Skill Shortages in India

From Forbes:

India Struggles With Labor Shortages
Ruth David, 07.11.07, 1:37 AM ET

MUMBAI -

In a country where double-digit industrial growth rates have become par for the course, employers in as many as 20 sectors ranging from retail to textiles to financial services are facing extreme labor shortages, according to a new study.

It isn’t just a fight for the highly qualified. The study by the Federation of Indian Chambers of Commerce and Industry found shortages of “skilled, semi-skilled and unskilled workers.”

Post-secondary institutions aren’t churning out enough graduates with the skills companies are looking for, and the tight job market is allowing workers to job-hop at will for better opportunities.

“[It] has made it very difficult for companies to get a person to say yes and go through with it,” says Deepak Gupta, CEO of the Indian arm of U.S. consulting giant Korn/Ferry (nyse: KFY - news - people ).

In biotechnology, there is a need for 80% more scientists with doctorates. In banking and finance in 2006, there was a 90% shortage of risk managers; 65% for tech professionals, 50% for treasury managers, 75% for credit operations professionals and 80% for financial analysts. The tech sector is expected to face a shortage of as many as 500,000 employees in 2010, according to industry estimates.

In sectors like technology and financial services, there’s plenty of moving around because of the number of opportunities available as companies ramp up aggressively, Gupta told Forbes.com. But in newer sectors like real estate, retail and private equity, there aren’t enough people in the market with relevant experience.

The Indian economy has expanded at an average annual rate of over 8.5% since 2003, and sectors like technology and IT services have grown at a double-digit pace.

India churns out about 2.5 million college and university graduates each year, including 400,000 engineers, but the numbers are misleading.

The number of graduates is small relative to the size of the population — about 10% of Indians receive any college training, as opposed to 50% in the United States — and the quality of their education is often doubtful.

A study by the National Association of Software and Service Companies in 2005 found that only a quarter of the graduates churned out each year are fit to be employed by foreign and Indian tech companies. Problems include a lack of English-speaking skills and the absence of standardized curricula and programs that provide graduates with technical skills.

Infosys (nasdaq: INFY - news - people ) has said that it found only 2% of the 1.3 million job applicants it reviewed last year acceptable.

There’s a lack of workers even at the lower rungs in industries like mining, food processing and textiles, the survey found. The reasons include working hours that are unsatisfactory to prospective employees, distant locations and a dearth of sector-specific skills.

Human resource managers are looking at second- and third-tier cities as the labor pool in bigger cities gets tapped out, advertising on the radio and building strong relationships with colleges to ensure they get a hold of employees, says E. Balaji, COO at recruiting firm Ma Foi Consultants.

Companies across sectors like banking, technology and retail that Ma Foi deals with have hiked recruitment budgets by about 15% in the last year and a half, Balaji says. Referral rates at some companies have risen to 100,000 rupees ($2,487.56) for specialized positions. At junior levels, up to 30,000 rupees ($746.26) is normal in fields like technology and financial services.

In two years, there’s been an increase of about 80% in the number of employees who ask companies for a sign-on bonus, estimates Gupta.

The hot tech sector is bedeviled by the problem of “post-offer dropouts” — people who don’t turn up for work after signing job contracts, either because of better offers elsewhere or a raise from their current employers.

It’s common for job seekers to talk to five different companies at the same time, Balaji says. Post-offer dropout rates are as high as 15% in industries where there’s a keen fight for talent.

In a bid to ensure employees don’t run out on them for a few thousand rupees more, companies have started putting in place noncompete clauses that prevent employees from joining competitors for a specified time period. Infosys, Accenture (nyse: ACN - news - people ) and Wipro (nyse: WIT - news - people ) were reported to have put this in place earlier, and now recruiters say the practice is spreading. Such contracts are not uncommon for senior-level management in developed markets, but at a junior level, it’s uncertain how much weight they have in an Indian court of law.

One company that set up a stall at a recent job fair in Bangalore, later told recruiters that it was there not to hire, but to ensure that none of its employees were sneaking off work to look for greener pastures.

The chase for talent is good news for at least one business — the recruiters — says Hitesh Oberoi, COO of India’s leading online jobs portal, Naukri.com.

“The recruitment process has become a lot shorter. At junior levels, employers make offers within a couple of days. And they are willing to compromise on quality, look at the next level from their earlier cutoffs,” Oberoi told Forbes.com.

With businesses forced to hire people with less experience, training programs for prospective employees are proliferating in sectors like financial services and technology, often in partnership with companies, says Oberoi.

Several Indian businesses are scaling down their expansion plans in India in the face of the talent crunch and rising wages, says Oberoi, who estimates that wages in fast-growth industries have risen by about 18%-20%. In sectors like technology, that could translate into more hiring overseas. (See: “ In Pictures: Where India Outsources”).

And for foreign companies, it no longer makes sense to outsource a few hundred jobs to India, says Oberoi. With the increase in wages as well as the cost of setting up in a big city like Mumbai, Delhi or Bangalore, “the market is now all about scale if outsourcing is to be cost effective,” he says.

Recruiters say the only new source of skilled labor is overseas Indians attracted back by the booming economy. Indians in the Middle East and Far East are coming home, as are expatriates from destinations like the U.S. and the U.K.