New business models insufficient to offset pressure on business services

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The reviving economy offers a foundation for market growth for the business services. However, ABN AMRO believes that structural developments are having a negative impact on volumes and turnovers.

Market under pressure from structural factors

Prices for routine work are under permanent pressure, operators from other sectors are entering the market and clients are doing more and more work by themselves. Clients moreover are only willing to pay for services that add value. Any work that does not centre on knowledge transfer – cleaning, for example cleaning – is expected to be provided at the lowest possible cost. More and more clients are also considering the extent to which business service providers can contribute to their earnings.

New business models offering little compensation as yet

Business service providers are performing routine work as efficiently and as cheaply as possible and are lowering their costs. They are also increasingly targeting other sectors: accountants are entering the market for legal services, for example. Yet ABN AMRO does not believe that these solutions will create a larger market. One solution that holds potential is offering simple products at very low prices, in the hope that the new clients will procure complex products. Business service providers are also making their expertise available to solve their clients’ problems. This strategy represents a shift on the part of service providers into partnerships with their clients, greater knowledge intensity in the services, improved added value and a larger market. ABN AMRO emphasises, though, that it will take time for these new business models to compensate for the structural pressure on the market for business services.

Temp agencies and management consultancy firms benefitting most from recovery

During the first six months of 2014, turnover in the business services rose by 3.0 percent per quarter relative to the same period the previous year. However, not all sectors are benefitting from the economic recovery. For example, the economic revival has not yet helped restore the turnovers of accountants, cleaning companies or security firms: turnover in these sectors fell by 0.9 percent, 1.3 percent and 0.7 percent respectively per quarter during H1 of 2014. Accountants’ fees were under significant pressure. Cleaning companies and security firms are similarly facing great pressure on their rates, as well as diminishing numbers of buildings and office spaces. Management consultancy firms and temp agencies are growing fastest, recording average growth rates of 3.5 and 3.7 percent per quarter, respectively. ABN AMRO expects that turnover and volumes will eventually improve in the near future, however, though at different rates of growth in each sector. 



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