Posts Tagged ‘UK’

The Long Tail – Its impact on grad recruitment

June 10, 2009
The Long Tail, as in use by the book of Chris ...
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I have recently been reading The Long Tail by Chris Anderson. The concept is quite clear, especially from a retail point of view, but we can see the ‘long tail’ appearing in pretty much every single situation you care to think of. Which Anderson acknowledges in his penultimate chapter. This got me thinking in terms of whether or not the long tail could be seen in graduate recruitment, and what impact it is having or could have in the future.

So does the long tail appear within graduate recruitment? I would say it does, when looked at from a ‘number of jobs vs. ranking of jobs offered high-to-low’ point of view. I think we can say fairly definitely that a few of the largest graduate recruiters (i.e. the Big 4 accounting firms), I can only talk about the UK, will have the largest number of vacancies right down to the SMEs that take on one or two graduates. Although, sadly,  I can’t find any freely available data to back that up. (anyone have that so I can make a pretty graph??)

What impact could the long tail ‘idea’ have on grad recruitment in the future? Something that Anderson talks about in his book is the increasing liklihood that someone’s individual tastes are catered for (in music for example). I think that in a few years time, and maybe we are beginning to see it already, graduates will increasingly want a graduate job that meets their particular needs. Maybe recruiters will have to start offering an massively expanded range of roles to satisfy all of the different niches. I can’t see recruiters liking that idea though!! What I have noticed is the increasingly common rotational placement-based graduate schemes, whereby a graduate moves to a new role every 6-12 months. This is something I particularly looked for when I was applying to grad roles last year.

I see it offering benefits to both the employer and the graduate. The employer gets a broader range of people interested in its programme, more choice of candidates. They also give the graduate experience of a wider range of roles which could be important a few years down the line when they are called upon to manage a section which they otherwise might not have had any knowledge of. For the graduate, they get to pick and choose the roles that interest them most.

I think most graduate schemes should take on this sort of rotational placement-style programme; with the exception of schemes in Audit where there isn’t much scope for variety except within types of clients. I see it being mutually beneficial for all parties and will , I believe, ensure that their programmes are relevant to and satisfy the needs of a wider range of people, leading to a greater candidate base to choose the best from.

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UK Audit Market Concentration: The Problems

February 15, 2009

In this post I will examine the problems brought about in the UK audit market by the perceived lack of competition between the largest audit firms.

The Audit Market in the UK is dominated by the Big 4, and in recent years many people have raised concerns about this. Indeed, there have been numerous reports and studies looking at the issue, including the Oxera Report (2006) and the Financial Reporting Council’s (FRC) ongoing project.

The Big Four audit firms audit all but one of the FTSE 100 companies, and represent 99% of audit fees in the FTSE 350. Switching rates are low (around 2% on average for FTSE 100 companies), and competitive tendering does not occur frequently. (“Four better, four worse?”, Oxera, 2006)

The Problems:

High Barriers to Entry

Because of the sheer size of most large listed companies, and the current gap in size between the second tier of audit firms, there is a high barrier to entry into the market for auditing these largest companies.

  • A lack of resources to audit the largest companies;
  • Investment is particularly risky due to the high costs of scaling up to meet the resource requirements of auditing the largest organisations.

If barriers to entry remain high, at the current level, and investment into new or other firms, into this market remain risky, there will be little competition to rival the Big Four’s dominance.

Negative Perceptions

The Oxera report notes that reputation is a significant driver in the choice of auditor, “favouring the Big Four, whether this is based on real or perceived differences between the Big Four and mid-tier firms.”

Oxera also found that very few (<10%) large companies would even consider using a mid-tier firm, although a majority of those surveyed believed they were technically capable.

So from this statistic we can deduce that the audit committees of the UK’s largest companies are choosing audit firms not necessarily on price and capability, but also significantly based on the reputations of the audit firms amongst investors (institutional and private) and the general public. As the audit committees are aware of the large gap between real capabilities and perceptions.

Lack of choice:

For the very largest UK companies there is a real lack of choice of audit provider, especially in financial services. Because of the regulations surrounding audit and non-audit work for the same client and also auditing of close competitors, some have no realistic choice of alternative auditor in the short term future.

The biggest impactor on choice of auditor is the auditor independence rules, and combined with having just the Big Four results in a severe restriction on companies. Oxera found that this lack of choice has resulted in higher prices, and that due to the lack of alternatives these higher prices are able to stick and there is a lack of downward pressure on audit prices.

Big Four to Three Scenario:

The loss of one of the Big Four auditors would exacerbate the problems surrounding auditor choice, and may require regulators to make emergency changes to auditor independence rules. It would expand the number of companies impacted by the lack of choice down to the independence rules. And Significantly the loss of another large audit firm would probably have a significant impact on investor confidence in audits, which may ultimately impact on the UK’s capital markets with investors not trusting the audit reports and hence the published accounts of the UK’s largest companies.

In my next post I will look at the potential solutions to the problem.

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The ‘Wimbledonisation’ of Britain

February 2, 2009

Robert Peston, the BBC’s Business Editor, has written a thoughtful piece on his blog about Britain’s economy and the wildcat strikes currently taking place.

As [Sir John] Rose [CEO, Rolls-Royce] said, it is human nature for a business with operations all over the world to favour its home country when making decisions about where to expand – or, as in the current horrible economic climate, where to cut.

So it should be no surprise that an Italian company IREM, hired by Total of France on a construction project in Lincolnshire, should itself be employing Italian workers. In a way it would have been more surprising, at a time when money is tight all over the world, if IREM had shunned its own people and had hired new British workers.

In the current economic climate I believe that governments should be extremely careful about their policies, it will be a very sad day when governments from the world’s leading countries start enacting protectionist policies into law. It is a retrograde step, and one which will impact on every economy, especially those in developing countries.

America, despite their constant talk of free trade, has always had protectionist policies (see Protectionism), as do many countries in Europe. One exception seems to be the UK, which is probably the most open to free movement of investment and jobs. Protectionism within a struggling global economy is a sure fire way to speed the process up and end up with a deeper and longer-lasting recession as Peston argues.

History does indeed tell us that protectionism in a worldwide downturn is the shortest route to slump and depression.

So, is the UK’s economy better off for being open and free and allowing foreign companies to buy up its major businesses? I would argue that on the whole it has been better off, in the good times at least, but personally I would prefer the country to have greater control over infrastructure businesses (energy, water, transport etc.) this is because if there is a truly global and major crisis it would be reassuring to know that the businesses running our infrastructure will have the UK’s interests at heart. On the jobs front, should businesses operating in the UK be forced to employ only or mostly British workers? Of course not, if a business believes that it can employ workers from outside the UK to do a better job and cheaper then I see nothing wrong with that, if anything complain about the government’s immigration policies the businesses are only maximising their shareholder value.

But Wimbledonisation – the notion that Britain is the winner even if none of the economic players are actually British – became official dogma.

We can carry on with a Wimbledonised economy, but I would like to see British companies improving their competitiveness on the world stage and expanding into other markets, only then will the free market economy which the UK operates be completely beneficial to the UK populace.