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Payne Miller
Qusai Kanchwala
Bruce Hardie LBS REF: CS-09-023
John Mullins Date: March 2010

Concept Arbitrage in India (A)

Abstract
After selling their first venture, Manish Sabharwal and Ashok Reddy were contemplating
their next move. The duo had co-founded India Life in 1997 by applying a western model
of HR services to the Indian market. This “concept arbitrage” was a huge success, as their
company grew to become a formidable player. In 2001, Hewitt Associates made an offer
Sabharwal and Reddy could not refuse and the co-founders agreed to sell.

Over the course of late 2001 and 2002, the two long time friends became frustrated with
their new lives and began to plot their next move. They were ready for their next challenge
and believed they could apply another form of concept arbitrage in India – this time in
temporary staffing. A plus was that this venture could “Contribute toward putting India to
work,” as Sabharwal put it. However, there was one problem they could not ignore:
elements of the temporary staffing industry broke Indian labour market laws. With the
threat of jail time looming over their heads, they wondered if this was the right opportunity.

Payne Miller and Qusai Kanchwala, under the supervision of Bruce Hardie, Professor of Marketing, London Business School
and John Mullins, David and Elaine Potter Foundation Term Associate Professor of Management Practice, London Business
School, prepared this case as a basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation. Some names and places have been disguised. The authors thank the Chris Ingram Research Fund
and the Goldman Sachs 10,000 Women Initiative for their support of this project.

Copyright © 2009 London Business School. All rights reserved. No part of this case study may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means electronic, photocopying, recording or otherwise without written
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Introduction
On a Friday afternoon in late 2002, at the end of another long day bashing heads with his
bosses, Manish Sabharwal looked out his office window in Singapore and pondered his
next move. It had been almost one year since he had sold his previous company, India
Life, to Hewitt Associates, a U.S. human resources outsourcing and consulting company.
As part of the deal, Sabharwal had moved from Bangalore to Singapore, and was locked
into a one year non-compete clause.

The one year expiry date was fast approaching and Sabharwal had no intention of staying
even one day longer than he had to. He was terribly frustrated by how his role had
changed after the sale to Hewitt. At India Life he had enjoyed facing the customer, but at
Hewitt he had his back to the customer, spending his days dealing with internal
bureaucracy. More so, he learned that working for someone else was just not for him. As
an entrepreneur he loved being in control of his own destiny. In Sabharwal‟s view, “King of
a small kingdom is still a king.”

Sabharwal thought back to something that had piqued his interest at India Life. He recalled
some of his clients asking him to provide temporary staffing in addition to HR services.
With the recent boom in India's economy, was there an opportunity here? He picked up the
phone and called his old friend and India Life business partner, Ashok Reddy, and said,
"I've got another idea with a lot of potential, but it is not entirely legal. Are you ready for a
challenge?"

Background
Sabharwal and Reddy first met in 1988 as roommates at Shri Ram College of Commerce
(SRCC) in New Delhi. With such starkly contrasting personalities, no one would have
predicted they would become such close friends. Sabharwal was outspoken and enjoyed
socializing with classmates while Reddy was more introverted and focused on his course
work. Despite those differences, they quickly forged a bond because they had both
attended boarding school and shared a mutual love of reading. Each would share their
favourite books with one another, and they stayed up many nights discussing them.

After completing their undergraduate degrees at SRCC in 1990, Sabharwal and Reddy
both moved to Hyderabad, Reddy's home town. During his first few months there,
Sabharwal stayed with Reddy's family until he was able to find a place of his own, which
further strengthened their relationship. After several years of work experience, both chose
to return to school to earn MBAs. Reddy earned his at the Indian Institute of Management
(IIM) Bangalore (1993-1995) and Sabharwal at The Wharton School at The University of
Pennsylvania (1994-1996). It was during this time that the concept for India Life was born.

India Life
Sabharwal first developed the idea for India Life while working on a project for an
entrepreneurship course at Wharton. He believed the Indian health insurance space was
underserved and in the report he explored the possibility of applying an American model to
the Indian market. However this idea was discarded shortly after Sabharwal realized that a

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large amount of capital was required to start the venture. He continued to strongly believe
that „concept arbitrage‟ presented a unique opportunity for a quick entry into the Indian
market with an established business model.

Sabharwal took a bet that India's Provident Fund, the state sponsored pension and
insurance scheme, could gain from an intermediary that handled benefit management and
pension payment processing. This was already being done in the US by companies such
as ADP, and Sabharwal believed that applying this model in India would work: it required
only a small amount of financing, could be started quickly, and was proven in another
market. As soon as Sabharwal returned to India in 1997, he re-connected with Reddy to
share his idea.

Reddy received Sabharwal‟s call from his equities trading desk at JP Morgan. After three
years of working in finance, Reddy was ready for a change but was not sure in which
direction to head. Reddy recalled, “I actually wasn‟t particularly interested in finance and I
knew I didn‟t want to be just another equities trader. I wanted to make sure that whatever I
did next, I enjoyed.”

Eager to make a change, Reddy took little convincing from Sabharwal to make his decision.
A few weeks later, Reddy tendered his resignation and jumped head first into what was to
later become India Life.

Reddy and Sabharwal refined their plan for India Life over the next several months and
then pitched the idea to Centre Partners, a division of Lazard‟s Alternative Investments
Practice. With only an idea and a rough business plan in hand, Sabharwal and Reddy
secured approximately $2 million in exchange for a 50% equity stake. The team used the
funding to quickly enter the market by acquiring a small human resources consulting firm
called Kumar and Associates. They changed the name to India Life and the new company
was incorporated in 1997.

India Life mainly administered retirement schemes – including transaction processing,

regulatory compliance, and investment advisory services – and helped corporations move
from defined benefit pension plans to defined contribution plans. Over time, the company
added payroll services and other administrative services related to pensions. The idea of
concept arbitrage was looking more and more like a success, as India Life grew into what
some considered the ADP of India. However, clients began asking for additional services
such as pay-rolling1 and temporary staff, which Sabharwal and Reddy were not sure that
India Life could provide at the time due to resource constraints.

The rapid growth of India Life caught the attention of several multinational corporations
(MNCs) and in 2001, Reddy and Sabharwal were approached by Hewitt Associates. Hewitt
placed an offer on the table: an initial payment of $4 million and an additional sum to be
paid in one year's time at a price based on performance. Reddy and Sabharwal
considered whether the offer was priced fairly and if the timing was right.

1
Pay-rolling was a term in the staffing industry used to describe taking employees off the books of the client.
The workers would continue doing the exact same job, but their salary or wage payments would come from a
staffing company, rather than their place of work.

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The two ultimately decided to sell and the deal was finalized a few months later. The terms
of the deal included a non-compete clause that required Sabharwal to move to Singapore
and remain with Hewitt for at least one year running the Asia Pacific outsourcing
operations. Sabharwal would soon discover that life with Hewitt was not nearly what he
expected.

The sale to Hewitt resulted in Sabharwal losing all control of the company and he soon
found himself deeply embedded in the bureaucracy that stifles many MNCs. According to
Sabharwal, "An environment where anybody could say no and nobody could say yes just
drove me crazy. My role was not taken seriously because everyone knew I had one foot
out the door because of the impending 2/3 sale of India Life. But the absolute worst part
was how I had to relinquish control of the only thing I loved – dealing with the customers.
Hewitt literally turned me around. In my new role, I had my ass to the customer. I wanted
out."

The Opportunity – Temporary Staffing

Shortly after completing the initial sale of India Life in 2001, Sabharwal started thinking
about his next steps even though he was locked out of the industry for a year. He would
contact Reddy from Singapore and discuss possible new business ideas. One opportunity
they repeatedly discussed was based on their previous experience at India Life, where
their clients sometimes wanted more than retirement benefits and payroll processing.

Non-permanent staff, such as part time customer service or sales staff, as well as contract
workers, represented a significant portion of the overall headcount for many India Life
clients. They suggested that India Life take these workers onto their payroll and ‟sell‟ them
back to clients as temps. This would allow the clients to make an accounting change that
classified temporary workers as an expense, ultimately improving their employee
productivity ratios that they reported to their home offices.

Sabharwal and Reddy were intrigued by the opportunity, and by the business model in
temporary staffing industry, under which client companies would provide the cash from
which the temping firm would „make payroll‟, which then let the temping firm benefit from
the „float‟ on the benefits and taxes which were payable a few weeks later. They were also
intrigued by the positive social impact of helping to create jobs in India, if temporary jobs
could be used as a route into full-time employment. They thought the idea might have
traction and began to talk with their former India Life clients to gauge interest. They
realized that outside of India, temporary staffing had successfully existed for many years,
so they considered applying another version of concept arbitrage. With clients seemingly
at the ready, could they successfully bring the temporary staffing model to India?

Global Temping Industry

Temporary staffing was a labour market arrangement made between three parties: the
temping firm, the client, and the employee. Temporary workers were employed by the
temping firm and sent to work on specific projects for the client with a set duration. The
client paid the temping firm a predetermined amount for the employee's services, including
a percentage mark-up, resulting in a contract fee known as Cost to Customer (CTC). In

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turn, the temping firm was responsible for paying the employee's wages and all benefit and
tax payments (from 10% to 15% of wages in most Indian states) in compliance with
government regulations. The difference between the amount received from the client and
the amount paid out to the employee and government in the form of wages, taxes and
benefits constituted the temping firm's gross profit margin. Exhibit 1 graphically represents
the temporary staffing business model.

Historically, staffing companies had catered to accounting and law firms to meet seasonal
demands. In the 1970s and 1980s, manufacturing, consumer and banking sectors
increased their reliance on just-in-time staffing to fulfil short-term labour needs. In Europe,
temporary staffing became a means to sidestep strict labour regulations and by the late
1980s and 1990s, temping became more main stream. During this time, highly skilled
temporary staffing was becoming commonplace and many IT companies hired temporary
staff for specific projects. Some companies relied on temporary staff to reduce overhead
costs and increase the flexibility of their workforce. By 2000, many companies were heavily
reliant on temping, especially in the Business Process Outsourcing (BPO)2 industry, to
reduce costs and help keep reported headcount levels low. 3 During this time, many global
temping firms embarked on a period of international expansion by opening new offices or
acquiring local temping companies in emerging markets.

In 2002, global temporary staffing was a $200 billion industry, with an estimated 7 million
employees worldwide.4 However, the temping market was concentrated in Europe and
North America. These two regions alone accounted for over 70% of total temping sales in
2002.5 An overview of the European staffing market is presented in Exhibit 2. Global
market leaders included household names such as Manpower, Adecco, Kelly Services,
Vedior and Randstad. See Exhibit 3 for profiles of several key competitors with operations
in India.

India's Labour Market

In 2002, approximately one out of every six people on the planet lived in India. With more
than 1 billion inhabitants, India was the second most populous country in the world, yet the
country faced an amazing challenge because only 40% of the population participated in
the labour force. Furthermore, of the 400 million available workers, a little over 90% fell
within the unorganized sector.6 The remaining 30-odd million people worked in the
organized sector, of which 22 million or more were employed by the government.

2
Typical examples of BPO functions are call centres, IT services, and software development
3
Singh, Shelley. "Temps", BusinessWorld, 17 January 2005
4
Research and Markets, "Employment Services: Global Industry Guide", 2005 report
5
Company reports, CIETT (2000), Randstad (2003)
6
For the purposes of this case, the organized sector reflects institutions that provide adequate working
conditions, comply with labour laws, pay taxes and pay benefits. However, there are several different formal
definitions of the organized/unorganized sector. One is based on registering a business in compliance to the
Factories Act of 1948. Registration is equated with organized and everything else is unorganized. A second
definition uses the distinction of small-scale industry (SSI) by measuring the level of investment in plant and
machinery. SSI is equated with unorganized manufacturing. The third definition pertains to the level of
turnover, below which excise need not be paid. Excise exemption equates with the unorganized sector.
Whichever definition of organized/unorganized is used, the organized sector accounted for less than 8% of the
work force in India. (source: Company reports)

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Ultimately, only about 8 million people, a mere two percent of the total workforce, worked
in the organized private sector.7 Exhibit 4 approximates the makeup of India's labour
market in 2002.

Poverty was a tremendous problem in India, as more than 269 million people lived in sub-
standard conditions. In 2002, between 30 and 50 million people were officially unemployed;
more than triple the number of people who worked in the organized sector. Sabharwal
noted, "The poor cannot afford to be unemployed so they are self-employed, but this
entrepreneurship is not the high-potential type that can be seen in other parts of the world.
Rather, it results in people on the street fixing shoes, making juice or selling toys.”

In Sabharwal‟s view, to help provide better opportunities, more jobs needed to be created.
A potential solution was to use temporary employment as a stepping stone to full time
employment.

Temporary staffing could be part of a solution to help build the Indian economy, but there
were several inherent challenges as well. To begin, there was a potential lack of supply as
the labour force was not highly skilled. The education and training programs in India were
not able to provide enough people to fill the growing demand for skilled workers. With a
growing labour force, this created a significant problem, because workers without jobs
would eventually fall into poverty if they could not acquire new skills.

Of the existing temporary staffing companies, only a few paid the legally mandated social
benefits to the government. This benefit avoidance was unequivocally illegal and, from
Sabharwal‟s perspective, harmed society in three main ways. First, as the government did
not receive any tax income from temps‟ wages, there were countless negative social
implications. Second, the employee did not receive any benefits from the company,
preventing the worker from obtaining many future societal gains. Third, firms that
employed temps would potentially have to pay more to keep the same people if they were
to start abiding by the law. At the time, firms paid a fixed amount to staffing companies
who were supposed to use this fee to pay the employee wages and the government
benefits. However, these benefits were not getting paid and the employee was receiving a
higher percentage of net pay. As such, if firms were to start paying benefits, in order to
achieve the same bottom line, they would need to make changes elsewhere. For instance,
they would have to either cut employee pay or decrease the fee paid to staffing firms.

In India, the reality was that the temping industry was still nascent. There was a lot of
potential for growth considering the booming economy, but the temporary staffing model
was not proven. There were many local players across the country that would provide
workers for firms that required temps, but they were not professional and could not be
consistently relied upon. The majority of local staffing stands built a small margin into the
CTC, and offered a higher net pay to employees as they refrained from paying benefits to
the government.

In addition to tax and benefit avoidance, many of these local staffing stands were run by
disreputable individuals who would physically threaten to harm a competitor if they tried to

7
Company reports

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encroach on their territory. Reddy described the dire situation, “These criminals would go
as far as to threaten their own people whom they placed as temps. Workers did not have a
choice over where they worked and were prevented from becoming permanent – any
attempt otherwise would result in broken legs.”

Despite these challenges, the market continued to develop in India. Companies were
beginning to understand the benefits that temporary staffing could provide. Temporary
workers gave a company additional labour flexibility by increasing variable costs and
reducing fixed costs. Temps also provided companies with the ability to audition
permanent candidates resulting in significant long term savings in recruitment and hiring.
Furthermore, staffing firms could remove potential benefit liabilities from companies by
accepting responsibility for benefit disbursement. By 2002, many MNCs were beginning to
realize the potential India offered and as a result, international staffing firms such as
Manpower, Adecco, and Kelly had established local offices in the country. However, these
MNCs hesitated to aggressively expand because the legal implications were not clear as
yet.

Social and Economic Development in India

Beginning in 2001, India had gained a tremendous amount of attention in the eyes of
international investors after it was named one of the four BRIC countries.8 Along with
Brazil, Russia, and China, India was identified as a developing economy with the potential
for extraordinary growth based on several economic indicators. Two of the most prominent
factors were GDP growth rate and population growth rate which were 3.8% and 1.7%
respectively in 2002. Exhibit 5 shows historical figures for key economic indicators.

One result of India‟s growth was a growing middle class, thanks to growing demand for
semiskilled and skilled workers in the software, call centre and business processing
outsourcing (BPO) industries. This growth led further to demand for goods and services
ranging from motor cycles to mobile phones to televisions and more, which in turn led to
the rise of chain retailers and other distribution channel members to enable such products
to reach their intended consumers

Inflation had traditionally been a great challenge for India, as consumers were gaining
purchasing power and the Indian rupee was appreciating. However, with strong fiscal and
monetary policy, the government was able to curb inflation, maintaining a Consumer Price
Index growth of 4.4% in 2002, in contrast with 13.2% in 1998, as shown in Exhibit 6.
Further, the dramatic economic growth in India could partially be attributed to the explosion
in Foreign Direct Investment which topped 273 billion rupees in 2002, as shown in Exhibit
7.

In spite of the economic potential, one of the greatest challenges for the country was
education. India was faced with a literacy rate that was remarkably lower than any of its
BRIC competitors. In 2002, a mere 62.4% of the Indian population was literate, which
pales in comparison to other BRIC countries. Exhibit 8 provides historical literacy rates for

8
O‟Neill, Jim. “Dreaming with BRIC‟s: The Path to 2050”, Goldman Sachs Global Economics Paper No. 99.
2003

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the BRIC countries as well as the UK, US and an OECD average. Exhibit 9 shows the
education level as a percentage of population in India.

Regulatory Challenges
In 2002, the Indian labour market was rife with legal complexities and a lack of consistency.
With an estimated 25,000 state and national labour laws, it was difficult enough to
understand the laws, let alone abide by them. The Contract Labour Regulations Act (CLRA)
of 1971 and the Industrial Disputes Act (IDA) of 1956 were perhaps the most pertinent
national laws related to temporary staffing.

The main aspect of the CLRA relevant to temporary staffing revolved around the
classification of core vs. non-core work. Section 10 of the CLRA prohibited contract labour
if a) the process or work performed by contract labour was core to the company or b) if the
process or work being performed was of a perennial nature. Classifying the work as core
and/or perennial was left for interpretation by the local or central government. For example,
several state governments classified factory canteens to be both core and perennial while
other local governments ruled otherwise.

Another section of the CLRA complicated the responsibility for providing temporary
workers' benefits by defining the „principal employer‟ as the entity where the temp is
working, not the temporary staffing company that employs the temp. This dual employer
responsibility blurred accountability. Many staffing companies positioned themselves as an
intermediary between clients and temporary employees. In this way, temporary staffing
firms assumed responsibility for employee benefits and removed this liability from clients.
However, this positioning seemed to be in contrast to the CLRA.

The IDA‟s relevance to temporary staffing involved the worker‟s right to become
permanent after a certain period of employment. According to Section 25B of the IDA,
anyone who worked more than a certain number of continuous days for a given employer
had the right to a permanency claim. The duration of continuous employment was set at
the local level and ranged between 90 and 240 days. For example, if a temporary worker
was employed on a 6 month contract, after 90 days on the job she could claim for
permanent employment and subsequently receive all the benefits entitled to a permanent
employee, including the right to remain in her job after the temporary period expired.9

There were many other laws that further complicated matters. These included the Trade
Union Act of 1926 which allowed temps to form a union, Equal Remuneration Act of 1976,
Payment of Bonus Act of 1965 which entitled temps to a bonus if employed for more than
30 days, and Employee State Insurance and Provident Fund Acts.10 Many of these
regulations evolved over time in order to protect workers, and sometimes were in direct
conflict with previous laws or the laws of bordering states. This lack of consistency in
labour regulations posed serious challenges for Indian companies. An exasperated
Sabharwal proclaimed, “In order to comply with 100% of the labour regulations, you have
to break 20% of them!”

9
Company reports
10
Singh, Shelley. "Temps", BusinessWorld, 17 January 2005

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Reddy responded, “You‟re right, but remember, the exciting thing about India is
there are so many ways to bend the rules. There are things we do every day that
are illegal in principle, but that doesn‟t mean that people don‟t – or shouldn‟t – do
them. Remember what St. Augustine taught us: „an unjust law is no law at all‟.”

Analyzing the Opportunity

Sabharwal and Reddy pored over all the information they were able to find on India's
nascent temporary staffing industry and pondered whether the opportunity to enter it was a
good one. They believed that applying a Western temporary staffing model to the Indian
market could be a success, but wondered if they could enter with only $1 million of their
own money, which was what they were comfortable committing at that time. They also
wondered whether they should start small, by entering just one city to test the concept, or
be more aggressive with a wider initial rollout. Many temping companies were making
profits in North America and Europe. Would this work in India? Could they leverage their
relationships with previous clients at India Life to help build the new venture? They
wondered how much potential was possible from this industry. Finally, Indian GDP growth
was expected to be strong over at least the next 10 years, which they believed would
ultimately lead to higher employment levels.

However, their diligence surfaced four main areas of concern. Firstly, they were worried
about the incumbent competition. While the Indian temping industry was in its infancy in
2002, Manpower and Adecco were already operating in the country and they had the
luxury of tapping their deep pocketed multinational parent companies to fund growth and
react to competitive pressures. In addition to these MNCs, there were also a large number
of small temping firms operating locally throughout India. How would this competition react
to a new entrant? Furthermore, how could they compete with the unorganized sector?

Both Reddy and Sabharwal agreed that if they were to enter this space, they would pay
benefits. Even though this would translate into higher labour costs for their potential clients,
they believed in the overall benefit to society and fundamentally wanted to play an active
role in India‟s economic and social development. Because the unorganized sector did not
pay benefits, firms operating in the unorganized sector could easily undercut Sabharwal
and Reddy on pricing. According to Sabharwal, "The competitors are either criminals or
politicians offering regulatory arbitrage. These competitors offer three services to clients: a)
they break the legs of any temporary employee who asks for a permanent job; b) they take
care of any government inspectors for their clients; and c) for their employees gross salary
is equal to net salary because they don‟t deduct any of the legally mandated pension,
health care or social security benefits.

Sabharwal and Reddy had concerns about safety too. Since they would be competing with
an unorganized sector that included some unsavoury characters, would employees be
willing to work for them if faced with threats from local bosses? How could Sabharwal and
Reddy guarantee employee safety? And what about their own safety and that of their
families?

Then there was the matter of India‟s labour supply. There was no shortage of people in
India who sought semi-skilled and skilled jobs, but whether there were enough who really
had the requisite skills was an entirely different matter. There was considerable concern

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that India‟s rigid and outdated educational system was not turning out job-ready graduates.
Supplying poorly trained people was certainly not a good way to create satisfied clients.

They also had reservations about the potential profitability of the venture. Globally,
temporary staffing gross profit margins were approximately 12% to 15%, but Reddy and
Sabharwal didn‟t believe the temporary staffing industry in India would support gross
margins of more than 6% to 8%. Was the opportunity still attractive?

The Dilemma
The regulatory environment posed another great challenge. Sabharwal and Reddy were
overwhelmed with all of the state and government regulations pertaining to labour markets
and worried about the potential pitfalls of starting what could be an illegal operation. They
decided to dig deeper into the regulatory aspects of their idea and enlisted the support of a
lawyer they trusted to provide an opinion. The news they received presented a realization
that was shocking in its simplicity. They read aloud the daunting caution presented in front
of them in black and white: "What you are proposing is may be illegal and you could go to
jail."

With this news, Reddy and Sabharwal sat back and reflected upon the situation.
Throughout the evening they weighed the pros and cons of their idea. They needed to
make a decision soon. Should they start the new venture? Or should they find another idea
that wasn‟t so risky?

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Exhibit 1: Typical Temping Firm Business Model

Exhibit 2: European Temporary Staffing Market (% of total

employment)

1985 1990 1995 2000 2001 2002

Austria na na 6.0% 7.9% 8.1% 7.4%
Belgium 6.9% 5.3% 5.3% 9.0% 8.8% 7.6%
Denmark 12.3% 10.8% 12.1% 10.2% 9.4% 8.9%
France 4.7% 10.5% 12.3% 15.0% 14.9% 14.1%
Germany 10.0% 10.5% 10.4% 12.7% 12.4% 12.0%
Ireland 7.3% 8.5% 10.2% 4.7% 3.7% 5.3%
Italy 4.8% 5.2% 7.2% 10.1% 9.5% 9.9%
Netherlands 7.6% 7.6% 10.9% 14.0% 14.3% 14.3%
Portugal na 18.3% 10.0% 20.4% 20.3% 21.8%
Spain na 29.8% 35.0% 32.1% 31.6% 31.2%
Switzerland na na 13.2% 11.7% 11.6% 12.3%
UK 7.0% 5.2% 7.0% 6.8% 6.7% 6.1%

Source: OECD LMS 2001(2002), Eurostat LFS (2002,2003)

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Exhibit 3: Overview of Key Global Competitors Operating in India

(2002)

Adecco SA

Location Zurich, Switzerland

Stock Exchange Swiss Stock Exchange (ADEN)

Revenues $23.4 billion

Global Employees 29,000

Temps in India 8,750

(estimated)

Description Adecco is a leader in human resources services, including temporary and permanent
placement services. The company has a network of 6,700 branches in over 70
countries.

Manpower

Location Wisconsin, USA

Stock Exchange New York (MAN)

Revenues (estimated) $12.0 billion

Global Employees 21,000

(estimated)

Temps in India 4,250

(estimated)

Description Manpower provides global employment services through a network 4,500 offices in
80 countries and services a wide variety of industries. The company operates under
five major brands: Manpower, Manpower Professional, Elan, Jefferson Wells and
Right Management

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Randstad Holding N.V.

Location Amsterdam, Netherlands

Stock Exchange Amsterdam (RAND)

Revenues (estimated) $7.2 billion

Global Employees 11,000

(estimated)

Temps in India < 1,000

(estimated)

Description In addition to temporary staffing and employment services, Randstad also provides
HR consultancy and HR process management services. The company operates in
19 countries across three business segments: mass customized, in house services
and interim professionals, search and selection.

Vedior N.V.

Location Amsterdam, Netherlands

Stock Exchange Amsterdam (VDOR)

Revenues $8.0 billion

(estimated)

Global Employees 11,000

(estimated)

Temps in India 9,075

(estimated)

Description Vedior provides staffing solutions across Europe, North America, South America,
Australia and New Zealand, South Africa, Middle East and Asia. The company mainly
operates under the Vedior and Select brands, but also has a number of different niche
brands.

Source: Company Filings, Datamonitor

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Exhibit 4: India’s Labour Market (2002)

450
Millions

400 30-50
350 30-50 0.08

300
250
400-
200 420
330-
150 350
100
50
-
Unorganized Organized Temporary Unemployed Labour Force
Employment Employment Staffing

Source: Company Reports

Exhibit 5: Indian Key Economic Indicators

1998 1999 2000 2001 2002
Real GDP¹ ($billion) 1,557.8 1,672.9 1,740.3 1,831.1 1,900.1
Real GDP growth rate 6.2% 7.4% 4.0% 5.2% 3.8%
Real GDP per capita² 514.2 542.4 554.5 573.6 585.4
Real GDP per capita growth rate² 4.3% 5.5% 2.2% 3.4% 2.1%
Nominal GDP ($billion) 425.3 453.4 467.8 483.0 504.9

Population (millions) 1,009.9 1,028.1 1,046.2 1,064.2 1,081.9

Population growth rate 1.9% 1.8% 1.8% 1.7% 1.7%

Unemployment Rate (%) 11.2% 10.6% 10.6% 10.4% 10.7%

1. Billion real in year 2000 US$

2. Year-over-year, in real year 2000
US$/person

Source: Global Insight

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Exhibit 6: Indian Consumer Price Index

1998 1999 2000 2001 2002
Consumer Price Index¹ 13.2% 4.7% 4.0% 3.7% 4.4%

1. Year-over-year percent change

Source: Global Insight

Exhibit 7: Indian Foreign Direct Investment

1998 1999 2000 2001 2002
Foreign Direct Investment Inflows (Rs million) 108,6360 93,344.1 161,115.6 258,204.0 273,530.2
FDI Intensity (% of total GDP) 0.6 0.5 0.8 1.2 1.1

Rs to USD exchange rate on December 31 0.0235 0.0230 0.0214 0.0208 0.0209

Rs to GBP exchange rate on December 31 0.0142 0.0142 0.0144 0.0143 0.0130

Sources:
1. Foreign direct investment inflows: UNCTAD
2. FDI intensity: Euromonitor International from national statistics
3. Exchange rates: OANDA Corporation

Exhibit 8: Adult Literacy Rate (% of population above 15 years of

age)
1998 1999 2000 2001 2002
India 57.5% 58.8% 60.1% 61.0% 62.4%
China 88.8% 89.8% 90.9% 91.5% 92.2%
Brazil 86.0% 86.5% 86.4% 87.3% 87.7%
Russia 99.1% 99.2% 99.3% 99.4% 99.4%
UK 99.2% 99.3% 99.5% 99.6% 99.7%
US 99.9% 99.9% 99.9% 99.9% 99.9%
1
OECD average 97.9% 97.9% 98.0% 98.1% 98.2%

1. OECD countries include Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France,
Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New
Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.
Slovak Republic not included.

Source: National statistics, Euromonitor International

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Exhibit 9: Indian Population by Highest Educational Attainment

1995 % 2000 % 2002 %
No education ('000s) 199,957 21.5% 214,401 20.5% 217,878 20.1%
Primary ('000s) 164,437 17.7% 193,937 18.5% 204,591 18.9%
Secondary ('000s) 195,766 21.0% 236,015 22.6% 250,956 23.2%
Higher ('000s) 29,647 3.2% 35,864 3.4% 38,218 3.5%
Other ('000s) 341,200 36.6% 366,018 35.0% 370,256 34.2%
Total ('000s) 931,007 100.0% 1,046,235 100.0% 1,081,899 100.0%

Source: National statistics, Euromonitor International, Global Insight

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