As China’s consulting market rapidly grew by 13.4% to almost US$6bn in 2018 (US$5.98bn), the consulting arms of accounting firms—a group dominated by the Big Four—continued to outperform the market, with revenues increasing 15.9% to pass US$2bn (US$2.1bn) for the first time. Accounting firms now generate more than a third of all consulting revenues in China.
These figures are published today in a new report from Source Global Research, the leading research and strategy firm for the global professional services industry. The Source report says that despite slowing GDP growth, there was demand from clients for support to respond to government reforms and market disruption, expand domestically and overseas, and make the most of changing consumption by China’s newly affluent middle class. The report also says that accounting firms continue to benefit from the breadth of their capabilities and ability to offer services that stretch well beyond consulting. Their strong reputation for navigating regulatory change is also a boon in a period of significant government-led reforms and regulatory changes.
Ashok Patel, Editor at Source Global Research, said:“Access to global knowledge bases and ideas and solutions from other markets remains a strong selling point for the accounting firms, particularly among multinational corporations. And their appeal to China’s state and privately owned enterprises, was given an additional boost by firms’ efforts to revise their organisational structures in 2018, creating a more effective platform for them to expand their China operations and capture even more work.”
Xuong Liu, Managing Director & Asia Practice Leader – Transaction Advisory Group – Alvarez & Marsal, who was interviewed for the Source report, added: “The Big Four dominate in this part of the world. In more developed markets there are a whole host of platforms that have been set up by professionals that maybe came out of the Big Four and are growing into major firms, together with boutiques and in-country only firms. That has not really started in China.”
The Source report also reveals that the share of consulting work that can be described as digital continues to grow in China, now accounting for 22% of all revenues earned. However, while this figure indicates a healthy level of interest in digital, it also shows China lags well behind other major markets in terms of digital uptake. For instance, just over a third of work is digital in the DACH market, and in the US market, digitisation accounts for nearly half of consulting revenues.
The growth in digital work was particularly demonstrated in China’s large financial services sector, where consulting revenues reached US$2.24bn in 2018, with digital work making up US$464m of this total.
Ashok Patel from Source said:“The need to improve customer experience in the face of growing competition, particularly from fintechs, is generating new opportunities for China’s consultants in the financial services sector. Digitisation of the back office is high on clients’ lists of priorities, and consultants are also benefiting from clients’ expansion ambitions—particularly firms with operations elsewhere in Asia-Pacific.”
A problem with sourcing local talentSource’s report also found that while consulting firms recognise that there is a need to maintain fully staffed local offices filled with local talent, it isn’t something that is easy to do. The report points out that one challenge of working in a still-maturing market is the lack of legacy talent—there simply aren’t many older, experienced consultants to fill senior roles. With consulting yet to establish itself as a widely desirable career, younger talent can also be hard to come by; China’s current crop of bright young talent is more likely to be drawn to entrepreneurship and the tech start-up scene.
Reynold Liu, Head of MC at KPMG, added: “In the last four to five years, our business has more than doubled in size. At the same time, the consulting industry has to pay more to retain talent, and that’s eating into our profitability. However, we are correcting this by growing our asset-based revenues.”
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