Service sector is one of the fastest growing sectors in most of the countries in recent times. This is why it has importance in the national economics of any countries. The importance of service sector of many economies can firstly be measured by the proportion of the total workforce that is directly engaged in the service industries. In Australia and most developed countries, around 80% of the workforce is involved in service sectors. The service economy is constantly growing in most of the economies. The average annual employment and grass product compound growth rates in this sector are growing in different countries. Not only that, service sector is also contributing in annual growth in exports of many industrialized countries.
Most of them work in industries like education, finance, tourism and hospitality, medical and hospital services, communications and construction services, Baking services, telecommunications services, insurance services, media services, retailing, hotel and restaurant businesses.
The contribution of service sector has helped many countries to become most successful and developed nations in current days. The examples of such nations are Singapore, Australia, Indonesia, Malaysia, Thailand, which are drastically improved as a result of the improvements in the service sectors.
There are many barriers in the growth of service sector, for example, lack of proper infrastructures, shortage of skilled labor and rising wage rates contributing to a regional division of labor in service industries, but the contribution of service sectors in nations economy has created an emergence to improve the situation and consider the service planning carefully and understand the nature of services and it’s marketing properly.
The governments of different countries are now started to give importance to these sectors, though in past the economists paid less attention to services considering this sector totally unproductive, adding no value to an economy. But after realizing the growth of this sector and it’s contribution to the economy, the government of most of the countries are interested in improving the service sector. And for this purpose, the governments are now giving many incentives to encourage the service sector within their countries.
2. Definition and features of services:
Modern definitions of services focuses on the fact that a service in it produces no tangible out put, although it may be influential in producing some tangible output. A contemporary definition is provided by Kotler and Armstrong (1991):
“A service is an activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.”
The give a definition of what constitutes a service is a bit difficult. Because it is quite difficult to distinguish services from goods, for when a good is purchased there is usually an element of service included. Similarly, a service is frequently augmented by a tangible product attached to the service.
In between there is a wide range of outputs that are a combination of tangible good and intangible services, which are called augmented products. This is why all productive activities should be placed on a scale somewhere between being a pure service (no tangible output) and a pure good (no intangible service added to the tangible good.) In practice, most products fall between the two extremes by being a combination of goods and services.
After all these discussions, there are many definitions of what constitute services. A definition carried out from our text book is,
“The production of an essentially intangible benefit, either in its own right or as a significant element of a tangible product, which through some form of exchange satisfies an identified customer need.”
Pure services however have some distinctive features which differentiate them from the goods and have implications for the manner in which they are marketed. These features include,
A pure service can not be assessed using any of the physical senses. Services don’t have physical integrity, aesthetic appearance, taste, smell. For these reasons, it creates difficulty to the customers to evaluate the services properly and it creates a high level of risk both for the customers and the marketers who provides the services. To overcome this situation the marketers can reduce service complexity, facilitate word of mouth recommendation and focus on service quality.
2.2 Inseparability: The production and consumption of the products can be easily separated. On the other hand, the consumption of a service is said to be inseparable from its means of production. Producer and consumer must normally interact in order for the benefits of the service to be realized- both must meet at a time and a place which is mutually convenient so that the producer can directly pass on service benefits.
2.3 Variability: Variability refers to the characteristics of many services that need to be tailored or customized to specific customers’ needs. For services, in contrast to many manufactured tangible goods, it can be difficult to carry out monitoring and control to ensure consistent standards.
2.4 Perishability: Services can not be stored like the tangible goods. A producer of a service which cannot sell all its output produced in the current period has no chance to carry it forward for sale in a subsequent one.
2.5 Ownership: After purchasing a product the customer gets the ownership of the product. On the other hand, when a service is performed, no ownership is transferred from the seller to the buyer.
3. WHY MEASURE PRODUCTIVITY of service sector?
With the increase in living standards, people are demanding better services. In order to meet that demand, it is not only the effectiveness of service provision that needs to be improved but also the efficiency of the processes involved in providing services. It is, however, often not easy to achieve greater effectiveness and efficiency because of barriers such as a lack of clearly defined objectives, poor management, and lack of performance monitoring and productivity measurement. Productivity measurement is very important for productivity improvement. Productivity measurement in the service sector is slightly different from that in the non-service sector because of differences in how the output is processed. Many of the outputs and inputs of the service sector cannot be quantified easily because some of them are intangible. To have a better picture of the productivity of a system, we must measure not only the main activities but also the sub-activities and relevant supporting activities.
Productivity measurement is important in improving performance because it can:
- Help establish the best strategy for resource utilization and cost effectiveness;
- Identify activities that should be changed and factors that need attention; and
- Reveal the financial implications of alternatives and track the correlation between the operational plan and budget.
4. SOME BARRIERS TO PRODUCTIVITY MEASUREMENT of service sector:
There are a number of issues that have to be considered for effective productivity measurement in services.
Firstly, the outputs of the service sector are intangible, so marketers need to be able to specify the product and/or service and what it is supposed to achieve (its goal), and quantify both. Furthermore, in non-service sectors such as manufacturing, the customer does not witness the process of making the output. However, in many service industries, the customer experiences every activity that makes up the process of delivering the service.
Secondly, not all the results of providing a service can be seen in the short term. For example, most public service programs have very long-term results, so improved effectiveness rather than efficiency would constitute a more important objective.
Thirdly, there is usually no single measurement approach or system that can provide all the necessary information, especially for comparisons.
The final issue concerns the nature of organizations that provide services. Sometimes comparisons are frustrated because different strategic assumptions highlight organizations that provide the same services. Thus if the marketers wish to measure productivity levels, they also have to analyze the basic assumption or condition of the organization.
5. CLASSIFICATION OF SRVICES:
The services can be classified in different industries according to their characteristics and facilities offered by them. The most important services offered in different countries are discussed below.
5.1 Tourism: Tourism services constitute one-third of total world trade in services, the demand of which is a function of national income and global wealth. Tourism is a concept known to each and every person of the world. Tourism or visiting took births due to very human nature of exploring. However, now days tourism has became one of core field through which a country can earn a large amount of foreign currency. Income from tourism is taking a large proportion of the total GDP earning of the world or even total GDP of an individual country.
Many service sectors are involved in tourism as specifically in hotels and restaurants, travel agencies, tour operators, tour guide services and as part of general services especially in transport, business, distribution, recreational, cultural, sports and other lifestyle products. The tourism industry enjoys economies of scope as in tourism products more than economies of scale because of different sectors of the markets involved.
Tourism is a “perishable” commodity as unsold airline seats or hotel rooms have no residual value. The industry is labor intensive, infrastructure dependent and government efforts especially in immigration as affecting entry and exit control of visitors are highly significant catalysts of growth and development. Distribution and advertising require national tourism policies to focus on the vertical nature of the industry with respect to marketing and policy decisions. As far as tourism is concerned it is very important for any host country to represent its custom and culture to the tourists, because this will give the host country an international exposure.
5.2 Hotels, restaurants, coffee shops, food courts and other approved food establishments:Building hotels for accommodation of different people, international tourists, providing food in different restaurants, coffee shops, and food courts are also included in service sector. In recent days, where most of the people travel a lot for the business purpose or for recreation, to different places and different countries, the hotel and restaurants business become very popular and it also boosting the economy by contributing in GDP. Customer expectation is dynamic, which changes over time. Previously, tourists used to use hotel just for stay. However, now, tourist not only use hotel for staying purpose but also for everything. They want to eat there with a familiar environment. They want to enjoy their stay in the hotel. So, it is very important to provide high quality in-hotel services to the tourists.
Now many expensive hotels are build world wide, some of which have several branches and these branches have similar standards. World-class facilities are available inside every hotel, so that, citizens and tourists do not feel bored. Most of these hotels provide high quality food and drink facilities. Almost all type famous cuisines are produced inside these hotels and restaurants. This will facilitate tourists to have a feel of home while they will be eating their foods. Just in time service are available in most of the hotels, so that, tourists do not have to wait for anything. This will eventually ensure tourists satisfaction.
5.3 Telephone and other Telecommunications services: In the modern and fast world, a very high-tech communication facility should be arranged for individuals so that they can have maximum level of service in a short period of time. Latest communication equipments will be provided to facilitate communication process. To create faster communication the telephone, internet, mobile phones are helping tremendously. ISD telephone services are available in almost every country.
Mobile phones became a necessity in current days. Sooner or later mobile phones will become a universal tool combining the functions of TV and PC and phone, and then everyone will be in effect carrying a “mobile bank.” This development will change the nature of the financial service industry completely. Different countries like Japan, Singapore, Korea, and China are improving in this sector enormously.
Internet can provide the whole worlds information within few seconds. Any person can contact any one from any corner of the world within a minute now through internet. It is now a very profitable business to provide internet connection through ISP. In many countries this service is contributing a lot to increase the income of the residents. all these are the services provided by the marketers to the people of the world.
5.4 Commerce (retail and wholesale trade): Shopping is now become an everyday routine in many countries. Keeping that in mind many shopping arrangements are built in many countries for the citizens and international tourists.
Big super markets, retailing shops, different fashion houses are built in recent days. Some of them provide exclusive products which is only available in that shop. Each and every supermarket provides different type of products. So, tourists or shoppers get everything in one single market and thus save their time and effort.
Many countries are famous for their retail and wholesale trade. Italy, France, Paris these countries are known for their exclusive and expensive designer cloths, shoes, begs and other accessories. Thailand, Korea, these country are famous for less expensive, counterfeit products, which also have a very large market demand. In current days India also became popular for it’s designer cloths and fashion houses. Their products have large demand in foreign market.
Some countries are also recognized for producing standardized products and whole selling them. Like the garment industries of Bangladesh, Srilanka, India who produce lots of cloths according to the foreign customers choice, fall in this sector. This industry contributes a lot in these countries economy.
5.5 Transportation and Communications: In this fastest world, the need for fast movement and Communications has increased. For this purpose the Transportation and Communications services have introduced. The transportation services are offered to provide the people a smooth journey from place to place. So, to ensure a sound transportation service huge number of different types of vehicle is offered. These vehicles range from air transportation to water transportation. The airplane, bus, car, train, ship services all are included in this sector.
5.6 Media, Advertising and related services: Media is also very important service industry of a country. Now different media coverage is offered by different countries, so that, people from different countries can get updated information regarding any thing.
Singapore, Hong Kong, India, USA and many other countries continues to be an important centre for international media. Major language based media center are established to telecast updates news and information to different countries. Common News telecast center are built, from where news and updated information telecasted to all over the world.
5.7 Electricity, Gas and Water: These facilities have become the basic need for the people of the whole world. Without these facilities the daily works have become impossible. These facilities are mainly offered by the government or the public sector. And government gets tax from the citizens by offering these facilities which will help to boost the countries economy. But now these facilities are becoming privatized, which will make these facilities more improved and available. In most of the developed countries these facilities are very much improved and available in every corner of the country. But in least developed countries or the developing countries these services are not that improved. For example, the countries like USA, UK, France, Australia, Japan, Singapore these facilities are provided in a significant amount and regular basis. But in countries like, Bangladesh, India, Pakistan, Bhutan in these countries the facilities are not offered properly. Sometimes there are unavailability of pure water or electricity for daily work. But this scenario is changing in many countries because of the citizens’ consciousness and increasing demand for these services.
5.8 Entertainment and Amusement: The service industry which provides entertainment and amusement has taken an important position in today’s world. Now the people are continuously searching for the entertainment and recreation to relax in order to get relief from the stressful life.
To give the people such facility many entertainment and amusement facilities are offered now in different countries. This service sector is flourishing continuously in recent days. Many large companies are concentrating their business to offer entertainment and recreation services. USA, Singapore, Japan, UK, Paris, Canada, in fact the most developed countries are continuously improving this service sector. Movie halls, theater, amusement parks, game zone, night clubs, discos, are included in this service sector. Several movie halls are situated where best choice movies are played on a regular succession. Theaters are there to play famous local and international drama. Several amusement parks are established for children and kids. Tourists also enjoy all international amusement facilities there. Different game zone are built for young people, where they are able to play different type of games. for adult entertainment, different discos and night clubs are build in different foreign countries.
5.9 Medical services: Providing Hospital and health care facilities are also included in service sector. These facilities are provided both by the government and by the private owners. In public hospital the citizens are offered the medical facilities without any cast and private hospitals offering medical facilities by charging fees. Developed countries are improving their medical sector both publicly and privately. But in developing countries these sector didn’t improve that much. Like in USA, Canada, U.K, Singapore, India, these sector developed a lot but not in countries like Bangladesh, Pakistan, and Nepal. Now in developed countries, public institutions are no longer thought of bureaucratic institutions in which rules and procedures reigned. Patients are now regarded as clients or customers as contrasted to the past, the use of such words were a taboo since it carried the notation of money minded. Now, rules are made to serve customers better, and its customer is the whole population of a country.
5.10 Banking, financial and insurance services: Banking, insurance and securities are becoming more an integrated mass than distinct lines of business. This service sector plays an important role in improving one country’s economy by contributing in the national GDP.
5.11 Non-governmental organizations (NGOs): Some non-governmental organizations (NGOs) that are established for charity or humanitarian purposes such as missionary hospitals, vocational training center for the handicapped, etc are also included in service sector of a country. It should be noted that not just healthcare and educational providers, but pharmaceutical companies; medical suppliers, manufacturers, and distributors; textbook publishers; and educational suppliers and distributors also fall under this definition.
There are some other services which are taking important position in modern people’s life. These are:
- health care services
- Real estate and building services.
- Storage/ postage/ courier service
- Dispatch and delivery services
- Hair dressing and beauty shops
- Accounting, auditing and bookkeeping services;
- Community, Social and Personal services
- Legal services
- Architectural and engineering services
6. contribution of service sector in economy:
Australia has the most resilient economy in the world. In 2002 the Australian economy grew by 3.0%, well above the average growth rate of 1.5% for OECD countries.
Australia has had an average annual real GDP growth of 3.2% since 1990. This exits almost all the other OECD countries including the US, UK, Germany, Japan.
Australia is the fifteenth largest economy in the world and its GDP is more than the combined GDP of Malaysia, Singapore, Thailand and Philippines.
This improvement of GDP is possible only because Australia is a modern services-oriented economy, with services making biggest contribution to it’s economic base, almost 80% of GDP. Australia’s service sector, which accounts for more than three-quarters of the economy’s output and for four out of every five jobs, and the important role it plays in the economy. In Australia there is key changes over the last 20 years or so, looking at the relative performance of different service industries in terms of employment, productivity, trade and investment; and the shifting role of services in economic activity and the extent to which links between service industries and the rest of the economy have changed. Different types of jobs are created by the growth of services.
Australia is among the top most desired nations for investment, with primary industry investors ranking this country as number one and technology investors ranking as third.
Australia is ranked in the top ten countries in the world for availability of skilled labor, IT professionals, finance skills and qualified engineers.
Australia is a lower labor cost destination than countries like US, UK< Japan, Germany. Australia recorded impressive labor productivity growth of 3.0% average from 1996 to 2002. This increased to 3.8 % in 2002, compared with an estimated OECD average of 2%.
6. 2 SINGAPORE:
The service sector has become very important sector for Singapore’s economy. Its share of GDP and employment has expanded from 60 to 63 percent respectively from 1980 to 63 and 70 percent in year 2002. Singapore’s GDP share of service sector is close to that of Japan (68% in year 200o) and Taiwan (64% in 2001). The service sector has added total value of $ 71 billion in 2001.
The service sector comprised 123,700 establishments year 2001. The sector employed a total of 930,500 workers on an average of 7.5 employees per establishment.
The service sector of Singapore comprises with financial and insurance services, wholesale and retail trade, Real estate and building services, accommodation, food and beverage services, real estate and business services, community, social and personal services, transportation and communications, financial and insurance services, legal services, architectural and engineering services.
Wholesale and retail trade formed a large proportion (43%) of the service sector, average employment size is 5.5 employees per establishment. food and beverage services, as well as transportation and communications has larger average employment sizes of 18 to 14 workers per establishment respectively.
This country shows continued growth in number of establishments and employment in 1997 despite the regional crisis. There was a dip in employment in legal services, yet higher remuneration as well. Operating surplus increased for all professional services. By value added, medical services contributed the largest in 1997 followed by legal services. Productivity in terms of value added per worker has improved for legal services in 1997 matched by higher remuneration per worker. The marginal productivity increase for engineering services is, however, accompanied by a much larger fall in remuneration per worker. The fall in productivity for the medical and architectural service is correlated to lower remuneration per worker but not in the case of accounting services where lower productivity is against higher remuneration per worker. Based on these two comparable years 1996 and 1997, legal services appeared most impressive in productivity, shedding workers to maintain its operating surplus in spite of higher remuneration per worker. But engineering services appeared to have achieved a slight productivity growth with almost doubled operating surplus. While engineering services had the highest remuneration per worker in 1997, its productivity improvement in 1997 squeezed on remuneration per worker which fell relative to 1996. Medical services as the largest contributor in value added terms appeared to have maintained consistent in trends in productivity and remuneration per worker. So have architectural services in general. But accounting services which is third largest in value added terms has suffered both in lower productivity and higher wage costs per worker.
6.2.1 Tourism: While 6.2 million people still visited Singapore in 1998, down 13.3% over 1997, the haze and political and social unrest kept even long haul visitors away from the region. The millennial campaigns mounted by the STB and all round improvements in the region primed the recovery in 1999 to put Singapore back to be a tourist capital, an alluring destination, a tourism business centre and regional tourism hub. Just before the Asian crisis, tourist arrivals peaked in 1996 to reach 7.3 million visitors or 2.4 times the 3.0 million Singapore residents. It droped to 6.2 million in 1998 which is still twice the resident base in 1998. More male visitors with the bulk of all visitors in the age groups 25 to 44 years would demonstrate the kind of facilities and activities to cater to this distribution pattern of visitors. The recent data reveals that still twice as many arrivals were in Singapore for holiday rather than business.
6.2.2 Communication: The recent data shows that there is almost a balance between air passenger arrivals and departures by country of disembarkation in 1988 and 1998 which is indicative of Singapore’s role as a logistic air hub. By 1998, export of travel as a percentage of total export of service has fallen to 25% compared with 35% a decade ago while travel import has expanded its share to28% from 16% over the same period. This growing trend of more travel import which has negative net export in 1997 and 1998. With growing affluence, mobility of Singaporeans for holiday, business, study and other purposes has certainly grown. Thus, Singapore’s logistic hub in travel attracts traffic both ways, that is, both inbound and outbound travel. By 1998, outbound departures of Singaporean residents by air reached 69.5% of the resident population base and the total by air and sea was 1.2 times. This has immense implications not only in terms of physical infrastructure, foreign exchange and other economic effects, but also the accompanying infusion of socio-cultural and political impact of such a free two-way flow of visitors and Singaporeans going abroad.
6.2.3 Medical sector: The obvious change that has taken place in the Ministry is the change of the mindset. The management has changed from a top-down approach to a more balanced or in some cases, bottom-up approach. Hospital and health care public institutions are no longer thought of bureaucratic institutions in which rules and procedures reigned. Patients are now regarded as clients or customers as contrasted to the past, the use of such words were a taboo since it carried the notation of money minded. Now, rules are made to serve customers better, and according to the Ministry of Health, it’s customer is the whole Singapore population.
6.2.4 Hotels and accommodations: Rising business costs in Singapore, its strong dollar and relatively more competitive and attractive locations in the region are clearly the factors explaining the trends of increased hotel costs. . The average occupancy rate in expensive hotels had peaked at 86.6% in 1994 and dropped to 71.3% in 1998.
Thailand had a thriving economy in the 1980s and early 1990s – with average annual growth of almost 9% – led to increasing numbers of Thais finding work in the expanding industrial and services sectors. The bubble burst in 1997 with the financial crisis throughout the region. Stock and property prices declined sharply, dragging down the baht and leading to bankruptcies, recession and unemployment.
Following the real GDP growth rate of 5.2% in year 2002, the immediate direction of Thai economy still remains uncertain due to the unclear world economic outlook and the potential impact of the SERS virus in the whole region. In 2002 the strong GDP growth rate was attributed to domestic demand, particularly private consumption of durable goods (housing and vehicle), together with high export growth.
In early months of 2003 the economy continued to expand favorably, mainly due to the expansion of domestic oriented industries, specially real estate and construction, vehicle, beverage etc. How ever in the important service sector, tourism , the numbers of foreign tourist are declining due to the SARS crisis and increased global terrorist activities after the Iraq war.
But the sectors like insurance industry, legal and financial services get different incentives from government of Thailand to expand themselves and contribute in the national GDP.
6.3.1 Tourism: In 2002, tourism of Thailand showed signs of recovery after having slowed down between September-November 2001 in the wake of the terrorist attacks in the US. The recovery also benefited from many promotion measures initiated by the government, including measures to increase tourist security and confidence. These efforts subsequently helped to soften the adverse impact of the terrorist attacks in Asia during October-November 2002 on Thai tourism. For the entire year, 10.78 million foreign tourists traveled to Thailand, up by 7.1 percent from the previous year and bringing in US$7.7 billion of revenue. The average hotel occupancy rate was 60.7percent. Approximately 58.0 percent of them came from East Asia, with a large increase seen in the number of tourists from neighboring countries, namely, Malaysia, Vietnam, Cambodia, Hong Kong and Korea. Meanwhile, tourists from Europe and the US showed stable growth and accounted for 24.1 and 6.7 percent of the total number of tourists, respectively. The risk of war between the US and Iraq is likely to have a negative impact on tourism and especially the number of long-distance tourists in 2003.
6.3.2 Telecommunication: In 2002, the telecommunications industry expanded favorably. The number of basic telephone subscribers reached 6.6 million lines, up by 7.2 percent from last year. In addition, the number of mobile phone subscribers more than doubled over the year, reaching 17.4 million lines, in part as a result of the entry of a new mobile phone provider which started operations in January 2002. The mobile phone market also benefited from the unlocking of International Mobile Equipment Identity (IMEI) code, which subsequently encouraged competition in the mobile phone market and led to a substantial reduction in both handset prices and airtime fees. Increasing competition among mobile phone operators is expected in 2003, as there will be an additional 1900MHz mobile phone operator entering the market. Therefore, the government must promptly setup the National Telecommunications Commission (NTC) and complete the conversion of telecommunication concessions to help foster the competitive potential of all operators prior to the liberalization of this industry in 2006.
6.3.3 Real Estate: During the first 11 months of 2002, indicators of real estate activities showed signs of recovery. This included a rise in permitted construction areas (+56.8 percent), value of land transactions (+37.8 percent), and volume of cement sales (+24.6 percent). Nevertheless, the recovery was largely confined to residential properties such as detached houses, townhouses and housing projects, which alone grew by 50.9 percent. A major factor behind the recovery of the real estate sector was low interest rates. This drove financial institutions to compete in the extension of housing credits, and as of end-November 2002, outstanding housing credits of commercial banks amounted to be 388,735 million, up by 8.5 percent from the same period last year. In addition, the rebound was driven by stronger demand as household income rose in tandem with the overall economic recovery and government stimulus measures.
The Property Development Index rose from 51.0 at end-2001 to 87.7 at end-2002, with the index rising steadily over the year in line with the overall economic recovery and a robust upward adjustment of the sector. The real estate sector is likely to improve further in 2003 as demand continues to grow with the support of government stimulus measures. These measures include the extension of registration fee reduction period until end-2003, waiver of income tax on the sale of a previously occupied house for the purpose of buying a new one (up to the value of the new purchase), and new government-initiated housing projects for low income households and densely populated areas.
6.3.4 Media: The government and military control nearly all the national terrestrial television networks and operate many of Thailand’s radio networks. The radio market, particularly in Bangkok, is fiercely competitive. There are more than 60 stations in and around the capital. The media are free to criticize government policies, and cover instances of corruption and human rights abuses, but journalists tend to exercise self-censorship regarding the military, the monarchy, the judiciary and other sensitive issues. The print media are largely privately-run, with a handful of Thai-language dailies accounting for most newspaper sales. A series of media reforms are under way, aimed at reducing military interest and influence in the media and opening up more opportunities to the private sector.
As a result of the economic crisis in 1997, GDP growth in Indonesia, expressed in nominal terms, decreased from 8.22 percent in 1995 to -0.09 percent in 1998. This was caused by the uncertainty of the economic situation and fluctuations in the exchange rate against the US dollar.
At the same time, the quality of labor has been increasing due to improvements in educational levels and skills training. This translates into improvements in the capacity of the labor force to generate products and services. And improvement of service sector with the help of these skilled labors is helping Indonesia to come out of such poor economic condition.
Recently, the services sector has expanded, and in 2002 it accounted for 38% of GDP and employed about one-third of the working population.
This is why, service sector of Indonesia is very important for the improvement of their GDP growth. Indonesia categorizes its economy into nine sectors, financial institutions and building leasing sector, agricultural sector, Medical services, Telecommunications, transportations, Restaurants and beverage services, architecture and engineering services, Media, Advertising and related services, banking services.
In 1996, the financial institutions and building leasing sector achieved the highest productivity level, which was Rp 54,224,751.0 per worker. The lowest productivity level was registered by the agricultural sector. However, from 1993 to 1998, the agricultural sector had the highest labor productivity growth rate, averaging 5.69 percent, followed by the financial institutions and building leasing sector at 4.21 percent.
6.5 HONG KONG:
Hong Kong has shifted from a manufacturing-based center to a service and financial center since the end of the last century. Statistics carried in a recently published government report show that Hong Kong experienced significant economic changes in the last decade, as it continued its shift from a manufacturing-based center to a service and financial center.
According to the “Hong Kong Social and Economic Trends” report published by the Census and Statistics Department, the manufacturing sector’s contribution to the gross domestic product (GDP) declined to 4.6 per cent in 2002 from 13.5 per cent in 1992. While Hong Kong’s GDP is on the rise, the manufacturing sector’s share of GDP declined to 4.6 per cent in 2002 from 13.5 per cent in 1992; and the number of people engaged in the sector dropped significantly to 197,878 in 2001 from 651,404 in 1991. As Hong Kong developed into an important regional trading and financial center, the service sectors’ GDP share also increased, to 87.4 per cent in 2002 from 78.8 per cent in 1992. Measured in terms of constant prices, net output in all the service sectors taken together grew at an average annual rate of 2.4 per cent in real terms from 2000 to 2002. Meanwhile, net output in the local manufacturing sector decreased at an average annual rate of 9.2 per cent in real terms from 2000 to 2002.
The most important service sectors of Hong Kong are hotels and boarding houses services, telecommunications, and other communication, air transport, land transport, maritime transport, storage and rental of machinery and equipment, real estate maintenance management; stock and share companies; commodity futures and gold billion brokers/dealers; legal services, accounting, auditing and bookkeeping services; data processing and tabulation services; architectural, surveying and project engineering services; and advertising and related services.
There was a significant change in the structure of employment in the past decade, with a continuous shift in employment from the manufacturing sector to the wholesale, retail and import/export trades, restaurants and hotels sector, the financing, insurance, real estate and business services sector as well as the community, social and personal services sector. Fewer people were employed in manufacturing during the same period. Other official figures show that the number of people engaged in the manufacturing sector dipped to 197,878 in 2001 from 651,404 in 1991.
As Hong Kong moves toward becoming a service and financial center, the distributive trades sector, which comprises the wholesale, retail, import/export trades, restaurant and hotel industries, experienced significant growth in employment in the past 10 years, with its share of employment rising to 51 per cent in 2002 from 43 per cent in 1992.
In the sector comprising finance, insurance, real estate and business services, business services and financial institutions continued to be the two largest industries in terms of employment, amounting to 74 per cent of the sector’s total employment in 2002.
Business services’ share rose to 46 per cent in 2002 from 38 per cent in 1992. Business services include legal services, accounting services, advertising, public relations and market research services, and rental of machinery and equipment.
Hong Kong’s standard of living also improved in the last decade. In real terms, private expenditure grew at an average rate of 2.7 per cent between 1992 and 2002 while public expenditure grew at an average annual rate of 2.9 per cent in the same period.
For these reasons the service sector is contributing a lot for the country’s economy. The service sector of Hong Kong has improved only because their labors are educated and skilled. It is said that, Hong Kong people remain the territory’s greatest natural resource. Their capacity to operate flexibly across borders gives the country a special position in world.
6.5.1 Insurance: Hong Kong offers the best environment for insurance facilities among financial services industries with its sophisticated capital markets and concentration of fund managers. Hong Kong has the second most developed insurance market in the region after Japan in term of per capita insurance premium. Being a leading insurance centre in Asia, Hong Kong has attracted many of the world’s top insurance companies. Taking advantage of a more liberal regional insurance market, many foreign insurers and reinsures have expanded their operations in the region.
Encompassing all economic activity other than agriculture, mining, and manufacturing, the service sector is by far the largest component of the U.S. economy. Four out of every five private sector non-farm jobs are in the economy’s service sector — 78 million in 1995. Services industry activity accounts for about 80% of the U.S. economy.
Service sector jobs come from an enormous range of industries, including banking and insurance, travel, entertainment, wholesale and retail trade, legal and other business services, information, telecommunications, health care, education, transportation, energy and environmental services, and architectural, construction and engineering services.
According to a recent Commerce Department study, exports of services by U.S. firms in these and other industries supported 3.4 million U.S. jobs in 1992.
6.6.1 R & D services: R&D activities serve as incubators for the new ideas that can lead to new products, processes, and industries. Although they are not the only source of new innovations, R&D activities conducted in industry-run laboratories and facilities are the source of many important new ideas that have shaped modern technology.
U.S. industries that traditionally conduct large amounts of R&D have met with greater success in foreign markets than those that are less R&D intensive, and they have been more supportive of higher wages for their employees. Moreover, trends in industrial R&D performance are leading indicators of future technological performance.
R&D performance by the U.S. service-sector industries underwent explosive growth between 1987 and 1991, driven primarily by computer software firms and firms performing R&D on a contract basis. In 1987, service-sector industries performed less than 9 percent of all R&D performed by industry in the United States. During the next several years, R&D performed in the service sector raced ahead of that performed by U.S. manufacturing industries, and by 1989, the service sector performed nearly 19 percent of total U.S. industrial R&D, more than double the share held just two years earlier. By 1991, service-sector R&D had grown to represent nearly one-fourth of all U.S. industrial R&D.
6.6.2 Insurance: Founded in 1978, USA Insurance Group works with leading carriers and re- insurance companies to develop and market specialty insurance products that are distributed by a national network of more than 1,100 retail agents. These specialty products primarily support the transportation industry, with insurance products for commercial trucking, charter buses, limousines, and contract school buses. During calendar year 2002, the specialty products created by USA Insurance Group generated more than $326 million in policy premiums.
BISYS is the nation’s third largest independent wholesale broker of commercial property/casualty (P&C) insurance, linking a national network of approximately 1,200 retail brokers and agents with the products manufactured by approximately 60 P&C insurance carriers. BISYS facilitates the entire distribution process with extensive wholesale brokerage capabilities, including access to a broad product portfolio, access to experienced wholesale brokerage specialists, advanced case design, and sophisticated system capabilities. During its fiscal year 2003 (ended June 30th), BISYS brokered the sale of commercial P&C insurance representing approximately $550 million in premiums.
BISYS currently supports more than 22,000 domestic and international financial institutions and corporate clients through three business units. Its Investment Services group provides administration and distribution services for approximately 370 clients, representing approximately 2,100 mutual funds, hedge funds, private equity funds, and other alternative investment products with approximately $700 billion in assets under administration. BISYS’ largest group also provides retirement services to more than 17,000 companies in partnership with 40 of the nation’s leading banks and investment management companies, and offers analytical research and competitive intelligence through its Financial Research Corporation (FRC) subsidiary. Through its Insurance and Education Services group, BISYS is the nation’s largest independent distributor of life insurance and the premier provider of the support services required to sell traditional and variable life, long-term care, disability, and annuity products. This group complements its insurance distribution services with a comprehensive compliance management solution that supports insurance and investment firms and professionals with more than 215 certification and continuing education training courses, and a sophisticated suite of products and services that automate the entire licensing process. BISYS’ Information Services group supports approximately 1,450 banks, insurance companies, and corporations with industry-leading information processing and imaging solutions, turnkey asset retention solutions, and specialized corporate banking solutions.
6.7.1 Financial services: The UK is the world’s leading international financial services centre employing over 1 million people and with net overseas earnings of £31.2 billion in 2000 (5.1% of GDP). The City of London is one of world’s three leading financial centers and the largest centre for many international financial markets. The City is characterized by deep, highly liquid markets, a concentration of industry-wide skilled workforce and quality, innovative products. The UK has the world’s largest share in: metals market (95%); Eurobond trade (70%); foreign equity market (58%); derivative market (36%); tanker charter business (50%); insurance (22%).
6.7.2 Banking: The UK enjoys one of the most diverse and dynamic banking sectors in the world. It has the highest concentration of foreign banks in the world – 481 in 2000 (next nearest was the USA with 287). In 2000 London accounted for 19.1% of global cross-border bank lending, more than any other centre. Total assets of the UK banking system were £3,441 bn (August 2001) of which 55% belonged to foreign banks. The assets of UK owned banks, totaling £1,336 bn are dominated by a dozen or so retail banks, with national branch networks, mostly serving domestic, personal and corporate customers.
6.7.3 Insurance: The UK has the world’s leading insurance and reinsurance market covering common motor insurance to space satellites. The UK insurance business generated premium income of almost £174 bn in 2000. This was the third largest in the world, exceeded only by the US and Japan. The London market is a unique international wholesale insurance market-place and is the global market leader in aviation and marine insurance, with market shares of 31% and 19% respectively.
6.7.4 Securities: Besides a substantial domestic market in equities and bonds the UK is a major international centre for trading in the Euro market. Eurobonds account for the majority of all bonds issued and the UK issues 60% of them and has a 70% share of the secondary market. More funds are invested in the London than the ten top European centers combined. Edinburgh is the UK’s second major fund management centre and 6th largest in Europe. London is the largest centre for institutional equity management and also has the World’s largest share of the OTC derivatives market at 36% with a turnover of US$275bn in 2000. The UK has 31.1% of the global Forex market with a daily turnover of US$504bn.
More foreign companies are traded on the London Stock Exchange than on any other exchange (475 companies listed at the end of 2000). Turnover in these companies in London represents 48% of global turnover in foreign equities in 2000.
6.7.5 Retailing: Retailing is the UK’s top service sector industry, employing around 2.4 million people in the UK. Its turnover rose from just over £80 billion in 1984 to £175 billion in 1998. With the continuing development of cross-border franchising, some of the UK’s world-class companies have seen considerable success in overseas markets, particularly in Central Europe. Overseas outlets of UK stores provide excellent shop windows for UK products. Many retailers are expanding internationally and in a variety of ways including franchising, acquisition and joint ventures. E-commerce is another driver and allows retailers to test customers in overseas markets via their internet sites before opening a store.
6.7.6 Marketing Communications: The UK is a centre of excellence for marketing communications services (including advertising, public relations, direct marketing, market research, exhibitions, sales promotion and sponsorship). Many British companies working in this sector have reached a level of quality and sophistication which is respected here and abroad and London is well known for its strong concentration of expertise and creativity available to meet the marketing needs of all clients. The UK is the hub of European Public Relations and accounts for approximately 10% of the world market which is valued at £10 billion. The UK is also a centre for advertising best practice and is internationally recognized as a centre of creative excellence. The UK turnover in advertising is approximately £1bn, with exports estimated to be about £13.5 million annually. (This figures is however difficult to quantify due to the genuinely multinational basis upon which many agencies are run.) The market research industry in the UK is estimated to be worth around £900m of which 1/3 of income is generated from international business
6.7.7 Health Services: The health services is one of Britain’s biggest employers with approximately 1.2 million employed by the NHS and approximately 0.7 million in the private sector.
The health services sector includes NHS public hospital and ambulance trusts; private hospitals; nursing homes; medical practices (eg doctors and dentists); and other human health activities, such as blood banks, medical laboratories, etc.
A study by the Development Research Centre under the State Council estimates that over 40 percent of Japanese investment will flow into the service sector by 2005. Japan has a dramatic growth in service-sector R&D. Although R&D in Japan’s service-sector industries reached 4.2 percent of the total R&D performed by Japanese industry in 1996 and 4.5 percent in 1997, Japan’s industrial R&D performance continues to be dominated by its manufacturing sector. From 1987 to 1995, Japan’s manufacturing sector consistently accounted for nearly 98 percent of all R&D performed by Japanese industry.
An estimated 40 percent will be in the commerce and finance sectors.
The top industrial R&D performers in Japan during the 1987–97 periods reflect that country’s long-standing emphases on electronics technology (including consumer electronics and audiovisual equipment), motor vehicles, and electrical machinery. Japan’s electronics equipment industry was the leading performer of R&D throughout the period, accounting for nearly 17 percent of all Japanese industrial R&D in 1997. Japan’s motor vehicle industry was the second-best R&D performer and has retained that position nearly every year through 1997. Producers of electrical machinery became Japan’s second-best R&D-performing industry in 1994 before falling back to the third position, which they have held for several years. In 1997, manufacturers of electrical machinery accounted for nearly 11 percent of all industrial R&D performed in Japan.
Over the last ten years, the Malaysian economy achieved average annual growth rates of about 7% while gross domestic product (GDP) doubled to reach RM209.3 billion (US$55.1 billion) in 2000. Exports and imports have also almost quadrupled to reach RM372.8 billion (US$98.1 billion) and RM293.3 billion (US$77.2 billion) respectively, placing Malaysia among the world’s top 20 trading nations.
The regional economic and financial crisis which hit several countries in the Asia Pacific in mid-1997 and caused a currency crisis and stock market crash in Malaysia, provided further proof of the strength and resilience of the Malaysian economy. Within less than two years, helped by selective exchange controls and the pegging of the ringgit, Malaysia bounced back and went on track towards economic recovery.
Malaysia’s policy strategies during the last decade have deepened and widened the country’s industrial base as well as enhanced the development of its services sector. As such, a strong foundation has been laid for the economy to move forward into the new globalize environment.
In the coming decade, an important policy component in Malaysia’s development plans will be to enhance the knowledge content of the economy to increase production capacity in all sectors. The next 10 years will see human resource enhancement and intensive research and technology development that will transform Malaysia into a knowledge-based economy.
As Malaysia aspires to become a developed country by the year 2020, it is vital for the nation to transform itself into a knowledge-based economy or k-economy. This new economic mode, where many changes are technologically driven, has been labeled with many tags including “new economy”, “digital capitalism”, and “knowledge-based economy”. This new revolution comes in the wake of two great revolutions – the agricultural revolution and the industrial revolution – that have affected global communities and transformed the world. The third revolution – the information revolution – is also responsible for changing the way people work, learn, live and relate to the rest of the world. It has also clearly changed the role of governments and how they operate. Information technology is the basis for this third revolution. In order to compete and to remain relevant in the new economic environment, a country needs to adapt and change the structure of its economy as well as its human resource base.
Malaysia is currently taking bold steps to transform the nation from a Production-Based Economy (P-Economy) to Knowledge-Based Economy (K-Economy).Several strategic plans including the K-Economy Master Plan, which is in the works, and the implementation of the smart school project, have shown the Malaysian Government’s resolve to realize its developed country vision. In order to be competitive in the global K-economy, wealth is measured not just by agricultural or industrial products, but also by the new values we can create through the resourceful application of knowledge. It may not be enough to rely on traditional industries with tangible products. There is also a need to develop new industries to produce information and knowledge products. Therefore, in the new economy, the structure of the economy will not be the same as the old one.
Nevertheless, the manufacturing sector, which accounts for more than one third of the GDP of the country, will continue to play an important role in the K-Economy. However, in view of the gravitation of the economy from production-based to knowledge-based, the manufacturing sector will have to gear up to adjust to the rapid change in technological advancement by improving its products through research and development (R&D) and enlarging the pool of knowledge workers.
Beside the manufacturing sector, it is also important to develop the service sector. It is generally known that the level of development of the service sector, particularly the knowledge-intensive segments, has become a key determinant of national competitiveness for many economies.
There are many compelling reasons for Malaysia to develop its service sector. An expansion of this sector will help create national wealth. A positive correlation exists between high GDP per capita and the intensity of service-based activities in the economy, mostly because compensation levels in this sector normally surpass those in agriculture and manufacturing. Moreover, in economies with a strong emphasis on services, people tend to scale up the “value-chain ladder” much more rapidly. In addition, since service-related activities are typically skill-based and not investment intensive, they are ideal sources of growth for countries with scarce capital and a large, qualified workforce. It is generally believed that in the K-Economy, the information-related industries and knowledge-intensive industries will play a pivotal role.
In surging towards a more globalize economy, Malaysia spearheads the information age through an aggressive promotion of IT. It has embarked on e-education, borderless marketing, electronic commerce and digital broadcast through the Multimedia Super Corridor (MSC) project. Currently, e-learning is sweeping across the training and education industry, creating a chain reaction that is revolutionizing the way people learn at work, in school and at home. With the rapid deployment of information & communication technology (ICT), it will be necessary to accelerate the learning process and innovate through the effective application of acquired knowledge.
6.10 KOREA: The service sector is accumulated around 37.3% of total GDP. Among the different services the textiles, food processing, tourism services are important. Korea is one country that had developed on the basis of not discriminating between domestic and foreign investors. Korea is hardly the best advert for the benefits of non-discrimination. Up until the early 1970s, when the level of Foreign Direct Investment (FDI) was low, the Korean government was indeed quite willing to allow 100% foreign ownership, especially in assembly industries in the free-trade zones established in 1970. However, as the country tried to move into more sophisticated industries, where the development of local technological capabilities was essential, it started to restrict foreign ownership more firmly.
To begin with, there were policies that restricted the sectors that TNCs could enter. Until as late as the early 1980s, around 50% of all industries and around 20% of the manufacturing industries were still “off-limits” to FDI.
Even when entry was permitted, the government tried to encourage joint ventures, preferably under local majority ownership, in an attempt to facilitate the transfer of core technologies and managerial skills.
The overall result was that, together with Japan, Korea has been one of the least FDI-dependent countries in the world. Between 1971-95, FDI accounted for less than 1% of total fixed capital formation in the country (data from UNCTAD, various years), while the developing country average for the 1981-95 period (pre-1980 figures are not available) was 4.3%.
The GATS case is less clear cut, but more all-pervasive, since according to the World Bank, 80-85% of restrictions affecting international investment are maintained in service sectors. A number of regulations in the services sector are already coming under severe pressure in the current round of GATS negotiations.
6. 11 INDIA:
They look at the future of the world GDP (gross domestic product) which will be dominated by the service sector and India’s policy direction now is also on the service sector. As with any growing economy, GDP of services sectors showing an increased share and that of agriculture declining to 25%. The fastest growing sector in the economy has been the services sector, which now accounts 50% of GDP.
6.11.1 Indian software industry: India’s software and services exports have been rising rapidly. The annual growth rate is 20 % in IT services and 60 % in IT-enabled services, such as call centers, Business Process Outsourcing (BPO) and other administrative support operations.
Software exports now make up 20 % of India’s total export revenue, up from 4.9 % in 1997. Though India accounts for just about 3 % of the world market for information technology services, this sector has been growing at a scorching pace, helped by a large pool of English-speaking workers,6.5 million engineers and the increasing tribe of tech-savvy entrepreneurs in the country.
The Information Technology industry currently accounts for almost 2% of India’s GDP. As per a Nasscom-McKinsey Study it will account for 7.7 % of India’s GDP by 2008.
Software and IT enabled services have emerged as a niche sector for India. This was one of the fastest growing sectors in the last decade with a compound annual growth rate exceeding 50 per cent. Software service exports increased from US $ 0.50 million in 1990 to $5.9 billion in 2000-01 and $7.6 billion in 2001-02. A compound annual growth of over 25% per annum is expected over the next 5 years even on the expanding base. Consider the implications for a moment. India notched up a current account surplus in 2001-02, for the first time in 24 years. The impact on the economy of projected software and IT enabled service exports of $ 77 billion by 2008 will be unimaginable.
7. Reasons for government encouragement in service sector:
From the above discussion we have seen that service sector has become an important element of most economies. Analyses based on employment levels, trade composition, contribution to gross national product and growth rates underlines the overall significance of the service economy in most of the countries.
Service sectors such as transportation, power, construction, communication and finance are crucial in facilitating the provision of goods.
Growth in the service sector can result in economic growth to a nation in three main ways:
- By offering an exportable activity which results in a net inflow of wealth.
- By reducing the need to buy in services from overseas that consume domestically produced wealth.
- By combining with other primary and secondary activities, which allows new production possibilities for manufactured goods, increasing exports and reducing imports.
By analyzing all information regarding different countries, it can be easily understood that the service sector is developing in a faster pace and it contributes a lot in any country’s economic improvement, higher GDP accumulation. The service sector also provides plenty of employment opportunities.
By realizing the fact the governments of different countries are providing incentives to encourage service sector of their country. The government provide several facilities to the service organizations, like tax reduction, special subsidies, concessions on the amount and volume of export subsidies for service items, financial help through providing loan, low tariff to service industries, high tariff to foreign companies in order to protect local service industries.
Now government also paid attention to the improvement of infrastructures needed to service sectors. Enhancing the education, skills and expertise of the labor force, improving management and organizational techniques, upgrading research and development, protecting intellectual property rights of the service sector the government is giving incentives.
Even though there are some barriers in the growth of service sector exists, like lack of physical transport, energy and communication infrastructure, shortage of skilled labor and rising wage rates, the service sector of different countries still booming. This sector is improving due to the contribution of this sector in the national economy and the benefits the services of this sector is providing. The demand of the services are increasing enormously in most of the countries of the world. This has created an emergency to improve the service sector in a faster pace. To make it possible the government should also encourage the service sector through providing incentives. Many developed countries are continuously improving their service sector. The developing countries, such as Bangladesh, should also concentrate its efforts to improve the service sector other wise the nation can’t over come from the deprived economic condition.
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