Descripción del proyecto

This study has clearly confirmed the existence of knowledge spillovers of business services, especially for knowledge-intensive and creative services (advertising and market research, design, engineering consulting services). These positive effects create room for policy makers to further promote these spill-over effects.

Promoting spillover effects starts with contributing to good quality service providers. This means first that it is important that education is geared towards requirements of the market. In the study, we found there is a particular concern about the availability of labour with the right skills in engineering consulting, where the science, mathematic and technological skills appear to be lacking. There are various initiatives (mostly at national level) to improve the situation, which could be further promoted. A forum where Member States could meet, exchange information and learn from each other could be a viable first step. In design, education was found to be still focused on ‘pure’ design, rather than on ‘design thinking’ which has become more important in the market, and involves among others working multidisciplinary teams. Initiatives to create more linkages between education and business and the sector could help to reduce this problem. Increasing the availability of skilled staff would also contribute to reducing entry barriers (section 9.3).

Closely related to the above are the positive effects of co-operation between universities and business service providers, to make sure on the one hand that science focuses on issues that are important to solve current and future society demands (e.g. increasing energy efficiency) and on the

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other that innovations are commercialised. Business representatives in university boards, co- operation between business service providers, universities and possibly also clients in for instance FP7 projects should therefore be stimulated. A study by Nesta (2008) reports that creative industries can foster innovation in their clients. Stronger business linkages between creative services and their industrial clients tend to go along with stronger innovation performance. Combining expertise from university research and creative services consultancy could further enhance knowledge creation and spill-overs into downstream manufacturing industries. An example would be the combination of academic technological know-how and design and marketing expertise to promote energy and resource efficient production and consumption. In general, universities are more open towards cooperation with business to develop applied knowledge for use in innovative product and process solutions that are commercially viable and socially beneficial. Government initiatives that recognize this potential for complementarities, synergy and spill-overs between university research, business services and industrial clients are increasingly common, both at national level and at the EU level (e.g. FP research programs).

In order for business services providers to keep contributing to innovation of the clients, it is also important they will innovate themselves and invest in this. Policy could play a role in creating the right incentive structure, e.g. with financial, fiscal or institutional incentives. Also better protection of IPRs could benefit innovation in the sector. The sector studies confirmed that that business service providers hardly protect their IP. This is an area that should be further investigated. The case study for advertising and market research pointed at the increasing importance of the design and governance of IPR in a context where cross border trade in creative services is growing fast, business models of agency-client interaction are changing and new flexible arrangements of services provision (e.g., crowdsourcing) emerge. IPR policy is important in shaping the incentives for innovation and risk taking in services provision. A successful marketing campaign can be extended across borders or partly inspire new campaigns, leading to spill-overs of knowledge and appropriation of rents. The arrangements for who owns what in terms of IP, which constructions for licensing apply, and which parts of intellectual assets should be protected or not are important for the continued development of productivity, effective service provision and shared efforts in co- production.

New developments in ICT are an important channel for innovation in business services and in enhancing interaction with client sectors. ICT investments can help firms to increase productivity by allowing them to expand their product range, customize their products, reduce inventories and respond better to client demands. Web based advertising and market research offer examples of how new ICT technology can help to create new value for clients in terms of targeting consumer markets, involving consumers in product development and generating brand loyalty by associating to consumer life styles. Although ICT investments by EU service sectors have contributed to productivity, the impact on productivity growth has been much lower in Europe than in the U.S., Australia and Canada. This holds in particular since 1995 (e.g. Triplett and Bosworth 2006). In the EU, the UK and Finland appear to have been best able to generate productivity growth in services. This low productivity growth, in particular for business services, contributes to explaining the gap in productivity growth between the EU and the aforementioned countries. The uptake of ICT

investments has not yielded the same level of productivity advantages in the EU. Empirical research has uncovered a link between the extent of competition and regulatory burdens in services and productivity growth. Particularly for technology-driven ICT producing and ICT using sectors, weak competition and regulatory burdens (such as regulation-linked start-up costs, labour inflexibility and exit costs) are harmful for productivity growth. ICT can and does play an important role in the way business services contribute to economic performance and development. However, specific factors that limit competition and market selection in service sectors, such as regulatory

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burdens, need to be addressed to increase uptake of ICT and improve innovation capacity in business services.

Sustainability is another direction that business services could take in order to boost their performance. The sector studies have shown that business services (notably design and

engineering services) have played an important role in finding solutions that contribute to a better sustainability.For example, in the engineering consulting study, the engineering of the Shell Technology Centre is a case in point. The design process for this Centre (led by an engineering consultancy) resulted in a building where all electricity is generated by a North Sea wind farm and it includes other notable features such as an underground thermal storage system that controls indoor temperature. Compared to conventional installations, it is estimated that the new building produces 60% lower CO2 emissions.27 Also design can have an impact on the environment in different ways (Deniz 2002): e.g. through the extraction of raw materials, e.g. by minimizing the total amount of materials required and opting for the least polluting materials (‘material design’), through the design of the manufacturing process focusing on the reduction of energy consumption and the minimisation of waste and pollution process (‘process design’), through how the product is used and distributed and what happens when the product reaches the end of its useful life (e.g. bio plastics that break down in salt water). But also in a business service sector like industrial cleaning there are sustainability issues, like the use of environmentally friendly cleaning products. Given the EU’s focus on sustainable growth (see e.g. Europe’s 2020 strategy and policy initiatives like the energy efficiency plan 2011 and the Sustainable Consumption and Production and Sustainable Industrial Policy Action Plan)28 and the new industrial change that is linked to it29, this is an area for continued growth. In various EC Communications on industrial policy, the important role of business services in the value chain (both in terms of innovation and competitiveness) is recognised, and several planned policy initiatives will also be relevant for business services (e.g. standards, IPR, access to finance). It is important that the policies will take into account the specific needs of business services, given their role in the value chain.

Procurement could foster innovation. One of the findings is that large private clients are more open to (or even stimulate) innovative solutions from business service providers than governments and small clients. As innovation and its effects are difficult to measure, there is often a focus on other factors, notably price in public procurement. The development of key performance indicators (KPIs) has been put forward as a way to make the innovative tenders more transparent without using price as the decisive factor. For instance, the European Electricity Grid Initiative has developed a number of KPIs which sets out to measure, ex ante, the economic effectiveness of the innovations. It is however not always easy to develop such indicators. The sector itself could be challenged to develop performance indicators which would help to put more emphasis on innovation and quality.

Another possibility to promote more attention to quality and innovation in procurement is put forward by the engineering consulting sector. This sector suggests putting increased focus on the life-cycle of built assets (initiative-initiation-design-construction-usage-end of life). This means that clients will be made more aware of the effects of the solutions in the long-run. For example, if a certain innovative solution may be more expensive, but will result in a significant reduction of annual energy costs that outweigh the initial additional investment costs, this innovative solution is more likely to be selected. This is interesting to explore further. Possible drawbacks like the need to make more technical information available to bidders beforehand and the tendency of bidders to overestimate long-term effects need to be taken into account.

27

See http://www.arcadis.com/Projects/Shell_Technology_Centre_Amsterdam.aspx.

28

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 25 June 2008 on the ‘Sustainable Consumption and Production and Sustainable Industrial Policy Action Plan’ [COM(2008) 397 final].

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These possible ways to award innovation in procurement are particularly relevant to technical innovation (e.g. in engineering consulting and to some extent design) rather than more soft (non- technical) innovation found in marketing and design. This is partly related to the fact that these are experience goods- you only know the value of these products after they have been produced. But still these providers could also think of KPIs themselves, or make their price bid partially dependent on attaining certain achievements.

In advertising it was found that physical proximity between service providers and clients can also be important to create or enhance knowledge spill-overs. Also co-location of creative and other innovative industries is found to have positive spill-over effects. Governments may therefore enhance knowledge spill-overs by creating incentives for relevant sectors and companies to locate in certain locations (e.g. in business parks, or shared office buildings/old factories).