Rob Davidson, co-founder of one of Queensland’s largest recruitment firms, Davidson Recruitment, explains why the internet is pressuring all agencies, be they recruitment, real estate or travel agents, and pushing out mediocre operators.
After two decades in the industry, Davidson says it’s difficult to get a hold on the economy at the moment, but it’s likely to be a tough year, as mining is the only sector out of 14 the company serves where the majority of operators are doing good business.
The Brisbane-based company, which last financial year turned over $45 million and has 70 full-time employees, is undertaking a strategic review and Davidson says expansion in Western Australia and Asia could be on the cards.
He also explains the recent spate of collapses in the sector, why LinkedIn’s recruitment services unit is a concern, and why good staff members tend to sit tight during difficult economic times.
Davidson Recruitment has just turned 20. Tell us your story and do you feel mature now?
Twenty years ago I was a lawyer in London who thought there must be life after law. I looked at the recruitment market over in London and realised it was very much an embryonic industry in Australia and saw a good opportunity to get into an industry that would obviously grow here.
So we started off as legal recruiters and we’re now the largest Queensland-owned white-collar recruiter and the second-largest in Queensland of all the recruitment agencies. And we recruit across 14 different areas, from your senior executive appointment through to secretarial and support staff recruitment.
You mentioned that the recruitment sector was embryonic in Australia, so what challenges and changes have you seen in the past two decades?
Oh, two decades is a long time. I guess I’ve seen… it’s probably easier to look at the things that have remained constant. In all of that time it’s been difficult for companies to access really good talent. It’s been true for years in business that really it’s the quality of your people rather than your product in many industries that differentiates whether they succeed or fail.
What I’ve seen now within the recruitment industry, it’s becoming more mature. And with that comes challenges of globalisation and commoditisation.
For example, we’re now being affected in ways where I probably wouldn’t have thought by the European crisis, where we have clients that might have, for example, a head office in Italy. While their Australian office is doing extremely well, they’re finding it difficult to find staff but because Australia is only 5% of their global operations, Italy head office has mandated that all service suppliers’ fees must be cut drastically. We’re seeing a lot of that sort of price pressure come about by globalisation.
The other major game-change of course has been the internet in that time, which I think the effect for all of us in business, is it just removes the capacity for average businesses to survive.
If you look at any agency – be it travel agents or real estate agents or recruitment agents – if the service is average, people will default to the internet. You really need to be offering exceptional service these days to survive, which is probably a good thing.
The other more recent trend which we’re seeing is the rise of the in-house recruitment firms. Many of the large companies are putting in their own recruitment capacity and again that makes it hard for the average players. So I think there’s a lot more competition and probably have to be a lot smarter and more professional to survive.
What’s your view of the economy at the moment? On the one hand, we’ve got skills shortages and a relatively strong economy but then job ads are falling and there are job cuts at the big banks.
Well, we have a view; whether it’s right or not we don’t know.
My sense is yes, we read the economic reports but it’s so hard to get to an accurate assessment in what’s really a multi-speed economy, not a two-speed economy.
So if you look at us, we recruit across 14 sectors; we’ve got some clients who are struggling and retrenching, whereas others are finding it difficult to find staff.
I’d defy anyone who can deliver an accurate read on the economy at the moment.
So your view is that the economy is still fragile?
Yes, I think it’s fragile. I don’t think any of us will really know what the state of the broader economy is perhaps for the first six months of the year, maybe more.
It’s just so hard to read what’s happening in Europe, and then what flow-on effects that might have for China in terms of exporting their manufactured goods, and then Australia in terms of their exports to China.
I don’t really have a handle on it; I think most businesses are in a similar boat: it’s really just heads down, working very hard and keeping an eye out for where it’s all going.
Which sectors do you expect to do well this year?
Well, in Queensland the mining and resources sector will do well, and any sectors connected to that in terms of servicing them. They’re the major areas we’re seeing doing well; I don’t think I could point to another sector which you could say most operators in it are doing well.
You’re large in Queensland, but to what extent can we extrapolate what we see in Brisbane and Queensland to the rest of the economy?
I guess you can probably only really extrapolate that to WA, the two resource states. My understanding is the southern states are decoupled at the moment.
Are you seeing more people from Victoria and New South Wales moving up? Is that driving some of your recruitment?
Yes, we are seeing a lot of good talent coming from interstate. And overseas, we’re constantly inundated with CVs from England and Ireland. I was talking to a mining company in Brisbane the other day, and they said they recently employed someone on a fly-in, fly-out basis from Ireland. It really is a global workforce.
How long have you been receiving those CVs from the UK?
We’ve always had a stream of them but ever since the GFC, there’s far, far greater willingness in Ireland and England to move to Australia.
We talked about different sectors, do you agree there is a structural shift and the retailers and the wholesalers, manufacturing and tourism will continue to suffer or will be able to trade their way out?
Good question. I think they will continue to suffer. I think while there’s the strong Australian dollar, in terms of how they holiday, people tend to look overseas for major holidays during the year, so I’d expect the tourism sector to continue to suffer.
The retailing sector, it’s interesting… I think it’s probably the same to some degree; the comment I was making about the recruitment industry before, I think the average operators will continue to suffer and those that have been a bit extortionate on pricing, because obviously the internet makes us aware of what we should be paying for goods.
But interestingly, I have a friend who works in the biggest recruitment business in Australia that recruits for retail, and he had his busiest year last year.
That suggests they’re still investing in hiring?
Yes, particularly at management level.
Do you agree with Westpac’s view that job ads are less of a leading indicator these days but more of a coincident indicator?
Yes, I do think it’s true, I don’t think it’s not a strong indicator. Looking at our business, I don’t think you can draw a correlation between those figures and the trends we see.
We still have many clients finding it difficult to recruit good staff, but I think what happens in any of these downturns is that good staff tend to become risk-averse and they tend not to move. So it’s actually counter-intuitive perhaps but you can actually find it harder to find quality staff than it is when the economy is a bit better.
There’s been quite a few recruitment company collapses over the last six months or so. What do you think’s happening there?
It’s natural attrition. What happens after any cataclysmic economic event, particular in areas like recruitment where there are low barriers to entry and relatively small start-up costs, you get a lot of people who elect to set up their own business, thinking it is easier than it is in reality. I suspect that many of those people have started up and realised that perhaps they didn’t have the skills to do it.
And sometimes, they might have underestimated the backing of brand they have left. So with our business for example, 40% of our client base comes from large preferred supplier arrangements with big corporates. Now if someone leaves an organisation with that kind of client base, it’s difficult for them to access those types of clients. The market’s becoming more sophisticated, and I think it’s probably harder for start-ups than it used to be.
LinkedIn is planning to expand its recruitment services unit. Is that another challenge for you?
I think it will. The trends tend to show that with any technology, whether it’s LinkedIn, Facebook or the job sites, if you’re a good recruitment agency, you can use those tools to your advantage and that will make you more efficient and more successful. Again, if you’re average you’ll find you can easily be replaced by a simple internet search.
Would you consider moving interstate or overseas?
We’re in the middle of a strategic planning review of our business strategy. I’m not sure what will come out of that, but it’s quite possible we could look into interstate or overseas.
I assume you mean WA?
Yes, we certainly would look at WA obviously. We have a significant presence in the mining and resources sector, so it would make sense to consider that.
I would imagine if we looked overseas we would look at Asia.