Four years ago, Manish Sabharwal headed India Life, the country’s largest business process outsourcing firm in the field of human resources. As processes such as payroll, benefits administration and recruiting moved to the developing world, India Life tackled these tasks for a variety of international clients. In 2002, Sabharwal sold India Life to Hewitt Associates, the Illinois-based global HR consulting firm — a move he discussed in an interview with Knowledge at Wharton at the time.
Sabharwal has now carved out another niche in the HR business. He is the chairman of TeamLease, a temporary staffing firm headquartered in Bangalore. With more than 450 offices all over India, TeamLease claims on its website to be “India’s largest temping company.” TeamLease has 67,000 employees, and according to Sabharwal, by the end of 2007 the company has a good shot at becoming the country’s largest employer in the private sector. TeamLease also faces increasing competition, though. Since 2004, global staffing firms such as Manpower and Kelly Services have opened offices in India to serve the growing demand for temporary workers.
Despite the booming market, TeamLease and its international rivals face a formidable challenge. While India has liberalized its economy in many areas since 1991, the labor market continues to be highly regulated — thanks, in part, to what Sabharwal argues are outdated labor laws, resistance from trade unions, and opposition by Left-wing politicians. In an interview with India Knowledge at Wharton, Sabharwal discusses the opportunities and challenges of running “India’s largest temping company.”
India Knowledge at Wharton: After you sold India Life to Hewitt Associates, what opportunity did you see in the temporary staffing market that led you to create TeamLease?
Sabharwal: India Life was in the human resources space. After I sold it, I worked for some time for Hewitt, but I did not really enjoy the big company atmosphere. While looking for new opportunities, many of India Life’s customers kept coming back to me and saying, ‘There is no one in the organized staffing business; would you like to do it?’ When I studied the situation, it became very clear that not only were India’s labor markets very inefficient, but also that the demographics were amazing. In the next five years, 75 million to 100 million people will join India’s labor force. In the next five years, 25% of the world’s workers will be Indian. It was obvious that the baby boom, which happened in India in the 1980s and early 1990s, was coming through into the labor force. At the same time, the labor markets were not ready for this because they did not have the institutional infrastructure. That led to the creation of TeamLease in 2002, though I did not join the company fulltime until 2004. I worked for Hewitt in Singapore for two years following its acquisition of India Life.
We see TeamLease as a people supply-chain company. We employ 67,000 people. Some 50% of our people are in sales, and their average age is 25. We are not yet India’s largest private employer; that is TCS [Tata Consultancy Services] with 78,000 employees. We are getting close to that mark, though, and we will probably be India’s largest private employer by the end of this year.
India Knowledge at Wharton: How rapidly is the temporary staffing market in India growing?
Sabharwal: For the temporary staffing market in India, the challenge is not demand. Companies in India want temporary employees. The challenge is the regulatory cholesterol, which I will explain a little later. But regardless of the regulations, the Ministry of Labor put out numbers saying 80 million people in this country — 20% of India’s labor force — are temporary, but less than 0.5% of that is in the organized sector. The organized sector includes people like us, Kelly, Manpower, and so on. All the global staffing services firms are now in India. Even so, they account for less than 0.5% of the labor force. If we were to organize the unorganized sector, that would be a huge market. So while demand and supply are key variables, our key challenge is the regulatory system.
There is a 1950 law called the Contract Labor Act, according to which temporary jobs are not allowed in core and perennial work. Some time ago, I heard a politician say on CNBC that no job is better than a temporary job. Some people believe that temporary jobs are intended to exploit labor and generate profits for employers. Our response is that having a job is better than not having one. Don’t compare our jobs to those that multinationals offer in India; compare them to unemployment. We have hired one person every 12 minutes for the last four years, nights and days and weekends included. Indian labor laws are not pro-worker; they are pro-union. That is our problem.
As far as public policy goes, we have other arguments to back up our case. Some 60% of my employees go on to a permanent job within a year. Ours is an apprenticeship program on steroids. Many employers use us to take employees for a test drive. We pay three times minimum wage. We are the biggest payer of social security in the country. We have a big proportion of representation of what we call labor-market outsiders — people from small towns, those who are less educated and less skilled. Many of these are first-time job seekers. Our challenge has been to work with the regulatory system and get regulators to recognize that the good is not the enemy of the great. The government recognizes that because it has passed the 100-day Employment Guarantee Act, which bulldozes 37 labor laws. They have not responded to my letter asking why the 100-day job under the Employment Guarantee Act is better than my 120-day job. The Left parties now are neither in the government nor in the opposition, and that has affected the process of bringing about change.
India Knowledge at Wharton: Are the Left-wing parties facing a dilemma in states such as West Bengal, where they have been in power for several years? After all, West Bengal has been trying to attract high-tech investment from around the world, but companies are unlikely to move there unless the employment regulations are flexible.
Sabharwal: That is just where the rubber meets the road. One of my biggest demands is that India should make labor a state subject [i.e., one that is governed by state laws rather than those made by the Central government]. Right now, labor is on the concurrent list of the Indian Constitution, which means laws can be made by both the Central government and the state governments. That is a recipe for inaction. West Bengal’s government leaders take the view that jobs are important — but their colleagues in the Central government take the completely opposite view. Unions represent only 7% of the labor force.
Part of the challenge is that India does not have a Ministry of Employment, which would judge policy by its ability to create jobs and reduce poverty. It’s very hard to get policy through the filter of job creation. The Left parties have managed to position job preservation as a form of job creation. But West Bengal has the highest level of unemployment in the country. In order for governance to become more effective, the decentralization that has begun to happen in many areas must also happen in labor laws. State governments should take charge of the habitat for job creation. There is no national habitat; states will have to build their own habitats. The problem right now is that it is in a no-man’s zone. Since both the states and the central government are responsible for labor laws, both can cop out.
India Knowledge at Wharton: You said earlier that your major challenge is ‘regulatory cholesterol.’ What remedy would you prescribe to cure it?
Sabharwal: The most important one would be to make labor a state subject. Let each Indian state set up its own job creation habitat. If some states want to ban private sector employment, let them. If others want to change other labor laws, let them. They have elected chief ministers. The Left parties have always opposed this on the ground that it will lead to a race to the bottom. To my mind, that sounds patronizing. After all, each state has an elected chief minister, and if he or she can be trusted to handle law and order — which is a state subject — they should be able to handle labor laws as well. I believe that if there is a race, it will be a race to create jobs.
India Knowledge at Wharton: Economic activity in India has picked up dramatically in recent years. Indian firms are starting to expand rapidly overseas, and international companies are now very active in India. Do government officials, bureaucrats or even corporate executives whom you meet recognize that India’s labor markets and laws will have to adapt to this environment?
Sabharwal: Frankly, the biggest victim of outdated labor laws is not corporate India; it is unemployed and unorganized labor. Corporate India has made its peace with the existing labor laws; it’s just a thorn in the flesh, not a dagger in the heart. This is for the strange reason that in India, there are huge transmission losses between the way laws are written, how they are implanted, and how they are practiced. I would not say that labor laws are the binding constraint or even a key variable for corporate India. After all, companies are expanding and merging. Again, I would repeat that it is unemployed labor that pays the price.
India Knowledge at Wharton: One complaint that is often heard these days in India is about the shortage of skilled workers. How can that problem be tackled?
Sabharwal: One solution is a privatization of skill development. Companies, in their own interests, are figuring out how to deal with last-mile unemployability. We have seen various innovations in training. For example, microfinance institutions have begun to fund training programs. Candidates are co-paying for training programs that are delivered both online and offline. Lots of entrepreneurial activity — including some by non-governmental organizations (NGOs) — is happening in the skills development area right now. Once that part is figured out, a major binding constraint will go away. The government has nothing to do with all this. The private sector has taken up the baton and is running with it. The experimentation and innovation in skills development is very different than the paralysis in higher education, where the government refuses to give up its interfering role.
For example, we are funding a lot of candidates for what we call last-mile unemployability. We have tied up with a microfinance institution that will give candidates loans to pay for a 12-week course. One-third of the course consists of spoken English; one-third of IT training on software like Excel, PowerPoint and Word; and one-third on personal issues like how to dress for a job. We use it for people who fail our interviews. We have deals with employers who are willing to reimburse us ex-post, but not ex-ante, for these programs. If we place an employee with a company and he or she stays for six months, the employer reimburses 50% of the training costs, and after another six months, the remaining 50% is reimbursed.
We have separated the financing of skill development from the delivery. For financing, we work on a combination of candidate co-pay, microfinance funded, employer reimbursement. On the delivery side, we are doing a combination of general and specific training that is delivered both online and offline. It’s a ‘repair and prepare’ approach. There is no other way. When people come out of school, they don’t know how to write a resume, or how to talk properly, but they are very hard workers. It is like gift-wrapping them, almost. They are diamonds in the rough, but we need to polish them. We believe that employability training is useful only if it leads to employment.
India Knowledge at Wharton: Another problem many companies seem to have is attrition. Do you see that situation changing any time soon?
Sabharwal: Right now it is a land grab. It’s not going to stop while new companies keep coming in to set up their operations here. The reason why there is so much attrition is that all these healthy babies want to be born adults. Executives from an MNC get off the plane to set up an Indian operation, and they want to hire 1,000 employees in three months. Almost all the major multinationals are doing that, and the simplest way is to steal employees from other companies. The multinationals may grumble about attrition, but they are one of the biggest reasons for it. Some of them want to hire 100 people a day. How can you do that without stealing from other companies? The good thing is that it makes companies work harder to keep their employees satisfied.
India Knowledge at Wharton: Where do you see yourself and TeamLease in the next five years?
Sabharwal: At the end of this year, we will grow easily to 100,000 or 125,000 employees. At the end of five years, we hope to employ more than half a million people.