d to reduce costs inside recruitment firms. The imperative action is to cut waste on non-core activities and not impede value creation.
According to the Global Recruitment Market Report: 2010 Edition by Koncept Analytics, the total worldwide recruitment market is valued at over US$420 billion and has grown at an average 12% per annum during the last decade. The report states that the global recruitment industry is set to witness growth over the next few years, at a CAGR of more than six per cent over the period 2009-14 about ½ of the pre GFC figure.
The growth in the market will result from improvement in global economic conditions. The market growth is not expected to return to pre GFC levels anytime soon as labour markets around the globe are witnessing slow and prolonged economic recovery, especially for developed nations.
With Australia having dodged the worst of the global financial crisis, the effect on the Australian employment placement services industry has been mild compared with its international counterparts. Australia’s rise in unemployment was relatively small and quick to begin reversing, with demand for employment placement services rebounding in 2009-10 and 2010-11. The current rate of unemployment in Australia is steady at 5%.
According to research conducted by the Australia industry body, RCSA, in 2010-11, the industry is expected to generate $1.9 billion in revenue, up 2.2% on 2009-10. Profit will climb by 4.7% to $59.7 million on top of a 3.5% rise in 2009-10 as margin pressures eased. This followed a year of declines in 2008-09 as the worst of the economic downturn hit.
The recruitment industry includes personnel search, selection, referral and placement for permanent work positions. For the employer, services can involve all aspects of the recruitment process from the formulation of job descriptions to screening and testing applicants and investigating references.
According to Shortlist.net.au, Permanent fees are well and truly on the rise again, particularly in Asia, with clients happy to accept published rates, retainers and in some cases even offering higher fees for key roles, according to senior recruitment executives
During the Global Financial crisis (GFC) many of the large recruitment companies asked their staff to take pay cuts as a mechanism to reduce operating costs. Naturally this practice was not well received across the board and many recruitment consultants responded by setting up shop with colleagues in opposition to their former employers. The quintessential essence of the recruitment process is the client / consultant relationship, that is to say that the client will stick with a consultant who knows and understands their business, culture and environment rather than the particular recruitment company that they may be working for at any particular point in time.
Preferred Supplier Agreements (PSA) driven by procurement departments go some way to locking in commercial relationships, however because of the heavily reduced rate offered in order to win the business they fail to deliver a meaningful profit to the recruitment companies and thus defeat their purpose. Consequently recruitment companies do not spend a lot of time on them, as they are simply not worth it.
Many recruitment companies are looking at Business Process Outsourcing (BPO) not only as a mechanism to become more efficient and give them greater control over retail margin spread but also as a way to make more effective use of their consultants time, and allow them to spend their time on client facing activities.
Many are hoping to achieve cost savings by handing lower level administration work to a third-party that can take advantage of efficiencies due to economies of scale by doing the same work for many companies. (Lift and Shift) The principal driver is that recruitment companies taking advantage of these services will free up their expensive consultants to conduct more client facing higher value work, which should not only see an increase in productivity but a commensurate increase in top line revenue and a fatter bottom line.
Therefore, further revenue growth in the recruitment market is predicted as recruitment organisations expand the range of business functions that they may be prepared to outsource as a way not only to lower operating costs, but also as a way to become more efficient and playing to their strengths.
After all, once recruitment companies take stock and realise what business they are really in, do they really need to be handling lower level non core business processes if an expert third party can carry out that same process for a lower price and more efficiently?