Estonian Consultancy Market Study - Summary of the Report Presentation 13 March 2015

Estonian Consultancy Market Study for EBRD

Civitta / 13.03.2015

Presenter: Marko RilloCo-authors: Ander Ojandu & Mario Luik

2

Data collection for the study

• Quantitative research:• Survey of n=104 (114) respondents, included the PSFs

in the following sectors (sent to 524 firms):• Accounting, advertising, architecture, auditing, construction service,

engineering, export and import consulting, finance advisory, IT consulting, management and HR management consulting, marketing, patent consulting, productivity and quality consulting.

• Desk research of annual reports of consulting firms and Estonian Statistical databases.

• Qualitative research:• Focus group discussions and a number of face-to-face

and phone interviews with larger public sector buyers and consulting & training service providers.

3

Respondents overview (n=104)

19891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220130

2

4

6

8

10

12

Year of Establishment of the Firm

1 2 3 4 5 6 7 8 9 100

5

10

15

20

25

30

Client Base

1 2 3 4 5 6 7 8 9 100

5

10

15

20

25

30

35

Income Base

1 2 3 4 5 6 7 8 9 100

10

20

30

40

50

60

International Revenues

10 firms:

80% intl.

4

Consultancy firms – key ratios and turnover

  2011 2012 2013Number of firms in operation among respondents 107 110 112Total turnover of the firms (EUR) 72,096,824 69,736,318 69,565,389Total number of employees employed by respondents 1,193 1,162 1,169Averge turnover of firm 673,802 633,967 621,120Median turnover of firm 148,000 153,814 200,000Average turnover per employee 60,433 60,040 59,508Estonian GDP Per capita (ppp) 9100 9500 9800

1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

1715

24

16

12

68

6

3

22

15

21

17

10

79

7

3

22

14

2018

15

6

9

6

3

Respondents' Annual Turnover 2011-13

Series1 Series2 Series3

5

Size of firms and expansion plans

We do not need additional staff

We need up to 2 additional consulting staff

We need up to 4 additional consulting staff

We need more than 4 additional consulting staff

0 10 20 30 40 50 60 70

58

46

3

6

Expansion Plans

1 < 9 < 49 moreat least 2 < 10 < 50 <

0

10

20

30

40

50

60

70

20

52

30

5

22

54

30

5

18

63

27

5

12

63

33

5

Size of Firms - Number of Employees

2011 2012 2013 2014 projection

6

Estonian consulting sector is cosy and stableLifestyle consulting, many service a few clients / year

• Majority (81/104) are micro firms - less than 9 employees.

• More than half (58) do not plan to recruit! Only 9 firms plan employing 4 or more staff. Two of them already employ more than 50 consultants.

• A fragmented history of M&A, some divestments:• 1999: Acquisition of EM International with

EBS Group into EBS Juhtimiskoolitus;• 2008: Acquisition of Noman by BDA

Consulting, partial divestment in 2012;• 2005: Acquisition of Businessgrain and

Deloitte, full divestment in 2009;• 2014: Merger of Innopolis and Advisio into

Civitta Eesti.

7

Sectors –Estonian firms employ generalists

Manufacturing and servicesOther

ICTFinance

Municipal environmentProperty and tourism

Legal reformPower and Energy

Energy and resource efficiencyTransport

AgribusinessNatural resources

Nuclear safety

0 10 20 30 40 50 60

5442

3330

2929

2221

2020

1610

0

12345678

0 5 10 15 20 25 30 35 40

2136

1117

125

38

Number of Sectors per Firm

8

Functional specialization

Organization, general management and change managementHuman resource management

EU structural fundsMarketing

Finance and investmentsOther

Support to SMEs and SME financeSales

Information technologyEngineeringAccounting

Corporate GovernanceExport and trade finance

LegalProduction

International public sector

0 10 20 30 40 50 60

5540

3531

2828

2423

1817

16161616

114

1234567

0 5 10 15 20 25 30 35 40 45 50

4523

157

95

9

Number of Specializations per Firm

9

Membership in professional organizations

• Most are critical about professional organizations.

• Positive notes about training and collaboration opportunities.

• Seen as a potential vehicle for internationalization.

• Most organizations do not fulfil this role up to their expectations.

5

2917

6

How Useful is Your Professional Organization?

Very beneficial BeneficialNot very beneficial Not beneficial at all

Association of Information Technology and TelecommunicationsAccountants Union

Marketing Communication Agencies UnionTraining Companies Union

Board of AuditorsAssociation of Quality

Bar AssociationAssociation of Architectural and Consulting Engineering Companies

Service Industry AssociationConsultants Association

OthersNot a member

0 10 20 30 40 50 60

1234445

914

1919

49

Membership in Professional Organizations

10

Support of Enterprise Estonia and Chamber for Commerce and Industry

7%

42%

37%

14%

Feedback to offered services and supportive activities

Very beneficial

Beneficial

Not very beneficial

Not beneficial at all

Expectations:• More training programmes, and

more appropriate service delivery• Networking activities, but not the old

style "coffee and snacks", but more involved – e.g. facilitated discussions, workshops

• Proactive role towards building the capacity of consulting firms and support to create consulting cluster

• Careful about them trying to do the work of consultants

11

Interest towards international work and countries

• Top countries of interest: Finland (21), Sweden (12), Ukraine (12), Latvia (11), Germany (8), Lithuania (7), UK/England/GB, Norway, Byelorussia (6), Russia, Moldova, Georgia (5), Armenia, USA, Denmark (4).

• Also: Belgium, Croatia, Serbia, Switzerland, Vietnam, India, Kazakhstan, Romania, Oman, Uganda, Hong Kong, Turkey, Italy, Poland, Bhutan, Indonesia, Dubai, Afghanistan.

31%

13%

12%

17%

28%

Interest towards international work

Private sector

Public sector

International organizations

No preference

Not interested

24%

32%

19%

8%

17%

Interest working with development institutions

Very highHighAverageLowVery low

12

Interest towards international sectors

Other: public sector reform, studies & analyses in social sciences, project management, biotechnology, graphic design, software design, communications, tourism, construction, services for start-ups

Nuclear safety

Natural resources

Agribusiness

Legal reform

Transport

Energy and resource efficiency

Municipal environment

Power and Energy

Other

Finance

Property and tourism

ICT

Manufacturing and services

0 5 10 15 20 25 30

0

7

8

10

11

12

13

13

16

17

18

21

26

Experience in development contextCheaper labour costs

Strong referencesInternational network

Specific know-howQualified staff

0 20 40 60 80100

742

4952

6586

Self-Perceived Competitive Advantage Internationally

13

16 respondents confirmed that they have previous experience of working with development institutions:

No experience

EBRD

World Bank

EuropeAidAsian Devel-opment Bank

European In-vestment Bank

0 10 20 30 40 50 60 70 80 90

85

13

10

4

2

2

• 6 firms with active experience and 5, with first steps to start international development work.

• There have been 3 companies, who have been very active (dozens of times in shortlists, winning bids) and 3 reasonably active

14

Development of consulting skills, training approach and self-financing

On the job training

Internal training in company

Umbrella organizations

Universities

Other consultancies

Local training providers

Foreign training providers

Project financiers

0 10 20 30 40 50 60 70

64

52

40

28

22

35

40

28

Relying on Training Provided by

76% or more11%

51-75% of cost13%

26-50% of cost31%

1-25% of cost40%

Nothing5%

What proportion of training cost would you bear yourself?

Enterprise Estonia KAP

15

Training topic interest

Gender

Direct revenue-earning municipal services

Project procurement for construction works

Resource efficiency

Training on FIDIC or equivalent

Energy efficiency

Environmental policies

Monitoring and Evaluation

Public procurement

Corporate governance

Institution building

Information & communication technologies

How to write a winning proposal

Advanced project management

EU structural funds training

Training on opportunities of development insti-tutions

Business development

0 10 20 30 40 50 60

1

2

5

6

7

11

11

11

13

16

20

26

27

29

29

32

56

Final conclusions and recommendations

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Estonian consulting market in general

• Estonian organisations are slow to engage consultants• Esp. companies of local owner-managers have do-it-yourself

culture – consultants come after first trying and failing.• Larger organizations, public sector, companies with international

management, new start-ups and younger generation have a more proactive track record of relying on consulting.

• Comparatively – Latvia, Lithuania, Finland and Sweden use much more consulting service

• Vicious circle – leads to lack of competition between consultants and no push to innovate and focus. Hence, prominent firms bring "real specialists" of "proper consultancies" from abroad

18

Conclusions - Macro level in Estonia

Estonia –findings

• Estonian legal and procedural framework for doing business locally received high assessment.

• Most tenders do not have minimum turnover requirements. Therefore, given previous experience, the entry barriers are virtually non-existent.

• Estonian state eProcurement integrates the whole public sector into electronic bidding system providing one-stop full overview of all bids - procurement and appeals process work in a transparent and effective manner.

Estonia –conclusions

• One issue pointed out by some as a strength, by others as a weakness is lack of consultant certification mechanism, which makes it difficult to differentiate between poor and good consultants.

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Conclusions - Macro Level Internationally

Development work - findings

• Estonian firms have not shown interest in projects of a size above 200 000 EUR.

• Regulatory or procedural constraints• Minimum turnover and headcount requirement. E.g. 50

employees and annual turnover beyond 5 MEUR.• Only 3 Estonian consulting firms meet 5MEUR 50

employee criteria alone.

Development work – conclusions

• The main solution for working internationally is to join the consortia and to combine the references either alone or preferably through an umbrella organization (such as Estonian Consultants Organization or alternative).

20

Conclusions – Meso Level

Estonian consultancy associations - findings

• The consultants are expecting a number of services, e.g. for:• Professional development and training;• Networking and communication for peer interactions;• Creation of consortia for international bidding.

• Consulting service clients are looking for a database of consultants or a first-stop shop to search for expertise.

• Current organizations are considered inadequate for both.

Estonian consultancy associations - conclusions

• Professional organization's role to join the forces of individual Estonian consulting firms to bid together.

• A central database of consulting providers and consulting marketplace might be useful.

• If any one of the associations would be chosen as a counterpart for development work, they need capacity building support.

21

Micro Level – International Work"International work? Yes, absolutely! But not me!"

• Primary limitation for international work at individual level is the requirement for long-term full-time on-location service provision for experts in most international projects.

• The most successful consultants in Estonia are family people in the age bracket of 35-45 years of age, who are not willing to take up long-term assignments in target country.

• Therefore – if the international institutions are willing to relax their requirements for long-term in-country work, a number of highly qualified experts would be very interested in international tasks would increase substantially.

22

Questioning: "(Stereo)typical Estonian Consulting Firm"

• "My farm, my family, my tools, my way!"• 90% are careful and happy - do

not want to grow nor expand• Learning by doing• The smaller the firm, the more

specializations and sectors

• Turnover per employee 60'000 EUR

• Two clusters of firms:A) Projects of 500 – 3'000 EURB) Projects of 2'500 – 20'000 EURThe max project size: 200'000 EUR

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Conclusions – Micro Level

• A precursor – a specialized training programme for consultants, specifically targeting the topics of 1) development institutions, on 2) advanced project management and 3) on how to write winning proposals would increase the skills of consultants to work in international context.

• International work requires complete rethinking of consulting business models. From lifestyle generalists to efficiently operating specialists!

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Report Commissioned by the EBRD and lead by Civitta Eesti AS team

• Ander Ojanduander.ojandu (at) civitta.com+372 521 3987skype: anderojandu

• Marko Rillomarko (at) markorillo.com+372 504 0260skype: markorillo

• Mario Luikmario.luik (at) civitta.com+372 55 598 316 skype: mario.luik