Asia Pacific, Talent2, and HRO

Asia Pacific is the emerging market of the most interest to HRO service providers, especially RPO vendors. Most of the big names in HRO/RPO are building or expanding scale there to take advantage of the higher than average growth rates. ADP and NorthgateArinso are well-established in the region, and Futurestep, GP, Kenexa, ManpowerGroup, Mercer, and Towers Watson have all made recent acquisitions in China, Hong Kong, India, and Australia as the fastest way to get more feet on the ground in this expanding market.

Still considered an emerging market, some Asia Pacific countries are already mature including Australia and Japan, while others are truly experiencing the first rush of growth. Each country has different needs and challenges and HRO service providers need to bring a lot of service line experience and local knowledge to the table. While one industry needs a high volume of entry-level employees to meet demand, another, a bit further on the maturity scale, needs management-level employees with the experience to manage and continue growth of a more complex enterprise.

Newer entrants should not forget that there are regional providers already on the ground; one of the largest is Talent2, which covers the entire area and a bit beyond. Talent2 has continued its solid pace of contract wins across the Asia Pacific region. An example from the public sector is contractor procurement and management for 13 agencies of the Queensland government. In the private sector, contract wins included payroll, RPO, and learning, and cover Australia, China, Hong Kong, Japan, Malaysia, and even the Middle East.

With ~1,700 employees, Talent2 supports 30 countries in 30 languages from its 46 offices and service centers located across 19 countries. With its scale and services it should be no surprise to find that Talent2 is, according to NelsonHall, the HRO leader in Asia Pacific.

Perhaps it is reasonable then that Talent2 has attracted interest from investors wanting to take it private. Morgan & Banks Investments (MBI) and Allegis Group have entered into an agreement to acquire the company, which will remain operationally as Talent2 if the deal is successful. MBI represents current major stakeholders and Allegis is already a Talent2 RPO partner. It will be interesting to see if privatization allows Talent2 to fuel even more growth in and outside of the Asia Pacific region.

Linda Merritt, HRO Research Analyst, NelsonHall

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The Sun is Rising on HRO in Asia Pacific

As an “emerging market” the Asia Pacific (A/P) has more and more A/P companies become forces in the global marketplace as buyers and as producers – providing growth opportunities for product and service sales for companies headquartered in other regions (usually the West).

Do be aware that the markets for services like HRO already exist and are served by local and regional providers. Hence, new entrants offering unfamiliar brands to A/P buyers will need to assess their competitive value propositions for this vast, yet very localized market with a wide range of languages, price sensitivity, and HRO needs.

One of the largest A/P regional HRO service providers is Talent2, which offers payroll, RPO, traditional recruiting searches, HR administration, learning, talent management, and HR advisory services. Talent2 has services in 31 Asia Pacific and Middle Eastern countries, and its FY 2011 (ended June 30, 2011) revenues were AU$360m, up 26% from FY 2010. In operations since 2003, the company has ~1,700 personnel with offices and service centers spread across the region.

Talent2’s growth over the years had been organic, until 2008 when it added acquisition as a growth strategy and subsequently bought PCA in Japan, a payroll outsourcing and HR consulting provider. In 2010, it acquired Singapore-based Zapper Services with payroll outsourcing and HR administration in 14 A/P countries, adding ~1,000 clients, including multinational corporations (MNCs).

Having an available range of technologies and services is a benefit, especially when there are clients that are expanding their businesses for the first time and need a foundation of basic HR services with a high degree of subject matter expertise. This is also the case for large clients in mature markets looking for top quality and performance at a lower cost. Talent2 has multiple payroll offerings and other services to mix and match to meet the specific needs of clients of many sizes, verticals, with employees in one country to pan-national or global, using a broad range of languages and onshore and nearshore locations.

ADP and NorthgateArinso are two major global players that have been in the region for many years. As the A/P HRO market expands, more players will be looking to gain a foothold. With growth in many areas and services, Talent2 will need to focus its own value proposition and investments to maximize its regional advantages against what will be an even more competitive market. A sign that the company is ready to do just that is the addition of Mary Sue Rogers, one of the leading lights in the HRO community and previously the global leader of HRO for IBM. Rogers recently joined Talent2 as the Global Managing Director of HR services including payroll, HR advisory, and learning services.

No matter where the sun sets, at the end of the day, succeeding in emerging markets is the same as achieving HRO success anywhere: provide high-quality, high-performance subject matter expert services at the optimum price that solves business problems and delivers business results.

Linda Merritt, Research Analyst, HRO, NelsonHall

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Randstad Acquisition Frenzy… This Time in North America Acquiring SFN Group

A pretty big acquisition happened last week in the staffing and recruiting industry. Here is the backdrop.

On July 20, 2011, Randstad announced that it is going to acquire SFN Group to expand in North America. Randstad is headquartered in the Netherlands and SFN Group in the United States. It is a cash tender offer at $14 per share. Approved by both boards, the acquisition, now subject to regulatory approvals and a tender offer of at least 50% of SFN Group’s outstanding shares, equates to ~$771m. This is a premium of 53% over SFN Group’s closing share on July 19, 2011. The acquisition is expected to close in September 2011.

The Randstad Group will have combined revenues of ~$22bn / €17bn (pro forma as of March 31, 2011). In North America, the combined company will have $4.6bn in revenues (pro forma as of March 31, 2011) from the following service segments:

• 52% Staffing
• 39% Professionals
•   9% HR Services including payroll, managed services, and RPO.

Randstad, who already has sizeable revenue in North America, now becomes a major force. Randstad, which had full year 2010 revenues of €14,179m, obtained 13% of its revenues (or €1,848m) from North America, which equates to over $2.6Bn. The SFN Group had full full year revenues of $2,053m. Approximately 80% of Randstad’s 2010 revenues were in Europe.

So, is Randstad trying to conquer the staffing world via acquisitions? Its last acquisition was in August 2010, acquiring FujiStaff Holdings to strengthen its presence in the Japanese staffing market. Since 2006, Randstad has merged and partnered with five other companies in Japan to provide staffing services that include temporary and permanent hires, contract staffing, and internal recruiting for industries that include healthcare, real estate, and construction. Since 2005, Randstad has been acquisitive elsewhere  in growing its staffing business including in:

• U.K.
• Germany (3)
• Netherlands
• China
• Switzerland.

Randstad now also picks up SourceRight Solutions’ RPO business, which NelsonHall estimated as the third largest RPO provider in North America in its 2011 RPO market analysis report. SourceRight’s RPO business has had significant year-over year revenue growth in H1 2011. Its RPO business has primarily been in North America, but expect for it to expand into Europe by 2012. More to follow in a future blog…

Gary Bragar,  HR Outsourcing Research Director, NelsonHall

Does HRO have True Grit?

HRO buyers usually address cost and service capabilities first followed by process best practices, compliance and reporting, and partnership compatibility to achieve change and deliver results. Further down are needs that we may take for granted. It is at this level that we see whether or not a HRO service provider has True Grit.

The first aspect of true grit is when a vendor invests in improvements in its performance in areas that go beyond just meeting service levels. For example, Aon Hewitt will use the N.I.C.E. call management quality system for all its service centers. This will improve and create a common service center experience for all clients from pre-merger Aon Consulting and Hewitt Associates and it will help create unity across the combined teams. When there is a drive for internal vendor values, it will show through to external customers.

The second aspect of true grit is robust planning for business continuity that goes beyond a plan on the shelf. Natural disasters occur all around the world and clients need assurance that the HRO service provider will be able to maintain operations if something happens at one or more of its locations.  Aon Hewitt’s business continuity strategies include shifting work to unaffected locations and having colleagues work from home. It also has redundancy between geographically dispersed centers. If one center becomes unavailable due to a disaster or crisis, it can shift call volume to an unaffected location to continue to provide service to clients.

In Japan, Aon and Aon Hewitt have several offices in Tokyo and it has provided contingent space away from Tokyo, where colleagues who wish to leave the area are able to go and work. In another example, IBM has service center operations in many locations worldwide, including Manila which is subject to major storms including typhoons. Its site specific business continuity plan includes prearranged busing for critical staff and back-up generators for power – with gasoline trucks standing by to keep operations fueled. A key step that can have major impact if missed!

The final level of true grit is the capability to help clients in times of crisis. Aon Hewitt has a Global Emergency Operations Center (GEOC) that it activated during the recent crisis in Japan. In one case, a call center shifted to the crisis response model for a client, which enabled employees to contact the call center to leave and retrieve messages for other employees. In addition, family members of employees can leave and get messages from one another. Communicating is often challenging during a crisis as cell service and phone lines are impacted, and this service provides another communication channel to employees and their families at a critical period in time.

A benefit of HRO should be robust service delivery beyond what a client can affordably provide on its own. Does your HRO service partner have the True Grit you need?

Linda Merritt, Research Director, HRO, NelsonHall