Human Resource Outsourcing (HRO) is a process in which a company uses the services of a third party to take care of its HR functions. A company may outsource a few or all of its HR-related activities to a single provider or a combination of service providers located in onshore or offshore destinations like India, China and the Philippines. HRO is being billed by some as the future of corporate HR strategies, making the next generation of in-house HR professionals simply integrators of the company's outsourced services. The worldwide HRO revenue reached $59 billion in 2006.

Yet, 2006 also saw some HRO suppliers struggle with profitability and retrench employees in order to improve their bottom-line results. This is expected to exert a drag on the market, especially on the growth of the U.S. segment, through 2007.

Key Processes
Businesses outsourcing HR processes are typically small to midsize with number of employees ranging from 25 to 1,500. The primary candidates for globalization of HRO services are the processes related to payroll, benefits administration, e-training, recruitment and non-voice employee data management. HR-related IT is also frequently offshored. Payroll services and benefits administration services comprise the largest segment of the total worldwide HRO market — this was nearly three-fourths of the total market in 2006. The remainder of the market includes education and training, hiring and recruiting, and personnel administration services.

The health care and energy sectors lead HRO offshore adoption, followed by the manufacturing, telecommunications, financial services, hi-tech and retail sectors. Multiprocess HRO transactions include three or more HR processes having an annual contract value of more than one million dollars, serving more than 3,000 employees and having a duration of three years or more. Such transactions have grown at a significantly faster rate than single-process HR functional services market over the last few years. The worldwide multiprocess HRO market was estimated at about $14 billion in 2005. Multiprocess HRO is about an eight-year old market. Despite its rapid adoption, meaningful penetration of multiprocess HRO is yet to be realized. Currently, the market is barely touched in terms of the potential number of companies that can outsource HR. However, 2007 will be a milestone year in the development of the this market, as first-generation buyers renew their outsourcing transactions and attempt to address some key challenges that buyers and suppliers had to face during the first wave of HRO.