Success Strategies and Knowledge Transfer in Cross-Border Consulting Operations

During the last 30 years, the importance of the private service sectors for GDP and employment has increased substantially in the industrialized world. One explanation advanced in the literature is that this change partly reflects the emergence of the knowledge-based economy that has forced manufacturing, as well as other firms, to focus on the core business to stay competitive (Wikström and Normann, 1994; Tordoir, 1995; Nielsen, 1996). These firms have thereby chosen to outsource peripheral services (e.g., marketing, cleaning and customer services) permanently to specialized service firms, or to purchase such services (e.g., management, IT and financial services) on a project basis from consulting firms (CFs). Simultaneously, the manufacturing sector has continued to rationalize and increase its productivity, implying that a substantial part of the workforce has been driven to look for employment in other sectors. This has facilitated the emergence of new services that did not exist earlier (e.g., Internet, computer and mutual fund services) and has led to a restructuring of the whole business sector. In most industrialized countries, the manufacturing sector’s share of GDP and employment has decreased from a range of 40% to 50% 30 years ago to between 15% and 30% today. Even within manufacturing, many of the supplied products today are services such as contractor, training and after sales (Grönroos, 1990).

The purpose of this chapter is to discuss the basic characteristics of consulting services, consulting firms (CFs), market structure and clients, and what these characteristics imply for the consulting sector and the behavior of CFs. As will be seen, no single characteristic of the consulting sector is unique, but the combined characteristics make this sector unique. The role and consequences of CFs as knowledge-based firms is especially examined. In principle, the theoretical framework holds for all kind of CFs. The specifics for CFs operating in the infrastructure sectors are emphasized. Attention is paid to the differences between the manufacturing and consulting service sectors. The theoretical framework is fundamental to the analysis in later chapters when I empirically describe and test various issues.

I start this chapter by analyzing the factors that distinguish international consulting from domestic consulting. Stylized facts for international consulting are also discussed. Next, a theoretical model is presented that predicts the choice between greenfields, takeovers and exports from the home country when consulting firms (CFs) enter a foreign market. Special attention is paid to differences in foreign operations between the consulting service and manufacturing sectors. Finally, the choice of entry mode is studied empirically for CFs originating in Sweden and Denmark. This chapter examines international consulting in general, irrespective of whether it operates in developed or emerging markets; the triangular relationship between CFs, clients and development agencies in emerging markets is examined in Chapter 4.

In this chapter, I examine the triangular relationship between consulting firms (CFs), clients and development agencies.’ First, I analyze the consequences for CFs and clients when development agencies finance consulting projects in emerging markets. Second, I focus specifically on the role of bilateral development agencies and how these agencies differ from the multilateral development agencies.’ Finally, I discuss the different procurement rules applied by the most important multilateral development agencies and how these rules affect the CFs. This information will be used in the analysis in later chapters.

In this chapter, the analysis is focused on the development agencies as catalysts, and the consulting firms (CFs) as transferor, when knowledge and technology are transmitted to emerging markets. I discuss the elements that are necessary to include in consulting projects for the knowledge transfer to be successful, and whether the knowledge gap between developed and emerging markets is likely to increase or decrease. The role of CFs for emerging markets, and the advantages and disadvantages with turnkey projects are also examined. Finally, I empirically test how the indicators of knowledge transfer—cooperation with local firms and training—vary across the financing of the project and the development level of the host country.

In this chapter, I empirically analyze which competitive factors and strategies are successful when consulting firms (CFs) tender for new assignments abroad, which is one of the main issues of the book. First, alternative tender systems are presented. Thereafter, the factors that influence the invitation of firms to participate in the tender are analyzed. Also examined is the affect of different strategies and competitive factors by the tenderers on the probability of being awarded the contract when they submit a detailed tender document or proposal. Finally, negotiated contracts are analyzed. The analysis and conclusions in this chapter are valid for all kind of CFs, irrespective of the sectors in which they operate.

One of the purposes of this chapter is to analyze the trend from engineering services toward management services in the international market. I examine the sectors and financing alternatives in which this trend is most pronounced and discuss the consequences for the consulting firms (CFs). The adaptation to this trend for private CFs can be inhibited by the presence of state-owned CFs, which are affiliates of government authorities or infrastructure operators. Whether or not these state-owned CFs have an unfair competitive advantage compared with privately owned CFs is also examined.

In this chapter, various strategies and competitiveness by consulting firms (CFs) in the international market are examined. First, I analyze the strategy of focusing on specific host countries and setting up representative offices. Second, I consider various strategies: the choice between having permanent employees and hiring professionals on a project basis, whether it is optimal to tender only for large contracts with high expected profitability, and so on. In addition to finding strategies that have been successful, strategies that have been less successful are also considered. I then analyze whether it is advisable to cooperate with and follow contractors and investment material suppliers when going abroad. Furthermore, the role of government authorities that subsidize consulting exports is analyzed, as well as the performance by Swedish CFs in a market financed by multilateral development agencies.

In this book, I theoretically and empirically analyzed several issues related to cross-border operations of consulting firms (CFs). These issues include: 1) competitive factors and strategies that influence the outcome of international tender evaluations in competition; 2) the choice of entry mode when penetrating a foreign market; 3) the role and consequences of development agencies operating in the international consulting market; 4) to which extent, and under which conditions, knowledge is transferred to emerging markets when consulting projects are implemented; 5) the extent and consequences of the emergence of new services, like management services, in the international market; and 6) the consequences of state-owned CFs operating in the market for private CFs. Several other issues were also investigated, such as the advantages and disadvantages of hiring professionals on a project basis compared with having permanent employees, and the performance by Swedish CFs in the market financed by multilateral development agencies.