The turnover growth of the recruitment agencies segment in Russia slowed from 29 percent in 2014 to 17 percent in 2015, as the downturn in the Russian economy led to cuts in human resource spending and a fall in foreign direct investment. Despite the negative factors, the industry’s growth remained significant in 2015, thanks to a rising demand for skilled workers among the expanding industries, such as computer and related services, as well as aircraft and spacecraft manufacturing. The industry remains highly labor-intensive, as labor costs accounts for 59 percent of total expenditures in 2015. The industry is anticipated to grow at a compound annual growth rate (CAGR) of seven percent from 2015 to 2020, driven by the best-performing sectors that demand more qualified personnel.

Trends

The turnover of the Russian recruitment agencies market segment increased by 17 percent in 2015, a markedly slower rate than that seen in the previous years. The slowdown was caused by the deteriorating overall situation in the Russian economy, which limited spending on human resources by Russian businesses. Moreover, there was a major fall in foreign direct investment and the employment of foreigners in Russia. Nevertheless, the sector maintained a sizeable rate of expansion, as a number of growing industries, such as IT services, as well as aircraft and spacecraft production, were in need of skilled employees.

Due to the struggling Russian economy, the growth of the industry’s turnover slowed significantly in 2015, as compared to 59-percent and 29-percent increases in 2013 and 2014, respectively. Russia’s economic activities were hit by the falling global oil prices and the sanctions of Western countries. As a result, Russia’s nominal GDP fell by four percent, while its inflation rate reached 16 percent in 2015.

The economic downturn in Russia had a number of negative consequences on the recruitment sector. For instance, the worsening financial situation in the business community in Russia stimulated workforce optimization efforts, which led to personnel layoffs and a freezing of new worker recruitment. The increasing inability of Russian firms to pay wages and thus recruit new workers also negatively affected the industry’s performance. Another effect of the downturn was seen in a lower level of job relocations, as Russians became more cautious regarding labor mobility, focusing on retaining their current positions.

The domestic demand for employment services was negatively affected by the decreasing investment of foreign businesses and a lower immigration rate in Russia. Due to geopolitical tensions and a fall in the value of the rouble, the value of foreign direct investment (FDI) in Russia nosedived in 2015. Furthermore, there was a significant decrease in expatriates from foreign countries, such as Tajikistan and Uzbekistan, in part due to a recent reduction in immigration quotas by local government and labor cost cuts by businesses. Overall, the number of positions for foreign workers in the country dropped by 30 to 40 percent in 2015.

The computer and related services industry remained the main driver of growth in the domestic market, raising spending on recruitment services by 25 percent in 2015. The growth was stimulated by the rapid expansion of the industry, with growth reaching 20 percent in 2015 due to a widespread digitization of Russian industries and the government’s efforts to promote local IT solutions. As a result of these trends, there was a strong demand for IT specialists. The demand was notable among the most highly-skilled IT workers, as the top positions in the industry saw an average wage growth of six to seven percent in 2015, compared to an eight-percent decline among inexperienced developers and administrators.

The aircraft and spacecraft industry was the second largest business buyer of recruitment services in 2015. The industry increased expenditures on these services by 28 percent during 2015, as the sector was stimulated by government orders and was in need of highly skilled engineers. The industry’s growth was mostly dependent on Russia’s military purchases, which were markedly up in 2015. Furthermore, Russia’s military-expenditure-to-GDP ratio was the third largest figure in the world, only behind that of Saudi Arabia and the UAE. During the year, the Russian military received a total of 230 aircraft and 158 helicopters, in addition to other equipment, such as launch vehicles.

The recruitment segment’s expenditures on business-to-business costs increased by 11 percent in 2015, substantially below turnover growth, leading to a 21-percent rise in profits. The industry was highly labor-intensive, as spending on remuneration accounted for 59 percent of total costs in 2015. In addition, labor costs grew by 14 percent in 2015 due to a nine-percent increase in the number of employees and a five-percent rise in average wages.

Competitive landscape

In 2015, the leading firms in Russia’s recruitment agencies sector included SC Manpower C.I.S., Ancor Personnel Holding, Adecco, Steshar Group, and Kelly Services C.I.S. During 2015, companies, such as Ancor Personnel Holding and Adecco, focused on improving their competitiveness by launching new services or opening new headquarters.

SC Manpower C.I.S. is a Russian subsidiary of a multinational U.S.-based recruitment agency Manpowergroup. The company’s service offerings include temporary, contract-based and permanent employment services, as well as labor training, outsourcing, and consulting services.

Ancor Personnel Holding is a Russia-based provider of recruitment, consulting, and business process outsourcing services. It operates in Russia, Kazakhstan, Belarus, and Ukraine. In 2015, the company sought to expand its scope of operations by introducing new services. The new offerings included interim management, personnel reserve or talent mapping, and administrative outsourcing services.

Adecco operates as a Russian subsidiary of a Swiss provider of human resource services Adecco Group. During 2015, the company relocated its Russian headquarters and rebranded its business line to improve competitiveness in the Russian market. The company’s new main office was opened in Moscow, and its area is double the size of the premises Adecco had occupied earlier. Meanwhile, the rebranding pertained to the company’s activities in its Avanta Personnel division, which was renamed Adecco Professional and which was reorganized in order to raise the quality of services in the permanent placement services segment.

Steshar Group offers employment services in Russia, such as permanent and temporary recruitment, outsourcing, and auditing.

Kelly Services C.I.S. also provides staffing services in Russia. The company’s line of work includes permanent and temporary placement, outsourcing, and consulting services. It operates as a subsidiary of an American human resources firm Kelly Services. In 2015, the company suffered from a decline in fee-based revenue in Russia, fueled by economic difficulties in the country, which led to a contraction in income from commercial and part-time employment services.

Prospects

The revenue of Russian recruitment agencies is forecast to grow at a seven-percent CAGR during the period of years from 2015 to 2020. The growth in the sector is set to slow down during the forecast period due to the continuing poor econo-mic health of the Russian economy, which is projected to fuel cuts in human resource spending among local companies. However, a number of sectors, such as IT and electronics, are projected to perform better thanks to the assistance of the Russian government. Another major development in the industry will be an increase in the importance of outsourcing services, which now substitute temporary staffing arrangements that have been curtailed by recent changes in the law.

The industry’s expansion will remain hampered by difficulties in the Russian economy in the upcoming years. The country’s recession is expected to continue in 2016 and 2017, which will further curb employment opportunities among local businesses, resulting in widespread underemployment and informal employment. As a result, a majority of Russian companies plan to reduce their budgets for human resources in 2016 or to keep it at the 2015 level. The most negatively affected worker groups will likely include project managers, administrators, economists, and lawyers.

However, the recruitment sector is set to benefit from the ongoing search for highly skilled employees among Russian firms. This trend will be stimulated by the government’s plans to implement ambitious import substitution projects to elevate domestic industries in such sectors as IT services and electronics, which require a specialized and skilled workforce. For instance, the government plans to expand significantly domestically-created IT services and products up to the year 2020. Furthermore, in 2015, the state introduced another import substitution initiative to stimulate the development of Russian software, aiming to invest RUB5 billion (USD80 million) in 2016 and at least RUB6 billion (USD90 million) in 2017. As a result of these trends, Russia is set to see an increasing demand for software developers, engineers, and other qualified personnel over the next five years.

The Russian recruitment agencies sector is set to be significantly affected by a new law on temporary employment, which came into force at the beginning of 2016. According to the new enactment, temporary workers may not be hired for more than nine months, making temporary staffing much more difficult. For instance, Manpower C.I.S. claimed that the law will have an impact on around 90 percent of the firm’s temporary employment activities. To address the issue, recruitment sector players are expected to turn to outsourcing services, expanding their activities beyond personnel supply.