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2013 growth for Russia and Eastern Europe consulting may not last

Moscow

London: The Eastern European and Russian consulting markets enjoyed healthy levels of growth in 2013, according to a new Source Information Services (Source) report, released today. The Russian market grew by 9.2 per cent to €739m, and the Eastern European market grew by 6.5 per cent to €1,075m.

However, Source says that in 2014, it expects the consulting market performance to be very mixed, and predicts that some markets could shrink by as much as 2 per cent. It says that the ongoing instability caused by the crisis in Ukraine is likely to cause the markets in Russia and neighbouring 'Russia-facing' economies to decline. Elsewhere in Eastern Europe, where economies are more closely tied to robust Germany, growth can be expected.

B.J. Richards, Senior Analyst at Source and author of the report commented, "The crisis in Ukraine has caused clients across much of the region to feel far more cautious and to scale back their plans. For Russian firms, the crisis also compounds stress around the devaluation of the rouble and the overall strength of the economy. Perhaps the biggest impact of this instability will come from foreign investors pulling back from the region — a reality that could hasten the shift of consulting activity away from Western firms and toward local players."

Operational improvement

The report shows that operational improvement (up 13.5 per cent to €107m) was the fastest-growing consulting service in Russia in 2013 as clients aggressively pursued an efficiency agenda. In Eastern Europe, technology (up 10.5 per cent to €364m) was the most in-demand service, largely thanks to modernisation projects at financial institutions.

Commenting on the rise in technology projects across Eastern Europe, Claus Hintermeier, Near shore lead, Capco said, "It feels like 1998 or 1999 with lots of big things happening. Back then, though, we still saw banking being very hesitant about new technology, whereas now they're quite aggressive. I think it's a good thing in that it will result in much better customer service. Hopefully this time it won't be a bubble."

Financial services

Financial services was the best-performing sector in both Russia (up 14.2 per cent to €176m) and in Eastern Europe (up 10.6 per cent to €245m) with work coming from technology-led efficiency projects and large-scale transformation in addition to regulatory work.

The report highlights that in Eastern Europe a lot of the work in the financial services sector is not necessarily driven by local decision makers — as many banks with significant operations in the region are headquartered elsewhere, and Eastern Europe is also a popular destination for housing shared services. As a result, consultants are often involved in helping remote clients set up locally.

The report does stress that the strong growth seen in financial services is not completely consistent across the various markets of Eastern Europe. Poland and the Czech Republic, for instance, have mature banking sectors and so are enjoying big consulting growth.
Meanwhile, Slovakia is more significant to consultants for its popularity as an outsourcing destination, and so work here is more likely to come from outside the region.

B.J. Richards, concluded, "The other challenges facing the consulting market in the region are a perpetual undersupply of talent, a lack of the confidence to make critical investment decisions, and price pressure resulting from an immature market where clients are often sceptical of consulting's steep price tag and uncertain of what it can actually do for them. Large firms can also expect to feel increasing pressure from small, niche competitors, which are becoming more prominent players in this market."

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