The slowing economy brings with it good news for HRO companies. A recent study by the Everest Research Institute, states that offshore providers of human resources services are well positioned to take market share from US-based suppliers as buyer companies are now more focused on early cost savings that can be gained from labor arbitrage.

The report titled Human Resource Outsourcing Annual Report provides comprehensive coverage of the global 2008 HRO market, including detailed analyses on market size and buyer adoption, transaction characteristics, and supplier landscape.

The report also suggests that HR services suppliers in the US are being challenged by a growing base of European- and India-headquartered competitors that are well positioned to offer buyers near-term cost-cutting solutions that can be realized through labor savings and transaction-focused offerings.

“US suppliers that are focused on wide-scope transformational models and judgment-intensive process value propositions must re-calibrate business strategies as buyers retreat toward more simple, component-focused engagements,” said Monica Barron, Vice President, Everest Research Institute. “If suppliers don’t adjust to these new market dynamics, they won’t survive.”

The report says that multi-process HRO market slowed in 2008, and is estimated to reach US $2.9 billion by the end of the year (in terms of annual contract value). Compared to 47 new deals signed in 2007, Everest estimates only 28-32 deals to be signed in 2008. However, multiple factors will ensure market growth in the future.

In a slowing economy, buyers prefer a componentized model over a wide-scope transformation model. Further, an “offshore-led” lift-and-shift (of employees and functions) model is coming into play for buyers looking for earlier cost savings.

The report also throws light on:
-- Buyer adoption trends: Buyer adoption varies across geography, industry and employee segments. Demand from continental Europe and the United Kingdom continues to rise. Manufacturing, high-tech and telecom, and financial services are leading HRO adopters. In terms of number of deals, the mid-market is growing at a faster rate than the large market.

-- Potential and penetration: The multi-process HRO market has low penetration, especially in the mid-market. Both the mid-market and large market have comparable revenue potential.