Accounting firms surpass $2B in consulting revenue in China
The consulting practices of accounting firms saw their revenues increase 15.9 percent in 2018 to surpass $2 billion for the first time ever, reaching $2.1 billion, according to a new report.
The report, by Source Global Research, found that accounting firms now generate more than a third of all consulting revenues in China.
China’s overall consulting market rapidly grew 13.4 percent last year to nearly $6 billion. But the consulting arms of accounting firms, dominated by the Big Four, continued to outpace the overall market. Despite slowing GDP growth, clients continued to need support to respond to government reforms and market disruptions such as threatened tariff increases. They also sought advice on how to expand domestically and overseas, and make the most of changing consumption habits by China’s increasingly affluent middle class.
The report found that accounting firms continued to make the most of their variety of services that stretch well beyond consulting. Their strong reputation for navigating regulatory change was also a benefit during a period of significant government-led reforms and regulatory changes.
“Access to global knowledge bases and ideas and solutions from other markets remains a strong selling point for the accounting firms, particularly among multinational corporations,” said
Source Global Research editor Ashok Patel in a statement. “And their appeal to China’s state and privately owned enterprises, was given an additional boost by firms’ efforts to revise their organisational structures in 2018, creating a more effective platform for them to expand their China operations and capture even more work.”
The share of digital consulting work continued to grow in China, accounting for 22 percent of all revenues earned. The growth in digital work was especially high in China’s financial services sector, where consulting revenues reached $2.24 billion in 2018, with digital work comprising $464 million of that total.
While consulting firms recognize the need to maintain fully staffed local offices filled with local talent, that isn’t easy to do. One challenge of working in a still-maturing market is the scarcity of legacy talent — older, experienced consultants who can fill senior roles. Consulting has yet to establish itself as a widely desirable career, so younger talent can be hard to come by, with China’s current crop of bright young talent more likely to be attracted to entrepreneurship and tech startups.
“In the last four to five years, our business has more than doubled in size,” said Reynold Liu, head of management consulting at KPMG in China, who was interviewed for the report. “At the same time, the consulting industry has to pay more to retain talent, and that’s eating into our profitability. However, we are correcting this by growing our asset-based revenues.”
“The Big Four dominate in this part of the world,” said Xuong Liu, managing director and Asia practice leader in the Transaction Advisory Group at Alvarez & Marsal, who was also interviewed for the report. “In more developed markets there are a whole host of platforms that have been set up by professionals that maybe came out of the Big Four and are growing into major firms, together with boutiques and in-country only firms. That has not really started in China.”
The Source report predicts that strong growth will continue in China’s consulting market and accounting firms will lead the way with revenue growth estimated at approximately 16 percent in 2019 and 2020.
“‘Fit for growth’ is a growing theme in the market,” said Shirley Xie, China and Hong Kong consulting leader at PwC China, in the report. “Companies are seeing the possibility of an economic slowdown on the horizon and they want to make sure they ’re fully prepared, so they’re asking us to help them be fit for growth so they can remain resilient in light of developments with the wider economy."