Increasing demand among multinationals for multi-country contracts is driving the rapid growth of Latin America’s human resources outsourcing (HRO) industry.
“It’s still what we’d consider a relatively young market for HRO and there’s a lot of opportunity for growth there,” says Gary Bragar, HRO research director at NelsonHall.
Most growth in Latin America is in payroll and recruitment process outsourcing (RPO), Bragar says, while other areas, such as benefits administration, are still mostly handled in the US. The increased demand for multi-country contracts is predominantly coming from multinationals that originated in the US or the UK, but have employees based in Latin America and are now seeing the value and the cost benefits of HRO in the region, Bragar adds.
The latest reports published by NelsonHall forecast Latin America to have the highest revenue growth in payroll, recruitment and multi-process outsourcing. Nearly half of all major RPO providers included in NelsonHall’s latest RPO analysis are now providing services to Latin America, with Manpower Group Solutions, Kenexa, an IBM company, and The RightThing, an ADP company, among the big players with revenue in the region. A third of all major payroll providers also have outsourcing revenue in Latin America, Bragar says, including big players such as ADP, HP and NorthgateArinso, and some smaller vendors.
Bragar also notes a recent trend toward multi-shore delivery capabilities becoming increasingly important within multi-process HRO, which includes the outsourcing of recruitment, payroll, learning and even benefits.
“In multi-process HRO outsourcing, the Latin American market experienced the highest growth from 2010 to 2012 with Brazil, Mexico, and Argentina leading the way,” Bragar says. “Approximately 55% of multi-process HR outsourcing providers serve client employees in all regions with around 25% aspiring to increase geographic spread to Latin Ameirca
Why Do RPO?
The advantages of RPO go beyond lower costs, says Juan Carlos Gaitan, president in Latin America & the Caribbean and senior vice president of global Business Development & Marketing at the MSH Group. It also ensures well defined processes and having a team dedicated solely to talent selection. Most companies could not afford to do this on their own, and – Gaitan believes – the larger ones would not want to.
Other benefits of RPO are that it creates a scalable recruiting platform, enhances diversity recruiting, increases process efficiencies to enhance delivery, enables companies to focus solely on core activities, develops employer brand by following best practice, converts fixed cost into variable and transactional cost, and allows equal employment opportunity compliance tracking.
The main sectors interested in RPO services are security, energy, telecommunications, financial services, life sciences, retail, the public sector and education, transportation and industrial or manufacturing, according to MSH.
Expansion into LATAM
ADP has become another major player in HRO in Latin America in recent years. The New Jersey-based firm acquired RPO specialist The RightThing in October 2011, followed by Payroll S.A. in June 2013, bringing their total number of delivery centers in the region to eight: four in Brazil, two in Argentina and one each in Chile and Peru.
“ADP acquired Payroll S.A. to expand its Latin America payroll, to serve multinationals that also have employees in Latin American countries and to provide payroll to companies headquartered in Latin America,” Bragar says. “Prior to the acquisition, ADP were already providing payroll services in Latin America, predominantly in Brazil, and in June they acquired Payroll S.A. to expand their Latin American capabilities to Chile, Argentina and Peru. It’s a good match because Payroll S.A. also provides HR services such as recruiting, absence management, time and labor management, scheduling, performance management and HR administration. Payroll S.A is headquartered in Santiago, Chile and they have offices in Buenos Aires and Cordoba, Argentina and also in Lima, Peru.”
Most HRO providers are fairly evenly spread out across Mexico and Central and South America. Kenexa, which was acquired a year ago by IBM, has centers in Buenos Aires and Costa Rica, while SafeGuard World International and ManpowerGroup Solutions both have centers in Mexico, and KellyOCG has centers in Mexico and Colombia.
MSH has set up a RPO model in 27 markets across the entire Latin America region, but it does not have offices in all of these countries; instead it operates from the key locations of Medellin, Sao Paulo and Mexico City (with other offices in Asia and North America), while working with recruiters on the ground or sending consultants to the direct locations. “Virtual deployment” is a key means of lowering costs as it only incurs placement fees instead of the fixed costs of having an office in every site, Gaitan says. This model has enabled MSH to form a network across the region and establish a presence in almost every country in Latin America.
MSH’s clients in Latin America include the likes of Stanley Black & Decker, Burger King and Open English. “Now that we have these clients, they are asking that we offer them other services like distribution centers, administrative staffing and temporary labor,” Gaitan says “We are there to play the plug-and-play outsourcing model. They have economies of scale and you can only get that in the RPO model.”
Latin America is no longer just a provider of HRO services; it is also increasingly demanding such services. Colombia and Peru are the most aggressive markets in terms of demand for top talent, Gaitan says, while Brazil and Mexico already have incredible talent in their businesses, with in-house teams and processes established long ago. However, a number of up-and-coming countries, particularly those in Central America and the Andean region, are beginning to demand these services, Gaitan adds. He also notes that the use of modern job boards, such as LinkedIn, in RPO is currently most prevalent in larger markets, such as Mexico and, to a lesser extent, Colombia.