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By:
‍Hilmar Albers – Partner
Erwin Harbauer - Managing Partner

In parallel to the positive momentum witnessed in the country’s economic growth, forecasts indicate that Japan is expected to experience a long-awaited boost in wages. However, Japanese consultants can only look forward to a marginal offsetting of the cost of living pressures experienced in the country.

Domestic demand is a major driver of the Japanese economy. Unfortunately, consumer demand had subdued after a decade of ‘Abenomics’ with only disappointing growth in workers’ earnings, compounded by record inflation during QIV of 2022 and culminating in a 41-year-high rate of inflation of 4.3%¹ in January 2023.

While Japanese inflation remains relatively modest compared to the US or the Eurozone, these levels represent a radical shift for an economy that has experienced decades of ultra-low inflation.

Now, despite famously stagnant salaries, Japanese industry has reacted and wage increases are finally on the cards across all sectors. Open source market analyses predict an average hike in salaries of 2.8% (with estimates ranging from 2.5% to 3.4%)².

When also taking the re-opening of the country's borders to foreign visitors since October 2022 into account, we expect such wage increases to spur domestic demand and further stimulate economic activity. We therefore believe that the outlook for the remainder of 2023 is relatively positive for the Japanese economy.

Furthermore, Vencon Research’s survey data shows that the consulting industry is not excluded here and many of our clients have signalled growing order books. However, although consulting firms are also increasing salaries, the expected increases are far from those being offered by the country’s other industries, and average only 1.4%³ across career levels.

Many firms have also planned different levels of increases across their career grades, with a greater concentration on the lower career levels and less relative growth being offered to the more senior Management and Principal levels.

Since consultants already count as high-earners in Japan (as well as in most other countries worldwide), the lower expected salary growth percentages may be less surprising.

On the whole, while the consulting sector itself can hope to profit from a general uptick in economic conditions, Japanese consultants can only look forward to a marginal offsetting of the cost of living pressures experienced by the country.

For more information on this topic or on how you may successfully respond to the issues raised in this article, please contact Vencon Research – as always, we are happy to assist you.

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_{[1] https://tradingeconomics.com/japan/inflation-cpi;}

_{[2] Various inflation forecasting and research firms, incl. Japan Economic Research Center, Kienbaum, Korn Ferry Hay Group, Willis Towers Watson}

_{[3] Vencon Research analysis; Client feedback}

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By Gonzalo Lavín Alfaro - Business Development Team

Belgium’s consulting industry is facing severe challenges as a result of the government's policy of annually adjusting wages based on the inflation index.

The Belgian government enacts a wage adjustment policy each January based on an index of inflation for a specific group of employees to ensure they maintain their purchasing power. However, this cost is passed on to firms, resulting in reduced profitability.

Up to now, consulting firms have been able to offset this cost increase with increased productivity. According to one client in the consulting industry, "when salary costs increase by less than 5%, a similar increase in productivity was normally achievable."

However, the required wage adjustment in January 2023 of 11.08% poses a steep challenge. While some firms have attempted to increase their rates and pass on the cost to clients, many clients are unwilling to accept higher rates and are instead requesting discounts or fewer charged days due to the current economic climate.

In response, firms are considering other measures to address these challenges. One idea is to adjust target bonuses, particularly for workers in higher seniority levels. This would help firms manage costs while maintaining competitiveness but still rewarding lower level employees for their performance.  Another more radical idea, albeit not uncommon in the Belgian market already, is to expand the usage of external contractors as consultants, allowing firms to avoid certain types of taxes and giving them more flexibility in managing their workforce. While this approach may have benefits for firms, it could also have implications for workers, such as reduced job security and fewer benefits.

Should you want to discuss the ideas being considered by your competitors or how you may successfully respond to these challenges, please contact Vencon Research – as always, we are happy to assist you.

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Despite robust earnings in the consulting industry in 2022 and a mostly strong final quarter of 2022, consulting companies are either experiencing a slowdown after just two months into 2023 or have already started adjusting to an expected slowdown in the project pipeline for this year.

Due to the recent COVID-19 pandemic, the consulting industry has been able to reduce operational costs (e.g., less travel, etc). But what puts additional pressure on margins is that many consulting companies have increased salaries due to above average inflation rates around the globe while billing rates were not (or could not) be increased accordingly.

These factors have compelled consulting companies to re-examine their cost position, e.g. by re-examining their fixed costs, in particular evaluating the value brought by their non-client facing staff.

In the light of this, for industry insiders it is no surprise that e.g. McKinsey is announced cutting 2,000 non-client facing staff, KPMG is laying off up to 700 employees in the USA and 200 in Australia, and EY is planning to cut 400 staff in Germany.

The priorities of consulting companies are now – apart from trying to ensure their consultants remain highly utilised – being set to more strongly focusing on increasing profitability and competitiveness (instead of sheer growth).

For more information on how your competitors are responding or how you may successfully respond to these challenges, please contact Vencon Research – as always, we are happy to assist you.

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PULSE SURVEY: ARGENTINA’S INFLATION AND HR PRACTICES AT CONSULTING FIRMS

Vencon Research’s 2022 Pulse Survey provides an insight into the effects of currency devaluation and inflationary pressures in Argentina. The survey results highlight the challenges faced by firms in Argentina in retaining their employees, and the measures they are taking to address the financial hardship faced by their employees.

1.  HIRING RAMPED UP IN RESPONSE TO INCREASING ATTRITION

 43% of firms reported experiencing an increase in voluntary attrition, which led to a higher rate of hiring to fill vacancies. While this is a concern, it’s reassuring to see that firms are proactively responding to this trend by increasing their hiring efforts.

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2.  RESPONSES FROM CONSULTING FIRMS

A significant majority of the respondents, 57%, reported that their employees are currently facing financial hardship due to inflation and/or currency devaluation. This is a worrying trend, but firms are taking steps to mitigate this issue with all of the firms surveyed adjusting compensation and/or extra payments in the last 12 months. An increase in base salary was the most popular measure taken to adjust compensation (29% of respondents). Additional payments(14%) and an increase in bonus/variable pay (14%) were also popular choices.

3.  DRIVERS OF COMPENSATION DECISIONS

The key influential factors “driving” compensation were identified as inflation (86%),cost of labour (29%), fluctuations in exchange rates (14%), and a rise in the cost of living expenses (14%).

It appears that a significant proportion of respondents (approximately 43%) were unable to make predictions regarding the anticipated situation in the next 12 months in Argentina. Despite this uncertainty, most firms are planning changes to their current compensation model in the coming 12 months, with all proposing to raise the base salary by over 20% and also boost the bonus by 20%.

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4.  REGULAR COMPENSATION REVIEWS ARE ESSENTIAL

Vencon Research’s 2022 “Pulse Survey” highlights the challenges that companies in Argentina face due to inflation and currency devaluation. While the results indicate a worrying trend of financial hardship among employees and an increase in voluntary attrition, the survey also highlights that firms are taking proactive measures to address these issues. With most firms planning to change their current compensation model in the coming 12 months, it’s clear that companies in Argentina need to regularly review and adjust their compensation offerings to mitigate the effects of inflation and currency devaluation.

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Should you have any further questions or would like to receive more detailed information on this topic, please reach out to us at info@venconresearch.com.

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Discover the challenges facing the consulting industry in 2023, including competition for talent, a tight labor market and increasing salaries in response to rampant inflation. Download our summary report for a concise overview of all 19 points.

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Between April and June 2020 Vencon Research conducted the first Pulse Survey in the light of the unseen and unknown economic, financial, and personal impact of the COVID-19 crisis.

This Update to the Pulse Survey is a result of many requests from our clients over the past months wanting to find out how other professional services firms have adjusted to the crisis. Not just questions about the near and long-term future but also about the measures taken to react to COVID-19 and which may be sustainable and/or change the future of work and business in the consulting industry.

Most participating firms operated in strategy consulting, followed by IT consulting/services and operations consulting. 51% of responses came from firms located in Western Europe, followed by North America (20%) and AsiaPac (13%); ROW responses were 16%. Responses were well distributed with regards to firm size; slightly more responses came from firms employing 50-249 consultants (27%).

Here are some of the “highlights” from the key findings of the survey:

Business Situation and Prospects

The outlook for the coming year was fairly positive: More than half of the firms (54%) expected COVID-19 to positively impact their business. Generally, the consulting industry was surprisingly optimistic: A total of 82% of the firms expected better business prospects, despite COVID-19.

Effects on Workforce

During the previous 12 months more than half of respondents (52%) stated they reduced hiring; Interestingly, 31% reported increasing hiring. More than half of firms (56%) expected to increase hiring in the coming 12 months based on largely positive expectations regarding their business situation. Most firms (78%) expected either no adjustment or a slight increase in their existing workforce after COVID-19; only 17% of firms expected a significant increase. The problems mentioned resulted from staff working too long, a lack of “down time” and/or “switching off”; “virtual” onboarding/training was also difficult.

Promotion, Compensation & Place of Work

Most firms (82%) provided the necessary support to allow employees to work remotely and/or work from home, including for example computer/laptop, high-speed broad-band internet access, headphones, video camera equipment, etc., as well as other benefits.

The mental health of employees was considered a major challenge during the COVID-19 crisis. Hence, almost all firms provided additional training (93%) and self-management assistance (88%) to ensure employees are not over-worked and do not face “burnout” or the like. However, only 34% actually tracked home office working time.

Firms reacted differently regarding compensation adjustments: “merit” based pay increases continued to be offered; however, bonuses were reduced or suspended.

The majority of firms (75%) expected office usage to be reduced in the future and expected “work from home” to be continued (to a degree). In particular firms implemented “work from home”, which has become a standard way of operating for many firms; at least partly.

Long-term Changes and Challenges

Flexibility of place of work is expected to increase as most respondents (89%) expected “work from home” to be permanently implemented, but at lower than current levels (min. 1 to max. 3 days p/w). With regards to the difficulties arising from the increased usage of “work from home” or “remote work” and other permanent changes in business operations most firms mentioned the “soft” factors (e.g. self-management, continued health and well-being, culture) that were and will be challenges faced by “work from home” policies.

Many firms (59% of respondents) expected Business Development (i.e. sales) to become more “virtualised”.

The Long-term Outlook

Interestingly, almost half of the firms (49%) expected things to get back to “normal” within a given time, i.e. to the conditions before COVID-19. On the other hand, 39% of the respondents stated that there will be no return to a “before”.

Should you have any further questions or would like to receive more detailed information on this topic, please reach out to us at info@venconresearch.com.

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Andy Klose is an Associate Partner at Vencon Research International and heads the firm’s consulting unit.

Erwin Harbauer is a Partner at and co-founder of Vencon Research International.

Vencon Research International is a leading provider of compensation benchmarking and research as well as of compensation and performance-related consulting services for professional service firms, especially for audit and tax, management consulting, and IT services firms. Vencon Research International provides services to a full range of clients in more than 75 countries worldwide and is proud to name more than 85% of the world’s major consulting and/or professional services firm its clients.

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