Spain’s management consulting market enjoys healthy growth

18 September 2017 Consultancy.uk

The Spanish consulting market enjoyed healthy growth for the second year running. In line with earlier analysis from of the broader market, new data has shown the management consulting sector of Spain has reached a market value of €1.2 billion. However, consultants are worried that despite an improving economy, fees are set to stagnate at “bargain” rates.

Data released by Source Global Research, a UK-based analyst firm, has shown Spain’s management consulting industry to have expanded by almost 6% during 2016 to reach a market value of €1.28 billion. To come to their conclusions, analysts at the firm kept track of all management consulting* work done by mid and large-sized consulting firms (those with more than 50 consultants) carried out on behalf of mid and large-sized clients – to give an overview of the value of what Source call “big consulting”. Spain’s broader consulting market is estimated to be worth €12 billion**, according to data from AEC, the country’s association of consulting firms and the equivalent of the MCA in the UK.

2016 started slow according to Source, as political uncertainty toward year’s end of 2015 triggered a bit of a slowdown. An inconclusive December election meant that the uncertainty continued into 2016. Once a government was formed,in early 2016, the market started to make even greater gains. The success comes on the back of improvement in the domestic economy – with the Spanish economy expanding by 3.2% last year, boosting clients’ willingness to invest in growth initiatives management consultants could provide them with.

The Spanish consulting market, where a 3% slump in revenues was recorded in 2012, followed by a mere 0.8% growth in 2013, has seen renewed interest develop in line with this. Recovery was set in in 2014, when the sector booked 3.9% expansion, and further gained momentum in 2015, with 5.2% growth.

The Spanish management consulting industry

The financial services industry, which is traditionally the largest consulting market in Spain, valued at roughly €300 million, was the sector’s fastest growing segment once more last year, as services ranging from cost cutting and efficiency to customer experience improvements experienced boosts in demand, and clients sought to better employ digital technology. However, the report does note that Spain continues to lag behind other mature economies in terms of its digitisation agenda and the impact of this on consulting.

The public sector consulting market, meanwhile, continued to flat-line in the face of a tumultuous domestic political environment. However, while the segment’s growth was unremarkable, it was still a major improvement in light of past performances, which include a dramatic 14% fall in public sector work in 2012, for instance, and further contraction in intervening years.

The telecommunications industry was another industry facing major change, providing management consultants with opportunities, telecommunications providers are “investing significantly in next-generation networks such as 4G, FTTH, and LTE, and this is creating a great deal of demand for infrastructure and operations consulting.”

Functional areas

Technology remained the largest area of functionality in Spanish consulting. In 2016, it was worth more than €520 million as the previously mentioned enhanced appetite for digital transformation continued to rise. The booming popularity of this function is largely attributed to the need of clients to simplify their processes and operations for optimal efficiency and quality, as new, more agile competitors increasingly eat into their market share by utilising new innovations in their business processes.

Interestingly, the Source report also found that the largest firms in Spain were fastest-growing in 2016, suggesting the consulting industry at least is well prepared for digital disruption and new competitors in Spain, with clients favouring larger firms’ breadth of services and international footprints. Many smaller players still enjoyed a good year, however, with clients seeking out their niche expertise and higher degree of agility. A growing interest in digitisation helped ensure that technology firms performed best last year.

One of trends that consultants have witnessed is a protracted difficulty raising what Source calls “bargain-basement prices”, which they were forced to adopt during the economic downturn to hold onto clients looking to reduce expenditure. In a parallel with the consulting market of Italy, there are fears that prices will remain low in Spain, even after the economy completely recovers to pre-recession levels. 

Size of the intire Spanish consulting industry

“Although the Spanish consulting market has once again recorded healthy growth, the combination of endemic low prices and demand for end-to-end digital delivery is putting pressure on the consulting business model”, said B.J. Richards, a Senior Editor at Source Global Research. To overcome price pressure, many firms are forming partnerships and ecosystems, both with fellow consulting firms and with other professional services providers in order to provide clients with the one-stop shopping experience they want. This adds overall value, and allows them to mix low priced offerings with higher priced services, ramping up their margins across the board.

In contrast, one particularly encouraging trend for Spain is that firms are expanding their footprint to other Spanish speaking markets, mainly towards Latin America. Many consulting firms now believe the answer to continued growth lies in overseas expansion, with former colonial markets, including Central and South America, earmarked for further investment, particularly because Spanish firms and their clients feel a close historical and cultural tie to them.

Looking ahead

In terms of the future, consultants remain confident that the market has turned a corner, with many predicting that growth is likely to remain strong for several years. Source forecasts a similarly strong performance in 2018, with a growing interest in digitisation set to serve consultants well over the next few years.

Despite Spain’s impressive performance, it still lags behind the world’s largest management consulting markets by some distance. Globally, the US is largest market by a distance, with a 2016 revenue of $58 billion. According to Source’s data, UK and Germany are the next biggest markets. The UK’s management consulting sector alone is estimated to be worth well over £6 billion, while Source valued the German consulting economy as being only slightly smaller.

* Source defines management consulting as a broad range of business advisory services, excluding tax advisory, audit work, IT system implementation, outsourced/offshore services and HR compensation administration. M&A consulting is included as strategy work in terms of consulting on deals, however corporate finance fees on deals themselves have generally not been included in Source’s study.

** AEC’s estimate of the share of management consulting is at 18%, which would bring the market size of the segment to €2.2 billion. However, it is key to keep in mind that Source and AEC have different definitions and models behind market sizing data.

*** The sizes of the Spanish management consulting industry for 2015 and before are estimates from Consultancy.uk based on growth data previously released by Source Global Research. Note that Source may have restated baselines or growth figures in the meantime, which may lead to discrepancies in market developments.

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