Indian consulting services industry: Time for a new playbook?

The Indian consulting market has grown significantly over the years, both in terms of size and the range of services provided. This positions it well in the global management consulting services market, which was valued at $316.5 billion in 2021, and is projected to reach $811.3 billion by 2031, growing at a CAGR of 10.2%.

However, Indian firms still find it considerably challenging to compete with larger consulting firms. Going forward, they must be ready to embrace digital transformation, sharpen their niche capabilities and explore new growth areas. Furthermore, it is essential to strengthen the framework of the Indian consulting industry by embracing innovation, nurturing talent, improving the quality of consulting services, and enhancing consulting skills.

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Consulting as a service is a relatively new sector that came up around the late 19th century when the world’s first modern consultancy firms were founded, The need arose as business started to move away from simple trading and traditional products to sectors that called for specialized knowledge in setting up, maintenance and growth. The global management consulting services market was valued at $316.5 billion in 2021, and is projected to reach $811.3 billion by 2031, growing at a CAGR of 10.2% according to Allied Market Research.

The consulting industry in India is growing at a fast pace and soaring towards new horizons. In recent years, the demand for specialist consulting services has been immensely sought by Indian customers and foreign customers. According to SEPC, the FDI equity inflow for the consultancy services industry in India reached a new milestone of US$ 1.05 billion in FY 20, out of total investments of US$ 8.7 billion between April 2000 and March 2023 (DPIIT). Additionally, India’s exports of professional and management consulting services was US$ 36.95 billion in 2021-22.

India’s consulting services export trends in 2021-22
S. No.	Sectors	Exports Value
1.	Professional and management consulting services	36,955
a.	Legal services	1,051
b.	Accounting, auditing, book-keeping services	1,753
c.	Business and management consultancy and public relations services	21,301
d.	Advertising, trade fair service	4,507
e.	Architectural services	416
f.	Engineering Services	7,666
g.	Tax consulting services	261

Source: RBI (Values in US$ million)

This industry has seen substantial growth, not only in terms of size but also in terms of service offerings. Today there are over 47,000 Indian consulting firms that offer a wide range of services, including IT consulting, engineering consulting, manufacturing consulting, and healthcare consulting. In 2021, consulting services revenues saw double-digit growth in all sectors with an overall market growth of 15.2%, according to Source Global Research, rebounding quickly from the pandemic-led crisis.

Currently, there are about 6,000 consulting firms in major cities, with Delhi accounting for 25.7% of all firms, followed by Mumbai (25.5%), Chennai (12.1%), and Kolkata (9.1%). There are around 7,888 R&D institutions and laboratories supporting several domestic consultancy organizations directly or indirectly at a reasonable cost.

Image source: Department of Science & Technology

This fast growth of this sector in India is largely attributable to improved investment activities because of the low-cost structure, entry of many big players into the Indian market, and relaxation of previous FDI restrictions. With its talented professionals, diverse expertise, and cost-effective solutions, India continues to attract businesses seeking consulting services. As the industry evolves, Indian consulting firms are well-positioned to drive innovation, deliver value, and shape the future of businesses across sectors.

Despite the expansion of consulting organizations, the size of individual firms is growing in response to another industry trend. Consulting firms that are unable to compete on size are trying to fulfil the client’s requirements by outsourcing their projects to another firm while maintaining responsibility for the overall project.

Challenges for the Indian consulting industry

In the present, mirroring the challenges faced by firms worldwide, consulting firms and consultants in India may struggle with changes in everything from fields to scopes to methodologies and even the way clients are approached and reports prepared. Some of the more pronounced challenges the industry now faces include:

• Competition and differentiation: The biggest challenge for Indian consulting firms is to compete with large global players in the market. There is a need for Indian consultancy sectors to define their specializations and differentiate themselves.
• Client expectations: Client expectations have evolved, demanding more tangible and  data-driven results from consulting projects. Meeting these expectations while  balancing practicality was a challenge.
• Increasing use of technology: Firms rely more and more on tools and technology to analyse market trends. There is less reliance on one-on-one consulting. The majority of online consultations are free, which discourages businesses from hiring consultants on a paid basis.
• Global and local economic uncertainties: Economic fluctuations, both globally and  domestically, impacted client spending and project budgets, making long-term  planning and stability a challenge.
• Talent acquisition and retention: Acquiring and retaining skilled consultants posed a  challenge due to the demand for expertise in emerging technologies and specialized  domains. Competition for top talent was intense.

According to Ravi Raina, Director at Grail Consulting Services, “For middle-level consulting companies like ours or even smaller companies, the environment is not really conducive within the country. There is need for strong support coming from the government in promoting this kind of service through a clear cut policy. And Big 4 consulting firms have 85-87% market share because of the resources they have. They are able to capture the projects and market. Smaller and medium-sized companies do not have that kind of reach.”

A strategic roadmap for growth

The Indian consulting industry is growing rapidly, and there are a number of strategies that can be taken to promote further growth in the coming years. Here are a few key strategies:

• Embrace innovation: The consulting industry is constantly evolving, and firms that embrace innovation will be better positioned to succeed. This means investing in new technologies, developing new methodologies, and creating new ways to deliver value to clients.
• Nurture talent: The Indian consulting industry is facing a talent shortage, so it is important to nurture the talent that is available. This means investing in training and development, creating a positive work environment, and offering competitive compensation and benefits.
• Improve the quality of consulting services: The quality of consulting services in India is variable, and firms that want to grow need to focus on improving the quality of their offerings. This means having a strong understanding of the client’s needs, providing clear and concise recommendations, and delivering results that meet or exceed expectations.
• Enhance consulting skills: The consulting industry is highly competitive, so it is important for consultants to have the skills and knowledge that clients are looking for. This means staying up-to-date on the latest trends, developing strong analytical and problem-solving skills, and being able to communicate effectively with clients.
• Focus on niche areas: Firms need to focus on niche areas where they can develop a competitive advantage instead of trying to maximise their reach across segments. This could be a particular industry, a specific functional area, or a particular type of consulting service.
• Expand into new markets: Since the Indian consulting market is still relatively small, there is an opportunity for firms to expand into new and promising markets such as Southeast Asia or Africa.
• Partner with other firms: The consulting industry is becoming increasingly collaborative, so it will be fruitful for firms to partner amongst themselves to share resources and expertise. This could involve forming joint ventures, alliances, or strategic partnerships.

Deepali Nath, CEO of Changescape Consulting says, “By providing the necessary support, such as regulatory reforms, skill development initiatives, and incentives for research and development, the government can create an environment conducive to the growth of the consulting services sector. This, in turn, would lead to increased exports, job creation, and economic prosperity for the country.”

Let’s explore: Consulting industry in the age of Generative AI

Generative AI has the potential to make consulting more efficient, effective, and creative. As technology continues to develop, it is likely to play an increasingly important role in this industry. Here are some of the specific benefits that generative AI can offer:

• Enhanced data analysis: Generative AI can help consultants analyze massive datasets and discover hidden patterns, correlations, and trends. This can be used to identify new opportunities, improve decision-making, and mitigate risks.
• Automated tasks: Generative AI can automate many of the tasks that are currently performed by consultants, such as data entry, analysis, and report writing. This can free up consultants to focus on more strategic and creative work.
• Personalized insights: Generative AI can generate personalized insights for clients, based on their individual needs and circumstances. This can help clients make better decisions and achieve their goals more quickly.
• Improved creativity: Generative AI can help consultants come up with new ideas and solutions to problems. This can be especially valuable in complex and uncertain situations.
• Enhanced communication: Generative AI can help consultants communicate more effectively with clients. This can be done by generating presentations, reports, and other documents that are tailored to the client’s needs and preferences.

Organisations are being pushed to adopt innovation by disruptive change waves, and generative AI is widely seen as a revolutionary force. Businesses that can quickly adopt this technology will be able to access opportunities with previously unheard-of business value.

Consulting companies are in charge of steering this transition because of their knowledge and ongoing participation in advancing the innovation agenda for their customers. In order to assist customers in transforming the way they do business and incorporate Generative AI into their own working practices, consultants must fully grasp the great potential of this technology.

Being on the cutting edge will open up company value channels that were formerly thought to be far away. It is undeniable that Generative AI has immense potential, despite the fact that the technology is still in its infancy and has its limits.

Way forward

Anand Dewan, Gr. CEO at BYLD, while interacting with IBT, opines, “To promote the growth of the Indian consulting services industry, the government could consider implementing measures such as skill development initiatives, startup support and innovation hubs, regulatory reforms, industry collaboration platforms, data privacy and security regulations, incentives for research and development, promotion of export of consulting services, ethics and transparency guidelines, digital infrastructure development, industry recognition and awards, research and knowledge sharing initiatives, and government-industry partnerships.”

He added, “These measures aim to enhance skills, foster innovation, simplify regulations, encourage collaboration, ensure data security, incentivize research, promote global expansion, uphold ethics, improve infrastructure, recognize achievements, share knowledge, and foster collaboration between the government and industry associations. Implementing these measures effectively can contribute to the growth and development of the Indian consulting services industry, making it more resilient, innovative, and globally competitive.”

There is no doubt that the industry in India is making its mark and achieving new records all across the world. The need of the hour is to make an action plan to exploit the tremendous potential available for growth of the consulting market. Simultaneously, they must be ready to embrace digital transformation and explore new growth areas. ESG is a case in point which is expected to grow at a CAGR of 25% between 2020 and 2025. Also, it is essential to strengthen the framework of the Indian consulting industry by embracing innovation, nurturing talent, improving the quality of consulting services, and enhancing consulting skills.