03 Jun 2015 21:54 IST

Tata Steel's UK unrest: Lessons from India

The steel behemoth in UK would do well to learn from the way its Jamshedpur plant handled downsizing

The latest news coming from Tata Steel’s UK operations (a result of the acquisition of Corus in 2007), reflect a company with two arms that look anything but similar. While its Jamshedpur unit in Jharkhand is a case study in successful industrial relations, the unrest in its UK facilities have prompted calls for intervention from British Prime Minister David Cameron.

Three trade unions at the UK facilities — representing 6,000 employees — have overwhelmingly voted in favour of a strike. The workers are protesting Tata Steel’s proposal to close the pension plan — considered sacrosanct for the workers. To offset the loss, the company has suggested raising the retirement age to 65 from 60, a move considered unfair because of the tough physical labour involved in a steel plant. The result of another ballot is expected on Friday and one doesn’t need a psephologist to guess the outcome.

Tata Steel’s proposals show a company desperate to make something of its $13-billion acquisition in 2007. The European arm, called Tata Steel Europe, had to write down ₹4,951 crore, resulting in a loss in the last quarter of the last financial year. A write-down is a reduction in the estimated or nominal value of an asset due to economic and fundamental changes in the asset. A glut in the world steel industry and subdued demand foretell a troubled year ahead for the company.

Lessons from India

But are there lessons that the European arm of Tata Steel — keen on downsizing its workforce — can learn from its Indian counterpart? There surely are. In the early 1990s, Tata Steel’s then Managing Director, JJ Irani, oversaw a tumultuous period in the country’s first steel company.

To quote from the Tata website: “The complications confronting Tata Steel in the early 1990s were gargantuan. The company was saddled with a 78,000-strong workforce, a plant on the verge of obsolescence, and a collective mindset that was resistant to change. Difficult as it was, updating the plant proved easier. The crises of too many people and too small mindsets were a different kettle of steel.”

One of the ways to come out of this period was to reduce the workforce. It took a three-month exercise just to understand the actual head-count, which included 3,000 secretaries and office boys. The accounts department had 32 peons, chauffeurs, and security personnel and the company had departments that made ice-cream and paint! The head-count revealed that the company had 77,448 employees.

Separation scheme

Its first attempt to cut flab was a failure when just 1,000 workers responded to a voluntary retirement scheme. That is when they came up with a pension plan. An employee would get the current salary every month till the age of retirement. He could avail of the company’s medical facility and also get a three-year extension to vacate quarters.

The plan worked. With the help of subsequent pension plans along the same lines, Tata Steel reduced its workforce to less than 40,000 by 2005.

No doubt, conditions in the UK differ from those that prevailed in Jamshedpur of the 1990s. But there is insightful learning to be had from Tata Steel’s experience in its Indian unit. The biggest, to quote its former Human Resource head Niroop Mahanty, is this: “The reason our ESS (the pension plan called Early Separation Scheme) has not caused bitterness is that, before we actually did it, we spent nearly a year communicating the necessity of reducing our numbers.”