Labor unrest at HONDA (I)

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Case Details: Price:
Case Code : HROB104 For delivery in electronic format: Rs. 300;
For delivery through courier (within India): Rs. 300 + Rs. 25 for
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Themes
Human Resources & Industrial Relations/ Labor Unrest/
Collective Bargaining
Case Length : 15 Pages
Period : 2004-2005
Pub Date : 2008
Teaching Note : Available
Organization : Honda Motorcycle & Scooter India
(Private) Ltd.
Industry : Automobile
Countries : India
Abstract:
The case study focuses on the HR problems faced by Honda Motor Cycle & Scooters India (HMSI). The case discusses the
various reasons which led to the dispute between the management and employees of HMSI. It elaborates the incidents, which
led to the strike at the company that resulted in HMSI workers being severely beaten up by the police. Labor strife and the
management's inability to deal with it effectively had resulted in huge losses for the company due to the fall in the production
level at the plant. In addition to this, the company also received a lot of negative publicity as newspapers and TV channels
gave wide coverage to the violence of the action.


The case highlights the growing number of instances of clashes between the employees and the management of companies
in India, which is often guided by external parties such as trade unions and political parties.
Issues:
Understand the factors that lead to labor unrest at a factory and the impact of such incidents on the employees and the
company.

Study HR policies adopted by organizations to prevent labor unrest at the workplace.

Examine top management's role in maintaining a peaceful working environment.

Analyze the role of external parties such as trade unions; political parties etc., in disturbing the working environment in a
company
Contents:
Page No.
Introduction 1
Background Note 2
Labor Unrest at HMSI 5
The Blame Game 6
Violation of Laws? 6
The Aftermath 8
Labor unrest at HONDA (I)

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Could this Ugly Situation have been Averted? 10
Exhibits 13
Key Words:
Labor unrest, Strike, Collective bargaining, Industrial relations, Industrial dispute, labor laws, Japanese management, Go-
slow, Lock-out, Labor relations, Trade union, Root cause analysis, Fair wages, Workers' compensation, Honda
"The violence near the Honda plant at Gurgaon was instigated by outside forces who had misled the workers."
1

- Spokesperson, Honda Motorcycle & Scooter India Pvt. Ltd., in 2005.
"The incident was a disadvantage for India's image as a foreign investment destination
2
and also gave a negative
image of Japanese management."
3

- Yasukuni Enoki, Japanese Ambassador to India, in 2005.
"This incident has brought to light the need to look at labor laws afresh. We cannot have archaic labor laws in a
liberalized economy."
4

- Surinder Kapur, Chairman, Sona Group,
5
in 2005.
Introduction
On July 25, 2005, the management of the Honda Motorcycle & Scooter India (Private) Limited, (HMSI), a wholly-owned subsidiary of Honda Motor Company Limited
6
(HMCL),
encountered violent protests from workers that disrupted production at their plant in Gurgaon
7
.

HMSI workers were severely beaten up by the police, and newspapers and TV channels gave wide coverage to the violence of the action. The protest followed six months of simmering
labor unrest at the HMSI factory in which the workers also resorted to job slowdown
8
(since December 2004 when the workers' demand for an increase in wages was rejected by the HMSI
management).


With their demands being rejected by the management, the workers tried to form a trade union and this resulted in a
confrontation with the management. Fifty workers of the production team were suspended and four others dismissed in May
2005. Apparently there was a show of strength between the management and the workers.

While the management alleged that the workers were resorting to 'go-slow'
9
tactics and were threatening not to return to work
until their colleagues had been reinstated, the workers alleged that the management was using pressure tactics such as
victimization of active union members and a 'lock-out'
10
to break the back of the union.


On July 25, 2005, the workers of the plant were demanding reinstatement of the suspended employees when some workers
allegedly attacked policemen on the plant premises.
This led to police intervention and a violent tussle ensued between the police and the workers in which workers protesting
peacefully were also beaten up.

The police were reported to have overreacted and it was alleged that they had been overzealous in protecting the interests of
the HMSI management, even without any direct request from the company's management (Refer to Exhibit I for some images
Labor unrest at HONDA (I)

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of violence during the HMSI protest).

For companies, the incident brought to the fore the need to maintain sound industrial relations to ensure productive and
profitable operations.
HMCL

Soichiro Honda, a mechanical engineer, established the 'Honda Technical Research Institute' in Hamamatsu, Japan, in 1946.
His idea was to develop and later produce small two-cycle motorbike engines.

Honda's first product, an A-type 50cc bicycle engine, was produced in 1947. In 1948, HMCL was incorporated with a capital of
1 million. Thereafter, the company started to design and produce lightweight motorcycles. Honda's first motorcycle, the D-
type two-stroke 98cc, was produced in 1949...


HMSI
HMSI was established on August 20, 1999, and a plant was set up at Manesar to manufacture two-wheelers for the Indian
market. HMCL made an initial investment of Rs. 3 billion to establish the plant which had an annual production capacity of
200,000...
Labor Unrest at HMSI
The Gurgaon plant of HMSI had peaceful labor relations for the first few years after it was set up in October 1999.

The management entered into labor contracts with individual laborers, which covered the basic wage structure and detailed
parameters specifying the work conditions for workers. In December 2004, the workers at HMSI's Gurgaon plant started
demanding that the management increase their wages commensurate with the company's growth in the market...
The Blame Game
The management and the workers traded allegations and counter allegations on what the root cause of the dispute was. They
blamed each other for the situation that ultimately took an ugly turn on July 25, 2005. The management held the workers
responsible for indiscipline and for slowing down production, while the workers insisted that there had been no indiscipline on
their part and that the management was bringing up this issue only to prevent the formation of a trade union at HMSI...
Violation of Laws?
Some analysts charged that the incident was fallout of the long-term oppression and malpractices at the Gurgaon factory by the
HMSI management.

They alleged that HMSI's management had violated certain laws relating to the welfare of workers (Refer to Exhibit III for laws
related to welfare of workers in India).

It was reported that a worker had allegedly been kicked by a Japanese manager on the shop floor in December 2004. The
services of four other workers who had come to his rescue were allegedly terminated...


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The Aftermath
HMSI was established on August 20, 1999, and a plant was set up at Manesar to manufacture two-wheelers for the Indian
market. HMCL made an initial investment of Rs. 3 billion to establish the plant which had an annual production capacity of
200,000...
Could this Ugly Situation have been Averted?
Several factors can lead to a conflict between the workers and the management of any company, and as such, companies
should be prepared to trace the root cause of the problem and solve it. Industry experts opined that with proper
understanding of the industrial laws and causes of disputes, the management and the workers of any company could avoid
incidents such as the one at HMSI (Refer to Exhibit IV for the Root Cause Analysis for Labor Unrest)...
Exhibits
Exhibit I: Some Images of Violence during the HMSI Protest
Exhibit II: Some More Glimpses from the HMSI Incident
Exhibit III: Laws Related to Welfare of Workers in India
Exhibit IV: Root Cause Analysis for Labor Unrest
New Delhi: Honda Motorcycle & Scooters India (HMSI) is facing labour pangs in India. The world's number one two-wheeler
company has had to cut production due to labour unrest at its Manesar plant.
Compared with a daily production of close to 2,000 vehicles normally, output initially declined to 400, but later recovered to
around 1,500.

The company's spokesperson told ET, "We had some associates who, after being misled by some outside forces with vested
interests, began a process of indiscipline and insubordination. They started misleading hardworking employees, and their
unwarranted pressure tactics led to some loss of production."
The Honda official claimed that production has nearly returned to capacity and the matter will be sorted out shortly. Sources,
however, refute the claim. They say that the dispute is far from over and production levels at the Manesar plant are still below
normal.
HMSI's labour trouble began earlier this month when workers asked for higher wages. "Workers demanded their wages to be
on a par with those of shopfloor workers in Hero Honda. The average wage levels in Hero Honda are more than double than
in HMSI, mainly because the former is an older organisation," say sources. The company initially resisted the demand,
resulting in a strike and a sharp fall in production.
Production resumed partially after a group of HMSI suppliers met the Haryana CM, and the company hiked salaries. "We
raised salaries of all our line associates by 30%, making it among the best in the surrounding industry," says the company
spokesperson.