To Nearshore or Partner with an Offshore RPO – Dilemma for UK Recruitment Agencies

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We are in the fourth week of the lockdown and millions are now working from home. The first week for many recruitment businesses and even for the best recruitment process outsourcing companies was a significant change, including the workforce and business owners. Nobody predicted the virus would have an impact on the way we work. Sorting logistics, workflow, and governance were some of the areas recruitment businesses battled at the start. Amidst all the problems, Work from Home (WfH) was the only solution available and inevitable in this given situation. Dust seems to be settling with the work from home model, and people seem to have adopted this as a new normal.

What does this mean for recruitment businesses?

While the US adapted remote working model many years back, Europe has had to adjust and piggyback on this solution due to COVID-19 promptly. Six out of ten people now work from home as per this article published (Corona Virus is Creating A Global “Work From Home” Culture) by leading news and analysis site CRN. Reading through the posts of various members from the UK recruitment industry, there are two schools of thought. These are interesting observations which will help recruitment agencies develop a hybrid model of working suiting their requirement depending on the industry sector they work within.

  1. Work from home model offers flexibility but is not a practical solution for a recruitment agency model as it lacks the sales environment; i.e. the boiler room approach
  2. Work from home model works well as it increases productivity

This model wouldn’t be a novelty for many UK recruitment agencies as they are already used to working with team members operating from either office nationwide and/or with remote offshore team. Offshore RPO teams can’t work upon sales; i.e. recruit/place from India. This is a myth, especially when leading healthcare and IT recruitment businesses have offshore teams placing locum Doctors, Nurses, Social Workers and IT professionals by their teams located outside the UK.

However, even for those recruitment agencies working with an offshore RPO, the pandemic and work from home model have raised questions similar to other recruitment agencies that do not outsource.

  1. Questions around data security and GDPR while the offshore RPO staff work from home
  2. Issues around delivery and management
  3. Questions around overall governance
  4. Is Work from Home the future of work?
  5. Do we continue and expand our offshore RPO teams or develop a nearshore model?

What is Nearshoring?

The dictionary definition “the practice of transferring a business operation to a nearby country, especially in preference to a more distant one.” 

Given that everybody from the recruitment industry is currently working from home and the economic impact due to the pandemic, a nearshoring model will evolve. In this case, it will not just be a nearby country, but agencies giving flexibility for their staff to operate from home. I am not saying that 100% of team members will work from home. Factors outlined below will be considered to make this decision.

  • Infra; i.e. property rental
  • Travel time and productivity
  • The travel cost impact on the team members
  • Overall savings from developing the work from home model vis-à-vis offshore model

Some motivations for UK recruitment agencies to nearshore, especially for the ones who are not outsourcing and only want to work locally:

  • Skilled unemployed workforce: Many experienced members from the recruitment industry will be out of jobs, and even relocation might prove and expensive solution, especially when people are trying to survive, nearshoring will open up both job opportunities for these workers and candidate database for companies looking to recruit
    • Many skilled and experienced Recruiters in the US who have been made redundant are open to working on an only commission basis; this trend might also follow in the UK
    • They might also take a pay-cut and work on the more success-based model to sustain the downturn
  • Cheaper locations in the UK; i.e. we’ve already seen significant companies setup their back-office and call centres operating in the affordable places up north
  • Training and Management: Logistically easy compared to training and managing someone in a different country/far off location (read: Asia)

Several large UK companies have offices up north in affordable places, clubbed with offshore partners in countries like India and South Africa. Hence, a Hybrid Nearshoring model is one of the many routes recruitment agencies will put on the table when comparing with an offshore RPO model.

What does this mean for Offshore RPOs?

There are two possible scenarios in the current situation. Yes, industries like retail, travel, hospitality and the ancillary sectors supplying to these sectors had a knock-on effect on recruitment agencies operating in those sectors. However, areas such as Healthcare, Education and Pharma are recession-proof, generally sustainable in any given situation as people need them. Recruitment agencies operating into verticals other than mentioned above will pivot into recession-proof sectors to stay afloat.

Every business will want to sustain and see-thru’ the downturn; cost rationalisation has been one of the mantras during every recession. Companies will enable themselves with automation clubbed with processes and approach, which help in reducing costs while maintaining quality delivery. In this vanilla situation, outsourcing is one of the most viable strategies, and many UK recruitment businesses will take this route.

Most businesses will be in consolidation mode at this stage. They will explore all the possible options to reduce operating costs everywhere possible. UK recruitment agencies will outsource back-office functions such as Payroll, Finance and Accounting, Admin, Compliance and front-office functions such as Talent Pipelining, Database Regeneration, Recruiting and Placing, especially within the temporary and contract segment to save cost. Hence, outsourcing is here to stay.

However, offshore RPOs have a real challenge when competing with the Nearshore model. With most offshore RPOs based in Asia; i.e. India, Srilanka, Bangladesh, Pakistan, Philippines and some in South Africa, less expensive locations up north in England and Eastern European countries such as Poland and Romania have an edge over the traditional offshore RPOs. Some large UK organisations have proven nearshore models in the UK and offices in Poland and Romania. As per this article (Lockdown in India forcing the corporate world to rethink outsourced jobs) published by The Telegraph, outsourcing companies might see a significant impact at least in the short term when selling this proposition.

I have come across prospects that prefer only to work with a local business in the UK and only go as far as Europe. Due to some of the reasons being logistics; i.e. access to people, travel, training, management and people’s affinity to the local region. The pride of “We do not outsource” lures them when talking to their clients, prospects and they always hope to use it as a USP against competitors who work with suppliers out of the UK or Europe.

Pandemic has given every UK recruitment agency the taste of working from home model. One thing this has done is forcefully made every business adapt to this model in no time. This has also demonstrated that when done correctly, this model works and remote working can save high costs as they don’t need to invest in office space. However, they will need an office, but not large enough to occupy 100% of their staff when many will work from home AND/OR co-working offices which are close to their staff’s location. Hotdesking will be the future post-COVID-19 in many recruitment agencies.

Some critical questions that offshore RPOs will come across from existing clients and new prospects soon:

  1. How do you ensure data protection and GDPR when staffs are working from home and the consequences?
  2. Actual cost per FTE reduces when your offshore staff are working from home, how do you justify the standard monthly fee?
  3. With the work from home model almost proven during this pandemic, why can the recruitment agency directly not employ someone overseas against routing the business thru’ an offshore RPO?
  4. Questions around business continuity plan (BCP)
  5. Why not setup their offshore centre with staff working from home and a skeletal team operating from one office?

Consumer behaviour will change in the downturn. There will be takers for both nearshore and offshore. To sustain and stay afloat, offshore RPOs and best recruitment process outsourcing companies must implement the following factors to compete with the nearshoring model.

  1. Expand their operations and set up an office in one of the affordable locations in the UK
  2. Commercial models: Promote hybrid models; i.e. small fixed fee plus a commission; i.e. more outcome and success-based model against traditional FTE model where 100% risk lies on the recruitment agency
  3. Transactional model: Promote variable model; i.e. pay per transaction on non-sales; i.e. back-office functions such as payroll, accounts, etc. where possible

Businesses either evolve or perish during downturns. This is the moment for UK recruitment agencies to trial new models; i.e. nearshoring, offshoring and for offshore RPOs, especially for the ones which are not in the European region to evolve by a different way of working, automating processes and experiment with different commercial models. One thing is prominent; offshore RPOs will see increased competition from hybrid nearshoring in the near future.

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