Bosch Bangalore plant strike: Standoff may intensify; impact Q4 results

By: |
Published: November 17, 2014 2:10:47 AM

The 62-day ongoing strike has led to an estimated loss of around 2% of overall turnover registered during the period of the agitation

MULTINATIONAL engineering firm Bosch isn’t really unfamiliar with labour trouble when it comes to its operations in India. But the ongoing 62-day strike at its biggest plant in the country, in Bangalore, is turning out to be one of the most protracted standoffs between the company and its workers in recent years.

The labour-related woes faced by the German company in Bangalore come in the midst of Prime Minister Narendra Modi’s ambitious ‘Make in India’ campaign, which aims to put Indian manufacturing on the global map. Bosch’s experience of dealing with its Indian workforce may put off potential global investors. It prompted the company’s global chairman Volkmar Denner to comment, during his recent India visit, that repeated labour trouble could make Indian manufacturing uncompetitive.

Unlike the two relatively shorter ‘tool-down’ strikes that Bosch’s Bangalore plant witnessed in 2013, the current one has been prohibited by the Karnataka government after conciliatory talks mediated by the state’s labour department failed about a month ago. The Bosch workers’ union, called Mico Employees’ Association (MEA), challenged that order in the Karnataka High Court which gave the management and the union a chance to resolve the issue bilaterally. As no settlement was reached, the court will now take up the matter for hearing.

So far, the strike has led to an estimated loss of around 2% of overall turnover registered during the period of the agitation that started on September 16. But it hasn’t hurt the company’s July-September quarter earnings in which Bosch posted a net profit of R306.7 crore, a year-on-year increase of 30.8%. This was largely helped by an increase in non-operating income from the sale of some marketable securities. “It (strike) will have some minor effect in the performance in the subsequent quarter. We are keen to resolve the issues with our union as we look forward to sustaining our growth and competitiveness in the market,” said Steffen Berns, managing director, Bosch Ltd.

However, it is equally possible that a successful resolution of the dispute could reflect well on the maturity of the Indian workforce that is willing to work with the management in sorting out issues. In Bosch’s present case, there have been glimpses to suggest that the management and the workers are willing to accommodate. However, as the standoff entered its third month on Saturday, the union said it has decided to intensify its struggle by holding public demonstrations. “In between, if the management comes for a discussion, we are prepared to discuss,” said S Prasanna Kumar, president of MEA.

The MEA, whose members include 2,575 permanent workers and 369 temporary workers, says there has been some progress in the numerous talks held though the two sides are yet to agree on four core issues, the key one being how productivity is to be measured and incentivised. The previous long-term wage settlement for the Bangalore plant workers expired in December 2012 and a new one for the next four-year cycle is yet to be drawn up. Negotiations over the same have dragged on without result for almost two years. The MEA points to the Nashik plant, which concluded its wage settlement in April with a ‘basket package’ of R9,400 for a permanent worker, and wants a comparable wage hike. “There was a practice that basket packages in all the plants will be common. We have adopted higher productivity standards so we want our package to be higher than the Nashik plant,” said S Prasanna Kumar.

However, the management had improved upon its initial offer after the union agreed to certain aspects of the management’s proposal, he states.

“Now, the differences are very narrow. There has been progress but finality has not been reached,” said Kumar, who is also a Karnataka state general secretary of the Centre for Trade Unions (CITU). The MEA, whose office bearers include some affiliated with other trade unions such as Indian National Trade Union Congress (INTUC), is also demanding a clear roadmap on the absorption of temporary workers, while it has indicated that some of the issues relating to hospitalisation and death relief for workers and promotion policy have been resolved.

“We are among the best paymasters in the industry and there is enough room for suitable solutions,” Denner had said on October 30 during his maiden visit to India to review local operations. Denner said he expected to see India establish itself as the world’s fifth largest vehicle manufacturer by the end of the decade, which makes it a key pillar of the company’s growth strategy in the Asia Pacific region. “Over the past ten years, Bosch has doubled its sales in Asia Pacific. By 2020, we are aiming to double our sales in the region again,” he had said. The Bosch

Group in India generated sales of R13,200 crore in the year ended December 31, 2013. Bosch Ltd, the flagship company of the group in India, posted a profit after tax of R885 crore, on net sales of R8,641 crore in 2013. India is also home to Bosch’s largest R&D centre outside Germany with around 10,500 engineers. According to Berns, the number of patents filed from the centre has grown more than tenfold to 220 patents last year from around 20 registered innovations in 2008.

The labour trouble at Bosch’s Bangalore plant, formerly known as Motor Industries Co, which makes diesel pumps and common rail systems for vehicles, comes at a time when the auto industry has been going through a rough patch and may not have as adverse an impact on the firm as it could have otherwise. Declining auto sales has taken a toll on the auto ancillary sector as well. In fiscal 2014, the turnover of India’s auto component industry declined 2% to R2,11,765 crore ($35.13 billion). Several manufacturers including Bosch had to declare no-production days at their plants to prevent inventory pile-up.

Industry experts do not expect the ongoing strike to significantly impact the auto industry which has been struggling with weak demand, particularly in the commercial vehicles segment. “There could be some impact on specific models. It may not be an industry-wide issue considering there is high inventory pile-up,” said VG Ramakrishnan, managing director, South Asia, at Frost & Sullivan.

The automotive industry—the second largest contributor to India’s manufacturing sector after industrial machinery —has seen labour agitation in recent years. In March, car manufacturer Toyota Kirloskar Motor faced a month-long disruption in production at its two plants in Bangalore after it declared a lock-out in the midst of wage-revision negotiations. The Karnataka government stepped in by prohibiting the lockout, which helped production to resume. “It (labour problems) is going to be cyclical in nature generally,” said SV Sukumar, head of strategy and operations practice at KPMG in India. He doesn’t reckon that labour issues will be a major stumbling block in the country’s initiative to boost the manufacturing sector, but says labour reforms will need to maintain a fine balance, for it to be a win-win situation for all.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

FinancialExpress_1x1_Imp_Desktop