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Mercer bdb doing_business_in_india_nov_2010


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Mercer bdb doing_business_in_india_nov_2010

  1. 1. Breaking Down BordersDoing business in IndiaPadmaja AlaganandanVijay Gopal
  2. 2. Today’s speakers Padmaja Alaganandan Vijay Gopal India Business Leader, Human Senior Associate, Human Capital Capital India +91 9741522661 +91 9810049665Mercer 1
  3. 3. Topics for discussion 1 Setting the scene 2 Attracting and retaining talent 3 Governance: The ‘people’ dimension 4 Moving critical staff into India 5 Ensuring the success of your expansionMercer 2
  4. 4. Setting the sceneIndia
  5. 5. Setting the sceneThe India story Today An enabling environment  One of the fastest growing Largest democracy; stable economies ; 9%+ growth rate government. for 5 years prior to current crisis Dominant private sector; increasing withdrawal of  Resilient economy – 5-6% government from business growth at the peak of the global crisis Robust banking sector; capital markets  Opening up sectors for investment World-class IT & telecom infrastructure  Promising consumer markets – A ‘connected economy’;  Significant investment in economic efficiency & infrastructure development quality of governanceMercer 4
  6. 6. Setting the scenePacing ahead Projected GDP Growth Rates for Select Upcoming Economies 8GDP Growth Rate (%) 6 4 2 0 2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 Brazil China India RussiaMercer 5
  7. 7. Setting the sceneBeyond the crisis Indian economy coped well with the crisis; clear signs of recovery – Revised government growth projection for 09-10 at 6.9%; Q2 GDP growth at 7.9% – GDP forecast for 2010-11 is 7.9% – 2010-11 to be a year of consolidation; launch into the high growth mode India’s long-term promise still holds – Growth primarily driven by the strong domestic market – Domestic savings rate at more than 35% – India projected to be the 5th largest consumer market by 2025, worth over USD 1,500 Bn – CAGR of 7.3%*Mercer 6
  8. 8. Attracting and retaining talent
  9. 9. Workforce trends Where we stand Population Median Age (In years) Ever expanding workforce  Median age of 25.9 years, lower than many countries in the world  2nd largest urban population: 29% of the total; projected to reach 37.8% by 2025  Largest working age population Demographic Profile worldwide by 2050 >65 years  Demographics signify a0-14 years predominant Gen X and Gen Y workforce  Attraction & retention of key talent therefore requires deeper 15-64 years understanding of workforce Mercer 8
  10. 10. Understanding workforce expectationsYounger workforce, higher aspirations, more cash in hand Share plans Pension top-up LTI Plans Investment Pension Job security Cash & Responsibility Cash bonus Reliability projects Insurance Fast track Promotion Stature & success Career opportunities Work / life balance Career stability Health care benefits Learning opportunities Career growth Saving for children Retirement planning Mobility Saving for home Retirement planning Augmented income Dependent care Financial planning 22 28 35 42 AgeSome goals span groups: predictable income/benefits, having meaningful roles,opportunities for growth, being treated with dignity and respectMercer 9
  11. 11. Managing workforce expectationsApproach to talent With the influx of a new generation in the workforce of companies in India – HR practices need to align to the needs and aspirations of the new employee profile – Leadership development practices must evolve to support the relatively inexperienced ‘middle managers’ being fast tracked to sustain growth Attraction and retention of talent will continue to be the single biggest challenge with respect to operating in India In a crowded talent market, developing and communicating a unique employer value proposition will be a difficult task Aggressive year-on-year salary increases will put pressure on overall cost management Lack of talent in high-growth sectors and specialized roles could mean either higher investments in T&D or sourcing expatriate talentMercer 10
  12. 12. Broad areas of talent management that need to be addressed Focus on leadership programs, competency framework design & assessment Learning & development Compensation & Career benefits opportunities Attracting & retaining Focus on position evaluation Focus on career architecture and compensation structure employees and PMS process design Work environment Work profile Focus on immediate manager Focus on organization structure practices and team and role clarity cohesivenessSource: Mercer India Monitor, Nov 2009Mercer 11
  13. 13. GovernanceThe ‘people’ dimension
  14. 14. Dimensions to governance Deeper understanding of regulatory environment (labor laws & local legislation) particularly addressing restrictive practices around hiring and firing of blue-collar workforce Compliance with minimum wage and statutory employee benefits requirements Compliance with disclosure norms around executive pay and benefits liabilities as per International Financial Accounting Standards Managing increasing scrutiny on the performance of company board of directorsMercer 13
  15. 15. Statutory retirement benefits in India Employer Employee Plan Mandatory Plan type contribution contribution 12% of basic Provident Fund Yes Defined contribution 12% salary Defined benefit 15 days per year of service Up to 4.81% of Gratuity Yes 0 INR 1,000,000 lump sum basic salary Maximum Defined benefit or Supplementary Up to 15% of No defined contribution 0 Superannuation basic salary No fixed formula Statutory retirement plans are often inadequate to provide sufficient retirement income as contributions are based on basic salary which is usually less than 60% of total compensationMercer 14
  16. 16. Schemes under the Employee Provident Fund Act at a glance(for an employee who is a member of the EPS) Scheme name Program type Financing Coverage Employer: 1.67-3.67% Employees Provident Fund Firms with + 20 Mandatory Employee:10-12% (EPF) employees Government: none Employer: 8.33% Employees Pension Scheme Firms with + 20 Mandatory Employee: none (EPS) employees Government: 1.16% Employer: 0.5% Employees Deposit Linked Firms with + 20 Mandatory Employees: none Insurance Scheme (EDLI) employees Government: noneMercer 15
  17. 17. Driving pay governance through increasing board effectiveness Board of directors Delegates authority to the committee  Monitors executive pay from a shareholder Remuneration perspective  Approves pay philosophy, committee programs, and actions  Ensures good processes  Executive sessions Provides market  Transparency trends and financial analyses Executives Ensures informed decisions based Outside Internal  Provides on objective strategic and advice, not advisors resources cultural context just dataMercer 16
  18. 18. Framework for pay governance and other elements Holistic approach to executive pay design and governance  Pay and benefits, set relative to  Performance measurement competitive and internal framework tailored to the company considerations strategy and drivers of value  Pay design, aligned with business  Performance targets, set to create an strategy and value drivers explicit link between pay and performance  Employment and severance arrangements  Pay outcomes, reasonable given relative performance  Disclosure requirements  Director compensation; Compensation Committee charters and practices  Regulatory rules  Shareholder demands and influence  Sarbanes-Oxley  Transparency and disclosure  Accounting and tax requirements  Role of the Committee’s consultant  Other elements of governance – Board member selection, and effectiveness assessment – Succession planningMercer 17
  19. 19. Moving critical staff to IndiaEmployee mobility
  20. 20. International assignment issues in IndiaEmployer perspective Talent readiness: Lack of skilled and readily employable talent in specialized roles requires companies to source expatriate talent Diminishing labor cost arbitrage in high-growth sectors Unavailability of reliable market intelligence and benchmarking data for tier 2 and tier 3 cities Managing employee mobility costs e.g. housing, hardship allowance and travelMercer 19
  21. 21. International assignment issues in IndiaEmployee perspective  Safety  Medical care  Cost of living  Remote location  Inability to obtain certain goods  Benefits  Tax issues  Pollution  Work visas  Internet access  Quality of living  Logistics  SARS/Bird Flu/Pandemics  Schooling in rural areas  Hardship  Housing costs and availability  Food  Cultural differences  Language barriers  Difficult living conditions  Health concernsMercer 20
  22. 22. Ensuring the success of your expansionM&A in India
  23. 23. Transactions in IndiaHow M&A deals are done Regulated process – National-level regulatory agencies and processes, e.g.:  Ministry of Commerce  Foreign Investment Promotion Board  Securities and Exchange board of India – Industry specific laws (e.g. BFSI sector highly regulated by watchdogs)Mercer 22
  24. 24. Transactions in IndiaHow M&A deals are done cont’d Widely varying HR environment – Target companies differ in maturity of HR processes – Data availability and labor compliance are potential issues – Prevalence of informal HR ‘practices’ along with formal HR policies – Minimum wage requirements for blue collar; governed by state regulations Typical HR issues – Difference of compensation structures from other geographies – Mandatory Provident Fund (DC) and Gratuity (DB) requirements – Relatively high resource mobility and employee attritionMercer 23
  25. 25. Challenging deal issues at each phaseTypical issues during transactions in India Due Doing Making the diligence the deal deal work Due diligence Doing the deal Making the deal work  Statutory compliance  Deal structure  Employee retention & engagement  Compensation levels  Leadership retention programs and structure  Harmonizing compensation  Indemnity considerations and benefit programs  Collective bargaining agreements  Transition of critical HR  Integrating grades and titles services  Underfunding of DB  Organization design and plans, where existing  Ensuring continuation of structure insurance covers on Day-1  Severance agreements  Talent management  Interpreting “No less  Long-term incentive favorable” clauses  Culture and communication plans  Harmonizing performance  Leave liabilities management systemsMercer 24
  26. 26. Transactions in IndiaCritical success factorsIn our experience working with Indian companies, there are four majorchallenges that emerge as critical success factors in M&A transactions: 1. Tackling employee liabilities, statutory compliances and union issues 2. Employee retention and the leadership challenge 3. Rising labor costs 4. Organizational culture issuesSource: Mercer PoV article: HR Challenges of M&A in IndiaMercer 25
  27. 27. Questions?
  28. 28. Questions & answers Please use the Q&A panel on the bottom right hand of your screen to type your question To ask a question while in full screen mode, click on the question mark button on the floating panel at the bottom right hand side of your screen If there is not enough time to answer your question during the Q&A period, we will send you an answer by e-mailMercer 27
  29. 29. Additional informationWhere to go for help
  30. 30. For more information on regional strategiesRisks and opportunitiesVisit our Breaking Down Borderswebsite to access articles, points ofview, podcasts and more information oninvesting in 29
  31. 31. Future markets in the Breaking down Borders webcast series Doing business in India Held When: Webcasts will begin at Doing business in Japan the following times: 26 November Delhi – 11:30 am Doing business in China Bangkok – 1:00 pm 2 December Shanghai, Hong Kong, Singapore – 2:00 pm Doing business in Korea Seoul, Tokyo – 3:00 pm 16 December Sydney – 4:00 pmAdditional markets will be added in 30
  32. 32.