Session 1:

Role of Service in an
Economy & Society
Session 1:
Session 1:
Role of Service in an
Role of Service in an
Economy & Society
Economy & 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 goodor 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 that
produce time, place, form or psychological utilities.
They are intangible acts deeds or performances
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, 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.
J ames Fitzsimmons
Categories of Service Mix
Pure Pure
Service Service
Tangible Tangible
Good Good
With With
services services
Major Major
Service Service
With With
Goods Goods
Hybrid Hybrid
Pure Pure
Tangible Tangible
Good Good
0 25 50
75
100
25 50
75
100
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 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.
-
-
Employment
Employment
-
-
Manufacturing sector
Manufacturing sector
-
-
International Trade
International 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
GDP
GDP
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%, Indias 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
Employment
Employment
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 J obs by 2020 is expected from the service sector
Contribution of Services to Employment
Employment Share in Asian Countries (2002)
Share (%)
Country In GDP In Employment
China 34 31
Indonesia 38 39
Thailand 48 33
Philippines 53 47
Malaysia 54 50
Rep. of Korea 55 62
Pakistan 54 34
India 51 22
Service Sector Contribution to
Service Sector Contribution to
Manufacturing
Manufacturing
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 1990s).
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 Trade
International Trade
Contribution of Services to International Trade
Country Share of service export
United 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 31
st
rank
Indias service export 20
th
rank
Dynamism of Indias 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 with
higher 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
I nnovation
How Can Services Boom (IT-ITES)
Lead To Sustainable Growth?