These are the findings of an economic survey among business-related service providers carried out by the Mannheim Centre for European Economic Research (ZEW) and Creditreform, Neuss, in September/October 2000. As part of the study, around 1,100 companies from the following sectors are surveyed on a quarterly basis: tax advisors and certified public accountants, business consultants, architects, technical planners and consultants, vehicle rental companies, machine rental companies, cargo handling and logistic firms, software providers, advertising agencies and waste management firms.
The economic survey, however, revealed only minor year-on-year changes, i.e. compared with the third quarter of 1999. Revenues and earnings in the business-related services sector have remained unchanged. Despite continual increases in demand, pricing pressure has grown. When it comes to employment levels, there has been a further, albeit slower increase in comparison to the previous quarter. In spite of this minor slow-down, the economic situation among business-related service providers remains generally good. Businesses in this sector continue to benefit from the strong economic dynamics underpinning the entire German economy. Exports and, to an increasing extent, also domestic demand, are the main drivers of this macroeconomic growth.
The expectations of the business-related service providers for the fourth quarter of 2000 are largely optimistic. The majority of businesses predict further increases in revenues and demand for the next quarter. According to the business-related service providers, earnings are also expected to develop positively, not as dramatically, however, as revenues and demand.
The survey conducted by ZEW/Creditreform featured a special question section, which revealed that university or technical university graduates in the fields of science and technology and/or sociology are most likely to find employment in the business-related services sector. The career prospects of people without a formal qualification are not as bright. In addition, the study has shown that innovation plays a key role for business-related service providers when it comes to maintaining their competitiveness.
The study has revealed that, in the third quarter of 2000, West and East German business-related service providers once again evaluated their business situation very differently. The seasonally adjusted annual sales growth rate of West German companies in this sector amounts to 4.9 per cent, and to merely 1.3 per cent in East Germany. Compared to West German companies, East German business-related service providers are far more pessimistic about their earnings and demand. Unlike in West Germany, the share of East German business-related service providers dismissing staff is higher than the share of businesses hiring personnel. East German business-related service providers are also far more pessimistic about their expectations for the fourth quarter of 2000 than their West German competitors. Admittedly, East German businesses have also provided predominantly positive turnover estimates; however, earnings are expected to decrease.
Performance across industries
The individual industry performances across the business-related services sector varied considerably in the third quarter of 2000. The share of businesses reporting a quarter-on-quarter rise in turnover and demand is highest among software providers, business consultants, vehicle renting business as well as cargo handling and logistic firms. An above-average share of businesses in these four industries also reported an increase in staff since the previous quarter. Only software providers, business consultants and vehicle renting businesses, however, managed to generate higher earnings than in the previous quarter. The situation for cargo handling and logistic firms is very different. The majority of companies in this industry recorded a drop in earnings. The majority of architects as well as technical consultants and planners recorded lower, rather than higher revenues. These two industries have witnessed similar developments in earnings, demand and headcount.
Compared to the previous quarters, advertising agencies recorded rather moderate revenues and demand in the third quarter of 2000. Earnings have mainly fallen in this industry. Nevertheless, the majority of advertising agencies reported an increased headcount in the third quarter of 2000.
The upward trend in labour demand among business-related service providers has levelled out slightly in the past twelve months. Almost all qualification groups are affected by this trend. The demand for highly-qualified staff still peaks; however, between autumn 1999 and autumn 2000, the proportion of companies hiring more staff with a university degree in the fields of science and technology and/or sociology than they dismissed, decreased. The job prospects for people with professional qualifications or degrees from vocational schools also decreased between autumn 1998 and autumn 1999. In contrast, the employment opportunities for those without any formal qualification have improved. For the first time since 1995, the proportion of companies hiring new staff outweighs the share of companies dismissing staff. Particularly software providers, business consultants, and vehicle renting businesses displayed an increased demand for employees without any formal vocational qualification.
Innovation and competition
Innovation plays a key role for business-related service providers when it comes to preserving their competitiveness. Companies hereby consider process innovations, i.e. the internal implementation of new or substantially improved technologies in the provision of services, to be more important than product innovations, i.e. new or substantially improved services. Around 70 per cent of turnover in the business-related services sector has been generated by companies that implemented process innovations in the past twelve months. Companies with product innovations have generated less than 50 per cent of the overall turnover in the business-related services sector.
In total, the prevalence of process innovations among business-related service providers has increased between 1999 and 2000. Whereas in 1999 process innovators generated 60 per cent of the revenues, they have, by now, generated an impressive 70 per cent of this year's turnover. This value corresponds to the level recorded in 1998. In the economically successful years of 1998 and 2000, the innovativeness of business-related service providers has thus been considerably higher than in 1999, a rather slow year.
The important role of process innovations is probably due to the tough competition among businesses in this sector. High levels of competitive pressure force companies to keep their internal processes as efficient as possible. Almost 55 per cent of the turnover in this sector is generated by businesses that face foreign competition in their home markets. Tax advisors and certified public accountants, as well as sewage and waste disposal companies are less affected by direct foreign competition than other industries. Conversely, many business-related service providers export their services and have to compete in foreign markets.