President Obama to Reward Companies That Invest in the U.S.

In the USA Today last week, there was a feature with President Obama giving a talk to the business community, where he gave recognition to them for keeping jobs in the U.S.

The President said the economy has changed, and the transformation has been painful for many American workers who used to work in factories where they thought they would retire from, but those factories relocated overseas where the cost of labor has been cheaper. The President recognized that we live in a global economy and other countries want to develop their companies internationally and will therefore want to employ workers all over the world.  But right now, the U.S. is in a unique moment in time where it has the opportunity to bring jobs back as the U.S. has people available and ready to work now. The President wants companies to invest in America, and he is set to introduce a tax proposal that would reward companies who bring jobs back to America and eliminate tax breaks for companies that are moving jobs overseas. The President has set a goal of doubling the export of goods and services by 2014.

So the big question is, will this scheme work and what does it mean to offshoring HRO? As one data point, let’s look at the percentage of HRO contract value by location according to NelsonHall’s latest quarterly HRO Confidence Index released in December 2011:

• 72% Onshore
• 16% Nearshore
• 12% Offshore (the 12% is consistent with April 2010 when tracking of this data point began).

Although some American companies have brought back previously offshored jobs, I believe it will come down to a combination of cost and service. First, pending what the actual tax breaks are that the President will be able to provide, CFOs will evaluate the outsourcing cost savings vs. the tax benefits of bringing jobs back. If HRO service provider jobs are brought back, vendor clients are not going to want to pay more. If the tax breaks don’t cover the labor cost savings, will vendors be willing to eat the extra cost? I don’t think so. Much will also depend on the current level of client satisfaction with outsourced services.

Depending on job type, it is easier said than done. As an example, let’s take moving outsourced call center jobs back to the U.S. Part of the reason call centers are offshored are due to multi-lingual call center support, including for MNCs, that can be provided from HR service centers such as in Manila. Then there is offshoring of non-client facing jobs, often referred to as back-office administration. For example, sourcing of jobs can be done when U.S. offices are closed overnight and candidates can be delivered next morning.

In sum, once the specific tax breaks are known, CFOs will commence cost savings analysis, followed by vendor and client discussions on where and how to best provide HRO services.

Gary Bragar, HRO Research Director, NelsonHall

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HRO Staffing – A Balancing Act

Fast and flexible scaling is one of the major benefits of HRO. Scaling up is a lot more fun than scaling down, but both are important, take time, and consume resources. One of the toughest challenges in HRO is maintaining staffing and margins at the same time through the ups and downs of client demand and the overall economy.

Recent times required painful and expensive downscaling as HRO client demand and employment levels dropped, reducing volumes and overall spend. Significant expenses were allocated for staff severance and consolidation of real estate. Even in periods of growth, merger and acquisition “savings” targets are based largely on staff downsizing to reduce overlap, followed by real estate consolidation. Whether a service provider is growing organically or via acquisition, or responding to reduced demand, maintaining appropriate staffing capability, capacity, and expense is critical.

HRO is slowly recovering with RPO leading the way while some areas are still waiting for their upturn including learning and MPHRO. New deals are occurring, renewals are going well, and existing clients are once again increasing scale and scope, at least at a modest level. All good and welcome news!

HRO service providers are confident enough to prepare for a return to growth and make select expansions. At the same time, they know they need to add client load with a minimum of new hiring as pricing pressure is still intense. And this is not even mentioning the need for maintaining an experienced and qualified staff to satisfy client employees and other end-users in the ever changing world of HR.

On the upside, clients are growing in sophistication and understanding of HR outsourcing options. While onshore delivery still leads, especially for voice, acceptance of offshoring has reached the expectation that HRO vendors should offer multi-shore delivery options. Nearshore options and the use of non-voice channels like chat allow leveraging more work to selected centers, increasing the need for and the value of a truly global service delivery network.

Recent HRO service provider expansions include:

• TriNet – Added three new U.S. offices
• CPH – Opened a new office in Sydney
• Futurestep – Added a global recruitment operations center in Houston
• NorthgateArinso – Invested in a new global HR delivery center in Hyderabad, India; opened offices in Russia, the Czech Republic, and Istanbul; partnering with ICAP Group in Greece
• Edvantage Group – New e-learning production center in Denmark.

Expanding the coverage of service locations helps avoid the war for talent and damaging attrition rates in the hottest spots as well as providing increased options for clients.

Buyers, do more than look for an SLA on turnover. Ask about the vendor’s current and future plans for managing staffing and service flexible coverage. Does your service provider show that they are at least as, or more, sophisticated as you are in workforce planning and management? They should be.

Linda Merritt, Research Director, HRO, NelsonHall