Services

The services sector comprises: - transport

- telecommunication services - financial services

- business services - personal services.

The air transport and telecommunications services sector is dominated by a few very large enterprises with SMEs playing hardly any role. Therefore, these sectors are discussed very briefly here, although a strong impact is expected from the European integration. The opening up of the air transport and telecommunications markets will cause more competition, and additional opportunities for SMEs: it will raise business opportunities for SME niche- players. Nevertheless, economies of scale in these sectors will continue to play an important role and will in a natural way (i.e. even without artificial restrictions) prevent a substantial market share for SMEs. Nevertheless, SMEs are indirectly involved in these developments, because a large number of SMEs supply all kinds of services to these sectors (catering, cargo services, etc). In road transport the movement and operation of vehicles throughout the European Community is partly restricted, and competition is considerably distorted by different national regulations on capacity and access to the road haulage industry and tariff control. A system of licences requires hauliers to apply for a limited number of permits in order to move goods between given Member States. In addition there is a general prohibition of ’cabotage’, that is the possibility for non-resident hauliers to collect and deliver loads within boundaries of another Member State. A liberalized regime for international road haulage in the European Community, including permission for ’cabotage’, will imply more competition at both international and national levels.

More efficient use of the actual capacity will reveal some overcapacity in the road haulage, which will in turn require enterprises to adapt to the expected requirements of the new business environment. Enterprises incapable of adap­ ting will be forced out of the market. However, the increasing flow of goods in the EC caused by the Single Market will increase the market as a whole. Enterprises with large international networks - working through ’hubs and spokes’ systems - can be expected. Through a network of ’hubs’ such large enterprises are able to provide transport services throughout (a major part of) the European Community. The ’spokes’ connect the ’hubs’ to smaller stop­ overs or the final destination and large enterprises will also play a major role here. So, large enterprises will dominate the regular flow of goods through ’hubs and spokes’ systems and SMEs will mainly have to depend on transport services which do not fit in this system or those transport services which are contracted out by the large enterprises in the ’hubs and spokes’. Thus the environment for SMEs in road haulage will shift from mainly independent operations to acting as subcontractors and the market share of SMEs is expected to diminish.

The financial services sector includes banking, securities markets and insuran­ ce. Freedom of establishment for foreign banks and insurance companies already exists in many Member States, although national regulations cause problems in conducting effective and efficient operations abroad.

Access to foreign markets in the European Community will be easier for enterprises in the financial service sector. Competition will be stronger especially in Member States where national regulations have previously prevented competition with foreign enterprises. Nevertheless, foreign enterprises face great difficulties in acquiring a considerable market share on their own, because of the high initial costs involved. Mergers and acquisitions seem to be a more appropriate method of entry to a foreign market or alternatively enterprises may decide to concentrate on market niches. These strategies are mainly viable for large enterprises with sufficient financial resources.

The distribution channel of financial services is often through a large number of agents. These agents provide services at the local level, because of the importance of face-to-face contacts with customers. SMEs in this line of business are mainly (in)dependent agents offering a large variety of financial services for a number of larger enterprises. Such distribution channels in the financial services sector will not change substantially, because face-to-face contacts with customers remain important. Nevertheless, the Allfinanz’ concept (i.e. the provision of banking and insurance services altogether) may lead to

the provision of simple insurance products (i.e. those products about which not much information is needed by the customer) through banking outlets. This may threaten the market position of the agents in providing these simpler insur­ ance products. Yet, the increasing variety of financial products will affect the search processes carried out by customers and lead to a growth in demand of customers for detailed information. Good opportunities arise for agents to meet the need for these more sophisticated and diverse products.

Important activities in the business services sector are: engineering and related services, management consultancy, commercial communications (including advertising), computing services, accountancy, audit services, legal services and research and development. In general the supply of most business services is not limited by barriers to cross-border trade. However, in engineering and related services and commercial communications trade barriers are of import­ ance. Government procurement can affect computing services and research and development, but it is considered to have only a moderate impact on trade. For certain business activities, including accounting and management consultancy, trade is conducted to a high degree through international networks or partnerships, and here trade barriers are considered to be of virtually no importance1. Overall the impact of the internal market on SMEs in the business services sector seems to be limited, because of the existing internationalization of the business services sector and the limited importance of trade barriers in the past.

Personal services comprise: hotels and restaurants; maintenance and repair; recreation and amusement; hairdressing and beauty services and several other services. In many European countries an acceleration in the growth of the personal services was observed in the 1980s2. A major cause of this revival are the evolving lifestyles connected with growing female labour force participa­ tion, individualization, increasing leisure and the ageing of the population. This is highly relevant for the SME sector, because many of these services are embedded in the local economy and offer excellent opportunities for tailor- made provision by small firms. A factor hampering personal services growth is the rising cost of these labour intensive activities. In some segments, e.g. fast food restaurants, new possibilities of increasing labour productivity have been developed through standardization and the use of part-time labour. It is

1 Directorate-General for Economic and Financial Affairs, The economics of 1992, European Economy, no. 35, 1988.

2 Economic Commission for Europe, Personal and Collective Services: an international perspective, Discussion paper, vol. 2, no. 1, 1992.

to be expected that the Internal Market will strengthen this trend and this will create opportunities for chains and increase competition between large and small firms.