Hello and welcome back to Smart Consulting Sourcing, the only podcast about consulting procurement.
I am Hélène, and today we will be talking about the consulting industry in emerging markets. However, before that, let me give a recap of last week’s podcast.
Global sourcing is a procurement approach aimed at utilizing global efficiencies in the delivery of products and services.
It is a centralized procurement method used by multinational corporations to achieve economies of scale through corporate-wide uniformity and benchmarking. Global sourcing, in a nutshell, is a “sourcing strategy” that coordinates the world’s most cost-effective production and operation inputs.
What about consulting? The industry has been changing over the last 20 years. Consulting firms have been trying to embrace more diversity, and help their employees find a better work-life balance. And the pandemics that kept all of us working from home for several months has precipitated the move.
It is now possible to work mostly remotely. Virtual workplaces can help teams from all over the world come together and collaborate. Travel is then limited to the strictly necessary. In a digital work indeed, global sourcing can be sustainable!
Listen to the complete podcast about How can Global Sourcing be sustainable for Consulting?
However, this week, I want to discuss the consulting industry in emerging markets.
A Global Market With Local Players
Management consulting is an intriguing industry. While most of the clients are already or are becoming part of global corporations, the consulting sector remains scattered. As our global directory of consulting firms, conavigo.com, shows, about two-thirds of companies have less than ten employees.
Even though it is not unusual for those firms to send consultants overseas, it becomes challenging to establish their global presence.
Historically, Consulting Firms that grew internationally followed their clients as they were expanding abroad. At the end of the ’90s, several companies like McKinsey opened dedicated departments helping companies to grow East or offshore activities. Today the same companies are helping Eastern companies to grow West or to embrace Western management practices.
When you think about direct procurement, would you source from the local neighborhood or take advantage of the global market? Would you always use the same providers? You would probably inject some competition to ensure you get the best supplier.
Actually, you can play the same game with Consulting, and your supply options are almost unlimited once you know the market well enough.
To better grasp the complexity of the consulting market, you just have to look at the size of the consulting providers. In general, large consulting firms offer a broad range of services, while small boutiques are more specialized.
A vast majority of consulting suppliers are tiny boutiques with less than 10 employees– that’s t 87% of all Consulting firms in the United States. However, the remaining 13% of Consulting firms with over 10 employees capture more than 90% of the total revenues in the industry.
Heading Towards a Shift in the Balance of Powers
Emerging Markets and Developing economies are growing at 2.5X faster rate than advanced Economies (USA, Euro Area, Japan). In 1995, the E7 (China, India, Indonesia, Brazil, Russia, Mexico, Turkey) was half the size of the G7 (US, UK, France, Germany, Japan, Canada, Italy) at the GDP level.
By 2040, it could be double. Today the two groups are around the same size. Yet consulting in the E7 is growing fast but nowhere near the extent it has achieved in the G7 countries.
The Consulting market after years of diversification and segmentation is now rather fragmented. Each region develops at its own pace based on the maturity of both customers and suppliers of consulting services.
But, What Are the Differences Between the European and the US Consulting Markets?
There are many similarities between these two markets, Both North America and Europe are now mature markets where the use of Consulting Services is no longer a novelty. They focus on digitization, innovation, marketing and sales, technology, and operational improvements. However, they have their unique differences.
The primary difference is about the size. Management consulting originated in North America, not Europe. So it comes as no surprise that North America is the world’s largest market for consulting services and represents 40% of global sales.
The United States has by far the most significant number of practitioners and consulting firms. It also generates more revenues than all European nations altogether.
North America has been the first region to embrace the added value provided by Consulting. Given the strength of its economy, it is no surprise to find North America the largest market for management consulting. According to most market research firms, the market is estimated at around $100 billion with a CAGR of 4%, slightly higher than GDP.
Europe is, on the other hand, a diverse market, with on one side, mature markets in Western Europe with moderate growth and on the other side, Eastern Europe with less developed countries experiencing rapid expansion on a much smaller scale.
Several major Consulting Firms are headquartered in Europe:
- EY and LEK in the UK,
- Roland Berger in Germany
- KPMG and BearingPoint in the Netherlands.
Europe is the second-largest economy in the world. Europe currently fires on two engines.
With the UK, Germany, France, and Italy, the western part of Europe comprises four of the top 10 economies in the world. Growth is somewhat stable, slightly below 2% despite the Brexit dip for the UK and the rest of the continent.
Meanwhile, Eastern Europe, starting from a lower base with Poland, Bulgaria, and Slovakia in particular, is growing at a higher rate, close to 4%.
What About the consulting industry in Emerging Markets?
Asia, the Middle East, and Africa are all developing at a much quicker pace than mature regions. Asia-Pacific is the fastest-growing market with lots of promising prospects for Western consulting firms in Japan and Oceania and several fast-growing emerging markets.
Despite the slowdown in China, Asia will continue to drive global growth stabilized at around 6%. The region shows significant differences across countries. India is spearheading the region north of 7%, with Japan close to 1% and South-East Asia accelerating, thanks to robust local demand.
With the severe challenges that have affected all nations and enterprises, LatAm is still in rehabilitation mode. And Brazil is, without a doubt, the most important market with over a thousand different service providers.
Fourteen countries are now members of the Oceania economic region. However, Australia and New Zealand account for 97% of the associated GDP. The region is growing approximately 3% on average – one of the fastest growth rates among the mature economies.
Economic growth is also underpinned by population growth above average and significant government investments. Key economic sectors include Mining, Financial Services, Agriculture. The aging population will cause an increase in Health Care and Social Services sectors. Manufacturing is facing serious headwinds, as with many other developed and high-wage economies.
Most of the major Consulting Firms have expanded their roots in developing countries, establishing generalist offices. On the other hand, local firms continue to make up a significant portion of the providers (according to Conavigo.com, 71% of providers are only based in one region). With the industry’s segmentation and typification, there is an infinite variety among Consulting.
It is a well-known fact that consulting originated in North America; the affluent European economies were quick to follow the suit in leveraging the power of consulting. Over the years, North America emerged as the industry leader with the western European countries trailing close behind.
Fast forward to the 2000s and we find these two primary consulting regions to be competing with a sizeable number of contenders based in different regions, geographies and even hemispheres.
With their ever-growing market sizes, the E7 (China, India, Indonesia, Brazil, Russia, Mexico, Turkey) countries are rapidly capturing coveted spots on the global consulting map. Oceania, too, is catching up fast.
You have a strong understanding of the regional dynamics in each geographical area presently. North America and Europe’s more mature consulting markets are concentrating on digitization, innovation, marketing and sales, technology, and operational improvements today.
[The consulting industry in] Emerging markets and the rest of the globe provide exciting potential, with a higher pace of development than developed markets, but each nation and area has unique problems. It remains to be seen what the future holds for both consultants and clients.
And that marks the end of our podcast, folks. Next week, I want to talk about Social responsibility & consulting sourcing. So, stay tuned.
Till then, stay safe and happy sourcing!
If you have other questions about The Consulting Industry in emerging markets, remember you can contact me directly on LinkedIn or by email because I am always game for a chat!
Bye and see you next week! Au revoir!