Estonian Consultancy Market Study - Summary of the Report Presentation 13 March 2015 Study commissioned by the EBRD (European Bank for Reconstruction and Development), delivered by Civitta Eesti AS team: Marko Rillo, Ander Ojandu & Mario Luik

1. Estonian Consultancy Market Study
for EBRD
Civitta / 13.03.2015
Presenter: Marko Rillo
Co-authors: Ander Ojandu & Mario Luik

2. 2
Data collection for the study
• Quantitative research:
• Survey of n=104 (114) respondents, included the PSFs
in the following sectors (sent to 524 firms):
• Accounting, advertising, architecture, auditing, construction service,
engineering, export and import consulting, finance advisory, IT
consulting, management and HR management consulting, marketing,
patent consulting, productivity and quality consulting.
• Desk research of annual reports of consulting firms and
Estonian Statistical databases.
• Qualitative research:
• Focus group discussions and a number of face-to-face
and phone interviews with larger public sector buyers
and consulting & training service providers.

3. 3
Respondents overview (n=104)
0
2
4
6
8
10
12
1989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013
Year of Establishment of the Firm
0
5
10
15
20
25
30
1 2 3 4 5 6 7 8 9 10
Client Base
0
5
10
15
20
25
30
35
1 2 3 4 5 6 7 8 9 10
Income Base
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10
International Revenues
10 firms:
80% intl.

4. 4
Consultancy firms – key ratios and turnover
2011 2012 2013
Number of firms in operation among respondents 107 110 112
Total turnover of the firms (EUR) 72,096,824 69,736,318 69,565,389
Total number of employees employed by respondents 1,193 1,162 1,169
Averge turnover of firm 673,802 633,967 621,120
Median turnover of firm 148,000 153,814 200,000
Average turnover per employee 60,433 60,040 59,508
Estonian GDP Per capita (ppp) 9100 9500 9800
17
15
24
16
12
6
8
6
3
22
15
21
17
10
7
9
7
3
22
14
20
18
15
6
9
6
3
0
5
10
15
20
25
30
1 2 3 4 5 6 7 8 9
Respondents' Annual Turnover 2011-13
Series1 Series2 Series3

5. 5
Size of firms and expansion plans
58
46
3
6
0 10 20 30 40 50 60 70
We do not need additional staff
We need up to 2 additional consulting staff
We need up to 4 additional consulting staff
We need more than 4 additional consulting staff
Expansion Plans
20
52
30
5
22
54
30
5
18
63
27
5
12
63
33
5
0
10
20
30
40
50
60
70
1 < 9 < 49 more
at least 2 < 10 < 50 <
Size of Firms - Number of Employees
2011 2012 2013 2014 projection

6. 6
Estonian consulting sector is cosy and stable
Lifestyle consulting, many service a few clients / year
• Majority (81/104) are micro firms - less than
9 employees.
• More than half (58) do not plan to recruit!
Only 9 firms plan employing 4 or more staff.
Two of them already employ more than 50
consultants.
• A fragmented history of M&A, some
divestments:
• 1999: Acquisition of EM International with
EBS Group into EBS Juhtimiskoolitus;
• 2008: Acquisition of Noman by BDA
Consulting, partial divestment in 2012;
• 2005: Acquisition of Businessgrain and
Deloitte, full divestment in 2009;
• 2014: Merger of Innopolis and Advisio into
Civitta Eesti.

7. 7
Sectors –Estonian firms employ generalists
54
42
33
30
29
29
22
21
20
20
16
10
0
0 10 20 30 40 50 60
Manufacturing and services
Other
ICT
Finance
Municipal environment
Property and tourism
Legal reform
Power and Energy
Energy and resource efficiency
Transport
Agribusiness
Natural resources
Nuclear safety
21
36
11
17
12
5
3
8
0 5 10 15 20 25 30 35 40
1
2
3
4
5
6
7
8
Number of Sectors per Firm

8. 8
Functional specialization
55
40
35
31
28
28
24
23
18
17
16
16
16
16
11
4
0 10 20 30 40 50 60
Organization, general management and change management
Human resource management
EU structural funds
Marketing
Finance and investments
Other
Support to SMEs and SME finance
Sales
Information technology
Engineering
Accounting
Corporate Governance
Export and trade finance
Legal
Production
International public sector
45
23
15
7
9
5
9
0 5 10 15 20 25 30 35 40 45 50
1
2
3
4
5
6
7
Number of Specializations per Firm

9. 9
Membership in professional organizations
• Most are critical about professional
organizations.
• Positive notes about training and
collaboration opportunities.
• Seen as a potential vehicle for
internationalization.
• Most organizations do not fulfil
this role up to their expectations.
5
29
17
6
How Useful is Your Professional
Organization?
Very beneficial Beneficial
Not very beneficial Not beneficial at all
1
2
3
4
4
4
5
9
14
19
19
49
0 10 20 30 40 50 60
Association of Information Technology and…
Accountants Union
Marketing Communication Agencies Union
Training Companies Union
Board of Auditors
Association of Quality
Bar Association
Association of Architectural and Consulting Engineering…
Service Industry Association
Consultants Association
Others
Not a member
Membership in Professional Organizations

10. 10
Support of Enterprise Estonia and Chamber for
Commerce and Industry
7%
42%
37%
14%
Feedback to offered services and
supportive activities
Very beneficial
Beneficial
Not very
beneficial
Not beneficial at
all
Expectations:
• More training programmes, and
more appropriate service delivery
• Networking activities, but not the old
style "coffee and snacks", but more
involved – e.g. facilitated discussions,
workshops
• Proactive role towards building the
capacity of consulting firms and
support to create consulting cluster
• Careful about them trying to do the
work of consultants

11. 11
Interest towards international work and countries
• Top countries of interest: Finland (21), Sweden (12), Ukraine (12), Latvia (11), Germany (8),
Lithuania (7), UK/England/GB, Norway, Byelorussia (6), Russia, Moldova, Georgia (5), Armenia, USA,
Denmark (4).
• Also: Belgium, Croatia, Serbia, Switzerland, Vietnam, India, Kazakhstan, Romania, Oman, Uganda,
Hong Kong, Turkey, Italy, Poland, Bhutan, Indonesia, Dubai, Afghanistan.
31%
12%
12%
17%
28%
Interest towards international work
Private sector
Public sector
International
organizations
No preference
Not interested
24%
32%
19%
8%
17%
Interest working with development
institutions
Very high
High
Average
Low
Very low

12. 12
Interest towards international sectors
Other: public sector reform, studies
& analyses in social sciences, project
management, biotechnology, graphic
design, software design,
communications, tourism,
construction, services for start-ups
0
7
8
10
11
12
13
13
16
17
18
21
26
0 5 10 15 20 25 30
Nuclear safety
Natural resources
Agribusiness
Legal reform
Transport
Energy and resource efficiency
Municipal environment
Power and Energy
Other
Finance
Property and tourism
ICT
Manufacturing and services
7
42
49
52
65
86
0 20 40 60 80 100
Experience in development…
Cheaper labour costs
Strong references
International network
Specific know-how
Qualified staff
Self-Perceived Competitive Advantage
Internationally

13. 13
16 respondents confirmed that they have previous
experience of working with development institutions:
85
13
10
4
2
2
0 10 20 30 40 50 60 70 80 90
No experience
EBRD
World Bank
EuropeAid
Asian Development Bank
European Investment Bank
• 6 firms with active experience and 5, with first
steps to start international development work.
• There have been 3 companies, who have been
very active (dozens of times in shortlists,
winning bids) and 3 reasonably active

14. 14
Development of consulting skills, training
approach and self-financing
64
52
40
28
22
35
40
28
0 20 40 60 80
On the job training
Internal training in company
Umbrella organizations
Universities
Other consultancies
Local training providers
Foreign training providers
Project financiers
Relying on Training Provided by
76% or
more
11%
51-75% of
cost
13%
26-50% of
cost
31%
1-25% of
cost
40%
Nothing
5%
What proportion of training cost would
you bear yourself?
Enterprise
Estonia KAP

15. 15
Training topic interest
1
2
5
6
7
11
11
11
13
16
20
26
27
29
29
32
56
0 10 20 30 40 50 60
Gender
Direct revenue-earning municipal services
Project procurement for construction works
Resource efficiency
Training on FIDIC or equivalent
Energy efficiency
Environmental policies
Monitoring and Evaluation
Public procurement
Corporate governance
Institution building
Information & communication technologies
How to write a winning proposal
Advanced project management
EU structural funds training
Training on opportunities of development institutions
Business development

16. Final conclusions and
recommendations

17. 17
Estonian consulting market in general
• Estonian organisations are slow to engage consultants
• Esp. companies of local owner-managers have do-it-yourself
culture – consultants come after first trying and failing.
• Larger organizations, public sector, companies with
international management, new start-ups and younger
generation have a more proactive track record of relying on
consulting.
• Comparatively – Latvia, Lithuania, Finland and Sweden
use much more consulting service
• Vicious circle – leads to lack of competition between
consultants and no push to innovate and focus. Hence,
prominent firms bring "real specialists" of "proper
consultancies" from abroad

18. 18
Conclusions - Macro level in Estonia
Estonia –
findings
• Estonian legal and procedural framework for doing
business locally received high assessment.
• Most tenders do not have minimum turnover
requirements. Therefore, given previous experience, the
entry barriers are virtually non-existent.
• Estonian state eProcurement integrates the whole public
sector into electronic bidding system providing one-stop
full overview of all bids - procurement and appeals
process work in a transparent and effective manner.
Estonia –
conclusions
• One issue pointed out by some as a strength, by others as
a weakness is lack of consultant certification mechanism,
which makes it difficult to differentiate between poor
and good consultants.

19. 19
Conclusions - Macro Level Internationally
Development
work -
findings
• Estonian firms have not shown interest in projects of a
size above 200 000 EUR.
• Regulatory or procedural constraints
• Minimum turnover and headcount requirement. E.g. 50
employees and annual turnover beyond 5 MEUR.
• Only 3 Estonian consulting firms meet 5MEUR 50
employee criteria alone.
Development
work –
conclusions
• The main solution for working internationally is to join
the consortia and to combine the references either
alone or preferably through an umbrella organization
(such as Estonian Consultants Organization or
alternative).

20. 20
Conclusions – Meso Level
Estonian
consultancy
associations -
findings
• The consultants are expecting a number of services, e.g. for:
• Professional development and training;
• Networking and communication for peer interactions;
• Creation of consortia for international bidding.
• Consulting service clients are looking for a database of
consultants or a first-stop shop to search for expertise.
• Current organizations are considered inadequate for both.
Estonian
consultancy
associations -
conclusions
• Professional organization's role to join the forces of individual
Estonian consulting firms to bid together.
• A central database of consulting providers and consulting
marketplace might be useful.
• If any one of the associations would be chosen as a counterpart
for development work, they need capacity building support.

21. 21
Micro Level – International Work
"International work? Yes, absolutely! But not me!"
• Primary limitation for international work at individual level is the
requirement for long-term full-time on-location service provision
for experts in most international projects.
• The most successful consultants in Estonia are family people in the
age bracket of 35-45 years of age, who are not willing to take up
long-term assignments in target country.
• Therefore – if the international institutions are willing to relax
their requirements for long-term in-country work, a number of
highly qualified experts would be very interested in international tasks
would increase substantially.

22. 22
Questioning: "(Stereo)typical Estonian Consulting Firm"
• "My farm, my family, my tools,
my way!"
• 90% are careful and happy - do
not want to grow nor expand
• Learning by doing
• The smaller the firm, the more
specializations and sectors
• Turnover per employee 60'000
EUR
• Two clusters of firms:
A) Projects of 500 – 3'000 EUR
B) Projects of 2'500 – 20'000 EUR
The max project size: 200'000 EUR

23. 23
Conclusions – Micro Level
• A precursor – a specialized training programme for
consultants, specifically targeting the topics of 1)
development institutions, on 2) advanced project
management and 3) on how to write winning proposals
would increase the skills of consultants to work in
international context.
• International work requires complete rethinking of
consulting business models. From lifestyle generalists to
efficiently operating specialists!

24. 24
Report Commissioned by the EBRD and lead by
Civitta Eesti AS team
• Ander Ojandu
ander.ojandu (at) civitta.com
+372 521 3987
skype: anderojandu
• Marko Rillo
marko (at) markorillo.com
+372 504 0260
skype: markorillo
• Mario Luik
mario.luik (at) civitta.com
+372 55 598 316
skype: mario.luik