Manpower Poised to Further Extend Its Broad Global Reach

Lew Freyholtz, creative partner at Minneapolis-based Web consultancy Factor_UE, was looking for developers with expertise in an open-source Flash application called Open­Lazlo. He turned to Manpower, the Milwaukee-based staffing firm, knowing the company would probably have to find people from outside Minnesota. That was fine with Freyholtz.

    “It had to be built a certain way, and we didn’t have the time to train people,” he says.

    Manpower delivered a team of developers with exactly the right experience. They happened to be based in Buenos Aires.

    Freyholtz couldn’t be happier. He’s pleased not only with the talent, but also about the time difference: Argentina is a mere two hours ahead of Minnesota.

    “We can actually talk to them in real time,” says Freyholtz, as opposed to having to communicate with developers in Asia who are 10 to 12 hours ahead of Minneapolis time.

    Today, it’s not remarkable that a major U.S. staffing company is involved in offshoring. But what is surprising is the depth and breadth of Manpower’s global reach. Just 13 percent of Manpower’s worldwide business in 2005 came from the United States, excluding revenue from acquisitions Right Management Consultants and Jefferson Wells. France is the company’s largest market and represents more than a third of its revenue.

    At the same time, Manpower is the third-largest personnel supply services company in the U.S., with $3.5 billion in annual revenue, including sales from the Manpower franchise operations, according to Staffing Industry Analysts Inc. This gives the firm 3.2 percent of the U.S. market, which Staffing Industry Analysts estimates to be $133 billion for 2006.

    The U.S. represents about half the worldwide staffing market, which, according to Staffing Industry Analysts, totaled $250 billion in 2005. Manpower’s 6.4 percent global market share ranks second after Adecco. Manpower’s total sales worldwide were $16 billion in 2005, up from $14.9 billion in 2004.

    It’s a world away from the company’s post-World War II Midwestern roots.

    Manpower was founded in Milwaukee by two lawyers, Elmer Winter and Aaron Scheinfeld. In 1948, according to company lore, the two were rushing to finish a legal brief and needed additional administrative help. Upon discovering that no one could provide such supplemental help, they established Manpower Inc. Over the next half-century, Manpower was bought, sold and bought back again. But throughout, it has maintained its position as a market leader in the staffing industry.

    Now, 58 years later, the company is on a tear. It is launching its first-ever branding campaign, complete with a highly stylized “MP” logo. The company has 4,400 offices in 72 countries, with 27,000 staff employees. It places about 4 million permanent, temporary and contract workers with clients around the world each year. The company’s stock nearly doubled between mid-2003 and mid-2006. Its bonds were upgraded a notch, and its outlook is rated “positive” by Moody’s Investors Service, based, in part, on the long-term view.

    “Manpower will benefit from a talent gap emerging in the U.S. and abroad, exacerbated by aging populations and the increasing skill levels required to manage technological advances,” Moody’s analyst Lenny J. Ajzenman says. He expects businesses to continue to replace fixed-cost permanent labor with less costly temporary staff.

Global flexibility
    Manpower has caught several waves, including the ongoing trends of globalization and flexible labor and a more recent trend toward consolidation and global contracts in the staffing industry, where companies are looking for fewer suppliers worldwide.

    “Global contracts are becoming more significant,” says Neil Coe, a professor at England’s University of Manchester. Coe is completing a two-year study on the globalization of the staffing industry. He says that staffing companies are driven to be international players so they can follow “key transnational clients overseas and … offer a service in all the markets in which the client operates.” Which is, in part, what Manpower did.

    When the company launched its international operations in the 1950s, decades ahead of most other staffing firms, it simply exported its U.S. business model to other countries. Jonas Prising, president of Manpower North America, explains that in the early stages of internationalization, the goal was simply to have geographic coverage worldwide.

    But about 15 years ago, that changed.

    “Some clients started organizing their businesses according to global product lines versus traditional geographic boundaries. Rather than isolated, country-by-country operations, businesses began to operate more fluidly across borders,” Prising says. “We accompanied our clients when they made this shift in thinking and supported them with flexible staffing solutions.”

    Prising posits that companies are now more global and fast-changing, and as a result they have a competitive need to use their workforces more strategically. This means using flexible and contingent labor and coordinating between different regions, if not different countries.

    At first, the statistics underestimate these changes. According to the Department of Labor, about 2 percent of U.S. workers are employed on a temporary basis. But larger companies might hire 10 percent to 25 percent flexible employees.

    “Temporary help in companies with over 1,000 employees is not just due to vacations and illnesses of administrative staff,” says Barry Asin, executive vice president and chief analyst at Staffing Industry Analysts. “Companies are looking carefully at work that needs to be done throughout the organization. Strategic use of temporary staff is core to the business.”

Organic growth
    Manpower differs from other global staffing firms in how it has integrated itself into key employment markets. While other major staffing firms have grown through consolidation, such as the merger of Swiss firms Adia and Ecco to form Adecco in 1996, Manpower has extended its global reach through organic growth and startups. The company also tends to get involved with a country’s labor policy regulators early on.

    Temporary staffing was illegal in Italy until 1997. “We played a major role in advising the government when temporary staffing was introduced in that country,” Prising says. Before his ascendancy to president of Manpower North America, Prising had a successful run as president of the Italian business, which went from zero to nearly $900 million during his tenure.

    Organic growth notwithstanding, the company also has embarked on some very visible acquisitions, with nearly all focused on its core businesses. According to a recent report by Credit Suisse analyst Greg Cappelli, staffing represents 95 percent of Manpower’s revenue and 85 percent of its profit.

    Since 2000, Manpower has acquired London-based Elan Group, a specialty IT staffing company; Jefferson Wells International, a financial and accounting staffing company; and Right Management Consultants, an outplacement firm.

    “Services offered by these acquisitions were considered to be an important part of Manpower’s strategy, but the expertise was not available in-house,” suggests Coe, the University of Manchester professor.

    It has been management competence and a focus on pricing discipline, though, that have driven Manpower’s stock to historic highs. “The turning point for this company was about 1999, when CEO Jeff Joerres and his management team took over. They are young, driven and understand how to motivate managers,” says James Janesky, an analyst with the investment banking firm Ryan Beck & Co.

    Janesky is also impressed with how Manpower has restructured its profitability model. “On a global basis, Manpower has evolved from a company that historically pursued a high-volume, low-margin business. … Now they are actually walking away from unprofitable revenues,” he says. This has been especially noticeable recently in the U.K., where the company lost a number of low-margin clients and took a $7.8 million reorganization charge in the first quarter.

    National and multinational contracts represented 45 percent of the company’s 2005 revenue, according to Manpower’s annual report. That means that to be profitable, Manpower has to be able to stand up to its big clients. “When there is a lot of money on the table, it’s tempting to try to work a deal,” Prising says.

    Manpower is equally keen to serve companies of any size, Prising says, adding that serving major clients is not that different from serving smaller businesses. That’s because labor markets are ultimately local.

    “Our global infrastructure is all about our ability to serve locally,” he says. “We leverage our knowledge. We know what it would take to start an assembly line in Tianjin, [China,] and we can find the right people for a tough-to-fill order for a small company in Minnesota.”

    Ryan Beck analyst Janesky likes the way the company handles itself in locales like the French market, estimated at 18.3 billion euros in 2004, the most recent data available. According to Janesky, Manpower has spent time improving its relationship with the French government and those who set local labor laws. These efforts have “had a dramatic effect,” and Manpower’s profit margin in that country is better than ever at this point in an employment recovery.

    These gradual changes are separate from the proposed youth labor law, which would have made it easier to fire workers under age 26, but were not expected to give a boost to major staffing companies.

    “The fact that it hasn’t gone through is very slightly positive,” Manpower CEO Jeffrey Joerres said in the company’s first-quarter 2006 conference call, “but we didn’t see it as having a major effect.”

    What is more important to Manpower is the global economy and its health. With 95 percent of its market so dependent on the employment cycle worldwide, Manpower is sensitive to economic downturns and slowdowns in global employment. Moody’s calls earnings and margin cyclicality a “key rating concern.”

    The company’s diversification efforts, growing efforts in higher-profit permanent placement and strong position at the crossroads of long-term trends all help.

    “A slowdown in the global economy and rising interest rates are traditional risks in this industry,” Janesky says. “What’s different now is that there are fewer company-specific risks than there were before.”

Workforce Management, July 31, 2006, pp. 1, 31-32 — Subscribe Now!