Inforte, DiamondCluster and Sapient are all reporting a relentless battle for clients and sales in the European pipeline,caused, in part, by a rippling economic effect being felt across the pond.

As U.S.-based companies close offices on the Continent, European companies are turning to local consultants for services previously offered only by U.S. firms.

Cambridge, Mass.-based Sapient on July 3 cut its workforce by 390 employees and now is in the process of consolidating offices in the United States. The e-services company is regrouping and will focus efforts on outsourcing operations in India, said company CEO Jerry Greenberg during a conference call.

"We used to keep saying, 'This is a tough environment in North America.' And now all data indicates that Europe is a tough, or getting tough, environment," Greenberg said. "We see tough and uncertain times."

DiamondCluster CEO Mel Bergstein spoke with investors during a midquarter June conference call in which he noted a worldwide hiring freeze and lowered earnings projections for the quarter.

The consulting market remains weaker than in Europe, but global revenue, particularly for accounts in telecommunications and financial services, has declined, he said.

"Northern Europe continues to be much like the U.S. economy; central Europe is not in great shape, but not terrible," Bergstein said. "Southern Europe, as far as we can tell, is doing great not only for us, but other firms as well."

Stephanie Moore, market analyst at Giga Information Group, says there is weakened activity in Europe, particularly for e-services, but that's not the whole picture. Companies such as Inforte and DiamondCluster belong to a category of consulting firms that were able to charge high prices and be selective with their customer bases, but that climate is gone, and e-services firms now must act more like traditional consulting firms, she says.

"They'll have to do more business development work, which, in the past, they didn't have to do," Moore says. "All of that equals decreased demand and decreased margins until they learn their lesson."

As the Internet becomes more mainstream, European companies can turn to local consultants for services previously offered only by U.S.-based consultants, Moore says.

"Certainly everyone loves to blame European softness for their shortcomings," she says. "The bottom line is the European firms like to do business with European firms, particularly in different geographies; European firms do not like to do business with American firms."

Jeremy Ord, executive chairman of South Africa-based Dimension Data, which recently acquired Boston-based solution provider Proxicom, says Germany represents the slowest market for his company.

"But I'm not about to blame the market. We've had certain internal issues we've had to deal with," Ord says. "Other manufacturers say they're [also] finding Germany to be a difficult market right now. Other than that, Europe has been good for us."

In its 2001-2002 economic forecast, the European Commission recently said growth in Europe is likely to remain robust through 2002, despite a weaker international environment.