English report 1999

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English report 1999

British report, RESER 1998 - Peter WOOD R � s e a u E u r o p � e n S e r v i c e s & E s p a c e

- SERVICES & INTERNATIONALISATION -

British report .

SERVICES & INTERNATIONALISATION - Petter WOOD.

index

1 - The regional impacts of growing business consultancy tradability.
2 - The widening reach of small-medium consultancies.
3 - Overview : The developing environment of consultancy provision
4 - References

The regional impacts of growing business consultancy tradability

Among the most important transformations of the business service environment in recent years, expanding demand and transforming patterns of supply, has been the growing `tradability' of expertise. This has expanded business consultancy markets across different regions within countries, internationally, especially within Europe, and even globally. The core process of consultancy nevertheless still requires close client-consultancy interaction, being delivered mainly at local or regional scales and certainly within national boundaries. Successful consultancy therefore draws increasingly on a nationally and internationally expanding range of expertise while retaining `local' delivery. Large consultancies achieve this through their branch office networks, while smaller firms support tradability by specialisation and geographically extended collaboration. In principle, such developments enhance the quality and value to clients of consultancy inputs, and their potential for supporting more radical change and business innovation, although the range of such inputs may vary widely between countries and regions.

The ability of consultancies to deliver advice over longer distances, or expertise `tradability', depends on exchange by various modes, either singly or in combination :

a) Improved verbal/written/digital exchange through communication technology.
b) Greater mobility of skilled labour, both through short-term business travel and longer-term secondment.
c) Growing collaboration between consultancies in serving clients in different regions or nations.
d) Increased investment in branch office networks, by both global consultancies and formerly nationally/regionally-based firms.

The most striking evidence of these developments has been the expansion of the major global consultancies. Although not a new phenomenon, especially for engineering, architectural and trading expertise, the major modern expansion of global presence has been among management and IT consultancies, as they follow their principal clients, especially multinational companies. Their growth has also been associated with the introduction of new information and computer technologies (ICT). They provide both technical advice and may help address the often fundamental management systems changes associated with ICT. Consultanvies also support other forms of corporate restructuring, including mergers; cost control and efficiency benchmarking; international market developments; technological changes, including improved communications and data processing capacities; global investment and financial management; and the control of extended production facilities including staff training and deployment.

The widening reach of small-medium consultancies

Internationalisation has not been confined to the largest consultancies, however. Growing European collaboration through networking or joint ventures was first demonstrated ten years ago in a Bundesverband Deutscher Unternehmensberater investigation. This showed that 19% of German-based management consultancies in 1989 had offices in other European countries, and 17% were members of European networks of independent consultancies (BDU, 1989; Keeble and Schwalbach, 1995). This enabled these consultancies to overcome language and regulatory barriers, linking them to French, British and Spanish markets. More recently, a survey of small-medium British cosultancies has shown that about 20% had foreign branches (O'Farrell et.al., 1996). Sixty per cent had also entered into formal collaborative arrangements with other consultancies, over half in other countries (O'Farrell and Wood, 1999).

Many small-medium consultancies offer both specific technical or managerial expertise and `local knowledge' of different markets and production conditions. They compete with larger consultancies through both market or technological specialisation and by maintaining close relations with clients. Although most remain nationally-based, many successful medium-small engineering and construction consultancies, for example, are international in their reach and organisation.

There is evidence that international expansion by small-medium consultancies may be associated with the prior development of markets in other regions of the same country, to gain experience of operating with distant clients. This has especially been noted in continental European countries (Gallouj, 1996), and a similar pattern has been observed for Scotland, a developed peripheral region in the UK. Here local market limitations restrict the scope for consultancy specialisation but entry into other UK regions may support specialisation and provide a basis for international competitiveness (O'Farrell et.al. 1992; 1996). In contrast, many consultancies in the highly developed market of South East England export abroad directly without having worked in other UK regional markets. This also appears true for specialist consultancies in the metropolitan core regions of Portugal and Greece, where other developed regional markets are lacking (KISINN, 1997).

UK evidence also suggests that small-medium consultancies may develop their home markets through collaboration with consultancies offering complementary expertise, offering clients an enhanced range of services. In foreign markets, however, they tend to cooperate with the same type of consultancy, to increase the market for their core skills. O'Farrell et.al. show that small-medium UK consultancies often first enter foreign markets by working there for multinational clients already served in the home market. This does not require a permanent presence abroad. Beyond such initial entry, however, market development requires an active commitment to specialist staff training, branch office investment or collaboration with foreign consultancies, which is much rarer.

Overview : The developing environment of consultancy provision

In spite of this growing tradability of both large and small consultancy expertise, consultancy markets are still among the least integrated in the EU. Survey evidence commonly suggests that over two thirds of clients use consultancy offices in their local region, and well over 90% in their home countries. Proximity is an important choice factor in delivering consultancy services. The explanation of this paradox, of course, is that, while a `local' presence is expected to enable the consultancy to work closely with clients, the same clients increasingly seek expertise based on national and international technical and management standards and experience. Local client-consultancy exchange also works in the other direction. Global consultancies, for example, seek to gain access to local expertise by subcontracting to smaller specialists, and even through acquisitions of such national or regional firms.

International consultancy developments have undoubtedly enhanced the expertise available to European business and public agencies, supporting technical and managerial change. Even so, consultancy remains dominated by national, and even regionally-based exchange. The evidence from both consultancies and clients suggests that internationalisation is exerting an important impact on the quality of national and local consultancy provision.
This comes about in three principal ways:

a) By increasing the competition facing national and regional consultancy firms. The greater resources and reputations commanded by the global consultancies, and the specialized expertise of smaller outside consultancies, offer clients higher quality expertise, especially in relation to international technical and market conditions.
b) In generally growing consultancy markets, imported expertise may nevertheless stimulate demand for local consultancy activities. Changes induced by international IT and strategy consultancy, for example, create demands for specialized training, recruitment, professional or marketing skills. National or regional consultancies may thus adapt by moving towards specialized niches which exploit their specialized, including `local' knowledge. This may sometimes be achieved through direct formal or semi-formal collaboration with foreign consultancy firms, including global consultancies.
c) As international competition encourages nationally- or regionally-based consultancy firms into competitive niche specialisation, these may themselves then be able to develop new, including international markets.

The impacts of growing consultancy competition within each country and region therefore depend on how local consultancies respond to the opening-up of these markets. Specialisation should enable them to exploit both local expertise and new international opportunities. The consultancy markets of the high income economies of northern Europe have evolved over the past twenty years from a disparate, segmented, and sectorally-dependent group of support functions into a complex, integrated system of expertise exchange with clients. Much day-to-day exchange still takes place at the regional scale, reflecting the importance of close client-consultancy relations. Clients often still prefer working with small-medium consultancies, but the `state of the art' establish by the global consultancies with their multinational clients dominates the economic impact of the whole consultancy sector. It also determines the competitive conditions and standards which smaller consultancies must increasingly satisfy.

Rererences

� BDU (Bundersverband Deutscher Unternehmensberater BDU e.V.) (1991) Der Markt fur Unternehmensberatungsleistungen in Europa, Bonn.

� Gallouj F (1996) `Le Commerce interregional des services aux entreprises: Une revue de la litterature' Revue d'Economie R'egionale et Urbaine, 3, 567-96.

� Keeble D and Schwalbach J (1995) `Management consultancy in Europe', ERSC Centre for Business Research, University of Cambridge, Working Paper No. 1

� KISINN (1997) The strategic role of knowledge-intensive services for the transmission and application of technical and management innovation: Final Report of Thematic Network, Fourth Framework Programme, Targeted Socio-Economic Research, Area 1, Project No. SOE1-CT-95-1017.

� O'Farrell, PN, Hitchins, DM and Moffat, LAR (1992) `The competetiveness of business service firms in Scotland and the South East of England: an analysis of matched pairs', Regional Studies, 26, 591-33.

� O'Farrell, PN, Wood, PA and Zheng, J (1996) `Internationalisation by business services: and inter-regional analysis' Regional Studies, 30, 101-118.

� O'Farrell, PN and Wood PA (1999) `Formation of Strategic aliances in Business services: Towards a new client-oriented conceptual framework' Services Industries Journal, 19, 133-51.

Wednesday April 21, 2004

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