Recruiting in China

BY MARILYN ALVA

INVESTOR'S BUSINESS DAILY

Since it went to France nearly 50 years ago, it has been hard to keep temporary staffing firm Manpower (MAN) home in Milwaukee.

Besides Paris and other French locales, it has gone to Germany, the Netherlands, Belgium, Italy, Mexico, Argentina, Japan, India, China and scores of other foreign countries for a total of 4,400 offices in 72 nations.

In and around Paris alone, Manpower runs 220 offices. Today, France accounts for almost 36% of overall revenue. While France is Manpower's biggest single market, Europe is its top region.

"We have a long history of being truly global," said Chief Executive Jeffrey Joerres.

Geographic diversification is one of Manpower's key strengths, analysts say.

The staffing industry is notoriously cyclical, depending much on economic winds. So if one country or region slumps, Manpower is apt to see another region offset it.

That is now the case with Europe, where robust revenue growth on the Continent offset the past quarter's anemic 2% growth in the U.S., where the economy is slowing. The economy is still growing in Europe, and Manpower's revenue there grew about 19% over last year excluding France. French revenue rose 12%.

"You've got a secular growth story in Europe that you don't have here," said analyst Jeffrey Silber of BMO Capital Markets.

Manpower has long been known as a staffing firm for employers looking for short-term workers, especially in light industrial and clerical jobs.

Though Manpower has been moving up the job ladder to more skilled personnel and permanent placements, temporary staffing is still its core strength, accounting for about 70% of the company's gross profit.

The temp market is still far from saturated. Temp workers make up only 2% of the working population in the U.S. In Europe the percentage is higher ¡ª double in some countries ¡ª and apt to get higher still. That's due largely to Europe's restrictive pro-labor laws, which make it more difficult or costly for employers to downsize.

Cautious Employers

"You're in an environment where companies have to be cautious and thoughtful before they take someone on," CEO Joerres said. They increasingly are looking to flexible temporary workers to fill holes.

In the large and fragmented U.S. temporary staffing market, Manpower's biggest rivals are Troy, Mich.-based Kelly Services (KELYA) and Switzerland-based Adecco International, (ADO) which has struggled recently and has new management. Adecco is Manpower's top rival in Europe.

Manpower employs 1,500 permanent recruiters in Europe alone. "This is a market we really want to go after and go after hard," Joerres said.

Italy didn't allow companies to use temporary workers until 1997. That same year, Manpower moved in. It counts 450 offices in Italy and expects revenue there, which is growing 25% annually, to reach $1 billion this year.

All of Manpower's offices are staffed mostly with locals who understand local job markets and labor laws. "It's by design and strategy. We have one expat in all of Europe," Joerres said.

Though its presence in India and China is relatively small, those are two of Manpower's most promising emerging markets. In both countries, Manpower focuses more on management and professional positions than entry-level jobs.

Joerres says Manpower is the largest recruitment firm in India. The firm works for Indian and U.S.-based companies, including some of the top back-office and software outsourcers. It has about 10,000 people on temporary assignments in India on a given day. That's still well below France's 175,000.

"Manpower is in the investment mode in those countries, building out operations with the idea that five to 10 years from now they'll bear fruit the same way Italy is bearing fruit," said analyst Mark Marcon of Robert W. Baird.

Many of Manpower's largest overseas clients are U.S.-based multinationals such as Honeywell, (HON) IBM, (IBM) Hewlett-Packard, (HPQ) Motorola (MOT) and Abbott Labs. (ABT)

Over the last few years Manpower has expanded into specialty and permanent job placements and career counseling. The firm's Jefferson Wells division, which focuses on high-end accountants, and career and outplacement unit Right Management are still small, however. Sales slowed in both divisions in the last quarter, partly because of the loss of two large accounts for non-recurring work tied to Hurricane Katrina and Sarbanes-Oxley.

Nevertheless, Silber credits Joerres, who became CEO in 1999, for spearheading acquisitions that moved the company into higher margin businesses.

Stock Buybacks

Under Joerres, shareholder-friendly policies such as stock buybacks and rewards for achieving higher returns on invested capital were implemented.

Investment in new technology enables the firm to increase revenue without corresponding growth in expenses. Productivity has increased in branch offices. The firm also has been able to raise prices without much customer resistance.

Even though the U.S. business grew only 2% in the third quarter, U.S. operating profits jumped 26.7%.

Earnings in the quarter soared 33% from last year to $1.16 a share on revenue of $4.6 billion, which was up 12% from the year earlier period. Analysts estimate earnings will rise 27% for the full year to $3.71 a share and grow an additional 16% next year.

Growth often slows when a company gets big, according to the law of large numbers. That's not been the case with Manpower, which has shown 20% to 30% earnings growth over the past few years and an average 13% top-line growth.

"We are a very large company that still keeps an entrepreneurial and growth attitude," Joerres said. "We're 60 years old and the core part of our business ¡ª temporary staffing ¡ª is still fast-growing."