The news that the global search industry was hit by a massive downturn last year will not come as a major surprise to anybody who follows the sector closely.
A report by the Economist Intelligence Unit says that some search companies lost up to 40 per cent of their revenues last year.
The report also contains some pretty uncomfortable reading for the major global players. For example, Heidrick & Struggles, Korn/Ferry and Egon Zehnder were forced to bite the bullet of over-expansion in 1999 and 2000 and cut staff back last year.
Heidrick & Struggles revealed that revenue for the year was down by nearly a quarter to $455.5 million and that it had fallen from a $28.6 million profit to a $2.8 million loss. Fourth quarter results meanwhile were little short of disastrous, with year-on-year revenues dropping by 40 per cent and net losses standing at $5.6 million.
Managing partner for the UK office Peter Lever says: "We have gone through the painful exercise of downsizing the business during the course of last year and are now ready to weather these tough market conditions." He adds: "We are well placed for the time when growth returns to the market."
Blip or correction?
The report's findings pose a more interesting question however: Do headhunters view last year as a correction of a market that had grown too much in the previous few years, or was 2001 a blip before the good times roll again? Lever says: "The current correction of the market is undoubtedly a result of the dotcom bubble, compounded by a slowdown in the IT and telecom market. If one looks at performance by established executive research consultants in the 'bricks and mortar' economy over the course of 2001, it has held up extremely well compared to the previous year.
"Even if there is no major fallout from Enron, this year will continue to be tough ? although there will be growth compared to the level seen in the second half of 2001. And beyond 2002, the corporate focus on human capital and leadership development means that executive search will continue to be a growth market."
Managing director of Hux Executive Recruitment Steve Huxham agrees: "The market was inflated by the dotcom and telecommunication booms. When they were hit, it was inevitable that the search industry was going to suffer as well. The recruitment freezes that are in place at the moment will not last forever, though ? probably six to seven months maximum. I think you will see a pick up in the second half of the year."
Dose of reality
But not everyone is that sure. Simon Collyer-Bristow, executive director of London-based Sheffield Haworth, says: "There's been a large dose of reality in the market in the last 12 months following a period when banks and other financial institutions were taking on staff constantly. It was a classic case of over-hiring.
"If the market returns to the levels that it enjoyed before last year, it won't be for some time and even then, it is more likely to be in niche areas rather than across the board."
Collyer-Bristow, whose company headhunts in the finance and banking sectors in the UK, Germany and France, adds: "2002 will be a difficult year for search firms ? particularly if they are among those that took on too many staff. Some of the big players were simply too gung-ho opening offices all over the globe and hiring consultants, and have fallen down because of it." He also feels that it is the niche players like Sheffield-Haworth that are best placed to pick up any new business that emerges over the next 12 months.
"It's about good client management," he says. "As a smaller search firm, we can offer much better partner relationships with clients than the big players can.
"Take Germany and France. While the really big institutional banks have got headcount freezes on, smaller niche banks see this as an excellent opportunity to pick up good people, and they are the ones that we are developing relationships with. Credite Agricole, a French bank for example, has picked up a lot of people from DZ Bank in Frankfurt recently."
Early signs of recovery
Where does this leave the future? Huxham says: "The UK is in a slighter better position than Germany in terms of being ready for a recovery. In the US, the messages are very mixed ? there are some good signals emerging, but I don't yet see enough confidence there to see a dramatic pick-up." Lever too is optimistic: "Early signs are encouraging in terms of activity, both in the UK and continental Europe. However ongoing uncertainty surrounding Enron and the impact on the financial services sector mean that it will be a tough year."
Certainly it seems that this year can't be as bad as 2001. Can it?
This article first appeared in Inside Recruitment: www.insiderecruitment.co.uk