The globalization of management consultancy firms: constraints and limitations

Abstract

This paper is aimed at providing a framework for the analysis of organizational structures and processes in the global management consulting industry. Our basic question is why do global consulting firms exist? What distinctive advantages (if any) are they able to bring to their clients and the consulting task which cannot be achieved by ‘national’ firms? Consideration of this question leads us into alternative modes of internationalisation in this sector. Economists in the field of international business have long posed this question in relation to manufacturing firms (e.g. Dunning 1993). However, their answers tend to be limited to economic considerations and ignore the ways in which issues of organizational structure, power and processes impact on the internationalising strategies of firms. More recently other authors have posed the same question specifically in relation to professional services firms (Aharonhi 2000: Lowendahl 2000; Nachum 2000; Roberts 1998; 1999; 2004). These authors have argued that there are specific characteristics of professional services that require an adaptation of the dominant models of internationalisation. These relate to the distinctive interface between clients and suppliers in these contexts where co-presence and interaction is typically essential. This interaction in conditions where knowledge is ambiguous and/or clients may be less ‘knowledgeable’ than the professionals about the nature and quality of the services delivered has tended also to lead to national regulatory regimes controlling how some professional services are delivered, monitored and controlled. These factors have tended to militate against the globalization of professional services. However, in recent years, the development of professional services outside strong regulatory frameworks of practice (such as in the case of management consultancies and advertising agencies), the gradual decline of national regulatory regimes under pressures of ‘free trade’ and the increased international standardisation of certain forms of professional services (such as audits) has opened up more possibilities for the internationalisation of firms in this area. The general phenomenon of what Giddens (1990) has labelled ‘time-space distanciation’ in theory makes it easier to both maintain communication and control across widely spread national contexts and also to facilitate forms of cross-national team-building and cooperation. For all these reasons, the services sector in general and professional services in particular has seen a massive expansion of international activity over the last two decades. Bryson et al, for example state that ‘the value of world commercial services exports has increased some 3.5 times between 1980 and 1999’ (Bryson et al. 2004: 217). The 2004 World Investment Report from UNCTAD noted that ‘on average, services accounted for two-thirds of total FDI inflows during 2001-2, valued at some $500 billion’ (UNCTAD 2004: xx). Interestingly, the report went on to state that ‘as the transnationalization of the services sector in home and host countries lags behind that of manufacturing, there is scope for a further shift towards services’ (ibid.). This suggests that the organizational issues concerned with the internationalization of service firms have not disappeared. It is these organizational issues which lie at the heart of our concerns