Gross margin differentials

A 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 graph 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

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 level of specialty services available also differs by country. In the US, the UK and the Netherlands, specialties 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, specialty services are far less developed.

Risk factors

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.

Cost factors

The combination of improved flexibility, security for flexworkers 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 sectorwide collective labor agreement, processing costs are lower.

In general, it is easier to deploy flexworkers, 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.

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