India Knowledge@Wharton
On July 5, India went on strike. The country closed down in several places after opposition parties protested an increase in the price of petrol, or gasoline. (In India, the government controls petrol prices.) The Associated Chambers of Commerce and Industry estimated the nationwide strike caused a production loss of US$2.8 billion (Rs130 billion at US$1 = Rs46.61).
In the southern state of Tamil Nadu, however, the response was limited. "Life went on as usual in Chennai on Monday," reported the morning daily, the Indian Express. "The Bharat Bandh [or nationwide shutdown] called by opposition parties to protest the fuel price hike had very little impact."
Yet, it is Tamil Nadu that is making news today on the labor front. A spate of strikes and agitations has hit the state. There have been problems at Hyundai Motors, culminating in a strike in June at its unit in Sriperumbudur (40 kilometers, or 25 miles, from state capital Chennai), which was later resolved with the company agreeing to take back 67 workers who had been fired for "gross misconduct." In July, it was Nokia India's turn. Once again, the issue was settled with the management taking back the 60 suspended workers. At auto parts supplier Pricol, in which Denso Corp. of Japan has a 12.5% equity stake, a human resources manager was killed last September after an attack by workers. Pricol had dismissed about 35 workers at its Coimbatore factory, citing indiscipline.
In September 2008, Lalit Kishore Chaudhary, CEO of Italian MNC Graziano Trasmissoni India, was battered to death outside his factory gates by dismissed workers. There was a violent strike, too, at the Honda Motorcycles and Scooters unit close by. Honda Motorcycles is a wholly-owned unit of Honda of Japan, which also has a joint venture in Hero Honda.
Over the past few years, there have been other labor incidents at MNCs in India. One was an 18-day lockout in January 2006 at the Toyota unit in Karnataka following unrest over recognition of the trade union. There was a three-week strike in April-May 2009 at the Nestle India plant in Uttarakhand over the dismissal of two probationers. In March this year, Bosch declared a lockout at its Naganathapura (Bangalore) plant. The issue -- which related to a revision of wages but escalated into alleged indiscipline and intimidation -- was settled after 17 days.
Keeping Things under Wraps
Yet, barring the odd newspaper report, there has not been too much publicity. When Gurgaon, close to New Delhi, exploded in 2008, there was saturation TV coverage and the foreign media descended. "There was a difference," says Pradeep Mukerjee, former HR head of Citigroup's businesses in India, Sri Lanka and Bangladesh and currently founder-director of HR consulting company Confluence Coaching and Consulting. "Gurgaon was pure goondaism." (A goonda, in Hindi, means a ruffian or a hooligan.)
At Honda Motorcycles and Graziano Trasmissioni, many observers believe problems stemmed from unions affiliated to different political parties trying to increase their influence. "The issues were more external than internal," says Mukerjee. The workers likely wanted publicity to force management to concede to their demands. The unions also desired publicity so that they could convince employees at other units that they were capable of extracting better terms from management. And the political parties needed press coverage because there were impending elections.
In Tamil Nadu, where many of the unions at the MNCs are affiliated to the Dravida Munnetra Kazhagam (DMK), the party in power in the state, experts note that there are motivating factors for solving problems quickly and quietly. The MNCs don't want undue publicity; they don't want to be likened to their operations in China that have been accused of underpaying workers and riding roughshod over their rights. The state government, which has considerable control over the DMK-affiliated unions, is also interested in speedy resolution of issues. It is selling Tamil Nadu as an ideal destination for foreign direct investment (FDI). An educated and hardworking labor force is one of its attractions.
The state has been quite successful on this front so far. Nissan Motors has set up a US$1 billion plant in a Chennai suburb. It inaugurated its plant -- a joint venture with Renault -- in May, and bookings for the new Micra car have commenced. Daimler India has set up a new test track next door, in preparation for the launch of its trucks in 2012. The total investment involved -- including the outlay for the plant -- is nearly US$1 billion. BMW India has set up a plant in Chennai and a financial services company in Gurgaon. The investment so far has crossed US$25 million and more is on the anvil. Hyundai has put in over US$2 billion and Ford US$1 billion in manufacturing operations in Tamil Nadu.
Billions at Stake
Several other global players have collectively pumped in billions of dollars. They and others are watching anxiously as the labor problems at the MNCs play out. Strikes and lockouts -- or too much media focus on them -- would slow down their plans. (Toyota, for instance, has been talking about moving part of its production to Hungary.) The state labor minister T.M. Anbarasan has been going from company to company -- trouble spot to trouble spot -- to hasten the conciliation process. He played a key role in the resolution at Nokia. "Anbarasan, the Nokia management and the representative of the Nokia India Employees Progressive Union discussed the long-term wage agreement," Chengalvarayan Kuppusami, president of the Labor Progressive Federation (LPF), a trade union affiliated to the DMK, told India Knowledge@Wharton. "The matter has been resolved amicably." The Nokia union is now part of the LPF.
"It's probably useful to note that India is a country with a strong workers' movement," says Peter Cappelli, a professor of management and director of the Center for Human Resources at Wharton. "Indian companies have strikes and disputes as well. So the MNCs aren't unique in any way." Adds Manish Sabharwal, chairman of Bangalore-based staffing services firm TeamLease Services: "It is probably unfair to think that multinationals are being singled out; many Indian companies are also dealing with the same issues. And while these can be termed as problems, I view them as the inevitable negotiations around dividing the pie that arise in a democratic and growing economy. We also must recognize that high tide seems to returning after a few years of low tide. So workers, who also suffered with shareholders and profits during the downturn, are seeing the light at the end of the tunnel."
Rajesh Chakrabarti, assistant professor of finance at the Hyderabad-based Indian School of Business (ISB), views the current problems in light of what has been happening over the past few years. "This is arguably the first world business cycle downturn being experienced by India with [new] MNC presence," he says. "Whatever the labor law changes or provisions may be, Indian labor still has a long distance to go to stop treating a job as an entitlement. The idea of retrenchment in downturns and the culture of pink slips are, though painful, acceptable in many developed countries. It is new to India. There is therefore a cultural resistance to job losses in the downturn which provides support to the labor union resistance movements."
Numbers Don't Say Much
The official numbers are not particularly informative about the trend of increasing problems at the MNCs. If anything, the overall picture is the opposite. The Economic Survey presented to Parliament earlier this year says, "The declining trend in the number of mandays lost because of strikes and lockouts witnessed in recent years has continued in 2009-10." In Tamil Nadu itself, a recent state labor department report says that the number of strikes dropped from 56 in 2008 to 36 in 2009. Lockouts were also down from 30 to 13. If unrest at the MNCs has increased in this environment, there is obviously something that should be read into this.
Indian Labor Statistics, a report published in June 2010 by the central labor ministry, breaks down the causes of industrial disputes. Heading the pack is Indiscipline, which accounts for 34.8% of the cases. Wages and allowances come in much lower at 22.6%. The highest number of industrial disputes in the private sector in 2007 -- the latest year for which data is available -- was in West Bengal (155), followed by Tamil Nadu (72). Data for Maharashtra was not available. "I don't believe the issue is pay," says ex-Citibanker Mukerjee. "The real issue is that the workers feel they are being taken for granted."
When the trouble starts, however, pay is usually at the top of the workers' demands. That was the issue at Nokia, Hyundai and Bosch. "Worldwide, Nokia didn't give raises because of the economic conditions," says Sachin Saxena, who is in charge of the company's Chennai plant. The first workers' strike in August 2009 -- which lasted just 10 hours -- was related to the wage negotiations. That was the initial issue, too, at Hyundai and Bosch. But it quickly took a different direction. According to a Bosch spokesman, workers resorted to a go-slow and a tool-down strike while the negotiations were on. They also threatened the managers.
At Nokia and Hyundai, as at Bosch, the talks degenerated. Workers were suspended for indiscipline, which became the key issue. Today, all the suspended workers have been taken back, though inquiries are still underway.
The descent into disharmony over what should be a natural salary negotiating process raises some questions. Do MNC managers know how to manage? Are they allowed to manage? "What is the profile of an Indian manager at these new MNCs?" asks Mukerjee. "He is young -- between 20 and 30. He has limited experience. His job is merely implementing orders from [the] head-office."
Maintaining Consistency in Work Culture
"Often these companies want to maintain consistent practices across countries," says Cappelli. "But the workforce is one of the most context-specific factors. Workforce practices have to be tailored to local markets. Headquarters obviously has the final say on everything. But they really have to listen to local managers on these issues.... U.S. companies, in particular, are used to having a great deal more control over employees than almost anywhere in the developed world. They have more power to fire, more rights with respect to unions in particular and are used to getting their way. This created special problems in countries like India which have more militant unions and more employee power. All foreign nationals come into countries expecting that things will operate more like their home country than, in fact, they ever could."
Sabharwal adds a caveat. "Obviously, it is always dangerous to make generalizations about culture," he says. But in his opinion, European companies tend to have stronger country heads and U.S. companies tend to have most functions reporting to some global head. "In most Korean and Japanese companies, the power tends to reside heavily in the head office. I heard a quip about Toyota that they don't globalize but colonize. Obviously, these structures have important implications for how labor engagement and negotiations are handled."
"I doubt if obedience and work culture are major issues," says Chakrabarti of ISB. "The typical Indian worker is likely to be more command-driven and Oriental in mindset than Western. Our small business owners are hardly any less demanding of obedience than the Japanese and Korean stereotypes. Yes, in large companies, both public and private sector, a culture of resistance by labor does exist in India owing to union support. But the conflict is not necessarily about management styles."
The older MNCs in the country have adapted. Nestle, where there have been recent problems, is an exception. But companies with a long history of labor trouble seem to have stayed out of the current conflagration. Consider Philips Electronics India, a nearly wholly-owned subsidiary of Dutch multinational Philips Electronics N.V. (It is trying to buy back all its shares.) Over the years, Philips has seen it all -- a belligerent union, lockouts, strikes and gheraos (industrial action in which managers are confined to a room for prolonged periods without food or facilities; Philips workers achieved infamy by passing bottles to managers so that they could relieve themselves.)
Today there is peace. "India's labor environment has come a long way over the past decade," says Murali Sivaraman, Philips India CEO and also the current HR head. "It is embedded on trust and partnership." The company has also reorganized its operations, using a combination of its own facilities and third-party manufacturers, he adds. "In the sites owned by us, employee engagement is a critical measure against which managers are evaluated."
Buried in Sivaraman's statement is one of the benefits of outsourcing that companies don't talk about. MNCs operating in India procure many of their inputs from third party firms, ridding themselves of the associated labor problems, if any. Some inputs are reserved for small-scale businesses, many of which retired MNC managers have promoted.
If an MNC subsidiary is too large, it starts attracting the attention of the national trade unions; all of them are constantly trying to increase membership numbers. This leads to rivalry, the entry of outsiders and, at times, violence. "Many employers in India, including me, believe that the politicization of trade unions in the country is a child of laws that do not require union leaders to be employees of the company," says Sabharwal of TeamLease.
Tamil Nadu has an additional problem. Labor is a "concurrent subject" under the Indian Constitution, which means that both the central government and the states can frame laws. Central law gives every worker the right to form a union. But only in some states -- West Bengal and Maharashtra, for instance -- is it mandatory for the company to recognize the union. "Everyone has the right to form a union," says Saxena of Nokia. "But the management has no legal obligation to recognize it." Anbaresan recently told the state assembly that a committee had been set up to study the issue of amending the Trade Unions Act, 1926, to enable recognition for trade unions by employers. Without it being mandatory, many MNC managements prefer to work through ineffectual works committees. Nokia is an exception. "We like our workers to have a face," says Saxena. But that didn't help to stave off the strike.
Why? A source within the company explains that the workforce is young, impulsive and brash. They get carried away by the rhetoric of politicians. The external union leaders claimed victory in the first round of wage negotiations and they raised the hopes of the workers.
Global Issues Add to Troubles
External union leaders in an era of globalization bring other forms of trouble. They come to the workers with data on how much the same company is paying its people for the same job in, say, Finland, the U.S. or Korea. "They don't talk about issues such as purchasing price parity (PPP)," says Saxena. Adds Chakrabarti of ISB: "What has happened is that globalization has raised job opportunities and pay but has arguably raised expectations and knowledge of pay elsewhere much more. It is natural for laborers to go into a 'same wage for same work' mindset if the cross-border differences in salaries are too high. PPP-related arguments somehow do not comfort much, either. The final argument is that of excess labor supply in India. It makes sense to the policy maker and the economist, but the issue of fairness keeps haunting the workers in question if differences are too wide. Unions and group leaders build on that." According to Cappelli, "Employees may expect Western companies to have Western payscales and that causes mismatched expectations. That's what leads to conflicts."
But it's a double-edged sword, experts note. If some companies can talk about applying a global wage freeze when the Indian unit is doing well (India never really felt the adverse effects of the recent global recession), they can't get away from global comparisons in other spheres.
The comparison is happening elsewhere, too. In recent times, MNCs have been facing much-publicized labor problems in China. Are the Indian experiences another facet of the same story? "India and China have something in common, and that is very tight labor markets and rising employee expectations," says Cappelli. "This creates a mismatch, especially with international companies who went there because of cheap labor and are now finding that it is no longer so cheap. They [the MNCs] may have more problems because they don't know the context as well. They may get into more legal issues as well for the same reason."
But Sabharwal of TeamLease feels that the situations are completely different. "The salary increase given as a one-time readjustment by [electronics equipment maker] Foxconn or Honda happened over many years in India. The million negotiations of democracy mean that the returns to skill have increased substantially and employers have had to compete for skilled labor at all levels. There are no restrictions on the freedom of association for workers in India and trade unions are truly trade unions -- unlike China." In his view, pay increases are inevitable. "Economic reforms in India are not about goofy rich guys buying Mercedes cars or Gucci bags. Rising wages are an inevitable and desirable public policy outcome of our reform process." But they must be accompanied by productivity increases. "I would obviously view wage increases as a negative if they don't reflect productivity increases because that is unsustainable. Shareholders don't pay salaries, customers do."
Chakrabarti of ISB makes another point. "The cultural resistance to layoffs is common in both places," he says. "But it is likely that in China, the skilled labor market is perhaps reaching some kind of saturation -- at least without much greater internal migration -- which may not be the case in India. So wage increase demands may be stronger there than here."According to Cappelli, "Workers say their demands are realistic. Employers say those demands are unrealistic. [This happens] in every context in every country. There's nothing new about these disputes. Ultimately, these disputes are settled by power. If employees have the power, as they tend to in tight labor markets, these demands become realistic; when employers have the power, as when unemployment is higher, those demands prove to be unrealistic."