India for India: unlikely candidate for a venture case (sadly)

In Part 1., we went through the scale of the blue-collar shortage problem in India: a deficit of 150 million skilled workers, which suggests immense opportunity. In this Part 2, I promised we would cover solutions to the problem, from a VC-backable perspective. But hold your horses, and let me tell you my perspective right away: the nature of this challenge makes it an unlikely candidate for venture capital investment. Let me explain.

Addressing this shortage requires a three-pronged approach: finding workers, upskilling them, and placing them in appropriate jobs. Finding workers is perhaps not too complicated, because there isn't an inherent lack of workers, but of skilled workers. Upskilling is, instead, a complex and resource-intensive process, especially considering that only 5% of India's workforce has received formal skill training. Placement is another relatively easy part, since demand is high. Therefore, the crux of the problem lies in the upskilling phase. This process demands substantial investment in training infrastructure, curriculum development, etc.

The economic model for such a venture is equally problematic. For example, with skilled workers in small-scale factories earning around 10,000 to 12,000 INR monthly (approximately $150), the potential for value extraction from customers is limited. Even with a 1 to 3 monthly salary placement fee (a fairly normal agency fee in cross-border worker placement, for example), the revenue per worker would still be rather low, and unit economics would not really be great. Achieving venture-scale returns would require an impractically large number of successful placements, which means a large upskilling infrastructure and all the implications coming with it.

In Part 1., we also discussed how existing solutions, particularly job-matching platforms, fail to address the core issue. These platforms operate under the assumption that the primary problem is connecting available workers with job opportunities. However, they overlook the fundamental scarcity of skilled workers. Matchmaking does not increase the supply of skilled labor - it merely optimizes the distribution of an already insufficient workforce. It's like trying to solve a water shortage by building more pipes.

The scale and systemic nature of this challenge suggest that it may be beyond the scope of private-sector solutions alone. Addressing the blue-collar worker shortage in India requires a comprehensive overhaul of vocational training systems, shifts in societal perceptions of blue-collar work, and the creation of incentives for entering these professions. Such wide-ranging changes typically fall within the purview of government action rather than startup disruption.

This is not to say that there are no opportunities in this space. However, addressing this challenge may require a different approach to investment - one that prioritizes long-term impact and social change over rapid scaling and quick returns. It calls for investors willing to measure success not just in financial terms, but in the transformation of lives and communities - so something for impact investors, perhaps.

However, there's still one way to build a large outcome by leveraging India's large unskilled blue-collar workforce. Again, remember: the problem is not a shortage in itself, it's a shortage of skilled workers. The opportunity can still be in upskilling. However, what if, instead of trying to solve India's blue-collar shortage, we looked at it as a global opportunity? The blue-collar worker shortage (not skilled workers, workers in general) is hardly felt in the Western world.

Let's dive in.

The old world's new challenge: Europe's hunt for skilled labor

Europe is (and has been for a long time) facing a critical deficit in its blue-collar workforce, an issue that could potentially hamper economic progress and impede the continent's eco-friendly aspirations. This scarcity of workers is particularly evident in key sectors such as transportation, construction, and industrial production.

For example, the logistics sector, crucial for Europe's economic health, is struggling with a severe lack of qualified drivers. Present estimates suggest there could be as many as 400k to 600k vacant truck driving positions across the continent. This gap has expanded rapidly, growing by nearly half between 2020 and 2021. Experts predict this trend will worsen, with unfilled positions potentially reaching over 60% by the middle of this decade. The situation is exacerbated by an aging workforce in the trucking industry, where the typical driver is in their late 40s and less than one in ten are under 25.

A closer look at individual nations reveals the extent of the problem. In Poland, there's a need for over 120,000 drivers, while the UK and Germany (where each year, around 30,000 truck drivers retire, while only 15,000 new drivers get behind the wheel) each require around 100,000 and 80,000 respectively. Other European countries, such as Romania, France, and Italy are also grappling with significant shortfalls, with shortages between 15k and 70k drivers.

The construction industry is encountering similar difficulties. Industry bodies suggest that by the end of this decade, the sector will need to bring in more than two million additional workers: bricklayers, carpenters, plumbers, welders, electricians, machine operators, concrete placers, etc. In some countries, like Germany, almost 50% of businesses report difficulties in finding skilled workers. This demand stems from Europe's growing economy and the increasing number of infrastructure projects, particularly those aimed at reducing carbon emissions. The shift towards sustainable building practices and retrofitting alone is expected to create over a million job opportunities for skilled laborers.

This scarcity is part of a larger shift in Europe's employment landscape. The number of individuals in blue-collar roles has seen a significant decrease over the past two decades. More concerning is the sharp decline in younger workers entering these fields, with the proportion of under-25s nearly halving during this period, from 12% to 7%.

The repercussions of this worker shortage are extensive. It not only threatens to slow economic growth but also poses a substantial obstacle to Europe's environmental objectives. While the transition to a carbon-neutral economy is expected to result in a net increase of several million jobs, the lack of a skilled workforce could hinder progress towards these ambitious targets.

Is there an opportunity for a cross-border business? There might be, but only as long as the political climate is favorable.

Immigration-friendly policies

Luckily, in recent years, several European countries have recognized the need to address skilled labor shortages through more immigration-friendly policies, particularly for blue-collar workers. These initiatives are designed to attract talent from outside the European Union and alleviate workforce gaps in various industries.

For example, Germany has been proactive in revising its immigration policies to attract foreign workers: indeed, the country is planning to simplify the process of recruiting international labor. As part of this effort, Germany is extending the EU Blue Card scheme to include non-academic professions, allowing individuals with vocational qualifications to benefit from this program. This move is part of a broader revision of immigration policies aimed at filling numerous vacancies across the country.

The European Commission has also taken steps to improve legal migration management and reduce skills shortages through its Pact on Migration and Asylum. This initiative includes revising directives on long-term residents and single residence permits to simplify the admission procedures for workers with varying qualification levels. The goal is to facilitate the intra-EU mobility of third-country workers.

Additionally, there is a growing recognition of the need for third-country drivers to address shortages in the heavy goods vehicle (HGV) sector across Europe. Industry trade bodies have advocated for the recruitment of non-EU drivers as a solution to this critical issue.

Seems like there might be the right regulatory framework to build something in the space.

The real opportunity: upskilling, reskilling, and relocating

There clearly is an opportunity here: after all, agencies have been doing it for some time. That's not to say, though, that this is devoid of challenges, and that the "agency" model is one to go for.

The first critical component is talent identification and preparation, which in itself is a multi-step journey. This requires developing a comprehensive screening process that assesses not only technical skills but also language proficiency, adaptability, and psychological readiness. Implementing a multi-stage funnel to effectively filter candidates is essential for identifying those most likely to succeed in a new environment. This process is key, and should not be underestimated as it impacts retention/dropout rates. With industry benchmarks suggesting only 30-40% retention through the entire process, refining selection criteria to minimize dropouts while maintaining a sufficient candidate pool is crucial.

Upskilling forms the next significant hurdle. A curriculum that bridges Indian and European standards must be created, necessitating partnerships with vocational schools (ideally, in both countries) and potentially developing in-house training facilities (ideally not). This education must encompass both hard (e.g., European driving standards and regulations for truck drivers) and soft skills (e.g. language training, cultural adaptation, and professional conduct in a European context).

Regulatory and documentation management presents the last complex aspect of the business. This involves navigating intricate documentation requirements, handling certification processes, and managing immigration procedures across multiple European countries. Building strong relationships with relevant government agencies will clearly help streamline these processes.

It really is an ops-heavy business. How can a business extract value from all this?

Business models

Depending on the approach you ultimately choose, there are three ways of monetizing.

The first model, and the one many successful traditional businesses have been built on, is the "recruiting agency". Here, you're essentially operating as a specialized international headhunter (with the added upskilling/reskilling): you just need to build a robust sourcing pipeline - identifying potential candidates, vetting their qualifications, and assisting them through the certification process required for European standards. Your revenue comes from placement fees (e.g., 1-3 times the worker's salary) charged to these companies, and potentially from a portion of the drivers' salaries as repayment for educational costs. This model requires relatively low capital investment.

The second model is the "worker on demand" model. In this approach, you're not just placing workers: you're essentially becoming their employer and "leasing" them to European companies. This model requires a more substantial operational setup (e.g. you need to establish a legal entity capable of employing workers in various European countries). Beyond the sourcing and certification process of the first model, you now need to manage ongoing payroll, benefits, and support services for your workers (e.g. tax withholdings, social security contributions, and potentially providing additional benefits to attract and retain quality workers). You'll need to develop scheduling and deployment systems to efficiently allocate workers to different companies based on demand. This model also requires you to take on more risk, as you're responsible for ensuring your drivers have consistent work - therefore, the risk is running on low or even negative GM if workers are not allocated.

From a business perspective, this model creates a compelling value proposition for both workers and client companies. Workers gain stability and improved working conditions, while businesses benefit from access to a reliable, well-trained workforce without the complexities of direct employment. Your revenue in this model comes from the difference between what you charge trucking companies for your drivers' services and what you pay the drivers.

The third model is the "fully integrated" approach. Here, you effectively operate as a subcontractor yourself, bidding and executing projects with the workers you have sourced. In trucking, this would mean providing drivers with trucks and connecting them directly with shipping jobs - clearly, this requires significant capital investment or partnerships to access a fleet of trucks. Therefore, the revenue in this model comes from taking a percentage of each completed job.

I can hear the question already: where's the technology? Let me be clear: technology in this space is an enabler rather than the core product itself. This technology isn't flashy. It's about handling paperwork, ensuring legal compliance, and streamlining hiring and training processes. Think of it as the operating system for a large-scale blue-collar workforce. For example, consider the task of moving a skilled worker from one country to another. This involves numerous documents, work permits, and compliance checks. Good software could turn this headache-inducing process into a smooth, efficient operation. It's about "encoding the operational complexity the same way that a marketplace would do", as my colleague Patric Hellermann would say. No fancy AI here!

Where's the real (generational) opportunity?

Before concluding, it's worth discussing an evolution of model 2 that might make it more interesting: what we would call an infrastructure play.

The core idea is to build a comprehensive platform that removes the barriers to international blue-collar employment, going beyond a simple staffing agency model. Instead, it would serve as the fundamental infrastructure for global worker mobility, handling everything from legal compliance to relocation logistics.

It starts with a regulatory compliance engine, necessary to navigate the complex web of international labor laws, visa requirements, and tax regulations. When a company needs to hire a blue-collar worker from abroad, the system would automatically process all necessary paperwork. This automation could save plenty of manual processing time and significantly reduce legal costs.

As discussed, the backbone of this blue-collar labor mobility platform must include a robust system for upskilling and reskilling workers. The training delivery would leverage a combination of online learning (ideal for soft skills, language, etc. as discussed previously), and partnerships with a network of local vocational institutions (ideally in both countries, for the hard skills and certifications). By partnering with existing vocational schools and training facilities, the platform could rapidly scale its physical presence without the need for massive capital investment in new infrastructure. Ideally, you might want the platform to forge partnerships with major employers to ensure that the training programs align closely with real-world job requirements: employers could even co-create custom training modules for specific roles they struggle to fill (effectively building their own global talent pipelines).

A universal "skills passport" would allow employers to trust the qualifications of workers regardless of their country of origin, solving a persistent problem in international hiring. As workers complete training modules and demonstrate proficiency in new skills, their digital credentials would be automatically updated.

Funding for this upskilling infrastructure could come from a combination of sources. Workers might pay a fee - which would also create a barrier to entry and keep away unmotivated/uncommitted workers. Employers could sponsor training programs for skills they urgently need, effectively "pre-ordering" talent.

Financial services form another crucial component of this infrastructure, such as account setup and easy international money transfers. This addresses a major pain point for migrant workers who often struggle with banking in new countries and need to send money home to their families.

The platform would also tackle the practical challenges of worker relocation, coordinating all aspects of a worker's move, turning what is often a logistical nightmare into a smooth, automated process, reducing stress for workers and ensuring they can start their new jobs without delay.

Last, as said, the platform would (potentially) act as an employer of record - handling payroll, benefits, etc.

Conclusion

As you've realized, unfortunately, I don't see much of a (VC-backable) business opportunity in India for India. Well, not in the upskilling space, at least. But there's still a large business (potentially) to be built by tapping into India's blue-collar workforce.

Are you building something in the space? Let's connect and discuss.

Tune in for Part 3, in which I'll dive into a tech-first India for India opportunity tackling the skilled blue-collar workers shortage.

Well, that's it! Feel free to reach out if you want to share thoughts, or leave a comment - I'll be happy to get your perspective.

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#CrossBorderEmployment #BlueCollarJobs #WorkforceInnovation #startup #founders #LaborMobility #HRTech #platform