Case study 1:

We give below a situation which many companies often face in today’s competitive
scenario.

In a company X, union had given a proposal to the management for a 20 % hike in the
wages. The collective bargaining process was still going on.

The Industrial relations manager was clever, so he called for an immediate meeting
with the union. He tried to put the sate of affairs in front of the union and asked them
to find a solution. This is what he presented to the union:

 The input prices (cost of raw material, electricity, water etc) have gone up by
10 %
 Due to competition the company has to reduce the product price by 10%
 At the same time the share holders are also expecting 5 % more returns from
the existing 15 %

The IR manager puts forward the above circumstances in front of the union and asked
them to give a solution.

Tasks for the participants:

 How to develop a strategy to respond this situation?

 What are the areas that you can explore to find an answer?

Case study 2:

In a multinational company (MNC) the collective bargaining process was going on.
The union puts up its demands to the management. But the management also had
some issues to place before the unions. They said that they would consider the
demands of the union only if the union is ready to make some compromise.

The MNC was catering to the markets of USA and Europe. At the same time they had
50% dependence on domestic market. But due to Global Financial Crisis, the rest 50%
export orders were affected. From 50%, it has gone down to 10%, a reduction of 40%.
This is a grave situation indeed. The company may not survive only with the domestic
market.

So, the management made a request to the Union that they are ready to listen to the
demands of the Union, only when they fulfill either of the following conditions:

 Reduce manpower by 20 % or
 Reduce wages to meet the slack in demand.

Question: What should be response of the Union to such demands? Can you suggest
some alternative and fruitful solution to this demand?
Possible responses to issues outlined in Case study 1

In this case there are 4 pressures on the company – workers want wage increase,
shareholders want greater return on their investment, input costs have gone up while
company faces competition that forces them to reduce product price:

1. Increase in input cost: the input prices have gone up by 10 %. This increment
can be neutralized by :

 Reduction in wastage
 Inventory management
 Change in design of the product to save more material
 Energy saving

2. Competition in price: This can be met by selling at lower profit margin but at
a mass level. But for this we need to improve productivity. Productivity
improvement involves various factors such as:

 process and system improvement

 updated technology
 application of various improvement tools
 Culture and attitudinal change etc

Once productivity and sales increases it will generate more revenues and profits. This
then can be the basis for increased sharing between capital owners and employees.

Possible response to Case study 2:

The employee costs of companies generally range between 7 - 8 % of the total cost.
So if the company decides to reduce manpower by 20 % or reducing their wages, the
outcome of such an action would be negligible percentage (below 1 %) and the
organization would not save any significant amount. But workers enthusiasm and
energy would decrease in many folds.

While if we observe, 70 % - 80% costs are accounted for by costs incurred in raw
materials, energy, operations cost, advertising, etc.

So, union needs to argue with the management to focus on:

 Reducing waste in raw material usage

 Reduce rejection of material and finished goods
 Improve productivity by system and methods improvement
 Improve line balancing
 Reduce the bottlenecks in production
 Apply various techniques like 5S, KAIZAN to improve quality.
 Save energy/power etc
While arguing with the management union can adopt this approach by logically
analyzing the above data. Sacking employees and reducing their wages would not
yield anything significant. Doing so would only have an adverse effect when the
conditions of the organization improves sooner or later.