CHAPTER 15Chapter ObjectivesI. Differences between Services and GoodsCHAPTER 15SERVICESChapter Objectives To examine the important role of services in international business To understand why trade in services is more complex than trade in goods To appreciate the heightened sensitivity required for international service success To learn that stand-alone services are becoming more important to world trade To examine the competitive advantage of firms in the service sectorOpening CaseHelp Wanted: The Global Job ShiftSummary:This case describes the continuing trend of jobs shifting from higher cost nations such as the U.S. to lower cost nations. What is new is the fact that now the U.S. is now losing jobs of the “knowledge workers”—accountants, architects, medical specialists, customer service personnel, and research and development. This is possible due to the increased educational levels in the lower cost countries.Chapter OutlineI. DIFFERENCES BETWEEN SERVICES AND GOODSA. Good—an object, device, thing that is tangibleB. Service—a deed, performance, effort that is intangible, personalized, and custom-madeC. Link Between Services and Goods1. Services may complement goods (technological support and maintenance)2. Goods may complement services (hardware to run a software program)D. Stand-Alone Services1. Outsourcing of labor2. Lease auto3. Entertainment4. Characteristics—a. Intangibleb. Perishablec. Service capacity must be maintainedd. Customer involvement in production of servicee. Service consistency is requiredf. Service heterogeneity—may never be same service from one delivery to anotherg. May require new forms of distributionh. Man not be tied to any one locationi. Delivered directly to userII. The Role of Services in the U.S. EconomyA. 81 percent of private sector GDPB. Employs 82 percent of workforceC. Many U.S. services do not sell internationallyFocus on PolicyServing Up EducationSummary:While both foreign students studying in the U.S. and U.S. students studying in foreign countries hadincreased, the U.S. share of the international student market has declined. The advantages to a U.S. student studying abroad include exposure to new culture and ideas, exposing local students to U.s. culture and ideas, forging international bonds, preparing them to live and compete in the global economy. However, the fear of terrorism can cause problems as indicated by the questions at the end of the case.III. The Role of Global Services in the World EconomyA. Services are dominant in other countries and play an important role in job creationB. Some countries are challenging the traditional pattern and going straight from an agricultural economy to a service economy, skipping the industrial stageIV. Global Transformations in the Services SectorA. Government regulation of service industries has decreasedB. Deregulation of services by associations and professional groupsC. Technological advancements permits services to be offered globallyD. Technology has reduced the cost of communicationE. Technology-intensive services are increasing rapidlyV. Problems in Service TradeA. Data Collection ProblemsB. Global Regulations of Services1. Barriers to entrya. National security concernsb. Economic security concernsc. To protect infant industries2. Problems in performing services abroada. Rules and regulations based on tradition may inhibit innovationb. Governments pursue social objectives through national regulation3. Global Agreement on Trade in Services (GATS) signed in 1995—multilateral legally enforceable agreement covering trade and investment in the services sectorVI. Corporations and Services TradeA. Services and E-Commerce1. Retailers can reach customers globally2. Government regulations may not affect transfer of services via the Web3. Easier to gain credibility4. Save on travel costs5. Cautionsa. Internet is developing at different rates in different countriesb. Need to prepare Internet presence for global visitorsB. Typical International Services1. Financial services2. Engineering services3. Insurance services4. Communication services5. Teaching services6. Consulting services7. TourismFocus on PolicySARS Scars Global Tourism IndustrySummary:Due to the outbreak of Sever Acute Respiratory Syndrome (SARS), China, Hong Kong, Singapore, and Vietnam lost more than 2.9 million jobs. Neighboring countries lost 15 percent of their tourism labor force.Even in Canada SARS cost the economy more than $1.5 billion and 12,000 jobs. Canada devised a $176 million publicity campaign to win tourists back.C. Starting to Offer Services Internationally1. If the service is in support of a good, then follow the same path as the good2. Search for market situations similar to the domestic market3. Identify and understand points of transition abroad and be ready to jump in4. Stay informed about international projects sponsored by domestic organizationsD. Strategic Indications1. Determine the nature and aim of the services –offering core (Figure 15.5, page 523)2. Consider other tactical variables impact the service offering (capacity, delivery efficiency, and ability to communicate the offer)3. Ways of gaining credibilitya. Provide objective verification of capabilityb. Provide personal guarantees, testimonials, and referralsc. Cultivate a professional image4. Proper provisions need to be made for training of personnel emphasizing appearance and image projection5. Decentralization of serviced to customize delivery6. Greater flexibility in pricing to respond to local changes in demand7. Difficulty in handling payments8. Short and direct channels of distribution are required for