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Consulting boom

Consulting firms enjoy boom as pandemic drives new business strategies

By Mar 24, 2021 (Gmt+09:00)

Consulting firms enjoy boom as pandemic drives new business strategies

Slightly more than a year since the COVID-19 pandemic upended the business world, the role of management consultants has become important more than ever.

While many Korean companies are still reeling from the impact of the crisis, they are seeking a way out of the economic slowdown with new business strategies.

According to the consultancy industry on Wednesday, consulting firms are enjoying a boom, witnessing the highest demand for advisory services in two decades since the dot.com fever swept the industry in the early 2000s.

Corporate requests to boost management strategies have been growing particularly in the fields of environment, social and corporate governance (ESG) projects as well as digital and contactless business models.

“Our company’s consulting-related budget has increased 30% compared to pre-pandemic levels,” said an official at LG Electronics Inc. “We’re conducting a project to work out a strategy for the post-COVID era.”

SK Hynix Inc. has been getting advice from a consultancy over ESG and digital transformation since last year.

CONSULTANT-TURNED-CEOs

Boston Consulting Group (BCG), Bain & Company and McKinsey & Company – the big three consulting firms operating in Korea – recently began hiring more staff to meet rising corporate demand.

McKinsey Korea has increased the number of its consultants to 150 from around 100. BCG and Bain & Company plan to hire more consultants from their current 200 workers, respectively.

One consulting company said it has already met its full-year order target. According to an executive at another consulting firm, “sales and orders at the big three have all increased by more than 30%.”

Graphics by Jerry Lee
Graphics by Jerry Lee

Some Korean companies are even hiring leading consultants as their chief executives. This phenomenon is noticeable in the retail industry where non-contact business models are a new trend.

Kang Heui-seok, chief executive of E-Mart, is from Bain & Company, while Lotte Mart CEO Kang Sung-hyun was previously with BCG.

“From business restructuring to reorganization of supply networks, distribution channel diversification and employee outsourcing, the retail industry requires broad management services from consulting firms,” said an industry official.

HIGHER DEMAND FROM DIGITAL MARKETING

South Korean beauty giant Amorepacific Group changed its marketing strategy after advice from consulting firm Idea Group last year.

Amorepacific Corp. unveiled new products under its luxury brand Laneige through Wadiz, Korea’s largest crowdfunding platform, instead of using conventional distribution channels.

Industry watchers credit the pandemic with triggering the latest boom in the consulting business.

“Digital marketing is one of the areas witnessing a surge in consulting requests. What’s important in digital marketing is flexibility and agility. That’s what they want from corporate consulting,” said a local consulting firm official.

Some companies are getting management consulting on their M&A attempts.

“CEOs often embark on aggressive restructuring and a new business push after talks with outside consultancies,” said an executive at a Korean conglomerate.

Consulting firms enjoy boom as pandemic drives new business strategies

CHANGING CONSULTING FEE STRUCTURE

Accounting firms, which used to provide companies with financial accounting services, are also looking to the growing management consulting market.

According to the Financial Supervisory Service, 185 local accounting companies saw about 1.3 trillion won ($1.15 billion), or a third of their 3.92 trillion won in combined revenue, come from management consulting services.

Accounting firms are particularly focused on ESG consulting, according to industry officials.

Consulting contract types are also changing, making it easier for companies to sign consultancy deals.

An increasing number of consulting firms are offering a success fee agreement -- a contingency agreement stating a fee will be paid if the outcome of the consulting service is positive. If the outcome is not positive, then there is no obligation to pay the fee.

This kind of fee structure was previously common in the investment banking industry, whereby the investment banking team operated on a success fee basis.

Write to Hyung-Suk Song and Jun-ho Cha at click@hankyung.com

In-Soo Nam edited this article.

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