Brazil and Beyond: The Evolution of Management Consulting in Latin America

For management consulting vendors, the challenge in Latin America in 2014 and 2015 will be sustaining revenue growth as competition increases and macroeconomic pressures loom. While Brazil featured …

Patric Heffernan, Principal Analyst, TBR

For management consulting vendors, the challenge in Latin America in 2014 and 2015 will be sustaining revenue growth as competition increases and macroeconomic pressures loom. While Brazil featured prominently among most vendors’ successes in 2013, investments, concerns and developments across the region mirrored global management consulting trends: acquisitions aligned to industry, emerging technology as a lever and/or pull through, and talent management troubles. TBR anticipates by 2015 only a few consultancies will have adequately managed their way to sustained growth in the region.

We have a hold over the major segment in the Americas region, especially in Brazil. We are adapting both organic and inorganic investment methods, implementing more manpower in the untouched regions and looking to invest in acquiring firms. Our management considered investment as an opportunity that comes up with various growth perspectives. So, we are adapting those perspectives [to] try to convert our deals into numbers.” — Director of a management consulting practice in Latin America

Three Markers

In the second half of 2014, TBR will use these three, easily measurable markers to assess which management consulting vendors are performing well and are strategically positioned for success in 2015:

1) Brazil’s macroeconomic performance: Although disruption can be profitable for consulting in the short run, any sustained downturn will dampen long-term revenues for management consultancies in the region.

2) Industry-specific acquisitions: As consultancies increasingly differentiate on industry expertise globally, acquisitions centered on energy, retail or healthcare will indicate where vendors anticipate near-term growth.

3) New offices: Although a simple indication of investment, new offices do provide a measure of “boots on the ground” that goes beyond alliances or even partnerships, which can sometimes be more about public relations than substantive commitment.

Investments, operations and performance

TBR’s recently published 4Q13 Management Consulting Benchmark included data and analysis around services vendors’ activities in Latin America:

  • BCG has recognized it has a weakness around presence in Mexico, limiting the firm’s ability to attract more clients and leading it to invest in growing its operations there. In contrast, McKinsey’s established technology consulting practice in Mexico enables the firm to focus on one of the consistent challenges for all players in the region: retaining top talent. Most notably, IBM invested $17 million into a new cloud data center in Bogota, Colombia, to build the company’s cloud delivery capabilities in LATAM. While data centers do not fit into TBR’s taxonomy around management consulting, IBM’s recently formed Strategy and Analytics practice makes it clear the company intends to tie emerging technologies, including cloud, with its strategy consulting offerings. Within Latin America, this approach should resonate well as clients look to more rapidly adopt new technology. Overall, management consultancies reported investments and interest in Mexico, Chile, Colombia, and, most notably, Brazil.
  • No country drew more attention than Brazil, with Accenture and EY the most aggressive players. Accenture recently acquired a majority stake in a Brazilian mortgage processing company and, like the example of IBM and its data center above, TBR expects Accenture will pull additional management consulting work through this financial-services-centric asset. Also in Brazil, EY noted 24% corporate revenue growth in FY13, reflecting the firm’s continued investment and success in the country. While that corporate growth includes audit and tax, EY Brazil’s management consulting practice made significant contributions. Nearly every other Management Consulting Benchmark vendor cited Brazil as a growth market, with specific verticals frequently mentioned, including energy, financial services, healthcare and retail.

Talent, Taxes and … Brazil

Even with across-the-board management consulting growth in Latin America in 2013, vendors face three tough challenges:

  • Every vendor echoed the following sentiment from a management consultant in Brazil: “I think for [Vendor X] this factor of employee career development and retaining talent has always been a concern and one of the most important things to look after. We continuously innovate our policies to keep pace with the requirements of the employees. We are providing them special incentives, rewards and recognitions, conducting fun at work activities, and also providing them with training programs to foster their career development.” Aside from finding the right talent, at the right price, in the right location, with the right skills, vendors are compelled to provide “special incentives” and make work “fun.” All management consultancies will remain challenged throughout Latin America to navigate the talent market and perfect recruit-and-retain strategies.
  • With low labor rates, the challenge sometimes shifts from talent to taxes and regulations. Vendors complain that restrictions around hiring and firing, in addition to high tax rates, dampen their ability to scale up quickly to meet client demands. In addition, management consultancies say unpredictability — especially in Brazil — contributes to being more cautious than necessary. The vendors’ complaints, however, are standard for multinational companies operating in emerging markets and at least slightly discredited by the vendors’ actions in the region. As one consultant remarked, “As this geographical region has more resources and has comparatively low labor rates in its market, we are investing in setting up various business units in this geography to capture [a] new client base and attain desired growth for our business. We are able to attain [a] year-on-year growth rate of about 21 to 22%.”
  • Finally, Brazil’s recent relative success in hosting the World Cup underscored both the potential and the risks that come with global attention. After a bubbly, excitement-filled summer, a substantial downturn in Brazil’s economy would severely dampen near-term revenues and long-term growth across the region. As discussed above, the best-positioned vendors are the ones growing footprints outside Brazil such as IBM and McKinsey.
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