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The heat is on: how can recruiters prove their worth?

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Boom time visited the recruitment sector after the pandemic. Now that the economic cycle is turning again, businesses need to think creatively if they are to stay profitable, says Victoria Ritchie, Head of Professional and Business Services at HSBC UK.

When labour markets are tight, fierce competition to attract and retain competition opens opportunities for recruitment companies. This was the backdrop that led to record growth in the industry through 2022, with revenues up by almost 18%.

The market looked very different in 2023 with the impact of interest rate rises and the wider economic environment being felt in the sector. When it comes to 2024, Manpower’s Global Employment Outlook for Q1 has weakened by -4% since Q4 2023, but has increased by 3% compared to the same quarter last year.

With candidates more hesitant to switch jobs and employers equally reluctant to commit to filling new permanent roles, recruiters are seeing a dip in net fee income and profits. Some are responding by reducing headcount to protect margins while firms are also considering new corporate structures moving away from the traditional Limited company status to Employment Option Trusts (EOTS). With business valuations reduced since 2022, firms are considering this option as a way of releasing equity while increasing opportunities for their employees to become shareholders, and retaining their own talent in the firm.

Most firms will have weathered such economic cycles before and will be facing the change of economic fortunes with agility. Regardless of economic conditions, delivering value to clients is paramount, and demonstrating this will be even more critical in the months ahead.

New models and services

With this end in mind, many businesses are shaking up their business models. Bundling services, from training and deployment to umbrella payroll, is increasingly common as recruiters strive to add value to the customer relationship.

With an HMRC crackdown on non-compliance among umbrella companies, however, businesses need to be highly alert to regulation in this market. The Department of Health ban of agency recruitment to the social care sector in Northern Ireland is another example of the myriad of regulatory change that demands agility from those in the sector.

Another increasingly common way of adding value is through talent intelligence, the process of analysing data on market pools and rivals’ recruitment efforts. Data-led recruitment firms who can fulfil this increasingly important function for clients will develop a competitive edge.

But every firm in the sector should now be exploring the potential to build on growth through technological innovation, from chatbots to automated referral management.

Sustainability matters

Harnessing data to future-proof businesses was one of the hottest topics when HSBC UK hosted a round table event of recruitment leaders, alongside industry body TALiNT Partners.

Another big talking-point covered the best ways to measure environmental, social and governance progress, increasingly of importance to clients, candidates, and employees in the sector. ESG values are also set to be a focus of acquisitive companies, as M&A activity begins to pick up.

Firms keen to signal they are serious about ESG can use sustainability-linked loans to fuel projects, as an example HSBC UK recently advised on a sustainability-linked loan facility of £80m for PageGroup, which will help it pursue its climate change and gender equality objectives. I expect to see many more operators take up similar options in the near future.

Promising markets

Supporting breakthroughs into international territories is another way in which the bank, with its unrivalled global footprint, is well placed to help recruiters.

Our market knowledge may be of use especially for the many firms seeking a foothold in the US market. This has been a popular move in recent years – unsurprising, given that Texas alone offers opportunities bigger than the entire UK market – but the state-specific nature of employment laws makes it a challenging nut to crack.

Other highly promising markets include the Middle East, where huge infrastructure investment – such as the proposed mega-city of Neom in Saudi Arabia – is driving demand for recruitment firms who specialise in such sectors.

Looking ahead for 2024, we anticipate the trends seen in 2023 to continue globally in the sector. However, strong demand will continue in areas where the number of specialists sought exceeds supply and is mission critical in need, such as Tech & IT, Engineering, Sales & Marketing, Operations & Logistics & Manufacturing. There will also be an increased focus on adapting skills to address the sustainability and AI needs of employers for now and the future.

Through good times and bad, the services of a strategically-minded recruiter is indispensable to employers. With a deep knowledge of the sector, HSBCs experienced team is on hand to support the ambitions of recruitment businesses and help them navigate a fast-changing market.

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