Opinion of the European Economic and Social Committee on Services and European manufacturing industries: Interactions and impacts on employment, competitiveness and productivity
Date: 2006-09-13
Institutions: European Economic and Social Committee
Subjects: EU industrial policy, competitiveness, employment policy, innovation, processing industry, productivity, services company

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Opinion of the European Economic and Social Committee on Services and European manufacturing
industries: Interactions and impacts on employment, competitiveness and productivity

(2006/C 318/04)

On 19 January 2006 the European Economic and Social Committee, acting under Rule 29(2) of its Rules of
Procedure, decided to draw up an opinion on the Services and European manufacturing industries: Interactions
and impacts on employment, competitiveness and productivity.

The Consultative Commission on Industrial Change, which was responsible for preparing the Committee's
work on the subject, adopted its opinion on 31 August 2006. The rapporteur was Mr Calleja. The co-
rapporteur was Mr Rohde.

At its 429th plenary session, held on 13 and 14 September 2006 (meeting of 13 September), the European
Economic and Social Committee adopted the following opinion by 183 votes to three with four abstentions.

Conclusions and recommendations

This opinion advocates:

Overall statement

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

More generally, other measures need to be taken at market level
and encouraged by public administrations, such as:

The importance of business services for the growth, competi-
tiveness and employment levels of European manufacturing and
service industries needs to be recognised. The use of competitive
business services should be promoted through a set of coherent
policy actions at European level. The 2005 draft action plan of
the EU Business-Related Service Forum (BRSF) provides a good
platform for further discussion.

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

— encouragement of more extensive and effective use of busi-

ness services by SMEs;

Policy objectives and follow-up

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

The positive role of business services in the development of
public and private manufacturing and service industries should
be supported. This may be achieved by a variety of means. At
EU level, the following actions are strongly recommended by
the EESC:

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

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

labour mobility

integration,

R&D, innovation and digital delivery

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

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

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

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

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

Reasons

— Intellectual property rights

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

1.

Introduction

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

‘i2010’

1.1
This Opinion examines the impact of business services
on employment, competitiveness and productivity in European
manufacturing industries and how this sector can be developed
further, in line with the Lisbon programme. Attention is given
to developments in the new discipline known as ‘service engi-
neering’ and to the impact of externalisation/outsourcing of
business services.

Service engineering and standards

business

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

quality

output

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

Improving knowledge and employment in European business services

— Finding solutions to strengthen human capital in the EU and
to reverse the growing brain drain from EU research activ-
ities.

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

— Improvement of data and information on business services

and on services provided by industrial companies.

— Improving
markets.

transparency of business

services'

supplier

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

There is concern about the prospects of the European
1.2
economy and how it will face up to the emergence of strong
competition from low-cost economies. In Europe both manufac-
turing and services have lost many jobs to other countries with
a comparative advantage in terms of costs and skills (e.g. China,
in terms of business
in terms of manufacturing, and India,
services).
these developments manufacturing
continues to play a key role in Europe's economy. According to
latest available statistics for 2004 the EU leads as the highest
exporter of merchandise trade with a figure of over US $ 1 200
bn (1).

In spite of

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

1.4
The remarkable shift in consumption towards services in
highly developed economies does not indicate a trend towards
de-industrialisation as is sometimes assumed. These develop-
ments can be seen as a statistical reflection of a deepening divi-
sion of labour within developed economies and a disaggregation
of previously integrated vertical value chains. Specialised service
providers are now offering services
that were previously
performed in-house by manufacturing enterprises. New service
enterprises have evolved and are supporting the effort of Euro-
pean industry to increase efficiency and to absorb new technolo-
gies that will spawn new and higher value-added products.

(1) WTO Trade Statistics, 2004.

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Recent research shows that the type of economy being
1.5
developed is one in which services and manufacturing are inte-
grated and complementary in nature. Demand for services exists
wherever there is a strong industrial economy and develops as a
consequence of this. They do not represent an exclusive alterna-
tive (2).

outsourcing, maintain manufacturing industries in Europe and
increase the demand of employment in business services. The
reinforcement of qualified service jobs in businesses provides
new competitive advantages.

This Opinion does not advocate a special promotion of
1.6
services at the price of neglecting manufacturing industries but
it stresses the interdependence between manufacturing and the
service sector (3). It highlights the positive potential for improve-
ment and expansion of business services. The EESC emphasises
the positive contribution of business services to increased
the European manufac-
productivity and competitiveness of
turing sector. Simultaneously,
sector
service
improves its own productivity through innovation, including the
rapid uptake of new technologies, by attracting more highly
qualified employees and by improving working conditions (4).

the business

services

Externalisation/outsourcing of

to specialised
1.7
service providers who can exploit economies of scale and
continuous process innovation has a positive impact on costs
and productivity. Yet the uptake of knowledge and innovative
business services by SMEs does not yet seem to be sufficient.
Also the ability of employees to move from manufacturing to
business services needs to be facilitated through appropriate re-
training programs.

1.8
Today, domestic suppliers are providing most of business
services. Yet, there is no guarantee that this will be the case in
the future. A range of business services can be sourced from
abroad at wider European level including new Member States
and candidate countries or even globally, according to cost and
opportunity (near-shoring and offshore outsourcing). The latest
figures show that in 2004 the EU-25 had a positive balance of
EUR 42.8 bn in trade in services (an increase of EUR 5.8 bn
from 2003) (5).

1.9
There is a need for a permanent and thorough analysis
of company structures and processes in order to identify those
functions which can be bought
from specialised business
services' suppliers or networks of companies (shared services)
who can handle such functions more efficiently by operating on
a larger scale and by pooling their expertise. Though this might
have an impact on employment in manufacturing, it may some-
times help to offset the potential negative effects of offshore

(2) Business Services in European Industry, Luis Rubalcaba-Bermejo — EU

Commission, 1999.

(3) Summary of final report:

‘The significance of competitive manufac-
turing industries for the development of the services sectors’, Kalmbach
et al., University of Bremen, December 2003.

(4) See the EESC Opinion on ‘European business competitiveness’, that
highlights the importance of guaranteeing appropriate social condi-
tions while seeking to increase productivity and competitiveness. See,
in particular, §§ 2.5 to 2.5.3; in § 2.5.2, for instance, the EESC states
that it is ‘urgent for Europe to be made more competitive under condi-
tions ensuring its economic and social development, its cohesion, its
jobs and its environment’.

(5) Eurostat News Release 17/2006, 13.2.2006.

2. Challenges for European industry: a challenge for business services

2.1
All sectors of the European economy feel the effects of
globalisation and the need for change in order to adapt to new
circumstances. Industrial policy can play a positive role in this
context.
In its Communication Fostering structural Change: an
Industrial policy for an enlarged Europe (6), the European Commis-
sion stated that it intends to develop an appropriate industrial
policy to accompany industrial change:

— European industry has to cope with a process of structural
change which is beneficial overall and which should be
encouraged by policies that facilitate the development and
use of knowledge;

— economic internationalisation offers opportunities to Euro-
pean industry as long as industrial policy supports the
necessary evolutions and active labour market and social
policies prevent a negative impact on workers;

— EU enlargement offered not only the extension of

the
internal market but the possibility of re-organising value
chains across the continent to make the most of competitive
advantages of the new Member States;

— the transition to a knowledge economy will be vital and a
certain regulatory prudence will be necessary to avoid
putting a strain on the industrial competitiveness of the new
Member States.

The EESC advocates more rapid progress in concrete achieve-
ments of the EU Industrial Policy and the inclusion of business
services within its framework.

on

Implementing

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

Community

the

— an intellectual property rights (IPR) and counterfeiting initia-

tive;

(6) COM(2004) 274 final. EESC Opinion adopted on 15.12.2004
(rapporteur: Mr van Iersel, corapporteur: Mr Legelius), OJ C 157,
28.6.2005, p. 75 onwards.

(7) COM(2005) 474 final. EESC Opinion adopted on 20.4.2006
(rapporteur: Mr Ehnmark), OJ C 185, 8.8.2006, p. 80 onwards. See
also the CCMI Complementary Opinion (rapporteur: Mr Pezzini).

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— a high level group on competitiveness, energy and the envir-

onment;

— external aspects of competitiveness and market access;

— new legislative simplification programme;

The internal market for services in general, and for busi-
2.5
ness services in particular, is not complete and many obstacles
do exist hampering efficiency, competitiveness and creation of
new employment opportunities. A large number of barriers
were recognised in the Report on ‘The state of the internal
market for services’ (10), but some progress has been made by
implementing the Lisbon Strategy. On top of the regulatory
aspects of the business services markets, complementary policies
such as those indicated in this document are needed to ensure
the necessary EU competitiveness in the global market as well as
social and economic progress.

— improving sectoral skills by identifying relative skill require-

ments and gaps;

— managing structural change in manufacturing;

— an integrated European approach to industrial research and

innovation.

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

Europe needs to embrace more widely and deeply Infor-
2.3
mation and Communication Technologies (ICT). Intensification
of ICT and its integration in industry is as important as it is in
business services. In terms of IT take-up, Europe lags behind its
key competitors. The IT expenditure in 2004 per capita was
EUR 732 for Western Europe, EUR 1 161 for the USA and
EUR 1 012 for Japan. The IT spending in terms of percentage of
domestic GDP was 3.08 % for Western Europe, 4.55 % for the
USA and 3.59 % for Japan (8). The European Commission's
task-force on ICT competitiveness plays an important role in
this context.

2.4
The productivity gap of European manufacturers is often
attributed to the lack of technology take-up and insufficient
exploitation of the potential of ICT, in particular by SMEs. The
problem does not seem to be caused by the costs of hardware.
The problem is the lack of ICT knowledge and expertise in
SMEs, which makes it difficult for them to cope with the rapid
changes in, and the increased complexity of,
ICT. A ‘digital
divide’ that separates small from medium-sized companies exists
with the consequence that the full potential of ICT and e-busi-
ness models has not yet been realised (9). The role of business
services is important to make the ICT sector efficient and thus
procure sustainable productivity gains.

(8) EITO 2005, p. 263.
(9) E-Business Report, 2005.

3. The importance of business services and their

interaction with

industry

3.1 Definition of business ser vices

Business services are traditionally defined as a sub-group (NACE
70-74) within the business-related services (i.e. business services
plus transport services, communications, distributive trade and
financial services) (11). The criterion for the definition of both
concepts is the clientele to which the services are directed. They
are not services mainly addressed to final consumers, but rather
to enterprises. They are real activities that influence first the
competitiveness of companies (they are not incompatible with
the service provision to consumers) through their use as inter-
mediary inputs in the value chain and also through the quality
and innovation gains resulting from the interaction between
supplier and client and service. Business services have the par-
ticular characteristics that most of them can be performed in-
house or be contracted out (outsourced) to an external specia-
lised firm.

(e.g.

3.2
Business services is a group of very heterogeneous activ-
ities
engineering,
ranging from professional
services
legal services) to high-value-added services (e.g.
accountancy,
ICT services, management consultancy), personnel services (e.g.
selection of personnel, outplacement,
temporary work) and
business support services, including those with low added value
(e.g. cleaning, security, catering) and those with rising added
value (such as energy management, supply and treatment of
water and other fluids, and air and waste processing). In these
groups of activities, labour and social conditions deserve par-
ticular attention.

(10) COM(2002) 441 final, 30 July 2002.
(11) See the European Commission Communication entitled ‘The competi-
tiveness of business-related services and their contribution to the perfor-
mance of European enterprises’
(COM(2003) 747 final, 4 December
2003), which may be accessed at
http://europa.eu.int/eur-lex/en/com/cnc/2003/com2003_0747en01.
pdf (see, in particular, § I.2 and box 1).

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

FUNCTIONS IN
ENTERPRISES

MAIN BUSINESS-RELATED
SERVICES

FUNCTIONS IN
ENTERPRISES

MAIN BUSINESS-RELATED
SERVICES

Administration

Management consultancy

Legal services

Auditing and accounting

Information
Management

Computer and IT services

Telecommunications

Human Resources

Temporary work

Marketing and sales

Advertising

Recruitment of personnel

Professional training

Distributive trades

Public relations

Fairs and exhibitions

After-sales services

Financial Intermedia-
tion

Banking

Insurance

Renting and leasing

Transport and logis-
tics

Logistics

Transport services

Express courier

Production and tech-
nical function

Engineering and technical
Services

Facility manage-
ment

Tests and quality control

R&D services

Industrial design

Maintenance and repair of
equipment

Security services

Cleaning services

Catering

Environmental services/

waste disposal

Energy and water services

Real Estate (warehouses)

3.3 The place of business ser vices in the economy

Business services are an important element of the European market economy. However, the most important
feature of business services is that they are present in, and integrated into, every stage of the value chain.
Growth of business services is usually explained by the migration of employment from manufacturing
industry to services due to the outsourcing of the services functions. But the reasons for growth are multiple.
Changes in production systems, more flexibility, stronger competition on international markets,
the
increasing role of ICT and knowledge and the emergence of new types of services are other important
factors. ‘According to Structural Business Statistics, the business-related services sector (excluding the finan-
cial services) constitute[d] 53 % of total employment in the EU market economy in 2001, while manufac-
turing ha[d] a share of 29 % (or around 29 million persons employed) […]. Total value added by business-
related services constitute[d] 54 % in 2001 compared to 34 % for manufacturing’ (13).

3.4
Today more and more manufacturing companies venture into services themselves. Not only do they offer
after-sales services, but to an increasing extent discover the value added through selling their expertise in
engineering, design or process innovation to other companies as part of their business. A new hybrid
company model is emerging that includes enterprises with manufacturing/service activities. Customers are
increasingly looking for ‘solutions’ rather than simply products, and it is often the ability to provide addi-
tional services that gives a manufacturing company its competitive advantage.

(12) Source: The competitiveness of business-related services and their contribution to the performance of European enterprises (COM

(2003) 747 final), Annex I (‘Classifications of services and additional figures’), which may be accessed at
http://europa.eu.int/eur-lex/en/com/cnc/2003/com2003_0747en01.pdf.

(13) COM(2003) 747 final, § II.2, p. 11.

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Lack of specific statistical data on business services (14). There is a lack of statistical information on the
3.5
demand for services. The interrelationship between the various sectors is not sufficiently documented. Infor-
mation on service activities and their contribution to the EU Member States' economies should hopefully be
improved through a revision of the NACE classification system, which is expected in 2007. The revised clas-
sification will provide better insight into the structure and development of the services sector (15). Informa-
tion on the extent to which industrial companies provide services is also lacking.

3.6
Fragmentation and scarcity of information and analysis related to business services. The EESC finds that there
is a need for a European Business Services Observatory to collect information, encourage research, stimulate
debate and suggest and monitor implementation of policy recommendations. An observatory or similar
action would lead to a better understanding of the new high-speed developments of the sector and serve as
a meeting point between policy-makers and stakeholders.

3.7
Standardisation of services. The further acceleration in voluntary standardisation of services based on
market needs and sound evidence includes raising base-line safety, quality and performance and promoting
competition and innovation in service delivery. This challenge has to be taken up by CEN, ISO and national
standardisation bodies. The development of voluntary standards in the service sector would certainly stimu-
late the trade in services across borders and help to foster the internal market for services.

4. How business services improve industrial competitiveness (16)

Business services are of major importance in helping the SME sector realise its potential contribution
4.1
to innovation and growth. There is evidence that the most dynamic SMEs make extensive use of business
services. In the face of the pressures of internationalisation, greater use of these services by a wider range of
SMEs needs to be promoted.

4.2

National innovation capacity.

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

— overall innovation infrastructure;

— essential framework conditions/flanking policies;

— interconnection of the overall innovation system;

— general systems of education.

4.3
85 % of EU research concentrates on manufacturing (US 66 %) and no reliable figures exist for a
breakdown of service sector R&D activities. Out of total manufacturing R&D, 87.5 % is conducted in eight
specific areas (chemicals, mechanical engineering, office machinery, electrical machinery, semi/conductor-
communications, instruments, motor vehicles and air- and spacecraft).

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

4.4
gap has increased over the last decade.

(14) See ‘A sectoral survey of relocation: a factual background’ (in particular pages 107 and 177-179), commissioned by the
CCMI and used as a basis for its Information Report entitled ‘A sectoral survey of relocation’ (rapporteur: Mr van Iersel, co-
rapporteur: Mr Calvet Chambon).

(15) Report of the EU Business-Related Service Forum, June 2005.
(16) See COM(1998) 534 final and COM(2003) 747 final.
(17) Stern, Furman, Porter, 2002.

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

4.6
A European Institute of Technology as proposed by the European Commission in a recent Commis-
sion Communication (19) is useful, yet technology needs to be accompanied by effective business and organi-
sational strategies.

4.7

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

Table 2.

Innovative functions of business services (20)

Innovative functions

Principal elements of innovation

Business services (some representative sectors)

Technological Inno-
vation

— Greater integration of technology
— Use of existing technology
— Adaptation of

technology to business

needs

— Efficiency in the advanced processes of

information and communication
— Automation of routine processes
— Flexibilisation of productive structures
— Quality improvement

— IT services
— Engineering services
— Design services
— Telecommunications Services
— On-line services of electronic communica-

tion

— Quality control services

Organisational inno-
vation

— Efficiency of internal organisation
— Articulation of control and coordination

processes

— Management consulting and management
— Audits and legal services
— Manpower services (selection, training and

— Improvement of human factor selection,

temporary employment).

training and utilisation

— Improvements in the different functional

specialisations

Strategic innovation — Flexibility for dynamic environments

— Positioning in complex markets
— Strategic information regarding alliances
— Information regarding product adaptation
regarding
— Information
markets

location

and

— Management services
— On-line services
— Audit services
— Legal services
— Fairs and exhibitions services
— Marketing services

— Defence in a conflicting legal environment

Commercial innova-
tion

— Product competitive design
— Innovative commercialisation
— Taking advantage of opportunities
— Search and relations with the client
— Innovative Marketing
— Image concern

— Design services
— Fairs and Exhibitions
— Publicity
— Direct Marketing
— Public relations
— After-sales services

(18) See the EESC Opinion on FP7: In keeping with the Lisbon strategy, ‘the spring 2002 European Council in Barcelona
[defined] quantitative objectives for the support of research activities, with total research expenditure in the EU set to rise
to 3 % of GDP by 2010, with two-thirds of funding coming from the private sector (the 3 % objective). The Committee
would point out, however, that, in the light of the global investment race, this objective is a “moving target”. Those who
fail to reach it in time fall even further behind’ (§ 2.5).

(19) COM(2006) 77 final.
(20) Extracted from the publication entitled The Contribution of Business Services to European Employment, Innovation and Produc-

tivity, by Luis Rubalcaba and Henk Kox, forthcoming by Palgrave-Macmillan.

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Innovative functions

Principal elements of innovation

Business services (some representative sectors)

Operational innova-
tion

— Functional division of labour
— Concentration on key tasks
— Operational capacity concern
— Image concern

— Linguistic services
— Courier services
— Security services
— Operational services

Source: Rubalcaba (1999) Business services in European Industry; European Commission, Brussels.

4.8
Some of Europe's most innovative companies are to be found in business services, but the overall
level of R&D in the service sector is too low and unstructured. New services and business models often
emerge from costly and time-consuming attempts and failures by individual enterprises. It is necessary for
the EU to support research in selected areas in order to update the know-how of companies in leading
global cutting-edge technologies.

It is important to find ways to improve the access of SMEs to research results and underpin them in

4.9
their short-term product development.

If companies are to invest more in innovation and R&D, appropriate protection of intellectual prop-
4.10
erty rights has to be secured by the European Commission and action has to be taken to implement the
pending proposal on the patenting of computer-implemented inventions.

4.11

Better legislation and regulation is necessary.

5. The EU knowledge creation system

5.1

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

— re-orienting R&D activities to high-technology ICT-producing enterprises;

— stopping the brain drain from the EU to the US (twice as many EU researchers move to work in the US
compared with the opposite inward flows; 40 % of US R&D is carried out by EU-trained scientists);

— increasing total expenditure on research to achieve the Lisbon target of 3 % of GDP;

— ICT-user skills, digital literacy and e-business skills have to be regarded as key competencies; curricula

must integrate ICT skills at an early age;

— advanced fixed and mobile broadband will be the infrastructure of the knowledge-based economy in this
century. The i2010 initiative launched by DG Information Society in 2005 plays an important role in
this context.

6. The role of ‘service engineering’

Service innovation has been the subject of intense discussion and research mainly in Germany since
6.1
the mid-90s. Service engineering generated much of the momentum for both academic and practical work
in this field. This has developed into a technical discipline concerned with the systematic development and
design of service products using suitable models, methods and tools. Although service engineering also
embraces aspects of service operations management, the development of new service products is a key
focus. At the same time service engineering is also concerned with the design of development systems, in
other words with service-related questions of general R&D and innovation management.

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Fundamental research into new business models, methods and tools will give service engineering a
6.2
valuable boost. Integrated approaches for co-engineering physical goods, software and services will become
an established feature. Finally, the growing harmonisation of service standards will encourage the specifica-
tion and efficient development of new services (21).

6.3
Service engineering is one of the few fields in the service sector that has been substantially shaped by
European research. Closer integration in international networks and the systematic development of an inde-
pendent service engineering community are essential in order to sustain a leadership role in this field in the
future (22).

7. The importance of digital delivery of services

7.1
A shift to intensification of online delivery. There is increasing attention to the growth and impact of
ICT-enabled international sourcing of information technology services and business-process services. There
is a re-orientation of business services by the application of ICT and a shift to more intensive online delivery.
The emphasis is on digital delivery in areas such as software services, R&D and technical testing services,
consulting services and HRD and labour-supply services. This is mainly market-driven because of:

— new customer demands and expectations;

— the push to enhance market reach and expand markets;

— quality improvements and depth of customer relations;

— gains in operating efficiency and economies of scale;

— cost reductions by improving and expanding low-cost production and delivery options.

7.2
Exploring the potential benefits of offshoring for the EU economy. New global challenges are building up in
the ongoing provision of outsourced services from any point of the world. Europe should therefore be ready
to provide and export high-quality services to the rest of the world. Digital delivery and related e-business
support is bound to increase. International offshoring of business-related services is today focussing on
back-office functions (e.g. IT services, financial and accounting services, call-centre functions). In the higher
value-added services such as IT engineering, research and analysis, the EU is still holding its own. However,
technological development, availability of skills and related costs in the global market are bound to affect
decisions by European companies to a larger extent in the future. This is a challenge for the European
labour market to provide more high skilled employment opportunities and avoid unemployment (23).

7.3
Impediments to general digital delivery of services. There are impediments to the development of digital
delivery that should be thoroughly investigated and solutions found so that European business service firms
can be more aggressive and expand more outside EU borders. Such impediments include the lack of stan-
dards and interoperability, trust and security in e-commerce, the lack of investment in fixed and mobile
broadband infrastructure and the still too low uptake of ICT by SMEs.

(21) Service engineering — methodical development of new service products, by Hans-Jorg Bullinger, Klaus-Peter Fahnrich,

Thomas Meiren.

(22) Thomas Meiren, Fraunhofer Institute for Industrial Engineering, Stuttgart, Germany.
(23) European Forum on Business Related Services, 2005 Report.

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Official Journal of the European Union

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8. The employment potential in business services

8.1
Employment in business services has grown impressively over the past few decades. Annual growth
rates between 1979 and 2002 stood at around 4.5 % annually, which was far above the rates of any other
economic sector. The share of business services employment in total employment stood at 9 % in 2003 in
EU-15 and at 8.6 % in EU-25. The services sector in general and business services in particular will play a
key role in providing new employment in the future and compensate for decreasing employment in manu-
facturing industries.

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

8.2
total economy.

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

Country

Total
economy

Business
services

Real Estate

Renting

Professional
services

Contract
R&D

IC services

Operational
services

LU

PT

IE

IT

DE

FI

ES

NL

AT

SE

EL

UK

FR

DK

BE

EU15

US

2,6

0,4

2,0

0,5

0,6

0,1

1,1

1,6

0,3

0,2

0,8

0,4

0,5

0,3

0,3

0,6

1,4

7,6

6,9

6,4

6,4

5,3

5,4

5,4

4,7

4,8

4,7

4,6

3,3

3,2

3,1

3,6

4,4

4,7

5,2

6,5

5,3

4,4

4,2

1,0

3,7

3,7

1,4

1,2

5,9

4,8

1,3

1,5

3,9

3,3

1,6

4,4

5,5

4,6

8,0

3,4

1,6

6,0

5,3

2,6

2,7

3,4

2,2

4,1

2,8

0,9

3,3

3,5

7,5

6,7

6,0

6,1

4,5

4,3

4,9

4,1

4,3

4,3

4,2

2,8

2,5

1,8

3,2

3,9

3,5

6,5

7,7

0,8

4,1

2,9

3,3

3,2

3,4

4,0

4,2

4,0

-0,4

1,7

-0,8

-1,7

1,7

2,9

12,4

8,1

10,5

6,5

6,5

8,5

7,4

8,1

9,6

6,1

8,1

6,9

4,7

5,8

5,0

6,4

8,8

7,4

7,0

6,5

6,7

5,8

6,0

5,8

4,7

4,8

4,7

4,8

3,5

3,8

4,3

4,0

4,7

5,3

8.3
Dynamic employment growth in services and in knowledge-intense business services in particular is a
characteristic attribute of modern economies. Although the levels of employment in business services as
well as the growth rates vary from country to country in Europe, it can be stated that ‘there is no poor
country with many business services and no rich country where business-service jobs are scarce’ (25).

8.4
It can be expected that the growth of employment in services and in particular in knowledge-inten-
sive business services will continue though at slightly more moderate rates. Nevertheless, according to the
table 4, these will be higher than those projected in other economic activities. Growth rates are expected to
be essentially higher in the new Member States where development of services starts from substantially
lower absolute levels.

(24) ‘The Contribution of Business Services to European Employment, Innovation and Productivity’ by Luis Rubalcaba and

Henk Kox (to be published in 2006 by Palgrave-Macmillan).

(25) Rubalcaba, Kox, 2006, p. 42.

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Official Journal of the European Union

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Table 4. Employment trends across Western European sectors

Note: Western Europe is defined as EU15 + Norway + Switzerland.
Source: Cambridge Econometrics Press Release, What has happened to the Lisbon agenda? November 2005.

8.5
A special feature of employment in business services is the high levels of education attainment. As
the EU labour force survey shows, in 2003 the employment share of ‘high-skilled’ jobs was at 41 %, up
from 38 % in 1998. The level of low skilled was at 17 % down from 25 % in 1998. The fact that most of
the jobs in business services require high- and medium-level skills also poses a challenge to the educational

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systems in Europe (and in particular the lifelong learning policies) as the structural change of European
industries will require more people to move into business services from other employment areas. Rigorous
application of the Lisbon education 2010 agenda will be of paramount importance against this background.
Table 5 shows the education attainment levels across several sectors.

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

Brussels, 13 September 2006.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

(26) Source: Rubalcaba and Kox (2006), based on Eurostat data, Labour force Survey, 2004.