Abstract
Mediterranean Textile Company: Negotiating for the Release of Hostages is a unique case study that touches upon multiple dimensions of the operations of a multinational corporation in foreign countries. The case is structured around a specific issue of negotiating for the release of hostages in the wake of political and economic turmoil during Tahrir Square Revolution 2011 in Egypt. The CEO of Mediterranean Textile Company (MTC), Mr Usman Khan, finds himself perplexed and confused about how to resolve the conflict in his company that had been divided into two factions due to the political crisis. Some managers, mostly Pakistani expatriates, were being kept as hostages by the Egyptian workers who were asking for more lucrative salaries and working terms. How Usman would handle this situation and negotiate with the union representatives will be consequential for MTC.
Discussion Questions
(a) Assess the gravity of the situation Mr Usman Khan and MTC are currently encountering.
(b) What are the factors that led to the current situation?
(a) What specific negotiation goals should Mr Usman Khan have?
(b) Discuss the consequences of each option that he has.
Discuss the impact on MTC and the acceptability of each of the workers’ demands.
How should Mr Usman Khan resolve the conflict between the MTC management and the labour union?
On the cold evening of 11 January 2011, Mr Usman Khan, the Chief Executive Officer (CEO) of Mediterranean Textile Company (MTC), waited anxiously for a crucial meeting with the senior management. He was extremely worried about the recent turn of events that had resulted in members of his management team being held hostage by the labour union at the mills. As the CEO, he had to chart out a course of action immediately to get the hostages released and to decide upon the future strategy for MTC, in the wake of ongoing and unprecedented labour and political crises.
Recent political turmoil had not only destabilized the economy and society of Egypt but also adversely affected the working of MTC. Frequent labour strikes had caused repeated disruption in the production which, in turn, caused several delays in the exports to the most lucrative European markets. The friction between foreign top management and local workforce had exacerbated during the last few months. During the most recent labour strike that had begun 72 hours ago, workers had taken hostage a number of foreign managers and engineers working in the mills. Out of 650 employees, 250 were participating in the strike and had placed a long list of demands to be met. The outcome of negotiation with labour representatives would have long-term consequences not only for the safety of the hostages but also for the viability of continued operations of MTC.
MTC Background
MTC was a producer of premium quality cotton compact yarn, located in Alexandria, Egypt. The primary markets for yarn exports were Europe and the United States of America. According to the textile export council, MTC was the largest yarn exporter in the spinning sector in 2011 (Saif Group, n.d.a). Egyptian cotton was famous for its softness, strength and superior characteristics. Availability of the best quality cotton, easy access to the main markets of Europe and the United States of America, and low energy and labour costs had attracted Saif Group—a conglomerate based in Pakistan with its primary operations in diverse industries including textiles—to establish operations in Egypt. The group had established MTC with an investment of USD 20 million (Saif Group, n.d.b) with Saif Telecom 1 as the majority shareholder. On 15 February 2008, MTC started the production of compact yarn. Saif Group had 40 years of experience in yarn production and marketing in Pakistan; factory management and engineers were recruited from Pakistan whereas the labour force was hired from the local Egyptian market. Exhibit 1 describes the organizational hierarchy of MTC, identifying some Pakistani managers who were caught up in the turmoil at the factory and held as hostages.
The Labour Union Activism in Egypt
The labour union structure in Egypt consisted of two layers, that is, unions were constituted at the industry level and then they became associated with a federation that represented the interests of member unions. Egypt had one labour union federation, which was backed by the government.
Egyptian Trade Union Federation (ETUF)
ETUF was established in 1957 and since then, it had been operating as an arm of the Egyptian government to control unions and their members. Workers could only elect officers in their unit and could only belong to one general union. Since Gamal Abdel Nasser Hussein’s reign, the second president of Egypt during 1956–1970, the union’s president had been a member of the ruling party (Said, 2009). ETUF enjoyed a monopoly in the trade union organization established by the Law 35, promulgated in 1976, and amended later in 1981, which recognized ETUF as the only legitimate and federal legal body of labour representation (Abdalla, 2012). Until 2011, ETUF was the only platform for the Egyptian workforce representation, with 23 affiliated unions and 3.8 million enlisted workers constituting 16 per cent of the total labour force.
Time and again, ETUF rallied with the government to suppress labour activism. For instance, during a strike by railways workers in 1976, the president of the General Federation of Rail Workers said of the strikers, ‘They should be beaten around the head with iron fists’ (Katz, 2010). During the two decades, spanning the 1990s and 2000s, the Egyptian workers staged some strikes, many of which resulted in the violent use of force by the government. 2 However, during recent years, the Egyptian labour movement had achieved several breakthroughs in pushing for workers’ rights, including strikers being met with negotiations rather than armed police confrontation (Dine, 2011).
Increased Labour Activism
Labour activism had begun to emerge in Egypt in 2004 as a consequence of the economic policies established by the government of Ahmed Nazif (the country’s prime minister from 2004 to 2011). His government’s promotion of economic growth at the expense of social justice resulted in vast social inequality (Abdalla, 2012). Between 2004 and 2008 (Abdalla, 2012), more than 1.7 million workers had participated in the contentious collective actions. In the absence of a credible body representing Egyptian labour, strikes and demonstrations had become the only influential tools for the labour to exert pressure on employers (in the private sector) and the government (in the public sector).
Between 7 December 2006 and 23 September 2007, more than 650 workers’ protests took place in Egypt, a large proportion of which were strikes. The nine-month period witnessed 198,414 workers take part in strikes and sit-ins (Bassiouny & Said, 2008). Workers in the textile sector played a vital role in setting up the new wave of labour activism. Exhibit 3 shows the total number of protests from 2006 to 2010 in Egypt.
One major demand during most of the strikes was increased wages. In 2010, the typical monthly wage of textile workers, which ranged between USD 45 3 to 107 a month, was below the World Bank’s poverty line of USD 2 a day for the average Egyptian family of 3.7 persons. The minimum wages of Egyptian workers were very low as compared to many other similar countries. 4 On 6 April 2008, a strike was called by the workers of Misr (the Arabic word for Egypt) spinning and weaving mills to increase the national minimum basic wage to USD 200 from the previous wage of USD 23 (Beinin, 2012). Though security forces were called in to disperse the workers, the demand for a minimum wage of USD 200 became the standard demand throughout the country. In March 2010, the National Council on Wages (NCW), headed by the Minister of Planning, recommended the increase of minimum wage to USD 67. However, the workers’ community did not accept this and announced another strike in front of the Egyptian Parliament on 1 May 2010, again demanding a minimum wage of USD 200.
Strikes at MTC
Motivated by the recent success of labour unions, protests, sit-ins and strikes became a routine at MTC. Beginning in November 2010, a new wave of protests and strikes started. On 8 January 2011, a huge crowd of angry workers entered the administration offices at the mills, captured ten middle management executives, and took them hostage. Workers announced the continuation of the strike until all their demands were met. Despite many efforts by the senior management to get the hostages released and stop the strike, the situation kept deteriorating with the union representatives pressing for their demands.
The moment Usman came to know about the situation, he rushed to the mills. On the way, he realized the gravity of the situation when he learned that the majority of the hostages were Pakistanis. He immediately asked to get in touch with the representatives of the labour union, requesting them to not cause any harm to the hostages and the assets of the mills until he reached and talked to the workers and their representatives.
Upon arriving, Usman noticed that a large group of workers had blocked access to the mills and were shouting slogans against the owners and carrying placards stating their demands. He came out of his car and immediately a group of angry workers encircled him. Maintaining his composure, Usman enquired about the safety of the hostages and asked who was representing the workers. He assured the angry crowd that he would listen to all of their concerns and address the issues in consultation with the labour representatives and senior management of MTC.
Four persons from the group moved forward and introduced themselves as union representatives and escorted Usman inside the premises of the mills. Upon arrival at the office block, Usman was greeted by a visibly shaken management team who took him and the union representatives inside. After seating themselves in the office, Usman, the senior management of the mills and union representatives started talking. Usman listened patiently to the demands of the workers and assured them of his earnest intention of solving the situation by peaceful talks. The union representatives put forth the following seven demands:
Increase the salaries to USD 200 Fix the overtime at 50 hours per month The head of the company should be Egyptian Annual profit sharing with employees in the shape of bonus Two days off per week Medical expense coverage Annual paid leave for four weeks
The representatives explained that the current wages and other benefits of the workers were abysmally low, and workers lived in extremely impoverished conditions. They clarified that the increase in wages and benefits will not only allow workers to meet their basic needs but will also improve their productivity and job satisfaction, and that will benefit the organization tremendously in the short and long term. They further explained that having an Egyptian as the head of the company will allow improved communication between the management and workers, and a better appreciation of the living and working conditions of the latter. They insisted that the precariousness of their situation and the failure of the management to address their genuine demands forced them to take the extreme step of making the management hostage
Usman insisted that before the MTC management could consider any of the demands, the workers had to release the hostages. He also asked that the management be given some time to thoroughly review the demands before any decision was taken. After long and strenuous negotiations, the union representatives agreed to free seven out of the ten hostages and gave the management time until the next morning to work out a plan for meeting their demands.
As the union representatives were leaving the office, Usman asked his team to go back to their offices and work independently for an hour on the viability of the demands before they met again to develop a course of action. He accompanied the union representatives to the place where the hostages were kept. He met them all and enquired about their safety. He told them about the ongoing negotiations and assured them that MTC will ensure their safety.
As Usman came back to his office with seven released hostages, he began thinking about the ensuing negotiations and some issues surfaced his mind. He wanted to think through matters before his management team got together for the meeting.
Release of the Hostages
Usman had been successful in getting seven hostages released and buying time for the negotiations. However, he knew that the initial success was short lived; the labour could not only make the management hostage again but the CEO as well. What if the negotiations failed? Should he seek police help and invite them to the premises? Should he ask the police to intervene if the negotiations were to fail? The workforce had put forward seven different demands. Though successful negotiation was the need of the hour, was it in the strategic interest of the company to accept all the demands? Inspired by recent successful negotiations in different public and private sector organizations, the spirit of the Egyptian labour force was flying high. Though some of the demands of the labour union at MTC were acceptable, shortlisting the most appropriate demands required careful consideration.
Continuation of Operations
The incidents of strikes and sit-ins at MTC had increased recently and were causing incessant and prolonged disruptions in the production processes which, in turn, were delaying scheduled deliveries to the prime European market. The economic recession of 2008 had also caused decreasing trends in the purchasing power of European consumers, and MTC buyers had been exercising restraint in placing orders. Any further delays in product deliveries could result in heavy penalties and cancelation of contracts by the buyers. The ongoing labour and political upheavals in Egypt were likely to increase as time passed by, at least, in the short term until some significant labour reforms took place. Would it be feasible to continue operating MTC smoothly, given the current hostile attitude of the workforce?
Cultural Gap between the Management and Workforce
Usman understood the importance of sustainable collaboration between the management and workforce. Recent events had created greater friction between both the groups, and the desired level of collaboration was yet to be achieved. As both groups belonged to different cultures and ethnicities, the role of each other’s perceptions was very deep and pertinent. In addition to the issues of adequate level of compensation and benefits, workers in the textile sector had expressed their growing resentment regarding foreign management and discrimination against Egyptian workers.
The traditional ‘worker versus management’ conflict had taken another ominous dimension of ‘national versus foreigner’ conflict. The dividing line was not the designation anymore; it was the cultural identity. It reminded Usman of another incident in October 2010, when the management of another textile firm, Mega Textiles (which was a Turkish subsidiary operating in Egypt), had dismissed 43 members of the union, and military police had confronted the workforce that had blocked the factory gates (Beinin, 2012).
Meeting with the Management
Soon the management team of MTC gathered to discuss and decide upon the negotiation strategy. Usman enquired about the financial implications of the accepting workers’ demands. Mr Amer Rehman, the finance manager, commented:
We understand that the workers have a right to demand better salaries, but what they do not realize is that any increase in the cost of goods sold can’t be passed over to the customers because of low-cost competitors and stagnant market. Our salaries are already slightly better at USD 70 than the NCW recommendation of USD 67. However, to resolve the ongoing crisis, we may consider the following options:
First, fire the 250 employees who participated in the strike. Hiring and training of 250 employees will take another two months, which means our remaining workforce will have to work much harder to make up for those fired employees. MTC will end up spending an additional USD 30,000 on overtime, hiring and training costs. Second, increase salaries by 30% and introduce performance-based bonuses. (Amer Rehman, personal communication)
As Usman considered the implications of these suggestions, he asked the HR manager about his opinion on the issue. Mr Muhammad Shareef, the HR manager, commented on the demands of the workers:
Demands for a 5-day working week, medical expenses, and annual leave are not in line with the industry standards of the manufacturing sector. The recent economic recession has already dented our margins and growth targets. Overtime provides flexibility to the management for absorbing additional production demands. Fixing up increased overtime hours would take away that flexibility in production levels. In the near future, it will become too difficult for MTC to offer such perks. (Muhammad Shareef, personal communication)
Usman had apprehensions about the options being discussed. He was worried about the effectiveness of the course of action suggested by the finance manager; the possibility that workers will use their newfound power and strike again in the future for further bargaining was a concern. He was very inclined towards engineering new options with a better focus on the current and long-term future of MTC. Though his managers were giving their rational opinions, Usman was thinking about the long-term ramifications before arriving at any conclusion.
The meeting ended at 2 a.m. and Usman was still trying to map out a strategy for final negotiations with the union representatives scheduled for 10 a.m. His objective was not only to free the hostages but also to develop mutual trust and an environment of collective ownership. He had to decide how he will negotiate with the union representatives to get the hostages released and which demands to accept and decline. He could also press upon the union representatives to release the remaining hostages before he started the negotiations. Even if the current deadlock between the workforce and management ended, how would he bridge the widening cultural gap? Could he use the negotiation as a process towards developing trust and relationship between the management and the workforce? Would the management be able to enjoy the trust of the workforce in the future? What measures were needed to build harmony between the workforce and management? What if the negotiations failed? Should he involve law enforcement agencies or just accept the demands, only to rescind them later once the hostages were freed? He worried about politically motivated individuals in the workforce who might disrupt the negotiation process to take advantage of the situation. The long list of serious issues offered him no respite as he struggled to grapple with the complexity of the situation.
Historic Strikes in Egypt from 1989 to 2011
Yearly Protests by Egyptian Workers
Comparison of Wages in Egypt with Other Selected Countries
Source: International Labour Organization (2010).
Egyptian Federation of Independent Trade Unions (EFITU) and Tahrir Square Revolution
