Australia’s management consulting market set to expand in 2018

13 November 2018 Consultancy.com.au

Looking at the combination of Australia’s management consulting market growth in 2017 and the exceptional growth posted by the Big Four firms earlier this year, forecasts for growth in 2018 project a bourgeoning professional services economy.

Australia’s management consulting market tipped US$5 billion in 2017, experiencing 7.1% growth. In the past year, a combination of several signs point toward continued significant market growth within the consulting industry. Consultancy.com.au has followed the sector closely over the past year and identifies multiple trends, backed up by figures from analyst firms such as ALM and Source Global Research.

Earlier this year, the Australian Bureau of Statistics released data showing that the professional services sector is set to become one of Australia’s largest industry groups. The growth identified that Australia was undergoing a transformation to a white-collar economy, and the professional services sector has since the beginning of the decade grown by 30% to become Australia’s fourth largest employment segment.

Secondly, increasingly powered by the expansion of Asian-based companies, Australia acts as a stepping stone and the consulting industry as a premium advisory. It was announced in September that Asia Pacific leads the globe’s growth in terms of management consulting, having managed continuous growth of between 6-7% since 2015. Led by Greater China, South-East Asia and Oceania, the total APAC management consulting market reached US$50 billion in 2018. 

A third reason behind the expected growth is increasing government interest in digital transformation. Although the country is coming into an election year – with a major election issue forming around the use of consultants for public sector work and a $5 billion consulting spend – the Australian Government’s ability to implement Industry 4.0 technology is exceedingly limited.

Size of the Australian management consulting industry ($ / billion)

As the high wages of local tech talent and the drawcard of tech hubs globally restrict the talent pool, the government continues to lock down contracts with tech advisory firms. For example, global technology-minded consulting firm Accenture was tapped to engage in multiple work for the Australian Government, for the merger of Border Protection and Australian Customs, and were the lead contender in a multi-million dollar bid to digitalise the country’s visa application system.

“Digitisation is the key driver in Australia’s consulting market, with clients turning to consultants for advice on customer service and experience, while demand for organisation-wide transformation is also spreading quickly,” said B.J. Richards, the Senior Editor at Source Global Research. “At the same time, data & analytics, moves to cloud-based systems, and RPA feature among the most in-demand solutions for clients.”

The market itself and its cycle of growth have both been increasing since 2013. In the past five years or so, the Australian management consulting industry has grown by over 20% from US$4.2 billion. According to Source’s data, the results are far from a surprise.

The firm – which focuses specifically on the movements of the global management consulting industry – conducted a survey with their Australian clients last year. The results came in showing that an overwhelming majority (62%) indicated that they expected to increase their consulting spend over the next year and a half. 

The Australian management consulting market – by industry

Broken down into sectors, technology consulting has been the greatest driver of growth over the past year. Performing at an above average growth rate of 8.6%, Australian companies are engaging consulting firms to increase their digital competency and systems. From cloud-based services to ERP and agile, consultants across the country are turning to digital to propel their profits upwards.

Edward Haigh, Director at Source Global Research, said that whilst Australia’s digital journey may be further progressed than the global average, there is still much which can be done. “The broad consensus among consultants is that Australian companies are ahead of the global average in terms of their adoption of digital; behind the US, some parts of Northern Europe, and the mature Asian markets, but ahead of everywhere else. The impact of digital has also extended into consulting firms.”

Overall, the local management consulting industry is dominated by four main categories including financial services, energy & resources, the public sector and other (which includes technology based businesses). ‘Other’ is the largest segment for consulting earnings, followed by financial services – where traditional institutions are battling with fintech newcomers – at 23% of the market. Energy & resources is an industry which is also heavily pursuing digitalisation in order to reduce overheads, personal costs and increase sustainable practices – at 21%. Australia’s public sector makes up 18% of the total consulting industry earnings or the equivalent of roughly $1 billion annually. 

Size of the global management consulting industry ($ / billion)

Consulting industry outlook

The experts at Source believe that 2018-19 will be another excellent year for the consultants of Australia. However there are some challenges that the industry must overcome to sustain its currently level of growth.  

The battle for talent, particularly within the tech space, is increasing in this highly competitive industry. Firms are constantly improving their workplace etiquette, promoting from within and training their staff to keep retention numbers high whilst creatively appealing to new employees from a broad range of industries. 

Whilst a number of campaigns focused on drawing in recent graduates seem to be working – with five consulting firms making the top 10 employers for graduates last year – firms are facing a shortage of experienced professionals who will meet clients’ demands. Source reports that the shortage isn’t necessarily translating into opportunities for the newly trained as the most-needed skills tend to come from years of professional experience.

Also, as digitisation is driving the consulting spend globally, the business model is also shifting the way that consultants deliver services to clients. As client demands expand in all directions, firms are in turn expanding their ecosystems to encompass a greater pool of capabilities and solutions. These include developing assets so they might provide proven, lower-cost solutions to common business problems. For firms to continue on their path to growth it is imperative that they partner with, merge or acquire information and tech firms to boost digital skills.

This also poses problems for newcomers to the Australian consulting scene – e.g., Entura, Inventium and Trimantium GrowthOps – which are trying to navigate market growth whilst remaining independent. Smaller firms and boutiques must fend off the buy-and-build strategies of the Big Four, which are aggressively buying companies from a range of industries including human resources, digital, creative communications, design and legal.

Finally, the authors highlight that global trade tensions (Australia's economy is relatively export-oriented) and the forthcoming general election in 2019 could have an impact on growth rates next year.

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Chinese investment into Australia plunges to eight-year low

09 April 2019 Consultancy.com.au

Chinese investment into Australia plunged to US$6.2 billion last year according to the latest KPMG analysis, down by more than 35 percent to an eight-year low. 

A study from global professional services firm KPMG in conjunction with The University of Sydney has found that Chinese investment into Australia dropped by 36.3 percent in 2018, despite Chinese outbound direct investment growing by 4.2 percent globally to nearly US$130 billion. Taking in mergers and acquisitions, joint ventures, and green-field projects, Chinese investment into Australia totaled US$6.2 billion in 2018, down from US$10 billion the previous year.

As part of an ongoing collaboration between the Big Four firm and Sydney Uni, the latest release in the ‘Demystifying Chinese Investment in Australia’ report series (now into its fifteenth edition) points to Chinese domestic policy changes for the decline, with the local downward rate of investment now coming into line with trends seen in the US and Canada, which last year recorded respective Chinese inbound investment drops of 83 percent and 47 percent (in USD terms).Value of Chinese ODI into US, Europe and Australia 2012-2018

Designed to reduce its international exposure, the policy measures being implemented in China since early 2017 require overseas investments by Chinese firms to be non-speculative, only undertaken after fully considering major potential risks, and consistent with the company’s strategy and the country’s socio‑economic development goals – with certain categories of investment encouraged and others prohibited or restricted.

With 80 percent of Chinese executives stating that it was more difficult to get capital out of China in 2018 compared with 65 percent the year prior, the result is the second-lowest Chinese inbound investment in Australia since the mining & gas driven investment peak of 2008, with over US$16 billion coming into the country. Outside of the US$3.9 billion figure in 2010, the investment sum hasn’t dipped below US$8 billion in a decade.Chinese investment into Australia - 2007 to 2018

Yet, despite the domestic policy measures and downturn in inbound investment, Australia is still seen as a relatively safe investment destination according to a cross-sector survey of Chinese executives, with an improving political climate (those cautious due to the local political debate dropped from 70 percent in 2017 to 59 percent last year) and slight increase in the sense of being welcomed – up three points to 38 percent, although those feeling ‘unwelcome’ also rose by four points to 19 percent.

“Whilst Chinese investors confirm they remain positive about many aspects of the Australian market and its prospects compared with many other countries, there is an increasing concern around transparency of regulations, high costs and their continued perception of being unwelcome as reflected by negative Australian media coverage.” the report states.  “We need to be aware of the very real impact that poorly received, politically motivated public discourse and unbalanced media coverage can have on the future level of Chinese capital entering Australia.”2018 Chinese investment into Australia by sector

As an investment breakdown, private Chinese companies accounted for 87 percent of the deal value in 2018 and over 92 percent of deal volume, with state-owned entities contributing only 13 percent of value and 8 percent of the volume – which in total, dropped by 28 percent from 102 transactions in 2017 to 74 last year. As per those deals, over 40 percent of the investment total was made in the Australian healthcare sector, a more than 110 percent increase on the prior year.

According to the analysts, Chinese investors are primarily interested in scalable medical services and healthcare products which can be scaled in their home market, and the Australian healthcare sector has gained increased interest due in part to the ‘Australia package’ – ‘the combination of transferable management know‑how, high‑level care service experience, state of the art technology, the ‘clean, green and healthy’ image of Australian products.”

Meanwhile, new mining investment has dropped sharply – down 90 percent from a spike last year for just 5.6 percent of the total – opening the door for commercial real estate (predominantly mixed-use development and office stock according to figures provided by Knight Frank) to claim the second highest levels of Chinese investment at ~37 percent (albeit down 31 percent on 2017 levels). The remaining deal value was mostly in oil & gas (8.8 percent, up 295 percent) and renewable energy (4.8 percent, up 217 percent) sectors.2018 Chinese investment into Australia by geography

Perhaps of further note, at least in terms of demystifying Chinese-Australian investment, ‘Northern Australia’ attracted at most just 8 percent of total investment, with Queensland accounting for only 5 percent, Western Australia 3 percent, and zero deals made in the Northern Territory. Here, the bulk of the inbound investment was made in New South Wales (56 percent) and Victoria (27 percent) with South Australia (8 percent) claiming the majority of the remainder.

“While this annual result brings Chinese ODI in Australia back to the second lowest level since 2008, there is no reason why Australia can’t return to higher levels seen historically,” the report concludes. “2018 need not define a trend, but it is a period to reflect upon. There are a great many opportunities for Chinese companies to contribute towards the development and internationalisation of Australian industries and supply chains in the coming years and there is much that can be done to improve the perception of the Australian market to Chinese investors and vice versa.”