Over 1,400 new recruitment companies set up shop in last year

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The UK recruitment industry is in good shape and ready to meet the demands of a rejuvenated economy and job market, according to new analysis from Creditsafe, the world’s most used provider of company credit reports.

During the recession, poorly managed and over leveraged recruitment companies went out of business and only the strongest survived. There were 229 fewer recruitment companies in existence at the end of 2013 than at the same time in 2012 (23,323). Creditsafe’s analysis indicates many recruitment companies were ill equipped to survive the prolonged effects of the financial downturn. While in sectors such as the construction industry the ‘pain’ was felt earliest during the recession, with firms rapidly entering insolvency, the analysis reveals that for many professional services firms the pain was felt later with firms going under while the economy was actually starting to pick up on a macro level.

While hundreds of established firms struggled at the start of the up-turn, the environment did also provide a fertile environment for new market entrants. The research revealed 1,489 new recruitment companies set up shop in 2013, representing 6.4% of the total of 23,352 registered firms.

Creditsafe’s credit ratings, which are powerful predictors of company insolvency, improved for recruitment firms from 46.8 to 49.0 between 2012 and 2013. A further indicator of the changing profile of the creditworthiness of recruitment firms was the fact that just 12.4% were in Creditsafe’s highest risk band in 2013 compared to 15.4% in 2012 while one-in-eight (12.3%) were found in the lowest risk band in 2013, compared to just 10.6% in 2012.

Creditsafe’s analysis further shows that the UK recruitment sector remains largely a home-grown business. Despite the ‘globalisation’ of the labour market only 1.8% of recruitment and labour agencies have an ultimate ‘foreign’ owner, although this is higher than other professional services sectors such as accountancy and legal services where the percentages are 0.2% and 0.6% respectively.

Additionally, a higher proportion of recruitment firms than accountancy or legal services firms are part of a group structure (10.7% versus 2.4% versus 5.2%) and of these, 16.9% of recruitment firms, 10.2% of accountancy firms and 12% of legal services firms have an “ultimate” foreign parent.

Chris Robertson, UK Managing Director Creditsafe said: “As the economy picks up and hunger for strong candidates builds there will clearly be a growth in demand for services provided by recruitment agencies. It is encouraging that the average credit rating for recruitment companies is higher as we enter this post-recession period.  This is likely to be due to the failure of poorly run companies in tough times that have fallen by the wayside leaving a pool of healthier companies in their wake. The research illustrates that professional services firms often struggle at the tail-end of a recession, as they feel the delayed impact of reduced contract and sales volumes from industries that suffered earlier in the economic cycle.”

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