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Growth And Gumption
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This rather comic incident exemplifies what ails India's Rs 5,000 crore-temping industry, which employs about 600,000 people and is adding more at a rapid rate of 20-25 per cent every year. Zamiri's experience is at the heart of the key question the industry has been trying to answer while rummaging through India's numerous labour laws: who is a temp? The industry itself has gone into an introspection mode as it enters its 19th year of existence.
But first the raison d'être of the industry, which is best explained through some mean advertising the industry indulged in its early years in the US in the 1960s. Attacking the established management concepts of the time, it said regular employees were "dead wood" and were "choking profitability". As a solution, temping companies offered staffers on a need basis, offering flexibility and lower costs. It caught on.
|PARALLEL LINES: Harsha U., 24, now works with a logistics company in Bangalore, but was a temp with TeamLease for three years. "Practically, I find no difference between a temp and a permanent job," he says (Bornali B.)|
The industry was founded by William Russell Kelly in 1946 in the US when he launched the Russell Kelly Office Service offering inventory management, typing and copying services to Detroit's auto suppliers. As customers got used to the service, he began getting requests to send the staffers to client's offices. Kelly began sending the machines and a girl hired as a part-time worker for help. It got so popular that the company renamed itself Kelly Girl Services Inc. by 1957, before becoming Kelly Services in 1966. Temping reached its peak in the US by the 1980s (now, though, it is only about 1.7 per cent of the organised workforce). In the US, even some CEOs are temps. In the UK, 3.5 per cent are temp workers.
Temping's India debut was in 1992 with Chennai-based Ma Foi. As the domestic industry liberalised, temp penetration reached 0.6 per cent in 2010, against India's 35 million organised workforce. The real opportunity lies in the world's youngest workforce of 237 million people in the 20-29 years age group, according to Adecco India. Last month, when nearly 900 workers at General Motors' Vadodara plant went on an indefinite strike, the company turned to temping firms. Work resumed before production was hit.
"When the slowdown happened, several companies had to let go of people. Now that we are seeing a revival, companies want to play it safe by outsourcing several functions to temporary workers," says Dhirendra Shantilal, senior vice-president of Asia Pacific at Kelly Services, which has been operating in India since 2001.
Post-slowdown, temping companies are seeing a spurt in demand. "We have been signing 20-25 new clients per month for the past six to eight months," says Sangeeta Lala, vice-president, TeamLease. Besides the big companies, SMEs and service sectors, too, are increasing their temp worker base. For example, telecom, consumer durables, retail, IT/ITeS, transport, healthcare, real estate, construction, etc.
On the back of such demand, global leaders such as Switzerland-based Adecco, Ma Foi Randstad, US-based Kelly Services and Manpower have grown to 106,000, 65,000, 20,000 and 28,000 temps, respectively. Domestic player TeamLease has scaled up to 75,000 temps. But their share of workforce remains low. "Nearly 130 million are temporarily employed in organised and unorganised sectors; more than 99 per cent are in unorganised sectors," says Manish Sabharwal, chairman of TeamLease.
Adecco India, a subsidiary of the world's largest temping firm, estimates the staffing market volume to touch 1 million by 2015. Globally, it is a $300-billion industry, and fragmented — the top 10 players account for only 26-28 per cent of the total manpower outsourcing spend.
Cost optimisation is temping's biggest pull. By employing temps, companies are able to control staff costs by as much as 20 per cent over a period, especially if projects are not finalised.
"We hire temps at short notices to man the front desk in select areas in sales and after-sales services," says Arvind Saxena, director of marketing and sales at Hyundai Motor India. "They are taken purely for temporary jobs and are not considered for regular engagement. However, if their skill level matches, they are taken in." TTK Healthcare uses temps for "selling in retail outlets", says Jagadeesh Rajkumar, HR head of consumer product division.
Dhananjay Bansod, chief people officer at Deloitte India, says, "The larger gain is in meeting sudden demand and to not have people on bench and ruin own cost." Deloitte India hires temps to serve low-end jobs in IT and in other profiles where there is no recurrent need.
National Skill Development Corporation (NSDC), a public-private body to facilitate development and upgrade of skills of Indian workforce, says there is an incremental requirement of more than 13 million people every year in over 90 categories. "The temping organisations can contribute to organise the unorganised sector, such as drivers, domestic maids, etc.," says Dilip Chenoy, CEO and managing director of NSDC.
The Base Effect
"Even though the industry is expanding its workforce base by 15-20 per cent every year, most additions are at lower levels," says Ganesh Shermon, partner and country head of human capital advisory at KPMG. As a result, revenue growth lags, threatening a severe squeeze on margins. "We estimate the revenue growth to be 10-15 per cent over the past year," says E. Balaji, director and president of Ma Foi Randstad.
This is largely because the market has an estimated 10,000 very competitive organised and unorganised players. "Companies want to pay as per the unorganised temp market, which has set low benchmarks," says Sabharwal. "A difference of a few hundred rupees could sway a client from one temping firm to another," says Shantilal of Kelly Services. At lower levels, the margins are Rs 300-1,000 per temp; 10 per cent more at senior levels. "Global benchmarks are 18-20 per cent margin on the temp's salary per month. In India, it is not even half of that," says Balaji.
Margins are challenged because temping firms in India have struggled to move up the value chain where margins are as high as 20 per cent compared to 5 per cent at the base level. This is as much a matter of trust as it is about the temping company's ability to prove the utility of temps. Clients, in particular, avoid hiring temps at senior levels as they find it risky to have a temporary worker privy to sensitive documents. "The loyalty you expect from a temp is different from what you expect from a permanent employee. If we hire a temp for, say, an HR process, we have to give him access to our entire confidential database. We do not want people to come, get access for three months and go," says Sunil Singh, head of HR at Tulip Telecom.
Most companies BW spoke to confirmed that they hire temps largely for blue-collar jobs as the demand at junior levels is higher. TeamLease, one of the biggest volume players, has only 10 per cent of its temps in the mid- and senior-levels; most of its people have 0-3 years' work experience. Likewise, Ma Foi Randstad has only 7 per cent of its temps working at senior levels.
Namr Kishore, head of sales and marketing at Manpower India, admits to margin pressure. The only way to change this is to provide high-value services, which is tough because of the reluctance to hire temps for senior-level jobs.
Also, people in the West want flexibility at work, so many prefer temping for a good part of their working lives. "There is a high premium attached to that. Temps in the West enjoy at least 15 per cent higher pay packet than the permanent guy as companies do not have to make huge investments on them," says Balaji of Ma Foi Randstad. Moreover, retrenching a permanent worker costs much more than in India.
Sayandeep Paul, 27, was offered a Rs 3,000 per month job by a staffing solutions company in Kolkata while he was pursuing the last leg of his course in computer hardware and networking. Placed with a listed public sector company in Kolkata, Paul was to maintain servers, local network and internet connectivity. But the growth was not as much as he had expected. "I tried to clear a few network certification tests of Cisco but could not as such courses require a lot of preparation and money," says Paul, who changed jobs to join a Thailand-based engineering and construction company on a permanent basis.
The temping industry is struggling to hold on to professionals such as Paul as attrition has hit almost 25 per cent. The average tenure of a temp is merely a year as the functions at junior levels are repetitive in nature. The average age of a temp employee is just 25 years, and they often seek better growth.
The tenure of a temp job can be even lesser than the average six to eight months, especially for seasonal jobs, like in retail and consumer durables. The most common profiles are in sales support, marketing co-ordination, secretarial work, accounting, customer support, project management, IT support, among others. As a result most of them are new entrants.
Attrition is the highest in sales. "It is close to 50 per cent, followed by 35 per cent in customer care. The maximum time on a job is at times only six months," says Kamal Karanth, MD of Kelly Services India. Among technical functions, attrition is about 25 per cent for networking associates and service engineers .
The high attrition rates could also be attributed to the fact that temp jobs are not seen as a career in India. "Where the skill level and performance of the member is good, he is taken into a company's roll," says Saxena of Hyundai. Balaji of Ma Foi Randstad says nearly 18-20 per cent of the temporary workforce moves to permanent jobs within a year of joining.
Old Order Changeth
The brightest spot for the temping industry is that companies are beginning to see the value in hiring temps. Bharti Airtel, a client of Adecco, is believed to employ thousands of temps. The company did not respond to BW's questions.
Ma Foi Randstad has a consumer durables client that has taken about 5,000 temps from it. Several new-age companies, such as online shopping company Flipkart and ACT Television, find it easier to get people at a short notice.
Temping is gaining ground in other sectors, too. According to Ma Foi Randstad's Employment Trends Survey, as of December 2010, trading (including consumer retail and services) had outsourced 17.8 per cent jobs, the highest, to temps (see ‘Fingers In Many Pies', page 33). On the other hand, sectors such as healthcare (5.9 per cent) and energy (7 per cent) continue to be cold to the temping industry.
"We have opportunities to place people at mid and senior levels in IT, accounting and engineering," says Balakrishnan of Adecco India. Though the number is not big, it is happening, he adds. Professional staffing is gaining ground in IT services, engineering, healthcare and consumer services sectors. "In IT services, junior- and mid-level appointments are taking place," says Kishore of Manpower India, which has recently acquired a Web development company to increase its IT staffing services.
Says Ma Foi Randstad's Balaji: "We have about 150 temps who earn more than Rs 1 lakh a month for profiles such as financial controller, network engineer and quality analyst." Adecco India's Balakrishnan seconds this. Adds Shantilal of Kelly Services: "Earlier, the demand was only at entry level. Now, we are filling positions such as team leaders, managers and trainers."
Global IT services and business consultancy Capgemini is looking to hire temps in large numbers and has begun hiring, says an industry source close to the development. The company, however, did not respond to BW's questions.
Clearly, the higher margin markets are IT, R&D centres of companies (for design work, etc.), and small service firms. This has got companies excited. Ma Foi Randstad is increasing centres across India to be more in touch with clients. "We are localising to suit client needs and that helps us in sourcing talent," says Balaji.
TeamLease is betting on training. Last week, it raised Rs 100 crore from ICICI Venture and Gaja Capital for its vocational training business. "We will offer both hiring and training services," says Sabharwal.
The Legal Tangle
A fragmented market and vague laws are breeding grounds for abusive practices by temping agencies as well as employers, affecting the industry's growth and reputation.
The temping industry complains of too many laws, and too fuzzy, laws. For instance, on an average, a temping company has to deal with 10 acts and regulations. "There is no provision of payment of gratuity or bonus, earned leave, sick leave and other basic benefits under the Contract Labour Act. And once we deploy people with the principal employer, a host of other laws come into play, such as the Minimum Wages Act, 1948; Maternity Benefits Act, 1961; Payment of Gratuity Act, 1972," says Amitava Ghosh, head of regulatory at TeamLease. "Who should pay for such benefits: the agency or the end employer? The issue remains unresolved."
Fixing of wages is another serious issue. For example, should temps working with auto industry be paid as per that industry standard or as per the Shops & Establishment Act? Some big companies refuse to adhere to even the minimum wages. "A large Indian conglomerate refused to pay a salary of Rs 4,500, which is a minimum wage as decided by the Karnataka government. We ended up paying the difference. We have brought down the number of temps with that company from 3,500 to 300," says Ghosh. In fact, Paul's appointment letter issued by his agency did not even mention the salary he was entitled to. Salary was a function of what the client would pay. "My salary went down by 20 per cent once," says Paul.
"Starting a temp staffing company is easy," says TeamLease's Ghosh. Like any other business, it has to register itself under the Shops & Establishment Act. But once the company deploys people, several other laws come into play. Often, say temping companies, only those agencies that allow the client to sidestep such regulations, get contracts.
Another factor is the disparity in wages and employment benefits. "The government should bring parity in minimum wages across locations or introduce national wages," says Ghosh. Besides this, the Contract Labour Act requires a staffing company to apply for separate licences for different clients in each district.
Unsuspecting employees such as Paul and Zamiri are mostly unaware of their rights and are exploited. Except a few recognised players, most temping firms deprive their employees of the basic benefits and rights. Provident fund, medical insurance, Employees' State Insurance (ESI) benefits, etc., for those earning less than Rs 15,000 per month are not even considered.
But there are several best practices worth adopting. In Singapore, every recruiter has to clear a certification programme before he starts operations. Thailand and Malaysia require temping firms to seek licences. In China, every province has its own laws for such businesses.
Lack of monitoring by government agencies and low entry barrier make it easy for fly-by-night operators. Industry leaders are urging the government to set up a steering committee at national and state levels with members from employers, employees and the government to earmark errant agencies. They also want documents such as solvency certificates from banks, income tax clearance certificates, PF and ESI registration codes, etc., be made mandatory.
The industry has also suggested that records of timely payments, level of compliances, staff welfare, health and safety for employees achieved during past six months should be the criteria for selecting temping vendors.
The industry is hoping that its soul search would lead to actions that can exploit its enormous untapped potential. And that its promise will not get smothered by imprecise laws and dodgy actors.
(This story was published in Businessworld Issue Dated 18-04-2011)