Archive for the ‘industry sectors’ Category

Fresh from the press: German service economy lags in international comparison

Without changing the new theme of this blog, I want to point out to a new report from the German Institute for Economic Research. According to this report on German exports (abstract in German), the German service sector is lagging in international comparison. Although Germany is still strong in the export of goods, in particular with the automobile and heavy industry, its service share of all exports of 13% in 2005 falls way behind that of other developed countries. According to the institute, this is in particular significant since the economic weight is shifting from the industrial to the service sector. 

I won’t say “I told you so”, but will point instead to this post. ;-) 

As others before, however, the institute sees innovation in R&D and in human capital as the solution to this problem. It still amazes me that these “think tanks” don’t make the connection with the poor service mindset in Germany as one of the key causes of this problem.


Implications for Germany-based companies

In a closed economy, the low customer service levels offered by many German companies may have been sufficient to satisfy the apparently low customer service levels expected by German consumers. In the global economy, however, German companies are competing with foreign companies in Germany and abroad. Foreign companies from service-minded societies like the US or Japan have a clear advantage to better satisfy customer needs and show German consumers what they are missing. 

The German economy has been lagging the economies of other developed nations for a while. Although there are several drivers of this situation, one needs to consider the – in a global comparison – poor service levels that are impacting the German economy. These poor service levels may be one of the reasons for the relatively low share of service jobs in comparison with the US (see charts below).

US employment by economic sector

German employment by economic sector

In the US, 85% of employees work in the service sector, in Germany only about 65%. In the US, the service sector has been the source of most new jobs as industries like health care, consulting, and food service have grown rapidly. In Germany, on the other hand, the slightly growing service sector has not been able to make up for the declining manufacturing jobs.  

According to a Deutsche Bank research, Germany’s GNP per capita has been declining and the decline is expected to continue since Germany missed to develop and follow a consequent growth strategy. Could there be a correlation between only slowly growing service sector and declining GNP per capita?

Importance of the service economy

Most economies go through three stages of economic development: primary, secondary, and tertiary. The primary stage is driven by labor- and natural resource-intensive agriculture, the secondary by capital-intensive industry, and the tertiary by knowledge-intensive services. The economies of the developed nations have been moving from the primary to secondary and to tertiary economies over the past hundred or so years.

The majority of developed countries’ gross national product (GNP) is already derived from services. And the majority of employees work in services businesses. These service businesses span all industry sectors and range from a one-person laundry service, through medium-size retail outlets, to large IT service companies.

The importance of services in developed economies will continue to grow. The outsourcing of agriculture and manufacturing jobs to developing countries will continue, leading to even higher share of services in the overall economy.

As shown in the graph below, the importance of the service sector is significant in developed countries. And since Germany participates in the global economy, it should ensure that its service offerings and service levels are competitive.

Employment by economic sector in 2003