Management consulting market of China grows 12% to $4.5 billion

12 December 2017 Authored by Consultancy.asia

China’s consulting market outpaced its economy last year, growing at double digit growth to reach a total market value of $4.5 billion. The Chinese consulting industry is now larger than its international equivalents in France and Australia.

The concept of management consulting was introduced from Western countries to China in the 1980s as the nation’s economy underwent sweeping marketisation. The management consulting industry in China is still in the growth stage, having been in a state of expansion over the past 15 years particularly.

As the world’s fastest growing economy, China, which has become an economic superpower, has continued to attract a flood of management consulting companies keen to tap into the booming market. Most major global consulting firms have expanded into China, with management consulting market leaders McKinsey & Company, The Boston Consulting Group, Bain & Company all present, alongside many more. These firms, alongside the largest accounting firms, the Big Four, as well as BDO, Grant Thronton and RSM, continue to dominate the largest market share in China, as their strong brands, global credentials, ability to leverage their audit base, and end-to-end solution set all play well to domestic and multinational clients alike. They mainly provide consulting services to their former global customers instead of local Chinese firms, in the fields of strategy, operations, human resources and marketing.

According to the latest figures from Source Global Research, 2016 was an especially good year for management consultants in China. Consultancy.asia analysis of the data suggests the segment grew by as much as 12%, a boom of an additional 5% on the previous year, to reach a total value of more than $4.5 billion.

The rising demand for consultants appears to have been chiefly driven by multinational corporations (MNCs) increasing their investments in the country. However, government initiatives including the $4 trillion belt and road infrastructure investment plan are also transforming the landscape for domestic players, and clients across many industries are presently reconsidering their business models in light of digital innovation and a slower-growing economy. Source’s analysis also argues that the growth and professionalisation ambitions of China’s state-owned enterprises (SOEs) and privately-owned enterprises (POEs) is also opening up new opportunities for management consultants, who previously found little work among these client groups.

The management consulting market for China

Financial services are by far China’s biggest consulting service segment, and are estimated at over one third of the total industry. In 2016 they turned in a solid performance, with digitisation, growth, and regulation all driving demand. Thanks to the growing standard and quantity of competition leveraging new disruptive technology, these firms also began thinking increasingly about strategic direction, as the Chinese financial sector continued to reform. This generated a glut of demand for services around productivity and efficiency in particular, as the financial sector sought to transform from a very traditional model – traditional banking with branches and local offices – to one that's much more focused on online platforms and services.

Beyond finance, digitisation is making its presence felt across China’s consulting market more generally. While it is not of the same level, as in other leading global markets, the impact of digital innovation is being felt across retail, with tech-savvy consumer sites such as Alibaba emulating Western firms like Amazon to disrupt the bricks-and-mortar retail market incumbents.

Changing market

With rising demand amid an increasingly consumer-orientated economy, the manufacturing consulting market also did well due to modernisation and efficiency initiatives. The Chinese car market grew rapidly last year, with a boom in the desire for premium models too. As a result manufacturing consultants were a hot commodity among companies looking to tap into this changing sentiment.

Across the board, all industry sectors performed well for consultants. However, just like in 2016, the smaller industries where consulting grew the fastest. Healthcare, pharma & biotech, and retail all experienced strong growth from a relatively small base.

As companies across all industries sought to leverage new automated techniques, the technology service line grew by the largest percentage, with the productivity agenda driving good volumes of digitisation work. The operational improvement service line, China’s largest by some distance, also grew at an impressive rate in 2016, while clients took on new techniques aimed at ensuring their continued success as economic growth slows. Customer-facing reforms are also in high demand, as are data & analytics services aimed at monetising the consumer information collected. As is the case with most major economies, advanced technologies, including robotics and AI, are also gaining ground, especially in the automotive sector.

Size of consulting market

Similarly to those based in India, whose consulting sector is also seeing bullish growth, many consultants still remain disappointed that China’s consulting industry is not maturing as quickly as they had hoped. Pricing pressures, a phenomenon experienced worldwide by developed consulting markets including the UK and France, continue to limit growth, while talent shortages have hamstrung many firms attempting to distinguish themselves among an increasingly crowded market.

A general lack of regulation has also led to a number of consultants reporting to Source that they do not get paid in a timely fashion – a problem which may further prevent higher growth, as firms spend longer chasing payments from old jobs than obtaining new business.  However, some industry figures are more optimistic, and counter this critique with the suggestion that China is, as with many industries, achieving maturity on its own terms – a maturity that is distinctly different from Western models.

Opportunity ahead

In the future, China is likely to continue its enhanced rate of performance. Strong growth is expected at least through to the end of 2018, and despite a slower-growing economy and growing international political and economic instability, the pressure for clients to grow, modernise, and digitise shows no sign of subsiding, with the trends forecast to keep consultants in major demand for a while yet.

With its current market size of $5.4 billion, China is now home to a larger management consulting market than France ($5.1 billion) and Australia ($4.6 billion), as well as the entire continent of Africa ($2.6 billion) and rival growing economy India ($2.2 billion). While it is still lightyears behind the world’s largest consulting market of the US ($59 billion), it is rapidly making ground on the UK, whose slow growth, both of the economy and consulting sector, is largely attributed to Brexit.

China stands to make further ground on the world’s second largest consulting industry as a new market opens up in China’s western provinces. MNCs and domestic companies alike are now viewing the region as a potential location for further expansion, with first and second-tier cities beyond the major cities in the east now thought of as major opportunities.

According to Source, the key for any firm to succeed in courting these Western-bound companies is to have a tailored local approach. Firms who can demonstrate the best local expertise, knowledge of the ins and outs of the market in the region, as well as boasting top local talent ready to put boots on the ground, can expect to perform best. With these tools, international clients will feel adequately armed to take their leap into the unknown of the new market.

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