EUROPE’S CONSULTING INDUSTRY AND COVID-19

The global consulting industry is worth a combined $160 billion, with Europe representing a 29% share of that. However, with the coronavirus having pushed many of the world’s economies to the brink of a recession, clients are delaying projects, decreasing their scope or cancelling them all together. As a result, the revenue of the global and European consulting market is taking a big hit. In 2019, Europe’s consulting generated about U.S.$ 45 billion but in 2020 the forecast is for U.S.$ 32.2 billion, down 28%

Share of the European Consulting Markets

1. Germany: 6.5%
2. France: 3.5%
3. Spain: 1.0%
4. Italy: 0.9%
5. Netherlands: 0.9%
6. Sweden: 0.8%
7. Belgium: 0.5%

Germany, Austria and Switzerland are Europe’s largest consulting region by combined revenue, generating to the tune of €12 billion in fees. Because the German consulting market has a large manufacturing base, it will likely be impacted by disrupted or failing supply chains, and could therefore shrink more than the average.

In terms of a recovery, European consulting is likely to struggle to make up its lost ground. European businesses lack their US counterparts’ willingness (both generally and after specific crises) to use consulting services to get ahead of the competition, and to adopt new technology in their business model.

The firms which take the biggest hit will invariably be those whose services often mean they must spend time on a clients' site. Having been booming until very recently, then, change-related work and many aspects of operational improvement are suddenly suffering – particularly in Europe. On the other hand, as the work is often done in the consulting firm's office, strategy work will be less badly affected.

More generally, the exposure of individual firms to falling incomes will vary based on the services they provide and industries they serve. Diversity and the ability to adapt will be critical, so multi-faceted firms which cater to various clients will undoubtedly come out of this crisis in the strongest position. However, for firms of all sizes, the key challenge will be how effectively they can rebuild their pipelines and convert sales during what are likely to be at least two very challenging quarters.

The impact will vary by sector, e.g. the demand in the services sector, which includes leisure and airline companies, will shrink 29%. Europe’s airlines and hotels are expected to have an especially hard time of it due to travel restrictions across the continent – and demand for consulting in these areas will decline dramatically as clients in the sector look to save money however they can.

Healthcare consulting demand is also likely to see a marked decline, as resources are re-allocated to far more urgent areas in the short-term. In the long-run though, a lack of capacity may mean that healthcare companies may turn to consulting firms for help at a slightly later stage. The prospects for public sector consulting more generally will probably shift between countries; some firms are already reporting projects being put on hold as time and money is focused elsewhere, but others are continuing, especially where long-term technology projects are concerned.

Consultants working with private equity and the financial sector will be less badly impacted. The financial services sector will contract, so demand for consultants there will decline, but contrary to the financial crisis, when they were bailed out, banks now have the buffers to play an active role in supporting the economy back to recovery. As a result, they will look for consultants to support the deploying of initiatives, and new investment in digitisation.

Private equity firms meanwhile may be cautious in the short-term, but as valuations fall it will give them opportunity to cheaply buy companies, turning to consultants for advice and transaction support.