The buyers of Recruitment Process Outsourcing (RPO) benefited in 2009. This was primarily because, while base fee plus variable charge is the most common pricing structure, there was an increase in pure variable pricing that allowed buyers to scale up or down according to hiring needs.

Out of 60 new RPO deals signed in 2009 across the globe and industries, around 70 percent were single country deals, 20 percent were regional deals and 10 percent were global deals which covered more than one continent according to Rajan.

Experienced buyers, who were already in RPO arrangements, saw the value proposition and expanded the scope of their processes. Rajan explained, “Experienced buyers who started two years ago, would have given the mandate to providers to hire people from outside market, which is external hiring. In 2009 they also included internal hiring management.”

RPO has a value proposition which helps meet the challenges of both the economies. Rajan says, ”Different economic conditions pose different challenges to RP outsourcing. In a bad economy, there is a huge pressure on buyer to cut the recruitment cost as they hire lesser number of people whereas in a better economy, challenge is to hire a larger number of people quickly. The beauty of RPO’s value proposition is that it provides a flexible and scalable option to buyers so that they can meet these requirements in both the economies

The four leading industry verticals for RPO were--manufacturing, high-tech, F&A and healthcare.  RPO which started in early 2000, is moving beyond the pioneer stage and entering the emerging stage. While India-headquartered suppliers such as Infosys, Wipro, and Caliber Point have already entered this space in the past two years, Western suppliers such as Momentum and PeopleScout are also leveraging India for delivering RPO services.

There was a marginal increase in deal signings in 2009 compared to 2008, but decreased hiring volume is resulting in more selective, smaller-sized deals. More than half of the deals were inked by North American firms; however, adoption is on the rise by buyers in the United Kingdom and Continental Europe, particularly Germany and France according to Everest.

RPO has a value proposition which helps meet the challenges of both the economies. Rajan says, ”Different economic conditions pose different challenges to RP outsourcing. In a bad economy, there is a huge pressure on buyer to cut the cost and recruit less number of people whereas in a better economy, challenge is  to hire people very quickly. RPO helps to hire as many people and as quickly as possible The beauty of RPO is that it gives a good value proposition in both the economies.”

More number of buyers are seeing the value proposition given by RPO. Everest estimated that in 2009, the RPO market was between $700 million and $1 billion in terms of annual contract value.

Three matured markets where RPO has taken shape are the U.S., U.K. and Australia. While the U.S., U.K. and Australia are established buyer markets, India and China are emerging.

Rajan says, “In RPO, the services were on-shored. Now we are seeing off-shoring happening because of the cost pressures. India, China and the Philippines are the key offshore locations. We see more off-shoring happening for the back office processes. Front office processes have still not taken the front seat which requires the understanding of labor market of the buyer country and the culture of the people. The 60 new deals, which were signed in 2009, were for both font office and back office processes.”

While the off-shoring leverage within RPO is currently lower than overall HRO, increasing cost pressures in the current economic environment has led North American and UK buyers to start receiving the back-office RPO services from offshore location such as India.

Gaurav Gupta, Principal and Country Head, Everest Group says, “RPO is witnessing a fair amount of interest among buyers given the focus and specialization that RPO suppliers bring to the table. While the hiring volumes are down in the current economic environment, the value proposition of RPO is still resonating with buyers that are looking for a cost-effective and flexible option to withstand the current turmoil and at the same time create an efficient and effective talent acquisition process that can be scaled up quickly when business environment improves.”

“The majority of suppliers have an onshore-centric delivery system with many suppliers creating regional partnerships to broaden geographical coverage of the RPO solutions,” says Ranjan. “The RPO market is intensely competitive, and we’ve witnessed a lot of M&A activity as suppliers seek to enter the RPO market, strengthen capability and gain access to technology.”