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As we look to understand the opportunities in the job market, for this discussion we have broken down the labor force into three buckets – White Collar, Grey Collar and Blue Collar. It is estimated that close to 300 million workers (excluding agricultural workers) are in the Blue and Grey collar jobs in India and around 15-20% (50MM) of the workforce in white collar jobs.
At Lightbox, we have often talked about the two biggest risks to consumption in India (which account for 60% of the India’s GDP) being climate change and social issues. Out of the many social issues in India – employment is a rising one and could be a hindrance to India’s goal of becoming a $5TN economy by 2024.
In this blog we will analyse the jobs market in India with a particular focus on the Blue and Grey collar jobs. Before we deep dive into the challenges and opportunities in the sector, it’s important to understand that there are essentially four key issues in the labor market that are unique to India -
1. Low labor participation
2. Mismatch between the share of labor participation and economic output across sectors
3. Small share of formal jobs
4. Increasing number of unskilled laborers being added to the workforce
Despite, 67% of the population being categorized under the working age of 15-64, India has one of the lowest labor participation rates (% of population part of the workforce) in the world at 48%. Developed countries like US (63%) and UK (62%) and developing countries like Brazil (64%) and China (67%) have significantly higher labor participation rates.
Secondly, the disparity between share of labor force employed and economic output by different sectors is a big issue in India. Agriculture, Manufacturing and Services contribute 17%, 29% and 54% respectively to the GDP. However, workforce participation across Agriculture, Manufacturing and Services, is 46%, 30% and 24% respectively.
The agricultural sector accounts for the lowest GDP contribution to India’s economy but employs disproportionately more people. One inference that is clear to draw from these numbers is the inefficiency of the agriculture sector. This inefficiency is further highlighted when comparing the GDP of states whose economies rely more heavily on agriculture against those that don’t. For example, the GDP of Uttar Pradesh and Karnataka in FY20 is roughly the same - $250BN and $240BN respectively. While, the population in these states is 200MM and 60MM respectively which goes to show that workforce in Bangalore is 4x more productive than the workforce in Uttar Pradesh. The primary reason being Uttar Pradesh’s largely agrarian economy when compared to Karnataka which has significant contributions to GDP from services and manufacturing.
Given India’s demography, China is often used as a benchmark to highlight the potential of the Indian economy but the differences between the two countries are quite stark. In China, the services sector accounts for 47% of the workforce while in India that number is 24%. On the agriculture side the story is the opposite, In India 46% of our workforce is engaged in agriculture compared to 25% in China.
Thirdly, enterprises in India are small, informal and unorganized. India has 63MM enterprises of which only 12MM (19%) are registered and have a GST number. Furthermore, only 19,500 of the 12MM companies have paid up capital of more than INR 10 crore. As a result, a majority of India’s labor force works in informal jobs - 84% to be precise.
Lastly, the number of unskilled laborers in India is already high and is only increasing. Every year close to 26MM students are eligible to appear for the 10th grade exam (an exam to finish primary education in India). Of which, 10.5MM (40%) either fail or dropout due to financial constraints and have to enter the job market. This leaves them with little opportunity other than to enter the Blue and Grey Collar economy.
As we look to understand the opportunities in the job market, for this discussion we have broken down the labor force into three buckets – White Collar, Grey Collar and Blue Collar.
It’s estimated that close to 300 million workers (excluding agricultural workers) are in the Blue and Grey collar jobs in India and around 15-20% (50MM) of the workforce in white collar jobs.
As seen in the table above, white collar workers typically work in front offices at corporates / organized SMEs. To qualify for these jobs individuals usually need to have a certain degree of qualification and experience. Jobs in the white-collar segment are longer term (12 months +) by design.
The grey and blue-collar workers typically perform repetitive jobs at corporates or hard manual work. Such jobs by design are short term (1 day to 12 months) or contractual in nature.
Filling these jobs: Recruitment vs Staffing Model
To recruit and manage candidates an HR team could either use a job portal or a staffing agency.
When it comes to filling a white-collar job vacancy, a company typically uses job portals to acquire talent and then takes care of development, operations and engagement internally via an HR team. As the roles for white collar workers are longer term and based on qualification, experience and training, companies prefer to hire such employees on their rolls.
When it comes to filling a grey and blue-collar job vacancy, a company prefers to use a staffing agency. The Staffing agency takes care of all the client’s (company’s) project needs from acquiring talent to development, operations and engagement. The candidates remain on the payroll of the agency rather than that of the client (company’s). Due to the short term and repetitive nature of these job, a company hires a staffing agency to fulfill their requirements rather than handling it in-house. One of the advantages is that it reduces the overheads for the client (company).
The key issues in blue and grey collar employers are quality, timely sourcing of candidates and employee retention
1. Traditional methods of sourcing - Tele calling and SMS remain the leading channels for recruitment used by employers and staffing agencies alike. This process has become commoditized as every agency and recruiter plows through their databases of candidates to find and match suitable candidates needed for the role. Furthermore, this has become very expensive for employers and has high turnaround times. To close hiring of one candidate, it takes 15+ leads on average.
2. Quality candidates – Due to the highly unskilled nature of India’s labor force, finding the right fit of candidate for a job opening is a challenging task for recruiters.
3. High Attrition – The job design as well as the short-term nature of the job often leads to high attrition in the market. For example, within the sales function in the Ed-tech industry, the average attrition after month one is 33%, essentially translating into hiring a new team every 3 months.
Staffing businesses have low margins whereas job portals have high margins. But, job portals work well for white collar recruitment and staffing businesses work well for blue and grey collar recruitment.
Naukri.com which is the dominant job portal in India, typically works well for recruiting the white-collar workforce. In the last 15+ years, Naukri has grown on the back of strong network effects. As a portal it has the highest number of job listings (5MM+ a quarter), which ensures it receives the most amount of traffic (90% of traffic is received by Naukri.com in India) from job seekers, which then translates into the highest number of applications (67MM resumes on the platform) and most number of companies that look to hire (80,000 in FY20), this is the flywheel that has helped Naukri scale among India’s largest and most profitable businesses. Their growth and dominance is best evidenced by some of the operating metrics of the business. Naukri has over 50%+ EBIDTA margins with revenues growing over 15% YoY consistently.
Lastly, not just in-house HR but recruitment agencies too are heavily dependent on job portals like Naukri.com to source candidates. Close to 27% of Nuakri’s revenue comes from recruitment agencies.
The staffing industry in India is largely fragmented and unorganized in nature and uses little or no technology in the HR process
Like most industries in India, the staffing Industry is fragmented, unorganized and informal with the leading company, TeamLease, having a market share of mere 6%. Besides TeamLease, the industry has seen two other companies, Quess, and Security and Intelligence Services (SIS), list on the public bourses.
TeamLease is a horizontal focused staffing business that employs over 200,000 people making it one of the largest employers in India. It has over 2,500 clients with a focus in sales, customer service and IT staffing segments. The company does $700MM in revenues but has an EBITDA margin of less than 2% due to the high payroll expense and a lack of technology adoption across the business.
To optimize EBITDA margins, players in the industry, like TeamLease, work towards maximising a metric called the Productivity Ratio. It is calculated as the ratio of the number of core employees to associates. Core employees are employees of TeamLease that manage the needs of the clients and the associates. Associates are employed by TeamLease but work on a project or contractual basis for TeamLease’s clients. In the past 5 years, the ratio has gone from 1:166 to 1:264 which has in turned improved EBITDA margins from 1% to 2%.
Staffing companies in India are run in a old school way with little or no usage of technology. While margins are improving they continue to remain extremely low driven by three key factors:
1. Low Differentiation and High Sourcing Cost – The process for recruitment has become fairly commoditized. All staffing agencies tend to use the same methods of sourcing, as a result, the cost of hiring has been increasing and the agencies have <50% fill rates.
2. Transactional Relationship - Staffing companies have been focused on deepening relationships with clients, reducing their burden when it comes to employee management by managing payroll and compliance for these employees, rather than focusing on the training of blue and grey collar workers and building deeper relationships.
3. Low Retention on the supply side – Additionally, the blue and grey collar workers keep switching from one staffing agency to another after a completion of the project. Lack of loyalty toward one staffing agency unlike white collar workers. The reason being the nature of the job design – hard and repetitive work often makes workers want to switch for minimal increases in incentives.
Average Retention Period by sector – (Source - the Ken)
In all of this, a staffing agency that is vertically focused (SIS) stands out both in terms of service as well as margins
The key difference between what TeamLease and SIS (Security and Intelligence Services) do is that SIS takes complete ownership of their candidates and guarantees a quality of service to the clients. SIS assesses, verifies and trains candidates to create a standardized security and facility management service. Being vertically focused on two segments – security and facilities management, has enabled the company to take ownership of the quality of service, reliability of the candidate and command a higher price compared to competitors. SIS’s vertically focused approach has helped SIS enhance its credibility with customers, thereby strengthening its market position.
The superiority of the vertically focused model is also apparent in SIS’s EBITDA margins that sit at 6%, more than 3 times TeamLease’s margins, despite having similar revenues. The success of SIS’s approach proves that focusing on a handful of job verticals does not restrict revenue scale while allowing for higher margins.
In India, there are no job portals for Blue and Grey collar workers that have reached significant scale (Yet!). A few startups that are going after this opportunity where providing quality candidates for employers is the focus –
Recruiters and staffing companies are often looking for reliable, timely and cheaper sourcing methods for candidates as the traditional methods like Tele-calling and bulk recruitment have become expensive, have long lead times and difficult to judge for quality.
Upstarts in this job portal industry
Apna – Apna isn’t just another job portal where it matches employees with employers. It is an employee focused platform building a LinkedIn of sorts for the blue and grey collar workers where the workers have a chance to build a community to talk to, learn from, and up skill themselves. Find a job and stay (retain) on the portal for the community.
Pakka Profile – Pakka Profile is using games on the platform that employees can play, through these games the platforms performs a psychometric assessment to judge an employee’s softer skills, including – empathy, punctuality, etc. Employers like Swiggy find this important as it’s difficult to judge a delivery partners punctuality during bulk recruitment interviews where an interview lasts for approximately 10-15 minutes.
Work India – Work India is a job portal that is focused on matching candidates with employers. Candidates using a mobile app answers a few questions around skills, job experience and location. Work India using it’s algorithms in the back end provides a candidate with job options that fit his/her skillsets and provides a number via which the candidate can contact the employer.
Able Jobs – Able jobs is providing better sourcing of candidates for employers that are looking to hire grey collar workers by providing candidates training in a specific role. It claims that due to the training program provided by Able Jobs, employers can hire candidates in 5 days instead of current average of 50 days.
In the staffing industry, there are quite a few incumbents and lots of unorganized players that have captured the market via an offline model. We believe there remains an opportunity for an on-demand staffing agencies to exist in India.
In the US, vertically focused on demand staffing agencies have gone on to become large businesses
Albeit the India and US markets are very different, we have seen a handful of companies in the US use this approach and scale to significant levels.
RigUp – Focuses only on the Oil and Gas labor market – The company has a mere 2% market share and does close to $2BN in GMV. But, how did they win this market? “The company’s staffing platform offered benefits to both workers as well as recruiters in the oil and gas industry. Prior to RigUp, workers relied on fragmented, offline agencies to help them find new roles. These agencies often charge high fees, are obscure and don’t provide visibility into the full opportunity set available. Rig up entered the market by leveraging technology and provided workers insurance, faster payments, manage their certifications, build a profile and significantly reduce the workers time to get hired. For employers, they provide a quality and reliable pool of candidates to choose from, reducing cost of insurance, compliance and administrative work to manage contractors. More here.
Similar examples that have reached significant scale include Instawork in the hospitality industry and Jyve in the retail industry.
Opportunities we see in the HR industry
In conclusion, we believe that as India is the biggest market for blue and grey collar workers in the world, there certainly remains a tremendous opportunity for disruption. The ecosystem of blue and grey collar workers is evolving at a faster pace than ever due to the rise in mobile and data penetration. The current workers and job seekers are smarter than ever before and have the tools to evolve themselves even further.
An opportunity exists in the job portal side of things where an upstart can source differentiated and quality candidates in a timely manner for employers and empowering job seekers with training and communities at scale. Specifically, in the blue and grey collars segment, a platform will certainly need an hands-on approach to source and retain candidates. In the staffing side of things, we believe there is an opportunity for a digital first staffing agency to cater to the on-demand workforce by focusing on one or two job verticals where the liquidity between the employee and employer is low.
If you’re a company in the job recruitment or staffing segment that you believe fits our thesis, we would love to talk to you! Thank you to all the startups and fellow investors for taking the time in talking to us and helping build our thesis.
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