Consulting industry of Hungary breaks through €400 million mark

17 September 2018 Authored by Consultancy.eu

The management consulting industry of Hungary will this year for the first time in its history break through the revenue barrier of €400 million, on the back of an expected 7% growth rate in 2018. Consultancy firms in Hungary employ over 5,000 consultants and staff.

After the Hungarian economy faced a small dip in growth in 2015 and 2016, the market recovered in 2017, with growth at a rate of above 3%, and for 2018 year-end a similar performance is forecasted. The growth is driven primarily by industrial growth, driven by exports into Europe and by a double digit growth in the energy and utility industries, and a larger inflow of funds from abroad, with in particular EU funds providing a positive impetus. In 2017, funds drawn from EU pools (infrastructure, finances for state transition, etc) represented around 4% of Hungary’s GDP. The changing tide has turned CEO’s in Hungary more optimistic about the future, a survey of PwC among 165 CEOs in the country found, and as a result, in the slipstream business spending is on the rise.

Hungary’s management consulting sector has seen positive, albeit mixed fortunes over the past years. In 2015, following 8% growth the year previous, consultancy fee income amounted to over €300 million, and now three years down the line, years of 13%, 6% and 7% growth are pushing the market size to above the €400 million mark. The number of professionals working in the consulting industry is estimated to be over 5,100, of which 90% are fee-earners (consultants) and the remaining 10% hold staff positions. The data stems from analysis by VTMSZ, the Hungarian Management Consultants Association, and FEACO, the European Federation of Management Consultancies Associations.

With its current size, the Hungarian consulting industry contributes around 0.4% to the national GDP, which in comparison to the more developed EU countries, is signifi­cantly less, highlighting the potential for further maturity growth. Around 15% of the total turnover relates to ‘exported’ consulting fees – income generated by Hungarian practitioners outside the country’s border. In the coming years, the share of engagements delivered abroad is expected to rise, according to the researchers, due to the growing number of Hungarian consultancies forging partnerships with international counterparts, the growing role of EU funds with a pan-Central Eastern European scope, and increasing activity of local consultancies leveraging the wage differences between Hungary and other central parts of Europe.

Size of the Hungarian consulting market

From a firm perspective, the market is dominated by the large consulting firms, such as the Big Four, local arms of the top US strategy consultancies and a number of large local players. Overall, large and medium-sized consulting companies are responsible for around 75% of all management consulting turnover. The number of small consultancies and boutiques is on the decline in the country, highlighting the need for consolidation to remain competitive in a heating market, while the number of freelance consultants is rising, in sync with the gig economy trend seen elsewhere. “More and more professionals, who were active previously in top or mid-level industrial management, or employed in big consultancies, are taking projects, or temporary assignments as freelancers,” said the researchers of VTMSZ in its annual report.

For consulting firms in Hungary, the growing pool of independents is constituting a growing challenge for the bigger consultancies, as it is putting downward pressure on fees. A similar pressure is being felt by consultants active in the public sector, as ministries, public institutions, municipalities and other government entities are using larger procurement framework to lower consulting expenditures, for instance through capping fees of consultants. As it stands, the average fee per diem is around €450.

Consulting industry by industry/service

In VTMSZ’s data, Hungary’s management consulting industry is broken down into seven different service areas. With a share of 42%, IT-related consulting projects continue to dominate the sector (note: this number excludes IT development and integration services). Activities included are: supporting organisations in evaluating their IT strategies, digitisation of business processes, business-IT alignment, the implementation of technologies and systems, cyber security, and IT infrastructure.

Hungarian consulting industry - service lines

Operations and Finance & Risk are the next largest service areas, each holding a 16% share of the industry. The former relates to offerings such as cost reduction, business process re-engineering, procurement optimisation, supply chain management, manufacturing, research and development (R&D), product development, logistics, and customer/supplier relations management. Finance & Risk propositions include revisiting financial planning and budgeting, performance management, enterprise risks, compliance, and finance transformation.

The market for strategic consulting services holds a 9% share of the Hungarian management consultancy landscape. Consultants in this field support their clients with analysing and rede­fining their strategies, improving their business operations and optimising their corporate and business planning, business modelling, market analysis and strategy development. The service area also includes major organisation redesigns, including company-wide transformation/restructuring programmes, as well as strategic advisory in M&A, of which commercial due diligence is the largest offering.

Tied with Strategy is the Sales & Marketing service area, also at 9%. Consultants specialised in this domain evaluate and redesign sales & marketing activities, helping clients with customer insight, customer relationship management, channel management, digital marketing, e-commerce strategies and deployment, and product portfolio management and branding. Increasingly, consultants are extending their Sales & Marketing offerings with creative and digital capabilities.

People & Change is with a 8% share the smallest of the six service areas. In comparison, in France, a consultancy market estimated to be worth over €4.5 billion, this offering amounts to 26% of the market. People & Change services focus on all human element of the organisation, spanning Human Resources (HR) consulting, change management, performance measurement, benefi­ts, compensations and retirement schemes, talent development programmes and executive coaching.

Consulting industry of Hungary - industry size 2017

Companies in the telecom and media sectors spend the most on management consultants, at a 26% share of the total,  followed by banks, insurers and other financial services institutions, at 20%.

Outlook

In their outlook for the coming years, the researchers state “the rather stable performance of the Hungarian national economy is providing hope that the consulting industry may continue to grow in the forthcoming years, as long as the EU economic area continues to perform well and EU funds will continue to spur consulting expenditures, in particular in the public sector and in the area of public private partnerships.

One concern raised is the growing competition for talent. Not just because the market is growing, more so as a result of the large number of talented Hungarian professionals leaving the country to pursue a career elsewhere in Europe. In the past decade, between 10% to 15% of the active Hungarian workforce has relocated to other European countries. “In the longer term, this tendency may result in shortages of consultants.”

According to a recently released report, the Hungarian consulting industry is the fourth largest consultancy market in Eastern Europe, trailing the Czech Republic, Romania and Poland.

News