November 2004
Special report on Feaco - Sesma Conference 2004 in Athens
GENERAL TRENDS
IN THE MANAGEMENT CONSULTANCY
IN CENTRAL & EASTERN EUROPE (CEE)
by Janko Arah, President AMCOS (Slovenia) and President of
Arah Consulting
A
Summary:
The political and economic landscape of CEE has changed profoundly following the enlargement on May 1st 2004 of the European Union (EU):
- Strong economic growth, even faster than expected some months ago,
thanks to a surge in exports and oil prices
- Big increases in gross domestic product (GDP): the region's total GDP is
expected to rise in 2004 by 6%, compared with 2% for western Europe,
4-4,5 % for north America and 5% for Asia/Pacific.
- Most states share a general desire to attract western capital, technology
and managerial know-how but the conditions are not the same.
The region's economy divides broadly into 3 sub-regions:
- the 8 new members of the EU in central Europe and the Baltic states
- south-east Europe, led by Romania and Bolgaria, which are planning to join
the EU in the next few years (2007), including also the Balkan States
(Albania…) and
- Russia and the rest of the former Soviet Union (Ukraine, Tadjikistan,
Turkmenistan, Uzbekistan ..) which have little or no prospect of becoming EU
members in the forseeable future.
In international business services, a new wave of greenfield investment is sweeping through central Europe. Multinational groups seeking to tap into the region's low-cost high-skill labour are setting up centres to handle everything from invoicing to advanced research and development. This central European outsourcing wave (which is not as big as in India or in China) is very significant for European business. Companies often concentrate on services which require a lot of contact with customers while more straightforward functions tend to be outsourced to Asia.
Outsourcing activities have been established in CEE by:
- Accenture which employs more than 1.000 people in Prague, Budapest,
Bratislava and Piaseczno, near Warsaw;
- Capgemini (the French-based consultancy) runs a growing centre in Krakow
(240 employees);
- IBM (the US information technology group) has a services group in Bratislava.
The MC has developed significantly in almost all countries in CEE in the past decade. Quite a lot of funding came into these countries within the PHARE programs of the EU, and in these programs consultants played a significant role in the establishment and implementation of the various projects.
In most countries in CEE, the representative organisations of the consulting profession the local Associations of Management Consultants were established around 1990-1995 and became full-fledged members of FEACO during the 90s. These associations currently have about 30-80 member companies, representing between 30-60% of the consultants in these countries.
The slowdown in the global economy between 2001-2003 had an adverse effect on the industry in the region, as in the rest of Europe, but MC can be optimistic about the future of the profession in CEE. The forecast of potential growth rate varies between 2 -15%, depending on the country.
Maconet is the management consulting network of 11 companies from 11 states (Hungary, Slovenia, Poland, Malta, Bulgaria, Romania, Lithuania, Slovakia, Macedonia, Ukraine and Latvia).
CONTENTS:
1. A region of 27 countries
2. The political and economic landscape of CEE has changed profoundly following the enlargement on May 1st 2004 of the European Union (EU).
- Strong economic growth, even faster than expected some months ago, thanks to a surge in exports and oil prices
- Big increases in gross domestic product (GDP): the region's total GDP is expected to rise in 2004 by 6%, compared with 2% for western Europe, 4-4,5 % for north America and 5% for Asia/Pacific.
- Most states share a general desire to attract western capital, technology and managerial know-how but the conditions are not the same.
- Banking: competition is hotting up among the leading 10 banks that dominate the market. Annual credit growth of 30% in Eastern Europe is accompanied by increasing bad loan risk. Austria's Raiffeisen (RZB) has established itself in 15 countries, Germany's Hypovereinsbank and Bank Austria which is its subsidiary, are present in 16 countries. Austria's Erste is present in 4 central European countries. KBC, Unicredit…
- Investment: outsourcing, retailing, infrastructure, energy and engineering are just a few areas experiencing a boom.
3. Subregions in CEE
The region's economy divides broadly into 3 sub-regions:
- the 8 new members of the EU in central Europe and the Baltic states
- south-east Europe, led by Romania and Bolgaria, which are planning to join the EU in the next few years (2007), including also the Balkan States (Albania…) and
- Russia and the rest of the former Soviet Union (Ukraine, Tadjikistan, Turkmenistan, Uzbekistan ..) which have little or no prospect of becoming EU members in the forseeable future.
3.1. New EU member states
In the new EU member states, the emphasis is on greenfield developments, including a new wave of export oriented projects. The new EU member states are also expecting to gain from the further integration of their economies with the richer states of western Europe, notably through trade.
Agricultural exports to the EU are expanding following accession. EU aid will provide a further economic stimulus, particularly in the countryside where a lot of support is to be directed through the EU's Common Agricultural Policy.
All the new member states are required to join the EURO when they are ready. But so far only Estonia, Lithuania and Slovenia have locked their currencies into the exchange rate mechanism – the waiting room for the common currency – to join the euro in 2007.
3.2. South-east Europe
In south-east Europe, the EU's would-be future members are following the same track of market-based EU-oriented reform as the central European countries.
The privatisations are still a significant element. The stock of foreign investment remains very low on a per capita basis in comparison with central Europe, except in Croatia, which benefits from its tourist potential.
Serious political uncertainty has clouded the outlook for Serbia and Montenegro, holding back reform and growth.
3.3. Eastern Europe
In Eastern Europe, economic performance is dominated by the surging oil and gas revenues pouring into the energy-exporting states of Russia, Kazahstan and Azerbaijan.
4. Outsourcing in CEE
In international business services, a new wave of greenfield investment is sweeping through central Europe. Multinational groups seeking to tap into the region's low-cost high-skill labour are setting up centres to handle everything from invoicing to advanced research and development. This central European outsourcing wave (which is not as big as in India or in China) is very significant for European business. Companies often concentrate on services which require a lot of contact with customers while more straightforward functions tend to be outsourced to Asia.
Outsourcing activities have been established in CEE by:
- Accenture which employs more than 1.000 people in Prague, Budapest, Bratislava and Piaseczno, near Warsaw;
- Capgemini (the French-based consultancy) runs a growing centre in Krakow (240 employees);
- IBM (the US information technology group) has a services group in Bratislava.
Some multinationals are outsourcing their own internal services to new in-house centres, like Lufthansa, the German airline which has transferred its accounting operations for the whole of Europe except Germany to a base in Krakow, General Electric, the USA electrical group, which has transferred its financial and IT services base in Budapest etc. The amounts of capital involved are relatively small (10 - 50 m USD) for building and equipping a services centre.
The economic benefit to the region is much greater than the capital involved because service centres are creating large numbers of jobs – many of them well-paid jobs for top university graduates. Through such employees the company can spread the advantage of modern business methods to other companies with which it comes into contact.
CEE cannot compete with China or India on wage rates, but it has other advantages:
- broad knowledge of European languages
- for call centres, it is better to have them in the same time zone, to enable them to respond quickly
- geographic proximity is important for those companies which require frequent contacts with clients in a foreign country.
5. General trends in management consultancy (MC) in CEE
The MC has developed significantly in almost all countries in CEE in the past decade. Quite a lot of funding came into these countries within the PHARE programs of the EU, and in these programs consultants played a significant role in the establishment and implementation of the various projects.
In recent years the Japanese Productivity Centers for Social and Economic Development have been established in almost every CEE country to facilitate the entry of the Japanese capital.
In most countries in CEE, the representative organisations of the consulting profession the local Associations of Management Consultants were established around 1990-1995 and became full-fledged members of FEACO during the 90s. These associations currently have about 30-80 member companies, representing between 30-60% of the consultants in these countries.
In 2003, nearly 97% of the 46 billion Euro management consulting turnover in Europe was generated within the Western-European countries and 3% in CEE. This very low revenue figure reflects partially the fact that in many countries in CEE there exists a reluctance to pay for intellectual services. In the more developed markets, such as Hungary, Slovenia and Russia, this attitude is changing.
Typical daily fees vary considerably, between 100 and 1000 Euro, depending on the client and the level of experience of the consultant. International firms pay higher fees. SMEs either don’t use consultants or only against a very low fee.
The slowdown in the global economy between 2001-2003 had an adverse effect on the industry in the region, as in the rest of Europe, but MC can be optimistic about the future of the profession in CEE. The forecast of potential growth rate varies between 2 -15%, depending on the country.
The economic developments in CEE present a huge challenge for the consulting companies in the region, but also great opportunities. Local consultants need not be afraid of their Western European counterparts taking over their market. Indeed, the importance of reliable local partners will increase, due to language barriers, to the knowledge of the local business culture and to local client contacts. It can be predicted an increasing networking between management consultants of different countries.
In the early years of transition, business focused on consulting services related to privatisation and public market projects. Most countries in the region have now passed this phase and the emphasis is shifting towards the private sector and services such as business strategy, organisation development, human resources and IT consulting. Outsourcing has become a key driver of the industry development.
In CEE there has been a considerable change in paradigms in consultancy during the past years. The beginning of the 90s was characterised mainly by advice type work, whereas today clients ask not only advice, but implementation and operation services as well.
In this context, consulting firms in CEE have to change rapidly to maintain their competitiveness. Speed, quality, and value added, comprehensive solutions are going to be of key importance in the following years.
6. Management consultancy in some CEE countries
6.1. Bulgaria
The Bulgarian Association of Management Consultants (BAMC) was established in 1990. The Certified Management Consultant (CMC) was introduced by active support of the British Management Consulting Association in 1999.
The Bulgarian consultancy market is rather small, compared to the markets of other European countries. There are 300 consulting companies operating in this sector with a staff of about 2500 people. The management consulting market has been stabilized due to less institutionalized and more professional service providers. Besides privatization consulting assignments corporate strategy, partner seeking, executive search and market research are the most flourishing service lines in this country. In many sectors of the Bulgarian economy, growing importance EU founded consulting assignments are considered as important role. The EU programs for technical assistance provided a unique base for long-term co-operation between Bulgarian and foreign consultants. Bulgarian management consultants export their services to other Balkan countries (Macedonia and Serbia).
6.2. Czech Republic
The Czech Management Consulting Association was created at the beginning of 90s. Large international consultancies created their branch offices in Prague. These outlets served the Czech and Slovakian markets till mid of 90s.
The consultancy market is devided into 4 segments:
- international companies (70% of turnover of consultancy market)
- Czech companies – members of APP (8%)
- Czech companies – member of NARP (state subvention) (6%) and
- the rest of Czech consulting companies (16%).
The whole Czech market (estimated) 400 miollion EUR.
The czech government (Czech invest) is preparing a Consultancy register for SME support.
MC in Czech Republic is searching for new investment projects and is trying to reach improvement of competitiveness. APP is trying to make a market position of Czech consultancy companies stronger by creating only one consultanca assosiation (register) in the Czech Republic.
6.3. Estonia
Estonia is a leading country in this Baltic region but the culture for consulting is very young. The general moral is not the same as in other EU countries. The economy is developing very fast. Export causes a great need for quality consultants. The price is an issue: “I take what I get.”
3 sectors in MC:
- big companies (KPMG, PriceW: nave officers in Estonia) for big companies
- local companies: technical oriented, having young staff, doing MC, mainly for export
activities
- many individuals (hard to find clients).
Government involvement: finance consulting for export programs (75% of the costs for the export plan is paid by the Governement; 2-3 times a year the government collects companies in groups for 2 days seminars on export planning)
Public procurement: 3 bids are needed.
EKA has 43 members.
6.4. Hungary
The majority of the Hungarian consulting firms, however, belong to the medium- and small-size category, mostly offering specialized services with a clientele coming mainly from among small and medium-sized enterprises.
The most significant representative organization of the consulting profession in Hungary, the Hungarian Association of Management Consultants (AMCH) was established in 1990 and became a full-fledged member of FEACO (Federation of European Association of Management Consultancy Institutions) in 1993. AMCH currently has about 65 member companies, representing almost 1200 consultants.
Hungary has been an associated member of the ICMCI since 1991.The full membership was awarded to Hungary in 1996. The first certification has occurred in 1994. The Institute of management Consultants (UK) had certified six local consultants. Today there are 150 CMC designees in Hungary. The CMC Committees works within the Hungarian Management Consultants Association.
6.5. Latvia
Latvian Association of Business Consultants is a non-governmental organisation, founded in 1995 and has 67 members. The association's members services are:
- HR management (planing, recruitment, development, relationship)
- Economy (Accounting, taxes, investment, insurance, credit management)
- Marketing (Market research, marketing management solutions)
- Organisation's management (management strategy, project management, structural
management, Quality management)
- IT (IT administration, IT tols, software development)
Legal services
- Production and technology.
The main goals of LBKA:
- improve and strengthen standards of professional practice by implementing a Codes of Ethics
- create a link between professionals inside Latvia and abroad for experience and information exchange
- establish relations with various organisations and small and medium scale businesses interested in improving and developing managerial skulls in Latvia
- assist the profession to speak in one voice and become the leading representative of Latvian consultancy profession in local and international institutions.
-
Latvian MC market trends:
- EU Structural funds (Regional development fund, Social fund, Agricultural Guidance and Guarantee Funds)
- Compliance with international standards
- Merging and acquisition
- Legal services
Current activities of LBKA:
- apply for membership in FEACO on mutually beneficial conditions
- implementation of CMC standards
- elaboration of training programs for new and existing MC
- involvment in common EU projects, tenders and consortiums with similar consultants
organisations.
6.6. Macedonia
Management consulting firms in Macedonia add value to domestic and international clients by being able to use their expertise. In most cases the services of management consulting firms financed by international development agencies (World Bank, EU, SIDA, CIDA, USAID etc.)
The Management Consulting Association was established in 1995. It has 10 corporate and 100 individual members. The CMC process was established in 2001 by strong support of the Management Consulting Association (UK).
6.7. Poland
Consultancy has become a very rapidly developing sector. According to SDG, Association of Economic Consultants, at the beginning of the 1990’s the most significant project financing institutions were typically PHARE, the know-how Fund and US funds. Today these sources are slowly vanishing. Their roles are taken by the EU’s projects that finance structural funds, and by the very dynamically developing private sector.
In the structure of the Polish consultancy market the well-known big consultancy firms are represented (with 5-10 consultants), besides them the management consultancy departments of the Big Four auditing and accounting companies (with 20-30 consultants). The number of local companies is estimated to 200-300, and they employ 1-10 consultants.
The general trend of concentration process continues in Poland as well. The number of medium-sized firms with 50-100 consultants has continuously decreased. It is estimated that services worth about 260 million Euro can be sold on the market, and that about 5000 consultants operate in management support.
The Polish Management Consulting Association (SDG) was established at the beginning of 90s. It has 17 member firms, mostly locally owned associations.
The CMC certification was started in 1997. Since then 40 designations have been awarded.
In 2001 and 2002 Polish consulting market faced a deep depression. The second half of 2001 brought significant cutbacks in personnel at the Big Four companies and Polish local consulting firms. Growing numbers of EU related projects, ISO certification and IT assignments can contribute to the recent development of the Polish consulting market.
6.8. Romania
Since the change of the regime potential conditions of bases for modern consultancy have been set up in Romania as well but the development of MC is seriously hampered by the very sluggish pace of privatization, resulting in a lack of state and private purchase power to give the initial impetus needed for building up the consultancy business and market.
The Romanian management consulting market consists of 850 firms and individual players. Within these companies there are 1.800 consultants working, from whom are just 350-400 certified at national and international level. The majority of the big five consultancy firms are represented in Romania but the involvement in the most important problems of the Romanian economy does not represent a relevant impact in the real market.
In addition, some smaller companies, mainly specialized in headhunting and a selection of foreign companies have settled down here. Besides these, there are dozens of small, local consultancy firms operating on the market as well. A local consultancy network has started to develop with government and foreign support.
One of the most burning problems of the consultancy market is the insolvency of clients and low contract fees. Not taking into consideration international projects, local daily allowances are not higher than 130-400 Euro. The concentration process has been continued as the management consulting profession becomes more defined on the market.
AMCOR, the Association of Romanian Management Consultants, was established in 1992 by the initiation of FEACO. The association has 40 membership consultancy companies and 150 individual consultants. The CMC certification was started in 2001.
6.9. Russia
In Russia, according to the estimates of the latest statistics, there are about 400 firms and about 7000 Management consultants; the estimated market amounts to 332 million EURO.
On one hand, the size of the country provides excellent opportunity for large firms to establish offices in Moscow and in the country as well. On the other hand, the missing infrastructure and the low developed transport and logistic circumstances force the international firms to set up their offices only in the capital of the country.
Russia experienced sweeping change during the decade of the 1990’s, and the accompanying changes within business organizations necessitated the adoption of human resource systems, policies, and practices to meet the new challenges. Having made much progress, the question today is the degree to which the management consulting has come of age and what work remains to be done.
In Russia, managers became managers in their everyday jobs, gaining professional experiences. Their motto is, “I know better.” The new generation of managers is more or less familiar with consulting, but they prefer expert knowledge (financial consulting, audit, designing investment programs, etc.), as they see it as more “understandable” and “profitable”.
6.10. Slovakia
After 1993 the majority of foreign consulting firms set up their businesses in the Czech Republic and they still manage their Slovak operations from Prague. Important consulting firms who have their offices in Bratislava and also in other big cities of Slovakia (Banská Bystrica, Košice) are the consulting arms of the Big Five accounting firms.
Management consulting services in Slovakia are mainly provided by small private companies, specialized agencies, banks, broker firms, investment companies, foreign trade organizations, different information centers, trade and industrial chamber, and some of the universities.
Advisory activities for small and start-up businesses represent a specific area of management consulting. Slovakia has several institutions offering consultancy and support to small and medium enterprises. The National Agency for Development of Small and Medium Enterprises (NADSME) and the network of Business Innovation Centers (BIC) and Regional Advisory and Information Centers (RAIC) are heading the list.
6.11. Slovenia
MC is still growing and there is more competition on the MC market. There are more short term oriented projects and more demanding clients in terms of:
- necessity to adapt projects as far as possible to the clients' needs
- high(er) project complexity and level of precision
- demand to hire rather experienced consultants
- pressure on fees.
In last years: more international projects, importance of institutional clients, national institutions (ministries etc.) often act slowly; tenders are too complicated; short time-limits.
The consequences of the joining of EU:
- Raising awareness of impact of quality and references
- Raising awareness of co-operation, networks, alliances
- Creating networks
- Development of new tools, techniques, approaches
- Development of new MC services
- Self training and education
- Search and development of new markets
- Extensive promotion
- Pressure on the institutional clients for a more co-operative attitude
- Creating a lasting (more formal) connection (teams) and co-operation
- MC cluster(s)
- Becoming a key factor in preparation and implementation of development
programmes in regions (within a country)
- Regional co-operation and alliances
- International alliances
- Raising the importance of the service sector in the government policy and practice
AMCOS has 73 members.
7. Member Associations in FEACO from CEE
There are 6 members in FEACO from CEE:
- Poland (SDG)
- Czech Republic (APP)
- Hungary (VTMSZ)
- Slovenia (AMCOS)
- Bolgaria (BAMCO)
- Romania (AMCOR).
Applied for membership:
- Bosnia and Herzegovina (LESPnet)
- Latvia (LBKA) …
8. Maconet
Maconet is the management consulting network of 11 companies from 11 states (Hungary, Slovenia, Poland, Malta, Bulgaria, Romania, Lithuania, Slovakia, Macedonia, Ukraine and Latvia).
Pour Info:
Whoswoo: Janko Arah
Arah Consulting, d.o.o., 1111 Ljubljana, Večna pot 11, Slovenia
e-mail: arah.consulting&eunet.si
The political and economic landscape of CEE has changed profoundly following the enlargement on May 1st 2004 of the European Union (EU):
- Strong economic growth, even faster than expected some months ago,
thanks to a surge in exports and oil prices
- Big increases in gross domestic product (GDP): the region's total GDP is
expected to rise in 2004 by 6%, compared with 2% for western Europe,
4-4,5 % for north America and 5% for Asia/Pacific.
- Most states share a general desire to attract western capital, technology
and managerial know-how but the conditions are not the same.
The region's economy divides broadly into 3 sub-regions:
- the 8 new members of the EU in central Europe and the Baltic states
- south-east Europe, led by Romania and Bolgaria, which are planning to join
the EU in the next few years (2007), including also the Balkan States
(Albania…) and
- Russia and the rest of the former Soviet Union (Ukraine, Tadjikistan,
Turkmenistan, Uzbekistan ..) which have little or no prospect of becoming EU
members in the forseeable future.
In international business services, a new wave of greenfield investment is sweeping through central Europe. Multinational groups seeking to tap into the region's low-cost high-skill labour are setting up centres to handle everything from invoicing to advanced research and development. This central European outsourcing wave (which is not as big as in India or in China) is very significant for European business. Companies often concentrate on services which require a lot of contact with customers while more straightforward functions tend to be outsourced to Asia.
Outsourcing activities have been established in CEE by:
- Accenture which employs more than 1.000 people in Prague, Budapest,
Bratislava and Piaseczno, near Warsaw;
- Capgemini (the French-based consultancy) runs a growing centre in Krakow
(240 employees);
- IBM (the US information technology group) has a services group in Bratislava.
The MC has developed significantly in almost all countries in CEE in the past decade. Quite a lot of funding came into these countries within the PHARE programs of the EU, and in these programs consultants played a significant role in the establishment and implementation of the various projects.
In most countries in CEE, the representative organisations of the consulting profession the local Associations of Management Consultants were established around 1990-1995 and became full-fledged members of FEACO during the 90s. These associations currently have about 30-80 member companies, representing between 30-60% of the consultants in these countries.
The slowdown in the global economy between 2001-2003 had an adverse effect on the industry in the region, as in the rest of Europe, but MC can be optimistic about the future of the profession in CEE. The forecast of potential growth rate varies between 2 -15%, depending on the country.
Maconet is the management consulting network of 11 companies from 11 states (Hungary, Slovenia, Poland, Malta, Bulgaria, Romania, Lithuania, Slovakia, Macedonia, Ukraine and Latvia).
CONTENTS:
| 1. |
A region of 27 countries |
| 2. | The political and economic landscape of CEE has changed profoundly following the enlargement on May 1st 2004 of the European Union (EU) |
| 3. | Subregions in CEE |
| 3.1 3.2 3.3 |
New EU member states South-east Europe Eastern Europe |
| 4. | Outsourcing in CEE |
| 5. | General trends in management consultancy (MC) in CEE |
| 6. | Management consultancy in some CEE countries |
| 6.1 | Bulgaria |
| 6.2 | Czech Republic |
| 6.3 | Estonia |
| 6.4 | Hungary |
| 6.5 | Latvia |
| 6.6 | Macedonia |
| 6.7 | Poland |
| 6.8 | Romania |
| 6.9 | Russia |
| 6.10 | Slovakia |
| 6.11 | Slovenia |
| 7 | Member Associations in FEACO from CEE |
| 8 | Maconet |
1. A region of 27 countries
| Country |
Population in Million | GDP per capita at PPP 2003 ($) |
GDP
real annual growth 2003 estimate (%) |
GDP 2004 forcast (%) |
| Slovenia | 2.0 |
19,618 |
2.3 | 3.1 |
| Czech Republic |
10.3 |
15,669 | 2.9 |
4.0 |
| Hungary |
10.0 |
14,574 |
2.9 | 4.0 |
| Slovakia |
5.4 |
13,363 |
4.2 | 4.4 |
| Estonia |
1.4 |
12,190 |
4.7 |
5.5 |
| Lithuania |
3.4 | 11,036 |
8.9 |
6.5 |
| Poland | 38.3 |
10,854 | 3.7 |
4.5 |
| Latvia |
2.3
|
9,683 |
7.5 |
6.0 |
| Russia |
144.9 |
9,001 |
7.3 |
5.5 |
| Bulgaria |
8.0 |
7,274 |
4.5 |
4.8 |
| Romania |
21.7 |
6,974 |
4.9 |
5.0 |
| Kazakhstan |
14.4 |
6,583 | 9.2 | 7.0 |
| Belarus |
9.9 |
6,432 | 6.8 |
4.5 |
| Turkmenistan |
6.0 |
5,836 | 11.4 |
9.1 |
| Ukraine | 48,4 |
5,312 |
9.3 | 6.0 |
| Croatia |
4.4 |
4,815 |
4.2 |
4.0 |
| Azerbaijan | 8.3 |
3,491 |
11.2 |
8.5 |
| Armenia |
3.1 |
2,663 |
13.9 | 7.0 |
| Georgia |
4.6 |
2,384 |
7.0 |
5.0 |
| Albania |
3.2 |
1,958 |
5,0 |
5,0 |
| Moldova |
4.3 |
1,906 |
6.3 |
5.5 |
| Serbia and Montenegro | 10,7 | 1,858 |
- 2.7 |
2.0 |
| Macedonia |
1.9 |
1,813 |
4.6 |
0.9 |
| Kyrgyzstan |
4.8 |
1,741 |
6.7 |
4.1 |
| Uzbekistan |
26.0 |
1,645 |
1.0 | 2.5 |
| Bosnia and Herzegovina |
3.8 |
1,039 |
6.0 |
4.5 |
| Tajikistan |
6.5 |
996 |
10.2 |
6.0 |
2. The political and economic landscape of CEE has changed profoundly following the enlargement on May 1st 2004 of the European Union (EU).
- Strong economic growth, even faster than expected some months ago, thanks to a surge in exports and oil prices
- Big increases in gross domestic product (GDP): the region's total GDP is expected to rise in 2004 by 6%, compared with 2% for western Europe, 4-4,5 % for north America and 5% for Asia/Pacific.
- Most states share a general desire to attract western capital, technology and managerial know-how but the conditions are not the same.
- Banking: competition is hotting up among the leading 10 banks that dominate the market. Annual credit growth of 30% in Eastern Europe is accompanied by increasing bad loan risk. Austria's Raiffeisen (RZB) has established itself in 15 countries, Germany's Hypovereinsbank and Bank Austria which is its subsidiary, are present in 16 countries. Austria's Erste is present in 4 central European countries. KBC, Unicredit…
- Investment: outsourcing, retailing, infrastructure, energy and engineering are just a few areas experiencing a boom.
3. Subregions in CEE
The region's economy divides broadly into 3 sub-regions:
- the 8 new members of the EU in central Europe and the Baltic states
- south-east Europe, led by Romania and Bolgaria, which are planning to join the EU in the next few years (2007), including also the Balkan States (Albania…) and
- Russia and the rest of the former Soviet Union (Ukraine, Tadjikistan, Turkmenistan, Uzbekistan ..) which have little or no prospect of becoming EU members in the forseeable future.
3.1. New EU member states
In the new EU member states, the emphasis is on greenfield developments, including a new wave of export oriented projects. The new EU member states are also expecting to gain from the further integration of their economies with the richer states of western Europe, notably through trade.
Agricultural exports to the EU are expanding following accession. EU aid will provide a further economic stimulus, particularly in the countryside where a lot of support is to be directed through the EU's Common Agricultural Policy.
All the new member states are required to join the EURO when they are ready. But so far only Estonia, Lithuania and Slovenia have locked their currencies into the exchange rate mechanism – the waiting room for the common currency – to join the euro in 2007.
3.2. South-east Europe
In south-east Europe, the EU's would-be future members are following the same track of market-based EU-oriented reform as the central European countries.
The privatisations are still a significant element. The stock of foreign investment remains very low on a per capita basis in comparison with central Europe, except in Croatia, which benefits from its tourist potential.
Serious political uncertainty has clouded the outlook for Serbia and Montenegro, holding back reform and growth.
3.3. Eastern Europe
In Eastern Europe, economic performance is dominated by the surging oil and gas revenues pouring into the energy-exporting states of Russia, Kazahstan and Azerbaijan.
4. Outsourcing in CEE
In international business services, a new wave of greenfield investment is sweeping through central Europe. Multinational groups seeking to tap into the region's low-cost high-skill labour are setting up centres to handle everything from invoicing to advanced research and development. This central European outsourcing wave (which is not as big as in India or in China) is very significant for European business. Companies often concentrate on services which require a lot of contact with customers while more straightforward functions tend to be outsourced to Asia.
Outsourcing activities have been established in CEE by:
- Accenture which employs more than 1.000 people in Prague, Budapest, Bratislava and Piaseczno, near Warsaw;
- Capgemini (the French-based consultancy) runs a growing centre in Krakow (240 employees);
- IBM (the US information technology group) has a services group in Bratislava.
Some multinationals are outsourcing their own internal services to new in-house centres, like Lufthansa, the German airline which has transferred its accounting operations for the whole of Europe except Germany to a base in Krakow, General Electric, the USA electrical group, which has transferred its financial and IT services base in Budapest etc. The amounts of capital involved are relatively small (10 - 50 m USD) for building and equipping a services centre.
The economic benefit to the region is much greater than the capital involved because service centres are creating large numbers of jobs – many of them well-paid jobs for top university graduates. Through such employees the company can spread the advantage of modern business methods to other companies with which it comes into contact.
CEE cannot compete with China or India on wage rates, but it has other advantages:
- broad knowledge of European languages
- for call centres, it is better to have them in the same time zone, to enable them to respond quickly
- geographic proximity is important for those companies which require frequent contacts with clients in a foreign country.
5. General trends in management consultancy (MC) in CEE
The MC has developed significantly in almost all countries in CEE in the past decade. Quite a lot of funding came into these countries within the PHARE programs of the EU, and in these programs consultants played a significant role in the establishment and implementation of the various projects.
In recent years the Japanese Productivity Centers for Social and Economic Development have been established in almost every CEE country to facilitate the entry of the Japanese capital.
In most countries in CEE, the representative organisations of the consulting profession the local Associations of Management Consultants were established around 1990-1995 and became full-fledged members of FEACO during the 90s. These associations currently have about 30-80 member companies, representing between 30-60% of the consultants in these countries.
In 2003, nearly 97% of the 46 billion Euro management consulting turnover in Europe was generated within the Western-European countries and 3% in CEE. This very low revenue figure reflects partially the fact that in many countries in CEE there exists a reluctance to pay for intellectual services. In the more developed markets, such as Hungary, Slovenia and Russia, this attitude is changing.
Typical daily fees vary considerably, between 100 and 1000 Euro, depending on the client and the level of experience of the consultant. International firms pay higher fees. SMEs either don’t use consultants or only against a very low fee.
The slowdown in the global economy between 2001-2003 had an adverse effect on the industry in the region, as in the rest of Europe, but MC can be optimistic about the future of the profession in CEE. The forecast of potential growth rate varies between 2 -15%, depending on the country.
The economic developments in CEE present a huge challenge for the consulting companies in the region, but also great opportunities. Local consultants need not be afraid of their Western European counterparts taking over their market. Indeed, the importance of reliable local partners will increase, due to language barriers, to the knowledge of the local business culture and to local client contacts. It can be predicted an increasing networking between management consultants of different countries.
In the early years of transition, business focused on consulting services related to privatisation and public market projects. Most countries in the region have now passed this phase and the emphasis is shifting towards the private sector and services such as business strategy, organisation development, human resources and IT consulting. Outsourcing has become a key driver of the industry development.
In CEE there has been a considerable change in paradigms in consultancy during the past years. The beginning of the 90s was characterised mainly by advice type work, whereas today clients ask not only advice, but implementation and operation services as well.
In this context, consulting firms in CEE have to change rapidly to maintain their competitiveness. Speed, quality, and value added, comprehensive solutions are going to be of key importance in the following years.
6. Management consultancy in some CEE countries
6.1. Bulgaria
The Bulgarian Association of Management Consultants (BAMC) was established in 1990. The Certified Management Consultant (CMC) was introduced by active support of the British Management Consulting Association in 1999.
The Bulgarian consultancy market is rather small, compared to the markets of other European countries. There are 300 consulting companies operating in this sector with a staff of about 2500 people. The management consulting market has been stabilized due to less institutionalized and more professional service providers. Besides privatization consulting assignments corporate strategy, partner seeking, executive search and market research are the most flourishing service lines in this country. In many sectors of the Bulgarian economy, growing importance EU founded consulting assignments are considered as important role. The EU programs for technical assistance provided a unique base for long-term co-operation between Bulgarian and foreign consultants. Bulgarian management consultants export their services to other Balkan countries (Macedonia and Serbia).
6.2. Czech Republic
The Czech Management Consulting Association was created at the beginning of 90s. Large international consultancies created their branch offices in Prague. These outlets served the Czech and Slovakian markets till mid of 90s.
The consultancy market is devided into 4 segments:
- international companies (70% of turnover of consultancy market)
- Czech companies – members of APP (8%)
- Czech companies – member of NARP (state subvention) (6%) and
- the rest of Czech consulting companies (16%).
The whole Czech market (estimated) 400 miollion EUR.
The czech government (Czech invest) is preparing a Consultancy register for SME support.
MC in Czech Republic is searching for new investment projects and is trying to reach improvement of competitiveness. APP is trying to make a market position of Czech consultancy companies stronger by creating only one consultanca assosiation (register) in the Czech Republic.
6.3. Estonia
Estonia is a leading country in this Baltic region but the culture for consulting is very young. The general moral is not the same as in other EU countries. The economy is developing very fast. Export causes a great need for quality consultants. The price is an issue: “I take what I get.”
3 sectors in MC:
- big companies (KPMG, PriceW: nave officers in Estonia) for big companies
- local companies: technical oriented, having young staff, doing MC, mainly for export
activities
- many individuals (hard to find clients).
Government involvement: finance consulting for export programs (75% of the costs for the export plan is paid by the Governement; 2-3 times a year the government collects companies in groups for 2 days seminars on export planning)
Public procurement: 3 bids are needed.
EKA has 43 members.
6.4. Hungary
The majority of the Hungarian consulting firms, however, belong to the medium- and small-size category, mostly offering specialized services with a clientele coming mainly from among small and medium-sized enterprises.
The most significant representative organization of the consulting profession in Hungary, the Hungarian Association of Management Consultants (AMCH) was established in 1990 and became a full-fledged member of FEACO (Federation of European Association of Management Consultancy Institutions) in 1993. AMCH currently has about 65 member companies, representing almost 1200 consultants.
Hungary has been an associated member of the ICMCI since 1991.The full membership was awarded to Hungary in 1996. The first certification has occurred in 1994. The Institute of management Consultants (UK) had certified six local consultants. Today there are 150 CMC designees in Hungary. The CMC Committees works within the Hungarian Management Consultants Association.
6.5. Latvia
Latvian Association of Business Consultants is a non-governmental organisation, founded in 1995 and has 67 members. The association's members services are:
- HR management (planing, recruitment, development, relationship)
- Economy (Accounting, taxes, investment, insurance, credit management)
- Marketing (Market research, marketing management solutions)
- Organisation's management (management strategy, project management, structural
management, Quality management)
- IT (IT administration, IT tols, software development)
Legal services
- Production and technology.
The main goals of LBKA:
- improve and strengthen standards of professional practice by implementing a Codes of Ethics
- create a link between professionals inside Latvia and abroad for experience and information exchange
- establish relations with various organisations and small and medium scale businesses interested in improving and developing managerial skulls in Latvia
- assist the profession to speak in one voice and become the leading representative of Latvian consultancy profession in local and international institutions.
-
Latvian MC market trends:
- EU Structural funds (Regional development fund, Social fund, Agricultural Guidance and Guarantee Funds)
- Compliance with international standards
- Merging and acquisition
- Legal services
Current activities of LBKA:
- apply for membership in FEACO on mutually beneficial conditions
- implementation of CMC standards
- elaboration of training programs for new and existing MC
- involvment in common EU projects, tenders and consortiums with similar consultants
organisations.
6.6. Macedonia
Management consulting firms in Macedonia add value to domestic and international clients by being able to use their expertise. In most cases the services of management consulting firms financed by international development agencies (World Bank, EU, SIDA, CIDA, USAID etc.)
The Management Consulting Association was established in 1995. It has 10 corporate and 100 individual members. The CMC process was established in 2001 by strong support of the Management Consulting Association (UK).
6.7. Poland
Consultancy has become a very rapidly developing sector. According to SDG, Association of Economic Consultants, at the beginning of the 1990’s the most significant project financing institutions were typically PHARE, the know-how Fund and US funds. Today these sources are slowly vanishing. Their roles are taken by the EU’s projects that finance structural funds, and by the very dynamically developing private sector.
In the structure of the Polish consultancy market the well-known big consultancy firms are represented (with 5-10 consultants), besides them the management consultancy departments of the Big Four auditing and accounting companies (with 20-30 consultants). The number of local companies is estimated to 200-300, and they employ 1-10 consultants.
The general trend of concentration process continues in Poland as well. The number of medium-sized firms with 50-100 consultants has continuously decreased. It is estimated that services worth about 260 million Euro can be sold on the market, and that about 5000 consultants operate in management support.
The Polish Management Consulting Association (SDG) was established at the beginning of 90s. It has 17 member firms, mostly locally owned associations.
The CMC certification was started in 1997. Since then 40 designations have been awarded.
In 2001 and 2002 Polish consulting market faced a deep depression. The second half of 2001 brought significant cutbacks in personnel at the Big Four companies and Polish local consulting firms. Growing numbers of EU related projects, ISO certification and IT assignments can contribute to the recent development of the Polish consulting market.
6.8. Romania
Since the change of the regime potential conditions of bases for modern consultancy have been set up in Romania as well but the development of MC is seriously hampered by the very sluggish pace of privatization, resulting in a lack of state and private purchase power to give the initial impetus needed for building up the consultancy business and market.
The Romanian management consulting market consists of 850 firms and individual players. Within these companies there are 1.800 consultants working, from whom are just 350-400 certified at national and international level. The majority of the big five consultancy firms are represented in Romania but the involvement in the most important problems of the Romanian economy does not represent a relevant impact in the real market.
In addition, some smaller companies, mainly specialized in headhunting and a selection of foreign companies have settled down here. Besides these, there are dozens of small, local consultancy firms operating on the market as well. A local consultancy network has started to develop with government and foreign support.
One of the most burning problems of the consultancy market is the insolvency of clients and low contract fees. Not taking into consideration international projects, local daily allowances are not higher than 130-400 Euro. The concentration process has been continued as the management consulting profession becomes more defined on the market.
AMCOR, the Association of Romanian Management Consultants, was established in 1992 by the initiation of FEACO. The association has 40 membership consultancy companies and 150 individual consultants. The CMC certification was started in 2001.
6.9. Russia
In Russia, according to the estimates of the latest statistics, there are about 400 firms and about 7000 Management consultants; the estimated market amounts to 332 million EURO.
On one hand, the size of the country provides excellent opportunity for large firms to establish offices in Moscow and in the country as well. On the other hand, the missing infrastructure and the low developed transport and logistic circumstances force the international firms to set up their offices only in the capital of the country.
Russia experienced sweeping change during the decade of the 1990’s, and the accompanying changes within business organizations necessitated the adoption of human resource systems, policies, and practices to meet the new challenges. Having made much progress, the question today is the degree to which the management consulting has come of age and what work remains to be done.
In Russia, managers became managers in their everyday jobs, gaining professional experiences. Their motto is, “I know better.” The new generation of managers is more or less familiar with consulting, but they prefer expert knowledge (financial consulting, audit, designing investment programs, etc.), as they see it as more “understandable” and “profitable”.
6.10. Slovakia
After 1993 the majority of foreign consulting firms set up their businesses in the Czech Republic and they still manage their Slovak operations from Prague. Important consulting firms who have their offices in Bratislava and also in other big cities of Slovakia (Banská Bystrica, Košice) are the consulting arms of the Big Five accounting firms.
Management consulting services in Slovakia are mainly provided by small private companies, specialized agencies, banks, broker firms, investment companies, foreign trade organizations, different information centers, trade and industrial chamber, and some of the universities.
Advisory activities for small and start-up businesses represent a specific area of management consulting. Slovakia has several institutions offering consultancy and support to small and medium enterprises. The National Agency for Development of Small and Medium Enterprises (NADSME) and the network of Business Innovation Centers (BIC) and Regional Advisory and Information Centers (RAIC) are heading the list.
6.11. Slovenia
MC is still growing and there is more competition on the MC market. There are more short term oriented projects and more demanding clients in terms of:
- necessity to adapt projects as far as possible to the clients' needs
- high(er) project complexity and level of precision
- demand to hire rather experienced consultants
- pressure on fees.
In last years: more international projects, importance of institutional clients, national institutions (ministries etc.) often act slowly; tenders are too complicated; short time-limits.
The consequences of the joining of EU:
- Raising awareness of impact of quality and references
- Raising awareness of co-operation, networks, alliances
- Creating networks
- Development of new tools, techniques, approaches
- Development of new MC services
- Self training and education
- Search and development of new markets
- Extensive promotion
- Pressure on the institutional clients for a more co-operative attitude
- Creating a lasting (more formal) connection (teams) and co-operation
- MC cluster(s)
- Becoming a key factor in preparation and implementation of development
programmes in regions (within a country)
- Regional co-operation and alliances
- International alliances
- Raising the importance of the service sector in the government policy and practice
AMCOS has 73 members.
7. Member Associations in FEACO from CEE
There are 6 members in FEACO from CEE:
- Poland (SDG)
- Czech Republic (APP)
- Hungary (VTMSZ)
- Slovenia (AMCOS)
- Bolgaria (BAMCO)
- Romania (AMCOR).
Applied for membership:
- Bosnia and Herzegovina (LESPnet)
- Latvia (LBKA) …
8. Maconet
Maconet is the management consulting network of 11 companies from 11 states (Hungary, Slovenia, Poland, Malta, Bulgaria, Romania, Lithuania, Slovakia, Macedonia, Ukraine and Latvia).
Pour Info:
Whoswoo: Janko Arah
Arah Consulting, d.o.o., 1111 Ljubljana, Večna pot 11, Slovenia
e-mail: arah.consulting&eunet.si
Janko Arah
President AMCOS
President AMCOS
Planetecologie.org