October, 2005 – In the early 1980s, damning headlines about Michigan carmakers firing thousands of workers would seem to spell anything but opportunity for a young entrepreneur. Yet Ron Shahani, then a Ford Motor Co. finance worker, saw it as an opportune time to kick-start his own business. Just five years out of college, the Indian immigrant launched Acro Services Corp. as a staffing business with a single customer, General Motors Corp. Acro has since grown to a $100 million multinational company.

At the time he opened Acro's doors, in 1982, using any type of temporary workers other than administrative was unheard of in the automotive industry. But business necessity forced carmakers to consider all expenses on a more flexible basis, Shahani says, in order to compete against Japanese rivals that were sweeping the market with fuel-efficient car models. U.S. automakers had to design new cars, yet were finding it difficult to recruit new workers. After all, they had already cut jobs en masse, a move that attracted national news attention and stirred mistrust among qualified U.S. workers, Shahani says.

"They needed some other strategy for their labor force. I felt this was a good time to quit my job at Ford and start my own business," he recalls. Plus, at the time Michigan was experiencing a virtual depression and there was no job security for anyone, including Shahani. His decision - and timing - proved sage. For the next 20 years, Acro turned a profit each year by supplying clerical, engineering, information technology, light industrial, accounting and finance workers to a range of clients.

However, Shahani and his team fought hard to survive intense staffing-supplier rationalization in the auto industry. For instance, in 1985 Chevrolet used 117 staffing firms. Today, Chevrolet's owner, General Motors, uses just 40 or so, Shahani says. "Our claim to fame is that we survived all that and grew in the process," he says. This year, Acro is on track to grow revenue 15%. And Shahani is readying to make the company's first acquisition, which will give Acro greater access to clients for its new offshore outsourcing business. By 2012, he expects Acro to turn $500 million in revenue.

Mapping Growth Across Markets

Based in the country's automotive heartland, in Livonia MI, Acro's staple business has always been carmakers, which today drive 30% of revenue. But since its inception, that segment has seen two dramatic downturns, in line with the broader U.S. economic slowdown; in 1990 and a decade later, from 2001 to 2002.
The most recent recession resulted in squeezed margins across most sectors of staffing, yet Shahani says the car business was among the worst affected. "The automotive sector typically hurts more in a general recession than some of the other industries," he says. The auto market is notorious, in tough times, for quickly turning to its numerous suppliers for concessions - including staff suppliers.

"They want rollbacks because there's so many parts that go into making a car and so many people supplying those parts," Shahani says, "and since we happen to have the label of automotive services, even though we supply labor, we are treated the same way."

Acro's car-making customers demanded 7% price reductions in 2001 and 2002. The rollbacks hit Acro's revenue, but the company did not pass along the cuts to its employees, Shahani says. "In every case, we absorbed the brunt of the reduction."

Acro's long-time diversification strategy cushioned the blow, Shahani says. Acro began diversifying from automotive within five years of its life, to help defray the dependence on just a handful of clients, notably GM. By cross-fertilizing its markets, the firm has been able to do more than grow: It has flourished. "One of our goals has to been to diversify and that proved to be a big boon for us," Shahani says.

The company first broadened its client base by pushing into the light-industrial market in the late 1980s. About a decade ago, it moved into government and aerospace markets, which today drive 30% and 20% of revenue, respectively. About a year and a half ago, the firm began supplying workers to the pharmaceutical industry, now its fastest-growing sector.

Answering the Call to Offshore

The reality of economic globalization, which 20 years ago was reflected in Michigan's job depression, is today being echoed in headlines about offshore outsourcing. Again, the news translates into opportunity for Shahani.

Acro recently opened three recruitment and staff placement offices in India: in New Delhi, Chennai and Bangalore. The move, says RV Rao, president of the company's offshore subsidiary, initially will meet demand of its U.S. customers that already have moved jobs offshore. Often, when U.S.-based companies send management to India to set up an offshore operation, Rao says they are stymied by a relative lack of business processes and professionalism. "We decided to follow them to India," Rao says.

As the offshoring trend matures, firms increasingly are turning to staffing companies to help manage those operations, Rao says. Previously, companies mostly used offshoring firms on a project basis. But staffing firms, such as Acro Global Alternatives, provide a cheaper alternative to project-based companies, Rao says.
Acro initially set up the New Delhi headquarters of Acro Global three years ago, to survey the market and gain local experience, Rao says. Last year, it tested its knowledge by placing its first two candidates. By the end of 2005, Rao expects Acro Global to have placed 500 workers and expand its small group of five employees to 20. Using Acro's IT and engineering workers in India costs its client less than a third of what they would pay in the United States, Rao says. An overseas workforce also means the sun never sets on a project, which speeds product development, he says.

Acro Global duplicated its internal IT systems in America at its offices in India, to streamline clients' accounts and records, including resumes, job-orders and other client-specific data. Acro Global provides three types of services: permanent hiring, contract staff and temporary-to-permanent. The latter is the most prevalent type of staffing in India, Rao says, since the country's labor laws make it relatively difficult to fire an employee. "So, we give them a try-and-buy contract," he says.

The initial focus for Acro in India is to serve its automotive clients, some of which have been customers for 20 years and have already moved jobs to India. "The HR and purchasing departments already feel comfortable in dealing with us," he says.

This year, Acro Global will focus on growing its India-based business. But Rao and Shahani expect to move into other overseas locations at some future point. Destinations that offer similar cost advantages in other parts of the world, such as Eastern Europe and China, are potential targets for expansion, Shahani says.

Developing Software Synergies

To help counter the staffing slump at the turn of the century, Acro also diversified its product line by digging into its existing resources - a supply of high-level IT staff. The firm developed VMS software of its own, which launched in late 2000. Called XRM (for external resource management), the Web-based software automates all processes involved in acquiring contract labor, from the creation of a job order to interviewing and selection of candidates. Acro sells it as a stand-alone product, as well as part of a vendor-neutral and a non-vendor neutral VMS service. "The clients are looking for ways to save," Shahani says. "We felt if we give them a solution that automates all their processes and creates competition among suppliers with respect to getting the best candidate for the lowest price, we can help them save money."

Critical to XRM's success as a service is Acro's business integrity, Shahani says. That means having checks and balances in place in the VMS process to assure all parties involved that Acro cannot underhandedly undersell its candidates. Acro also does not limit other suppliers from directly contacting clients. "We want a reputation as a high-class business," he says. "If we're not doing it right, the client hears of it very quickly."

In early 2004, Acro launched a version of XRM for the light-industrial sector, which other VMS vendors have largely ignored, according to Shahani. This sector typically does not deal much with candidate resumes or interviewing, he says, yet its staffing needs change daily and it still requires real-time vendor communication and reporting. In its first year, Acro installed the software in four light-industrial clients.

Overall, XRM is another promising area for Acro. Last year it drove about 7% of revenue. The widely predicted consolidation of staffing vendors during the next few years, which may mean more business to fewer clients, will likely grow Acro's VMS segment, Shahani says. Clients are eager to reduce the number of suppliers they use in order to save money, he says.

However, there are challenges ahead for Acro. Among its VMS rivals are industry heavyweights, Adecco SA, Kelly Services Inc. and Manpower Inc. "Clients like to work with large companies, typically because they have a presence in multiple locations and sometimes even globally," Shahani says. "But what these companies don't have, but we do, is their own technology - they buy the technology from some third party."

By making XRM in-house, Acro is able to upgrade and customize the software to jibe with client's existing IT systems at a lower cost than its larger rivals that sell an outsider's software, Shahani says. Other VMS sellers charge exorbitant fees to customize software because it can be time-consuming, he says. And each time a developer upgrades the software, to help keep pace with broader IT advances, they need to also upgrade a client's customization. These VMS vendors are venture-capital-backed companies that "want to go IPO one day, so they don't want to get into customization because it will bog them down," Shahani says. Acro can be nimble with XRM upgrades and customization, which is built into the initial cost of the software, because its employees developed the product, he says.

Consumers Energy of Jackson MI began using XRM in the spring of 2002 for payroll services and a year later for the procurement of temporary staff. Quentin Guinn, senior contract consultant at Consumers Energy, says that having XRM tailored to the company's processes meant the company made the most out of having a VMS system. Acro is able to price XRM competitively by employing 22 software-development staff in low-cost India to work on the product, Shahani says.

As a maker of VMS software, Acro also benefits by not being VC-backed like many of its pure-play software rivals, Shahani says. Because the VMS market has been flooded with vendors in recent years, venture capitalists are not seeing the type of return on their investment as expected, he says. Most VMS makers are seeing revenue, but many are slow to turn a profit. VCs may grow impatient and choose to sell their VMS investments to rivals as an exit strategy, Shahani says. For privately held Acro, consolidation of the VMS segment means a more rugged competitive landscape for XRM.

"Tougher rivals - that's the risk we face," Shahani says.

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