Beruflich Dokumente
Kultur Dokumente
Services
Within the Framework Contract of Sectoral
Competitiveness Studies – ENTR/06/054
ECORYS Nederland BV
P.O. Box 4175
3006 AD Rotterdam
Watermanweg 44
3067 GG Rotterdam
The Netherlands
This Final Report has been produced as part of the “Study on Industrial Policy and
Services” commissioned by the European Commission Directorate General for Enterprise
and Industry, within the context of the framework contract on Sector Competitiveness
Studies (ENTR/06/054).
The Final Report is published in two parts. The first part, covered in a separate document,
provides the main background analysis of industry-service interactions and cross-cutting
policy themes and issues, together with the Executive Summary. The second part, which
is covered in this document, provides a review of six selected service sectors that are
heavily used by industry, together with a synthesis of the main findings from the sectoral
analysis.
The analysis contained in the Report has been undertaken by a team of consultants from
ECORYS Netherlands and IDEA Consult under the direction of the Team Leader, Paul
Baker. The project team has been supported by three external experts: Prof. Ian Miles
(Manchester Institute of Innovation Research), Prof. Luis Rubalcaba (University of
Alcalá, and President of the European Association for Service Research, RESER) and
Henk Kox (CPB – Netherlands), who have provided guidance and advice.
1 Overview 1
1.1 Introduction 1
1.2 Selection of sectors 2
1.3 Statistical overview of selected sectors 3
1.4 Screening of framework conditions 7
1.5 Screening against policy initiatives 13
2 Industrial Cleaning 15
2.1 Sector overview 15
2.2 Competitiveness analysis 16
2.2.1 Labour supply, costs and conditions 16
2.2.2 Apparent labour productivity 17
2.2.3 Productivity enhancement 19
2.2.4 Demand side conditions 19
2.2.5 Competition and business strategies 20
2.2.6 Internationalisation 21
2.3 Screening of regulatory and other framework conditions 21
2.3.1 Regulatory conditions and standards 22
2.3.2 ‘Other’ framework conditions 23
2.3.3 Exogenous conditions and trends 24
2.4 Overview of potential policy issues 25
2.4.1 Key arguments for policy intervention 25
2.4.2 Screening against policy initiatives 27
3 Security Services 41
3.1 Introductory comments 41
3.2 Sector overview 41
3.2.1 Main sector characteristics 41
3.3 Competitiveness analysis 43
3.3.1 Labour supply, costs and conditions 43
3.3.2 Apparent labour productivity 43
3.3.3 Productivity enhancement 44
3.3.4 Demand side conditions 45
3.3.5 Competition and business strategies 46
3.3.6 Internationalisation 47
3.4 Screening of regulatory and other framework conditions 47
3.4.1 Regulatory conditions and standards 47
3.4.2 ‘Other’ framework conditions 49
3.4.3 Exogenous conditions and trends 51
1.1 Introduction
This report has been produced as part of the study “Study on Industrial Policy and
Services” commissioned by the European Commission Directorate General for Enterprise
and Industry, within the context of the framework contract on Sector Competitiveness
Studies (ENTR/06/054). Specifically, the report aims to provide an overview of six
business services sectors, selected in consultation with DG Enterprise, that would provide
a starting point for assessing the possible scope and diversity of sectoral issues and
industry-service inter-linkages that may warrant further attention from the perspective of
EU industrial policy.
In accordance with priorities established between the consultants and DG Enterprise, the
agreed focus for the analysis of the selected service sectors was as follows:
• An assessment of the competitive position of selected service sectors and their
contribution to the competitiveness of client (industry) sectors, including:
- Structure and segmentation of the sector and markets;
- Performance evaluation and identification of the main drivers and inhibiting
factors for competitiveness;
- Important trends (at EU and global level) shaping, or expected to shape,
development of the sector.
The purpose was to provide a brief overview of the main features of the selected
service sectors within the EU and to identify and summarise their main performance
indicators and competitiveness drivers. Further, it was the intention to examine the
main trends in areas such as global competition, developments within the EU internal
markets and productivity performance.
• An assessment of regulatory and other framework conditions for the sector and the
impact of (actual or potential) policy issues, including:
- Identification of potential market failures and other possible problems affecting
the business environment for EU service providers;
- Assessment of key issues and priorities related to the regulatory environment or
‘other’ framework conditions for which there may be a role for EU-level policy
initiatives;
- Screening and prioritisation of sector issues against existing (or potential) EU
policy initiatives.
The purpose was to develop framework profiles for the selected service sectors,
together with policy profiles. In turn, these profiles provide a starting point for
assessing the extent to which the different service sectors are (actually or potentially)
affected by various EU-level policy initiatives and measures and the implications for
industry-service interactions.
With regard to the final point (existing EU policy initiatives), it was agreed that the study
would not address those sectors – mainly network-type sectors – such as transport,
telecommunications, finance and insurance and distribution that are already the focus of
significant EU-wide policy initiatives, albeit initiatives mainly outside the domain of
industrial policy.
On the basis of the selection process, the following broad service sectors were identified
as candidates for incorporation in the second phase of the study:
Knowledge-intensive Business Services (KIBS) sectors
• Computer and (non-standardised) software services;
• Engineering and technical services;
These sectors are characterised (in general terms) by their knowledge intensity, relative
capital intensity, and high degree of specialisation. As such, they are associated with their
positive contribution to user performance in terms of their effects on technological
change and their innovation role and, in turn, the challenges posed by globalisation (e.g.
digital delivery and international outsourcing, etc.)
Operational Business Services (OBS) sectors
• Industrial cleaning;
• Private security services;
• Recruitment and temporary employment.
These sectors are characterised by the relative importance of manual processes and labour
intensity and are typically perceived as having low levels of specialisation. Proximity
(physical presence) for delivery of services is of obvious importance, as is the emphasis
on cost reduction as a motivation for externalisation of service provision. They are also
As a starting point, Table 1 reveals the economic importance of the selected sectors
within the European economy in terms of employment, turnover and value added, based
on Eurostat data1. The smallest sector is private security services, with an estimated 1.2
million workers and a turnover of €35 billion, while the largest sectors, in terms of
employment, are private employment agencies with 3.3 million workers2 and industrial
cleaning 3.0 million workers. The largest sectors in terms of turnover and value added are
logistics (turnover: €353 billion, value added: €130 billion)3 and computer and related
services (turnover: €331 billion, value added: €167 billion).
1
In general, Eurostat data are broadly in line with data obtained from sector associations. Where such data is available, it is
reported in the sector chapters.
2
Of which, it is estimated roughly 250 thousand are ‘internal’ workers of private employment agencies and the rest are
temporary agency workers.
3
Data refer to the NACE category cargo handling and storage; other supporting transport activities; activities of other
transport agencies (63.1 + 63.2 + 63.4)
The subsequent three rows of data provide estimations of the role of larger firms in the
sector and, thus, provide some indication of concentration in the sector. The number of
enterprises represents (approximately) the sum, across countries, of the number of
enterprises with more than 250 employees and the proportion of total turnover and
employment accounted for by these enterprises. On this basis, the sector with the lowest
concentration in terms of shares of turnover (21%) and employment (14%) of ‘large’
enterprises is the architectural, engineering and technical consulting services sector. This
can be contrasted with private employment agencies, where ‘large’ firms account for 65%
of turnover and 70% of employment.
The data on turnover per worker and value-added per worker by enterprise size attempt to
provide some indication of the possible importance of enterprise size and, therefore,
possible economies of scale for the different sectors. What we can see is that average
production and value added per worker – a standard measure of labour productivity - is
negatively related to size for the sectors of industrial cleaning, private security and private
employment agency services7. By contrast, there seems to be a positive relationship for
4
Defined as the share of personnel costs in the value of production. Note that this does not include remuneration to the
‘owner’/entrepreneur where this is included under operating surplus rather than personnel costs. This can be important in
sectors characterised by a high proportion of micro-enterprises.
5
This labour intensity can also be seen by comparing the relative size of average personnel costs per employee to turnover
per worker for each sector.
6
A value of 100 would indicate that the average value-added (which includes the cost of labour) created is exactly equal to
the average cost of labour in the sector.
7
Some caution is necessary in the interpretation of labour productivity data for the private employment agency (PrEA) sector
since, to a large extent, variables such as turnover, value-added and personnel costs will reflect the financial remuneration
and other labour costs associated with the provision of temporary agency workers. To the extent that the composition of
The interpretation of these data depends upon the point of view taken with regard to
whether the ‘outputs’ from these sectors are considered as cost-critical inputs to other
forms of economic activity, or as value-added generating activities in their own right.
Typically, it is the latter approach which is taken when assessing ‘competitiveness’, so
that high apparent productivity (e.g. high levels of value-added per worker) is seen as a
positive attribute. In the case of the three OBS sectors, however, these are typically
viewed in terms of the former (i.e. cost items), such that low turnover or low value-added
per worker can be viewed as a reflection of cost-competitiveness.
In this respect, the observed differences across firm size categories can also tell us
something about the relative ‘efficiency’ of firms, whereby larger firms are able to benefit
from ‘economies of scale’, such as lower management overheads or more efficient
organisation of business/service processes8. By contrast, for architectural, engineering
and technical consulting services and computer-related services, which would be
classified as knowledge-intensive business services and ‘generators’ of value-added in
their own right, we can perhaps take a more ‘traditional’ view of apparent productivity
performance. This would then suggest that there is some evidence that larger firms are
more ‘competitive’ in that they are able to achieve higher production and value-added per
worker than smaller enterprises. Finally, the situation in the ‘logistics’ sector, in terms of
the impact of enterprise size on productivity performance, probably warrants more
detailed assessment. On the one hand, the data suggest that small firms achieve
significantly greater levels of production per worker than larger companies, but, on the
other hand, value-added per worker is higher for firms with more than 250 employees
than for the other size categories.
The final rows of data simply calculate the ratio of value-added per worker to turnover
per worker (i.e. the ratio of the two preceding sets of data) by enterprise size. Here we can
look at the proportion of value-added in the turnover of the sector, which can provide a
further indication of the relative efficiency of services production. For the three OBS
sectors and ‘logistics’, the proportion of value-added in turnover is shown to increase
with company size9. For the remaining sectors, the share of value-added in turnover is
lower for enterprises with over 250 employees than for the smaller enterprise size
categories.
skill-levels (and corresponding wage levels) of temporary agency workers varies across countries then this will be reflected
in relative levels of personnel costs and, correspondingly, value added of the PrEA sector.
8
This conclusion may be seen to be somewhat weaker for the PrEA sector in relation to those segments/companies that are
dealing with the provision of specialised/skilled temporary agency workers, where ‘quality’ competitiveness may be more
important than cost competitiveness (e.g. higher value-added per worker may reflect higher ‘quality’ of workers supplied).
9
Although for private employment agencies the ratio is the same for both enterprises with 50-249 employees and 250+
employees. Here some caution is required, since the categorisation by ‘employee’ size would seem to depend on the
number of agency workers and not the number of internal staff of the enterprises.
Number of
thousand 160 50 70 860 110 510
companies
Number of
thousand 2,960 1,160 3,280 2,580 2,120 2,640
workers
Share of labour
% 59 60 63 32 23 38
in production
Turnover per
€ 1000 22 31 34 96 166 126
worker
Value-added
€ 1000 15 21 26 48 61 63
per worker
Personnel cost
€ 1000 13 18 21 40 35 50
per employee
Wage adjusted
productivity
Number of
number 1440 620 460 890 860 770
enterprises
Share of sector
% 44 48 65 21 41 44
turnover
Share of sector
% 51 58 70 14 46 31
employment
Ratio of value-added per worker to turnover per worker by enterprise size (number of employees)
2-49 emp. % 63 51 61 51 26 48
50-249 emp. % 70 69 80 50 32 48
250+ emp. % 76 74 80 44 48 46
One of the key aims of the sector analysis was to identify and prioritise key issues facing
each sector both in terms of the sector’s own development, and in terms of interactions
between the sector and its clients - specifically those in industry (manufacturing). This
analysis is centred on a screening of the sector in relation to a set of main regulatory and
framework conditions. The results from these screening exercises, in terms of the relative
importance of different factors for each sector, are shown in Table 2 and Table 3. In this
section, we attempt to summarise some of the main findings and draw some comparisons
across the sectors covered by the analysis.
Labour regulations (e.g. working conditions) and labour taxes and social security are also
of particular importance for those sectors that are labour intensive, especially in terms of
low-skilled workers. While other tax issues and fiscal regulations (e.g. environmental
taxes) are important for the logistics sector in terms of, for example, their influence on
location decisions of transport and distribution centres.
Industry and professional standards – including voluntary industry standards and codes of
practice – is an area where many of the sectors are active. To a large extent, the
development of industry standards for business services is at a relatively rudimentary
stage and it is only recently that national and international standards organisations have
turned their attention to standards in this area. In addition to the development of standards
On the other hand, shortages of workers with specific skills are a major concern for
knowledge-intensive sectors, such as computer related services, and engineering and
technical consulting. These sectors face external challenges from countries with a
growing stock of technically-skilled workers (e.g. engineers, ICT professionals, etc.),
which increase the potential viability of off-shoring activities. In addition, tight conditions
in local labour markets mean increased competition from other sectors that may be able to
offer more attractive terms and conditions to workers.
For private employment agencies sector, which can be seen as an intermediary in the
process of labour supply and demand matching, the increasing difficulty that their clients
face in recruiting skilled and specialised workers is reflected in the fact that this is the
fastest growing segment of the employment agency business in Europe. In this respect,
demographic change and changing skills needs and availability represent important
opportunities for the sector. At the same time, existing national regulation and restrictions
on the use of temporary agency work are important for the sector – and their clients – in
shaping national skills profiles of temporary agency workers.
Skills shortages are also reflected in the discussion of knowledge and innovation issues,
specifically in sectors that are heavily reliant upon knowledge skills to drive innovation
and, in turn, productivity developments. Among the sectors covered in the study, this is
most obvious in the case of sectors such as engineering and technical services and the
more skilled (typically ICT-related) segments of logistics services. A key aspect is the
growing complexity of services being requested by clients, which results in an expanding
scope of knowledge and skills requirements, including management and organisational
capacity to handle complex projects. At the same time, increased client pressure to reduce
costs, low margins and the prevalence of small companies – particularly in engineering
R&D and innovation is also an issue in the technical development of equipment and
systems associated with non-KIBS sectors, such as security services and even industrial
cleaning. Here, an important aspect to the knowledge and innovation equation rests on the
relationships between the providers of equipment, materials and systems and the service
providers themselves. There appears to be scope for strengthening linkages between
equipment manufacturers, service providers and, ultimately, service clients in order that
both technological and organisational innovations can make a greater contribution to
enhancing the efficiency and effectiveness of service provision.
Market access issues for the sectors covered by the study are related, by and large, to
issues of diversity in national regulatory systems and restrictions (see above). High
compliance costs, for example, can be major impediments to the internationalisation of
service activities, particularly where proximity to clients and, hence, establishing a local
presence (e.g. through FDI) is necessary for successful international development. The
study has not assessed in any depth market access issues related to markets outside
Europe. These are, perhaps, of most importance for the logistics sector, where they are
linked very closely to liberalisation of transport markets, trade facilitation measures (e.g.
customs procedures, inspections etc.) and restrictions on FDI in the transport sector. Slow
progress in multilateral negotiations on trade facilitation is seen as an important
impediment to further development of the logistics sector.
Structural change is considered as an important issue for all of the sectors covered by the
study. To a large extent this reflects the role played by these sectors in the externalisation
process (e.g. outsourcing and off-shoring etc.), which provides an important driver of
growth for the sectors. We can also observe a specific role for private employment
agencies in assisting business in adapting to structural change and changing labour
requirements and an increased need for private security services, as a result of greater
fragmentation of value chains. At the same time, structural change is also taking place
within service sectors themselves. One aspect is related to the greater segmentation of
services markets and providers, reflected in consolidation among major players and
‘niche’ strategies pursued by smaller firms and new entrants. In addition, expanding the
scope of services provided and the development of multi-service and ‘one-stop shop’
approaches, such as the development of facilities management services, is a further
feature of the structural change taking place in the business services sector.
The report has examined some limited aspects of possible competition policy issues
within the sectors covered. One aspect, mentioned above, is the role played by regulations
in shaping the structure of national service markets. For example, very high levels of
concentration are observed in some national markets for operational business services.
Whether these may give rise to competition concerns has not been assessed and,
moreover, to do so would necessitate more in-depth examination of the correspondence
between market segmentation on both the supply-side and demand-side. From the
perspective of international and global competition, there are important differences in
potential competition pressures. For all three OBS sectors, provision of services requires
close geographical proximity to clients and, therefore, international (global) competition
National
regulatory
measures
EU regulatory
-
measures
Regulatory Completion of
conditions internal market -
legislation
Industry and
professional
regulations
and standards
Knowledge:
R&D,
innovation and
product/service
development
Labour force,
‘Other’ knowledge and
framework skills
conditions Market access
(trade and -
investment)
Structural
change
Competition
policy issues
Technological
- -
change
Social and
Exogenous
demographic
conditions
change
Global
competition
- No or limited relevance
Relevant
Important
Very important
National
regulatory
measures
EU regulatory
measures
Regulatory Completion of
conditions internal market - -
legislation
Industry and
professional
regulations
and standards
Knowledge:
R&D,
innovation and
product/service
development
Labour force,
‘Other’ knowledge and
framework skills
conditions Market access
(trade and -
investment)
Structural
change
Competition
policy issues
Technological
- -
change
Social and
Exogenous
demographic
conditions
change
Global
competition
- No or limited relevance
Relevant
Important
Very important
Table 4 provides an overview of the screening of each of the service sectors covered by
the sector against existing and potential horizontal EU ‘industrial’ policy issues and a
number of additional possible services-related initiatives.
Among the policy initiative areas that stand out, in terms of across the board relevance for
the sectors covered by the study, are the themes of ‘better regulation and simplification’
(with particular reference to greater harmonisation of EU regulatory policies and
frameworks) and ‘other standards’ (with particular reference to the development of
European definitions and standards, professional standards and training, and ‘best
practice’ guidelines).
As noted in the main report of this study, standardisation within services activities is
increasingly being used to promote best practices, to spread knowledge throughout the
market and to set benchmarks, against which businesses can measure the quality and
performance of their own services or the services they are purchasing (thus improving
competitiveness and increasing efficiency). By and large, both with respect to quality and
technical standards, the business services industry lags far behind manufacturing, both in
terms of the adoption of such standards and in their international harmonisation. To date,
efforts to define and develop consensus on the potential role of standards in the business
services sector have had relatively limited visibility. As a consequence, international
efforts towards the development of service standards for business services are at an early
stage and appear to being developed on the basis of a rather piecemeal approach.
A second policy area that seems relevant across all sectors covered by the study relates to
‘employment, qualifications, skills and flexicurity’. Improving skills levels, raising
professional standards and addressing labour or specific skill shortages are raised as
issues for business services. There is also a link here to ‘organisational innovation’ and
the possibilities to enhance sector performance through improvements in the organisation
of business services labour-based processes. A second aspect of ‘services innovation’
relates also to enhancing the interface between service providers and clients, particularly
– but not only – in relation to more knowledge-intensive service activities. More
traditional forms of services innovation (i.e. through new service product innovations) are
also important for improving performance and competitiveness in these sectors. However,
‘support for knowledge intensive business services’ is only shown to be of major
relevance for the engineering and technical consulting services sector.
Public procurement -
Competition policy - - -
Technical
- - -
standards
Other standards
Health and safety - - - - -
Research and
- -
development
Intellectual
- - - -
property rights
Access to finance /
- - -
risk capital
Organisational and
services innovation
Support for
knowledge
- - -
intensive business
services
Services
Measurement and
recognition of - - - -
intangible assets
Regional actions
(demand and - - -
supply matching)
- No or limited relevance
Relevant
Important
Very important
Estimates from both the European Federation of Cleaning Industries (EFCI)10 and
Eurostat provide a broadly similar picture of the size and economic importance of the
industrial cleaning sector in Europe. For 2005, EFCI estimates based on data from 19
national member associations11 indicate that the total turnover of the sector was € 50.1
billion; with the sector encompassing some 122 thousand companies and employing 3.4
million workers (see Figure 1 to Figure 3). For the same year, Eurostat estimates, which
cover 26 countries12, indicated total turnover of € 65.6 billion, 158 thousand companies,
and 3.0 million workers (see Figure 4 to Figure 6). The industrial cleaning sector
accounts for approximately 0.3% of total turnover, and 2.4% of total employment in the
non-financial and non-utility business economy (NACE Sections C, D, F to I and K)13 as
shown in Figure 7 and Figure 8. These data suggest that the industrial cleaning sector
accounts for a relatively low proportion of the business economy in New Member States,
which would seem to be indicative of lower levels of outsourcing of cleaning services and
development of the industrial cleaning sector compared to ‘older’ Member States.
According to EFCI estimates, the increasing demand for the services of industrial
cleaning contractors has seen turnover – unadjusted for inflation - double over the last 10
years (from € 24.4 billion in 1995), while employment has increased by 1.3 million (from
2.11 million in 1995).
Although overall demand for cleaning services is linked to the level and growth of
economic activity, the main driver of growth for the industrial cleaning services sector
has been the continuing trend towards outsourcing of cleaning services previously
undertaken ‘in-house’. EFCI estimates that market penetration – defined as the share of
global cleaning services (i.e. in-house plus outsourced) contracted out to specialised
cleaning companies – was at a level of about 61% in 2005 for the EU as a whole. As
shown in Figure 9, however, there is quite some difference across countries in terms of
both penetration rates and the change in these rates over time.
10
EFCI (2007) “The Cleaning Industry in Europe: An EFCI Survey”, Edition 2007 (Data 2005)
11
Austria, Belgium, Czech Republic, Germany, Denmark, Spain, Finland, France, Hungary, Italy, Luxembourg, Norway,
Netherlands, Poland, Portugal, Slovenia, Slovakia, Sweden and United Kingdom.
12
As for EFCI, excluding Czech Republic and including: Bulgaria, Cyprus, Estonia, Greece, Ireland, Latvia, Lithuania and
Romania.
13
More normally the non-financial business economy (NACE Sections C to I and K) is utilised as a reference, but as data on
the ‘utilities sector’ (NACE Section E) is missing for some countries the definition ‘non-financial and non-utility business
economy’ has been used.
Cleaning is highly labour intensive, with personnel costs typically accounting for 75-80%
of total costs. Accordingly, wage costs, labour taxes and social security payments are the
main drivers of costs in the sector; which implies that costs are a priori higher in
countries with higher wages and tax systems. In a market that is typically characterised by
price-based (cost-saving driven) demand, there is an obvious tension between pressure to
hold down wages on the one hand, and to provide reasonable remuneration and working
conditions for employees on the other. This challenge can be set against, and is
exacerbated by, known problems of ‘grey market’ and illegal activities of some service
providers for whom reducing labour costs provides the motivation to circumvent tax,
social security and working condition requirements (see Section 2.2.5).
The prevalence of relatively low-paying jobs within the sector and the part-time nature of
the work - 70% of employment in the sector is estimated to be part-time work (see Figure
11) - combined with the relatively poor image of the sector, contribute to problems in the
retention of workers (i.e. high staff turnover). In addition, underlying demographic
change, which influences the size of the pool of potential workers for the sector, is
already seen to be a possible cause of staffing problems for the sector. At the same time,
though jobs in the sector are mainly low-skilled, the sector can be seen to play a ‘social
role’ in terms, for example, of inclusion of immigrants into the workforce. Overall, it is
recognised that there is a need to make the sector more attractive to employees. Initiatives
in this direction would encompass better management of workers in general, improving
the level and recognition of professional standards of workers, changes to working
One characteristic of the sector is that services are performed predominantly outside
‘normal’ working hours (i.e. usual occupation period of the premises). Daytime cleaning
tends to be the exception, though as shown in Figure 1214 it is more prevalent in
Scandinavian countries (Sweden, Denmark) and Central Europe (Poland, Czech
Republic). Increasing the proportion of daytime working is seen as one possible avenue
for increasing the attractiveness of the sector for potential workers by offering greater
opportunities for full time work and consequently improved professionalism (e.g. easier
access to professional training), employee motivation and recognition, as well as a better
balance between private and working life. Despite technical developments (e.g. cordless
and silent vacuum cleaners) there is, however, reluctance on the part of clients to accept
solutions including daytime cleaning15.
EFCI estimates indicate that average turnover per worker in the cleaning sector was
approximately € 18.2 thousand in 2005 (see Figure 16). On the basis of Eurostat data -
excluding from the calculation enterprises with only 1 employee – the estimated average
turnover per employee is approximately € 22.1 thousand (Figure 17), and estimated
average value added per employee is € 15.5 thousand (Figure 18). As can be expected,
these average figures mask considerable variation across countries, which largely reflect
the wide differences in (nominal) wage levels across European countries. At the same
time, the proportion of part-time work (see Figure 11) and prevalence of day-time
working (see Figure 12) vary significantly across countries as well, leading to variation in
average hours worked.
Table 5 provides details of the average turnover per employee and average hours worked
for those countries where both data are available. Using the EU average (based on
countries available), the Table also provides an index for each country of turnover
relative to the EU average. In terms of an overall picture, the Scandinavian countries
stand out in terms of their high apparent labour productivity. These are followed by
France, Belgium, the Netherlands and the UK. By contrast, Germany, Luxembourg and
Italy have lower apparent labour productivity, followed by Spain and Portugal.
One additional effect that seems to be at play here is the relative size distribution of
companies within the sector at a national level. Generally it appears to be the case that the
greater the proportion of the total market that is held by larger companies16 (see Figure 14
and Figure 15) then the lower the turnover per employee. Looking at the pattern across
countries and size categories of firms, it is generally the case that average turnover per
employee (Figure 17) and average value added per employee (Figure 18) is negatively
related with company size; i.e. it is the case that smaller companies (less than 50
14
Data for Belgium need to be checked with EFCI
15
See EFCI and Uni-Europa joint declaration on day-time working, available at:
http://ec.europa.eu/employment_social/dsw/public/actRetrieveText.do;jsessionid=Lf0l1lQl2tr1q4Ws8VNnJTL0vvx9JgfknyHv
vyWBhPCZwR922NK1!263744025?id=11364
16
Defined by number of employees
There are a number of ways of interpreting the above finding. Firstly, however, it needs
to be pointed out that differences across enterprise size in turnover (or value-added) per
worker may reflect underlying differences in the average number of hours worked; i.e.
longer working hours or less part-time employment of workers in smaller companies.
Alternatively, it may be the case that average wages – which are the major component of
turnover and value-added – are higher in smaller companies. Finally, it may be the case
that higher turnover and value added figures reflect some degree of specialisation of the
cleaning services provided by smaller firms that enables them to charge higher prices than
larger, more generalised, firms. This would be consistent with differing strategies across
firms with, for example, larger firms adopting business models based on earning smaller
margins on high volumes of services provided, while smaller firms aim at higher margins
on a smaller volume of services.
Although the above mentioned factors may be relevant for explaining difference across
different firm size classes, it seems likely that differences across firm size categories also
tell us something about the relative ‘efficiency’ of firms, whereby larger firms are able to
benefit from ‘economies of scale’, such as lower management overheads or more efficient
organisation of business/service processes17. In this context, the apparently high nominal
‘productivity’ levels (as measured by turnover/value-added per worker) of smaller sized
17
At the same time, the data suggest that the difference between ‘medium-sized’ companies (50-249 employees) and ‘large’
companies (250+ employees) are typically small compared to the difference with ‘small’ companies (2-49 employees). This
would suggest that any ‘additional’ economies of scale tend to be relatively small once a minimum critical size is attained.
The manual / labour-based nature of the services supplied by cleaning contractors makes
it difficult to obtain (labour) productivity increases18. Although there is considerable
technological development and a booming market in the sector of cleaning machinery,
this technical development concerns mainly ‘quality’ aspects (including, for example,
noise reduction) rather than enhancing labour productivity per se. As noted above
(Section 2.2.1) there are some efforts to try to shift to more day-time cleaning which
could enable greater full-time working which should raise overall productivity. Also,
shifting into facilities management (i.e. widening the scope of services) is another
possible means to enhance time management of workers; i.e. increase working hours
through using the same personnel to undertake a wider range of different activities/tasks.
As noted above, outsourcing - by both the public and private sector – has been an
important demand driver for the industrial cleaning sector. Although office cleaning
accounts for over half the market, cost saving switching to external supply of cleaning
services has motivated the increase in demand from the public sector and across industry.
Within industry, it appears that increasing demand for external provision of cleaning
services exists across all sectors, and particularly where cost-based international or global
competition is important. Unfortunately, however, there appears to be little empirical data
on use of cleaning services by industry but it does seem that a high proportion of cleaning
activities are outsourced; for example, Figure 19 indicates that for Sweden, Denmark,
Finland and Germany over 70 percent of manufacturing firms with more than 50
employees use an external provider of cleaning services, but this proportion is much
lower for Poland, Latvia, Lithuania and Slovenia.
The fact that cost saving is a priority for both public and private sector clients constitutes
a major challenge for the sector. In general, the pressure to reduce costs means that cost
(lowest price) considerations tend to dominate over quality aspects. As a consequence,
‘best value’ (i.e. quality to price ratio) is less important in customers’ decisions than
lowest absolute price. In the case of the public sector, this situation exists despite
numerous initiatives to try to improve public procurement procedures (e.g. European
18
Cleaning activities can be characterised as “labour-based repetitive manual processing” (see Interim Report). The
dependency on physical labour implies that possibilities for economies of scale may be limited since increasing the volume
of work undertaken (e.g. physical volume of surfaces to be cleaned) is likely to result in a decline in quality and decreased
effectiveness of the service provided.
As already noted above, wage costs, labour taxes and social security payments are the
main drivers of costs in the sector, implying that where competition is price driven there
is intense pressure to reduce labour costs. As profit margins in the sector are generally
low, and where there are firms that attempt to undercut the market, this can result in the
erosion of pay and working conditions of workers and lowering of quality standards of
the services provided. For the industry as a whole, counteracting this tendency requires
collective action to reduce this type of ‘unfair’ price-cutting behaviour and to maintain
industry standards of services. In this respect, vigilance is also required from public
authorities in relation to actions against ‘undeclared’ working practices and maintaining
minimum legal wages and working practices (where these are relevant). At the same time,
it can be argued that in markets where the client often holds the upper hand in contract
negotiations and price setting, then clients should not be entirely be absolved of any
responsibility for creating situations in which the sector becomes characterised by low
wages and poor working conditions.
Given the market pressure on costs/prices, two directions for business development are
being pursued by companies in the sector: (i) entering niche (specialised) segments where
there may be fewer competitors; and (ii) widening the scope of services provided (e.g.
shift to facilities management21). Firms with their origins in the cleaning sector already
occupy an important position within the facilities management sector; with EFCI
estimating that of the 20 or so largest facilities management companies in each country,
about half have their origins in the cleaning sector. This strong representation is
19
Night work tends to be limited to specific situations like industrial premises, hospitals and airports.
20
EFCI and Uni-Europa (2003), “Selecting best value: a guide for organizations awarding contracts for cleaning services”.
21
The range of possible services is wide, including, for example: cleaning, catering, security, gardening, reception,
maintenance, waste management, hygiene, temporary employment.
2.2.6 Internationalisation
International cross-border trade in industrial cleaning services is to all intents zero; with
the exception, perhaps, of some very close to border activities. Provision of cleaning
services is an activity undertaken at the client’s location and so the operations of cleaning
firms and their workers need to be located in geographical proximity to their clients. In
terms of the internationalisation behaviour of companies within the sector, by and large
most companies – including many of the larger ones – tend to be family based businesses
that operate on national markets or with limited international presence. ISS is the only
truly global player, and is quite different in terms of management approach – being
essentially an ‘investment company’ – when compared to most other companies within
the sector. According to industry representatives, there are no absolute barriers to
internationalisation of cleaning service companies and those companies wanting to
expand international activities will/can do so. Nonetheless, for specific aspects of
activities (or specific service types) there can be different national rules that need to be
complied with.
From the perspective of the potential impact of international competition on the market,
there does not appear to be much concern from established players on competing on the
basis of quality aspects of service provision. However, there is significant concern
relating even further downward pressure on prices that might result from increased
international competition pressure within the sector. Fear that firms located in higher cost
markets might suffer considerably from competition from low cost countries (i.e. with
lower minimum wages, or standards for working conditions) under temporary movement
of workers provisions was a major reason for the sector to object to the adoption of an
‘origin principle’ under proposals for the Services Directive.
The purpose of this sector is to identify and prioritise the key issues facing the industrial
cleaning sector both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). The
analysis is based around a screening of the sector in relation to the main regulatory and
framework conditions22; the overall assessment is summarised in Table 6
22
This analysis is in accordance with the general framework for assessment of regulatory and framework conditions agreed
as part of the Framework Contract of Sectoral Competitiveness Studies.
From the perspective of the cleaning industry itself, there seems to be little enthusiasm for
the further development of national-level or European wide formal standards. One
problem cited by the sector is that the industry is not providing a standardised product,
since cleaning requirements are different for different client sectors and individual client
23
EN 13549
24
CEN (2005) “Final Report on European Commission Programming Mandate M/340 in the Field of Services” CEN/BT/WG
163 – N022, 15 March 2005
25
Details on the ethnic composition of the workforce are not easily (or in some cases legally) available, but the cleaning
sector has a reputation for employing a large number of immigrant workers and from ethnic minorities.
Structural change
Structural change in the form of outsourcing of cleaning service activities has been a
driving force for development of the industrial cleaning sector. EFCI estimates (see
Section 2.1) already indicate penetration rates of around 60 percent in terms of cleaning
activities outsourced to external cleaning contractors. This, nonetheless, leaves
considerable scope for further expansion of the industrial cleaning sector, both in terms of
turnover and employment. The industrial cleaning sector itself is also subject to structural
change based on the growing importance of multi-service provision and facilities
management services, which reflect both growing demand from clients for more
integrated service provision and efforts by service providers to enhance efficiency
through economies of scope.
Competition issues
The main issues related to competitive behaviour in the sector appear to concern ‘unfair’
price-cutting behaviour, where this leads to avoidance of tax, social security and working
condition requirements (e.g. undeclared working). Leaving this issue aside, entry barriers
into the industrial cleaning sector are limited and this is reflected in the rapid increase in
the number of firms operating within the sector26. It is very difficult, however, to evaluate
whether this trend may mask other elements of market malfunctioning or competition
concerns. As already noted (see Section 2.1), a relatively small number of larger firms
within the sector account for a substantial proportion of total turnover and employment,
but this in itself provides no evidence of potential competition problems. Other forms of
market segmentation may also be present, for example on a geographical basis or for
particular market segments, but it is beyond this study to evaluate whether these give rise
to any possible concerns.
Technological change
Rapid technological change has been identified as one of the key challenges for European
industry, both manufacturing and services, particularly in relation to developments in the
field of ICT. Industrial cleaning activities, which rely primarily on the provision of
manual (labour-based) services and for which proximity is a necessity (i.e. activities
generally need to be carried out at the clients premises), are among the activities that are
26
For example, EFCI estimates indicate that the net increase in the number of companies in the sector has been running at
over 9 percent per year.
From another, but linked perspective, policies to better integrate migrant workers into the
labour market are seen as an important mechanism for offsetting processes of
demographic change in Europe. In this respect, the industrial cleaning sector is already
noted for the high presence of migrant workers and its ‘social’ role in assisting the
integration of immigrants into the workforce
Global competition
For the reasons noted above (under technological change), industrial cleaning services
have to be provided locally an so – leaving aside potential provision of services through
temporary movement of workers – the sector is not really subject to global competition.
Of more relevance are the possible international behaviour and location decisions of
client sectors and the impact that this has on demand for cleaning services within Europe
and on the internationalisation behaviour of European cleaning service companies
themselves. Currently there are relatively few truly global players within the industrial
cleaning sector (or more broadly, facilities management), though there are a number
operation on a regional scale.
The purpose of this section is to identify and prioritise potential areas for European policy
initiatives both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). To begin
with, the possible arguments (justification) for possible policy intervention from an from
an economic standpoint are examined. After this, the analysis is based around a screening
of the sector in relation to existing industrial policy initiatives and some specific themes
relevant to the business services sector; the overall assessment is summarised in Table 7
Social externalities
One important social externality associated with the provision of industrial cleaning
services relates to the ‘amenity value’ to other firms and businesses, consumers and the
general public that may result from cleaning activities but that are not necessarily
reflected in decisions over the level and quality of cleaning services (whether or not
provided ‘in-house’ or contracted out). The most obvious examples would relate to
exterior cleaning aspects (e.g. facades and windows) or interior areas accessed by the
general public, for which both appearance of cleanliness and hygiene levels are relevant.
Information asymmetries
Information asymmetries arise when buyers and sellers are not well informed of the
services to be provided or where information is not equally distributed between them. In
the context of industrial cleaning, buyer-side lack of information can relate to the actual
quality of the service(s) to be provided since this cannot be ascertained in advance. For
example, service contracts can specify the quantity of services to be provided (e.g.
volume of cleaning, and frequency that cleaning should take place)28 but it is often
difficult to specify and measure the ‘quality’ or ‘effectiveness’ of cleaning services
provided29. This situation is exacerbated by the lack of industry standards, quality
measures (e.g. certification) and information on customer satisfaction within the
industrial cleaning sector. At the same time, cleaning contractors point to the difficulty in
obtaining sufficient information from potential clients regarding the actual cleaning
requirements. In particular, they point to the need for customers to allow sufficient time
27
See Section 2.2.3
28
i.e. activity-based cleaning systems
29
For example, surfaces may appear to be superficially clean but may remain ‘dirty’ from a hygiene perspective.
Some efforts have been made towards addressing information asymmetries, such as the
utilisation of ‘best practice’ guidelines for selecting cleaning services providers (see
Section 2.2.4.) Also, a European standard providing basic requirements and recommend
for quality measurement systems has been adopted by CEN (see Section 2.3.1).
Nonetheless, it seems difficult to avoid the conclusion that more could be done to
improve exchange of information between service contractors and clients. In particular, to
increase the awareness of clients with regard to the importance of quality-based aspects of
services, while at the same time providing them also with better (independent)
information and systems to evaluate the ‘quality’ of cleaning contractors, particularly
during selection procedures but, also, for services actually provided.
Table 7 provides an initial screening of the industrial cleaning sector against existing and
potential EU horizontal ‘industrial’ policy initiatives31, and a number of additional
possible services related initiatives. This attempts to identify those policy initiatives that,
if introduced or extended, could be of most relevance for the industrial cleaning sector, in
particular in terms of raising performance (e.g. productivity improvements) and/or
creating opportunities for sector development.
30
An associated issue relates to the use of online bidding systems for cleaning contracts, where potential bidders similarly
have insufficient information to evaluate cleaning needs.
31
Based on the Mid-term Review of Industrial Policy, COM(2007) 374.
Technological
[see under ‘Knowledge’] - -
change
Social and Population ageing and shrinking labour force
Exogenous
demographic Social inclusion and integration of migrant workers
conditions
change
Services provided locally
Global competition
Strategy of European players
- No or limited relevance
Relevant
Important
Very important
Competition policy -
Technical standards -
Professional standards, codes of practice,
Other standards accreditation and quality standards, professional
qualifications and training standards,
Health, hygiene safety and environmental
Health and safety regulations relating to ‘own’ and ‘client’ sectors;
Utilisation and disposal of cleaning materials
Innovation policy -
Knowledge
Raising professional standards through promotion of
and skills
Employment, qualifications, training, accreditation etc.
skills / Flexicurity Career development; increasing full-time working
opportunities etc.
Access to finance / risk [Problems associated with late payment for services,
-
capital especially for smaller companies]
Structural Anticipation
Change Tertiarisation
30,000
25,000
20,000
15,000
10,000
5,000
0
IT DE ES FR UK SE DK HU NL PL AT CZ FI NO BE PT SI SK LU
Companies 21000 19304 18041 15138 8300 5386 5154 5000 4000 4000 3500 3256 3150 2213 1758 1500 645 350 141
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
DE FR IT ES UK NL SE DK FI BE NO CZ HU PT AT PL SI LU SK
Turnover 10936 8550 6435 6064 5838 2824 2071 1600 1500 1157 890 580 520 400 370 160 121 100 7
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
DE ES UK IT FR PL NL HU DK BE AT CZ SI SE PT FI NO LU SK
Employment 808751 404843 400000 390000 389667 320000 200000 71000 60000 55223 51000 48113 42090 41710 40000 38000 22791 6000 5858
30,000
25,000
20,000
15,000
10,000
5,000
0
IT DE FR ES PL UK NL SE HU DK GR FI PT BE NO AT RO SI LT IE BG LV SK EE LU CY
Companies 27009 20920 19415 17822 12766 12704 6685 6247 6103 5238 4785 3152 3133 2819 2362 2193 1541 767 674 636 313 209 184 183 112 38
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
DE IT UK FR ES NL SE BE DK GR FI AT NO PL PT HU IE LU SI RO SK EE LT LV BG CY
Turnover 12234 11655 8859 8621 6437 3969 2028 1930 1745 1511 1244 1227 1068 1005 570 464 423 169 129 96 62 36 34 28 18 5
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
DE UK IT ES FR NL PL PT SE AT BE DK HU FI GR NO IE RO SI SK LT LU EE BG LV CY
Employment 767232 448670413335401322279160 140573 83143 59876 47250 46451 45089 42460 31402 30885 23440 22604 18056 15438 7572 7304 7014 6902 5581 3975 3818 317
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
GR IT DK FI NL SE ES DE FR BE AT LU UK NO HU SI PL PT IE EE LV SK LT RO BG EU*
Share of NFNUBE turnover 0.58 0.47 0.46 0.42 0.39 0.38 0.35 0.33 0.29 0.28 0.28 0.28 0.27 0.25 0.22 0.22 0.21 0.19 0.14 0.12 0.10 0.09 0.09 0.07 0.03 0.33
Figure 8 Industrial Cleaning: share of total non-financial and non-utility business economy employment by country, 2005
(%)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
DE LU NL ES IT FI DK UK AT FR BE IE PT SE NO EE SI HU PL GR LT SK LV RO BG EU*
Share of NFNUBE emp 3.8 3.4 3.0 3.0 2.8 2.5 2.5 2.5 2.0 2.0 1.9 1.9 1.8 1.8 1.8 1.4 1.4 1.3 1.1 0.9 0.8 0.8 0.6 0.4 0.2 2.4
90
80
70
60
50
40
30
20
10
0
AT LU PT ES NL SK DE FI UK SE BE IT FR PL SI NO CZ HU
1989 45 37 55 20 47 50 43 45
1994 65 60 70 65 45 13 55 55 52 45
2004 80 80 80 79 78 70 68 63 61 60 55 55 52 51 48 45 40 40
Offices, 53.4
90
80
70
60
50
40
30
20
10
0
DK LU BE SK DE PT FR NL IT UK AT ES SE CZ PL FI EU*
Part time 85 85 81 80 79 75 73 72 70 68 67 60 60 56 30 29 70
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
SE PL DK CZ SI PT UK ES DE BE LU SK AU FR EU*
Night 5 10 10 5 10 10 10 15 5 1 0 0 2 5 6
Evening 15 35 10 40 45 20 28 35 50 54 80 50 70 75 43
Day 65 50 45 40 25 25 23 20 15 13 10 10 8 3 25
Morning 15 5 35 15 20 45 39 30 30 32 10 40 20 17 25
100%
80%
60%
40%
20%
0%
DE SK AT LV LU EE IT BG CY IE NL ES RO SI NO BE FR PT SE DK FI HU PL LI GR EU*
1 empl 14.0 15.2 20.2 23.8 30.4 31.1 35.1 38.3 39.5 41.2 41.5 45.0 49.7 51.6 54.4 57.0 57.6 61.5 66.7 69.2 74.6 76.3 76.4 82.2 87.7 48.5
2-9 empl 57.6 38.0 61.9 51.4 33.0 36.6 45.6 39.6 44.7 42.0 40.9 32.0 36.6 36.5 33.1 31.5 27.5 25.8 23.6 21.8 20.7 16.6 20.4 8.9 9.4 35.1
10-19 empl 8.7 15.2 7.8 5.7 10.7 12.6 9.2 12.5 7.9 7.1 7.7 9.9 4.6 5.2 6.3 4.3 6.0 5.2 5.4 4.7 2.4 3.3 0.9 2.7 1.0 6.7
20-49 empl 8.1 11.4 5.3 13.8 11.6 7.1 5.4 3.8 4.1 5.9 7.6 5.2 3.9 3.9 3.8 5.4 3.5 2.7 2.7 1.3 2.2 1.0 2.8 1.0 5.0
50-249 empl 8.9 15.8 3.2 2.9 8.0 11.5 3.8 7.9 3.3 3.4 4.3 3.4 2.1 1.9 2.7 2.8 2.7 1.4 1.4 0.9 1.4 1.0 2.1 0.7 3.7
250 or more 2.8 4.3 1.6 2.4 6.3 1.1 0.9 5.8 0.0 2.4 0.6 1.2 0.5 0.7 0.3 0.7 0.7 1.3 0.2 0.2 0.1 0.3 0.4 1.3 0.2 1.0
Figure 14 Industrial Cleaning: breakdown of turnover by company size (number of employees), 2005 (%)
100%
80%
60%
40%
20%
0%
LU LI DE ES SK FI PT IE CY NO BE FR AT EE NL IT SI DK SE BG RO HU PL GR EU*
1 empl 1.8 4.4 1.4 1.5 0.6 9.3 4.4 3.8 3.9 4.1 7.6 3.0 2.0 4.1 3.4 2.7 5.1 15.1 8.3 4.9 4.0 21.6 29.0 48.9 5.1
2-9 empl 5.7 5.0 12.7 7.1 8.9 9.8 10.7 17.1 15.7 12.3 11.3 11.9 19.8 15.5 15.5 16.2 20.0 13.1 16.8 18.7 24.8 16.1 25.7 11.1 13.4
10-19 empl 5.3 3.3 4.4 5.6 4.5 4.0 6.4 4.7 11.8 7.7 4.3 7.4 6.5 8.8 7.5 12.1 8.0 8.4 11.7 13.7 16.6 10.4 2.1 5.2 7.5
20-49 empl 8.2 10.9 6.7 11.2 12.6 4.0 6.8 4.9 9.8 11.4 13.3 8.9 9.1 11.4 8.7 11.4 8.4 11.4 11.0 12.5 11.6 4.3 6.1 9.3
50-249 empl 13.2 21.0 24.4 19.3 39.3 6.7 16.7 10.3 68.6 19.4 22.8 18.5 15.8 16.8 26.4 18.6 15.6 16.5 29.9 19.2 13.7 14.1 20.7
250 or more 65.7 55.3 50.4 55.3 34.3 66.1 55.1 59.1 0.0 46.6 42.5 45.9 47.1 62.4 45.4 33.8 37.0 39.3 35.4 51.6 12.2 21.2 25.3 14.6 44.0
100%
80%
60%
40%
20%
0%
LU SK IE DE PT EE BE FI LI ES AT FR CY GR NL IT PL DK BG NO SI LV SE RO HU EU*
1 empl 0.4 0.4 1.8 0.4 3.2 1.4 3.6 7.2 7.9 2.0 1.0 1.3 3.5 10.0 6.7 2.3 14.3 8.2 3.0 2.9 5.2 1.3 3.7 5.0 14.8 2.6
2-9 empl 2.7 3.5 6.8 5.5 5.4 6.9 6.2 8.3 4.3 6.3 12.5 8.1 13.9 8.5 7.5 11.6 12.7 10.2 12.4 13.2 14.1 12.3 15.4 14.4 12.0 8.0
10-19 empl 2.6 3.5 4.0 3.2 3.6 6.3 3.6 3.4 3.4 5.9 5.0 5.8 11.4 3.5 5.8 8.2 1.9 7.8 12.1 9.0 7.1 3.5 10.8 6.4 8.9 5.4
20-49 empl 6.0 8.2 3.5 7.1 5.5 6.3 7.7 3.6 8.4 10.9 7.5 12.3 7.7 10.1 11.0 4.9 9.8 9.4 12.2 11.7 22.1 11.9 16.1 12.8 9.3
50-249 empl 15.8 34.7 10.6 27.8 14.8 16.6 9.4 21.3 20.2 17.6 20.7 71.3 20.9 18.8 26.3 16.4 17.2 17.8 18.4 14.1 21.0 33.7 24.0 23.1
250 or more 72.4 49.8 73.4 56.1 67.5 79.1 62.3 68.1 54.6 54.6 56.5 51.9 0.0 49.4 51.1 40.7 49.8 46.8 63.1 45.0 43.5 46.8 37.1 24.4 27.4 51.5
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
SK PL AU HU PT CZ DE NL UK ES IT LU SI BE FR DK NO FI SE EU
Turnover per worker 0.2 0.5 7.3 7.3 10.0 12.1 13.5 14.1 14.6 15.0 16.5 16.7 20.8 21.0 21.9 26.7 39.1 39.5 49.7 18.2
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
LI RO SK PT PL HU DE ES SI IE LU AT IT NL FR GR DK FI SE BE NO EU*
2-49 empl 5.7 9.1 14.6 15.6 19.8 16.7 24.0 16.6 20.4 44.2 41.5 37.1 34.0 41.4 38.6 73.1 44.4 46.9 44.9 65.9 41.0 29.6
50-249 empl 4.7 5.5 9.6 10.7 10.1 11.8 14.0 15.3 17.3 22.8 20.4 23.8 28.3 25.3 27.6 43.3 37.3 29.0 33.6 59.0 51.6 20.0
250 or more 4.9 3.1 5.9 7.8 6.1 11.4 14.3 16.2 14.5 18.9 22.1 22.0 23.4 25.1 27.3 19.1 34.5 39.1 40.9 29.2 49.0 19.0
Figure 18 Industrial Cleaning: value-added per person employed by company size, 2005 (€ thousand)
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
RO LI HU SK PL PT SI DE ES GR IT IE LU NL AT FR BE FI SE DK NO EU*
2-49 empl 3.6 3.3 5.8 8.2 8.2 8.8 11.8 18.0 12.1 28.4 17.6 25.5 31.6 25.5 27.7 25.9 29.6 31.3 27.6 30.1 27.5 18.6
50-249 empl 3.0 3.4 6.3 6.5 6.4 8.0 11.0 11.1 12.6 16.8 15.8 18.2 17.0 17.4 18.0 20.2 29.5 22.5 24.9 27.6 35.2 14.0
250 or more 2.3 3.1 4.7 4.2 4.5 6.3 10.3 11.0 14.2 7.4 16.5 14.8 17.4 18.3 18.5 20.5 22.9 24.6 28.4 26.9 32.3 14.4
100%
90%
80%
70%
60%
50%
40%
30%
20% All enterprises (>49 employees) Enterprises with 50-249 employees Enterprises 250 or more employees
10%
0%
SE DK FI DE SI PL LT LV SE DK FI DE PL LT LV SE DK FI DE PL LT LV
Not used 1% 6% 8% 6% 2% 26% 55% 3% 2% 6% 10% 8% 29% 58% 4% 0% 2% 0% 2% 15% 40% 0%
Enterprise 10% 20% 16% 20% 39% 29% 8% 67% 9% 21% 16% 23% 31% 8% 67% 12% 14% 19% 8% 22% 7% 65%
Same group 1% 1% 3% 1% 7% 1% 0% 1% 1% 0% 3% 1% 1% 0% 1% 0% 4% 5% 1% 3% 1% 1%
External 88% 74% 73% 72% 52% 44% 37% 29% 88% 72% 72% 67% 39% 34% 28% 88% 80% 76% 89% 61% 52% 34%
It is important at the outset of this analysis to point out that the ‘scope’ of the private
security services market in Europe varies considerably from country to country,
depending largely on public policies regarding the appropriate role of the private security
services sector and on the national regulatory frameworks regulating private security at
national level. To a large extent, the scope of what is ‘defined’ as the private security
services sector is both a reflection of, and reflected in, national legislation on private
security. Due to the variation in the ‘scope’ of services and the role of private security
firms across countries, it is not really possible to provide a standard definition (or
coverage) of private security sector, as each country has de facto its own definition. This
should be borne in mind when making comparisons across countries and when talking of
the European private security services sector.
32
COESS (2007) “Activities Report ’06 – ‘07”
33
Austria (AT), Belgium (BE), Bulgaria (BG), Switzerland (CH), Cyprus (CY), Czech Republic (CZ), Germany (DE), Denmark
(DK), Estonia (EE), Spain (ES), Finland (FI), France (FR), Greece (GR), Hungary (HU), Ireland (IE), Italy (IT), Latvia (LV)
Netherlands (NL) ,Norway (NO), Poland (PL), Romania (RO) Sweden (SE) and United Kingdom (UK).
34
As above, plus Luxembourg (LU), Lithuania (LT), Slovenia (SI) and Slovakia (SK).
35
Latest COESS data indicate that the sector encompasses 50,000 companies and employs 1.7 million workers (unpublished
data, as of July 2008).
Comprehensive data on the growth rate of the sector is not readily available, but is
probably running at around 3 to 4 percent per annum for Europe as a whole. Growth rates
vary across countries, however, and currently seem to be typically higher in some Central
and Eastern European countries (e.g. Bulgaria, Poland and Romania). Country specific
factors, notably in relation to changes in regulations and public attitudes to private
security provision, also provide important short-term drivers for growth.
Although overall demand for security services is cyclical and linked to the level and
growth of economic activity, it is very much influenced by specific events that affect the
(subjective) feeling of security. For example, following the events of ‘9/11’, clients
became much more aware of security issues in their business, which provided a positive
impulse to the private security sector. At a structural level, public authorities are
increasingly looking towards the private sector to have a role in the provision of service
previously provided by public security authorities only, or where new demands arise (e.g.
urban transport, events, public places etc.)
In terms of the breakdown of activities, for the reasons mentioned in Section 3.1, it is
difficult to provide a clear picture of the different segments of the private security
services market. Suffice to say that the market is diverse and concerns different segments
such as: guarding of public and private buildings; transport of valuable goods and money;
airport and maritime security; electronic surveillance, and many others. A segment that is
recently developing is ‘digital security’, i.e. security issues related to the collection,
storage and transmission of digital information. As this segment requires more specific
ICT knowledge, traditional private security companies look for IT partners to collaborate
with in providing the necessary services to clients.
36
Defined as NACE Sections C, D, F to I and K. More normally the non-financial business economy (NACE Sections C to I
and K) is utilised as a reference, but as data on the ‘utilities sector’ (NACE Section E) is missing for some countries the
definition ‘non-financial and non-utility business economy’ has been used.
Security services are a highly labour intensive activity and Eurostat data indicate that
personnel costs represent approximately 60% of the total cost/value of production (see
Figure 31); given the prevalence of micro-enterprises in the sector this figure is itself
probably an underestimate of the share of labour costs in the sector37. As is the case with
industrial cleaning, wage costs, labour taxes and social security payments are the main
drivers of costs in the sector; which implies that costs are a priori higher in countries with
higher wages and tax systems.
With increasing use of private security services, there is more pressure for higher levels
of quality combined with assurances that services are delivered in a professional way that
ensures that there is no room for abuse of the authority by service providers and their
staff. This increases the need to provide high levels of professional services, which
implies the need for screened, vetted and well trained and qualified personnel and, in turn,
the provision of good work conditions and a proper level of remuneration. However, in a
market that is typically characterised by price-based (cost-saving driven) demand, there is
an obvious tension between pressure to hold down wages on the one hand, and to provide
reasonable remuneration and working conditions for employees on the other.
Next to labour cost, companies that operate in markets with stringent regulation are also
confronted with extra costs to be complaint with regulation (e.g. screening of personnel,
training …). This cost varies significantly across Member States. For example, COESS
indicates that in Germany it only costs around €9 to have a security guard ready to start
working (necessary documents, screening,…), whereas in Belgium this cost amounts to
more than €26 per guard.
According to estimates from COESS member associations, the average turnover per
person employed in the sector in Europe is around €20 thousand (see Figure 32), while
Eurostat estimates for 2005 indicate a figure of €30 thousand for production and € 21
thousand for value-added per person employed (see Figure 33 and Figure 34), although
there are very large differences across EU Member States. Adjusting apparent labour
productivity for wage differences (see Figure 35)38 highlights relatively high productivity
in three countries: Poland, the UK and Latvia. Looking across the whole group of
countries, there is a broad sweep of countries with estimated ratios in the range of 100-
130% for which there is relatively limited divergence in apparent wage adjusted
productivity. In the absence of more detailed analysis and information, there do not
appear to be any obviously discernable patterns between labour productivity performance
and, for example, relative market structure or stringency of regulations in the sector.
37
This is due to the fact that remuneration to the ‘owner’/entrepreneur is probably included under operating surplus rather
than personnel costs.
38
Apparent labour productivity is estimated by the ratio (%) of value-added per employed person to average personnel costs
per employee.
As appears also to be the case for cleaning services, it seems likely that differences across
firm size categories also tell us something about the relative ‘efficiency’ of firms,
whereby larger firms are able to benefit from ‘economies of scale’, such as lower
management overheads or more efficient organisation of business/service processes40. In
this context, the apparently high nominal ‘productivity’ levels (as measured by
turnover/value-added per worker) of smaller sized companies should not necessarily be
construed as a positive attribute. On the contrary, if security services are considered as a
cost factor into other forms of economic activity, then these costs may be higher for client
companies that rely on smaller-sized private security service providers.
As many of the basic services provided by private security firms are labour-based it is
often difficult to obtain (labour) productivity increases. Moreover, there is something of a
conflict between the need to maintain (and to improve) professional standards in the
sector, which would raise costs, and pressure from clients to economise on the cost of
security provision.
At the same time, changes in the perception of security challenges and needs, together
with considerable development in terms of new security technologies means that the
scope of security services that can be provided, and their organisation, is changing. In
turn, these developments provide opportunities for the development of new security
services and potentially for enhancing overall productivity in the sector. On the one hand,
these developments may provide opportunities for the development of specialised ‘niche’
players able to deliver high value-added services. At the same time they open up
opportunities for players from other sectors to enter the security sector (e.g. ICT
specialists for ‘digital security’).
39
Some caution is warranted, since full data on turnover and value-added per worker by company size is available only for a
relatively restricted number of countries. Also, it should be pointed out that Greece has been excluded from the data shown
due to the fact that is shows exceptionally high levels of on turnover and value-added per worker for the two smaller
company size categories.
40
At the same time, the data suggest that the difference between ‘medium-sized’ companies (50-249 employees) and ‘large’
companies (250+ employees) are typically small compared to the difference with ‘small’ companies (2-49 employees). This
would suggest that any ‘additional’ economies of scale tend to be relatively small once a minimum critical size is attained.
Demand for security services largely comes from two client groups: industrial companies
and public sector41. As both groups differ significantly in their drivers for security
services demand and relationship with security services providers, the following
paragraphs will discuss each of the two types of clients separately.
Industrial companies
As mentioned earlier, industry demand for private security services has always been
cyclical and is very much influenced by specific events that affect the (subjective) feeling
of security. However, as industrial companies increasingly outsource activities, they
become more vulnerable when it comes to security issues. In the past, industrial
companies tended to do everything in-house, thus giving them a high degree of control
over production, and sourcing and distribution, processes. With increased fragmentation
of production processes and outsourcing, this is no longer the case. Therefore, there is a
growing need for industrial companies to adopt good integrated security systems.
Despite the growing need for integrated security systems, many industrial companies are
not (sufficiently) aware of the role that private security services companies can play in
this. On the one hand, private security companies are often requested to provide high
level solutions and to cover a wide range of risks by clients and yet, on the other hand,
clients can be reluctant to enable (potential) service providers with the opportunity to
develop in-depth assessments of security risks and requirements. This restricts the
possibility to develop integrated approaches to security (and results in possibly sub-
optimal outcomes for clients).
The recent economic downturn combined with pressure on companies to cut budgets and,
at the same time, the fact that no major security threats have happened lately has resulted
in conditions where security budgets are often reduced as well. At this moment, under
cost cutting pressures, the attitude of customers is seen increasingly to view security
services as a commodity that delivers little value added. Overall, many client companies
appear to view private security as a ‘commodity’ and arguably do not correctly value the
services provided. This perception is strengthened by the fact that much of the work is not
seen by the client (e.g. work at night, from a distance) and preventive. This means that,
although the cost is clearly visible, the actual service and return on security costs is
‘invisible’ to the client.
41
The third group – private individuals – only account for a small part of the market (e.g. in Italy estimated around 5% of the
market).
Despite growing competition (often price based) in the industry, CoESS still sees several
growth opportunities for the business, especially given changes in public authorities’
attitudes and a move from a perception of ‘toleration’ towards ‘co-operation’. In the area
of services to public authorities, potential opportunities exist for the private sector to take
an increasing role in “orange zone” activities42 (e.g. staffing reception desk of police
42
‘Orange zone’ refers to activities lying at the frontier between those activities that are clearly in the public domain (e.g.
military, policing etc.) and those in the (private) domain of private security companies.
As for the business models that private security companies use, it is expected that the
market will split up in two different segments, with small and medium-sized companies
operating in niches predominately of the private kind (‘products’ are more people-
oriented) and large companies working for state and institutional clients, as well as large-
scale surveillance customers such as banks, airports, etc. As markets for security services
will increasingly open up in the future, it is expected that international companies will
take up more market share especially in this last segment. In the first segment, mainly
local firms will operate. However, some nationally-based companies can be successful in
expanding market share internationally and competing with larger players43. Such
companies can build competitive advantages around the development of strong client
relationships, strong relationships with social partners (trade unions) and having lower
overheads compared to multinational service providers. In this regard, management
structures and perspectives can be important (i.e. between short-term profit-based
management and longer-term strategic vision for development).
3.3.6 Internationalisation
The purpose of this section is to identify and prioritise the key issues facing the private
security services industry, both in terms of the sector’s own development and in terms of
interactions between the sector and its clients, specifically those in industry
(manufacturing). The analysis is based around a screening of the sector in relation to the
main regulatory and framework conditions44. The overall assessment is summarised in
Table 8.
43
The example given was the Belgian company Cobelguard
44
This analysis is in accordance with the general framework for assessment of regulatory and framework conditions agreed
as part of the Framework Contract of Sectoral Competitiveness Studies.
It is clear that a first step, in the direction of more harmonization across Europe, is the
development of a common definition of the private security industry. CoESS is making
efforts to get agreement on such ‘European Definition’ of the private/commercial security
services sector. However, there is still a long way to go in realising this harmonisation
process.
45
This exemption has been given to the industry until 2010, when the EC will assess if there is a need or not for a vertical
Directive covering the sector.
46
Joint CoESS/ESTA position paper on the Draft Directive on Services in the Internal Market’, CoESS, Brussels, September
2005
47
Born, H., Caparini, M., and Cole, E. (2006) “Regulating private security companies in Europe: status and prospects”, Draft
Report, prepared for the European Committee on Crime Problems, Council for Police Matters, by Geneva Centre for
Democratic Control of Armed Forces.
48
For companies to be member of CoESS implies that specific minimum levels of quality are met. By setting and applying
such strict standards towards members, CoESS has been recognised by the European Commission as official
representative for the whole industry.
Next to the technological innovations impacting the ‘traditional’ operations in the private
security industry, they also led to the development of a whole new area in security
services: ‘digital security’. It refers to the protection of digital interactions taking place
through means such as smart cards, mobile telephones, e-passports, etc. This new area
requires very specific skills and knowledge, and has led to completely new firms entering
the security industry or traditional firms forming alliances with ICT firms to acquire the
necessary skills.
Notwithstanding the above comments, it remains the case that the central core of private
security activities are still reliant on provision of security workers and that the human
‘input’ is central to determining the effectiveness and value-added of security services.
Accordingly, skill requirements and training are probably as important for the sector as
49
European code of conduct signed in private security sector, European industrial relations observatory on-line, available at:
http://www.eiro.eurofound.eu.int/2003/08/feature/eu0308203f.html
50
Source: Born, H., Caparini, M., and Cole, E. (2006), see footnote 47.
Market access
Market access in the private security industry is strongly limited due to differences in
national regulation that require, for example, specific permits or place territorial
limitations on company location and activities, etc. As a consequence of these national
differences, the industry is temporarily excluded from the EU Services Directive; for now
this exclusion has been granted until 2010.
Structural change
Structural changes in the organisation of companies’ value chains (breaking up of the
value chain) have made companies more vulnerable to security problems. As the
production system in many companies has become much more complex, in terms of
coordination (working at different locations, working with external partners, etc.),
security issues have come to the forefront. This leads to an increased need for security
services. It is expected that demand for integrated security systems, in particular, will rise.
Competition issues
Under current economic conditions, competition in the private security services is
strongly focused on price. This has resulted in low margins and reduces the possibilities
to undertake necessary investments in new equipment and staff (training).
The largest entry barrier in the industry is created by regulation. The high administrative
burden to comply with all regulations relevant to the industry hinders new firms as well
as foreign firms to enter the market. Next to the regulation barrier, the technological
evolution of the industry means that increasing investments in new technologies are
required, which can lead to new/increased entry barriers for new firms.
51
Hungary requires 320 hours minimum training.
52
Born, H., Caparini, M., and Cole, E. (2006), see footnote 47.
Technological change
As noted in the previous section, technological change has impacted the security services
industry both in terms of new possibilities for organising processes and in terms of new
areas of development. A more threatening impact of technological change is the
development of consumer technologies. This evolution makes ‘DIY surveillance’
possible and is seen as a potential threat to some segments of the industry.
Global competition
Until now, competition in the private security market mainly took place at the national
level. Although a few players are active in the industry on a worldwide basis, regulatory
barriers have prevented the industry to really organise on a global scale. Nevertheless, it
is expected that regulatory barriers will decrease over time, thus leading to a more open
market and (international) competition becoming more intense, especially in the segment
of state-level public authorities and institutional clients that demand more sophisticated
security systems.
This tendency for increased global competition is reinforced by the increased need for
security systems by companies that (re)organise their value chain in an international
setting. They look for a global partner that can deliver a well integrated security system
across the different operations in different countries.
The purpose of this section is to identify and prioritise potential areas for European policy
initiatives both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). To begin
with, the possible arguments (justification) for possible policy intervention from an
economic standpoint are examined. After this, the analysis is based around a screening of
the sector in relation to existing industrial policy initiatives and some specific themes
relevant to the business services sector; the overall assessment is summarised in Table 9.
Social externalities
Maintaining an adequate level of security within any society can be considered as a basic
(pre-)requisite for establishing an environment in which individuals and companies are
able and motivated to engage in economic activities and, hence, for economic growth. In
this sense, security is a basic public good which generates positive social externalities
Moreover, such discussions cannot be removed from issues relating to the general
direction of economic and social policy. In the context of globalisation where economic
policy (and social policy, also) is frequently directed towards facilitating the movement of
goods and services, finance and people, the economic opportunities created through such
liberalisation can be associated with negative risks from corresponding easing of controls
on ‘bad’ flows (e.g. terrorism, counterfeit goods, drugs, illegal immigration etc.) Thus,
increasing need for security provision can be viewed as a negative externality of
economic growth and global integration. Equally, increased economic and social
integration can be seen to raise the level and extent to which security issues can spill over
from one area to another; for example between different economic activities or between
different countries and regions. Arguably, this raises the need for the greater adoption of
common approaches and standards in security provision, for example in terms of greater
EU-wide commonality in security policies.
At the level of the private security sector, as private security companies get more
involved in public activities (see section 3.3.4), their actions have a much greater impact
on society at large than just guaranteeing security for private clients. This increased
public involvement has been an important driver for policy intervention (through the
setting of stringent regulation) in several countries. The main idea underlying this
intervention is the fear of possible abuse of power and the formation of private militia
next to the public security authorities.
Although the private security industry itself is much in favour of strict and transparent
regulation to prevent any such abuse of power, it feels that a good balance between the
need to ‘control’ this public role through regulation and the commercial interests of the
private security companies is necessary. As it is expected that in the future the public
involvement of the private security industry will still increase, this constant tension will
need proper attention.
Information asymmetries
Information asymmetries in the private security services industry mainly arise because of
buyer-side lack of understanding of what exactly private security means and how quality
of the service can be evaluated. This lack of understanding is reinforced by the fact that
many activities take place in a rather ‘invisible’ way (outside normal working hours,
remote) and are mainly preventive.
On the other hand, as clients are often reluctant to share ‘sensitive’ information with
external companies and thus give private security services companies only limited access
Therefore, the private security services industry feels that clients need to be ‘educated’
about what private security means, how it can best be incorporated in the business and
what the expected value added of a private security company can be53.
Table 9 provides an initial screening of the private security services sector against
existing and potential EU horizontal ‘industrial’ policy initiatives54, and a number of
additional possible services related initiatives. This attempts to identify those policy
initiatives that, if introduced or extended, could be of most relevance for the sector, in
particular in terms of raising performance (e.g. productivity improvements) and/or
creating opportunities for sector development.
53
To this end, CoESS has developed a ‘value manual’, making clients more aware of what to expect from a private security
service provider and what criteria to focus on when looking for the right provider.
54
Based on the Mid-term Review of Industrial Policy, COM(2007) 374.
- No or limited relevance
Relevant
Important
Very important
Competition policy -
Overregulation is some countries versus need for
Better more stringent regulation in other
regulation Better regulation and Third party liability: unclear framework for
simplification determining liability between public/private sector
and security services provider. Non availability of
insurance coverage for acts of terrorism/war
Technical standards -
Development of common definition of industry
Professional standards, codes of practice, quality
Other standards
standards, professional qualifications and training
standards
Innovation policy -
opportunities etc.
Structural Anticipation
Change Tertiarisation
Organisational and process innovation to enhance
Organisational and services
working practices and conditions and increase
innovation
productivity
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
UK DE IT FR ES NL FI PL CH SE NO BE HU IE DK GR AT CZ BG EE RO
Turnover 8860 4300 3600 3300 3123 1290 1000 1000 765 660 625 503 480 331 250 231 205 198 173 40 29
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
HU FR PL DE UK CZ IT SK BG RO GR NL ES CH DK SE IE LV NO FI AT BE LT SI EE CY LU
Companies 6000 4700 4500 3280 3000 2210 1875 1730 1112 1029 830 818 783 407 338 280 273 270 257 230 200 177 121 97 70 48 16
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
UK DE PL FR ES RO HU IT BG CZ NL GR SK BE CH SE IE NO LT AT FI SI EE DK LV LU CY
Employment 300000 173000 165000 148000 87000 79900 74000 58855 54910 30030 30000 28000 20839 13000 12882 11500 10900 10000 10000 7000 7000 6157 6000 5250 5000 2500 1500
Figure 23 Investigation and Security Services: turnover by country, 2005, € million (Eurostat estimates)
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
UK FR DE ES IT GR NL PL SE HU BE PT NO IE FI AT RO DK BG SK SI LU EE LV LT CY
Turnover 8260 5942 3736 3548 3241 2033 1489 1140 942 910 673 640 569 451 320 291 289 239 163 126 114 101 84 67 61 13
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
HU FR UK DE IT PL ES PT NL RO SE BG GR BE FI SK AT DK IE NO LV SI LT EE LU CY
Enterprises 14619 10507 6108 3027 2806 2641 2346 1291 1250 1154 953 947 920 574 408 364 360 338 335 294 251 158 123 60 42 17
Figure 25 Investigation and Security Services: employment by country, 2005 (Eurostat estimates)
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
UK FR DE PL ES RO IT BG HU PT GR NL SE SK BE NO IE AT FI LT LV EE SI DK LU CY
Employment 186132147325140205129627107223 80252 66723 48595 35569 34961 33975 29742 18270 15646 13432 10204 9869 9472 7820 7667 7518 6655 5277 3788 2150 529
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
GR HU EE BG UK PL LV RO PT FR SI ES SK SE LU LT NL IE NO IT FI DE BE AT DK EU*
Share of NFNUBE turnover 0.78 0.44 0.29 0.28 0.25 0.24 0.23 0.22 0.22 0.20 0.20 0.19 0.18 0.18 0.17 0.16 0.15 0.15 0.13 0.13 0.11 0.10 0.10 0.07 0.06 0.18
Figure 27 Investigation and Security Services: share of total non-financial and non-utility business economy employment
by country, 2005 (%)
3.00
2.50
2.00
1.50
1.00
0.50
0.00
BG RO SK PL EE HU GR LV PT LU FR UK IE SI LT ES NO SE DE FI NL BE IT AT DK EU*
Share of NFNUBE emp 2.76 2.06 1.76 1.76 1.71 1.44 1.38 1.24 1.07 1.05 1.04 1.04 1.01 0.94 0.90 0.80 0.80 0.70 0.69 0.64 0.64 0.56 0.45 0.41 0.22 0.96
100%
80%
60%
40%
20%
0%
EE SK LI BG RO LV DE AT PL SI ES IT NL NO DK FI LU SE FR GR PT HU EU*
1 empl 8.3 8.5 9.8 19.7 21.8 25.9 28.6 31.7 37.3 40.5 41.2 42.1 48.8 50.7 51.2 61.5 66.7 67.7 71.5 85.7 88.6 88.7 64.5
2-9 empl 21.7 33.0 35.0 29.0 25.0 30.7 32.0 49.7 39.5 25.3 30.6 26.3 35.2 29.6 34.0 27.0 14.3 22.4 14.6 8.5 5.3 8.4 18.7
10-19 empl 18.3 20.6 17.1 14.8 9.0 15.9 11.6 8.3 4.8 7.6 9.2 10.0 7.2 6.8 7.7 4.9 0.0 4.7 5.1 1.8 1.2 1.4 5.4
20-49 empl 25.0 14.0 19.5 17.8 14.7 11.6 12.5 5.6 6.1 13.3 8.3 10.7 5.2 5.8 5.3 3.4 7.1 3.3 5.1 1.8 1.2 1.0 5.4
50-249 empl 16.7 21.2 13.0 14.3 23.4 14.3 11.7 3.1 8.4 11.4 8.4 9.5 2.8 3.4 1.2 2.0 7.1 1.5 2.8 1.2 1.9 0.5 4.6
250 or more 10.0 2.7 5.7 4.3 6.2 1.6 3.7 1.7 3.9 1.9 2.2 1.4 0.8 3.7 0.6 1.2 4.8 0.5 0.9 1.0 1.7 0.1 1.4
Figure 29 Investigation and Security Services: breakdown of turnover by company size (number of employees), 2005 (%)
100%
80%
60%
40%
20%
0%
EE ES NO RO LI DE FI BG PL FR SK AT IT LV GR HU EU*
1 empl 0.0 0.9 0.8 0.9 0.2 2.8 3.3 1.0 2.6 2.6 4.2 2.8 2.5 0.3 22.3 21.1 4.7
2-9 empl 1.0 2.6 2.8 5.0 2.8 6.2 7.5 3.3 10.7 7.4 11.1 17.1 5.5 3.6 7.2 25.6 7.9
10-19 empl 1.8 2.4 2.0 1.5 4.6 3.2 4.0 7.5 2.9 5.8 4.4 4.3 8.9 20.2 5.0 10.1 5.6
20-49 empl 5.1 5.2 7.0 5.6 7.9 6.8 4.9 10.4 7.8 13.1 10.5 7.2 15.0 10.0 3.9 14.7 10.1
50-249 empl 18.2 15.6 28.3 17.3 28.8 16.0 27.8 19.8 18.7 37.3 39.8 40.7 19.1 17.0 23.3
250 or more 73.9 73.3 87.3 58.6 67.4 52.2 64.3 49.9 56.3 52.4 32.5 68.7 28.2 25.1 42.5 11.5 48.4
100%
80%
60%
40%
20%
0%
GR EE PL RO NO ES DE FI LI BG AT SI NL FR SK LV IT DK HU EU*
1 empl 1.5 0.1 0.9 0.3 0.6 0.9 0.6 2.4 0.2 0.4 1.2 1.1 3.3 0.7 2.6 0.8 1.8 4.5 36.5 2.4
2-9 empl 1.4 1.1 3.9 1.6 3.3 2.6 3.1 5.6 2.6 2.6 6.7 2.7 5.4 4.8 3.4 5.2 4.4 12.5 13.5 3.9
10-19 empl 0.7 2.1 1.4 1.8 2.6 2.8 3.6 3.3 3.9 4.1 4.2 3.1 5.9 5.1 7.2 7.8 5.8 9.7 7.8 3.8
20-49 empl 2.5 6.6 4.1 6.8 5.1 5.7 8.4 4.9 9.8 10.7 7.0 13.0 5.7 11.4 11.1 11.6 14.6 14.9 12.2 8.3
50-249 empl 4.2 17.0 20.6 37.5 10.4 17.6 29.1 11.1 22.5 29.3 39.7 14.9 21.0 44.7 48.3 42.8 17.9 24.1
250 or more 89.7 73.1 69.1 51.9 78.0 70.5 55.1 72.7 61.1 52.9 80.8 40.3 64.7 56.9 30.9 26.4 30.6 58.5 12.1 57.5
Figure 31 Investigation and Security Services: share of personnel costs in value of production, 2005 (%)
90
80
70
60
50
40
30
20
10
0
HU LV GR PL BG RO EE DK UK NO SI LT IT CY FI FR SK SE NL AT IE BE ES DE PT LU EU*
Share of personnel costs in production 33 41 44 44 46 48 50 52 52 53 58 58 58 62 62 64 64 65 66 66 68 72 73 73 74 78 60
70
60
50
40
30
20
10
0
RO BG PL HU CZ EE GR CY FR DE AT UK IE ES BE NL DK SE CH IT NO EU
Turnover per worker 0.4 3.1 6.1 6.5 6.6 6.7 8.3 13.3 22.3 24.9 29.3 29.5 30.4 35.9 38.7 43.0 47.6 57.4 59.4 61.2 62.5 20.0
Figure 33 Investigation and Security Services: turnover per person employed, 2005, € thousand, (Eurostat estimates)
70
60
50
40
30
20
10
0
BG RO LT SK PL LV EE PT SI CY HU DE AT ES FR FI UK IE LU IT BE NL SE NO GR DK EU*
Turnover per worker 3 4 8 8 9 9 13 18 22 25 26 27 31 33 40 41 44 46 47 49 50 50 52 56 60 63 30.6
45
40
35
30
25
20
15
10
0
BG RO HU LV SK LT PL EE SI PT CY GR DE AT FR ES FI IE IT SE UK NO NL BE DK LU EU*
V.A. per worker 2 2 5 5 6 6 6 8 13 15 18 20 20 24 27 27 29 30 32 34 34 35 36 39 40 42 21.2
Figure 35 Investigation and Security Services: wage adjusted labour productivity (apparent labour productivity by average
personnel costs), 2005 (€ thousand)
160
140
120
100
80
60
40
20
0
GR HU SE BE FR IT SI DE FI NL PT LU ES IE AT DK SK NO BG EE CY LT RO LV UK PL EU*
Adj. Lab. Prod 67 89 98 103 104 108 109 110 112 112 112 112 113 115 115 116 117 122 122 123 123 127 128 143 147 150 116
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
BG RO SK LI PL LV EE DE HU ES FR FI IT EU*
2-49 empl 4.1 4.3 9.6 7.4 20.1 12.2 10.1 28.6 38.4 30.7 49.7 48.6 57.6 37.7
50-249 empl 3.2 2.7 6.7 6.2 8.4 7.5 13.4 26.3 24.3 29.4 35.9 59.0 45.2 24.6
250 or more 3.2 4.1 8.4 8.8 7.2 8.5 12.7 25.2 24.4 34.4 37.2 36.2 44.8 21.4
Figure 37 Investigation and Security Services: value-added per person employed by company size, 2005 (€ thousand)
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
BG RO LV LI SK PL HU EE DE FR ES FI IT EU*
2-49 empl 1.7 1.9 5.8 3.9 5.3 9.7 6.2 5.4 17.0 27.9 21.0 31.4 28.6 19.4
50-249 empl 1.8 1.7 4.1 4.6 5.4 6.7 6.0 7.8 21.7 25.2 21.5 34.8 33.5 17.0
250 or more 1.9 2.6 6.8 6.8 6.9 5.3 10.7 8.1 20.0 26.8 29.5 28.3 34.8 15.9
On the basis of calculations using Eurostat data, the PrEA sector accounted for
approximately 0.55% of total turnover, and 2.6% of total employment in the non-financial
and non-utility business economy (NFNUBE)56 of the EU (see Figure 41 and Figure 42).
At an individual country level, the Netherlands and the UK stand out in terms of a
relatively high share of security services in turnover of the NFNUBE. While, in terms of a
high share of total number of employed persons in the NFNUBE, it is again the
Netherlands and Luxembourg that stand out. These employment share estimates – which
are based on ‘head count’ and do not adjust for part-time working – can be compared
with estimates of the Temporary Agency Workers (TAW) penetration rate from industry
sources. For TAW activities, Eurociett estimates that, for the EU as a whole, the TAW
penetration rate (i.e. daily FTE as % of total employment) was 1.8% in 2006, rising from
1.0% in 1996. However, this penetration rate, as well as its change over time, widely
differs across countries (see Figure 43 and Figure 44). In the UK market, TAW jobs
account for approximately 4.5% of total employment, whereas the penetration rate in
Eastern European countries such as Poland are below 0.5%.
According to Eurociett, between 1996 and 2006 the number of temporary agency workers
(TAWs) in Europe has more than doubled (from 1.5 million FTEs in 1996 to 3.3 million
in 200657). However, growth figures differ significantly across countries. Whereas in
more mature markets such as the Netherlands, the UK, Belgium and France the annual
55
Eurociett (2008), “More work opportunities for more people: unlocking the private employment agency industry’s
contribution to a better functioning labour market”, 72 p.
56
Defined as NACE Sections C, D, F to I and K. More normally the non-financial business economy (NACE Sections C to I
and K) is utilised as a reference, but as data on the ‘utilities sector’ (NACE Section E) is missing for some countries the
definition ‘non-financial and non-utility business economy’ has been used.
57
Based on data from 19 Member States.
In terms of the breakdown of activities, the core business of private employment agencies
(PrEAs) is clearly the temporary agency work (TAW) activity. Depending on market
conditions (i.e. markets with no restrictions on additional activity provision versus
markets with strong regulatory restrictions, see later) the share of TAW activities in
PrEAs’ total portfolio varies from 86% in UK to 100% in Spain (see Figure 46) a country
in which temporary work agencies can only provide temporary work services. The
remaining activities consist of additional HR-related services, such as support in
permanent recruitment and placement, outplacement, HR-related administration.
The industry structure differs considerably across Member States and seems to be
interlinked with both the regulatory framework in place, and the demand structure in the
market. In countries where (strong) regulatory restrictions exist in the use of TAW and
the offering of PrEA activities (e.g. France, Belgium), the market is highly concentrated
and dominated by large global players such as Adecco, Manpower or Randstad; for
example, in France the top 5 companies accounted for 83% of the industry’s revenues in
2005. Moreover, in France and Belgium it is mainly larger client companies make use of
PrEA services, and those companies most often look for an international partner.. In the
UK where there are no significant restrictions on PrEA activities and TAW use, and PrEA
services are more extensively used by SMEs, the PrEA market is much more fragmented
and smaller niche players play a significant role in the market, next to the large
multinationals. The market share of the top 5 in the UK PrEA industry only amounted to
20% in 2005 (see Figure 47).
Eurostat data from 13 member states indicate that more than 60% of the private
employment agencies have only 1 employee and nearly 20% have between 2 and 9
employees. Large companies (more than 250 employees represent less than 2% of the
total number of firms (see Figure 48). Yet, the Eurostat data indicate that this last group
of firms accounts for more than 65% of total turnover in the industry (see Figure 49) and
71% of employment (see Figure 50).
In general, it is expected that in the coming years will see further consolidation among
larger players in the market. A recent example is the merger in mid-2008 of the
Netherlands-based companies of Randstad and Vedior to create the second largest PrEA
company in the world (after market leader Adecco). At the same time as consolidating its
position in European markets, Randstad’s purchase of Vedior is seen as a way to
strengthen its position in specialist staffing (e.g. nurses, accountants), which has been the
fastest growing segment of the staffing market, and to facilitate international expansion in
emerging markets.
58
In Italy, the double digit growth figure can be explained by the legal recognition of the industry in 1998, paving the way for
the development of agency work.
PrEA services are typically labour intensive since the major part of their activities relate
to the supply of temporary workers and accordingly a major part of their turnover reflects
the (labour) costs of workers supplied to clients. On average, the share of personnel costs
in total production costs/value amounts to over 60% (Figure 50). Nevertheless, Eurostat
data indicate that this share of personnel costs varies significantly across EU Member
States (see Figure 52) with personnel costs in Poland only representing 23% of total
turnover while personnel costs in Luxembourg represent 95% of total turnover. A number
of factors appear to be at play here, including the level of the share of gross operating
surplus (‘profit’) in turnover59. Drawing a broad picture we can distinguish the following
groups of countries:
• Countries where shares of personnel cost exceed 80% of total turnover (e.g.
Luxembourg, France, Spain, Belgium, Italy and Portugal). These are markets
characterised by relatively stringent regulations on the scope of activities of PrEA
companies and use of TAW. In these markets, PrEA services are largely restricted to
provision of TAW and so sector turnover essentially reflects the personnel costs of
supplied workers.
• Countries where shares of personnel costs are in the range of 70-80% of turnover
(e.g. Scandinavian countries and Germany60).
• Countries where shares of personnel costs are below 60% of turnover. This includes
virtually all the new Member States for which data are available, together with those
older Member States recognised as having less stringent regulations on PrEA
activities (e.g. UK, Netherlands, and Ireland). Though it is clear that there is
significant variation across these countries that may in part reflect the structure of the
sector in individual countries, by and large it seems reasonable to assume that the
relatively low proportion of personnel costs in total turnover reflects the fact that in
these markets there is much greater scope for PrEA companies to provide additional
(i.e. HR-related) services. In this respect, the scope for creation of additional ‘value-
added’ services (i.e. beyond the costs of supplied labour)61 is greater in these
countries.
59
To some extent the low share of personnel costs in countries with a high proportion of micro enterprises (see Figure 48)
and relatively high proportion of operating surplus (e.g. Poland) may reflect the fact that remuneration to the
‘owner’/entrepreneur is included under operating surplus rather than personnel costs.
60
Also, Estonia.
61
From an accounting perspective, the cost to clients of temporary workers supplied by the PrEA sector is counted within the
value-added of the PrEA sector.
Despite the recognition of their positive role in the labour market, the Eurociett report
states some important (mis)perceptions that exist about the labour conditions at PrEAs,
such as, for example, the perception of the existence of worse working conditions for
TAW. Eurociett highlights that these (mis)perceptions lead to an under-leveraging of the
full benefits and potential that the PrEA industry can play in the labour market.
Finally, the demographic changes that Europe is facing (in the form of both possible
decreases in the overall size and ageing of the European population) and the resulting
tightening of the labour market are seen as both a challenge and an opportunity for the
PrEA industry. As the “war for talent” will worsen, demand for PrEA services is expected
to grow as companies will have a harder time finding the right skills in the market. But,
like the other industries, PrEAs will also be faced with the tighter labour market, possibly
limiting industry growth.
Before discussing apparent labour production in the PrEA sector, it should be pointed out
that from a statistical perspective the data on agency workers does not distinguish
between those workers employed in the sector (i.e. direct employees of PrEA companies,
themselves)62 and workers engaged as temporary agency workers (i.e. hired out to client
companies). This implies that the data reported in this sub-section (and subsequent
subsections) primarily reflect the apparent labour productivity of temporary agency
workers rather than that of workers ‘within’ the PrEA sector. Accordingly, some caution
is necessary in the interpretation of labour productivity data and, in particular, it is
important to remember that, to a large extent, variables such as turnover, value-added and
personnel costs will reflect the financial remuneration and other labour costs associated
with the provision of temporary agency workers. For example, to the extent that the
composition of skill-levels (and corresponding wage levels) of temporary agency workers
varies across countries then this will be reflected in relative levels of personnel costs of
the PrEA sector.
The average turnover per person employed in the PrEA industry in the EU-27 was around
€34 thousand in 2005 (see Figure 53) and the value-added per person employed amounted
to €26 thousand (see Figure 54). Large differences exist between the EU Member States,
with average turnover per person employed ranging from only €5 thousand in Bulgaria to
€50 thousand in the United Kingdom63, and value-added per person employed ranging
62
EuroCiett estimates that there are some 250,000 employees working as internal staff within the agency work outlets.
63
The data indicate a turnover figure of €95 thousand for Ireland, but this figure appears to include a substantial component
related to the (re-)sale of goods and services purchased for resale in the same condition as received (see Figure 52).
A third reason for the observed differences in apparent labour productivity seems to be
the structure of the PrEA industry at national level. Eurostat data from 11 Member States
indicate that in general the turnover per person employed (see Figure 57) and the value-
added per person employed (see Figure 58) tend to be higher in smaller companies (less
than 50 employees) than in larger companies (more than 50 employees). This implies that
in markets that are dominated by larger firms the average turnover and value-added per
person employed is lower than in markets where many SMEs are active in the PrEA
industry.
A possible clarification for the higher turnover and value-added per person employed in
smaller companies can be a difference in business model (see also 2.2.5), where small
companies tend to focus on niches following a small volume/high margin strategy and
larger companies tend to follow business models based on high volume business and
lower margins. Next to this, differences in the average number of hours worked might
exist between smaller and larger firms due, for example, to less use of part-time
employees.
Following from the introductory comments made in the previous subsection, and from a
somewhat artificial statistical perspective, the apparent labour productivity of PrEA
activities will reflect the underlying composition of supplied temporary agency workers.
Thus, for example, raising the proportion of high-skilled workers supplied under TAW
contracts or increasing the average number of hours worked by temporary workers (e.g.
64
Apparent labour productivity is estimated by the ratio (%) of value-added per employee to average personnel costs per
employee. Under normal circumstances this ratio should exceed 100%, since average value added (which includes
personnel costs) should be greater than average personnel costs. The greater the ratio (in excess of 100) then
proportionally the greater the value added per employee created in addition to the cost of their labour.
Focussing on the productivity aspects of internal PrEA activities (as opposed to that of
temporary agency workers), it remains the case that many PrEAs are relatively labour
intensive66 and require personal contact between internal agency staff and both TAWs
and clients. This tends to imply that increases in (labour) productivity are not so much to
be obtained from technological progress, although developments in ICT applications can
be seen to be important for searching for new TAWs and for the development of systems
for managing data and organising workflows etc. More generally, organisational
innovation is an area where opportunities for enhancing productivity are thought to be
possible.
One important possibility for raising productivity within the PrEA sector is through
broadening of the portfolio of activities towards more HR related services other than
TAW. Available data (see Section 2.2.1 and 4.2.2) suggests that productivity (and
profitability) is higher in countries where there are less restrictions on PrEA activities
than in countries where regulatory restrictions limit or even prohibit such widening of the
scope beyond TAW services (e.g. France, Spain). In general, provided that
turnover/value-added is higher for such activities than for standard TAW given the same
amount of hours worked, shifting towards such HR related services can increase
productivity.
The demand structure for TAW services varies significantly across countries. In countries
such as Belgium, France and Germany the main sector using TAW is industry. The share
of industry in total TAW in these countries ranges from 60% to 75%. Services sectors
take up the remaining share, since regulatory restrictions mean that use of TAW in the
public sector is (almost) nonexistent. In countries such as the UK, Spain and the
Netherlands on the other hand, more than half of demand for TAW comes from clients in
the services and public sectors. In these countries industry’s share only amounts to less
than 40%. In the countries with no significant regulatory restrictions on the use of TAW
65
Although, given the fact that TAW is often seen as a good solution to match lifestyle choices or personal constraints (ànd is
also promoted that way by the PrEA industry itself, see Eurociett report (2007)), productivity gains via this option might be
more difficult to realise.
66
It would, nonetheless, be useful to have better data to substantiate, for example, the importance of investments in ICT (and
use of other goods and services) for the PrEA sector.
Due to the existing restrictions on the use of TAW in the public sector in different
Member States (Belgium, Greece, France, Luxembourg, Spain), contrary to several other
services industries (e.g. cleaning, private security) the public sector is not a very
important driver of demand in the PrEA industry. However, the UK example shows that
TAW can play an important role in providing flexible solutions in public sector areas
such as the education sector.
It is the case that, in general, PrEA services are more widely used by large companies and
the penetration of PrEA services among smaller companies is still very limited in most
countries. The only exception is the UK market, where many smaller service companies
make similar use to larger firms of PrEA services (see Figure 62). Possible reasons for the
lack of penetration among smaller companies include lack of awareness about the
possible role that TAW can play in SMEs, and possibly existing misconceptions
concerning TAW.
Clients mainly make use of TAW for short term assignments (< 6 months). Longer term
assignments are limited and range from less than 5% of the total amount of assignments
(in Spain, France) to 30% in the Netherlands and Germany.
Recently, there is a tendency in large client companies to shift responsibility for ‘PrEA
services purchase’ to purchase managers and no longer to retain this function within HR
departments. Consequently, PrEA services tend to be treated as a cost element, rather
than as a more strategic option, which is seen as an unfavourable development for the
PrEA sector.
It can also be noted that there can be a conflict in the interests of clients and the sector in
terms of the development of sector-related regulations and conditions. The PrEA industry
is generally in favour of improved conditions for agency workers (e.g. equal treatment
conditions) as this can encourage workers to see TAW as a more relatively favourable
option to securing employment. This can conflict, however, with clients’ objectives of
reducing costs and/or utilising working conditions that differ from those of permanent
staff.
The PrEA sector is a young industry in Europe and still in a phase of full expansion.
Markets opened up only very recently in some EU members states (Spain in 1994, Italy in
1998, Greece in 2000, and new Central & Eastern Europe Member States in 2000-2004).
Between 1996 and 2006 the sector has grown at an average annual growth rate of 6.8%. It
is forecasted that this growth rate will remain at around this level for the next five years
(under the assumption of no significant changes in regulation). The regions with most
growth potential within Europe are the Eastern European countries and Germany.
In general two broad groups of companies can be identified within the PrEA sector: (i) a
limited number of large multinational companies that are active on a global scale and
mainly originate from Europe or the US (e.g. Adecco, Kelly Services, Manpower,
Randstad, etc.); (ii) a range of small firms that are locally active and often are specialised
in a specific niche segments.
Within the sector, business models differ. The larger players tend to follow business
models based on high volume business whereas smaller specialised niche players work on
small volume high-margin models. Unlike many other related services industries, there
appears to be less of a shift in the PrEA sector towards a broader range of facilities
management activities other than HR services. The main focus when broadening service
activities lies in increasing the scope within the HR services that are delivered to
customers. It is expected that, in those countries where PrEA companies are not restricted
in the provision of such services, PrEAs will take over more HR activities from
companies in the future (training, HR administration, etc.).
Despite an increasingly tightening labour market in many European countries, until now
the bargaining power of PrEA companies vis-à-vis their client companies has not
increased markedly. However, it can be expected that this might come over time as the
‘war for talent’ will become more explicit. Already pressures from the labour supply side
can be seen for specific types of skilled workers (e.g. nurses).
4.2.6 Internationalisation
Cross-border activities within the industry are very limited. Eurostat data for 5 EU
Member States (see Figure 63) show that the external service provider of personnel
related services to client companies is almost always located within the same country and
even within the same region as the client. The reasons for this very limited
internationalisation are twofold:
• Regulation in different countries restricts the possibilities of cross-border activities
(e.g. in Portugal, you need a local branch to do business);
• With the exception of really high skilled profiles, workers mobility is still very
limited. Language barriers reinforce this limited workers mobility.
At the same time, especially the large multinational PrEA companies are very active at
the international level, with the development of their international network reflecting the
international development of client companies and general economic development
67
One figure quoted in discussions was that PrEA companies are able to operate with a margin of 15-20% on temporary
workers.
The purpose of this section is to identify and prioritise the key issues facing the PrEA
industry both in terms of the sector’s own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). The
analysis is based around a screening of the sector in relation to the main regulatory and
framework conditions68; the overall assessment is summarised in Table 10.
At European level, the Temporary Agency Work Directive aims to create parity between
the working conditions and benefits of temporary workers and permanently-employed
staff. It is a continuation of the policy of creating parity for all "atypical" workers (as has
been implemented for part-time workers). Agreement on the Directive was reached on 10
June 2008 at Council level. The Directive will now be subject to a second reading within
the European Parliament. Alongside this Directive is the Posting of Workers Directive
(96/71), which aims to guarantee that the main working conditions (e.g. minimum wage,
minimum work periods, minimum rest periods, and minimum paid annual holidays) of
migrant agency workers meet the same requirements as workers in the country of
destination.
For the PrEA industry itself regulation of the market is both seen as a necessity and a
barrier limiting the full development of the sector. Eurociett recognises that in the past in
some cases poor working conditions used to be much more common for TAWs. And
68
This analysis is in accordance with the general framework for assessment of regulatory and framework conditions agreed
as part of the Framework Contract of Sectoral Competitiveness Studies.
Despite the recognised need for good regulation and standards by the sector, at the same
time it urges regulatory authorities to remove those restrictions on TAW activities that are
seen as ‘unjustified’. Especially the existing restrictions on TAW use (sectoral bans,
restrictions on ‘reasons of use’) and restrictions on PrEAs portfolio of activities that still
exist in several countries, are considered unjustified and limiting the sector’s growth69.
Next to the (limited) influence of client sector standards and regulation, in several
countries the use of TAW itself is (severely) restricted or even prohibited in specific
sectors (sectoral bans). The most significant restrictions are to be found in public services
and construction; for example, in Spain, TAW is strictly banned from public services and
construction, while in Belgium and France its use is restricted to very specific situations.
69
Eurociett forecasts that only the lifting of the existing sectoral bans and reasons of use in 6 EU member states (i.e. Belgium,
France, Germany, the Netherlands, Spain and UK) would create an additional 570,000 TAW jobs by 2012.
70
An example is the digitalisation of the service voucher system in Belgium, a system that allows individuals to purchase a
government-subsidised domestic cleaning service (house cleaning, ironing, washing). At the introduction in 2004 the
system exclusively made use of paper vouchers that individuals used to pay the TAW. Now, payments can be arranged
through electronic vouchers, making the administrative handling by the PrEA less time-consuming.
It can be expected that as a consequence of the demographic change that Europe is facing
and the related ‘war for talent’, skill requirements for TAW jobs might increase. Due to
the tightening labour market, client companies will encounter more and more problems
finding specific skills in the market, increasing the search costs for finding new
employees. PrEAs can play an important role in helping companies to solve temporary
capacity problems and even to identify suitable candidates with the necessary skills for
hiring. This may lead to a significant change in the role that PrEAs play in the labour
market in the future.
Market access
Market access is a major issue in the PrEA industry. In several EU Member States the
sector is confronted with different restrictions, such as sectoral bans or restrictions
regarding the use of TAW services.
At the moment the services provided by temporary work agencies are is excluded from
the EU Services Directive. The sector itself had hoped to be included in the EU Services
Directive, as this could have served to lift some of the ‘unjustified’ restrictions that now
exist at the national level (e.g. by strengthening rights related to freedom of
establishment). Currently, national regulations and licensing requirements are significant
barriers to entry (e.g. the example of local branch requirements for Portugal), especially
for SMEs.
It is expected that in the coming years more harmonisation in the EU will come for labour
conditions in general, but not for TAW specifically. Nevertheless, the lifting of existing
restrictions could have a large positive effect on the job creation through TAW71.
Structural change
Global competition has led to an increased need for more flexibility within firms, to be
able to absorb increased fluctuations in economic activity. The PrEA industry plays a
central role in providing companies with the necessary staff flexibility; for example, to
help managing economic fluctuations72.
71
The Eurociett report has made estimates of an additional extra 570.000 jobs created in 6 European countries (above the
expected + 1.6 million extra jobs over the period 2006-2012 due to organic growth) if only the existing restrictions on
sectoral use and reasons of use would be lifted.
72
For example, a survey conducted in Belgium finds that TAW is seen as the most relevant solution (see Figure 59).
Competition issues
The most important competition issue in the PrEA industry is the perceived ‘unfair’
competition from other types of flexible employment forms (e.g. part-time work, fixed-
term contracts). At national level, TAW regulation still faces a series of discriminatory
restrictions that do not allow it to compete on an equal footing with these other forms.
One example of such discriminatory restriction is the different treatment of TAW
contracts and fixed-term contracts with regards to end of contract compensation in Spain
and France.
Within the PrEA industry itself, we found no direct evidence of competition problems.
We do remark that in several Member States the PrEA industry is highly concentrated.
However, this in itself is no evidence of potential competition problems and it is beyond
the scope of this study to further evaluate this in more detail.
Technological change
Rapid technological change has been identified as one of the key challenges for European
industry, both manufacturing and services, particularly in relation to developments in the
field of ICT. As mentioned earlier, ICT developments can be considered as an important
driver/enabler of process and organisational innovations within the PrEA industry. ICT
has opened up new possibilities for PrEAs to organise themselves in a more efficient
manner and to develop new and improved services for their clients.
As such, the international mobility of workers will become an important issue for the
PrEA industry, as it seeks to be able to address fully the needs of clients. Hitherto,
however, such international mobility has been limited, owing to both cultural factors and
existing regulatory barriers. Several countries have now started to implement an active
policy to attract foreign - especially highly-skilled – workers (‘brain gain’).
Global competition
Within the PrEA industry a limited number of global players are active (e.g. Manpower,
Randstad, Adecco). These players are active on a global scale and, in several EU Member
States, they ‘control’ a majority, or at least large shares, of the market. Nevertheless, even
these global players do not really have a truly global strategy or structure, but more a
multi-national structure. Regulatory barriers at national level, as well as language
barriers, local needs of customers, and limited worker mobility, mean that the
establishment of an extensive network of local branches in each country/region where the
firms do business.
The purpose of this section is to identify and prioritise potential areas for European policy
initiatives both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). To begin
with, the possible arguments (justification) for possible policy intervention from an
economic standpoint are examined. After this, the analysis is based around a screening of
the sector in relation to existing industrial policy initiatives and some specific themes
relevant to the business services sector; the overall assessment is summarised in Table 10.
Social externalities
At the European level, the flexicurity model has been promoted as a way to achieve the
common employment objectives of Lisbon: creating more and better jobs, strengthening
social cohesion and facilitating active inclusion of all in the labour market. As the PrEA
industry plays a central role in facilitating transitions and transformations in the labour
market (see also section 5.2.1), it is clear that PrEAs make a positive contribution to this
flexicurity model73 and a better functioning labour market at large. As such, the social
externalities of the industry are considerable.
The following elements highlight the position of the PrEA industry in society at large,
that may provide a further justification for policy intervention:
• A well functioning PrEA industry contributes to a lowering of unemployment. A
negative correlation exists between the long-term unemployment rate and TAW
penetration rate. Therefore, in several countries TAW has been recognised as an
integral part of an active solution in curbing unemployment.
73
PrEAs have been explicitly recognised as key players in the report by the Lisbon employment taskforce.
Market share data from different Member States show that several national PrEA markets
are highly concentrated, which could potentially lead to market power abuse. However,
we found no indications of such abuse and it is beyond the scope of this study to analyse
this issue in further detail.
Information asymmetries
Information asymmetries arise when buyers and sellers are not well informed of the
services to be provided or where information is not equally distributed between them.
The Eurociett report points out that the PrEA industry is confronted with several
(mis)perceptions about the working of the industry (see also section 5.3.1). These
misconceptions may be at the basis of a limited cultural and social acceptance of the
industry in some European countries, as well as be one of the reasons for the low use of
TAW in SMEs in many countries. These misconceptions hamper not only the relationship
between the buyer (client companies) and seller (PrEAs), but also between the PrEAs and
potential temporary agency workers, the PrEAs and trade unions, and even between the
PrEAs and governments – although the relationship with this last has improved
considerably over the last few years.
A large part of these misconceptions are driven by information asymmetries that exist
between on the one hand the client companies making use of TAW and TAWs/trade
unions/government on the other hand. Especially lack of clarity/understanding about the
reasons of client companies to make use of TAW – supported by some cases of ‘abuse’ of
TAW – feed perceptions of client companies using TAW to support flexibility
Table 11 provides an initial screening of the PrEA industry against existing and potential
EU horizontal ‘industrial’ policy initiatives74, and a number of additional possible
services related initiatives. This attempts to identify those policy initiatives that, if
introduced or extended, could be of most relevance for the PrEA industry, in particular in
terms of raising performance (e.g. productivity improvements) and/or creating
opportunities for sector development.
74
Based on the Mid-term Review of Industrial Policy, COM(2007) 374.
- No or limited relevance
Relevant
Important
Very important
Technical standards -
European Code of Conduct, professional
Other standards
qualifications and training standards
Innovation policy -
model
Structural Anticipation
Change Tertiarisation
Organisational and process innovation to enhance
Organisational and services
Services working practices and conditions and promote
innovation
productivity growth
- No or limited relevance
Relevant
Important
Very important
25,000
20,000
15,000
10,000
5,000
0
PL UK NL DE FR ES SE IT RO GR AT HU DK FI NO IE PT BE BG EE LT LV SK SI LU CY
Companies 21,053 17,185 6,505 4,268 3,349 2,961 1,794 1,434 1,411 1,058 844 832 745 668 663 592 542 501 269 169 147 143 99 93 89 52
Figure 39 Private employment agencies: turnover by country, € million 2005 (Eurostat estimates)
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
UK FR NL DE IT ES BE AT SE NO IE DK PL PT FI HU LU GR RO SI EE SK LT LV BG CY
Turnover 39,788 23,328 12,656 11,335 4,844 4,282 3,752 2,113 1,616 1,308 1,248 962 934 859 762 476 240 139 91 80 67 58 24 18 14 4
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
UK FR DE NL ES IT BE PT PL AT DK SE HU NO FI LU RO IE SK EE GR SI BG LV LT CY
Employed 807,08 634,35 415,92 384,64 262,11 220,67 118,13 73,142 57,579 53,279 52,020 46,308 35,433 26,181 20,572 16,145 15,997 13,125 4,493 4,218 3,869 3,359 3,052 1,840 1,706 138
Figure 41 Private employment agencies: share of total non-financial and non-utility business economy turnover by country,
2005 (%)
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
NL UK FR BE AT IE LU NO DE SE PT FI DK ES EE HU IT PL SI SK RO LT LV GR BG EU*
Share of NFNUBE turnover 1.25 1.23 0.78 0.54 0.48 0.40 0.39 0.31 0.31 0.30 0.29 0.26 0.25 0.23 0.23 0.23 0.20 0.19 0.14 0.08 0.07 0.06 0.06 0.05 0.02 0.55
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
NL LU BE UK FR DK AT PT NO DE ES SE FI IT HU IE EE PL SI SK RO LV LT BG GR EU*
Share of NFNUBE emp 8.27 7.91 4.96 4.49 4.47 3.07 2.28 2.25 2.06 2.04 1.97 1.78 1.69 1.48 1.44 1.35 1.09 0.78 0.60 0.51 0.41 0.30 0.20 0.17 0.16 2.62
80%
60%
99,9% 100,0%
90,0% 93,0%
86,0%
40%
20%
0%
UK NL DE FR ES
100%
Others
90% Rands tad Others
Sy nergie
Others
80% USG People Oly mpia Others
Crit AB
70%
Others
V edior
60% Others
Rands tad Rands tad
Rands tad
50%
Manpow er
40% V edior
USG People A uto V is ion
ZA
TujaG
30% Manpow er Hay s
USG People Pers ona Serv ic e
100%
80%
60%
40%
20%
0%
FR DE AT LI EE LV SK PT SI NL FI LU DK NO HU ES CY RO SE IT GR PL EU*
1 empl 7.2 12.1 14.5 15.6 16.6 16.8 18.2 29.0 30.1 34.9 38.2 42.7 43.6 44.2 48.4 52.6 53.8 54.5 56.1 62.4 87.7 93.7 60.7
2-9 empl 34.1 19.8 33.3 63.9 53.3 60.8 27.3 18.6 41.9 41.2 26.2 19.1 18.0 26.1 22.4 22.8 46.2 38.2 27.3 28.4 10.5 5.8 19.7
10-19 empl 10.5 9.0 10.9 12.2 12.4 5.6 18.2 7.7 8.6 10.5 9.1 1.1 7.5 9.8 7.9 7.4 0.0 3.0 6.0 2.5 0.7 0.2 4.8
20-49 empl 18.3 19.7 20.1 4.1 11.2 12.6 14.1 13.3 6.5 6.9 15.6 1.1 11.1 8.4 8.4 5.6 0.0 1.4 5.4 1.7 0.5 0.1 5.8
50-249 empl 26.5 32.9 17.2 5.3 3.5 20.3 8.6 5.1 8.5 20.2 14.9 8.4 7.7 0.0 2.0 4.3 1.2 0.1 7.2
250 or more 3.4 6.5 4.0 4.1 1.2 0.7 22.2 11.1 4.3 1.5 2.4 15.7 4.8 3.0 12.9 4.0 0.0 0.9 0.9 3.8 0.7 0.1 1.8
Figure 49 Private employment agencies: breakdown of turnover by company size (number of employees), 2005 (%)
100%
80%
60%
40%
20%
0%
FR IT PT ES DE AT NO SE NL FI HU SI EE RO LI SK GR PL EU*
1 empl 0.4 1.3 0.3 0.7 0.3 0.5 2.2 3.8 3.9 1.7 7.5 4.7 1.6 3.4 0.4 8.3 29.3 63.0 2.4
2-9 empl 1.4 2.8 1.6 3.8 2.3 3.6 4.6 8.5 9.7 5.8 8.0 18.2 16.5 25.1 26.7 22.8 32.8 11.7 4.2
10-19 empl 1.1 1.5 1.7 1.9 3.0 2.6 5.0 5.1 6.0 6.8 7.3 6.0 9.2 1.0 15.4 20.9 3.2 1.8 2.9
20-49 empl 4.1 1.8 6.5 5.3 7.5 11.6 10.0 8.9 8.6 14.3 12.1 9.8 19.3 18.4 13.3 7.8 3.7 2.2 6.3
50-249 empl 16.7 2.1 20.7 12.5 38.0 28.9 21.2 20.6 16.0 23.4 21.4 19.1 2.9 19.4
250 or more 76.3 90.4 69.1 75.7 49.0 52.8 57.0 53.0 55.8 48.0 65.1 39.9 53.3 33.1 44.2 40.2 30.9 18.4 64.7
100%
80%
60%
40%
20%
0%
IT ES PT FR DE NO AT SE NL RO FI EE PL LV EU*
1 empl 0.4 0.6 0.2 0.0 0.1 0.6 0.2 4.5 1.8 4.8 1.1 0.8 41.6 1.2 1.7
2-9 empl 0.6 1.0 0.6 0.8 0.8 2.9 1.9 5.1 9.6 11.8 3.9 10.1 7.7 25.2 2.9
10-19 empl 0.2 1.1 0.8 0.8 1.4 3.5 2.4 4.0 5.6 3.6 4.1 7.5 1.1 5.5 2.0
20-49 empl 0.3 2.1 3.2 3.2 6.5 6.6 10.3 8.4 5.6 3.5 16.7 16.6 1.5 26.9 4.5
50-249 empl 1.0 10.4 16.8 16.5 38.9 18.7 29.3 21.5 14.6 20.5 25.3 4.2 23.2 18.4
250 or more 97.4 84.8 78.4 78.6 52.3 67.8 55.8 56.5 62.8 55.8 48.9 64.9 43.8 18.0 70.5
Figure 51 Private employment agencies: share of personnel costs in value of production, 2005 (%)
100
90
80
70
60
50
40
30
20
10
0
PL SK LV NL UK BG CY RO LT GR SI IE EE DE HU SE NO DK FI AT PT IT BE ES FR LU EU*
Share of personnel costs in production 23 29 36 37 46 50 50 50 51 55 56 56 69 73 73 74 74 74 75 78 82 82 84 86 86 95 63
95%
75%
55%
35%
15%
-5%
LU FR ES BE IT PT FI DK NO SE DE EE HU SI RO CY BG LT UK GR NL LV IE SK PL
Gross operating surplus -2 2 5 5 1 3 9 6 5 0 12 5 6 5 15 24 6 10 27 1 7 15 10 29 25
Personnel costs 94 87 86 84 84 82 75 75 74 73 70 69 59 56 50 50 50 49 46 43 36 36 33 29 23
Purchase of goods and services (not for resale) 7 8 9 11 15 16 17 20 21 27 13 19 16 27 33 26 46 42 26 21 20 41 16 42 34
Purchases of goods and services (for resale) 2 0 1 0 0 0 0 1 0 0 4 0 20 0 1 0 1 3 0 0 0 0 41 1 1
Other 0 3 0 0 0 -1 -1 -1 0 0 0 7 0 12 1 0 -3 -3 0 36 37 7 0 0 17
Figure 53 Private employment agencies: turnover per person employed (€ thousand), 2005
100
90
80
70
60
50
40
30
20
10
0
BG RO LV PT SK HU LT LU EE PL ES DK IT SI DE CY BE NL SE GR FR FI AT UK NO IE EU*
Turnover per worker 5 6 10 12 13 13 14 15 16 16 16 18 22 24 27 28 32 33 35 36 37 37 40 49 50 95 33.9
45
40
35
30
25
20
15
10
0
BG RO LV SK PL LT HU PT EE LU NL SI ES DK GR IT CY DE SE BE FI FR AT UK NO IE EU*
V.A. per worker 3 4 5 7 8 8 9 10 12 14 14 14 15 15 16 19 20 23 26 28 31 33 33 36 39 41 25.7
Figure 55 Private employment agencies: wage adjusted labour productivity (apparent labour productivity by average
personnel costs (%), 2005
250
200
150
100
50
0
GR SE LU IT FR PT BG ES BE NO EE AT HU DK SI FI DE LT NL IE RO CY LV PL UK SK EU*
Adj. Lab. Prod 54 78 98 101 103 103 104 105 105 106 107 107 107 107 108 110 115 117 122 126 128 135 139 143 156 198 120
70,00%
59,87%
60,00%
50,00%
40,00%
30,00%
19,32%
20,00% 16,61%
10,00%
1,76% 1,11%
0,00%
DK SE ES RO SI
Figure 57 Private employment agencies: turnover per person employed by company size, 2005 (€ thousand)
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
RO PL PT ES IT DE NL SE FR FI AT NO EU*
2-49 empl 13.4 24.7 25.3 43.2 115.8 40.0 38.6 44.9 50.0 40.2 48.3 75.7 41.5
50-249 empl 5.3 10.9 14.5 19.6 44.3 26.6 35.9 33.4 37.3 34.3 39.2 56.7 30.7
250 or more 3.4 6.8 10.3 14.6 20.4 25.5 29.2 32.8 35.7 36.4 37.5 42.0 26.7
60.0
50.0
40.0
30.0
20.0
10.0
0.0
RO PL PT NL ES IT DE SE FI FR AT NO EU*
2-49 empl 7.7 10.5 14.7 18.1 30.0 50.2 29.6 26.6 31.3 38.9 37.7 51.7 25.4
50-249 empl 4.0 7.5 12.4 17.3 17.1 30.4 22.9 26.5 29.1 32.3 32.6 47.3 24.4
250 or more 2.5 6.3 9.2 11.7 13.7 18.1 21.1 26.0 32.1 32.3 31.9 34.8 21.5
Figure 59 Private employment agencies: preferred flexibility solutions to face demand peaks in Belgium
Figure 63 Location of the main external personnel related services provider, 2003 (%)
100%
80%
60%
40%
20%
0%
DK DE LV SI FI
Source: Eurostat
The technical consulting sector mainly covers engineering consulting services and
architectural services. In this sector review, while we will focus on the engineering
consulting services, it is important to note at the outset that, for statistical analysis, most
of the available data aggregates these services alongside architectural services and
technical testing and analysis.
The sector is very client-driven and during the last 10 years the clients have started to call
for larger range of services for the projects, including often e.g. the whole project
management process of a large infrastructure project, which includes in addition to the
technical consulting parts, some financial, legal, HRM and accounting services. Social
and environmental issues have received more attention lately as well leading to a need to
include also experts of these sectors in projects.
75
Koch, Christian (2004), The Tyranny of Projects: Team working, knowledge production and management in Consulting
engineering, Economic and Industrial Democracy 2004; 25;277
76
EFCA (1995), “In-house engineering consultancy within the public sector”, White book, European Federation of Engineering
Consultancy Associations (EFCA)
Eurostat estimates for 2005, which cover 26 countries, indicated total turnover of € 248
billion, 1,758 thousand companies and 2.6 million workers (see Figure 65 to Figure 67).
To a large extent, the relative size of the sector, in terms of turnover and employment
numbers, corresponds to the relative economic importance of countries, with the UK,
France, Germany and Italy having the highest turnover and employment in the technical
engineering and architectural sectors in Europe. On the basis of calculations using
Eurostat data, the sector accounted for approximately 1.2% of total turnover, and 2.1% of
total employment in the non-financial and non-utility business economy (NFNUBE)77 of
the EU in 2005 (see Figure 68 and Figure 69).
The pattern of industry concentration described above, is also evident in terms of the
‘nationality’ of the leading engineering consulting companies in Europe, with France, the
United Kingdom, the Netherlands and the Nordic countries have most of the leading
companies in the sector (Table 12). One inference that may be drawn from these findings
is that market conditions (e.g. various regulative barriers (such as limitations on who can
work in the market) in countries such as Germany, Italy and Spain may not be optimal for
creating strong, globally competitive consolidated companies.
77
Defined as NACE Sections C, D, F to I and K. More normally the non-financial business economy (NACE Sections C to I
and K) is utilised as a reference, but as data on the ‘utilities sector’ (NACE Section E) is missing for some countries the
definition ‘non-financial and non-utility business economy’ has been used.
78
Data by company size are not available for the UK.
Consolidation of the sector has been a trend for around 10 to 15 years. There are very
large, global companies, which provide their clients with multidisciplinary services −
where technical solutions per se can represent often only a small fraction of the services
offered. However, in total number, SMEs still form the largest proportion of companies,
together with independent experts (self-employed), although their number has been
decreasing in recent years and many small companies have become niche players or
perform only certain technical consulting activities. These include, for example, small
technical consulting companies specialised in serving some specific manufacturing
sectors − such as automobile or aerospace sector. The smaller players in the sector are
often more localised, while larger companies undertake projects both at home and abroad.
The technical consulting sector is a high skilled labour-intensive sector, with relatively
high wage levels. Unsurprisingly, a large proportion of those employed in these sectors
are engineers, but the range of different types of engineer is wide − including e.g. nuclear
engineers, environmental engineers, construction engineers, etc. This wide diversity is
also reflected in the range of engineering training, with a study by FEANI79 indicating
that there are around 10 000 different curricula for engineers in Europe. Even though
engineering knowledge forms the bedrock of the skills requirements for the sector, the
widening scope of services requested from technical consulting firms means that other
79
Fédération Européenne d’Associations Nationales d’Ingénieurs
The average turnover per person employed in the sector in Europe was around €96.3
thousand in 2005 (see Figure 74) and the value-added per person employed amounted to
€48.2 thousand (see Figure 75). Large differences exist between the EU Member States,
with average turnover per person employed ranging from only €18 thousand in Romania
and Bulgaria to €162 thousand Denmark, and value-added per person employed ranging
from €5 thousand in Bulgaria to €72 thousand in the United Kingdom. It is clear that the
wide differences in wage levels across the EU-27 have a large impact on these
differences. However, even when adjusting apparent labour productivity for wage
differences, a significant variation across countries remains (see Figure 76)81. Again (see
Section 2.2.1) we can see that by and large apparent labour productivity is relatively low
in those countries with relatively high proportion of micro-companies in the sector (e.g.
Belgium, Italy, Greece), while it is relatively high in many of the new Member States and
notable, among older Member States, in the UK and Ireland.
Most of the productivity enhancements in the sector take place through new technological
and organisational innovations and improvements. As a knowledge intensive service
sector, the effectiveness and efficiency of the technical consultants is mostly related to
how fast, with what kind of budget and with how good quality (including the actual level
of their technical advices and the satisfaction of the clients) they can offer their
knowledge services to the clients. Typical innovations in the sector that improve the
actual effectiveness of the services include e.g. new software products used to manage
projects and clients more efficiently, new database systems improving data transfers
between the consultants and the clients and new organisational innovations for knowledge
management82. These technological and organisational innovations in the sector can be
acquired via two main routes: through external acquisition of new technology (or ideas)
80
To some extent the low share of personnel costs in countries with a high proportion of micro enterprises may reflect the fact
that remuneration to the ‘owner’/entrepreneur is included under operating surplus rather than personnel costs.
81
Apparent labour productivity is estimated by the ratio (%) of value-added per employee to average personnel costs per
employee. Under normal circumstances this ratio should exceed 100%, since average value added (which includes
personnel costs) should be greater than average personnel costs. The greater the ratio (in excess of 100) then
proportionally the greater the value added per employee created in addition to the cost of their labour.
82
Ojanen, Salmi & Torkkeli (2007), Innovation patterns in KIBS organisations: A case study of Finnish technical engineering
industry, 40th Hawaii International conference of system sciences.
Outsourcing and off-shoring of activities have also been increasingly used in the sector
due to the productivity and efficiency improvements they bring. Outsourcing and off-
shoring take place especially in large projects; where small parts of the projects can be
done more efficiently or with lower cost. Efficiency reasons are often used to outsource
the tasks to a more specialised company/expert. At the same time, efficiency and cost
reasons have been increasing e.g. the use of Indian companies and experts for more
routine tasks (such as e.g. designing).
The relative importance of public and private markets depends varies across countries in
Europe with large variation between the Member States. In some countries the public
sector makes extensive use of technical consulting services (e.g. in Denmark) including
also service such as the provision of ex-ante project recommendations. At the same time,
in some other EU countries the public sector relies more on its own internal resources (i.e.
they have often their own engineering departments). This causes large differences in the
overall demand for the services of the sector and thus affects partially also the
development of the sector in different countries. With regard to public-private-partnership
projects, there is quite some discussion as to the real opportunities that they offer and
often they are described as being not financially very interesting. In particular, selection
of providers for the public sector is seen to be rather time consuming and complicated,
with variation existing between the national procurement procedures across Member
States and a perception that public markets are not always in practise completely open for
foreign bidders.
Provider-client relations are largely trust based and the whole sector is very client driven.
The relations are often deep and the clients will often select a ‘safe-option’ known
provider with whom they have made business already. Private customers have been found
to select new providers of technical consulting services based often on the reputation of
the company, their networks and current customers and finally even to personal contact
with the consultant team (clients frequently want to see the team in advance to judge how
One recent trend in the industrial demand segment for engineering consulting services is
for manufacturing companies to (pre-) select only few technical engineering companies as
preferred partners. Recently e.g. a large industrial provider selected 25 companies as their
future providers. These 25 companies included mainly relatively large companies and,
among others, 3 Indian companies.
The sector is characterised by rather fierce competition and large number of small
companies competing against each other. The recent trend from clients is to demand the
“one-stop-shop” type of services, which may also include the transfer of legal liability to
the service provider. According to Ojanen et al (2007) 84, increased outsourcing activities
by major clients have resulted in even larger assignments and contracts, which often only
bigger engineering firms can handle. This again has made the position of small
companies even tighter and made it more difficult for small companies to grow larger.
However, the larger companies managing the project regularly outsource parts of the
projects to smaller (niche) players. In general, outsourcing in the technical consulting
sector has become more visible lately and often the labour intensive parts of the work are
outsourced or off-shored; for example using Indian engineers for drawing up detailed
designs. Thus, intra-industry outsourcing is rather common and most companies are
estimated to outsource even a rather large share of their business to other technical
consulting companies according to some sector experts.
This trend has been accompanied by the consolidations in the sector and decrease in the
number of middle sized companies. If these trends continue, this could lead to further
segmentation in to large companies and small niche players in the sector. However, the
main reasons for the many recent mergers and acquisitions in the technical consulting
sector have been found to include (in order of importance): acquisition as a way to
penetrate new service/client markets, penetration to new geographic areas, increase in
market share and acceleration of company growth85.
83
Tang, Lu & Chan (2003), Achieving client satisfaction for engineering consulting firms, Journal of management in
engineering, October 2003
84
Ojanen, Salmi & Torkkeli (2007), “Innovation patterns in KIBS organisations : A case study of Finnish technical engineering
industry”, 40th Hawaii International conference of system sciences
85
Kreitl, G. & Oberndorfer, W. (2004), “Motives for acquisition among engineering consulting firms”, Construction
Management and Economics (September 2004) 22, 691-700
5.2.6 Internationalisation
According to Ojanen et al (2007) 89, internationalisation in the sector has been going
through two main channels: client following and market seeking. In addition, labour
supply problems in Europe have been driving companies to set-up subsidiaries abroad
(e.g. India), which has a relatively more abundant supply of engineers. However, despite
the wide use of ICT, proximity with the client is still important in the sector and mostly
the service providers and the clients are located in the same region or at least in the same
country (see also Figure 79). Indeed, the bulk of international supply of architectural and
engineering services still takes place through commercial presence or presence of natural
persons. Due to the need for proximity, larger companies have started to establish local
units to serve the clients and also foreign companies have entered the market – including,
again, especially some Indian ones. However, it should be noted that foreign companies
pose a competition threat only if they establish local units.
Internationalisation within Europe has been more evident than companies seeking
markets outside Europe, which is seen mainly as a reflection of market access issues and
need for FDI operations in order to reach faraway markets. However, it is still common to
for service providers to serve foreign operations of existing clients that are already
familiar (from the home market) with their services. Especially the bigger technical
consulting companies have offices in a large number of countries world-wide. Overall,
there are four European companies among the world top 10 of technical consulting
companies with Altran Technologies from France holding the third place. Most other
companies in the top 10 of world are from the United States and one from Canada. As
yet, no company from any of the often cheaper, developing countries has been able to
reach the world top 10. The competitiveness of these foreign companies (e.g. Indian)
seems to differ also depending of the specific service area inside the sector; they have
good competitiveness in areas such as design work, but have less access to the technical
86
Daniel Arias Aranda (2003), “Service operation strategy, flexibility and performance in engineering consulting firms”,
International Journal of Operations & Production Management, Vol 23. No .11, pp.1401-1421
87
"Equivocality" refers to the existence of multiple and conflicting interpretations of issues in the work of technical consultants.
88
Chang & Chiu (2005), “Nature of engineering consulting projects”, Journal of Management in Engineering, October 2005
89
Ojanen, Salmi & Torkkeli (2007), Innovation patterns in KIBS organisations: A case study of Finnish technical engineering
industry, Proceedings of the 40th annual Hawaii International conference on system sciences
The purpose of this sector is to identify and prioritise the key issues facing the sector both
in terms of the sectors own development, and in terms of interactions between the sector
and its clients, specifically those in industry (manufacturing). The analysis is based
around a screening of the sector in relation to the main regulatory and framework
conditions91. The overall assessment is summarised in Table 13.
90
WTO (1998), Council for Trade in Services - Architectural and Engineering Services - Background Note by the Secretariat
91
This analysis is in accordance with the general framework for assessment of regulatory and framework conditions agreed
as part of the Framework Contract of Sectoral Competitiveness Studies.
92
For example, in Austria, civil engineers cannot provide certain types of PPP services.
Naturally, these types of regulations affecting the sector can have contradictory effects on
the profitability of companies and in the structure of the market. According to some
sector experts, it has been found that the number of regulations in the sector correlates
negatively with profitability of the technical consulting sector. This is also evident in the
relatively low competitiveness levels and larger number of companies in Germany and
Italy, which have heavy regulations for the sector compared to their neighbour countries
with higher competitiveness levels and lower number of regulations. On the other hand,
most regulations are posed for the common good or safety in the sector, and their costs
should be weighted against their benefits nearly on a case-by-case manner.
Overall, even though the potential for innovations is mostly high, more resources are
often needed. These include first of all, more support in company level for innovations,
but secondly, also more financial support from public authorities (e.g. national and local
governments). Currently, innovations are concentrated on the large market players. The
clients can be hesitant towards changes − they just want things to work − and hence for
smaller companies it can be too costly to try to innovate heavily in client projects (unless
93
There was an attempt in 1989 at a possible European Directive on Engineering but there was no agreement; interests at
national level were too different to reach a consensus.
94
Syntec-Ingénierie (2008), Livre blanc: L’ingénierie et l’innovation, Mai 2008, Editions Syntec-Ingénierie
95
Mezher, Abdul-malak, Ghosn & Ajam (2005), Knowledge management in mechanical and industrial engineering consulting;
a case study, Journal of management in engineering, July 2005
96
Ojanen, Salmi & Torkkeli (2007), Innovation patterns in KIBS organisations : A case study of Finnish technical engineering
industry, 40th Hawaii International conference of system sciences
On the other hand, as Koch (2004)97 describes, engineers working in technical consulting
sector need more than just technical skills; especially team working, management,
communication and language skills are nearly equally important as actual technical
knowledge due to the nature of the business. As the sector is characterised by highly
innovative projects, most work is based on innovative team work. In addition, the actual
projects can be difficult; including large changes in short time, only partial need for full
staffing and high use of IT. Naturally, this poses high pressure on the project, knowledge
and HRM management. At the same time, the high pressure nature and multi-talent
demands can make it even more difficult to find new consultants. In this context, policy
actions on the educational sector would be needed for two purposes:
1. To attract more young people to the engineering studies; and
2. To teach more communication, team working and project working skills already
during the studies.
Market access
Architectural services are traded internationally, mainly through the establishment of
commercial presence by the foreign supplier in the host country, and usually involve
temporary movements of skilled personnel98. Hence, most of the market access issues in
the sector are related to these activities. In general, the market barriers are slightly lower
in the technical consulting sector than e.g. in architectural services, though the barriers
are very similar. In addition, barriers in these sectors are significantly lower than in many
other KIBS sectors (such as legal or accounting services). The actual level of market
access constrains varies by country and there are significant differences in the barrier
levels.
The main market access barriers are concentrated around the following issues according
to the WTO99:
• Main qualifications or licensing requirements (e.g. requirements on the type of
education required or number of years of experience);
• Restrictions on the form and establishment of commercial presence (e.g. only natural
persons or partnerships are allowed, often in joint operation or joint venture with local
professionals);
• Local presence requirements (a frequently sited barrier);
97
Koch, Christian (2004), The Tyranny of Projects: Team working, knowledge production and management in Consulting
engineering, Economic and Industrial Democracy 2004; 25;277.
98
WTO (2007), Council for Trade in Services - Special Session - Communication from Australia - Negotiating Proposal for
Architectural Services, 10/10/2007.
99
WTO (1998), Council for Trade in Services - Architectural and Engineering Services - Background Note by the Secretariat.
In addition, e.g. the Australian authorities have complained about the following issues in
the sector:
• Restrictions on repatriation of profits;
• Discriminatory taxation practices;
• Limited or no recognition of foreign qualifications; and
• Non-transparent regulatory environments.
Despite the rather low trade barriers inside the EU, many of the barriers listed above are
still also concerns in intra-EU trade; these include especially requirements on the main
qualifications and limitations on the scope of activities. It should be also noted that, as
majority of the people working in the sector are self-employed experts or work in small
companies, cultural and regional impediments (e.g. unfamiliarity with foreign markets
and lack of training in international matters) can cause large barriers as well. Similarly,
even when countries recognize or acknowledge foreign qualifications or licenses, case-
by-case judgements may be applied, which can give rise to uncertainty and be time-
consuming. In general, market access issues are still causing competition barriers in the
sector, but their level especially in the technical consulting sector is already low
compared to many other KIBS sector.
Structural change
Structural changes in the manufacturing industry and further specialisations in the
operations done in-house has led to an increase – albeit small in some cases - in the
demand for the technical consulting services and, at the same time, opened doors even for
manufacturing companies that have developed technological solutions themselves (such
as aerospace and high-tech). If this trend continues, further increases in demand could be
expected. However, more demand for technical consulting services is to be expected to be
found in the developing countries, which are experiencing larger economic changes and
rapid development growth rates combined with need for new infrastructure, buildings and
other technological projects. At the same time, a small scale structural change is going on
in the technical consulting sector itself due to the larger project requirements from clients
and ongoing consolidation.
Technological change
New technology is found to be extremely important in the technical consulting sector,
first of all, for the shape of the business, but also for productivity effects. New technology
is even needed in order to complete the projects. Staying up to date with the technological
changes is hence important for staying competitive. At the same time, new technological
solutions can boost the competitiveness of the client industries of technical consultants
including, obviously, many manufacturing industries.
100
Haro-Dominguez, Arias-Aranda, Lloréns-Montes and Moreno (2007), The impact of absorptive capacity on technological
acquisitions engineering consulting companies, Technovation (27) 2007 417-425
The purpose of this section is to identify and prioritise potential areas for European policy
initiatives both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). To begin
with, we examine the possible justifications for policy intervention, from an economic
standpoint. After this, the analysis is based around a screening of the sector in relation to
existing industrial policy initiatives and some specific themes relevant to the business
services sector; the overall assessment is summarised in Table 13.
Social externalities
Through the technological solutions developed by technical consultants very large social
externalities are created by the sector. For example, cleaner technologies can help to
reduce environmental burdens globally. Often the highest social externalities are related
to new innovations, and hence provide a possible justification for innovation support
programs and financial support for innovation. Similarly, technical consulting sector is
often boosting the competitiveness of their client industries and contributing to their
development and employment.
Information asymmetries
Information asymmetries in the sector are caused, similarly to other service sectors, by
the lack of information distribution and communication caps between the clients and the
consultants. Firstly, the client industries of technical consulting sectors can have a hard
time estimating how well the company could actually do the project, especially if some
new technology innovations are needed. The clients can have also difficulties judging the
actual quality of services provided. Secondly, the clients do not provide always enough
Table 14 provides an initial screening of the industrial cleaning sector against existing
and potential EU horizontal ‘industrial’ policy initiatives101, and a number of additional
possible services-related initiatives. This attempts to identify those policy initiatives that,
if introduced or extended, could be of most relevance for the industrial cleaning sector, in
particular in terms of raising performance (e.g. productivity improvements) and/or
creating opportunities for sector development.
101
Based on the Mid-term Review of Industrial Policy, COM(2007) 374.
- No or limited relevance
Relevant
Important
Very important
Structural Anticipation
Change Tertiarisation
Organisational and services
• Important innovation forms
innovation
• Knowledge, project and client management most
Support for knowledge
important competition elements
intensive business services
Services • Keeping up and creation of new technology
Measurement and recognition • Most valuable assets often intangible, related to e.g.
of intangible assets project, client and knowledge management
Regional actions (demand and • Need for proximity creates problems with regional
supply matching) demand and supply matching
- No or limited relevance
Relevant
Important
Very important
300,000
250,000
200,000
150,000
100,000
50,000
0
IT ES DE FR UK GR PL PT SE HU NL BE AT RO NO FI DK BG IE SI LT SK LV EE LU CY
Companies 253,37 100,23 91,688 80,600 60,475 48,307 40,151 33,284 31,189 23,340 17,125 16,971 13,048 9,890 9,849 7,185 5,917 5,425 4,435 3,853 2,077 1,396 1,192 1,135 987 629
Figure 66 Architectural, Engineering and Technical Services: turnover by country, € million 2005 (Eurostat estimates)
60,000
50,000
40,000
30,000
20,000
10,000
0
UK FR DE IT ES NL SE DK NO AT BE PL FI GR IE PT HU SI RO LU SK BG LT LV EE CY
Turnover 53,523 45,752 36,409 27,367 20,605 11,827 7,908 6,437 6,191 4,942 4,942 3,622 3,523 3,427 2,785 2,651 2,355 1,145 877 556 553 308 258 221 161 110
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
DE UK IT FR ES NL PL SE PT GR RO AT HU BE DK NO FI IE BG SI LT SK LV EE LU CY
Employed 416,58 414,25 361,43 333,65 265,09 111,57 108,61 72,668 56,137 53,571 49,357 48,537 47,375 41,932 39,135 33,399 32,161 21,070 17,160 11,913 11,327 10,976 8,157 6,153 4,818 2,295
Figure 68 Architectural, Engineering and Technical Services: share of total non-financial and non-utility business economy
turnover by country, 2005 (%)
2.50
2.00
1.50
1.00
0.50
0.00
SI DK UK FR SE NO GR FI NL HU ES IT AT DE LU IE PT SK LV PL BE LT RO EE BG EU*
Share of NFNUBE turnover 1.97 1.69 1.65 1.53 1.47 1.47 1.31 1.19 1.17 1.14 1.13 1.11 1.11 0.98 0.91 0.90 0.90 0.81 0.76 0.75 0.71 0.68 0.67 0.55 0.53 1.24
3.00
2.50
2.00
1.50
1.00
0.50
0.00
SE FI NO IT NL LU FR DK UK GR IE SI AT DE ES HU BE PT EE PL LV LT RO SK BG EU*
Share of NFNUBE emp 2.79 2.65 2.63 2.43 2.40 2.36 2.35 2.31 2.30 2.17 2.16 2.13 2.08 2.04 1.99 1.92 1.76 1.73 1.58 1.47 1.34 1.33 1.27 1.23 0.98 2.10
Figure 70 Architectural, Engineering and Technical Services: breakdown of number of companies by company size
(number of employees), 2005 (%)
100%
80%
60%
40%
20%
0%
SK LV EE CY AT DE IE LI RO NL BG SI FR LU DK FI NO ES PL SE HU BE IT PT GR EU*
1 empl 28.5 35.1 35.4 37.7 44.3 45.9 52.0 54.3 55.5 60.3 60.9 63.4 65.4 65.7 70.2 70.8 71.4 75.8 76.1 81.2 82.2 82.8 87.6 87.8 95.6 75.3
2-9 empl 50.7 44.9 51.7 56.0 49.4 46.1 42.0 34.5 38.2 31.5 34.3 31.0 28.9 25.3 21.6 22.7 23.0 21.4 21.8 16.0 15.7 14.7 11.8 10.6 3.9 21.4
10-19 empl 15.6 13.1 8.5 5.2 4.1 5.2 2.9 6.2 3.3 4.5 3.2 3.6 3.2 4.9 3.9 3.4 3.5 1.6 0.9 1.6 1.3 1.0 0.4 1.0 0.3 1.9
20-49 empl 3.0 5.5 3.3 0.0 1.7 2.0 1.7 3.6 1.7 2.4 1.0 1.6 1.7 2.9 2.7 2.0 1.5 0.8 0.7 0.8 0.6 1.0 0.1 0.4 0.2 0.9
50-249 empl 1.5 1.1 1.1 0.5 0.7 1.2 1.1 1.1 0.4 0.7 1.1 1.3 1.0 0.5 0.3 0.4 0.3 0.2 0.4 0.1 0.2 0.3
250 or more 2.1 0.0 0.0 0.0 0.0 0.1 0.1 1.4 0.2 0.2 0.6 0.0 0.2 0.1 0.4 0.2 0.1 0.1 0.0 0.1 0.0 0.1 0.0 0.0 0.1 0.1
100%
80%
60%
40%
20%
0%
DK IE NL FI LU FR NO RO SE ES SK DE PL IT BE AT LI PT HU BG CY EE LV GR EU*
1 empl 9.6 6.9 9.4 10.4 10.4 16.2 11.6 6.8 16.9 20.0 9.8 8.5 25.8 28.7 22.2 8.3 5.7 18.6 24.2 15.4 12.6 8.0 5.9 67.2 16.8
2-9 empl 11.9 18.5 20.4 21.4 22.2 20.8 19.5 24.3 23.4 25.9 17.1 28.4 22.7 28.8 21.6 32.9 27.8 24.5 27.4 30.9 45.9 31.9 20.4 14.4 24.3
10-19 empl 8.6 7.0 11.2 10.0 11.4 8.9 13.6 17.7 10.8 8.2 25.8 13.9 6.6 6.2 7.6 14.5 18.5 13.3 12.3 22.7 23.0 22.5 32.6 5.8 10.2
20-49 empl 9.4 11.4 13.2 14.5 13.2 11.5 14.0 13.1 11.8 10.7 12.8 15.6 12.1 4.3 17.4 17.0 21.8 19.6 14.3 9.8 20.2 25.7 6.3 11.6
50-249 empl 21.0 43.1 16.1 25.3 16.2 18.1 19.3 15.3 14.5 18.6 19.4 7.0 24.9 13.4 15.8 18.7 18.5 17.4 15.4 15.6
250 or more 39.5 13.3 29.7 18.4 42.7 26.5 23.1 18.8 21.8 20.6 34.4 15.1 13.4 25.0 6.3 14.0 26.2 8.3 3.1 21.2 0.0 0.0 0.0 6.3 21.5
Figure 72 Architectural, Engineering and Technical Services: breakdown of employment by company size (number of
employees), 2005 (%)
100%
80%
60%
40%
20%
0%
DK FI RO FR SE NL NO GR IE LU SK LI ES BE DE PL BG LV AT HU CY EE PT IT EU*
1 empl 10.0 11.4 11.1 9.2 12.5 18.6 12.2 37.0 13.2 12.2 4.9 10.0 28.8 33.5 10.0 34.2 19.3 4.8 11.9 40.5 8.8 9.5 52.1 61.4 25.8
2-9 empl 12.3 21.4 28.1 26.6 25.0 17.0 24.7 14.4 31.3 23.6 24.4 26.3 26.9 21.8 36.2 30.6 37.1 24.4 41.7 26.2 51.5 38.1 21.2 23.3 27.8
10-19 empl 8.1 10.5 8.9 10.2 10.6 11.9 13.6 4.5 8.8 13.5 27.2 15.0 7.8 5.5 14.8 4.8 13.2 26.4 14.5 8.6 24.1 20.1 7.6 3.9 9.8
20-49 empl 12.3 13.4 10.5 12.7 11.2 12.6 12.8 7.9 11.3 18.0 11.6 19.2 9.1 12.3 13.1 7.6 9.1 23.5 13.7 8.3 17.2 7.5 2.8 10.2
50-249 empl 18.0 23.7 20.5 16.0 15.3 16.6 14.7 23.2 12.2 18.5 13.6 15.7 20.9 10.8 15.7 15.1 9.1 3.6 12.2
250 or more 39.3 19.6 20.9 25.3 25.5 23.4 22.0 36.3 12.2 32.7 31.9 29.6 15.2 8.4 12.4 7.2 21.3 0.0 8.1 5.7 0.0 0.0 2.5 5.0 14.2
50
45
40
35
30
25
20
15
10
0
IT BG PL SK LV PT SI BE RO LT HU UK ES DK FR NO AT EE IE NL FI GR SE DE LU CY EU*
Share of personnel costs in production 11 15 18 19 21 23 23 24 26 28 28 33 34 34 34 36 37 38 38 38 40 42 42 43 47 47 32
Figure 74 Architectural, Engineering and Technical Services: turnover per person employed, 2005 (€ thousand)
200
180
160
140
120
100
80
60
40
20
0
RO BG LT EE LV PL PT CY HU SK GR IT ES DE SI AT NL SE FI LU BE UK IE FR DK NO EU*
Turnover per worker 18 18 23 26 27 33 47 48 50 50 64 76 78 87 96 102 106 109 110 115 118 129 132 137 164 185 96.3
100
90
80
70
60
50
40
30
20
10
0
BG RO LT LV HU PL EE SK PT GR SI CY ES IT BE AT DE SE LU NL FI FR DK IE UK NO EU*
V.A. per worker 5 9 12 12 13 13 13 17 17 22 30 35 39 39 47 52 52 54 54 55 57 58 68 68 72 89 48.2
Figure 76 Architectural, Engineering and Technical Services: wage adjusted labour productivity (apparent labour
productivity by average personnel costs), 2005 (€ thousand)
200
180
160
140
120
100
80
60
40
20
0
GR BE LU IT SE HU FR NL CY DK AT NO FI ES DE SI EE PL BG IE PT LT UK SK RO LV EU*
Adj. Lab. Prod 75 91 94 97 104 107 114 115 116 119 120 124 125 127 127 130 135 146 149 149 151 153 155 179 183 199 121
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
RO EE LV PL HU PT ES DE SE AT FI NL FR BE IT IE DK NO EU*
2-49 empl 20.6 25.8 28.7 32.1 62.4 74.6 79.6 78.9 107.1 93.9 111.0 114.7 114.1 138.6 98.9 94.6 150.5 171.2 87.3
50-249 empl 16.8 30.2 20.0 41.3 86.6 81.9 91.9 119.6 108.7 134.0 117.0 102.6 138.6 159.0 148.8 245.7 191.8 228.5 115.5
250 or more 16.0 0.0 0.0 62.1 26.8 155.0 105.8 106.7 92.8 175.9 102.6 134.6 143.2 89.0 379.2 143.2 165.3 194.9 136.7
Figure 78 Architectural, Engineering and Technical Services: turnover person employed by company size, 2005 (€
thousand)
120.0
100.0
80.0
60.0
40.0
20.0
0.0
RO LV EE PL HU PT ES DE SE AT BE FR FI IT NL DK IE NO EU*
2-49 empl 9.9 12.1 13.4 11.9 16.2 26.5 38.0 47.0 47.8 49.6 53.8 55.0 57.2 51.3 60.1 69.4 58.8 81.6 44.2
50-249 empl 7.0 12.3 17.8 19.3 24.4 33.0 46.0 70.1 57.1 62.2 64.8 59.0 58.5 106.2 57.3 70.0 97.4 101.6 57.7
250 or more 10.1 0.0 0.0 25.2 12.1 12.3 47.2 64.0 60.0 73.3 57.0 63.2 59.9 75.8 65.3 66.9 68.5 107.7 59.8
100%
90%
80%
70%
60%
50%
40%
30%
20%
All enterprises (>49 em ployees) Enterprises w ith 50-249 Enterprises 250 or m ore
10% em ployees em ployees
0%
LT LV DE FI DK SI SE PL LV LT DE FI DK SI SE PL LT LV DE DK FI SI SE PL
Logistics services cover a wide range of activities in the supply chain, from the start of
the chain (raw materials) to the final delivery of goods and services to the consumer. The
Council of Supply Chain Management Professionals (CSCMP)102 defines logistics
management as follows: “Logistics management is that part of supply chain management
that plans, implements, and controls the efficient, effective forward and reverse flow and
storage of goods, services and related information between the point of origin and the
point of consumption in order to meet customers' requirements”103. On the different
activities that fall under logistics management, CSCMP notes: “Logistics management
activities typically include inbound and outbound transportation management, fleet
management, warehousing, materials handling, order fulfilment, logistics network
design, inventory management, supply/demand planning, and management of third-party
logistics services providers. To varying degrees, the logistics function also includes
sourcing and procurement, production planning and scheduling, packaging and
assembly, and customer service. It is involved in all levels of planning and execution--
strategic, operational and tactical. Logistics management is an integrating function,
which coordinates and optimizes all logistics activities, as well as integrates logistics
activities with other functions including marketing, sales manufacturing, finance, and
information technology”.
Although logistics services and transport services are separate services, in practice they
are often closely linked. Firms that only provide logistics service-related activities are
usually referred to as third-party logistics service (TPL) providers.
102
Formerly known as the Council of Logistics Management (CLM). For more information, see: http://cscmp.org/default.asp
103
It should be noted that there are many other definitions used. For example the definition of logistics according the European
Logistics Association is as follows: “Planning, execution and control of the movement and placement of people and/or
goods and of the supporting activities related to such movement and placement, within a system organized to achieve
specific objectives.”
104
Source: USITC (2005), “Logistic Services: an overview of the global market and potential effects of removing trade
impediments”, Investigation No. 332-463, Publication 3770, May 2005.
Various academic articles have tried to distinguish different market segments in logistics.
For example, Boscacci (2002)105 distinguishes the following four categories of logistics
operators:
• Chain traditional logistics operator: operator conducting one single activity within
a specific chain/product;
• Traditional logistics operator: operator conducting one single activity open to a
multitude of supply chains/products;
• Chain integrated logistics operator: operator covering the activities in the complete
supply chain, specialised for a specific supply chain/product;
• Integrated logistics operator: operator covering the activities in the complete supply
chain for a multitude of supply chains/products.
Lai et al. (2004)106 also distinguish four different categories of logistics service providers,
based on a survey among firms in Hong Kong. The four categories mainly differ
regarding the following factors: a) the degree to which the service providers provide
value added logistics services, such as assembly, repackaging, procurement, etc.; b) the
degree of technology used, e.g. for tracking and tracing of goods, sent/received notices,
105
Boscacci, F. (2002) The sustainable development of the European Logistics Industry: an analytical approach at micro and
macro-economic levels, ERSA Conference paper, European Regional Science Association.
106
Lai, K-H, Cheng, T.C.E. and Yeung, A.C.L. (2004) An empirical taxonomy for logistic service providers, in Maritime
Economics and Logistics, 6:199-219.
There are other examples of differentiation between logistics providers, e.g. in their type
of alliance to customers, by the extent to which they are geographically-based, by the
extent to which they outsource some services themselves, etc.
Unfortunately, there is very little statistical information on the shares of the different
categories of service providers in the EU. However, especially among the larger firms,
there seems to be a worldwide trend towards full service provision, driven by demand
from large multinational clients and increased global sourcing of products. Related to
this, there is also a clear trend towards consolidation: larger companies are increasingly
dominating the market, as large clients prefer to have a limited number of suppliers to
reach economies of scale and scope. Small companies often provide only one or a limited
number of services, operate in a specific geographic region, or on a niche market (e.g.
they specialise in certain client sectors).
Outsourcing of logistical services by companies has been a trend over the last 15 to 20
years, mainly because of reasons related to clients' focusing on core competences. The
offering of new services by logistics providers has resulted in a rapidly expanding sector
over the last decades. In recent years, ‘just-in-time’ manufacturing and e-commerce have
also contributed to the expansion of the sector.
Hertz and Alfredsson (2003) mention three waves of the development of the third-party
logistics (TPL) industry. The first wave was in the 1980s, when traditional transport
companies developed into TPL. In the second wave, in the early 1990s, companies such
as DHL and FedEx entered the market. In the last and present wave, consultants, financial
and/or IT management firms have entered the market, e.g. Anderson Consulting, GE
Capital etc.
107
The study in Hong Kong, based on a sample of just over 200 companies, showed the following distribution of companies:
traditional freight forwarders: 25%; transformers: 38.5%; full service providers: 27% and niche operators: 8%.
Partly as a result of the lack of a commonly used definition of logistics, data on the
logistics sector are scarce and difficult to compare. Often, for example, it is not clear to
what extent transport services and value added services like packaging are included in the
statistics. Even within companies, there are differences in views on what constitute
logistics services or other services.
According to Rebitzer (2007)108, the total turnover of the logistics sector in the EU was
€800-900 billion in 2006 and the long-term growth rate of the sector is between 4% and
8%. He estimates that of the total turnover, 40% is accounted for by logistics service
companies, while the other 60% are internal activities of companies from the rest of the
economy.
Eurostat does not present clear figures for logistics services. The major part of logistics
services fall under the category of transport, storage and communication, which is further
split up into a number of sub-categories. For this report, as the focus is on logistics
services and not on transport, we look specifically at the sub-category “Cargo handling
and storage; other supporting transport activities; activities of other transport agencies”109.
There are other statistical sectors that may also contain activities from the logistics sector,
such as "renting of transport equipment", but these cannot be separately identified and are
not included in the figures presented in this chapter.
As an indication of the weight of the sector in the economy, logistics services accounted
for approximately 1.8% of total turnover and 1.7% of total employment in the non-
financial and non-utility business economy (NFNUBE)110 of the EU in 2005 (see Figure
84 and Figure 85). These data illustrate the importance of the sector for the Baltic States
of Estonia and Latvia (and, to a lesser extent, Lithuania) and also for Austria and
Germany.
108
Source: Rebitzer, D.W. (2007) The European Logistics Markets, in European Real Estate Yearbook 2007.
109
This is an amalgam of the NACE Sectors 63.1 (Cargo handling and storage), 63.2 (Other supporting transport activities),
and 63.4 (Activities of other transport agencies).
110
Defined as NACE Sections C, D, F to I and K. More normally the non-financial business economy (NACE Sections C to I
and K) is utilised as a reference, but as data on the ‘utilities sector’ (NACE Section E) is missing for some countries the
definition ‘non-financial and non-utility business economy’ has been used.
Because of the large differences in the sector and the lack of statistical information, it is
hard to make general statements about the labour intensity of the sector. Automation of
various processes is a clear trend in the market, but, nevertheless, the sector still requires
a significant number of employees. Many activities require unskilled or low-skilled
labour (e.g. related to manual and transport work), while the managerial and consulting
parts of the sector require high-skilled staff. The largest share of employment in the sector
is taken up by low-skilled and unskilled labour.
There are some problems in finding sufficient and appropriate unskilled and low skilled
labour for the sector, partly as a result of general demographic and educational trends in
Western Europe, which influence the size of the pool of potential workers. The use of
migrant workers from Eastern Europe can partly fill this gap. It is not, however, always
possible to use migrants because some tasks require, for example, specific language
skills. Equally, there is a general shortage in the EU of highly-skilled people in technical
professions, such as engineers. The logistics sector also faces the problem of attracting
highly-qualified staff. This problem does, however, not seem to be related to specific
characteristics of the sector. In general terms, labour conditions in logistics services are
not seen as a major issue for the sector, but the sector is confronted with labour conditions
in related sectors, notably transport (e.g. a shortage of truck drivers due to unfavourable
working conditions).
Labour costs do not account for a large share of the total costs of the sector, with
available data indicating that personnel costs represent around 20-25 percent of total
production for the EU as a whole, but with significant differences across countries (see
Figure 89). Other costs, such as the renting and operation of warehouses, transport
equipment, automated systems etc. generally account for a much higher share of total
costs.
The average turnover per person employed in the sector in Europe was around €166
thousand in 2005 (see Figure 90) and the value-added per person employed amounted to
€61 thousand (see Figure 91), although there are very large differences between EU
Member States. Adjusting apparent labour productivity for wage differences (see Figure
According to the 2007 Third-Party Logistics report,112 (hereafter TPL-Report) the most
used technologies are warehouse management systems (WMS) and transportation
management systems (TMS). There is an increasing demand for visibility tools (e.g.
tracking and tracing) and web-enabled communication. Radio Frequency Identification
(i.e. an automatic identification method relying on storing and remotely retrieving data) is
the technology with the highest future expectations, although expectations seem to have
decreased somewhat over the last years. Due to the increased attention for software in
WMS and TMS, software development of the sector has become increasingly important,
and there are various software companies that can now be considered to be part of the
logistics sector. Some major software companies like SAP are also active in the logistics
market.
There is also a specific focus on labour productivity in the sector, notably in warehousing,
as improvements in this productivity leads to a more efficient, flexible and cost-effective
supply chain. The focus on labour productivity has both technical and organisational
aspects. Technically, attention is paid to labour productivity simulation and monitoring
technologies, and organisationally, warehouses are increasingly involved in late-stage
111
Apparent labour productivity is estimated by the ratio (%) of value-added per employed person to average personnel costs
per employee.
112
Capgemini, Georgia Institute of Technology, SAP, DHL (2007) 2007 “Third-Party Logistics- the state of logistical
outsourcing, results and findings of the 12th annual study”, http://3plstudy.com/
As noted above, outsourcing has been an important demand driver for the logistics sector,
mainly from the private sector, but also, to some extent, from the public sector. Within
the private sector, it seems that increasing demand for external provision of logistics
services exists across all sectors. Demand changes according to economic cycles, but
these cycles often differ by client sector (e.g. economic cycles for food are different than
for automobiles).
Unfortunately, there appears to be little empirical data on the use of logistics services, but
it does seem that a high proportion is outsourced. The TPL-Report, which is based on a
worldwide survey among 1,568 companies shows that 82% of these companies are users
of third-party logistics (see Table 15). As can be seen from the Table 15, domestic and
international transportation are the most frequently outsourced services. In Europe, there
is relatively more outsourcing of domestic and international transportation, as well as of
transportation management and fleet management. Services that are more customer-
related or more strategic seem to be less outsourced. For the same survey, around 90% of
the respondents indicated that “logistics represents a strategic competitive advantage for
our company.” The respondents also indicate that as a share of total logistics
expenditures, the percentage spent on outsourcing will increase. In terms of the factors
taken into consideration in the selection of a service provider, the survey indicates that
price and quality seem to play a more or less equally important role (see Table 16).
The TPL-Report found that more than 85% of the users of third party logistics in Europe
considered outsourcing to be successful. By far the most important success factor was
considered to be: (i) “personal relationships on an operational level”, followed
respectively by (ii) carefully drafted and signed contracts with detailed descriptions of
services and performance tracking; (iii) clearly measured improvement in service levels
to customers; (iv) peer-to-peer relationships on executive level providing guidance and
sponsorship; and (v) clearly measured cost reductions.
Among the benefits of the use of third-party logistics service providers are the reduction
of logistics costs (e.g. through economies of scale), of fixed logistics assets (no capital
needed for logistics-related equipment) and of the average order cycle length. Many of
the respondents in the third party logistics report 2007 felt that the use of third party
logistics provider has had a positive impact on business process efficiencies and on the
customer service to the customer. Strikingly, while more than 60 percent of respondents
in all regions indicated that “third party logistics providers provided new and innovative
ways to improve logistics effectiveness”, for respondents in Europe this percentage is
only 43%.
113
Source: 2007 third-party logistics report, www.3plstudy.com
Contracts
Contracts with logistics service providers are usually concluded for between 3 to 5 years
(the Third-Party Logistics Report 2007 finds an average contract duration of 3.1 years).
According to some sector representatives, there is a tendency to have shorter-term
contracts. This poses some problems for the sector, as every contract usually requires
specific investments to fulfil a client’s requirements. These investments may become too
costly if the duration of the contracts decreases.
Against a background of high rates of competition in the sector, companies in the sector
are in general pursuing two directions for business development: (i) widening the scope
of service provided; and (ii) entering niche segments where they may be fewer
competitors and a company can earn relatively higher margins.
114
Source: Third-party logistics report 2007.
Although there has been a clear trend in consolidation in the sector, the market is still
highly competitive. Margins in the sector have gone done over the years. According to
some experts, there is fierce price competition. Some companies seem to offer their
services at costs or even below cost price. This happens for example in logistics
companies with a big transport network: they know that they have a client for their
logistics services, this client will also use their transport services, which can make up for
the lower margin on logistics. It should be noted that some logistics companies on
purpose do not have their own transport network, to ensure their neutrality in their
logistics decisions. Client references are also very important in the logistics market, and
some logistics firms accept a very low margin to ensure certain client references.
The declining margins in the sector have caused some big players to sell their logistics
services, for example, TNT sold its worldwide logistics business to a private equity firm
in 2006. According to a press release about this sale in the Financial Times, margins in
the business have slipped from 6% in the late 1990s, when TNT entered logistics, to
below 4% in 2006115.
6.2.6 Internationalisation
115
FT.com, TNT sale of logistics division imminent, August 23 2006.
The purpose of this sector is to identify and prioritise the key issues facing the industrial
cleaning sector both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). The
analysis is based around a screening of the sector in relation to the main regulatory and
framework conditions116; the overall assessment is summarised in Table 6.
Other examples of standards, regulations and policy measures that affect the sector
include:
• Tax and investment policies (e.g. high or low tax rates, subsidies to attract foreign
companies) that influence choice over, for example, location of warehouses;
• Labour standards, such as rules for maximum number of driving hours for individual
drivers;
• Different kinds of standards for equipment used in the logistics sector.
116
This analysis is in accordance with the general framework for assessment of regulatory and framework conditions agreed
as part of the Framework Contract of Sectoral Competitiveness Studies.
In addition to the KPIs, relevant standards and regulations depend upon the client’s
sector. For example, if logistics services are used by the food industry, the standards and
regulation of this sector affect the logistics sector as well. The Hazard Analysis and
Critical Control Points (HACCP), a standard to improve food safety is a case in point, as
HACCP is not only applicable for the production of food, but also for the packaging and
distribution of food. Also the automotive sector has specific standards that need to be
taken into account in logistics decisions.
DG TREN has also defined a Freight Logistics Action Plan (COM (2007) 607 final),
which should contribute to improving the efficiency and sustainability of freight transport
in Europe. It consists of studies, stakeholder analyses and other initiatives covering topics
such as: the development of generic indicators to measure performance; the establishment
of a single window for administrative procedures in all transport modes; identification of
areas where EU action such as standardisation is required, etc. Most of this is still
ongoing work.
117
For more information, see www.bestlog.org
118
For more information, see: http://www.elalog.org/
Given the high proportion of small companies in the sector and the limited financial
resources these companies usually have, the knowledge and innovation gap between the
small and larger companies might be expected to increase in the future.
Over the last years, there has been increasing attention both for vocational training of the
workforce and for professional quality of the workforce. This is among others reflected in
the development of standards for logistics managers, as described in Section 6.3.1.
Market access
As the logistics services is characterised by a high degree of internationalisation, trade
and investment regulations are highly relevant for the industry. The sector has already
experienced a significant degree of liberalisation over the last two decades, not only as a
result of various trade negotiation processes (GATS, FTAs, bilateral agreements), but
also because many countries have unilaterally liberalised transportation markets to reduce
transport costs and increase economic growth.
119
USITC (2005) Logistic Services: an overview of the global market and potential effects of removing trade impediments,
Investigation no. 332-463, USITC Publication 3770, May 2005.
Next to customs issues, impediments to foreign investments are important for market
access in the sector, as most international transactions in logistics require a foreign
presence in a country. There are countries that limit or prohibit foreign investment in the
sector, or that have complex or lengthy approval procedures. There are also often
licensing requirements. For transportation services, these requirements exist for nearly all
countries. Another common complaint in the sector is the limited transparency of logistics
regulations.
Due to sector definition issues, logistics-related impediments have not been separately
addressed under GATS in the WTO. Commitments for management consultancy are
relatively generous, while commitments for other related services like customs brokerage,
rail/road/maritime freight, are much lower.
Structural change
Structural change in the form of outsourcing of logistics activities has been a driving
force for the development of the logistics sector. In addition to this outsourcing trend,
there is also the trend of increased global sourcing of its clients. This had led to
internalisation and to a further expanding logistics sector.
Structural change in the sector itself is reflected in the expanding scope of services (more
integrated service provision), notably of value added services. Also the increased use of
technology in the sector has led to changes in its operations.
Competition issues
As indicated before, competition in the sector is quite strong, and margins tend to be low.
The market seems quite fragmented, with a number of big players offering a broad
package of services, and many smaller companies offering only a specific logistics
service or operating on a specific market segment. Despite the market still being
fragmented, there has been a clear trend towards consolidation over the last years, partly
due to decreasing average margins in the sector.
It goes beyond the scope of this report to provide an analysis of existing market
conditions, but we have encountered examples of companies offering their logistics
services at a very low price, for example to attract more customers for their transport
services, or to get some important references. It is not clear if these companies provide
their services at very low margins or even below cost price. If the latter would be the
case, this cross-subsidisation would require further attention.
Technological change
Technological change is important in the sector. One the one hand, technological change
that is ‘internal’ to the sector is reflected, for example, in the increased used of automated
processes and management software. On the other hand, the sector is also affected by
technological change in other sectors. A notable example is the increase of e-commerce,
which has provided many opportunities for the logistics sector.
Technological change in transport may also become important for the sector. With the
climate change and increasing fuel prices, it is likely that there will be technological
developments in energy efficient transport for example. This may be important for
logistics decisions, and in particularly is at the forefront of discussions on global supply
chains in relation to rising oil prices. As transport becomes more expensive due to the
increasing fuel prices, companies seem to change their sourcing decisions accordingly
and may decide to locate production closer to consumption, which of course also affects
the related logistics services.
Secondly, there is an ongoing trend towards urbanisation in the EU. This poses a
challenge for the logistics sector, as urban areas are putting an increasing number of
requirements on transport in urban areas in terms of limits on emissions and noise. This
might require a different approach for organising and managing transport to urban areas
(e.g. in terms of modal shifts close to the cities).
Global competition
Competition in the sector is increasing, but the big players in the sector are located in a
few regions. The biggest players in the sector are located in the USA and
Northern/Western Europe (UK, France, Germany,). Companies in China have become
increasingly important in the sector, and there are examples of Chinese companies buying
complete parts of the supply chain (e.g. in the port of Rotterdam). Locally and in certain
market segments, there are of course many smaller competitors.
There also appears to be a shift in location of offices and warehouses. Eastern Europe has,
for example, become more attractive as a location for warehouses, not only because
labour costs are low, but also because the local population has experienced an increase in
purchasing power and the region therefore now also accounts for a sizeable part of EU
consumption. Also because fuel prices are increasing, companies source some of their
intermediate goods from Eastern Europe rather than from countries at a larger distance,
The purpose of this section is to identify and prioritise potential areas for European policy
initiatives both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). To begin
with, the possible arguments (justification) for possible policy intervention from an
economic standpoint are examined. After this, the analysis is based around a screening of
the sector in relation to existing industrial policy initiatives and some specific themes
relevant to the business services sector; the overall assessment is summarised in
Social externalities
The logistics sector is very important in the European economy. Many businesses depend
on the logistics sector for the timely delivery of their goods and services. Mistakes or
delays caused by logistics can have high cost implications. The logistics sector also
becomes increasingly important in tracking and tracing of products, and can thereby
contribute to corporate social responsibility, as it creates more transparency in global
supply chains. Also the call back options that many logistic companies provide if there
are problems with a specific product can have important benefits from society, especially
if it concerns issues like safety. The return of products along the supply chain is also
referred to as reverse logistics. Waste treatment is also an important phenomenon in this
reverse logistics (e.g. for the re-use of recycling of material), and in that respect the sector
can also have positive effects on the environment.
Logistics decisions determine freight transport demands, and as the transport sector is a
key driver of CO2 emissions, logistics can help to make transport as efficient as possible.
The relatively high use of low skilled labour and also or migrant workers of the sector
contributes to employment and in the case of migrants to the integration of migrants into
the workforce.
Information asymmetries
Information asymmetries arise when buyers and sellers are not well informed of the
services to be provided, or where information is not equally distributed between them. In
the context of logistics, buyer-side lack of information can relate to the performance of
the service provider since this cannot be ascertained in advance. Although KPIs are an
important instrument to achieve a minimum level of quality, these KPIs are laid down in
contracts and can therefore not be used when selecting a provider of logistics service
providers. In addition, there are no commonly used quality standards for logistics
There has been growing attention for the possible use of standards in the sector to address
these problems, as can be seen in the EC’s Freight Logistics Action Plan, and the
voluntary standards of competence for logistic managers as developed by ELA. As noted
before, the Best Log project may also contribute to this. In the future, there may therefore
be more standards that will help to tackle the problem of information asymmetry.
Table 18 provides an initial screening of the sector against existing and potential EU
horizontal ‘industrial’ policy initiatives120, and a number of additional possible services
related initiatives. This attempts to identify those policy initiatives that, if introduced or
extended, could be of most relevance for the industrial cleaning sector, in particular in
terms of raising performance (e.g. productivity improvements) and/or creating
opportunities for sector development.
120
Based on the Mid-term Review of Industrial Policy, COM(2007) 374.
• Possible cross-subsidisation
Competition policy
• Some market concentration among larger
issues
companies
• Emerging markets
Global competition
• Changing investment locations
- No or limited relevance
Relevant
Important
Very important
Public procurement -
Structural Anticipation
Change Tertiarisation
Organisational and services Organisational and process innovation to increase
innovation productivity and efficiency
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
IT DE ES UK GR FR PL NL HU SE BE NO PT RO BG DK FI AT LV LT IE EE CY SK SI LU
Companies 17,161 14,182 12,951 10,345 7,836 7,096 6,507 3,565 3,373 2,914 2,479 1,971 1,905 1,836 1,824 1,422 1,357 1,177 1,135 849 792 767 573 524 488 150
Figure 82 Cargo handling, storage and other supporting transport services: turnover by country, € million 2005 (Eurostat
estimates)
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
DE UK FR IT ES NL BE SE AT DK NO FI PL PT IE HU GR RO EE LV LT BG SK SI LU CY
Turnover 72,004 57,761 51,286 38,079 28,757 16,858 14,403 13,056 12,931 8,293 7,287 4,721 4,567 4,320 3,766 2,819 2,643 1,805 1,708 1,405 890 879 836 770 482 301
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
DE IT UK FR ES NL RO PL SE AT BE BG GR PT DK HU NO FI LV IE LT EE SK SI CY LU
Employed 458,27 302,65 299,65 253,98 187,19 68,617 63,629 61,405 50,899 50,435 44,904 35,981 34,523 31,623 27,995 25,892 25,054 23,069 15,716 15,058 12,411 9,121 8,084 7,152 4,728 2,132
Figure 84 Cargo handling, storage and other supporting transport services: share of total non-financial and non-utility
business economy turnover by country, 2005 (%)
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
EE LV AT SE LT DK BE DE UK NO FR NL FI ES IT BG PT RO HU SI SK IE GR PL LU EU*
Share of NFNUBE turnover 5.89 4.80 2.91 2.43 2.36 2.18 2.07 1.94 1.78 1.73 1.72 1.66 1.60 1.57 1.55 1.52 1.47 1.38 1.36 1.32 1.22 1.22 1.01 0.94 0.79 1.76
3.00
2.50
2.00
1.50
1.00
0.50
0.00
LV EE DE AT BG IT NO SE FI BE FR UK DK RO IE NL LT ES GR SI HU LU PT SK PL EU*
Share of NFNUBE emp 2.59 2.35 2.25 2.16 2.05 2.04 1.97 1.95 1.90 1.88 1.79 1.67 1.65 1.64 1.54 1.47 1.46 1.41 1.40 1.28 1.05 1.04 0.97 0.91 0.83 1.70
Figure 86 Cargo handling, storage and other supporting transport services: breakdown of number of companies by
company size (number of employees), 2005 (%)
100%
80%
60%
40%
20%
0%
LV LI DE AT SK ES BG IT RO NL PT SI FR DK BE NO PL CY LU FI GR SE HU EU*
1 empl 12.5 13.7 17.8 23.4 29.2 31.5 36.0 37.0 37.7 39.6 39.8 42.0 42.1 43.3 45.3 48.7 51.1 51.3 51.3 53.0 55.6 58.0 58.5 37.8
2-9 empl 64.6 59.8 43.0 47.8 50.8 49.6 52.3 41.0 40.9 39.1 40.6 42.6 27.7 32.3 30.7 34.3 40.9 37.2 31.3 28.3 37.3 25.7 30.7 40.5
10-19 empl 11.9 12.5 16.2 12.1 6.1 9.1 5.6 9.8 8.2 8.8 9.4 5.3 9.7 10.5 8.5 8.4 2.6 5.8 6.0 6.6 5.1 6.8 5.1 9.3
20-49 empl 6.3 9.3 13.4 8.9 6.3 6.1 3.8 6.7 6.9 6.9 6.2 6.4 10.8 7.7 8.9 5.3 2.6 3.8 4.7 6.6 1.5 5.4 3.6 7.0
50-249 empl 3.8 3.8 7.9 6.0 6.9 3.2 4.7 4.8 4.6 3.1 2.5 7.6 4.7 5.8 2.6 2.1 5.3 4.4 3.3 1.8 4.3
250 or more 0.8 0.9 1.6 1.8 0.8 0.6 2.3 0.8 1.4 1.0 0.8 1.2 2.1 1.5 0.9 0.7 0.7 1.9 1.3 1.1 0.6 0.9 0.3 0.9
100%
80%
60%
40%
20%
0%
FR AT SK DE SE CY RO PL FI ES NL IT DK NO BE HU GR LI LV EU*
1 empl 4.2 1.5 3.4 1.7 3.8 4.6 1.6 4.6 3.5 2.4 3.4 3.7 4.3 6.3 5.5 4.1 7.0 0.6 1.9 3.1
2-9 empl 5.3 6.2 8.1 7.6 9.7 11.8 11.3 13.1 12.1 18.0 12.2 14.0 14.5 15.8 15.3 19.0 24.4 24.0 26.4 10.6
10-19 empl 3.9 7.3 4.6 7.8 9.4 7.9 9.7 6.4 10.6 8.2 10.8 11.6 9.7 10.3 10.8 9.6 16.0 23.7 20.5 8.3
20-49 empl 10.1 9.5 12.5 12.6 13.3 12.0 13.9 14.0 13.6 12.3 16.1 14.9 16.2 14.8 18.9 25.5 14.7 16.6 21.0 13.0
50-249 empl 18.3 59.2 23.3 23.8 15.9 23.2 31.5 23.1 22.0 19.8 26.9 31.9 26.0 16.6 19.9
250 or more 58.0 75.6 12.1 47.1 40.0 63.7 47.6 38.7 28.7 36.0 35.5 36.0 28.5 52.7 17.6 15.9 37.9 18.6 30.3 38.7
Figure 88 Cargo handling, storage and other supporting transport services: breakdown of employment by company size
(number of employees), 2005 (%)
100%
80%
60%
40%
20%
0%
AT RO FR SE DE FI DK BE IT NO NL SK PL ES HU LV CY LI GR EU*
1 empl 0.5 1.1 0.3 1.8 0.5 1.8 2.1 2.5 2.1 1.8 5.1 3.4 6.5 2.1 7.6 0.4 6.3 0.9 12.6 1.8
2-9 empl 3.7 4.8 3.8 7.2 6.1 7.4 6.5 6.9 9.4 11.2 8.1 14.6 18.5 14.2 15.2 22.6 17.0 17.8 28.9 8.8
10-19 empl 3.8 3.2 3.7 5.9 6.8 5.3 7.4 6.7 7.6 8.9 9.3 3.9 4.0 8.5 8.9 10.9 9.4 11.4 15.3 6.7
20-49 empl 6.3 6.2 9.8 10.5 12.6 12.4 12.3 15.1 12.1 12.5 12.2 13.3 8.7 13.0 14.5 13.0 14.2 19.4 10.2 11.3
50-249 empl 15.7 22.3 22.1 24.2 28.0 27.4 32.3 28.5 20.4 24.7 37.8 22.1 22.5 24.0 26.8 21.9 22.4
250 or more 85.6 68.9 60.1 52.5 49.8 45.0 44.2 36.6 40.4 45.2 40.6 26.9 40.2 39.7 29.7 26.3 53.0 28.7 32.9 43.2
60
50
40
30
20
10
0
EE SK LT LV BE SE PL DK NL FR FI NO PT SI BG RO UK IT IE HU DE ES GR CY AT LU EU*
Share of personnel costs in production 7 10 11 15 15 16 17 17 18 19 20 20 20 20 21 22 22 23 23 24 32 33 35 41 44 51 23
Figure 90 Cargo handling, storage and other supporting transport services: turnover per person employed, 2005 (€
thousand)
350
300
250
200
150
100
50
0
BG RO CY LT PL GR LV SK SI HU IT PT ES DE EE UK FR FI LU NL IE AT SE NO DK BE EU*
Turnover per worker 24 28 64 72 74 77 89 103 108 109 126 137 154 157 187 193 202 205 226 246 250 256 256 291 296 321 166.3
120
100
80
60
40
20
0
BG RO LT SK PL HU LV SI EE GR IT CY SE LU ES FI PT FR DE UK BE NL AT DK NO IE EU*
V.A. per worker 9 9 19 19 20 27 29 33 34 38 47 49 55 57 59 60 64 67 68 80 82 82 84 88 99 100 61.3
Figure 92 Cargo handling, storage and other supporting transport services: wage adjusted labour productivity (apparent
labour productivity by average personnel costs), 2005 (€ thousand)
500
450
400
350
300
250
200
150
100
50
0
LU SE IT RO FI SI GR BG BE ES FR NO CY AT PL UK NL SK DE DK HU PT LT IE EE LV EU*
Adj. Lab. Prod 118 123 142 144 148 155 158 158 164 167 175 178 178 180 180 180 182 190 196 203 204 218 235 249 292 431 175
600.0
500.0
400.0
300.0
200.0
100.0
0.0
RO LI PL SK HU IT ES DE FR FI NL IE SE DK BE EU*
2-49 empl 69.5 95.0 79.8 81.9 152.1 175.3 165.9 172.6 226.7 295.3 324.6 446.7 353.5 454.5 504.5 190.6
50-249 empl 28.7 54.5 78.1 161.9 118.1 87.3 157.8 151.0 165.7 230.1 218.3 197.4 275.4 290.4 317.2 140.0
250 or more 19.6 46.4 71.7 46.5 58.1 112.3 139.2 148.5 195.1 130.6 215.1 144.3 195.4 190.9 153.8 140.8
Figure 94 Cargo handling, storage and other supporting transport services: value added per person employed by
company size, 2005 (€ thousand)
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
RO LI SK PL HU IT SE FI ES FR DE BE NL DK IE EU*
2-49 empl 11.8 12.7 12.2 14.9 23.3 41.1 51.4 62.9 39.7 50.7 60.2 96.6 76.0 124.1 151.4 48.8
50-249 empl 11.3 15.5 18.8 20.8 33.9 32.3 57.2 59.8 58.2 46.6 53.2 73.1 63.9 84.6 71.6 45.3
250 or more 8.2 32.2 29.6 25.0 30.8 63.4 55.9 55.0 77.2 76.5 79.4 76.9 103.2 65.5 79.2 67.0
This chapter will focus on computer and computer-related services and activities. From a
statistical perspective, the NACE classification of computer-related services (CRS)
consists of the following categories of activities:
• Hardware consultancy;
• Software consultancy and supply (including software publishing);
• Data processing;
• Database activities;
• Maintenance and repair of office, accounting and computing machinery;
• Other computer related activities.
From a broader perspective, these activities form part of the wider ICT sector121, which
has become a sector of prime importance in the economy. Although the focus will be on
computer related services, it is sometimes difficult to make a distinction between these
services and other ICT related services and, as many ICT companies produce both goods
and services, between supply of ‘products’ and supply of ‘services’. As noted in the EU
Competitiveness Report 2006122, there are in addition, increasing complex relationships
between the different market segments. There is a clear digital convergence of
technologies in computing, communications, content and consumer electronics, which
allows for example for the bundling of internet access, telephony and entertainment
content.
The ICT sector is a relatively young and dynamic sector that is characterised by higher
than average growth rates and research intensity. The sector has received quite some
attention from EU policy makers, in particular because it is seen as a strategic sector for
meeting the EU’s Lisbon Strategy for growth and employment. One of the main reasons
for this attention is that the sector is seen to have important spill-over effects on other
sectors of the economy, particularly in terms of promoting increased productivity in these
other sectors.
121
The concept of ICT can have several meanings: ICT is being referred to as a product, a technology or a sector. In this
chapter we look at ICT as a sector. We only focus on that part of the sector that relates to ICT services, as opposed to ICT
hardware.
122
European Commission (2006) European Competitiveness Report, Competitiveness and Economic Reforms,
Communication from the Commission COM(2006) 697 final, Commission Staff Working Document SEC(2006) 1467/2,ISBN
92-79-02578-3
Figure 95 to Figure 97 present Eurostat data on, respectively, the number of companies,
turnover and employment of the sector, and the turnover growth rate, the number of
companies in the sector. These data indicate that in 2005 the sector in Europe comprised
of some 520 thousand companies, with a turnover of €340 billion and employed 2.6
million persons. To a large extent, the relative size of the sector in terms of turnover and
employment numbers corresponds to the relative economic importance of countries,
although the UK is prominent in having the largest number of companies and highest
turnover and employment in the sector.
As an indication of the weight of the sector in the economy, the sector accounted for
approximately 1.7% of total turnover, and 2.2% of total employment in the non-financial
and non-utility business economy (NFNUBE)125 of the EU in 2005 (see Figure 98 and
Figure 99). These data illustrate the importance of the sector for the Baltic States of
Estonia and Latvia (and to a lesser extent Lithuania) and also Austria and Germany.
123
Source: Commission Staff Working Document, accompanying document to the Communication from the Commission to the
European Parliament, the Council, the European Economic and Social Committee and the Committee of the region, i2010-
Annual Information Society Report 2007 [COM (2007) 146 final}, 30 March 2007.
124
Source: EU ICT Task Force (2006) Fostering the competitiveness of Europe’s ICT industry, EU ICT Task Force Report,
November 2006.
125
Defined as NACE Sections C, D, F to I and K. More normally the non-financial business economy (NACE Sections C to I
and K) is utilised as a reference, but as data on the ‘utilities sector’ (NACE Section E) is missing for some countries the
definition ‘non-financial and non-utility business economy’ has been used.
Computer and related services are a relatively labour-intensive sector. Accordingly, wage
costs, labour taxes and social security payments are important drivers of costs in the
sector; which implies that costs are a priori higher in countries with higher wages and tax
systems. Due to labour shortages in the sector, there is a tendency for further upward
pressure on wage costs. In fact, the lack of suitably qualified and experienced workers
poses serious constraint for the sector. This lack in the supply is mainly due to the fact
that the sector has been expanding at a faster rate than the number of graduated people in
relevant studies, and to the fact that the sector is relatively young, which causes a general
lack of experienced people. This has led to employment in the sector of people with other
educational backgrounds and more focus on internal education and training, especially in
larger companies. In addition, labour shortages have induced outsourcing and off-shoring
in the sector.
Eurostat data indicate that personnel costs represent around 38 percent of total production
value on average in the sector of computer and related services for the EU as a whole, but
with significant differences across countries (see Figure 103). It is not possible, however,
to analyse in detail the breakdown of other production costs and it may be that variation
across countries (and the apparently low overall share of labour in total costs) reflect
differences in the importance of the various sub-sectors and, for example, associated costs
of hardware (e.g. included in the sub-sector hardware consultancy).
The average turnover per person employed in the sector in Europe was around € 125
thousand in 2005 (see Figure 104) and the value-added per person employed amounted to
€ 63 thousand (see Figure 105), although with large differences across EU Member
States. Adjusting apparent labour productivity for wage differences (see Figure 106)126
highlights the relatively high productivity in several of the new Member States (Romania,
Latvia, Lithuania, Bulgaria) and the United Kingdom. Other than for these countries,
there appears to be relatively limited divergence in apparent wage adjusted productivity
across most of the other countries for which data are reported.
One feature of the productivity performance of the sector that seems to be important is the
role of company size. As shown in Figure 107 and Figure 108, for most countries the
level of turnover and value-added per employee is positively related to the size of the
company; though, among the larger EU economies, this relationship is less clear for
Belgium and Finland.
126
Apparent labour productivity is estimated by the ratio (%) of value-added per employed person to average personnel costs
per employee.
Continuous innovations in ICT equipment (hardware) implies that the computer and
related services sector is itself faced by ongoing pressures to innovate to adjust to the new
environment. At the same time, innovations in ICT equipment make a positive
contribution to the productivity of ICT services providers; for example, through enabling
greater speed and/or volumes of information to be processed, or through enhancing the
efficiency of organisation of service processes. At the same time, the computer and
related services sector also plays an important role in their own productivity
enhancement, especially in developing software applications which enable, for example,
more efficient or user-friendly database programmes, or that allow for bundling of
different ICT products (TV on your mobile telephone).
Although technology seems to be the most important driver for productivity gains in the
sector, there is also attention for organisational aspects, especially among the larger
companies. A main element in this is the increasing trend of outsourcing of ICT services
to lower wage countries like India, most notably in software development, data
processing and database activities. This is partly motivated by costs reasons, but also
driven by the shortage of appropriate labour skills in the EU. Other organisational aspects
include increased attention for better project management in the sector and the
recruitment of appropriate staff.
The ICT market has been growing at a relatively rapid rate over the last years, and within
the ICT sector, IT software and services have expanded most rapidly127. The sector is
vulnerable for economic shocks, however, as clients may reduce or postpone some of the
ICT services investments, like the purchase of new software programmes. The growth of
spending on ICT generally fluctuates more strongly than the economy, and is more in line
with growth in investment.
Demand for CRS originates from nearly all other sectors of the economy and both the
private sector and public sector are important clients. Many SMEs use external
consultants for the major part of their IT-related work, such as the design, implementation
and maintenance of computer networks and software in their organisation. Governments
and large companies often have their own IT department and use external providers
mainly for specialist advice or products. There is a clear trend towards outsourcing of
CRS also in large companies, however, and (albeit to a lesser extent) in governments.
127
Source: ICT Office (2008) ICT Marktmonitor 2008, Woerden.
One area of concern for European policymakers is that, compared to the USA, the uptake
of ICT by other sectors in the EU is relatively low. This lack of ICT investment by
business can partly be explained by a lack of knowledge: there is not enough expertise,
especially in SMEs, to value the possible contribution ICT can make to the productivity
of the company, or to choose the appropriate technology or software solution. In addition,
the lack of flexibility for companies is sometimes cited as a reason: employment
legislation that makes it difficult or costly to fire staff makes ICT investments less
attractive. Also among individuals there is a lack of demand for ICT products and
services. This is mainly due to a lack of basic computer skills and digital literacy,
especially among the older part of the population. Improved computer and knowledge
skills of the population as a whole are therefore likely to contribute to increased use of
ICT services.
A recent CapGemini survey128 found that for companies to innovate, it is important that
IT services (whether internally or externally provided) have a clear view of the business
processes in the company. In combination with knowledge of technology trends and the
IT market, IT service providers can help think of alternative solution to increase
efficiency or effectiveness of the company’s operations. Increased attention for the role of
ICT (especially the service providers) as a partner to business rather than just supporting
business could therefore also help to increase the uptake of ICT in the economy.
Being a major client of the sector, the public sector can play an important role in further
developing the CRS sector. An often cited example is the further development of e-
Government. This would not only give a boost to computer services (notably software),
but also have an important impact for the economy as a whole by reducing administrative
128
Source: Capgemini Consulting (2008) Global CIO Survey 2008- The role of the IT function in Business Innovation.
Another issue related to public procurement policy concerns access of SMEs to public
sector markets for CRS, and ICT projects more generally. Partly because of the size of
many government projects is too large for SMEs to enter into competition with larger
companies, the role of SMEs in government procurement is relatively limited. In addition,
administrative requirements and slow decision and payment procedures often limit the
possibilities for SMEs in government procurement.
The CRS sector is much less concentrated than the other segments of the overall ICT
sector; in ICT hardware and telecommunication the degree of market concentration is
much higher. SMEs account for some 60 percent of the value added in the CRS and 90
percent of all micro firms in the ICT sector are employed in this market segment129.
Within the IT sector, the market structure can change rapidly as a result of the
technological developments or of economic trends. Digital convergence, for example, has
given rise to mergers and acquisition between different ICT companies; e.g. telecom
companies merging with software companies or with media companies. Also, when the
sector is expanding, there is often a clear trend of people leaving larger companies to start
a business of their own, while in a declining economy, the reverse may be true. Mergers
and acquisitions also play an important role in the sector, with companies buying up other
companies to reach economies of scale, or to internalise certain specific technological
knowledge while selling off other non-core or less profitable activities.
Within the CRS sector, packaged software is the market segment where economies of
scale are of most importance and with the highest level of market concentration; large
players operating globally (e.g. Microsoft, Oracle and SAP) are active in this segment.
There is a clear trend towards consolidation through mergers and acquisitions in this
segment, although at the same time new start-up companies are continuously entering the
market with new innovations. In other segments of the sector, notably the provision of
hands on ICT support to companies (e.g. network design, maintenance), competition is
less fierce and mostly at a national or even regional level due to the fact that proximity
between service providers and clients often remains very important.
Margins in the sector depend on the market segment. In general, for more standardised
services price competition is fierce and margins are relatively low, while higher margins
are possible as products and services become more customised and innovative. In
segments where competition is fierce, there is more emphasis on cost reductions, for
example through outsourcing. By contrast, price competition in ICT support to SMEs
seems limited, and as long as computer service providers perform in line with the
requirements, trust becomes more important than price. SME clients usually arrive
through informal channels, or they are referred to the companies by major software
producers for which the SMEs are certified (see Section 7.3.1).
129
Source: European Competitiveness report 2006.
At the same time, cooperation between companies in the sector is important and for larger
projects companies will often team up to make a stronger bid; for example, larger
companies will form partnerships with (and/or buying) smaller specialised or innovative
firms. This also allows smaller companies working in a specific niche to work for bigger
clients. Co-operation is also necessary to deal with the problem of labour shortages and
many larger companies build networks with small companies or self-employed people, in
order to be able to respond to increases in demand for products or specific skills
requirements.
For CRS in general, and notably for software, an important trend is the shifting focus
from product innovation alone to increasing attention for the ability to market and sell
products. In other words, more emphasis is put on anticipating and meeting customer
needs rather than on just building, maintaining and servicing products130. Another
example of recent technological developments in the software market is the increased use
of Software as a Service (SaaS), which means that an application is hosted as a service
that is provided to customers across the internet. By eliminating the need to install and
run the application on the customer's own computer, SaaS alleviates the customer's
burden of software maintenance, ongoing operation, and support. For the SaaS provider,
benefits arise from a continuous revenue stream and better protection of its intellectual
property rights. This relatively new mode is likely to affect the competition and market
structure of the sector, although at this stage its impact is still hard to assess.
7.2.6 Internationalisation
Market for computer and related services are still largely defined along national or even
local lines (with packaged software being the exception). Most clients work with national
(or even local) computer service firms, although some (especially multinational) firms
may also deal with service providers from abroad directly. There are a number of large,
internationally operating companies (e.g. IBM, Cap Gemini), but these companies usually
establish offices in other countries, as local knowledge and proximity to the client are
important in the sector. Nevertheless, there is increasing attention for off-shoring part of
the services offered, mostly the more standardised services or services that require little
interaction with the client. Although this is especially important for larger companies, it is
clear that SMEs are also looking at the possibilities for off-shoring at least part of their
services. More knowledge intensive services and service that require interaction with the
client are usually performed in-house.
130
See G. Brooks (2006) Software development: a core competency? SDTimes on the web, 1 April 2006.
The position of the EU in trade in ICT services is relatively strong, although data on this
trade are limited. According to the European Competitiveness Report 2006132, evidence
suggests that EU has a comparative advantage in ICT services. Total EU shares of OECD
exports amounted to 70% of communication services and 80% of computer and
information services, with Ireland, the UK and Belgium being the main exporters of
computer services. ICT services (i.e. including communications) show a trade surplus.
The larger availability of high-skilled labour in the Eastern European EU countries who
work at relatively low wages has increased the international competitiveness of EU
computer service providers.
The purpose of this sector is to identify and prioritise the key issues facing Computer and
related services sector both in terms of the sectors own development, and in terms of
interactions between the sector and its clients, specifically those in industry
(manufacturing). The analysis is based around a screening of the sector in relation to the
main regulatory and framework conditions133; the overall assessment is summarised in
Table 19.
131
Source: CapGemini Consulting (2006) European CIO Survey, views on future IT delivery 2006.
132
Ibid, footnote 122.
133
This analysis is in accordance with the general framework for assessment of regulatory and framework conditions agreed
as part of the Framework Contract of Sectoral Competitiveness Studies.
134
Source: EU ICT Task Force (2006) Fostering he competitiveness of Europe’s ICT industry, EU ICT Task Force report,
November 2006.
A major policy issue for the sector is security. Security is essential for the development of
the sector as it affects trust of customer in ICT products. Other issues include privacy and
spam. There are several initiatives at the EU to commonly discuss solutions to these
problems (like the EC’s Communication ‘towards a general policy on the fight against
cyber crime’ published in May 2007 and the above mentioned i2010 initiative), but so far
most rules and regulations affecting the sector are formulated at Member State level.
There are also a large number of directives at EU level that directly of indirectly affect
the sector. Some examples include, Directive 2006/24/EC on the retention of data,
Directive 2000/31/EC on electronic commerce, Directive 1999/93/EC on electronic
signatures, Directive 2001/029/EC copyright and related rights in the information society,
Directive 2002/58/EC on privacy and electronic communications, Directive 2007/64/EC
on payments services in the internal market, etc137. It goes beyond the scope of this study
to analyse how all these and other directives affect the sector. What can be said, however,
is that this plethora of different directives gives rise to confusion both among companies
in the sector and their clients, especially because they are sometimes implemented in
different ways in the various EU member states. In addition, an important question is how
quickly regulation can be developed in light of the high speed of change in the sector.
135
For more information, see: http://ec.europa.eu/information_society/eeurope/i2010/index_en.htm
136
http://ec.europa.eu/enterprise/ict/policy/taskforce/taskforce_en.htm
137
Sources: Anderson, R., Boehme, R., Clayton, R. and Moore, T. (2008) Security Economics and the internal market,
commissioned by European Network and Information Security Agency; and the EC 2007 ICT standardisation work
programme.
There is increasing attention for quality standards, partly as a result of the relatively high
number of software project failures. Reports of the Standish Group show that in 1994
only 16 percent of all software projects were regarded as successful (i.e. meeting business
objectives and within budget and schedule), while 31 percent of the projects failed. Since
then, there have been improvements in the sector, with the figures in 2006 indicating a
failure rate of 19 percent and a success rate of 35 percent140. Despite the considerable
improvement in success rates, the figures also show that there is still much room for
improvement of performance.
Big ICT suppliers work with certificates from major IT companies that function as a
quality label. Examples include certificates of SAP, the Microsoft Gold Certified
Partnership and a certificate for being HP Preferred partner. Getting such a certificate
usually requires employees attending trainings and earning points that way. For large
companies it is common to have such certificates, while for smaller companies it may be
quite costly. On the other hand, having such a certificate makes it significantly easier to
get services from the certificate providers and these providers also direct customers to the
ICT companies which have their certificate. As these certificates also function as a
quality label, they also help to attract new clients indirectly.
There are a number of other quality standards that are being used, for example the general
quality standard ISO 9001 for organisations, or, at project level, Prince 2, which is a
method for effective project management, originally designed for the ICT sector, but now
also applied in other sectors. ISO 9126 is an international standard for the evaluation of
software quality. Because of the increased attention for software quality and project
management quality, there are currently various initiatives at national and international
level to develop new or improved standards for the quality of services and related project
management.
138
An example of this include ODF which will become obligatory for the Dutch government. ODF stands for Open Document
Format, which means that the software used in the government must be able to read all office documents, from different
versions. (see http://www.iso.org/iso/iso_catalogue/catalogue_tc/catalogue_detail.htm?csnumber=43485 for more
information).
139
An example of this is the standard eXtensible Business Reporting Language (XBRL), which was developed by an
international non-profit consortium of approximately 450 major companies, organisations and government agencies.
140
Source: Software Development Times, Standish Group Report: There’s Less Development Chaos Today, 1 March 2007.
Intellectual property rights (IPRs) are an important issue for the sector. There is some
controversy over the use of IPRs in the sector, and both academic literature141 and the
EU’s ICT task force are not univocal about the benefits and costs of IPRs. IPRs seem to
stimulate innovation of large players, while on the other hand reducing market entry by
new players and also reducing the ability of other companies to use the new knowledge or
technology to further improve or develop their products and services. When IPRs are
used, it is important to keep the associated costs of patents low. There are a number of
initiatives underway in the EU to achieve this142.
An important issue in the sector concerning knowledge and innovation is the use of open
source software for computer and related services. There is increasing attention for the
use and benefits of open source software, especially after the success of initiatives like
LINUX. Open Source Software is open to everyone (as opposed to proprietary software);
people are free to use, copy and modify it, and to redistribute modified versions of it.
Ghosh (2006) indicates that two-thirds of this software is written by individuals, while
firms contribute about 15 percent and other institutions around 20 percent.143 As much of
the OSS development is done by individuals who are not directly paid for it, Ghosh
estimates that this saves the industry over 36 percent in software R&D investment.
Market penetration is increasing, and the EU is the leading region in terms of globally
collaborating software developers. Although the US has the edge in terms of large
businesses making use of OSS, the greater individual contribution from the EU has led to
an increasing number of globally successful European SMEs in OSS. Given the relatively
good performance of the EU in this market segment and the effects of the segment on the
ICT sector as a whole in terms of innovation and competitiveness, it is important to take
this into account when designing or implementing policies, for example in public
procurement of software, public R&D funding or tax treatment (while at the same time
level playing field considerations (technological neutrality) need to be taken into
account).
141
See for example Cockburn, I. and MacGarvie, M. (2006) Entry, exit and patenting in the software industry, NBER working
paper 12563.
142
For example, the London Agreement that entered into force in May 2008, and which reduces translation costs for European
patents.
143
Gohosh, R. A. (2006) Study on the Economic Impact of Open Source Software on innovation and the competitiveness of
the Information and Communication Technologies (ICT) sector in the EU, MERIT, report prepared for the European
Commission, November 2006.
Many of the big companies are employing young people with little ICT education and
experience to provide the necessary education themselves. Some have also established
relationships with educational institutions. An example if the co-operation between Intel’s
Philanthropic Education Group with UC Berkeley’s Haas Business School of
Entrepreneurship in developing the worldwide programme and curricula for “Technology
Entrepreneurship- Theory to practice”. Over 300 professors in Europe have been trained
to teach this course144. Companies see benefits of such programmes in having both better
educated employees as well as clients/consumers. For SMEs, similar initiatives are much
more difficult due to financial constraints and, furthermore, a relatively high staff
turnover rate in the sector is also a factor that discourages investment in employee
training.
The gender balance is also an issue in the sector. According to an OECD report145 women
have low shares of ICT-specialist employment, and these shares seem to be remaining
constant or even declining. In 2004, the share of women in computer and related activities
in the EU was less than 25 percent. Also in education, women tend to be relatively under-
represented in computer sciences. Increasing the participation rate of women both in
computer studies and in the sector may thus be another way to reduce labour shortages for
the sector.
EU expansion has made it easier to either relocate parts of production to Eastern Europe
or to use migrants from this region, which are generally well educated and work for
relatively low wages. This also partly contributes to reducing labour shortages in the
sector. In addition, off-shoring of activities to non-EU countries provides an option to
address labour shortages.
144
Source: Council of European Professional Informatics Societies (2006) Thinking ahead on e-skills for the ICT industry in
Europe, Harnessing our strengths and diversity for the World Stage, December 2006.
145
Source: OECD Working Party on the Information Economy (2007) ICTs and gender, DSTI/ICCP/IE(2006)9/final.
Liberalisation of trade and market access in other sectors is also important for computer
and related services. This is the case for example for telecommunications and electronics,
but also for services that are important for e-commerce transactions, like advertising
services and online payment services. In addition, there are the “horizontal rules” that
play a role in the sector. Government procurement is an issue as in many countries where
access of competitors from abroad to public contracts is still limited. In addition,
intellectual property rights constitute an important non-tariff barrier for the sector, as the
rules and regulations of IPRs differ between countries, leading to significant costs for
companies willing to trade.
Certain national regulations can also play a role in market access. For example, the EU
Data Protection Directive (1995/46) can be burdensome for companies from abroad that
rely on data exchange, as this directive allows the transmission of EU data to third
countries only if those countries are deemed by the European Commission to provide an
adequate level of protection by reason of their domestic law or of the international
commitments they have.
Structural change
Over the last decade, there has been a significant increase in off-shoring activities in the
sector. The outsourcing started as a result of s shortage of labour in the EU, and because
of cost reasons, especially since the decline of the sector in 2001. Next to these demand
aspects, more general trends like decreasing costs and increased ease of communication,
improved ICT infrastructure in third countries and increased openness to FDI have also
contributed to outsourcing of IT services. The extent of outsourcing varies widely within
the EU, with the UK outsourcing a relatively large proportion of its services and, for
example, Italy a relatively low proportion147. Differences in labour regulations and other
administrative procedures (e.g. time to get a work permit) seem to contribute to these
differences, next to cultural and language differences (see Section 7.2.6). There are no
reliable statistical data for outsourcing in the sector, however.
146
Source: WITSA (200%) WITSA Statement on the upcoming Hong Kong Ministerial, October 2005.
147
Source: Engmann, M. (2005) International sourcing of IT and business process services: experience from the United
States, Europe and India, paper prepared for the WTO symposium on cross border supply of services, 28-29 April 2005.
Competition issues
As indicated earlier, competition in the computer and related services market is mainly
national and not international. Nevertheless, at global level there are a number of players
that have acquired large economies of scale and experience in operating globally that
implies that it is difficult to compete with these players. Microsoft is a well-known
example in relation to competition issues (active in the packaged software segment). At
national level, there is also increased concentration, as especially larger players are active
in mergers and acquisitions. In Section 7.1 it was already shown that a relatively small
number of larger firms within the sector account for a substantial proportion of total
turnover and employment but, in itself this provides no evidence of potential competition
problems. The large number of SMEs in the sector seems to point to limited entry
barriers. Most services require limited starting capital. Other forms of market
segmentation may also be present in which competition may be an issue, for example on
a geographical basis or for particular services, but it is beyond this study to evaluate
whether these give rise to any possible concerns.
The current trend in the sector towards integration of vertical chains (e.g. hardware
producers offering also services) and the emergence of new horizontal markets as a result
of the digital convergence, as well as the fast developments in the market as a result of
technological change more generally pose a challenge for regulation of competition in the
sector.
Technological change
Technological change is important for the sector. CRS seem to be mostly affected by
developments in the wider ICT market, while at the same time the sector is contributing
itself to technological change in the sector; e.g. in the case of the digital convergence
mentioned earlier.
The ICT sector as a whole is a main driver of technological change and innovation for the
other parts of the economy. Computer and related services play a particularly important
role as they can act as an intermediary between technology and clients: depending on the
needs of the clients, the services sector helps to find appropriate technological solutions
(either in selecting, installing and maintaining hardware, developing software, etc. ). In
this way the sector plays a role in increasing ICT uptake within the economy.
Global competition
As indicated in Section 7.2.6, markets for computer services are mainly national or even
local. Nevertheless, there are a number of strong players that operate globally, like SAP,
Microsoft, IBM, etc. This is especially true for packaged software. US companies
dominate the world market, but also EU companies are able to compete internationally.
The larger international companies are able to benefit from economies of scale and have
also built up a lot of knowledge of operating in the global market. Combined with
considerable mergers and acquisitions in the sector, these factors have contributed to
increasing concentration in the sector. As a result, it is difficult for other companies to
acquire a similar position on the world market. Despite this trend towards consolidation
in the sector, global competition has been increasing over the last decades. Especially for
the more standardised services, India, China, the Philippines, Ukraine, Russia and also
Eastern Europe have become more important.
The purpose of this section is to identify and prioritise potential areas for European policy
initiatives both in terms of the sectors own development, and in terms of interactions
between the sector and its clients, specifically those in industry (manufacturing). To begin
with, the possible arguments (justification) for possible policy intervention from an from
an economic standpoint are examined. After this, the analysis is based around a screening
of the sector in relation to existing industrial policy initiatives and some specific themes
relevant to the business services sector; the overall assessment is summarised in Table 19.
Social externalities
ICT solutions are able to contribute to respond to some of the EU’s social challenges (e.g.
in the field of health care or environment). In this sense, it is commonly felt that ICT can
contribute to the general quality of life of citizens. In addition, given the effect the sector
(although including ICT manufacturing and communications) has on the productivity of
the economy as a whole (see Section 7.2.3), the sector has a very important and still
increasing role in today’s society. At the same time, increased reliance of ICT systems
and CRS means that temporary breakdowns of ICT equipment or software are for many
companies now almost equally costly as power failures.
CRS services also play an important role in knowledge diffusion in society, notably with
the developments related to Internet. The Internet also has an increasingly social aspect,
for example with the various social networking sites. Services in the wider economy may
also improve due to the interaction and feedback made possible by Internet; for example,
Security of ICT is an important topic in the sector that affects the society at large. The
direct cost to Europe of protective measures and electronic fraud is estimated to be
billions of Euros; and growing public concerns about information security hinder the
development of both markets and public services, giving rise to even greater indirect
costs148.
Information asymmetries
Information asymmetries arise when buyers and sellers are not well informed of the
services to be provided, or where information is not equally distributed between them. In
the context of CRS, buyer-side lack of information can relate to the performance of the
service provider since this cannot be ascertained in advance. As there are no commonly
used quality standards in the sector, reputation of service providers can therefore be
important. With respect to the importance of asymmetry of information and quality of the
services, there is a difference between large and small clients: as the projects for smaller
clients are usually less complex and of shorter duration, the risk of project failures is
much smaller, and as a result, less attention is paid to the selection of the best service
provider.
As noted in Section 7.3.1 attention for quality standards in the sector is increasing. Better
(independent) information and systems to evaluate the ‘quality’ of contractors,
particularly during selection procedures but also an evaluation system for services
actually provided would help to reduce the problem of information asymmetry. Although
a quality standard would still not provide a full guarantee for successful
projects/contracts, as much depends on individuals and also on the interaction of a project
manager with the client, it will increase the likelihood of successful projects.
Table 20 provides an initial screening of the computer and related services sector against
existing and potential EU horizontal ‘industrial’ policy initiatives149, and a number of
additional possible services related initiatives. This attempts to identify those policy
initiatives that, if introduced or extended, could be of most relevance for the industrial
cleaning sector, in particular in terms of raising performance (e.g. productivity
improvements) and/or creating opportunities for sector development.
148
Source: see footnote 17.
149
Based on the Mid-term Review of Industrial Policy, COM(2007) 374.
- No or limited relevance
Relevant
Important
Very important
Energy and Waste, water, air ICT solutions for environmental efficiency.
environment Intensive energy use -
Structural Anticipation -
Change Tertiarisation -
Organisational and services More attention for project management, marketing
innovation and sales
120,000
100,000
80,000
60,000
40,000
20,000
0
UK IT FR DE SE ES PL HU NL PT AT BE RO NO DK GR FI BG SI SK LT LV LU EE CY
Companies 102,55 89,506 53,320 47,104 30,356 28,568 28,254 22,966 17,630 12,736 12,697 11,379 10,771 9,348 7,488 5,799 4,620 2,792 2,254 1,387 1,322 1,060 1,043 962 171
Figure 96 Computer services and related activities: turnover by country, € million 2005 (Eurostat estimates)
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
UK DE FR IT ES SE NL BE DK NO AT FI PL HU PT GR RO LU SI SK BG LT LV EE CY
Turnover 86,237 59,721 49,544 37,971 18,223 15,930 15,505 8,314 7,358 6,128 6,110 4,707 3,982 2,770 2,366 1,703 1,179 1,021 710 670 284 247 193 184 120
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
UK DE IT FR ES NL SE PL BE HU AT DK RO FI NO PT GR BG SK SI LT LV LU EE CY
Employed 584,81 395,90 366,94 348,57 195,37 132,47 102,01 80,020 54,821 53,328 47,898 45,736 41,942 38,871 36,131 34,059 19,001 13,919 13,359 8,410 6,708 6,350 5,109 4,686 1,853
Figure 98 Computer services and related activities: share of total non-financial and non-utility business economy turnover
by country, 2005 (%)
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
SE UK DK LU FR DE FI IT NL NO AT HU SI BE ES SK RO PL PT LV LT GR EE BG EU*
Share of NFNUBE turnover 2.96 2.66 1.94 1.67 1.66 1.61 1.59 1.55 1.53 1.45 1.38 1.34 1.22 1.19 1.00 0.98 0.90 0.82 0.80 0.66 0.66 0.65 0.63 0.49 1.71
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
SE UK FI NL NO DK LU IT FR BE HU AT DE SK SI ES EE PL RO PT LV BG LT GR EU*
Share of NFNUBE emp 3.91 3.25 3.20 2.85 2.84 2.70 2.50 2.47 2.46 2.30 2.17 2.05 1.94 1.50 1.50 1.47 1.21 1.09 1.08 1.05 1.05 0.79 0.79 0.77 2.16
Figure 100 Computer services and related activities: breakdown of number of companies by company size (number of
employees), 2005 (%)
100%
80%
60%
40%
20%
0%
LV SK DE LI AT ES IT RO NL SI LU FI DK FR NO PL BE SE PT HU GR EU*
1 empl 30.5 34.8 48.1 48.8 57.4 59.1 61.7 64.3 64.7 65.8 67.4 68.3 70.8 74.8 75.3 75.3 76.4 83.0 83.0 83.5 89.4 67.0
2-9 empl 58.5 47.0 40.1 40.5 37.3 33.1 32.9 30.0 28.2 27.3 22.3 22.0 21.6 17.5 19.2 22.6 18.1 13.0 14.0 14.0 7.9 26.6
10-19 empl 6.9 11.8 5.9 5.9 2.8 3.9 3.5 3.0 3.7 3.6 4.6 4.1 3.8 3.3 2.9 0.9 2.4 2.0 1.6 1.4 1.3 3.3
20-49 empl 2.7 3.5 3.8 3.2 1.6 2.3 1.2 1.8 2.2 2.7 3.8 3.0 2.4 2.7 1.7 0.6 1.9 1.2 0.9 0.7 0.8 1.9
50-249 empl 1.2 1.7 1.7 0.8 1.3 0.6 0.8 1.0 0.5 1.7 2.3 1.1 1.3 0.8 0.5 1.1 0.6 0.6 0.3 0.5 0.9
250 or more 0.2 3.0 0.3 0.0 0.1 0.3 0.1 0.1 0.2 0.1 0.1 0.4 0.3 0.4 0.1 0.1 0.2 0.2 0.1 0.0 0.1 0.2
100%
80%
60%
40%
20%
0%
ES DE FI FR NL PL SE DK SK NO IT AT BE RO GR LU LI HU EU*
1 empl 3.5 3.3 4.4 3.7 6.8 13.7 13.2 10.3 1.2 6.7 6.9 7.3 15.7 9.8 24.9 9.8 3.3 22.4 6.0
2-9 empl 10.4 9.8 10.2 9.3 10.1 12.5 9.8 13.8 15.9 15.4 16.4 18.6 13.1 17.2 9.7 11.5 24.9 22.0 11.7
10-19 empl 5.2 6.0 6.2 6.1 9.4 5.8 6.8 6.9 9.6 8.5 11.2 8.5 7.7 7.6 10.9 21.5 12.1 11.5 7.4
20-49 empl 7.6 10.7 9.6 13.0 12.4 6.8 10.1 10.1 15.1 11.9 11.1 12.7 12.8 19.6 10.8 22.4 26.0 13.8 11.1
50-249 empl 15.4 17.9 34.0 19.1 15.2 29.7 18.9 20.2 22.2 17.8 30.1 27.7 31.4 35.8 33.8 23.4 19.2
250 or more 57.9 52.3 35.6 48.8 46.0 31.5 41.1 38.7 58.2 35.3 36.5 22.9 22.9 14.4 8.0 34.8 0.0 6.8 43.7
Figure 102 Computer services and related activities: breakdown of employment by company size (number of employees),
2005 (%)
100%
80%
60%
40%
20%
0%
FR FI GR SE ES DK DE NL BE NO SK AT IT LU PL LV RO HU LI EU*
1 empl 2.3 4.8 11.7 6.6 8.3 11.0 5.6 11.9 15.8 8.3 4.4 15.2 15.0 9.1 29.2 5.1 16.5 36.0 9.6 10.3
2-9 empl 11.0 11.2 9.6 15.0 17.4 13.0 16.7 15.6 13.8 18.6 25.3 25.3 29.2 18.9 26.4 35.7 28.5 20.6 31.8 19.0
10-19 empl 7.0 6.7 6.0 9.0 7.7 8.4 9.4 10.1 6.9 10.0 15.4 9.9 11.2 13.2 4.4 14.7 10.4 7.9 15.5 8.9
20-49 empl 13.0 10.8 8.7 12.4 10.4 11.6 13.7 10.6 12.3 13.3 12.1 12.9 9.1 24.8 6.5 13.2 14.5 8.8 17.8 11.4
50-249 empl 20.3 30.4 14.3 21.3 18.5 20.0 20.1 12.3 22.7 21.5 22.1 14.3 17.8 22.0 18.5 12.5 25.3 18.2
250 or more 46.3 36.0 49.6 35.7 37.8 36.0 34.4 39.4 28.4 28.3 42.8 14.5 21.3 34.0 15.7 9.3 11.6 14.2 0.0 31.1
50
45
40
35
30
25
20
15
10
0
LT PL BG RO IT LV BE HU PT SK UK EE SI NL SE DE AT DK NO FI GR ES LU FR CY EU*
Share of personnel costs in production 23 23 24 27 29 29 32 33 34 34 37 37 37 39 41 41 42 43 43 43 44 45 45 45 48 38
Figure 104 Computer services and related activities: turnover per worker, 2005 (€ thousand)
250
200
150
100
50
0
BG RO LV LT EE PL SK HU CY PT SI GR ES IT NL FI AT FR UK DE BE SE DK NO LU EU*
Turnover per worker 20 28 30 37 39 50 50 52 65 69 84 90 93 103 117 121 128 142 147 151 152 156 161 170 200 125.5
100
90
80
70
60
50
40
30
20
10
0
BG RO LT HU LV EE PL SK PT SI GR CY ES IT NL AT LU FI BE FR SE DE DK NO UK EU*
V.A. per worker 9 12 14 15 15 17 18 22 29 33 38 41 43 44 60 60 64 65 67 68 69 76 77 85 89 63.3
Figure 106 Computer services and related activities: wage adjusted labour productivity (apparent labour productivity by
average personnel costs), 2005 (€ thousand)
200
180
160
140
120
100
80
60
40
20
0
LU BE IT SE HU AT FR ES NO SI EE DK FI GR NL DE PL PT CY SK BG UK LT LV RO EU*
Adj. Lab. Prod 95 104 106 108 109 113 114 116 119 119 119 122 124 124 125 128 129 133 139 139 155 161 173 177 184 126
250.0
200.0
150.0
100.0
50.0
0.0
RO LI EE PL HU GR ES IT FI NL AT FR SE BE DE DK NO EU*
2-49 empl 23.3 35.6 40.9 33.5 66.0 115.5 61.2 81.2 109.6 102.7 105.2 129.8 114.8 154.6 100.2 150.0 144.6 91.2
50-249 empl 47.7 49.2 46.2 82.9 96.9 223.6 77.6 128.9 135.4 143.9 174.1 133.7 138.4 184.8 134.2 162.5 174.7 125.0
250 or more 34.9 100.0 24.9 14.4 143.1 177.8 119.7 136.8 201.3 149.8 179.8 122.3 229.0 173.2 212.1 166.5
Figure 108 Computer services and related activities: value-added per worker by company size, 2005 (€ thousand)
120.0
100.0
80.0
60.0
40.0
20.0
0.0
RO LI EE PL HU GR ES IT FI NL AT FR SE BE DE DK NO EU*
2-49 empl 9.3 11.7 17.2 16.2 12.1 48.5 32.1 34.2 50.9 52.8 50.3 56.8 60.1 65.5 55.9 74.9 76.6 43.5
50-249 empl 19.2 21.6 23.2 39.0 33.1 93.9 43.5 55.5 76.6 65.9 77.9 68.7 68.4 83.3 65.5 73.9 94.7 60.5
250 or more 15.7 14.5 36.1 6.1 58.8 73.0 69.9 75.7 95.0 68.8 74.1 63.9 108.0 91.0 100.8 77.3
8.1 Introduction
The term “Facilities Management” (or “Facility Management”, named hereafter FM) has
a very general meaning and covers different aspects in different countries.
In the UK (and some other European countries) facilities management has a wider
definition than simply the management of buildings and services. The UK employee
based approach pays relatively less attention to the technology. Most attention is paid to
the core business and employee support. The definition of FM provided by the European
Committee for Standardization (CEN) and ratified by BSI British Standards is: “Facilities
management is the integration of processes within an organization to maintain and
develop the agreed services which support and improve the effectiveness of its primary
activities”. The British Institute of Facilities Management has formally adopted the CEN
definition but also offers a slightly simpler description: "Facilities management is the
integration of multi-disciplinary activities within the built environment and the
management of their impact upon people and the workplace"
The FM industry can be defined as the group of companies delivering and providing a
range of facility services to a client either directly or by sub-contracting, where the
emphasis is primarily on the management aspect of these services. Three different types
of FM companies can be distinguished: the managing agent, the managing contractor and
the total facilities management company.
The managing agent is an external organization or individual who manages the client
organisation’s own employees. This type of facilities management organisation is rather
unusual in most European countries, but often used in the UK.
A more broadly used type is the managing contractor. In the managing contractor
arrangement there is one contract between the client organization and the appointed
contractor. Subcontractors are under contract to the managing contractor and do not have
a contractual relationship with the client organization. As such, client companies have a
single point of contact with the contractor on all matters pertaining to service provision.
150
Figure 109: Managing Contractor
150
Based on Atkin B. & Brooks A. (2000), Total facilities management, Blackwell Science, 180 p.
151
Reference see footnote 1
153
Figure 112: Outsourcing since 2000
152
Tuomela A. & Puhto J. (2001), Service provision trends of facilities management in Northern Europe, 104 p.
153
Based on Larkas E. (2000), Outsourcing: case Sonora and ABB Finland, presentation
With the above evolution, the facilities management industry is confronted with an
increasing demand for facilities services management (i.e. managing and providing -
either through own supply or sub-contracting - the different facilities services for a client
company). This increasing demand holds interesting business opportunities for the
traditional service providers (e.g. cleaning companies, catering, security services), as
many find themselves in a position of providing ‘low value added’ (see e.g. the sector
analyses on the cleaning industry and security services industry). Entering the market of
facilities management allows these firms to ‘move up the value chain’. By not only
providing one (or more) facility service(s) themselves, but also managing all facilities
services contracts for client companies, they significantly enlarge the value added that
they can provide to client companies, which hopefully translates into higher profit
margins for the service provider. Moreover, the broader scope of activities gives the
companies new possibilities to improve time management of personnel.
Despite this increased demand for more integrated FM and the seemingly attractive
business opportunities for many (especially low value added) service providers attached
to this evolution, in reality total FM seems to be a very complex service to deliver.
After a period characterised by enormous expectations from demand side and great
promises from the supply side, in many cases this was followed by even greater
disappointment. Client companies making use of total FM contracts wanted positive
results relatively fast. It was often seen as a quick fix problem solver to facilitate change
or manage a peak demand. Total FM companies on the other hand were often too small to
deliver the services that client companies had hoped for, especially in the short run154. As
a reaction to these bad experiences, client companies returned to the in-house provision of
FM.
As the industry is now evolving towards more realistic expectations when it comes to
total FM, some important elements to guarantee a more successful client-service provider
relationship become clear:
Importance of partnering and trust in client-service provider relationship:
Delivering management services is very different from delivering operational services
such as cleaning or catering. Management services contracts much more require a
good matching of organisational cultures and demand patience and time to build a
good level of understanding and trust between client and service provider. Based on
154
A recent survey of the British Institute of Facilities Management (2007) has shown that more than 60% of the survey
participants agree that delivering total facilities management services is too complex for most suppliers and thus that the
market is still some way off from providing client companies with this “one-stop-shop” for their facilities services
management.
The above discussion clearly shows that the facilities management “industry” involves a
wide range of activities and different types of companies, which exceed the boundaries of
any traditionally defined industry (even exceeding the broad classification knowledge
intensive/less knowledge intensive services), but is related to many industries.
Policy makers are confronted with the challenge to develop a more integrated view on
FM, apart from the traditional sector boundaries. At the same time, many policy
initiatives that have already been taken in different sub-domains relating to FM (cleaning
industry, private security, etc.) should not be neglected. As activities from different
industries are to be combined within one FM company that has to comply with legislation
and regulation relevant to several sectors, possible conflicts may arise in terms of
standard requirements etc., thus hampering the development of a real total FM company.