37 Globalisation and services

Dr. Puja Waalia Mann

1.0 Introduction

While the Indian tertiary sector is slowly growing in its contribution to the GDP, currently, hovering around 30%, Services account for only 20% of the Global commerce, it is about 50% of the economic activity. In the developed countries this is as high as 70% of the total economic activities. This discrepancy can be attributed to the sheltered nature of the services from Global competition, implying the local nature of the services; difficultly in tracking the global flow of services due to its intangible nature and innovation being witnessed only in the Industrial sector. However, despite the above arguments, the Service Globalisation is growing at a fast rate of 8.7% from the year 2011 expected to be constant till 2022. This growth may be driven by three main reasons- Deregulation of the Markets across the globe, Digitalisation of the Businesses and the growth in demand levels especially of the developing economies. The emerging context makes it important to understand the differentiation between the ‘Global Services’ like Media, IT enables services and ‘Local Services’ like- Hotels, maintenance and energy distribution services. While the local services may also go Global , the platforms are different as compared to the Global services and they may adopt a franchise network, Branding or licensing etc.

1.1 Objectives of Learning

In this module you will learn:

a)  Meaning of Service Globalisation

b)  How can Service Marketers go Global

c)  Difference between Global Services and Local Services

d)  Reason for the growth of Service Globalisation

e)  Errors in estimating Value of Global Services

1.2 Keywords

Service Globalisation, Global service

1.3 Meaning of Service Globalisation

Services are intangible and perishable benefits offered to the consumers to satisfy their needs and wants. Services can be marketed across the national boarders of a country and thus can be exported. The phenomenon of a service provider catering services to the consumers of other nations is called Service Globalisation. At present the value of services in Global trade is slightly above 20 percent but it is soon expected to grow due to various factors facilitating its spread, with Information Technology (IT) being one of the most significant factors. While almost all services can be exported

According to the World Trade Organisation (WTO):

There are four service exportation models:

·  When a service is marketed across the national boarders like the air tickets

·  When the consumer crosses the border to avail a service like for getting a medical treatment in another

country or a tourist visiting a country for recreational purpose

· An organization opens a subsidiary in a foreign country to market services like a restaurant opening its branches in a new country.

· When a professional is sent by an organization to deliver a service across the boarder like a Consultancy organization sending an expatriate to another country for delivery of services.

Statistically  only  the  first  two  models  of  Global  services  are  accounted  for  the globalization of services. It is important to note that most of the global service value is generated through the third model.

Today the service sector across the globe is witnessing a revolution and is driving an intangible economy structure, with professional services like Banking and various IT enables services being a precursor of this unprecedented boom in the global delivery model. Similarly in the consumer markets, media and entertainment are increasingly becoming global and the players are reinventing themselves to reach out to a larger global audience using newer distribution platforms like Google. Thus, Service Globalisation is a unique opportunity for the developed economies to export their knowledge of the tertiary sector and increase their share of international commerce. The potential markets for service export are numerable with attractive rewards as compensation for the time period till emerging economies like India, China and South Africa enter the game at such a large level.

‘Global services” are intellectual professional services which can be catered to a wider consumer segment. These services can be exported and therefore are highly vulnerable to Global competition. Given the IT revolution, these services are highly valued and have the highest growth potential in the years to come. Unlike the ‘Local Services’ i.e transportation and Hotels, which are fragmented in nature, the Global services are more consolidated. The personnel of the local services are also local and are not likely to relocate as against the personnel of the global services. The local services in emerging markets are also facing the heat of the competition due to Digitalisation and the newly developing market consolidation structures. It is important to note that ‘Intermediary Services’ are also the local services which can now be delivered even to distantly located areas with the use of e-commerce, thereby bridging the gap between the goods and services distribution.

1.4 Steps to prepare for Globalisation:

Service Globalisation refers to the increased competition between the service providers in the international market due to the lowered Market entry levels and larger growth avenues.

i) An organization can prepare for the Global bandwagon by initially securing a strong market share in the domestic market. This can be done by being perceived as the player who better understands the local tastes, preferences and relationships as compared to any other player.

ii) Once the roots at home are strong and secure, the Service Organisation can plan a platform to enter the global market with a well defined Vision for a target customer it feels strongly about.

iii) This vision will be a facilitator to develop a global service production and distribution network by taking advantage of the economic opportunities

It is ironical that there is paucity of a having a fool proof method to estimate the value of global service trade. As per some statistics, around 60% of the service transactions are not even recorded. However, Economists are very hopeful for the globalization of services to expand in the years to come due to the following reasons:

i) Shrinking of the global market necessitating the Globalisation of the services

ii) Wide spread of Information Technology, powered by Internet will facilitate the growth of Services

iii) Emerging economies will not only demand some higher end value services from the developed economies but also be a supplier of certain services to the under developed economies.

iv) There is a progressive movement towards lowering the National barriers for the entry of service providers in various countries.

While currently the services contribute just a 20 percent to the overall annual Global trade, the secondary sector spurs up to 72 percent. As discussed above the basic reason for this big divide is the local nature of services which cannot be exported due to lack of any substantial value addition.

CHECK YOUR PROGRESS

1.      ‘Services are difficult to market across the national boundaries.’ Is it true?

2.      What is the concept of Globalisation of Services?

3.      What are the steps to be undertaken for a service provider to go Global?

1.5 Errors in Estimating Value of Global Services

There can be a number of factors leading to errors in building data for Globalisation of services. Let us look at them one by one:

i) Overlooking the service transactions within the Company-

Very often the value of the Intra company services is not accounted for in the calculation of the service globalization value. As per the data of the WTO, at present about 26 percent of services are exchanged with the organizations i.e between the parent and subsidiary companies. It is not much less than the 30 percent goods moved within the organization across the National Boarders. However, in actually this value calculation is underestimated since the value of the ideas and knowledge shared through documents, mails and telephonic conversations on routine basis from the parent organization to the subsidiaries may not be quantified and hence may not be accounted for.

ii) IT services Statistics not captured-

Another very important aspect of global services which may not be reflected in the statistics are the services like international roaming of telephone services in which the telecommunication operators share the revenues generated during International roaming.

iii) Industrial Services considered as Products instead of Services-

There are several Industrial players who look for markets beyond their national boundaries to expand their reach and earn growth and profits. There are several big industrial players like Apple, IBM, GE who have expanded their markets to the international business consumers. However, the value of these services are considered as Industrial exports and hence recorded under goods and not under the services heading. Therefore, a significant portion of global services are not recorded for.

iv)  Expatriates services not accounted for-

It is a common business practice to send the personnel of parent company to the subsidiary company in a foreign nation for a short workshop or a short assignment. Similarly a specialized professional may be sent to a foreign country to fix some technical glitch or provide consultancy. Such services, though delivered across the domestic frontiers are not accounted for in the Global services.

Thus, from the errors of statistical accounting of the Global Services discussed above, it may be assumed that the actual share of 20 percent could actually be doubled if the share of traded services was calculated in a different fashion.

CHECK YOUR PROGRESS

4.      Why is it difficult to calculate the value of the services going abroad as compared to Goods?

5.      Who are Expatriates? Why are their services not accounted for?

6.      Is there any difficulty in recording the value of industrial services in International trdae?

2.1 Globalisation of Services- Futuristic perspective

Even when the conservative estimates of the WTO are considered, the global services are reported to be growing at the rate of over 7.7 percent since last two decades. However, in the coming decade the growth rate is expected to be explosive with more than 30 percent. There are several reasons responsible for such an anticipated explosive growth rate:

i) Digitalization of Services

Since year 2007, there has been a boom in the volume of data shared over the Internet. The Digital revolution has had a significant impact not only on the Business markets but also on the Consumer markets, encompassing wide range of fields like advertisers, technical professionals, BPO, KPO etc. Use of Information Technology has made the service trading easier between companies and between countries. This has also facilitated in reducing the market barriers and increased the competition substantially. It is important to note that in case of Online Advertising, Google alone has a huge share across the international market. Another successful example is that of Amazon which alone accounts for 60 percent of the digital books market in the world. Similarly, there are online players like Expedia, Bookmytrip, Ola, who are giving a tough competition to the traditional travel agents and hotel operators in India by witnessing a current growth rate of 25 percent estimated to grow to 50 percent by the turn of the decade.

ii) Growing demand of services

Presently there are countries like India, China, Brazil, Indonesia and South Africa whose economies are undergoing a rapid expansion supported by secondary and tertiary sector. Due to the low level of internal professional skill set, these countries import the services from the developed nations, but due to the human resources and skill set available, these countries will gradually start producing such services and also export the same. In India, while the contribution of the Tertiary sector to GDP is low at present, it is set to see a major jump by the year 2022. In India, these services include healthcare, leisure, knowledge etc. It is forecasted that in due course of time, the developed countries will start outsourcing the non-core internal services to these emerging economies. This growth is associated with the emerging economies deliberate decision to give increasing thrust to the tertiary sector. In India, for example, the share of about 16 percent of the tertiary sector in the GDP during 1970’s has almost doubled to more than 30 percent during 2013-14. The same phenomenon is being witnessed in China also where the government is giving importance to the services instead of the manufacturing sector. All these factors are set to expand the global service market.

iii) Deregulation of National markets

In the aftermath of the colonial rule, the newly liberated countries were skeptical of the foreign rule and hence developed a protectionist attitude towards the domestic industry. This, for long, has been a deterring factor to the globalization of services in these economies. As per the policy, if any organization wishes to market some services in a country, it is required to have its local headquarters in that country. The issue of recognition and equivalency of professional qualification between two countries has also been a hindrance in the flow of service providers restricting the mobility of individuals. There are cultural services, where there is a restriction imposed through quotas intended to protect local industries. For instance, in Europe, out of the total content produced to be aired on television, 60 percent should be developed locally. While the deregulation of services have long been a topic of discussion in various international trade agreement meetings since 1944 in the Marrackech Accords, nothing substantially has been worked out for the Internal agreement on Services yet. Interestingly, the opening of the local markets has largely been a result of revolution in Information technology and not due to the deliberate attempts of the national or federal Governments. For example, the sector of global teaching i.e. sharing of teachers across the national boundaries is not a result of any legislative agreement or framework, it has just emerged as one of the ways of exposing local students to international subject experts. However, it is expected that more and more countries will reduce the entry barriers for the International service providers to improve the quality of services and also to take advantage of the latest developments in the service sector around the world.

CHECK YOUR PROGRESS

7.      What is the future of Services in Global market?

8.      What is the role of Digitalisation in the growth of Global services?

9.      Explain, with the help of examples, how deregulation in National markets can boost the spread of Global services?

2.2 Move towards Service Globalisation

As discussed above, time has come, when there is a trend being witnessed towards globalization of services. The reason could be the deliberate attempt from the side of the policy makers in a country or a gradual result of the market economy, almost all services are being global. There are four elements in this process, which needs to be considered:

i) Global Service network

It is pertinent for the service marketers to look for the target market outside their national boundaries and offer their services to cater to the local needs of the new market. This trend is being witnessed by the like of professional services in Banking and various IT services. These services have been quick in developing and expanding their service delivery networks to the under-served markets by establishing a global delivery model by combining local marker proximity. For instance, The Hong kong and Shanghai Bank Corporation (HSBC) has developed fifteen service plants- Bank operational branches- to process the demands of its about 7500 branches. Similarly, Google has invested in opening six data centers for its data consolidation across the various continents. Such examples on a smaller scale are also common for Amazon, Apple, Expedia to name a few. This network, services the target markets at three levels- a global decision center: consolidation of the key data and the basic administrative services by centralizing it in any country where tax may be saved; Local Offices: outlets or branches where the customers are offered a local point of contact to materialize the functions of prospect search, sales, delivery and customer care etc where the choice of location of the local centre is largely influenced by the level of infrastructural development and size of the target market;

ii) Time to enter market

In a service network economy, the marginal utility of the actual users of a service is positively proportional to the total number of consumers. Thus, it is vital for a service provider to earn that ‘first movers advantage’ in a new market. Some very successful examples are the current market shares of US based Google with 70 percent of the share of the total search engine market in India and Facebook with over 50 percent of the share of the social media networks in the country.

iii) Standards and norms of Global services

It is important for a service provider to market its services on a standard platform of the target market. Often it is desirable to integrate the current technologies of the organization in the local language. There is no doubt that the globalization of the IT services was possible due to the standardization of the operating system. It is interesting to note in this context that the share of three leaders in the ERP i.e. Oracle, Sap and Microsoft grew from 39 percent to 55 percent within a period of three years due to the standardization of the operating network and adaptation to the local markets.

iv) Service hub positioning

Another critical decision to be taken is the location of the services. If the services hub is centralized with the key decision making functions, relocation may not be the wise step to undertake. However, not decentralizing could result in loss of market share and local connectivity.

CHECK YOUR PROGRESS

10. Write a note on Service Hub positioning.
11. What is the role of Global Service Network?
12. What is the ‘First movers advantage’ ?

3.0 Conclusion

Globalisation of services refers to the marketing of services across the globe to the pre defined target consumers. Service Globalisation is a concept expected to boom within a few years, thanks to the increasing use of Information Technology. With sufficient support from the creation of the required service ecosystems and lowering of the national barriers for the smooth movement of services beyond the national boundaries a service provider can enter into the foreign bandwagon by creating a strong vision of the business portfolio. Global strategy must be well structured and defined with all the functions and strategies aligning to the greater vision.

Summary

Global services are the services being marketed to satisfy the needs of the consumers across the national boundaries of a country. While the local services, like E-commerce, domestic transport, Hotels are also becoming global with the help of Information Technology, where the services can be purchased from an international market; Global services account for most of the international service trade like, consultants etc. There are several errors in calculating the value of the global services like parent organization not calculating the value of services rendered by its specialists to a subsidiary located in a foreign soil, Industrial services and expatriate’s services being exempted from addition in the global service head and difficulty in estimating the It based international services. However, due to Digitalization, demand of emerging economies and reducing of the entry barriers for international services by many emerging economies, the service sector share in the global trade is set to expand exponentially.

Learn More:

a) Clark, J.R, R.S. Huckman and B.R. Staats (2011), “Learning from Customers in Outsourcing: Individual and

Organizational Effects”, Harvard Business School Working Paper, No.11-057.

b) Crinò,   (2010),  “Services  Offshoring  and  White-Collar  Employment”,  The  Review  of Economic Studies,

77, 595-632.

c) Lovelock, Cristopher, Service Marketing: People, Technology, Strategy. New Delhi: Pearson Education

d) Lanz, R., S. Miroudot and H.K. Nordås (2011), “Trade in Tasks”, OECD Trade Policy Working

Paper, No. 117.

e) Miroudot, S., R. Lanz. and A. Ragoussis (2009), “Trade in Intermediate Goods and Services”,

OECD Trade Policy Working Paper, No. 93.

f) NASSCOM (2012), “The IT-BPO Sector in India: Strategic Review 2012”, Delhi, NASSCOM,

February.

g) Nordås, H.K. (2010), “Trade in Goods and Services: Two Sides of the Same Coin?” Economic

Modelling, 27, 496-506.