UPDATE: Adecco Expands Into China As Long-Term Play

Swiss staffing company Adecco SA's (ADEN.VX) new Chinese joint venture is part of the company's increased focus on emerging markets and shows how personnel firms are expanding into the country's giant labor market.

Adecco announced Friday it will expand its presence in China through a joint venture with staffing company Foreign Enterprise Human Resources Service Co. Ltd., or Fesco.

Adecco will hold 49% of the business, which will be based in Shanghai and named Fesco Adecco, while Fesco will hold the remaining 51%. The business starts operations on Jan. 1, 2011.

Adecco has been present in China since 1995, but until now has had a minor presence in the country, a spokesman told Dow Jones Newswires. He declined to reveal how much Adecco paid for its stake.

"This is an important step forward for Adecco in China and underlines our strategic focus on the rapidly growing emerging markets," said Patrick De Maeseneire, Adecco chief executive, in a statement.

Only 6% of Adecco's third-quarter revenue came from emerging markets, which include China.

At EUR330 million, revenue from emerging markets in the third quarter grew 26% compared with a year earlier.

Key to Adecco's decision is the growth potential of China by offering services to multinational companies expanding into the country and for Chinese customers, De Maeseneire added.

The Chinese economy grew at a rate of 9.6% in the third quarter, while the country created 9.31 million new jobs in urban areas in the January to September period, surpassing the country's full-year target of 9 million jobs.

Although earnings potential is limited at present by low wages, costs are also lower in the country than in Europe, analysts said.

Earnings could also increase as multinational companies operating in China increase their efforts to attract and retain in-demand skills as the country's rapid economic growth fuels a talent war between foreign and Chinese companies.

Other staffing companies also are increasing their exposure to China. Randstad Holding NV (RAND.AE) said in October that its China business showed solid growth in its third quarter, while revenue in its rest of the world area increasing by 72%.

Board member of Randstad Holding Brian Wilkinson, responsible for Asia, among others, stated in a recent interview with Dow Jones that "the biggest challenge facing Randstad Holding in Asia is keeping up with the region's economic growth."

Fesco already has over 100,000 associates on assignment, and has access to a network of more than 100 branches throughout China with a large and established local and multinational client base, Adecco said.

Fesco Adecco mainly will provide clients with general staffing, professional staffing and outsourcing services including the management of payroll and benefits administration, with scope to expand its offering.

The joint venture is the first cooperation between these two companies and could lead to further cooperation, the companies said.

President of Fesco Shanghai, Ni Ying, said: "The joint venture will not only introduce the latest managerial concepts and exchange platforms for Fesco, but also help Fesco attract and expand its international client base within China."

Analysts welcomed the move by Adecco, saying it was a long-term move for the company.

"It is, strategically, a sound move. this is a move for the future," said Helvea analyst Chris Burger.

At 1030 GMT, Adecco's shares traded up 1.85 Swiss francs, or 3.1% at CHF61.45, while the benchmark SMI index traded down 0.16%. The shares have gained 2% this year.

-By John Revill, Dow Jones Newswires; +41 43 443 8042; john.revill@dowjones.com

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