Chinese management consulting market on track to crack $6 billion

29 July 2019 Consultancy.asia

The consulting market of China is forecast to reach a worth of $5.9 billion by the end of this year according to data from Source Global Research, following double-digit growth over the past three years.

Despite a slowing local economy (forecast by McKinsey at around 6 percent for 2019) and a myriad of issues surrounding its trade conflict with the US, the management consulting market of China is tipped to push the $6 billion dollar barrier by the end of the year on the back of another double-digit rise. Indeed, the trade disruption and slower economic growth is fueling opportunities for some of the world’s largest consulting firms.

“When the economy is better, companies need advice on how to develop or grow, while advice on cost reduction and being efficient will be needed by the companies in the midst of downturn,” Deloitte China’s national consulting managing partner Stanley Dai neatly summarised in a discussion with the Financial Times. “It does not mean that there is no demand for consulting services during an economic downturn.”

According to consulting industry research firm Source Global Data – which only takes into account figures from the upper end of the consulting spectrum (firms with a headcount of greater than 50 consultants serving mid to large-sized clients) – the fresh and ongoing opportunities in China’s management consulting market could see it hit a worth of $5.9 billion by year’s end, up by 12 percent – following consecutive growth of 14 percent for the prior two years.

The Chinese management consulting market

Like elsewhere, in both developed and maturing economies, the technological revolution of Industry 4.0 and demand for digitisation sees these consulting segments as the fastest growing in China (although operations services remain the largest spinner by function), while the financial services industry – consistently the biggest consultancy spenders alongside the public sector around the worldwide – also provides the greatest local dividends in respect to industries.

And like elsewhere, much of the local consulting market is dominated by the Big Four accounting an advisory firms – Deloitte, KPMG, PwC, and EY – which according to Source can effectively leverage their local and international audit base, global credentials, strong brand identities, and broad suite of end-to-end offerings to capture much of the local market. A maturing M&A approach, following earlier missteps, is also serving the Big Four.

Indeed, the growth of the Big Four’s consulting business in China is outstripping that of the market as a whole. As per his discussion with the Financial Times, Dai noted that Deloitte’s consulting revenue in China grew by 30 percent, while KPMG China Advisory head Jeffrey Wong told the media outlet; “Over the past four to five years when China GDP grew around 6-7 percent annually, our consulting business continued to grow at more than 20 per cent.”

Tech and strategy firms

Still, the big tech consultancies are said to be growing the fastest in China, with Accenture, for one, having last year invested in local capabilities through an alliance with AI company Malong Technologies (marking a first for the firm in the country), having since established an innovation hub in Shenzhen. Deloitte and EY, too, have recently launched local innovation centres, EY with its wavespace offering in Shanghai, and Deloitte with a SAP Leonardo Innovation space.

And lest we forget the big strategy firms – headed by McKinsey & Company, which last year came under fire for its substantial business activities in the country. McKinsey however was in fact the last of the MBB to establish a permanent base in Mainland China, slightly beaten to the punch by Bain & Company and Boston Consulting Group in 1994, but in one 2017 estimate had roughly double the number of locally-based partners compared to its leading strategy counterparts.

Elsewhere, other foreign management consultancies with a notable presence in China include Roland Berger, A.T. Kearney, Arthur D. Little, Simon-Kucher (which launched it's third local office last year) and L.E.K. Consulting, along with OC&C Strategy Consultants, which recently absorbed Italian management firm Long Term Partners with the express view to jointly capitalise on the LTP’s luxury fashion clientele and OC&C’s strong positioning in the segment in China, soon to account for nearly half of the world’s sales.

Yet, by all reports – including Source Global’s, which as part of its latest research interviewed many of the top country leaders at a range of tier-one consultancies – the local consulting market is unlike any other, and long has been the expectation from multiple quarters that the foreign advisors would ultimately get pushed out by more cost-effective and culturally savvy local competitors with growing expertise, such as Shanghai-based innovation consultancy S.POINT.