Randstad's geographical markets

How we apply our strategy in our markets

Each country in which Randstad operates has its own specific characteristics. Firstly, the staffing markets themselves are in different phases of development. Labor laws and penetration rates differ, and markets can be in different stages of the economic cycle. However varied they may be, they all have opportunities for growth. Randstad is now ranked number two in HR services worldwide in terms of revenue, but we still only have an 8% share of the total global market. Secondly, within our various markets, Randstad itself is in different phases of development. The graph below illustrates the three phases through which we establish, develop and ‘copy & paste’ our strong service concepts, competences and best practices as our market presence grows and as HR services markets grow and mature. We are active in countries representing more than 90% of the global HR services market. Randstad now has a stronger presence in new markets that we had entered in recent years and a presence for the first time in many more. From here our priority is to expand in the countries we cover rather than to add markets.

In countries that have markets that are growing and maturing, our services are gaining recognition. Often, this is because we contribute to flexibility in the workplace and open up the labor market for the young or unemployed. Deregulation has usually occurred in the past decade in these markets, and here we deepen our penetration in staffing and inhouse while maximizing the growth of our professionals activities.
For markets where staffing has long been a reputable solution for flexibility in the workplace, penetration rates are usually higher. Examples are Belgium, the Netherlands, the UK and the US. Market characteristics differ, but the working environment is well and flexibly regulated. The business environment and potential candidates know and value the services Randstad offers. Growth can be achieved in a different way here, as they are ready for differentiated staffing propositions and additional added value services, such as outplacement, HR Solutions and vendor management systems.

Gross margin differentials

A further distinguishing factor between individual markets is gross margin. The level of gross margin we can achieve in each market depends on the level of added value. In general, added value relates to service levels, risk and cost factors. The table below explains some of the factors that influence gross margin. Several of the differentials are integral so it cannot be assumed that gross margins will converge to a significant extent. Service levels make a big difference. In the US and the Netherlands, for instance, it is common for Randstad to handle the whole recruitment process and manage several other HR functions as well, which drives gross margin. Outsourcing of these HR functions has been less common in France, but it is developing here also. The relative importance of the professionals offering also differs by country. In the US, the UK and the Netherlands, professionals make up a large part of the total market and are a clear gross margin driver for the sector as a whole. In many other markets, this offering is far less developed. In continental Europe, labor markets tend to be highly regulated and employee dismissal often requires a severance payment. Our services provide clients with flexibility in these markets and the shift of risk is thus added value. Idle time management is also a risk factor that is reflected in gross margin. This has a positive impact on gross margin in the Netherlands and Germany, but is less of an issue in the US and the UK, for example.

The combination of improved flexibility, security for temporary staff and competitive total labor cost achieved through a collective labor agreement for the staffing industry is among the key reasons why clients in the Netherlands and Germany work with staffing companies. Through the use of a sector-wide collective labor agreement, processing costs are lower. In general, it is easier to deploy temporary staff, as in a defined period they receive the same pay rate, no matter in what sector they work. Such sector-wide collective labor agreements that help the HR services sector to reduce cost, a reduction that can be passed on to the clients, do not exist in other markets. In France, for example, unit labor cost per hour for staffing is even higher than for permanent employees, due to equal pay with permanent employees being required during the assignment and additional payments being required at the end of an assignment. This indirectly impacts the French gross margin negatively. On balance, staffing is still cheaper for employers in France as they only pay for actual hours worked.

How we grow our markets

In all our current markets, we work on the basis of our strategic building blocks. Organic growth is pursued and achieved by introducing appropriate strong concepts, driven by best people most usually through our unique unit structure and excellent execution using standardized processes. The growth model we usually apply is known as the ‘lily-pad’, where more lilies grow from a common stem until they cover an entire pond.




First, we research the local market thoroughly. Once we have identified an area with sufficient market potential, a team of two consultants starts up a ‘unit’, the structure we use to grow our business. A third consultant is added when the unit reaches maximum capacity. Then we add a fourth consultant and split the unit into two. As the business grows, more and more units are added, including specialties and new services. Once we have covered a particular area thoroughly, we consider opening a new branch. There are strict criteria for the expansion of our branch networks. As our business and market share in the first location grows, we move into an adjacent area where we repeat the growth model. To manage through the cycle, this controlled growth model can be reversed for controlled contraction when working candidate numbers fall, by merging mature units and then reducing FTE numbers. As soon as economic conditions led to revenue beginning to decrease in 2008, we were able to use the unit steering model to reduce operating expenses.

The legislative environment

A fair and effective regulatory environment aids the development and growth of the staffing industry, prevents unfair competition and distinguishes good practice from other irregular and often illegal forms of flexible labor. The active role that Randstad plays in promoting a fairer and less restrictive legislative environment, thereby generating additional high quality employment opportunities, is one of the ways we are shaping the world of work for the better.

The shared principle and aim of all temporary staffing regulation should be to balance the protection of workers with labor market flexibility. On a global level, ILO Convention 181 and Recommendation 188 on private employment agencies, adopted in 1997, define common minimum standards for private employment agencies, explicitly recognizing the importance of flexibility in the functioning of labor markets. Staffing is often heavily regulated at the national level, but legislation and the way it is applied varies from country to country. It is largely regulated by both general employment legislation and specific provisions regarding the establishment and provision of staffing services. These are complemented by collective labour agreements concluded by representative social partners and self-regulation of the industry by its national, European and global associations.

The world’s most liberal staffing markets are found in the UK, the US and Australia. Staffing is a relatively new industry sector in most of Asia, and legislation there is still maturing. In China a new ‘labor contract law’ was introduced in January 2008. The position of flexible workers is more secure in general as a result, in line with international standards. Although more flexibility solutions are now available to companies, specific staffing regulation is still desirable in order to help develop the Chinese staffing sector.

Latin America and Northern Continental Europe have long-established staffing markets. Here, as in the younger markets in Southern and Eastern Europe, social partners, especially unions, play an active role in labor market regulation. The social acceptance of temporary staffing by all stakeholders involved is key to a further relaxation of the legislative environment, the development of alternative work arrangements and the introduction of complementary HR services. Unions have increasingly recognized the benefits and added value of agency work for the labor market over the last decade. The signing of a Memorandum of Understanding in November 2008 between CIETT corporate members, including Randstad, and UNI Global Union is an illustration of this. The aim of the agreement is to create partnership and a global social dialogue to achieve fair conditions for the nine-million-a-day temporary agency workers around the world.

Changes to employment and staffing regulation have historically shown to have an impact on the competitiveness and the costs of the staffing industry, as temporary staffing can often be substituted easily by other forms of internal and external flexible labor and vice versa. From time to time, legislative developments have had an adverse impact on our industry. Over the last decade however, the overriding worldwide trend is towards the further lifting of legal restrictions on staffing activities. Those restrictions are often outdated and counter-productive to the effective functioning of labor markets.

Legal restrictions on the temporary staffing market can be divided into four categories: maximum length of assignments, reason of use for the assignment, set levels of pay and other benefit or sector prohibitions. The positive contributions that the staffing industry brings to the labor market in terms of job creation and economic growth are increasingly recognized. The fact is that if only two specific restrictions in four EU countries were lifted, another 570,000 jobs would be created by the staffing industry within five years, in addition to the 1.6 million jobs that would be created in the same period under normal economic circumstances. The prospect of having these and other restrictions lifted in the next few years has become more realistic with the adoption in October of the EU Agency Work Directive, as we discussed in the section on deregulation, one of our key growth drivers, detailed here.

The EU Directive introduces the principle of equal treatment at the company level across all member countries. Derogations from this principle are possible by Collective Labor Agreement (CLA) or by tripartite agreement in countries were there is no established system of collective bargaining, such as the UK and Ireland. In the Netherlands and Germany, CLAs for the staffing industry are already in place that derogate from the legal equal treatment principle in that they set wage levels for temporary workers and therefore promote flexibility in labor conditions. In exchange for this level of pay flexibility, temporary staff are offered more security through contracts with the agency. The parties involved in the UK are currently discussing the most favorable way of implementing the new grace period of 12 weeks and the subsequent application of ‘user pay’. In all Southern and Central European markets, wage levels for temporary staff are already legally on a par with workers on the company’s payroll. In Italy, where user pay is the norm, a new CLA for agency workers was concluded in 2008 that provides for more contract flexibility.

The EU Directive will also oblige member countries that are yet to have agency work regulation in place, such as Bulgaria and some of the Baltic States, to implement it. It is hoped that Turkey will also implement agency work regulation.