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Our real-time forecast for the global consulting industry currently predicts that by the end of 2020, the market will have contracted by around 13% compared to 2019. However, that high-level picture can only tell us so much. Different countries have, of course, been affected by the pandemic in different ways; and international media coverage tends to focus disproportionately on the COVID response of large, developed economies. So it’s worth pausing to ask what impact, exactly, this crisis has had on emerging markets specifically.
Trying to answer that question is complicated by the fact that the term “emerging market” is fraught with difficulty. So far as the consulting industry is concerned, we use it to refer to economies where the use of consultants is relatively new, and not as widespread or accepted as it is in most mature markets. These also tend to be countries in which governments and publicly-owned organisations play a bigger role, driving the economic investment that ultimately funds consulting. This heady mix can sometimes lead to unpredictable, haphazard buying behaviour.
In economic terms, the World Bank estimates that low-income countries will be less badly hit than others. The total GDP of low-income countries is expected to shrink by 2.4% in 2020 and then grow by 4.7% in 2021. By contrast, the World Bank expects that high-income countries will see a 6.8% reduction in total GDP in 2020 and growth of only 3.8% in 2021. While there are many reasons for this disparity, one of the most significant contributing factors has been the extent to which national governments have imposed total lockdowns—and, consequently, the degree to which economic activity has been depressed.
Economic activity plays an important role in determining the level of consulting use, but it’s not the only factor. When you look at country-by-county growth in the consulting market over time, it’s clear that some consulting markets (the US, UK, and Australia) tend to grow at multiples of GDP, so that a 1% rise in GDP translates into several percentage point rises in demand for consulting. By contrast, there are other markets which have historically grown more closely in line with national GDP. That difference is driven by the extent to which the use of consulting services is an accepted, even expected, part of what organisations do.
It was, for example, the consistent willingness to use consultants during the Global Financial Crisis that helped the US consulting market return to growth within 18 months of the collapse of Lehman Brothers. We talked then to clients who asserted that they had a new response to the crisis: Instead of cutting executive travel and biscuits in meetings, they were cutting consultants. But they didn’t, or not by much and not for long. By contrast, emerging consulting markets tend to be fragile. Consulting services in these markets are seen both as a commodity—in that prices can be driven by the customer—and as a luxury, only to be bought when times are good. These markets are also difficult to operate in: They’re often internally fragmented and can pose significant operational and governance challenges. When a crisis hits, expenditure on consulting can be cut back quickly and substantially.
How does this play out as far as the COVID crisis is concerned? Indonesia, a consulting market worth just under US$700m in 2019, is forecast to shrink by a relatively modest 9% this year against 2019, but recoup much of that loss in 2021. Malaysia looks set to follow a similar trajectory. While both of these geographies exhibit the natural fragility of an emerging consultant market, the fact that economic activity has been less badly hit than in other parts of the world should pave the way for a strong recovery.
The forecast for Middle East consulting outside the region’s largest markets (Saudi Arabia and the UAE) is dire for this year—a contraction of more than a fifth— as the impact of the pandemic has been amplified by very low oil prices. But demand looks likely to bounce back strongly next year—in no small part because this is a region where highly skilled employees remain relatively scarce and businesses are forced to rely heavily on consultants. Much like Malaysia and Indonesia, this market is likely to see significant growth in 2022-24 as pent-up demand for change encourages clients to invest.
Contrast these with the prospects for consulting in Venezuela, Argentina, and Africa outside of South Africa. All three of these were markets that were somewhat shaky before the crisis. Combine that with political uncertainty and the unpredictable economic effects of the pandemic, and you can see why demand for consulting is unlikely to return to its 2019 levels until 2023 at the earliest.
In order to recover from this crisis, consulting firms will have to think and plan wisely. And they will need to think about not just what they invest in, but where they invest as well. Although we might talk about “the” COVID crisis, it would be more accurate to think in terms of many different crises, with the story playing out differently in every region. Emerging markets will feel different pressures from their more developed counterparts; but even within the category of emerging markets, the story looks very different in different parts of the world. Navigating that complexity will be one of the key tasks for any large, global consulting organisation over the coming years.