The future of the services sector in Europe

The UK is the leading country in Europe in opening its market to players from all Member States and from the rest of the world. So how will current European developments in the services sector impact on our sector and its players, and what will be the implications for companies wishing to provide services into another Member State of the European Union? I have just returned from a major conference in Brussels where 300 delegates spent two days discussing the future of the services sector in Europe. While there were six delegates accredited as from the UK, only three of us worked in the country and only one represented services companies. This could have been for a variety of reasons that may have included ignorance or apathy regarding this important draft piece of European legislation.

Services form a major part of the European economy. In 2003 they accounted for over 50 per cent of the market economy and two out of three new jobs created. The European Commission has undertaken major research into the services market across Europe, which has convinced it that much more has to be done to support services and to recognise the contribution that the sector makes to the European economy.

In 1985 Lord Cockfield, then the British Commissioner within the European Commission, set about establishing a single market within Europe. While this had been a vision of the founding fathers, it was recognised that it had not become a reality. By 1992 it was 90 per cent there. The major exception was services. Since then there have been a number of nibbles at the edges in areas like telecoms, financial services and professional services but the major part of the sector has remained untouched. In reality, the single market in business-related services is at best dysfunctional and at worst non-existent. Much of the blame for this rests with national governments and service providers who prefer to retain national barriers in favour of their own companies.

In order to understand the issue it is necessary to define business-related services. The Commission has done this first, through its Report on the Internal Market in Services published in 2003 and latterly through the findings of the European Forum on Business-Related Services (of which the author was a member) that reported early last year. It set out clear classifications within the sector, probably for the first time. Within that, operational services - that is, the types of services provided by facilities services and management companies - feature prominently. For the remainder of this article, therefore, I shall refer to operational services as so defined.

In reality, business-related services and, particularly, operational services tend to be delivered nationally - that is, it is necessary to have a national base of operations to carry out the services concerned. This becomes clear when we consider the way in which facilities services are delivered. This has allowed the introduction or perpetuation of national and local restrictions where it is desired to retain local monopolies. The UK is the leading country in Europe in opening its market to players from all Member States and from the rest of the world. Even where FM is carried out on a cross-border basis, for example in European FM contracts, provision is necessarily carried out through national subsidiaries or subcontracted national operators. It is recognised that this is unlikely to change because of the nature of these services.

One of the reasons that interest in the European market and what the European Commission is doing to reform it has not come to prominence earlier is that in most cases only large UK service companies tend to have an interest in providing services out of their own country. In those cases, companies have set up national subsidiaries and have learned to accept the rules of engagement - often, to purchase a national company in order to build up its new local business. This has a great element of commercial sense but should be one option, not the only prescribed route. Despite the fact that a number of their leading players are now operating in the UK, it is easy to forget that there are highly developed sectors in some areas of facilities services in other Member States.

Against this background, the European Commission published in 2002 the draft Services Directive. This sought to provide the basis for an effective internal market in the provision of services across all 25 Member States of the European Union. For two years the European Parliament has wrestled with the original text and concepts and in April agreed its first reading, which proposed a large number of amendments to the Commission's original draft - almost all of which have been subsequently accepted by the Council of Ministers. These included removing the so-called "country of origin" principle (under which any services company authorised in its own 'home' country could carry on business in any other Member State without further authorisation) and inserting new proposals under which any company wishing to do business in another Member State, while not requiring to be re-authorised, must nevertheless comply with reasonable national regulations as they apply to the national companies of that Member State (effectively a system of mutual recognition plus 'host' state regulation). Since this is not a technical article I shall not go into the detailed provisions of the draft directive but pass to the major practical result of the current activity.

What will this mean for companies wishing to provide services into another Member State of the European Union?

First, it will result in an increasingly open market in which facilities service companies will be able to do business (should they so wish) across frontiers. Since the UK is the most open market in Europe we do not understand fully the petty restrictions currently placed on cross-border service provision in some mainland European countries. They defy belief in their pettiness and protectionism. We are also not accustomed to being within 30km of the boundary of four different countries as is possible in some parts of Europe and, thus, are less aware of the frustration of not being able to carry on normal business across these frontiers.

Secondly, it certainly will not mean that national offices or subsidiaries will no longer be required but it will mean that any national or local restriction will have to be justified in terms set out in the new draft Directive. These will need to respect the principle of proportionality and will need to be neutral in respect of national and foreign-owned companies setting up or carrying on business in another Member State. In order to assist further in this process each Member State will have to set up a single point of contact for all new operators from other member States, which will act as a central co-ordinator to assist in the processing of all the necessary national bureaucracy. DTI is currently consulting on how this will operate in the UK. Other Member States are or will be doing likewise.

Thirdly, therefore, it will make it easier for UK facilities service companies to do business in other countries within the European Union within the next four or five years. Both the European Commission and the Parliament are determined that reaching final approval on the draft directive should not be a long, drawn-out process. In theory it could be approved by the end of the Austrian presidency in December and then in operation two years thereafter.

Fourthly, it will certainly open up the European market and help companies to develop into bigger players. There are already a good number of these but the implementation of the directive will certainly give the opportunity for others to become trans-national operators. This has to be good for business and the spread of the knowledge and acceptance of the benefits of the use of facilities services companies as opposed to direct provision of these services.

Fifthly, and finally, it will increase the competitiveness of UK facilities services companies and will open our market to greater competition. Our competitiveness will be increased since UK companies should find it easier to do business in other Member States. This will allow them to use their leading-edge knowledge to infiltrate other markets and to raise the standard of facilities services and management. There are already a number of useful and laudable initiatives in place to raise the standards of professionalism among individuals: this will allow them to transmit through companies.

Equally, increased cross-border trade will result in the UK market seeing more new players wishing to enter it and to play an active role in its continuing development and expansion. As we look towards the Olympic Games to be held in the UK in 2012 and, among other major initiatives, the Thames Gateway Regeneration project we shall need these new players to help us deliver the high-quality services and workforce required to make them highly successful. This, in turn, will strengthen the value of facilities services to the UK economy and the profile and professionalism of the services we provide.

Against all this, we must not forget that often the most difficult issues in cross-border service provision are not legislative but non-legislative. They include culture, language, lack of mutual recognition of professional and vocational qualifications and local 'bias'. These can be barriers that are even more difficult to overcome because they are 'softer'. It will take a longer time before these are broken down even if legislation can remove others.

In this article I have sought to give a very broad overview of European developments and how they may affect our sector and its players. I wonder what the same article might have to say in 2011?

About the author
Norman Rose is Director-General of the Business Services Association (BSA). He is a member of the Business Services Sector Expert Group of DTI and the Chairman of SITPRO, the international trade facilitation body. He is also Chairman of the European Business Services Round Table and a member of the European Commission's Forum on Services in the Internal Market (EFOSIM)

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