Download Analysis of business related Services

Analysis of business related Services - Executive summary
Business related services (‘BRS’) are a globally significant, dynamically developing area of the
world economy; in fact, they are the largest area of the European and international economies of
developed countries. In the Czech Republic, too, the tertiary sector of services makes the largest
contribution to GDP formation and employment. In 2002, services accounted for 52% of the Czech
Republic’s total production and 62% of employment.
However, the Czech Republic still lags behind the world’s developed economies, both in terms of the
overall performance of business related services and the status of BRS in the structure of economic
sectors. The importance of these services is smaller even when compared to some of the new Member
States, which can be attributed primarily to the historically strong position of the industrial sector.
In keeping with plans to increase growth, performance and the overall share of BRS in GDP
formation, the Czech Agency for the Promotion of Trade, in cooperation with the Ministry of Industry
and Trade, decided to commission an Analysis of Business Related Services.
The aim of the Analysis of Business Related Services is to analyse and describe the current situation
in the sector of selected services, evaluate the overall performance and competitiveness of individual
groups of services, and subsequently draw up framework recommendations for the support of
individual services, including a specific assessment of the suitability of promoting export activities.
The whole analysis was drawn up over three consecutive stages, during which the systemic
methodology of financial and macroeconomic analyses was applied and these analyses were
evaluated:
1. Selection and definition of services included in the analysis (for the methodology please refer
to chapter 4.2);
2. Processing of the macroeconomic and financial analysis (for the methodology please refer to
chapter 4.3);
3. Evaluation of the analysis and assessment of selected services from the aspect of suitability for
support (for the methodology please refer to chapter 4.4);
Based on the initial assessment drawn up during the first stage, the following service groups were
recommended for further analysis:
•
Civil engineering services
o
Construction and installation work (OKEČ [Industrial Classification of Economic
Activities] 45.3)
o
Construction finishing work (OKEČ 45.4);
•
Distribution services (OKEČ 50 – 52), except OKEČ 50.5 Retail fuel sales;
•
Other transport-related activities (OKEČ 63.4);
•
Selected business services:
o
renting of machinery and appliances without operators, renting of products for
personal consumption and primarily for households (OKEČ 71.1 - 71.4),
o
IT activities (OKEČ 72.1 - 72.6),
•
o
Research and development (OKEČ 73.1 - 73.2),
o
Other business activities (OKEČ 74.1 - 74.8);
Adult education and other training (OKEČ 80.4);
Summary of the results of the macroeconomic analysis
One of the most significant groups of business related services was OKEČ 74 Other business
activities, which, besides the absolute size measured by GDP formation and employment, reports
continuous growth potential for macroeconomic indicators. In this respect, OKEČ 74.1. and 74.2. are
the main representatives of the group’s significance.
Other very significant groups are OKEČ 51 and 52, although in terms of growth potential and,
especially, the growth of productivity and profitability, their results are much poorer.
Above-average indicators in the macroeconomic analysis are also reported by selected groups under
OKEČ 45 (45.3 and 45.4), which in terms of size are among the most significant service groups and
enjoy a relatively good standard of growth criteria.
Summary of the results of the financial analysis
The best business performance measured by financial analysis indicators in the reporting period was
achieved by OKEČ 74 Other business services and OKEČ 72 IT activities. However, OKEČ 74 in
particular is not at all homogeneous as a service group, which is reflected in the differences reported in
the performance of individual services, where lower overall labour productivity – with wages well
below average – was particularly evident in group 74.6 Investigative and rescue services, and group
74.7 Industrial cleaning and general cleaning.
Above-average financial performance is also typical for selected services under OKEČ 45, especially
45.4 Construction finishing work.
A lower overall rating in the financial analysis is evident with the Distribution services under OKEČ
50 – 52, where the profit indicators are stagnating; this suggests a keenly competitive environment
with continuously narrowing profit margins. Furthermore, in these groups certain selected sections
(especially 50.1, 50.4, 51.3, 52) have recorded liquidity and debt ratios indicative of lower financial
power and stability among part of the business entities.
Recommendations for the suitability of promoting selected services
Based on the summary evaluation of all the selected indicators of the macroeconomic and financial
analysis, services have been selected with sufficiently high potential for a rise in exports and the
ability to make effective use of the proposed support of export activities.
At the same time, services have been defined which are suitable for the support of overall business
performance (support on the domestic market), where the main selection criteria are the identification
of potential for an increase in business performance and the sufficient size and significance of service
groups.
In terms of the overall evaluation, the following service groups were selected as best suited for the
support of export activities:
•
74.2. - Architectural and engineering services and related technical consulting; this group has
potential for further growth that is well above average and very good financial performance.
The total size of the group and the nature of the services support the proposition that it is
suitable for export support.
•
72.2 – Software publication, supply and consulting; a group of services that can be
characterized in much the same manner as 74.2.
•
45.4 – Construction finishing work; a group of services with high financial performance and
solid growth potential. In terms of its nature and exporting opportunities, this group is one of
the priorities for the application of export activity support.
•
45.3 – Construction and installation work; financially a less efficient group compared to the
related 45.4, but a service group that is sufficiently significant and suitable for exports.
•
51.1 – Wholesale mediation; based on an evaluation of relevant indicators, this group is very
suitable for the implementation of export activities; given the relative smaller absolute size of
the group, a smaller impact can be expected on the macroeconomic indicators.
•
51.5 – Wholesale of intermediate products; characteristics similar to group 51.1; slightly
worse financial performance, but considering its relatively higher significance, potentially it
could have a more positive impact on macroeconomic indicators.
•
50.2 – Repairs and maintenance of motor vehicles; adequate growth potential and the relative
size of the group means that, despite its lower financial performance, there is sufficient
opportunity to exploit the export potential of these services. Again, the nature of the service
makes it suitable for exports.
•
74.8. - Miscellaneous business activities; the evaluation of indicators indicates that it is
suitable for the support of export activities. However, this group is not homogeneous, and the
specific export suitability hinges on the nature of individual services within the group.
A proposal for support focusing on enhanced performance with the aim of reviving sector growth,
especially via the support of small and medium-sized enterprises;
•
OKEČ 52 – Retail; the increasingly keen competitive environment is forcing small and
medium-sized businesses to cut their sales margins and thus their overall profitability.
Reductions in business performance therefore make it impossible to ensure natural growth and
the development of domestic firms; their share (revenues, employment) in individual groups is
constantly falling. Support for an improvement in business performance here should focus
primarily on those groups of services where the competition from transnational corporations is
not so strong and domestic companies – including their growth potential – can be expected to
hold a relatively stable share. Mainly at issue here are OKEČ 52.2 and 52.4.
•
OKEČ 51 – Wholesale and mediation thereof; in terms of competition from transnational
firms, the situation here is not as striking as with group 52. In this context, it is possible here
to consider support which would focus on enhancing the competitiveness of services and
reviving growth. Services under OKEČ 51.3, 51.4 and 51.9 appear to be particular suitable for
support.
•
OKEČ 73 – Research and development; a very prospective group, albeit reporting low
financial performance at the moment. This is a classic example of services with long-term
high growth potential and the possibility of expanding exports to EU countries. Considering
the lower business performance and the derived lower competitiveness on an international
scale, the recommended first step is to promote activities focusing on the domestic market.
It is difficult to imagine how faster growth can be kick-started on the domestic market and
international markets without suitable and effective support from the state. With a view to the structure
of business entities within the BRS sector and the relative power that depends on the size of the
entities, we can assume that support will be targeted on small and medium-sized enterprises, which are
one of the key growth factors in developed economies.
Priorities for the support of business related services in the upcoming period should be:
•
support for areas with growth potential,
•
support for innovations, entrepreneurial spirit, economic growth based on knowledge via
capacities for research and innovation,
•
support for the development of human capital,
•
support for SMEs, especially in areas where access is opening up for services in research and
technological development,
•
support for the creation and development of business alliances,
•
support of export activities,
•
solutions to regional disparities.
From the aspect of the economy of the EU and individual Member States, a high pro-growth effect
should be cultivated by the adoption of the Directive on Services in the Internal Market, which aims to
form conditions on the EU’s single market that will permit a significant increase in GDP growth,
driven by increased performance in the service sector.