CHAPTER 15
SERVICES
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Copyright © 2011 John Wiley & Sons
1. Examine the important role of services in
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Learning
Objectives
international business
2. Understand why trade in services is more
complex than trade in goods
3. Appreciate the heightened sensitivity
required for international service success
4. Learn that stand-along services are
becoming more important to world trade
5. Examine the competitive advantage of
firms in the service sector
6. Analyze the strategic options available for
corporations in the global service market
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Services and Goods
 Good – An object, device, or thing that is tangible
 Service – A deed, performance, or effort that is
intangible, personalized, and custom-made
 Link Between Services and Goods




Services may complement goods (technological support and
maintenance)
Goods may complement services (hardware to run a software
program)
The initial contract of sale often includes important service
dimensions
In an international setting, the proper service support is
crucial
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Characteristics of Services
Intangible
May Not Be
Tied to any
One Location
May Require
New Forms of
Distribution
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Delivered
Indirectly
to User
Perishable
Close
Customer
Involvement
4
Uniform
Consistency
Capacity
Must Be
Maintained
Service
Heterogeneity
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The Role of Services in the U.S.
Economy
 Since the Industrial Revolution, the U.S. has seen
itself as a primary international competitor in the
production of goods
 In the past decades, the U.S. economy has
increasingly become a service economy
U.S. service sector produces approximately 80 percent of
GDP
 Employs 77 percent of the workforce

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The Global Services 100 List
Which companies are behind the outsourcing boom?
The Global Services 100 list spotlights the giants along with the
emerging talents from Mexico to China and the Czech Republic.
Companies included on the list include global companies like IBM,
Accenture, and Tata.
Source: http://www.informationweek.com/news/global-cio/outsourcing/showArticle.jhtml?articleID=197004616
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Major Service-Sector Segments
Communications
Public
Utilities
Transportation
Insurance
Finance
Real Estate
Wholesale
and Retail
Businesses
Government
Other
Services
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Focus on Politics: Medical Tourism
as an Alternative to Domestic Health
Care
Consumers of medical services in the developed
world have started to look for alternatives to high priced care in their home countries. They are
traveling in ever-increasing numbers to exotic
destinations in search of high -quality care at lower
costs. The medical tourism industry is growing and
is predicted to serve more than 1.6 million
international patients by 2012.
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The Role of Global Services in the
World Economy
 The rise of the service sector is a global phenomenon


Services are instrumental in job creation in most countries
Service exports are very important to developing and transitional
economies
 Stages of development in developing countries:



Establish a strong agricultural sector
Establish a strong manufacturing sector
Venture into the services sector
 Some countries are steering away from the
traditional economic development pattern and are
concentrating on developing strong service sectors
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Service Sector Key to Emerging Markets
Emerging markets are looking away from their traditional industries,
and towards their service and consumer sectors to help them grow,
and China is a perfect example. China has a desire to move away from
being 'manufacturer of the world' and towards the consumer service
sector."
Strength in manufacturing will inevitably lead to a strong service
sector, reinforced by technology giants such as Microsoft continuing to
outsource to China and other developing countries.
Source: Economic Times – India Times: http://economictimes.indiatimes.com/articleshow/6128182.cms
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Environmental Changes in the Services
Sector
 Government regulation of service industries has




decreased
Deregulation of services by associations and
professional groups
Technological advancements offer new ways of doing
business
Technology has reduced the cost of communication
Technology-intensive services are increasing rapidly
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Problems in Service Trade
 Data Collection Problems


Service transactions are often invisible statistically and
physically
The interaction of variables contributes to complexity of
services
 Global Regulations of Services

Barriers to entry justifications:
National
Security
Concerns
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Economic
Security
Concerns
Protecting
Infant
Industries
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Problems in Service Trade
 Problems in performing services abroad
 Rules and regulations based on tradition may inhibit
innovation
 Governments pursue social objectives through national
regulation
Discriminatory regulations
 Nondiscriminatory regulations

 Global Agreement on Trade in Services (GATS)
 Signed in 1995
 Multilateral legally enforceable agreement covering trade and
investment in the services sector
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Services and E-Commerce
 Electronic commerce has drastically reduced the
meaning of distance
 Government regulations that might be prohibitive to a
transfer of goods may not have effect on transfer of
services
 The Internet can help service firms in developing and
transitional economies overcome barriers:


Gaining credibility in international markets
Saving on travel costs
 Cautions


Internet is developing at different rates in different countries
Need to prepare Internet presence for global visitors
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Typical International Services
 Financial Institutions can offer some functions very






competitively in the field of banking services
Engineering Services – Provided in the area of construction,
design, and engineering
Insurance Services – Provided in underwriting, risk evaluation,
and operations
Communication Services – Provided in the areas of videotext,
home banking, home shopping, other areas
Teaching Services – Provided in the areas of training and
motivation as well as teaching
Consulting Services – Provided in the area of management
expertise
Tourism – A major service export
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Focus on Politics:
H1N1 and the Global Tourism
Industry
The spread of H1N1 around the world has had a
significant impact on the global tourism industry.
According to the UN world tourism organization,
destination travel dropped by nearly 10 percent
between 2008 and 2009. The drop is attributed to
the global economic crisis and is exacerbated in
some regions by concerns about the H1N1 virus.
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Starting to Offer Services
Internationally
 If the service is in support of a good, then follow the
same path as the good
 Service providers whose activities are independent
from goods need a different strategy:



Search for market situations similar to the domestic market
Identify and understand points of transition abroad and be
ready to jump in
Stay informed about international projects sponsored by
domestic organizations
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Strategic Indications
 Determine the nature and aim of the services-
offering core


Will the service be aimed at people or at things?
Will the service act in itself result in tangible or intangible
markets?
 Consider other tactical variables that have an impact
on the preparation of the service offering
 Ways of gaining credibility



Provide objective verification of capability
Provide personal guarantees of performance
Cultivate a professional image
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Strategic Indications
 Close interaction with the customer has
organizational implications:


Need for international decentralization of service delivery
Requires delegation of large amounts of responsibility
 Areas of pricing and financing require special
attention:


Greater responsiveness to demand fluctuation means that
greater pricing flexibility must be maintained
Intangibility of services makes financing more difficult
 Short and direct channels of distribution are
required for services
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Understanding the Service Act
Who or what is the Direct Recipient of the Service?
What is the
Nature of the
Service Act?
Tangible
Actions
Intangible
Actions
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People
Possessions
People Processing
• Directed at people’s
bodies
• Examples include
healthcare & lodging
Possession Processing
• Directed at physical
possessions
• Examples include repair
& warehousing
Mental Stimulus
Processing
• Directed at people’s
minds
• Examples include
advertising & education
Information
Processing
• Directed at intangible
assets
• Examples include
accounting & research
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AIP Top-Rated Charities
Charities are a category of the services sector that may not receive
global attention, but are an important sector of society. Of the 500+
charities currently rated by the American Institute of Philanthropy,
only a few qualify as top-rated charities based on rigorous analysis.
Groups included on the Top-Rated list generally spend 75% or more of
their budgets on programs, spend $25 or less to raise $100 in public
support, do not hold excessive assets in reserve, and receive "openbook" status for disclosure of basic financial information and
documents to AIP.
Examples of A+-rated charities include the Animal Welfare Institute,
the Breast Cancer Research Foundation, Child Find of America, Sierra
Club Foundation, and the National Alliance to End Homelessness.
Source: http://www.charitywatch.org/toprated.html
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