To Our stockholders and Investors Message from the CEO
Chairman and CEO
Allow me first to extend my heartfelt gratitude to our shareholders and investors for your continued support and understanding.
Let me now turn to a discussion on the operating environment of the OUTSOURCING Group and our current efforts.
■ Market Environment Surrounding Domestic Outsourcing Business
Demand for temporary staffing has partially slowed in Japan due to the deterioration of business sentiment surrounding the manufacturing sector and concerns about the economy’s entering a recession, as seen in the fact that some of major manufacturers, which are key clients of staffing firms, cut production. However, the trend of manufacturers shifting from having fixed-term direct employees to utilizing dispatched employees has been continuing. In addition to labor shortages, revisions to the Labor Contracts Act and Worker Dispatching Act have become tailwinds, and there is still brisk demand for using HR outsourcing services in the IT, construction, and service industries.
Since the revised Worker Dispatching Act requires that all worker dispatching undertakings come under a license system, engineer dispatching service providers, which had been engaged in specified dispatching undertakings for manufacturers’ development processes under a notification system, have been pushed out, being forced to sell off the companies or businesses. This trend of exiting can be seen in engineer dispatching firms specializing in the IT-related field as well.
■ OS Group Initiatives in Japan
Amid this business environment, the Group’s ‘PEO scheme*,’ which addresses needs arising as a result of the revisions to the Labor Contracts Act in Japan, has been receiving strong recognition from client companies, and we have been successful in expanding the variety of our manufacturing outsourcing services while holding down the rise in recruitment cost per person. However, negative impact from the macro environment outweighed our efforts and resulted in slowing down the pace of our current growth. In light of the current business sentiment in the manufacturing sector, we are taking a more cautious approach to expanding the business centered around PEO scheme, which entails the risk of employing regular workers.
For our engineering outsourcing business, the training scheme utilizing KEN School, the OS Group’s training institution, where inexperienced workers are trained in various industrial fields from mechanical design, IT, and construction to pharmaceuticals and then assigned as engineers, has been performing well. We have achieved steady growth in the number of engineers while holding down the rise in recruitment cost per person, the same as in the manufacturing outsourcing area, and expanded earnings. In addition, over 2,100 new graduates joined the Company in April, which was one of the largest intakes by a Japanese company, and we target recruitment of over 2,600 new graduates for next year.
Furthermore, we have been making steady progress in taking in HR service providers, who chose to withdraw from the business due to impact from the revisions to the Worker Dispatching Act, and lead the industry restructuring.
Elsewhere, unlike the manufacturing outsourcing business, which is directly affected by changes in the macro environment, some of our businesses for the U.S. military facilities, etc. are less susceptible to changes in the economy. With these businesses steadily expanding, we have been making further progress in establishing a robust business structure to smooth out earnings.
*Note: a scheme through which the OS Group incorporates fixed-term direct employees of manufacturing companies into the Group as regular employees before their 5-year employment term at the manufacturing companies has been completed.
■ Our Initiatives for Employment of Foreign Workers
In our administrative outsourcing business for technical intern trainees, there were some delays in immigration screening (for the entry of trainees) due to the overlap of (i) the Immigration Bureau being upgraded to the Immigration Services Agency of Japan in April 2019, (ii) establishment of a new status of residence, ‘Specified Skilled Worker,’ and (iii) processing of applications for Registered Support Organizations. However, our track record of proper administrative operations, which put great emphasis on regulatory compliance and leverage our strong local presence in countries of origin, receives strong recognition from clients and enabled us to capture client companies’ demand for employing foreign workers. As a result, the number of workers under outsourced administration at the end of December 2019 expanded to over 18,000.
We have been accelerating the shift to administrative outsourcing business, in which we don’t have to bear employment risk and can expect better profit margins compared with manufacturing dispatching business, and strengthening our business structure to accommodate the increasing number of foreign workers: some of our Group companies became a Registered Support Organization for ‘Specified Skilled Worker.’ As we started wining orders for registering specified skilled foreign workers, our business in this area has been achieving steady growth.
■ “WORKING” Beyond Borders
The OS Group has expanded into various countries and provides HR services globally. In recent years, several countries including Japan have implemented revisions to their respective labor laws. The impact of these revisions is quite significant, and it has become necessary for HR service providers to consider making a drastic revision of their approach or even withdrawal depending on the business scheme. Under this sense of urgency, we decided to formulate our next Medium-Term Management Plan “VISION 2024 (FY2020 - FY2024): Change the GAME” one year ahead of schedule.
Since HR outsourcing business has been a business that relies on a stock of human resources, where the number of people working is directly linked to earnings performance, the number of worksite employees has been a key management indicator. However, given that the trend towards shortening working hours spread globally and efforts to save manpower by using robotics and AI technologies have been promoted, we anticipate that an era in which the increase in the number of people working does not necessarily improve revenue and profit growth is coming. We feel strongly that the conventional business model is losing relevance as improving productivity with less human resources has been becoming a key management indicator. Under this backdrop, the OS Group has determined that breaking away from the conventional business model is an urgent priority.
Although the world’s population is increasing, developed countries have shrinking populations and labor shortages whereas other countries with labor surpluses have growing populations. This type of supply/demand gap has been prominent in the current global HR market, and it is expected that the gap will widen over the medium term. In light of potential demand for closing the supply/demand gap, there is still room for growth in HR business with the conventional model that focuses on a stock of human resources.
In order to capture this type of business opportunity, in “VISION 2024,” we put forward a vision of ‘”WORKING” Beyond Borders’ and further promote our efforts to establish a global HR mobilization network. At the same time, on the view that the conventional business model will be reaching its limit, the Group will work on breaking away from the “stock” model and start building the backbone platform of WBB (“WORKING” Beyond Borders).
The WBB platform is a strong foundation for the lives of people who are connected globally and work beyond borders, with its objective being to provide such people with various solutions necessary for daily life. We aim to build a platform that enables anyone to work safely and securely and facilitates all types of companies to secure and utilize human resources from various countries.
■ To Our Shareholders and Investors
The OS Group will work on closing the supply/demand gap in the global HR market, and through establishing the WBB Platform, we will realize further growth by making a radical departure away from the conventional “stock” business model. We would greatly appreciate your continued support of the OS Group as we continue to venture into new growth opportunities.