First Research US Industry Profile

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Professional Services Sector
SIC Codes: 731 , 737 , 81 , 871 , 872 , 873 , 8741, 8742, 8743, 8745
NAICS Codes: 54
Last Quarterly Update: 8/19/2019
Firms in this industry provide accounting, advertising and marketing, architectural, consulting, engineering, IT, legal, and scientific research services. Major firms include US-based AECOM, Bechtel, DXC, IBM, IQVIA, Jacobs Engineering Group, Latham & Watkins, McKinsey & Company, and Omnicom, as well as Accenture (domiciled in Ireland), Capgemini (France), Deloitte Touche Tohmatsu (UK), PricewaterhouseCoopers (UK), and WPP (UK).
The US and the European Union are the largest markets for professional services, although firms are expanding in emerging economies such as India and China.
The US professional services industry includes about 900,000 establishments (single-location firms and units of multi-location firms) with combined annual revenue of about $1.7 trillion.
Competitive Landscape
Professional services providers face a number of challenges, from dependence on corporate spending and trends in the global economy to customers or potential customers choosing to do the work themselves. While the average business may not decide to in-source architectural plans for a new office, accounting, marketing, and IT services can all be brought in-house and often are.
Large companies are better positioned to win national accounts. Small companies can compete effectively by offering highly specialized services or focusing on a single geographic region or local market; they typically also have less overhead, which allows them to charge less. The US industry is highly fragmented: the 50 largest firms account for less than 20% of revenue.
Competitive Advantages:
Investing in Technology -- Some law firms have embraced artificial intelligence and used it to create custom tools for clients or launch in-house legal advice chatbots. Companies can also use electronic discovery, legal process outsourcing, and off-shore legal support services to reduce costs and save lawyers for complex tasks. In advertising, agencies that can help customers keep a foot in traditional TV and print ads while successfully navigating online and social media marketing will attract more customers.
Structure -- With so many professional services firms now operating across borders, the need to limit liability and have flexible management structures continues to grow. In legal services, two popular corporate structures that address both needs are vereins and company limited by guarantee (CLG).
M&A -- Many professional services firms increasingly seek growth by acquisition. Large firms combine with each other, often across borders, and firms of all sizes buy smaller companies to add expertise in certain industries or offices in certain countries.
Offering Simplicity -- Major companies, the customers of many professional services firms, are trying to streamline and reduce complexity in their own businesses. Firms that can bring together multiple offerings in a simplified approach stand to benefit.
Companies to Watch, Legal:
Carbon Law Partners gives individual attorneys an umbrella company while each one is still a limited liability corporation of one. The company, which has offices in three UK cities, offers lawyers administration and back office services along with the chance to look like they are part of a larger organization, in exchange for a small fee.
Dentons has more than 6,000 lawyers, about 60% of whom are located in China. No other firm in the global top 20 has that kind of focus on China.
DoNotPay started as a bot to help people fight parking tickets in the UK, with a 55% success rate. The company soon included services for the homeless and asylum seekers in the US and Canada. Most recently an expansion allows the bot to cover 1,000 consumer and workplace legal areas in the US and UK, free of charge.
Companies to Watch, Advertising:
Already one of the largest consulting firms, Accenture has purchased 15 companies designed to expand its capabilities in the advertising and marketing digital transformation space. The company's interactive division is the world's largest digital ad agency, according to Ad Age.
Preacher, an emerging independent, boasts established clients like Crate & Barrel as well as newcomers Venmo (owned by Paypal) and youth apparel firm Bonobos. The agency won acclaim for showing the human side of VR with its ads for Samsung Gear VR headsets.
Canadian firm Zulu Alpha Kilo was Ad Age's International Small Agency of the Year in 2017. Providing ideas and proposals on spec has long been a staple of the advertising industry, but Zulu Alpha Kilo has a strict no-spec policy so it can focus resources on existing clients.
Companies to Watch, Consulting:
Bain & Company -- One of the top three management consulting firms, Bain was the only company to score in all 32 categories in a recent poll conducted by Statista and Forbes. Its M&A work scored highest.
Deloitte Consulting received the highest rating in a recent poll conducted by Statista and Forbes. The firm got high marks for its work helping clients improve efficiency and profitability across a wide range of industries from autos to energy and even for its legal work. Deloitte has also been on a bit of a hiring spree, a sure sign of anticipated growth.
Tata Consultancy Services, India's largest software exporter, is also a strong global player in the IT services industry. The company recently signed huge deals with AC Nielsen and Rolls Royce Holdings.
Products, Operations & Technology
The three largest professional services segments are IT services, architectural and engineering services, and legal services, which each contribute about ... plus:
Sales & Marketing
Finance & Regulation
Regional & International Issues
Human Resources
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Quarterly Industry Update
Industry Indicators
Business Challenges
Trends and Opportunities
Call Preparation Questions
Financial Information
Industry Forecast
Industry Websites
Glossary of Acronyms

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