Maruti Suzuki suffers economic loss from violence

A riot broke out in the Manesar plant of Maruti Suzuki, Indias largest car Manufacturer, on July 18, 2012. Due to the Violence and arson, a HR manager was killed and 97 workers were injured. The company declared a 32-day lockout as a strong response to the unions tacit support of the violence. On

August 21, 33 days after the riot, the company announced that 300 permanent workers would resume work under heavy security in order to partially restart the operation of the plant. Nonetheless, Maruti Suzuki could not avoid the decline in its market share and an economic loss of KRW 272 billion.

Once the best workplace

Since its establishment in 1983 as a joint venture between the Indian government and Suzuki Motor Corporation of Japan, Maruti Suzuki emerged as Indias largest car maker with 80% of the market share after

Rolling out Maruti 800, a small car model with sleek design and high fuel efficiency. Maruti Suzuki adopted Japans Total Quality Management (TQM) in 1984. The company created an environment for free discussions among executives and employees, from production-line workers to the president in the same gray uniform. Any worker on the production line had the authority to order a line stop for a process or quality problem. Such corporate management made Maruti Suzuki one of the best companies to work for in India. The labor-management relationship started to change in 1997: Suzuki Motors objected to the appointment of the new president by the Indian government by citing that he was not fully qualified, although the two partners had taken turns appointing the president. Due to the conflict between the partners, Maruti Suzuki missed opportunities for new model releases and facility expansion. In addition, the emergence of the rival Hyundai Motors resulted in a drop in Maruti Suzukis market share to around 50%. In response, the company emphasized productivity improvement and cost-saving in order to restore the market share and increase price competitiveness, hence aggravating the working conditions in the process. In particular, workers started displaying increasing resistance to the Japanese management style which emphasizes quality and strict operation standards.

Drop in stock price and market share caused by labor-management conflicts

The companys labor-management conflicts started in earnest in 2000. On October 12, 2000, 4,700 workers objected to the managements decision to link incentives to productivity and efficiency, arguing that a merit-based wage system would worsen their working conditions. The management dismissed 92 workers and replaced 2,000 permanent employees with contract workers, thereby exacerbating the labor-management conflicts. On

The status of the Maruti Suzuki strikes

Year Reason Outcome - Lost opportunity to release new cars - Allowed the rival yundai !otors to catch up - %isrupted production - Loss in mar)et share

1997 - Appointment of the new president "### - Amendment to incentives policy$ la&or ad'ustment$ etc(

- Refusal to esta&lish an union* "#11 re.uirement of si/nin/ a /ood conduct &ond - Loss of +,% -## million "#1" - 0lash &etween wor)ers and the - Loss of 1R2 "7" &illion mana/ement durin/ the ne/otiations - !ar)et share fell to 345 6Apr(-Au/(7 on wa/e and welfare

January 9, 2001, the situation settled as the union accepted the managements proposal, but the unions complaints began to mount. The situation became worse in 2005 when the union sought a solution from Prime Minister Manmohan Singh for the dismissal of 24 union members. The management fired additional 32 union members, who had refused to agree to the companys rule against unethical or illegal acts, and urged hundreds of workers to leave the company voluntarily. In 2011, workers at the Manesar plant went on strike after refusing to sign a good conduct bond which states that the management will reject the formation of an independent union and that workers should not harm production in any way to guarantee the quality of the manufactured products. During the strike, 21 workers were suspended or fired from work, which further hampered the production. The 60-day strike caused an economic loss of USD 500 million for Maruti Suzuki.
On July 18, 2012, one person was killed and 97 people were injured in a clash between workers and the management at the Manesar plant during the negotiations on wage and welfare. Following the clash, the management

Announced that it would focus all its energies on addressing the situation.
Although the violence lasted for only 32 days, it resulted in triple whammy: a decline in the stock price and a direct economic loss of KRW 272 billion; a chance for competitors to catch up with Maruti Suzuki; and a fall in the market share. Moreover, the plant shutdown is expected to drive down the FY 2013 net profit by 15-20% 8a projection

taking into account the suspended production of Swift and Dzire, the most popular car models in India and the additional costs of new measures to prevent further violence and extra security personnel. In the meantime, the Maruti Suzuki strike gave a golden opportunity for competitors to expand their market share, so they pursued aggressive strategies such as cash discount. As a result, Maruti Suzukis sales dramatically dropped in August, and its accumulated market share from April to August fell from around 40% to 36%.

Understanding Indian culture is a must

The frequent labor-management disputes at Maruti Suzuki since 2000 are attributed to four main reasons.
First, the management did not improve working conditions while emphasizing only cost saving. Without investment in automation facilities, the Manesar plant improved productivity by 40% over the last three years, much higher than the nearby Gurgaon plants 17%. In terms of working conditions, Maruti workers spend 8 hours on the assembly, and break once for a 30-minute lunch break and twice for a 7.5-minute tea break. These breaks are too short for Indians who like to talk with each other to enjoy their chai tea and to go to the washroom. Moreover, Japanese-style strict

discipline, along with abuse of authority by locally hired managers, has increased worker complaints.
The second reason is job insecurity and mounting interpersonal tension resulting from an increasing number of contract workers. Traditionally, contract workers were hired during Diwali, the largest festival in India, to expand production to meet the temporary surge in demand. Contract workers can be fired without advance notice. Moreover, since their wages do not include any benefits or incentives, they cost only 33% of permanent workers8the reason they are preferred by many companies to cut costs. Marutis permanent workers are paid about INR 18,000 per month, including benefits and incentives, but contract workers receive a maximum of INR 6,000, which is far lower than the minimum wage of INR 12,000 for permanent workers at the Manesar plant. As of August 2012, the number of permanent workers at Maruti Suzuki is 1,528, while that of contract workers is 1,869. Following the recent violence, the management announced that it would replace contract workers in the core areas of manufacturing with permanent workers. Such areas include the press shop, weld shop, paint shop and the assembly line, where parts like the engine, gear and axle are put together. In addition, the company promised to make all future hires would be made through the HR department and to expand the share of automation. Third, Maruti Suzuki introduced Japanese-style management without

understanding the Indian culture. It should have introduced a management style suitable for India that account for the differences between Japanese and Indian perspectives on time, religion and family. Unfortunately, the insistence on the Japanese style of management worsened conflicts with local workers. For example, following the acquisition of shares from the Indian government in 2007, Maruti Suzuki did not appoint any Indian executives, but promoted a Japanese manager to an executive position, further aggravating the Indian employees sense of relative deprivation.

Some Indian employees participate in management meetings, perform duties at the executive level and receive high compensation. However, the fact that they cannot be promoted to executive positions is a big reason for low morale, especially because of the importance attached to positions in Indian culture. In addition, the contrast between the Japanese emphasis on punctuality and Indian flexible attitude towards time was another source of tension aggravating the labor-management relations. The fact that the average age of Manesar plant workers is 25 has been highlighted as another reason for the labor-management dispute, as the youthful workers may not be adept at controlling their emotions. Yet another reason is the indirect support from the union influenced by the prolonged, violent strikes of Indian unions, known for the hard-line style.

uman resources! the most important factor for corporations

Corporate competitiveness is derived from many factors, such as technology, cost price, and product image. However, the most important factor in running a living corporation is human resources. Companies should treat employees as important assets and seek cooperation with them to lay the foundation for sustainable growth. In particular, what guarantees success in a foreign country with a different corporate culture and management style is a coexistence with local employees based on understanding. From this perspective, Maruti Suzuki made things worse by presenting short-sighted solutions without addressing the collapse of the union or improving working conditions. Whether Maruti Suzuki will face further labor disputes will depend on how much the management and workers understand and value each other.