Industrial relation in manufacturing firms

Industrial relation in manufacturing firms

The manufacturing industries of Europe and America in 1970s were facing the daunting task of surviving in their own countries for various reasons.

The most important problems faced by these organisations in home countries were non availability of trained manpower, higher rates of taxes, stringent norms for controlling industrial pollution, higher cost of operation whether it is salary and benefits or raw materials and electricity, highly unionised workforce and smaller markets to do business.

As a result, hundreds of manufacturing organisations form Europe and America have been shifting their production facilities to low cost countries like India and China for the past 30 years. While some of them have started joint ventures by engaging with a local company others have initiated fully owned subsidiaries.

The countries like China and India have provided lot of business advantages to these multi national companies (MNCs), by way of corruption free government approvals, tax concessions and easy access to raw materials. Moreover these economies have the natural business advantages like; low cost of operation, relaxed environmental law, readily available trained man power and vast markets to expand the business.  

HR Practices
The MNC manufacturing organisations are hailed in Asian countries not only for generating employment to the local people but also for setting superior service conditions by eliminating the exploitation of working class. These MNCs hire the academically brilliant people, provide world class training, pay attractive salaries, offer luxurious welfare facilities, ensure generous career progression and use eco friendly technologies. Because these companies are very conscious of their brand image and they don’t want to be blamed by western countries either for exploitation of labour or for polluting the environment.

Industrial Relation
There is widespread belief across the world that exploitation of labour results in unionisation of workers and industrial unrest. But this belief is totally false in respect of manufacturing MNCs in India. In spite of having world class people practices these companies are reeling under severe problems of industrial relation resulting in strikes and lockouts.

The entry level salary of a worker is around Rs.20,000 per month and a worker with eight to ten year experience is getting around Rs.40,000 which is equivalent to the salary of gazetted officer of the Government. The welfare measures like health centre, cafeteria, and sports complex are world class. The tools and techniques of work are worker friendly.

But all these facilities have not resulted in better relations between the management and the proletariat class. There is significant indiscipline among regular workers of manufacturing MNCs, striking work is has almost become periodical trend, and productivity is alleged to be not upto the mark.

If at all there is any sector which has fluid industrial relation; it is the manufacturing MNCs. Whether they are in electronics or automobile industry and newly started or have gained considerable experience they rank ahead of other industries in industrial unrest both for the frequency and longevity of strikes and lockouts.

Why is it so?
While it is intriguing to know that higher salary and better service conditions do not guarantee harmonious industrial relation, it is equally important to understand the reasons behind such a situation. When the MNCs plan for opening their manufacturing facilities in Asian countries, their Workers’ Union in Europe and America fear job losses.

The existing workers may retain the jobs but most of the future jobs are created in foreign countries. Loss of jobs means not having new members to the worker’s union a phenomenon which reduces the bargaining power of unions.

Workers’ Union at MNC head quarter know well that moving of jobs to Asian countries bring distinct advantages to their employer in terms of  cost savings and market access, but at the cost of loss of membership to the unions.

Hence Workers’ Union based at MNC head quarters reach out to the workers of Asian subsidiaries and encourage them to unionise for better service conditions.  While the managements of Asian subsidiaries take pride in paying salaries above industry standards; the union leaders educate the workers about salary differentials between western countries and Asia which is often 100 per cent or more for doing the same work or producing the same product in the same company.  Therefore in spite of getting salaries higher than industry standards the demand for higher salaries is an all time demand in MNC manufacturing units.

The Players
The responsibility for ensuring harmonious industrial relation in India is the responsibility of workers’ unions, employers, and the government. While the subsidiary unions are provoked by head quarter unions the employers and the government can definitely play proactive role is harmonising the relationship.

MNC subsidiaries generally hire industrial relation managers from top class Business Schools, who unfortunately do not teach industrial law woven around the Industrial Disputes Act 1947, Trade Union Act 1926 and the Industrial Employment (Standing Orders) Act 1946 to the students. Further in most of the cases the CEOs of MNC subsidiaries are foreigners who take time to understand the psyche of local workers.

Hence the management depends heavily on the advice of external advocates to deal with industrial unrest which is a reactive approach rather than evolving a proactive internal mechanism.

The government has enormous powers under Industrial Disputes Act 1947, to keep the unions under control or even to ban the strike and lockouts. But MNC subsidiaries have not yet organized enough to demand industrial peace from the government. While the unions have established perpetual liaison right upto labour ministry, the management goes to the government only when there is industrial unrest.

For the democratic governments in India, workers being the vote bank their expectations takes precedence over management’s business interest, and government  never ever introspects the job loss and economic hardship arising out of strikes and lockouts.

Alternative Strategies
But of late MNC subsidiaries are evolving alternative strategies to deal with this crises situation, in the form of hiring contract workers. Except in the state of Andhra Pradesh, The Contract Labour (abolition and regulation) Act 1970 does not distinguish between core and non core activities for the employment of contract workers. As a result most of the manufacturing MNCs are employing almost three fourth of their workforce by way of contract workers.

Contract workers are persons hired by the labour contractor in his role and deployed to work in the premises and under the supervision of another employer who is called as principal employer.

Business Advantage
A contract worker can be hired for less than half of the salary of a regular worker, indiscipline among contract workers is unheard, they do not resist learning new technologies, their productivity is comparatively high and they can be hired and fired without Government’s permission, which is what all the industries want and the regular workers who are unionised are equally happy that they get more salary than contract workers for doing the same work.

Service sector MNCs
In contrast to the manufacturing MNCs, the entry of service sector MNCs into Asian countries is a recent phenomenon with a history of less than a decade. Most of them are operating as wholly owned subsidiaries of western MNCs without having a local partner.

They operate in knowledge based industries like software services, call centers, data processing and   medical transcription.  They work around the clock as per different time zones of the world. The salary and service conditions offered by them are no better than local companies. Employment of contract workers is to the bare minimum. Employees are not unionized and industrial strikes and lockouts are unheard.

(The writer is Director at Talent Avenues Corporation. He can be reached at

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