High Level Group on Business Services: Frequently Asked Questions

European Commission

MEMO

Brussels, 9 April 2014

High Level Group on Business Services: frequently asked questions

1. What are business services?

Business services are services where one business supports another in the execution of its activities. They are also known as “business to business” activities.

Typical examples of business services are: professional services such as management consultancies or legal services; technical services such as design, engineering or technical maintenance services; and operational services such as recruitment, security and industrial services.

2. Why is the Commission active in the field of business services?

The global business services market is estimated at more than €3.5 trillion and is believed to have doubled in size in the last decade. In Europe, business services account for 11.7% of GDP and 12% of employment (1 in 8 jobs in Europe is in business services).

Furthermore, since 1999, business services have been growing more than twice as fast (2.4% yearly average growth rate) as the average of all other EU sectors (1.1%). The numbers are even more impressive when looking at employment: employment in business services grew at a yearly rate of 3.5%, compared to 0.8% on average for all other sectors of the EU economy.

Taking into account the importance of business services for the competitiveness of the economy, their diversity and overall impact on the way we produce and consume, the Commission sees business services as a key sector for fulfilling Europe's growth and jobs Agenda.

3. Why are business services relevant for an industrial renaissance?

Probably one of the most important new business developments is the way the interaction between services and industry is changing. To some extent it is a trend which has been going on for years with, for example, increased outsourcing by industrial firms of certain “non-core” functions. One example of this development is what is sometimes called the “servitization” of industry. This means that industrial firms enhance their product with services. An example of such a company is Caterpillar, which offers a through-life support service for its equipment and power systems. This involves, for example, remote monitoring technologies to track the state of equipment and predict when maintenance is needed. Such a service could not be offered without powerful ICT systems. However, more interesting from an industrial policy perspective is the way it is transforming the business of Caterpillar from selling equipment to a business of providing solutions guaranteeing a certain level of performance. It is also interesting that this changes its relationships with dealers and clients typically into more long-term partnerships, which again poses new challenges in terms of how to manage such partnerships. Other industrial firms have modernised their business models in a similar way.

As a result of these trends it actually makes less sense to speak about industry vs. services. The distinction was always a bit artificial, but the distinction between industry and services is now becoming more and more blurred. For policy makers at national and EU level these trends lead to certain considerations. An obvious one is how to better formulate policies which simultaneously target both industry and services as a whole. Therefore, it is important that this was a joint initiative of Vice-President of the European Commission responsible for Industry and Entrepreneurship, Antonio Tajani, and European Commissioner for Internal Market and Services, Michel Barnier.

4. Why did the Commission set up a High Level Group for business services?

The Commission believes that business services in Europe have a significant untapped growth potential, especially in terms of productivity and innovation uptake. This is for example clear when making a comparison with the US, where the productivity performance of business services has been better than in the EU over the last decade.

The mandate of the High Level Group was to provide a new impetus to policy development in this important sector and help policy makers better understand the current challenges in the sector.

5. Why was the Group composed of representatives of only four Business Services sectors?

Business services encompass a broad range of sectors from technical services, such as engineering and architectural services; computer services; to professional services such as legal, employment services and facility management. Setting up a group that would have encompassed representatives from all sub-sectors of business services would have been difficult.

Although the High Level Group was composed of representatives of only four sectors (private security, technical and engineering, marketing and advertising, industrial design), its work and the recommendations that have been formulated arehorizontal in nature and relevant for all business services.

6. What are the main findings of the High Level Group?

The High Level Group analysed the main trends that have an impact on business services in Europe, such as:

• Technology, especially the digital revolution, is changing the way business services are designed (new business models) or provided to customers;
• Manufacturers do not offer products, but incorporate products and services together in order to offer solutions to consumers;
• Open innovation, combined with customer engagement, leads to networks of companies that pool their resources together to offer custom-made services to their clients;
• The significant growth potential of business services is not only limited to the Single Market. Business services in the BRIC countries have been growing steadily over the past decade and European companies should aim at benefiting from this global market opportunity.

The Group identified several barriers that affect the growth of business services in Europe, such as: administrative barriers at national level; ageing infrastructure; skills shortages; public procurement focusing on lowest prices; fragmented representation of business services interests to policy makers.

7. What are the recommendations of the Group?

The High Level Group proposes six policy actions on which it has focused its recommendations for the Commission:

a. Europe 2020 Strategy

• Adequately reflect the importance of Business Services in the Europe 2020 Strategy
• Increase efforts to engage firms involved in business services in the Horizon 2020 programme

b. Seize the international opportunity

• Pay particular attention to Business Servicesin international trade negotiations and ensure that business services markets in third countries are open to European service providers, including for services being offered by manufacturing firms.
• Focus, in partnership with business, on identifying the key barriers to international trade in Business Services.

c. Complete the Single Market for business services

• Ensure closer integration of European industrial and services policies.
• Build on the existing Points of Single Contact and put forward legislation that would set a regulatory framework for the Member States to create true universal business portals.
• Make proposals to optimise the regulatory framework and standards conditions for Business Services, such as for: excessive bureaucracy and fragmented legislation (which could be tackled by a mutual recognition principle enshrined in European legislation); barriers to entry (especially for SMEs) and taxation and insurance regimes that inhibit cross-border trade.
• Encourage the creation of European rather than national service standards (where appropriate), as well as promote best practice use of standards.

d. Focus on public procurement

• Ensure, together with Member States, the implementation of the new procurement directives, focusing on outcomes, value for society, quality and innovation, rather than lowest cost.
• Ensure that the best use is made of sources of business support and advice in Member States, including the collection of best practices on public procurement and promotion of relevant standards and common practices and rules across countries in order to reduce barriers to cross-border trade.
• Continue to develop support for SMEs to increase their participation in public and private tenders.

e. Create the technological infrastructure for future business services

• Create a flagship programme of common European interest that brings together manufacturing and services firms across Europe to create a shared, single, open platform that will enable open sharing of the data and information that facilitates innovation and productivity gains in Business Services throughout the EU.
• Work with Member States to promote the use of open data, especially public data, across Europe.
• Develop mechanisms to promote accessibility and standardisation of data.

f. Develop and up-skill the workforce

• Within the European skills strategy pay particular attention to Business Services - with a special focus on building the balance of technological, commercial and entrepreneurial skills required to grow Business Services.
• Provide support for eLeader programmes designed for Business Service firms.

In addition to the recommendations for the Commission, the High Level Group has issued recommendations for the Member States of the European Union and the industry.

A full list of the recommendations of the Group can be found in the Annex.

8. What will the follow-up to the High Level Group be?

The Commission will analyse the proposed recommendations and decide on the best options it has to address them in the future. The Commission intends to continue its dialogue with all relevant stakeholders in order to implement the recommendations and ensure the right framework for the competitiveness of European business services.

For more information:

ANNEX: Recommendations of the High level Group on Business Services

1. Recommendations for the European Commission

Area / Action / Date
Europe 2020 / In reviewing the Europe 2020 strategy the Commission should ensure that it adequately reflects the importance of Business Services, both for the business environment and for Europe as a whole. A major initiative for Business Services is required to raise awareness and increase economic, environmental and societal impact of Business Services. / 2015
The Commission should increase efforts to engage firms involved in Business Services in the Horizon 2020 programme. The programme offers significant opportunities, but is still perceived to favour product and technology development. / 2015
Seize the international opportunity / In international trade negotiations the Commission should pay particular attention to Business Services, and ensure that business services markets in third countries are open to European service providers, including for services being offered by manufacturing firms. Servitization offers an opportunity to renderthe European manufacturing sector more capable of competing and prospering internationally. / Immediate attention
The Commission, in partnership with business, should focus on identifying the key barriers to international trade in Business Services, recognizing the diversity of organisations involved in Business Services. The outcomes should inform DG Trade in future trade negotiations and agreements. / By 2015
Complete the Internal Market for Business Services / Industrial and services policies need closer integration – given the increasing importance of services in manufacturing – the mutual dependency between manufacturing and services needs to be pro-actively considered in both industrial and services policies. / Ongoing
Build on the existing Point of Single Contact to put forward a legislation that would set a regulatory framework for the Member States to create true universal business portals, delivering what is relevant in order for companies to establish, operate or temporarily do business in a given EU market. / 2015
Within the strategy for completion of the internal market make proposals to optimize the regulatory framework and standards conditions for Business Services. Pay particular attention to specific issues that affect Business Services, such as: excessive bureaucracy and fragmented legislation (which could be tackled by mutual recognition principle enshrined in the European legislation); barriers to entry (especially for SMEs) and taxation and insurance regimes that inhibit cross-border trade. / 2018
Encourage the creation of European rather than national service standards (where appropriate), as well as promote best practice use of standards. These standards should be developed with the full involvement of relevant stakeholders. / Ongoing
Focus on Public procurement / Working with Member States, the Commission must ensure implementation of the new procurement directives, focusing on outcomes, through life cost, value for society, quality and innovation, rather than lowest cost. / 2018
Ensure that the best use is made of sources of business support and advice in Member States, including the collection of best practices on public procurement and promotion of relevant standards and common practices and rules across countries in order to reduce barriers to cross-border trade. / 2018
Continue to develop support for SMEs to increase their participation in public and private tenders. For example, reduce procurement participation costs by promoting aggregation, collaboration and standards for procurement across Europe. / 2020
Creating the Technological Infrastructure for Future Business Services / The Commission should create a flagship programme of common European interest that brings together manufacturing and services firms across Europe to create a shared, single, open platform that will enable much easier and more open sharing of the data and information that facilitates innovation and productivity gains in Business Services throughout the EU. In its pilot phase this programme should focus on creating a shared virtual services marketplace for Europe. / Immediate attention
The Commission should work with Member States to promote the use of open data, especially public data, across Europe. Making these data more widely available can increase the rate of innovation and creativity in Business Services. / 2018
The Commission should take a lead to develop mechanisms to promote accessibility and standardisation of data – technologically enabled Business Services are constrained by the lack of interoperable data standards. / 2020
Developing and Up Skilling the Workforce / Within the European skills strategy there should be explicit attention to Business Services - with a particular focus on building the balance of technological, commercial and entrepreneurial skills required to grow Business Services. A key requirement of the skills strategy would be to forecast and match the demand and supply sides. It is essential that this Skills Strategy takes a long-term forward look, recognizing the changing nature of Business Services and the implied future skills requirements. / 2018
Provide support for eLeader programmes designed for Business Service firms – these programmes should be directed at helping Business Service firms reskill and upskill existing employees so they are able to take advantage of new technologies and innovation applicable to Business Services. / 2018
Follow Up / Establish a partnership with stakeholders, including senior industrialists, SMEs, trade unions, academics and Member States where appropriate. This partnership should support the implementation of the recommendations of the High Level Group and ensure the development of a Business Services scorecard that can be used to assess the health, success and contribution of European Business Services. / 2015
Fragmentation in Business Services is a critical issue affecting both the Commission and industry. The Commission should seek mechanisms to create greater coherence for Business Services. Mechanisms might include Commission organization and structure – a single DG for Business Services – and industry representation – creation of an inclusive European partnership for Business Services, covering the entire range of organisations involved in offering Business Services. / 2015

2. Recommendations for the Member States

Action / Date
To support companies with cross-border trade, Member States should further develop Points of Single Contact into true universal business portals (see recommendation 3a), thus reducing the information deficit and allowing for electronic procedures so that companies can establish, operate or temporarily do business in a given EU market. / 2015
Working with the Commission, Member States must ensure implementation of the new procurement directives, focusing on outcomes, through life cost, value for society, quality and innovation, rather than lowest cost. / 2018
The European Commission, Member States, Business Service providers and the insurance sector should work together to address issues of recognition, equivalence and availability of cross-border insurance. / 2018
Member States should ensure that public procurement competitions encourage the provision of innovative Business Services. To do so, Member States should enhance the skills of public procurement officials so they are best placed to design appropriate procurement competitions that will drive innovation in Business Services. / 2018
Member States should support the development of a European skills strategy, with explicit attention to Business Services. / 2018
Member States should work with the Commission to promote the use of open data, especially public data, across Europe. Making these data more widely available can increase the rate of innovation and creativity in Business Services. / 2018
To facilitate cross border trade Member States should arrange mutual recognition of legislation and certification where appropriate. / 2018
Member States should support the Commission as it takes a lead in developing mechanisms to promote accessibility and standardisation of data – technologically enabled Business Services are constrained by the lack of interoperable data standards. / 2020
Member States should ensure that the education and vocational training systems meet the demands of the future Business Service labour market, especially in terms of new skills, such as combining ICT and business management competences. / Ongoing

3. Recommendations for industry

Image of Business Services: Many of those consulted raised the question of image, but the High Level Group felt that this was something best addressed by Business Services firms themselves, rather than an issue for policy. A key message to communicate is that Business Services offer a rewarding and valuable career path, particularly with the shift to high tech, high value services.

Innovation and skills in Business Services (particularly given developments with web 4.0 and the industrial internet): The High Level Group thought it's important that industry took the lead in reskilling the existing workforce so they were able to capitalize on the productivity and innovation potential that modern Business Services offer.

Business Services fragmentation: this a challenge that is becoming greater as increasing numbers of manufacturing firms, for example, are now entering the Business Services domain. Firms involved in Business Services need to co-ordinate their efforts to engage with Member States and the Commission, perhaps through a European partnership for Business Services supported by the Commission.

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