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Market overview

Key growth drivers for our industry

Need for flexibility

The latest economic crisis proved the value of a more flexible workforce. Companies with a higher share of temporary employees were better able to respond to the sudden drop in demand. During 2010, uncertainty over the economic outlook augmented the need for flexible labour. More just-in-time production also resulted in an increased need of companies for flexible staffing levels. The declining inventory to sales ratio in the last decade, as witnessed across multiple sectors in the USA, is evidence of this trend and should continue to drive demand for our services.

Move of production to the east

Moving production to low-cost countries is not a new phenomenon but will increasingly impact the geographical mix of our industry. As companies move east, the need for HR services and local staffing know-how in the Emerging Markets is increasing. Given the low salary levels, the

Emerging Markets today still represent a minor portion of the total revenue potential for the staffing industry, however in terms of volumes this region already represents a substantial share.

Socio-demographic changes

The impact of socio-demographic changes on the labour market is becoming increasingly apparent. With declining birth rates in developed countries, and people living longer, scarcity of talent will hinder economic growth. The staffing industry can help to narrow this gap by accessing additional demographic groups (e.g. active retirees), by taking full advantage of its global presence and pool of candidates and by facilitating mobility.

Meanwhile, lifestyle changes are having a positive impact on our industry. Today, people increasingly want to explore new assignments on a more frequent basis and are ready to move where the opportunities are – all ideal attributes of temporary employees. This fits well with the trend in many companies to look for greater flexibility, better job-profile matches and higher acceptance of temporary employees in the skilled workforce, in order to overcome the growing talent shortages in many industries. Above all, our business is not just about recruitment, it is also about training.

Deregulation

The regulatory framework of labour markets in individual countries has a significant influence on market size and growth rates. Generally speaking, more flexible labour markets lead to higher penetration rates for temporary staffing. The UK has one of the most liberal labour markets and enjoys one of the highest penetration rates in temporary staffing – around 3.7% [1]. France, Germany, the Nordics, Spain, Italy and Japan have all seen an increase in opportunities as a result of labour market liberalisation in recent years.

The most recent liberalisation occurred in Spain during 2010, where the construction, healthcare and public sectors are now open for temporary staffing.

In the EU countries, the Agency Work Directive effective as of December 2011, foresees the lifting of all restrictions related to temporary work. The liberalisation in both Spain and France was also driven by this Directive and more countries are bound to follow.

Business environment

Growth in our industry, in particular for temporary staffing services correlates with GDP developments. Compared with temporary staffing, which usually picks up shortly after GDP trends start to improve, unemployment rates are typically a late-cyclical indicator. The severity of the recent economic downturn has highlighted the importance of a flexible workforce in adapting to fluctuations in demand and changes in business trends. Labour market deregulation is progressing and coupled with the increasing need for flexible labour, penetration rates for HR services are set to surpass prior peaks. Many industries and regions still offer immense untapped potential for HR services, and the structural growth drivers for the industry remain fully intact.

Outlook for the staffing market

The current economic environment characterised by moderate GDP growth and yet limited confidence of companies to invest in permanent labour, offers attractive growth opportunities for our industry. We believe that the environment will stay favourable for flexible labour in 2011. Permanent jobs will be created, but just enough to cover the new entrants into the labour market. Unemployment is likely to remain at high levels in most developed economies. Most economic growth and activity will be covered by flexible labour. Strong economic conditions in the majority of the Emerging Markets, as well as in Germany and Sweden, should continue to underpin robust demand for staffing and HR services.

 

[1]Adecco estimate. 2009 estimates revised.