Fresh Impetus for Business-related Service Providers

Finally, 1999 has finished positively for business-related service providers: with a seasonally adjusted annual sales growth rate of 4.9 per cent in the final quarter of 1999, economic figures for business-related service providers are again shifted towards the peaks of mid-1998. At that time, the seasonally adjusted annual sales growth rate was 5.4 per cent.

1999 started off only little promising for business-related service providers. In the first quarter of 1999 the annual sales growth rate had decreased from 5.1 per cent to 3.5 per cent, the strongest decrease since the launch of the economic survey by the Centre for European Economic Research (ZEW) in Mannheim and the “Verband der Vereine Creditreform” in Neuss, which monitors the economic situation of business-related service providers. After a stabilisation of the situation in the second quarter of 1999, sales growth had accelerated in the third quarter. The economic situation for business-related service providers has again gained considerable momentum by the end of the year. The assessment of sales and demand by the companies in this sector are almost as optimistic as before the economic downturn at the beginning of 1999. Despite a seasonally adjusted and – when compared to previous quarters –strong upward trend, the assessment of yields is still not as positive as in mid-1998. Staff development shows a stable upward trend. Since the third quarter of 1996, the share of business-related service providers hiring new staff outweighs the share of business-related service providers dismissing staff. However, despite improved, seasonally adjusted evaluations of sales, demand and earnings in the last quarter of 1999, slightly less business-related service providers hired new staff than in the previous quarter. On the whole, however, the upward trend in staff development is undeniable.

This is the result of a representative survey carried out by the Centre for European Economic Research (ZEW) in Mannheim, in collaboration with the "Verband der Vereine Creditreform" in Neuss, in December 1999 among more than 1,100 business-related service providers. The economic sector of business-related services encompasses tax advisors and certified public accountants, business consultants, architects, technical consultants and planners, vehicle renting, machine renting, cargo handling and logistic firms, software providers, advertising agencies and waste management firms.

Economic outlook for 2000

For the first quarter of 2000, the business-related service providers expect a continuation of the positive trend. Other significant improvements, however, are not expected compared to the last quarter of 1999. Only the earnings expectations have slightly improved after being seasonally adjusted. Expectations concerning staff development and demand have hardly changed. In terms of prices and sales the business-related service are slightly less optimistic about the economic development than in the previous quarters.

In the medium-term a continuation of the upward trend in the business-related services sector is expected due to macroeconomic upswing. After a stagnation of the macroeconomic development in the first half of 1999 there has been a significant revival of the German economy in the summer. At the moment all major indicators suggest that the economic recovery will continue in 2000.

The building industry has so far been excluded from the economic revival. However, there is increased evidence that the long-awaited upturn in the building industry will materialise before long. Especially architects and technical planners could benefit from this turnaround, which in the meantime have come to show the worst economic performance in the business-related services sector behind waste management firms. Architects, technical planners and waste management firms are the only industries in the business-related services sector to dismiss more staff on balance than they hire. However, not only architects and technical planners may be affected by the economic upswing next year. The proposed EU regulation on the disposal of used electrical appliances will provide additional impetus for waste management firms.

The end of the temporary boom due to the changeover to the euro and the year 2000 has led to a slight decrease in the dynamics of IT service providers and business consultants. However, these two industries still evaluate their economic situation as being extremely positive. The continuing demand for standard software programmes and the introduction of information and communication technologies as well as the growing importance of e-commerce will provide for a continuation of the very good overall economic situation despite the slowdown in growth.

Forwarders on the rise

The economic situation for forwarding companies is currently bright, too. Apparently, they benefit from the onset of the economic recovery, while almost reaching the peak values ??of IT service providers and business consultants regarding the assessment of their economic situation. The coming survey will assess the extent to which the introduction of eco-tax has an impact on the situation of carriers. Vehicle and machine rental businesses as well as the advertising industry experience also an upward trend.

The substantial differences between East and West German business-related service providers continue to be reflected in the assessment of the economic situation. Business-related service providers from the old federal states continue to assess their financial situation much more positively than their competitors from the new federal states. However, in 1999, the business-related service providers in the new federal states caught up particularly in turnover compared to their West German competitors.

Significant fluctuations in demand

The dependence of the business-related service providers on the macroeconomic situation makes the industry susceptible to demand fluctuations. About one third of firms belonging to this industry state to be affected by demand fluctuations in the course of the year. The share of business-related service providers being subject to demand fluctuations has slightly increased from 34 to 37 per cent between 1996 and 1999.

Business-related service providers from the new federal states are more frequently affected by demand fluctuations than their West German competitors. This is due to the high prevalence of the building industry, which is highly dependent on economic and seasonal cycles, in the East German economy.

Demand fluctuations are particularly pronounced for architects and technical planners. Tax consultants and accountants, by contrast, are hardly subject to any demand fluctuations.

Except for machine rental businesses, business-related service providers are more heavily affected by cyclical than by seasonal demand fluctuations. Cyclical fluctuations particularly affect architects and technical planners. An above-average number of businesses in the advertising industry and vehicle renting firms state to be affected by cyclical demand fluctuations. Almost half of the business-related service providers is affected by cyclical demand fluctuations, and about 40 per cent is affected by seasonal demand fluctuations.

Adapting to demand fluctuations

How do business-related service providers react to demand fluctuations? The most popular measures to adapt to demand fluctuations are extra hours and short-time work. 44 per cent of business-related service providers apply this measure to adapt to demand fluctuations. In almost all sectors of the business-related service providers extra hours and short-time work are the most common adjustment measures. Exceptions are IT service providers as well as tax consultants and accountants, who rely particularly on further training programmes geared towards a more flexible employment of staff. Forwarding companies concentrate on awarding subcontracts to third parties.

Between 1996 and 1999, the importance of extra hours and short-time work to adapt to demand fluctuations in the business-related services sector slightly dwindled. Fixed-term employment contracts, by contrast, gained in importance. New hirings as a means to adapt to demand fluctuations has become ever more popular, which is not surprising given the economic growth of the business-related service sector.

As a more modern form of creating work flexibility, temporary work contracts, whose importance have risen considerably between 1996 and 1999, are yet another way to adapt to demand fluctuations. Freelancing lost some of its importance during this period, while the use of part-time work and the implementation of lifelong working-time accounts remains almost unchanged.

Working life models, which are being discussed in economic policy, as well as a greater prevalence of part-time work as instruments to adapt to demand fluctuations have played a subordinate role up until now. However, regarding firm size there are considerable differences when it comes to the application of these two instruments. Both lifelong working-time accounts as well as part-time work are applied to a much greater extent by large and small businesses.

Although business-related service providers have so far relied rather rarely on the more modern forms of creating flexible working hours, fixed-term contracts, part-time work, freelancing, and lifelong working-time accounts will be gaining importance in the long term. This becomes evident when contrasting the theoretical assessment with the actual application of individual methods to adapt to demand fluctuations. The fact that modern forms of creating flexible working hours have so far been used rather rarely is partly due to a lack of experience regarding these methods. On the other hand, many business-related service providers do not employ a sufficient amount of staff in order to be able to use modern forms of creating flexible working time efficiently.

DM 630 jobs lose importance

Probably due to the reform of the 630 DM Act marginal employment has lost more importance than any other method to adapt to demand fluctuations compared to previous years. It is hardly used by business-related service providers any more. About one fifth of business-related service providers use marginal employment to adapt to demand fluctuations. Marginal employment has an above-average importance for advertising agencies, vehicle and machine rental firms, as well as forwarders.

The automation of business processes, by contrast, is a very important instrument to adapt to demand fluctuations. The differences between the individual industries are most pronounced for this instrument of adjusting to demand fluctuations. 42 percent of tax consultants and accountants, and 36 percent of the advertising agencies consider automation as an appropriate instrument to adapt to demand fluctuations. By contrast, automation is hardly of any importance for forwarders and even less so for vehicle rental companies. These differences suggest that there are very different rationalisation potentials among the individual industries within the business-related services sector.

Contact

Prof. Dr. Ulrich Kaiser, Phone: +49(0)621/1235-134, E-mail: kaiser@zew.de

The economic survey has been carried out quarterly by ZEW and Creditreform since the second quarter of 1994. A selected, representative cross-section of 4000 companies is surveyed quarterly by the ZEW and Creditreform since the second quarter of 1994. The random sample is frequently refreshed by start-up companies.

Ulrich Kaiser is employed as a senior researcher at the Mannheim-based Centre for European Economic Research (ZEW) in the Research Department "Industrial Economics and International Management". ZEW was founded in 1990 on the basis of an initiative of the Federal State of Baden-Württemberg in co-operation with the Landeskreditbank Baden-Wuerttemberg and the University of Mannheim. In terms of research, the institute has a clear focus on microeconomic and industry analyses, as well as Econometrics. ZEW currently employs 70 researchers in the following Research Departments: International Finance, Labour Markets, Industrial Economics, Environmental Economics, and Corporate Taxation. The Research Department “Industrial Economics and International Management“ comprises 22 researchers, whose focus is on the innovative behaviour of German economy, the development of markets and regions, as well as on the service sector.