Top 200 global B2B services players generate 1.5 trillion

14 December 2015

The 200 largest players in the Business to Business (B2B) Services industry generate around £1.5 trillion in revenues, reveals a new study. Growth however has been slowing in recent years, with the 11% growth booked in 2010 falling to under 5% today. A slowdown in Europe is the key driver, with positive results across the board being mainly sustained by stellar growth stories in the Asia-Pacific region. Looking ahead, traditional core strategies are showing signs of corrosion.

The Business to Business (B2B) services sector is one of the world’s largest industries. According to a study* by OC&C Strategy Consultants the 200 largest B2B services players alone – including among others construction, outsourcing, marketing and workplace services – generate combined revenues of £1.5 trillion. In particular in Western markets B2B services stand at the heart of economies, providing the foundations of a substantial part of the broader services economy. In the UK for instance the sector accounts for almost 30% of the overall economy and over half of its growth.

Historically the globe’s leaders in B2B Services have outperformed other sectors, in terms of growth rates or market capitalisation values, both during and since the recession. However, more recently, the tide has turned, with growth in the industry dampening at an alarming rate, finds OC&C. In 2010, the world’s 200 largest B2B services players (B2B200)** booked an average revenue growth of 11.2%, while the number has dropped to around 3.7% last year. On the back of growth slowdown, margins have continued to slide – from 12.7% EBITDA in 2010 to 12.1% in 2013.

As it stand, European markets harbour almost half of the £1.5 trillion market, when it comes to growth however, the picture turns: European companies are starting to be a drag on growth, with UK based firms growing at just +1.5% in 2013, and French (-2.1%) and German (-3.6%) cohorts experiencing revenue decline. By contrast, Asian firms are now the growth engine, delivering 75% of growth in 2013. In particular, Chinese and Japanese firms are going from strength to strength, with 15% and 13% CAGR in revenues recorded over the 2010-13 period respectively. Other strong growing regions include Australia, enjoying impressive growth at 13.2%, the Benelux (+6.9%) and the US (+4.6%).

The recent slowdown of the B2B200 follows according to the authors from “an inevitable return to the mean. Demand has not eased, in fact appetite to ask third party providers to deliver non-core activities is rising across industries, yet the gap between winners and losers in the sector has moved towards a record high, a clear indication that those with the right strategies in place are accelerating growth and market share capture at the cost of laggards. “Over a third of the top 200 companies saw revenues decline last year compared to less than a fifth the year before; this is a clear indication that the more focused, decisive, and strategically minded businesses are making active moves to distinguish themselves from the pack,” write the authors.

Interestingly, OC&C finds there is a performance link with global expansion, which the authors describe as the double edged sword of global ambition. Firms that have pursued ‘flags on the map’ without due appreciation for strategic logic have suffered dampening of growth and underperformed their sectors. So-called ‘Domestic champions’, companies which realise more than 95% of their revenues in their home countries, have experienced the highest rate of revenue growth across 2010-13 (+14% CAGR) and been the most insulated from margin decline (+0.6% delta), highlighting strategic focus as a competitive differentiator. By comparison, ‘globetrotters’ – which make more money abroad than at home – have grown at only +6% CAGR and suffered margin decline of -0.8% delta.

Industry analysis
The study also reveals that there are considerable differences across industries. While all industries saw declines with respect to the CAGR average between 2010 and 2012 for the respective sectors, not every sector declined steeply. Construction growth dropped -3%, from 12% growth to 9%, on the back of a slowdown in European needs – offset by increased demand in East Asia. While Media/Marketing saw only a 1% decline between the periods, from 5% to 4%. On the other end of the spectrum, Oil & Gas saw a decrease of 14%, from 18% to 4%, on the back of stagnation of the sector in the US and one off factors. While Logistics & Transport saw a decline of -8%, following declines in competition, decreased European activity and politics deemed problematic. Some markets even saw negative growth, with Facilities Management down 4%, from 3% to -1% growth. Key reasons according to the report are related to significant divestment of key players.

Based on the dataset of the 200 largest firms, the researchers have identified a group of 20 top performers, who show consistently strong revenue growth and strong profitability performance relative to their peers. The elite group includes well-known names such as media & marketing giant Publicis, IT services firms Cognizant and Infosys, but also less familiar brands such as Denmark based Rockwool (a construction firm), US oil & gas player Seventy Seven and Luxembourg headquartered Eurofins Scientific.

Looking ahead, the authors believe B2B Services will remain one of the strongest sectors of the global economy, and its cyclical resilience makes it a reliable long term investment. Yet growth indicators are “moving in the wrong direction”, building a solid business case for executives in the sector to recognise the strategic imperative, embrace necessary change and navigate themselves through the choppy waters. Not doing so comes at a cost – OC&C has calculated that without action to restore growth to previous levels, the B2B200 will leave a collective £420 billion of sales on the table between now and 2020. In the UK alone this amounts to £10 billion in the same period.

* The report is titled ‘Sink or Swim: Why the Tide has Turned for the Global Business Services Sector’.

** The B2B200 is comprised of 25 of the largest companies (based on revenue) in each of eight industries that make up the core B2B Services market: Construction, Construction Products, Facilities Management, Business Process Outsourcing (BPO) & IT, Logistics & Transport, B2B Media & Marketing, Oil & Gas, and Engineering & Compliance. The focus of the list is on industries where the primary activity is outsourcing or service provision to support value creation and which have contract-based or highly recurring revenues. As such, sectors such as Publishing, Financial Services, Recruitment and Manufacturing are excluded from the analysis.