BrazilLatin America's consulting industry faces hit due to Coronavirus
The global consulting industry is expected to feel the impact of the Coronavirus, as economies across the world prepare for a possible recession. For Latin America’s consulting sector, analysts expect a dip of 19% in revenues over the course of this year.
Latin America’s anticipated dip will take the value of its consulting sector from just over $5 billion to just over $4 billion, which is a significant loss, although it is marginal in its impact on the global sector. Latin America’s consulting sector constitutes approximately 4% of the global market, driven by Brazil, which is the region’s largest consulting market.
The $1 billion loss of value in Latin America’s consulting sector pales in comparison to some other regions across the globe, with North America expected to lose $12 billion, or 15% of its revenues. Europe is expected to take a staggering 28% loss of just under $13 billion, while the Middle East and Africa will see falls of 18% and 14% respectively. Asia-Pacific will remain the most resilient market through all this, expecting a loss of 12%.
Globally, the consulting sector is expected to take a $30 billion hit over the course of this year. The Coronavirus is a global pandemic that has claimed 11,000 lives worldwide by World Health Organisation (WHO) estimates, prompting a lockdown of borders and businesses.
Aside from the devastating loss to life, the pandemic has caused unprecedented disruption to global economies, ranging from disruptions in supply chains to a major cutback in spending, among other repercussions. While the exact economic impact is quite near impossible to quantify, Source Global Research has made a brave attempt to assess the damage to the consulting sector. Losses to the consulting sector stem from projects either being downsized or outright canceled in light of a spending crunch.
According to the model, which is based on Source Global Research’s metrics to define the consulting industry, the global $160 billion consulting sector will drop by just under 20% to reach a value of $130 billion this year. This is not only the result of the current barriers to revenues, but also of poor renewal and project retention activity as expected over the next two quarters.
The model draws on responses from consulting firms across the globe, who anticipate a poor second and third quarter for 2020. On the upside, consulting firms also expect that the sector will make a strong recovery after the summer, when the worst of the situation is expected to pass.
The researchers however emphasize that these figures are still very speculative at this stage, given that they represent the unprecedented pace of changes in the current environment. What can be said for certain is that there will be significant repercussions, which will vary by region and sector, among other factors.
The sector-specific variations depend on the impact of the virus on each industry and the nature of consulting work required. The healthcare sector, for instance, has its hands full at the moment with combating the virus and is likely to have far less resources to collaborate with consultants on the delivery of change.
As a result, healthcare is in a high risk sector for the consulting industry, with an expected 28% loss in revenue. A dip in oil prices is likely to bring a similar resource crunch for the energy & resources sector. With Latin America’s crucial natural resources sector and the consequent engagement of advisory services, this scenario presents a red flag for consulting firms in the region.
The business services sector also finds itself in high risk. The manufacturing and public sectors are also in the high-risk zone, although the long-term nature of projects in these fields might mitigate the risk to some extent. The financial services sector, meanwhile, will be in high demand in the wake of this crisis, which might minimise the inevitable fall in revenues for the sector.
Business type also plays a key role in the risk factor. For instance, projects in the tech space are long-term and draw substantial investments, which makes them less likely to be cancelled. Latin America’s budding Industry 4.0 environment and the role of advisory firms in this regard is a reassuring position in this context.
Meanwhile, advisory services that require presence at a client’s site are likely to suffer, while those that can be handled remotely will be relatively more secure. On the whole, businesses with significant scale, resources and brand value are likely to pull through in this time, while smaller firms might find it more challenging.
