23.12.2006   

EN

Official Journal of the European Union

C 318/26

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direct and complementary actions to complete the internal market for business services and especially the removal of obstacles to the smooth operation of the sector (barriers hampering market integration, labour mobility and economic growth);

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urgent recognition of business services as an integral part of any industrial policy; the European Commission should note this and take action to widen the scope of European industrial policy by integrating business services;

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creation of a European Business Services Observatory to collect information, encourage research, stimulate debate and suggest and monitor implementation of policy recommendations;

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reinforcement of social dialogue to follow up and assess changes in labour conditions and job opportunities resulting from the structural changes underpinning the new business service economy.

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promotion of business services as a means to improve business and industrial performance and to achieve competitive advantages with low-cost and other competing countries in the global market;

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encouragement of more extensive and effective use of business services by SMEs;

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boosting of employment and enhancement of working conditions in business services as a means to improve productivity, service quality and living standards;

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targeted training and re-training programs to strengthen the adaptability and improve the employability of workers affected by structural change.

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R&D public-funded programmes, at national and EU level, should give particular attention to actions and projects aimed at boosting the production and use of innovative business services.

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Attention should be paid to specific projects in the field of knowledge-intensive services in manufacturing, resulting in innovation and high productivity and growth prospects (e.g. ICT and R&D services).

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Business services are a source of innovation in the knowledge economy. Research should be encouraged to further develop ‘service science’, in particular methodological know-how to be applied in business processes.

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Intellectual property rights (IPR) and other protection mechanisms should be strengthened through enactment of pending patent legislation to encourage companies to invest more in R&D and innovation.

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The role of ICT in service innovation has to be recognised and promoted with objectives such as ensuring delivery of services, particularly in SMEs, via high-speed broad-band internet access across Europe, while endeavouring to solve security and privacy issues relating to digital e-business networks. The European Commission's ‘i2010’ initiative plays an important role in this context.

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Service engineering is a new discipline useful as a basis for improving business services output quality through improved systematic planning. This innovative approach deserves to be developed as a speciality for research and education at universities, business schools and other training organisations.

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Standards may play a useful role for higher quality services and more integrated EU markets. For that purpose, promotion of voluntary standardisation of services in general and of business services in particular should be encouraged.

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Finding solutions to strengthen human capital in the EU and to reverse the growing brain drain from EU research activities.

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Introduction of new incentives to the private sector to increase its share of R&D activities in line with the Lisbon Strategy.

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Improvement of data and information on business services and on services provided by industrial companies.

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Improving transparency of business services' supplier markets.

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Provision of more resources for better education, training, e-learning and language skills to enable development of cross-border business services.

1.1

This Opinion examines the impact of business services on employment, competitiveness and productivity in European manufacturing industries and how this sector can be developed further, in line with the Lisbon programme. Attention is given to developments in the new discipline known as ‘service engineering’ and to the impact of externalisation/outsourcing of business services.

1.2

There is concern about the prospects of the European economy and how it will face up to the emergence of strong competition from low-cost economies. In Europe both manufacturing and services have lost many jobs to other countries with a comparative advantage in terms of costs and skills (e.g. China, in terms of manufacturing, and India, in terms of business services). In spite of these developments manufacturing continues to play a key role in Europe's economy. According to latest available statistics for 2004 the EU leads as the highest exporter of merchandise trade with a figure of over US $ 1 200 bn (1).

1.3

Manufacturing industry is considered to have remained the main source of technological change and innovation in the EU, but it is also noted that it failed to increase its activities in the high technology and higher value-added areas during the previous decade. Business-service related growth, in particular through the use of knowledge-intensive services, is a complementary channel for development of new technologies, new employment opportunities and acquisition of new competitive advantages. Business services provide also sources of non-technological innovation (e.g. organisational), which improve the intangible assets of firms and know-how of workers.

1.4

The remarkable shift in consumption towards services in highly developed economies does not indicate a trend towards de-industrialisation as is sometimes assumed. These developments can be seen as a statistical reflection of a deepening division of labour within developed economies and a disaggregation of previously integrated vertical value chains. Specialised service providers are now offering services that were previously performed in-house by manufacturing enterprises. New service enterprises have evolved and are supporting the effort of European industry to increase efficiency and to absorb new technologies that will spawn new and higher value-added products.

1.5

Recent research shows that the type of economy being developed is one in which services and manufacturing are integrated and complementary in nature. Demand for services exists wherever there is a strong industrial economy and develops as a consequence of this. They do not represent an exclusive alternative (2).

1.6

This Opinion does not advocate a special promotion of services at the price of neglecting manufacturing industries but it stresses the interdependence between manufacturing and the service sector (3). It highlights the positive potential for improvement and expansion of business services. The EESC emphasises the positive contribution of business services to increased productivity and competitiveness of the European manufacturing sector. Simultaneously, the business service sector improves its own productivity through innovation, including the rapid uptake of new technologies, by attracting more highly qualified employees and by improving working conditions (4).

1.7

Externalisation/outsourcing of services to specialised service providers who can exploit economies of scale and continuous process innovation has a positive impact on costs and productivity. Yet the uptake of knowledge and innovative business services by SMEs does not yet seem to be sufficient. Also the ability of employees to move from manufacturing to business services needs to be facilitated through appropriate re-training programs.

1.8

Today, domestic suppliers are providing most of business services. Yet, there is no guarantee that this will be the case in the future. A range of business services can be sourced from abroad at wider European level including new Member States and candidate countries or even globally, according to cost and opportunity (near-shoring and offshore outsourcing). The latest figures show that in 2004 the EU-25 had a positive balance of EUR 42.8 bn in trade in services (an increase of EUR 5.8 bn from 2003) (5).

1.9

There is a need for a permanent and thorough analysis of company structures and processes in order to identify those functions which can be bought from specialised business services' suppliers or networks of companies (shared services) who can handle such functions more efficiently by operating on a larger scale and by pooling their expertise. Though this might have an impact on employment in manufacturing, it may sometimes help to offset the potential negative effects of offshore outsourcing, maintain manufacturing industries in Europe and increase the demand of employment in business services. The reinforcement of qualified service jobs in businesses provides new competitive advantages.

2.1

All sectors of the European economy feel the effects of globalisation and the need for change in order to adapt to new circumstances. Industrial policy can play a positive role in this context. In its Communication Fostering structural Change: an Industrial policy for an enlarged Europe  (6), the European Commission stated that it intends to develop an appropriate industrial policy to accompany industrial change:

2.2

More recently, the European Commission published a Communication on Implementing the Community Lisbon Programme: A policy framework to strengthen EU manufacturing — towards a more integrated approach for industrial policy  (7). Under this framework for industrial policy the Commission identified seven major cross-sectoral policy initiatives:

The neglect of services in general and of business services in particular is a serious shortcoming of this Communication. The EESC calls for business services to form an integral part of any industrial policy and urges the European Commission to widen the scope of future industrial policy approaches by integrating business services. An effective industrial policy will also have to take into account the social and employment implications of industrial change. This means more emphasis on lifelong learning and support to facilitate mobility of employees.

2.3

Europe needs to embrace more widely and deeply Information and Communication Technologies (ICT). Intensification of ICT and its integration in industry is as important as it is in business services. In terms of IT take-up, Europe lags behind its key competitors. The IT expenditure in 2004 per capita was EUR 732 for Western Europe, EUR 1 161 for the USA and EUR 1 012 for Japan. The IT spending in terms of percentage of domestic GDP was 3.08 % for Western Europe, 4.55 % for the USA and 3.59 % for Japan (8). The European Commission's task-force on ICT competitiveness plays an important role in this context.

2.4

The productivity gap of European manufacturers is often attributed to the lack of technology take-up and insufficient exploitation of the potential of ICT, in particular by SMEs. The problem does not seem to be caused by the costs of hardware. The problem is the lack of ICT knowledge and expertise in SMEs, which makes it difficult for them to cope with the rapid changes in, and the increased complexity of, ICT. A ‘digital divide’ that separates small from medium-sized companies exists with the consequence that the full potential of ICT and e-business models has not yet been realised (9). The role of business services is important to make the ICT sector efficient and thus procure sustainable productivity gains.

2.5

The internal market for services in general, and for business services in particular, is not complete and many obstacles do exist hampering efficiency, competitiveness and creation of new employment opportunities. A large number of barriers were recognised in the Report on ‘The state of the internal market for services’ (10), but some progress has been made by implementing the Lisbon Strategy. On top of the regulatory aspects of the business services markets, complementary policies such as those indicated in this document are needed to ensure the necessary EU competitiveness in the global market as well as social and economic progress.

3.2

Business services is a group of very heterogeneous activities ranging from professional services (e.g. engineering, accountancy, legal services) to high-value-added services (e.g. ICT services, management consultancy), personnel services (e.g. selection of personnel, outplacement, temporary work) and business support services, including those with low added value (e.g. cleaning, security, catering) and those with rising added value (such as energy management, supply and treatment of water and other fluids, and air and waste processing). In these groups of activities, labour and social conditions deserve particular attention.

Table 1.   Major services required for the performance of enterprises (functional approach) (12)

3.4

Today more and more manufacturing companies venture into services themselves. Not only do they offer after-sales services, but to an increasing extent discover the value added through selling their expertise in engineering, design or process innovation to other companies as part of their business. A new hybrid company model is emerging that includes enterprises with manufacturing/service activities. Customers are increasingly looking for ‘solutions’ rather than simply products, and it is often the ability to provide additional services that gives a manufacturing company its competitive advantage.

3.5

Lack of specific statistical data on business services  (14). There is a lack of statistical information on the demand for services. The interrelationship between the various sectors is not sufficiently documented. Information on service activities and their contribution to the EU Member States' economies should hopefully be improved through a revision of the NACE classification system, which is expected in 2007. The revised classification will provide better insight into the structure and development of the services sector (15). Information on the extent to which industrial companies provide services is also lacking.

3.6

Fragmentation and scarcity of information and analysis related to business services. The EESC finds that there is a need for a European Business Services Observatory to collect information, encourage research, stimulate debate and suggest and monitor implementation of policy recommendations. An observatory or similar action would lead to a better understanding of the new high-speed developments of the sector and serve as a meeting point between policy-makers and stakeholders.

3.7

Standardisation of services. The further acceleration in voluntary standardisation of services based on market needs and sound evidence includes raising base-line safety, quality and performance and promoting competition and innovation in service delivery. This challenge has to be taken up by CEN, ISO and national standardisation bodies. The development of voluntary standards in the service sector would certainly stimulate the trade in services across borders and help to foster the internal market for services.

4.1

Business services are of major importance in helping the SME sector realise its potential contribution to innovation and growth. There is evidence that the most dynamic SMEs make extensive use of business services. In the face of the pressures of internationalisation, greater use of these services by a wider range of SMEs needs to be promoted.

4.2

National innovation capacity.

The ability of a nation to produce new ideas and to commercialise a flow of innovative technologies over the long term are influenced by a range of factors (17):

4.3

85 % of EU research concentrates on manufacturing (US 66 %) and no reliable figures exist for a breakdown of service sector R&D activities. Out of total manufacturing R&D, 87.5 % is conducted in eight specific areas (chemicals, mechanical engineering, office machinery, electrical machinery, semi/conductor-communications, instruments, motor vehicles and air- and spacecraft).

4.4

In terms of absolute expenditure the EU has failed to close the gap with the US on R&D; indeed, this gap has increased over the last decade.

4.5

More focus on R&D funding into high-tech and knowledge-intensive (high margin) services is of paramount importance for the competitiveness of European industry. The ‘3 % objective’ (18) would be easier to achieve if governments increased their financial commitments and if the private sector was encouraged and assisted to invest more in this regard including business services.

4.6

A European Institute of Technology as proposed by the European Commission in a recent Commission Communication (19) is useful, yet technology needs to be accompanied by effective business and organisational strategies.

4.7

The impact of innovative functions of business services is tabulated below:

Table 2.   Innovative functions of business services (20)

4.8

Some of Europe's most innovative companies are to be found in business services, but the overall level of R&D in the service sector is too low and unstructured. New services and business models often emerge from costly and time-consuming attempts and failures by individual enterprises. It is necessary for the EU to support research in selected areas in order to update the know-how of companies in leading global cutting-edge technologies.

4.9

It is important to find ways to improve the access of SMEs to research results and underpin them in their short-term product development.

4.10

If companies are to invest more in innovation and R&D, appropriate protection of intellectual property rights has to be secured by the European Commission and action has to be taken to implement the pending proposal on the patenting of computer-implemented inventions.

4.11

Better legislation and regulation is necessary.

5.1

A radical overhaul of the EU knowledge creation system is needed. This includes:

6.1

Service innovation has been the subject of intense discussion and research mainly in Germany since the mid-90s. Service engineering generated much of the momentum for both academic and practical work in this field. This has developed into a technical discipline concerned with the systematic development and design of service products using suitable models, methods and tools. Although service engineering also embraces aspects of service operations management, the development of new service products is a key focus. At the same time service engineering is also concerned with the design of development systems, in other words with service-related questions of general R&D and innovation management.

6.2

Fundamental research into new business models, methods and tools will give service engineering a valuable boost. Integrated approaches for co-engineering physical goods, software and services will become an established feature. Finally, the growing harmonisation of service standards will encourage the specification and efficient development of new services (21).

6.3

Service engineering is one of the few fields in the service sector that has been substantially shaped by European research. Closer integration in international networks and the systematic development of an independent service engineering community are essential in order to sustain a leadership role in this field in the future (22).

7.1

A shift to intensification of online delivery. There is increasing attention to the growth and impact of ICT-enabled international sourcing of information technology services and business-process services. There is a re-orientation of business services by the application of ICT and a shift to more intensive online delivery. The emphasis is on digital delivery in areas such as software services, R&D and technical testing services, consulting services and HRD and labour-supply services. This is mainly market-driven because of:

7.2

Exploring the potential benefits of offshoring for the EU economy. New global challenges are building up in the ongoing provision of outsourced services from any point of the world. Europe should therefore be ready to provide and export high-quality services to the rest of the world. Digital delivery and related e-business support is bound to increase. International offshoring of business-related services is today focussing on back-office functions (e.g. IT services, financial and accounting services, call-centre functions). In the higher value-added services such as IT engineering, research and analysis, the EU is still holding its own. However, technological development, availability of skills and related costs in the global market are bound to affect decisions by European companies to a larger extent in the future. This is a challenge for the European labour market to provide more high skilled employment opportunities and avoid unemployment (23).

7.3

Impediments to general digital delivery of services. There are impediments to the development of digital delivery that should be thoroughly investigated and solutions found so that European business service firms can be more aggressive and expand more outside EU borders. Such impediments include the lack of standards and interoperability, trust and security in e-commerce, the lack of investment in fixed and mobile broadband infrastructure and the still too low uptake of ICT by SMEs.

8.1

Employment in business services has grown impressively over the past few decades. Annual growth rates between 1979 and 2002 stood at around 4.5 % annually, which was far above the rates of any other economic sector. The share of business services employment in total employment stood at 9 % in 2003 in EU-15 and at 8.6 % in EU-25. The services sector in general and business services in particular will play a key role in providing new employment in the future and compensate for decreasing employment in manufacturing industries.

8.2

Table 3 below shows how employment in business services increased up to 2002 as compared to the total economy.

Table 3.   Annual growth rates in business services employment, 1979-2002 (24)

8.3

Dynamic employment growth in services and in knowledge-intense business services in particular is a characteristic attribute of modern economies. Although the levels of employment in business services as well as the growth rates vary from country to country in Europe, it can be stated that ‘there is no poor country with many business services and no rich country where business-service jobs are scarce’ (25).

8.4

It can be expected that the growth of employment in services and in particular in knowledge-intensive business services will continue though at slightly more moderate rates. Nevertheless, according to the table 4, these will be higher than those projected in other economic activities. Growth rates are expected to be essentially higher in the new Member States where development of services starts from substantially lower absolute levels.

Table 4.   Employment trends across Western European sectors

Note: Western Europe is defined as EU15 + Norway + Switzerland.

Source: Cambridge Econometrics Press Release, What has happened to the Lisbon agenda? November 2005.

8.5

A special feature of employment in business services is the high levels of education attainment. As the EU labour force survey shows, in 2003 the employment share of ‘high-skilled’ jobs was at 41 %, up from 38 % in 1998. The level of low skilled was at 17 % down from 25 % in 1998. The fact that most of the jobs in business services require high- and medium-level skills also poses a challenge to the educational systems in Europe (and in particular the lifelong learning policies) as the structural change of European industries will require more people to move into business services from other employment areas. Rigorous application of the Lisbon education 2010 agenda will be of paramount importance against this background. Table 5 shows the education attainment levels across several sectors.

Table 5.   Education attainment levels by major economic activity and business services, EU15, 2003 (26)