By Ames Gross and John Minot
Published in SHRM Global Forum
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.
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.
Since the heaviest competition is for candidates who are already qualified for positions, an 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...