The Chinese consulting market outpaced growth in the wider economy in 2014 - expanding by 8.1 per cent to almost $3.2billion. However, with key sectors for consultants looking sluggish, the consulting market is expected to grow more slowly in 2015 (6 per cent) before picking back up again to about 8 per cent growth in 2016.

These findings are published today (10th November 2015) in a new report from Source Information Services (Source). The report says that while the level of growth recorded in 2014 would herald a blockbuster year for nearly any Western consulting market, many consulting firms are disappointed that China’s once gravity-defying economy is now settling into a more moderate phase that is frequently referred to as ‘the new normal’.

The report, which is based in part on interviews with consulting firm leaders during the summer of 2015, found that the slowing economy and recent volatility in the stock market don’t seem to trouble clients and consultants in China as much as they trouble financial journalists. In fact, some consulting firms are reporting an uptick in business as clients are eager to seek their help in making necessary adjustments for continued success in an environment of slower growth.

B.J Richards, Senior Editor at Source Information Services said:
“Headline growth of over 8 per cent is very respectable, and while some foreign-based multinationals are hesitant about China at the moment, demand from Chinese clients is growing, and is seen by many as the most important part of the consulting market for the future. Hot topics for these clients are globalisation, growth, and competitiveness, all of which plays into the hands of global consulting firms, which have plenty of experience in these areas. However, while consultants may have the skills these clients need, convincing them to shell out for such services can be quite the trick.”

State-owned enterprises on hold - private businesses take advantage
Consulting to state-owned enterprises (SOEs) is particularly tough at the moment. The government’s anti-corruption campaign is making many clients nervous and unwilling to kick off new projects. However, consultants recognise that the transformation of SOEs presents a major long term opportunity, as the government pushes for these organisations to be more subject to market forces.

While SOEs tread water, privately-owned enterprises (POEs) are stepping up to take advantage of SOE’s troubles and are calling on consultants for help. POE clients are highly ambitious, keenly interested in growth, professionalising operations, and transformation for the future. The report says that as these businesses become bigger players in China’s economy, they’re becoming a bigger opportunity for consultants, too.

Sarah Butler, Managing Director, Strategy& added:
“Chinese clients are thinking about how they go global, their operating models and governance, innovation and their strategic direction.”

The challenges for consulting firms
Regardless of whether a client is state-owned or a private enterprise, there are challenges facing consultants serving the domestic market in China. Perhaps the biggest is convincing relatively immature clients of the value of consulting services and the corresponding price tag it should command. On top of price pressure, some consultants report difficulty getting paid in a timely fashion. The other major challenge affecting consultants in China is finding and retaining talent. Firms need both global and local talent - talent that is increasingly attracted to the high-tech sector over management consulting.

Digital surge fuels technology service line growth
The technology service line grew faster than the market as a whole, expanding 9.1 per cent to $714million in 2014. Consulting work around digital technology is mostly focused around e-commerce and customer experience, although there are rapidly growing digital businesses (like Alibaba and Xiaomi) that have fully embraced new technology. Many clients are using consultants to figure out what digital means for them, although some consultants report a certain head-in-the-sand mentality from more traditionally-minded clients. The report says that the digital tide is only going to keep swelling, so consulting firms are focusing on building their reputation and skills in this area to serve the early adopters and to be ready with the services the rest of their client base will need when they’re ready.

Evolving banking sector drives financial services
China’s largest sector, financial services remains a buoyant market for consultants, growing by  8.1 per cent to almost $1.2billion in 2015. Source reports that clients are getting into the five year planning cycle and thinking about strategic direction, and continued reform of the financial sector generates demand for services around productivity and efficiency.

Grace Chen, Managing Director, Greater China, at Hay Group said:
“The main trend in the financial sector is that they're transforming from a very traditional model - traditional banking with branches and local offices - to one that's much more focused on online platforms and services.”

B.J Richards concluded:
“The Chinese consulting market is likely to see a smaller growth rate in 2015 as the market adjusts to slower growth and rides out some volatility, but we think it’s likely to pick up again to about 8 per cent in 2016. Given the size of the opportunity in China, many consultants are taking the long view, confident that investment now will bear fruit in the future.”

For more information on Source reports contact alice.noyelle@sourceforconsulting.com or telephone +44 (0)20 3700 5462 or visit www.sourceforconsulting.com.