LAST Thursday Bosch India inaugurated a new plant at Bidadi, about 35-kilometers from Bangalore. To be sure the auto parts maker wants to upgrade its product suite but the German firm must be keeping its fingers crossed it doesn’t run into any labour troubles here.
Indeed, it has been a somewhat rough time for the German multinational’s Indian operations—last year workers struck work at its Adugodi unit for about three months from September 16 until December 19, forcing a shutdown and demanding a revision in wages. The same plant had seen a tools-down strike, in March 2013. And on March 20, this year, workers at the company’s Jaipur plant observed a one-day strike over wage settlement issues.
During the prolonged shutdown of its Adugodi facility Bosch agreed to some of the demands from labour unions which then put an end to the strike and allowed manufacturing to resume. At the same time, the company decided to increase the number of work hours to 7.5 hours for every shift from 5 to 6.5 hours earlier depending on the product and processes. The company runs its plant round-the-clock with three shifts of eight-hours each.
The frequent unrest at Bosch’s factories is the result of high expectations from the workmen which the management is often unable to meet, says BC Prabhakar, a Bangalore-based labour law expert. “Incidentally, the demands from the highly paid workers are higher than those from the mid-level workers,” Prabhakar adds. A trade union representative, however, says that plant shutdowns are common for adjusting production and maintaining inventory.
“The company had to shut down work at Bangalore plant on August 14, 2015 because of lack of demand for diesel systems. It manufactures largely diesel systems,” an office-bearer at MICO Employees Association, the trade union that struck work at Adugodi plant last December, said.
The incidents at the Indian units have prompted Volkmar Denner, the global chairman of Bosch, to call for a change in labour rules in India. “Our intention is to continue investments provided labour conditions allow us to be competitive. But today in the world there are many free trade zones and these will increase,” Denner, who became chairman in 2012, said during his maiden visit to India last October. “That means a country like India has to be competitive with other countries, especially in Asia.” Denner’s words need to be heeded; after all, Bosch is the world’s largest supplier of automotive components and will turn 130 in November next year.
Steffen Berns, managing director at Bosch Ltd says the earnings for the quarter through June, were helped by increased production following from the higher number of hours put in by its factory workers, which was part of the agreement. That helped it amidst weaker sales and declining profitability. However, in the quarter through June, Bosch reported a 21% increase in inventory from a year earlier, which in turn increased its expenses by 23%, impacting its profitability. In fact, the inventories were 23% higher than what they had during the preceding January-March quarter.
To avoid an inventory build-up, the company has suspended operations at its Adugodi plant twice in the current fiscal, the first one on May 2, and the second on August 14. During the latest suspension of operations, Bosch said the idea was to adjust its “production to meet the demand” and at the same time prevent inventories from piling up.
It said the suspension of operations would not have any impact on its financials.
Despite labour issues, Berns is betting on India, one of the company’s strongest and biggest markets in the world. He expects sales of commercial vehicles to witness “continued recovery,” and passenger car sales to see “a moderate growth” during the current fiscal. “Our forecast for this year is cautiously optimistic,” he says.
The company is aiming for a larger market share when India rolls out its new vehicle emission rule from April 1, 2017. HSBC Global Research estimates the new rule will likely boost Bosch’s revenue during the next fiscal that begins on April 1, as automakers will start buying components ahead of emission rule rollout deadline.
The company plans to roll out one emission-control product each for passenger cars, heavy commercial vehicles and for light commercial vehicles. “This will ensure Bosch is best positioned to capture growth from new generation of vehicles,” HSBC says. However, the company must ensure the frequency of workforce agitations reduces and hope the economic environment improves so that demand picks up. “Any advantage of operating leverage is likely to be negated by increasing wage costs,” HSBC Global Research adds. Bosch had increased wages for its workers at Adugodi plant by 33% late last year when they agreed to work longer hours. That had reportedly not gone down well with workers at other plants and workers at the Jaipur unit had gone on a one-day strike.
With the new Bidadi facility in place Bosch will be looking to make a fresh start as far as labour issues are concerned; the unit will follow leaner manufacturing processes, which means the plant will need fewer workers. The auto parts maker plans to move all of its operations to the new plant in two phases, the last transition is slated for 2018, following which the new unit will be fully ready. The current unit at Adugodi will make way for a new research and development centre and a technology hub. That’s good news for the country’s engineers. And auto manufacturers too.Automotive holds 53% stake in Mahindra CIE (MCIE), while 20% stake is with Mahindra and Mahindra (M&M).
The MCIE stock has returned 68% in last one year, more than ten times that of the benchmark Sensex; the market value is Rs 8,582 crore.