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Consulting in China now worth over $3bn - but can growth continue?

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London: While the Chinese economy has slowed from its headline growth of the past, the consulting market still grew at 7.4 per cent in 2013 to $3.149bn. However, the jury is still out on whether the recent economic slowdown is symptomatic of a future trend or just a 'bump in the road'.

The Chinese Consulting Market Report, released this week by leading global consulting market analysts Source Information Services (Source), also found that the market for Financial Services consulting grew by 6.8 per cent to $970m in 2013. Although currently the smallest sector, the report reveals that the market for consulting in the healthcare, pharma and biotech sector is growing rapidly as the Chinese government looks to manage costs while providing services to its immense population. This sector grew by 14 per cent to $147m in 2013 and is predicted to grow by 10 per cent in 2014.

Consulting in China is currently dominated by international firms that were lured by the opportunities of the vast and rapidly growing Chinese economy. But as the economy slows, some consultants wonder if Chinese demand will ever be on par with the most dominant Western markets.

Germany or Japan?

Simon Harris, Chief Strategy Officer, Oliver Wyman said: "German companies tend to spend relatively more on consulting than comparable organisations in other countries, for example, but Japanese companies tend to spend less than their peers. The key question for emerging markets is which way they'll go: as China matures as a consulting market, will it be more like Germany or more like Japan?"

B.J. Richards, Senior Editor at Source and author of the report commented: "The slowdown in economic growth is causing a sense of uncertainty and creating a cautious business environment as companies wait to see which way the economy will turn. But the fact remains that China is a $9.2trillion economy with well over a billion people, so even if growth is less than hoped, consulting firms with global ambitions will have to decipher how to crack this huge market."

Technology — up 11.2 per cent to $795m — was China's fastest-growing consulting service line in 2013 due to a mix of efficiency and back-office improvements as well as social media utilisation. The report says that with world-leading smartphone penetration, app development, and digitisation to improve efficiency, this service line is expected to grow by 13 per cent in 2014. Operational Improvement, the largest consulting service line in China, grew by 6.7 per cent to $1.187m.

Financial management and risk also performed well, driven largely by demand from heavily regulated industries, such as finance and telecoms, and work related to compliance with government anti-corruption measures.

Branching out into the local market

With multinationals becoming a less reliable revenue source, the report found that Western consultants are branching out into the local market. However, this is not an easy road to take — domestic clients are still relatively immature buyers, and the vast state-owned enterprise (SOE) market is subject to heavy and frequently changing government requirements. The report says that while privately owned firms may be the more familiar opportunity for Westerns firms, the enormous SOE market represents the larger opportunity being a $263bn slice of the Chinese economy.

B.J. Richards added: "No matter if the economy continues at the current moderate pace or bounces back to previous levels, global consulting firms need to pay attention to China and the direction it takes in the future. Meanwhile, Western consultants can continue to utilise their ability to offer a global view alongside end-to-end capability to penetrate the market, though some consulting firms are concerned that domestic clients continue to prefer domestic firms with a niche specialisation."

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