TOP STORIES

Strategy 500

The work processors

2017_jan_teamlease

Image Credit: Yasir Iqbal

Growing at a steady pace, TeamLease has set its sights on becoming the world’s biggest staffing company. Will having the Prime Minister’s ear help?

The last time Manish Sabharwal and Ashok Reddy had a fight, it was to do with Rs 100 crore they had lost. In 2010, TeamLease, one of India’s biggest human resource outsourcing companies, of which they are co-founders, acquired skills-training institute IIJT, which had 120 centres across India. But due diligence had not revealed major human resource gaps; coordination between the centres had broken, and the cost of acquiring customers was too high.  Scaling up involved setting up more centres, which proved prohibitively expensive. As a result, TeamLease failed to significantly grow IIJT.

For the first time since the buddies from Delhi’s Shriram College of Commerce started TeamLease in 2002, they lost money on a deal that Reddy had opposed but Sabharwal pushed for.

“From that experience came a saying: With just Ashok there, TeamLease would have been one-hundredth its current size; and had only Manish been there, there would be no company,” says Sabharwal, 46. Adds Reddy, who is the same age: “I have never seen a deal that I immediately want to jump on to and Manish has never seen an acquisition that he has not immediately wanted to do.” Sabharwal quips: “He is just rubbing it in because he was against the deal.”

2017_jan_teamlease1
Starting with payroll outsourcing, Teamlease has provided employment to 1.2 million people.

But look beyond the constant ribbing between the founders or the dowdy headquarters in downtown Bengaluru. This is a company that has been growing at 25% for the past seven years. In February, beating a weak market, TeamLease’s initial public offering (IPO) was oversubscribed 66 times. At Rs 850, the stock was priced at a little over 40 times its 2015-16 estimated earnings. The company raised Rs 423 crore, including Rs 190 crore from 15 anchor investors  such as Goldman Sachs and Merrill Lynch. Over the next decade, it aims to become the world’s biggest staffing company and India’s biggest private sector employer, and the name behind India’s biggest private sector university.

Ambition comes easy to a fast-growing company. But there are two factors that give more reason for TeamLease to dream big: First, it operates in a niche which is top priority for the government, and second, Sabharwal is known to have the ear of Prime Minister Narendra Modi, whose flagship Skill India mission aims to provide vocational training to 400 million Indians in the next decade. Sabharwal is also part of the Prime Minister’s Council for Skill Development. Last year a file from the Ministry of Human Resource Development recommending nominees to the Central Advisory Board of Education (CABE) returned from the Prime Minister’s Office with only one change: Rohan Murty, academician and founder of The Murty Classical Library of India, was replaced by Sabharwal.

Sabharwal’s relationship with Modi goes back to 2012, when the latter was Gujarat’s chief minister. Modi heard about TeamLease and called Sabharwal for a meeting. “I told him about setting up institutions that could help students get jobs straightaway. Only 5% of the students enrolled would be studying at the institute. The rest would be undergoing three-month courses that would be the starting point for jobs,” says Sabharwal.

2017_jan_teamlease7

For almost five years since 2007, TeamLease had been trying to get the University Grants Commission’s (UGC) permission to start a skills university. “They kept telling me a university cannot be vocational and I kept telling them that was exactly why we wanted to build one,” says Sabharwal. “Our universities are producing people who can’t get good jobs.”

A few months after Sabharwal’s meeting with Modi, the Gujarat Assembly passed a bill to enable the creation of the university in Vadodara in 2014, with Modi boasting that Gujarat had become the first state in India to have a skills university.

The TeamLease Skills University offers courses in finance and business operations, tourism and hospitality, mechatronics (a combination of electronics and mechanical engineering) and information technology and has 23,000 students.

Months after Modi became Prime Minister, Parliament passed the Apprentices (Amendment) Bill aimed at skilling youth by allowing industries more flexibility to hire apprentices. India had only 270,000 registered apprentices before the act was amended, compared to 3 million in Japan, 20 million in Germany, and 10 million in China. That count has touched 310,000 in the past one year.

The revised law has brought wages of apprentices on a par with those of semi-skilled industrial workers and made office hours and leave benefits similar to those of regular workers from the organised sector. The new law mandates industries to take in 2.5% to 10% of the total workforce as apprentices.

The apprentice law amendment marks the fruition of TeamLease’s four-year effort to bring apprenticeship practices in line with industry demands and attract youth towards vocational courses. “In 2010, we sent a 600-page document to the Ministry of Labour with suggestions on changes to the apprentice act. Over the next two years, the ministry sent back 35 queries and we sent back clarifications,” says Rituparna Chakraborty, executive vice president of TeamLease, and one of its earliest employees. This back and forth continued till the change in the government in Delhi. “We can take some credit for the amendment,” says Chakraborty. “Aggressive advocacy has been our style and that has worked in our favour.”

TeamLease was incorporated as India Life Chakravarti Actuarial Services in 2000, focussing on payroll outsourcing services. It was renamed TeamLease Services in 2002 and began concentrating on staffing services. By 2005-06, it had hit revenues of Rs 100 crore. But the downturn in 2008-09 halved its revenues because a bulk of its clients were financial services companies. “Nearly 70% of our business at that time came from financial companies. We made a promise then to diversify the business,” says Chakraborty.

Last fiscal, TeamLease grew its client list by 400 to 1,800 and brought down the contribution of the top 10 clients to 18% from 21% from the previous year. Key clients include Microsoft, LG Electronics, ICICI Lombard, Bata, HDFC Life, and Larsen and Toubro.

2017_jan_teamlease2
Prime Minister Narendra Modi and Minister of State for Skill Development and Entrepreneurship Rajiv Pratap Rudy at the launch of the Skill India mission in July 2015.

The company has a team of about 1,200, plus 120,000 “associates”, who are placed in client companies, and 18,000 trainees. On completion of training, trainees become associates, with 11-month contracts. When a client company hires an associate, it pays TeamLease his/her salary plus a service fee. In the past two years, the average salary of an associate has risen from Rs 16,600 to Rs 18,900. Trainees are paid Rs 10,000 a month.

Rajendra Ghag, executive vice president of human resource at the insurer HDFC Life, has hired around 500 people from TeamLease with salaries between Rs 8,500 and Rs 25,000 per month. TeamLease selects the candidates and trains them for door-to-door selling. “The best thing about TeamLease is that it is willing to customise. In insurance, you can’t hire just any feet-on-street. We asked TeamLease if it would work with us even at the selection level, not just give us lists of people who they have selected. This was of great help to us,” says Ghag.

TeamLease has provided jobs to 1.5 million people since 2002, taking in only 5% of the applicants to ensure employability.

2017_jan_teamlease5

Besides salary expectations, aspirations of the applicants have also changed. “Earlier mid-level managers would ask the distance of commute to work and whether there are schools for children and jobs for their spouses in their place of work. Now entry level workers ask the same things,” says Sabharwal.

Deepanshu Sharma, placed by TeamLease with Snapdeal as a customer service executive, says his training with TeamLease improved his spoken English. He is now more confident of moving higher up the ladder. “It is about opportunity and working hard,” he says.

In India, TeamLease’s nearest competitor is Quess, a subsidiary of Thomas Cook (India), although it is not a pure-play staffing company and also does industrial asset management. Quess raised Rs 400 crore in July from an IPO which was oversubscribed 147 times.

India is the world’s third-largest country employing “flexi staff”, or temporary workers, with 2.1 million such workers in 2015. Although it ranks only after China as a labour market, it has one of the lowest shares in terms of flexi staff—0.4% compared to 11.9% in China, 9.2% in South Africa, 1.4% in Europe, and 0.6% in Brazil. According to a study conducted by ratings agency Crisil, industry body Assocham, and the National Institute of Labour Economics Research and Development, even by 2019, the proportion of flexi staff in India would represent 1% of the labour force.

2017_jan_teamlease6

Another issue is that half of India’s factories are concentrated in five states—Tamil Nadu, Maharashtra, Gujarat, Andhra Pradesh, and Uttar Pradesh. It is a largely rural landscape, with 600,000 villages (200,000 with less than 500 inhabitants), meaning workers from northern and eastern India migrate to southern and western India for jobs. Because of a gap between demand and supply for skilled workers, most of the labour force is pushed into low-pay casual work or forced self-employment. “Solving this labour problem is one of the biggest opportunities in the world,” says Reddy. “It’s the only way India can raise its current per capita GDP [around $1,600] to match China’s [around $7,500].”

Sabharwal says India has a crisis in producing better-paying, good jobs and “that’s what TeamLease is fixing”. He is one of the fiercest critics of MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), the programme started by the United Progressive Alliance government, which was in power from 2004 to 2014. “It adds nothing to productivity and doesn’t teach any skills. Why don’t we just give spoons to people to dig the earth? Even then we can create more work!” he says. “We need to discuss productivity.”

After Gujarat, Sabharwal caught the attention of another BJP state government, Rajasthan. Very soon, he was part of the Chief Minister’s Advisory Council under Vasundhara Raje. His ideas led to the state government implementing a range of labour law reforms, including allowing firms with up to 300 employees to retrench without government permission—excluding small factories from the Factories Act—and doubling membership from 15% to 30% for a labour union to be registered.

C.S. Rajan, vice chairman of the Rajasthan chief minister’s advisory council, says Sabharwal was “one of the leading brains behind them [the reforms]”. After the successful roll-out of the reforms, the Rajasthan government asked Sabharwal to assist with revamping the state’s tourism pitch. The new campaign rolled out earlier this year has led to a 25% rise in tourist footfalls.

Sabharwal is so upbeat about the prospects of TeamLease that he invokes a comparison with IT giant, Tata Consultancy Services. “It is India’s biggest private sector employer, with a little more than 370,000 employees. We have around 130,000. But we are growing at double its rate,” he says.

Citing the example of Adecco, a global leader for staffing solutions, Sabharwal says his company is growing at five to six times faster than the Swiss staffing giant and has the advantage of a massive labour pool at home to keep hiring. “We can easily go to Rs 1,00,000 crore in the next decade.”