This is the second in a series of snapshots of staffing climates in various countries around the globe. Editorial Director Subadhra R. Sriram interviews Pradeep Mittal, CEO of a 5,000-strong IT staffing and solutions company, Magna Infotech Private Ltd., headquartered in Hyderabad. Mittal believes that the Indian staffing market will quadruple in the next decade to hit the $2 billion mark. Currently, staffing companies, both foreign and domestic, are providing workers for U.S.-based corporations and to Indian global IT consulting companies. U.S. corporations use workers for internal needs and clients. But the Indian global IT firms usually lease workers out to other clients; the local players are few and far between.

However, he sees the bulk of the staffing demand coming from multinational Indian corporations setting up their own IT development centers. While not yet fully mature, that market will involve huge numbers when fully developed, Mittal asserts. In 2011, Mittal sold his firm to a privately held HR firm, Ikya Human Capital Solutions Pvt Ltd., based in Bangalore. He talks about what drives the Indian market and what to expect.

Editor’s note: The views in the interview are solely that of Pradeep Mittal, an India-based entrepreneur. The idea was to provide a perspective from a local staffing agency owner. Staffing Industry Analysts will try to provide ongoing coverage of the Indian staffing market from different viewpoints.

Define staffing as it is used in India.

Staffing is [structured] about the same way as in the U.S. The main difference is that the market isn’t ready in India. Also, because of the local challenges, there is still no hourly base of payment to the consultants; it’s all salaried and monthly based. Further, the workers are employees of the staffing firm, considered “permanent,” with a defined [termination] notice period written into their contracts. Take my company, for example. The consultants are my permanent employees and typically have a 15-day notice period in their contracts. Right now, I don’t think anybody makes a contract offer that “this is your start date and this is your end date.” That has not worked here.

So what happens when a consultant finishes a project?

Two things happen. First, he goes on the Magna bench. Fortunately, Magna has 150 clients throughout the country; around 25 percent of the people who come on the bench get redeployed quickly. For the remaining people — those who turn down a particular job, don’t want to relocate, etc. — we honor our agreement letter and give them the 15-day notice, or 30 days, if applicable, and pay them for that amount of time. In our offer letter we can’t use the word “temporary”. I think that shift will take another five or six years. Our offer letter probably mimics the offer letter a

  • employee would get.

    So the candidate thinks he or she is being hired full time?

    No, the candidate knows that we’re doing staffing. The candidate knows that he’s not working in Magna permanently. The candidate is very aware of that fact. Initially there was a big learning curve. But what helped staffing (in India) is the downturn. Thanks to the downturn, more than 100,000 Indians have come back to the country with varied experiences. They say they don’t want to be employees of a company. They want to be consultants.

    So the cultural perception — aside from people returning from abroad — is that being a temporary worker is negative?

    Not so much now, but around three or four years ago, that was the case.

    Which sectors are the biggest users of staffing in the country?

    The IT services sector, IT development centers (like video game creators) and banking, financial and insurance companies.

    Let’s talk about your client contracts.

    About 95 percent of my clients are multinational corporations, and most are based out of the U.S. So they use the same [market service] agreement that they use in the U.S. It outlines that Magna is a primary vendor and my company has these responsibilities to undertake and deliver as per the agreement. The agreement is negotiable and renewable annually.

    Can you tell me about markups?

    The markup varies by industry just like in the U.S. Our markups are around 25 to 35 percent for banking and financial; for the services industry, it’s a bit lower than 25 percent. And it’s the same for most “tier 2” staffing firms. Magna is tier 2.

    What are the tier 1 firms?

    Tier 1 are firms [global IT services and consulting companies] such as TCS, Wipro, HCL, Mindtree, Cognizant, Infosys. I’m talking about tier 2 firms because Magna is the largest tier 2 fi rm in India today. Other tier 2 firms are Manpower, Adecco, TEKsystems, U.S.- based staffing firms that have moved in or opened offices. We hope that they succeed because it will create more market opportunities and best practices. Then there are at least 200 tier 3 or smaller staffing agencies.

    What is the size of the market?

    In India right now there are around 1.3 million IT professionals and about 1 million IT enabled services professionals, who work in call centers. Current market size is around $150 million. And this market will grow to $2 billion in seven to eight years.

    So it’s a lot of small agencies, a fragmented market?

    Yes. There may be like 200 or 300 agencies with anywhere from 10 to 25 employees. Some of them are in the range of 25 to 100 employees. Some firms have 500 employees and even fewer companies have above 1,000 personnel.

    So what jobs do your contractors or employees do?

    They are developers. Most have four to six years of experience. Software engineers, senior software engineers are common titles.

    Is there a black market there? Companies that operate unethically?

    Unfortunately there is, we struggled initially with that. Our clients during those years were [two large international corporations]. And we learned a lot of best practices from them, systems development, etc., which we subsequently used and that helped combating these practices.

    What are some of the other challenges you face?

    Many Indian organizations do not have effective procurement departments and so this generates much inefficiency. Another problem is that HR departments see us as competitors. Staffing firms are able to get a worker in quickly and often HR takes more time than we do to get the same quality resource.

    In India it is not easy to fire a worker due to the labor laws? Right?

    The government is actually people-driven, so wherever there is a blue collar worker involved, the government has got very, very stringent laws and processes in place.

    If a blue-collar worker complains to [a government department] they’ll take it very seriously. But the interesting part is the offer letter — Magna can let anybody go at anytime as long as the company meets all its obligations in the offer letter.

    And what do these obligations involve?

    These obligations outline payments. For instance if you’ve worked for more than five years in my company, I have to comply with some statutory payments and I have to honor the notice period defined in the offer letter.

    But can you actually take on a worker just for six months?

    That’s a good question. We wanted to do that initially but that has not worked here.

    Okay, but then how do you get a worker in for a certain period of time?

    I get a worker in sometimes within three days of being selected by my client, or within three weeks, based on his skills and experience. We get him in as a permanent employee. The offer letter [states] that he or she is a full-time employee of Magna Infotech [along with defining the termination notice period].

    So the person becomes an employee of your company and then is farmed out to other companies.

    But we give the offer letter in such a way that the day he or she joins Magna Infotech, the worker picks up the offer letter and reports to the client from day one. The consultant who is joining Magna Infotech and going to [our client] as a consultant actually doesn’t care what the duration of the project is. He knows if he wanted to work for [the client] as its employee, it would have taken him months to get selected. But if he goes through Magna and does a good job for [the company], the company may absorb him.

    Do many people get hired this way?

    Oh, yes. One third of them get hired by my clients. Actually some of my clients use this option to hire their full-time employees.

    Let’s talk about labor laws in more detail.

    Unfortunately, as per the government rule, the labor law is applicable to every employee of the organization whether they are highly paid or not. The only thing is the software engineer who’s paid very well doesn’t go and approach the labor courts if his or her company sticks to the agreement he or she has signed.

    But in the case of blue collar workers it’s a different issue. The courts are very, very finicky on the compliance of those statutory regulations. Staffing agencies have to be careful when it comes to industrial workers.

    What are the other challenges for the industry?

    One challenge involves the worker because there’s no loyalty. These workers have six, seven, 10 offers, so when he picks one, [the rest of the companies that lose] are very unhappy. Also, staffing companies are constantly dealing with attrition issues. Second is the falsification of the résumés. These workers don’t mention correct experience, so it becomes a challenge for any agency to hire good people. This is getting better. It was worse three years ago; but clients today insist on very stringent background checks so some of it is getting filtered. Background check firms are supporting us and checking their backgrounds, their qualifications, their employment, previous employment and the salary that they earned in their last job.

    A final challenge is that we actually don’t have good recruiters in India. Nobody takes recruiting seriously as a career opportunity; they don’t think they can be in the field for the rest of their life. So people may come in because they can’t get jobs, but the moment they get other jobs [they are gone]. Magna must have trained at least 2,000 recruiters for the industry and I think this problem is going to continue for the next three or four years.

    The other thing is that unfortunately the local players are very few, most of the names [apart from the big three] are companies like Collabera, Artech, Infinite Computer Systems — all U.S.-based. You can count the significant local players on one hand.

    – See more at: http://www.staffingindustry.com/site/Editorial/Publications/Staffing-Industry-Review/Archive/2012-Staffing-Industry-Review/February-2012/The-Wild-Wild-East#sthash.9m7CpIhm.dpuf