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As the staffing industry moves into 2025, it faces a dynamic and shifting landscape. Whether you’ve been in the industry for years or are just starting to plan for the future, it’s crucial to stay ahead of emerging threats that could disrupt your business.
I had the opportunity to talk with staffing industry consultant Tom Kosnik from Visus Group, about the biggest external threats that staffing professionals must consider, and how to transform these challenges into opportunities for growth. Here’s a breakdown of the threats Tom identified, and what staffing leaders can do to turn those threats into opportunities:
1. The Offshoring and Nearshoring Trend: A Global Threat or Opportunity?
Offshoring has been around for years, but it’s picking up pace in the professional services space. With advancements in technology and globalization, more companies are choosing to outsource jobs to countries like the Philippines and India as well as nearshoring to places like Columbia, Mexico, Guatemala, and others. This allows organizations to hire highly educated, English-speaking professionals at a fraction of the cost. This trend is particularly threatening for staffing firms focused on professional roles like accounting, customer service, marketing, data analysis, sales, research and IT.
What does this mean for staffing companies? Offshoring and nearshoring are no longer a distant concern—your clients are exploring this option. They can get high-quality labor at a third or even a quarter of the price. The question becomes: how can your firm adapt?
Turning the threat into an opportunity: Instead of fearing this trend, consider how you can assist your clients in executing this strategy. Many companies don’t have the infrastructure or knowledge to manage offshored teams effectively. By positioning yourself as a consultant in this area, you can help them navigate offshoring while keeping your role as a critical partner in their staffing needs.
2. Immigration and the Workforce: A Double-Edged Sword
Historically, immigration has been a key driver of the labor market, particularly in light industrial and hospitality staffing. From 2000 to 2010, the U.S. saw roughly 14 million new immigrants. But from 2010 to 2020, the U.S. saw a large decline with roughly 4 million immigrants. That trend has reversed since 2021, with 9.3 million immigrants entering the country. Many companies are leveraging this influx of workers to fill low-wage, manual labor jobs, often bypassing traditional staffing firms.
Threats to light industrial staffing: Large light industrial staffing companies have reported significant drops in revenue, with some down as much as 70%. Why? Their clients are hiring directly from the floor, using word-of-mouth to onboard friends and family of current workers, cutting out staffing firms altogether. This is particularly prevalent in construction, hospitality, housekeeping, janitorial, drivers, cooks, carpenters, and landscaping.
Turning the threat into an opportunity: The manufacturing sector is evolving. While low-wage jobs are increasingly filled by direct hires, higher-skilled roles in robotics, engineering, and automation are on the rise. By pivoting to supply the skilled labor these industries now require, your staffing firm can position itself as a vital resource for the future of manufacturing.
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3. Government Regulation: A Growing Burden
For years, the staffing industry benefitted from government policies that encouraged growth. Clients preferred to contract out their HR needs rather than deal with complicated regulations themselves. However, the tide is turning. States like New Jersey and Illinois have introduced laws—such as the Temporary Worker Protection Act—that impose stringent regulations on staffing firms. This is a trend that’s expected to spread across the U.S.
How regulations are impacting your business: Increased scrutiny and regulation make it harder for staffing firms to operate profitably, especially in states that have passed aggressive worker protection laws. These laws create additional overhead, limit flexibility, and make it harder to compete.
Turning the threat into an opportunity: The staffing industry has an opportunity to align with the new regulatory landscape by becoming experts in compliance. By offering clients peace of mind—ensuring they remain on the right side of the law while benefiting from your services—you become indispensable. Moreover, joining or supporting lobbying efforts to push back against excessive regulation can give your firm a voice in shaping the future of the industry.
4. Rising Costs and Economic Uncertainty
Although the GDP is doing well, the staffing industry has struggled to keep up. Rising interest rates, government debt, and inflation have created economic pressures that chip away at profit margins. The cost of borrowing is higher, acquisitions are more expensive, and receivables are harder to finance.
How rising costs are hurting staffing firms: Staffing companies, especially smaller ones, face a tighter financial squeeze. Whether you’re funding payroll, expanding operations, or managing client acquisitions, the increased cost of capital is a significant burden. Additionally, inflation drives up wages, putting further pressure on margins.
Turning the threat into an opportunity: Look at ways to optimize your operations and mitigate costs. Automation can be a powerful tool to streamline internal processes and improve efficiency. For instance, automating your recruitment process can help reduce labor costs and speed up candidate placement. Additionally, building long-term client relationships with value-added services—such as consulting on workforce management—can create new revenue streams that aren’t as sensitive to economic downturns.
5. AI and Automation: Friend or Foe?
AI has been a hot topic in the staffing industry, and for good reason. The fear that AI will eliminate the need for recruiters is a valid concern. Many large corporations are already automating parts of the hiring process, from resume screening to interview scheduling. CFOs and purchasing managers are increasingly being pitched AI solutions that promise to cut staffing costs by automating recruitment.
The risk to staffing firms: The threat here is clear: if companies can automate much of the hiring process, what do they need staffing firms for? This shift could reduce the demand for traditional recruiting services.
Turning the threat into an opportunity: The key is to get ahead of the trend by offering AI-driven services yourself. Instead of focusing on tactical tasks like writing emails with AI, think strategically. Can you help your clients automate their hiring process? By consulting with them on how to integrate AI into their talent acquisition strategy—while providing human expertise where it’s most needed—you position your firm as a forward-thinking partner.
6. Changing Client Preferences: The One-Source Solution
Both large and small companies are increasingly seeking “one-source solutions” for their staffing needs. They don’t want to deal with multiple vendors for different types of staffing (e.g., temp, direct hire, IT, etc.). Instead, they want a partner who can manage everything from contract staffing to full-time recruitment, project management, and beyond.
The threat of being pigeonholed: If your staffing firm only focuses on one aspect of staffing—such as temp staffing—you risk losing out to competitors that offer more comprehensive solutions. Clients are looking for vendors who can solve a wide range of workforce challenges, not just fill job orders.
Turning the threat into an opportunity: Expand your service offerings to include project-based work, statement-of-work (SOW) consulting, or employer-of-record (EOR) services. By becoming a one-stop-shop for your clients, you increase your value and create more opportunities for long-term partnerships. Firms that focus solely on job orders may see flat or shrinking revenue, while those offering project-based or SOW services are experiencing growth.
7. Unionization and Anti-Business Sentiment
With rising unionization efforts and anti-business rhetoric, staffing firms may find themselves on the defensive. For the first time in U.S. history, a sitting president marched on a picket line. This signals a shift toward greater worker empowerment and increased hostility toward businesses. Unions have a seat at the table and are pushing hard against industries they believe exploit workers—staffing included.
How this impacts staffing firms: If unions gain more power, they could make it harder for staffing firms to operate freely, particularly in industries where unions are gaining ground. Moreover, the public sentiment against big business could spill over into smaller staffing firms, making it harder to attract talent and clients.
Turning the threat into an opportunity: Staffing firms can respond by improving their employee value proposition. Focus on fair wages, career growth opportunities, and transparency in your hiring process. Additionally, being proactive in addressing worker concerns can help stave off unionization efforts within your own ranks.
Transforming Threats into Opportunities
The staffing industry is at a crossroads. By thinking strategically and focusing on long-term growth opportunities, your firm can not only survive but thrive in this rapidly changing environment. Whether it’s embracing AI, expanding service offerings, or navigating regulatory challenges, the key is to stay ahead of the curve and position yourself as a trusted partner in your clients’ human capital strategy.
As you begin your strategic planning for 2025, take time to evaluate the external threats your business faces—and more importantly, how you can turn these threats into opportunities for growth.
Consider joining industry networking groups or roundtables like the ones offered by Tom at Visus Group. And, if you’re looking for help with positioning your company, or yourself, contact the team at Haley Marketing today. Our marketing and sales support services are designed to help you stand out in a crowded market. And with custom-built AI marketing tools we can help you scale your marketing and sales outreach with having to scale your costs!
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