Enterprise and Industry Directorate-General

1. Enterprise and Industry Directorate-General European Commission RESER Conference 14th September 2007 Services in the context of EU policy for Enterprise and Industry Ronald Mackay DG Enterprise and Industry

3. Topics of presentation Main themes • Challenges to industry • Communication on industrial policy 2007 • Innovation in services • Interlinkage industry and services • Services as inputs to industry • Industry as service provider • Productivity and competitiveness • Policy sreeening in service sectors • Key messages

4. Challenges to industry Mid-term review of industrial policy COM(2007)374 • Stocktaking, launch of new initiatives • Programme of work to 2009 Challenges to industry • Globalisation • Rate of technological advances • Energy and climate change Implications for the service sector Communication on industrial policy (2005) • Integrated approach (Horizontal and sectoral initiatives) • Concrete programme of work

5. Programme 2007 - 2009 Industrial Policy Initiatives Horizontal (e.g.) • Sustainable industrial policy • Intellectual property • Structural change (anticipation) • Industry and services (policy screening) Sectoral (e.g.) • European food industry • Electrical engineering • Space; defence and security • Pharmaceuticals

6. Innovation in services (1) Expert Group Findings Commission paper SEC(2007)1059 • Services companies, generally, do not innovate less than manufacturing companies but great differences exist between knowledge intensive and other services. • Lower percentage of all service sector firms (34.0%) as opposed to manufacturing firms (39.3%) are technical innovators. • Theexception are KIBS firms, which are more likely than manufacturing firms to introduce either a product or process innovation (51.5 %) • Fazit: Service firms do innovate, but in a different way.

7. Innovation in services (2) Implications • Policy instruments need to recognise the specificity of innovative companies in services • The strong heterogeneity within services sectors has implications for policy • A distinction based on R&D intensity may be more adequate than services/manufacturing ? • Innovation support schemes need to focus on fast growing companies (not only in the service sectors)

8. Innovation in services (3) European Innovation Platform for Knowledge Intensive Services • pilot action that will test new forms of integrated support mechanisms for knowledge intensive services with high growth • operational learning platform where such new policy approaches in support of innovation in services can be tested Aims • to foster technological as well as non-technological innovation (organisational innovation) in services • to practically implement such good practice examples and to further develop them in support of knowledge intense services

9. Structural change (1) Structure of industry in Europe • Rate of change: too slow or too fast? • EU manufacturing remains specialized in medium-tech sectors and has not taken advantage of the fast growth of certain high tech sectors. • European businesses have not fully exploited either the opportunities offered by ICT technologies. • Also, within sectors, the EU is comparatively bad at reallocating resources to the most productive companies • Anticipation (getting ready, not forecasting) and development of capacity to change • Adjustment costs and the European Globalisation Adjustment Fund

10. Structural change (2) Interlinkage industry and services • Service provision is mainly local. Industrial restructuring has an impact on the location, or relocation, of employment in the service sector. Will industry continue to procure essential business services close to where it is located? • Does the service sector have the capacity to create alternative employment in areas affected by industrial restructuring? • Impact of outsourcing/offshoring: Many services which were previously considered non-tradable are being increasingly codified, standardised, and suitable for delivery at a distance. (Digital Delivery) • What framework conditions have a positive, and which have a negative impact on company strategy?

11. Industry and services (1) Importance of services as inputs Reliance of industry on wide range of service inputs But • Relative absence of quality standards • Lack of market transparency • High transaction costs • Risk of dissatisfaction with service delivered • Need for procurement of business related services based on based on more objective criteria and best value for money

12. Services as intermediate inputs to industry

13. Industry and services (2) Manufacturers are also service providers • Manufacturers build “products” but their clients want “solutions” • Manufacturing companies increasingly provide services in conjunction with their product. • Increased demand for complex systems (e.g. satellite system, mobile phone base station, transportation systems…) • Business models (e.g. Public Private Partnerships, Build-Operate-Transfer) • They are confronted with the same administrative and regulatory obstacles to trade as service firms, both within the EU and internationally.

14. Erweitertes Konzept der Industrie & Produktionsorientierte Dienstleistungen Erweitertes Konzept der Industrie + Produzierender Bereich industrieorientierte Teile des Dienstleistungssektors & Industrienahe Dienstleistungen Produzierender Bereich Produzierender Bereich Produzierender Bereich Bergbau u. Gewinnung v. Steinen u. Erden Bergbau und Gewinnung von Steinen und Erden Sachgütererzeugung Sachgütererzeugung Energie- u. Wasserversorgung Energie - und Wasserversorgung Bauwesen Sachgüter- erzeugung Bauwesen Sachgütererzeugung Fachverbände der Kernkonzept Kernkonzept Servo-industrial sector (Austria) Servoindustrieller Sektor Anm.: Die Industrienahen Dienstleistungen beinhalten die Vermietung beweglicher Sachen ohne Bedienungspersonal (NACE 71), die Datenverarbeitung u. Datenbanken (NACE 72) sowie die Erbringung v. unternehmensbezogenen Dienstleistungen (NACE 74). Die Produktionsorientierten Dienstleistungen umfassen: 1/3 Handel, Reparatur v. Kfz u. Gebrauchsgütern; 1/3 Beherbergungs- u. Gaststättenwesen; 1/3 Verkehr u. Nachrichtenübermittlung; 1/2 Kredit- u. Versicherungswesen; 1/2 Industrienahe Dienstleistungen erweitert (Realitätenwesen [NACE 70], Forschung u. Entwicklung [NACE 73]). Quelle: IWI (2007)

15. Servo-industrial complex

16. Services in the economy DG ECFIN study 2007 Sources: • EUKLEMS • COMTRADE Industry classification: • NACE @ 2 or 3 digits Usual caveats about methodology: how reliable are the figures?

17. Manufacturing and tradeable services

18. Labour productivity performance

19. The EU productivity problem EU market services have contributed relatively little to growth (Sectoral contribution to business sector productivity growth) (Source OECD, Scarpetta, 2007)

20. Services productivity A shared problem • Productivity growth in services lags behind that of manufacturing, but the service sector is already large, and still growing. • Productivity increases in industrial sectors may have a ceiling, which is determined by the relatively low productivity of service inputs • Industrial companies employ increasing numbers of people in internal service functions. Their overall productivity growth will reach a limit if they do not tackle the issue of services productivity. • Services productivity is too important to leave it entirely in the hands of the service providers.

21. Initiative on Industry/Services (1) Rationale • The cost, quality and productivity of certain service sectors, have an impact on the competitiveness of industry. • Regulations which affect the performance of professional and other business services, financial services or the retail and distribution sector also have an impact on industry. • In addition, competitive network industries enhance the competitiveness of industry as a whole. • Industry is both a user and provider of a growing range of services related to innovative technologies and products.

22. Industry related services Service sectors with close linkage to industrial sectors Quality, price and competitiveness of the service sector has impact on competitiveness of many industrial sectors Examples: • Engineering services • Creative industries (Design, Architecture, Advertising) • Other Business Services • Network services (Distribution, Communications) • Facility Management • Recycling, Waste disposal Methodology:Same form of competitiveness analysis as applied to the industrial sectors could be applied to these (or other) service sectors

23. Initiative on Industry/Services (2) Methodolgy • Identification of key areas of interdependency • Policy screening of relevant service sectors • Identification of obstacles to increased competitiveness and market failures • Assessment of impact on industry • Assessment of need for intervention

24. Initiative on Industry/Servicesvice (3)

25. Challenges for the service sector • Provide more inputs to policy development • Industry, innovation, SME, Research • Internal Market, Public procurement, Intellectual property • Trade, Competition • Emphasise contribution to economic growth and job creation • Lisbon strategy, National reform programmes, Community Lisbon Programme • Invest in more R&D • Invest in more innovation • Increase productivity • Increase use of standards

26. References and links References and links • Mid-Term Review of Industrial Policy COM(2007)374 http://ec.europa.eu/enterprise/enterprise_policy/industry/index_en.htm • Innovation in Services SEC(2007)1059 http://www.proinno-europe.eu/index.cfm?fuseaction=nwev.NewsReader&news=1918&lang=EN&topicID=90&parentID=0 • EU Industrial Structure 2007 http://ec.europa.eu/enterprise/enterprise_policy/competitiveness/2_indics/indics_compet.htm • Industriebuch 2007 Industriewissenschafliches Institut (IWI) Vienna

27. The End Thank you for your attention