Role of Services in Economy

8/3/2019 Role of Services in Economy

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Session 1:Role of Service in anEconomy & Society


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Economic Structure & Development ofService Economy

Underdeveloped economy

Developed economy


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What is a Service?

The global trade frameworkdoes not provide cleardefinitionson what is a good or a service

Limited help:When you can drop it on your foot,

it is not a service! (The Economist)


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Service Definitions

A service:

is anactivity or series of activities more or lessintangible nature, and

Mostly takes place in interaction between customer and

service employee (but not necessarily)

With/without physical resources/ goods/ systems of theservice provider,

With an aim to provide solutions to customer problems.

Services can be defined as economic activities that

produce time, place, form or psychological utilities.

They are intangible acts deeds or performances


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Characteristics of Goods & Services

GOODS

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, notproduct is transportable

Site of facility important forcustomer contact.


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Definition of Service Firms

Service enterprises are organizations that:

facilitate the production & distribution of goods,

support other firms in meeting their goals, and

add valueto our personal lives.

James Fitzsimmons


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Categories of Service Mix

PureService

TangibleGoodWith

services

MajorServiceWithGoods

Hybrid

PureTangibleGood


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0 25 50 75 100255075100

Automobile

Computer

Installed Carpeting

Fast-food & Restaurant Meal

Auto Repair

Hospital Care

Advertising Agency

Investment Management

Consulting Service

Counseling

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

Proportion of Goods and Services inPurchase Bundle


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Role of Services in an Economy


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Service Sector Impact on

GDP


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Contribution of Service Sector to GDP

Country Share in Output (%)

Agriculture Industry Service (2002) Service (2003)

UK 1 26 73 72

USA 2 23 75 75

France 2 22 76 -

Japan 1 31 68 -

Germany 1 30 69 -

Italy 3 29 69 -

Australia 4 26 69 71

Output Shares in Developed (non-Asian) Countries(as per 2002)


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Contribution of Service Sector to GDP

Country Agriculture Industry Services1960 2002 1960 2002 1960 2002

China 30 15 49 51 21 34

Indonesia 50 18 25 45 25 38

Thailand 40 9 19 43 41 48

Philippines 26 14 28 33 46 53

Malaysia 36 9 18 47 46 54

Rep. of Korea 37 4 20 41 43 55

Pakistan 46 23 16 23 38 54

India 55 24 16 25 29 51

Output Shares in Asian Countries

2006-07: Services: 55.1%, Industry: 26.4%, Agriculture: 18.5% of GDP

30.5 per cent in 1950-51 to 55.2 per cent in 2009-10. If construction isalso included, then the share increases to 63.4 per cent in 2009-10.


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Size of Specific Services in India (% of GDP)


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Employment


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Contribution of Services to Employment

Employment % in Developed (non-Asian) Countries

(as per 2002)Country Share in Employment (%)

Agriculture Industry Service

UK 1 25 74

USA 2 24 74

France 3 25 72

Japan 5 31 64

Germany 3 33 64

Italy 5 32 63

Australia 5 21 74

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


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Contribution of Services to Employment

Employment Share in Asian Countries (2002)

Share (%)

Country In GDP In Employment

China 34 31Indonesia 38 39

Thailand 48 33

Philippines 53 47

Malaysia 54 50

Rep. of Korea 55 62

Pakistan 54 34

India 51 22


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Substantial employment in fragmented


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Substantial employment in fragmentedservices sectors-India

Sector-wise Employement in service sector 1999/00

Road Transport

14%

Rest all sector31%

Retail Trade

33%

Construction

22%

World Bank, 2004


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Service Sector Contribution to

Manufacturing


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Input to the manufacturing Sector

The contribution of services to growth ofmanufacturing output went up considerably, fromabout 1% (1980) to about 25% (in 1990s).

Reasons for demand of services as intermediate input:- Splintering

- Globalization

Contribution of Services to Manufacturing

Sustainability Issue of Service sector growth?


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International Trade


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Contribution of Services to International Trade

Country Share of service exportUnited States 28.4

U.K 32.4

Australia 22.4

Japan 13.9

China 9.6 (it is net importer of services)

India 30.9

WORLD 18.6

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

India's total merchandize export in world 31st rank

Indias service export 20th rank


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Composition of World Service Trade

WTO International Trade Statistics,2005(Excluding Intra-EU trade)

5%5%

6%

11%

8%

13%

3%

49%

Communication Services

Construction Services

Insurance Services

Financial Services

Computer and Information services

Royalties and License fees

Personal, Cultural and Recreational Services

Other business services

Dynamism of Indias Services Sector


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Dynamism of India s Services Sector

World Bank, 2004

CAGR of the Indian economy from 5.7% (1990s) to 8.6% during theperiod 2004-05 to 2009-10 was to a large measure due to theacceleration 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 centfor the combined agriculture and industry sectors annual output growth

during the same period. In 2009-10, services growth was 10.1 per centand in 2010-11

Si ifi il l lib li i i


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Significant unilateral liberalization inservices has led to increased FDI

World Bank, 2004


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Openness has been associated with


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Openness has been associated withhigher growth World Bank, 2004


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Determinants of growth in service sector


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Determinants of growth in service sector

Income elasticity of demand

Scope of workTechnological 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)


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


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Documents

Role of Services in Economy