What is the impact of labor displacement on management consulting services?

TL;DR

This paper models the effects of off- and nearshore labor displacement on management consulting firms, showing it leads to slight price decreases and necessitates increased offshore work to maintain competitiveness.

Contribution

It introduces a model to analyze the impact of labor displacement on management consulting, calibrated specifically for the German transportation industry.

Findings

Labor displacement causes an average price decrease of 0.5% annually.

Consulting firms must increase offshore work by at least 0.7% annually to stay competitive.

The model provides insights into strategic adjustments for consulting firms facing labor displacement.

Abstract

Labor displacement off-or nearshore is a performance improvement instrument that currently sparks a lot of interest in the service sector. This article proposes a model to understand the consequences of such a decision on management consulting firms. Its calibration on the market of consulting services for the German transportation industry highlights that, under realistic assumptions, labor displacement translates in price decrease by-0.5% on average per year and that for MC practices to remain competitive/profitable they have to at least increase the amount of work they off/nears shore by +0.7% a year.