For headhunters, the sun never sets. When the economy is on a roll and companies are on a hiring spree, they scramble to find the right talent. And as the economy cools down and firms lay off people, recruiters have the job of placing them elsewhere.
“The growth in the job market is fuelled by India’s growth, foreign direct investment, additions to the workforce, greenfield and brownfield projects,” says E. Balaji, chief executive officer, Ma Foi Management Consultants Ltd. “We estimate the creation of one million new jobs this year.”
This rapid job creation has, in turn, led to a phenomenal rise in the number of headhunters in India. The latest to join this niche sector are Mumbai-based staffing company Flex-i Staffing Solutions Pvt. Ltd, Bangalore-based human resources (HR) solutions start-up Ikya Human Capital Solutions Pvt. Ltd, and leading global search firm Russell Reynolds Associates Inc. Two other global executive search firms—CTPartners and AT Kearney Executive Search, now Edward W. Kelley and Partners Ltd—are said to be in talks to start operations in India.
Rajeev Vasudeva. ( Photo by Ramesh Pathania / Mint)
“Hiring firms have been doing exceedingly well in the last several years in India,” says Marcel R. Parker, chairman, Ikya Human Capital. “Because of the high growth rates experienced in sectors like real estate, retail, telecommunications and financial services, the need for newer talent has also grown exponentially.”
The entry of multinational companies (MNCs) and a growing number of organized players has brought professionalism into the sector, say headhunters. “The recruitment industry in India has come a long way,” says Rajeev Vasudeva, partner, Egon Zehnder International. “Yet, like anywhere else in the world, the market is fragmented and has not got really structured, which will change over a period of time.”
SEARCH FIRMS: THE INDIA STORY (PDF)
“The recruitment industry is moving from one-off transaction-based recruitment to becoming a relationship-led business where credibility is the key,” says R. Suresh, managing director, Stanton Chase India.
The growth, however, has not been without its problems. “Some of the recruitment practices are quite devious,” says P. Dwarakanath, director of group human capital at Max India Ltd. “What is happening, even at the senior-level hiring, is not really search but placement. Hiring should mean talent acquisition, and not just getting a candidate on board.”
Cognizant Technology Solutions director of HR, Sriram Rajagopal, says inadequate understanding of a company’s expectations, standards, processes and systems can render a hiring firm’s services ineffective. Companies expect headhunters to take more responsibility for the candidates they have placed. “Currently, there is a lack of the right investment into best practices and code of conduct among hiring firms,” says James Agrawal, head, BTI Consultants.
According to Executive Recruiters Association, or ERA, data, more than 24,000 firms paid service tax in the recruitment services category in 2007. Recruiters say the number will come down in the future. “I see a lot of consolidation happening, especially in the staffing and selection business segment,” says Deepak Gupta, country head and managing director of Korn/Ferry India. “Mainly to bring in scale and size to their operations, so that these businesses can compete better.”
He doesn’t see too many buyouts taking place in the executive search segment: “As far as search firms are concerned, buyouts are unlikely, since they have the scale required for the kind of business they are in... However, a new company may look at acquiring a small retained search firm as part of its entry strategy.”
The recruitment business broadly comprises three segments. Firms such as Egon Zehnder, Korn/Ferry International, Stanton Chase International, Executive Access (India) Pvt. Ltd and Amrop International lead in the executive search segment, while the selection or contingency recruitment of mid-level executives is dominated by players such as ABC Consultants Pvt. Ltd, EmmayHR Services Ltd, INX Services Pvt. Ltd, Ma Foi Management Consultants and Elixir Web Solutions. Contingency recruitment is where the client pays for the service only if the search is successful; unlike a retainer, where the fee is paid for the search process. This recruitment model is used for entry- to middle management-level hiring.
Marcel R Parker. (Photo by Abhijit Bhatlekar / Mint)
The third category, staffing—which includes temporary staffing, contracting and large-volume placements—is dominated by players such as Kelly Services India Pvt. Ltd, Manpower Services India Pvt. Ltd, TeamLease Services Pvt. Ltd and Adecco Peopleone India Ltd. Many of these firms, however, operate in two or more segments.
The top guns in the search business—Egon Zehnder and Korn/Ferry, which are also the first MNCs in this sector in India—have seen year-on-year growth of 40-50% and more than 50%, respectively, in the last two years. Egon Zehnder’s revenues have doubled in the last five years, and it has grown from 25 to 44 people in the last two years. Korn/Ferry’s revenues have more than tripled in the last three years, and it has grown to 14 partners for its five industry practices—financial services, consumer, industrial, technology and life sciences—in the last five years.
Search firm Stanton Chase has grown by 40% annually to clock revenues of around Rs40 crore in the fiscal year ended March. In the case of newer search firms such as Hunt Partners and BTI Consultants (India) Pvt. Ltd, after their repositioning in 2006—when they moved from pure play selection companies to being engaged only in senior search—revenues have grown 100-150% and 500% year-on-year, respectively, in the last two years.
Hunt Partners, which began operations in 2004, added offices in Shanghai, Singapore, Bangalore and Beijing, and has more than doubled its India team strength from 10 to 28 since 2006. New Delhi-based BTI Consultants, the executive search arm of global staffing firm Kelly Services Inc., grew from three people to 18, and added two offices in Mumbai and Bangalore in the last two years. Staffing firm TeamLease has seen a year-on-year growth of 80% in the last two years, while Ma Foi has registered compounded annual growth of more than 75%, and added 27 offices in the metros, tier I and tier II cities in the same period.
Boutique search firm Approach International’s revenues from India increased by 60%, even as its team strength increased to 18, from 10 employees in the last two years. “A new office has been rented and another bought, and tie-ups are being looked at,” says Gauri Sarin, president at Approach Talent Solutions Pvt. Ltd, the Indian arm of the multinational search firm, and executive committee member of ERA.
HR solutions company Ikya, which started operations in October 2007, has grown to more than 250 employees in 15 offices across 10 cities, getting $8 million (around Rs34 crore now) in funding in February from India Equity Partners, a leading private equity fund focused on India.
A number of recruitment firms have also expanded their range of services. For instance, TeamLease has built a diversified portfolio over the last two years, and caters to searches ranging from the entry to board levels across nine industry verticals. “Our forte has been middle management hiring but, in the last few years, we have built capabilities to help clients build their leadership teams,” says Sampath Shetty, vice-president, permanent staffing, TeamLease. Ma Foi, too, has expanded into areas such as executive search, HR consulting and outsourcing services.
It is not just about competition within the sector. Recruiters are also competing with clients who are using in-house recruitment teams, referral programmes and networking sites to bring down hiring costs. While HR managers acknowledge that leaving the search for talent to specialists allows companies more time to invest in other business needs, they also say that barring a few leading firms, services provided by a large number of recruiters are not up to the mark.
All this has put pressure on headhunting firms in terms of quality of delivery, fee and timelines. Agrees Rajagopal: “At times, driven by the pressures of closing a deal with a client, these firms forget the quality aspect.” He adds, “In order to meet the target, they sometimes come up with the required number of profiles, but the required quality is missing.” US-based Cognizant Technology Solutions, which has most of its operations in Chennai, Pune and Kolkata, hires 20% of its employees through recruiters.
With business volumes increasing, firms are already seeing a pressure on margins, even as clients demand better quality. “We see clients pushing firms to reduce the fee to one month’s salary as against the earlier fee, equivalent to one-and-a-half times the monthly salary,” says Shetty. However, in the case of middle- and senior-level hiring, the same fee structure—25-33% of annual compensation—is being followed.
Headhunters say executive search will continue to be a quality sensitive, rather than price sensitive, segment, with leading players working on a retained search basis. A retained executive search is an exclusive project undertaken on behalf of a client to identify and screen suitable candidates for a particular position. Typically, the estimated fee is prepaid in three instalments over 90 days.
“Today, all clients are very conscious of the quality of service provided, and they are happy to pay for that,” says Sangeeta Sabharwal, senior partner at Transearch India.
Shorter time cycles, however, mean that headhunters have to wrap up the recruitment process quickly. “We no longer have the luxury of the classical 90 days,” says Uday Chawla, managing partner, Transearch India. “The clients would like our shortlist to reach them within 30 days.”
Search firm heads see bigger changes coming. “As the top players move up the value chain, others will play ‘catch up’ and the flawed reputation that the industry suffers from will improve,” says Gupta of Korn/Ferry India. Search firm executives believe hiring will get more professional and technology-driven, with increasing investments delivering cost-effective results. Consolidation or buyouts also cannot be ruled out as hiring firms grow inorganically. Some examples from the past include Ma Foi’s merger with global staffing company Vedior NV, the acquisition of EmmayHR by Amsterdam-based Randstad Holding NV, Adecco’s acquisition of PeopleOne, the acquisition of search firm Executive Access Ltd by Hat Pin Plc. and the tie-up between Interactive Manpower Solutions Pvt. Ltd and recruitment services firm Empresaria Group Plc.
Increased specialization in the way the recruitment business is conducted is also expected in the near future. Placements are likely to be less commoditized and more value-based. “Value will become a differentiator in times to come,” says Vasudeva, adding that “what will change, and is already changing, is the role of recruiters to that of strategic partnership with companies in acquiring and managing talent.”
“India alone will make up 30% of the net increase in global employment, with 142 million new jobs by 2020,” says Vinamra Shastri, national staff partner at Grant Thornton India, a global consultancy firm. And that is going to spur a new way of filling up vacancies, along the entire corporate ladder.