Posted , in Business model
Consulting in a post-global world
A recent article in The Economist argued that globalisation was already “in retreat” before politicians started talking about the need for greater protectionism. In 1990, when McDonald’s opened its first branch in Moscow, the firm “embodied an idea that would become incredibly powerful: global firms, run by global managers and owned by global shareholders, should sell global products to global customers”. But the return on equity of the top 700 multinationals has fallen to 11%, down from a peak of 18% ten years ago; moreover, if we compare the ROE of multinational firms with that of their local competitors, the latter often do better. “Global reach has become a burden, not an advantage”, The Economist concludes.
What impact will this have on consulting?
Globalisation, in the form of helping export-led businesses reach new markets more efficiently, was one of the primary sources of growth for consulting firms in the aftermath of the global financial crisis. It’s the reason why, for example, the German consulting market suffered less than others in the crash. If the scale of internationalisation contracts, won’t that mean less work for consultants? In the short-term the answer is almost certainly no. The growing complexity of global supply chains means there’s plenty of work for consultants at the moment–indeed, our latest set of forecasts for 2017 suggests clients are still investing here and, if anything, are more likely to use consultants to help them do so. If multinationals start to “retreat”, as The Economist puts it, then there’ll be work, too, helping clients re-configure themselves.
However, as MNCs hand more control back to local subsidiaries and partners, the buying of consulting services will become more fragmented, with less work being channelled through head-offices, and more, smaller projects, being bought on a country by country basis. Although clients’ thirst for global best practice is unlikely to diminish, their appetite for cross-border projects may do.
This has ramifications for consultants themselves. Consulting firms have spent the last two decades grappling with the implications of globalisation for their own businesses, as well as their clients’. From being parochial partnerships, most big firms have put in place some degree of global infrastructure, though the latter’s scale and success varies hugely. Machines and systems may run smoothly across borders, but people generally don’t: Not everyone wants to travel; some parts of the world are difficult to work in; it’s likely that government protectionism will make labour less mobile. The temptation to offer McDonald’s-like consistency is still there, not least because clients still–for the moment–say it’s important, but it’s never been a completely satisfactory solution. So much of consulting depends on getting people, from the most senior to the most junior, to do things differently, that you can’t impose a one-culture-fits-all approach.
Local, regional, global? The one thing we can be sure about is that consulting firms need to anticipate the probable shift in the strategy of multinationals, and revisit their own assumptions about how best to organise themselves.