BUSINESS REPORT ON:

SOMANY CERAMICS: RECRUITMENT CHALLENGES

EXECUTIVE SUMMARY
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The report objective is to address the recruitment conundrum of a ceramic manufacturing firm,
which is expecting a high cumulative growth rate in its sector in the coming years, provided by the
boom in the IT industry and the shifting preference of individuals for manufacturing positions. The
other limitation that must be addressed is the rising price of skilled labour, besides we will also
evaluate the two options for recruitment given by Hrishikesh Kumar, director of human resources
(HR) at Somany Ceramics Limited (SCL), and his recruitment team based on criteria such as budget
constrain, ease of availability and preference for long term oriented solution.

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 TABLE OF CONTENTS
1. SITUATION ANALYSIS_________________________________________4
2. OBJECTIVE___________________________________________________4
3. OPTIONS OFFERED____________________________________________5
4. CRITERIA FOR EVALUATION OF OPTIONS_______________________5
5. EVALUATION OF OPTIONS_____________________________________6
6. RECOMMENDATION __________________________________________7
7. ACTION PLAN________________________________________________8
8. EXHIBITS_____________________________________________________9
9. CHANGES MADE_____________________________________________10

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 1. SITUATION ANALYSIS

Hrishikesh Kumar, the director of human resources (HR) at Somany Ceramics Limited (SCL), was
confronted with the challenge of increased workforce demand to meet the company’s expansion
needs for next 5 years, when the ceramic tile business is booming worldwide, amidst the rising costs
and difficulty in attracting technically qualified labour, primarily due to their decreased preference
for manufacturing jobs and stark differences in benefits offered by IT jobs.

SCL was under the impression that its labourers were its source of competitive advantage. These
labourers represented a unique combination of youthful and experienced workers.

In addition, the MD of SCL wanted steady growth, to capture the maximum share of increasing
market, which required competent talent with the appropriate level of technical expertise in
ceramics.

2. OBJECTIVE

The object of this report is to analyse the ways to meet the recruitment needs of SCL for the 5 year
expansion plan by an annual increase in labor force of around 10-11% based on factors that are
relevant to gain the competitive edge in the ceramic industry.

3. OPTIONS OFFERED

Two possible ways to fulfill the company’s increasing demand for workers are:

 Hire from the competition:

Attract experienced and talented employees from other companies by offering them better pay and
incentives, which is also a common industrial practice.

 Train non-ceramic professionals:

This included tracking and hiring from pool of jobless candidates with non-ceramic backgrounds. A
large number of fresh graduates pass every year with a major chunk not able to find a job. A list of
candidates not able to secure a job in other sector, either due to unavailability or lack of required
technical skills, can be made. If these candidates are interested in making their future in this sector,
the company could hire and train them to hone the skills for the job.

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 4. CRITERIA FOR EVALUATION OF OPTIONS

Following are the major criteria for evaluating the above options:

1) Cost: SCL would prefer an option that minimizes the net cost to the company for hiring,
training and retaining workers to maximize its profit, other parameters held similar.
2) Employee Loyalty: Option that increases the employee loyalty and their retention rate
would be suitable.
3) Employee skills: The quality of labourers is a differentiator for SCL and better KSAs of the
hired employees would be desirable.
4) Ease of execution: Since recruitment is a long and demanding procedure, an option that is
easy to execute is more preferred.
5) Sustainable: Since the growth in the Ceramic industry is expected to increase continuously
over the years, SCL needs to formulate a long term and robust solution for the above
problem, one that ensures a steady supply of workers over coming years.

5. EVALUATION OF OPTIONS

COST:

OPTION 1: TRAIN NON-CERAMIC PROFESSIONALS

 Training non-ceramic professionals would require a training time of around 1 year and the
training costs would include the 1-year salary.
 Assuming a training period of 1 year, each entry level employee hired is paid INR 220,000
yearly and the salary offered to him over next four years are increased as per nominal rate
and there is no real increase, then discounting his net salary to present value
=>NPV= Rs. 220000*5 = Rs.1100000
Hence, the company invests a total of 1100000 per employee for 4 years of service, i.e Rs.
275000 per year on an unskilled labour.

OPTION 2: HIRE FROM THE COMPETITION

 Hiring from competition would facilitate direct deployment to work.

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  However, the average salary for an experienced( 5+ years) employee would be around Rs.
3,40000 per year (above entry level salary of construction engineers but below that of
software engineers).

Considering, an increase of around 220 employees per year, the net savings per year by recruiting
novice employees= 220*(340000-275000) = Rs. 143,00,000.

EMPLOYEE LOYALTY:

OPTION 1: TRAIN NON-CERAMIC PROFESSIONALS

 They would also be loyal to the company as unskilled labour is not likely to be poached and
we can expect an attrition rate of around 2-3%.

OPTION 2: HIRE FROM THE COMPETITION

 The retention cost of such worker would also be very high as other competitive companies
would also try to poach them. We could expect an attrition rate of around 3-5%.

EMPLOYEE SKILLS:

OPTION 1: TRAIN NON-CERAMIC PROFESSIONALS

 We can expect 1-3% of trained non-ceramic background employees to not be credible

enough to take the charge. However, the sunk cost could be balanced by the fall in attrition
rate.

OPTION 2: HIRE FROM THE COMPETITION

 Employees hired would be highly skilled.

EASE OF EXECUTION:

OPTION 1: TRAIN NON-CERAMIC PROFESSIONALS

 Since the workers would be unemployed and seeking for job opportunity thus it would be an
easy hire.
 Mass recruitment of unskilled labour and fresh graduates from colleges, which would give
economies of scale, was possible as they were more readily available.

OPTION 2: HIRE FROM THE COMPETITION

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  The labour force was not readily available. Thus, even if this option was considered it might
still not be able to maintain the inflow of workers required.

SUSTAINABILITY

OPTION 1: TRAIN NON-CERAMIC PROFESSIONALS

 A continuous supply of talented and trained workers with the right technical skills could be
maintained at a lower cost.

OPTION 2: HIRE FROM THE COMPETITION

 Poaching of workers would create a major imbalance and shortage of skills in the industry
and competitor may respond by poaching SCL employees.

6. RECOMMENDATION

From the cost perspective, employee loyalty, ease of execution and sustainability perspective, hiring
fresh graduates seems an economical solution to the recruitment problem.

Although, an experienced and skillful pool of candidates will be an asset, the poaching of
candidates will result in a vicious cycle, where all the companies in the market will seek to hire
candidates from their competitors. Employees will be offered lucrative benefits, resulting in a
higher human resource cost for all companies. If such a trend occurs, even SCL's current employee
pool will be vulnerable to poaching.

7. ACTION PLAN
The challenge of retaining the talent developed by a comprehensive training by the company could
be dealt with by introducing a service bond in the company.
 In the case of new hires, a service contract of 2 years could be implemented that would
make them liable for paying a certain amount (the training costs) to the company if they
leave before the contract is completed. This will discourage them from leaving the
organization before the completion of 2 years on the job.
 For more experienced employees (2+ years of experience), retention bonus is a viable
solution.

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Also, to address the concerns of skillfulness of the the workers undergoing the training, frequent
feedbacks and periodic evaluation of the training can help to minimise the sunk cost. Following is
the training highlights:
 Prepare a robust training schedule within next 2 months that meet the content validity,
criteria validity and construct validity through inputs from SMEs and through online
methods and on the job trainings.
 The training will be focused on improving performance based on quarterly evaluations and
monthly review by managers in alternate quarters to keep guiding the recruits and at the
same time minimise load on managers.

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 EXHIBIT 1: SOMANY CERAMICS LIMITED, MAJOR PRODUCTS AND SERVICES

Product/Service Category Subcategories

Ceramic Tiles
Durastone
Floor Tiles GVT/Duragres
Polished Vitrified
Slip Shield
VC Shield

Tiles
Wall Tiles
Wall Claddings

Accessories (e.g., towel bars and soap dishes)

Allied Products (e.g., faucet fittings and drains)
Chrome Plated Fittings
Faucets
Showers

Accessories (e.g., seats and covers)

Basins
Sanitaryware Cabinet Basins
Cisterns Toilets
Urinals

Ezy Fix
Tile Laying Solutions Ezy Grout
Tile Master

EXHIBIT 2: SOMANY CERAMICS LIMITED, WORKFORCE (2016)

Employment Mode Number

Staff (company roll + outsourced) 432

Permanent workers 492

Outsourced workers 0

Contractual workers 880

Casual workers 326

Total workforce in both plants 2,130

Source: Company documents.

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 EXHIBIT 3: MAJOR COMPANIES IN THE CERAMICS INDUSTRY, INDIA

No. Company Name No. Company Name

1 Aro Granite 16 Neelkanth Rock Minerals Ltd.

2 Asian Granito India Ltd. 17 Nitco Ltd.

3 Cera Sanitaryware Ltd. 18 Orient Bell Ltd.

4 Divyashakti Granites Ltd. 19 Oriental Trimex Ltd.

5 Elegant Marbles & Granite Industries Ltd. 20 Pacific Industries Ltd.

6 Euro Ceramics Ltd. 21 Pokarna Ltd.

7 Glittek Granites Ltd. 22 Rajdarshan Industries Ltd.

8 Himalayan Granites Ltd. 23 Ravileela Granites Ltd.*

9 HSIL Ltd. 24 Regency Ceramics Ltd.

10 Inani Marbles & Industries Ltd. 25 Restile Ceramics Ltd.

11 Kajaria Ceramics Ltd. 26 Schablona India Ltd.

12 Madhav Marbles & Granites Ltd. 27 Solid Stone Company Ltd.

13 Midwest Gold Ltd. 28 Somany Ceramics Ltd.

14 Milestone Global Ltd. 29 Sri Vajra Granites Ltd.

15 Murudeshwar Ceramics Ltd. 30 Vertical Industries Ltd.

EXHIBIT 4: ENTRY-LEVEL SALARIES OF ENGINEERS IN VARIOUS SECTORS,

INDIA

Average Entry-Level
Sector/Jobs
Salaries (₹ thousands)

Civil/Construction 325

Software Engineer 408

Ceramics 210

Note: ₹ = INR = Indian rupee; the average exchange was ₹67.17 = US$1 in 2016

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EXHIBIT 5: SOMANY CERAMICS LIMITED, STATEMENT OF PROFIT & LOSS (₹ MILLIONS)

For the year ended March 31, 2015 March 31, 2016

Revenue from Operations 15,410.00 17,307.00

Other Income 78.34 92.06

Total Revenue 15,489.00 17,399.00

Expenses

Cost of Materials Consumed 1,699.70 1,646.20

Purchases of Stock-in-Trade 8,504.00 9,528.40

Change in Inventories of Finished Goods

Work-in-Progress and Stock-in-Trade (−350.78) 62.07

Employee Benefit Expense 953.61 1,116.30

Finance Cost 163.07 163.33

Depreciation and Amortization Expense 222.68 205.69

Other Expenses 3,641.50 3,724.00

Total Expenses 14,834.00 16,446.00

Profit before Exceptional and Extraordinary 655.07 953.05

Items and Tax

Exceptional Items (Net) 44.29

Profit before Tax 655.07 908.76

Tax Expenses

Current Tax 202.86 248.40

Deferred Tax Charge/(Credit) 71.62 40.26

Income Tax for Earlier Years 12.34 9.52

Profit after Tax 443.83 610.58

Note: ₹ = INR = Indian rupee; the average exchange was ₹67.17 = US$1 in 2016
Source: Company documents.

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