The so-called ‘knowledge economy’ has given way to a whole range of new professional activities and occupations referred to as Knowledge Intensive Business Services (KIBS). This emerging sector is regarded as a fundamental contributor to EU competitiveness, largely due to its key role in providing non-core services to companies across the economic spectrum. Although a relatively young and unknown sector, its contribution to employment and growth across the EU in the coming years is expected to be paramount in the context of achieving the goals of the Lisbon Agenda. This dossier aims to provide an in-depth analysis of the trends and forces shaping KIBS and draws mainly on recent and original EMCC research, including a sector mapping report, company and cluster studies, future scenarios and foresight work.
As intangible assets and the power of knowledge become central elements in company strategies, the European economic landscape is being revitalised by a whole new range of specialised business services, known as Knowledge Intensive Business Services (KIBS) - representing 7.6% of the total economic output of the EU, while also providing employment for almost 15 million Europeans. The sector encompasses NACE classification business services Section K (70-74).
KIBS operate in a high growth environment which is fuelled by an expanding information and communication technologies market. Their role is to turn codified information and tacit knowledge into practical business tailored solutions. It is this ability that adds value for clients, while also offering a competitive advantage. To simplify their classification, KIBS may be grouped into ‘traditional professional services’, namely advertising, marketing and architectural services and ‘new technology based KIBS’, consisting of software design, engineering services and computer-related activities.
The KIBS sector is dominated by a few international firms, alongside a substantial number of small and micro sized business. In terms of location, the UK is the EU country with the highest concentration of KIBS. It is also notable that the four largest economies in the EU (UK, Germany, France and Italy) contribute to approximately three-quarters of the total KIBS sector output.
Trends and drivers of change in the European KIBS sector
The use of KIBS in fulfilling the need for expert services is a growing trend and one that is expected to continue in the foreseeable future. As technology becomes ever more present in business processes and workplaces, new support services and functions will arise. The role of KIBS and their contribution to EU competitiveness will also be largely dependant on the performance of manufacturing, since a solid manufacturing base will provide the foundations for success in business services.
Another important factor contributing to the growth of KIBS is the tendency of many firms to go back to basics and focus on core activities, thus externalising all tasks that can be better performed by specialised business service providers. This should inevitably also lead to a further expansion of KIBS and higher levels of employment, the creation of new occupations and growth in the sector.
The EMCC mapping report identifies other important drivers of change affecting the industry:
- Continued growth and business internationalisation
- The demand for new skills and human resources
- Capability to guarantee quality services
- The future of outsourcing and company location decisions
- The development of ICTs
- these drivers will combine to shape the future of Knowledge Intensive Business Services, in ways that are at present hard to predict, largely due to the relatively recent growth of the sector.
- full mapping report is available for downloading free of charge.
KIBS clusters in London and Helsinki-Tallinn
The EMCC sectoral study on KIBS includes two cluster studies from the city of London and the transnational region of Helsinki-Tallinn.
The City of London: Law firms as essential business service providers
The City of London is a world capital when it comes to financial activity. It is characterised by a high concentration of banks and financial services providers, law firms, insurance companies and professional services companies. Law firms, though, are the single largest employer in the city of London and have been growing rapidly in recent years as a result of expanding international financial services. They generated £1.4 billion or 1.4% of the UK’s GDP and provided employment for 267,000 people.
This cluster case looks at the legal services companies located within the famous City of London ‘square mile’. The focus is on the services that international law firms are providing for the ever-booming companies operating in the City of London, in particular with regard to corporate law, financial law, intellectual property, dispute resolution and real estate.
The City of London cluster study is available for downloading free of charge.
Helsinki-Tallinn: A trans-national cluster with strong historical ties
The two capitals cities of Helsinki and Tallinn have had strong historical and business links for hundreds of years. In recent times, both cities have taken considerable political steps aimed at integrating and enhancing economic and innovation-related cooperation. With Finland topping the productivity and innovation charts in numerous rankings and Estonia’s economy growing at three times the rate of EU25, the potential of this cluster is massive.
The long-term aim of the Helsinki-Tallinn region is to constitute a coherent twin region of science, education, art and knowledge based services. In this context, KIBS represent a corner stone of this strategy judging by employment growth figures for the period 1999-2003; 35% jobs growth in Estonia and 20% in Finland. These statistics achieved during fairly stagnant economic years demonstrates the increasing importance of KIBS within both nations in their drive to become top global knowledge-based economies.
The Helsinki-Tallinn cluster study is available for downloading free of charge.
Case studies in the European KIBS sector
The EMCC sectoral study on Knowledge Intensive Business Services also contains four company case studies of firms operating in different KIBS sub-sectors. These cases illustrate diverse approaches to change management and restructuring, as well as innovative business models, market strategies and the impact of current socio-economic drivers on company performance.
- Ogilvy & Mather Dusseldorf: this company is part of the largeglobal advertising agency network with headquarters in New York. The Dusseldorf branch specialises in providing ‘brand stewards’ for its clients, who are responsible for brand development, brand audit and brand print. In this way Ogilvy & Mather provides its customers with strategic insight and business applications, as well as creative communication solutions.
- Mandriva: this is a French company specialised in editing and managing Mandriva Linux System. Set up in 1998 and based in Paris, the company offers a complete range of software products and services to individuals in over 150 countries through dedicated distribution links and an on-line shop. Its rapid growth has lead to acquire a company in Brazil and future internationalisation is very much focused on the BRIC countries (Brazil, Russia, India and China)
- Simmons & Simmons: established in 1896, this law firm today employs almost 2000 people and has 20 offices located in major business and financial centres throughout Europe, the Middle East and Asia. The firm is currently focused on expanding and developing its international finance, corporate and litigation work in four main sectors - financial institutions, energy and infrastructure, technology and life sciences. Like most other firms in the sector, Simmons & Simmons is faced with a continuous need for service adaptability in a fiercely competitive business environment.
- Espion: this is an IT security business located in Dublin (Ireland) and employing a mere 14 staff. The company was founded in 2001 during the Celtic Tiger boom and is an example of entrepreneurship at its finest. Espion’s products and services range from security system design to comprehensive forensic investigation and security training. Although mostly operating in Ireland, Espion has a few clients in the UK and internationalisation is a serious prospect.
EMCC Scenarios for the European KIBS sector
The third part of the EMCC study on the KIBS sector presents the reader with four future scenarios. Scenarios are a powerful scientific tool aimed at presenting the future developments of an industry. They describe a plausible hypothesis about the future and provide a coherent description of the drivers and trends that may influence and change the subject of analysis over a period of time.
In this context, the EMCC scenarios gather a wide range of opinions on the major trends and drivers that will have a significant impact on the future of Knowledge Intensive Business Services over the next ten years. Four scenarios have been developed around the themes of globalisation, skills development in emerging nations and technological progress. The scenarios have been chosen to represent possible outcomes that are closely connected to the key themes. The four scenarios are:
- Increase in European Offshoring activities throughout the KIBS- this scenario looks at the implications for the KIBS sector of increased levels of off-shoring.
- Retrenchment- the second scenario analyses the impact of retrenching or ‘bringing back’ in-house off-shored business operations and the impact this would have on KIBS growth.
- Technological advances, intellectual assets and network capital- the third scenario considers the implications of further developments in terms of technology, intellectual assets and network capital and how these would affect KIBS strategies.
- Worldwide narrowing of the skills gap - the final scenario considers the changes that a converging level of skills development worldwide would have on KIBS.
- full set of scenarios are available for downloading free of charge.
Further relevant information sources