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Global, Local Players Split on Labor Strategy

Global corporations and domestic companies both face significant wage inflation and turnover in the high-growth emerging markets but often take different approaches to mitigate the effects. These differences play out most clearly in India.

November 30, 2007
Related Topics: Career Development, Managing International Operations, Candidate Sourcing, Employee Career Development
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Global corporations and domestic companies both face significant wage inflation and turnover in the high-growth emerging markets but often take different approaches to mitigate the effects. These differences play out most clearly in India. At M.V. Kini & Co., a large law firm based in Mumbai with offices throughout the country, managing attorney Ravi Kini works with both major multinational companies and large domestic firms.

    "Indian employers are far more aggressive in using employment contracts, commonly for three to five years, that bind the employee to the company," Kini notes. "In addition, they provide training, but with the cost of that training expressed as a loan to the employee. The loan binds the employee to the company through a loan agreement, which falls under contract law, not employment law."

    Domestic firms are generally not concerned about turnover and wage inflation for lower-level jobs. Even in BPO and call centers, wage costs are as low as $150 a month. "So Indian employers hire a buffer group that represents 10 percent to 20 percent of the workforce," Kini says. "It’s a negligible cost for the employer, and attrition is not a problem because the buffer is in place."

    Indian employers also give their managers much greater latitude in interacting with employees and making decisions to meet specific needs. Managers have the authority, for example, to provide discretionary loans and leave time. "If the employer treats workers well and provides them with security, that is more important than higher pay, and Indian firms understand this," Kini says.

    Although some IT companies have announced that they will not continue to expand in India because of rapidly rising wages, SAP Labs India isn’t going anywhere. Instead, it is investing an additional $1 billion into its Indian facilities in Bangalore, Gurgaon and Chandigarh, where 3,800 employees handle research and development and global services for SAP AG.

    SAP Labs India does not hire a buffer group. Instead, it follows rigid headcount budgets. It also does not use employment bonds or training loans to bind employees to the organization.

    "We consistently rank as one of the top employers and we have a strong philosophy of engagement," says Satish Venkatachaliah, vice president of human resources for SAP Labs India. "If employees do leave, they typically remain in our ecosystem and join a customer or a partner, so we don’t see their training as a loss."

    SAP Labs India’s approach works. Voluntary turnover is 9.6 percent, compared with an industry average of 15 percent to 18 percent. It received 100,000 applicants and made 1,661 offers in the past year.

    "We are a global company, and we educate managers to be excellent global managers with an emphasis on fairness," Venkatachaliah says. "Our managers go through a formal education program. Our policies exist in a framework that looks at employees’ needs and supports managers as they try to meet those needs."

    "There is a lot of information in the media about high wage increases in India, but we believe in strong pay for performance, so high performers get high increases and we see the returns. We also see that our program is competitive and we still see India as competitive. The value is still here."

RISK AND REWARD
PricewaterhouseCoopers' inaugural risk-adjusted index of the top 20 emerging markets shows return per U.S. dollar in business investment for the manufacturing and service sectors. PwC notes that although China and India are "hugely important" markets due to their size, they might not always offer the highest risk-adjusted returns.
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RankIndexCountry
195Vietnam195U.A.E.
295China270Saudi Arabia
394Poland361South Korea
493Chile456Czeh Republic
593Malaysia555Hungary
691Thailand654Poland
789India739Russia
890South Africa836Chile
989Hungary932Kazakhstan
1088Saudi Arabia1032Malaysia
1186Russia1129Mexico
1286Brazil1222Brazil
1385Indonesia1320South Africa
1482Kazakhstan1417China
1580Mexico1517Thailand
1675Turkey1616Turkey
1764Czech Republic175Vietnam
1862Argentina185India
1942South Korea195Indonesia
2026U.A.E.205Argentia
Note: Index values represent the estimated present value of cash flows generated per U.S. $ invested, calibrated to a 0-100 scale that also includes the U.K., U.S. and Germany as benchmarks.
Source: PricewaterhouseCoopers, 2007

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, November 19, 2007, p. 27 -- Subscribe Now!

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