Hungarian Management Consulting Industry in Highlights of European

Trends

Dr. György Gonda, member of the Board of VTMSZ

FEACO Conference, Budapest

9 November 2006

VTMSZ in nutshellVTMSZ in nutshell

• Founded: 1990 (VTMSZ, Association of Management Consultants in Hungary)

• FEACO member since 1993, ICMCI member since 1996

• Number of corporate and individual members: 54 + 190

• Number of consultants at member companies: 1300

• Number of CMCs: 180

• Turnover of member companies in 2005: 125 million Euro

• Turnover of the Hungarian MC market in 2005: 251 million Euro (11% growth)

• Contribution to the GDP: 0,29%

• Growth of GDP in 1995: 4,1 %

• Turnover of corporate members represents about 50 percent of the domestic MC market

Flying together with Europe

Growth of MC market turnover (%)

EUROPE HUNGARY

1998 : 15,0 14,0

1999 : 16,0 16,0

2000 : 15,5 15,0

2001 : 11,5 7,0

2002 : - 2,0 1,5

2003: 3,5 -2,0

2004 : 3,7 5,0

2005: 14,0 (8,0) 11,0 (5,0)

Source: FEACO

Turnover per business services in 2005

Total turnover/ Europe: 61,6 bn. Euro

Total turnover / Hungary: 251 mill. Euro

EUROPE (%) HUNGARY (%)

Business Consulting 42,5 58,3

Outsourcing 20,9 0,8

Dvpt. and integration 19,0 4,1

IT consulting 12,3 19,0

Other 5,4 17,8

Source: FEACO, VTMSZ

Turnover per business services in 2004

BY PREVIOUS GROUPING OF SERVICES (%)

Corporate Strategy Services 38,0

Operations Management 37,0

HR Consulting 21,0

IT Consulting 4,0

Outsourcing - !

From the company side

Market share by size of consultancy in Hungary in 2005 (%)

SMALL 35,0 (15,1 in Europe)

MEDIUM 10,0 (28,8 in Europe)

Top 20 55,0 (56,1 in Europe)

Average growth rates by size of consultancy in Hungary in 2005 (%)

SMALL 9,8

MEDIUM 5,2

TOP 20 18,0

Source: VTMSZ

Analysis by client industry

Contribution to turnover in 2005 (%)

EUROPE HUNGARY

Industry 25,1 20,2

Financial Services 20,5 17,5

Public Administration 17,4 11,5

Telecom and Media 9,5 9,5

Energy and Utilities 8,8 23,5

Other 8,3 11,0

Transport and Travel 5,4 3,8

Wholesale and retail 5,1 2,3

Source: FEACO, VTMSZ

Experiences since joining the EU 1

• business as usual in the Hungarian MC industry, no substantial change

• neither Hungarian nor foreign consultants rush to work abroad (market,

language, cultural differences, etc.) non the less opening up the markets

• members of VTMSZ were previously „EU-compatible” too (ethical

standards, CMC, methodologies, client management, etc.)

• EU membership means more assignments for legal advisers, training

companies, firms dealing with application and tender preparation, not

for the management consultants

• number of bunglers, „doctors of miracle” is increasing in the profession

• only few MC project cover more than one EU country

Experiences since joining the EU 2

• few consulting assignments for the EU itself

• income from EU-related consulting assignments in Hungary

is around 1 percent of total, equal the average of

FEACO members

• public procurement procedure is already more controlled and trans-

parent

In the next 5-8 years we expect good, growing market for EU-related consulting since the development of the Hungarian business and technical infrastructure, SMEs, business training, etc. will be co-financed partly by the EU. Local consultants provide more support to the Hungarian applicants in tendering at the EU. The MC industry forecasts boom deriving from the National Development Plan 2. too.

New challenges for VTMSZ and Hungarian MC industry in the coming years 1

1. To get deeply acquainted with the operation and regulations of EU

2. To establish new, EU-related competences to be „exported” to the future member countries of EU

3. To improve the number of consultants with high quality competences and skills

4. Professional support for universities and colleges in teaching and training postgraduate consultants

5. To improve experience in outsourcing

6. To improve outsourcing capacities urgently

New challenges for VTMSZ and Hungarian MC industry in the coming years 2

7. To participate in further improving transparency and extension of public procurement

8. To protect the business and ethical interest of the MC profession against jugglers

9. To strengthen lobby activity at domestic and EU institutions

10. To establish and to operate efficient strategic alliances and cooperation between consultants and key

clients’ institutions (e.g. public sector)

Forecast and main trends in Hungarian MC industry and market 1

10-12 % average growth per year (by the new grouping of services) is expected in the turnover of Hungarian MC sector between 2006-2010

Polarization of market between small and large consulting firms is expected to continue

Main drivers of growth: - EU-related consulting assignments

- public administration and sector

- medium size client enterprises

Forecast and main trends in Hungarian MC industry and market 2

Services with (expected) high demand in the coming years:

•CRM

•SCM

•outsourcing, sourcing, insourcing

•HRM (performance measurement, assessment and management ; compensation systems ; retirement schemes)

•value chain engineering

Forecast and main trends in Hungarian MC industry and market 3

Client industries with (expected) substantial demand for consulting in the coming years:

•public administration and public sector

•financial services

•telecom and media

•energy and utilities

•healthcare

•other services

Conclusions

• the Hungarian MC market is matured with high quality players, with broadly based experience,with sophisticated service and fee system

• MC market and industry reflects similar features to those of industrialized EU-countries

• after joining the EU in the Hungarian management consulting industry „business as usual „, no surprise, no earthquake

• polarization of MC service providers, lack of medium size companies, huge competition

• focus on solution consulting and smartconsulting

•demanding clients, quality is first, depressed fees

• clients expect from consultants to find new profit sources

• VTMSZ accepted new strategy focusing on business, ethical and lobby interests of its members

Questions and answers

THANK YOU FOR THE ATTENTION