Cautious Start into the New Year for Business-related Service Providers

The continuous upswing in the business-related services sector since mid-1999 weakened in the first quarter of 2000 as compared to the previous quarter. Correspondingly, the seasonally adjusted annual sales growth rate fell by 0.7 per cent compared to the final quarter in 1999 and now amounts to about 4.2 per cent. Sales growth declined particularly in East Germany. The economic situation of business-related service providers thus developed in line with the industry, where the increase in incoming orders also stagnated at the beginning of the year.

The economic survey by ZEW/CREDITREFORM also showed a slight quarter-on-quarter decrease in demand among business-related service providers whereas revenues tended to increase. The study also displayed a slight drop in demand for staff. By year-on-year comparison, however, the economic situation for business-related service providers remains rather favourable: The current evaluations regarding turnover, demand and returns are far more optimistic than those of the first quarter of 1999. The increase in labour demand among business-related service providers is stronger than in the same quarter a year ago. Furthermore, the educational and professional training activities of business-related service providers have developed in an exemplary manner. These are the findings of an economic survey among business-related service providers carried out by the Centre for European Economic Research (ZEW), Mannheim, in collaboration with the “Verband der Vereine Creditreform”, Neuss, in March 2000. Within the framework of the study about 1,000 companies from the following sectors are surveyed on a quarterly basis: tax advisors 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 cautious start into the new year may come as a surprise since expectations for the German economy have been distinctly positive since the beginning of the new year. However, the new year started off weaker than expected for the manufacturing industry with incoming orders having dropped below the levels of the previous quarter. Not only did exports decrease slightly, but also the domestic demand, in particular, diminished considerably compared with the previous quarter. The slightly pessimistic assessment of business-related service providers is offset by the year-on-year comparison (with the first quarter of 1999). In comparison with the same quarter one year ago, sales growth has increased by 0.8 percentage points. Furthermore, business-related service providers are optimistic about the upcoming quarter. They expect to benefit from the positive macroeconomic development and evaluate their economic prospects for the second quarter of 2000 very positively . Even though East German companies are not as optimistic in terms of turnover, returns, and demand, they also expect upward trends. East German companies are more pessimistic than their West German competitors only when it comes to staff development.

Sector comparison

In the first quarter of 2000, the two booming industries – the IT services sector and the business consultancy industry – were, again, responsible for the above-average economic performance of the business-related services sector. Both industries are positive about their economic situation. However, seasonally adjusted, less software providers reported turnover increases in the first quarter of 2000 than in the previous quarter. Apparently, this is largely due to the fallen prices resulting from high competitive pressure. The demand for software services is still viewed positively. The first quarter of 2000 has also been positive for technical consultants and planners. For the first time since the first quarter of 1999, the majority of companies reported, seasonally adjusted, an increase instead of a decrease in turnover. The strongest sector in terms of sales growth was the machine renting industry, where the balance of positive and negative sales expectations (seasonally adjusted) has more than doubled. This is probably due to the increasing demand of the manufacturing industry for equipment items within the framework of the macroeconomic revival. Architects are once again the weakest economic performers. Their share of businesses recording  a reduction in revenues has further increased. This is the result of the continuously fragile situation in the construction industry, where not only private housing but now also commercial construction tend to weaken again.

Great divergence between East and West

There is a remarkably strong discrepancy between sales growth rates of West and East German business-related service providers. Whereas there is only a moderate decrease of 0.6 percentage points in sales growth in West Germany, East Germany records a disproportionally higher decrease of 2.1 percentage points. The seasonally adjusted annual growth rate of 0.8 per cent among East German business-related service providers is reminiscent of the developments of late 1997 and mid-1998.  Back then, they also had to put up with two sharp falls in sales growth. The hopes for economic stabilisation of East German businesses raised by growth rates in 1999 could not be confirmed in this quarter.

Large share of training businesses

The share of business-related service providers offering vocational training in one or more recognised apprenticeships is rising. In the first quarter of 2000, 71 per cent of the businesses in this sector reported to train apprentices. Within the past four years this share has been increasing by about 15 percentage points. Regarding the share of training enterprises, tax advisors and certified public accountants as well as cargo handling and logistic firms are front runners with a share of more than 80 per cent, followed by software providers with a share of 77 per cent. In terms of training activity, software providers, business consultants as well as sewage and waste disposal firms display the greatest dynamics. The share of training enterprises among business consultants has tripled since 1996. In the same period of time, software providers have doubled their share of training enterprises. The large increase in training enterprises among software providers is due not least to the creation of new professions in the IT and media sector in the years 1997/1998, such as IT specialist or media designer. One third of all business-related service providers report to have offered more apprenticeship training positions in 1999 than in the past three years. In 56 per cent of the cases, the number of positions has remained unchanged. Nine per cent state to have trained less apprentices. With a share of 70 per cent, the majority of business-related service providers expect the number of apprenticeship training positions to remain stable in the next three years. Only about one quarter expects an increase in training activities. In the case of software providers and business consultants, an above-average number of businesses expect an increase in apprenticeship training positions. This result suggests that software providers are trying to compensate for the heavily discussed skills shortage by training their own apprentices. However, this result also shows an increased acceptance of vocational training as part of the dual system among businesses, since the creation of new professional profiles resulted in a greater focus on operational practice in vocational training. More than one fifth of business-related service providers struggle to find suitable candidates for their apprenticeship training positions. Particularly machine renting firms are affected by this problem. About 46 per cent of all businesses in this sector had trouble finding suitable apprentices. By contrast, software providers as well as advertising agencies seem to be popular among graduates. Both industries experienced less difficulties filling their apprenticeship training positions in 1999 than average.

Substantial need for further training

In the past four years, further training activity in the business-related services sector has developed similarly to that of vocational training. On average, about 90 per cent of businesses in this sector see a need for further training to complement initial vocational education. Business consultants, tax advisors and certified public accountants as well as software providers (more than 95 per cent of each) see the greatest need for further training. According to the business-related service providers, professionally experienced staff who completed their initial vocational training long time ago (60 per cent) require most additional training. More than 40 per cent of the businesses provide their staff with further education opportunities as early as during the initial vocational training.  Further education opportunities in continuation to the initial vocational training, however, are provided less frequently. Almost 60 per cent of businesses aim to expand the knowledge obtained during the initial vocational training as well as to prepare their staff for changes in their field of activity by way of further training.

Qualification structure of staff

In the business-related services sector, an above-average number of staff is highly qualified compared to those working the manufacturing industry. More than one quarter of staff obtained their degrees at universities or universities of applied sciences. The share of graduates from the fields of natural sciences and technology outweighs the share of graduates from the fields of economics, social sciences and humanities. More than 50 per cent of all staff are graduates from universities of applied sciences or have vocational training, while merely 18 per cent have no formal vocational qualification. Work places in the business-related service sector are equipped according to the latest technological standards. Most industries considered here offer work places equipped with computers, except for car and machine renting firms, cargo handling and logistic firms as well as sewage and waste disposal companies. Correspondingly, capital expenditure on IT was high in 1999. The average capital expenditure of all business-related service providers amounts to about 35 per cent of gross investment. As expected, this percentage is even higher among software providers (about 70 per cent). However, tax advisors and certified public accountants as well as business consultants spend about as much of their investment resources on IT as software providers. By contrast, capital expenditure on IT is relatively low among car and machine renting firms, cargo handling and logistic firms as well as sewage and waste disposal companies.

Contact

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

The economic survey of the ZEW and CREDITREFORM has been carried out quarterly since the second quarter of 1994 and comprises a selected, representative cross-section of 3,500 business-related service providers. The random sample is frequently refreshed by start-up companies. An overview of the ZEW/CREDITREFORM business survey is provided on the ZEW project site as a PDF-file. Find general information on the methodology here. Find a description of the projection method used in the ZEW/CREDITFORM study here.

Alexandra Spitz-Oener 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 1991 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 26 researchers, whose focus is on the innovative behaviour of German economy, the development of markets and regions, as well as on the service sector.