Bata India

For right or wrong reasons, Bata India Limited (Bata) always made the headlines in the financial
dailies and business magazines during the late 1990s. The company was headed by the 60 year
old managing director William Keith Weston (Weston). He was popularly known as a
"turnaround specialist" and had successfully turned around many sick companies within the Bata
Shoe Organization (BSO) group.

By the end of financial year 1999, Bata managed to report rising profits for four consecutive
years after incurring its first ever loss of Rs. 420 mn in 1995. However, by the third quarter
ended September 30, 2000, Weston was a worried man. Bata was once again on the downward
path. The company’s nine months net profits of Rs 105.5 mn in 2000 was substantially lower
than the Rs. 209.8 mn recorded in 1999. Its staff costs of Rs. 1.29 bn (23% of net sales) was also
higher as compared to Rs. 1.18 bn incurred in the previous year. In September 2000, Bata was
heading towards a major labour dispute as Bata Mazdoor Union (BMU) had requested West
Bengal government to intervene in what it considered to be a major downsizing exercise.

Bata- A Household Name

With net revenues of Rs. 7.26 bn and net profit of Rs. 300.46 mn for the financial year ending
December 31, 1999, Bata was India's largest manufacturer and marketer of footwear products.
As on February 08, 2001, the company had a market valuation of Rs. 3.69 bn. For years, Bata's
reasonably priced, sturdy footwear had made it one of India's best known brands. Bata sold over
60 million pairs per annum in India and also exported its products in overseas markets including
the US, the UK, Europe and Middle East countries. The company was an important operation for
its Toronto, Canada based parent, the BSO group run by Thomas Bata, which owned 51% equity
stake.

The company provided employment to over 15,000 people in its manufacturing and sales
operations throughout India. Headquartered in Calcutta, the company manufactured over 33
million pairs per year in its five plants located in Batanagar (West Bengal), Faridabad (Haryana),
Bangalore (Karnataka), Patna (Bihar) and Hosur (Tamil Nadu). The company had a distribution
network of over 1,500 retail stores and 27 wholesale depots. It outsourced over 23 million pairs
of footwear per year from various small-scale manufacturers.

Throughout its history, Bata was plagued by labor problems with frequent strikes and lockouts at
its manufacturing facilities. The company incurred huge employee expenses (22% of net sales in
1999). Competitors like Liberty Shoes were far more cost-effective with salaries of its 5,000
strong workforce comprising just 5% of its turnover.

When the company was in the red in 1995 for the first time, BSO restructured the entire board
and sent in a team headed by Weston. Soon after he stepped in several changes were made in the
management. Indians, who held key positions in top management, were replaced with expatriate
Weston taking over as managing director. Mike Middleton was appointed as deputy managing
director and R. Senonner headed the marketing division. They made several key changes,
including a complete overhaul of the company's operations and key departments. Within two
months of Weston taking over, Bata decided to sell its headquarter building in Calcutta for Rs.
19.5 crores, in a bid to stem losses. The company shifted wholesale, planning & distribution, and
the commercial department to Batanagar, despite opposition from the trade unions. Robin
Majumdar, president, co-ordination committee, Bata Trade Union, criticised the move, saying:
"Profits may return, but honor is difficult to regain." The management team implemented a
massive revamping exercise in which more than 250 managers and their juniors were asked to
quit. Bata decided to stop further recruitment.

The management team implemented a massive revamping exercise in which more than 250
managers and their juniors were asked to quit. Bata decided to stop further recruitment. The
management offered its staff performance based salary. In 1996, for the first time in Bata's 62-
year-old history, the company signed a long-term bipartite agreement. This agreement was
signed without any disruption of work. Recalls Majumdar: "We showed the management that we
could be as productive as any other union in the country." In the six-year period 1993-99, Bata
had considerably brought down the staff strength of its Batanagar factory and Calcutta offices to
6,700.

In fiscal 1996, Bata was back in the black with the company reporting net profits of Rs. 41.5 mn
on revenues of Rs. 5.90 bn (Rs. 5.32 bn in 1995). In fiscal 1997, Bata further consolidated the
gains with the company reporting net profits of Rs 166.9 mn on revenues of Rs. 6.70 bn. A
senior HR manager at the company admitted that with an upswing in Bata's fortunes, even its
traditionally intransigent workers were motivated to do better. In 1997, Bata workers achieved
93% of their production targets. The management rewarded the workers with a 17% bonus, up
from the 15% given in 1996.

By the end of 1997, Bata still faced problems of a high-cost structure and surplus labour. Infact,
the turnaround had made the unions more aggressive and demanding. Weston had failed to strike
a deal with the All India Bata Shop Managers Union (AIBSMU) since the third quarter of 1997.
The shop managers were insisting that Bata honor the 1990 agreement, which stipulated that the
management would fill up 248 vacancies in its retail outlets. It also opposed the move to sack all
the cashiers in outlets with annual sales of less than Rs 5 mn, which meant elimination of 690
jobs.

In 1999, the Bata management in a bid to further cut costs announced the phasing out of several
welfare measures at its Batanagar Unit. Among the proposals were near total withdrawal of
management subsidies, canteen facilities, township maintenance, electricity and health care
schemes for the employees’ families. Other measures were aimed at increasing productivity,
reorganizing some departments and extending working days for some essential services. On
January 14, 1999, the BMU submitted their charter of demands to the management. The
demands mainly revolved around economic issues. In the list of non-economic issues was the
demand for reinstatement of the four dismissed employees.1 The Union had also demanded the
introduction of a scheme for workers participation in management. On the economic front, the
Union had demanded a wage hike of around Rs. 90 per week, additional allowances as provident
fund over the statutory limit by the management, increase in 'plan bonus' and introduction of
attendance bonus for migrant workers.

In July 1999, BMU was finally able to strike a deal. It signed a three-year wage agreement that
included a lumpsum payment of arrears of Rs. 4,000 per employee. The management agreed to
include 10% of the 400 contract laborers at Batanagar in its staff.

Other gains included an average increase of Rs. 45.50 in the weekly pay of the 5,600 employees
in Batanagar, an improved rate of DA and increase in tiffin allowance. However, canteen rates
had been doubled from Rs. 0.75 for a meal to Rs. 1.50. For the 500 families staying at Batanagar,
the electricity rates had been doubled to Rs. 0.48 per unit. BMU was successful in preventing the
management from dismantling the public health unit in which 80 people were employed. In
September 1999, the West Bengal State labour tribunal in an order justified and upheld Bata's
action of suspending and subsequent dismissing of three executive members of the BMU. The
tribunal had provided no relief to the dismissed members who had been found guilty of
assaulting the chief welfare officer at the Batanagar unit on November 26, 1996.

Assault Case

More than half of Bata's production came from the Batanagar factory in West Bengal, a state
notorious for its militant trade unions, who derived their strength from the dominant political
parties, especially the left parties.

Notwithstanding the company's grip on the shoe market in India, Bata's equally large reputation
for corruption within, created the perception that Weston would have a difficult time. When the
new management team weeded out irregularities and turned the company around within a couple
of years, tackling the politicized trade unions proved to be the hardest of all tasks.

On July 21, 1998, Weston was severely assaulted by four workers at the company's factory at
Batanagar, while he was attending a business meeting. The incident occurred after a member of
BMU, Arup Dutta, met Weston to discuss the issue of the suspended employees. Dutta
reportedly got into a verbal duel with Weston, upon which the other workers began to shout
slogans. When Weston tried to leave the room the workers turned violent and assaulted him. This
was the second attack on an officer after Weston took charge of the company, the first one being
the assault on the chief welfare officer in 1996. Soon after the incident, the management
dismissed the three employees who were involved in the violence. The employees involved
accepted their dismissal letters but subsequently provoked other workers to go in for a strike to
protest the management's move. Workers at Batanagar went on a strike for two days following
the incident. Commenting on the strike, Majumdar said: "The issue at Bata was much wider than
that of the dismissal of three employees on grounds of indiscipline. Stoppage of recruitment and
continuous farming out of jobs had been causing widespread resentment among employees for a
long time."
Following the incident, BSO decided to reconsider its investment plans at Batanagar. Senior
vice-president and member of the executive committee, MJZ Mowla, said2: "We had chalked out
a significant investment programme at Batanagar this year which was more than what was
invested last year. However, that will all be postponed."

The incident had opened a can of worms, said the company insiders. The three men who were
charge-sheeted, were members of the 41-member committee of BMU, which had strong political
connections with the ruling Communist Party of India (Marxist). The trio it was alleged, had in
the past a good rapport with the senior managers, who were no longer with the organization.
These managers had reportedly farmed out a large chunk of the contract operations to this trio.

Company insiders said the recent violence was more a political issue rather than an industrial
relations problem, since the workers had very little to do with it. Seeing the seriousness of the
issue and the party's involvement, the state government tried to solve the problem by setting up a
tripartite meeting among company officials, the labor directorate and the union representatives.
The workers feared a closedown as the inquiry proceeded.

Industrial Relations

For Bata, labor had always posed major problems. Strikes seemed to be a perennial problem.
Much before the assault case, Bata's chronically restive factory at Batanagar had always been
plagued by labor strife. In 1992, the factory was closed for four and a half months. In 1995, Bata
entered into a 3-year bipartite agreement with the workers, represented by the then 10,000 strong
BMU, which also had the West Bengal government as a signatory. It was in 1998, that the
company for the first time signed another long-term bipartite agreement with the unions without
any disruption of work. Apprehensive about labor problems spilling over to other units, the
company entered into similar long-term agreements with the unions at its manufacturing units at
Bangalore and Faridabad.

In February 1999, a lockout was declared in Bata’s Faridabad Unit. Middleton commented that
the closure of the unit would not have much impact on the company’s revenues as it was catering
to lower-end products such as canvas and Hawaii chappals. The lock out lasted for eight months.
In October 1999, the unit resumed production when Bata signed a three-year wage agreement.

On March 8, 2000, a lockout was declared at Bata's Peenya factory in Bangalore, following a
strike by its employee union. The new leadership of the union had refused to abide by the wage
agreement, which was to expire in August 2001. Following the failure of its negotiations with the
union, the management decided to go for a lock out. Bata management was of the view that
though it would have to bear the cost of maintaining an idle plant (Rs. 3 million), the effect of
the closures on sales and production would be minimal as the footwear manufactured in the
factory could be shifted to the company's other factories and associate manufacturers. The
factory had 300 workers on its rolls and manufactured canvas and PVC footwear.

In July 2000, Bata lifted the lockout at the Peenya factory. However, some of the workers
opposed the company's move to get an undertaking from the factory employees to resume work.
The employees demanded revocation of suspension against 20 of their fellow employees. They
also demanded that conditions such as maintaining normal production schedule, conforming to
standing orders and the settlement in force should not be insisted upon.

In September 2000, Bata was again headed for a labour dispute when the BMU asked the West
Bengal government to intervene in what it perceived to be a downsizing exercise being
undertaken by the management. BMU justified this move by alleging that the management has
increased outsourcing of products and also due to perceived declining importance of the
Batanagar unit. The union said that Bata has started outsourcing the Power range of fully
manufactured shoes from China, compared to the earlier outsourcing of only assembly and
sewing line job. The company's production of Hawai chappals at the Batanagar unit too had
come down by 58% from the weekly capacity of 0.144 million pairs. These steps had resulted in
lower income for the workers forcing them to approach the government for saving their interests.

PS: Weston resigned on January 30, 2001. This came as a severe setback to the Bata
management.

---------------------------------

TASKS

1. List and prioritize in descending order of importance, the reasons, behind the problems
faced by Bata India Limited.

2. You are approached to advise Bata India for improving the company’s image and
performance. Describe in detail your short-term and long-term strategy.

----------------------------------