Service Providers in the Information Economy Have an Optimistic Outlook

In the first quarter of 2002, the annual growth rate in turnover of IT-related service providers grew by 3.5 per cent. Businesses also expect to see a positive development in returns and turnover in the second quarter of 2002.

IT-related service providers in East and West Germany did, however, experience different rates of growth in turnover in the first quarter of 2002. While West German service providers saw an annual growth rate of 3.8 per cent, their East German competitors saw an annual growth rate of only 2.7 per cent.

This is the result of a business survey carried out amongst Information and Communication Technology (ICT) service providers (firms providing computer service and leasing, ICT-specialised trade as well as telecommunication services) and knowledge intensive service providers (firms in the branches of tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising). Around 1,200 businesses took part in the survey carried out by the Mannheim Centre for European Economic Research (ZEW) in collaboration with Creditreform, Neuss, in April 2002.

In the first quarter of 2002, the annual growth rate in turnover of ICT service providers grew by 4.1 per cent. The growth experienced by these service providers was more dynamic than that seen amongst knowledge-intensive service providers, where growth of 3.1 per cent was seen in the first quarter of 2002.

At the beginning of the year, IT-related service providers in the entire sector experienced a rather restrained growth in returns. The turnover share of businesses reporting falls in returns since the last quarter of 2001 is 30 per cent; a greater proportion than those who saw an increase in returns. On balance, significantly more businesses have let more staff members go, than they have employed.

Expectations for the second quarter of 2002 indicate an optimistic sentiment in the sector. Half of all service providers expect demand for their services to increase from the second quarter onwards. Since the majority of businesses anticipate price stability, expectations regarding the developments in return and turnover are also optimistic. The turnover share of businesses which expect an increase in returns from the second quarter onwards totals 40 per cent.

Telecommunication service providers, as well as businesses in the branches of research and development and tax consultancy and accounting have reported a 60 per cent increase in turnover in comparison to the first quarter of 2001. These branches are therefore currently the most stable branches in the sector. This above-average, positive development in turnover has, however, only yielded positive returns for telecommunication service providers. Enterprises in the telecommunications service branch, which currently produce 40 per cent of the turnover generated in this sector, have reported increasing returns.

ICT-specialised traders as well as firms providing computer services have recorded an increase in demand in the first quarter of 2001. This indicates that ICT projects that were postponed during the economic downturn in the hope of a better economic environment can now be re-started. The developments in return in these branches are also positive.

In particular, the poor general economic situation poses a challenge to businesses in the advertising sector. Merely 6.6 per cent of the turnover in this sector was generated by agencies that have reported increasing turnovers in comparison to the last quarter of 2001. Advertising agencies that have recorded increasing returns during this period account for almost 30 per cent of the turnover generated in this sector. This is, however, probably due to the consolidation and rationalisation processes within the sector. Accordingly, the turnover share of advertising agencies which have reduced their staff numbers in the first quarter totals almost 65 per cent.

The business survey among IT-related service providers is a study following the economic survey carried out amongst business-related service providers by the Centre for European Economic Research (ZEW), Mannheim, in collaboration with the credit reference agency Creditreform, Neuss, which has been conducted since the second quarter of 1994. Starting the first quarter of the year 2002, ZEW extended the survey to include IT-related service providers. The results of the study will from now on be published in the ZEW Sector Report on Service Providers of the Information Society. The extended survey was conducted in light of the ongoing structural changes which gave rise to an increasing expansion of information and communication technologies (ICT). The survey has a strong focus on service industries that make extensive use of ICTs. This economic branches can be divided into two sectors: ICT service providers (firms providing computer service and leasing, ICT-specialised trade as well as telecommunication services) and knowledge intensive service providers (firms in the branches of tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising).

A selected, representative cross-section of 4000 service providers is surveyed quarterly by the ZEW. The random sample is frequently refreshed by start-up companies.

Contact

Dr. Margit Vanberg, E-mail: vanberg@zew.de