Services Economy - Course Support - Protected PDF

Lecturer Ph.D.
Andreea MARIN-PANTELESCU, Faculty

of Business and Tourism, Academy of Economic Studies,
17/12/2016 ©Toate drepturile de autor rezervate.
Services economy: inside of theory
Introduction
The world is currently witnessing a new type of economy, which experts

have called it in different ways: the post-industrial society, the third wave, the new
industrial society.
No matter how you called it, most experts acknowledge that: “the new
society is based on services”.
Simply defined, services are a diverse group of economic activities not

directly associated with the manufacture of goods, mining or agriculture.
With manufacturing slipping to less than 20% of GDP and the role of
services rising to more than 70% in some developed countries, services are seen as
playing a principal role in economies.
Services involve the provision of human value added in the form of labour,
advice, managerial skill, entertainment, training and intermediation.
Services differ from other types of economic activities in a number of ways.

Many, for example, cannot be inventoried and must be consumed at the point of
production. This would include trips to the doctor, enjoying a meal at a restaurant,
flying from Tokyo to Paris, or attending a concert.
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Lecturer Ph.D. Andreea MARIN-PANTELESCU, Faculty
This is in marked contrast with manufactured products, whose tangible

character allows them to be stored, distributed widely and consumed without direct
interaction with the entity that produced the good.
The transition to knowledge-based, service-oriented economies is raising the

importance of human capital in enterprises.
Chapter one: The content, the characteristics and the typology of the services
The developments from the recent decades entitle the characterization of the
developed counties economies as "services economy".
Defining the concept of service, represents a difficult problem because of the

extreme heterogeneity of the service. Most of the definitions show one or more
service characteristics which differentiate them from the tangible products. Other
definitions focus on utilities, benefits or satisfactions created by the service
activities. There are also negative definitions of the service defined by what they
are actually not (by exclusion). Until now, a 'perfect' service definition, does not
exist.
The service represent "a human activity with a specialized content, with
useful effects, immaterial and intangible, designed to satisfy a social need”. This
definition separates services from goods.
The services are intangible, perishable, inseparable, variable and the service
price represents a price of the demand.
Nature and Characteristics of a Service
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Intangibility refers to the fact that services cannot be seen, tasted, felt, heard,
or smelled before they are purchased. Inseparability refers to the fact that services
cannot be separated from their providers. Variability refers to the fact that service
quality depends on who provides it as well as when, where, and how it is provided.
Perishability refers to the fact that services cannot be stored for later sale or use.
In providing the service, the client represents one of the key element, having a
direct participation at the activity. The quality of the service is based on the
provider‟s qualities and expertise.
Box no. one – Going deeper: Service and the Characteristics of Service:
Intangibility, Inseparability, Variability and Perishability.
Kotler and Keller (2007) defined service as „any activity or benefit that one
party can offer to another which is essentially intangible and does not result in
the ownership of anything.‟ Services often come with product but sometimes
it‟s purely only service.
Examples:
 editorial services (embodied/incorporated in books, magazines and
newspapers)
 telecommunication services
 transport services
 Information & technology services
 Consulting services
 Health Services
Intangibility means that cannot be seen, tasted, felt, heard or smelled before
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they are bought thus the customer cannot evaluate it. Customers evaluate the
service during the time the service is delivered to them. “The physical evidence
of the service production process can be used to communicate service quality”.
Physical evidence and Presentation has been taken into consideration by many
service provider companies to demonstrate the service quality, thus reducing the
intangibility.
Examples
 staff dressed properly and looking to be helpful with a smile on their face
would suggest their customer good service.
 Equipment such as computers and other machines along with communication
and symbol would suggest speed and efficiency of the services.
The pricing should also be kept simple and clear with no hidden charges for the
customers.
 If we consider McDonald, they have clean environment, good layout, proper
lighting, god menu displays and the staff uniform are appropriate and this
physical evidence has helped position their service in higher level.
Inseparability character of service refers to the fact that services are produced
and consumed at the same time and that they cannot be separated from their
providers, whether the providers are people or machine (Kotler et al., 2005).
Inseparability differentiates services from products. The service employee is a
part of the service and so is the customer and they both influence the service
that is being offered. The service employee is a part of the service and so is the
customer and they both influence the service that is being offered.
 For example the students present in the class may also be responsible for the
efficiency of the lecture given. Inseparability can lead to brand loyalty for the
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service provider.
Variability
Services are difficult to control. They depend on who provides the service as
well as when, where and how they are provided (Kotler et al., 2005). Training
helps staffs to develop skills necessary to do their job. Especially for the front
line staff who comes in direct contact with the customers.
 For example, in a restaurant while customers wait for a waiter to come by
and take order and a waiter comes by and says that it‟s not his table or not his
responsibility, how will the customer fell about the service?
So it‟s very important to hire right staff for the right job and train them.
Perishability
Service cannot be stored for later use or sale. When the demand is steady, then
service perishability is not a problem but the service sector face a huge problem
when the demand fluctuates (Kotler et al., 2005).
Example
 If a flight takes off then the airline cannot sell the tickets for that flight.
 A hotel room unsold in one evening represents loss for hotel. This is the
reason why the service providers charge customers for missed appointments.
Service sector use the demand side strategy and supply side strategy.
On the demand side service sector charge different price for different period of
time, this will help to attract customers in the off peak time, complementary
services and discounts.
On the supply side, service sector can hire part-time staffs in the peak hours or
time period. To increase the peak time efficiency, the service sector can
reschedule work. The inability to store the services cause customer to wait for a
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long time or can cause customer not to be served at all.

 For example, what is the speed at which customers can be served? How
many can be served at the same time?
Conclusions
For intangibility:
select the physical attribute carefully while making the price simple and clear
to customers
create a culture so that the staffs have a clear vision on what role they play in
creating loyal customers
For inseparability
keep in mind that the front line staffs are the ones who will be in direct
contact with the customers.
For variability
hire the right people and provide them with training
motivate the employees helping them deliver quality service
For perishability
carefully choose the demand side and supply side to manage the service
efficiently.
Statistical service classification
Represents groups of service, under different criteria, useful for analyzing the
service production, service consumption and commerce with services.
• The EU product system classification
• The farm goods and service classification
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• The Invisible Trade Classification.
Invisible Trade represents business transactions that occur with no exchange on

the tangible goods. Invisible trade involves the import and export of
services. Examples include services such as insurance, banking, tourism,
education, consulting, income from foreign investments, shipping services,
customer service and intellectual property.
If a UK student comes to Singapore to study, it would be invisible export for

Singapore as it is earning foreign exchange by providing educational services. If a
Singapore citizen travels to UK for a holiday. It will be invisible import for
Singapore and invisible export for UK.
• The international system of activities classification
• The international classification on the types of industries
• The classification of the activities from the EU
• The classification of activities from National Economy represents an

hierarchical classification containing sections, subsections, divisions, groups
and classes, coded by letters and figures to enable electronic data processing.
Classifying services:
 After the sources of procuring service (market services and non-market

services). Market services (includes acts of sale and purchase, to buy and to pay
services on the market place). Non-market services cover those services provided
to the community as a whole free of charge (education and research, health,
environment protection, defence) and self services (the practice of serving oneself).
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 After the nature of satisfied needs (public services and private services).
Public services are provided by government (colleges, hospitals, fire
brigade, police, army, and paramedics). The public services are apparently free (the
consumers pay taxes and fees to the government in order to make use of these
services). Private services are provided by private companies (transport, IT &
telecommunication, travel agencies, insurance, consulting, accounting, law).
 After the beneficiary (user) of the services: Business services and services for
the population. The business services are internal or outsourcing.
 After the nature of the service effects: material services and immaterial
(intangible) services.
 Regarding the ways of service commercialization abroad there are Nonfactor

services and factor services. Nonfactor services: shipment, passenger and other
transport services, telecommunication, informatics, leasing, consultancy, and
travel. Factor services: services of labour and capital, thus covering income from
direct investment abroad.
 After the capital ratio in the producing process of the service (services that
are based on the staff or on the equipments). The service which are based on the
staff: the main role lies/returns to the labour force. The services are based on the
equipments that are specialized, automated and mechanized.
Chapter II: The place and the role of services in economy
The three-sector theory is an economical theory which divides economies into

three sectors of activity: extraction of raw materials (primary), manufacturing
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(secondary), and service (tertiary). It was developed by Alan Fisher, Colin Clark
and Jean Fourastié.
According to the theory, the main focus of an activity of the economy shifts
from the primary, through the secondary and finally to the tertiary sector. Fourastié
saw the process as essentially positive, and in The Great Hope of the Twentieth
Century he writes of the increase in quality of life, social security, blossoming of
education and culture, higher level of qualifications, humanization of work, and
avoidance of unemployment.
Countries with a low per capita income are in an early stage of development;
the main part of their national income is achieved through production in the
primary sector. Countries in a more advanced state of development, with a medium
national income, generate their income mostly in the secondary sector. In highly
developed countries with a high income, the tertiary sector dominates the total
output of the economy.
Workforce quotas:
• Primary sector: 10%
• Secondary sector: 20%
• Tertiary sector: 70%
The primary and secondary sectors are increasingly dominated by

automation, and the demand for workforce numbers falls in these sectors. It is
replaced by the growing demands of the tertiary sector.
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The situation now corresponds to modern-day industrial societies and the

society of the future, the service or post-industrial society. Today the tertiary sector
has grown to such an enormous size that it is sometimes further divided into an
information-based quaternary sector, and even a quinary sector based on human
services.
The service sector consists of the "soft" parts of the economy, activities where
people offer their knowledge and time to improve productivity, performance,
potential, and sustainability.
The basic characteristic of this sector is the production of services ("intangible

goods"). Services include attention, advice, access, experience, and discussion.
Examples of tertiary industries may include the following: Entertainment,

Telecommunication, Tourism, Mass media, Healthcare/hospitals, Public health,
Information technology, Waste disposal, Financial services as Banking, Insurance
& Investment management, Professional services as Accounting, Legal services &
Management consulting, Gambling, Retail sales, Franchising, Real estate and
Education.
The quaternary sector of the economy is a way to describe a knowledge-based

part of the economy - which typically includes pure services such as information,
technology, entertainment (media and culture), and research and development, as
well as knowledge-based services like consultation, education, financial
planning, blogging, and designing. This sector is based on knowledge and skills.
The quaternary sector evolves in well-developed countries and requires a highly
educated workforce.
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The service sector expands under technological change through information

technology, modern telecommunication systems, research and development
(particularly in scientific fields).
The interconnections system of service in economy and society are structured

on two main directions: the impact with the process of goods productions and with
people needs. Regarding on the first aspect, the service industry involves the
provision of service to businesses as well to final consumers. Services can be
internal or outsourcing. Regarding on the second aspect, services for final
consumer are implicated in the satidfaction of material, spiritual and social needs.
This process generates relationships between goods and service on three levels.
Between services and goods market there are complex relationships: competition,
stimulation or indifference.
 Competition (rivalry)
• Buying a house (a place to live in) or pay the rent for a house (to live in)?
• Buying a house a product
• Renting a house  a service
 Stimulation (encourage)
• Education service and the products for education to take place and to be
improved (books, applications papers, case studies, video projector with
instructive video films, computers with educational soft).
 Indifference (essential, absolutely necessary; extremely important):
• The food market  product
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• Water distribution  service
• gas distribution  service
• Electricity  service
• Health care  service
Service providers face obstacles selling services that goods-sellers rarely face.
Services are not tangible, making it difficult for potential customers to understand
what they will receive and what value it will hold for them. Service quality
depends heavily on the quality of the buyer-seller interaction during the service
encounter. „Intangibility can be reduced by using strong messages in advertising
and publicity in order to support a clear position‟. Healthcare is one of the most
intangible services. The customer put their faith on the medical professional.
Quality of life ('QOL) is the general well-being of individuals and societies.

Quality of life should not be confused with the concept of standard of living, which
is based primarily on income. Standard indicators of the quality of life include not
only wealth and employment but also the built environment, physical and mental
health, education, recreation and leisure time, and social belonging. The main
domains that assess the quality of life: ecology, economics, politics and culture,
freedom, human rights, and happiness.
The service contribution of service to the quality of life regards three major
aspects:
 Services consumption
 The services relationship with leisure time
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 The services relationship with the environment
The consumption of the services is an important indicator of the quality of

life, with important differences regarding the budgetary service coefficients (which
expresses the percentage of costs for services on the total of the consumption of the
population) between different countries, also on the socio-proffesional categories,
determined by the diffrences regarding the real incomes of the population.
The services relationship with leisure time depend both on its size and the
ways of use, as services are implicated on one hand in increasing leisure time, and
on another hand in creating the conditions for leisure facilities.
The service relationship with the environment materializes both on environment

damage and environment protection. Environment damage: various forms of
pollution. Environment protection: land and forestry protection, cleaning services
and sanitation.
Chapter III: The services market
The services market represents “All acts of sale-and-buy of services in their

interdependency”.
The service market characteristics:
The service market does not fully cover the field of services as there are
non-market services (self services and government services). There are a variety of
indicators that measure the size of supply, demand and market transactions. On the
service market place we have imperfect competition.
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The Relation between The field of services, Tertiary sector and Service
market:
The field of services > Tertiary sector > Service market
In economics, competition is the rivalry among sellers trying to achieve such

goals as increasing profits, market share, and sales volume by varying the elements
of the marketing mix: price, product, distribution, and promotion. The service
market competition takes the form of imperfect competition.
A competitive market is one in which a large numbers of producers compete

with each other to satisfy the wants and needs of a large number of consumers. In a
competitive market no single producer, or group of producers, and no single
consumer, or group of consumers, can dictate how the market operates. Nor can
they individually determine the price of goods and services, and how much will
they be exchanged. Competitive markets will form under certain conditions.
The imperfect competition is a type of market structure showing some but not
all features of the competitive markets. The forms of the imperfect competition
include: a monopoly exists when a specific enterprise is the only supplier of a
particular commodity; oligopoly, in which there are few sellers of a product;
monopsony, where there are many sellers but only one buyer, and oligopsony,
where there are many sellers but few buyers.
The imperfections of the competition in service is partly the reason of a stronger

state intervention in this sector. The main forms of state intervention are: public
enterprises, leasing, finance or subsidize services and multiple regulations
(technical, administrative, fiscal, price controls, etc.).
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Some of the economic theories which over time justified state intervention in
the service sector are: theory of natural monopoly and contestable markets, theory
of destructive competition, the positive and negative external effects.
The liberalisation, consisting of reducing state intervention in services

especially through privatization or deregulation leads to increased competition and
in this way reduces tariffs and increase service quality.
In small countries like New Zealand, electricity transmission is a natural

monopoly. Due to large fixed costs and a small market size, one seller can serve
the entire market at the downward-sloping section of its average cost curve.
The government intervention in the service sector. Why?
Among some of the economic theories which over time tried to justify the state
intervention in the services sector there are:
 The theory of the natural monopoly
 The theory of the contestable markets
 The theory of the destructive competition,
 The theory of the positive and negative external effects.
The theory of the natural monopoly
The definition of the 'economies of scale' : The cost advantage that arises
with increased output of a product. The economies of scale arise because of the
inverse relationship between the quantity produced and per-unit fixed costs; i.e. the
greater the quantity of a good produced, the lower is the per-unit fixed cost,
because these costs are shared over a larger number of goods. Economies of scale
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may also reduce variable costs per unit because of operational efficiencies and
synergies.
The definition of „the Contestable Market Theory': an economic concept that

refers to a market in which there are only a few companies that, because of the
threat of new entrants, behave in a competitive manner. The contestable market
theory assumes that even in the monopoly or oligopoly, the existing companies
will behave competitively when there is a lack of barriers, such as government
regulation and high entry costs, to prevent new companies from entering the
market.
A market is contestable when the entry and the exit of the market are free, the
entry and the exit costs are low; It is fundamental features are low barriers to
entry and exit. Examples of contestable markets: small retail; hair-styling,
activities that require small investments.
When the entry and the exit costs are very high on the market is uncontested,
leading to monopoly or oligopoly situations. What service sectors may be
considered uncontested markets?
 Telecommunications
 Banking sector
 Insurance
 Shipments
 Transport
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Destructive competition is the competition that forces several producers out

of the market. The destructive competition usually occurs when there are too many
producers of a product and the prices are driven down to the point where no one
makes a profit. It can also happen if a single producer is significantly wealthier
than other producers and can afford to cut prices drastically until the other
producers are driven out of business.
Positive external effects refer to service areas with beneficial effects for the
entire society. Example: Education, Health, Culture, National defense and
Environmental protection.
The negative external effects refers to the damage, the destruction that
causes a service company and which will support the entire society. Example: the
pollution, the medical practice of the unauthorized physicians and the bankruptcy
of the banks.
Chapter IV: The Services Offer, the Services demand and the services price
The Services offer represents the production of services for trading on the
market.
 The service offer includes:
 The Material and technical base
 The staff
 The Natural and anthropogenic resources
 And even the customers.
The services value added
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The V. A. is the difference between gross revenue (GR) and intermediate

consumption (IC).
V.A. =G.R. – I.C.
For economists value added is the difference between the gross revenue for
an industry and the sum of labour, materials and services purchased to produce the
goods that generate the revenue. By calculating the total value added by an
industry economists know how much that industry has contributed to the nation‟s
gross domestic product.
 V. A. at an enterprise level is calculated as the difference between sales and

purchases.
 For companies that performed intermediation activities, global product is the

trade margins or commission they perceive.
 In business, the difference between the sale price and the production cost of
a product is the unit profit.
The demand for services represents a consumer's desire and willingness to

pay a price for a specific service.
Characteristics: the demand did not cover the entire sphere of customers needed
for the services as there are non-market services; the effective demand is smaller
than the consumption of services; the consumption of services represents the
satisfaction of the need for services by using that particular services.
The second characteristic takes into consideration the service demand mobility.
Form this point of view, services split in 3 categories:
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 Services that do not allow demand migration (for example, the electricity,
gas and water distribution, the housekeeping )
 Services that allow demand migration (trade, education, health)
 Services that enforce demand migration (tourism)
The high elasticity of demand based on the influential factors , in particular the
incomes and the tariffs. The elasticity on the demand for services it is measured by
the elasticity coefficient. The elasticity coefficients measured by incomes are
positive, and measured by tariffs are negative.
Factors that influence the population demand for services
The economic factors, including incomes, free time, the offer, tariffs and the
competition between goods, services and self-services. The incomes and the free
time influence directly and powerful over the services demand volume. The higher
are the incomes, the higher is the demand for the superior services such as:
international tourism, entertainment, leisure, shows and concerts, consulting.
On the other hand, if the increase of the free time is not accompanied by the
income growth this will lead to the decreasing of the demand for services. The
services offer has direct influence on the demand for services, and the appearance
of the new services induces to the consumers the desire to consume that services.
For example the mobile phone services, internet, social media services, networking
services, wellness services, home business services, and so on.
The tariffs influence the demand for service indirectly, although in services can
also occur exceptions from the rule, as you can see in the tight ratio between the
services tariffs and the quality of services.
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The competition between market services and self-services: if the tariffs are
highly raised, the prospective consumers will realise those certain services (e.g the
house cleaning, taking dinner at a restaurant or at home, going at the cinema or
watching the film at home on the computer or TV).
The demographic factors which are a part of the number of the population
expressed statistically, such as age, sex, marital status, birth rate, death rate,
average size of a family, average age at marriage; Psychological factors such as
customers preferences, tastes and particularities; The social factors such as
changing in life style, the higher and higher percentage of women employees, the
raise/increase of the population mobility and the migration to the foreign countries
increase the demands of the consummator, the increase of the stress and the
complexity of life.
The uncertain factors, the unanticipated events, the special events, the
earthquakes, the wars, the natural disasters, the extreme weather, the rumours that
a bank goes bankrupt, the powerful commercial advertising which can cause the
increase the demand at a certain period of time, special events, etc.
The evolution of the hired population in services reveals the tertiary tendency in
the developed countries after 1980.
Labour market in services is characterized by a prime market consists in hiring

employees with favourable status, with career opportunities, and a secondary
market, consisting in hiring employees with mediocre level. The diversity of
services is reflected in the character of the labour force, which, ranges from
relatively low-skilled workers to highly skilled specialists. Some services generate
potential jobs for low-skilled workers.
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The main factors that determine the heterogeneity of occupations in services

are:
 Technical heterogeneity,
 The forms of organization,
 The merger and
 Economic and institutional interests.
The tertiary workforce characteristics: large share of employment in the public

service, the feminization and part time jobs.
Service flexibility workforce contains several categories of employees:

technicians and other high-level professionals, permanent workers, part-time
employees, employees with fixed term contracts, temporary workers, workforce
employed by sub-contracting.
The labour productivity in services is more difficult to assess due to the fact that
services are much diversified and less standardized. For services it cannot identify
the unit of production, and therefore no price per unit of product.
For services benefits like such as those of physician, teacher, counsellor,

lawyer, the specific qualitative and subjective elements are becoming increasingly
important.
Claims relating to low productivity growth in services are contradicted by the

findings regarding relative productivity, which is in many cases higher in tertiary
activities than in other productive activities.
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A current trend in service activities are the blending concerns for increased
productivity with the increase of service quality and consumer satisfaction.
With all the difficulties associated with measuring productivity in services, this
approach is necessary, and the methods that can be used for this purpose, are: rates
of output / input, time or labour standards, comparative analyzes, deterministic
models.
Technical capital in services sector consists of fixed capital and circulating

capital. Technical capital in services is characterized by a powerful heterogeneity.
In services, the Buildings which are part of fixed capital, have a more important
role than in other sectors. The technical progress has began to enter in services
sector too, investment playing an important role in service development.
Investments relate to expenses incurred with the development or modernization of
machinery (fixed capital). Gross investments include new investments (net) and
replacement investment.
The decision to invest depends on: the need to invest, the possibility of
investing and the ability to provide. Choosing the most effective variants of
investment is made on the basis of which the most used are: duration (term) of
recovery, gross updated, tax of return.
Determining the need for investment is taking into account indicators such as
turnover (revenue) feasible and expected performance per square meter, number of
guests expected and the area serving what must return each client etc.
The factors that influence the international demand for services
The international demand for services blossom under the following factors:
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 The growth of income in the developed countries led to the development of

the international tourism
 The international service trade liberalization led to the development of the

insurance services, consulting, banking, telecommunication, foreign
education, medical services in other countries
 The multinational development led to the rising of the business services,

consulting, engineering, transportation, distribution, informatics and
technology services.
How can we study the service demand?
The serve demand can be studied by examining the economic growth, Markov
chains method, trend and correlation methods and estimation by analogy.
The international businesses with services can take different forms of

organization, as: indirect export, direct export, marketing agreements, licensing,
franchise, sales offices, joint ventures and subsidiary companies abroad.
In a market economy, service prices are set free based on the number of criteria
considered by the producers (sellers), respectively users (buyers). For services
payment it can be used several concepts, such as: price, rate, charge, fee,
fare, value, tariff, etc.
The seller determines the tariff for service based on: costs, supply and demand
report, competition tariffs. The customer assess the tariff service based on: quality
and usefulness of the service, disposable income (income remaining after
deduction of taxes and other mandatory charges, available to be spent or saved as
one wishes), the price of the substitutes goods, Self-service effort.
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Out from the fundamental methods of the tariffs stands out: the profit margin
added to the costs, the determination method of the rentability limit (dead point),
the marginal income method equal with the marginal cost
The differentiation of the services tariffs is made after a series of criteria as: the
variation of the request in time, the receiver of the services, the way of buying the
services, the sequence of demand and the motivation of it, the cathegory of the
provider unit, the execution of the services in emergency, at the customer‟s
residence, the quality of the consumed services.
Chapter V: Free trade
The ability of people to undertake economic transactions with people in other

countries free from any restraints imposed by governments or other regulators.
World trade = the volume of imports and exports
For economists, the benefits of free trade are explained by the theory of
comparative advantage, with each country doing those things in which it is
comparatively more efficient. As long as each country specializes in products in
which it has a comparative advantage, trade will be mutually beneficial. Some
critics of free trade argue that trade with developing countries, where wages are
usually lower and working hours longer than in developed countries, is unfair and
will wipe out jobs in high-wage countries. They want fair trade.
Issues regarding free trade
Growth in international trade and investment in services is influenced by a

number of factors, including:
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 The difficulty with which services can be stored or transported.
 The high level of person-to-person interaction that is common to many services

and which may require local presence.
 The fact that many service providers are small firms that are less globalised and
less disposed than larger manufacturing or agricultural concerns to export high-
volume, homogeneous products.
 Cultural barriers and differentiated products, which can limit demand for
imported services.
 Trade barriers.
 Restrictions on local establishments and operations.
Liberalisation
A policy of promoting liberal economics by limiting the role

of government to the things it can do to help the market economy work efficiently.
This can include privatisation (selling state-owned businesses to private investors)
and deregulation (The process of removing legal restrictions on the amount of
competition).
In contrast to merchandise trade, which is generally measured in terms of

cross-border transactions, the General Agreement on Trade in Services (GATS)
defines four modes of trade for services:
Cross-border supply
Consumption abroad
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Commercial presence
Presence of natural persons
The four modes of trade for services
• 1) Cross-border supply, which are services supplied from the territory of one
party to the territory of another (similar to trade in merchandise).
• 2) Consumption abroad, which are services supplied in the territory of one

party to the consumers of another (for example, tourism).
• 3) Commercial presence, which are services provided through the presence

of service-providing entities of one party in the territory of another (for
example, banking).
• 4) Presence of natural persons, which are services provided by nationals of

one party in the territory of any other (for example, construction projects or
consultancy).
26
Balance of
payments
The current The capital Private Official

account account transfers transfers
invisible long-term short-term

visible trade
trade capital flows capital flows
Balance of payments
• The total of all the money coming into a country from abroad less all of the
money going out of the country during the same period. This is usually
broken down into the current account and the capital account. The current
account includes:
• *visible trade (known as merchandise trade), which is the value of

exports and imports of physical goods;
• *invisible trade, which is receipts and payments for services, such as

banking or advertising, and other intangible goods, such as copyrights, as
well as cross-border dividend and interest payments;
• *private transfers, such as money sent home by expatriate workers;
27
• *official transfers, such as international aid.
• The capital account includes:
• *long-term capital flows, such as money invested in foreign firms, and

profits made by selling those investments and bringing the money home;
• *short-term capital flows, such as money invested in foreign currencies by

international speculators, and funds moved around the world for business
purposes by multinational companies.
• These short-term flows can lead to sharp movements in exchange rates,

which bear little relation to what currencies should be worth judging by
fundamental measures of value such as purchasing power parity.
Chapter VI: Services economic efficiency
Return (profitability): the excess of the produce over the cost of production.
Profit a financial gain, especially the difference between the amount earned
and the amount spent in buying, operating, or producing something.
Profit
The main reason FIRMS exist.
In economic theory, profit is the reward for RISK taken by ENTERPRISE,

the fourth of the FACTORS OF PRODUCTION - what is left after all other costs,
including RENT, WAGES and INTEREST.
28
Put simply, profit is a firm's total revenue minus total cost.
Profit = Total revenue – total costs
Turnover of Capital
By the turnover of capital is meant its rotation, considered not as a

momentary act but as a periodically renewed and repeated process. The period of
turnover of capital is the sum of the time of production and the time of circulation.
In other words, the period of turnover is the interval of time which elapses between
the moment when the capital is invested in a certain form to the moment when it
returns to the capitalist in the same form but increased by the amount of the
surplus-value.
The rotation of capital, taking place not as an isolated act but as a

periodically renewed process, is called the turnover of capital.
Equilibrium
When SUPPLY and DEMAND are in balance.
At the equilibrium PRICE, the quantity that buyers are willing to buy exactly
matches the quantity that sellers are willing to sell.
The relatively profit level
The commercial profitability rate
profit
rc   100
Turnover
29
The financial return rate

profit
rf  100
Capital
The economic profitability rate
profit
re  100
assets
The expense profitability rate

profit
rCh  100
Costs
The labour productivity represents total output/ number of workers.
Turnover
WL 
employees
The correlation between the labour productivity growth and the average wage
growth
A commercial company providing services had in the base period 10

employees with a monthly average gross wage of 500 RON. In the current period
hire another 4 employees, with a monthly average wage of 600 RON. The older
employees‟ wages were increased with 20%. The monthly turnover of the
30
commercial company was 60 thousand RON in the base period and 90 thousand
RON in the current period. It was respected the correlation between the labour
productivity growth and the average wage growth? There was savings at the
salaries fund?
Solution:
FS = fund of salaries
FS0 = 10 employees  500 = 5000 RON
FS1 = 10 employees  600 + 4 employees  600 = 8400 RON
8400 Wage1
Wage0  500RON Wage1   600 RON  1.2 or 120%
14 Wage0
90,000
60,000 W1   6,429 RON / employee
W0   6,000 RON / employee 14
10
W1
 1.07 or 107%
W0
It can be observed that it has not been respected the correlation between the
labour productivity growth and the average wage growth. The average wage has
grown in a higher rate that the growth of the average labour productivity.
8,400 5,000
In this situation: nS   100  9.33% n S0   100  8.33%
1
90,000 60,000
q  nS1  nS0  9.33%  8.33%  1%
31
It is notice that the company did not obtain savings; on the contrary the company
has losses at the fund of salaries.
q  Turnover1 1  90,000
Losses  Loss   900 RON
100 100
Tutorials database and bibliography:
1.Maria Ioncică, Economia serviciilor-abordări teoretice și implicații

practice, Editura Uranus, București, 2006
2.Walter R. Stahel, The Performance Economy, Palgrave Macmillan, New
York, 2006 (no. ASE Library: 126783)
3.Maria Ioncică, Delia Popescu, Mihaela Pădurean, Cătălina
Brîndușoiu, Economia serviciilor, probleme aplicative, Editura
Uranus,București, 2006
4. Jan Owen Jansson, The economics of services : development and
policy, , Cheltenham : Edward Elgar , 2006, (no. ASE Library: 133318)
5. Marin- Pantelescu Andreea, Diversificarea si personalizarea serviciilor turistice

in contextul globalizarii, Editura ASE, Bucureşti, 2009, pg.222, ISBN: 978-606-
505-251-2
6. Stănciulescu Gabriela, Marin- Pantelescu Andreea, Tourism and Travel
Practice, Editura ASE, Bucureşti, 2009, pg.112, ISBN: 978-606-505-155-3
32
7. Stănciulescu Gabriela, Marin- Pantelescu Andreea, Tehnica operatiunilor de

turism. Studii de caz si probleme. Worksheets and exercises for tourism
operations techniques, Editura ASE, Bucureşti, 2008, pg.112, ISBN: 978-606-
505-029-7
8. Țigu Gabriela (coord.), Marin- Pantelescu Andreea, Diferențe culturale. Etică și
comportament turistic, Editura ASE, București, 2008, pg. 86, ISBN: 978-606-505-
047-1
https://www.youtube.com/watch?v=wyqfYJX23lg
http://www.investopedia.com/articles/03/112503.asp?ad=dirN&qo=investopediaSit
eSearch&qsrc=0&o=40186
http://www.investopedia.com/terms/b/bop.asp
• http://www.investopedia.com/terms/f/free-
trade.asp?ad=dirN&qo=serpSearchTopBox&qsrc=1&o=40186
• http://www2.deloitte.com/global/en/pages/human-capital/articles/open-
talent-economy1.html
• http://www.mckinsey.com/business-functions/marketing-and-sales/our-
insights/linking-the-customer-experience-to-value
• https://www.youtube.com/watch?v=tzQuuoKXVq0
• http://www.investopedia.com/terms/v/valueadded.asp?ad=dirN&qo=investo
pediaSiteSearch&qsrc=0&o=40186
• http://www.investopedia.com/terms/s/service-sector.asp
33
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Lecturer Ph.D.

Andreea MARIN-PANTELESCU, Faculty

Services economy: inside of theory

The world is currently witnessing a new type of economy, which experts

Simply defined, services are a diverse group of economic activities not

Services differ from other types of economic activities in a number of ways.

This is in marked contrast with manufactured products, whose tangible

The transition to knowledge-based, service-oriented economies is raising the

Defining the concept of service, represents a difficult problem because of the

Nature and Characteristics of a Service

long time or can cause customer not to be served at all.

Statistical service classification

• The EU product system classification

• The farm goods and service classification

• The Invisible Trade Classification.

Invisible Trade represents business transactions that occur with no exchange on

If a UK student comes to Singapore to study, it would be invisible export for

• The international system of activities classification

• The international classification on the types of industries

• The classification of the activities from the EU

• The classification of activities from National Economy represents an

 After the sources of procuring service (market services and non-market

 Regarding the ways of service commercialization abroad there are Nonfactor

Chapter II: The place and the role of services in economy

The three-sector theory is an economical theory which divides economies into

• Primary sector: 10%

• Secondary sector: 20%

• Tertiary sector: 70%

The primary and secondary sectors are increasingly dominated by

The situation now corresponds to modern-day industrial societies and the

The basic characteristic of this sector is the production of services ("intangible

Examples of tertiary industries may include the following: Entertainment,

The quaternary sector of the economy is a way to describe a knowledge-based

The service sector expands under technological change through information

The interconnections system of service in economy and society are structured

• Buying a house a product

• Renting a house  a service

 Indifference (essential, absolutely necessary; extremely important):

• The food market  product

• Water distribution  service

• gas distribution  service

• Health care  service

Quality of life ('QOL) is the general well-being of individuals and societies.

 The services relationship with leisure time

 The services relationship with the environment

The consumption of the services is an important indicator of the quality of

The service relationship with the environment materializes both on environment

Chapter III: The services market

The services market represents “All acts of sale-and-buy of services in their

The service market characteristics:

The field of services > Tertiary sector > Service market

In economics, competition is the rivalry among sellers trying to achieve such

A competitive market is one in which a large numbers of producers compete

The imperfections of the competition in service is partly the reason of a stronger

The liberalisation, consisting of reducing state intervention in services

In small countries like New Zealand, electricity transmission is a natural

The government intervention in the service sector. Why?

 The theory of the natural monopoly

 The theory of the contestable markets

 The theory of the destructive competition,

 The theory of the positive and negative external effects.

The theory of the natural monopoly

The definition of „the Contestable Market Theory': an economic concept that