Tuesday, 31 August 2010

Economic Recovery

How can recruiters prepare?

With the UK facing its biggest fiscal tightening since the Second World War, and with the economic recovery in an early and fragile stage, we now look at the potential impact of the Coalition Government's budget upon the recruitment industry.

Although the UK officially came out of recession in the fourth quarter of 2009, recovery has been slow to gather momentum in 2010. Growth in the economy is very fragile at present; therefore recruitment businesses should understand the current risks involved and be able to prepare for uncertain times ahead. We believe that the Government cut backs will limit the scope for growth in the recruitment sector and make the industry more competitive. End users will take advantage of this situation to squeeze margins. At Oriel we are optimistic that the adaptability and entrepreneurialism of the recruitment industry will enable the sector to take advantage of the opportunities that will arise during this period of change.

As we are currently at the start of the economic cycle this will be a positive time for businesses that are looking to set up or expand into new sectors, but planned cuts in government spending will mean they should be cautious in sectors that are government funded. The cuts will create opportunities for the private sector to fill the gaps, encouraging private sector investment. According to figures announced on 11th August, the number of people unemployed reduced by 49,000 to 2.46 million in Q2 2010. However, as a result of cuts in public sector spending we anticipate that the recovery of the jobs market will stall through the remaining part of 2010.
Oriel has identified a number of risks and challenges recruitment businesses may face over the coming twelve months. Recruitment businesses that currently operate within the public sector should prepare for serious reductions in placements as a result of the government cuts as fewer temporary workers may be required. Teaching agencies, for example, may face a reduced need for temporary placements in schools as they make do when teachers are absent.

However, on the other hand we are seeing signs in the market that companies in some sectors overreacted last year to the economic climate and removed too many staff from their operations. Now that the market is starting to turn around, many companies such as Banks are starting to recruit new staff in order to cope with current workloads.

Once the public sector has reduced staff they may become more dependent on the temporary market in the long term to fill positions without the commitment of permanent workers. At Oriel we believe that the recruitment industry has taken the hit in terms of reduced activity over the past 18 months and the volume increases we have seen in the past three months should be sustained.

The growth of the economic recovery will be good for businesses at all stages of their life cycle, but within the overall growth some sectors will be worse affected than others. Faced with this uncertainty recruiters should consider outsourcing for all of their back office functions. This converts the essential back office functions into variable costs, thus positioning them to deal with growth or a down turn if the "double dip" occurs. Many outsourcing companies also offer funding facilities to alleviate financial pressures. For a new start, agency outsourcing is a solution that can give them the freedom to set up and develop the business without the worry of having to implement and manage systems. If businesses choose to outsource they are less sensitive to volume changes, because the outsourcing company will take the strain of change and keep systems and procedures up to date with industry legislation.

Good credit insurance is essential for recruiters in most sectors. In our experience insurers are now writing more cover, and in view of the uncertainty of the economic recovery it would be a brave recruiter that extended significant amounts of credit to an uninsured client. If a business deals with an uninsured debtor, they should ensure that they increase their margin to compensate for the risk. Outsourcing agencies can arrange credit insurance for businesses on their behalf.

In order to thrive, businesses must look at ways of improving productivity and at the same time reduce costs. Many business services and processes can take up precious time and resources, and successful businesses are increasingly outsourcing these functions. Outsourcing such activities can give you immediate access to more flexible, experienced and cost effective capabilities. Moreover, outsourcing should be seen as a strategic management option rather than just a cost cutting operation as it can support businesses in achieving their objectives through operational excellence.

Oriel, a market leading provider of outsourced business services and finance, gives their clients more time, money and energy to focus on what they do best - and that is getting on with growing their own business.