We explore the economy's slowdown effect on hiring and how these stressful times can prove to be yet another opportunity for executive search firms to evolve and bring immense value to searching for and investing in dynamic talent for clients.
Being an executive recruiter myself, it has been relatively difficult to reflect objectively on the economy's slowdown effect on hiring.
The global economic slowdown, the US sub-prime crisis and rising inflation have all impacted Indian companies in the past year. India, like many other economies of the world, is grappling with the twin problem of weaker external (and domestic) demand as well as rising input costs owing to inflationary pressures (inflation rose steadily in the past several months, touching a 16-year high of 12.63% in August 08).
Almost all segments of the economy have been adversely affected, albeit to different degrees, and in turn companies across a range of sectors are trimming their workforce. Hewitt, a leading HR consulting firm, mentions employers are looking to balance the pressures of inflation and lower HR budgets by raising productivity (57%) and redeploying manpower (31%). As the economic slowdown persists, India Inc's HR heads have devised ways to deal with it: a cut in increments, a push for productivity, and a freeze on hiring!
According to the latest Manpower Employment Outlook survey1, India ranks at the top amongst 33 countries with the most favorable fourth-quarter hiring plans in 2008. The reality today is a bit different, primarily because each economy's growth is dependent on its successful integration with the international economy. As the economy continues to slow, experts predict sell-offs, consolidations and restructurings in the coming months in most sectors of the economy (Finance, Insurance & Real Estate, Manufacturing, Mining & Construction, Public Administration/Education, Services, Transportation & Utilities, Wholesale & Retail Trade), principally because of the mutual economic interdependence of these sectors on each other.
The global economic slump has endangered the growth of most headhunting firms. Many top recruiting sectors such as banking, financial services, insurance, realty and IT are seeing a decline in hiring. Consequently, revenues of top search firms are shrinking in double digits, search fees are being capped, average fee per mandate has reduced, and many search/recruitment firms are looking at "rightsizing" themselves. Several recruitment agencies are slashing their staff strength while smaller firms are contemplating shutting shop.
The recruitment and search industry in India has had an excellent three-four years, enjoying the fruits of the country's economic boom. The Indian economy achieved a GDP growth rate of above 8% for five consecutive years up to financial year 2007-08. The economy's rapid growth, together with the opening-up of many sectors to foreign investment, resulted in significant FDI and FII inflow in India. India's FDI touched US $25 billion, up 56% against $15.7 billion in 2006-07, and the country's foreign exchange reserves had crossed $341 billion as on May 21, 2008. There was good money flowing into various sectors, giving a thrust to companies' expansion plans and allowing good job opportunities to emerge in the Indian market.
Now, however, the scenario is different: the financial meltdown in the United States resulted in the infusion of millions of dollars into its economy. This has been at a cost of many emerging markets, from where funds have been pulled out to plough back into the US. Moreover, investors across the world have become extremely risk averse and emerging markets, which were flush with funds until somewhat recently, have suffered the most. With credit becoming both extremely expensive and hard-to-access, Indian companies have had to put a hold on their expansion plans and even cut back on existing operations; the need for new staff, naturally, is not there and recruitment firms are an inevitable casualty.
With the Indian economy booming, nearly every talented professional was sure that there were at least two other 'wonderful' jobs available in the market. This is certainly not the case today. Moreover, in today's somewhat unsteady environment, people appear to have become extremely cautious when it comes to considering a job shift; preferring instead to be in existing familiar situation. Change in these times can be painful and uncertain. In various discussions with "potential candidates," most revealed that they feel better off sticking to what they have in hand and would rather wait and watch. This outlook merely furthers the slowdown in hiring!
According to Manpower, a global staffing services firm, the labor market in India is expected to continue to remain dynamic. However, its study (mentioned earlier in this article) also notes that employers will be slightly more cautious in the fourth quarter of 2008 (which they have been) with an overall Net Employment Outlook (NEO) of +43%, two percentage points weaker quarter-over-quarter while remaining relatively stable year-over-year.
Employers in both the Financial Services & Insurance and Real Estate sectors are less optimistic than they were earlier, with outlooks declining by 11 and 23 percentage points, respectively. Opportunities for job seekers are expected to improve in both Mining & Construction and Manufacturing, while the labor market will most likely soften in Public Administration/Education. Hiring patterns for the Services, Transportation & Utilities and Wholesale & Retail Trade industries should remain relatively stable2.
Notwithstanding an overall neutral/positive outlook with regard to hiring, some industry sectors are experiencing signs of a deep slowdown. As recruiters, we can either sit and complain about the present scenario or instead figure out how to adapt. After all, the accumulated evidence for human adaptability is overwhelming. Executive Search firms don't need to look at the current global crisis as a disaster; we need to look at it as a time of opportunity.
Inevitably, we have seen executive search firms almost always thrive on imperfections in the market and economy and their services are rather designed for organizations in need; either in need of strategic help to plan for adequate succession and upgrade competence and manpower utilization, or for tactical help to do simple crisis management. Imperfections and oddities of the environment, at times, enhance the value that a search firm brings to the client organization.
I have gathered a couple of interesting insights that show that there is HOPE for recruiters:
The more evolved organizations now indulge in cultural and structural transformation so as to respond to the changing needs of executives: their desire to assume responsibility early, their desire to maintain a work-life balance, and so on. Equally, such organizations recognize that their recruitment proposal must be compelling. Inevitably some client organizations do not appreciate the realities of the marketplace and here search consultants can help to provide feedback and advice. These stressful situations put pressure on the top executive roles and the people living those roles. They change the character of them, therefore enhancing, replacing and redefining manpower at an ever more rapid rate in certain organizations. Thankfully, this gives search firms an opportunity to provide the best-fit candidate.
Also, if we were to think logically, recessions don't last forever! Moreover, talent will still be needed and sought after, because, unless many organizations cease to exist during the recession, there will still be a demand for leadership and management skills to chart the troubled waters. In times like these, we have observed that candidates with expertise in strategizing, underwriting, restructuring, and valuing are usually in demand.
In the US and elsewhere, many large firms are now carving out advisory roles that focus on providing capital solutions to distressed companies before they file for bankruptcy. A. E. Feldman says "Firms want people who can evaluate companies in various stages of disrepair, assess what the issues are, determine how to proceed and implement those strategies." Moreover, companies in bankruptcy will be seeking out restructuring experts to formulate strategies to maximize the value of any remaining assets and communicate with creditors. Headhunters would perhaps have to find turnaround specialists who can help management teams in stressed and distressed situations, as they would have to search for such agile talent that adapts itself proactively to chaotic conditions.
Organizations also understand, probably from past experience and gradual learning, that cutting into a key resource such as executive talent during an economic downturn will only come to haunt them later when demand returns and the market improves. Boards/CEOs appreciate that it makes great economic sense to invest in the right talent when the market is soft.
These are also the times to focus more attention on evergreen sectors like pharma, food, manufacturing, FMCG, infrastructure and media. We are also observing a lot of talent movement between sectors because of the diffused nature of the economy. The afore-mentioned industries still look promising and will be the hub of action in the coming times.
Employment demand co-exists with crisis. Recruitment firms in stressful times partner with organizations to innovate on the resource optimization and reduction in costs. It would be safe to say that recruitment firms go a long way to enhance the adaptability and agility of organizations during a crisis period.
It would be extremely immature for the executive search profession not to expect to be impacted by the economic slowdown in India. Inbound tourism, for example, has already declined by 20% in the current peak season due to the effects from the global slowdown and recession on business travel.
Moreover, the terrorist attack on Mumbai that resulted in a huge loss of life has further dampened the outlook for both travel & tourism and the hotel industry in India. The terrorism hit just ahead of what would normally be peak occupancy months for the country's hotels—especially luxury resorts, as international visitors come to India for the holiday season around Christmas and New Year, continuing into January because of pleasant weather. Mumbai is likely to experience a 30% to 40% decline in tourist arrivals, led mainly by leisure travelers.
However, tourism is expected to recover and the economy to improve in due course. Meanwhile, organizations still need the best management that they can find and they need help to do so. The smart organizations will use the recession to take stock, develop their long-term plans and, where appropriate, use the market downturn to recruit the best executive talent that they can.
The executive search profession is there to help. In fact, HVS has observed that the current economic slowdown has in a strange way provoked organizations to hunt for and invest in talent, and to rethink/reflect what has been accomplished so far and what can be improved in the future in order to continue with their growth model. For us as search consultants, this period of downturn is yet another learning opportunity: keeping us on our toes and getting us to seek to both improving existing ways and find new ways to provide value to our clients.
1 Manpower Employment Outlook Survey, Global, Q4/2008
2 "What slowdown? India No 1 hiring destination", The Economic Times (10 Sep 2008), www.economictimes.indiatimes.com