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Britain’s decision to leave the EU brings both opportunities and risks for firms listed in the UK’s Leading Management Consultants.
Brexit means that the UK’s private and public sectors need a lot of outside help as they prepare to cope with the consequences of leaving the single market and customs union. As a result, since the June 2016 referendum, consultancy firms have been hired to advise organisations on a plethora of issues, ranging from supply chain regulation to market access.
On the other hand, consultancies face worrying times themselves as Britain prepares to clamp down on the free movement of citizens between the UK and Europe. For such firms — which rely heavily on highly skilled staff from wherever they can be found — the prospect of new migration barriers poses a risk to the future recruitment of talent.
After a pause in activity in the aftermath of the referendum, Britain’s decision to leave the EU provided a boost. The domestic consulting market grew four times faster than the UK economy in 2016 — up 7.5 per cent to £7.3bn — according to a report by Source Global Research released in March 2017. That was slightly weaker growth than the previous year, reflecting a brief hiatus as companies assessed the economic impact of the EU referendum. But demand picked up later in the year as businesses considered the likely impact of Brexit on their operations.
That surge flattened somewhat in 2017. Business leaders are unsure what Brexit will mean for them as the talks in Brussels become more complex. Many are therefore postponing investment and putting decisions on hold until further notice.
“Clients are caught between uncertainty of outcome and an ever-shortening timescale,” says Alex Woodhead, partner at Baringa Partners, a fast-growing, mid-sized consultancy. “Diving reactively into execution right now risks wasting time, effort and money. Clarity and prioritisation, including a clear understanding of which decisions are dependent upon the negotiations and which can be moved forward, are key.”
That does not mean consultancy work related to Brexit will dry up altogether. Until now, 20 per cent of Brexit-related advice has been bought by the public sector and 80 per cent by the private sector. Once Britain is out of the EU, government-run bodies will begin to need a lot of outside advice.
“You are going to see a huge restructuring in public sector organisations covering areas like customs and immigration while there will also be a need to set up new UK regulators in areas currently covered by the EU,” says Alan Leaman, chief executive of the Management Consultancies Association. “I would expect all that to require a lot of external support and advice for government.”
Another consultant quoted in the Source Global report said: “There could be a need for 3,000 to 5,000 consultants, lawyers and other professionals supporting the government’s Brexit negotiations.”
In Source’s survey of companies that contract consultants, 24 per cent said they were increasing their use of advisers in response to Brexit, and 82 per cent said they expected to call on the so-called Big Four — Deloitte, KPMG, PwC and EY.
“The Big Four will make hay out of Brexit, because of the number of trade agreements that will have to be negotiated,” said an anonymous source quoted in Source’s report.
None of this should diminish the concerns of consultancy firms over what Brexit might mean for themselves. “The UK industry has benefited hugely from free movement,” says Mr Leaman. “It enlarges your talent pool and gives you the flexibility to recruit very specialist skills and knowledge. So fears about immigration restrictions after Brexit happens are top of the list of concerns.”
There are also fears about the potential restriction in the sale of consultancy services to Europe. “Around 12 per cent of fee incomes of firms come from exports to the EU27 so this is a significant market for UK consulting,” says Mr Leaman.
Where he has no doubts is that Brexit, if it happens, will be an important growth area. “Brexit will have an impact on supply chains, the transferability of data across borders, talent issues and much more. This will bring a profound change in our economic life and we are only starting to scratch the surface.”
As a result, he says, consultants are saying to clients that the current period of uncertainty could be very lengthy, and warn that they don’t want to end up being paralysed. “You might wake up one day and find the competition has taken over.”