Consulting… An Industry in Itself

The consulting industry remains a vibrant one.

During economic booms consultants advise how best to merge, market, and expand. During economic recessions, consultants advise on how to cut costs and get rid of poor investments. Some of these investments may have been advised by the same consultants.

Consulting Agencies perform statistical analysis and gathering of data. This information can provide insights into decision making and marketing. Due to failure to vertically expand on the part of many companies, consultants are essential to many companies for statistical models.

Another market that consultants have tapped into is risk consulting and compliance with government regulation. Complying with government agencies is just one form of consulting. Finding loopholes in taxes, environmental  compliance, and mergers can prove essential to companies. Companies like google avoid paying the full amount on taxes in the US through the use of offshore accounts and registering patents and ideas in countries with lower tax rates while transferring revenues back to the United States.

Consulting firms can also work for governments. The article highlights several instances where consulting groups worked for the United States Federal Reserve and the Spanish Government.

This is a case of comparative advantage. These consulting firms have networks and built in systems that allow data collection, law review, etc… to be collected faster and cheaper than a mining company, tech firm, or government could do. Outsourcing for consulting work also provides some legal protection. In the case that some wrongdoing is found, a lawyer can point out that the administration looked to the consulting group to double check. Consultants provide a service to clients that can be cheaper than preforming the tasks themselves.

2 thoughts on “Consulting… An Industry in Itself

  1. Economies of scale? – for a mid-sized company some of these issues are infrequent so it’s hard to maintain skills internally. Consultants can work for multiple clients. They can also be paid differently – sometimes less, sometimes more – and avoid the tensions that arise from disparate pay within a firm.

  2. I think both of these factors have some play. It is certainly true that it is cheaper for a firm to hire someone else to do this job than keep an employee on the books dedicated to consulting; this also plays into economies of scale. There are also ethical questions at play, namely, whether an employee in the firm with ties to other employees can be impartial and give an assessment that is in the firm’s best interests.

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