Ref. Ares(2014)1095851 - 08/04/2014 High-Level Group on Business Services Final Report April 2014 EU for Business © European Union, 2014 The information and views set out in this report are those of the authors and do not necessarily reflect the official opinion of the European Union. Neither the European Union institutions and bodies nor any person acting on their behalf may be held responsible for the use which may be made of the information contained therein. For further information please contact Joanna Zawistowska, Mihail Adamescu, DG Internal Market and Services, or Peder Christensen, DG Enterprise and Industry, [email protected] 2 FOREWORD We congratulate the High Level Group on Business Services for its work and we thank the members of the Group for their efforts, their knowledge and the dedication they have shown. The Group's Report has put the spotlight on the important role that business services play for the European economy. It demonstrates that high performing business services are essential for our economic value chains and hence European competitiveness and industrial growth. The report also shows that business services have been a net generator of jobs in the last decade. There is no doubt that business services can have a significant role in achieving the Europe 2020 objectives of jobs and growth. We thank the High Level Group for having drawn renewed attention to the importance of business services. We have made substantial progress as regards the implementation of the Internal Market for services, as well as on the actions needed for a European Industrial Renaissance. These efforts must continue. Forthcoming work at the EU level will have to take into account the new trends and developments. The High Level Group has made a significant contribution in terms of updating our current image of business services in Europe. As stressed by the High Level Group in this report, the distinctions used in the past between services and industry have become increasingly blurred: firms are more and more frequently adding complementary services to their goods in order to enhance the value for customers. We also see service firms carry out tasks that until recently were performed by manufacturers. Furthermore, cooperation between providers of services and goods in the value chain is intensifying. This trend is to a large extent underpinned by the digitalisation of the economy, and will most probably deepen in the coming years, resulting in much stronger networking and interconnectedness of industry and services. As policy makers, we need to provide the best framework that will allow Europe's companies, and in particular SMEs, to benefit from these transformative changes whilst continuing to contribute to jobs and growth. We are very grateful to the High Level Group for having started this reflection on the best framework for business services in the Single Market. The policy messages and recommendations of the Group will be valuable for our future work to develop effective and efficient policies at regional, national and European level. Antonio Tajani Michel Barnier 3 MEMBERS OF THE HIGH LEVEL GROUP ON BUSINESS SERVICES Paloma Castro Martinez, LVMH Hilde De Clerck, CoESS – Confederation of European Security Services Mark Fox, Peter Campbell, BSA – Business Services Association Christian T. Ingemann, Dansk Erhverv, Danish Chamber of Commerce Dominic Lyle, EACA, European Association of Communications Agencies Kaj Möller, SWECO International AB Andy Neely, Cambridge Service Alliance, Cambridge University (Rapporteur for the High Level Group) Cristan Nevzoreanu, Dacia-Renault Luigi Perissich, Confindustria Servizi Innovativi e Tecnologici Krzysztof Poznanski, Lewiatan - Polish Confederation of Private Employers Emilie Prouzet, FCD - the French Retail Association Oliver Roethig, Uni Europa Norman Rose, EBSRT - European Business Services Round Table (Vice Chair of the High Level Group) Elena Santiago, Scott Steedman, CEN-CENELEC Martha Schultz, Eurochambers Stephan Schwarz, GRG Services and ZDH Carlo Secchi, Bocconi University (Chair of the High Level Group) Patrik Ström, University of Gothenburg and the European Association for Research on Services, RESER. Marja Toivonen, VTT, Technical Research Centre of Finland 4 EXECUTIVE SUMMARY Business Services will play a central role in the reindustrialization of Europe, both through the provision of innovative and productive services to other firms, and through the servitization of manufacturing1. Already the global Business Services market is estimated to be in excess of €3.5 trillion and to have doubled in size in the last decade2. In Europe alone Business Services account for €1.5 trillion gross value added3 and provide jobs for more than 20 million people, across 4 million enterprises4. If economic activity in Business Services grows to the levels achieved by some countries, then the total global market for Business Services will be €7.8 trillion within a decade. Three factors will drive this growth: (i) continued outsourcing by firms as they seek to focus on their core competencies; (ii) the servitization of manufacturing - the tendency for manufacturing firms to sell services and solutions, rather than products and goods; and (iii) general economic trends, where levels of employment in services tend to increase relative to manufacturing and agriculture, because of increased automation and productivity. The 4th industrial revolution - with increasing numbers of devices being connected to the internet - will further reinforce and accelerate these trends, creating a significant global opportunity. A critical question for Europe is how to drive further innovation and productivity gains in services so that Europe can capture a significant share of the global market opportunity and ensure a sustainable European society. While the future opportunities for European Business Services are significant, the High Level Group identified three factors that should concern the European Commission. First, the Business Services market is fragmented - both within Europe and in terms of support provided by the Commission. This fragmentation creates challenges for the policy and business communities. Second, we are seeing rapid growth of indigenous Business Service firms in some of the highest growth markets – e.g. growth of consultancy and software firms in China and India. It is vital that European Business Service firms gain a foothold in these rapidly growing and high potential markets and they need support in doing so. Third – we are in the midst of a 4th industrial revolution, enabled by sensors, data, analytics and the internet5. Business Service firms of the future will play a crucial role in supporting industrial firms seeking to capitalize on the “internet of things” or “web 4.0”. Past experience suggests that the United States is much 1 European Competitiveness Report (2013) “Towards Knowledge Driven Reindustrialisation”, Commission Staff Working Document SWD (2013)347. 2 Herbert, R. and Paraskevas, C. (2012) The Business Services Sector: Calculating the Market Size, Lloyds Bank. 3 Herbert, R. and Paraskevas, C. (2012) The Business Services Sector: Calculating the Market Size, Lloyds Bank. 4 Plaisier, N., Linders, G. and Canton, E. (2012) Study on Business-Related Services, Ecorys. 5 Two recent Commission publications highlight the importance of the fourth industrial revolution. The first is a communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – “For a European Industrial Renaissance”, COM(2014) 14/2. The second a policy report – “Unlocking the ICT Growth Potential in Europe: Enabling People and Businesses”, DG Communications Networks, Content & Technology, 2013. 5 more successful than Europe at growing the high tech, innovative firms needed to support this crucial industrial infrastructure. Europe has to meet this challenge head on and significantly increase the pace of technological development and deployment if European Business Services firms are going to seize the global opportunity Business Services offer. Achieving this will require coordinated effort and engagement across European manufacturing and services firms. Through its discussions and consultations the High Level Group identified a wide range of detailed policy messages and recommendations to support European Business Services. Collectively these can be encapsulated in seven key action items. The High Level Group recommends that these seven action items form a key part of the incoming Commissioners’ agenda through to 2020. 1. Europe 2020 Strategy – the Commission must consider how best to support European Business Services as they seek to capture a significant proportion of the global Business Services market. A major initiative for Business Services is required. Business Services must form a core element in the 2015 revision to the EU 2020 Strategy. It is noteworthy that despite their importance Business Services do not feature explicitly in the current Europe 2020 Strategy. 2. Seize the International Opportunity – the Commission should proactively support firms, in particular SMEs as they seek to capitalize on the global opportunity for Business Services. In EU trade and investment agreements the Commission should make sure that international markets for Business Services are open and accessible to European firms. 3. Complete the Internal Market for Business Services – completing the internal market for Business