These companies are changing the way labour is hired (and fired) in India

Heard of a company called UDS?

Like India’s IT companies, it hires workers and sends them to client locations.

There’s just one difference: while the IT companies supply white-collar workers to firms across the world, UDS provides blue-collar workers to offices, factories, airports in India. They run assembly lines, do housekeeping, handle packing and loading, among other things. The workers are drawn mostly from rural India. UDS trains them and places them in companies in return for 7-10% of their pay.

Such outfits are called manpower supply companies, even though they employ both men and women. In the last decade, as companies scale back their permanent staff and increase their reliance on contract workers, these firms have come to account for ever-greater chunks of industrial and service sector employment in the country.

UDS alone has 40,000 workers on its rolls. Its client roster includes manufacturers like Hyundai and glass-maker St Gobain. The work done by its workers occupies a long continuum from housekeeping to assembly-line production, and some of it quite technical.

Despite their rapid growth, the manpower companies are a poorly understood commodity.

Before they arrived on the scene, employers sourced contract workers from the informal economy’s labour contractors. Most of the workers led bleak lives – low salaries, no job security, no safety nets for accidents or retirement. The only guarantee they had was of their pay and prospects of landing work shrinking as they neared 40 and their capacity to work dimmed.

In the grim and unregulated world of labour, manpower supply companies represent something new: the entry of the formal sector.

What has been their impact?

Why companies outsource

Move west from Chennai and you will enter one of the biggest industrial corridors in the country.

This is the highway that leads to Sriperumbudur and Kanchipuram. Much of the industrialisation here is relatively new. Large companies like Hyundai and Nokia set up production units in the area after liberalisation.

Manpower supply companies have a strong presence along this highway, as well as in older industrial pockets like Hosur. Of the 40,000 workers on the rolls of UDS, as many as 9,000 workers are working in Sriperumbudur alone, said an official.

Why have these clusters become such strongholds of manpower supply companies?

One evening in Chennai, the HR manager of a company which manufactures truck components, traced their rise. “In 1990, when I started work,” said the manager, who did not want to be named since he is not authorised to speak to journalists, “25 percent of workers were on contract and 75 percent were on rolls. Now, 10 percent are on rolls and 90 percent are on contract.”

He attributed the change to rising competition. Not only are countries like China cheaper than India, he said, competition in the domestic market is high as well. To stay competitive and profitable, a company needs to keep cutting costs. This is a familiar predicament. As Scroll reported earlier, companies in the industrial clusters of Coimbatore and Tirupur are actually seeing their competitiveness erode. To stay afloat, they too need to cut costs.

The catch is: the scope for cost-cutting is somewhat limited.

The HR manager explained: for every Rs 100 his company earns, Rs 42 goes into raw material cost. Another Rs 40 goes into paying for plant and machinery. Those prices, however, are sizably determined by factors beyond his company’s control.

Not so for labour costs.

According to the manager, for every Rs 100 it makes, a company that directly employs workers spends anywhere between Rs 5 and Rs 10 on labour. “Reduce direct staff to 20-25 percent and the wage percentage will reduce by half.” The rest goes to the bottomline.

How the industrial labour market changed

Initially, companies handed over only the most non-core of functions – like gardening or housekeeping – to labour contractors. As the pressure on margins continued, functions like stores, human resources and payroll processing followed. Next to go were functions nearer the assembly line. “It was first the sidelines – the lines bringing components to the assembly line and taking away finished products for packing,” said the manager. And then, the assembly line itself.

As outsourcing started, labour contractors came up. The first contractors, said the manager, were enterprising employees who struck out on their own. Over time, local leaders, too, entered the trade and began asking for labour contracts from units coming up in or near their villages.

At this time, the industry was poorly structured. There were many labour contractors – all operating in their little geographies. That changed with the entry of the manpower supply companies.

In Tamil Nadu, UDS was possibly the first one. It started about 30 years ago, offering soft services like housekeeping, gardening and pest control. Around the year 2000, when manufacturing and automobile companies began coming up in South India, it expanded into services like production and warehousing. This is when it began supplying workers to the now shuttered units of Nokia, the mobile phone manufacturer, and Foxconn, the electronics maker.

Over the last decade, said the UDS official, more manpower supply companies have come up. Some are nearly as large as UDS. Upshot Utility Services, for instance, is said to have anywhere between 25,000-30,000 workers. A questionnaire to the company asking about its size went unanswered.

Others are smaller – like Evergreen at Sriperumbudur – which only supplies security guards.

The rise of these companies has reconfigured the state’s industrial labour market. For one, there is a new hierarchy, with both workers and clients rating the larger companies like UDS on the top.

Said the HR manager in Chennai, these companies can deliver the desired number of workers on the stipulated date.

Workers also find them attractive because they scrupulously provide Provident Fund, insurance and other statutory benefits. Given their scale, they also have a better ability to place workers, pointed out 21-year-old Rajesh Kumar, who hails from Chandoli in Uttar Pradesh and works at the industrial park in Cheyyar near Kanchipuram.

Next in the hierarchy are the slightly smaller companies. “If you ask for 100 people from a particular day, they will provide 50.” At the bottom are the labour contractors of yore.

Another large change is the entry of politicians in this trade. Take Upshot. It was started in 2010 by a MLA of Dravida Munnetra Kazhagam called M Varalakshmi and her husband.

Why are they entering this business? Varalakshmi did not respond to Scroll’s questionnaire.

Said Ravichandran, the president of Alingilpattu village near Kanchipuram, who is also a labour contractor and a member of a smaller party called Pattali Makkal Katchi: “Because politicians know their time in power might be limited. And so, they try and establish a lot of businesses – in transport, labour supply and so on...”

It might go beyond that. As Scroll found in Odisha, several contractors sending workers to brick kilns in Andhra Pradesh and beyond, were sarpanches or closely related to MLAs. Fighting elections is expensive. Politicians need money. Labour contracting appears to throw up fat margins.

If a company rents out 30,000 workers, and each of them makes Rs 10,000 a month, with the company taking a 10% commission, or Rs 1,000 from each, that comes to Rs 3 crore every month. This is good income in a business with low overheads.

Does this mean that labour is emerging as the latest commons – apart from land, natural resources, licences and clearances by the government – from where India’s politicians can extract a surplus?

The implication for workers

The bigger question, however, is this: has the rise of the manpower supply companies been good for workers?

In several ways, they are an improvement over labour contractors. Take UDS. Its workers get PF, gratuity and insurance, apart from better training and placements given the company’s pan-India footprint.

That said, these companies aren’t free of the flaws labour contractors brought with them.

1. Downward pressure on worker wages. Both manpower supply companies and labour contractors pay workers less than direct employment. Workers on a company’s payroll get not just PF and insurance but also pay-hikes that usually factor in experience and inflation. However, when a company turns to contract workers, said the HR manager, it only has to “pay the government stipulated minimum wage”. Increasingly, competition is intensifying among manpower supply companies and labour contractors. Ravichandran, the PMK leader, said that the industrial zone at Cheyyar near Kanchipuram has “six factories but 15 labour contractors”. Due to the competition, there’s a trend of hiring migrant workers since they work out cheaper. This further pushes down the wages. 
2. Workers face the brunt of market swings. Contract labour improves companies’ bottomlines in two ways. First, by bringing down the cost per worker. Second, by allowing it greater responsiveness to market swings. All they have to do is tell the manpower supply company to send fewer workers. When a client downsizes its labour requirements, companies like UDS, which have a large roster of clients, can accommodate the workers elsewhere. But it’s not clear whether workers get the same salary when they move from one function to another. The company did not respond to Scroll’s questions about these aspects of its business model. But in the smaller manpower companies, which cannot move workers to new clients, said Ravichandran, “If there is no work, there is no pay.”
3. Smaller companies offer lesser social protection. Take Kumar, the 21-year old from Chandoli. “I know people who worked for four years but did not get their PF,” he said. This, incidentally, is another reason why the entry of politicians into this business is problematic. Said D Nagasaila, a lawyer in the Chennai High Court, it is harder for a worker to fight a case if his/her contractor is also the local politician.
4. There is very little demand for older workers. Companies, said an employee in Evergreen, the security personnel company in Sriperumbudur, specify the age of the workers they want. “Most companies want people between 20 and 45 years. Hyundai wants guards between 25 and 30 years. Maximum, 35.” This applies even to manufacturing companies. Said the HR manager, “Since you are getting young workers, labour productivity stays high.”This creates a labour market that spits out the old. Said J Jeyaranjan, a researcher who has studied labour markets in Tamil Nadu, most of these jobs involve very low skills. Experience, in such a context, doesn’t carry a premium. Workers are easily replaceable. Take what happened in Nokia. Once laid off, even workers in their late twenties or early thirties struggled to find jobs.Scroll asked UDS if it pays workers while they are on the bench. It did not respond. According to Ravichandran, the industry doesn’t. This creates an outcome where, as a worker ages, he/she gets too old for the company where he/she has been working. 

At this stage, there are two possibilities. One, the worker is placed with another company where the wages might be lower. Two, the worker is unable to get placed and therefore, doesn’t draw a salary. After waiting for some weeks or months in the hope of finding a job, the worker quits the manpower supply company and looks for a job elsewhere.

This shows up in the average ages of workers at different labour suppliers. Most workers in UDS, according to the official, are between 18-35 years. In contrast, workers in Ravichandran’s outfit range between 30-35 years. These, he said, are people who “did not qualify for the big companies – due to lower education or age limits.”

These transitions exact a price. By the end of the stint with a big manpower supply company, said Ravichandran, a worker might be making as much as Rs 15,000 or Rs 20,000. Moving to a smaller company comes with a pay cut. A 35-year-old might see his salary fall to Rs 7,000. At these pay-scales, the risk of a worker borrowing money from his contractor to tide over an emergency and ending up as an indentured worker becomes a very real possibility.

What about people who are 40? “If they can work as well as a 30 year old, they will get work,” he said. Otherwise, they enter the local labour chowk where they might still make Rs 200-300 a day but might get work for only 10 days in a month.

In other words, workers see their incomes drop as they get older and their commitments increase.

Endgame

In such a construct, workers have very little bargaining power.

Working as contract labour, it is hard for them to unionise. All that a company has to do, said Nagasaila, is tell the manpower supply company to send other workers from the next day. As it is, India’s labour unions do not have much of a strategy for contract workers. Nor do the state and central governments. Perhaps they are so busy amending labour laws to make it easier to fire workers that they did not realise the manpower supply companies have already solved that problem.

In the absence of any institutional initiative, some workers are fashioning their own responses. Over the last two decades, tens of thousands of young men and women left their villages in Tamil Nadu, seeking jobs in the factories mushrooming across the state, hoping to become part of the salaried Indian middle class. However, as they found that the work is not steady, some went back to looking for government jobs. But permanent jobs in the government were shrinking as well. Other young people returned to their villages and farms. Older workers, as their earnings dipped, took their meagre savings home and started micro-enterprises. Yet others took refuge in caste identities.

Next in this series: A writer reflects on the changes that swept an industrial town in Tamil Nadu and left its workers stranded.