When companies seek to enhance their margins and better serve their customers while reducing the cost of providing services, they outsource non-revenue producing functions to outside business services providers, known as business process outsourcing (BPO) companies. In the area of recruiting, it is a form of BPO, commonly referred to as Recruitment Process Outsourcing (RPO).
The business process outsourcing industry is valued at nearly $1 trillion USD. The United States leads the market with 40% share worth more than $400 billion, followed by Europe and the Middle East with a market valued at $300 billion. The global RPO market is valued at around $5 billion.
Technology has greatly expanded the capabilities in this sector, as it is not uncommon for companies to have virtual contact centers where employees work from their homes, or to have offshore centers where support staff works from another country or continent. It is less efficient for companies to have functions performed in-house that require overhead costs. This is a major driver of growth in the BPO industry and represents a relatively still-untapped opportunity in many countries that use little outsourcing.
There are also several other benefits that companies gain by outsourcing services.
- It frees up the time and energy of internal resources to focus on bigger picture strategic goals.
- There is no time or cost associated with training new staff members.
- It offers access to regulatory experts to ensure compliance in an increasingly regulated world.
- There is no employer liability.
- Administrative services can be paid for when they are needed, as opposed to employing someone full time and having them be under-utilized.
- The interviewing and hiring processes can be avoided, saving additional time and money.
- Employers do not need to pay benefits, leave or holidays for outsourced staff.
- It also opens up the opportunity for smaller companies to carve out more market share by increasing their global reach.
Office Administration Outsourcing
A large and growing segment of this outsourcing is office administration. Essentially any company in operation has administrative tasks that must be accomplished to keep the day-to-day operations running smoothly. Administrative functions that are often outsourced include payroll, accounting, human resources, data management, employee benefits, insurance claims management, and client support.
RPO companies emerged from traditional recruiting needs, but are designed to work differently. All or part of a company’s recruitment processes is assigned to an external service provider. RPO services differ from that of staffing companies in that they do not simply find candidates to fill job openings. They focus on the overall improvement of a company’s recruiting process as more of a strategic, consultative partner. They study factors such as turnover rates, technology, scalability, and how much time it takes to fill a position.
Many companies choose RPOs to improve recruitment efficiency, reduce cost, make hiring more scalable, improve the quality of hires, meet the talent needs of short-term projects, and improve workforce analytics and planning.
The industry sectors with the largest market shares are technology, telecom, finance, insurance, healthcare, biotech, pharmaceuticals, and medical equipment.
BPO M&A Activity
As the use of BPO services becomes more common around the world, the M&A activity surrounding them increases, with a large concentration in the middle market. There is a tendency for customers to prefer fewer vendors with more diverse service offerings, motivating BPOs to use M&A to diversify to increase customer wallet share.
In this highly competitive market, BPO companies typically acquire target companies in order to gain:
- More capabilities for broader service offerings
- Exposure to higher growth end-market verticals
- Broader geographic reach to offer more global services
- Economies of scale to lower proportion of fixed costs
RPO M&A Activity
RPO companies are becoming increasingly globalized as a result of mergers and acquisitions. To be successful in this growing market, RPO providers have found different ways to distinguish themselves.
- They specialize across geographic regions, vertical markets, related jobs, and buyer segments.
- They offer value-added and technology-based services, such as analytics and mobile recruiting.
For an M&A deal to be successful, sellers should conduct an all-encompassing assessment of their value proposition and how it ultimately aligns with the buyers’ interests.
M&A Due Diligence
Conducting due diligence for a merger or acquisition is always a time-consuming undertaking, and this is especially true when the target is a BPO company. Location analysis of the target company should be performed for any potential acquisition to help form an accurate purchase price and avoid costly post-closing issues. It assesses site location, economic development, competition, real estate markets, workforce issues, saturation levels, historical attrition rates, recruitment, and retention viability. Partnering with a specialty company broker who has this type of experience is advised.
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