As Suzuki Motor Co. 7269.TO -2.12 percent pauses to weigh the long-term impact of last week’s fatal riot at a key plant in India, Japanese businesses struggling to cope with a perennially sluggish domestic economy uneasily await the small-car maker’s next step, knowing the continuing lure of India’s massive, fast-changing market means they simply can’t afford to consider abandoning it.
Like neighbouring China, India has become an important hub for a broad range of Japanese manufacturers. Even as India’s rapid growth is spurring demand for higher wages, Japanese companies like Suzuki are seeking production bases away from home that are attractive at least partly because of much lower labour costs and the stubbornly strong yen.
However, staff disputes remain a persistent, significant problem in India. The number of contract workers has risen amid the country’s economic expansion, but accelerating inflation and low wages have helped fuel unrest.
While mass labour disputes in India remain commonplace, Japanese business leaders were taken aback by the unfolding chaos at the Manesar plant operated by Maruti Suzuki India Ltd, in which Suzuki owns a 54.2 percent stake. Suzuki has three decades of experience in India and has weathered a number of disputes, and the riot that left one local manager dead came just over six months after the company settled a half-year labour dispute over demands for higher wages at the same plant.
Suzuki officials describe the latest unrest as the worst labour conflict the company has experienced in the country, although observers say it is a reflection of how difficult it can be for overseas companies to maintain healthy labour relations in a fast-growing economy like India. “Wherever Japanese companies go in India, there are going to be those labour issues,” said Takahiro Sato, professor at the Research Institute for Economics and Business Administration at Kobe University, pointing to an unstable cocktail of rising contract-worker numbers, quickening inflation and low wages.
“Everyone is watching how Suzuki will deal with [the problem] as” a cautionary tale, said Naoyoshi Noguchi, head of the India office of the Japan External Trade organisation, a government-backed trade group.
Still Noguchi, speaking on the sidelines of a trade-promotion event in Tokyo, described the riot as “something that abruptly occurred,” rather than a labour problem stemming from cultural barriers or any major misstep by the company.
Hirobumi Matsui, a senior executive in the global advisory department at Sumitomo Mitsui Banking Corp., said at the same event that Japanese companies continue to view India as an attractive market despite its labour problems. “This time since there was someone that died, and in light of last year’s strikes at Suzuki, it could be a negative for Japanese investment in the country, but it won’t come to Japanese companies stopping all investment in India,” Matsui said.
Maruti Suzuki said the riot broke out after a worker and a supervisor got into a scuffle. Workers claim that the supervisor made a caste-based insult, but both the company and police deny that. Local police are investigating the cause of the unrest, which led to injuries to nine police officers and nearly 100 executives, including two Japanese expatriates. Ninety-seven workers, including a union leader, were arrested.
At Suzuki itself, officials are still in limbo, waiting to find out exactly what happened. They say they are leaving it to local police to carry out an investigation for now.
Suzuki has long been working to alter the culture of the former state-owned company, seeking to add private-sector practices that the Japanese car maker follows in its home market. No one is surprised now at Maruti Suzuki to see managers and rank-and-file employees in the same company cafeteria, but it was unusual before Suzuki pursued changes at the Indian auto maker. Suzuki introduced these methods under the leadership of local executives until Shinzo Nakanishi became the first Japanese president of Maruti Suzuki in 2007. The local company became a Suzuki subsidiary in 2002 after the Japanese auto maker bought a majority share in Maruti Suzuki, ending a 20-year joint venture between Suzuki and the Indian government.
Nakanishi still heads Maruti Suzuki with help from local executive R.C. Bhargava, now chair of the subsidiary and its former president.
Suzuki says that cultural differences have had little to do with any problems at the plant. While not all Japanese employees speak local languages fluently, there are just 10 Japanese managers at the Manesar plant, which has a staff of 4,700 local managers and workers. Most of the handful of Japanese workers present are involved in production operations, rather than senior management.
Economists and business leaders agree that cultural differences between Japanese companies and local hires might not play a large part in the industrial unrest.
Sato said the riot at the Suzuki plant was a “special case.” With the yen robust, he said, Japanese companies are likely to continue investing in India. A strong yen dents the price competitiveness of Japanese exports overseas and cuts the value of profits earned abroad when they are returned home.
Back at Suzuki headquarters in Hamamatsu, the Japanese company has little choice but to wait and see how things turn out. “What are we going there to do?” said Kenichi Ayukawa, a managing officer in charge of global marketing at Suzuki, when asked if any executives plan to fly to India now. “The situation doesn’t allow us to go there yet” as the police investigation into the riot continues.