- Within the TMT sector, the high-tech industry is growing fastest,
- with consulting revenues expected to rise 11%
- Greater regulatory scrutiny is driving consulting demand
- The wider TMT consulting market is forecast to grow 2% in 2020 to just over US$14bn
- However, fee rates are coming under increasing pressure, with clients seeking “COVID discounts”...
Despite a challenging year in which the global consulting market is forecast to shrink by 13%, growing regulatory pressure on the tech giants has fuelled a sharp rise in consulting to the high-tech industry, with revenues expected to rise by 11% to almost US$6bn in 2020.
These findings are published today in a new report from Source Global Research, which also reveals that this strong growth in high-tech consulting has helped the wider TMT sector’s performance, with consulting revenues forecast to expand by 2% to just over US$14bn in 2020.
Regulatory scrutiny for tech giants drives work
Risk & regulatory work continues to be a key driver of consulting demand in the high-tech industry as tech giants find themselves coming under increasing scrutiny, and moving into the sights of regulators. For instance, the CMA are planning new guidance to clamp down on tech giants giving away their products for free. At the same time, organisations have been seeking support to deal with the changing international trade landscape, as they look to avoid falling foul of the rapidly changing rules around what can be sold, and to whom. Consultants have also benefited from organisations looking to rapidly expand and repackage their offerings as a result of the COVID-19 pandemic.
Gordon Tucker, Managing Director and Global TMT Industry Leader at Protiviti, said:
“Risk & regulatory work is one of the key areas we’re looking at as a growth market. The EU has led in this area, but in the US there’s growing regulatory focus on the largest technology companies. One can sense the movement towards a more regulated market. Overall though, this sector is going to face an increase in global regulatory scrutiny in the years to come.”
The large telecoms industry is expected to fare well in 2020, with forecast consulting market growth of 10%, thanks in part to the resumption of the 5G roll-out once the initial firefighting of the pandemic eased. In stark contrast, the media industry has had a torrid year. Consumer behaviour has changed in a hugely significant way, and as such, advertising revenues in the industry have fallen, leaving organisations with much lower consulting budgets. As a result, Source forecasts that consulting revenues will shrink by a massive 38% and are unlikely to return to 2019 levels even by 2024.
Martin White, Senior Analyst at Source Global Research, said:
“High-tech and telecoms organisations are particularly well-placed to help people through the crisis: Businesses and individuals are looking to telecoms and technology to provide remote working solutions, and companies like Zoom are far from just a business conference call service now. Of course, some businesses in these industries have seen revenues fall as some customers cut their spending, but there are clearly growth opportunities out there.”
Demand for deals expertise remains strong
The deals market is very buoyant, as high-tech companies in particular look for bargains to extend their reach in existing markets and seek opportunities to break into new markets. Organisations in the TMT sector are more likely than those in other sectors to be thinking about expansion; many high-tech and telecoms clients have seen rising revenues as a result of the crisis, and as such have more money to spend on acquisition strategies. For these organisations, the pandemic presents an opportunity to capitalise on the acceleration of changes in consumer behaviour.
Peter Mercieca, Global Chair for Media & Telecommunications at KPMG, said:
“A lot of that work [M&A] is being generated by a combination of private equity and their ongoing interest in the high-tech world. There are a lot of opportunities in that space that companies are going to want to take advantage of.”
Fee pressure ramping up
Clients in all sectors have been putting pressure on consulting fees, and the TMT industry is no different, with media clients particularly bullish in looking for “COVID prices”. TMT clients are more likely than clients in other sectors to expect the price they pay for consulting services to fall as a result of the pandemic (42% of TMT clients said they expected falls, compared to 36% in other sectors).
Martin White concluded:
“Compared to other sectors, a higher proportion of TMT clients tell us that they already have the expertise required in-house but lack the capacity. In other words, they’re using consultants for body-shopping, rather than for their expertise, and they expect lower fees as a result.
“Firms that can convince clients that they can provide expertise as well as capacity may be better placed to maintain their price levels.”
For more information on Source reports contact
lindsay.stark@sourceglobalresearch.com, telephone +44 (0)20 3478 1204, or visit
www.sourceglobalresearch.com.
