Importance of Service Industry
The pursuit of service economy, which dictates the specialization in the service industries, is one of the newest economic concepts that ensure the realization of the economic growth. The adoption of this form of economy will allow countries to transform the dimensions of their economic standards in a positive way.
In this regard, countries would need to develop more service industries rather than manufacturing industries due to flexibility in the international trade. Similarly, the concept of service economy incorporates the need for improvement of services and product provision. Based on these factors, service industries should mainly focus on financial services, health, education, tourism, and distribution (Nissan et al. 2011, p.76).
The degree of mobility of these services is high, and they can be cheaply transferred from one location to another. Additionally, geographical factors do not hinder the performance of these services. As a result, industries should focus on service delivery to their customers, which increases their market share and profitability.
What Is the Contribution of Service Industry to the Economy?
The needs that underlie the urge to adopt service economy are numerous and appropriate for any economy. Initially, the development of service economy makes the innovation of other forms of economy achievable. In this regard, a service economy allows the efficient conduct of business operations.
This form of economy embraces both the service development and role of technology in the struggle for economic development. It seeks to give value to the need for capitalism, as well as technological innovation to enhance the economic growth of a country (Nissan et al. 2011, p.62). As a result, firms will be able to undertake foreign direct investments with ease facilitating globalization. This will lead to the increase in the industries’ production while realizing maximum benefits to boosts their investment levels.
With the adoption of globalization, the service economy would gain maximum benefits from the increased Gross National Product of the country. This will improve the level of the quality of the services rendered to consumers in addition to high quantities. With this concept, foreign investment will be possible with flexibility in operation.
Since the multinational firms have a large capital base, they would be able to conduct businesses in their country of choice (Graz 2010, p.158). Furthermore, the mobility of the factors of production will be improved due to the lack of restrictions in various countries. In this regard, firms will boost their levels of investment and earn the benefits attributed to the international trade.
Therefore, the production level will be high, with new products and services delivered to the market. For the developing countries, they will benefit from technical expertise that will guide them to industrialization (Apte et al. 2008, p. 19).
Why Is the Service Sector Important?
The importance of service industries in the economy is that they contribute significantly to the domestic and global economy. Based on various research reports, 70 percent of the GDP in most countries result from service industries. In this regard, the developing countries benefit from the service economy since most of their citizens will acquire employment.
This usually results from the economic integration of countries which exploit the competitive advantage principle. In addition, apart from the benefits of the service economy, manufacturing and agriculture contribute to countries’ growth (Asandului 2006, p. 2).
Product companies that offer services to consumers promote the value attached to the product business. Despite the fact that the service margins are lucrative compared to those of the product companies, it is essential to invest in the product companies (Auguste et al. 2006, p. 2).
The product companies play a crucial role in enhancing the service market since they are the building blocks of this mechanism. Examples of such product companies include electric plants, computer industries, and automobile industries. With the presence of such products, there is an efficient operation of the service market.
Additionally, the product industries may adopt effective services in their operations, which provides them with a humble chance to expand their market share and profitability.
This is related to the improvement of various business segments in firms by adopting new technology and processes that boost production and product delivery to consumers. With the high standards of marketing, the firms’ products will make voluminous sales and serve the interests of consumers. As a result, the firms will grow and expand their investment opportunities across the globe.
Service industries are renowned for increasing the employment opportunities in a country. Through the focus on the foreign direct investments undertaken by multinational firms, the locals benefit from increased job opportunities. Additionally, the emphasis on globalization by the service economy demonstrates the need to adopt international standards (McManus 2009, p. 16).
In this regard, citizens of all countries benefit on a similar scale resulting in equity of the standards of living. Based on surveys, service industries have played a crucial role in the growth of opportunities, especially in financial services, technology, energy and other utilities. Due to the international growth in the software service industries, a majority of other services have advanced leading to the growth of markets and provision of opportunities to skilled workforce.
Service Sector and the Economy
The analysis of the benefits presented above which are anticipated in the service economy necessitates the evaluation of the service economy impacts on the market. At the core of the service technology, capital has been the major factor in the realization of economic growth.
With this notion, the main providers of finance have undergone transformation to exhibit the needs of the service economy. This has resulted in increased productivity and the availability of products and services. Consequently, prices and costs have been considerably reduced leading to the improvement of quality, variety, and flexibility in the financial market (Rae 2010, p. 1).
Similarly, due to the globalization, the free flow of the factors of production facilitated by the international trade has placed the service economy on a high platform. As a result, there have been minimal interruptions in the conduct of the international trade with consideration of the international standards.
With the changes that have occurred in the market, financial services have been consistent in evolution to meet the dynamism of the service economy. The consideration of the regulatory bodies based on the international standards has led to the institutions increased productivity (McManus 2009, p. 19).
s a result, costs have declined with the services becoming affordable. Similarly, the regulation policies have been favorable and conducive for market conduct. This has led to the increase in the general growth of the international capital mobility promoting the development of poor countries.
The network based content services have adopted regulation in the service economy. The critical content services benefits developed relate to policy frameworks, regulatory structures, and public programs. With this concept, the conduct of the service economy has been in consideration to all the participants. Thus, every member feels appreciated without exploitation or humiliation in the exercise.
With the advancement of the service economy over time, there are challenges that countries would have to adopt to fit to the trend. Considering the need for specialized personnel, it is essential to equip future managers with knowledge and skills in their specialties.
These personnel will be able to work under any pressure and meet the consumer or employer’s expectations. As a result, productivity will improve while the operation costs will decline even in complex process undertaken by the players. Meanwhile, the costs of production would pose a challenge since the need for foreign direct investment would be costly, but with high chances of deriving high returns (Riedl 2010, p. 759).
In this regard, the multinational firms would have to streamline their operations to ensure that the investment costs do not outweigh the returns. Additionally, the trend of the liberalization of the international trade over the service industries would demand countries to critically consider the matters of security within their borders. Concerning the stakeholders in the service industry, dissemination of information would create competitive grounds resulting in challenges in the course of investment.
Based on the benefits derived from adopting the service economy, it is essential for countries to consider the benefits that they will receive and structure their economies accordingly. This is based on the value attached to the service economy in facilitating economic growth. Similarly, a country’s infrastructure will improve, as the international standards will be observed.
For the Foreign direct investments, the conduct of the international trade would be convenient and flexible based on their working policies. Similarly, they will offer employment opportunities to the country’s citizens considering the international standards.
From these facts, the service economy guarantees a liberal economy that stimulates industrialization and the growth of service industries. In this regard, it will boost the growth in technology to enhance service delivery. This economy simply provides for the ultimate needs of producers and consumers.
References
Apte, U., Karmarkar, U., & Nath, H. K. 2008, ‘Information Services in the U.S. Economy: Value, Jobs, and Management Implications’, California management review, vol. 3 no. 50, pp. 12-30.
Asandului, L. 2006, ‘The New Service Economy and Its Implications for Statistics by Laura Asandului: SSRN’, Going to search. Web.
Auguste M, Lee, M & Patrick P 2006, ‘Service economy’. Economy Watch. Web.
Graz, J. 2010, ‘ Informal Institutions and Global Inequalities in the Service Industry’, Peace Review, vol. 20 no. 1, pp. 90-398.
McManus. 2009, ‘The service economy’. Management Services, vol. 53 no. 2, pp. 16-20.
Nissan, E., Galindo, M., & Mendez, M 2011, ‘Tthe Future of Services in a Globalized Economy’, The Services Industries Journal, vol. 31 no. 1, pp. 59-78.
Rae, J 2010, ‘The Netherlands’ Drive to Build a Service Economy – Business Week’, Businessweek – Business News, Stock Market & Financial Advice. Web.
Riedl, A 2010,’ Location factors of FDI and the growing service economy’, Economics of Transition, vol. 18 no. 4, pp. 741-761.