Whilst small professional services firms remain in the majority, many of the businesses that dominate the sector have successfully realized growth in volume and complexity through geographical expansion. Whether organically or through M&A, they have successfully sought out new opportunities abroad and committed to creating genuine in-country presence overseas.
Diversity as a defense mechanism
To have the best chance of surviving into the medium to long term, diversification can be an important part of the corporate strategy – not just in terms of the services and expertise that you’re able to offer, but with respect to physical location as well. With every country experiencing problems of some kind, not to mention the introduction of new measures and regulation to try and repair the damage, spreading an operation across borders can be an effective way to manage the risk and uncertainty associated with any one region or set of evolving legislation.
Fertile ground for M&A
In the period following 2008, most western economies have seen a significant drop in demand for consultancy and other professional services. As belts tightened, the appetite for hiring external experts for major projects had to be decreased. Handle it in-house, wait or forget. While successful services companies changed their priorities and business models to adapt to the changing environment, many either didn’t survive this drop in demand, or were led into significant downsizing. This in turn provided new opportunities for the stronger businesses. Healthy companies with cash in the bank or continuing access to finance could put M&A firmly on their strategy radar. Absorbing or joining other businesses provided an effective route for companies to achieve international growth, strengthening their position by spreading potential risk over multiple markets.
International reputation a valuable asset
Firms that can source the investment needed to achieve this expansion often find an immediate advantage in tendering for work against smaller domestic companies. The prestige associated with running an international operation can be a key differentiator in competing for work with local only companies, particularly if customers have international ambitions of their own.
Green shoots sprouting from the ashes
In addition to the new opportunities that are appearing as Europe evolves out of the crisis, the rest of the world also offers niches for services companies willing and able to offer services overseas. The BRIC countries, for example, are showing a thirst for ‘Western’ knowledge. Domestic enterprises are luring companies in to benefit from their experience as they look to capitalize on new markets filled with expanding businesses. German car manufacturers starting up joint ventures with Chinese automotive companies is one example, the learnings of a mature multinational the key to enabling these local operations to continue their impressive growth curves .
Both parties benefit with such an approach, the western company able to gain valuable penetration in a new sector. The local knowledge gives them a head start in overcoming the challenges associated with breaking new ground, whether economic, social or cultural. They get an open door to the economies actually achieving and maintaining growth.
Emerging markets showing signs of maturity
Whereas this was initially only interesting for manufacturing and wholesale businesses, the rapid development of these markets has now made it compelling for services businesses. The relatively young companies who have excelled there are now in need of experienced management, accounting and legal advice. The combination of local presence and international experience from a trusted foreign brand can be a powerful sales tool with prospective clients. And with most of the emerging markets having invested heavily in education over the last decades, why not benefit from highly skilled individuals who are able to deliver excellent quality for a fraction of the cost associated with western professionals.