Role of Services in Economy Society

Session 1:Role of Service in an Economy & Society

Session 1:Session 1:Role of Service in an Role of Service in an Economy & SocietyEconomy & Society

Economic Structure & Development of Service Economy

Underdeveloped economy

Developed economy

What is a Service?

The global trade framework does not provide clear definitions on what is a “good” or a “service”

Limited help: “When you can drop it on your foot, it is not a service! “ (The Economist)

Service Definitions• A service:

– is an activity or series of activities

– more or less intangible nature, and

– Mostly takes place in interaction between customer and service employee (but not necessarily)

– With/without physical resources/ goods/ systems of the service provider,

– With an aim to provide solutions to customer problems.

• Services can be defined as economic activities thatproduce time, place, form or psychological utilities. They are intangible acts deeds or performances

Characteristics of Goods & ServicesGOODS

• Tangible product• Consistent product definition• Production usually separate

from consumption• Can be inventoried• Low customer interaction• Can be resold• Quality measurement possible• Goods are transportable• Site of facility important for

cost

SERVICES• Intangible in nature• Inconsistent product definition• Produced & consumed at same

time• Cannot be inventoried• High customer interaction• Reselling is unusual• Quality difficult to measure• Provider/customer, not

product is transportable• Site of facility important for

customer contact.

Definition of Service Firms

Service enterprises are organizations that:

• facilitate the production & distribution of goods,

• support other firms in meeting their goals, and

• add value to our personal lives.

James Fitzsimmons

Categories of Service Mix

PurePureServiceService

TangibleTangibleGoodGoodWith With

servicesservices

MajorMajorServiceService

WithWithGoodsGoods

HybridHybridPurePure

TangibleTangibleGoodGood

0 25 50 75 100255075100

AutomobileComputerInstalled Carpeting

Fast-food & Restaurant MealAuto Repair

Hospital CareAdvertising Agency

Investment ManagementConsulting Service

Counseling

Percent of Product that is a Good Percent of Product that is a Service

Proportion of Goods and Services in Purchase Bundle

Role of Services in an Economy

Impact of Service Sector on Economy(Emphasis on Indian Economy)

-- Health of the country (GDP): Health of the country (GDP): GDP is the market value of all the final goods and services produced within the country in a given period of time.

-- EmploymentEmployment-- Manufacturing sectorManufacturing sector-- International TradeInternational Trade

The contribution of the services sector to the Indian economy has

been manifold: a 56.3% share (excluding construction) in GDP,

growing by 9.4% (CAGR), contributing to about 25% of total

employment, accounting for a high share in FDI inflows and over one-

third of total exports, and recording very fast (27.4 per cent) export

growth through the first half of 2010-11.

National Accounts Statistics (India) Classification

Classification of the services sector:Classification of the services sector:

trade, hotels, and restaurants;

transport, storage, and communication;

financing, insurance, real estate, and business

services; and

Community, social, and personal services.

Service Sector Impact on Service Sector Impact on

GDPGDP

Among the top 12 countries with highest overall GDP in 2010,

India ranks 8 and 11 in overall GDP and services GDP

respectively.

While countries like the UK, USA, and France have the highest

share of services in GDP at above 78%, India’s share of 57% is

much above that of China at 41.8%.

Size of Specific Services in India (% of GDP)

Service Sector Impact on Service Sector Impact on

EmploymentEmployment

Contribution of Services to Employment

Employment % in Developed (non-Asian) Countries(as per 2002)

Country Share in Employment (%)Agriculture Industry Service

UK 1 25 74USA 2 24 74

France 3 25 72Japan 5 31 64

Germany 3 33 64Italy 5 32 63

Australia 5 21 74

–90% of All Jobs by 2020 is expected from the service sector

Contribution of Services to Employment

Employment Share in Asian Countries (2002)

Share (%)

Country In GDP In EmploymentChina 34 31

Indonesia 38 39Thailand 48 33

Philippines 53 47Malaysia 54 50

Rep. of Korea 55 62Pakistan 54 34

India 51 22

Service Sector Contribution to Service Sector Contribution to

ManufacturingManufacturing

• Input to the manufacturing Sector• The contribution of services to growth of

manufacturing output went up considerably, from about 1% (1980) to about 25% (in 1990’s).

Reasons for demand of services as intermediate input:- Splintering- Globalization

Contribution of Services to Manufacturing

Sustainability Issue of Service sector growth?

Recent decline in manufacturing and corresponding shift to services is unsupportable in the long run as services depend critically on manufacturing for their demand ??????????

Service Sector Impact on Service Sector Impact on

International TradeInternational Trade

Contribution of Services to International Trade

Country Share of service exportUnited States 28.4U.K 32.4Australia 22.4Japan 13.9China 9.6 (it is net importer of services)India 30.9WORLD 18.6

Share of Service Export Over Total Export (World Bank (2005))

• India's total merchandize export in world – 31st rank

• India’s service export – 20th rank

Dynamism of India’s Services Sector

World Bank, 2004

• CAGR of the Indian economy from 5.7% (1990s) to 8.6% during the period 2004-05 to 2009-10 was to a large measure due to the acceleration of CAGR in the services sector from 7.5% (1990s) to 10.3% in 2004-05 to 2009-10.

• The services sector growth was significantly faster than the 6.6 per cent for the combined agriculture and industry sectors annual output growth during the same period. In 2009-10, services growth was 10.1 per cent

Openness has been associated withhigher growth World Bank, 2004

Determinants of growth in service sector

Income elasticity of demand

Scope of work

Technological development related to industrial

development

Participation of women in workforce

Urbanization

Regulatory Policies

External demand

Increase in life expectancy

Innovation

How Can Services Boom (IT-ITES) Lead To Sustainable Growth?