A Case on Downsizing in Phil Corporation Ltd.

Source: IndianMBA.com
Shubhasheesh Bhattacharya:Faculty Member
ICFAI Business School
Naryan Sopte is finally relieved as he resumes his job responsibility of managing sales of Konica
products. He has been undergoing a lot of tension and insecurity over the last six months with
regard to his job and now, having survived the downsizing process has been finally assigned
back his job responsibility. Although he looks relieved, deep inside he would know that his job
worries may be far from over, as the company's business doesn't seem to be doing any better over
the years. The company had undergone a huge downsizing process wherein it had taken major
steps to trim its excess work force and thereby re-organize the company.
Background
The company ' Phil Corporation Ltd. ' (Phil), incorporated in the year 1983 was formerly known
as Photophone Industries Ltd. and had been a major player in the field of photography business.
It had started initially under the leadership of its present chairman A. Y. Fazalboy in the
manufacture of audiovisual equipments like slide projectors and overhead projectors at its plant
in Tivim, Goa. It also ventured into the business of manufacturing and marketing of photography
products. In July 1990, it entered into a license agreement with Konica Corporation, Japan to slit
Konica jumbo rolls into film rolls and photography colour paper. As a result of this, its business
expanded vastly and to cope with the increase in demand it set up another plant in Bicholim, Goa
in the year 1994, in addition to its earlier plant in Tivim. It also had to recruit extra workers for
these plants and also additional officers in functions of Sales, Marketing, Finance &
Administration, and Human Resources. It had now strengthened its presence throughout the
country by increasing the number of offices in all parts of India. It was operating through 14 area
offices scattered in all parts of India with its head office and one of the area offices based in Goa.
Each of its plants in Tivim and Bicholim were involved in the manufacture of Photographic
chemical formulations required for the manufacture of photographic products, photographic
cameras & accessories, colour paper film rolls, and projectors. By the year 1993 it also tied up
with Polaroid Corporation, U.S.A. to manufacture and market its range of instant cameras and
film rolls under its subsidiary called ' Phil Systems Ltd.' It kept on growing from strength to
strength as its presence in the photography business was establishing. In the year 1996, it
ventured into another business of food products such as cashew nuts, peanuts under its subsidiary
' Phil Foods Ltd.' and set up a plant in Valpoi, Goa for the same. However, right from the
beginning this venture din't seem to be profitable and faced problems as this branded product
faced stiff price competition from the local unbranded products.
As its turnover kept on increasing, the company had by now increased its employee strength to
over 2000 employees. It was argued that the company's' success was more driven by it being the
1

monopoly in the photography sector and that the company needed to be more focused in the
business as more competitors were expected to enter into the business seeing its tremendous
growth. Table 1 shows the net sales and net profits of the company over the last ten years.
As time progressed it was not getting as easy as it earlier was for the company. It was now facing
competition in the form of Kodak , a major international player in the photography sector. It
entered the Indian market in the early 90s and had started marketing its products aggressively
throughout the country. It started gaining market share through its superior quality products and
was of course, backed by an international brand image well acclaimed by the professionals in
photography. Table 2 shows the net sales and the net profits of the Kodak India Ltd. over the last
ten years.
That was not all for Phil. Further the matters became worse for the company as Konica
Corporation, Japan started selling its products in the country through another channel. Computer
Graphics Ltd. (CGL) was a small Chennai based company, which started its operations in the
year 1998. It focused its operations in the South and West of the country where Phil was strong
as there was a ready market available and all it had to do to capture the market was to offer better
prices then Phil to the dealers which formed a crucial link. These products were not directly sold
to the end customers but went through the dealers who would push the product on bases of
higher margins. Table 3 shows the sales and profit margins of the company while Table 4 shows
the price difference in the Konica range of products between Phil and CGL.
On the other hand, Phil also started facing problems in its Polaroid range of products as well, as
China entered the market of instant photography and started manufacturing instant cameras at the
cost of U.S. $ 1.5, much lower than that manufactured by Phil at the cost of U.S.$ 3.These
products started infiltering in the Indian market at reduced prices through unauthorized (grey)
channels thus cutting into Phil's profits.
The company was now facing problems from all ends. Its sales had decreased and its profits
were badly affected. Soon, the demand for its products reduced drastically and the work force
was left without work.
The downsizing option
The company made attempts with Konica Corporation, Japan to negotiate on its terms of
promoting Konica through other channels in the country explaining that its business was getting
largely affected but it didnt materialize. There was a need for quick action to be taken to arrest
further losses. It had only one option: to reduce the excess amount of labour and then plan
strategies to regain its lost ground. Although reducing the excess work force could face lot of
resistance, it had to be implemented.

The company first shelved its subsidiary Phil Foods Ltd. and then transferred the business of Phil
Systems Ltd. of Polaroid products into its parent company, i.e. Phil Corporation Ltd. Phil
Systems was the involved in the business of software services.
By the end of the year 1997, it started the downsizing process by identifying departments with
excess number of workforce. It first identified 159 excess workers from the three factories of the
total 450. When the news started making rounds of the company it created a great deal of unrest
amongst the employees and affected their moral. More of work hours started being spent by the
workers in discussing their future prospects in the company. This was the time when the labour
union started strengthening to resist the injustice, if any, rendered by the management towards
them. The management too was aware that it would face stiff resistance and hence had to take
further steps very cautiously.
After lot of thought, the management floated the VRS option to the factory workers. According
to this option workers with over and above ten years of service with the company would be
offered compensation of 45 days of their gross salary multiplied by the total number of years
worked. The workers union did not accept this offer and demanded for 90 days instead of the
offered 45 days. Since the management was reluctant to accept this demand the workers
observed a 'slow down' strike wherein they further reduced their production capacity. This was
not agreeable to the management. This issue remained pending for a while until after long
negotiations a total of 65 days of gross salary was agreed upon mutually.
A total of 121 workers availed VRS Scheme while 38 of the excess workers did not accept the
VRS option. These excess workers were subjected to harassment by transferring them between
factories in Tivim and Bicholim and assigning them jobs below their level of experience gained
in handling superior job functions, e.g. a senior Technician from the Inspection Department in
Tivim was transferred to Bicholim in the dispatch section to look after loading of jumbo Rolls, a
job usually handled by a much junior worker. The remaining workers were re-organized: some
interchanged departments, e.g. some employees from quality checking were shifted to servicing
department, etc. some were reduced of extra responsibilities, while others were given additional
responsibilities.
The officers in the various other departments like the accounts, administration, human resources,
sales & marketing knew that it would be their turn now. Unlike the workers in the factories, the
officers did not have a union amongst them. Various department heads were asked to identify the
excess employees that surfaced as a result of merger of the various divisions into one company
and the jobs being re-assigned.
The management did not consider the VRS option to the officers like it extended to the workers.
However, it considered reducing the workforce through asking these officers to resign and if they
did not agree to do so then they were transferred to any locations within the country. Legally the
management did not have the right to terminate any employee without assigning any specific
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reason proving their unsatisfactory performance. And in this case, the problem was not of the
unsatisfactory performance of the employees and hence the employees held the right to challenge
their termination in the court of law.
The employees could not digest this way of harassment by the management and had lost
complete faith in them. Every fortnight, the management would release a certain selected list of
employees who would be called upon by their respective superiors and explained the precarious
state the company faced and would then be asked to tender their resignation. The employees had
been completely gripped with fear as to whether their name would figure in the list of employees
that would be asked to leave. Also, the management did not seem to have a well-defined process
in listing employees to be retrenched. It was observed that those employees who held good
relations with the top executives in the company survived while the others were held to
retrenched.
Contrary to all this that was happening, in the year 1998, the company ventured into the
marketing of X-ray products under the name Indu Phil, manufactured at the Hindustan photo
films plant in Mumbai. It also recruited employees for this task all over India but even this
venture proved highly unsuccessful since Hindustan photo films had a tarnished image in the
industry and the factory had been closed due to its own labour problems. Also, the quality of
products manufactured was seen to be far inferior than those which were available in the market
and the concerned customer technicians rejected these products. Thus this decision had
completely backfired to the company. Many had questioned the decision of the company to
venture into this field and recruiting additional employees considering its present position and
the tarnished brand of Hindustan Photo films.
In the meantime the sales of the company continued to be sliding down. And not many of the
employees were able to concentrate on their work. Amongst them were also some senior
management people who were also asked to resign. This process continued for over a year. Then
came the turn of the officer in the sales department, Naryan Sopte who, like many other
employees who were compelled to leave the organization, was briefed on the sorry state of the
organization and was then asked to tender his resignation. But he did not agree to tender his
resignation. Consequently the management offered him a transfer letter to go to Orissa. He
bluntly refused this offer as well. The management repeatedly asked him on this but he was not
to agree on this. Now the management held the full right of terminating Naryan from his services
for not agreeing to accept the transfer letter to Orissa. But it did not take such a step since all
along the retrenchment process, it had not terminated any employee and termination could
further aggravate matters in the organization.
After this development the management took back all his job responsibilities and cancelled all
his field allowances that he was entitled to as he handled sales. No solution seemed nearer.
Narayan Sopte would come to the office and have no work to do while all his other colleagues

would be busy with their work. It indeed appeared a disheartening state for all employees
around.
This carried for over six months. Even as this continued, employees would resign as, either they
were asked by the organization or voluntarily, finding better prospects elsewhere. As employees
kept on leaving it had by now reduced the excess workforce and this problem appeared to be
solved. Finally, the management decided on assigning back job responsibilities to Narayan
Sopte, which were earlier taken away from him bringing an end to an unforgettable episode for
him. But one could always wonder as to with what level of commitment would he work for the
company, which had made him go through such tension and embarrassment or was it correct of a
company to take back an employee once considered not required and whether it was a right
strategy altogether adopted by the company to get rid of its excess workforce.
Table 1
Phil Corporation Ltd.

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002

Net Sales (crores)

61.2
87.75
130.7
203.7
228.0
239.3
237.2
268.7
244.5
175.7

Net Profits (crores)

1.23
3.19
5.89
8.94
9.60
10.4
1.98
3.02
2.61
-8.6

Table 2
Kodak India Ltd.
1994
1995
1996
1997
1998
1999
2000
2001

Net Sales (crores)

141.5
184.2
232.4
231.3
429.5
477.2
555.9
628.4

Net profits (crores)

3.79
2.17
2.35
4.70
10.1
5.18
24.9
34.1
5

2002
2003

695.3
765.9

20.9
26.0

Table 3
Computer Graphics Ltd.
1999
2000
2001
2002

Sales (crores)
15.84
17.66
20.23
25.33

Profit Margins (crores)

1.55
3.69
2.19
3.56

Table 4
Phil Corporation Ltd.
VX 100
VX 200
Photographic Paper (sq.m)

Dealer (Rs.)
72
85
135

M.R.P. (Rs.)
100
130
145

Dealer (Rs.)
65
72
122

M.R.P. (Rs.)
100
130
145

Computer Graphics Ltd.

VX 100
VX 200
Photographic Paper (sq.m)

Factors that compelled the company to downsize its staff:

As we analyze the case, it can be studied that the company achieved stupendous growth in few
years since the time of its incorporation. This was largely believed due to its monopoly position
in the photography sector. But later, it had started facing stiff competition, which compelled the
company to opt for the decision of downsizing its excess staff. It faced competition from the
following:

 Kodak, an international brand in the field of photography entered into India and started
promoting its products aggressively. The brand was well accepted by the professionals in
photography, which helped it gain mileage over Konica.
The parent company Konica Corporation, Japan started selling its products in India through
another channel ' Computer Graphics Ltd.' which offered better margins to dealers who in turn
pushed the products more as compared to that of Phil.
In Instant Photography, goods manufactured at lesser rates in China started infiltering into the
Indian Market through unauthorized channels, which also affected its business drastically.

Did the company abide by the rules of the ID Act?