OVERVIEW

 

The professional service sector is an important contributor to the Australian economy both in terms of employment and productivity improvement. This sector cuts across many industries including franchising and the legal and accounting services industries, building and construction (eg. architects, town planners, engineering consultants), business (eg. recruitment consultants, human resource management consultants, market researchers, PR consultants, events managers and many more).

 

The past year has seen the professional service sector – spanning accounting, architecture, law, engineering and management consulting – navigate a tumultuous and rocky road. Business sentiment fell rapidly in 2009, leading to excess spending being cut from tightening budgets and any service not viewed as mandatory placed at risk of removal. However, as consumer sentiment and private consumption continue to grow, companies will move to take advantage of surging domestic and global economies – calling into use various professional business services. Therefore, the outlook for the sector is positive.

 

TRENDS

 

The following trends are reflected in the major professional services categories:

 

• Accounting: Aside from strong economic growth in developing nations, growth prior to the downturn had been fuelled by: rising audit fees due to increasing reporting requirements and the adoption of International Accounting Standards; growth in pro-cyclical service areas such as advising on capital market, merger and acquisition (M&A) and private-equity transactions, particularly in emerging economies; the emergence of reporting work relating to environmental impacts and the detection of terrorism and fraud; and increasing demand for personal-tax work as increasingly complex investments became available to individuals and a growing proportion of individuals participated in investment markets.

 

• Legal Services: Within Australia, continued demand in the areas of family and criminal law is expected to assist the industry to weather the financial crisis and ride the upturn. The economic downturn and subsequent rise in unemployment placed increased strain on the finances of many households, which is likely to lead to a jump in the number of divorces. Within the property sector, 2008–09 saw dwelling approvals fall by 18.8%, reflecting the slowing trend across the residential and commercial property markets and seeing demand for services such as conveyancing suffer.

 

• Engineering: Larger firms are expected to continue to generate revenue from work on international consulting contracts, notably in the South-East Asian market, and competition between large-scale Australian, European and North American consultancy firms will remain intense. The increased globalization of the industry is expected to pose threats and opportunities for all industry players, with the principal threat being increased penetration of foreign firms into the local market, or perhaps more importantly, the increased reliance by local ‘branch’ firms on the global resources available through the foreign parents. Conversely, this globalization may stimulate industry growth prospects as foreign parents use their local subsidiaries by directing international contract work towards them. This trend towards globalization provides local operators with improved financial and technical resources but may dilute the relationships established with major local construction contractors and property developers.

 

• Management Consulting: Consolidation has become a key trend across the sector and large, globally linked companies continue to develop strategic alliances with other companies in IT, finance and other industries to offer a wider range of services to clients. IbisWorld expects this trend to continue as medium-sized firms continue to merge their operations with larger firms. This will see the environment remain highly competitive, requiring larger management consultancy firms to compete with larger specialist firms, and those spun off from large chartered accountancy firms, on both an international and domestic basis.

 

• Architecture: IbisWorld expects the industry will continue to segment into areas of specialization, as traditional architect firms are financially squeezed at the top end by more general building services firms and at the lower end by low-cost architectural draftspersons. As a result of this trend, many architects have associated themselves with wider building services companies, or are now providing a broader range of building services within their own company to ensure they can provide a fuller range of services to clients. This will force architects to develop a more professional approach in practice management. This may require a non-architect with strong management and finance expertise to head the company. As companies try to move away from the general fee-based competition, it will become more important for companies to investigate new areas to generate income, such as contingency fees for projects.

KEY FORECASTS

 

As consumer sentiment and private consumption continue to grow, companies will move to take advantage of surging domestic and global economies – calling into use various professional business services. Thus, the outlook for the sector is positive, with the sector forecast to grow by 1.5% in Australia in 2009–10.

 

INDUSTRY DEVELOPMENTS

 

Innovation is defined as the development, introduction or implementation of new or significantly improved products, marketing, operational processes, and organizational/managerial processes. In 2008-09, 39% of all surveyed businesses in the service sector were innovating. The largest proportion of innovating businesses was in the wholesale trade industry (51%), followed by retail trade (51%), followed by information media & telecommunications (47%) and financial & insurance services (46%).

 

MARKET SIZE

 

Services exports totaled $52.6 billion in 2009-10—down by 0.6 per cent on the previous year. The largest component of services exports is travel services, which contributed $33.3 billion. In 2009–10, services accounted for 79 per cent of industry value-added. Over the last 20 years services sector value added increased at an average annual rate of 3.6 per cent. The largest contributions to industry value-added in 2009–10 came from financial and insurance services (11.7 per cent), construction (8.2 per cent) and professional, scientific and technical services (7.1 per cent).

           

KEY PLAYERS

 

PricewaterhouseCoopers

KPMG

Ernst & Young

Deloitte

 

GROWTH FIGURES AND FDI FIGURES

The following growth figures are estimates from IbisWorld:

 

Accounting: The global financial crisis presented a significant bump in the road for accounting; revenue is forecast to fall by 1.1% in 2009–10, following modest growth of 2.1% in 2008–09.

 

Legal Services: Having slowed somewhat in the economic downturn, posting growth of 0.8% in 2008–09, legal services should bounce back strongly.

 

Engineering: With global revenue contracting by 3.1% in 2009, and projected to stabilize in 2010 (0% growth), it seems the engineering sector was far from prepared for the financial crisis. Falling from the heights of around 7% growth per year on the back of incredible growth in Asia and a booming global mining industry, engineering is expected to experience a slower recovery.

 

Management Consulting: In Australia, consultants had a very mild 0.2% contraction in 2008–09, and are set to bounce back quickly, with growth forecast to reach 1.2% in 2009–10, increasing to an average annual growth of 4.4% for the next five years.

 

Architecture: Architects took a fairly severe hit in 2008–09 and are forecast to feel the same in 2009–10 (2.7% and 3.7% annual revenue contractions, respectively). This followed the slowing of building markets around the world. The industry has been booming for some time, and is set to continue its growth beyond 2009–10, averaging 6% per year from 2011. In Australia, architecture revenue will fall 3.1% in 2009–10 and another 1.8% in 2010–11 before rebounding to grow by 4–5% per annum over the next four years.

 

 Stock of Foreign Direct Investment in Australia by Industry:

 

Industry	$ million	% share of total
Agriculture, forestry and fishing	700	0.2
Mining	99,659	25.4
Manufacturing	73,848	18.8
Electricity, gas and water	16,105	4.1
Construction	13,037	3.3
Wholesale and retail trade	57,093	14.5
Accommodation, cafes and restaurants	914	0.2
Transport and communication	25,929	6.6
Finance and insurance	53,143	13.5
Property and business services	33,830	8.6
Other services	6,105	1.6
Unallocated	12,500	3.2
Total	392,862	100

 

 

INVESTMENT OPPORTUNITIES

 

Well regulated and highly developed, franchise businesses flourish in a diverse range of industries and it is a vibrant and expanding sector of Australia’s business community.

International franchising opportunities are expanding rapidly as Australian exporters look for opportunities beyond the relatively small domestic market. Just over 27% of Australian-based franchises are currently operating overseas, with the majority targeting New Zealand, Singapore, Malaysia, China, Hong Kong, the UK and the US.

 

RESOURCES: INDUSTRY GROUPS AND ORGANIZATIONS

 

Australian Human Resources Institute – http://www.ahri.com.au

Australian Institute of Management – http://www.aim.com.au

Australian Market and Social Research Society – http://www.amsrs.com.au

Australian Marketing Institute – http://www.ami.org.au

Institute of Management Consultants – http://www.imc.org.au

Public Relations Institute of Australia – http://www.pria.com.au

 

 

Current Investment Opportunities in Australia:

 

For current investment opportunities in Australia, please click here  :   http://investinaustralia.com/current-opportunities

 

 

 

REFERENCES

1. Uknown, “A vibrant and growing part of the Australian business community”, Australian Government, 2010, http://www.austrade.gov.au/Buy/Australian-Industry-Capability/Professional-Services/default.aspx.
2. Bryant, Robert, “Professional Services Set to Lead the Pack”, PSF Journal, March 2010, http://psfjournal.com/2010/03/professional-services-set-to-lead-the-pack.
3. Bryant, Robert, “Professional Services Set to Lead the Pack”, PSF Journal, March 2010, http://psfjournal.com/2010/03/professional-services-set-to-lead-the-pack.
4. Bryant, Robert, “Professional Services Set to Lead the Pack”, PSF Journal, March 2010, http://psfjournal.com/2010/03/professional-services-set-to-lead-the-pack.
5. Unknown, “Services Sector Factsheet”, The Australian Government, Sept. 2010, http://www.innovation.gov.au/Section/AboutDIISR/FactSheets/Pages/ServicesSectorFactSheet.aspx.
6. Unknown, “Services Sector Factsheet”, The Australian Government, Sept. 2010, http://www.innovation.gov.au/Section/AboutDIISR/FactSheets/Pages/ServicesSectorFactSheet.aspx.
7. Bryant, Robert, “Professional Services Set to Lead the Pack”, PSF Journal, March 2010, http://psfjournal.com/2010/03/professional-services-set-to-lead-the-pack.
8. Uknown, “A vibrant and growing part of the Australian business community”, Australian Government, 2010, http://www.austrade.gov.au/Buy/Australian-Industry-Capability/Professional-Services/default.aspx.

 

 

 

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