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Contract Labour: The Maruti Way*

CASE STUDY, HUMAN RESOURCE MANAGEMENT
ET Cases - FLAME, 12 pages
AUTHOR(S) : Prof. Amitabh Deo Kodwani, Faculty, HR&OB, Indian Institute of Management, Indore

Case Preview

Contract Labour: The Maruti Way

 

“Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks. The time during which the labourer works, is the time during which the capitalist consumes the labour-power he has purchased of him. If the labourer consumes the disposable time for himself, he robs the capitalist.”

– Karl Marx and Friedrich Engels


On July 18th 2012, a charred body was found in the premise of Manesar plant of Maruti Suzuki India Limited (MSIL), later identified as that of Senior Human Resource Executive Awanish Kumar Dev, 51. The worst-ever incident at MSIL since its inception in India, which was an outcome of alleged mob violence by the workers of the Manesar plant of MSIL.

The unprecedented mob attack by workers at Maruti Suzuki’s Manesar plant in July 2012, raised the issue of excessive usage of casual and contract labour by the industrial world to get the routine operational jobs done at cheaper costs. The government also identified this as the primary reason for the recent increase in labour strife and violence in the manufacturing sector. Out dated labour laws, ironically which were established primarily to care and protect the interest of workers have been an important factor in compounding the problem of contract labour in India., Media and analysts blamed the management at MSIL for its insensitivity and inability to understand the pulse of its workforce at Manesar. The unfortunate incident not only caused a heavy financial loss of around INR 500-600 crore to MSIL, it also affected its image in the market, which was built over the years..............

MSIL: The Organization

MSIL’s journey began in November 1970, when a small private limited company was launched in the name of ‘Maruti Technical Services Private Limited’ (MTSPL). The company was formed with an objective to offer technical expertise related to design, manufacturing and assembly of cars. Later, in the year 1977, the government salvaged the company and looked for a suitable collaborator and thus Maruti Udyog Ltd. was incorporated.............

Industrial Relation Scenario at MSIL

Since its inception, the company had experienced various labour-related problems. The Indian workforce hired initially were not in tune with the Japanese work culture, however the workers not only willingly accepted Japanese work culture, but also adopted modern manufacturing processes from time to time............

Black Spot: The June 18th Episode

“Factories kill people. Occasionally, those who die belong to the management. Usually, they are workers…A manager is dead, and workers are check-mated in Manesar plant of MSIL. Factories kill people, especially those who enter their gates in search of a living. Sometimes they kill suddenly, sometimes, they take their time.”

– Suddhabrata Sengupta

After the incident (Exhibit II), MSIL Chairman, Mr. R. C. Bhargava, commented in media, “We will identify what has gone wrong. We will start on a clean slate. If a tsunami happens, what can we do? To my mind, this is of a similar nature,”...............

Learning from the Incident

Even the Chairman of MSIL Mr. R C Bhargava said after the violence that, “the company would phase out contract and stop using contractors to employ casual labour.”

One of the major reasons for the upswing trend in industrial unrest (Exhibit III) in India was mainly increasing dependence of Organizations on contract labour for their day-to-day activities.................

Employee Cost at MSIL

More number of contractual workforces was hired at Manesar plant as compared to the Gurgaon plant of MSIL to enjoy flexibility as well as cost. The contract workers were available at one third of the cost of regular worker. MSIL was enjoying the status of one of the lowest cost manufacturer in India.............

Disparity between Permanent vs Contractual Employees

At MSIL, a permanent worker earned around INR17000 a month, while a contract worker’s income was nearly INR7000 – INR9000 per month (A part of which was fixed and the rest was variable component, which was deduced depending of number of leaves taken by the worker). Regularization of leave benefits was one of the issues management and the union leaders were negotiating since past few years...............

Contract Labour: Trends in India

Due to lack of Organization and disunity, the Contract workers in India were the most exploited and considered as one of the weakest and oppressed section of the working class.. Looking into this, the Whitley Commission in 1860 strongly recommended abolition of contract labour............

Other Similar Incidents

The MSIL incident was not the unique one, engagement of contract worker had been a contentious issue and one of the central reasons for growing labour unrest in India as well as other parts of the world. Although strikes and protests were common phenomena, violence and murder at MSIL was not at all justifiable. Increased violence which had disturbed industrial relations had become a concerning situation for all. There were such other occurrences reported in India in the past.............

Exhibits

Exhibit I: Industrial Relations Scenario in Chronological Order

Exhibit II: MSIL Plant after the Incident

Exhibit III: Strikes since 2009 in the Indian Automobile Industry

Exhibit IV: Profit & Loss Account of MSIL

Exhibit V: Employee Benefits – Cost to Company

Exhibit VI: Contract Labour Situation in India (ASSOCHAM Report)

Exhibit VII: Recommendations of Second National Labour Commission Report, 2002 on Contract Labour

Teaching Note Preview

Contract Labour: The Maruti Way

 

Synopsis

The case describes the situation in which Maruti Suzuki India Limited (MSIL), which is one of the renowned and largest auto maker in India is facing a challenging situation related to labour unrest and the consequences associate with the same and has to take a call how to proceed further. The unprecedented mob attack at Manesar plant of MSIL on July 18th 2012, which claimed the life of senior HR manager, was a strong signal towards the excessive usage and miss-management of contract labour. Almost every newspaper and media report pointed out that the major cause of such a violence at MSIL’s Manesar plant was the unequal treatment between permanent and contract labour for doing almost the similar jobs, which is very much prevalent in almost all the manufacturing establishments in India.

The incident caused a major financial loss of around INR500-600 crore to the company. More than the financial loss, there was a reputation loss for a company who was known for good employee relationship and Human Resource practices world-wide. This was a biggest setback for the company as it affected its market share as well as relationship with the employees. After the incident company declared lockout and wanted desperately to sort out the issue in such a way that will help company to regain its relationship with the employees, who were ultimately the driving force of MSIL, and its image as a good employer. The issue in the case was how to manage workers, especially contract workers effectively.

The case study focuses on various issues related to employment of contract labour at MSIL and its impact on company’s growth, engaging them, profitability, trust and maintaining good & peaceful Industrial Relations.

Expected Learning Outcomes

• Understand the role of the various stakeholders of industrial relations, pros and cons of engaging contract labour and newer ways of managing and engaging contract labour
• Elucidate how to involve and engage contract labour in the mainstream of the organisation for peaceful and productive industrial relations
• Understand how environmental challenges to an organization dictates the type of human resource initiatives
• Understand how to align various HR initiatives (engaging contract labour in this case) with the organizational goals
• Illustrate how internal environment force HR department to respond quickly to cope-up with the challenges

Case Positioning and Setting

This case study is intended for MBA and Post Graduate Diploma in Management students. The case study can be used for modules in core course of Human Resource Management, as well as electives such as or Industrial relations or Strategic Human Resource Management, Effective Labour Laws, etc. ...........

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Abstract


The news of Maruti Suzuki India Limited (MSIL) Manesar plant's GM (HR) burnt to death by a mob of workers on July 18th 2012 sent shock waves across the nation. This issue raised various concerns related to managing workforce effectively and keeping the right mix of permanent as well as contract workers. It also questioned the role of all the three stakeholders of Industrial Relations (Government, Management and the Union) to uphold peace and harmony in the company. This case study focuses on the implications of hiring more contract workers (in the light of Contract Labour Act, 1970) against permanent employment. On one side, MSIL enjoys various benefits of hiring contract workers, but has its own consequences too. What should MSIL do now to strike a balance, to benefit as well avoid such unfortunate incident, which led to loss of its image and trust?

The case study enables to understand the dilemma of the company that has suffered a major financial loss as well as a dent on its reputation. The case study also helps to explore MSIL’s next steps in hiring and managing workers, especially contract workers effectively.



Pedagogical Objectives

  • To explain the role of the various stakeholders of industrial relations, pros and cons of engaging contract labour and newer ways of managing and engaging contract labour
  • To elucidate how to involve and engage contract labour in the mainstream of the organisation for peaceful and productive industrial relations
  • To understand how environmental challenges to an organization dictates the type of human resource initiatives
  • To understand how to align various HR initiatives (engaging contract labour in this case) with the organizational goals
  • To illustrate how internal environment force HR department to respond quickly to cope-up with the challenges

Case Positioning and Setting

This case study is intended for MBA and Post Graduate Diploma in Management students. The case study can be used for modules in core course of Human Resource Management, as well as electives such as or Industrial relations or Strategic Human Resource Management, Effective Labour Laws, etc.




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