Japan emerges from two decades of stagnation – City Comment
25 April 2014
Since last summer we have been cautiously optimistic about recruitment trends in Japan.
Fri, 25 Apr 2014 | Adrian Kearsey, head of small cap research, Sanlam Securities UKSince last summer we have been cautiously optimistic about recruitment trends in Japan.
At the time many of the international agencies had been reporting double-digit declines in net fee income (NFI). For example, Adecco, which derives 6% of its revenues from the country, had recorded a 15% contraction in the first quarter of 2013. However, macro-economic conditions appeared to be improving and the outlook for staffing was more positive.
Recent Markit PMI surveys for Japan demonstrate that while the recovery is fragile it is on an improving trend. Results showed that the service sector contracted in February 2014, impacted by harsh weather conditions. However, activity rebounded in March with new business levels at an eight-month high.
Moreover, employment continued to rise. Although World Bank growth forecasts have been revised downwards estimates still show the Japanese economy growing in 2014 and 2015 by around 1%. This expansion builds upon 1.5% growth recorded over the past couple of years.
On first sight these growth numbers are small. However, it must be remembered that the Japanese economy had been stagnating for over two decades. IMF data showed that between 1992 and 2011 GDP growth had averaged 0.7%. Moreover, during that period GDP growth had been negative for one out of every three years.
The rebound in the economy is partly being driven by an improved export market. However, most of the gains reflect significant government intervention. Shinzo Abe’s victory in the upper house election in July 2013 provided him a clear mandate to pursue inflationary policies. In addition, he is looking to make it easier to fire full-time workers, allowing corporations to reposition their business. The ‘job for life’ culture is on the way out.
This stagnation meant that many international staffing agencies had either avoided the territory or only invested modestly. This was despite Japan having an annual income of $6 trillion (£3.5tr) and a workforce of 62m people. But with the macro environment on an improving trend we expect increased focus by western recruiters.
Hays is one of the agencies that has a presence in the country. They have three offices and 100 people generating roughly £7m NFI (source: Investor presentation April 2014). Over the last six months they have seen a material improvement in candidate sentiment. They have also seen a greater willingness to work for non-domestic firms (a trend most pronounced in the under-30 age bracket).
These changes not only point to a stronger economy but a more flexible labour environment, something which is good for the staffing industry. Trading updates from Hays paint an encouraging picture, with NFI growth averaging 15% over the last four reported quarters.
Therefore, we anticipate that Western staffing companies will increasingly talk about the growth opportunities in the original Asian Tiger.
At the time many of the international agencies had been reporting double-digit declines in net fee income (NFI). For example, Adecco, which derives 6% of its revenues from the country, had recorded a 15% contraction in the first quarter of 2013. However, macro-economic conditions appeared to be improving and the outlook for staffing was more positive.
Recent Markit PMI surveys for Japan demonstrate that while the recovery is fragile it is on an improving trend. Results showed that the service sector contracted in February 2014, impacted by harsh weather conditions. However, activity rebounded in March with new business levels at an eight-month high.
Moreover, employment continued to rise. Although World Bank growth forecasts have been revised downwards estimates still show the Japanese economy growing in 2014 and 2015 by around 1%. This expansion builds upon 1.5% growth recorded over the past couple of years.
On first sight these growth numbers are small. However, it must be remembered that the Japanese economy had been stagnating for over two decades. IMF data showed that between 1992 and 2011 GDP growth had averaged 0.7%. Moreover, during that period GDP growth had been negative for one out of every three years.
The rebound in the economy is partly being driven by an improved export market. However, most of the gains reflect significant government intervention. Shinzo Abe’s victory in the upper house election in July 2013 provided him a clear mandate to pursue inflationary policies. In addition, he is looking to make it easier to fire full-time workers, allowing corporations to reposition their business. The ‘job for life’ culture is on the way out.
This stagnation meant that many international staffing agencies had either avoided the territory or only invested modestly. This was despite Japan having an annual income of $6 trillion (£3.5tr) and a workforce of 62m people. But with the macro environment on an improving trend we expect increased focus by western recruiters.
Hays is one of the agencies that has a presence in the country. They have three offices and 100 people generating roughly £7m NFI (source: Investor presentation April 2014). Over the last six months they have seen a material improvement in candidate sentiment. They have also seen a greater willingness to work for non-domestic firms (a trend most pronounced in the under-30 age bracket).
These changes not only point to a stronger economy but a more flexible labour environment, something which is good for the staffing industry. Trading updates from Hays paint an encouraging picture, with NFI growth averaging 15% over the last four reported quarters.
Therefore, we anticipate that Western staffing companies will increasingly talk about the growth opportunities in the original Asian Tiger.
