Strategic management consultancy groups and

the effects of increased tradability of the service products vary among the different types. Since contact with clients is so important to the industry, one important strategic dimension of the international activities of management consultancy is presence in the market, i.e. establishment in the form of an affiliate or a subsidiary. International activities most often begin either with a temporary movement of consultants abroad or by some sort of cooperation (e.g. a merger) with a local consultancy. When contacts are then established and consulting activities initiated, the need for international trade will often appear. For a number of firms that have entered the international market, the initial stage has been to serve national markets through partnerships with local affiliates of international consulting firms acting almost as independent national consultancies serving their own host national markets. However, these firms have now reached a stage where they have begun to trade among various partnerships or affiliates.

This section briefly examines the role of different types of firms in the management consultancy industry, and discusses the effects of tradability on each type of firm and its international activities.

a. Local, nationally oriented firms

This group is by far the most important in terms of number of firms, but not in terms of turnover. Typically, the firms are small - perhaps only one person or a very limited number of consultants. These firms virtually never undertake international assignments. The services vary and the clients can be small companies and institutions, as well as large companies that may use this type of management consultancy because of low price or specialized knowledge. These consultancy companies also include part-time companies run by teachers and researchers from universities, technical universities, business schools and the like. Retired business managers are also participants in this market.

Solid knowledge of local needs, established client relationships and trust between sellers and buyers of services are important characteristics of the market. In general, because of their limited participation in international markets, the increased tradability of management consultancy services does not significantly influence this group of firms.

b. Local firms exploiting the international project market

In many ways, these firms resemble firms in the first group. The main difference is that these firms have entered the international project market via a specific institution or programme - e.g. assignments for the Phare programme of the European Union, or projects financed by the World Bank or the United Nations Development Programme (UNDP). Although the tasks of assignments for these international institutions and the projects carried out for bilateral development aid may be very similar, they would be classified differently. By definition, assignments for the United Nations or the World Bank provide international turnover, whereas earnings from bilateral technical assistance contracts that management consultancy firms enter into with their own Governments represent domestic earnings.

Typically, the assignments involve experts or consultants working in the country where the project beneficiary is located. In some of the contracts, the focus of the assignment is administrative functions, while in others expertise is needed in order to fulfil the terms of

reference. Arm's length trade or delivery of service inputs facilitating the consultant's work in the field may also be involved. Management consultancy firms working intensively in the international project markets often establish temporary affiliates in the markets where the services are delivered. This mechanism is well known from engineering consultancy, particularly in countries where engineering consultants have assignments extending over several years. The subsidiary or affiliate is usually established for the purpose of being the key administrative reference point for the management of the project. This may be the case either because it is stated in the terms of reference or because it is found convenient for the service producer. When the assignment is finalized, the presence in the market is frequently terminated as well.

Access to advanced communication facilities may reduce the need to establish such affiliates, as those facilities enable more supporting functions to be performed from home. This adds to the flexibility of the team and reduces costs. But it may also tend to reduce the potential for technology transfer during the course of the project. In projects carried out for international organizations transfer of technology is frequently one of the project objectives, and the client must be aware of this aspect of the impact of tradability.

c. Transnational management consultancy and accounting firms serving national markets

This group includes the big international accounting firms. Because of the nature of the other services offered by many of these firms - accounting, audit and tax - they already have local representation in many countries in order to be able to deliver high-quality services in accordance with local legislative and regulative regimes. Each of the affiliates or offices typically has the local national market as the target market, but strives to take advantage of shared methods and terminology. Only occasionally are active international assignments managed and controlled from these offices. The logic is that national professional staff is the best advisers to the clients locally, but not necessarily well qualified for international project supervision. Essentially, each office of a company among the big firms has a national market and only a modest amount of international turnover. However, since these companies consolidate their accounts at their headquarters - typically in the United Kingdom or in the United States - each of them has a high ratio of international to national turnover.

As discussed in chapter II, the transnational organizational structure of the big international accounting firms has evolved in such a way that, on the one hand, each of the national offices is managed autonomously by local partners while, on the other hand, all the offices are tightly knit to the international network. Information technology is the tool supporting this international network. Although this particular structure does not necessarily imply international trade as such, the large companies are gradually developing from loose networks of independent partners to become integrated corporations, with a more centralized structure, where more and more tasks are shared among affiliates. The establishment of centres of excellence, discussed above, is an example of this: expertise in a certain area is concentrated in a few affiliates, each of which covers the market in a large number of countries within this specific field. In this sense they become more like the internationally organized management consultancies discussed below.

d. International management consultancy firms serving both national markets and international companies

Among these firms are well-known and prestigious ones such as McKinsey & Company, Mercer Consulting Group, Booz-Allen & Hamilton, PA Consulting Group, Arthur D. Little and others. These firms have significantly fewer establishments than the big international accounting firms, and some of the affiliates established by them function rather as large autonomous establishments, whereas other affiliates can be characterized as working offices for internationally travelling teams of consultants.

The clients of these firms are often very large companies requiring prestigious advice; often, one of the marketing arguments motivating clients is that it is an international - rather than a national - consultancy firm that has been hired. These consultancy firms literally “follow their client” from one assignment to the next, and the employees are often not related to a national office but to a region such as Scandinavia or Northern Europe. Therefore, the firms use the temporary movement of the service providers as a mode of delivery intensively, but quite often with major inputs by communication from the consultants’ home office. In this sense, cross-border trade is frequently incorporated into a project.