Recruiters feel the pinch as jobs contract

This article is interesting for the insights the writers have found from a number of senior managers of international recruitment firms around the world.

Whilst none of them paint a rosy picture of their businesses for the next year or so, they do identify some areas of opportunity for recruiters, such as assisting in the downsizing process with counseling or by further developing their offerings as a temping agency - a possible indication that job-hunters might be well advised to prepare themselves mentally to take on temporary positions or roles with shorter contract terms.

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ARTICLE:

By Deborah Brewster, Brooke Masters and Sundeep Tucker
Published: December 27 2008 02:00 | Last updated: December 27 2008 02:00

Now that the banking slump has spread to the real economy, global recruiting firms are feeling the pinch.

In the past two months, US-based high-end head-hunters such as Korn/Ferry International and Heidrick & Struggles and staffing groups Adecco of Switzerland and Randstad in the Netherlands have all announced falling revenue and shrinking headcounts.

Banks and housebuilders, two big sources of revenue for recruitment groups, are shedding staff by the tens of thousands, and most other companies are being cautious about taking on commitments. Candidates have also grown more wary about changing jobs.

That means searches take longer and there are fewer jobs to fill, cutting into completion fees. Many companies are also cutting back on retainers paid to high-end firms, and some are taking 90 days to pay their bills instead of the customary 30.

"I think 2009 is going to be a batten-down-the-hatches year," says Alistair Cox, chief executive of Hays, a UK recruiter that focuses on mid-level professionals in 27 countries.

The slump is most pronounced in the US and the UK and in the financial services sector. According to recruiters Morgan McKinley, there were 3,780 vacancies in London's financial service sector in November, down 59 per cent from the same month last year. The total also represented a 30 per cent drop from October.

"The landscape has changed significantly. 2009 will be a shocker and probably half of 2010," said Jonathan Evans, chairman of Sammon Associates, a London-based recruiter.

Russ Gerson, chief executive of Gerson Group, a financial services recruitment and consultancy firm agreed.

"The bottom just fell out in September," he said. "In this environment, there are going to be serious cutbacks among recruiters ... We will see the large firms let go of a lot of people, and a lot of the very small firms will go out of business."

Headhunters never have much visibility on their revenues, but tough times make the future even harder to predict, said Steve Ingham, chief executive of Michael Page International, which focuses on higher-paid banking and other professional sectors. "Can I predict what is going to happen in six months? No," he said.

Germany and France remain relatively strong, as do parts of Latin America. But the slump recently spread to Asia, where several key markets - Singapore, Hong Kong and Japan - are now in recession.

The latest Asia survey of 3,000 hiring managers by Hudson, the recruitment firm, showed a marked fall in optimism, with companies admitting their approach towards hiring had moved decisively from "wait and see" towards downsizing.

Mike Game, chief executive of Hudson Global Resources Asia, said Hong Kong was suffering because of its comparatively higher levels of front office jobs in the banking sector, while hiring growth in China had dropped to single digits.

Christopher Sykes, managing director, Asia, of EWK International, which focuses on emerging markets, said companies in the region were not pushing recruitment plans in order to conserve cash.

There are bright spots: public sector recruiting, restructuring and bankruptcy experts, and outplacement services, where recruitment firms are bought in to assist companies to downsize by offering career counselling.

Matthew Bennett, head of the Hong Kong office of Robert Walters, said that his firm had diversified to reduce reliance on financial services, and covered a range of sectors including retail, IT, telecoms and supply chain logistics.

Korn Ferry was this month hired to find a replacement for Tim Geithner, the president of the New York Federal Reserve, following his appointment as US Treasury secretary by incoming president Barack Obama. But that didn't stop the Los Angeles-based company from saying it would cut 15 per cent of its workforce to save $50m a year.

Recruiters who also provide temporary workers are also doing better than those focused exclusively on permanent hiring.

Investors have been negative about recruitment companies for months. Korn Ferry and Heidrick & Struggles have each seen their share prices fall by 75 per cent in the past year, and Hays and Adecco are down by about 60 per cent since their July 2007 peaks. Analysts predict staffing agency revenues and earnings are likely to stay low for at least the next 18 months.

"Labour markets tend to lag the real economy by up to 12 months," says Kean Marden, a Singer analyst. "Even if the real economy bottomed out in 2009, unemployment would continue to rise until 2010."

But investors may not wait that long. After the dotcom crash, Michael Page's share price nearly doubled in a year when its earnings barely moved, Mr Marden said. "It completely rerated in anticipation," he said.

Copyright The Financial Times Limited 2008