Memorandum submitted by Management Consultancies
Association
1. The Management Consultancies Association
is the trade body for the UK's management consulting industry.
Our members must satisfy rigorous entry criteria, which, amongst
other things, require firms to have been in existence for three
years and to prove their financial stability, as well as provide
convincing client references; members also have to adhere to a
strict Code of Practice which demands high levels of transparency
and integrity, as well as a commitment to putting the clients'
interests first and delivering sustainable value. Between them,
our 60 members employ 30,000 consultants, comprise 70%
of the UK's £8.5 billion consulting industry, and work
with 90 of the FTSE 100 firms, as well as almost all
government departments.
2. The consulting profession is home to
a number of firms with global reach, and this is reflected in
the value of services exported by the industry. According to a
recent MCA survey of consultancy firms, our members' exports were
worth £631 million in 2008; this suggests that the industry
as a whole exported services worth just under a billion pounds,
or £901 million. This equated to about 10% of the fee
income earned in the UK.
3. On the whole, consultancies have prospered
of late. The shift towards a knowledge-based economy plays to
their strengths, and an increasingly globalised environment suits
British consultancies well: British firms' close links with both
the American and emerging markets mean that they are well placed
to manage and profit from the flow of new ideas throughout the
world economy. However, there are some areas which would merit
attention to ensure that this success continues. In particular
four issues are worth considering.
— Ensuring and expanding the free movement
of labour (paragraph 4)
— Expanding export credit guarantees to
provide greater cover for exporters of services (paragraph 5)
— Providing reliable information about
future growth trends by country and by sector (paragraph 6)
— Refocusing and better publicising the
role of UKTI (paragraph 7)
4. Consultancies export services, and more
often than not, this means transferring experts from one country
to another for varying periods of time. This trend has been reinforced
by the recent prevalence of delivery models such as off-shoring.
As a result any legislation which facilitates the free movement
of labour is welcome. Although the EU's "Four Freedoms"
have helped, there is still scope for streamlining or improving
the tax arrangements and processes involved in gaining work permits,
especially for non-British employees working in Britain for British
companies, who may then be sent overseas. Outside the EU the scope
for improvement is larger still. In a period of reduced international
trade and growing protectionist sentiment, it will be more important
than ever to ensure that progress made in this area is maintained
and extended.
5. One effect of the downturn reported by
consultants has been a rise in defaults on payments by foreign
counterparties. Although the export credit guarantee scheme covers
"project-related services", and has recently become
more supportive of the services sector, it has historically been
more focused on capital and semi-capital goods. Given the importance
of Britain's services sector, it would be worth extending the
remit of the Export Credit Guarantee Department (ECGD) to provide
more explicit support to exporters of services. In connection
with this, it would also be worth publicizing the Department's
activities more widely, as these are not especially well known.
Unlike its counterparts in Britain's competitor
countries, the ECGD is obliged (by the Treasury) to make a profit.
Whilst this might seem prudent, it means that the ECGD is more
conservative than its international counterparts, providing coverage
for fewer projects in fewer countries, and taking longer to respond
to opportunities in emerging economies, with the result that British
exporters prepared to seek out such opportunities are exposed
to greater risks than their international competitors. Relaxing
the requirement that the ECGD makes a profit would address these
issues, although would obviously require funding at a time when
the public finances are stretched.
6. One problem all businesses—but
especially exporters working in unfamiliar markets—experience
is gaining access to reliable economic data and predicting future
trends. Consultants felt that anything the government could do
to provide such information on a nation-by-nation and sector-by-sector
basis would help them to stay ahead of their global competitors.
The Embassies and High Commissions produce economic data on their
host countries on a monthly basis, but this information is classified.
It would be useful if this information could be made available
to firms operating in foreign markets. The information which is
currently provided under UKTI's Overseas Market Introduction Service
(OMIS) is considered less useful, and also accompanied by a fee.
7. Consultants are not sufficiently aware
of the activities undertaken by UKTI to promote British business
abroad, a fact also noted recently in a report published in March
by the Professional Services Global Competitiveness Group. The
MCA endorses the Group's view that greater efforts to publicise
UKTI's role and activities amongst British exporters of services
would be beneficial, as would involving a larger range of firms
in its activities. For example, there used to be a subsidy to
enable small firms to accompany the Lord Mayor of London on his
visits abroad to promote UK business; this has been cancelled,
but would be worth reinstating. The range of businesses which
take part in these visits could also beneficially be expanded.
A further issue is that, from the point of view
of exporters of consultancy services, UKTI is overly focused on
the Indian and Chinese markets; these are difficult markets for
consultancy, as China has yet to develop significant demand for
consultants' services, and Indian market rates are around a tenth
of those paid in the UK. Exporters of consultancy would welcome
an increased focus on markets which have the means and appetite
to buy consultancy services, such as the Middle East, Australasia,
and North America. At the moment, UKTI's activities in North America,
for example, are more focused on attracting inward investment
to the UK, than selling the UK's services industry.
Similarly, UKTI's efforts abroad are heavily
geared towards promoting Britain's financial services sector.
In the current climate, UKTI would benefit from expanding its
efforts to focus on professional, rather than just financial services.
8. Although some MCA member firms had benefited
from the fall in the value of sterling (ie been able to re-tender
abroad at more competitive rates), most were sceptical of the
value of relying on policies which promoted a weaker pound. Many
consultancies are firms with global reach, so exchange rate fluctuations
often have a greater effect on the local share of their business
rather than its overall volume. Furthermore, in an era of increasingly
globalised supply chains, any gains derived from a weak pound
are offset by the fact that inputs sourced from all over the world
become more expensive as sterling's exchange rate falls.
9. Some additional points of interest were
raised recently by the Professional Services Global Competitiveness
Group. Its report drew attention to the shortage of IT and language
skills in Britain, both of which will be crucial for consultants
in an increasingly competitive international marketplace. The
report supports the inclusion of IT skills on the Shortage Occupation
list, and advises that schools and universities should place renewed
emphasis on language learning. These recommendations should now
be followed up by the Government.
17 April 2009
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