LABOR ORGANIZATION: Philips India – Labor Problems at Salt Lake

University of Southeastern Philippines

PHILIPS INDIA – LABOR PROBLEMS AT SALT LAKE

Renei Karyll D. Ba-aco

October 17, 2020

Background

Philips India Ltd. (PIL) was incorporated on January 31,1930 at Calcutta. The company

manufactures and sells lamps, radios, electronics components and equipment, telecommunication

equipment, etc. In the wake of the booming consumer goods market in 1992, PIL decided to

modernize its Salt Lake factory located in Kolkata. The plant’s output was to increase from a

mere 40,000 to 2.78 lakh CTVs in three years. However, due to market decline of CTVs, there is

a failure in achieving the target resulting to slow down in production. The two unions at PIL

namely Philips Employee Union (PEU) and Pieco Workers’ Union (PWU) was concerned for the

security of their job because of unstable production. At the same time, the unions are in dispute

with PIL regarding salary hike and other benefits. These concerns resulted a 20-month long

battle over the wage hike issue; the go-slow tactics of the workers and the declining production

resulted in huge losses for the company.

PIL set up an integrated consumer electronics facility to reduce costs and selected Pune

for such facility. It led PIL to let go of Salt Lake factory which is also in conclusive with the

recurring loss of the factory. PIL decided to sell the factory to Videocon after making it an

attractive buy through reducing workforce and modernizing the facilities. The two unions

rejected the sale claiming that the selling price is undervalued which would not be able to pay off

the Voluntary Retirement Schemes (VRS) of workers and cost and liabilities of the factory. The

unions also offered to buy out the factory but PIL rejected claiming that it is legally bound to sell

to Videocon. The disputes reached Supreme Court and passed a judgement in favor of PIL. The

judgement provides that the workers had no say in any policy decision of the company if their

interest were not adversely affected. Given that the terms and conditions of employment will not

change despite the transfer of ownership.

1. ‘Changes taking place in PIL made workers feel insecure about their jobs.’ Do you agree

with this statement? Give reasons to support your answer.

I agree with the statement because change is deemed to happen in every course of

business that would naturally affect workers. In effect, the workers will be concerned of the

stability of their work because of changes in operations, technology, and management. Operation

change such as the relocation of audio product line to Pune that resulted in the displacement of

600 workers was only the start. The failure of capacity expansion plan to reach the targeted level

due to slowdown in CTV market led the workers to be concerned of the capability of PIL to

complete the plan and retain the job of the workers. In addition, the salary hike was not at par

with the demand of PEU despite that the unions and management came to a reasonable

agreement on the issue of the wage structure. Furthermore, the decision of PIL to set up

integrated consumer electronics facility to reduce costs and selected Pune for such facility led

PIL to let go of Salt Lake factory. It eventually led PIL to sell the factory to Videocon. However,

the credibility of Videocon is questionable for it has history of failure to make payments in time

during its transactions with PIL. Lastly, the union believed that the selling or transfer price of

Salt Lake factory was undervalued that might not be able to pay off the Voluntary Retirement

Scheme (VRS) of workers and cost and liabilities of the factory. These circumstances heightened

the concerns of the workers with regards to security and continuity of work following the change

of management.
LABOR ORGANIZATION: Philips India – Labor Problems at Salt Lake

2. Highlight the reasons behind PIL’s decision to sell the Salt Lake factory. Critically

comment on PIL’s arguments regarding not accepting the union’s offer to buy the factory.

The slowdown of CTV market was the beginning of the deciding factor for sale of the

factory. The target was to reach 2.78 lakh CTVs in three years from 40,000. It was not able to

reach the target due to market slowdown. Market trends change especially in the booming

consumer goods market in 1990’s. Hence, the target might not be ideal due to the constant

change of technologies and preferences of consumers that eventually could lead to the end of the

product life. Despite of the market slowdown, the two unions demanded for hike in wages. PIL

claimed that the workers were already overpaid and underproductive due to market slowdown.

These dispute between the workers and PIL resulted in a 20-month long battle over the wage

hike issue. The slower production and unmotivated workers resulted to decline of production and

losses for PIL.

PIL reject the offer of the union to buy the factory claiming that it was legally bound to

sell to Videocon. Despite such reason, I believe that the company want to immediately get rid of

the Salt Lake factory to reduce recurring losses and avoid the continuing problems posed by the

two unions. PIL is justified to argue for not accepting the union’s offer for the factory is already

in loss and workers are underutilized that continuing production in the name of Philips will be

detrimental for the brand. Thus, the sale with Videocon is the fastest and practical approach in

dealing with the decline in production and sales of CTV.

3. Comment on the reasons behind the Salt Lake workers resisting the factory’s sale. Could

the company have avoided this?

It is understandable for workers to be concerned with the security of their work. For the

unions, it is also their right to create a conversation with regards to the benefit of its members.

Pursuant to Labor Code, the rights of legitimate labor organization are mentioned in Article 251

which is summarized as, to wit: (1) Undertake activities for the benefit of members; (2) Sue and

be sued; (3) Exclusive representative of all employees for purpose of collective bargaining; (4)

Represent union members; (5) Furnished by employers of audited financial statement; (6) Own

properties; and (7) Exempted from taxes.

It is admirable that the union would go beyond to the point that it offered to buy out Salt

Lake factory from Videocon so that the workers would have the peace of mind regarding the

stability of their job. However, the rights stated in Article 251 of the Labor Code is below what

the union demanded. It is to the point that the union would want to monopolize the factory, while

carrying the Philips brand, for the security of work. The workers only have the right to bargain as

to the terms and conditions of employment and other issues that directly affect them. Thus, the

policies and decision whom to sell the factory is beyond the union’s control.

PIL could have avoided the years of dispute with a good research and development and a

sustainability plan that would also benefit the workers. The main goal of every business it to be

profitable and sustainable. On the other hand, it is an economic reality that to stay relevant in an

industry, businesses must constantly adapt to change. PIL is a well-known manufacturing

company that could have retained the Salt Lake factory by having an alternative plan of

production aligned with the change in the market.

Conclusion and Recommendation

PIL is a well-known manufacturing company that thrive in the industry for several

decades. Just like other famous manufacturing companies, it will incur problems and losses in

making investments. However, a good company would have an action plan that both benefit the

business and workers. The issue in Salt Lake factory could have been prevented with a good

research and development of products and overall sustainable plan in align with the market

changes. With viable and deliberate plans, PIL could have assured the workers that the factory

will remain in operations despite the changes in the market. It is understandable that recurring

losses would drive PIL to sell the factory. However, the first solution would not have to sell the

factory to the best reasonable buyer. PIL could have an alternative use of the factory despite the

change in strategy and in return would assure the workers of the security of their work.

On the other hand, the workers are already unmotivated due to irregular salary hike. With

the slowdown in production, the workers would naturally be concerned of the security of their

job. The unions have the right to bargain in terms and condition of employment and other issues

that would directly affect the workers. However, the sale of the company is already beyond their

control. With the irregular salary hike and slowdown in production, the unions took a desperate

action such as offering to buy the factory for the security of the workers. These actions of the

workers are relative to the actions of the management. If PIL did not lack in sustaining the

factory and its operations, the unions would have not acted beyond their capacity. In the end, it is

a matter of balance of the management as to its business goals and workers. The business should

always have a sustainable plan for the continuity of operations and management should always

take in consideration the welfare of their workers in every business decision.