In this video, Prof. Czinkota introduced the significance of international services in the United States and world economic activities.
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 (firstname.lastname@example.org) 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
It is an honor and a pleasure to have Mrs. Smith visit us in the Seminar on International Trade. After many decades with government, Maureen is more than a total Insider. Simultaneously she is a historian, a pivotal link, an interpreter and able to derive the benefits of understanding where other only shrug.
Your Georgetown international education and training is spot-on, enhanced by cohorts who became Presidents, senators and judges as well as key business executives and Georgetown deans. Thank you for your insider insights.
While countries around the world like the United States and those in the European Union are suffering, Thailand has reported a gross domestic product growth of 18.9% compared to last year. This growth can be attributed to the devastating floods in 2011 which diminished both production and consumption. By comparison, the current investment in rebuilding supports growth.
On Monday, February 18th Thailand’s government reported that the GDP growth for 2012 was 6.4%, with expectations for 4.5 %– 5.5 %growth in 2013. Whether the growth will mainly be in manufacturing or in services (such as medical tourism) is a key question.
The Philippines is a small island nation located between the Pacific Ocean and the South China Sea. Its geography, climate and large labor force has allowed it to focus on the agriculture and manufacturing sector throughout the past decades. Because of cheaper alternatives, and of lack of investment and technology advancement, the country has fallen behind its neighbors in these fields. However, it has two characteristics that have helped it find its niche and create competitive advantage. Namely: Hospitality and English.
Large multi-national companies have been shifting their call center operations from India to the Philippines. Though India boasts a population more than ten times that of the Philippines, by the end of 2011, about 400,000 Filipino customer service representatives spent their nights talking to mostly American consumers as compared to the 350,000 in India.
Companies like JPMorgan Chase, telecommunications operator AT&T, and the travel booking service Expedia work with call centers in the Philippines. As a country with the largest number of youth in the East, schooled in Western culture, the Philippines seems a great choice. European and Indian companies have followed the same trend to the Philippines.
The Philippines is a strategic choice for many reasons. The country is located in the middle of South East Asia just an hour away from Hong Kong and four hours from Singapore, where the main Asian offices of many corporations are located. Many jobseekers hold university degrees ranging from chemical engineering to communications in addition to their mastery of English. The Philippines also has a 95.4% literacy rate according to a United Nations Development Program Survey. In contrast, India has a 74% mean literacy.
Though English is the official language for both countries, there are key differences between the two countries. Filipinos start learning American English in the first grade. In addition, common themes in American culture such as the NBA, hamburgers, and the television show “Friends” have become part of the Filipino growing up experience. In contrast, Indian public schools introduce British English in the third grade. Cricket is the national pastime.
The Philippines has “a unique combination of Eastern, attentive hospitality and attitude of care and compassion mixed with what I call Americanization,” said Aparup Sengupta, chief executive of Aegis Global. The outsourcing firm based in Mumbai, India, acquired Manila-based People Support in 2008 and now employs roughly 13,000 Filipinos.
Compared to India, Philippine infrastructure is better suited to handle the utility needs of call center operations. Contrary to India, there are almost no blackouts which greatly lessen the cost of generators and diesel fuel. Cities in the Philippines are also relatively safer and have better public transportation, eliminating the need for companies to bus their employees to and from the office.
Firms that initially focused on cost reduction now find that this is not enough. Companies that pay an average of $250 a month in India have shifted their operations to Philippines despite the higher monthly costs of $350 per month – a 40% increase. The question has shifted from “How much?” to “How well can you do it?” In an increasingly competitive environment, firms have seen that service has started to play a much larger role.
The Philippines’ global market share of the call center industry is expected to increase to 32% by 2016 up from 24% in 2010. In the next 5 years, revenues are projected to reach $14.7 billion with employment doubling to above 800,000 employees.
Western executives are expecting the Philippines to continue growing fast and to move up to higher-value services like accounting and insurance claim processing. But, similar to India, companies are struggling to cope with increasing domestic inflation and a shortage of skilled professionals. For now, however, companies remain optimistic of the opportunities and the services the country has to offer.
Contributed by Quintin Eusebio and Ireene Leoncio, both of Georgetown University
Sources: “Philippines Unemployment Rate.” TradingEconomics.com. Trading Economics, 01 Oct. 2011. Web. 12 Feb. 2012. <http://www.tradingeconomics.com/philippines/unemployment-rate>.; Ho, Abigail M. “Contact Center Revenues Seen to Hit $14.7B.” Philippine Inquirer [Manila] 1 Aug. 2011, Inquirer Business sec. Print.; “Phl Contact Center Industry to Double in 5 Years.” Phil Star. Philippine Star, 15 Aug. 2011. Web. 12 Feb. 2012. <http://www.philstar.com/Article.aspx?articleId=716721>.