Mapping out german prospects

31-Oct-2007

Colin Cottell

With a population of 80m, Germany's potential looks impressive. Colin Cottell reports on those recruiters who are already getting in on the act

Earlier this year international staffing group Empresaria bought 60% of Headway, a German staffing company, for nearly £10m. Six months later Empresaria's German empire has grown from 47 to 70 branches, making it the company's largest market.

Empresaria is not the only company that has identified Germany as a growth opportunity. International risk, legal and tax recruiter GRS opened its first German branch in Munich, while to varying degrees, Robert Half International, Michael Page International, Badenoch & Clark and SThree have all established a presence. Major pan-European players Randstad and Adecco have both completed large German deals this year.

Why Germany?
So why are so many recruiters looking to Germany?

"With a population of 80m, Germany is a huge and established market," says Miles Hunt, chief executive of Empresaria. However, another reason is the strength of the German economy in recent years, with unemployment falling to 8.4% in September, the lowest since 1992, and more jobs becoming available. According to Kean Marden, an analyst at Kaupthing Singer & Friedlander, in 2006 the German staffing market grew by between 10-15%.

Aside from economic growth, Hunt says another important factor is at work. "The main reason is that structural change in the labour market is creating a market opportunity for staffing companies," says Hunt. Following changes agreed with the German trade unions the use of temporary staff is more widely accepted. He explains: "The use of temporary staff is now seen as helping the movement of workers in the economy."

The result, says Marden, is that the percentage of temporary jobs in the economy has risen from 0.5% to 1% in the past three years, and is predicted to rise to between 1.5 and 2% by 2010. Although still a long way below the UK's 5%, many employers, such as BMW, now use temporary workers as a matter of course.

Permanent recruitment is also growing fast, with total revenues rising by 19% in 2006, according to a survey by BDU, a German consultancy.

According to Marden, the fastest growing areas of the market are white collar professionals in the banking, finance, insurance and legal sectors. Another strong market is engineering, a sector targeted by Empresaria [when it purchased the majority share in Headway], as well as construction.

English model
GRS opened its first German branch in Munich nine months ago and has already doubled the number of consultants to 14, says Greg McHugh, head of GRS Munich.

McHugh says he was "sent out to grow the office by bringing the English style of recruitment to Germany". As he explains there are key differences, with German executive search being "more reactive" [than proactive] and "more laid back" than London.

For example, he says: "German recruiters have been much more reluctant to drive recruitment. They will send a CV to a client and wait for a response rather than talk to the client about the candidate and then send a CV. We want to bring the London 'buzz' to Germany."

The market has also benefitted from German workers' increasing willingness to switch jobs for career reasons, says McHugh.

Robert Half International (RHI) has tripled its offices in Germany, from three in 2004 to nine today. Ian Graves, RHI's managing director continental Europe, says the company has grown organically by locating a new office close to its original hub. Essen has grown out of Düsseldorf, for example.

Graves says one issue is to ensure that you can put the right management and staff in place "without the existing offices suffering".

However, he says the main challenge "has been finding people of the right quality to hire". Another issue is to improve domestic employers' understanding of the strategic value of temporary staff. In that respect, although this is getting better, Graves believes Germany is where the UK market was 10 years ago.

Big advantage
It's vital getting the right consultants who are bilingual, if not trilingual (German, English and French), says Ian Jermin, an analyst at Bridgewell. In order to deal with big international clients such as investment banks, recruiters need a mixture of both German and UK staff, he suggests.

McHugh agrees that an international workforce works well, with his own staff coming from UK, French, Italian and Polish backgrounds — though they have all lived in Germany for many years and speak German.

However, "the big advantage" comes from having a local presence, he says. "What's important is that you are local. It's much better than operating from the UK. Employers like you to go out and meet them," he adds.

"The biggest obstacle is how to enter the market, as barriers to entry are high," says Hunt. There are also cultural issues and the difficulty of finding a partner at a reasonable price, he adds.

Marden agrees that there can be difficulties. "The operating model in Germany is different from that used in the UK," he says. The main difference is that the worker has a contract with the staffing company, who is responsible for paying them for five days a week, even when the end user only needs them for say four, he explains.

According to Thomas Läpple, head of public affairs at BZA (the German equivalent of Britain's Recruitment and Employment Confederation — REC), it works to their advantage by making recruitment agencies a more attractive option. "It allows the client to send back the worker to the recruiter when they no longer need them," says Läpple.

Although there is consensus that the growth of the staffing market is set to slow, at least in the short term, McHugh says he wouldn't be surprised if others didn't seek to enter the German market. Certainly RHI's Graves is optimistic, predicting that in 12 months' time RHI "will probably have" an additional six offices in Germany.

But if recruiters want a piece of the action, the indications are that they need to move quickly. More and more second-tier, often family-owned, German recruiters are selling out to big pan-European players, particularly Adecco and Randstad, according to Marden. "German companies are selling themselves, and the market is becoming more consolidated," he warns.