The analysis of tradability for major consultancy service products, and the implications in terms of modes of internationalization for consultancy firms, provide a few central themes that may serve as background for policy formulation related to this area in developing countries. These themes may be summarized as follows:
• Many developing countries have only recently started to build up a domestic consultancy service industry, even as these types of service prove increasingly vital to economic growth and international competitiveness in a globalized world economy.
• In the short term, the tradability of consulting services is therefore not likely to impede the growth of an existing consultancy industry in most developing countries, but rather may act to enhance the growth of a competitive domestic consulting industry.
• In the longer-term perspective, however, the potential for trade in consultancy services implies more vigorous competition in both international markets (where competitive pressure has already been growing in recent years) and domestic markets. For engineering consultancy firms, this development implies that firms operating in national markets must gain competitiveness through investments in skills and information technology in order to maintain a sizeable share of the market. These skills and facilities are also important for accounting and management consultancy firms; but here the tendency is for connections to international sources of expertise, for example via association with one of the large transnational firms, to become very important even for maintaining a position in national markets.
• With increased competition in most domestic markets for consulting services, and as the barriers to entry into international markets are gradually lowered, it will be increasingly necessary for consultancy firms to identify niches for attaining a competitive position in home markets and for the purpose of generating exports of their services. In some respects, a strategy for specialization in areas of particular competence - fostering a position in international networks as a “centre of excellence” - will become an even more important avenue to exploitation of tradability of consulting services.
• The mode of internationalization adopted by management and accountancy consultants has emphasized the delivery of services abroad via the establishment of local partnerships or affiliates. In the engineering consultancy industry an important approach to entering international markets has been to establish project offices or to create consortia with local partners to undertake specific tasks. The importance of partnership and similar forms of local representation implies that the concern with proprietary rights and protection of competitive assets still inhibits transactions on the open market, e.g. outsourcing of vital components in a consultancy project.
• The growing importance of standardized elements in the production of consultancy services, including conceptual models and gathering of information in shared databases, is providing large firms and international partnerships with an opportunity to integrate and allocate work done in various offices.
Against this background, the policy measures that can be proposed for consideration relate primarily to the need to facilitate the training of skilled personnel, improved access to the relevant information technology and communications infrastructure, and the improvement of conditions for joint ventures, partnerships or other forms of localization of consultancy services in developing countries. Recommendations may also be formulated that apply more specifically to one of the consultancy industries examined in this volume (UNIDO, 1995).
1. Development of human resources
The consulting business is firmly based on the skills of its employees. The spread of advanced information technology in many cases has accentuated the skill requirements and broadened them to include qualifications associated with the use of computers and communication networks. For this reason, the training of new graduates from institutions of higher learning in the three areas discussed in this volume is essential for building up local consulting industries. Personnel for management consulting and accounting are usually recruited from business schools, while engineering consultants generally receive their fundamental training in technical universities. To the extent possible, these types of education will have to be enhanced in order to allow a continuous supply of people with adequate basic training.
In reality, however, the educational institutions in most developing countries are already hard pressed to supply graduates with the basic qualifications. Consequently, a strategy for the development of a human resource base for consulting in these countries will often have to take into account the benefits of training that foreign consulting firms may offer as part of joint ventures or other forms of FDI. In the case of some of the large international accounting and management consulting firms, for instance, participation in standardized training courses is required for all new employees. Moreover, on-the-job training for local employees in affiliates is an integrated component of establishment in overseas markets for major consulting firms. With increasing frequency, employees from local offices in developing countries will also be assigned to work in other countries of their region or in the home country of the consulting firm. Individuals or groups that develop skills in connection with such assignments abroad may prove an invaluable asset for raising the level of competence in the consulting industry in developing countries.
In many respects, a policy framework for facilitating the growth of a consulting industry, and its export potential, in a developing country therefore involves support to two vital human resource development areas simultaneously. On the one hand, it requires a strengthening of general educational standards relevant for consulting, such as the education of engineers or accountants; on the other hand, there is a need to encourage more specific training in specialized skills that are directly related to practising as a consultant. While the former type of area of support necessarily involves a long-term perspective and relies to a significant extent on the expansion of public educational institutions, the latter can often be achieved within a more immediate time frame and will usually comprise private sector investment. For many local affiliates and independent firms in developing countries, the possibility of participating in international projects and sending staff to work abroad provides a unique and valuable opportunity to acquire the kind of practical skills needed to remain competitive in the new environment of liberalized economies.
In formulating a policy concerning capability building in these industries, it is also important to consider the relative differences between the time perspective and the sources of competence. In accountancy and management consulting, local staff can be trained within a relatively short time, and staff mobility will often be high. In the engineering consultancy industry, however, the necessary qualifications of consultants may take a longer time to create, and the effects of exposure to on-the-job training may be more important.
Labour mobility becomes an important factor in the development of skills for consultants, both with respect to the inward flow of highly skilled foreign consultants who may contribute to training of local consultants (e.g. as part of FDI) and with respect to the possibilities for nationals
from developing countries to acquire on-the-job training abroad. Government regulations in these areas of interest should be as flexible as possible.
2. Improving access to information technology and communications
With the diffusion of advanced information technology and the increased reliance on data communications and shared data resources, the threshold of information technology and communications infrastructure requirements for entry into the consulting business has been raised in recent years. To exploit the opportunities that the tradability of certain consulting services offers, the offices of consultancy firms in developing countries should have access to reliable telecommunications links, possibly on dedicated lines. There is also a need to upgrade the infrastructure of firms in terms of computer hardware and software. For management consultants, these investments in information technology may be moderate in comparison with the requirements for accounting firms. The software and the hardware needed to become engaged in trade of engineering consultancy services are, however, much more substantial, as the costs of current CAD programs and workstations capable of handling detailed design work - despite the continuing trend towards lower prices of electronics components - may represent a large proportion of annual revenue for many firms.
Some of the facilities provided by the Internet - particularly, new standards for exchange of data files and other information - may prove to be very helpful in enhancing the access of consultants in developing countries to international networks. Although there obviously remain both commercial and technical bottlenecks to the full exploitation of Internet resources in many developing countries, it is likely that this form of interconnection with service providers and clients in international markets will be vital for the development of business in many developing countries.
3. Improving the business environment for foreign service providers
The importance of the conditions for maintaining proprietary rights concerning intellectual resources and products associated with the delivery of consulting services, and the establishment of local affiliates or partnerships as the prevailing means of delivery of services abroad, implies that developing countries will have to facilitate FDI in these industries. The tradability of consulting services is often utilized to link the quality level of services provided locally in developing countries to the provision of components developed in the home countries of major international consulting firms. In many instances, this type of linkage may lead to an upgrading of capabilities in local offices; for some tasks this process would encourage centralization of work procedures and leadership, while for others it may gradually reduce dependence on the inputs from the home country. In the longer-term perspective, such linkages may facilitate exports of services.
It may be necessary to strengthen the role of national Governments, national associations and international or regional bodies in facilitating the involvement of domestic consultancy firms in projects launched by public organizations, occasionally by means of preferential policies. It is already common in many countries to require that domestic firms be involved in projects financed by international donors or by financial institutions such as the World Bank. In view of the impact that information and telecommunications technologies are likely to have on the tradability of consultancy services, it is also relevant to highlight the importance of taking steps
• Improve access to international telecommunication networks to enable domestic consultancy firms, or affiliates of international firms, to participate effectively in consortia related to projects overseas;
• Facilitate investment in information technology for domestic firms in areas vital to the provision of core consultancy products for each of the three industries, e.g. basic and detailed design in the engineering consultancy industries;
• Encourage and facilitate the entry of domestic consultancy firms into joint ventures and consortia for projects in domestic markets as well as for overseas projects, for instance through the provision of financial guarantees enabling these firms to acquire working capital for training and R&D;
• Facilitate FDI and the establishment of local affiliates of major engineering consultancy firms;
• Support the identification and enhancement of niches of competence related to specific sectors or products for domestic engineering consultancy firms with a view to developing export opportunities.