SI Review: January 2012

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Across the Border: Snapshot

This is the first in a series of snapshots of staffing climates in various countries around the globe that we hope to bring to you in 2012. We will shed light on the general characteristics of the countries’ contingent workforce and answer questions such as what kind of industries are most likely to use temporary staffing services, which areas are seeing the most demand. The articles will also describe the “company culture” regarding temporary employees and talk about any contentious labor issues currently being debated. We hope you enjoy the international outlook. Happy travels.

A view of the small, but expanding, Mexican market

By KJ Fullam

Ever since the mid-19th century explosion of cattle ranches and fruit production in the American southwest that served as the catalyst for a migratory agricultural workforce, Mexico’s economy and labor market has been inextricably intertwined with that of its neighbor to the north. While the demands and the nature of Mexican industry have certainly evolved a great deal over the last century, today, Mexico’s financial fortunes are still pinned to that of the United States — arguably more than any other nation around the globe. History has shown that the shocks of both economic upheaval (e.g. Great Depression, the 2008 recession) and political machinations (such as immigration legislation and NAFTA) are soon thereafter felt by Mexico’s labor force.

Three Cities

Compared with other industrialized nations around the world, Mexico is a relatively minor player with regard to temporary staffing. The country had an estimated 24,000 daily full-time equivalents in 2009, according to the International Confederation of Private Employment Agencies (Ciett). That low figure is dwarfed by the more than 2 million FTEs employed daily in the United States. Just three cities account for the majority of Mexico’s temporary labor market: Mexico City, Guadalajara and Monterrey; the market in the rest of the country is not nearly as developed.

A large reason for the low temp numbers is governmental protections placed on labor in the country. In September 2011, the Organisation for Economic Co-operation and Development (OECD) ranked Mexico as the 8th most-protected employment market in the world based on analysis involving the difficulty of both dismissing individual workers with regular contracts and enacting mass layoffs. For example, severance packages are mandatory by law in Mexico, and can quickly become prohibitively expensive when seniority premiums are included.

Still, Mexico is a growing market that many international corporations are eyeing for expansion. In fact, Staffing Industry Analysts, the publisher of this magazine, identified the country as the sixth-most attractive staffing market in the world as determined by short-term growth potential. Indeed, the proximity of talent is definitely an attraction for U.S. businesses.

The Landscape

ManpowerGroup Inc., Adecco S.A., Kelly Services Inc. and Randstad Holding NV are the dominant players in a staffing market of more than 600 suppliers, according to Edmundo Escobar, president of staffing firm Rolling Personnel and the founding member of Asociación Mexicana de Empresas de Capital Humano, Mexico’s staffing association.

Within the managed services market, TAPFIN (a division of ManpowerGroup), nextSource, and KellyOCG top the ranks of temporary and contract services provider, with TAPFIN boasting roughly $35 million in spend, according to research from Staffing Industry Analysts. Among vendor management systems, Provade and nextSource dominate the marketplace, splitting nearly $70 million between the two firms in 2010.

The work is varied. Kelly’s Sergio Gomez, vice president and general manager of Latin America operations, identifies the light industrial sector as its biggest segment by far — by 50 percent to 60 percent. The remainder of the temporary workers serve in administrative positions, as well as some specific technical fields, such as information technology and oil and petroleum engineering. The company also sees some demand for salespeople, supervisors, managers and even commercial directors, Gomez says.

Importing Technical Talent

However, Gomez adds that specialized technical skills are most in demand in Mexico, particularly pertaining to the IT and engineering sectors. Mexico is the seventh-largest producer of oil in the world, with oil revenue generating 14 percent of the country’s export earnings. The country has recently made steps to denationalize the petroleum industry, but foreign companies such as TransCanada and BP have been unable to acquire sufficient native technical talent, and thus have been forced to recruit engineers from Venezuela and other parts of Latin America.

Kelly has addressed the dearth of specialized skills in the region by exploring “screen to screen” staffing, explains Mike Webster, executive vice president and general manager of the Americas at Kelly. In such an arrangement, employees could telecommute over vast distances, “as opposed to those in the light industrial sector, where the workers have to live and work right there.”

Such an arrangement, however, still demands that foreign workers possess the necessary communication skills, which are even more critical in sales and administrative fields.

Regulations & Politics

In Mexico, contingent labor is at the center of discussion regarding labor regulations and social security obligations. Thalia Ortiz, marketing manager of Randstad in Mexico, explains that “there has been one significant change as a result of the 2009 modification of a labor regulation for private companies by the IMSS (Mexican Institute of Social Security).” The amendment requires client companies to be responsible for social security taxes if the employee-leasing company fails to pay its proper taxes by misclassifying workers; since there’s no workers’ compensation insurance in Mexico, employees are classified according to risk.

And the taxes can be substantial. According to Rolling Personnel’s Escobar, social security taxes, which include medical, pension, maternity leave and workers’ compensation as well as housing, can be as much as 37 percent of an employee’s base pay. And some employers have found ways to skirt the taxes by designating workers as “partners” instead of employees, in effect creating a “black market” of labor, Escobar says. In fact, that was the impetus of the creation of AMECH, he says. Only about 100 of the staffing companies operating in the country comply with the law. AMECH created a certification and members — 16 to date — undergo regular third-party audits to prove compliance.

“During the last few months, there has been a great deal of controversy regarding labor reform,” says Ortiz, “the goal of which was to fight those companies that are illegally using outsourcing in order to evade tax obligations. The challenge for Mexico is to enact labor reform in the sector of temporary work which, unfortunately, has been postponed once again because of political interests.”

With 80 percent of Mexico’s exports heading to America, the recent economic slowdown of the United States trickled down to its neighbor to the south soon afterward. Mexico suffered a sizable recession in 2009, shrinking by 8.2 percent during the first three months of the year. Gomez explains that because Mexico has always depended on the U.S. economy, whenever the U.S. has any economic turmoil, Mexico feels the effects, “each time, more and more rapidly. Following the last U.S. recession, we felt it in Mexico six months later. In addition, immigrants who had gone to America return because of a lack of opportunities there.” However, in terms of staffing, such populations represent “the low level of the pyramid — the labor, not the talent.”

One of the differences now from past downturns, Webster adds, is that when talking with clients, and especially these multinationals, “we find there’s been a secular shift. These clients are being a bit more cautious with regards to the makeup of their workforce, so that has been an advantage for us. Unlike the past (recessions), this one may change the makeup of the workforce model. I think companies are more conscious whether they be in Mexico or stateside — and the fluidity that we offer may become more of the norm as opposed to the exception.”

KJ Fullam is a freelance writer.

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