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International Marketing

of Services

Chapter IX

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Nature of Services

Services are capable of delivering satisfaction from needsand wants to consumers like products.

Services are defined as intangible and identifiable activity

transacted to provide satisfaction to consumers.

Characteristics of Services :

1. Intangibility -- Services possess no physical attributes , so it

is not possible to feel, taste, smell or see services.

2. Inconsistency -- Service is mostly provided by people, as

human beings do the same act differently, quality of service

also tends to vary.3. Inseparability -- Services cannot be separated from service

provider or customer.

4. Perishability -- Services are highly perishable, so no

inventory can be made of services.

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When customers buy service, they pay for time, knowledge,

skill and resources of service providers unlike products.

Major Challenges in International Marketing of Services

1. Standardisation of services -- Difference in quality

2. Mismatch of demand and supply

3. High fixed cost

4. High attrition rate5. Building service-brand is more complex

6. Difference in cultural environment influences customer-

behaviour more than products

7. Increased Govt. intervention etc.

American Marketing Association defines services as

activities, benefits or satisfaction which is offered for sale or are

provided in connection to sale of products.

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Growth in Service Sector

Services are growing consistently @ 7% p.a. globally. Nowmore than 50% of Indias GDP is accrued by services.

World trade in commercial services*in 2007 was $6320 bn.

growing @ 17% p.a.

Indias foreign trade in commercial services was $164 bn.growing @ 24% p.a.. Indias share of foreign trade in services

was 2.6%.

[*Commercial Services -- Services where payment is received

in foreign exchange are called Commercial Service.]

Prominent Commercial Services

1. Business Services -- Professional services, Computer related

service, Domestic service, Consultancy and advisory, Real

estates, Leasing, Rental services etc.

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2. Communication Services -- Courier , Telecom, Postal

services etc.3. Construction & Engineering Services

4. Financial Services -- Accounting, Insurance, Banking,

Equity research and related services

5. IT & IT-related services -- e-marketing, BPOs, Medical

transcription etc.6. Health & Social Services

7. Transport Services -- Air, Rail, Road, Ships, Pipelines etc.

8. Tourism and Travel related Services -- Travel Agencies, Tour

Operators, Tourist Guides, Hotels, Restaurants etc.

9. Educationan and R & D Services -- Academic, Contract

research, KPOs etc.

10. Entertainment, Cultural & Sports Services -- Movies,

Music albums, Cable TV, Games, Athletics etc.

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GOI Supports in International Marketing of Service

1. Service Export Promotion Council (SEPC)

-- Service exporters are known asService Providers who

are to get registered with SEPC for benefits from Govt.

2. Recognition asService Status Houses-- Based upon foreign exchange earnings, service-exporters

are recognised as Service Status House grade I, IIV, upon

which depend their export incentives.

3.D

uty Credit EntitlementService Providers are entitled to Duty Credit Benefits

depending on their foreign exchange earnings.

4. EOU & SEZ Benefits

--Service

Providers are entitled to same benefits as allowedto other100% EOU & SEZs.

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5. EPCG Scheme Benefits

--Import of capital goods for service exports is allowed at5% customs duty against usual export obligation.

6. Served From India Scheme

-- Through participation in exhibitions, trade fairs etc. GOI

undertakes promotion of services from India.

7. Common Facility Centres

-- Benefits of CFCs located at major cities in India are

available to service providers for export.

Major foreign exchange earning Services of India are :

IT & IT-enabled services, BPO, Tourism & Travel related

services, Telecommunication, e-commerce etc.

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General Agreement in Trade of Services

InU

ruguay Round of discussion, member nations of GATTarrived at this agreement called GATS for smoother world trade

in services. Salient clauses of GATS as agreed by WTO are :

1. Modes of Service -- GATS classifies all internationally

traded services in following FOU

R modes* Cross-border services : Services which are generated in one

country and consumed in another country e.g. telecom,

money transfer, foreign market research etc.

* Consumption abroad services : When service-customers

move to foreign countries to avail of service, e.g. tourism,hospitality, treatment, education etc.

* Commercial presence abroad services : Companies set up

subsidiaries and branches abroad to provide service e.g.

TCS sets up branches abroad to provide service to clients

called offshore services.

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* Service by Natural persons : Individual persons moving to

countries abroad to provide services e.g. doctors, dentists,

nurses, teachers etc. to carry out free-lance practice or jobs.

2. Market Access : GATS provides discretion to all WTO

member nations to open their market segments for other

member nations or not.

3. Most Favoured Nation [MFN] Treatment : When a member

nation opens any of its sector to foreign competition, it has to

provide equal opportunity to all WTO nations.

4. Transparency : All member nations should keep WTO postedabout trade related rules, regulations and changes therein

immediately for information to all member nations.

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5. Movement ofNatural Persons : WTO member nations

should allow temporary stay to individuals from othermember nations to provide services.

6. Natural Treatment : Service providers from other WTO

member nations in opened service segments should be treated

at par with local service providers without any discrimination.

Mangement Contract Services in International

Marketing :

Some companies contract out various non-core (also core)services on long term basis to outsider firms to help in

achieving higher shareholder value for the company called

Management Contract Services, like Business Process

Outsourcing, Contract Research, Contract Manufacture, IT

Outsourcing etc.

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1. Business ProcessOutsourcing

Awarding critical and non-critical, non-core (also core)

business processes or functions of an organisation to external

vendors for long periods of time on a set of predefined

performance parameters is calledBusiness Process Outsourcing.

BPOs generally comprise of highly qualified pool of skilled

professionals who can adopt business processes fast to provide

higher productivity gains without sacrificing on quality.

Companies hire BPOs mainly :

i) to enable company employees to focus on strategy and

customers more for greater results,

ii) to improve processes and save money,

iii) to increase organisational efficiency.

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BPOs in India

Many Indian and international companies are outsourcing

various business services from India. It is expanding at a very fastpace mainly because

a) India has largest population of English-speaking population

afterUS.

b) Every year India produces more than 100,000 engineers

who find application in various BPO jobs at salaries

substantially lower than in US and Europe.

c) GOI recognises potential of BPOs and provides

numerous incentives.

d) Information Technology Act 2000, permits e-commerceunder specified cyber laws (1 among 12 nations of world).

e) 100% foreign ownership is permitted in ITes industry

unlike other sectors, STPs have been established.

f) From 23000 employees & $10 mill. revenue in 1998, it has

grown to a million employees and $ 20 bl. revenue by 2008.

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Medical Tourism

Because of skilled and atrociously economical (by world-

standards) doctors and surgeons in India, major private hospitals

at Delhi, Mumbai etc. are attracting patients from outside India in

increasing numbers.

It is giving rise to more numbers of Five-starred Hospitals

That is giving rise to greater employability of skilled andunskilled labour in India in addition to earning of foreign

exchange and boosting image of the nation.

Contract Research

International Pharmaceutical companies of repute arecreating Strategic Allince with Indian companies to establish

research-centres in India to make use of Indian scientists and

researchers who are at par in quality but less than one-third

costly. Thus cost of research of New Chemical Entities aresubstantially getting reduced.