Go-to guys: pressured to cut costs, Mexico looks to external consultants to help with policy.

Hiring outside consultants is a global trend that over the last few years has shown up more in federal, state and local governments. In Mexico, this practice has begun to spread and consulting companies see a rosy business future ahead.

A recent study by the PricewaterhouseCoopers accounting and consulting firm shows that the Mexican government is changing its traditional way of developing infrastructure by including more private-sector companies. "Currently, governments are in a process of structural change, where officials in charge require advisors who are experts in the government sector in order to report better results," says Miguel Angel Castro, a partner specializing in government for PricewaterhouseCoopers Mexico.

The idea is very attractive for consulting companies, which are now specializing their government services to get more business. "The federal and state governments have been very interesting, very generous and above all very active clients in the consulting world," says Daniel Silva, director of Oliver Wyman Mexico, the Mexican unit of the worldwide business consulting firm.

One reason this type of service is in high demand from the government is the globalization of the consulting firms themselves. Consulting firms can share in-depth experience gained from working with other countries, and that allows them to apply the lessons learned in other nations with similar issues. "Chile, for example, was a decade ahead of Mexico in the pension system. Therefore, if you already know the Chilean experience and can bring to the table interesting lessons, you are vaulting over several steps and reducing the time it takes to reach a solution," Silva says.

Outside firms also can offer different solutions to a given problem thanks to their fresh eyes. "The problem is there and when you turn around you don't see it any more and you don't realize that the problem has changed," Silva says.

From its roster of clients at Oliver Wyman Mexico, between 40% and 60% are in the government sector. The company expects that business segment to grow considerably over the next few years. Time and cost savings is another big reason why governments hire consultants. Last December, Mexican President Felipe Calderon signed a decree to reduce public salaries and operational costs, and to rein in expenses, among other measures. The decree is expected to save the government about US$2.36 billion this year, according to figures from the Mexican Finance Ministry. (The policy also virtually froze most existing tech spending.)

For information technology (IT) consulting services, the decree represents a great business opportunity. "It has many possibilities to generate savings within the federal public administration, and in its component of IT administration there is a paradigm of change," says Tomas Orozco, director of government services for EDS, a worldwide IT outsourcing firm.

That change, he says, is based on the fact that government entities will no longer be the owners of the technology, but rather, will only make use of it, avoiding internal production of tech services and ensuing expenses related to time, contracting and hiring tech employees. This type of strategy envisions access to technology that is more innovative, updated and efficient. "In an outsourcing contract, public institutions must know how they can employ technology, but they don't need to be experts in it," Orozco says.

Changing from in-house technology management to outsourcing can bring about savings of between 20% and 40%, according to EDS, but outsourcing goes beyond that aspect. The idea is to access the best practices of technology administration in order to free up resources that can be used to better serve the country and its people. "A citizen will be much better off with a government that provides services such as health, public safety or fiscal administration as opposed to handling expert information systems," Orozco says.

Currently, EDS Mexico is working on some projects of the federal government, such as software for the Internal Revenue Service, which is responsible for producing and maintaining applications for tax revenue, and for customs, in addition to related products for e-mail, software updating, antivirus, security and similar functions.

In 2006, EDS Mexico reported sales of $250 million, 20% of which came from work with the government services. But, with the presidential decree, the company expects to double that figure. Globally, the company does more than a third of its business with public-sector entities.

Consulting firms expect that the decree will lead to new business opportunities that go beyond streamlining traditional human resources and IT systems. "From the day the decree was published, it was pretty clear that the federal government pinpoints certain areas to focus on in order to reduce costs," says Jorge Castilla, partner director of the natural resources business unit of Accenture Mexico, a worldwide firm in business consulting, technology services and outsourcing. Purchasing is one of those sectors that will need further development. "What the decree recognizes is an interest to structure things in such a way that the government will get the best price or will have a more efficient way of acquiring things," says Castilla.

Revenues rise. The company is expecting that, as a result of the decree, the percentage of its income from the public sector will rise between 15% and 20%. Accenture Mexico closed its last fiscal year with revenue of $ 83 million. Still, there are consulting services out there that the Mexican government should further consider, says Jesus Gonzalez, partner in risk consulting of KPMG, a global consulting firm. Those include planning systems for organizational resources, budgeting, change management, results audits, project management and inventory and asset management. "Systems must go hand in hand with a process that focuses on business. Implementing [a system] is not the same as buying Excel or throwing a switch; you have to adapt it to the organization's processes," says Gonzalez.

Although cutting costs are a big reason for seeking consultants, time and quality are essential. "When a company hires a service it's not just spending money because it's got more than it needs; it's making an investment, or it will help it to reduce costs and improve its standards of quality," Gonzalez says.

MARISOL RUEDA * MEXICO CITY