Hello and welcome to episode 47 of our podcast: Smart Consulting Sourcing, THE podcast about Consulting Procurement.
My name is Hélène, and I’ll be your host today.
Each week I’ll give you the keys to better use, manage and source consulting services.
This week, I’ll talk about the US Consulting Market
But last week, I talked about The Future of Consulting (Consulting 4.0)
We saw that the consulting industry is evolving, and many opportunities will arise for both consultants and clients. And we can ask ourselves the questions: are clients ready to change their ways of working with consultants?
If we merely follow the projections provided by economists, we should see a significant shift in the balance of power by 2025 in the global market.
Global & US Consulting Market
Here are a few interesting facts:
- Emerging Markets and Developing economies are growing 2.5 times faster than Advanced Economies like USA, the Euro Area, and Japan.
- If we take a look back, in 1995, the E7 (China, India, Indonesia, Brazil, Russia, Mexico, Turkey) was half the size of the G7 (US, UK, France, Germany, Japan, Canada, and Italy) at GDP level.
- By 2040, it could be double. Today the two groups are around the same size. Yet consulting in E7 is growing fast but is nowhere near its extent in the G7 countries.
But there are a few interesting questions:
- Is there a cultural tendency to rely more on Consultants in Advanced Economies?
- As most decisions are made in central offices located often in Advanced Economies, is it safe to say more money is spent on Consultants there?
- Are organizations in Advanced Economies spending more on Consulting to keep an edge over the competition?
So let us take you on a global tour and explore some regional market specificities along the way.
We are heading towards a shift in the balance of powers. Global economic growth is expected to dip closer to 3% in the coming years.
After overtaking the UK and France, India will be passing Germany and Japan successively. It seems to be only a matter of time before India and China take the top spots. Investors will soon see Emerging markets presenting the highest GDP growth as attractive opportunities for international businesses.
As they mature, they will become less attractive for offshore manufacturing but will present B2B opportunities. Next, walking in the steps of China, they will become investors themselves.
Meanwhile, mature economies will continue to experience lower growth as they are forced to deal with this new paradigm.
How does that affect the Global and US Consulting market?
- When mapping GDP vs. Consulting Growth, we can observe a moderate correlation. According to Marc Baaji, the three factors the can help explain the differences across geographies are:
- The economic development of the region that will drive the ability to invest.
- The structure of the Economy that will show what sectors are the most likely to spend in consulting.
- The local culture that will influence the willingness to work with outsiders.
- The way major Consultancies define their set of megatrends shaping the future of society and the Economy – PWC, for instance, predicts that despite the volatility of the Economy, most of the additional growth will take place in medium-sized cities of developing countries.
- The Digital revolution is impacting almost every industry and geography. As a result, regional regulators are now trying to place some limits to regain some form of control (think GDPR or internet access in China).
- If we look at the Consulting market today on a global scale – North America and Europe combined represent close to 80% of the consulting market, followed by Asia Pacific, Middle East, Latam, and Africa.
- Even though growth is twice as fast in Asia as in North America, the North American Market is roughly three times the size of the Asian one. It will probably take another 30 years for the Asian market to catch up at the current pace.
- But while most of the clients are becoming a part of global corporations, the consulting sector remains scattered.
- Clients tend to appreciate projects delivered by local consultants as they understand local culture better. A significant share of consulting projects is performed by teams of 2 to 5 consultants and does not require a global presence or a global footprint.
And what is the impact of Covid on the Economy?
- The outbreak of Coronavirus disease (COVID-19) has decreased the need for consulting services in 2020 as governments globally imposed lockdowns and restricted trade & travel.
- The global economic activity has declined while countries entered’ lock downs’, and the negative impact on businesses lasted throughout 2020 and into 2021.
- However, the management consulting market is expected to recover from the shock. The crisis is not structural and does not relate to fundamental weaknesses in the market or the global Economy.
North America remains strong and resilient economically
Even though Emerging Economies are catching up, North America remains the largest Economy in the world. Spearheaded by the US, the region represents close to 25% of the global Economy. States in the US, such as California, Texas, or New York, have equivalent output to the UK, France, Italy, or Brazil.
The Economy is at the same time enjoying a robust services sector and an abundant supply of natural resources. We can expect a slight slowdown in the years to come.
Two major trends are impacting the Economy durably for the years to come. Unconventional Oil has opened access to low-cost energy. Subsequently, consumers are experiencing cheaper products and lower transportation costs. Digital is transforming almost all industries. New technologies such as Artificial Intelligence and automation are opening endless possibilities.
But what are the Economic Sectors driving the growth?
- Number 1: Financial Services far ahead with close to 20% of GDP output.
- Then, Government-related activities, including military as well as federal and local expenses.
- Followed by Health Care, impacted by an aging population and regulatory evolution. There has been a 20% growth in health care sector jobs since 2008, while the average rate for the Economy was only 3%. Health care jobs are expected to grow at a rate of 18% from 2016 to 2026.
- Meanwhile, Technology is reaping the benefits of the Digital wave to go forth. Employment in computer and IT is projected to grow 13% from 2016 to 2026, faster than the average for all occupations. Demand for additional workers stems from cloud computing, collecting and storing big data, and information security.
- Construction, unexpected fifth, sees a projected growth of 11% from 2016 to 2026. The growth stems from overall economic and population growth, increasing demand for new buildings, roads, and other structures.
- Finally Retail, remaining the largest employer of the US since it includes both online and brick-and-mortar stores.
Given the strength of its Economy, it is not a surprise that North America is the largest market for consulting.
According to most market research firms, the market is estimated at around $100 billion with a CAGR of 4%, slightly higher than GDP. The market has seen a significant drop with the Covid crisis, but 2021 should see a recovery.
It is by far the largest and represents close to 90% of the North American Market. Canada is about 6%, and Mexico completes the picture. The main activity is concentrated on both coasts, with sizeable pockets in the Mid-West and Texas.
- From an industry perspective, we can find the sectors leading the GDP as major spenders in Consulting:
- Financial Services, facing the same new regulations and Fintech disruption
- Healthcare with an energetic Pharma sector and the aftermaths of the healthcare reform
- Energy with the consolidation of Energy providers and the Shale Gas opportunities
- Media & Technology facing consolidation and high-speed innovation and,
Consulting usually follows the ups and downs of the Economy. North America is one of the largest Economy in the world and the cradle of modern consulting. And with no surprise, the Us consulting market is strong and dynamic. Demand for consulting is driven by rapid growth and uncertainty.
That’s it for today. Next time, I’ll explain how Understanding the consulting market will help you source the right consultants
In the meantime, if you have any questions, or want to learn more about what we do at consulting quest, just send me an email at email@example.com
You can also have a look at our website smartconsultingsourcing.com to know more about our book and download free templates & guides to improve your consulting sourcing.
Bye and see you next week! Au revoir!
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