Headhunters have been living high on the hog in Hong Kong in the last few years. The industry has mushroomed from a handful of offices of multinational firms to at least 115 outfits of all sizes. As outsourcing became a global trend, along with the rapid expansion in investment banking, the build-up by Western companies in China and finally the hiring frenzy of the dotcoms, there had never been a better time to be a headhunter in Hong Kong. Last year, senior 'consultants' in the industry, which prefers to be known as 'executive search', were pulling in salaries of US$200,000 a year. 'You even heard stories of some high-end people doing US$300,000 or US$400,000,' said one insider. 'If you have your own firm, the sky is the limit.' These days, however, the sky is falling in. The hunters have become the hunted as companies look to pare costs amid an economic slowdown. Some are still networking to fill positions - but it might well be the candidates they are hawking are themselves. 'I know that one or two firms have folded and others are laying off people,' said Peter Bennett, who heads his own firm Bennett Associates. 'We have just received some resumes from them.' In the US, publicly-listed headhunting companies have seen their high-flying stock prices hammered in the downturn. In August, one of the biggest names in the industry, Korn/Ferry, announced it was slashing 500 jobs, or 20 per cent of its global workforce. That followed 200 job losses in February. Upmarket Heidrick and Struggles, the US firm seeking a successor to chief executive Richard Li Tzar-kai at Pacific Century CyberWorks, cut 300 jobs in June. TMP Worldwide began eliminating a third of its 600 headhunters in February. In Hong Kong, multinational headhunting firms are freezing recruitment or quietly cutting staff. Korn/Ferry is not reducing staff in Hong Kong immediately, but is 'monitoring the situation closely,' said Andrew Tsui, joint managing director for Hong Kong and China. 'I think things are pretty dark right now,' said Douglas Bray, regional business manager for north Asia at Nicholson International. Perhaps as many as one-third of Hong Kong's 115 headhunting firms will go to the wall in the next 12 months, said Mr Bray. The casualties would be particularly heavy among the boutique operations that sprang up in the boom times. Companies often pay their consultants a commission of between 16 to 20 per cent on any business they bring in. The temptation to leave a big-name firm and go it alone to grab a share of the pie is strong. Some of the start-ups are not even run by professional headhunters, but veterans of a particular industry who think their specialist knowledge, and address book full of former colleagues' numbers, will help them find a niche in the market. 'These days the top eight head hunting firms only control about 40 per cent of the SAR market,' said Mr Bray. To set up in business, 'all you need are a telephone and good communications skills,' he said. That may not be good enough to stay in business when times are hard. For one thing, newly-opened boutiques probably do not have as much cash as large firms. And some specialising in the information technology sector may have been particularly hurt by taking their fees from dotcom companies in the form of stock options. The economic squeeze could also be behind the decline in ethical standards creeping through the industry, which Mr Bennett, a 20-year veteran, has noted. Genuine headhunting firms should work on a retainer like a lawyer, he said. A fee is agreed up front, which is perhaps up to a third of the annual salary of the position to be filled. In the tier below headhunters are what is called 'contingency' firms such as Michael Page. Rather than actively searching for suitable individuals, they usually rely on advertising to attract candidates, mainly for junior or middle-management positions. This process can be cheaper for the client firms - perhaps 15 to 18 per cent of the recruit's salary - but may not yield as good results. 'The best candidates are those who are not looking for a job,' said Gordon Clark, a former senior headhunter with TMP. With the number of positions they are filling down by about 30 per cent from last year, top-level headhunters are now taking on contingency jobs, breaching their code of ethics, said an insider. 'There's big pressure to do contingency work just to keep people busy,' he said. Lower down the rungs of the ladder, professional behaviour is even more dubious. Some small contingency firms are even placing phoney newspaper ads for non-existent jobs so they can harvest a crop of resumes to tout around town. 'The barriers to entry in this industry are pretty low and as a result some pretty low-lifers creep under the barrier,' Mr Bennett said. While there are standards laid down by the US-based Association of Executive Search Consultants, few firms in Hong Kong have qualified to be members. The more aggressive headhunters have always tested ethical boundaries in their search for talent. Researchers may masquerade as a representative of a components supplier, and make probing calls to a manufacturer to discover its managerial structure. 'Then there is the clever secretary of the managing director who you have to get around,' said the insider. 'Sometimes you have to make an early morning phone call before she gets there.' Blue-blooded Swiss outfit Egon Zehnder International, which has had a presence in Hong Kong since 1986, claims the market is holding up reasonably well for the top-flight firms. According to Bill Henderson, Egon Zehnder's managing director for Greater China, 'the end of the market we work in is always busy'. In good times, clients might be looking for a head of strategy to plot expansion while now, firms are seeking sales directors and chief financial officers to shore up revenues and balance sheets. 'As corporate governance becomes more transparent, companies will recognise the need for top-notch talent which they will not be able to identify through traditional family networks,' said Mr Henderson. In the same spirit, headhunting firms are also being hired to find suitable independent directors, which previously were a rarity on the boards of management of Asian companies.