Benelux consulting market breaches €2 billion barrier for the first time

31 August 2017 Consultancy.uk

The Benelux consulting market broke through the €2 billion barrier for the first time last year, following 3.6% growth on the back of a booming digital space. However, growth slowed from 5% the previous year as competitive market conditions begin to bite for management consultancy firms in the Netherlands, Belgium and Luxembourg.

An analysis of data by Source Global Research, a UK based analyst firm for the management consulting industry, shows that the Benelux region of Belgium, Luxembourg and the Netherlands recorded a fourth year of consecutive growth in 2016. The Netherlands, the region’s largest market, experienced growth of 3.3% in 2016 to hit €1.18 billion, while Belgium also recorded modest growth of 3.6%, reaching €610 million. The region’s smallest market meanwhile fared the best, with Luxembourg seeing its advisory landscape expand by 4.9% to €228 million, driven by a large financial services consulting market.

The analysts point out that client confidence, dented by global instability and lacklustre economic performance, was partly to blame for the modest growth. Commenting on the market development, one partner of a US strategy consulting firm said, “In 2016, clients were a bit more hesitant than in 2015 or 2014. With more turmoil in the market, it took them longer to decide what they wanted to do.”

The Benelux management consulting industry

The region’s consulting firms had seen continuous growth since 2013, when the market began a steady recovery following a 2012 recession of -3.1% growth, in line with a world-wide trend in both the consulting industry and the global economy. Following positive growth of 0.2% in 2013 and 2.5% in 2014, the market surpassed its 2011 levels with explosive growth of 4.9% in 2015, reaching a value of €1.9 billion. Consulting growth in 2016 did slow, however – due in part to the increasing uncertainty of global market conditions relating to Brexit and the Donald Trump Presidency – the market still broke the €2 billion mark for the first time since records began, reaching €2.018 billion. 

Despite the 1.3% slowing of growth between 2015-2016, the analysis suggests that the market size has yet to peak. Projections based on 2017’s economic conditions point towards an estimated growth in Benelux consulting of 3%. If this turns out to be the case, the region’s industry stands to be worth an estimated €2.08 billion by the end of the year.

Digital

The continued growth in the Benelux consulting sector was fuelled in no small part by growing revenues for technology consultants, which saw a rise of 5.3% to €741 million. 2016 was the year when interest in digital initiatives became really mainstream, with a fifth of the largest businesses now employing a Chief Digital Officer. Having a full-time executive to drive for digital change within companies means a greater priority for investing in external expertise on digital transformation, a global market now worth $23 billion.

With significantly increased take-up on the part of clients, digital is likely to continue to boost growth in the region. “Digital now being mainstream across the Benelux consulting market is good news for consultants, but digital demand is yet to really become the widespread driver of holistic change it is elsewhere in the world,” said Zoë Stumpf, Head Analyst at Source Global Research.

There were also significant investments into new types of digital initiatives, such as robotics and AI, which are becoming an attractive prospect for clients as cost-saving efficiency measures. On the increasing interest in these two fields, Mark Hofland, CEO of Capgemini Consulting in the Netherlands, added, “Most clients think about how they can apply robotics to be more efficient. Potentially, it means fewer risks, more stability, more efficiency, and futureproofed processes. It's the old trick of increasing productivity.” He added that its not a fundamentally new area of consulting, but more a technology-driven enhancement of existing fields such as operational improvement and process excellence.

The Benelux consulting industry

The growing complexity and technology investment needed to provide digital is posing challenges for mid-sized firms who are too small to win big transformation projects with the region’s multinational clients, but too big not to be undercut on price by its large population of freelancers.

Technology is – with a share of ~36% – the largest service area in Benelux's consulting market. Operations consulting is projected to be the second largest field, at ~22% meanwhile, with HR and Change services accounting for the smallest portion of ~10%. This corresponds to a trend across the international consulting sector, which has also seen the stature of the HR and Change segment decline in comparison to technology advisory services, as exemplified by ItalySpain and the USA. Recent analysis on previous Source data showed that the Italian industry as a whole booked its best performance in years, while with a value of $58 billion, the US market remains by far largest in the world.

Financial management and risk was a good performer. A tough regulatory environment, not just in financial services but also in sectors like pharma and energy, accounted for much of this. Risk, especially with respect to cybersecurity – is moving up the agenda for many clients and creating work for consultants.

From an industry-perspective, 2016 was a mixed picture for consultants in Benelux. Financial services, the largest consulting industry in the region, outperformed the rest of the market and provided consultants with another year of good growth – up 6.1% to €617 million in 2016. This demand was largely driven by continued high levels of regulation, as well as the need to respond to digital disruption, especially in the larger banking and insurance sectors. Healthcare and pharma & biotech also grew reasonably well, driven by a combination of regulatory, cost, and digital factors.

One of the challenges in Benelux is high share of independent consultants, who are creating polarisation in the Benelux consulting market, between commodity consulting on one hand, and luxury consulting on the other. That has implications from a price, model and brand perspective, particularly for firms which try to have a foot in both camps. In Netherlands for instance over 90% of the registered consulting entities are freelancers, according to data from the country's national statistics office.

The Dutch consulting industry

Dutch consulting market

Hosting the largest consulting market within Benelux, the Netherlands saw trends which heavily weighted the regional industry’s performance as a whole. Dutch consulting firms saw growth of 4.3% in 2015, and 3.3% in 2016, both lower than the regional average, weighting the growth of the trio of nations due to its size. The Dutch management consulting industry actually continued to shrink beyond the 2012 contraction of the global industry, falling a further 0.5% in 2013.

The industry has since recovered rapidly, surpassing its value of 2011 before the beginning of its retraction, which was roughly €1.1 billion. As per the most recent data from Source, the Dutch market is presently worth around €1.2 billion.

Despite this recovery, in line with the rest of the Benelux region, the Netherlands witnessed a fall in growth according to Source. The 1% drop in momentum can partially be attributed to the cuts in government spending on strategy and management consulting, which are likely to impact on the sector further over 2017. A recent survey by Consultancy.uk among >150 executives in the Netherlands however found a slightly rosier picture of the market, with eight out of the ten firms seeing revenue increases, half of those even booking double-digit growth.

Belgian and Luxembourg consulting industry

Although the Netherlands’ consulting scene has seen slower growth, market improvements look set to continue apace into 2017 for the whole region. The other two Benelux nations, Belgium and Luxembourg, have both witnessed potent growth over recent years. When the market contracted in 2012, they lost significantly less value, stopping the rot after just one year.

The Belgian and Luxembourg consulting industry

While Belgium had all but recovered from the lapse by 2014, Luxembourg saw its industry recoup momentum in a single year, growing 2.7% by 2013, having initially seen a drop of 2.6%. 2016 marks the first time that growth has slowed in the small EU nation’s consulting industry since, with 4.1% growth by 2014, and a remarkable 10.1% leap by 2015.

Looking ahead then, the analysts at Source expect another year of slow growth, as the smaller nations continue to be counterbalanced by the more quickly slowing growth of the Netherlands. “Consultants have mixed views about how the 2017 market will shape up. With continued slow economic growth against a backdrop of global instability, 2017 is likely to see slow growth,” according to Source’s Stumpf. Areas forecasted to show strong growth are quest for efficiency, with a growing reliance on digital, robotics, and AI supporting wider back-office changes.”

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