What (or where) next for the German consulting industry?

Growth is slowing in the German consulting market.  Having been the most reliable engine of growth for consultants in Europe in the last five years (other markets have sometimes grown more, but have been less dependable), there are signs that growth this year may be 2%-3%, rather than the 6% we saw in 2013.

The economy is partly to blame.  German executives are cautious people – a typical response to the possibility of further euro zone problems is to have not just one contingency plan, but several (“We have Plans C to Z, as well as Plan B,” was how one person we spoke to put it).  And the situation in Russia and Ukraine has inevitably made matters worse: recent official figures suggest that German exports to Russia fell by just over 15% in the first half of the year.  Although these exports are only 3% of the total, a continued fall could still cost as many as 50,000 German jobs, economists have calculated.

While we’re not suggesting that the German consulting market is going to contract in the short-term, it would seem sensible for German consulting firms to develop their own Plan Bs (or Cz to Zs).

The first thing they might do is look at how other firms in other countries have dealt with the situation.  Generally – and here we’re looking at the lessons from much more extreme situations, in Spain, for example – three strategies stand out.  You can diversify; you can shift to contingent-based fees; and/or you can focus on areas where there is stronger economic growth (clients only buy consulting services when they have money to spend – the idea that consultants make money from a downturn is unrealistic for anyone outside the corporate restructuring/recovery space).

Diversification will be a challenge domestically.  If there’s one thing that stands out about German clients it’s their deep-rooted passion for expertise and the idea that a specialist firm will suddenly branch out into other services really cuts across the cultural grain. Even taking the skills earned in one industry and applying them to another will be difficult here.  German clients are more cautious than their counterparts in the UK and US about linking fees to deliverables, so it’s unlikely that this will be a viable strategy unless you’re a firm working in an area where the results are very easy to measure and have a business model which is almost entirely built on performance-related payment (so you know what you’re doing and your clients know what to expect).

The big opportunity for German consultants is to export their services to other markets.  If anything, clients elsewhere are starting to aspire to DACH levels of expertise and industry-based knowledge.  The whole wave of interest in simplification (a point we’ve touched on before in this market) gives German consultants a head start in what could be an important and lucrative consulting market.  What would Indian or Chinese manufacturing companies not give to learn from the world’s most experienced manufacturing consultants?