Downsizing at Pennar Industries Limited

Abstract

Pennar Industries Limited (Pennar), one of the top ten producers of cold rolled steel strips in India, had 650 workers and 630 staff (non-unionized workers, supervisors, and managers) in 1997. Although over-manned and inefficient, the company had been profitable in the domestic market protected by government licensing and high import tariffs. As real competition, unleashed by globalization, began to bite in 1998, the company bought out 142 workers and 224 staff through a Voluntary Retirement Scheme (VRS). The severance compensation offered was very generous. In spite of reducing the workforce and improving productivity, Pennar ran into heavy losses by 2000. The management decided to downsize further, but it had no money to match the 1998 severance package. The surplus workers would have to go with the statutory compensation and staff without any compensation at all. The unions rejected the VRS for workers outright when they learned that it offered just one-third of the compensation given in 1998. They wanted at least two months' pay. The negotiations went on without any change of heart on either side. Each Head of Department drew up a list of their workers and staff to be retrenched and called the redundant staff one by one and told them to resign and leave without expecting any compensation. Many resigned and left but some resisted and abused the managers verbally, but there were no cases of violence or litigation. The new VRS for workers was formally announced on April 20, 2001. None came forward. They stuck to their demand for eight weeks' pay as compensation. Gradually, however, the workers' resistance weakened and they accepted the VRS and left peacefully. This case is useful for examining the human resource management issues and process for downsizing.