CLHR/032

IBS Center for Management Research

Honda Motorcycle and Scooter India Ltd.: Labor Unrest in 2009

This caselet was written by Debapratim Purkayastha, ICMR Center for Management Research (ICMR). It was compiled from
published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or
ineffective handling of a management situation.

 2010, IBS Center for Management Research. All rights reserved.

To order copies, call +91-08417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,
Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@icmrindia.org

www.icmrindia.org

Licensed to use for IBS Campuses only.

Sem III, Class of 2019-2021.
 CLHR/032

Honda Motorcycle and Scooter India Ltd.:

Labor Unrest in 2009
Labor unrest, which attracted a lot of media criticism against Honda Motorcycle & Scooter India
(Private) Ltd. (HMSI), the Indian subsidiary of the Japan-based Honda Motor Company Ltd. 1, in
2005, again raised its head at the company’s Manesar2 plant in the year 2009. The unrest, sparked
by the workers’ demand for wage revision, led to a disruption in production and reportedly
resulted in huge losses for the company. While the labor dispute was resolved by the end of
October 2009, HMSI began seriously considering options such as setting up another plant outside
the state of Haryana in order to mitigate risks due to such labor unrest.
HMSI was established on August 20, 1999, and a plant was set up at Manesar to manufacture two-
wheelers for the Indian market. The parent company made an initial investment of Rs. 3 billion to
establish the plant, which commenced production in April 2001. By 2009, HMSI had invested Rs.
10 billion in India and had an annual production capacity of 1,000,000. It had 1,872 workers, who
were a part of a union, and another 2,500 workers who were on contract basis.3 The labor unrest in
Manesar in 2005 took a violent turn and HMSI4 was pilloried in the press.
The latest wave of labor unrest started at HMSI in July 2009. In fact, labor unrest had been
simmering in the whole Gurgaon belt5 since April 2009 with workers in various companies
demanding an increase in wages. The main issue at HMSI was that the workers were pushing for a
long-term wage settlement (LTS) plan which was yet to be finalized. The workers were demanding
wages that were on a par with what their peers in companies such as Hero Honda Motors Ltd.6 and
Maruti Suzuki India Ltd.7 were being paid, but the management was not ready to accede to this
demand. 8 Industry observers felt that the labor unrest was expected to intensify ahead of the
elections in Haryana (October 13).9 But the unrest continued at HMSI even after the election
polling was over.

1
Honda Motor Company Limited, headquartered in Tokyo, Japan, was the largest manufacturer of two-
wheelers in the world as of 2009.
2
Manesar (in Gurgaon) is a place in the north Indian state of Haryana.
3
“Labor Unrest: HMSI Threatens to Shut Plant,” www.indianexpress.com, October 10, 2009.
4
On July 25, 2005, the management of HMSI encountered violent protests from workers that disrupted
production at their plant. HMSI workers were severely beaten up by the police, and newspapers and TV
channels gave wide coverage to the violence of the action. The protest followed six months of simmering
labor unrest at the HMSI factory in which the workers also resorted to a job slowdown since December
2004 when their demand for an increase in wages was rejected by the HMSI management. The dispute
was later resolved through a tripartite meeting between the workers, the union, and the management.
5
This belt had the plants of many automobile and auto component suppliers such as HMSI, Maruti Suzuki,
Rico Auto, Sunbeam Auto, Sona Koyo Steering Systems, etc. The turnover of the belt was estimated to be
in the range of Rs. 300-Rs. 400 billion per annum.
6
Hero Honda Motors Ltd is the world’s largest two-wheeler motorcycle company.
7
Maruti Suzuki India Ltd. is India’s leading passenger car company.
8
“Labor Unrest Continues, Cripples Production at Hondo Motorcycle Plant,” www.m oneycontrol.com,
October 17, 2009.
9
“Labor Unrest Affects HMSI, Hero Honda Supplies,” www.moneycontrol.com, September 30, 2009.

1
Licensed to use for IBS Campuses only.
Sem III, Class of 2019-2021.
 Honda Motorcycle and Scooter India Ltd.: Labor Unrest in 2009

HMSI alleged that the workers had arbitrarily slowed down production in support of their demand
for better wages. The company also alleged that when it had attempted to install a third production
line at the plant, around 100 workers had tried to prevent it and even threatened its engineers and
managers. HMSI threatened to shut down its plant and move to another location. It also sought the
intervention of the Punjab and Haryana High Court to resolve the dispute so that the workers’
union did not disrupt normal production. It wanted the court to prosecute workers who had
violated the law. According to the company, the labor unrest at HMSI had translated into losses of
Rs. 3 billion. It estimated the production loss to be about 55,000 to 60,000 units.10 “Our production
has come down to 50 per cent in the last two months due to go-slow strike by workers. No
company can go on like this forever. We have requested the state authorities for help… In case
things don’t improve we will have no option but to shut the operations (at Manesar) and look for a
more conducive place to do business,”11 said Mohan Deepak, Vice-President General Affairs,
HMSI. The labor unrest reportedly resulted in the company only utilizing 30 percent of the plant
capacity, disrupting supply.
The workers, however, denied that they were on strike. According to DL Sachdev, National
Secretary, All India Trade Union Congress12 (AITUC), there was no strike at HMSI but there was
unrest as the workers were demanding a wage revision that was on a par with the industry average.
He added that HMSI had suspended around 17 workers and that the workers were also not happy
with some of HMSI’s practices such as its use of contract labor after suspending regular
employees.13 Ashok Yadav, HMSI Employees Union President, too denied that the workers were
on strike and attributed the decreased production to the non-availability of components due to
strikes in the plants of the suppliers.
HMSI, on its part, maintained that its workers were among the best paid in the industry and said
that the management was already discussing the wage revision. It alleged that some workers
backed by trade unions were resorting to undue pressure tactics in order to have their way. NK
Rattan, Head – Marketing, HMSI, said, “We had suspended some people on grounds of
indiscipline, but I believe under the name of unions, strong-arm tactics are being practiced… Some
workers have stopped work on the third production line that we were going to start and are using
this as a leverage to demand higher wages.”14
In response to the petition filed by HMSI, the Labor Department of Haryana submitted its reply to
the court saying that it was doing all it could but needed some more time to resolve the issue.
Finally, the labor dispute was settled on October 17, with a new wage agreement being signed
between the workers’ union and the management. As per the new LTS, workers’ fixed basic salary
would increase by 50 percent to Rs. 4,400 per month. “The agreement specifies that their fixed
wages will be stable for the next three years irrespective of HMSI’s performance, besides other
perks,” 15 said GS Thakur, Gurgaon’s deputy labor commissioner. In addition to this, workers were
to get performance-related incentives. For every vehicle produced in a month, Rs. 4 was to be put
in a fund, which would then be distributed equally among the permanent employees. 16 This wage
agreement was to be valid for three years starting August 2009.

10
“Labor Unrest Continues, Cripples Production at Hondo Motorcycle Plant,” www.m oneycontrol.com,
October 17, 2009.
11
“Labor Unrest: HMSI Threatens to Shut Plant,” www.indianexpress.com, October 10, 2009.
12
All India Trade Union Congress (AITUC), established in 1920, is the oldest trade union in India.
13
“Labor Unrest at Gurgaon-Manesar Auto Parts Units Continues,” www.blonnet.com, October 3, 2009.
14
“Labor Unrest at Gurgaon-Manesar Auto Parts Units Continues,” www.blonnet.com, October 3, 2009.
15
Chanchal Pal Chauhan, “Honda Stir Ends, New Wage Agreement Signed,”
http://economictimes.indiatimes.com, October 29, 2009.
16
As of 2009, there were 1,900 permanent employees in the company’s 3,600-strong workforce.

2
Licensed to use for IBS Campuses only.
Sem III, Class of 2019-2021.
 Honda Motorcycle and Scooter India Ltd.: Labor Unrest in 2009

With the labor dispute behind it, HMSI was confident of producing 4,700 scooter and bikes per
day after the third assembly line became operational in November 3. With the third assembly line,
HMSI’s production capacity increased to 1,500,000 units per annum. 17 The company was hopeful
of clearing its backlog of orders from around 160,000 customers by the end of January 2010. The
company was also thinking of increasing production capacity further. For this, it was considering a
set of options including the prospect of expanding the plant at Manesar. But the company also
initiated a feasibility study to evaluate all the options related to setting up a new plant. Considering
the labor problem it faced in the state, the company wanted to move out of Haryana. The move
was viewed as an effort by the company to mitigate risks by moving out of single manufacturing
location. Shinji Aoyama, president & CEO, HMSI, said, “We do not rule out the possibility of
moving to the south or west, but ideally, we should stick to north India where we have a fully
developed supplier base and logistic set-up. Industrial unrest is widespread in India and we can
face similar problems anywhere in the country.”18
Questions for Discussion:
1. In light of this case, discuss the issues and challenges faced by organizations witnessing
labor unrest. How can labor disputes be resolved?
2. Critically analyze HMSI’s decision to set up a plant outside of Haryana. Do you think the
company could benefit from such a move considering that labor unrest is widespread in
India?
References and Suggested Readings:

1. “Unrest-hit HMSI Likely to Set Up 2nd Plant Outside Haryana,”

http://economictimes.indiatimes.com, December 11, 2009.
2. Chanchal Pal Chauhan, “Honda Stir Ends, New Wage Agreement Signed,”
http://economictimes.indiatimes.com, October 29, 2009.
3. “Labour Unrest at Honda Two-wheelers Comes to an End,” www.driveinside.com,
October 29, 2009.
4. “Labor Unrest Continue, Cripples Production at Hondo Motorcycle Plant,”
www.moneycontrol.com, October 17, 2009.
5. “Labour Unrest: HMSI Threatens to Shut Plant,” www.indianexpress.com, October
10, 2009.
6. “Labour Unrest at Gurgaon-Manesar Auto Parts Units Continues,”
www.blonnet.com, October 3, 2009.
7. “Labour Unrest Affect HMSI, Hero Honda Supplies,” www.moneycontrol.com,
September 30, 2009.
8. LD Honda, “Labor Unrest at Honda Ends,” www.outlookindia.com, July 30, 2005.
9. “How a Factory became a Flashpoint,” Business Week, August 8, 2005.
10. Praful Bidwai, “Repulsing the Employers’ Offensive,” The Daily Star, August 9, 2005.

17
Chanchal Pal Chauhan, “Honda Stir Ends, New Wage Agreement Signed,”
http://economictimes.indiatimes.com, October 29, 2009.
18
“Unrest-hit HMSI Likely to Set Up 2nd Plant Outside Haryana,” http://economictimes.indiatimes.com,
December 11, 2009.

3
Licensed to use for IBS Campuses only.
Sem III, Class of 2019-2021.
 Honda Motorcycle and Scooter India Ltd.: Labor Unrest in 2009

Cases on Related Topic:

 “Labor Unrest at Honda Motorcycle & Scooter India (Private) Limited ...,”
www.icmrindia.org/casestudies/catalogue/.../HROB104.htm
 “IR Problems at Toyota Kirloskar Motor Private Limited,”
www.icmrindia.org/casestudies/catalogue/.../HROB088.htm
 “Collective Bargaining: The General Motors-United Auto Workers Deal ...,”
www.icmrindia.org/casestudies/catalogue/.../HROB109.htm
 “Labor Unrest at Signal International,”
www.icmrindia.org/casestudies/catalogue/HROB%20Mini/CLHR006.htm

4
Licensed to use for IBS Campuses only.
Sem III, Class of 2019-2021.