A long-term business strategy is paramount if recruiters are to emerge healthily from the downturn, according to the Recruitment Business Survey — Surviving and Emerging from the Downturn by chartered accountants Saffery Champness.

As the UK economy finds itself in recession, the first since the early 1990s, the survey discovers recruiters in an optimistic mood over expansion into new geographies, industry sectors or both. Jo Sellick, managing director at financial, legal and education recruiter Sellick
Partnership, has opened two new offices in Leeds and Derby.

“We are taking the view that there will be casualties in this recession and recruitment businesses will have a tough time,” Sellick told Recruiter. “But the reason we are opening these offices is down to our clients. We do a lot of work in commerce and industry, and our clients want us to be in those locations.”

Such confidence may be due to the high number of self-funded staffing firms in the industry, although a number of firms have re-evaluated operational or financial restructuring.

If the recession of 1990-92 is anything to go by, the UK is in for a sustained and steep downturn. Back then, the country experienced eight quarters of negative growth and unemployment rose by 50%. The UK economy is predicted to fall by -1.5% in 2009, similar to 1990-92 projections, which has fuelled fears that unemployment will eventually reach 3m.

With the economy retracting at such a rate, recruitment volumes are expected to decline, according to the ONS Agile Intelligence estimate for the second half of 2008. Unemployment is expected to rise by 800,000 in 2009, while a fall in recruitment turnover of 7-15%
is also anticipated in 2009, followed by a flat period for the economy and a slow recoveryinto 2010.

These factors have contributed to a reduction in mergers and acquisition (M&A) activity among recruiters.

Recruiters appear to be diversifying into new industry sectors as a means of finding niche candidate/client areas in which to operate. This could be through exploiting the existing relationships of acquired consultants. The report shows that 63% of recruiters expect to grow
their business through expansion into new sectors or UK locations, while 31% are looking to recruit into new geographical areas and6% are even seeking new opportunities overseas.

Recruiters are also optimistic on trading for the current and forthcoming year. Just over half of respondents expect to increase turnover in 2009, while 20% expect to increase profitability and 25% expect to increase payment profitability. Recruiters may be overly optimistic on their company’s prospects. Some may reap the benefits of seeking respite in buoyant sectors but niche recruiters, dependent on one
specialism, are more vulnerable, according to the report.

This is not to say that recruiters are unrealistic on the downward pressure on margins. High volume recruitment along with lower value skill sets such as industrial and transport and storage accounts for most weak margin business. When compared with Recruiter’s Hot 100, there appears to be a move towards lower margin business.

But margins do not have to be renegotiated even in hard-hit sectors like automotive, which has just been the subject of a £2.3bn
government bailout, according to Guy Liddall, managing director at MTS Services Group. “We have not had to renegotiate any margins.
We are handling significantly less volume of work but the work we are handling is at the same margin we always handled it at.

“We can do this as we are known to be experts in our field, so when firms require people they do tend to turn to us and we are in a niche
marketplace.”

The report found that 29% are aiming for margins of 21-25% on temporary placements, while 51% said temporary placement margins
remain unchanged. Most recruiters (four out of five) are witnessing a static temporary placement margin, with only one in five respondents seeing any expansion in margins.

Restricted access to bank funding is not a concern for four in 10 recruiters. John Tolmie, managing director of travel recruiter AAAppointments, says that being selffunded is always an advantage. “It is better to be self-funded. If you have the ability to have access to
funds, you are going to be in a stronger position in the current market.”

According to the report, 40% of recruiters are self-funded, while 60% use a mixture of finance methods including invoice discounting and bank loans including 41% that use invoice discounting. Equity investment via venture capital is the least popular financing option for recruiters.

Financial or operational restructuring of the business is expected by 55% of recruiters due to the recession, while 40% do not expect to restructure at all, consistent with the number of recruiters that are self-funded. Of the recruiters that do expect to restructure, 95% will restructure operationally, while 20% expect to restructure financially.

While recessions cause a tightening of purse strings, they do inevitably lead to a deepening of the talent pool and 80% of recruiters see this as an opportunity for growth. However, recruiters appear poorly placed to take advantage of these opportunities.

Also the skills of those people out of work may not fill current skill shortages, according to the report. Skills shortages are not restricted to traditional areas such as engineering. Recruiters have reported that it has been difficult to attract drivers and logistics candidates this year, similarly in the construction industry as confidence in these sectors has ebbed away.

Mark Calver, director at UK Construction Recruitment, has had no such problem attracting candidates, however. “Candidates are contacting us every 2.6 minutes for work. We have had over 8,000 people register since 1 December to now.

“Recruiters could be reducing their advertising spend or their means of obtaining new recruits. If you are not investing any money in
recruiting people, then obviously nobody is going to ring up.” The war for talent in engineering rages on. The survey found that finding suitable engineering candidates still poses problems and is set to continue with large infrastructure projects ongoing in both the UK and abroad. Unsurprisingly, the report found that 80% see the downturn as major threat, a third deemed buyer power as a threat and 34.5%
thought consolidation would bring about opportunities to the business.

For Martin Holden, head of professional and consultancy services group, at Saffery Champness, the challenge for recruiters is clear. “Recruiters should be applying their skills to the current market. If you are a temporary recruiter, it is about looking after your customers,
developing a contractual basis of working with people to secure your trade, investing the time so that you get the best candidates for the
companies with which you are engaged. On the permanent side, it is about careful financial and tax management and looking for the
opportunities to consolidate in local market places. I don’t think we are seeing enough of that yet.”