RESER Conference

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European Commission
RESER Conference 14th September 2007 Services in
the context of EU policy for Enterprise and
Industry Ronald Mackay DG Enterprise and
Industry
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(No Transcript)
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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 Findings
• Commission 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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Innovation in services (2)

• 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 RD 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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Innovation in services (3)

• 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
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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)
Servoindustrieller Sektor
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
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Services in the economy

• DG ECFIN study 2007
• Sources
• EUKLEMS
• COMTRADE
• Industry classification
• NACE _at_ 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 ) (growth during period 1995-2004 in ) (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)

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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)
Competitiveness Assessment Structural data and indicators
Knowledge
Competition
Regulation
Environment
External Competitiveness
Employment and Geographic dimension
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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 RD
• 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)374
• http//ec.europa.eu/enterprise/enterprise_policy/
  industry/index_en.htm
• Innovation in Services SEC(2007)1059
• http//www.proinno-europe.eu/index.cfm?fuseaction
  nwev.NewsReadernews1918langENtopicID90pare
  ntID0
• EU Industrial Structure 2007
• http//ec.europa.eu/enterprise/enterprise_policy/
  competitiveness/2_indics/indics_compet.htm
• Industriebuch 2007
• Industriewissenschafliches Institut (IWI) Vienna

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The End

• Thank you for your attention