Business-related Service Providers Experience Economic Upswing

Business-related service providers are on the rise. In the second quarter of 2000, the seasonally-adjusted rate of annual revenue growth in this sector was 5.4 per cent. Following a short-lived slow-down in the first quarter of 2000, growth regained its previous pace seen in the second half year of 1999. Particularly Eastern German business-related service providers, previously subject to a slow rate of growth, recovered well following a drop in revenue in the first quarter of 2000.

The quarterly business survey carried out four times a year by ZEW/Creditreform, also showed that compared to the previous quarter, the profit situation in this sector has also improved. In addition, a large number of business-related service providers have increased their staff. Comparison of values for the second quarter of 2000 and the second quarter of 1999: current values and those from the equivalent sector in the previous year, illustrates that the economic situation of this sector is to be considered extremely positive. The assessments of revenue, profit and demand highly surpass the results from the second quarter of 1999. The labour demand has also improved. Business-related service providers expect growth to continue in the third quarter of 2000. They also expect growth of the whole economy to continue in the mid-term.

The survey carried out by ZEW/Creditreform also included special questions which showed that business-related service providers are already making extensive use of information and communication technologies (ICT). These are the findings of an economic survey conducted among business-related service providers by the Centre for European Economic Research (ZEW), Mannheim, in collaboration with the “Verband der Vereine Creditreform”, Neuss, in June/July 2000. As part of this study, around 1,000 companies from the following sectors are surveyed on a quarterly basis: tax advisers and certified public accountants, business consultants, architects, technical planners, vehicle rental companies, machine rental companies, cargo handling and logistic firms, software providers, advertising agencies and waste management firms.

The healthy development of business-related service providers in the second quarter of 2000 is paralleled by the significant upswing in the German economy as a whole. On the basis of good exports and increasing domestic demand, the manufacturing industry was able to increase production and incoming orders in early 2000. This also had a positive effect on the economic situation of business-related service providers in the second quarter of 2000.

The current seasonally-adjusted rate of growth of turnover is 5.4 per cent – similar to the "record-breaking" rates achieved in the sector in 1998. Admittedly, the rate of growth in Eastern German business-related service providers is still significantly lower than that of companies in Western Germany. Nevertheless, in the second quarter of 2000, companies in Eastern Germany were able to more than double their seasonally-adjusted growth rate, increasing it by 1.9 per cent compared to the previous quarter. The demand for labour amongst Eastern German business-related service providers has also increased from the previous quarter. On the whole, business-related service providers are looking to the future with optimism. They expect that revenues, profits and demand will further increase in the third quarter of 2000. The demand for labour is also expected to remain high. Although there is a difference here between East and West German service providers – companies in East Germany are not quite as optimistic as their West German counterparts when it comes to expected developments of revenue, demand and labour.

Sector Comparison

In almost all sectors surveyed by ZEW and Creditreform in the second quarter of 2000, a larger proportion of companies reported increased revenues than in the previous quarter. Machine rental firms, as well as haulage firms and storage firms were the business-related service providers which achieved the highest values. Nevertheless, the profit estimations of hauliers and storage firms are not quite as positive as developments in revenue. Having lingered in bottom place in previous quarters, architects, waste disposal and sanitation companies have also made up ground. In both sectors in this quarter, more companies reported increasing rather than decreasing revenues. Tax advisers and auditors, as well as advertising agencies and vehicle rental companies reported increases in revenues since the previous quarter.

An exception to these generally positive developments are technical advisers and planners. Their revenue assessments for the second quarter of  2000 have worsened since the previous quarter.

Aside from revenues, in most sectors the share of companies having expanded their staff has also increased. With 75%, hauliers and storage companies rank in the highest positions, closely followed by software providers and business consultants. Only architects did not use the increase of revenue as an opportunity to expand their staff.

Overall, more businesses reported increases than decreases in their revenues since the previous quarter. Those branches recording the highest proportion of businesses with increased revenues are software providers, followed by machine rental companies and business consultants.

ICT Facilities

In a special question, the surveyed business-related service providers were asked for information regarding the Information and Communication Technologies (ICT) in their business.

In 1999, business-related service providers invested an average of 1 to 3 per cent of their turnover in ICT. The ICT infrastructure in this sector is already highly developed: 96 per cent of turnover in business-related service providers is produced by businesses with internet access. More than 80 per cent of turnover in this sector is earnt by companies which have an internet homepage. Nearly 95 per cent of the turnover produced by business-related service providers is done so by businesses which use e-mail services, and more than 60 per cent by businesses which have an internal intranet system.

It is in particular large firms (with more than 60 employees), which tend to have a good ICT infrastructure. This means that companies use the internet, intranet or e-mail in their company, or that they have their own homepage. Business-related service providers in West Germany are better equipped with ICT facilities than their East German competitors. When it comes to individual branches, software providers and business consultants, as well as marketing businesses, technical advisers and planners are better equipped with ICT facilities than average.

E-Commerce

A proportion of business-related service providers already use electronic commerce (e-commerce) as a sales channel which has developed thanks to developments in ICT technologies. E-commerce is used to a greater extent in interactions with other businesses (business to business – B2B) than in dealing with end customers (business to consumer – B2C).

Around 60 per cent of the total turnover of business-related service providers is produced by businesses which, alongside traditional sales channels, also use the new trade platform in their B2B business. The degree of acceptance of this new sales instrument is highest amongst software providers: 88 per cent of the turnover in this branch is produced by companies which use e-commerce at least occasionally during their sales processes. The proportion is smallest amongst tax advisers and auditors, technical advisers and planners, as well as architects.

Business-related service providers use e-commerce less frequently in B2C business. Only around 30 per cent of total turnover is procured by businesses that use e-commerce in B2C business.  It is in particular vehicle renting business which make use of e-commerce in B2C transactions. The businesses which use e-commerce produce around 70 per cent of the total turnover in this sector. Vehicle rental companies are followed by software providers (50 per cent). In contrast, architects only use e-commerce for B2C interactions.

Almost 30 per cent of the turnover produced by business-related service providers is gained by firms who claim that the internet enables them to reduce costs. The internet for example, enables greater price transparency in the procurement market, which business-related service providers can use to reduce their costs. The extent of the saving potential totals an average of 3 per cent of turnover. Software providers, architects and tax advisers see the greatest benefit from this phenomenon. They are generally able to reduce their costs by an average of five per cent of their turnover. Other branches, however, expect that the internet offers them a much less considerable saving potential. Despite the large degree of price transparency, business-related service providers do not consider that the internet exerts significant pressure on their profit margins.

Outsourcing of ICT Services

Business-related service providers receive a large proportion of ICT services from other companies. Around 60 per cent of the total turnover amongst business-related service providers is gained by businesses which hire external companies to supervise and maintain their hardware and software. 50 per cent of turnover is earned by businesses which provide programming and software training to other businesses. Almost 40 per cent of the turnover is procured by firms which hire external firms to manage their internet presence.

The future plans of business-related service providers indicate that they believe investments in a good ICT infrastructure to be profitable. More than 80 per cent of the turnover of business-related service providers is produced by businesses wishing to further develop their ICT infrastructure in the mid-term. The proportion of investments made in ICT is expected to increase to approximately 10 per cent of all investments.

Contact

Professor Dr Alexandra Spitz-Oener, Phone: +49(0)621/1235-293, E-mail: spitz@zew.de