The consulting industry is growing at double-digit rates in the region, as a result of the profound changes in the corporate environment. What will the leaders in this sector do in 2014 to cash in on the boom?
The Latin American economic boom of recent years extends to the business of strategic consulting companies. The proliferation of consulting needs of Latin American and foreign companies that has descended on the region has triggered an explosion of demand for services in a diversity of sectors. It’s affecting not only traditional services like auditing and strategic assessment, but also new areas like risk management and marketing.
The consulting business operating in Latin America has changed significantly in recent decades, and even more in the last five years or so. One of the main transformations has been brought about by the growing sophistication of its clients, whose education and training has increased to levels comparable to those of their peers in developed countries.
“Not only have the customers become more sophisticated, we have too,” said Enrique Luz, PwC Brazil’s clients & markets leader. “When the company arrived here 28 years ago, there were only three professions represented: accountants, lawyers and company administrators. Today, we have 27 types of professionals from the most diverse areas, from engineers and economists to doctors, biologists and specialists in zoology.”
Another big change is arising from growing client demand for more service, because the consultants are moving from strategic planning and design to working with customers on the implementation and management of these new areas.
The big consulting firms that specialize in technology are aware of this change. “We have moved from being desk-bound consultants to ones who look at and transform the processes together with the client,” said Sergio Kaufman, president of Accenture Argentina and regional leader for Spanish South America. In fact, his company has been significantly increasing its staff of personnel dedicated to supporting outsourcing processes.
Another group of firms has taken part in the trend of clients needing much more specific and almost personalized services. Space has opened up for specialized companies that are expanding in areas such as risk assessment, reputation management and executive security.
Consulting strategy has also encountered new niches with respect to the type of company that contracts its services. “It’s interesting. At least in the case of Colombia, our clients not only are global accounts and large local groups, but there has also been growing interest from small and medium-sized companies that are experiencing growth,” said Javier Eduardo Macci, advisory managing partner of Ernst & Young, based in Bogotá.
In the vision of Jorge Becerra, senior partner and managing director in the Santiago office of Boston Consulting Group (BCG), you could say that at least four trends are currently developing in industry activities.
In first place, there’s the role of technology in the transformation of businesses. “This isn’t an issue that only involves the systems engineers; now it also involves the CEOs,” said the BCG executive.
The second trend involves the traditional need of knowing the clients, but on a day-by-day basis from the point-of-view of the management of the large information sources (Big Data). “The word Big Data underlines the fact that there is a different order of magnitude for processing data for clients, from many sources, including social media, call centers, etc.,” he said. He concludes that the idea is to start applying a new model of interaction with clients in the organizations.
Becerra says the other two trends include digitization of the business models, which implies a task of systemization accompanied by strategic assessment, and lastly, the actual transformation of business, which includes the need by those being assisted to have the support of consultants during the implementation phase.
PERSPECTIVES FOR 2014
Except for the Latin American countries where the investment climate remained poor, 2013 was another year of excellent growth for most of the region’s consulting firms. A large number of them report sustained double-digit revenue growth over the past five years.
According to Luz, of PwC, revenue growth for the company’s Brazil operations last year was driven by activity in economic sectors such as infrastructure, health, agroindustry, telecommunications, retail and mass consumption.
Lines such as strategic assessment enjoyed a growth spurt as a result of mergers and acquisitions, in which the traditional business of auditing and taxes benefitted, due to the legal obligation of Brazil’s public companies to change auditors every few years. PwC returned to several accounts in 2013, which enabled them to recapture a larger market share, according to Luz.
Even so, industry expectations in Brazil aren’t especially optimistic for 2014. Evidently the activity of consultants is highly correlated with the economic cycle. According to José André Viola Ferreira, strategic growth markets leader of Ernst & Young in Brazil, the firm’s rate of revenue growth has slowed since the end of last year, though he still hopes revenues will still see a double-digit increase in 2014.
At least a few segments of the consulting business appear to be counter-cyclical. For that reason, “we are projecting greater growth in areas such as cost reduction and restructuring,” said Viola Ferreira, who agrees with other colleagues in projecting the continued drive to develop infrastructure projects and its multiplier effect. Due to the slow execution of Brazil’s federal government works (as a result of election year legal restrictions), the private sector will have to continue with that activity alone.
The Mexican economy appears to offer a very bright picture. After the 2013 electoral transition, the country is hoping to benefit from the major reforms approved by the legislative branch. Many people think the new laws will signal the most important changes for consulting firms in the last four or five decades.
“Growth will continue on the business side as it relates to regulatory issues such as the laws to prevent laundering of assets, and in traditional areas such as strategy and technology consulting,” said Jose Antonio Quesada Palacios, senior partner for clients and markets at PwC in Mexico. “However, we are hoping for major growth in companies that are going to change their business plans in the light of the recent reforms. Those changes are going to attract many investors, not only in the energy sector, but also in finance and telecommunications.”
In the Andes region, Peru and Colombia will continue to capture the interest of consultants with the expectation that those two countries will accelerate their growth in 2014. Andres Cadena, leader of corporate finance, financial services and public sector practices in Latin America for McKinsey, has predicted a continued good growth rate for strategic consulting in Colombia, in sectors such as infrastructure, mining, petroleum, finances, and health and education services.
While most industry players agree that the Colombian market is relatively mature by regional standards, it still continues to offer growth opportunities. Meanwhile, Peru offers significant possibilities for expansion because business is barely in the first stages of development.
Kaufman said while Peru is a relatively new country for Accenture, “it is an economy that has gained momentum in recent years, which has brought many opportunities, especially in business consulting mixed with outsourcing needs.” This is happening especially in sectors like mining and financial services, and to a lesser extent in telecommunications.
Other geographic areas also offer attractive potential. Becerra expects stable revenue growth in Chile, while in Central America, the executive predicted growth to the extent that “the national champions (the big local players) continue to be excited about expanding in view of the action they have observed by foreign investors.”
Becerra added that those groups are in general family operations, but as they start adopting systems of corporate governance to increase transparency, they will open up opportunities for strategic consulting, especially in countries like Panama, Costa Rica and Guatemala, and in the Caribbean in nations like the Dominican Republic.
David Ramírez reported from Miami.
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