The Hindu Business Line : Labour squeeze hurts India Inc

The biggest challenge for companies is in getting skilled manpower and, more important, retaining people. This problem, across industries, has forced companies to recruit from outside the area of specialisation and spend enormous time and money on training, without even knowing how long the employees will stay on. N. RAMAKRISHNAN looks at the problem that could stymie the India growth story.

Company managers and housewives have a common grouse: They are not able to get the kind of workers they want at the salaries they are prepared to pay. Even if they manage to find the workers — assembly-line employees, clerks, engineers, software programmers or whoever, in the case of company managers, and maids or cooks in the case of housewives — the salaries are higher than ever before though their skill levels call for far longer training than earlier.

The managers and the housewives realise they have a problem on hand and are prepared to go that extra mile to get the employees they so desperately need. For, operations should not suffer and quality has to be maintained. Also, both company managers and housewives run the risk of losing the workers to competitors or neighbours; what the industry calls the attrition rate or the number of employees quitting, often expressed as a percentage.

Talk to company executives and they will tell you the biggest challenge they face is in not just getting skilled hands but retaining them. It is this huge shortage of skilled hands that gives sleepless nights to managers, especially those responsible for recruitment and training. This problem exists across industries — manufacturing, engineering, construction, information technology and the services sector. Consequently, companies have been forced to recruit from outside the area of specialisation and spend enormous time and money on training, without even knowing how long the employees will stay on in the job.

Corporates Worried

Companies are now worried that this shortage in employable graduates will stymie the India growth story, this at a time when more industries are looking to shift out of high-cost manufacturing locations to cheap production destinations. Industry representatives say that they started feeling this crunch in the availability of workers more than two years back. It is also then that industry bodies started talking about the situation and drew up skill development plans jointly with member companies.

A number of factors has resulted in the industry facing such a situation. The first signs of the problem became visible in 2004-05. At that time, only the IT and IT Enabled Services sectors were really hiring in large numbers. The manufacturing sector, on the other hand, was still managing with improving efficiency — both in the use of capital and its employees — and was hence happy with the existing workforce and improved productivity. There was a lot of slack capacity, both physical and human, and the manufacturing sector was sailing along tightening up the slack.

It was much later that the manufacturing sector realised that improved productivity and better use of capacity would only take it thus far and no further. Which is when it started hiring aggressively. The problem was that it also had to dip into the same pool of graduates, who were happy that they now had more choice and could bargain for higher starting salaries.

The attitude was that India was a country of a billion plus people and several million unemployed and hence industry would not find it difficult to get the workers it wanted. The ITES industry employed science and arts graduates too in large numbers as they did not require only engineering graduates.

"We have always thought that we have a billion people and somehow we will figure this (availability of workers) out," says Mr B. Santhanam, Managing Director, Saint-Gobain Glass India Ltd. "What was happening was that we were using up our internal resources. But you actually don't realise that at some point in time your growth is going to be limited by human capacity as much as physical capacity," says Mr Santhanam, who has studied the gradual tightening in the labour supply market.

Quality Problem

The combined hiring by the IT/ITES and manufacturing sectors resulted in this labour squeeze. As a result of this, companies started hiring outside their regular area — or, as they describe, from second rung educational institutions in the cities and from Tier II and III towns.

With the size of the talent pool itself increasing dramatically there was bound to be a quality problem, leading to more noise being made about the employability of graduates — both technical and from the arts and science streams — and the lack of soft skills in them became even more glaring.

As Mr T. V. Mohandas Pai, Director (Human Resource), Infosys Technologies Ltd, points out, the problem of employability of graduates and lack of soft skills has been there for some time now, but has "gotten worse because of the increasing hiring and also lack of good faculty." Mr Santhanam of Saint-Gobain argues that quality has suffered only because supply has increased dramatically.

"There are still the same number who might be good. You earlier had only 10 people and you picked the best, now you are picking up 100 and you still have 10 people who are very good," he adds.

Take this piece of statistic that is provided by the National Association of Software and Service Companies, or Nasscom the trade body of the IT/ITES sector: At the end of March 2005, there were over 340 institutes of higher education in the country and 16,000 colleges with a total enrolment of 9.3 million, churning out a little over 4.4 lakh technical graduates, nearly 2.3 million other graduates and over three lakh post-graduates every year, most of them proficient in English.

However, Nasscom also says that only about a fourth of the technical graduates and a little more than a tenth of the general college graduates are suitable for employment in the offshore IT and BPO (business process outsourcing) industries, respectively. The IT industry alone employs about 1.6 million people now, up from 1.3 million a year ago and from 830,000 three years back. A large part of this would be engineers, especially in the information technology sector while the ITES sector would go in for non-technical graduates too.

Relying on Outsourcing

Companies expect graduates to fit into their organisation almost immediately on recruitment. But, points out Dr M. Anandakrishnan, Chairman, Madras Institute of Development Studies and an educationist of long standing, "no educational institution can ever prepare its graduates to fit into an organisation or company almost perfectly because the character of the organisation varies. Even in a sector like information technology, no two companies are the same."

All this has meant that the industry, be it manufacturing or the IT, has had to spend more time and money on training their recruits (more of that next week). But with no guarantee that the recruits will stay long enough with the company to even justify the cost of the training. But that is a risk the companies have, and are willing, to take.

Most companies have found one way out — outsource their non-core activities such as utilities and facilities management and logistics though they still may have to train the employees performing these non-core activities.

Take, for instance, Saint-Gobain, which has a float glass manufacturing plant about 45 km west of Chennai. It has outsourced its non-core activities to companies specialising in these functions. Saint-Gobain has to train these employees also.

The company extensively trains not only its own employees but also those belonging to the companies to which it has outsourced some of its activities. Which brings the focus on training and the educational system.

A reasonably acceptable solution for the corporate manager that is not vouchsafed the housewife.

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