By Edward Haigh.

So, the consulting market’s bifurcating between high-value traditional consulting work and low-cost commoditised work. You’ve probably heard us banging on about that quite a lot recently. It’s creating a big challenge for consulting firms who are forced either to choose between what feels like two increasingly distinct markets, or to attempt the trickier challenge of operating in both.

Turns out the Germans have something of an innovative solution to this particular dilemma: they give the low-cost bit to another country.

One of the data points that feeds our Market Attractiveness Index (published as the last part of our Strategic Planning Programme every year) is average revenues per consultant. It’s a useful measure of how consultants in one country compare with those in another in terms of their ability to drive revenue into their firm. But every time we publish our ranking we end up having to explain why we’ve awarded such a high score to the DACH region (of which Germany is by far the biggest part, of course). It’s not that the average strategy consultant in Germany generates more revenue than their counterpart in the UK. In fact it’s not that any type of consultant working in Germany earns more than their counterparts elsewhere. It’s that there’s a big part of the German market that’s basically missing. And that’s the low-cost bit. So average revenues look far higher than they do elsewhere.

There are two parts to this story. One is about demand: German clients are more resistant than their counterparts elsewhere to the idea of the generalist consultant. Their strong preference is for specialists who can come into their organisation and tell them something they didn’t already know. That’s not to say that they don’t have a need for more commoditised services, it’s just that they’re not as likely as clients elsewhere to go to the open market for them. Indeed, another hallmark of the German consulting market at the moment is the extent to which clients’ own internal consulting divisions feature so prominently. Many consulting firms talk about internal consulting divisions being their biggest source of competition.

The other part of the story is about supply: In most parts of the world, while the natural instinct of a management consultant leads them to lean towards choosing the high-value part of the market, the lure of the low-cost but high-volume part of the market can be hard to resist. Sure, fees may be lower, but you can book out big numbers of consultants for months on end, and over the course of a financial year the end result can be more lucrative. The Germans – and it’s important to stress that we’re generalising here – tend not to see things that way. Low-cost isn’t really their thing.

That’s all well and good, but we’ve always struggled to believe that there isn’t more demand for low-cost services in Germany than there is supply (even taking into account internal consulting divisions), and that the bit of the market that’s missing must exist in some form somewhere.

Well, we’ve found it! It’s in Eastern Europe. Germany benefits more than any other major Western European consulting market from having a major labour arbitrage opportunity on its doorstep in the form of a large, well-qualified, culturally familiar (German-speaking), and relatively cheap pool of Eastern European talent, and our growing impression is that it’s making pretty extensive use of that talent pool. Indeed, it’s rare that we have a conversation with a German consultant these days in which near-shoring doesn’t get mentioned.

What they’re excited about, of course, is not only the arbitrage opportunity (which may not be quite as significant as it is through offshoring to somewhere like India but is still attractive, and gets round some of the concerns about quality associated with India) but also the chance to have access to people who can work on site with clients when needed. After all, if your client’s in Munich they’re just as close to Bratislava, Prague or even Budapest as they are to Berlin.

The question is how long it can last. Much rests on the willingness of Eastern European consultants to stay where they are (in Eastern Europe) while someone else benefits from the arbitrage, rather than simply up sticks and move to Germany in search of a higher salary. All of which sounds eerily familiar…