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

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

All Signs a Go for RPO to Grow

RPO recovered quite nicely in 2010, back to pre-recession levels.  But will clients do much hiring in 2011 and will this growth continue?  All signs I see point to yes.

The January 7 USA Today article titled “For Jobs, Signs of a Recovery” stated: “For the first time since the Great Recession began more than three years ago, the job market is expected to show strong gains this year as consumers spend more and businesses cast off their hesitancy to hire.”

Also, the SFN Group Employee Confidence Index increased in December showing that “…more workers are confident in the strength of the economy and more are likely to make a job transition in the next 12 months.”

Opinions are coalescing that there will likely be increased hiring in 2011, generating more revenue for RPO providers from current clients who pay for services largely on a variable basis, i.e. per hire.  Why are new clients outsourcing RPO, which is also fostering growth?  I recently conveyed my thoughts in an RPO article for the December 2010 issue of HRO Today based on RPO interviews I’ve recently conducted for my third global RPO market report to be published Q1 2011.  Here are a couple of the key points:

• Internal client recruiting HR departments have drastically reduced their HR and recruiting staffs during the last recession, yet again.  Thus, clients do not want to reinvest in rebuilding their recruiting departments only to downsize again.  Buyers are finding it is better to outsource to a provider that can quickly scale up and down to meet fluctuations in hiring needs, while helping clients to better control expenses by not incurring the fixed costs of an internal recruiting department; especially during slow hiring periods.
• Even with high unemployment levels, there is still a shortage of talent.  With an increased number of candidates searching for jobs, how does a limited recruiting staff go through all of those resumes to discover the best talent and be responsive to applicants who may someday be potential clients if they’re not already?  RPO is a great way to get access to the latest selection and assessment tools when there is no money to invest in capital expenditures.

As the hiring market improves, voluntary turnover is also likely to increase, further creating opportunities for RPO.  As the war for talent picks up, auxiliary services like employment brand management will increase, creating more revenue opportunities.  Expect overall RPO revenues to be nicely higher in 2011.

Gary Bragar, Lead HRO Analyst, NelsonHall

HRO Can Help Companies Play the Employment Spread and Avoid its Pitfalls

The Consumer Confidence Index, earnings reports, unemployment rates, housing starts, inventory levels, non-farm productivity rates – we are all scanning leading and lagging surveys, reports and indexes for signs of where recovery will first start to occur and where the recession’s impact will linger longest.

To shed a little light on the outsourcing terrain, our September 2009 BPO buyer survey and 3Q09 HRO Confidence Index both indicate increased contract activity in 2010. All the providers we’ve been speaking with are excited about pipelines that are filling up with potential deals at every stage, from lookie-loo’s to those nearly ready to sign on the dotted line.

As reported this week by USA Today, more companies plan to hire rather than cut workers in the next six months. Most report no change (57 percent). Still, 24 percent said they planned to grow their workforce, up from 18 percent in July. Only 20 percent plan to trim further, down from 28 percent in July.

When hiring activity does increase, the service industries like retail, professional services and healthcare will lead with 31 percent expecting to add jobs in the next six months and only 3 percent cutting staff. Manufacturing will likely lag, with only 12 percent expecting to hire and 31 percent still anticipating further reductions, according to the National Association for Business Economics.

In our above-mentioned survey of 480 BPO buyers, the highest ranking current business metric was customer retention, followed by cutting costs and increasing revenue. Staff retention came in only 5^th out of 6 in business metric importance. The gap in importance could be because employers are still playing the productivity spread. Productivity has been rising as companies have been able to produce what they need with fewer workers. According to the Labor Department, non-farm productivity rose 6.4 percent in the second quarter, even as unit labor costs fell by 5.8 percent.

And while we need not yet prepare for a grand hiring extravaganza as employers are likely to milk the productivity spread as long as they can to put off hiring, organizations must start playing their cards right in terms of staff retention and hiring plans, or they will be one-upped by their competitors.

As my colleague Gary pointed out in his recent blog on staff retention, ignoring rising indicators of employee discontent could leave employers not only adding hires to meet increased demand, but facing a more disruptive rise in turnover in high performers and hard to replace positions.

HR’s HRO partners must be forward thinking. For sales in the pipeline, HRO providers need to show how their services will help prospects prepare for and manage workforce changes. And for current clients, providers must be proactive and help them prepare for recovery by holding early discussions on using their available centralized data and analytics to anticipate needs – needs they can then gear up to help their clients meet.

Linda Merritt, Research Director, HRO, NelsonHall