BOSCH Where Economy Bashes Psychology
This is a classic case where the ‘economy will eventually triumph over psychology.’ I am referring to Bosch. Their employees struck work today. They will strike work one day every month in a novel protest. Bosch has been in the news often for its troubled employee relations scenario.
This case represents the woes of the Indian industry. Bosch is paying its employees well – at least at Bengaluru – and you can measure it by any standard. The average CTC of workers is Rs 85000/- if I am to believe my source; and I am told that the cash component is about Rs. 70000/-. [Bosch raises wage package by 33% to striking workers]
You may argue that the employees have spent long years there so the wage level is justified, but the fact is that such a level of pay can make the unit unviable. This aspect is coming in sharp focus increasingly in the Indian industry.
Why factories become unviable
Let us understand here some factors at play:
Firstly, large conglomerates like BOSCH have factories in several countries. They benchmark productivity, cost etc of each factory. In that sense each factory competes with other factories in the same conglomerate internally in the global market. The Conglomerate picks up the lowest cost producer. It shifts production to other countries when a certain manufacturing facility like Bosch in India remains relatively lower on productivity than another say in Brazil. There are several examples of this happening to Indian companies.
Secondly, production is shifted to another location within India when a factory shows lower productivity. There are several examples of this phenomenon: Raymond closed down the Thane factory and set up a new plant, Cadbury shifted production to Baddi, GSK closed down their Thane Factory [have they outsourced production?], Asian Paints closed down their Bhandup factory. In all these cases the factories had become unviable in the context of economic situation. These units may not have been loss making. The situation just offered a choice the corporations to produce elsewhere at cheaper cost or at substantially higher productivity.
To cut the long story short, some factories become unviable because of the burden of cost as seen in relation to the choices available to the employer.
External and Internal Factors Play Role in Survival
Does it mean that employees should not ask for pay increase? No, that’s not the point. It is that both external as well as internal factors play a role in the survival of a unit.
The Bosch story has this message clear. In their case the wages are high, and there are some internal factors which has a ripple effect on taking costs higher. The increase in wages, and dearness allowance increases not only rate of wages but also rate of incentive payment. So it is double whammy! High employee cost makes the unit unviable. Bosch, I understand, is demanding delinking the incentive from wage rates. Perhaps their appetite has grown after their success of such delinking at Jaipur facility.
There is of course the curious case of General Motors, a sinking ship which recently offered an increase of Rs 22000/- pm to its employees. Why? To keep the wheels running for another three years before they close it down – reportedly they have plans to close down the Talegaon unit. Contractual business obligations and economics of running a unit can throw up some interesting and curious choices. But let us keep this peculiar case aside.
Leaders Make the Difference But They Are in Short Supply
One fact, however, is clear. That every service or product has a minimum and maximum price is a vital aspect of economy which is lost sight of in demanding and granting more pay. When the situation becomes unviable, it becomes difficult to explain to employees. To make the matters worse, the union leaders have lost the ability to communicate with the workers and influence them [as understood by helping them make a choice which is in the long term interest of the organisation]. Where are such labour leaders today? Can you think of two names?
Perhaps we are wrong in expecting union leaders to take such a responsibility. Why can’t employers do it? In some cases they have done it. Read the case of Vanaz. The MD of Vanaz was held in very high esteem by the employees, they trusted him totally, and had tremendous faith in his abilities, that is why the transformation became possible.
But such is not the case in most of the industries. There are other local factors which play on the minds of employees, one of which is the shockingly widening gap between the pay of CEO and the pay of lowest level of employee.
Besides Vanaz, I can only think of Cadbury which made a great effort to salvage the situation. The Thane unit had become unviable for various reasons. Cadbury presented a set of actions to be taken to revive the unit to the Union without whose active support it would not have been possible. It is said that Mr Dastur while agreeing to several of the proposed changes to increase productivity, also demanded an investment of several crores to keep the unit going – and it was agreed to. [This is a dated story, but the lesson holds good]. Such handling of a tough situation requires authentic, adroit and obviously mature leadership on both the sides. The Cadbury case is interesting because the negotiations between the Company and Mr Dastur’s union gave the factory a fresh and longer lease of life.
The force of economics however hit again – the Cadbury factory at Thane is closed now. Employees wish to make a good living, they are entitled to it, and they ought to earn a handsome salary too. This is possible only if their leaders in management as well as in union make some difficult but inevitable choices which determine longevity of the unit.
Even after such efforts, as the Cadbury case shows, they might realise that Economics rules supreme. Psychology does not.
And it will ride roughshod over the outdated labour laws!
Vivek S Patwardhan
Very well articulated write up Sir.Infact, the demands from the highly paid workers are higher than those from the mid-level workers.
very well put.
Thougt provoking article. Balancing is required in salary increases and ptofitabilty of unit/ otganisatuon.