SERVICES SECTOR
Introduction
- The services sector continued to be the key driver of India’s economic growth contributing almost 72.5% of gross value added growth in 2017-18 while providing employment to around 30% of population (ILO estimates, 2016). The government has initiated many reforms to boost the sector which is expected to grow at 8.3% in 2017-18. India’s Services Sector
- State wise estimation: Services sector contributed more than half of the gross state value added (GSVA) in 15 states and UTs. However, regional variation is witnessed in terms of services-GSVA share, with Delhi and Chandigarh are at the top with over 80% share, while Sikkim is at the bottom with 31.7%
- FDI in India’s service sector: Total share of FDI equity inflows to the services sector is 69.6% during 2017-18 (April-October), mainly led by higher inflow in two sectors viz. Telecommunications and Computer Software & Hardware.
- India’s Service Trade: India remained the eighth largest exporter of commercial services in the world in 2016 (WTO, 2017) with 3.4% share, which is double the share of India’s merchandise exports in the world at 1.7%. It reflects o Growing importance of the services sector in India’s exports, as it helped in financing about 49% of India’s merchandise deficit in 2017-18 H1 and thus, providing cushion to current account deficit (CAD). o Improvement in Baltic Dry Index, which is a freight index and a good proxy for the robustness of trade and shipping services.
Indian Staffing Industry Facts
- India has one of the largest flexible staffing workforce numbers in the world, next only to China and the US.[vii]
- The government employs a temporary workforce of about 12.3 million[viii]
- Flexi staffing market is poised to grow 10% to 15% year-on-year
- The retail sector is expected to witness growth to the tune of 10% to 12% per annum, making it the most lucrative option for a massive growth in flexible staffing.
- The penetration of contract staff in the IT and [IT-enabled-Services] industry is also likely to increase from 10% to 20% in the next few years.
- According to the Indian Staffing Federation, there are at present 1.3 million temporary workers in the organised sector, which is likely to increase to 9 million workers in the next 10 years.
Staffing Industry Trends
- Virtual talent marketplaces where automated process are used to rank and scout for fresh talent are proving to be disrupting the staffing industry[x]
- Social recruiting is now the norm — 93% of recruiters use or plan to use social to support their recruiting efforts. [xi]
- Temporary or contract-based work is on the rise as many of the top talents are taking up freelancing or on contract jobs, in this process, staffing firms will play a pivotal role in easing the relationship between freelancers and their clients.[xii]
- Training is the starting point for developing a temporary work-force. A company with training facilities has an edge in terms of an employment-ready and local temporary workforce
Security Management Services Market
- The market for security services in India was 169.00 billion in Fiscal Year 2010 and grew at the rate of about 18.20% CAGR to reach390.00 billion in Fiscal Year 2015. The graph below displays historic growth of the security services market in India between Fiscal Years 2010 and 2015:
- The security services industry usually works on a credit period of 60 to 90 days from date of completion of services. Many of the smaller operators pay wages only when they receive payments from the customers while most of the larger national players pay wages on a monthly basis. Therefore, the security company has to organize substantial bank loans or funds to meet monthly wage payments and service tax compliance. In addition, security services is a low margin, high volume business. All of these reasons make the security services industry a working capital intensive business. This operating model is not expected to undergo any evolution in the next few years. The primary costs for companies include manpower-related expenses including salaries, Employees’ Provident Fund (“PF”) and insurance.
- For the organized sector, pricing for security services is largely dependent on the minimum wages prescribed in each state. Organized companies adhere strictly to the norms related to PF and Employees’ State Insurance Act (“ESI”) and these norms are directly linked to minimum wage payment obligations. According to Frost & Sullivan’s discussions with organized security service providers, pricing has increased at an average rate of 8.00% to 10.00% over the last five years.
- However, lately, there has been a significant increase in the wages by up to 50.00% in a few big cities including Bengaluru due to the higher cost of living, benefits to retain guards and cost of compliance with human resources and labour statutes. Since unorganized companies do not comply strictly with labour laws, their pricing is more market driven and is low. A more stringent enforcement of labour laws and the increasing cost of compliance will put pressure on the unorganized service providers and work in favor of organized companies.
- The industry faces high attrition rates, but that does not mean the guards are exiting the industry. When a large contract is lost or expired, the guards already employed in that establishment will be absorbed into the payrolls of the company that wins or takes over the contract. This is a common business practice in the Indian security services market
- The primary end-user segments for security services are the IT and ITES sectors, industrial, banking, financial services and insurance sectors. Together, these segments constitute approximately 80.00% of the total business of organized companies and have adopted global best practices in terms of security services, with high quality control for deployed guards. Organized industry participants cater to these segments chiefly due to their clear emphasis on compliance.
- The security services market is highly fragmented and consistent growth in demand has led to the entry and expansion of competition. The following chart displays the competitive landscape for the security services market in India for the Fiscal Year 2015
Electronic Security Market
- Electronic security services involve the installation and commissioning of security systems, products or equipment along with operations and maintenance (“O&M”) services. Electronic security systems include CCTV, alarm systems, access control systems, and other safety related systems such as fire alarms, automatic fire suppression systems and other electronic equipment installed for security purposes.
- Electronic security services are provided by large private security companies such as G4S, SIS, and TOPSGRUP who provide both product installation and O&M services. There are several layers in the value chain of this industry, including original equipment manufacturers (“OEMs”), distributors, and systems integrator who compete with the private security service companies.
- The electronic security services market in India was estimated at 24,300.00 million in Fiscal Year 2011 and recorded growth at a CAGR of 25.60%, reaching a value of60,500.00 million in Fiscal Year 2015. Demand is driven by increasing awareness about safety, and investments in public and private establishments
Facility Management Industry:
- Facility management refers to the outsourcing of services and functions which are considered non-core activities for a business. In order to improve building maintenance and the efficient operation of facilities, coordinated effort between people and spaces is required. Facility management services can broadly be classified into two types, namely:
- hard services: including mechanical, electrical and plumbing maintenance, asset management strategies, planned preventive maintenance services, short-term repairs, heating, ventilation and air-conditioning (“HVAC”) issues, among others; and
- soft services: including cleaning and housekeeping, pest control, catering, gardening and landscaping, security services, office support, mail room support, guest house or service apartment management, laundry, production support, among others.
- For Fiscal Year 2015, hard services accounted for 40.00% of the market share of the overall facility management services market and the remaining 60.00% share is from the soft services market. Cleaning services contribute around 50.00% of the total soft facility management services market, followed by pest control and other soft facility management services (such as office support, gardening and landscaping, laundry & guest house management, food and pantry services) at 20.00% and 30.00% share, respectively
Cleaning Services Industry in India
- Cleaning services refers to housekeeping or janitorial services that improve and address health and hygienic concerns. The cleaning industry is considered a separate segment within facility management because of a major focus on hygiene and better care required in certain end-user verticals.
- Market participants offer services in three broad categories, namely, standard, specialized, and green cleaning. Standard cleaning includes house-maid/domestic cleaning service, work place and wash room hygiene, carpet and floor care, window and façade cleaning, and vacuuming and upholstering, to name a few. Specialized cleaning services involve cleaning requirements in healthcare, municipality (road and highway cleaning), and industrial cleaning. Finally, green cleaning is the usage of non-toxic or organic cleaning solutions (having low or zero Volatile Organic Compounds (“VOC”)), primarily driven by the growth of the green buildings industry in India.
- Driven mainly by the growth of the real estate sector, the cleaning services market accounted for 30.00%, that is, 30,000.00 million of the overall facility management services market in India for Fiscal Year 2015. The cleaning services market grew at 19.00% CAGR from12,570.00 million in Fiscal Year 2010 to reach `30,000.00 million in Fiscal Year 2015.