Job market heats up

Australia bypassed the worst of the global financial crisis, which has meant its effect on the Australian Employment Placement Services industry has been mild compared with its international counterparts. Australia’s rise in unemployment was relatively small in 2008-09 and 2009-10, and quickly began to reverse in subsequent years, with demand for employment placement services rebounding strongly in 2010-11, and this is expected to continue in 2011-12.

IBISWorld estimates industry revenue will increase an annualised 3.6% over the five years through 2011-12 to $2.57 billion. This includes an estimated 3.7% drop in 2008-09 and 0.9% decline in 2009-10 due to the global financial crisis. With strong industry revenue growth prior to these years, and an estimated 11.6% surge in 2010-11, industry revenue increased at a solid rate on average.

In 2011-12, industry revenue is expected to increase 5.7%, as unemployment remains around 5.3%, and as strong demand for construction, trade, clerical and administration positions continues. Industry profit is are estimated to increase to about 9.5% of total industry revenue in 2011-12. Despite uncertainty among international global clients and reduced business confidence in the United States and Europe, the Employment Placement Services industry is expected to increase strongly in 2011-12 due to increased demand in permanent recruitment services and an increase in client paid net fees.

As the Australian economy continues to stabilise over the five years through 2016-17, industry revenue is forecast to increase an annualised 2.9% to total $2.97 billion. This will be driven by increased economic activity, a strengthening labour market and the provision of a wider range of employment placement services online.

Industry outlook

As the economy improves and unemployment remains relatively low, revenue growth in the Employment Placement Services industry will continue to strengthen in 2012-13, with revenue forecast to rise 3.7%. Although declines in unemployment tend to lag growth when an economy is emerging from a downturn, the composition of unemployment tends to move more towards people who are switching jobs, while the proportion of people that have been laid off or are long-term unemployed actually declines.

Strong revenue growth forecast

By 2016-17, IBISWorld estimates that industry revenue will total $2.97 billion. Job vacancies and new hiring will increase as the economy begins achieving relatively strong results. Businesses will again turn to employment placement service providers as their recruitment needs expand and the right applicant becomes more difficult to find as competition for workers heats up. Over the five years through 2016-17, industry revenue is forecast to increase an average annual rate of 2.9%. The expansion of major operators into new services will help drive industry growth.

Overall, outsourcing recruitment by business and government will continue. IBISWorld expects profit margins to remain moderate due to high industry competition. Industry profits are forecast to account for about 10% of total industry revenue in 2016-17.

International risks and opportunities

While the Australian economy has avoided the worst of the global economic downturn thus far, risks of further global financial shocks remain. When many nations’ governments bailed out financial institutions and increased spending to stimulate their economies, the effect was a shift of some of the private sector’s debt burden onto government balance sheets. Many governments were already heavily indebted prior to the crisis and the additional burden, coupled with investors’ reluctance to continue to provide cheap credit, have strained the finances of some nations, particularly Greece, Spain, Italy, Ireland and Portugal.

In conjunction with high levels of private debt, these factors threaten further shocks to the global financial system, with the cost of credit potentially rising due to intense competition for loans and fears over creditworthiness and government defaults. Any problems in global credit markets will potentially affect Australia’s banks, which are heavily reliant on offshore funding. This may flow through to Australia’s economy and many industries, including the Employment Placement Services industry.

The industry has a small but growing number of large companies with international links and many small operators, some providing niche services in specialist industries or markets. Some providers are now critically dependent on government contracts under the Job Services Australia program. A shake-up of these contracts occurred as part of the transition to Job Services in mid-2009, with some providers losing contracts and others gaining them. This has led to office closures and staff lay-offs among those who have lost contracts.

It is also expected that major domestic operators will expand internationally due to limited revenue growth opportunities in the domestic market. Further growth opportunities still lie with providing online services to employers and job applicants, and with expanding into providing a totally outsourced human resources service to clients, covering aspects from staff selection to payrolls and claims for Workcover. Recruitment broker firms that sign up a number of recruitment agencies and then offer their databases to client firms are a growing sub-segment in the United States and Australia.

Key success factors

• Having contacts within key markets: Developing contacts in a wide variety of companies and industries is essential for identifying suitable job candidates.
• Ability to communicate and negotiate effectively: Good communication and interpersonal skills combined with industry knowledge are important to retain clients and for interviewing job applicants.
• Production of premium services: Maintaining quality staff, service and high client satisfaction levels is important in retaining and attracting clients.
• Capacity to objectively assess new investments: Medium and large companies need funds to acquire other companies in the industry.
• Effective product promotion: The capacity to present a professional image and to market to appropriate clients is important in attracting and retaining clients.
• Access to the latest available and most efficient technology and techniques: It is important for companies to be completely computerised and to have databases containing information on people and clients. The ability for e-mail lodgement of resumes and for clients to access these online is very useful for placing employees.
• Production of goods currently favoured by the market: Companies must understand the work environment and culture of clients’ workplaces. Ultimate success will come from continually identifying and selecting the most suitable people for vacant positions.

Barriers to entry

The Employment Placement Services industry generally has a medium concentration level, which may present some barriers for operators seeking to enter the national market. It may take some time for new players to establish themselves due to the market dominance of major firms among existing business and government clients, under contract or through tenders.
The industry is skill and knowledge intensive.

The main requirement is to keep in touch with federal and state employment and labour laws, and any relevant changes to these regulations. Overall, there are few barriers to entry at the lower end of this industry. There are no educational qualifications required to enter the industry. A basic requirement is to have a good reputation, a client list and a good network of contacts to be able to readily identify suitable applicants for positions. There are no registrations or licensing requirements needed for this industry, although the Federal Government’s Productivity Commission has recommended that a licensing system be introduced.