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INTERVIEW: Staffing still in infancy in India, says Quess Corp CFO

Informist, Thursday, Feb 17, 2022

 

By Sai Ishwarbharath & Sreejiraj Eluvangal

 

KOCHI/CHENNAI – Quess Corp Ltd, the country's largest staffing company with almost half a million associates, has been one of the most aggressive in India as far as acquisitions are concerned. In the 14 years since it was established, the company has purchased strategic or controlling stakes in a whopping 23 companies, including the Asian business of monster.com.

 

In an exclusive interview with Informist, Group Chief Financial Officer Ravi Vishwanath explains the method behind the madness, and reflects upon the challenges and opportunities the company's different businesses face.

 

Edited excerpts of the interview with Vishwanath:

 

Q. You have acquired many companies and have many operations — from staffing to internet of things, from facility management to insurance software. How should an investor try to make sense of what the company is trying to do?

A. We have only three areas of focus: workforce management or people, asset management, and global technology services.

 

Our aim is to do everything for a company other than its core function.

 

It starts from the security management of the building, entire maintenance of the building, greenery maintenance, and inside the building, such as electrical, mechanical, plumbing, cafeteria — and soft services such as reception. That's our workforce management and asset management.

 

Under global technology services, we have the platform business, which is payroll, process etc, and what we do at insurance software company MFXchange holdings Inc in the US. We also have a customer lifecycle management business, where we do inbound and outbound customer support, under the global technology services platform.

 

Q. Your biggest operation by revenue remains staffing. Are there still prospects of growth in this area?

A. Indeed there are. The total working population of India is roughly about 500-520 mln people. Out of this, 40-45% of the workforce gets outsourced in India. That's close to 200 mln people.

 

Outside India, if you look at it, this number varies between 5% and 15% — 5% in very liberal labour market economies and 15% in more rigid ones.

 

Most of Europe will come under the rigid category and the US will come under the 5% category. Outsourcing is high in India because, historically, the labour laws have been very difficult to comprehend, leading to an aversion towards hiring in-house employees.

 

Secondly, in other countries, 100% outsourcing happens through formal staffing companies. In India, we have only a 3% penetration by formal staffing companies.

 

It was only in 2012 that the migration to formal staffing started in India after an incident at an automobile plant in north India where the human resource head was killed, which happened because the labour contractor did not comply with the labour laws. Since then, we are seeing a steady shift from the informal to the formal.

 

Finally, the number of outsourced labour in government and private limited companies alone is close to 40 mln. So, even if you look at just this addressable number, you are looking at massive numbers.

 

Q. Why does formal staffing account for such a tiny share in India?

A. One reason is that informal staffing has been around for 50-60 years, while Teamlease Services, the oldest staffing company in India, is only about 20 years old.

 

Secondly, in the informal sector, the costs are lower, because formal staffing companies comply with every single provision, whether it is the minimum wage, social security benefits, provident fund, gratuity…

 

So there's a cost advantage that companies have when working with informal labour contractors.

 

Q. So, will you eventually replace informal labour contractors completely?

A. We will not. But it may so happen that we may use them to do the sourcing and they may come through our platform, and we manage all the compliances and safeguard the customers from compliance-related exposures.

 

Q. Are there regulatory changes that provide an impetus to this shift to the formal sector?

A. Under the current National Democratic Alliance government, the first step towards formalisation happened with demonetisation and Goods and Services Tax.

 

Another important move has been labour reforms. Once the 44 labour laws are replaced by four labour codes, you will see a greater level of shift from the informal to the formal.

 

Under labour laws, the client is always considered to be the principal employer who is responsible for lapses. That provision is going to be made a lot more onerous under the new scheme of things.

 

Similarly, when the Goods and Services Tax system was rolled out, there could have been many situations in which a service provider could have charged GST in their invoice and not remitted to the government. The client would have got the benefit of the input credit and the government is the one who would have lost out on the particular tax collection.

 

All these kinds of loopholes are now being closed.

 

The third factor is that the government is today focused on triangulation of data. If an informal contractor files a tax return saying he's got 1,000 employees, they may be able to confirm whether he's opened PF accounts for 1,000 employees. So, this will definitely help companies like us in the future.

 

One should ask why local contractors exist for manufacturing today. It's because they are able to go to a slum, get a set of people and put them on the floor and control them. They may pay in cash, they may cut corners in compliances and all that, but they always have a set of people with them that they can mobilise and deploy.

 

But that will slowly change, over a period of time. As the labour code comes in, the pace may be a little more aggressive.

 

Q. Let's talk about the new trends in working modes — for example work-from-home, hybrid work, gig economy and so on. How will all this affect demand for your janitorial, catering, security services and so on?

A. If you look at it, none of our clients have surrendered their office-space. We haven't seen any reduction in the area that we've been servicing. In fact, while all this talk about hybrid work is going on, companies today want their employees to come back to the offices. The way we look at it is that we are a business services company and can cater to all their needs.

 

Q. What about the emergence of the gig economy, where people do not sign up as full-time employees but as outsourced contractors responsible for small pieces of work, how will that impact your business?

A. For gigs, we have our own platform called Taskmo, which we acquired last year. When we acquired them, their yearly revenue was 30 mln rupees, and we'll be exiting them in the March quarter with monthly revenue of 20 mln rupees.

 

Q. So, are you moving away from the b2b model in the gig segment? What do you offer in this segment?

A. We have two platforms in this area. One is QJobs, which focusses purely on blue- and grey-collar employment. Anybody can download and use it.

 

Secondly, if you don't want to do a full-time job, but you are looking for only an individual task or gigs, we have Taskmo.

 

You can register on it, and say: From 3 to 6, I'm available to take up certain activities. If there is any such activity to be done within the proximity, it will give you a notification, like you see on Uber and Ola driver apps, and you accept it.

 

Q. Do you think gigs are the future of work, or is it something that will appeal only to students and young people?

A. I don't know if that's the future of work, but some percentage of work will get done like this.

 

For example, a person who does milk delivery in the morning, he can deliver packages for an ecommerce company from 9 to 11, and then do food deliveries from 12 to 3. In the evening, he can stand in a retail outlet, promoting some product. From that perspective, it's extremely good because a person can do more than a full-time job by working for only eight hours a day.

 

But it will not replace the regular staff. It can be 10-15%, but it is not a replacement.

 

Q. Coming back to your different business divisions, do you want to eventually focus more and more on higher margin businesses, such as those under your global technology solutions umbrella?

A. We would like to focus on all. My top line growth will come from workforce management, my profitability will come from global technology services.

 

Our target is to take the company's margin up from the current level of around 5% to say 8%. That will come from productivity (gains), operating leverage and from better product mix. In fact, my workforce management business itself can help improve my margins. From the current 3.3% where it is at, I can easily take it to 4.5%. The remaining can come from operating asset management and global technology services.

 

On the National Stock Exchange today, shares of Quess Corp closed 3.6% higher at 599.65 rupees.  End

 

Edited by Ashish Shirke

 

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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