1/16/2009 India - Meeting Recruiting and Retent…

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Meeting Recruiting and Retention Challenges in India

Meeting Recruiting and Retention Challenges in India

By Ames Gross and John Minot
May 2008
Published in SHRM Global Forum

Overview

India’s economic growth is continuing at a rapid pace, with gross domestic product growing at 9.3%
in 2007. This country of 1.1 billion people is now a major player in the world economy and is an
important destination for Western companies.

However, as more and more foreign firms enter India, its tight labor market is a major hurdle. White-
collar salaries rose by an average of 15% in 2007. HR management has become a central part of
doing business and can cause rapid business deterioration if handled poorly.

The fast development of Indian HR makes it vital to keep up with standard practices. This article will
introduce the current state of recruiting and retention practices to help businesses run smoothly in
India.

HR Challenges

The pool of experienced professionals in India is smaller than its large population would suggest.
Out of its 1.1 billion people, about 350 million use some English, but there may be as few as 20
million who are fully fluent. And although over 2.5 million new college graduates are produced every
year, their education is often not up to the hiring standards of Western firms.

Due to the high demand for qualified people, Indians from top colleges or with experience in
reputable firms often have two or three job offers at any given time. Therefore, although salaries in
India are still much lower than those in the West, they are steadily increasing. For example, a
recently-graduated accountant might be offered a starting salary of $16,000 today, up from $12,000
two years ago. For graduates of top business schools, starting salaries have been rising by as
much as 50% annually in some cases.

In addition, attrition rates are extremely high in India. Estimates of attrition rates in the industries
most affected (business process outsourcing, IT, retail, pharmaceuticals, etc.) range from 20% to
60%. Some individual companies have seen attrition as high as 80%. This revolving-door hiring
costs a company severely in terms of lost training as well as reduced efficiency. According to some
estimates, a resigning employee might cost the employer twice his or her yearly salary.

In short, HR professionals must deal with two main types of problems for India: first, attracting good
employees despite fierce competition; and second, keeping these employees satisfied so that they
do not leave.

Obviously, it is important to carefully follow standard best practices in HR, including:

• Designing competitive compensation packages, with performance incentives like bonuses and
stock options as appropriate
• Implementing transparent performance review systems
• Making sure employees are well supervised and respected
• Providing good working conditions with flexible hours if necessary

Below are a number of additional strategies and trends specific to India that should also be
considered.

Broad Sourcing

Since the heaviest competition is for candidates who are already qualified for positions, an

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increasingly common strategy is to broaden the pool of candidates past the ideal of “someone
already doing a similar job.” This may include hiring from outside a company’s own industry; hiring
from second-tier colleges and universities; and hiring less skilled people with the intention of
training them up.

One company doing this is Genpact, a major business process outsourcing (BPO) provider in India
originally started up by GE Capital. Genpact has set up a “pre-hire training” institution to train Indians
from second-tier and third-tier cities. These people are often highly motivated and capable, but may
not know English well or lack degrees from good schools. Other major companies with similar
programs include EXL (also a BPO provider) and Amway.

Training employees not only expands the candidate pool, but it also helps reduce future turnover,
since it helps candidates clearly understand beforehand what their job will entail.

Rehiring

Formerly, if Indian employees quit their jobs, they were not likely to be taken back later. However, this
is changing with the increased sophistication of Indian HR practices. Now, in the tight job market,
more companies are welcoming former employees back. This is occurring at mid-level as well as
upper-level ranks. Not only do former employees often have the skills companies are looking for, but
they can also be re-integrated into the workplace quickly.

Examples of Western firms actively reaching out to former employees in India include ADP, a global
financial services company, and Cairn Energy, a British oil exploration company. Many companies,
including Cairn, are creating online “alumni portals” to keep in touch with their former employees.
Some companies are also expanding their referral commission systems (where employees get
payments for referring new hires) so that former employees as well as current employees can
receive referral commissions.

Employee Satisfaction

Many workplaces in India offer various leisure activities on-site. These can help retain employees by
letting them relax and reduce stress. The methods are not unfamiliar to Western HR professionals.
Infosys, an IT/BPO firm with about 90,000 employees worldwide, hosts music and sports
competitions, clubs, and an art gallery at its India campus. It also has other more conventional perks
like gyms and food courts. These types of benefits are especially suited to the IT industry, where
employees may have significant down-time between intensive periods of work.

In India, it is relatively common to hold activities which both employees and their families can attend.
This helps integrate employee more fully into the workplace “community.”

However, leisure activities and perks can only go so far. If you oversell a workplace as “fun,”
candidates may view their actual work unfavorably. Candidates should have an understanding of
their work as valuable to the company and to themselves personally.

Career Development

Surveys show that salary is one of the top considerations of Indians in choosing jobs, but it is only a
minor factor in employee satisfaction. If you want employees to stay at their jobs, one of the best
motivators is career development.

Therefore, the best employers in India carefully track career development. They hold regular one-on-
one meetings on the subject, set and track goals, and provide training. Large companies tend to
have in-house training facilities, and smaller companies are also increasingly providing funding for
external training. Training might be for specific technical skills, or for more general skills like
learning a new language. This makes employees more productive in the long run and also gives
them the signal that the company sees them as a worthy investment.

One career-development incentive used by larger companies in India is internal company transfers.
The Tata Group, a major conglomerate with business including cars, finance, steel, and BPO, tracks
its talent and facilitates employee transfers across all companies in the group. This motivates
employees by showing that they will not be trapped in one industry if they want to expand their
marketability as an employee. With foreign companies, the possibility of transferring to an overseas
job is also alluring.

Companies with these internal transfer programs often specify that employees cannot transfer until
they have been employed for a set period of time, such as 18 months.

HR Operations

HR departments of major companies in India are being forced to expand. According to some
estimates, HR staff is increasing from 1 in 500 total employees to 1 in 100. This is partly because
the ratio of applications to new hires is very high, giving recruiters a heavy workload. In addition,
keeping employees satisfied with their jobs is increasingly time-consuming. Insufficient HR
capability may be a strong liability for Western companies operating in India.

In India, many HR functions can be outsourced as an alternative to increasing staff. Nokia India, for
example, uses vendors for most HR functions except for functions integral to the company, like
mentoring and culture building. India’s strength in business process outsourcing means most of
these services can be found locally. Background screening, for example, was almost nonexistent in
India in 1995; today, there are dozens of Indian companies specializing in it.

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Conclusion

Recruiting and retention in India today leaves little margin for error. It is a challenge to make sure
that new employees are right for the job, and to make the best employees stay. However, by being
proactive and thorough in addressing these challenges, it is possible for foreign companies to keep
good people and achieve their business goals.

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