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Home > Business/Finance > Diversified Services > Employment Services
Tech/Engineering Staffing Growth Assessment
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Behind every mechanical contraption, creation and device, behind every skyscraper and every cottage, behind practically everything man-made is an army of brains—the engineers who design machines, the architects who draw up plans for buildings and the technicians who support them both. On any given day, about 1.7% of such workers—collectively referred to under the category “tech/engineering”—are employed on a temporary basis, generating $6.5 billion in revenue annually for the staffing firms that place them.
Historically, this has not been a particularly fast-growing or high margin staffing segment. Compound annual growth for tech/engineering temporary staffing revenue over the long-run has been just comparable to that of temporary staffing as a whole, and gross margins have typically ranged in the upper teens, below industry aggregates.
But recent years have been an exception. In the years 2004-2006, tech/engineering growth averaged 12% annually, and margins have been rising as well. This reflects changes in two key economic drivers. First, in 2004 the inflation-adjusted price of oil rose to a level double its long-term average (comparable to the days of the energy crisis) triggering a boom in everything oil-related, including the temporary employment of petroleum engineers and support technicians.
And second, this economically sensitive segment has benefited from broader growth in the economy.
The price of oil shows no sign of coming down at the moment, and should remain a stimulant to demand for tech/engineering staffing services. However, we expect that the ongoing slowdown in overall economic growth will moderate the current boom in tech/engineering revenue growth to about 9.5% in 2007 and 9.0% in 2008, lower but still well above industry average.
Despite the attractions of superior growth, this is not a segment to be entered lightly. It is remarkably concentrated—the top 10 firms generate 58% of segment revenue; by contrast, in most other segments, this metric is in the 30%-40% range. Moreover, concentration is increasing. Over the last four years, the proportion of staffing firms operating in this segment has fallen from 13% to just 7%.
The high concentration of revenue among a handful of large firms suggests that a critical mass of business is required to be successful, and the apparent exodus of smaller firms implies that may be increasingly so. Another challenge is recruiting. Unemployment for tech/engineering workers is currently 1.7%, the lowest level since 2000, and shortages in some sought after skill sets are particularly severe; petroleum engineers, for instance, have one of the lowest unemployment rates of any occupation—0.7%.
Staffing firms considering entering this segment may want to approach it from the lower end of the skill range. Penetration rates for technicians and drafters are well above average, suggesting stronger market acceptance, and recruiting is also less of a challenge for these positions. About half of all tech/engineering revenue, roughly $3 billion, is generated from these lower end positions.
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