Methodology

5.2.1. INTERVIEWS

A number of face-to-face and telephone interviews were carried out with representatives of firms and industry associations. However, it turned out to be difficult to get hold of experts with knowledge of the relationship between services and manufacturing: only a few interviewees were able to provide a comprehensive view of the broad range of different fields in which services and manufacturing interact. Most interviewees were experts in specific areas, for which they provided detailed insights. Most of the interviews therefore focused on performance-enhancing services, such as IT services, IT-based services, R&D and engineering, which are precisely the areas that experienced the most pronounced and important changes in the period under investigation and where improvements in companies’ economic performance could be expected. This does not necessarily imply that these services are the most important in terms of their monetary value procured by manufacturing companies. For example, services such as wage and tax accounting, together with advertising, are responsible for a substantial, and more or less stable, share of business services (see Section 2).

5.2.2. SELECTION OF COUNTRIES AND INDUSTRIES

Four industries and six Member States were selected for this detailed investigation. The selection was partly based on the quantitative results reported in Section 2. The selection was supposed to represent three groups of countries for which distinct descriptive and econometric results were observed: large established Member States with mature economies are represented by France and Germany; for the smaller, advanced and open economies Denmark and Sweden are included; and finally, the Czech Republic and Poland represent the relatively new Central and Eastern European Member States.

Four manufacturing industries were selected: two medium-high- to -tech industries (transport equipment and machinery) and two so-called low-tech industries (textiles/clothing and food/beverages). The regression results reported in Section 3 suggest on average stronger productivity effects of services use for the first two industries, and weaker (or even insignificant) relationships for the latter two, although differences across countries and within industries are expected to be important.

The machinery industry is dominated by smaller enterprises, which – in spite of global reach by sales – have remained locally anchored. Typically, a machinery company’s production requires a broad range of different intermediaries, with the European supply chains supporting a competitive industrial cluster. Companies in the machinery industry are leading suppliers of services to their clients. In particular, manufacturers of final investment goods already gain large portions of their revenue from servitisation, such as maintenance.

The focus within the transport equipment industry is on the automotive industry, which has long been a trendsetter in advanced management methods and tools, in particular in supply chain management. Unlike the machinery industry, the automotive industry is characterised by large players and has been an early mover to invest globally, particularly in important sales markets. Foreign direct investment (FDI) is not only a strategy for individual larger players, but also for groups of companies and their suppliers. For example, original equipment manufacturers (OEM) and their important subcontractors have invested in new locations and have created manufacturing clusters.

The two low-tech industries selected for in-depth analysis – textiles and clothing, and food and

beverages – deliver products mainly to meet private household demand. The upstream linkages of these industries focus more on value chain management than is the case with the machinery and the

automotive industries, which put more emphasis on R&D and engineering. However, one must bear in mind that the industries are characterised by a dichotomy of different players. On the one hand, there are global players with footholds in nearly all important sales markets; they command large shares in their respective markets. On the other hand, most of the companies in both industries are medium-sized, with the majority focusing on regional markets or specific market niches.

In that respect, the textiles and clothing industry is a globalisation front-runner, with the production of clothing being labour intensive and carried out predominantly in low-wage countries. Spinning, weaving and other more automated upstream manufacturing processes have lost their proximity to downstream clothing manufacturers. This has caused much of the production of yarns, fabrics, etc. to follow its downstream clients to foreign locations. European manufacturers have come under pressure from two sides: first, from low-wage countries outside Europe and, second, from (European) distributors and retailers, who are increasingly able to exploit their bargaining-power advantages. In extreme cases,

companies have ceased to be manufacturers and have become providers of comprehensive services for the design, production, marketing and distribution of clothes. To this end, advanced supply chain management and servitisation have contributed to the survival of EU companies in a hostile market environment, albeit sometimes with the home countries having no remaining manufacturing capacities of their own.

The food and beverages industry is similarly heterogeneous. Some segments are dominated by large players, in particular the capital-intensive manufacture of intermediate products and of mass-market final products. Other segments are characterised by smaller enterprises, and the respective manufacturing activities are predominantly labour intensive. In contrast to the textiles and clothing industry, the food and beverages industry has remained regionally anchored. This is explained by several factors. First, there is a close linkage to the EU agricultural sector, and first-stage processing capacities are frequently located close to agricultural production. Second, the storage life of agricultural products and legal requirements (such as proof of origin) favour regional proximity. And, third, downstream linkages to distribution and retailing have become more important for successful enterprises, as with the textiles and clothing industry.