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One of the giants of the recruitment industry, Harvey Nash, the resource solutions group, recently described the first half of 2001 as 'one of the most challenging trading periods in its history.'
The company's shares fell by nearly 10 per cent after the company revealed a steep drop in pre-tax profits to £700,000 from £6.7 million for the comparative period last year despite a 36 per cent rise in turnover to £126.4 million.
David Higgins, Chief Executive Officer, said: "Following the widely reported slowdown in the technology and telecoms sectors together with the global economic downturn, the demand for our services has weakened considerably."
It has since restructured its cost base at a cost of £1.6 million, including the closing of its Austin, Melbourne and Newcastle offices and reducing headcount.
The example represents the recent actions of many large recruitment agencies forced to scale down their national and global operations due to overbearing global economic pressure.
The pressure brought about by the downturn was the principal area of discussion at the recent Recruitment and Employment Confederation (REC) annual conference in London.
The contrast between REC's conference last year, where the general outlook was positive and 'opportunities' was the buzzword, was stark in comparison to this year's where 'recession' and 'scale of impact' had taken their place.
In between talks at the conference, representatives from agencies across the UK were asked to vote on key issues affecting their companies. More than half of those in attendance voted for 'recession' over 'regulation' when given the choice as to what posed the greatest threat to their businesses over the coming year. Two thirds said they 'expected to see little growth.'
A more optimistic picture of long-term growth for the IT recruitment market was painted by Don McLaurin, Chief Executive of the National Association of Computer Consultant Businesses (NACCB), at the Association of Technology Staffing Companies' (ATSCo's) second Annual Members' Conference in London.
Mr McLaurin of NACCB, a US association representing IT recruitment companies, told delegates that whilst there was a severe short-term decline ahead, longer-term growth was still predicted at between 15 per cent and 19 per cent a year to the year 2005/ 2006.
He said: "It's been a great ride for ten years, but all we're doing now is regressing to the mean. We're getting back to normal and that was inevitable. For us, even if we put 'normal' at about 10 per cent growth- it's a figure most other industries would envy. The fact is there are a lot of people in our sector who have an unrealistic view of what is normal, and they've never worked through a recession. Their expectations have to be re-adjusted."
He spoke of immediate expectations in the US of a sharp decline of 20+ per cent in the industry and advised UK agencies to 'look into expanding during this period by latching onto still growing sectors and snapping up the workers who will become available.'
As Mr McLaurin mentioned, the short-term situation for recruitment agencies will undoubtedly be a rough ride. The number of agencies cutting back on staff and spending grows ever-longer, the most recent at the time of going to press being the online recruitment agency StepStone.
Stepstone has just announced it will shut its UK operations, shedding over 500 jobs in a major overhaul of the business.
The company said that due to its cash position and state of the economy it cannot sustain its current level of spending across Europe and is reducing headcount from 876 to less that 350. It recent stated that: "A skeleton staff will be retained at the company's Hammersmith office to assist the liquidators."
However, not all agency news at the moment is negative.
Adecco's UK operation has just reported its year-on-year third quarter revenues have grown by over a quarter. It recently posted 11 per cent growth from new contracts and has opened 30 new branches across the country.
Other UK agencies are also looking past the current downturn positively. One of these is the telecoms and IT recruitment agency, Alexander Francis.
Like most other agencies it has been affected by the fall in contractor rates and drop-off in demand, despite this it remains confident about its long-term future in the marketplace.
Piran Littleton, Business Development Manager at Alexander Francis, said: "There has definitely been a re-defining of what the demands are for our contractors. We started out in the technical telecoms recruitment arena 16 years ago and this year has been the slowest in the numbers of network build and design staff we supply. However, we managed to increase business by 25 per cent plus in the first quarter of the year compared to last year and take on four new members of staff, so there must still be a demand for quality staff."
"We anticipate our area of the market, IT and Telecoms technical staff, picking up again in the new financial year. We have certainly seen the marketplace tighten its belt, however there are still demands for quality contract and permanent staff."
"With regards to contract rates, they have traditionally been 2.5 times the salary of the equivalent permanent position, however this does seem poised to change down.
"VoIP specialists, Meridian, Help Desk and CRM staff seem to be pretty much in demand for us at the moment. On the point of lost product the effect of the foot and mouth crisis has removed all the work we were delivering in the rigging areas and this has had quite a knock on effect for related positions.
"As for where we are sending people to work, the response from the vast majority of our contractor base is they will 'go where the work is.' This is a marked change from even a year ago when the majority of staff wanted to work within a 30-mile radius of home. Within Europe we are seeing Germany, Holland and France supplying good contractor opportunities.
"The change in the marketplace has certainly led to more choice for the client, however, that choice has not necessarily meant quality improvements. An onus needs to be put onto the supplying agencies to thoroughly investigate the skill sets potential staff are currently representing through their CVs, we have certainly rejected candidates who have attempted to solve their own skills shortage by simply stating they offer expertise in an area they are completely unfamiliar with.
"We have placed a handful of contractors into permanent positions so far this year because it has suited their individual circumstances rather than a fear of the collapse in the contracting market place. I do think that the number of contractors moving over to permanent positions is going to increase over the next 6 months.
In August this year, recruitment agency, White and Nunn, published a survey it conducted which showed that about 65 per cent of contractors in the communications sector are currently looking for permanent jobs.
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Richard Powell, Shout99
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