Introduction
Overview of the task
There is a compelling need to highlight the importance of services economy which policy makers and entrepreneurs alike can benefit from, by making use of the economic and business potential in developing the services sector. This is more so in the wake of blurring of boundaries between goods and services.
Report purpose and structure
In accordance with the above task, this structure of this report is made up of four sections consisting (1) Reasons to build services economy, (2) Sectors impacted by market forces, (3) Future challenges to the services economy and (4) Recommendations.
Reasons to build services economy
The ICT-enabled automated services help generate incomes from outside of a country’s boundaries. Business people do not have to travel abroad for the purpose. For example, Amazon.com, Dutch G.P.S and Tom Tom are doing business outside their home bases.
Such increase in revenues abroad increases the country’s trade balance and growth in productivity. Many countries’ GDP is comprised of share of services by more than 60 %.(Rae, 2010, p 1).
Services present a basic economic activity responsible for infrastructure building, enhancing competitiveness, reduction in poverty, job creation and trade facilitation (UNCTAD, 2012, p1).
Services sector has the potential to create jobs progressively due to the significant subsectors being labour intensive. As the services sector is skill-based and not investment intensive, it is ideal for countries with scarce capital and educated workforce. It is viewed as an important component of the economy since it involves consumption of new technologies and human capital.
Growth in services sector is mainly attributed to rise in per capita income levels of the people. Expansion of employment share in services sector is attributed to lower productivity performance compared to industrial sector (“Baumol’s disease”.) (Muyed, 2008, p 17 ).
Sectors impacted by market forces
Self-service technology has impacted almost every segment of the service industry replacing the role of traditional workers by consumers themselves. This is due to the advances in information technology which have enabled the leveraging of self-service technology. For example, airline tickets booking, Internet without coming into personal contact with the sellers and mobile phone bank transactions (McManus, 2009,p 17)
Liberalised the markets which were the exclusive domain of powerful countries like the U.S., Japan, Germany have now become freely accessible. Deregulation and regulatory reform have adversely impacted software services industry in that the industry is experiencing chronic shortage of skilled manpower locally.
Japan and the U.S. experience severe shortage of computer service labour force. This prompts outsourcing of jobs to developing countries thus giving the I.T. industry an international presence (McManus, 2009, p 17).
Retail services comprised 9 % of the U.S. GDP in 2008, i.e. 11 $ billion. World retail sales have been estimated at $ 7 trillion and top 200 retail companies comprise 30 % of worldwide demand. Retail sales reflect disposable income of the people. The consumption of household goods has increased by 68 % between 1980 and 2003 (Anand & Nambiar, n.d. p.2 ).
Future challenges to the services economy
Requirement of managers with new set of skills to fulfil the needs of growing services economy makes it imperative for additional educational and training institutions to fulfil the gap between demand and supply of trained labour force (McManus, 2009).
Players in the services sector that offer embedded services are facing problems in profitable pricing. Strategy preceding the structure is a good business principle. Many service sector players are facing problems without deciding on the structure before deciding on the strategy. They lack clarity in making decisions about how to design their businesses (Auguste, Harmon, & Pandit, 2006, p 1).
There has been an increasing consumption of medical services, communication and transportation, education and recreation. In global economy context, services sector faces protectionism because of economic down turn. Until it recovers, the growth of services in financial sector remains doubtful (Nissan, Galindo, & Mendez, 2011, p76 ).
Higher use of automation does not always result in higher quality of service, hence, managers must make informed and strategic decisions about service productivity level that must be maintained through appropriate trade-off between automation and labour (Rust & Huang, 2012,p 47).
Recommendations
Goods and services are different but tangible things known as goods are included in services, such as food delivered in restaurants. They are treated as services in economics because they do offer them as inventory and deliver on demand from an individual patron who places the order.
The organisations should embrace service economy for the reasons of ever increasing levels of disposable incomes of people in the context of the irreversible globalisation of the economy and the consumption economy increasingly being embraced by nations around the world.
Services that are intangible should be resorted to as they are bound to stimulate growth of tangible services, as well as manufacturing and primary sectors. Internet based services are still in the nascent stages and therefore intangible services offer unlimited opportunities. The internet based services also serve as catalysts for outsourcing which has become a service itself.
References
Anand, V & Nambiar, V n.d. Indian food retail sector in the global scenario. Web.
Auguste, B, Harmon, E, & Pandit, V 2006, ‘The right service strategies for product companies’, McKinssey Quarterly, 1.
McManus, J 2009, ‘The Service Economy’, Management Services, vol. 53 Iss. 2, pp.16-20.
Muyed, S 2008, The Tertiary Sector is going to dominate the world economy; should we worry? Web.
Nissan, E, Galindo, M A, & Mendez, M T 2011, ‘The future of services in a globalized economy’, The Service Industries Journal, vol. 31 no. 1, pp. 59-78.
Rae, J2010, ‘The Netherlands’ Drive to Build a Service Economy’, Blommberg Businessweek, 24 February, n.p. Web.
Rust, R T, & Huang, M H 2012, ‘Optimizing Service Productivity’, Journal of Marketing, vol. 76, pp. 47-66.
The thirteenth session of the United Nations Conference on Trade and Development (UNCTAD XIII) 2012, Global Services Forum: Key Issues, United Nations. Web.