Private Sector Indian Manufacturing Organizations and ...internationalseminar.org/XVII_AIS/TS5A_PDF/13.Harshita_Singh___Debi... · Airbus and Samsung are focusing on setting up their

XVII Annual International Seminar Proceedings; January, 2016

ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM Page 850

Private Sector Indian Manufacturing Organizations and Workplace

Industrial relations: towards a new Employment Relationship

Harshita Singh Debi Saini

Introduction & background

“Look East, Link West”, was the most imposing caption by PM Modi at Make in India launch on

25th

September, 2014. Manufacturing contributes only 15% to India's GDP, and India‟s share in

world manufacturing is only 1.8% (World Bank, 2011). It employs 12% of the Indian workforce

or about 53 million people (NSS, 2009). Particularly for developing countries, an investment in

manufacturing promises rapid growth and sustainable job creation unlike services that offer the

opportunity to achieve only the first objective, not the second (UNIDO, 2013). Research

demonstrates a positive correlation between modern manufacturing and the growth of labor

productivity and economic welfare (Maddison 2001; 2007; Naudé& Szirmai, 2012).Unlike the

East Asian economies, India has not been able to draw growth and employment from

manufacturing in any significant magnitude (Trivedi et al, 2011). But India has the potential.

India ranks high on various manufacturing competitiveness indexes (GMCI, 2013; CIP, 2013)1.

Indian government wants to push the manufacturing‟s contribution to GDP to 25%. The

government has launched a national campaign to boost manufacturing, has set up a national

manufacturing competitiveness council (NMCC) and has started several training programs to

ensure skilled workforce availability. As a result several international players like Hyundai,

Airbus and Samsung are focusing on setting up their facilities in India (IBEF, 2015). Besides

this, there have been more than 4,000 inquiries on investment prospects in the Indian

manufacturing since the launch of „Make in India‟ campaign. India‟s new manufacturing policy

is vital to create jobs and maintain growth (WEF, 2011). As more and more firms are showing

interest in expanding their production and distribution systems in India, they want to know how

to manage their employees located in an entirely different social and political environment like

India and survive in long term. More particularly, they need to know whether they should adopt



globally uniform corporate employment relation policies or tailor such policies according to

Indian environment. Understanding the employment relations in Indian manufacturing are not

only important for multinational

1 GMCI= Global Manufacturing Competitiveness Index (Deloitte & US Council on

Competitiveness, 2013), CIP= Competitive Industrial Performance Index (UNIDO, 2013).

corporations (MNCs), they are also important for local firms, investors and entrepreneurs who

wish to invest in Indian manufacturing and for researchers and academicians particularly when

much of the literature on changing patterns of employment relations is focused on developed

economies.

Developments in employment relations are well documented in western literature (e.g. Capelli,

1995; Callus et al, 1991; Moroshima, 1995; Osterman, 1986; Kochan et al, 1984; Gould, 2010;

O.Donell,2011; Lansbury et al, 2009; Zhao et al, 2012; Zou & Lansbury, 2009). However,

relatively little has been written about the contemporary employment relationship in the Indian

context (Budhwar, 2003; Saini, 2008). None of the studies have ever endeavored to obtain an

accurate account of employment relations in Indian context. Nevertheless, unraveling the impact

of globalization and liberalization on employment relationship in India has clearly been a

theoretical and methodological puzzle.

Literature Review: The Effects of Globalization on Employment Relationship

International Debates and Evidences

Cappelli‟s work on employment relations in US is perhaps a good starting point to review the

literature on this topic.

One of the central themes of Cappelli‟s work „Rethinking Employment‟ is that competitive

pressures due to globalization forced US companies to adopt improved organization design and



downsize their employment (Cappeli, 1995).US employers have responded to the changing

environment by relying on external labor markets. There is less job security for the core workers,

more job switching, fewer job hierarchies, and compensation and training decisions that are more

governed by the outside labor market (Osterman, 1986). A host of new management practices

have evolved to change employment relations in US considerably (Capelli, 2002). These include:

Decentralizing control over operations, contingent workers, and contingent pay and contracting

out, empowering employees through teams.

Similar trend in employment relationship is also visible in the Australian context. Australia has

been deregulating its labor market, emphasizing workplace negotiation over arbitration,

abolishing industry protection, marginalizing unions, using productivity improvement as a basis

for remuneration and, more recently, encouraging individualism in workplace bargaining. These

trends are interpreted as adoption of an US-style approach (Gould, 2010). Collective approaches

to employment relations have increasingly been replaced with more individualized arrangements

(O Donnell, 2011).

Such changes in employment relationship are also reported in the Chinese context by

researchers. The use of new technologies by Chinese companies has resulted in changes to work

organization. The most profound change in this regard has been the increase in numerical

flexibility (Lansbury et al, 2007; Zou & Lansbury, 2009).Various forms of teamwork have been

introduced to change the work practices on the assembly line as well as to improve

communication between management and employees in Chinese automotive and banking

industry (Zhao et al, 2012).

Similarly, in the British context, researchers have observed that due to the pressures of

globalization, firms are adopting alternate forms of employment arrangements (subcontracting,

contingent work, agency workers etc.) which leads to the growing employment insecurity for

employees and also the increased use of performance related pay systems ( Wanrooy et al, 2013).

All these researches point at the shift away from the traditional Standard Employment

Relationship2 towards Non standard forms of employment relationship or New Employment



Relationship3.

However, Mc.Govern and his colleagues, 2007 asserted that changes in the standard employment

relationship based on full time employment are not transformative. They are temporary in nature.

According to him, market responsive employment relations practices are influenced by economic

downturns in the economy and such practices return back to career jobs, training and job

security, once the economy revives. Similarly, Baldry et al, 2007 observed that there are changes

in the workplaces in the new economy characterized by the rise of knowledge workers but in

certain sectors of the economy especially manufacturing, things still remain the same.

Thus, three views exist in the international literature on the effect of globalization on

employment relations. The first view suggests that the globalization has altered the standard

employment relationship radically through contract

2 Term Standard Employment Relationship used here refers to a „stable, socially protected,

dependent, full-time job . . . the basic conditions of which (working time, pay, social transfers)

are regulated to a minimum level by collective agreement or by labor and/or social security

law‟ (Bosch, 2004).

3 Term New Employment Relationship refers to a form of employment relationship

characterized by the use of subcontracting, contingent workers, rise of white collar jobs, decline

in trade unions, growth of HRM and technology (kalleberg, 2000; Kalleberg et al, 2000).

jobs, job insecurity, more personalized work experiences and increased use of HRM for

managing people at workplaces. A second strand of commentary suggests that the so called

transformation of SER is temporary, in response to market turbulence and swings back to

normal once the market recovers. A third strand of commentary exists in literature that views

changes in employment relations as pragmatic, eclectic and incremental in nature. According



to this view, contemporary employment relations entail improvisation and the adoption of

certain aspects of both SER and NER.

Table1. summarizes the changes in the employment relationship due to globalization and

liberalization that appears consistent with the literature throughout the world. For the most

part, the table lists out hypothesized changes by referring back to the literature.

Table1. Changing employment relationship in the era of globalization

Standar

d Employment New Employment Amalgamation/

Relationship

(SER)

Relationship

(NER)

adaptatio

ns

Jobs Full time work

Sub contracting,

part time Core

workers

along

work, contingent

work with contract labor

Trade

unions strong weak Strong/ weak

depending on

sectors

Employee management

Through formal

rules

Discreti

on in employment

Joint decision

making,

decision

s

to

managers and

selective autonomy

to

supervisors line managers



Collective

bargaining

/

Strong/ national

level absent

Wea

k/

enterprise

unit

procedures level

Labor

markets Strong internal labor Market mediated Variable practices

markets arrangements

linke

d to

economi

c

conditions

Wage

system

Piece

rate

Pay for

performance Variable

Job security high low

Variable depending

on

market

conditions

Work organization

Traditional

division

of Self managed teams,

quality

Depends on

the level

work circles, job rotation

of

employees

Workplace governance IR/PM HRM Both IR & HR

Employee

communication One way Two way Two way



Employee consultation

and absent present Depending on the

participation

subject

matter

Employee motivation High Low Depends on

organizatio

nal efforts

(employee

engagement

etc.)

Job satisfaction High low

Variable depending

on

the job

While tracing the history of globalization effects on employment relations in India, one thing

that becomes very clear is that the detailed picture of employment relations built through

extensive surveys and interviews as in the case of USA and UK are completely missing in

Indian context (Bhattacharjee & Ackers, 2010). Nevertheless, some significant effects of

globalization and liberalization on human resource management and employment relations in

India can be identified. They are:

Globalization and Employment Relations in India

Before liberalization the rules of the employee relations system were determined by the

institutions of the state such as compulsory adjudication, conciliation, standing orders, and



labor laws and so on (Bhattacharjee, 2001; Hill, 2009; Bhattacharjee and Ackers, 2010). The

dominant objective of the government during the regulation era was to maintain industrial

peace (Shyamsunder, 2010).

The oil shocks in 1970‟s resulted in a steep decline in industrial production and manufacturing

stalled, employment growth slowed and labor markets tightened. These changes in the

economy also affected union activity, collective bargaining practices and labor markets (Hill,

2009). A new approach to economic development based on export oriented industrialization

was adopted by the Indian government.

Since 2000, the challenges of liberalization, privatization and globalization have intensified.

There is a switch in state policy away from favoring employment relations based on union and

collective bargaining towards more laissez faire approach (Budhwar, 2002). There has been a

rise in employer resistance to union recognition and a growth in the scale of the non union sector

(services etc.) (Saini, 2006a; 2006b). Other than having its effect on macro level institutions, the

liberalization of Indian economy and globalization have had lasting impact on the conduct of

employment relations4 at the firm and the workplace level also (Kuruvilla, 1996). As revealed by

several researchers in their surveys and case studies, progressive developments in employment

relations such as workplace partnership or the systematic adoption of modern HRM practices

have occurred in numerous cases in India ( Saini, 2006;2003, Budhwar, 2002; Budhwar &

Khatri, 2001; Budhwar & Boyne, 2004).

Indian managers are implementing new management techniques nowadays and various HR

functions like training, performance appraisals, career development etc. are given more

importance than before (Jain et al, 2012). Changes in the workplace structuring are taking place.

There is increasing evidence of managing employee relations in Indian companies through HR

strategy. Both empowerment and instrumentalist HR strategies are being practiced (Saini, 2008).

With the ever increasing globalization, there is the increased employment of contract and casual

labor and use of human resource management devices in India (Ramaswamy, 1999; Kuruvilla

and Erickson, 2002). Sharma (2006: 2078) commented that work in India has become more



casual and less secure. Another reason for changes in work and employment in India are secular

changes in technology and work organization (Dutta, 1990; Krishnan, 2010).

After the neoliberal reforms of 1991, there is an increase in local union leaderships instead of

national level union federations (Ramaswamy, 2000; Ramaswamy and Schiphorst, 2000). At

present trade unions in India are passing

4 In order to impose some order on the complexity of employment relationship and to narrow

down our conceptualization of employment relations, a common framework of analysis is

adopted for reviewing the literature as well as the cases. Certain dimensions of employment

relationship for research are identified. These relate to the conduct of HRM, work organization,

the question of managerial style in the handling of relations with employees and trade unions

and the use of employee communication channels, performance management systems and

training & development initiatives.

through a difficult period (Das, 2008; Singh and Kulkarni, 2013; Sundar, 2006). There is an

increased instance of union avoidance strategies adopted by Indian employers (Mathur, 1993)

However, on reviewing the recent literature on employment relation in India, one realizes that

most of the new literature on Indian employment relations is either about the new services sector

or about how to transform old formal sector in line with the best practices in services sector

(Ackers, 2006). By providing a detailed evidence of how has the employment relations changed

in the manufacturing sector, this study will permit a more considered view of employment

relations in India.



Theoretical Underpinnings

Two main theories explaining the nature of employment relations and charactering the presence

or absences of conflict are: unitarism and pluralism. According to pluralism, an industrial

enterprise is not a unitary organisation but a coalition of individuals and groups with varying

interests and objectives. It assumes some amount of conflict among actors as natural and healthy.

On the other hand, unitarist perspective holds that everyone within an organization shares a

common purpose and are all committed to this purpose. According to this perspective any

conflict in an organization is undesirable. Unions and collective bargaining are seen as

undesirable.

Globalization has substantially influenced the nature of IR policies followed by the employers,

and reduced the power of trade unions. The IR frameworks of different organizations in the new

business environment are being oriented to new exigencies. Strategic shift in the approach of

management to dealing with IR are noticeable at covert as well as overt level. From different

type of IR models that are followed by the employers a shift of focus is noticeable. The shift can

be seen from different type of pluralist models to a type of unitarist IR or repressive pluralism.

In the era of globalization employers are trying to shift from the first four models of IR to the last

four, thus adopting policies of a kind of “weak union model” or “no union model”.





Research methodology

Obtaining an accurate account of employment relations pattern in India requires a comprehensive

and multidimensional research approach (Budhwar & Varma, 2010). Given the nature of ERs as

a normative or suggestive rhetoric, the capability of symbolic interpretive paradigm in capturing

the reality as it is makes it a preferred method of research inquiry (Storey, 1997). Taking a cue

from our research questions and the framework given by Verma & Budhwar, 2014, a case study

approach has been deployed in this research (Cresswell , 2011). We have analyzed case studies

of few representative workplaces so as to discern the dominant patterns of employment

relationship in India. We are concerned with changes in SMEs and large manufacturing

companies operating in India, irrespective of their ownership. Our concern is to specify more

precisely what we think is significant change in the Indian manufacturing.

Analysis

Following case study approach, four organizations were studied. We have studied both large

and small organizations. Data is collected through interviews from various levels in the

organization. Our unit of analysis is an establishment5. Sample statistics are as follows:

Organization 1.

Organizatio

n2.

Organization3.

Organizatio

n4.

Organizati

on

Domestic SME

Foreign SME

Domestic Large

Foreign

Large

type

Participant 8 6 6 5



s

Documents

Employee standing orders, union-management settlements, IDA 1947, TUA,

1923, annual reports,

newsletters etc.

Data

source

HR head,

owner,

MD, HR

head

,

VP-HR, plant HR

head,

VP-HR,

lin

e

plant head,

workers,

worker

s, line

line manager,

union

manager,

supervisor,

line manager

managers,

supervisors

leader, workers

employee

Data

analysis

Data analysis using thematic analysis technique by Miles & Huberman, 1994;

content analysis

using Holsti, 1969

Case1. It is a domestic medium sized enterprise involved in the manufacturing of heavy

construction equipment, earthmovers etc. The company was established in 1995. It is an

example of typical owner controlled Indian firm. The management style is very control

oriented. Most of the labor management practices are traditional, with little evidence for use

of HRM. All the workers are hired through agencies. Not even a single worker is on company



rolls. There is no such thing as performance appraisal or safety training etc for workers.

Workers are seen as a liability and to reduce their power they are hired and fired through

agency. Any unionizing activity is closely monitored and curbed well in time. Role of HR is

not that of employee welfare but to act as an agent of management in controlling workers.

5 One organization can have several establishments (plants). For this study a single

establishment of an organization is considered as unit of analysis.

Case2. It is a medium sized Japanese joint venture firm involved in the manufacturing of

automobile hoses. The company was established in 2005. Japanese style of management can be

seen to have an influence on the functioning of this company. There is great emphasis being laid

on quality. There are rewards related to quality that are given to employees. But the localization

of employee management practices can be easily seen. Most of the workforce is contractual that

is paid according to the minimum wages without any appraisal or training. Safety is given

importance and hence safety training is there but apart from that no other major type of training

is given to the employees. They learn on the job. Employee communication is top down.

Case3. It is a large domestic firm involved in the manufacturing of agricultural machinery. The

company has a long history. Established in 1944 by two brothers, this company is a family

owned organization. Trade union is present in this company and most of the worker related

decisions are taken in consultation with the union leaders. Trade union represents only the

permanent workers. Over the years the strength of permanent workers has decreased resulting in

most of the workforce being contractual that is paid according to the minimum wages without

any appraisal or training. This has also decreased the trade union strength and influence in the

company. Employee communication is largely top down. Line mangers discuss everyday plans

with workers and supervisors on a daily basis. Training is mainly on the job with some sort of

attitude training and safety training for new joiners.

Case4. It is a large sized Korean company involved in the manufacturing of electronic products

like fridge, AC, washing machine etc. The company was established in 2000. Korean style of



management can be seen to have an influence on the functioning of this company. There is great

emphasis being laid on quality and innovation. There are rewards related to quality that are given

to employees. There is no trade union. But the localization of employee management practices

can be easily seen. Most of the workforce is contractual that is paid according to the minimum

wages without any appraisal or training. Safety is given importance and hence safety training is

there but apart from that no other major type of training is given to the employees. They learn on

the job. Employee communication is top down.

Dimension Case1. Case2. Case3. Case4.

Anti union strategies

yes

yes

yes

yes

Towards

contractu

al

yes

yes

yes

yes

arrangeme

nts

Line managers

crucial limited Some yes yes

role extent



Performance related

pay

no

yes

yes

yes

Formal

recruitme

nt no no no no

channels

Communication

Top

Top

down

Top down

Mixed

down

Training

no

Safety

Safety on job,

attitude

Safety, on

job

,

training

behavioral,

ownership

Collective

bargainin

g

no

no

Yes but weak at

the

Individual

level

arrangeme

nts enterprise level



Results and discussion

All the case companies irrespective of their size or origin are adopting some kind of anti union

strategy. Preferred channels of recruitment are still informal like word of mouth, referrals, a

apprentice. Most common form of training has been on the job. Line managers face

difficulties in convincing workers to attend such training sessions. Employee communication

is mostly top down with limited involvement of workers in the form of suggestion schemes,

quality circles etc. Limited information is shared with workers. While some large

organizations can share financial information, strategic information is never shared. The

dominant employment arrangement is the core periphery. Performance management system

for workers is absent or wherever it is present it is used only for pay related decisions and not

for employee development.

Employment arrangement in India is very different from other countries. While in US, UK etc.

also core periphery system exists. But periphery there means part time workers, flexi timers,

contractual workers, outsourcing. While in India, most of the peripheral workforce is either

contractual or casual. In case of US the adoption of alternate arrangements like sub contracting is

an attempt to reduce costs. It makes sense from efficiency point of view, since labor costs form a

major chunk of production costs there. But in case of India labor costs are only 14% of the total

production costs. So, using contractual labor for controlling costs seems a vague logic (as given

by most of the employers) in case of India. In India the ultimate objective of management in

employing contractual workforce is control. Employment of contractual labor is routine jobs is

not permissible by law. But laws are violated and bureaucrats are bribed heavily to overlook

these matters of immediate concerns. Although there is a provision in the law that employer

should pay overtime to the workers at the rate of double the basic wages, no employer follows

this practice. There is no reasonable answer for this. But still most of the companies are

following these practices because others are doing this. It is a kind of institutional isomorphism

that exits.



Foreign companies that come to India, comes here with a different mindset. Both the foreign

companies‟ studied in this paper have strong union in their home country. But when they started

operations in India they were very clear from the beginning about being union free workplaces.

In India workers are still uneducated or minimally educated, therefore formal channels of

recruitment and training are still not very popular. Due to the regional differences, caste system

etc. employers often have to mend their employment practices. While in other countries;

employers have adopted HRM strategies to divert worker attention from unions to their career. In

India HRM practices are not adopted as unified approach. Coercion is used as a means to divert

workers from getting unionized. Separate IR/HR departments are still prevalent in some

companies with different roles and responsibilities. This trend was popular in UK in 1980‟s

Future directions

Further studies can aim at doing a private vs. public comparison of Indian manufacturing to see

the differences and similarities in their labor management approaches. Similarly, a comparison of

services vs. manufacturing sector can be done to understand the peculiarities of managing

employees in each sector. Since this study is based on only a sub sector of Indian manufacturing,

further study of other manufacturing sub sectors and their comparison is desirable.Cross country

studies in employment relations have been very rare (Kuruvilla & Erikson, 2002).

Therefore, an appropriate extension of this study could be a cross country comparison.

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