Europe's consulting industry hardest hit by Coronavirus

24 March 2020 7 min. read
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Strong growth by Europe’s largest consulting markets has lifted the continent’s consulting industry to a record high of $45 billion last year, with European powerhouses Germany and France leading the way. The impact of the coronavirus could undo much of that progress, however, as some forecasts suggest that $30 billion could be wiped of the value of the global consulting industry by the end of 2020.

The global consulting industry has grown strongly in the 12 years since the last financial crisis. The planet’s consulting scene is now worth a combined $160 billion, with Europe representing a 29% share of that according to data sourced from Source Global Research, an international analyst firm.

However, with the coronavirus having pushed many of the world’s economies to the brink of a recession, clients are delaying projects, decreasing their scope or cancelling them all together. As a result, the revenue of the global and European consulting market is taking a big hit.

The region’s largest market for consultants, the UK, already saw its motor sputter in 2019. While a small group of consulting firms, mainly the strategy consulting firms and the Big Four, benefited from helping governments and companies prepare for Brexit and potentially stagnant growth, overall the UK’s withdrawal from the EU has seen the nation’s economy stall, with a knock-on impact on demand for consultants. Growth slowed to 4% last year, down from 6% the two years previous, marking the slowest progress since 2012 – and far worse could now be on the cards.

Impact of the coronavirus on Europe's consulting industry

The latest analysis suggests that while management consulting turnover in the UK was worth around £8.6 billion in 2019, by the end of 2020 that figure could reduce to as little as £6.1 billion. That more than 28% retraction would see the market shrink to its smallest size since 2013, when it was worth £5.9 billion. While that would suggest UK consulting is worse-placed to weather the storm than many other European markets, 28% is the average rate which Source expects the continent’s consulting scene to decline.

Germany, Austria and Switzerland (the DACH region) are Europe’s largest consulting region by combined revenue, generating to the tune of €12 billion in fees. Germany, which accounts for around 85% of DACH fees, grew by 6% according to BDU (the German consulting industry association), gaining ground on the UK as the world’s second largest consulting market – but like Britain, it could be hard hit by coronavirus. Source anticipates that because the German consulting market has a large manufacturing base, it will likely be impacted by disrupted or failing supply chains, and could therefore shrink more than the average.

In Italy, the current epicentre of the outbreak in the region, the Covid-19 pandemic is likely to hit even more sharply – however mismanagement of the mounting crisis means many other countries could yet be worse hit. Covid-19 has spread more rapidly in a number of countries through Europe, but as Italy was the first country to see large outbreaks its statistics still paint it as the worst case scenario.

The fact is that outbreaks in the UK, the Netherlands, and several other nations could still outstrip Italy’s current infection tally.

The size of large European consulting markets


How will Europe’s consultants recover?

In terms of a recovery, European consulting is likely to struggle to make up its lost ground, if and when the current pandemic subsides. As was the case following the 2008 global financial crisis, European businesses lack their US counterparts’ willingness (both generally and after specific crises) to use consulting services to get ahead of the competition, and to adopt new technology in their business model.

The firms which take the biggest hit will invariably be those whose services often mean they must spend time on a clients' site. Having been booming until very recently, then, change-related work and many aspects of operational improvement are suddenly suffering – particularly in Europe. On the other hand, as the work is often done in the consulting firm's office, strategy work will be less badly affected.

More generally, the exposure of individual firms to falling incomes will vary based on the services they provide and industries they serve. Diversity and the ability to adapt will be critical, so multi-faceted firms which cater to various clients will undoubtedly come out of this crisis in the strongest position. However, for firms of all sizes, the key challenge will be how effectively they can rebuild their pipelines and convert sales during what are likely to be at least two very challenging quarters.

The impact of the coronavirus on consulting by industry

The analysis by Source – which is based on a survey of consulting leaders and interviews – forecasts that the impact will vary by sector, with its modelling suggesting that the demand in the services sector, which includes leisure and airline companies, will shrink 29%. Europe’s airlines and hotels are expected to have an especially hard time of it due to travel restrictions across the continent – and demand for consulting in these areas will decline dramatically as clients in the sector look to save money however they can.

Healthcare consulting demand is also likely to see a marked decline, as resources are re-allocated to far more urgent areas in the short-term. In the long-run though, a lack of capacity may mean that healthcare companies may turn to consulting firms for help at a slightly later stage. The prospects for public sector consulting more generally will probably shift between countries; some firms are already reporting projects being put on hold as time and money is focused elsewhere, but others are continuing, especially where long-term technology projects are concerned.

Consultants working with private equity and the financial sector will be less badly impacted. The financial services sector will contract, so demand for consultants there will decline, but contrary to the financial crisis, when they were bailed out, banks now have the buffers to play an active role in supporting thee economy back to recovery. As a result, they will look for consultants to support the deploying of initiatives, and new investment in digitisation.

Private equity firms meanwhile may be cautious in the short-term, but as valuations fall it will give them opportunity to cheaply buy companies, turning to consultants for advice and transaction support.

With the current knowledge at hand, and the unprecedented change caused by the coronavirus and its economic impact, it is inevitable that predictions will in the coming weeks change.