Less mature than some HR processes, the recruiting segment appears ready to swell.
By Katrina Menzigian and Sudhanshu Saxena
As the economy improves, tapping the right talent at the right time and place is going to be crucial for multinational companies (MNCs). To grab global business opportunities, forward-thinking MNCs are already looking to create effective and efficient global recruitment strategies. Global RPO can potentially help MNCs realize these objectives. However, given the inherent complexities and challenges of global RPO, a big question looms: To what extent is this option viable?
Why Global RPO?
Global RPO can help companies achieve business and strategic objectives. Key drivers behind global RPO include:
Meeting variable hiring demands from different geographies. As the global economy outlook becomes better, specific geographies will be able to rise out of the recession much faster than others, leading to variability in regional business outlook. In order to be business-ready, companies will need to have the right people in the right regions. Global RPO can help manage this variability through effective external and internal hiring management.
Reducing overall cost. Global RPO helps in cost reduction, primarily through consolidation of vendor relationships, centralization of back-office processes, and use of lost cost resources at offshore locations.
Improving management control and insight. Global RPO enables consistent data capture at the regional level that could further be consolidated at the overall company level. A consolidated report helps companies improve decision making around global talent acquisition and management.
Global RPO’s value proposition sounds very compelling, but the market has faced traditional challenges and inhibitors.
Challenges to Global RPO
The first and foremost challenge is the relatively lower maturity of the RPO market itself, compared to some other HR processes such as payroll outsourcing. RPO, in general, is a relatively new concept. Quite a few buyers still consider RPO to be synonymous with some form of staffing and headhunting. In addition, the maturity of RPO varies greatly from country to country; apart from major economies such as the U.S., U.K., and Australia, several countries’ markets are still not mature enough to grasp RPO.
The second key challenge is the inability of RPO suppliers to create a truly global solution. A majority of the suppliers in the market still have a regional approach to RPO delivery. Inability of the suppliers to create a global solution can be attributed to the inherent characteristics of the RPO process. An effective sourcing, screening, and first call contact with the candidate, quite often, requires understanding of local labor markets, languages, and cultures—thereby requiring some form of local presence. However, in the absence of sufficient volume, the business case for expansion into new geographies is most often weak, as the pay-back period of the overall investments remains uncertain.
The increase in demand due to increasing recognition of the value proposition of global RPO by buyers and the lack of a single global supplier option, has led to a demand-supply mismatch, resulting in fewer global RPO deals. Everest Research Institute’s recent study on the RPO market indicates that only 9 percent of overall RPO deals have been global in scope.
Addressing the Challenges
The RPO market is moving into the rapid phase growth of market maturity. According to Everest Research Institute’s analysis in 2009 the market grew by an annual rate of 10 percent, as measured in terms of new deal signings. The interest and demand for a global RPO solution continues to increase.
On the supply side, suppliers have realized that organic growth into new geographies in the near term might not be a feasible option. They have to adopt inorganic growth, either through mergers and acquisitions (M&A) or through strategic partnerships. Although very few have taken the M&A route, a significant number of suppliers have adopted the partnership approach.
In a partnership arrangement, each partner serves the buyer organization in its own geography while the overall responsibility is typically owned by the lead partner. The Right Thing and AlexanderMann Solutions offer a recent example of such type of partnership.
Everest Research Institute, in its upcoming report, RPO Supplier Assessment, showcases the global partnerships in place today and each supplier’s experience of serving in different geographies independently.
Future of Global RPO
Two trends will loom over this sector for some time to come. First, we expect more suppliers to create global partnerships either with a peer RPO supplier or a HRO supplier. Second, as the existing relationships mature and new RPO partnerships come into existence, we expect more global RPO deals to get signed; Notwithstanding the complexities and challenges, global RPO, contrary to the general opinion in the market, is more than just an idea; it is increasingly becoming a reality.
Information in this article was used from the Everest study, Recruitment Process Outsourcing (RPO) – Moving Beyond the Pioneer Stage.
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