lobal 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."
