Growth challenges for the Dutch business services industry; international comparison and policy issues

This report summarises the findings of a study on the growth factors and growth prospects of the business services (BS) industry. It puts Dutch BS industry in an international comparative perspective, identifying its particular strengths and weaknesses. Lees ook het bijbehorende persbericht.The study sketches policy options for fostering the growth and welfare contribution of the Dutch business services industry.Chapter 2 chapter untangles factors behind the extraordinary growth of the BS industry during last decade, comparing it with other market industries. It analyses how the growth pattern is affected by product differentiation and the structure of competition. Particular attention is given to the role of foreign competition.Chapter 3 deals with the impact of BS industry on the growth capacity of other industries. It shows how intermediary BS inputs can put other industries on a higher growth path that is associated with a higher specialisation level in labour and human capital (increased roundaboutedness). Knowledge-intensive BS branches not only generate their own innovations (e.g. software industry) but also contribute to the dissemination of best-practice knowledge and innovations throughout the economy. Remarkably, the BS industry has itself a very poor record of productivity growth. Over time, with a growing BS industry, this may become a drag on macro-economic growth if current trends will continue.Chapter 4 pinpoints the main aspects in which the Dutch BS industry differed from its foreign counterparts, showing its comparative strengths and weaknesses. The strengths appear to be associated with its very fast growth and its relative openness to foreign competition. The main weaknesses relate to meagre innovation efforts and a stagnating labour productivity growth.Chapter 5 provides a scenario analysis of the future growth of Dutch BS industry, covering the period till 2010. Apart from general GDP growth, six driving forces determine the growth outcomes for BS industry: technological change; outsourcing tendencies; final domestic demand structure; internationalisation tendencies; institutional developments; and structural changes in factor markets. Two coherent scenarios, an optimistic and a pessimistic one, sketch the possible courses of events. The chapter concludes with a quantitative projection of BS growth until 2010.Chapter 6 identifies future-oriented policy issues, after identifying the dominant market failure problems with regard to the BS industry. The main policy options relate to: strengthening the BS industry's own productivity development; achieving more market transparency; getting more exposure of markets to foreign competition; and strengthening the innovation contribution of the BS industry.