Market Updates | 15th October 2021
The pandemic is accelerating the pace of change right across the professional services sector, amplifying pre-crisis trends as well as triggering entirely new ones. We’ll be keeping tabs on these over the coming months: We’ll be reporting back on what clients are telling us and how we see different segments of the professional services sector perform, as well as highlighting emerging opportunities and challenges. As always, we’ll be taking a fact-based approach. Our market sizing data comes from our unique model of the professional services sector, with more than $1tn of revenues broken down by sector, geography, and capability. Our forecasts are constantly updated to reflect the latest market data we have available from firms and their clients. Client data comes from our rolling programme of quantitative research and interviews.
The Central & South America professional services market: In a permanent state of “recovery”?
Economically and socially, South America has been one of the worst-hit regions of the world during the pandemic. Already fragile healthcare systems collided with political populism to create a chaotic environment in many countries last year. Demand for professional services—always regarded as something of a luxury by all but the biggest South American businesses—suffered as a result. What then, are the prospects for 2021-22?
Data we’ve gathered from major buyers of consulting services over the last few months provides a snapshot of how client organisations think they’ve been impacted by the crisis. On average, across 12 major geographies, half say they’ve been negatively impacted by the crisis, 13% say that it had no material impact on their business, and 36% that it had a positive impact. “Impact” here isn’t simply seen in financial terms: Certainly, rising or falling sales is a major factor, but so too is the extent to which organisations have been able to retain customers, collaborate more effectively with suppliers, and demonstrate they have strong and effective leaders. Against this average, clients in South America1 tend to be significantly more negative: Sixty-five percent said that the crisis had had a detrimental effect on their business, worse than any other region except the UK (where we think clients’ views were influenced by other factors, such as Brexit).
This is supported by our figures for the Central & South America professional services market. Growth in the region was already weak before the crisis: around 6% in 2019, compared to 8% globally. The pandemic resulted in a 10% contraction in the overall professional services market in 2020, which, although less severe than originally feared, was still bad enough to ensure that Central & South America was the worst-performing region last year, and indeed, its performance was significantly worse than the global contraction of 6%. The 11% growth predicted for this year is faster than we expect in Europe and Africa, but there is the caveat that both of these markets suffered less during the crisis.
Theoretically, it’s not so much how far you fall, but how fast you bounce back that matters now—and here the picture is mixed, especially when we look at it on a country-by-country basis.
Brazil is by far the largest professional services market in the region, accounting for a third of total revenues. It was also one of the worst-performing individual country markets globally last year, so it’s not surprising that we’re forecasting 11% growth there this year. However, Mexico’s market—the region’s second biggest—didn’t suffer so badly during the crisis (we estimate a 5% contraction), but is set to grow at a similar rate to Brazil, boosted less by pent-up, post-crisis demand and more by its relationship with the US economy. In Argentina, the other substantial market in the region, the growth trajectory is closer to that of Brazil.
All this translates into regional growth of 11% in 2021, in line with the global average. But at this point the picture becomes less positive: Growth in 2022-24 is expected to be around one point lower than the global average. The problem here is that weak underlying economies in the region are likely to be exposed to fragile global supply chains and rising costs, and that will make it hard for businesses in the region to invest. Without innovation and investment, increases in demand for professional services will be modest at best and clients will be exceptionally price-sensitive. A senior partner we interviewed some years ago in Brazil likened the Brazilian economy to a chicken flight: short, unsuccessful, and accompanied by a cacophony of clucking. It seems likely that the post-pandemic recovery will be similarly spasmodic.
1We surveyed senior executives in Argentina, Brazil, Chile, Columbia and Peru.