Services: Performance of the Future

Services have outperformed the economic leverage of manufacturing. The growth not only changes the structure and composition of economic activities in both the United States and the world but also leads to a more integrated future. Both legislators and negotiators must pay more attention to the service components of international exchanges if they are to achieve long-term change.

Worldwide, services contributed more than 60 percent of total value added in most major economies in 2017. China and India were the exceptions. For world trade, the value of services exports grew 5.1 percent per year between 2006 and 2016 with a rising tendency. 

U.S. services now account for over two-thirds of GDP. The U.S. companies achieved more than $2.2 trillion in recorded international services sales In trade, services deliver a large surplus. Four out of five new private-sector jobs in the U.S. are created by services. In 2015, the Peterson Institute estimated that the elimination of global barriers to trade in services would increase the U.S. service exports by $300 billion and create 3 million jobs when fully implemented.

There is more to services than meets the eye. Services come in different categories and at different, often opaque international levels. Examples are varied performances in fields such as telecommunications, financial services, computer services, retail distribution, environmental services, education and express delivery.

Manufacturing strength increasingly comes from strong and tailor-made services which enable manufacturing to be more effective and competitive. Current cars are service driven and updated with sophisticated navigation systems. TVs have to connect to streams in order to be smart. iPhone sales rely on Apple’s support services, including troubleshooting and retailing. Even a traditional aerospace exporter like Boeing uses cloud services to manage inventory, optimize maintenance, and minimize the costs of system malfunctions.

Service performance at high has typically been greatly underestimated due to insufficient measurement insight. For example, if a person travels abroad for medical tourism, such value generating activity is hardly recorded. A local session of advice with a financial expert may create high value. However, poor valuation and insufficient recordation lead to only little understanding of current account impact.

Services and manufacturing are not at opposite ends of a scale. Rather, services strengthen the performance of manufacturing and are enhanced by the application of technology. Through its investment in the services sector, China has greatly improved the capabilities of its logistics, transport and infrastructure conditions. China can now demonstrably use its newly generated logistics expertise to outperform its competitors. For example, due to its service investments, the transport time of persons and goods via the new Hong Kong-Zhuhai-Macao Bridge has diminished from 4 hours to 30 minutes since the end of 2018. What a time wharp, yielding clear insights into shifting capabilities. Many will be the companies and countries which sign up to exchange raw materials for infrastructure. 

The integration between services and manufacturing will relegate entire supply chain conditions, which have been laboriously created, to a mere blur. Today, most apparel manufacturers own retail stores. Many store brands like Target build up their own manufacturing, controls, and retail distribution. Apple manufactures its own chips, fingerprint sensors, and other custom components. Concurrently, its retail stores flourish and allow it to control its direct distribution and sale to customers.

Services growth promotes new types of manufacturing. Printing technology gives new meaning to scale economies. Services, combined with flexibility and adjustment bring opportunity and vitality to the global economy. In terms of innovation and employment, strong services are no less important for a country than a strong manufacturing sector. U.S. legislators and negotiators must place growing emphasis on services and their links, both direct and indirect, with manufacturing. A more integrated economy will provide all with a significant payoff.

Professor Czinkota (czinkotm@georgetown.edu) teaches international marketing and trade at Georgetown University and the University of Kent in Canterbury. His latest book is ‘In Search for the Soul of International Business’ 2019, Businessexpertpress.com

Yes, Cultural Awareness Matters in International Marketing

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Culture defines the behavioral patterns that are distinguishing characteristics of members of a society. It gives an individual an anchoring point, an identity and codes of conduct. Culture has 164 definitions in English alone but all of them accept that culture is learned, shared and transmitted across generations. Cultural awareness in business has been recognized over centuries. When the East India Company came and initiated the spice trade in India in the 17th century, its members embraced Indian cultural values in order to integrate with society and promote business. To be effective marketers across cultures and borders, companies must recognize that cultural differences exist and then adapt their approach to marketing accordingly.

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Global Business: Trade, Broken Down

In business, trade is a big word. Not in the sense of how you spell it, but rather how we use it, as there are many compartments to trading with different countries. From exports, to labor, to production and prices, trade isn’t just the exchanging of goods. Lets break it down and use the example of clothing.

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For Your Long-Term Success Sponsor Innovation And Enter Asian Markets, with Peter R. Dickson

In a recent column in Marketing Management we explained the inevitability of the rest of the world catching up to us in business and technical expertise and why it is imperative that we increase the productivity of our innovation commercialization as a nation. We suggested nationwide innovation scholarships that create thousands of new businesses started by American engineers, scientists, artists, artisans and other innovators.

In this column we expand on our proposal by explaining how CEOs like yourselves in collaboration with universities can gain great benefits by increasing the innovativeness of your company by sponsoring and working with innovators. For, say $25,000 you can support the commercialization of an innovator’s idea. The University pays another $25,000 because Universities must be forced to invest at least some of their endowment in innovation and walk the talk when it comes to a re-structuring of the U.S. economy. So what you get is a $50,000 scholarship in your name to help start-up an innovative idea in your industry. Such collaboration can then work in local incubators or by developing a cluster of innovations in order to accelerate social ventures as the S&R foundation does at Halcyon House in Washington D.C.  Good idea? No it’s not a good idea, it’s a great idea so this is what you have to do.

Get together with other local CEOs and approach your local University Presidents and insist they develop such a program that you as a group can support 50:50. It will happen. If you persist it will happen and you will be forging a much better future for the United States by serving your own self-interests as well.

Oh and another thing. Almost all of the growth in consumer product and service markets over the next 50 years will be in China and India and it will be huge. Are you in on the ground floor on this? Do you have a Chinese partner yet? An Indian partner If not, then you are giving away these market to, by then local Chinese and Indian companies that in 10 years will be coming  over here and to all those international markets which you serve now. If you’re not prepared, they will eat your lunch. This is a certainty.  They will be the largest consumer product and service companies in the world. And if they learn by doing and they do a lot more than us, they will be best in the world at doing things well. Think about an Indian partner and investing in these markets. Think about a Chinese partner and investing in these markets. You owe it to your customers, your employees and your successor.

Peter Dickson (dicksonp@fiu.edu) is an Eminent Scholar and Professor at Florida International University

Michael Czinkota (czinkotm@georgetown.edu) is a Professor of international marketing at Georgetown University

This article is also published by CEOWORLD Magazine. See at: http://ceoworld.biz/2016/04/18/long-term-success-sponsor-innovation-enter-asian-markets

Considering Labor Costs in Foreign Expansion

by Guest Blogger Nick Rojas

Ever since the National Science Foundation ended its sponsorship of the “NSFNET Backbone Service” on April 30, 1995 any remaining restrictions on using the Internet for commercial purposes were lifted. This resulted in a revolution for many industries, especially those focused on information and communication.
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All of a sudden, you did not have to go to the local library to look up information on subjects you were researching. You also no longer had to contact newspapers and magazines to issue job postings.

What was happening on a local level would soon cross international borders and connect entire workforces, industries, and populations. Outsourcing labor and expanding export and import infrastructures soon became a trending topic for an increasingly connected, global society of the 21st century.

Why Outsource?

The U.S. and large parts of Europe underwent massive economic growth in the second half of the 20th century. With all the growth, however, came the increase in local labor and energy costs.

This was one of the main reasons why many Western corporations began to invest into production facilities in foreign markets, where labor costs were comparatively low and where they could give local economies a boost.

Made in China

One of the nation’s becoming most popular during this era was China, which made a name for itself by offering high productivity at low wages – as low as 100$ a month for non-skilled labor in Chinese factories. The “Made in China” label, to this day, is synonymous with cheap manufacturing labor, as opposed to, for example, the equally famous “Made in Germany” (representing high quality engineering).

Even though China is a Communist country, it was able to build a capitalist economy integrated into the World market. This, however, combined with the increased exposure to Western standards and philosophies among the Chinese population – due to the Internet – has in recent years led to many demonstrations and a generally more pressing uprising of the Chinese labor force against corporations and the government, echoing what Europe went through during its Industrial Revolution in the 19th century.

So while China is still a cheap manufacturing market, investments into the nation’s cheap labor force are becoming increasingly risky considering the latest political developments, which are only now gaining momentum and will continue to raise awareness as the rest of the world learns more about the situation.

India – a Valuable Tech AllyNick2

If China is known for cheap manufacturing labor and Germany for first class engineering, then India is the nation that offers the highest density in talented software developers and other computer-based services.

There are two main reasons for this, the first one being that not only colleges, but Indian companies also invest into technology-related education of young adults. Secondly, since India’s industrial infrastructure is still catching up to Western standards, the chances of landing a job in the mechanical, electrical, or chemical fields are low. In addition to that, many American and European companies are increasingly outsourcing software-related labor to the Indian market, so this trend is not going to change anytime soon.

While China is struggling with an increasingly difficult political situation, an interesting synergy is starting to develop between Western and Indian people. The latest generation of entrepreneurs of companies like Facebook, Uber, and WhatsApp consists largely of Millennials, the first generation that grew up with access to the Internet.

Their exposure to global information and cultures has turned them into a tolerant, curious, and cosmopolitan generation. For Millennials, globalization is not a new development, but status quo.

As a result, they don’t see their Indian counterparts as just another source for cheap labor, but as potential partners who share the same passion and interest – technology. So while wages in India are still much lower – an experienced programmer in the U.S. makes up to $200 an hour, whereas Indian developers charge closer to $20-30 an hour – this growing “partnership” between generations and nations will have an impact on Indian labor costs, especially in the area of software development.

Other Markets

China and India have certainly become very popular for their outsource-friendly workforce, but South America and Africa are going to be interesting to watch over the next few decades as the United States is making significant investments into their local infrastructure, renewable energy, and banking system.

Conclusion

It might seem like commercial Internet has been around forever, but it has really only been around for two decades. Considering the massive impact on the global marketplace it has already had, it is clear that we will see dynamics shifting between foreign markets over the course of the next century, and labor costs will be one of the most important factors to watch.

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Nick Rojas is a business consultant and writer who lives in Los Angeles and Chicago. He has consulted small and medium-sized enterprises for over twenty years. He has contributed articles to Visual.ly, Entrepreneur, and TechCrunch. You can follow him on Twitter @NickARojas,. or you can reach him at NickAndrewRojas@gmail.com.