Electoral uncertainty combined with the weak economy impacted the Brazilian consulting industry’s performance in 2014, and 2015 doesn’t look much better…

A new report from Source Information Services (Source) has found that the Brazilian consulting market experienced its weakest growth for many years in 2014. Year-on-year consulting growth has been falling steadily in Brazil, down from 8 per cent in 2012, to 5 per cent in 2013, and 1.7 per cent in 2014, with the market now standing at a value of $1.27billion.

The report says that clients held off spending on consulting in 2014 in the hope that the October elections would resolve the political and economic uncertainty plaguing the market. Instead, uncertainty continues, the economy barely grew, and corruption scandals hit both business confidence and faith in the government.

The Source report revealed that consulting clients in manufacturing, retail, and consumer goods are cash-strapped as domestic consumption slows. Also, several crucial industries – energy, mining, construction, and infrastructure – have suffered a double hit of plummeting commodity prices and the Petrobras scandal. As a result, many companies are slashing consulting spend, and Source estimates that the market is likely to shrink 2 per cent in 2015.

Alison Huntington, Senior Analyst at Source and author of the report said:
“Brazilian business is no stranger to a downturn. Over the last twenty years, growth has taken off, looked strong, and then crashed back down again several times. While companies may be accustomed to dealing with fluctuating GDP growth, this recession looks to be the deepest and longest for some time. Among the large emerging markets, only Russia is expected to do worse this year, according to the International Monetary Fund. This is quite a fall from grace from Brazil’s prime position as investors’ favourite just a few years ago.

This economic backdrop is making Brazil a very tough market for consultants, as clients hold onto their cash, waiting to see how much worse things will get.”

Time for efficiency, productivity, and cost reduction
The Source report explains that despite the gloomy economic climate, there are some positives. Some clients see the present economic climate as a time to get serious about efficiency, productivity, and cost, and foreign investors are buying up assets and companies while they are cheap. What both actors share is a commitment to a long-term future in Brazil, and that’s driving some consulting work around strategy and technology as clients think about how to best position themselves for the eventual upturn.

As clients adapt to survive, so too are consulting firms. The report says that they are now exploring different pricing models, digital offerings, and opportunities beyond Brazil’s borders to help maintain profitability during this difficult time.

Despite economic issues, financial services is growing
Though it was a difficult year for consulting in most industry sectors, demand in financial services remained relatively robust, growing 4.6 per cent in 2014 to $389million. However, consulting in the energy and resources and manufacturing sectors - the second and third largest consulting markets in Brazil – did not fare as well.

Carlos Gatti, Head of Advisory at KPMG in Brazil, told Source why the financial services sector continues to grow: “Cost reduction, new technology, and cyber are all big drivers of work in the financial services sector. But there's also a lot going on that's related to the customer experience. Banks are trying to work out how to deal with customers in different geographies.”

Efficiency drive leads to growth in operational improvement
With the market focused on cost cutting and efficiency, the report highlights that operational improvement was the fastest growing service in Brazil in 2014, expanding 3.2 per cent to $367million. Silvana Machado, Managing Director at A.T. Kearney told Source: “Most work last year was related to operational efficiency and optimisation. Clients want to know about cost reduction, better allocation of capital, and how they can spend the money they have more wisely. It's not that they're not investing - it's that they want to make sure they're making the smartest investments possible.”

Alison Huntington concluded:
“There’s even more uncertainty in the market than there was last year: with calls for the president’s impeachment, key executives awaiting criminal hearings, and high exposure to China’s faltering economy, investors are still holding back the funds Brazil so desperately needs. Unfortunately, we think consultants are in for a tough year in 2016, too. Some clients are pinning their hopes on 2017 as the year the economy will recover. Until then, many will struggle to justify the cost of consulting and will look to reduce spend where they can.”

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