Employees are assets but workforce is a liability.

“Employees are our assets” almost every CEO has perhaps used it at least once in his lifetime. However, adding these assets under these uncertain economic conditions has become somewhat difficult. Companies, big and small alike, often do not have a steady influx of projects. You may have projects to engage 600 people in one part of the year in other parts of the year you may not have enough work for 200 people. In such cases it is impossible to maintain a workforce of 600 throughout the year.

This problem has given rise to new breed of manpower sourcing agencies. We often refer to them as body shoppers. These firms provide temporary workforce to those companies in need. Some larger companies also utilize their bench by lending their workforce to other companies on a temporary basis.  From the example above, the company would employ 200 people and hire contractors when their workforce need gets escalated. Body shoppers employ contractors and supply them on a need basis.

Reasons for engaging alternative workforce could be many, but at heart, it is the temporary nature of a company’s workforce requirement that calls for a contractor. The solutions offered by body shoppers may seem novel to those conducting business, but for those employed as contractors it is a nightmare.

Let us look at a generic model of temporary workforce engagement. It involves 3-4 parties. (4 in this example)

1.       Overseas division of MNC (party in need of temporary manpower)

2.       Indian Branch of MNC

3.       Body Shopping enterprise

4.       Contractor.

Overseas division of the MNC comes up with a temporary need. Getting the same skill overseas may cost 4000$ per month. So they reach out to their Indian counterparts to find resource at 2500$ per month. Indian Branch of MNC has its own cost considerations and offers 2000$ to a body shopping company which provides a contractor. The contractor gets 1000$ per month as salary.

The overseas division of MNC directs work to the contractor. Contractor adds value by delivering what is expected out of him/her. The body shopping company adds value by providing flexible and temporary workforce to the MNC. The Indian Branch of MNC provides work space and infrastructure to the contractor. This is broadly the engagement model for employing temporary workforce. (In some cases there could be only ‘3 parties’: party in need of temporary manpower, sourcing agency and contractor. There could be cases where the sourcing agency provides work space. )

The model has too many layers and ads to the risk of the engagement. Every party in the chain has cost considerations and if any of their margins (the brown bars in the graph) erodes the engagement will collapse. Margins could erode because of currency fluctuations, or market conditions etc. All these risks are indirectly borne by the contractor. (If the engagement collapses contractor loses his job; that is the only egg in his basket after all. And for everyone else it is just one egg from many of their baskets).

The model has Dormant intermediaries (the Indian branch of MNC and body shopping enterprise in this case) these intermediaries do not have an active role after the contractor is hired. (In many cases they could be non-value adding intermediaries). These intermediaries can be easily eliminated.

For a contractor, it becomes very difficult to increase his revenue without jeopardizing the engagement. The outsourcing agency makes no promise to continue his employment after engagement has collapsed. Also, none of the parties involved in the engagement have any obligation / interest in his/her career. In essence, being in contract employment is no different than being a freelancer.  On the other hand a freelancer can handle more than one project at a time and have a diversified portfolio.

Companies in need of temporary workforce needs should look at freelancers instead of just reaching out to body shoppers. Hiring freelancers is a win-win for companies as well as for freelancers.