Introduction to the Consulting Industry
Global consulting industry revenues (including HR, IT, strategy, operations management and business advisory services) will be about $391 billion in 2012, according to Plunkett Research estimates. This represents reasonable growth from $366 billion in 2011. In the U.S., accounting and related services (such as tax preparation) generated an additional $123.0 billion in 2011, up from about $116.1 billion the previous year, according to the U.S. Bureau of the Census.
Consulting is a somewhat cyclical industry. Consultancies posted significant growth from 2005 through 2007. However, 2008-09 marked a challenging period throughout the world, in light of the global economic slowdown and shrinking corporate budgets. In general, major consulting companies, including leading firms in management consulting and HR consulting, along with other advisories such as accounting firms, found themselves with substantial drops in business during 2009, in many cases 5% to 10%. Some companies cut their employee rosters and/or restrained hiring. India’s largest outsourced business and technology consulting firms were complaining that clients were delaying or cancelling projects as 2009 began.
However, as of late 2009 and into early 2012, corporate profits in general have grown dramatically, meaning that executives are somewhat more willing to authorize new consulting projects as long as they see the potential for a good return on the cost. During 2010-11, for example, India’s leading consultancies enjoyed substantial growth in employee count and revenues, as did most of the global consulting firms based in the U.S. and EU.
While corporate profits have been growing, government budgets in the U.S. and much of Europe, are under tremendous pressure at the national, state and local levels, where large tax revenues were down. This has been particularly hard on some consulting firms, since governmental agencies are prime clients for consultancies.
Positive factors for the consulting industry over the mid-term:
1) Continued growth in health care expenditures and significant changes in health care coverage are creating demand for consulting projects. This includes a focus on digital health records and a dramatic need for greater efficiency and cost control.
2) Consultancies that focus on projects that clearly reduce business costs and enhance operating ratios in a reasonably short period of time will find a ripe corporate market (such as consultants who focus on cash flow enhancement, supply chain efficiency and manufacturing efficiency).
3) Consultancies that have deep experience in debt restructuring and financial workouts will remain in high demand, particularly in the fields of commercial real estate and debt-financed acquisitions.
4) Vast new labyrinths of government regulation will create numerous opportunities for consultants who can show companies how to navigate rapidly changing relationships between government and certain industries, or deal with government oversight, particularly in financial services and health care.
5) Consultants who assist firms in lowering employee benefits costs are in high demand.
6) Consultants in environmental specialties, such as carbon emissions and energy efficiency, will be in high demand.
7) Consultants and advisors in the fields of corporate expansion into emerging markets, information technology, mergers and acquisitions will be in high demand.
Source: Plunkett Research, Ltd.
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