Covid-19 is putting the brakes on the global economy. For many countries, the fallout of the outbreak is a question of the degree of economic pain – be it a recession or a depression. And the global consulting industry, like most others, is unlikely to be spared a downturn from the colossal impact of the pandemic, with a projected market decrease of $30 billion.
Since its last downturn in the financial crisis period, the global consulting industry has grown steadily to a value of $160 billion, according to Source Global Research.
However, Covid-19 is forcing clients to halt projects, while many are being de-scaled to some degree – meaning decreased revenue for consultants.
Source Global Research gathered the opinions of hundreds of consulting firms from around the world to get a view of what the impact could look like. The current projection is that the pandemic could decrease the consulting market by 19% from $160 billion to $130 billion. The researchers, however, stress that predictions are very difficult at this point with so much changing so quickly, and as such the forecast is meant to be directional only.
The second and third quarters will see particularly serious hits to demand, but the hope is that the pandemic will burn out in the summer and economic activity will ramp up thereafter.
Regions
The US accounts for nearly half (44.5%) of the global consulting market, and has seen more limited disruption – but that is due to change as the country catches up to the infection curve of Europe. The US now has the most reported cases of any country, with New York a particular hot zone.
The US consulting market is projected to decline by 15%. The North American market, of which the US makes up approximately 90%, is expected to decline from $78.7 billion to $66.6 billion.
Europe’s consulting revenues are expected to see a larger 28% decrease. Germany’s consulting market will be particularly impacted by its manufacturing client base being hampered by failing supply chains, while UK consultants battered by Brexit will see further pain from Covid-19. Declines could be sharpest in Italy, which has seen the most cases in the region, and the most severe lockdowns as a result.
Asia could see a smaller decrease, at 12%, as China, South Korea’s and Japan’s efforts at containment have been relatively effective.
Sectors
The impact will vary by sector – with some areas more exposed than others. Demand in the services sector (which includes leisure and airline companies) is expected to shrink by as much as 29%. The decline in main-line consulting will be partially offset by an increase in restructuring work.
Lower oil prices – due to Saudi Arabia and Russia boosting production amid slumping demand – will play a role in dragging down energy & resources sector consulting by 25%.
Healthcare consulting will also see a big drop, at 28%, as resources are shifted to critical areas in the short term. Lack of capacity may drive consulting engagements at a later time, however.
Public sector declines will vary by country, but many firms are reporting suspended projects as governments shift resources to battling the pandemic – both as a health and economic crisis. Some long-term technology projects are continuing due to substantial previous investment.
Financial services consulting will fare better than most other sectors, contracting by 12%. Financial services firms are better capitalized than during the financial crisis, and will play an active role in supporting the economy back to recovery. As such, they’ll be deploying initiatives and continuing to invest in digitization.
Private equity firms will be cautious in the short-term, but may become more active in the third quarter as valuations fall, enabling thrift shopping.
Specializations
The hardest hit services will be those where work involves visiting client sites, including change-related work and operational improvement engagements. Strategy projects will be less affected, as the work is often done at the office (or remotely).
Long-term technology projects will also fare relatively well, since much of the work can be done remotely and clients are less willing to lose the sunk cost of prior investment.
Large firms are likely to fare better than mid-sized and small consultancies, as they often have longer projects that clients are less eager to cancel. Large consulting firms also can cut their rates to pull share from smaller firms in lean times, and have greater resources to invest in remote work technology for their employees.
The established brands of larger companies is also a benefit. In economically turbulent times, such as the financial crisis, clients are likelier to invest in consulting if the work is delivered by a major firm.
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March 30, 2020 at 06:00PM
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Coronavirus may hugely impact US consulting market - Consulting.us
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