Rising volumes boost top line of Dutch business services:
- Turnover growth: volumes rise, prices stay level.
- Fragmentation puts extra pressure on prices.
- New business models mostly still in development.
Turnover growth varies considerably among sectors
Economic growth in 2014 has resulted in an impressive increase in demand for business services in the Netherlands. Over the year the turnover of the sector as a whole rose by nearly 4 percent, making 2014 the best growth year since 2009's recession. However, growth numbers were rather diverse from one sector to another. The main growth driver was an upward trend in volumes, while prices remained nearly flat. Especially notary offices benefited from rising volumes last year, as sales of existing homes picked up again. Employment agencies, too, took a turn for the better in 2014, achieving an increase in total staffing hours and a big rise in turnover. Meanwhile, business service providers in other market segments are struggling with declining volumes, but fortunately prices remain solid. Examples include cleaning and security businesses, which have had to adjust to the effects of flexible working: as people work more at home or on the go, demand for office cleaning and security services declines. ABN AMRO is expecting 2014's upward trend to continue and projects average turnover growth of 4.5% for the Dutch business services sector as a whole for the next two years.
Fragmentation puts pressure on prices
Pressure on prices is not only a result of increasingly discerning customers, ABN AMRO observes, but is also caused by the steady decline of the average business size. Between 2007 and 2014 the number of self-employed people has soared by nearly 90 percent, while there was just a 10 percent rise in the number of businesses with two or more employees. Nowadays almost 85 percent of business services companies are in fact freelancers. The degree of fragmentation varies, however. ABN AMRO observes that consulting firms and accountants are the most fragmented segments, with temporary employment agencies and bailiffs the least fragmented. The rising number of self-employed means stiffer competition for smaller orders, and this has led to more pressure on prices.
New earnings models still in development
Service providers are coming up with new business models to cope with structural bottlenecks. For instance, to secure revenue, they offer inexpensive standard services through online channels, hoping to attract clients who may also start purchasing more complex products. ABN AMRO notes that in many sectors, companies are aspiring to build partnerships with their clients. They apply their expertise to solve clients' problems: for example, a security firm focusing on increasing business continuity for its clients. ABN AMRO stresses the fact that many of these new business models are still in development and have yet to prove themselves, which means some time will pass before they start influencing top-line growth.