Introduction
Overview
Service industries play a significant role to the global economy. This is because of service markets across the globe. Service industries such as financial, technology, banking, and insurance create growth opportunities for the strategic acquirers.
Report purpose and structure
The rapid development of service industries has led to economic growth in many nations of the world. In the last decade, service industries have grown tremendously across the world. This rise has led to rapid global economic growth. The main reason for this report is to establish the importance of services industries in building economic growth.
Reasons to build a services economy
Intangible aspect of the service industry
Most organizations across the world are embarking on the establishment and development of the service economy due to its intangible aspect. This is because the intangible aspect makes the industry difficult to pirate. This means that it is difficult for other firms to copy the work without being authorized by the genuine owner.
Importance of technology in the service industry
Another reason for building service economy is because of the technological advancement in the service industry. Technology has played a significant role in the service industry.
This has led to a significant growth in profits and shareholders returns, in service industries such as financial and banking industries. Information and technology have enabled many organizations to participate in service related activities. For instance, the e commerce has helped in creating new market opportunities for many firms.
Entry barriers
This is another reason which has made many organizations build service economy. Most of the firms in the service industry are subjected to strong institutional controls as well as high entry barriers. Some of these barriers are not found in the commodity industry hence the need to venture into the service industry.
Sectors impacted by market forces
Banking sector
The banking sector has been affected by the forces of deregulation, and market liberalization. One time scale economies is not a barrier of entry anymore in the banking industry. This is because of the development of internet banking, which is very flexible as compared to mere economies of scale.
Software service industry
There is a lot of shortage in skilled manpower in the service industry. For instance, in Japan and US there is a high shortage of computer service personnel (McManus, 2005). This has provided a good opportunity for other countries such as India and china to provide skilled man power in order to fill the gap.
Financial services
Deregulation and liberalization in the financial sector has led to increased competition in this sector. This has caused increased productivity, as well as quality improvements of financial instruments (Keyes,2007). This has also enabled many countries to benefit from increased global capital mobility.
Future challenges to the services economy
Demands for the availability of well educated personnel
Service industry requires the development of advanced tools and techniques for professional service personnel. People employed in the service industry need to be provided with quality education in order to provide value for the money to customers (Botten and McManus, 2009). Provision of quality training services requires vision and the development of new business models.
Cost pressure from the market
This is another future challenge which is expected to have a significant impact on the service economy. Most of the services industries may face a problem of increased cost due to global competition. The labor cost of the people employed in this industry is increasing over time
Complex processes in management
Service industries involve complex management processes as compared to the commodity industry. Due to advancement in technology, these processes are anticipated to be more complex in the future (Al-Hakim,2006). This may affect the performance of this industry in the international market. This problem may require managers to acquire new skills in order to tackle the problem.
Recommendation
Organizations should build a service economy as it has unique properties, which makes it beneficial than the commodity economy. The main reason for the organization to develop service economy is because it can be redesigned easily and quickly. It can also be customized and remanufactured at a lower cost than the manufactured tangible products.
The use of technology in the service economy has enabled the industry to be more beneficial than the commodity economy. The establishment of e commerce service activities has enabled the service industry to provide quality services to its customers (Welch,2005).
Hence most companies should consider shifting to the service economy as it is more profitable than the product industry. Organizations should build service economy as it leads to a rise in the GDP of a country and the world at large. For instance, the service industry accounts for about 60% of the total GDP in all OECD countries.
References
Hakim, L., 2006. Challenges of managing information quality in service organizations. New York: IGI Global.
Botten, N., and John M., 2009. Competitive strategies for service organisations. New York: Purdue University Press.
Floyd, D., and John M., 2005. The role of SMEs in improving the competitive position of the European Union. New York: Emerald Group Publishing Limited.
Keyes, J., 2007. Financial services information systems. Chicago: CRC Press.
McManus, J., 2005. “The role and influence of foreign direct investment on the development process:The case of the software in Romania,China,India and Philippines.” Global Business and Economics Review. 144-150.
Ordo, P., 2012. Knowledge management and drivers of innovation in service industries. New York: IGI Global.
Welch, J., 2005. Winning. Chicago: Harper Business.