Consultancy in Denmark – 2016 trends and predictions for 2017

Jesper Nybo Andersen
14 December 2016

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Denmark

As 2016 draws to a close, Jesper Nybo Andersen looks at what has happened in Danish consultancy over the past year, identifying challenges for 2017 and beyond.

The market for consultancy in Denmark has been characterised by a slightly rising trend that has large differences between sectors; that is the continuing decline in the national environmental market. 

Since 2013 the market has reduced by approximately 30%. The construction market has experienced relatively high growth, yet this increase is closely linked to the most urbanised areas - greater Copenhagen and the second largest city in Denmark, greater Århus. The sectors of industry, infrastructure and utilities have generally been characterised by stagnation at a relatively high level. Looking toward the future it is still our expectation that construction activity will continue at a similar level, while we expect that national infrastructure will continue to fall as activity levels in the environment and utility sector also show slight decrease. 

The reason for this is that Denmark, like many European countries, is financially challenged. The growth of the community is close to a standstill and low growth is expected to continue into 2017 and potentially longer, due to the reduced contribution of North Sea oil. If continued, this means high unemployment and difficulty in starting private consumption for the Danish population.

The rising cost of health care and increased cost of integration erodes the economic scope that would be used to maintain and improve infrastructure, public buildings and public technical services.

Looking to 2017 these macroeconomic conditions are compounded by rural political uncertainty due to the situation of a minority government in a highly fragmented Danish political landscape. In 2017 there will be local elections, which typically result in reduced municipality activites. Overall political uncertainty discourages the desire to invest in infrastructure as well as other areas.

While international turnover in the Danish consulting industry has increased overall, a slow shift is about to occur from services delivered internationally from Denmark to a situation where international revenue comes from international subsidiaries. Relative international consulting revenue from Denmark has fallen from 21% in 2013 to 17% in 2015.

Growth is not equally distributed across the consultancy sectors. Denmark has about 300 companies working in consulting engineering and from 2014 to 2015 the eight largest companies were responsible for 86% of the total growth in the sector, while most of the remaining companies have either have lost market shares or been part of the ongoing consolidation of the sector.

In this, small and medium businesses have a hard time increasing the share of revenue allocated by tenders, burdening businesses by increased tender costs, putting hourly rates under severe pressure. 

The market trend is for private, national and regional public providers to combine consulting purchases into framework agreements, and joint tenders. This trend is a challenge, especially for the smaller consulting firms who find it more difficult to win these major framework contracts.

In addition, there has been a slow shift away from quality based awards to the lowest cost as criteria for award. Tenders drive this trend to a greater degree being implemented by organisational tender departments, rather than technicians in the departments, who need our services.

To maintain reasonable profitability, many are examining company productivity in the following ways: 

1. Naturally, everyone checks if more productivity can be forced out of the existing organisation by streamlining administrative processes and business support functions, as well as increasing pressure on employee invoicing, use of junior employees, and delivering of known technology. All of this is coupled with a very strong focus on “only” delivering what is “in the contract”.
2. Leaders look for ways of outsourcing tasks to subcontractors, who can relieve companies’ peak loads or outsourcing to actual low-wage countries.
3. And finally, we look at digital options to facilitate the planning processes in the task execution.

The first item can cause concern, particularly in regards to the tendency for projects to be staffed by a high number of junior employees to keep costs down and the trend to focus on known technology or solutions. These trends, driven by falling prices, can unfortunately lead to our industry having difficulty showing what innovative benefits we can bring to projects and thereby leaving the market to contractors.

The last two focus areas are very much in favour of those with an “economy of scale” and are major challenges for small and medium consulting companies. 

Outsourcing assumes that you have a well-developed international structure, a homogeneous and continuous task flow and a back-office function, that is able to handle the administrative challenges. 

Development of digital tools, which can enhance competitive advantage, requires the digital skills to undertake digital development and the financial muscle to carry this costly challenge.

It is these types of challenges that have spurred, at least in Denmark and Sweden, an increase in mergers and acquisitions. For many years, a business’s internal goal was to create a solid multidisciplinary foundation - a company with 500+ employees for example. Today this figure is more likely to be 1,000 to 2,000 employees with the real economic optimum considerably higher. With this in mind, consolidation appears to be in its early stage. This speed of development is likely to be increased by the continued advancement of globalisation and digital technology.

Although the outlook for 2017 is not so bright in Denmark, companies capable of adapting to the new reality will have great opportunities. The industries in which we take part are those which hold the key to society's largest challenges, such as:

• Increasing urbanization in both the industrialised and non-industrialised world, 
• Ensuring clean water to the world, 
• Adapting the world to climate change,
• Upgrading the infrastructure of the future,
• Development of new sustainable energy solutions.

There is light at the end of the tunnel.

Jesper Nybo Andersen is the CEO at Orbicon A/S, based in Denmark.