Recruiters wait for recovery

Australia bypassed the worst of the global financial crisis, which meant its effect on the Australian employment placement services industry was mild compared with its international counterparts.

Australia’s rise in unemployment was small and quickly began to reverse, with demand for employment placement services continuing to grow in 2010-2011 and expected to continue in 2011-2012.

IBISWorld estimates that industry revenue has increased at an average annualised rate of 0.6% during the past five years.

In 2011 the industry is expected to generate $2 billion in revenue, up 4.5% on the year prior. Profit will climb by 4.0% to $59 million.

Following the economic downturn revenue grew 2.2% for 2010-2011.

Despite uncertainty among international global clients and reduced business confidence the employment placement services industry will grow as it anticipates increased demand in permanent recruitment services and an increase in client-paid net fees.

As the Australian economy hits full health industry revenue growth will accelerate to average 2.9% per year over the next five years and is forecast to total $2.3 billion by 2016-17.

That will be driven by increased economic activity, a strengthening labour market and the potential for providing services online.

Industry Outlook

With the Australian economy having held up well amid the global financial crisis and unemployment remaining relatively low growth in the employment placement services industry will continue to strengthen in 2012-13, with revenue forecast to rise by 2.7%.

Although declines in unemployment tend to lag behind growth when an economy is emerging from a downturn the composition of unemployment tends to move more toward people who are switching jobs, while the proportion of people that have been laid off or are long-term unemployed declines.

Continued solid growth is anticipated during the five years through 2016-17 as unemployment gradually decreases. By 2016-17 IBISWorld estimates that industry revenue will reach $2.3 billion.

Job vacancies and new hirings will increase as the economy begins to achieve relatively strong results. Businesses will again turn to employment placement service providers as their recruitment needs expand and the right applicant becomes more difficult to find as competition for workers heats up.

During the five years through 2016-17 industry revenue is forecast to increase at an average annual rate of 2.9%.

Aside from the level of unemployment and general economic conditions other factors driving growth, once the recovery begins it will include the expansion of major operators into new services such as employee process outsourcing and administering WorkCover, superannuation and other compulsory and statutory payments to employees on behalf of clients.

Outsourcing recruitment by business and government will continue. IBISWorld expects profit margins to remain low due to ongoing high levels of industry competition.

After-tax profit is forecast to grow at an average rate of 2.9% per annum to $79.4 million over the five years through 2016-17. Profit will be more volatile than revenue as it comes off a lower base following the downturn.

A strong recovery in profit is expected as margins recover although overall that remains a relatively low margin industry due to its highly competitive nature.

International risks and opportunities

The Australian economy has dodged the worst of the global economic downturn so far but risks of further global financial shocks remain.

When many nations’ governments bailed out financial institutions and increased spending to stimulate their economies the effect was a shift of some private sector debt burden onto government balance sheets.

Many governments were already heavily indebted prior to the crisis and the additional burden, coupled with investors’ reluctance to continue to provide cheap credit, have strained the finances of some nations, particularly Greece, Spain, Italy, Ireland and Portugal.

Any problems in global credit markets will potentially affect Australia’s banks, which are heavily reliant on offshore funding. That may flow through to Australia’s economy and the employment placement services industry.

The industry has a small but growing number of large companies with international links and many small operators, some providing niche services in specialist industries or markets.

Some providers are now critically dependent on government contracts under the Job Services Australia program.

A shake-up of those contracts occurred as part of the transition to Job Services in mid-2009, with some providers losing contracts and others gaining them. That led to office closures and staff lay-offs among those who lost contracts.

It is expected that major domestic operators will expand internationally due to limited revenue growth opportunities in the domestic market.

Further growth opportunities still lie with providing online services to employers and job applicants, and with expanding into providing a totally outsourced human resources service to clients, covering aspects from staff selection to payrolls and claims for Workcover.

Recruitment broker firms that sign up a number of recruitment agencies then offer their databases to client firms are a growing sub-segment in the United States and Australia.

Key Success Factors

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

Having contacts within key markets: Developing contacts in a wide variety of companies and industries is essential for identifying suitable job candidates.

Ability to communicate and negotiate effectively: Good communication and interpersonal skills combined with industry knowledge are important to retain clients and for interviewing job applicants.

Production of premium services: Maintaining quality staff, service and high client satisfaction levels are important in retaining and attracting clients.

Capacity to objectively assess new investments: Medium and large companies need funds to acquire other companies in the industry.

Effective product promotion: The capacity to present a professional image and to market to appropriate clients is important in attracting and retaining clients.

Access to the latest available and most efficient technology and techniques: It is important for companies to be completely computerised and to have databases containing information on people and clients. The ability for e-mail lodgement of resumes and for clients to access them online is very useful for placing employees.

Production of goods currently favoured by the market: Companies must understand the work environment and culture of clients’ workplaces. Ultimate success will come from continually identifying and selecting the most suitable people for vacant positions.