Entrepreneurship vs. Labour Unions

Recently, DPS, an Islamabad based software services company had to layoff about 30-45 people due to a customer walking away. The nature of the services business is such that unless you have been operating for a while and have accumulated a veritable war chest, you can’t really have a significant percentage of your staff on the bench… particularly when you don’t have a pipeline that gives you comfort about being able to gainfully employ your engineers again. So, in order to save the company, and the jobs of the other 50-100 people, you decide to lay people off. Unfortunate, but completely reasonable and logical. In fact, not doing so would be tantamount to gross negligence and irresponsibility.

But how do people react to an event like this in Pakistan? Our tech services industry is relatively new, and employment in the past has mainly been characterized by guaranteed jobs with the government, labour unions and other borderline-socialist instruments that stack up the odds against entrepreneurship. It was amazing to read some of the comments Green&White got when they posted this story: (More after the fold)

One poster warns entrepreneurs of divine wrath:

oh dear, how sad and unfortunate is that, it’s almost like there is no hope for these capitalists they as ruthless as a black crow in aunty park in Clifton, khi where they hit the poor people who come to walk their in the afternoon.

may Allah be with their families for they are about to face hell. i wish those people could do a survey over to see what effects these kind of actions lead to before making these ruthless decisions.

Survey of effects? What is this, a Government run Railway? You’ve got a finite amount of cash and if you know you won’t be able to sustain 40 benched employees, doing a survey essentially means you burnt additional cash and now the employees that remain are at risk. I’ve seen similar attitudes in many tech companies in Pakistan. Employees often want to be very “baboo-like”. A good work environment is often one where the peon/office-boy-to-white-collar-employee-ratio is highest. I suppose the reason for all this is that there hasn’t really EVER been much of a culture of entrepreneurship of the Silicon Valley variety in Pakistan. While there have been some entrepreneurial successes, they have been few and far between. Now, we are poised at an important juncture where there are several tech companies in the country at a take-off stage. Attitudes such as the above can compromise the very existence of these companies.

And that isn’t all. Here’s another one:

Its sad, but true we as employees, do not have any sort of job cover or protection from these actions. We come under Shops and Establishment Act 1972. And some clauses of Factory Act 1934 are also applicable. Only protection we have is that if anybody wants to terminate the employment contratc, either employe or employer, have to serve one month notice or one month salary in liue of notice (sorry of if i spelled wrong). However there is the provision in this Act if an employee is terminated from employment, for any sort of reason, he shall be gievn a gratuity equivalent to his last drawn salary. But as we know, we are not given this type of gratuity at all.

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Even if go to labor court, it consumes lots of time and money, and its such courts are presuurised because these business man have links with influential people. What I think we can do is, we can form a Union. Otherwise I dont see any way out to avoid such actions.

Labour Unions? Gratuity? Let’s recap here. This is a company that has fallen on bad times and is trying to preserve itself. The company paid employees for the period during which services were rendered. It even tried to compensate with some severance. You want gratuity and compliance with labour laws from the mid 1930s, plus a month’s salary – when the company is bleeding? – and if you don’t get it you want to form a labour union? Go right ahead then, because if the labour environment in this country, the main reason why labour arbitrage is being done here, and why all these companies are starting up here, changes drastically and evolves towards more of a socialist model, entrepreneurs will simply take the next flight out to Shenzhen or Manila. There are examples of some Pakistani software companies that have had to do this already for slightly different reasons (labour scalability, image problems) etc. A fat lot of good it will do the labour union when it doesn’t have any employers left to bully!

IT companies are already facing hard times trying to keep up with ridiculously high salary increases employees are demanding. It’s one thing if you have a stellar, world class resource who you quickly ramp up to a competitive level. But the norm that seems to be taking hold in our industry is that, as long as a company is doing decent business, even poor performers expect unsustainable salary hikes. The reason why they get them more often than not is purely due to a supply issue, not because they deserve it. The number of CS and EE graduates being produced is abysmally low, and those with any modicum of communication skills are at a premium. The sad part is that the salary gap is closing so fast that in the next 2-3 years or so, much of the service business being done in Pakistan will not remain competitive. While salaries are increasing 30+% in software companies in Pakistan, they are increasing at 3-5% in the US. If a Pakistani resource gets to $25-30K base + a 30% fully loaded adder leading to $40K a year, s/he is really not worth the trouble from a purely practical ROI stand point. When you add up the risk of having people benched for part of the time, the risk-prone operating environment, communication and infrastructure issues, productivity per $ starts to compare unfavourably.

Since much of our industry is still in the software/IT services business, these are all things to think about pretty hard. Employee attitudes and expectations can shape the future of Pakistan’s information technology landscape. Tilt too far toward pro-labour policies and you risk upsetting the delicate balance entrepreneurs fight tooth and nail to maintain every day. Already tired of dealing with WAPDA, Customs, LDA/KDA/CDA and a host of other leech-like institutions, labour unions may just be the straw the breaks the camel’s back!