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Contracted-Out Services - Market ReviewPublished by: Key Note Publications Ltd Published: Aug. 1, 2004 - 170 Pages Table of ContentsExecutive Summary 1. Industry Overview REPORT COVERAGE Definitions Standard Industrial Classification Other Key Note Reports REPORT BACKGROUND Historical Background Recent Legislation Compulsory Competitive Tendering Employment Legislation ECONOMIC TRENDS Population Table 1.1: UK Resident Population Estimates by Sex (000), Mid-Years 1999-2003 Gross Domestic Product Table 1.2: UK Gross Domestic Product at Current Prices and Annual Prices (£m), 1999-2003 Inflation and Unemployment Table 1.3: UK Rate of Inflation and Actual Number of Unemployed Persons in the UK (% and million), 1999-2003 Household Disposable Income Table 1.4: Household Disposable Income per Head (£), 1998-2002 MARKET SIZE Table 1.5: The UK Market for Contracted-Out Services by Value at Current Prices and Constant 2000 Prices (£m and index 2000=100), 1999-2003 MARKET SEGMENTATION Canteens and Catering (SIC code 55.5) Computer and Related Activities (SIC code 72.0) Research and Development (SIC code 73.0) Legal, Accounting and Market Research Services (SIC code 74.1) Architectural and Engineering Services (SIC codes 74.2 and 74.3) Advertising (SIC code 74.4) Labour Recruitment and Personnel Services (SIC code 74.5) Investigation and Security Services (SIC code 74.6) Industrial Cleaning (SIC code 74.7) Washing and Dry Cleaning (SIC code 93.01) Miscellaneous Business Activities (SIC code 74.8) INDUSTRY STRUCTURE Concentration Number of Businesses Table 1.6: Number of UK VAT-Based Enterprises in the Contracted-Out Services Industry by Turnover Sizeband (£000, number and %), 1999 and 2003 Employment Table 1.7: Number of Employee Jobs in the Contracted-Out Services Industry in Great Britain by Sex and Type of Contract (000 and %), September 1999 and 2003 Facilities Management MARKET POSITION KEY TRENDS Cross-Border Services Offshore Outsourcing Impact of Employment Legislation Developments in Facilities Management Definition Recent Trends Sector Skills Council KEY TRADE ASSOCIATIONS AND PROFESSIONAL BODIES British Institute of Facilities Management Business Services Association Cleaning and Support Services Association Facilities Management Association International Facility Management Association 2. PEST Analysis INTRODUCTION POLITICAL FACTORS Public/Private Partnerships and the Private Finance Initiative Regulation ECONOMIC FACTORS Relationship with the UK Economy International Trade SOCIAL FACTORS Environmental Protection Employment Legislation and Regulation 'The Two-Tier Workforce' Transfer of Undertakings (Protection of Employment) Regulations Working Time Regulations 19 (as amended) National Minimum Wage Act 1998 (as amended) Employment Act 2002 Other Social Legislation Disability Discrimination Act 1995 Human Rights Act 1998 Tobacco Advertising and Promotion Act 2002 Nationality, Asylum and Immigration Act 2002 TECHNOLOGICAL FACTORS Information Technology Other Technological Developments 3. Key Note Trade Research INTRODUCTION REPORTED COMMITMENT TO CORPORATE SOCIAL RESPONSIBILITY Table 3.1: Reported Commitment to Corporate Social Responsibility Among the UK's Top Ten Providers of Contracted-Out Services, 2003 INDIVIDUAL COMPANY POLICY STATEMENTS Compass Group PLC PricewaterhouseCoopers LLP Computacenter PLC KPMG LLP Rentokil Initial PLC AMEC PLC Hays PLC WS Atkins PLC SUMMARY 4. Competitive Structure THE MARKETPLACE MARKET LEADERS Table 4.1: The Top Ten Companies in the UK Market for Contracted-Out Services by Turnover (£m), 2002/2003 Compass Group PLC EDS International Ltd PricewaterhouseCoopers LLP Computacenter PLC Fujitsu Services Holdings PLC KPMG LLP Rentokil Initial PLC AMEC Capital Projects Ltd Hays PLC WS Atkins PLC OUTSIDE SUPPLIERS/CONTRACTORS MARKETING ACTIVITY Main Media Advertising Table 4.2: Major Main Media Advertisers of Contracted-Out Services (£000), Years Ending December 2002 and 2003 Exhibitions, Conferences and Trade Shows 5. Canteens and Catering DEFINITION KEY TRENDS Branding Diversification MARKET SIZE Table 5.1: The UK Canteens and Catering Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 5.2: Number of UK VAT-Based Enterprises in the Canteens and Catering Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 5.3: Number of Employee Jobs in the Canteens and Catering Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies British Hospitality Association Hospital Caterers Association Other Specialist UK Associations European Federation of Contract Catering Organisations MAJOR PLAYERS Compass Group PLC Sodexho Ltd BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 5.4: The Forecast UK Canteens and Catering Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 6. Computer and Related Activities DEFINITION KEY TRENDS Offshore Outsourcing Sector Skills Council for IT, Telecoms and Contact Centres MARKET SIZE Table 6.1: The UK Computer and Related Activities Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 6.2: Number of UK VAT-Based Enterprises in the Computer and Related Activities Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 6.3: Number of Employees Jobs in the Computer and Related Activities Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies Intellect European Information, Communications and Consumer Electronics Technology Industry Association World Information Technology and Services Alliance MAJOR PLAYERS EDS International Ltd Computacenter PLC ADVERTISING AND PROMOTION BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 6.4: The Forecast UK Computer and Related Activities Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 7. Research and Development DEFINITION KEY TRENDS Expenditure on Research and Development MARKET SIZE Table 7.1: The UK Research and Development Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 7.2: Number of UK VAT-Based Enterprises in the Research and Development Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 7.3: Number of Employee Jobs in the Research and Development Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies Applied Industrial Research Trading Organisations Association of the British Pharmaceutical Industry MAJOR PLAYERS GlaxoSmithKline Research & Development Ltd Qinetiq Ltd BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 7.4: The Forecast UK Research and Development Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 8. Legal, Accounting and Market Research Services DEFINITION KEY TRENDS 'One-Stop Shops' Public Relations and Management Consultancy MARKET SIZE Table 8.1: The UK Legal, Accounting and Market Research Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 8.2: Number of UK VAT-Based Enterprises in the Legal, Accounting and Market Research Services Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 8.3: Number of Employee Jobs in the Legal, Accounting and Market Research Services Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies British Market Research Association Chartered Institute of Management Accountants Commercial Bar Association Institute of Chartered Accountants in England & Wales Law Society Market Research Society ESOMAR MAJOR PLAYERS PricewaterhouseCoopers LLP KPMG LLP BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 8.4: The Forecast UK Legal, Accounting and Market Research Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 9. Architectural and Engineering Services DEFINITION KEY TRENDS Consulting Engineering Market Impact of Environmental Legislation MARKET SIZE Table 9.1: The UK Architectural and Engineering Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 9.2: Number of UK VAT-Based Enterprises in the Architectural and Engineering Services Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 9.3: Number of Employee Jobs in the Architectural and Engineering Services Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade and Professional Associations Association of Consulting Engineers Royal Institute of British Architects MAJOR PLAYERS AMEC Capital Projects Ltd WS Atkins PLC BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 9.4: The Forecast UK Architectural and Engineering Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 10. Advertising DEFINITION KEY TRENDS Market Developments Restrictions on Tobacco Advertising MARKET SIZE Table 10.1: The UK Advertising Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 10.2: Number of UK VAT-Based Enterprises in the Advertising Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 10.3: Number of Employee Jobs in the Advertising Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies Advertising Association MAJOR PLAYERS Aegis Group PLC WPP Group PLC BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 10.4: The Forecast UK Advertising Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 11. Labour Recruitment and Personnel Services DEFINITION KEY TRENDS Market Conditions Asylum and Immigration Legislation Public-Sector Employment MARKET SIZE Table 11.1: The UK Labour Recruitment and Personnel Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 11.2: Number of UK VAT-Based Enterprises in the Labour Recruitment and Personnel Services Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 11.3: Number of Employee Jobs in the Labour Recruitment and Personnel Services Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies Association of Search & Selection Consultants Recruitment & Employment Confederation MAJOR PLAYERS Hays Personnel Services Ltd Manpower PLC BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 11.4: The Forecast UK Labour Recruitment and Personnel Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 12. Investigation and Security Services DEFINITION KEY TRENDS Regulation of the Private Security Industry Aviation Security MARKET SIZE Table 12.1: The UK Investigation and Security Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 12.2: Number of UK VAT-Based Enterprises in the Investigation and Security Services Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 12.3: Number of Employee Jobs in the Investigation and Security Services Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies Association of Police and Public Security Suppliers British Security Industry Association MAJOR PLAYERS Securicor PLC Reliance Security Services Ltd BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 12.4: The Forecast UK Investigation and Security Services Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 13. Industrial Cleaning DEFINITION KEY TRENDS Environmental Issues Employment Legislation MARKET SIZE Table 13.1: The UK Industrial Cleaning Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 13.2: Number of UK VAT-Based Enterprises in the Industrial Cleaning Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 13.3: Number of Employee Jobs in the Industrial Cleaning Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies Association of Building Cleaning DSOs Association of Domestic Management British Cleaning Council Cleaning and Support Services Association MAJOR PLAYERS OCS Group Ltd Rentokil Initial PLC BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 13.4: The Forecast UK Industrial Cleaning Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 14. Washing and Dry Cleaning DEFINITION KEY TRENDS Environmental Trends MARKET SIZE Table 14.1: The UK Washing and Dry Cleaning Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 14.2: Number of UK VAT-Based Enterprises in the Washing and Dry Cleaning Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 14.3: Number of Employee Jobs in the Washing and Dry Cleaning Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 Trade Associations and Professional Bodies Guild of Cleaners & Launderers Textile Services Association European Textile Services Association MAJOR PLAYERS The Davis Service Group PLC Rentokil Initial Services Ltd BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 14.4: The Forecast UK Washing and Dry Cleaning Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 15. Miscellaneous Business Activities DEFINITION MARKET SIZE Table 15.1: The UK Miscellaneous Business Activities Sector by Value at Current Prices and Constant 2000 Prices (£m), 1999-2003 SUPPLY STRUCTURE Number of Businesses Table 15.2: Number of UK VAT-Based Enterprises in the Miscellaneous Business Activities Sector by Turnover Sizeband (£000, number and %), 2003 Employment Table 15.3: Number of Employee Jobs in the Miscellaneous Business Activities Sector in Great Britain by Sex and Type of Contract (000 and %), September 2003 MAJOR PLAYERS BUYING BEHAVIOUR FORECASTS 2004 TO 2008 Table 15.4: The Forecast UK Miscellaneous Business Activities Sector by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 16. A Global Perspective SHARE OF GDP TAKEN BY SERVICES BUSINESS SERVICES The Largest Sectors Role of Small and Medium-Sized Enterprises 17. The Future INTRODUCTION Table 17.1: Forecasts for the UK Economy (% and million), 2004-2008 FORECASTS 2004 TO 2008 Table 17.2: The Forecast UK Market for Contracted-Out Services by Value at Current Prices and Constant 2000 Prices (£m), 2004-2008 FUTURE TRENDS Demographics Table 17.3: Forecast UK Resident Population by Sex (000), Mid-Years 2004-2008 Offshore Outsourcing Legislation and Regulation Public/Private Partnerships and the Private Finance Initiative Trends in the UK Service Sector Cross-Border Services Facilities Management 18. Further Sources Associations General Sources Government Sources Bonnier Information Sources Key Note Research The Key Note Range of Reports AbstractIn 2003, the UK market for contracted-out services was worth an estimated £232.63bn at current prices, based on the turnover of firms operating in this sector. The market's value grew by 6.4% in 2003, producing a real growth rate of 3.6% after taking into account price inflation.This Review covers the activities of ten separate and distinct sectors: canteens and catering; computer and related activities; research and development; legal, accounting and market research services; architectural and engineering services; advertising; labour recruitment and personnel services; investigation and security services; industrial cleaning; and washing and dry cleaning. For the sake of completeness, the Review also includes a `miscellaneous business activities' sector. Of these sectors, investigation and security services recorded the highest growth rate in 2003, at 13.6%. Real growth in this sector was just 8.1%, as a result of sector inflation of around 5%. All sectors owe their existence to the fact that companies contract out operations that might otherwise be carried out by employees of the firm. Some small firms simply do not have the ability to conduct certain tasks, because their existing staff do not possess the necessary skills and it would not be economical to take on full-time, or even part-time, staff to carry them out. This is particularly true of professional tasks such as book-keeping, the provision of legal advice and the undertaking of market research. Reasons why larger companies might decide to contract out certain activities include cost savings, the increased quality of service resulting from the use of specialist skills, and the increasing need for managers to concentrate on a company's core activity. Between 1999 and 2003, the climate for the contracted-out services industry was generally favourable, with steady economic growth, low inflation and a relative immunity to the fluctuations in currency exchange rates that have affected other sectors of the UK economy, such as manufacturing. The sector has also benefited from favourable industrial relations and from the increasing competitive pressures felt by companies as a result of regulatory change, which have led them to turn to outsourcing as a means of enabling managers to concentrate on their core business. A less benign influence has been exerted by legislation at regional, national and European levels. This legislation is mainly concerned with hours of work and other conditions of employment. It has affected most suppliers of contracted-out services, but it has had the greatest impact on smaller organisations, which are well represented in this industry. Some providers of business services offer a restricted range of services within a narrowly defined industrial sector, but others set out to provide a complete range of services, focused on the needs of clients and offering a 'one-stop shop' for a particular market. This latter approach is typified by the concept of 'total facilities management'. Although it is not well defined in government statistics, this sector has been growing strongly over the past few years, as evidenced by the growth in trade organisations and other bodies addressing its needs. The various sectors of the contracted-out services industry have some common characteristics, but they are different in many other respects, since they are at different stages of market development and are affected differently by external events. For example, sectors such as canteens and catering, industrial cleaning, and washing and dry cleaning are relatively mature. For firms operating in these markets, opportunities for growth are most likely to be available from diversification or expansion into related sectors, rather than from expansion of the original core business. Security concerns are a negative influence for most companies, but they represent an opportunity for firms in the security sector, as illustrated by the high rate of growth in this sector in 2003. Independent forecasts for the UK economy suggest a relatively favourable business climate over the period to 2008, and Key Note anticipates that the market as a whole will grow at much the same rate as it did over the 4 years from 1999 to 2003. Although demographic trends are generally not as significant for business-to-business markets as they are for consumer markets, the ageing of the UK population may affect some of the sectors covered by this Review. For instance, as the population of working age declines, there is likely to be a switch in the balance of cleaning and catering contracts from works premises to hospitals and care homes. Pressure from the EU and other legislatures seems set to result in further legislation for the industry. However, there seems no reason why the UK Government should not be able to deliver on its promise to restrict the tendency to 'gold plate' EU legislation by adding unnecessary complication when translating EU directives into UK law. Also, on a positive note, enhanced awareness of the environment by both the public sector and the private sector will present opportunities for the development of existing services and the creation of new ones. Key Note Market Reviews
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