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Press release date: 29-Jan-2007 Russian Employment in 2007 – Who wins and loses? The Russian employment market has traditionally provided industry watchers with extremes. 2007 is set to continue the pattern of the past four years, it’s hardly news that it’s getting tougher to find good people, it’s still a headache to get reasonable people and the supply of entry level candidates is highly dependent upon the attractiveness of your industry and the discipline. It’s not difficult for a major, blue-chip multinational to source, attract and retain the very best and brightest fresh graduates but to get reliable trainee hypermarket department managers is a thankless and never-ending task. The Recruitment Industry – A year of growth There is an increasing array of new recruitment firms entering the Russian recruitment market. Russia has never been well catered for in branded recruitment suppliers and companies that are household names in Central, Western Europe or the USA are little know or not present here. 2007 will see more new entrants and those who entered in 2006 will continue to forge their market share, eager to catch up for 15 or so years that the recruitment market has been active. The staple international “high street agency” names like Kelly Services, Manpower and Adecco focus on the blue collar / clerical and junior roles. The quality, volume mid-level management market is far more sparsely populated by branded providers, there appears to be less kudos attached to being a volume management recruitment or search and selection firm although this represents by far the largest area of demand from employers. This is the core territory of Antal and a host of smaller domestic providers. Successful and experienced recruiters are ultimately drawn towards the world of top-level search, far more competitive and far fewer positions to fill. With a small number of exceptions, companies tend to be small niche “boutiques”. With many of the smaller and medium sized recruitment firms privately owned and not forthcoming with accurate turnover figures it is not easy to calculate the size of the Russian recruitment market, our estimate is a minimum of US$0.5billion per annum. This revenue is still heavily fragmented across the full range of firms from the small handful of major names employing 100+ staff in multi-site networks, the mid- sized firms with 25 – 50 staff and literally hundreds of independent consultants, sole traders, spin-offs and foundling and “lifestyle” recruitment firms. The industry has yet to see a lot of serious merger and acquisition activity, 2006 saw one big deal between two big names fall through, 2007 will probably see some more interest. The industry is probably ready for some consolidation. The Russian Employment Market – International Comparison – Local peculiarities Compared to other markets in Central Europe, continental Western Europe and particularly the UK, recruitment here is still in its relative infancy. The talent pool of candidates in any contemporary discipline, like sales, marketing, HR, even accountancy and law is still much younger than comparative candidates in other geographical markets. It is common to see CVs of “experienced” Finance Directors (CFOs) General Managers and other senior management level candidates with less than 10 years experience. In fact there is an expectation of leaving university and moving straight into a management role! Candidates can study an array courses preparing the virgin job hunter in management, but this leaves the question unanswered: managing what exactly? Candidates can expect to have their responsibilities grown consistently, not necessarily because of their outstanding abilities, but more probably the lack of alternative experienced talent. It’s often better to have somebody with relatively little experience doing the job than nobody at all, and although some will fail, the adage, if they’re good enough, they’re old enough is very true and many of today’s entrepreneurs and top managers are the result of taking advantage of opportunities that would not have been available in a more developed employment market. A differential is opening up between the dynamics of recruiting the “very best” talent and filling the mid ranking roles. It is not always the best policy to go for “best of industry” talent. The various salary surveys are always geared towards average salaries, but the expectations of the top 10 – 15% may be wildly outside the salary ranges quoted. Supply and Demand is to blame. New entrant companies are willing to pay over the market salaries, they’re willing to offset this cost of buying “off the shelf” talent, it would be far more costly to invest in training and allow the time to develop staff, it’s cheaper to take people already up and running even at inflated prices. Although it’s true that most people have their price, the market has calmed significantly. Employees now value stability, non-financial benefits such as management culture, training, environment, the employer brand and career development opportunities. Job hopping is still a market feature, but usually from companies that are poorly managed, that have not maintained market salary / bonus levels or are not offering a good non-financial package. 2007 may just be the year when the provision of pensions makes begins to make an impact, but there is a lot of work to be done by the pension providers to sell the benefits of this to the general workforce. This is work in progress. 2007 will continue to see companies moving to paying their staff more transparently. It’s almost incredible to think that many years after the 13% income tax was brought in some companies still insist on paying their staff “under the table”. More and more job seekers are realizing that a small official salary is not enough to get a mortgage or other bank loan. The tax authorities are also becoming a lot more sophisticated in weeding out tax evaders and more importantly the employers who promote these schemes. Traditionally salaries were quoted in US$, and more recently Euros, although probably paid in Roubles. As the local currency has strengthened against the Dollar from 32 to the around 26, real purchasing power of many US$ denominated salaries has been eroded. Although most people are still more comfortable negotiating in US$, employment contracts are now more and more often quoting a Rouble figure. Most firms have, or are at least urgently considering converting labour agreements into Roubles, and using typically a floating exchange rate somewhere between Central Bank rate and 28 – 30 RUR / US$. Strangely enough unlike most of Europe, it’s still the norm to quote net figures here rather than gross. Of course quoting a net salary on a labour agreement leaves an employer exposed to the full impact of any future tax hike. These are without doubt Utopian times. Most companies are expanding and increase in demand for good talent far exceeds the supply of good candidates. Salary inflation, although not racing out of control, is certainly making this market one that favours the employee. Employers need to be increasingly creative to secure and retain staff. Companies are now realising that it’s often better to take inexperienced but highly motivated talent, the “big 4” consulting firms and major FMCG companies have really driven talent acquisition from the good university and institutes. It’s however true that whilst some are taking full advantage, powering their careers forward and making the most of playing the career game, many others fail to see that this is one of the most exciting and dynamic employment markets in the world. Candidates are still attracted to working overseas where the opportunities are fewer and the rate of progression slower. They are also prepared to exit the employment market completely to pursue MBAs or other qualifications. Putting a career on hold, even for a year in this fast paced market has a huge opportunity cost that will take many years to recover from when the economy does cool down. Which, as in any economy, it will do one day, but certainly not this year, or probably even next.

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