The recruitment industry seems to have the momentum of a freight train at the moment. But what nasty surprises might be lurking around the bend to derail this seemingly unstoppable runaway? Matt Henkes looks at the year ahead for recruitment.

It’s been a good time to be in the recruitment industry. Over the last year, the market swelled by 7.4 per cent to an all time high of £26.6 billion, driven by economic growth and a shortage of high quality candidates. But in an industry that depends so strongly on the health of the wider economy, how are the current creaking global markets likely to affect things in the year ahead?

A general economic slowdown would hit the recruitment industry the same as any other. However, with the current troubles still relatively new, most intermediary recruitment firms are still just as busy as they’ve been all year – more so if you consider the annual spike in Christmas demand for temporary workers.

No one seems to be driving swathing cuts in recruitment spend just yet, but this may happen in the coming year as firms feel the pinch more acutely. There is also a danger that some of the larger, more forward thinking firms may soon begin to put pressure on their recruiting partners in terms of fees.

Negative potential

Steve Huxham, chairman of The Recruitment Society, says the industry has got a number of potentially negative factors. “Whether it’s confidence in banking, the stock exchange or the housing market, I don’t think they’ve impacted on anybody yet,” he says. “But in terms of what might happen, most people seem to think the potential credit squeeze might last until Christmas 2008 and that is going to give the industry a bit of a headache.”

If businesses decide to cut recruitment costs drastically, we might see a trend towards firms recruiting without help through direct hiring. However, Huxham warns that in a time of economic instability, candidates may be more nervous about sticking their head above the parapet.

“If it was you or me getting a call directly from a potential employer, we might be quite nervous about what we said to them, particularly if it was a competitor,” he says. “A genuine intermediary can add value by tempting that person out, courting them and getting them into the market.”

When the market is tight, intermediaries also need to emphasise this valuable role they play in bringing people out, he adds. In other words, agencies need to make sure they’re communicating the value-adding potential of their service, especially when most of the basic provisions they supply can be found on the internet at cheaper prices.

Up until very recently, the market was very optimistic in terms of the factors around growth and it’s really only in the last few months that issues with the credit crunch and the financial fall-out from the sub-prime markets have begun to affect outlooks. These may start to cause concern and could precipitate a slowdown in permanent recruitment in 2008.

Trish Stratford, managing director of recruiters Blue Arrow High Street, also believes the effects are yet to be seen. “At the moment, it’s not coming through,” she says. “But I think it is likely for next year. Then, if someone leaves, clients will take a view to perhaps backfill the position with temporary requirements until certainty returns. It’s a very unpredictable time really.”

The market is also distorted at this time of year because of the seasonal impacts. “The really telling time will be the early part of next year because that’s when you get rid of the temporary requirement, certainly in the industrial sector,” she adds. “We’ll first get a good feel for where the market is around Q1, going into Q2.”

This is where the manufacturing sector is key. Its recovery this year contributed to the industrial recruitment market showing good improvement. Conversely, with a manufacturing slowdown on the cards, this is an area of concern going into next year.

“There is certainly a manufacturing output slowdown predicted, which will directly affect the temporary market as that market is heavily biased towards temporary rather than permanent provision,” Stratford says.

“Is that market going to go from the growth we’ve seen this year to being flat again, which is certainly where it was in 2005?” You need a functioning crystal ball to know whether these things will really have the impact predicted, she says, though any sensible recruiter should be looking at the possible impact and thinking of ways to tackle it.

Sparse talent

But if there is one thing that has been fuelling the industry’s rapid growth, it’s been the increasing competition for talent. Successful recruitment has become a key differentiator in today’s talent-sparse business environment, with hiring an experienced intermediary with good contacts and recruiting expertise becoming something of a given. Skills shortages are affecting virtually every industry.

The major pressure points are in construction and engineering, which are only going to get worse over the next few years to 2012 – not just because of the Olympics, but also due to the number of large scale building projects there are within London and across the country.

“There will only be scope for the need to recruit more people from abroad, as well as up-skilling people within the UK,” says Anne Fairweather, head of public policy at the Recruitment and Employment Confederation (REC).

Another interesting one is in the social care field, where changes to the immigration laws are going to make it more difficult to recruit from abroad for senior social care positions. Unfortunately, at the same time, it’s very difficult to attract people into a career in this sector because of the combination of high-stress work and low pay, which is very much down to how much the local authorities can afford.

A trend that is by no means new, but may begin to see greater use in coming months is the use of ‘boomerang hire’, which involves recruiting people who have already worked for you in the past. A number of high profile US companies already operate advanced alumni programmes for ex-employees to keep in touch with developments at the firm.

Huxham says it could be one way for firms to take a long view of beating the talent shortage. “A lot of companies always say what a great training programme they have but bemoan the fact they seem to be training people for somebody else,” he says.

“Keep them sweet because if you’re in touch with them and they feel positive about you, that is always going to open the door and make them more likely to consider you if anything ever comes up at their current level. If you can do that, in a few years time they come back and you get your value back. I think we’re going to see more of that.”

Whatever the future holds (even if it is a blast from the past), it seems a general lack of skilled people could pose the biggest threat to the continuation of successful business.

One way to combat this is for companies to make it a New Year’s resolution to look even more closely at investing in and nurturing retention strategies, to keep hold of the people who will already be with the firm as we welcome 2008.