The recent mergers and acquisitions of some of Australia’s largest recruitment companies have created whales within the industry. These lumbering organisations are unlikely to impact the prospects of smaller agencies. In fact, their smaller more nimble competitors may have plenty of room to move.
A number of factors have spurred this recent wave of consolidation. Some of the take over targets have been underperforming for several years and have become over capitalised. In other words they have a cost structure not supported by their revenues and an out-dated operating model. This makes them a cheap and affordable option for someone like Recruit Holdings to enter the Australian market and extract synergies and manage them closely.
Secondly, the recruitment sector has experienced significant changes since the GFC. We have seen the emergence of social recruitment where candidates expect a quality experience when applying for jobs. New technology, automated recruitment platforms and processes have evolved so that internal HR teams can leverage it in their search for quality talent.
The larger players in the market really haven’t been doing themselves or the industry any favours. Their pricing strategies for tenders and national contracts, has largely commoditised the recruitment sector. By continually tendering at lower margins, they finally found themselves operating in a high volume, low margin business model. It’s a classic case of trying to do more with less and the maths doesn’t add up.
It’s hard to understand how by becoming bigger organisations will overcome these issues. If anything the end result would be greater commoditisation.
Many larger agencies claim that they are moving away from this model, saying they want to provide better value to their clients. I don’t see that this has actually occurred if recent tendering outcomes are anything to go by. It therefore shouldn’t be a surprise that, combined with all the overhead they have added, consolidations have started to take place.
Hiring managers want to deal with an experienced, knowledgeable and trusted recruitment advisor with domain experience each and every time. I don’t believe that simply making a business larger will provide the robust, sustainable recruitment outcomes that business require to be applicable in the new operating environment.
Small to medium sized specialist agencies have a distinct advantage over the larger cumbersome competitors. Their costs are relatively modest, manageable and their teams are incredibly focussed. Just by having a ‘boutique care or feel’ coupled with their inherent search type mentality, positions them incredibly well to deliver against most client requirements.
After all these smaller players have more to lose if they do not deliver. In other words they are more invested in the outcome.
I think this ‘boutique care or feel’ coupled with an intrinsic desire to provide value to their clients, positions them to deliver more bang for the buck.
SME operators will however, need to demonstrate the ability to scale their operations as more and more large contracts are awarded to agencies with a national footprint. They will need to look at cooperative partnerships to deliver services on a larger geographical footprint or across different and multiple job categories.
In the same way that Hollywood is the epicentre for projects around making movies, it has become a specialist business colony. This ‘Business Colony’ model is now starting to get traction within the recruitment industry.
That is to say that companies are forming collaborative teams to manage larger recruitment projects.
In addition to being able to recruit the right people in the right places, they will also need to have access to a full suite of services that clients look for. Such as;
- Outsourced payroll
- Contractor management services
- Vendor management software
- Online WHS
- Induction and on-boarding portals
What are the emerging and potentially lucrative markets requiring specialised skills?
Smaller players have the agility and nimbleness to respond to new opportunities and challenges in certain sectors. There are plenty of specialist opportunities in the Aged Care and Health sectors, as well as the ever expanding ICT space. Their focus and costs structure will allow specialist players to exploit their niches.