As the financial crisis begins to bite in the real economy and predictions that UK unemployment will soar to well over two million next year, senior reporter Colin Cottell asks recruiters who is best placed to survive the recession?

On the face of it, the current doom and gloom about the economy is not great news for recruiters. Nevertheless, few in the industry see that the current downturn, which may or may not have tipped into a technical recession, as uniformly bad news. There will be winners and losers, they argue.

But which companies are most likely to survive and indeed prosper during the recession?

Albert Ellis, chief executive of global recruiter and IT service provider Harvey Nash, says the current economic conditions and outlook are a great opportunity for large companies like his own to grow their marketshare.

“A downturn is good for the strong and never good for the weak,” he says.

“There’s a saying that goes ‘you have got to be big or you have go to be niche, but being in the middle is not a good place to be in a downturn’,” adds Ellis. Those in the middle get squeezed by both the big players and the small niche recruiters, he explains. Adecco is a good example of a large recruiter that can squeeze its competitors on price, making it “very difficult to compete”, he says.

Clients will also look for the security of large and public-owned agencies, he argues. “There’s a ‘flight to quality’ so clients are looking for safer supply chains — public companies that have lots of cash and global operations have a competitive advantage over private companies.”

The other way that Harvey Nash will also be able to gain marketshare is from bolt-on acquisitions, though these are likely to be abroad, he says.

Ellis adds: “I think you are looking at two years for this process to work through.”

A number of medium-sized recruiters won’t survive the downturn and will exit the industry. “They will come under pressure from banks and investors. That’s where the action will be,” he says.

Sue Dodd, a director at business intelligence consultancy Agile Intelligence, agrees that it will be the large recruiters and the niche operators who will come through any recession best, with those in the middle “being squeezed”.

Niche operators in defensive sectors, such as parts of the public sector, medical, energy and utilities, and food, will be well positioned, says Dodd. These sectors don’t experience the highs of, say, financial services in the good times, but neither do they drop as much in a downturn, she adds. Technical and engineering recruiters should also continue to do well.

“Some of those niche operators will get stronger,” says Dodd, and particularly where they operate in markets where there are candidate shortages and high barriers to entry.

However, even for these well-positioned companies, Dodd says it is vital that they are well capitalised. “Working capital management will determine the winners and the losers,” she says.

Steve Riley, sales director at niche IT and engineering consultancy Intapeople, says he doesn’t foresee larger recruiters taking business away from companies like his own. “As a small agency, with 29 staff, we are lean and mean so we can respond quickly to any change in the market place,” he says. Riley adds that some of the big players are trying to reduce margins through managed service company arrangements. However, he says that niche players are able to “lose the client” and sell the quality staff elsewhere. “I think we will generate marketshare from large players,” he says.

Bill Hendrie, franchise director at multi-sector recruiter Travail Group, says those recruiters most likely to get through the recession are those who are broadly based and cover many sectors. “The idea that every sector will collapse is highly unlikely,” he says.

However, he doesn’t believe that a recruiter’s size is a good indicator of how it will fare in a downturn. “The client buys into the person he is dealing with and the service he provides, not the size of the company,” he argues.

That said, Hendrie concedes that both large and small owner-run businesses do have strong selling points. “Adecco and Randstad can quote size as a strength,” he says, while small owner-run and managed business can quote high commitment levels. “I think there is a middle group that’s in the danger area,” he says.

Financial strength will also be important, he adds. “The ones that won’t survive are the under financed companies that use last week’s gross profits to pay next week’s wages.”

Jack Cowdy, a director of commercial and industrial recruiter Ritz Recruitment, told Recruiter: “I think those companies that are most likely to survive are those that have been around for a long time.”

While recruiters of all shapes and sizes have valid reasons why they expect to emerge from any recession in good shape, only those who are both well managed and well positioned in the marketplace look likely to justify such optimism.