London: Although the Australian consulting market grew by 4 per cent in 2012 to US $4.2bn, much of the growth came in the first half of the year and has since been replaced by much more difficult conditions.
Energy and resources, Australia's largest consulting market (US $936m) grew by only 0.1 per cent — as mining operations experienced declining demand from China and a global drop in commodity prices. For many consulting firms, this has meant a drop-off in demand.
However, a report released today by specialist consulting research firm Source Information Services (Source), says that future prospects for consulting in the energy and natural resources sector remain good, as Brett Coulston, General Manager, Expense Reduction Analysts, who was interviewed for the report, explains, "Mining companies are one example of businesses that have invested very heavily in infrastructure and services, but their revenue has dropped and they still have to service long-term supply contracts. Underlying all of this is the need to restructure their businesses to be more efficient, so they'll be looking to consultants to help them do this."
Retail rush for consultants due to the threat of overseas competition
Meanwhile, the consulting market in the Australian retail sector grew by over 10 per cent to US $179m in 2012. This market, historically dominated by two major players, has been marked, recently, by the entry of overseas competitors. The report says that brands like Zara and Topshop are posing a significant challenge to the dominance of local incumbents, forcing them to modernise and become much more competitive. This is driving a strong demand for consulting services ranging from marketing and selling to operational improvement — a demand that is expected to continue.
Sue Grist, Co-founder & Director, Egremont Group, said, "The shopping experience in Australia has lagged behind that in the US and Europe but international brands such as Zara are turning up now and causing a real stir".
Financial services and public sector hold up
Financial services (which grew by 5.6 per cent to US $773m) is Australia's second largest consulting market, and wasn't affected by the global financial crisis to the extent that it was in many other countries. In fact, the report says that demand for consulting services has continued to grow. John Somerville, Advisory Leader at KPMG said, "The downturn in the financial services sector has been less severe than elsewhere; demand for consulting has been fuelled by an avalanche of regulatory change and this has offset declining demand for other services."
Surprisingly, public sector spending (which grew 3.8 per cent to US $653m) held up well despite the nation's political and economic problems. While the government has cost cutting firmly on its agenda, consulting spend has thus far not been on the block.
Key consulting services
Operational improvement was the service line which grew the fastest in 2012, experiencing a 6.8 per cent growth to US $832m. This was due to companies cost cutting; with lower growth in the domestic market and exports curtailed by a strong dollar. Historically, strategy consulting has been a strong service line in Australia, but the Source report says that the market is changing as the threat of global competition is making it difficult for some clients to approach their strategic positioning in a measured way. As a result, this service line grew by 4.2 per cent.
B.J. Richards, Senior Analyst at Source concluded, "Even in a lagging economy, Australian consultants enjoy a far better market than is found in much the rest of the world. In fact, many consultants tell us that the biggest problem facing the Australian consultant today is not the economy itself but the lack of confidence it's inspiring, causing businesses to behave in a cautious — perhaps overly cautious — manner. Clients are timid about making new investments, and that includes spending on consulting services. Work has fallen off as a result."
"Many of the consultants we spoke with made the point that, despite the slump in the mining sector and the general talk of economic doom, overall conditions in Australia really aren't so bad."