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Consulting Firms in Sweden and Finland Encounter Economic Hardships

In 2024, consulting firms across Sweden and Finland faced a daunting environment marked by declining profit margins and negative growth. This downturn extended over several quarters, providing a stark contrast to past performance and highlighting the challenges of an evolving market landscape.

Declining Margins and Negative Growth

The difficulties encountered by publicly listed consulting firms became pronounced in the fourth quarter of the year, which recorded negative growth for the second straight quarter. Data revealed that both average and median growth rates fell below zero, further indicating an industry-wide trend of financial struggle. According to Mattias Loxi, co-founder of Cinode, nearly two-thirds of consulting firms reported shrinkage in their margins during the last quarter of 2024 compared to the same period last year. The acute economic climate was a significant contributor to this decline, exacerbated by a decrease in working days and a rise in vacation time taken by employees.

Technology consulting firms seemed to bear the brunt of these challenges, suffering the steepest drops in margins. Moreover, the changing interpretation of rental laws added another layer of complexity to the operational environment for many firms, adding an unexpected burden during a period of already subdued performance. Loxi noted, "The weak economic climate is the primary reason, but fewer working days and increased vacation leave have also had a negative impact."

Numbers Don't Lie

The last quarter of 2024 observed an average operating margin dip to 7.2%, down from 8.0% in the previous year. Furthermore, the median margin fell to 6.5% compared to 8.1% a year prior. For the entirety of 2024, the average operating margin decreased to 6.4%, while the median logged a drop to 6.8%. This trend clearly illustrates that profitability is under pressure, yet Loxi acknowledged that many firms have adeptly navigated through this economic storm by adopting cost-saving measures.

Yearly Overview: Stagnation in Growth

The average growth rate for the fourth quarter was recorded at -1.6%, a noticeable decrease from an average of 3.1% in the same quarter of the previous year. The median growth for Q4 followed suit, declining to -2.8% from 4.9% the previous year. Overall, 2024 marked a period where growth essentially stagnated, with a median rate of merely 0.6% and an average rate teetering at -0.1%. Loxi highlighted that some firms still managed to achieve expansion primarily through strategic acquisitions, yet organic growth patterns across the industry reflected a more negative trajectory.

Companies like B3 Consulting, Exsitec, CombinedX, and Prevas were among those that managed to thrive and recorded substantial growth during 2024, primarily due to their willingness to embrace acquisitions which significantly bolstered their market presence.

Workforce Adjustments Amidst Market Pressures

Reflecting the structural adjustments necessary in a contracting market, over half of the consulting firms reduced their employee count in the fourth quarter compared to the previous quarter. For the full year, nearly half of the consulting firms initiated workforce cuts as a response to market pressures. Loxi explained the necessity for consulting firms to optimize and adjust their operations as a means to respond effectively to constant market fluctuations.

The firms that retained a clear niche focus and exhibited agility in adapting their service delivery models to align with their clients’ evolving demands emerged as the strongest players during these challenging times.

In conclusion, the consulting sector in Sweden and Finland appears to navigate a tumultuous landscape fraught with economic challenges, urging firms to rethink their strategies to maintain profitability amidst changing conditions.