Boom turns to gloom as recruitment agencies downsize for leaner market

The recruitment business is a good barometer of the strength of an economy, and in the slowing Irish economy matching people and jobs is no longer a booming business.

Recruitment agencies - both old economy and Web-based - are coming under pressure as job losses and a slowdown in hiring turns the environment from the candidates' market of the past few years into an employers' market. Market sources report a significant tightening in the business since December, with job losses at a number of agencies as costs are trimmed to deal with a fall-off in demand from employers for new staff.

Most agencies contacted by The Irish Times were reluctant to discuss their staffing situations but most had let staff go. One source believed that the numbers working in the industry had halved in the past nine months.

Some 524 companies are licensed to operate in the market but very few statistics are available on turnover, profitability or employment levels.

Recruitment companies are reluctant to discuss their own employment or performance figures "for competitive reasons".

"This is a highly competitive business, even cutthroat at times. Everybody is watching everybody else. A lot of new operations came in over the past few years on the back of the boom in the economy trying to get a a slice of the action. Many of these are in trouble now, especially the ones that specialised in the IT business, and some of the bigger operations have cut staff too," one consultant remarked, declining to discuss staffing at his company.

To set up an employment agency, an operator must be licensed by the Department of Enterprise, Trade and Employment. Licences must be renewed annually. Figures for new and renewed annual licences from the Department show the huge growth in the numbers of suppliers of the service in recent years.

In 1997, some 272 licences were issued or renewed. In succeeding years, this rose to 329 (1998), 447 (1999) and 481 (2000). Between January and August this year, 524 licences were issued. Since no licences were revoked over the past five years, the figures indicate there were 57 new entrants to the market in 1998, followed by 118 in 1999, 34 in 2000 and 43 so far this year.

The market is highly fragmented, with a large number of small, privately owned players; a number of players specialising in particular sectors or job types; and a smaller number of large firms. There have been complaints from employers about the quality and consistency of the service offered and the professionalism of some recruiters.

Estimates of total turnover by the market players vary between £250 million (€318 million) and £500 million.

The fee structure usually involves a payment from the employer client of 15 to 20 per cent of the placed employee's annual salary for permanent placement and a margin of about 20 per cent of salary when employees are placed with companies on short-term contracts.

There are only two Irish publicly quoted recruitment companies - Marlborough International and CPL Resources. The share price experience of these companies gives some indication of the state of the business.

Marlborough floated in Dublin and London in 1997. The shares hit a high of €5.35 in 1999. They are now trading at 55 cents, a little ahead of their year low of 40 cents and well off their 2001 high of €1.45 and their €2.60 2000 high.

CPL Resources, which started as an IT recruitment specialist but has expanded into other areas, floated in 1999. CPL shares reached a high of €1.70 in 2000 and are currently trading at around 70 cents, from a year 2001 high of 95 cents and low of 55 cents.

Marlborough, the biggest company in the Irish market, has reduced its Irish workforce by 75 people since the start of the year. It currently employs 280 in the Republic and about 400 in total. Founder and chief executive Mr David McKenna is so unhappy with the group's current share price that he is considering a management buy-out.

The recruitment market peaked about nine months ago, according to Mr Adrian McGennis from Marlborough.

"As the number of vacancies came down there were too many players chasing what was a reasonably finite market. The market has matured and agencies have had to restructure to get business," he said.

"We have to be much more proactive to get company clients. Before we were targeting the candidates. But there are still good opportunities out there. Recruitment is continuing in construction, in the health sector, in professional and financial services, and in the sales and service areas in some companies."

Marlborough had restructured its business to put more emphasis on getting clients and increasing efficiency in the back-office and support functions, he said.

Against the trend, CPL has not let any staff go, according to chief executive Ms Anne Heraty. "We are looking for recruiters and are seeing an increase in demand from employer clients for contract workers.

"The market is tougher but we are in it for the long term so we have to focus on the service we give clients," she said.

CPL started out as a specialist IT recruiter but expanded into accountancy and finance recruitment with the acquisition two years ago of Careers Register, and into pharmaceutical and office placements.

Placing people on six- to 12-month contracts is a growing business, accounting for about 80 per cent of CPL turnover and 35 per cent of net fee income, Ms Heraty explains.

"The market is tougher but there are opportunities for job-seekers. There are opportunities in the software area - some firms are still doing well. The SME sector is recruiting and there are jobs in pharmaceutical, accounting and financial services, and in other areas," she said.

At MERC Consultants, director Mr Bill Hennessy said having a wide spread of business was important in maintaining turnover in the current environment.

"Business this year has fallen from 2000 levels but we are still reasonably busy because we have built up a widely spread client base. Demand has fallen off in some areas but there is still good demand from public sector, semi-State and not-for-profit organisations.

"In the private sector and multinationals, the areas that have been hit are computer, technology and technology-associated companies. But in the private sector there is demand from other areas such as pharmaceuticals and fast-moving consumer goods companies."

Despite a fall-off in demand from employers, the global Manpower Group plans to expand its Irish operation.

According to group chief executive Mr Jeffrey Joerres, the industry moves in cycles and it is important to be ready for the next cycle.

"Success will be based on predicting the next cycle, whether it be pharmaceutical, biotechnology or another area," he said.

Manpower Ireland plans to increase its staff from 65 to about 130 over the next two years.