In 2009, will the going get tougher?

Predicting what might happen in the industry is never an easy task, yet it is even harder in the current climate. Industry insiders offer insight into what might lie ahead

David Arkless, board director, Manpower

Permanent and temporary/contract recruitment will reduce in every region. However, global and niche players in the industry will be more resilient to the potential pressures of volume and margin reduction. There will be a demand for specialist placement for all types of high level ‘domain-expertise’. The emerging market economies will be more insulated from the global economic crisis due to their huge domestic economies (ie. China and India). The Middle East will continue to grow for the placement of international resources. Government-related hiring and contracts will also buck the generally weaker trends. Companies with a strong balance sheet will obviously fare better and firms with a range of human resource solutions will be better protected and more engaged by customers. Outplacement, consulting and career coaching services will clearly benefit, as will organisations capable of fast re-training and realignment of candidates. Natural selection will ‘ease’ some companies out of the industry. Those that survive will be creative, entrepreneurial and relationship-led. ‘Virtual’ companies will fare less well as customers prefer a face-to-face interaction when the going gets tough.

Jill Barnes, owner, 40+ (recruitment agency for the over 40s)

The young and unskilled people who were snapped up by employment agencies before the downturn will become the permanently unemployed — particularly young people who have left school with no qualifications. I don’t think the downturn will affect the recruitment of older people — I can only see the demand increasing. Companies are going to want more experienced, reliable staff and want more value for their money. Age legislation is based around the premise that people over the age of 65 cannot get a job, but this is simply not true. A lot of high volume, cold calling and hard sell agencies will go to the wall. This isn’t a bad thing. The continual ringing of clients, which is caused by consultants chasing commission, gives the recruitment industry a bad name. Recruiters will have to up their standards, become more professional and be more innovative when approaching clients.

Kevin Barrow, partner, Blake Lapthorn

The Temporary (Agency) Workers Directive (TAWD) may come into force here next autumn. Staffing companies need to look into ways they can avoid the directive and what their procedures need to be where TAWD does apply. Four possible exemption models being discussed are: employed temp models under the Swedish derogation; short-term assignments under 12 weeks; project-based contracts; and limited company contractors. 2009 will also see IR35 being policed more heavily, problems with the new CIS [construction industry tax deduction scheme], and scrutiny of the tax-free status of travel and accommodation expenses paid to ‘employed’ and umbrella company temps. HMRC is also promising a clampdown on certain offshore managed service company arrangements and April sees the end of the Staff Hire Concession, pushing up unrecoverable VAT costs for many hirers using temps unless recruiters can offer new VAT-exempt supply models. And with £10,000 penalties, recruiters need to be sure they are on top of the new immigration law when placing perms and temps, and to avoid cartel and price fixing temptations.

Charles Elderton, director, Chadwick Nott Legal Recruitment

After record growth in recent years recruiters should brace themselves for a difficult 2009. In many cases it will simply be a matter of staying afloat. Undoubtedly we will see further consolidation and sadly not all recruiters will survive the year. There will also be winners. Well-run and properly managed businesses with strong cash flow will certainly have the upper hand. However, this is no guarantee of success. Motivated, well-trained and focused staff with strong client relationships will be key. Doing the basics well and then doubling it will be the norm, just to stand still. Yes, next year will be challenging, but for those who want it badly enough there is every reason to be positive. There will be opportunities out there waiting to be grabbed. If nothing else, 2009 will necessarily cause us all to dig deep, hone our recruitment sales skills and ensure that the best win.

Peter Felix, president, Association of Executive Search Consultants (AESC)

As US President Franklin D Roosevelt said: “The greatest thing we have to fear is fear itself.” In the world of executive search fear of the future translates into uncertainty and indecision about proceeding with key executive appointments. Yet once the uncertainty begins to recede, then organisations begin to plan their way out of recession and invest for the future beyond the downturn. We have been here before but perhaps not with such prescience of bad things to come. In the first and second quarters there is a concern that top management will be frozen in its tracks and be so concerned with cost cutting and organisational survival that they don’t concentrate on the key issues of retaining and seeking out the best executives in the market to upgrade their team. But the talent management phase will come and the smarter firms will do it sooner rather than later. The best organisations understand there is still a shortage of executive talent and to ignore this could be costly for them in the long term. Executive search consultants will need to stay close to their clients during this period to help with strategic advice, assessment and succession planning, and to help them secure the market best on an opportunistic basis.

Kevin Green, chief executive, Recruitment and Employment Confederation (REC)

While it’s now clear that the economy will be in recession and businesses are shedding jobs, there will still be opportunities for recruiters. Our research shows that the recruitment market will decline between 2% and 12% in 2009. Even in the worst case, there will be a market of £24bn. The REC will be launching new products and services in the New Year, focused on helping our members in these tough times. We are also introducing an account management process so that we can have a better and more informed relationship with every member. We will continue to fight for the industry and promote its value to the UK economy. We are calling on the government to push back the removal of the VAT concession on temporary jobs planned for April. We will also seek to ensure TAWD, when introduced, will be pragmatic and work for both employer and our industry.

Mike Higgins, partner and specialist in the recruitment market for sales, acquisition and management, Fusion Corporate Finance

We are likely to see low M&A activity for the first half of the year as recruitment companies look for internal cost savings and efficiencies. However, I would expect to see an increasing level of acquisitions later on as financially distressed companies are forced to seek buyers. Consolidators will also want to acquire and build marketshare and geographical presence. As the US was first into the recession, it is likely to be first out and this could lead to large US recruiters taking advantage of the buying opportunity in the UK. In terms of deal valuation, the froth has disappeared from the market entirely. Looking at the listed plcs, the price earnings multiple (profit after tax) has dropped from between three and nine times pre-tax profit to an average of four to five times. With private companies trading at a discount to the quoted sector, this is not a good time to sell unless a necessity. Conversely, for those companies with cash and ambition 2009 presents a great opportunity.

Darren James, managing director, Definitive Consulting

Clearly next year will be difficult for the recruitment industry. Difficult, but not impossible. Most of the good recruitment businesses will probably have to improve by at least 40% next year to even achieve the same levels of performance as this year. History tells us that at least 40% of recruitment businesses close in a recession and I would expect something similar this time round. Well capitalised and debt-free businesses will survive, but risk taking, debt-heavy businesses and those delivering an inferior service may not. This obviously creates opportunities for companies — and innovation will be vital to capitalise on them. We have already taken a number of steps to ensure that we are ready for a changing marketplace. For example, next year we become an LLP, with our top performing consultants as equity partners in the business — uncapped earnings based on profitability and a real say in how the business is run. Difficult times call for fresh thinking, which should ultimately be good for the industry.

Liz Longman, UK director, TEAM (The Employment Agents Movement)

The year ahead will be challenging for recruitment businesses, with the market in turbulence and many changes in legislation ahead — for example, TAWD, with the final detail yet to be divulged or date given of implementation. Listening to members at TEAM regional meetings, many report that there are plenty of jobs, but clients are taking longer to make their decisions and final commitment to a new recruit. Some members are diversifying and looking at sectors where recruitment continues strongly. Never has there been a better time to be a TEAM member, as there is strength in working together and sharing business. My advice for 2009 would be to look at essential costs and be prudent with spending, not to cut costs on vital staff training or marketing of the business. Keep a tight control of creditors, always offer the best possible customer service by looking after your clients, candidates and consultants, and join TEAM. Business will continue, you just have to work smarter.

Richard MacMillan, chief executive, PULSE

While many other sectors will continue to face a drop in demand for staff and struggle to make placements, healthcare will continue to be an exception. Demand for staff in our sector is on the increase due to qualified nurses retiring at a rate of knots, as well as recent government initiatives introduced to improve the quality of patient care, such as the 18-week pathway target, set up to reduce patient waiting times.
Factors which will sustain continued growth in the market will be a shortage of suitably qualified healthcare workers, restrictions which revisions to TAWD have introduced and an ageing population which requires more care. All this means that healthcare organisations are under continued pressure to properly resource their workforce. It’s also vital that the government refrains from introducing additional legislation that will restrict workers from coming overseas to fill UK positions at a time when demand is so high. 2009 will also see a rise in the number of healthcare agencies that increase their global presence, mainly due to a candidate talent shortage. We currently deliver healthcare staffing services throughout the UK, Australia and the Middle East, for example, and have plans to grow a presence in North America and Asia in 2009.

Sam Newell, director, Mindpool Consulting

Next year is going to be challenging. There is no doubt that the UK net employment figure will drop and we will see considerably fewer new jobs being created within the UK economy. There are, however, always sectors that will perform well and provided you are able to tune into those markets you could have a very good 2009. Corporate restructuring will be big next year. There will be lots of distressed assets, and turnaround and insolvency specialists will be sought after. Many business are going to be reviewing their external risk predictions. Any recruiters supplying credit, market and liquidity risk professionals will be kept busy, as will those with a focus on financial control. Although the domestic economy is shrinking, emerging markets such as Brazil, Russia, India and China (BRIC) are growing steadily. Closer to home many areas of technology, such as cleantech, are still experiencing high levels of growth and investment. Providing you go into the New Year with a plan to beat the credit crunch, I believe 2009 could be a good year.

Craig Tibbles, chief executive, Orion Locums

Over the past few years, we have seen many changes in the regulation of healthcare recruitment. Some changes in quality regulation have been good for patients, clients, locums and the industry. However, many have not. The bill for introducing this regulation and ‘cost control’ runs into hundreds of millions of pounds. Many agencies (more than 1,000) have ceased trading or have been acquired, and serious allegations of cartels and ‘price-fixing’, relating to some of the larger agencies, are still under investigation by NHS Counter Fraud and the Serious Fraud Office. Before any of these issues are clearly addressed, we are now faced with the withdrawal of the VAT Staff Hire Concession. This will result in a net increase in cost to the NHS of around 12-13%. NHS PASA (Purchasing and Supply Agency) appears to be adopting a more pragmatic approach to our market. If this is combined with the creation of a level playing field, the NHS, patients and agencies can look forward to a positive future.

Michael Vassallo, equities analyst, Brewin Dolphin Investment Banking

While the stock market has been weak for over a year now, it is only in the past few months that recruitment companies have seen a significant reduction in demand. However, the converse is also true, and typically in the past the market has rallied several months ahead of the actual economic recovery. Therefore, while the recruitment market will probably be subdued for all of 2009 and into 2010, many believe that the share prices of the recruitment stocks could see significant upside as early as the third quarter next year. Also, unlike in the last recession of the early 1990s, the large recruitment stocks now have a much broader geographic footprint and have heavily invested in information technology and infrastructure. The downturn will undoubtedly ‘find out’ the weaker players, but those remaining by the end of 2009 could see some spectacular returns in 2010.

Kevin Wheeler, president and founder, Global Learning Resources

Finding appropriate talent will always be a concern and a challenge for organisations — no matter their size or market segment. Next year will be no different and will mark a new age of strategic recruiting. What will become apparent is that recruiting is transforming from a predictable, transaction-orientated business into one where change, flexibility and strategic thinking are keys to success. Successful talent leaders will encourage and support the use of more contingent staff and consultants, but they will need empirical models showing cost/benefit. They will rely less on job boards and internet search, and more aggressively use social networks such as LinkedIn and networks specifically devoted to their market segment. Personalised messaging and relationship building with potential candidates will lead to success. Even in a depressed economy, talent rules and only the most connected recruiters will place the best candidates — whether full-time or contingent.

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