Challenges facing UAE's small and mid-sized consulting firms

30 August 2021 6 min. read

In a new report, Botho Emerging Markets Group has honed in on the UAE’s small to medium-sized consulting industry – a ‘black box’ for many as the segment is typically excluded from the market research reports of major analyst houses.

The GCC’s consulting industry is estimated to be worth around $3.3 billion, according to the latest data from the British analyst firm Source Global Research. The UAE boasts one of the largest consulting industries in the region, by value, second to Saudi Arabia. Between 2016 and 2019, the UAE consulting industry grew by 12% (higher than the average growth rate across the GCC), and following a slump in pandemic-hit 2020, the market is currently on a healthy rebound.

The market sizing used by Source Global Research is based on fees generated by large consulting firms. The work delivered by small and mid-sized consulting firms is excluded from the analysis, in part due to the wide variety of players with less than 20 or so consultants and staff.

According to ConsultancyME’s database, the UAE is home to between 200 to 300 small and mid-sized consulting firms – firms that typically fall off the radar in most market sizing exercises, but that collectively play a key role in shaping the consulting industry’s services to clients and its developments.

The Majority of Surveyed SCFs have fewer than 10 Employees

To gain deeper insight into this segment, Botho Emerging Markets Group (a consulting firm that advises investors, companies, and governments on growth in emerging markets) surveyed 40+ UAE-based small and mid-sized consulting firms and conducted six in-depth qualitative interviews with both consultants and buyers of consulting services, asking them to share their views on their business and operating models, the challenges and opportunities they see in the market, and more.

The 32-page report by Botho Emerging Markets Group outlines several interesting findings, three of which are:

The big brand edge in boardrooms

Clients in the UAE place significant emphasis on the brand name and management reputation of firms, resulting in larger firms dominating the market. According to Botho’s report, consumers of consulting services interviewed revealed that their management and board of directors strongly prefer working with larger firms in lieu of smaller, boutique consultancies. These same views were echoed by consulting firms, which revealed that international and state-backed organisations are less open to working with smaller firms.

Demand for consulting services by industry

“Our company is very budget-oriented and we always prioritise the most cost-efficient option. When working at the company level, we often work with boutique firms with whom we’ve developed good relationships. However, when our board of directors are involved, they strongly prefer working with a larger well-known firm to give credibility to the project,” said a Senior Analyst at a UAE-based technology firm.

In light of this, smaller boutique firms find it difficult to break into these circles and win over large private and public sector clients. Results from Botho’s survey demonstrates similar sentiments – over half of the respondents cited brand recognition, limited business networks, and steep market competition as challenges they have faced in their business development efforts in the UAE.

Covid-19’s impact

The Covid-19 pandemic had a significant impact on small and mid-sized consulting firms, but cross-cutting issues include movement limitations, lack of working capital, general employment issues and corporate restructuring, as well as changes in leadership and decision-making.

Business areas of surveyed SMCFs most affected by Covid-19

Movement restrictions and reduction in financial flows significantly affected the consulting industry in the GCC. Considering that many firms use the UAE as their regional base for projects originating in other markets, border closures and grounded flights meant that consultants could no longer travel to their clients’ sites. Inability to meet in person, transitioning to remote work, and supply chain disruptions affected operations severely, with nearly 50% of respondents impacted, says the Botho Emerging Markets Group report.

To counter the fallout in demand – consulting services are often seen as discretionary spending and cost-cutting efforts by clients resulted in lower demand for consulting services – many consultants have begun to offer their services at a significant discount just to stay afloat.

Across the board, nearly 40% of consulting leaders surveyed reported negative cash flow, the need to invest in new sales and communication channels to boost business development efforts, and having to switch to a success-fee-based payment structure with their clients. “As a result, small and mid-sized consulting firms have had to revise their business model, with roughly 40% needing to renegotiate employee contracts and restructure corporate mandates,” states the report.

Financial areas of SMCFs most affected by Covid-19

Changing landscape

The report highlights that the UAE’s consulting industry is – similar to what is seen in other parts of the world – undergoing a transition. “While navigating a global pandemic, consultants are coping with shifting client expectations, the threat of technological innovations, and competition from both established firms and disruptive business models,” according to the analysis.

Despite these challenges, the authors conclude that “there is far more room for small and mid-sized consulting firms to successfully carve their own position than existing data and anecdotal evidence would suggest.” The top performers could even become “a source of disruption themselves” in terms of their business model or area of expertise.