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June 2010

Association of Management Consultants of SerbiaDecanska 8, 11000 Belgrade

office@amcserbia.rswww.upks.org or www.amcserbia.com

TABLE OF CONTENTS

FOREWORD BY UPKS 3PART I: SUPPLY SIDE 41.1 METHODOLOGY 41.2 KEY FINDINGS 51.3 RESEARCH RESULTS 71.3.1 PRODUCTS AND SERVICES OFFERED 71.3.2 STRUCTURES USED FOR CONSULTANCY INDUSTRY 91.3.3 USERS, NON-USERS AND CONSULTANTS 111.3.4 MARKET BARRIERS AND OPPORTUNITIES 12

1.3.4.1 PRICING AND VALUE 131.3.4.2 BUILDING AND MANAGING A CLIENT BASE 141.3.4.3 MARKET FORCES 161.3.4.4 FREE TRADE AND EU ACCESSION 18

1.3.5 IMAGE AND UNDERSTANDING 20PART II: DEMAND SIDE 232.1 METHODOLOGY 232.2 KEY FINDINGS 242.3 RESEARCH RESULTS 262.3.1 PRODUCTS AND SERVICES DEMANDED 262.3.2 USERS OF SERVICES 272.3.3 CHARACTERISTICS OF ENGAGEMENT WITH CONSULTING COMPANIES 272.3.4 AWARENESS OF CONSULTING COMPANIES AND INDIVIDUAL CONSULTANTS 292.3.5 PERCEPTION OF DEVELOPMENT OF CONSULTING SERVICES MARKET SECTORS 302.3.6 IMAGE AND SOURCES OF INFORMATION 31PART III: FUTURE TRENDS AND NEEDS 333.1 THE FUTURE OF DEMAND 333.2 THE FUTURE OF SUPPLY 343.3 PROJECTIONS FOR THE CONSULTING INDUSTRY 36ANNEX A: DEFINITIONS OF MARKET SEGMENTS 37

FOREWORD BY UPKS

Association of Management Consultants of Serbia (UPKS) was registered in July 2009. One ofthe key functions of this professional association is to gather and analyze knowledge andinformation about global / domestic management consultancy services, needs and trends andto finally disseminate it to its members, the expert community, clients, and the broad public.Whereas there are currently hundreds of consulting outlets according to the companyregistration files, systematic and regular analysis of both the demand and the supply side of theconsulting business in Serbia are lacking.

Therefore the UPKS, supported by the GTZ-WBF project, aimed to close these informationgaps by setting up a Consultancy Industry Baseline Report for Serbia. The research and thereport is done by IPSOS Strategic Marketing1 and Cromer Group2.

The Consultancy industry is primarily engaged in providing advice and assistance tobusinesses and other organizations on management issues, such as strategic and organizationalplanning; financial planning and budgeting; marketing objectives, policies and campaigns;human resource policies, practices and planning; production scheduling; control planning andsystem management consulting.

The Report fulfills multiple purposes: Firstly, it aims to establish an industry baseline againstwhich annual progress can be measured. Furthermore, the Report will assist consultants,especially the UPKS members and partners, in identifying new and/or additional services forwhich demand significantly exceeds supply. Ultimately, the Report aims to get the demand-supply discussion on the agenda of both companies – the consultancy services users andconsultants as suppliers of these services.

The Report aims to analyze gaps regarding the way in which services are delivered to clients,i.e. the actual accessibility of available services. Additionally, the Report aims to provide abetter understanding of the knowledge on business opportunities arising from the CEFTA andEU frameworks and obstacles in fully operating within these.

For more information about UPKS please visit www.amcserbia.com or www.upks.org

1 http://www.ipsos.com/Country_Profile_Serbia2 http://cromer-group.com/

PART I: SUPPLY SIDE

1.1 Methodology

The Consultancy Industry Report explored two sides of the consultancy industry in Serbia: supplyof services and products – management consultants; and demand of services – buyers ofconsultancy services. A small portion of non-users, as a control sub-sample, was added to comparesimilarities and differences between users and non-service users.

This nationwide survey is a unique blend of qualitative and quantitative research. On thequantitative side, we have a large enough sample (Sample 1 consists of 149 consultancies andSample 2 of 154 companies, where 120 are users and 34 non-users of consulting services. Thisapproach allows analyzing both overall results and results for certain subgroups if those results arestatistically significantly different.On the qualitative side, we asked 33 different open-ended questions and recorded eachrespondent's verbatim responses to those questions. Thus, we can both analyze those open-endedverbatim responses statistically, and benefit from the richness of the actual verbatim responses toflesh out the picture provided by the data.

Sample 1: Providers of Consulting ServicesSample 1 was created using non-probability criteria including convenience, judgment, and quotamethods.

In designing the sample, the first step was to learn the boundaries of the consultancy industry inSerbia. As the data available was not entirely reliable, the sampling process was divided into twophases: (1) we first extracted the full universe of consultants from all available sources and (2) weconducted pre-screening qualification interviews from this list to differentiate between those whoare actual business consultants and those designated as such due to lack of any other classification.

In addition to building a sample from the 11,366 legal entities registered as consultants with theAgency for Legal Entities (APR), the study also included Non-Governmental Organizations(NGOs), academia-based consultants and sole practitioners not presently registered with the APR.

Other criteria used were division of consultants by market segments they operate in – they alsorepresent the following 10 market segments:

(1) Export Promotion Consulting Services(2) Sales(3) Auditing, Accounting, Tax Advisory and Financial Services(4) Organizational Development, HRM and Leadership(5) Legal and Contractual Services(6) System Management Consulting(7) Communications, Marketing, Branding, PR, Market Research Analysis(8) IT(9) Education, Training and other management and business support services(10) Innovation, Partnership and CSR3

Consultancies sampled also represent all geographical regions of Serbia.

For micro and small companies, the respondent was the owner or the General Manager of theorganization, if the owner was not the General Manager. For medium and large companies, therespondent was the company’s senior manager responsible for organization or planning of work.

The field work lasted from January 5 to February 5, 2010.

3 Definitions of all investigated market segments are presented in Annex A (page 39)

1.2 Key Findings

This innovative study provides the first real snapshot of the state of the consulting industry inSerbia. It yields rich findings that can inform both public and private sector actions movingforward. It provides important quantitative and qualitative insights into what is holding backthese Serbian companies, as well as what factors help them to survive or even thrive.

There are different factors that drive Serbia’s approach to business development. Externally,Serbia has responded to the international voices that prescribe privatization, attraction of ForeignDirect Investments (FDI) and steps to receive development dollars and loans. Internally, it reactsto political voices and interests and conservative traditions incongruous with a transition from acontrolled to a market economy.

In the first eight years following the 2000 reform election, the GDP levels increased nearly six fold,elevating the country to middle-income status as defined by the World Bank. Much of the growthcame from rapid privatization of the best Serbian brands and companies as well as foreign directinvestment equaling more than $16 billion, according to Serbian Investment and PromotionAgency (SIEPA).

General Observations about ConsultantsThe collective data suggest that the consulting industry is a vibrant part of Serbia'seconomy. Since there are no consulting firms in Serbia that actually met the criteria of a largecompany, it is clear that these firms are part of the SME sector that provided 16% of the new jobsin Serbia in 2009, according to government statistics. Responses to open-ended questions aboutsuccess, plans for the future, investment in their own growth and willingness to do more work thannegotiate at prices lower than counterparts in surrounding markets reveal a group of dedicatedindividuals who have come to understand the need to work hard, perform well and continuouslyimprove. They provide services and products in a range of settings to various sectors, includingprimarily private businesses, but also to NGOs, government or public companies, andinternational companies operating in Serbia.

Consultants in this study reflect the skills and talents of a modern workforce. Theyare flexible, especially in learning new skills and adapting to the market needs. As creativeproblem solvers they build networks and strategic partnerships (59%) as part of their growthstrategy. Eighteen percent (18%) are willing to add a new service or product if a client asks forsomething not currently in their portfolio. Over a half (52%) bring strategic partners into theproject to answer client needs. Seven in 10 consultants offered that they sell up to five servicesregularly and make profit from most of them.

Cash flow is their major business challenge. Thirty-one percent (31%) of the responses tothe greatest financial obstacles was the balance between income and expenses. Nearly a quarter ofthe consultants (23%) point to debt collection, slow payment and timing of payment for servicesfrom clients as major causes of the cash-flow problems. The overall bad economy is hurtful as well,as 16% say their potential clients are cutting back hiring and purchases of consulting services.

Government can do more in the development of business. Even though the state ofSerbia’s market was only ranked as the third most important obstacle out of four in the forced-choice question, high taxes (13%); lack of business development strategy (11%); slow bureaucracy(9%); and lack of legal frameworks for the consultants’ area of expertise (7%) were the mostfrequently offered reasons as why, in their opinion, government was holding back businessdevelopment in Serbia.

The perception of corruption/bribery/favoritism probably hampers competition inthe country. Nearly half (46%) report they know someone in their inner circle who has engagedin some level of bribery or corruption. More than half (54%) indicate they have lost a supposedcompetitive tender that, in actuality, had a pre-determined outcome.

The consultants’ definition of success overwhelmingly is achieving clientsatisfaction. Seventy-eight percent (78%) say performing work that satisfies the clients’ needs iseither their first or second criteria for satisfaction. Profits and taking care of employees are equalin importance at 45%.

In the final analysis, it is reasonable and supportable to say that these consultants take a great dealof pride in the quality of their work, in their reputation, and in developing and maintaining strongclient relationships that result in satisfied clients being repeat customers and in being part of anactive word-of-mouth referral network for generating more business.

Further, while profit per se is important to a portion of consultants, many of them derive a largersense of satisfaction from doing their job well, being innovative and a market leader, and meetingtheir clients’ needs. They gain a lot of satisfaction from factors that are not easily measured, yet arevery important to them.

Projecting the Direction of the Consulting IndustryRespondents are split in their prediction of the future of their consulting businesses,with 48% quite optimistic, saying that they believe their company is very likely to survive and growin the next three to five years. Another 33% are somewhat optimistic. Just 7% say they areunlikely to survive or grow. Another 5% are unsure, while 6% do not answer the question.

Financial consultants, despite the fact that they provide essential business services, are far lessoptimistic about their ability to survive and grow than other services (33% very likely to surviveand grow, compared to 48% overall). In contrast, the majority of consultants in services like HRM,Training, Innovation, Social Responsibility and Marketing/PR, which traditionally are viewed asless measurable and less understood, predicted their survival and growth as very likely. IT andQuality Systems Management services companies also have a majority or more predicting theirsurvival and growth as very likely.

Perhaps not surprisingly, those who say the current global economic crisis has hurt them are lesslikely to be very optimistic about their ability to survive and grow (38%), compared to those whosay the crisis has not hurt them (60% very likely to survive and grow). Similarly, those who reportthat their gross annual turnover has grown are much more optimistic (63% very likely), comparedto those who say it has stayed the same (41%) or been reduced (38%) in the last year.

Obstacles to Survival and GrowthThe consultants interviewed are far more likely to identify their obstacles as externalthan internal. Sixty percent (60%) of the companies say their ability to manage a company whileworking continuously on client contracts is the least important obstacle they face, compared to avastly lower 9% to 13% for the other three options offered. The greatest obstacle cited is that“Serbia has yet to function as a true market, where competition is fair and open and contracts areawarded to companies based on merit and record of performance” (37% most important obstacle,69% first and second most important obstacles combined). The next most highly ranked obstacleis “the financial situation of my potential clients and the willingness of the decision makers inthose companies to hire outside consultants” (29% most important obstacle, 52% first and secondmost important obstacles combined). The third most highly ranked obstacle is “The lack ofknowledge among clients as to the benefits of consultant services” (18% most important obstacle,52% first and second most important obstacles combined). As cited above, the lowest-ratedobstacle cited is “The ability to manage a business and work continuously on current contracts”(12% most important obstacle, 15% first and second most important obstacles combined).

Client – Consultant Relationships as ObstaclesIn open-ended responses, 52% of the participants point to a variety of shortcomings in client-consultant relationships that make work more difficult for consultants. Respondents pointed toimprecise instructions and directions from clients (13%); inability to reach decision makers (11%);inefficient bureaucracy and communications (8%); and client expectations exceeding contractualagreements (7%) as among the major obstacles in managing their everyday work with clients.

Services Offered: Services SoldThe qualitative findings of the study produced an interesting diversity of consultingservices. From organic farming to hydroelectric production, from wastewater management tooccupational safety and from public administration to public health, the study revealed that theconsulting industry is working in new technologies, emerging markets and innovative solutions.

The quantitative results, though, suggest that more traditional business consulting servicesdominate the market. The consultants do not view all of the services they sell to be highlyprofitable; however, they appear to understand their market as their profit comes from the servicesin their portfolio that they sell most often.

Perception of Development of Serbian Market of Consultancy Services by Users andProvidersGenerally, users as well as non-users of consulting services are unable to comment fully on thestate of development of Serbia’s consulting industry. Just over half (51%) suggest that theconsulting market is neither developed nor undeveloped. Only one in three respondents in thesupply side of the study believe that Serbia’s business consulting industry is well developed. Atthe same time, 19% say the market is not very well developed at all.

There is a suggestion that users of consulting services had appropriate experiences with theirconsultants as 34% of users say the industry is well developed compared to just 9% of non-userswho respond the same.

Interestingly, consultants themselves do not have such a positive opinion about the state of themarket as their clients: 72 % of consultancies see the market as mostly underdeveloped while only23% see it as mostly developed. This perspective of the market does not change when comparingthose companies that work both domestically and internationally. Seventy-four percent (74%) ofthose consultancies that export services and products believe the market to be underdevelopedwhile only 24% of that demographic view the Serbian market as developed.

Main Barriers in Communication between Users and Providers of Consultancy ServicesOverall, users’ satisfaction in their cooperation with consultants is very high. Theaverage grade given by users is 4.5 on a 5-point scale. In other words, users were satisfied in 90%of cases with 61% of them completely satisfied. More than one third (34%) of all users report theyhave experienced no problems at all in dealing with consultants. Just 4% of the users in this studysuggest a level of dissatisfaction with rendered services. Among those who experience problems,the objective issues they cite most often are difficulties in business operations and financialproblems (17%) and high prices of services (11%). The subjective problems that created obstaclesfor a successful relationship were: lack of experience and knowledge among consultants (12%),perception that services were of low quality (8%), and distrust and lack of awareness about theconsulting services (8%).

1.3 Research Results

1.3.1 Products and Services Offered

Asked in an open-ended question to describe the types of services that they provide, respondentsgave such a wide range of answers that even after coding into different categories, there are over 50different responses. The most common are human resources management (17%), general businessconsulting (15%), QSM (14%), marketing, advertising and public relations (13%), general financialconsulting (9%), business strategic planning (8%), IT consulting (7%), project management (7%)and feasibility studies (7%).

In addition to asking respondents to tell us specifically the services they provide, we also askedrespondents to tell us whether each of 10 different types of consulting services was a major part oftheir business, a minor part, or not at all a part of their business. In doing so, we see a great deal ofcross-pollination across various consulting areas, with many respondents having a mix of servicesin their offerings.

The most common category is business support services, with 33% saying it is a major part of theirbusiness and an equivalent 34% saying it is a minor part of their business (66% total part of theirbusiness offerings).

Organizational development is at a similarly high level overall (60%), though with a smallerportion (24%) saying it is a major part of their business and a similar level of 36% saying it is aminor part of their business.

Next, just over a majority (52%) say that market research is a major (23%) or minor (28%) part oftheir business, with 46% saying it is not a part of the services they offer.The table below provides full details of respondents’ division of services across the 10 marketsegments.

Table 1: Consulting specialties and market segments as a part of business, whether major, minor, or not apart; Ranked by Total part of business (expressed in percent)

Consulting Specialties TOTALPART MAJOR MINOR

NOT APART

MEANSCORE

Business support services 66 33 34 29 2.04Organizational development 60 24 36 36 1.88Market research 52 23 28 46 1.77Innovation and socialresponsibility

48 13 35 46 1.65

Systems managementconsulting

46 17 29 50 1.65

Sales consultancy 40 13 27 54 1.57Export promotion consultancy 34 7 27 62 1.42Information Technology 32 15 17 61 1.51Financial consultancy 28 15 13 69 1.45Legal and contractual services 27 11 15 68 1.40

We can see in the table above, financial consultancy (28% total part, 15% major, 13% minor) andlegal and contractual services (27% total part, 11% major, 15% minor) are the most specialized ofthe 10 categories tested and, thus, more than two-thirds of respondents say they do not providethose services as even a minor part of their business (69% and 68% not a part, respectively).

The research demonstrates that the balance between demand for services and those offered are inrelative balance. The figure below shows that of the services Serbian businesses would most likelyseek from consultants, the consultancy market has a measurable supply of services to addressdemand. Notable exceptions are in the core business support services for financial and legalcounsel.

In this study, some of the disparity between the need for those services and the availability ofservices results from lawyers and accountants being less likely to categorize themselves asconsultants. Their identities are based in their professional status more than the general marketsector of consultant.

Figure 1: Supply and Demand side of consultancy market in Serbia

Note: This figure combines information from the demand and supply side studies. It is not a one-to-onerelationship because the questions were not parallel. It simply demonstrates the relative existence ofsupply based on sample 1 results next to projected demand as offered by sample 2 respondents.

1.3.2 Structures used for Consultancy Industry

Size of the Business or OrganizationThe consulting industry in Serbia is overwhelmingly dominated by small companies. In fact, morethan 98% of the industry is serviced by small companies. The study is not a precise reflection ofthe actual market as it attempted to include a sample of each segment of the industry large enoughto draw relevant and reliable conclusions. In this study, just over two-thirds (67%) of respondentsconsider themselves to be a small business or organization, while just over one-fifth (21%) wouldcall themselves a medium-sized business or organization, and 7% consider their company ororganization to be large.

Number of EmployeesThese consulting firms, whether small, medium or large based on revenues, carry a small numberof employees. A summary of all respondents shows that 46% of them have five or fewer full-timeemployees, while 46% have six or more employees. Not answering the question were 8% ofrespondents.

Ownership of Business or OrganizationOf the respondents, 61% say their business or organization is a domestic one that is privatelyowned. All other ownership types comprise 7% or less of respondents. An ownership mixture offoreign and domestic comprise 7% of respondents, while another 7% are privately owned foreignentities. Domestic companies with a mixture of private and state ownership account for 4%, while3% are domestic, state owned. Another 4% are individual consultants. Of the respondents, 7% arewith NGOs and 5% are based in academia.

0 10 20 30 40 50 60 70

Auditing, Accounting, Tax Advisory andFinancial Services

Legal and Contractual Services

System Management Consulting

IT

Education, management and other businessSupport services

Communications, marketing, branding PR,Market research and analysis

Organizational Development, HumanResources Management and Leadership

Sales

Innovation, partnership and CSR

Export Promotion Consulting Services

Clients Consultants

QUOTE FROM INTERVIEWAdvantage of beingindependent consultant“Flexible working hours”

This study suggests that being a consulting company is an advantage. Users and non-users showeda preference for hiring companies over individual consultants. Nearly seven out of 10 respondents(69%) in the demand study report that when and if they hire consultants, they are more confidentin the reliability, professionalism and efficiency of a consulting company over an individual. Only19% say they prefer individual consultants. Further, these users and non-users perceive companiesto have greater capacity and better-trained staff and, thus, are more likely to choose them over anindividual.

The one exception to this general finding is among users and non-users from small enterprises.Among these respondents, the spread is only 57% to 35% that are more likely to hire a companyversus an individual consultant. Mostly likely the fact that they, too, are small enterprises suggeststhey may be less influenced by the perception that larger must mean better.

Independent ConsultantsThe research did include interviews with 11 independentconsultants. With a sample size this small, it is difficult tomake many valid conclusions. Of interest, however, aresome of the advantages and disadvantages cited by thisgroup of participants. Of the 21 different responsesprovided by independent consultants, seven related totheir ability to have control over how to manage contracts,solve problems and test their skills to achieve both. Another five responses mentioned flexibility ofwork hours and work locations; these were people who mostly worked from home. Yet anotherfive respondents enjoyed the ability to manage the relationship and communications with theirclients.

Profile of a Consultant or Consulting CompanyOf the respondents in the study, 69% were either owners or general managers of their company.When speaking to individual consultants, members of academe or NGOs, the consultant was theone interviewed. In other words, the respondents either lead the consulting company and/or arethe senior consultant of the company/organization.

The profile of these individual skews young. Nearly seven in 10 of the respondents (69%) areunder 50 and 38% of those are under 40. The consulting industry in its present form also seems tobe relatively new, as 34% of the companies or organizations are less than six years old. Only athird has been in the market since before 1999.

The experience of the study’s consultants also is relatively short. Only 28% of the respondentsreport more than 13 years of experience in their field prior to becoming a consultant. A third of theconsultants worked less than five years in their field of expertise before becoming a consultantwhile another 27% say they had between six to 12 years experience before marketing their servicesas a consultant.

Consultancies as SMEsThe collective data suggest that the consulting industry is a vibrant, new part of Serbia’s economy.Since no consulting firms in Serbia actually met the state criteria as a large company, it is clearthese firms are part of an SME sector that in 2008 created 25% of all new jobs and produced two-thirds of Serbia's trade revenues4. Recognizing consulting firms as part of the SME sector issignificant because it is the only market area, other than energy production, that experiencedstability or growth during the economic crisis.

Consultancies as Early AdaptorsThe global economy creates a global village connected by technology and, by applying thattechnology, businesses are able to treat customers across the planet as if they were neighbors. The

4 Serbian Agency for Small and Medium Enterprises, 2008 Annual Report

consultants in this study reflect thinking that classifies them as early adaptors to doing businessaccording to principles of a global economy rather than in traditional Serbian fashion.

The indicators for this conclusion are more qualitative than quantitative. They are derived from ahorizontal view of the study – looking at multiple factors within the data and matching them to thedefinitions of early adaptors as developed by global business and market thought leaders JohnKotter (Change Management), Philip Kolter (Social Marketing), Michael Porter (Competitiveness),Karl Weick (Highly-Reliable Organizations) and Warren Keegan (Global Marketing).

1.3.3 Users, Non-users and Consultants

Users and non-users of consultancy services were tested in two ways to understand their opinionsabout the development of the consultancy sector in Serbia. First, their general knowledge of thesector was tested when asked whether they could name any specific consultants. Second, theywere asked to rate the development of consultancy services within the 10 market segments definedin the methodology section of this study.

Awareness of Specific Consultants:The vast majority of these respondents could name at least one consulting firm. Only 18% ofsurveyed companies cannot specify a single consultant. Those who can could specify an average of2.3 consulting companies/individual consultants that they know about. The dispersion of answers,however, is very big: 127 companies that are able to name some consultant provide more than 150different answers. This finding indicates a very jagged market of consulting services, in which avery big number of insufficiently known consulting companies/individual consultants exist.The best known consulting company is Deloitte (9% spontaneous awareness both among users andnon-users). However, this company is known almost exclusively in Belgrade (awareness inBelgrade - 20%). The second best known consulting company is “Privredni savetnik” and“Euroaudit” (spontaneous awareness - 5%), followed by Ernst & Young (3%).Besides that, there is a big difference in knowledge of offerings in this area between users and non-users of consulting services (Figure 2). While almost all users of consulting services can specify atleast one consulting company, almost two-thirds of non-users (59%) cannot name a single one.This information also indicates insufficient general awareness of companies, organizations andindividuals who render consulting services.

Figure 2: Awareness of consulting companies or individuals - those who know to mention at least oneconsultant and those who don’t know, Base: all respondents, representatives of targeted companies(n=154)

83%

94%

41%

18%

6%

59%

Total User Non user

Know Don't know

Figure 3: Kind of consulting services provided by the mentioned consulting companies /independentconsultant, Base: All consulting companies mentioned by respondents (n=288)

41%

17%

13%

12%

8%

8%

8%

5%

4%

2%

3%

Auditing, Accounting, Tax Advisory and Financial Services

System Management Consulting

Legal and Contractual Services

Communications, marketing, branding, PR, market research and

IT

Organizational Development, Human Resources Management

Education, training and other management and business support

Export Promotion Consultancy Services

Sales

Innovation, partnership and CSR

Other

1.3.4 Market Barriers and Opportunities

Michael Porter’s Market Entry Theory offers five forces that influence decisions to enter a newmarket:

1. Power of the buyer to negotiate and dictate terms;2. Power of “your” suppliers to control prices for you to do business;3. Power of the competition;4. Ease of duplication of the product or service;5. Market forces, i.e., government, technology, cost of capital and so forth.

The Serbian market presents a true challenge for consultants. If tested against the Porter model,consultants have no power in any of the five areas. This is especially true in the fields of HR,general business consulting, marketing and PR and other “soft,” hard-to-measure consultingservices. The demand-side sample reports “both users and non-users of consultancy services agreethat major obstacles for development … include underdeveloped market, the financial situation, norecognition of need and insufficient information about their services.”

Their opinions are reflected in their readiness to invest in such services. Price is the No. 1 reasongiven by both sides in the studies as the most important reason services were dropped, notcontracted or not sought. In fact, only 9% of the consultants say they have never had to lowerprices in order to gain access to a contract. At the same time, the demand-side respondents reportthat the median annual payment to consultants was just 4,000 Euros in 2007, 4,500 Euros in2008 and only 4,200 Euros in 2009.

Users’ and non-users’ opinions also are reflected in their perceptions of how easily consultingservices can be duplicated. In open-ended responses, they suggest they “have employees that cando the job,” “already have departments for such functions,” and “solved the problem ourselves.”

In short, a key obstacle is the lack of understanding of the value of consulting services amongpotential buyers.

1.3.4.1 Pricing and Value

According to respondents, the main reasons why the companies do not use the services of externalconsultants are the high prices of these services relative to the benefits they offer as well as theabsence of offers of specific services which the companies need. More than one-quarter ofcompanies, which did not use external consultants during the past three years, specify thisparticular reason. Another rather commonly mentioned reason why companies did not use theservices of external consultants is a shortage of time to deal with external consultants due to otherdaily obligations. This reason was mentioned by just more than one in five of the companies whichdid not use the service of external consultants during the past three years.

The majority of annual investments by users for consulting services is in the 5,000 Euro range withservices provided by small enterprises. Engagements with medium-sized companies are larger,averaging between 5,000 and 10,000 Euros but can range as high as 50,000 Euros. Lessfrequently, users have contracted large, international consultants for work exceeding 50,000Euros. The following figure reports expenditures by users for external consultants during each ofthe past three years.

Figure 4: Total payments for engaging external consultants from various areas during the past 3 years,2007, 2008 and 2009, Base: Companies which used consulting services during the past 3 years (n=120)

1%13%

25%11%10%

4%3%

16%17%

11%7%

23%7%

9%3%

3%18%

21%

17%5%

20%9%

4%2%3%

17%24%

Not engaged consultantsUp to 1000

1001 to 50005001 to 10000

10001 to 50000

50001 to 100000Over 100000

Not known how much ispaid for them

Refusal

2007. 2008. 2009.

It is interesting to note that consultancy users in this study appear to become repeat customers, afact to be borne out in the discussion to follow. At the same time, the expenditures within eachprice range remain relatively consistent across the three years.

Lowering prices among consultancies is a powerful tool for gaining entry, with 43% saying theyfrequently lower prices (11% very frequently, 32% somewhat frequently) and a similar portion of46% saying that they lower their prices for these purposes but only infrequently (25% somewhatinfrequently, 21% very infrequently). Reflecting how deeply price-setting is a core function ofbusiness, just 1% are unsure and 2% do not answer the question.

Pricing DecisionsConsultants define success as delivery of quality service and providing client value as being asimportant as profit. A similar pattern emerges in pricing decisions. The three most importantfactors in pricing decisions for consultants are recognition in the market as offering value;knowledge of the market standard for payment of their particular service; and the actual cost ofperforming these services.

Two other significant drivers of pricing decisions when looking at total level of importance aretheir planned profit margin and competitor pricing. However, both have significantly lower levelsof respondents who say that these factors are extremely important in their prices.

The decision to be recognized as offering lower prices is important to only 19 % of respondents as asignificant factor in setting their own prices. The following table details how consultants makepricing decisions.

Table 2: Factors involved in driving pricing decisions; Ranked by total important (expressed in percent)

Based on these pricing decisions – desire to offer value, consideration of costs and need to reach aplanned profit margin – consultants, in general, do not think they are over or under priced for themarket.

More than six in 10 (64%) say that the prices they charge are average for the Serbian market, whileone in five (20%) say they are low for the market and just 13% say they are high for the market.Only 2% are unsure about how their pricing compares with the broader Serbian market for theirservices, indicating that these consultants are keenly aware of pricing levels for their services andproducts.

The challenge of pricing is a common thread across the report. It never appears statistically as amost important answer to many open-ended questions but its importance is an undercurrent. Forexample, when asked what is most important to survival and growth in the next three to five years,3% of the responses related to proper pricing. Of the respondents, 2% say developing pricing forproducts and services is an obstacle in daily relationships with clients. This separate category ofresponse is in addition to 6% of the responses pointing to low budgets of clients and 3% talkingabout clients lowering prices in the middle of a job.

Finally, 3% of the responses on why Serbia is not a real market suggests Serbia does notunderstand why consulting services are priced as they are.

1.3.4.2 Building and Managing a Client Base

Consultants spend too little time marketing, especially in the area of personal visits. At this time,the industry is far too dependent on word of mouth. The users and non-users respond in kind: Notonly do they hire based on recommendation and prior personal relationship, but one of the reasonsfor not engaging consultants is “we would not know who to engage.”

Yet, the consultants invest significant time in managing current clients. These data show thatconsultants heavily depend on repeat business from previous customers, with 62% reporting thatbetween 41% and 80% of their business is from repeat customers. Another 13% say that between81% and 100% of their business is from previous customers.

Potential Factors TOTALIMPORTANT

EXTREMELY(4)

NOT VERY(2)

NOT ATALL (1) MEAN

Decision to be recognized as offeringvalue for higher-priced services 85 71 5 5 3.57

Market standard for payment ofyour particular service 80 43 9 4 3.29

Expenses (the cost of producing anddelivering the service, overhead etc.) 80 56 9 7 3.36

Planned profit margin 68 17 15 11 2.78Competitor’s pricing 57 19 25 14 2.65Decision to be recognized as offeringlower prices than your competitors 19 3 26 50 1.72

Customer CommunicationsGiven the focus on repeat business, it is not surprising that almost three-quarters (74%) ofrespondents report that it is part of their standard approach to continue communication with aclient and get their feedback upon finishing a project. Another 23% report that seeking feedbackafter the project's completion depends on the situation, the client, or the assignment. Only 2% saythat they do not seek client feedback.

The two most common methods used to measure their clients' satisfaction are to meet with theclient at the end of the contract to evaluate the work (35%) or to keep the client continuouslyengaged in assessing the work (29%). Just under one in five (19%) actually offer their client asurvey to fill out, while 9% set and evaluate project milestones. Another 5% use other evaluationmethods and 1% use no measurement. Another 1% is unsure and 2% did not answer the question.

Responsive to Customer NeedsConsultants use this information and experience with clients to make decisions on what productsand services to offer their clients. Seventy-eight percent (78%) of respondents rank knowledge andexperience as the most significant driver behind their marketing decisions related to developmentof new products and services, entering new markets, or re-shaping their marketing materials. Thenext most important drivers are to conduct and analyze market research (43%) and to engageinput from colleagues and other professionals in their field (42%).

With this dependency on repeat business and a consistent lack of marketing coupled with littleawareness among users and non-users, one could become very concerned that the loss of one clientcould threaten the survival of these consultants.

Client-Consultant CommunicationsWhen consultants were asked in an open-ended question, "What do you consider as main obstaclesin your everyday work with clients?” they gave an extremely wide range of answers.Communications tends to be an underlying issue, whether it is the client’s ability to understand therole or work of the consultant or the client’s internal communications structure.

Twenty percent (20%) of the responses cite the client's lack of knowledge or understanding of theconsulting services or products which they have hired the consultant to provide and 7% cite theclient's lack of understanding of the current situation of the market related to the consultant's fieldof expertise.

Clients’ own internal organizational or management issues account for the second large set ofresponses. Of the respondents, 13% cite the client's lack of clear goals or direction on what needsto be accomplished and why, while 9% cite the client's own poor communications or organizationalbureaucracies and inefficiencies (8%) or poor organization (1%). Another 11% report an inabilityto reach the real decision maker in the client's office, 5% report the client's failure to provide clearinternal structure for the project, and 1% cite the lack of top management’s buy-in to the project.

By contrast, users of consulting services share much more positive responses related to client-consultant communications’ experience. The study interviewed 120 users of consulting serviceswho engaged in a total of 363 relationships with consultants during the last three years: an averageof three cooperation cases per user. Generally, a broad range of improvements resulted from theconsultant’s work; in only 15% of cases did users say no positive change resulted from thecooperation.

Communication with consultants is mainly regular, according to users. In 71% of the contracts,communication was regular and on a weekly basis. In 21% of the relationships, communicationtook place only several times in the course of a project, only concerning major issues/problemswhile in 7% of cases, communication was reduced to contracting the work and reporting.

Overall, users were satisfied with their working relationships with consultants in 90% of cases,with 61% of them completely satisfied. More than one-third (34%) of all users report they haveexperienced no problems at all in dealing with consultants. Just 4 % of the users in this studysuggest a level of dissatisfaction with rendered services.

1.3.4.3 Market Forces

The consultants interviewed are far more likely to identify their obstacles as external than internal.Universally, failures or inactions by Serbian government play a role in each set of questions relatedto obstacles.

The greatest obstacle cited is that “Serbia has yet to function as a true market, where competition isfair and open and contracts are awarded to companies based on merit and record of performance.”Closely related is the economic situation in Serbia, which the respondents of this study blame inpart on the government’s lack of an economic strategy.

Most Significant Obstacles for Businesses in SerbiaRespondents also were given a list of 11 different potential obstacles that companies may face whendoing business in Serbia. For each item, they were asked to rate whether that item was a verysignificant obstacle for their own company, a somewhat significant obstacle, not a very significantobstacle, or not an obstacle at all for the respondent's own company.

As the table below shows, the top obstacle is inefficient government, which 75% cite as a significantobstacle. Close behind is corruption and bribery, which 68% rate as a significant obstacle.Presumably, corruption and bribery encompasses both the public and private sectors.

The table below shows both the mean rating for each item tested and the portion of respondentswho rate each item as very, somewhat, not very, or not significant at all.

Table 3: Significance of obstacles; Ranked by Very Significant (expressed in percent), including a meanscore

Financial Obstacles for Business in SerbiaRespondents were offered a list of eight different financial challenges that a business might face.For each item, respondents were asked to say whether that potential financial challenge was amajor challenge for their company, a minor challenge, or not a challenge at all for their company.

Obstacles VerySignificant

SomewhatSignificant

Not VerySignificant

NotSignificant

at all

Don’tKnow/

RefusedNo

responseMeanScore

Inefficient state administration 42 33 17 4 1 3 3.18Corruption and bribery 39 30 17 7 3 5 3.08Problems with debt collection 35 28 23 11 -- 4 2.90Access to financial means 29 30 21 13 3 4 2.80Unfair competition 28 34 20 12 2 4 2.82Tax rates 26 35 26 9 1 5 2.82Delay in issuance of licenses 25 14 27 28 1 5 2.34Unstable monetary policy 23 34 25 13 1 4 2.71Inadequately trainedworkforce

23 28 25 20 1 3 2.60

Unstable government 23 21 32 19 1 5 2.51Lack of partnerships with EU-funded projects

19 25 23 22 7 3 2.45

The top two challenges cited are debt collection and taxation policy. Debt collection is the greatestchallenge cited, with almost half (49%) calling it a major challenge for their company and another30% a minor challenge. Only 19% say that debt collection is not a challenge for their company.

Taxation policy is the next most frequently cited challenge, with just 21% saying it is not a financialchallenge for their company, and 38% saying it is a major challenge.

Corruption and Lack of TransparencyAlmost half (46%) say that someone in their closest environment - whether peer, competitor, orclient - has been engaged in corruption or bribery, while 39% say that they do not have someonelike that in their closest environment. Of the remainder, 10% say they are unsure and 4% refusedto answer the question.

More than half (54%) of respondents report that they have lost a tender that appeared to be part ofa genuinely competitive situation, when in actuality it was awarded based on an inside relationshipor other factors that were not transparent. Just 29% say this has not happened to them, while 15%say they do not know if that has happened to them.

Perceptions of Fairness for Different Types of TendersState Tenders: Just over half (51%) of respondents say that they believe the process for awardinga state-funded contract is most often an unfair process whose outcome is predetermined. Just 18%believe that the process for awarding state-funded contracts is most often a fair and opencompetition. A full 26% say they are unsure.

Private Business Tenders: While the perceptions of fairness in the tender process for privatebusiness are not as positive as one might hope, they are certainly much better than for state-funded contract tenders. While just 18% believe state-funded tenders are awarded fairly, a muchlarger 48% believe that private business tenders are awarded in a process that is fair and has opencompetition. Just 21% believe the process for private business is unfair and predetermined. Justas with state-funded tenders, a full 26% say they are unsure of the fairness of private businesstenders. Only 1% refused to answer the question and 4 % did not respond.

International Donor Tenders: Views on tenders from international donors are similar to thosefrom private business, with a majority (51%) saying these tenders are awarded fairly and in opencompetition, while just 17% say they are unfair and predetermined. A similar 28% are unsure.

Figure 5: Process for awarding state-funded, private business, or international donor contracts

18%

48%51%51%

21% 17%26% 26% 28%

0%

20%

40%

60%

State-funded Private Business International Donors

Most often fair Most often unfair Unsure

Perception of Corruption Stifles Competition?More than six in 10 (63%) report that their company has at least once decided not to respond to apublicly funded tender, regardless of whether it was state, private, or international, because theythought that the process was unfair and predetermined.

Just 27% say they have never done so, while 9% are unsure.

A smaller, but still significant, portion, of the respondents (29%) report they have turned away atleast one contract because they were asked to make an inappropriate payment as part of beingawarded the contract. Half (50%) report that they have not done so (of course, we do not knowwhat portion of that 50% have nonetheless been asked for inappropriate payments but did notrefuse a contract as a result). Another 15% say they are unsure.

1.3.4.4 Free Trade and EU Accession

Respondents report working in more than 40 different countries or regions. The most frequentlycited foreign markets are Montenegro (41%), Bosnia (33%), Macedonia (19%), and Croatia andSlovenia (each 17%). Between 6% and 9% cite Germany, the United States, Greece, Hungary,Kosovo, Russia, the Netherlands, or Bulgaria.

Free Trade and EU Ascension: Role of International CommunityThe respondents of this survey make the majority of their money from private businesses. Sixty-one percent (61%) report that 21% or more of their income comes from private businesses inSerbia, compared to just 21% who say that about international donor groups, 22% who say thatabout government or public companies in Serbia, and 30% who say that about privateinternational businesses.

Just 13% of the consultancies report no income from private business in Serbia. In contrast, 40%report no income from the Serbian government or publicly owned companies; 41% report noincome from private international companies, and fully 55% report no income from internationaldonor groups. Interestingly, 84% of the companies that used consultants say they paid the entireservice bill on their own with no subsidies from donors or the government of Serbia.

In the next 3 to 5 years, consultants hope to reverse the trend of no business with internationaldonors. Just over one-third (34%) chose this sector as the area where they would most like toexpand or increase the level of business with them compared to what they do now. Theconsultants are unfamiliar with specifics about Pre-Accession funds but they are well aware that aflood of new resources are about to enter the market and they want education to positionthemselves to leverage them.

Smaller portions of respondents chose to set as their top priority expanding or developing businesswith international private companies (27%), domestic private companies (19%), or Serbiangovernment or public companies (10%).

Potential Markets: IPARespondents are more unfamiliar (57%) than familiar (37%) “with the consulting opportunitiescreated through the European Union’s Instrument for Pre-Accession or IPA.”

Among those respondents who say they are familiar with IPA (n=59), 27% say that the mainbenefits to their company from IPA funds may be opportunities for new projects. Another 8% eachsee an opportunity for internal development, being able to assist companies that can use thesefunds through formulation of partnerships or international partnerships, or that it will raisestandards of consulting services in their area of expertise. Additionally, 7% each cite as the mainpotential benefits getting new knowledge or being able to partner with state institutions.

Regardless of their level of familiarity with IPA, all respondents were asked to say for whichaspects of IPA funds they would like to get more information, training, or support. Their answersare as follows:

Table 4: For which aspects of IPA funds would you like to get more information? (expressed in percent)

Availability of funds and projects related to myarea of expertise

20

Overall knowledge of IPA funds 15How to apply/criteria forparticipation/decision making criteria

11

Opportunities for my clients to use these funds 3Availability of funds for education andcertification in my area of expertise

3

How to access funding 3Other 10Not applicable to my business 2Unsure 11No additional information needed 13No response 17

Cooperation with EU ClientsIn relation to those aspects of cooperation with European Union clients that require moreinformation, training, or support, one-third (33%) say they would like more information about theneeds of their services and how to price their services to win contracts. Another 19% say they wantknow about opportunities for business development and new financial resources for their companyor how to find foreign investors. Fully 17% say they do not desire more information as this is notimportant to their business.

Familiarity with CEFTAFewer respondents (40%) report they are familiar with the main elements of the Central EuropeanFree Trade Agreement (CEFTA) than report being unfamiliar with it (54%). Just 11% say they arevery familiar with CEFTA, while another 28% report being somewhat familiar with it. A majorityare unfamiliar with its main elements, with 31% saying they are somewhat unfamiliar and another23% saying they are not familiar at all with CEFTA.

Those more likely to be familiar include these market sectors: export (56%), legal (55%), sales(50%), innovation/social responsibility (50%), and marketing/public relations (49%).

Also more familiar are those whose gross turnover has grown (53%) and who have not been hurtby the crisis (49%), as well as those who say the Serbian market is developed (57%).

Perceived Benefits from CEFTAThose 40% of respondents who reported some familiarity with the main elements of CEFTA wereasked in an open-ended question to say what they believe to be the main benefits to their companyfrom the CEFTA agreement. Just over one-quarter (27%) cite the opportunity for increasedbusiness or improved business opportunities, with another 8% citing custom-free export ofservices and 7% citing unified markets for the clients that need their services. Eight percent (8%)cite networking in the region.

Problems with Non-Tariff BarriersAlmost two-thirds (64%) of those familiar with CEFTA say that they have not encounteredproblems related to Non-Tariff Barriers (NTB). Just 7% report having encountered problems,while 29% did not answer this question.

Problems with Technical Barriers of TradeAlmost six in 10 (59%) of those familiar with CEFTA say that they have not encountered problemsrelated to Technical Barriers of Trade (TBT). Just 7% report having encountered problems, while27% did not answer this question.

Questions about CEFTAWithout regard to their level of familiarity with CEFTA, all respondents were asked on whataspects of the CEFTA Agreement they would like to get more information, training, or support.One-quarter (24%) did not answer the question, and 12% say they are unsure. Another one in five(20%) say they have no need for more information, and 9% say that CEFTA is not relevant to theirwork. Thus, fewer than four in 10 respondents would like information on CEFTA. Fourteenpercent (14%) are interested in learning how it relates to their field of consulting. Eleven percent(11%) say they know virtually nothing about it and need information in all areas of CEFTA. Fivepercent (5%) want information on import and export procedures. Three percent (3%) want toknow how CEFTA can help their business work with neighboring companies, while 2% want toknow about partnership opportunities. Another 2% want information about CEFTA related toservices.

1.3.5 Image and Understanding

The research shows that awareness of the consultancy market is extremely low. Further,recognition and knowledge of specific companies is lower still, even among major global entitieswith offices in Serbia. Finally, the lack of direct communications or marketing by consultingcompanies affects the level of demand.

Referrals and websites then become the main methods of how potential users find theirconsultants and, interestingly, it is what these consultants rely upon to get new work.

Figure 6: Communication channels between consultants and clients

0 10 20 30 40 50 60 70 80 90 100

Consultant contacted through an institution

Consultant contacted client directly

Consultant sent proposal to client's tender

Personally know client

Prior experience of working together

Through a Referral

Clients Consultants

QUOTE FROM INTERVIEWDefinition of success:“Company has to be socially responsible,to give guarantees for professionallyexecuted projects, to adequately managehuman resources, to plan and question itstargets and to adequately motivateemployees. We are trying to accomplishall of the above mentioned.”

Consultants’ Success: Client Satisfaction and Quality ServiceAlthough consultants appear to spend little time or money marketing to their clients, they placegreat emphasis on the quality of their work. Since both users and suppliers rely uponrecommendations, prior relationships and word of mouth as ways to buy and sell services, it isclear that consultants view the current projects assignificant marketing opportunities.

Consultants value the reputation of their companyand service very much. When asked for theirpersonal responses about measuring success in anopen-ended question, nearly a third of theresponses (30%) related to the relationship betweendelivery of high-quality service and the reputationof their organization. In fact, client relationshipand quality of service is how these consultantsdefine success. A full 54% say that is their mostimportant criteria for success, and another 24% say it is their second-highest criteria, for a total of78% saying it is their first or second criteria for judging their own business success. Just 11% rankthat as their third or fourth criteria for judging success.

Less than one in five (19%) say that “profit” is their top measure of success, with another 26%ranking it as their second-highest measure (total 45%).

The following table provides detail for all responses for the closed-ended question.

Figure 7: How consultants define their business success

If consultants are allowing actions to speaklouder than marketing materials, based onthe responses from users of consultingservices, the effort consultants are making toprovide quality services are paying dividends.The figure below demonstrates the variousbenefits survey respondents named as aresult of their engagement of a consultant.The only area where they did not see directresults was in the area of operations.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Client's satisfaction

Profit

Knowing that people who work with me are fulfilledwith their work

Contributing to economic growth of Serbia

Most important Somewhat important Somewhat not important Least important

QUOTE FROM INTERVIEWDefinition of success:“Given the time in which we live, Ibelieve that our company is verysuccessful because it managed tomaintain business, customers andemployees.”

Direct Benefits Resulting from the Engagement of External Consultants

Figure 8: What do consumers see as biggest benefits of engaging consultants?

0 10 20 30 40 50 60 70 80

Development of business operation

Development of knowledge

Increased volume of business

Reduction of costs

Reduction of deadlines for delivery

Yes No

Users’ and Non-Users’ Image of ConsultantsBusiness managers expect results from any hire, be it employee or consultant. The level ofsatisfaction among users of consultancy services, though, is exceptionally high, especially in aculture unaccustomed to giving high praise. On a satisfaction scale of 1 to 5 where a mark of 5 isthe highest rating, those users of consultancy services give a 4.5 rating.In other words, users were satisfied in 90% of cases and in 61% of them, they were completelysatisfied. In only 4% of cases users were dissatisfied with rendered services. Users from the area oftrade are satisfied with cooperation more than average, while users from the area of production aresatisfied less than average.

While it is impossible to make a statistically reliable comparison, this 4.5 satisfaction rating forconsultants is among the highest given to any group or individual in a decade of market research inSerbia performed by the team of this survey.

While the satisfaction among users is good news for the industry, there is a lack of information andknowledge about the successes of professionals in the consultancy market among those who do notengage services. As a result, they have a much lower opinion of the services. A great discrepancyexists between users and non-users of consultancy services when asked about satisfaction. Notsurprisingly, those respondents who have never used consulting firms give a rating of less than 3out of 5.

This gap in opinion between users and non-users of services suggests that the consulting industrysuffers from a poor perception among potential users. The exceptional outcomes experienced byusers, however, serve as evidence of the benefit and quality of the profession and could be thefoundation for an educational program.

PART II: DEMAND SIDE

2.1 Methodology

Two key objectives in investigating the demand side of the consultancy industry market in Serbiawere:

1. To explore the segment of consultancy service users, in order to identify what services areneeded, what are the key unmeet needs of the clients, how satisfied are clients withconsultancy services received, and what are the drivers for and obstacles to consultancyindustry development in Serbia.

2. To explore the segment of non-users of consultancy services, in order to learn about thebarriers for purchasing consultancy services as viewed by this control group. In addition toidentification of barriers, the research was used to uncover opportunities for market entryby the consultancies if the right approach or the opportunity were presented.

Sample 2: Users and Non-Users of Consultancy ServicesSample frame included private enterprises (SME) listed in the register of the Business RegistersAgency in Serbia (APR) and National Bank, which submitted their annual financial reports forfiscal years 2007, 2008 and 2009. Sample frame for Sample 2 consists of 43,681 enterprises.

A total of 154 companies were included in the survey. Of the 154 interviewed companies, 110 werechosen by random sampling method (76 users and 34 non-users of consultancy services) and44 companies were identified during the fieldwork on Sample 1 (consultancies). These figures donot represent incidence of use of consulting services since we were oriented to users, while thenon-users were included for the purpose of comparison. Due to that fact, further findings will becommented, wherever necessary, both from the angle of users and non-users.

Enterprises which took part in this research differ by size, type of economic activity, type of capitaland ownership structure, as well as by the region in which they operate their business. Quotas forrealization of sample were made on the basis of size according to number of employees, type ofeconomic activity, type of capital and region.

Observed by size, 54 interviewed companies are small companies based on their number ofemployees (up to 50 employees), 53 companies are of medium size (50 to 250 employees),47 companies are big (more than 250 employees).

By type of activity, 73 interviewed companies are engaged in manufacturing (includingcivil engineering), 40 companies are engaged in trade, and 41 companies are engaged inrendering services (educational and health care services included).

Observed according to origin of capital, great majority of interviewed companies, 127 arecompanies with domestic capital, 15 with foreign capital and 12 with mixed capital.

By ownership structure of companies in the sample, 110 companies are private, while 20are socially owned, 13 state owned and 11 with other ownership structure.

60 companies are located in Belgrade, 55 in Central Serbia, 39 in Vojvodina.

41% of respondents say that their company profit decreased in 2009 relative to the previousyear. 29% say that their profit increased, while 26% say that it remained the same. Also,31% of respondents say that their number of employees decreased in 2009 relative to theprevious year, 49% say that this number remained the same, while 20% say that itincreased.

The field work lasted from January 11 to January 29, 2010.

2.2 Key Findings

Spontaneous Awareness of ConsultantsAnswers to the question “Have you heard of consulting companies or individuals who renderconsulting services?” show that a large number of consulting companies are mentioned, but noneof them has awareness exceeding 10%. This finding indicates a very jagged market of consultingservices – that is, a very big number of insufficiently known consulting companies/individualconsultants. Besides that, there is a big difference in knowledge of offerings in this area betweenusers and non-users of consulting services which also indicates insufficient general awareness ofcompanies, organizations and individuals who render consulting services.

Demand for Consulting ServicesUsers of consulting services demand to the highest extent financial and then legal services.However, great demand for services is present in the areas of quality systems management and ITservices. Companies also demand training and other management and business support services.

Demand for all services among non-users is on a significantly lower level compared to users - thecompanies which do not use the services of consulting companies mainly do not even feel the needto engage them.

Characteristics of Hiring ConsultantsThe most frequently mentioned way of finding a consulting company is through recommendation,while selection through calls for proposals and tenders is considerably less frequently used, as wellas proactive approaches on the part of consultants.

In 85% of responses, a contract was signed with the consultants.

Contracts vary to a great extent. The majority of the business relationships with consultants werefor smaller contracts (price of service median is 2,000 Euros), while average is increased byindividual cases of several million Euros prices.

The most frequently mentioned results of this cooperation are improved company organization(43%) and better planning (28%).

Users’ satisfaction with specific consultants/consultancies is very high – average grade is 4.5 onthe 5-degree scale.

Perception of Development of Consultancy Services MarketPerceived as the best developed consultancy areas are financial and legal services, while the leastdeveloped is related to innovation, partnership and CSR.

In general, non-users perceive this market as more underdeveloped than users do.

Use of External Services/ Products (outsourcing) – in GeneralAttitude of companies that did not engage external consultants - According torespondents, the main reasons why the companies do not use external consultants are high pricesof these services relative to the benefits they offer as well as the absence of specific services whichthe companies need.

Attitude of respondents who used consulting services - Among the enterprises which usedthe services of external consultants during the past three years, as much as 69% prefer to hire aconsulting company, and just 19% opt for independent consultants.

The most frequently mentioned reasons for a preference toward consulting companies areconfidence, conviction that consulting companies are safe and reliable, and the impression thatthey offer professionalism, efficiency and better expertise than independent consultants. Theopinion is also that consulting companies have broader experience, better-trained staff, biggercapacities, team work and coverage of a wider assortment of services.

Dominant investments are small annual allocations for external consulting services – up to 5,000Euros, placed primarily through small enterprises. Medium-sized enterprises annually allocate5,000 to 10,000 Euros for external consultants, and less frequently between 10,000 and 50,000Euros. There are cases when large foreign companies, mainly in Belgrade, invest more than 50,000Euros annually in external consultants.

On average, services of external consultants last 24.4 weeks.

Companies which used the services of external consultants most frequently pay in full after thedelivered service (in 46% of cases), but in 24% of the cases, they pay 10% after signing the contractand in phases after portions of work are completed.

As much as 86% of companies which used external, domestic consultants have used consultantsmore frequently in 2009 compared to previous two years.

Key drivers for hiring consultantsSome 87% of respondents say quality of service is the key driver for hiring external consultants;48% say recommendations are the key drivers. Other important criteria are price of service (38%),speed and efficiency (37%) increase of turnover, profit (28%), and knowledge about the specificindustry company is engaged in (27%).

An overwhelming 71% of company representatives who used external consultants think that usingthese services contributes to improved business operations.

Future Company NeedsRegarding increased or decreased future need of external consultants for these companies, currentusers of consultancy services are significantly more open toward hiring this type of adviser thannon-users.

Users of consultancy services are definitely most interested in auditing, accounting, tax advisoryand financial services.

Companies that don’t use consultancy services are most interested in external consultants forcommunication, marketing, branding, PR activities, market research and analysis.

Image Section and Source of InformationThe general finding is that users of consultancy services have a much better opinion of theconsultancy industry in Serbia than non-users.

While users of consultancy services have predominantly positive attitudes toward consultancyservices in Serbia, non-users are predominantly neutral or are unable to estimate their attitude.

Even 53% of users of consultancy services think that demand for consultancy services has generallygrown over the past three years, while more than half (53%) of non-users don’t know or can’testimate this trend.

Users have much better perception of the development of the consultancy services’ market thannon-users. While only 13% of users think that the market of consultancy services in Serbia isunderdeveloped, 41% of non-users share this attitude.

Users of consultancy services primarily mention a shortage of consultancy services in the area ofinnovations, partnership and CSR, in 27% of cases, and a shortage in the area of export promotionand development in 23% of cases.

Non-users of services primarily stress a shortage of consultancy services in the area of education,training and other services of support to management and business operations – in 18% of cases.

Both users and non-users of consultancy services agree that major obstacles for development ofconsultancy services in Serbia are still unsafe/underdeveloped market, financial situation, andmistrust/ no recognition of needs, while non-users also mention poor marketing of consultantsand insufficient information about their services and work.

While more than half of users evaluate consultants with the best grades (four and five) for theirknowledge, professionalism and efficiency, only ¼ of non-users share their opinion.

The most important sources of information about consulting companies/individual consultants arethe Internet and recommendations.

2.3 Research Results

2.3.1 Products and Services Demanded

Figure 9 shows the demand for consulting services among users and non-users of these services.Users of consulting services demand financial services first and then legal services. However, greatdemand was observed in the areas of quality system management and IT services. Demand for allservices among non-users is significantly lower compared to users, but non-users’ interests aredifferent. They mostly desire consulting services in marketing and market analysis, legal servicesand standardizations.

Figure 9: Demand for consulting services in case of users and non-users of consultancy services, by area ofconsultancy services, Base: all respondents, representatives of targeted companies (n=154)

66%

56%

37%

36%

34%

26%

18%

14%

10%

9%

12%

21%

18%

15%

12%

24%

6%

6%

12%

3%

Auditing, Accounting, Tax Advisory and Financial Services

Legal and Contractual Services

System Management Consulting

IT

Education, training and other management and business supportservices

Communications, marketing, branding, PR, market research andanalysis

Organizational Development, Human Resources Management andLeadership

Sales

Innovation, partnership and CSR

Export Promotion Consultancy Services

UsersNon users

Figure 10 shows demand and realized engagement of consulting companies/independentconsultants, by area of consultancy services. It is noticeable that, when a need exists, it is realizedto a great extent. Somewhat poorer proportion between required and rendered services is noticedin the area of marketing and market analysis and legal services.

Figure 10: Demand and realized engagement with consultants, by area of consultancy services, Base: allrespondents, representatives of targeted companies (n=154)

54%

48.1%

32.5%

31.2%

29.2%

25.3%

14.9%

12%

10.4%

8%

48%

38%

25%

24%

21%

12%

11%

8%

3%

5%

Auditing, Accounting, Tax Advisory and Financial Services

Legal and Contractual Services

System Management Consulting

ITEducation, training and other management and business support

servicesCommunications, marketing, branding, PR, market research and

analysisOrganizational Development, Human Resources Management and

Leadership

Sales

Innovation, partnership and CSR

Export Promotion Consultancy Services

DemandEngagement

2.3.2 Users of Services

Among the enterprises which used the services of external consultants during the past three yearsas much as 69% prefer to engage a consulting company, and just 19% opt for independentconsultants.

A statistically significant difference is recorded only in the case of small enterprises, wherepreference for consulting companies was recorded in 57% of cases, while preference forindependent consultants was recorded in 35%.

The most frequently mentioned reasons for inclination toward consulting companies areconfidence, conviction that consulting companies are safe and reliable and the impression thatthey offer professionalism, efficiency and better expertise than independent consultants. Theopinion is also that consulting companies have broader experience, better-trained staff, biggercapacities, team work and coverage of a wider assortment of services.

2.3.3 Characteristics of Engagement with Consulting Companies

A total of 120 users of consulting services listed 363 times they used consultants during the lastthree years, which is an average of three per user. Respondents mentioned a large number ofconsulting companies/individual consultants with which/whom they worked, but not a singleconsulting company/individual consultant were mentioned in more than 3% of cases.

Consulting companies were most frequently chosen because they wererecommended (50% of all cases were initiated in this way). In 16% of cases the users had aprevious work experience with a particular consultant. In 11% of cases company representativesknew the consultants personally. In a few cases the companies either opened a competition for theconsultancy business or the consultants contacted the company (9% each).

State-owned and social enterprises open competitions considerably more frequently.

In 85% of cases where consultant were proactive in seeking business, a contract wassigned. This occurs somewhat more frequently in the case of enterprises in the area ofproduction, and less frequently in the area of services. Consultancy contracts are signedconsiderably less frequently in training and education, Innovation, partnership and CSR.

Prices vary considerably. In the great majority of analyzed contracts where the consultantsought out the business (78%), the enterprises paid full price for the services, on average 26,000Euros. However, most of the cases were smaller volume, with the median price at 2,000 Euros.However, the average is skewed by amount several large scale cases where prices reached severalmillion Euros.

The most frequently mentioned results of these contracts are improved companyorganization and better planning. Improved company organization, as a result ofcooperation, is mentioned in 43% of cases where the consultant sought out the business. Alsomentioned is better planning (28%), improved relationship with clients (18%) and reducedcompany costs (16%). In 12% of cases, respondents say that this cooperation created new sourcesof financing, and in 11% that it increased sales. In only 15% of cases, respondents said there was nochange.

The most common result in the area of standardization, education and training is improvedcompany organization. The most frequently mentioned result in marketing and market analysis isa better relationship with buyers/clients.

Respondents experience in hiring financial and legal services, absence of results is mentionedsomewhat more frequently, which is possibly because using consultancy in these areas is often nottargeted at visible results in the form of company development.

Communication with consultants is mainly regular, on a weekly basis (71%) In 21% ofcases, communication took place only several times over the course of a project, only concerningmajor issues/problems. In 7% of cases, communication was reduced to contracting the work andreporting.

In a majority of cases, expected results of cooperation and deadlines are stipulatedin advance. In 83% of contracts, expected results of cooperation and deadlines were stipulated inadvance, while in 17% of cases expected result or deadlines remained undefined. Deadlines andexpected results are more frequently defined in state- and socially owned companies. In the area oflegal and contractual services, results and deadlines are less frequently defined than in other areas.

Users’ rating of satisfaction with specific consultants/consultancies is very high andthe average rating for all cases is 4.5 on the 5-degree scale. In other words, users weresatisfied in 90% of cases and in 61% of them completely satisfied. In only 4% of cases users weredissatisfied with rendered services. Users from the area of trade are satisfied more than average,while users from the area of production are satisfied less than average.

The average annual payment for engagement of external consultants was 59,000Euros in 2007, and 69,000 in 2008 and 2009. But the median annual payment is muchsmaller – 4,000 in 2007, 4,500 in 2008 and 4,200 in 2009. These differences between the averageand median value tell us that the dominant investments are small annual allocations for externalconsulting services, while in very few cases these investments are extremely high (two largecompanies in the sample had annual investments over 1 million Euros).

The majority of cases of annual investments are up to 5,000 Euros, placed primarilythrough small enterprises. Medium-sized enterprises usually allocate 5,000 to 10,000 Euros yearlyfor external consultants, and less frequently between 10,000 and 50,000 Euros. Some largeforeign companies, mainly located in Belgrade, invest more than 50,000 Euros in externalconsultants annually. The data are shown on Figure 11.

Figure 11: Total payments for engaging external consultants from various areas during the past 3 years,2007, 2008 and 2009, Base: Companies which used consulting services during the past 3 years (n=120)

1%13%

25%11%10%

4%3%

16%17%

11%7%

23%7%

9%3%

3%18%

21%

17%5%

20%9%

4%2%3%

17%24%

Not engaged consultantsUp to 1000

1001 to 50005001 to 10000

10001 to 50000

50001 to 100000Over 100000

Not known how much ispaid for them

Refusal

2007. 2008. 2009.

On average, services of external consultants last 24.4 weeks. This finding differsaccording to the type of enterprise and location. Namely, for enterprises in Belgrade, the averageduration of consulting services is 35 weeks; it is just 7 weeks in enterprises from Vojvodina.

As much as 77% of enterprises which used the services of external consultants usually stipulatecontent and deadlines in advance when hiring an external consultant. This percentage is somewhathigher among companies in Belgrade.

2.3.4 Awareness of Consulting Companies and Individual Consultants

The vast majority of these respondents could name at least one consulting firm. Only 18% ofsurveyed companies cannot specify a single consultant. Those who can could specify an average of2.3 consulting companies /individual consultants that they know about. The dispersion of answers,however, is very big: 127 companies that are able to name some consultant provide more than 150different answers. This finding indicates a very jagged market of consulting services, in which avery big number of insufficiently known consulting companies/individual consultants exist.

The best known consulting company is Deloitte (9% spontaneous awareness both among users andnon-users). However, this company is known almost exclusively in Belgrade (awareness inBelgrade - 20%). The second best known consulting company is “Privredni savetnik” and“Euroaudit” (spontaneous awareness - 5%), followed by Ernst & Young (3%).

Besides that, there is a big difference in knowledge of offerings in this area between users and non-users of consulting services (Figure 12). While almost all users of consulting services can specify atleast one consulting company, almost two-thirds of non-users (59%) cannot name a single one.This information also indicates insufficient general awareness of companies, organizations andindividuals who render consulting services.

Figure 12: Awareness of consulting companies or individuals - those who know to mention at least oneconsultant and those who don’t know, Base: all respondents, representatives of targeted companies(n=154)

83%

94%

41%

18%

6%

59%

Total User Non user

Know Don't know

Of all mentioned consultants (total 288) - 83% are consulting companies, 6% are independentconsultants (as a rule these are Law offices), 3% are academic institutions (Economic InstituteBelgrade, Agricultural Faculty, Faculty of Civil Engineering), 0.7% are NGOs (Association ofAccountants and Auditors of Serbia).

The consultants that were recognized mainly render the services of Auditing, Accounting, TaxAdvisory and Financial Services (41% of all mentioned consultants render these services). The nextmost important services are System Management Consulting, (17%); Legal and ContractualServices (13%); and services from the area of Communications, Marketing, Branding, PR, MarketResearch and Analysis are rendered by 12% of recognized consultants (Figure 13).

Figure 13: Kind of consulting services provided by the mentioned consulting companies /independentconsultant, Base: All consulting companies mentioned by respondents (n=288)

41%

17%

13%

12%

8%

8%

8%

5%

4%

2%

3%

Auditing, Accounting, Tax Advisory and Financial Services

System Management Consulting

Legal and Contractual Services

Communications, marketing, branding, PR, market research and

IT

Organizational Development, Human Resources Management

Education, training and other management and business support

Export Promotion Consultancy Services

Sales

Innovation, partnership and CSR

Other

2.3.5 Perception of Development of Consulting Services Market SectorsPerception of development of consulting services differs based on the market sectors by users andnon-users of consulting services. Perception also changes based on whether the respondents everhad an experience with any consultant in that market sector.

Rating provided by non-users is more balanced than rating provided by users; they don’t differsignificantly regardless of the area of consulting services. The sector perceived as the most

underdeveloped area is export promotion and development with an average grade 2.3 on the 5-degree scale, while the best-developed area is marketing and market research – average grade 3.1.

On the other hand, users vary their rating of consultancy services significantly across the variousmarket sectors, especially in comparison to non-users’ ratings. Perceived as the best-developedareas are financial services (average grade 4.1), legal services (4.0), marketing and market analysis(3.9) and IT services (3.9), while the least-developed area is the area related to innovation,partnership and CSR (2.9).

Figure 14: Perception of development of specific area of consultancy services, Base: all respondents,representatives of targeted companies (n=154)

4.1

4

3.9

3.9

3.5

3.4

3.2

3.2

3.1

2.9

3

2.9

3.1

3

2.9

2.7

2.4

2.5

2.3

2.6

Auditing, Accounting, Tax Advisory and Financial Services

Legal and Contractual ServicesCommunications, marketing, branding, PR, market research and

analysisIT

System Management ConsultingEducation, training and other management and business

support servicesSales

Organizational Development, Human Resources Managementand Leadership

Export Promotion Consultancy Services

Innovation, partnership and CSR

UsersNon users

2.3.6 Image and Sources of Information

Differences are again present between users and non-users of consulting services in terms of theirgeneral attitude toward consulting services in Serbia. Users of consulting services have apredominantly positive attitude regarding the consultancy services in Serbia.

Users of consulting services have a predominantly positive attitude – almost half of them, and overone-third of them have negative–neutral attitude; non-users of consulting services have apredominantly neutral attitude or they can’t estimate – a neutral attitude is shared by 44% of non-users, and even 24% of them opt for “don’t know, can’t estimate.” However, one-fourth of non-users have a positive attitude toward consulting services in Serbia.

Figure 15: General opinion about consultancy services in Serbia - positive, neutral, negative. Base:Companies which did and did not use consulting services over the previous 3 years (n=154)

49%

24%

35%

44%

10%

9%

6%

24%

User

Non user

Positive

Neutral

Negative

Don`t know, can�testimate

In general, a positive attitude is based on personal or someone else’s positive experience withconsultancy: achieved results and progress in business operations, certified professionalism,expertise, and efficiency.

Neutral and negative attitudes toward consultants derive from personal or someone else’sexperience with high prices and a not-very-efficient consultancy.

Sources of Information about Consulting Companies / Independent ConsultantsThe most important sources of information about consulting companies/independent consultantsare the Internet and recommendations. The Internet is mentioned as a source of information aboutconsultants in 65% of cases by users, while non-users mention it only in 38% of cases;recommendations are mentioned by 69% of users and only 21% of non-users.

Figure 16: Sources of information about consultants. Base: Companies which did and did not use consultingservices over the previous 3 years (n=154)

65%

38%

69%

21%

24%

6%

18%

12%

20%

3%

6%

3%

User

Non user

Internet

Recommendation

Business and professional magazines

Advertising of consultants

Informing through associations andorganizations

Fairs

Without any difference, both users and non-users of consulting services prefer the Internet andrecommendations as sources of information, but they are also inclined toward various types ofadvertising, obtaining information in business and professional magazines, and from professionalassociations and organizations. Non-users have the need to get informed about consultants at fairs.

Neither users nor non-users largely know of any associations and business platforms of consultingcompanies and independent consultants. Even 79% of users and 82% of non-users haven’t heard ofany associations and business platforms of consulting companies and independent consultants,while 8% of users and 12% of non-users have heard of such associations and platforms, but theydon’t know their names. Somewhat known names are Jugoinspekt, ACES and SIEPA – recognizedby 1%-2% of users and non-users of consulting services.

PART III: Future Trends and Needs

The corresponding literature research revealed that new, for-profit businesses in transitionalcountries go through a process – which in Poland, Czech Republic, Hungary and Slovenia tookabout eight years -- in which managers moved from a focus on business operations and fiscalconstraint to a focus on development of employees, customers, innovative systems and otherinvestments in long-term development and growth.

The reasons for this slow transition are founded in logic. Managers in newly created or privatizedbusinesses required reorganization, redundancy, recapitalization and new sales to survive. Theylacked time to engage in anything more than business survival fundamentals. Over time, theimmediate crises pass and survivability was redefined to include business methods of the globaleconomy. In other words, managers, according to the literature, reached a point when theyrecognized that sustainability required external support.

Serbia is at the end of its first decade of transition, so the time line is a bit behind the experience ofother countries, but the previously mentioned countries did not suffer the loss of their iconic leaderthrough assassination nor did they experience a global economic crisis of unparalleled proportion.

A reasonable projection for the consulting industry in Serbia is that it will continue to grow anddevelop. Time is the only question. How long will it take for the demand side to have resourcesand knowledge enough to fully engage the industry for its benefit? How long will it take forconsultants to have resources and skills to both market services and build an unquestionedreputation? How long will it take for the government to act as a catalyst for business growth anddevelopment? How long will it take for the global economic recovery to impact the economichealth of Serbia? As this final part of the Consultancy Industry Report will show, the progress willbe slow and the movement forward in the short term comes from the consultants more than thebuyers. Regardless, the question related to Serbia’s consulting industry is not whether it willbecome a viable partner in the development of Serbia’s economy but rather how long it will takebefore conditions allow the sector to demonstrate its full potential.

3.1 The Future of DemandWhile neither users nor non-users articulate a great demand for consulting services in the nextthree years, not surprisingly the users are much more likely than non-users of services toanticipate a greater need in the immediate future.

Nearly half of users (49%) state that their need for external consultants will remain the same in theupcoming year or two; as much as 30% predict even greater need for the services in the nearfuture. Non-users, on the other hand, do not anticipate engaging consultants. A full 47% predictno change, meaning they will not use consulting services; only 12% of them offer that they wouldbegin to use external consulting services.

Figure 17: Attitude toward possibility for smaller or bigger need to engage external consultants than atthis moment, Base: Companies which did not use consulting services during the past 3 years (n=154)

8%

3%

49%

47%

30%

12%

13%

38%

User

Non user

Smaller need

The samesituation

Bigger need

Unable toestimate this

Among the users and non-users that project the need for consultants, the primary reasons includebusiness development, expansion and additional expertise in specialized areas. Interestingly,current users anticipate future needs similar to their current ones – primarily in the fields ofauditing and other financial services or legal support.

Surprisingly, the non-users say they are most interested in softer services such as communications,marketing, branding, public relations and market research and analysis. The following figureoutlines services most desired by potential users in the next three to five years.

Figure 18: Services expected to be needed in the upcoming 12 months, 3 years and 5 years (%). Base:Companies which did and did not use consulting services over the previous 3 years (n=154)

18

12

12

3

18

12

8

10

10

16

33

45Auditing, Accounting, Tax Advisoryand Financial Services

Legal and Contractual Services

IT

Sales

Education, training and othermanagement and business support

Communications, marketing,branding, PR, market research and 18

6

6

3

15

6

13

12

9

18

28

38

Non user User

in 1 year in 3 years in 5 years

15

12

12

3

18

24

20

18

12

18

32

47

3.2 The Future of SupplyConsultants were asked to predict the direction their market segments might take in the next threeto five years. The answers were quite diverse. Like users and non-users, the consultants viewedtraditional fields such as basic financial (6.7% of responses) and legal services (6% of responses) asimportant. The consultants, however, were more forward looking, anticipating new directions fortheir areas of specialty. In their diversity, the responses also projected new directions to make theSerbian market more competitive in the global market.

Nearly 20% of the responses pointed to new technologies in all areas -- marketing,telecommunications, innovation, data management and energy generation -- as new niches fortheir consulting expertise. Each is potentially relevant to their ability to be managementconsultants.

Emerging business fields, particularly in the SME sector, and the need to manage complex projectscommanded 10% of the responses. The emerging marketing fields of Corporate SocialResponsibility and Customer Relations Management also demonstrate the forward thinking of theconsultants. Together these two global marketing segments were mentioned in over 12% of theresponses.

The other new area of consulting perceived to be important in the near and medium term relates toaccessing EU funds and programs mentioned in 8% of the responses.

Consultants: Optimistic about the FutureThe study’s consultants struggled during the economic crisis. Respondents are almost evenly splitin describing how their company performed financially in 2009 as compared with 2008. Just overone-third (35%) report that their gross turnover in 2009 has been reduced compared to 2008,while an equivalent 34% say it has grown. A somewhat smaller 25% report that their grossturnover remained about the same in 2009 as compared to 2008.

As a consequence of the challenges of 2009, respondents are split in their prediction of the futureof their consulting businesses, with 48% quite optimistic, saying that they believe their company isvery likely to survive and grow in the next three to five years. Another 33% are somewhatoptimistic. Just 7% say they are unlikely to survive or grow.

Interestingly, financial consultants, despite the fact that they provide essential business services,are far less optimistic about their ability to survive and grow than other services (33% very likely tosurvive and grow, compared to 48% overall). In contrast, the majority of consultants in serviceslike HR, Training, Innovation and Social Responsibility, and Marketing/PR, which traditionallyare viewed as less measurable and less understood, predicted their survival and growth as verylikely. IT and Systems Management services companies also have a majority or more predictingtheir survival and growth as very likely.

Perhaps not surprisingly, those who say the current global economic crisis has hurt them are lesslikely to be very optimistic about their ability to survive and grow (38%), compared to those whosay the crisis has not hurt them (60% very likely to survive and grow). Similarly, those who reportthat their gross annual turnover has grown are much more optimistic (63% very likely), comparedto those who say it has stayed the same (41%) or been reduced (38%) in the last year.

Looking ahead over the next three to five years, respondents are quite optimistic about theirgrowth potential, with 76% saying that they expect to grow in that time frame. Just 10% do notanticipate growth over the next three to five years, and another 10% are unsure.

Consultants: Where They Would Like to Grow Their BusinessRespondents are quite diffuse in their stated preferences for where they would most like to expandtheir business income, but three things are certain: (1) they are thinking about where to expand (2)they view international resources as good opportunities and (3) they do not see much of a futureworking with government or publicly owned entities.

One-third (34%) say they would most like to increase their services to international donor agenciesor funds. Just under three in 10 (28%) prefer expanding to international private companies. Justunder two in 10 (19%) prefer to expand to Serbian private companies. Finally, just 10% would liketo expand their services to government institutions or public companies in Serbia.Virtually no one (2%) feels that the Serbian government is supportive of business development fora company like theirs. Three in 10 (31%) feel the government is somewhat supportive. More thansix in 10 (61%) feel that the government is unsupportive, with 38% saying it is not supportive andanother 23% going so far as to say that the government is holding businesses back.

The newly formed Association of Serbian Consultants offers an umbrella organization to advocatefor and organize the industry. Respondents were asked what they would like to see the UPKS do inthe next 12 months in order to improve the consultancy industry in Serbia. A full two-thirds (66%)say they should help make connections with possible clients, while 62% say networking. Morethan half (53%) want the UPKS to educate clients, while 44% want them to offer professionaldevelopment. Another 10% offer other ideas, just 3% are unsure and 2% do not answer.

3.3 Projections for the Consulting IndustryThe following tables evaluate the development of the consultancy industry in Serbia through 2015.That data extrapolates and projects future growth based on actual figures from 2006, 2007, and2008.

The statistical methodology used for evaluation of future movements is based on “movableaverages.” Evaluation includes projected GDP until 2015. The first table shows the estimatedincrease in number of employees. The second table represents estimation of the income growth inthe consulting services sector.

Table 5: Evaluation of market development of consulting services until 2015- The evaluation of number of employees

2006 2007 2008 2009e 2010e 2011e 2012e 2013e 2014e 2015e

Con

sult

ing

serv

ices

Export promotion 448 530 526 520 524 554 621 738 938 1,276

Sales 16 15 17 17 17 18 20 24 31 43

Financial services 4544 5393 6056 5,798 5,662 5,806 6,311 7,272 8,966 11,828

Legal and contractualservices

84 135 166 153 144 142 148 164 194 246

Communications,marketing, research

2575 3424 4123 3,855 3,677 3,683 3,910 4,400 5,298 6,826

IT 3723 4873 5898 5,514 5,258 5,265 5,588 6,287 7,569 9,750

Education, training, andmanagement/businesssupport

84 142 518 476 446 439 458 506 598 756

Other 11071 12454 13774 13,288 13,076 13,511 14,798 17,180 21,342 28,368

Total 22545 26966 31078 29,555 28,804 29,418 31,854 36,571 44,936 59,093

Table 6: Evaluation of market development of consulting services until 2015- The evaluation of income (in thousands ofEuros)

2006 2007 2008 2009e 2010e 2011e 2012e 2013e 2014e 2015e

Con

sult

ing

serv

ices

Export promotion 24,252 28,347 28,869 28,161 28,020 29,274 32,419 38,056 47,800 64,242

Sales 536 738 666 668 684 735 837 1,010 1,304 1,801

Financial services 96,448 142,401 151,250 142,187 136,340 137,270 146,499 165,729 200,607 259,823

Legal and contractualservices

2,538 6,798 11,027 8,909 7,342 6,353 5,827 5,665 5,893 6,559

Communications,marketing, research 255,816 403,090 452,356 415,472 389,227 382,872 399,218 441,238 521,819 660,314

IT 186,173 293,452 317,489 295,066 279,711 278,413 293,748 328,523 393,134 503,384

Education, training,mngmt/bus. support

1,716 3,754 5,573 5,306 5,152 5,253 5,677 6,503 7,971 10,454

Other 939,142 1,148,148 1,202,732 1,156,137 1,166,787 1,168,118 1,166,787 1,167,029 1,167,084 1,167,047

Total 1,506,621 2,026,728 2,169,962 2,051,906 2,013,263 2,008,288 2,051,012 2,153,753 2,345,612 2,673,624

Annex A: Definitions of Market SegmentsManagement consulting is a designation for both the industry and the practice of helpingorganizations improve performance, primarily through the analysis of existing business problemsand development of plans for improvement. The role and responsibility of a managementconsultant is to provide advice and assistance to businesses and other organizations onmanagement issues, including but not limited to strategic and organizational planning; financialplanning and budgeting; marketing objectives and policies; human resource policies, practices,and planning; production scheduling; and control planning.

Further, management consultants prepare their clients for the future by helping them forecast newpractices and methodologies for their industry. Consultants also support their clients through themany change processes from technical to operational from people to places from repositioning toopening new markets.

Recognized Market SegmentsFollowing is the list of market segments considered in this study and the professional practiceareas categorized within the segments:

1. Export Promotion Consultancy Services – consultancy structures that assist clients onhow to increase the volume of export of their goods and services. The services of these consultantscover the following topics: buyer/client relations management and business contacts, marketresearch, segmentation and targeting, CEFTA Agreement, consulting on technology, internationallicensing and technology transfer, origin of goods, customs procedures etc.2. Sales – consultancy structures that assist clients on how to increase the volume of sales. Theservices of these consultants cover the following topics: supply chain management, sales structurereview - sales cost analysis / cash flow management, customer service indicators, forecasting, salespromotion, investment planning and financing, market research, segmentation and targeting etc.3. Auditing, Accounting, Tax Advisory and Financial Services – consultancy structuresthat provide consulting advice to their clients in the following areas: auditing and tax advisory,financial planning, cost management, local subsidies etc.4. Organizational Development, Human Resources Management and Leadership –consultancy structures that provide consulting advice to their clients in the following areas:strategic planning and business development strategy, company restructuring, start-up supportservices, project design and management, organizational structure and development, HRmanagement, facilitation etc.

5. Legal and Contractual Services - consultancy structures that provide consulting advice totheir clients in the following areas: services provision regarding policies, regulations and rules,legal representation, legal research, intellectual property rights, mergers and acquisitions etc.6. System Management Consulting - consultancy structures that provide consulting advice totheir clients in the fields of implementation of quality management systems (ISO 9000:2000, ISO14000, HACCP, GLOBALGAP, ISO/TS 16949, CE mark and others).

7. Communications, marketing, branding, PR, market research and analysis -consultancy structures that advise and assist companies in the areas of marketing, branding, PR,market research and analysis etc.8. Information Technology – consultancy structures that specialize in the use of technologicalsolutions to support their clients in solving business problems, overcoming challenges, creatingnew products, and in using Total Quality and Customer Relations Management methodologies.9. Education, training and other management and business support services –consultancy structures that provide various kinds of educational and training programs andprovide services that support strategic business development of their clients.10. Innovation, partnership and Corporate Social Responsibility (CSR) - consultancystructures that provide consulting services to their clients in the areas of innovation, partnershipdevelopment and Corporate Social Responsibility (CSR).

This report was developed thanks to the support of:

Deutsche Gesellschaft für Technische Zusammenarbeit (gtz) GmbH

Project for Economic Development and Employment Promotion in Serbia

Contact: Tobias Stolz/Project Leader

Decanska 811 000 BeogradSerbia

Tel.: +381 11 323 90 51Fax: +381 11 324 35 35

e-mail: tobias.stolz@gtz.de

http://www.gtzwbf.org