Consultancy companies confident 2009 will be a good year

By Otilia Haraga

A report drawn up by the European Federation of Management Consultancies Associations (FEACO) estimates that the value of the consultancy market in Romania reached over EUR 400 million last year.
“We estimate that in 2009 the market will post similar values as in 2008,” Robert Maxim, managing partner at Ensight Management Consulting, tells Business Review, adding that in 2009 there will definitely no longer be the same spectacular growth seen in recent years because the current economic context does not allow it.
There are two kinds of consultancy companies: local firms with Romanian capital that count on local know-how and do not have international experience and international companies that have the advantage that they can import international know- how, methodology and methods that are already standard and used internationally. “In Romania there are large companies that perform auditing and have a department of management consultancy, others which are specialized in IT consultancy, and the third category, that we are part of, is that of companies specialized exclusively in management consultancy,” Aura Cadis, consultant in Horvath& Partners, tells Business Review.
The company posted in 2008 a turnover of approximately EUR 4 million and estimations for 2009 are that the business will be up to EUR 4.5 million.
Most of its clients are companies with foreign capital such as OMV, Petrom or Daimler, but 20 percent of its clients are local firms. “Our smallest client has a turnover of EUR 5 million. Most of them however run on a market between of EUR 30 million- EUR 200 million (excepting large international corporations),” says Cadis.
Currently, Horvath& Partners has 10 Romanian consultants and works with over 25 consultants from the German space who come to Romania to work on specific projects. “We want to employ other 2-3 Romanian consultants with specific expertise in certain industries this year,” she says.
At the moment there are approximately 1,000 management consultancy firms on the local market. The majority of these have just one or two consultants and generate turnovers of less than EUR 200,000, according to data from the Romanian Management Consultancies Association (AMCOR). Still, a “leading squad” is in the making, made up of approximately 20 companies that work with over 10 full-time consultants and post annual turnovers above EUR 1 million per year. This “squad” is followed by around 50-70 companies that post between EUR 200,000 and EUR 1 million, Mihai Svasta, president of AMCOR, tells Business Review.
The FEACO study on the European market places the local consultancy scene on a par with markets in the Czech Republic, Hungary and Bulgaria. This raking takes into consideration quantitative factors (such as the volume of consultancy services in relation to the gross domestic product [GDP], the dimensions of the consultancy market, its annual growth rates and the fees charged) as well as qualitative factors such as the novelty of the management profession and the “atomic” structure of the market.
Western European states have much more mature and profitable consultancy markets. Some 75 percent of the total volume of consultancy services invoiced on the European market come from Germany, France, England and Spain. “This figure is the natural consequence of the existence of more mature consolidated markets, the profession of management consultant being well-paid and sometimes regulated,” says Svasta.
Maxim explains that while it is true that there has been very rapid development over the last few years both from the point of view of the value of the market and the number of companies and consultants, Romania is not there yet. “I am convinced that the current economic context will contribute to the growing maturity of the market in management consultancy even though at times this will be a forced process,” he says.
“The first months of this year have brought some limitations to the budgets allocated by most clients to consultancy, for reasons that had to do with caution rather than as a result of real modifications to businesses,” adds Svasta.
Most managers have not cut budgets for consultancy entirely, but rather preferred to opt for services that serve the current business needs of the company. Generally, each industry solicits help in the areas where it has been affected worst, says Maxim.
“While a year ago consultancy was regarded as a luxury or as a service for companies that were oriented towards innovation and development, now it is instead becoming a solution for ‘getting out of trouble' for companies in dire straits,” explains Maxim.
Currently, the firm's team comprises 60 employees, 6 of whom are foreign specialists. The consultants used by Ensight are specialized in strategy, operations, financial domain, human resources and technology.
On a yearly basis, the company runs approximately 40-50 projects of various sizes and complexity.
The study “The Consultancy Market in Romania between 2008 and 2009,” put together by AMCOR based on market research carried out at the end of last year, flagged up some of the challenges that players in this domain are up against. Since the most important asset of a consultancy company is its human resources, companies that were questioned identified as their main challenges the recruitment of specialized personnel (around 43 percent of the companies that were questioned) and staff retention (around 30 percent.) “It is necessary to improve the system of recruitment, formation and integration of new consultants,” says Svasta.
Another challenge relates to the promotion of consultancy services. “Romanian companies need to define a marketing strategy or revise their current strategies,” she adds.
Romanian companies have difficulties in controlling activities, process optimization, the transparency of revenues and costs, the management of the portfolio of clients and products they offer and price strategies, according to Cadis.
This same study shows that 42 percent of the companies questioned perceived 2009 as a year in which turnover would increase by more than 15 percent. Some 32 percent of the companies believed that there would be indeed growth, but not higher than 15 percent. Last but not least, 21 percent of the firms surveyed believed that this year the market would stagnate.
The demand for consultancy offers is much greater than in previous years (80 percent greater) precisely because “this is an auspicious moment for changes, restructuring and rapid short- term solutions, which most of the time cannot be implemented without outside assistance,” says Cadis.
Industries that have bore the brunt of the crisis such as banking industry, insurances, car industry and constructions, are also those that have most initiatives for the optimization of their internal performance. “Companies that are used to working with management consultancy firms are focusing on projects with a positive impact on the EBIT and cash-flow on the short and medium term (such as the reduction of working capital, process efficiency, transparence of the costs and profitability at the level of services and products). These are the services in the cost controlling area that most emphasis is laid upon in periods of crisis,” explains Cadis.
Out of the most confident consultancy players, most believed that the public sector, infrastructure, light industry, transport and tourism would be the most lucrative sectors. These also provided a revenue boom last year.
“Generally, a company that has foreign capital will be more willing to resort to consultancy services. There is still a shortfall in the mentalities of Romanian managers,” says Svasta.
But Maxim finds that the ratio of foreign to Romanian companies in the make-up of Ensight Management's clients is about even. “In recent years, Romanian managers have started to understand the importance and role of consultancy services,” he says.
Even though these are tough times, companies that offer quality consultancy services should have nothing to fear: clients might come from different domains, because many sectors are affected but, in total, the volume of demand for consultancy services will stand up.
“We believe that projects of the ‘nice to have' type will disappear from the market. The ‘must be done' projects will continue, even if budgets are negotiated more attentively. We also believe that the start of the process of absorption of structural funds will be a stimulus for companies that have developed their businesses in this sector,” says Svasta.
In order to face sharper competition, consultancy companies will have to focus on offering customized solutions for each business and industry,” she explains.
The major change that the crisis has brought to such firms' activity is reflected in the portfolio of services offered to clients, which mirror current economic demands. “While before companies asked for consultants' help with issues that had to do with expansion and development, now the targeted domains are those that can counteract the crisis: cost reduction, treasury management, restructuring and transformation of the business, mergers and acquisitions,” says Maxim.

Local consultants cheaper than those in Western Europe
An AMCOR study has found that fees earned by consultants in Romania vary from EUR 100-300 per day for a junior consultant and EUR 300-800 for a senior one. “The flexibility in the level of the fee is determined by a series of factors such as the geographical area, the dimension and reputation of the consultancy company on the market and the seniority of the consultant,” outlines Svasta.
Maxim suggests that before comparing the salaries of Romanian and Western European consultants, it is necessary to take a look at the cost of the consultancy services in Romania versus Western Europe, since there is a close connection between the two.
The FEACO report found that the average daily fee of consultants working on the top three European markets – Germany, Great Britain and France, which together have a market share of 65 percent – is approximately EUR 1,600/day for a consultant.
“In Eastern European states whose professional management consultancy associations are members of FEACO – namely Bulgaria, the Czech Republic, Poland, Slovenia and Greece – the average fee for consultancy services has not changed much over the last two years. Greece reported that the average fee for consultancy surpasses EUR 400 per day per consultant.”
The same report found that the fees of Romanian consultants are three-four times lower than those of their Western European counterparts, “even though we are talking about projects with a similar degree of difficulty and consultants with comparable preparation and experience. This is one of the aspects where the Romanian management consultancy market needs to mature: the correct evaluation of consultancy services and the adjustment of the fees,” says Maxim.