Enterprise and Industry Directorate-General RESER Conference 14th September 2007 Services in the context of EU policy for Enterprise and Industry Ronald

Enterprise and Industry Directorate-GeneralEnterprise and Industry

Directorate-General

RESER Conference14th September 2007

Services in the context ofEU policy for Enterprise and Industry

Ronald MackayDG Enterprise and Industry

European Commission

Enterprise and Industry Directorate-General

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Topics of presentation

Main themes

• Challenges to industry• Communication on industrial policy 2007 • Innovation in services

• Interlinkage industry and services– Services as inputs to industry– Industry as service provider

• Productivity and competitiveness

• Policy sreeening in service sectors

• Key messages


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Challenges to industry

Mid-term review of industrial policy COM(2007)374

– Stocktaking, launch of new initiatives– Programme of work to 2009

Challenges to industry• Globalisation• Rate of technological advances• Energy and climate change

Implications for the service sector

Communication on industrial policy (2005)– Integrated approach (Horizontal and sectoral initiatives)– Concrete programme of work


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Programme 2007 - 2009

Industrial Policy Initiatives

Horizontal (e.g.)– Sustainable industrial policy– Intellectual property– Structural change (anticipation)– Industry and services (policy screening)

Sectoral (e.g.)– European food industry– Electrical engineering– Space; defence and security– Pharmaceuticals


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Innovation in services (1)

Expert Group FindingsCommission paper SEC(2007)1059

– Services companies, generally, do not innovate less than manufacturing companies but great differences exist between knowledge intensive and other services.

– Lower percentage of all service sector firms (34.0%) as opposed to manufacturing firms (39.3%) are technical innovators.

– The exception are KIBS firms, which are more likely than manufacturing firms to introduce either a product or process innovation (51.5 %)

• Fazit: Service firms do innovate, but in a different way.


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Implications

• Policy instruments need to recognise the specificity of innovative companies in services

• The strong heterogeneity within services sectors has implications for policy

• A distinction based on R&D intensity may be more adequate than services/manufacturing ?

• Innovation support schemes need to focus on fast growing companies (not only in the service sectors)


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European Innovation Platform for Knowledge Intensive Services

• pilot action that will test new forms of integrated support mechanisms for knowledge intensive services with high growth

• operational learning platform where such new policy approaches in support of innovation in services can be tested

Aims• to foster technological as well as non-technological innovation

(organisational innovation) in services • to practically implement such good practice examples and to

further develop them in support of knowledge intense services


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Structural change (1)

Structure of industry in Europe

• Rate of change: too slow or too fast?• EU manufacturing remains specialized in medium-tech

sectors and has not taken advantage of the fast growth of certain high tech sectors.

• European businesses have not fully exploited either the opportunities offered by ICT technologies.

• Also, within sectors, the EU is comparatively bad at reallocating resources to the most productive companies

• Anticipation (getting ready, not forecasting) and development of capacity to change

• Adjustment costs and the European Globalisation Adjustment Fund


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Structural change (2)

Interlinkage industry and services

• Service provision is mainly local. Industrial restructuring has an impact on the location, or relocation, of employment in the service sector. Will industry continue to procure essential business services close to where it is located?

• Does the service sector have the capacity to create alternative employment in areas affected by industrial restructuring?

• Impact of outsourcing/offshoring: Many services which were previously considered non-tradable are being increasingly codified, standardised, and suitable for delivery at a distance. (Digital Delivery)

• What framework conditions have a positive, and which have a negative impact on company strategy?


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Industry and services (1)

Importance of services as inputs

Reliance of industry on wide range of service inputs

But • Relative absence of quality standards • Lack of market transparency • High transaction costs• Risk of dissatisfaction with service delivered• Need for procurement of business related services based

on based on more objective criteria and best value for money


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Services as intermediate inputs to industry

Table II.9: Cost structure of EU sectors (% of production value) (2001)

Inputs Sector

Primary Manuf. Utilities and construction

Market services

Public services

Labour Other Total

Food products and beverages

27.1 30.2 1.8 13.2 0.8 15.5 11.5 100

Chemicals and chemical products

2.0 43.5 2.9 17.6 1.4 18.0 14.6 100

Office machinery and computers

0.0 64.4 0.6 14.5 0.7 13.2 6.6 100

Electrical machinery and apparatus n.e.c.

0.2 50.7 1.1 13.4 0.7 26.4 7.5 100

Radio, TV and communication equipment

0.0 54.5 1.0 19.1 1.0 19.3 5.1 100

Source: EU Industrial Structure 2007: calculated from Eurostat’s Input-Output Tables.


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Industry and services (2)

Manufacturers are also service providers

• Manufacturers build “products” but their clients want “solutions”

• Manufacturing companies increasingly provide services in conjunction with their product.

• Increased demand for complex systems (e.g. satellite system, mobile phone base station, transportation systems…)

• Business models (e.g. Public Private Partnerships, Build-Operate-Transfer)

• They are confronted with the same administrative and regulatory obstacles to trade as service firms, both within the EU and internationally.


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Servo-industrial sector (Austria)

ServoindustriellerSektor

Kernkonzept

Produzierender Bereich

Fachverbände der

Bergbau und Gewinnung von Steinen und ErdenSachgütererzeugungEnergie- und WasserversorgungBauwesen

+ industrieorientierteTeile des Dienstleistungssektors

Kernkonzept



Erweitertes Konzept der Industrie

Bergbau u. Gewinnung v. Steinen u. Erden

Sachgütererzeugung

Energie- u. Wasserversorgung

Bauwesen


& Industrienahe Dienstleistungen

Sachgüter-erzeugung

Sachgütererzeugung

Erweitertes Konzept der Industrie

& Produktionsorientierte Dienstleistungen

Anm.: Die Industrienahen Dienstleistungen beinhalten die Vermietung beweglicher Sachen ohne Bedienungspersonal (NACE 71), die Datenverarbeitung u. Datenbanken (NACE 72) sowie die Erbringung v. unternehmensbezogenen Dienstleistungen (NACE 74). Die Produktionsorientierten Dienstleistungen umfassen: 1/3 Handel, Reparatur v. Kfz u. Gebrauchsgütern; 1/3 Beherbergungs- u. Gaststättenwesen; 1/3 Verkehr u. Nachrichtenübermittlung; 1/2 Kredit- u. Versicherungswesen; 1/2 Industrienahe Dienstleistungen erweitert (Realitätenwesen [NACE 70], Forschung u. Entwicklung [NACE 73]).Quelle: IWI (2007)


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Servo-industrial complex

Manufacturing Production Extended Industry

Servo-industrial

sector

GDP Germany 19,30 23,96 30,95 37,19

France 12,64 17,88 25,51 31,77

Austria 16,96 24,01 31,09 38,62

UK 12,37 20,12 32,73 40,67

Employment Germany 18,59 23,74 32,77 39,78

France 15,57 22,70 32,89 41,23

Austria 16,19 23,69 32,49 42,49

UK 11,98 17,41 31,32 42,28


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Services in the economy

DG ECFIN study 2007

Sources:

• EUKLEMS

• COMTRADE

Industry classification:

• NACE @ 2 or 3 digits

Usual caveats about methodology: how reliable are the figures?


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Manufacturing and tradeable services

% total value added

% total employment

World export growth

Food and beverages 15 1,86 2,25 7,3

Chemicals 24 1,94 1,67 12,2

Rubber and plastics 25 0,99 0,61 8,2

Basic metals 27 0,73 0,83 12

Fabricated metal 28 1,82 1,58 8

Machinery 29 2,08 0,97 8

Electrical machinery and apparatus, nec 31 0,9 0,6 7,5

Radio, television and comm. equip. 32 0,52 0,31 8,5

Medical, precision and optical instruments 33 0,57 0,18 10,6

Motor vehicles 34 1,42 1,13 7,5

Electricity, gas and water supply E 2,17 0,59 20,8

Other business activities 74 6,97 13,09 7,2

Other service activities 93 0,72 1,28 70,7


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Labour productivity performance

(growth during period 1995-2004 in %)

EU25 US

50 - Sale, maint. and repair of motor vehicles 7,2 75,5

51 - Wholesale trade 27,2 52,8

52 - Retail trade 14,6 58,1

H – Hotels and restaurants -1,3 11,8

62 - Other air transport 6,6 57,9

63 - Other supporting and auxiliary transport activities -2 42,2

65 - Financial intermediation 46,7 69,4

66 - Insurance and pension funding -13,4 10,3

73 - Research and development -1,6 46,4

74 - Other business activities -7,7 17,1

90 - Sewage and refuse disposal -5,1 37,6

92 - Recreational, cultural and sporting activities 4,3 21,7

93 - Other service activities -11,1 11,8


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The EU productivity problem

EU market services have contributed relatively little to growth

(Sectoral contribution to business sector productivity growth)

(Source OECD, Scarpetta, 2007)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

95-00 00-05 95-00 00-05 95-00 00-05 95-00 00-05 95-00 00-05 95-00 00-05

OtherFinancial and business services Trade, transport and communication Manufacturing

France

Germany ItalyUnited Kingdom

United States

EU15


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Services productivity

A shared problem

• Productivity growth in services lags behind that of manufacturing, but the service sector is already large, and still growing.

• Productivity increases in industrial sectors may have a ceiling, which is determined by the relatively low productivity of service inputs

• Industrial companies employ increasing numbers of people in internal service functions. Their overall productivity growth will reach a limit if they do not tackle the issue of services productivity.

• Services productivity is too important to leave it entirely in the hands of the service providers.


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Initiative on Industry/Services (1)

Rationale

• The cost, quality and productivity of certain service sectors, have an impact on the competitiveness of industry.

• Regulations which affect the performance of professional and other business services, financial services or the retail and distribution sector also have an impact on industry.

• In addition, competitive network industries enhance the competitiveness of industry as a whole.

• Industry is both a user and provider of a growing range of services related to innovative technologies and products.


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Industry related services

Service sectors with close linkage to industrial sectors

Quality, price and competitiveness of the service sector has impact on competitiveness of many industrial sectors

Examples:• Engineering services• Creative industries (Design, Architecture, Advertising) • Other Business Services• Network services (Distribution, Communications)• Facility Management• Recycling, Waste disposal

Methodology: Same form of competitiveness analysis as applied to the industrial sectors could be applied to these (or other) service sectors


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Initiative on Industry/Services (2)

Methodolgy

• Identification of key areas of interdependency• Policy screening of relevant service sectors• Identification of obstacles to increased

competitiveness and market failures• Assessment of impact on industry• Assessment of need for intervention


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Initiative on Industry/Servicesvice (3)

Knowledge

Competition

Regulation

Environment

External Competitiveness

Employment and Geographic dimension

Competitiveness Assessment:

Structural data and indicators:


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Challenges for the service sector

• Provide more inputs to policy development– Industry, innovation, SME, Research– Internal Market, Public procurement, Intellectual property – Trade, Competition

• Emphasise contribution to economic growth and job creation– Lisbon strategy, National reform programmes, Community Lisbon

Programme• Invest in more R&D• Invest in more innovation• Increase productivity• Increase use of standards


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References and links

References and links

• Mid-Term Review of Industrial Policy COM(2007)374http://ec.europa.eu/enterprise/enterprise_policy/industry/index_en.htm

• Innovation in Services SEC(2007)1059http://www.proinno-europe.eu/index.cfm?fuseaction=nwev.NewsReader&news=1918&lang=EN&topicID=90&parentID=0

• EU Industrial Structure 2007http://ec.europa.eu/enterprise/enterprise_policy/competitiveness/2_indics/indics_compet.htm

• Industriebuch 2007Industriewissenschafliches Institut (IWI) Vienna


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The End

Thank you for your attention

Documents

Enterprise and Industry Directorate-General RESER Conference 14th September 2007 Services in the context of EU policy for Enterprise and Industry Ronald