concept arbitrage in india (a) march 2010

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 permission of London Business school.

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.

ecch: 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.

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Copyright © 2009 London Business School London experience. World impact.

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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 (estimated)

8,750

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 (estimated)

21,000


4,250

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


11,000


< 1,000

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 (estimated)

$8.0 billion


11,000


9,075

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)

330-350

30-50 0.08

30-50

400-420

-

50

100

150

200

250

300

350

400

450

Unorganized Employment

Organized Employment

Temporary Staffing

Unemployed Labour Force

Mill

ion

s

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%

OECD average1 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

concept arbitrage in india (a) march 2010

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