Small HR firms close; industry revenues expected to halve

Small HR firms close; industry revenues expected to halve

Bangalore: It has been a testing year for Jaya Kumar B. In July, she rolled down the shutters on the recruitment firm she set up 12 years ago. “It was definitely not easy," says Kumar, founder and managing director of JK Management Consultants Pvt. Ltd. “I was emotionally drained every time I closed down a branch."

Until January, she employed 120 people across offices in Bangalore, Chennai, Hyderabad and New Delhi, all of whom have been sent home. She has now rented out the office building in Bangalore and is taking time out to think up her next business idea.

On the other hand, Kannan Kasi, founder-director of recruitment firm Gyanagni Consulting Pvt. Ltd, is not winding up but lying low, waiting for a rebound. “The moment the market picks up, we will be back in the market," says Kasi.

His Bangalore-based firm has seen revenues fall 50-60% over the past year as his clients cut costs and turned to job portals and employee referrals for their hiring needs, in place of external consultants. Thanks to Kasi’s technology background, his firm now concentrates on implementing software projects for its clients on US-based Inc.’s software-on-demand platform.

This is a microcosm of the goings-on in the recruitment industry, a sector that’s taken the brunt of the downturn as companies froze hiring to cut costs.

“The recruitment industry’s revenues are likely to fall 40-50% by March 2010," says Pramod Thilakan, associate director at industry body, Executive Recruiters’ Association (ERA). ERA says 28,000 staffing, search and selection firms posted combined revenue of Rs18,000 crore for the year ended March.

Thilakan now expects several human resources (HR) firms, particularly smaller ones, to disappear, though he could not quantify the number, given the unorganized nature of the sector.

As the slowdown hit India, recruitment firms saw their clients stop hiring or delay the process, says Thilakan. Clients also started asking for discounts.

Kumar of JK Management says she has seen commission rates drop from 20% of a candidate’s annual compensation to as low as 4%, all in the space of one year.

From 2002 to 2008, the recruitment industry galloped at 30-40% year-on-year as new firms entered and crowded the market. Existing players expanded in tandem with clients, fuelled by new projects and investments against the backdrop of a robust and growing economy.

The industry now hopes for signs of a quick revival. Some of the players that have closed now “might come back when things get better", says Priya Chetty Rajagopal, vice-president at the Indian arm of US-based executive search firm Stanton Chase International. Stanton Chase’s India revenue too has dipped, she said, without giving details.

Rajasekhar K., a director at recruitment service provider Abab Technologies Inc. too is waiting for a turnaround, which he hopes for by January. Rajasekhar had to reduce his staff from 20 to six and close a branch in Hyderabad.

Stanton’s Rajagopal says there is space for everyone in the industry.

“But small players have to bring in value in terms of a knowledge base or understanding of the client’s business," she says.

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