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The internationalization of services: trends, obstacles and

issues
Abstract
The international market for services grew to $1.2 trillion in 1995 and has been growing
at double-digit rates. The US !ossesses the lion"s share of the world"s services e#!orts
and stands to gain significantl$ from lower barriers to trade in services. %owever& des!ite
the significant !rogress alread$ made& numerous barriers remain and man$ countries have
not 'oined the multilateral negotiations for eliminating or lowering e#isting barriers. This
stud$ e#amines the histor$ of market access and trends& the obstacles to the international
marketing of services& and ke$ issues including classification methods and economic&
regulator$& and cultural im!ediments& and offers directions for future research.
The US has b$ far the largest net services trade sur!lus among ke$ industrial nations. (ts
services sectors reali)ed 'ust over $1** billion in trade sur!lus in 199+& com!ared to
about $,* billion in 199- .Foreign Trade Outlook& 199/0. %owever& 1erman$ and 2a!an
do not benefit from the same global com!etitiveness as the US in the services sectors
and& as a result& !roduce significant annual services trade deficits .a!!ro#imatel$ $39
billion and $5* billion in 199-& res!ectivel$0. This !oor showing is 4uite sur!rising given
these nations" com!etitive strength and world-class !erformance in merchandise trade.
Thus& from an international com!etitive strength and strateg$ view!oint& the US en'o$s
an e#cellent !osition in global trade in services.
ccording to the 5orld Trade 6rgani)ation .5T60& the value of global trade in services
was estimated at $1.2 trillion in 1995 which constituted about 25 !ercent of global
merchandise trade. The value of global trade in services has been growing at double-digit
rates and this trend is e#!ected to continue. 7or e#am!le& the volume of services trade
grew b$ 1- !ercent in 1995 over the !revious $ear .The Economist& 199+0. The service
sector has accounted for the highest !ortion of total economic activit$ in %ong 8ong& the
US& and 7rance since the earl$ 199*s. (n general& the shift towards a service-based
econom$ in ke$ trading countries has been evident since 19+*. 6nl$ three countries .i.e.
9hina& 8orea and Singa!ore0 !roduced a larger !ro!ortion of their 1:;s from the
manufacturing sector in 1992 than in 19+* .<laine& 199,0. :es!ite its growing si)e and
tremendous im!ortance& however& services trade was never a !art of 1TT negotiations
until the Urugua$ =ound.
>arket trends
The !ur!ose of this stud$ is to e#amine market trends and obstacles to the
internationali)ation of services and to offer !ros!ects for future develo!ment in
international service marketing. (n the sections that follow& a brief histor$ of the
international services trade and the obstacles to the international marketing of services are
!resented. ?e#t& the issue of global com!etitiveness in services marketing is discussed.
7inall$& several im!ortant issues about international marketing of services and future
research directions are highlighted.
Market access: a brief history
(n terms of absolute volume& the US is b$ far the largest e#!orter of services. (ts total
services e#!orts were $2++ billion in 199+& re!resenting a growth rate of /.5 !ercent over
199, .Foreign Trade Outlook& 199/0. This dominant !osition was the main reason for the
leadershi! role assumed b$ the US in negotiating the Urugua$ =ound. (n Se!tember
19/,& after the agenda for the ;uta del @ste& Urugua$ =ound of 1TT had alread$ been
drawn& the US took a hard-line !osition that services& foreign direct investment and
intellectual !ro!ert$ restrictions had to be added to the agenda. The US ob'ective was to
bring services trade under the same rules and governing bod$ as merchandise trade.
The US demand met with ob'ections from man$ develo!ing nations& notabl$ <ra)il and
(ndia. Though man$ nations initiall$ o!!osed the US& the develo!ing nations in
!articular did so with good reason. 9onsider& for e#am!le& the com!uter services
industries. The inherent national im!ortance of this sector for develo!ment is widel$
known to governments. (t also follows that if data !rocessing and anal$sis are handled
onl$ through service im!ortation .for e#am!le& b$ sending the data abroad through
transnational data transfer0& the nation will not gain the necessar$ com!etence& trained
!ersonnel& and software and hardware industries which are essential in com!eting
globall$ across man$ industries .1off& 1992A 1u!ta& 19920. ?ot sur!risingl$& both <ra)il
and (ndia were among the most vocal o!!onents of the liberali)ation of services trade to
the ver$ end.
1eneral greement on Trade in Services
1iven the o!!osition of numerous nations& the !rogress resulting from the 1993 Urugua$
=ound for services trade was limited. (n general& member countries agreed to a!!l$ the
basic 1TT framework to services trade in due course. bout // of the 11+ nations
involved in the 1993 agreement also !ledged to liberali)e trade in a wide range of
services. %owever& air trans!ort& labor movement& financial services and the
telecommunications sectors faced s!ecial !rovisions& but nations agreed to negotiate
further on the latter two industries. These matters were formali)ed in the 1eneral
greement on Trade in Services .1TS0 which is one of the 15 agreements that together
make u! the 5T6 .Sigmund& 199/0. ccording to rticle 19 of 1TS& the ne#t round of
services negotiations will take !lace in 2anuar$ 2***.
The financial services and telecommunications agreements were se!aratel$ negotiated in
199+. The su!!ort for market access for these services has been broad& but less than
unanimousB terms for financial services were agreed to b$ 1*2 nations .with man$
e#ce!tions0 and onl$ ,9 nations agreed to the terms of the telecommunications agreement
.Sigmund& 199/0. lthough significant !rogress on market access in man$ service
categories has been made& much work remains to reach the generall$ low level of barriers
negotiated in merchandise trade.
Obstacles to the international marketing of services
<arriers to the international marketing of services are numerous. Some obstacles are
merel$ conce!tual in nature& whereas others are based on tradition and regulation.
9ollectivel$& these !roblems have contributed to the e#clusion of services trade in
!revious 1TT negotiations. 7irst& there is a lack of com!lete and reliable data for
various services sectors on a global scale. Second& the natural tendenc$ of governments is
to !rotect domestic firms from foreign sources of com!etition and to bu$ onl$ from
domestic service su!!liers. Third& the inse!arable nature of services necessaril$ engages
some governmental de!artments whose e#!ertise and charge are not international. 7or
e#am!le& when service !roviders must be !ersonall$ !resent to offer their services& then
such government bodies as immigration and labor necessaril$ get involved. The focus of
the labor office in ever$ countr$ is to !reserve domestic 'obs for citi)ens& rather than to
make it eas$ for foreign workers to !erform services internationall$. Cikewise&
immigration offices follow strict guidelines for controlling the flow of non-citi)ens across
national boundaries& !articularl$ for em!lo$ment !ur!osesD1E. 7ourth& ta# laws ma$ be
linked to immigration status and !ermit unfavorable treatment of service income in host
countries and the absence of bilateral ta# treaties can make it un!rofitable for some
service !roviders to move abroad.
Services intertwined with information technolog$
7ifth& as an increasing number of services are intertwined with information technolog$
.e.g. financial0& the$ are dis!ro!ortionatel$ affected b$ limits !laced u!on international
transmission of data or transnational data flow .T:70 constraints .Samiee 19/-& 7rancis-
Caribee 199-0. 7or e#am!le& as of 25 6ctober& 199/& when the @U"s new T:7 laws took
effect& the transmission and use of an$ data !ertaining to @U citi)ens to countries whose
laws do not afford the same level of !rotection as the 199/ @U directives is forbidden
.<aker et al., 199/0. @ven when e4ual !rotection is offered b$ another countr$& firms
there must show customers their full !rofile data u!on re4uest and must make corrections
as re4uired. Sales of mailing lists without the !rior consent of individuals on the list is
strictl$ forbidden. This model is the o!!osite of the US law which sti!ulates that the
burden of being removed from a list for a US resident is on the individual& who must
contact the listing firm .e.g. a bank0 and re4uest such removal in writing. (n addition&
greater levels of control will be !laced on the use of the (nternet as far as !rivac$ of @U
citi)ens is concerned. 5eb-site o!erators cannot !lace data tags .i.e. cookies0 on users"
com!uters and trace addresses for use for marketing or other !ur!oses.
9ritical im!ortance of intangible assets
Si#th& des!ite their growing im!ortance& services sectors remain elusive and largel$
invisible areas of business. 1enerall$ acce!ted accounting !rinci!les& for e#am!le&
invariabl$ treat services as e#!enses whereas some services constitute assets ac4uired b$
the firm. This occurs des!ite increasing evidence regarding the critical im!ortance and
roles of intangible assets to the com!etitive !osture of firms in virtuall$ ever$ industr$.
@m!lo$ee and management education& for e#am!le& contribute to organi)ational learning
and knowledge& which in turn enhance the com!etitive !osition of the firm. Cikewise& the
ca!abilities of a firm which set it a!art from the com!etition are based on intangible
business !rocesses rather than ca!ital e4ui!ment. 7inall$& the limited amount of
information available about international trade in services has assisted in the
m$stification of this im!ortant and ra!idl$ growing line of business. Unlike merchandise
trade& the true volume of international services is not known. s a result& the management
of service industries from a !ublic !olic$ and international trade and marketing
!ers!ectives remains com!le# and not well understood. 5ithout this basic information&
governments are handica!!ed in their deliberations& !lanning and negotiations to im!rove
the global infrastructure for the marketing of services.
The historic em!hasis on merchandise trade along with the intangible nature of services
are !robabl$ res!onsible for the lack of a reliable re!orting structure. 1overnments have
onl$ embarked on develo!ing classification and statistical data-gathering s$stems to
facilitate services trade in the !ast decade. @ven in the absence of the variet$ of services
which are marketed internationall$ toda$& the inattention to statistics regarding services is
sur!rising. Services have been im!ortant com!onents of merchandise trade. 7or e#am!le&
the merchandise cannot be distributed without the assistance of facilitating intermediaries
.e.g. freight forwarders0& trans!ortation modes and channel intermediaries. This lack of&
or limited& information has made it difficult for !ublic !olic$ officials to accommodate
and !romote the marketing of services internationall$ in the wa$ the$ have su!!orted
merchandise trade. Thus& man$ service firms with the !otential to e#!ort their services
internationall$ have remained strictl$ domestic. 7or e#am!le& three-4uarters of
engineering consulting firms surve$ed in one stud$ indicated that the$ are not engaged in
e#!orting .5insted and ;atterson& 199/0.
Global competitiveness in services marketing
:es!ite the increasing de!endence of the US econom$ on the services sector and its
significant service trade sur!lus& service e#!orts are relativel$ more im!ortant to some
other nations. s shown in Table (& service e#!orts as a !ercentage of 1:; is nearl$ 23
!ercent for The ?etherlands& making it the most active service e#!orting countr$ in
relative terms. ustria is the second most active e#!orter of services and 1+ !ercent of its
1:; consists of service e#!orts. ll other leading e#!orters of services e#!ort less than +
!ercent of their 1:;. Service e#!ort activities in 1erman$ and 2a!an& in contrast&
constitute about 3 !ercent and 2 !ercent of their 1:;s& res!ectivel$. mong leading
industrial nations& 1erman$ and 2a!an !roduce the largest services trade deficits.
5hen service e#!orts are measured as a !ro!ortion of all e#!orts& both S!ain and The
?etherlands rank ver$ high. bout -, !ercent and -5 !ercent& res!ectivel$& of these
nations" e#!orts consist of services. (n contrast& about 3/ !ercent of e#!orts from the US
and 7rance consist of services. @#!orts of services from 1erman$ and 2a!an are the
lowest among the leading nations. 6n a per capitabasis& The ?etherlands is the single
largest e#!orter of services .$-&5/20& and it e#!orts about si# times as much in services as
the US .<laine& 199,0. <elgium-Cu#embourg and ustria are the second and third most
active e#!orters of services. 1erman$ and 2a!an are the lowest service e#!orters on a per
capita basis.
Thus& even though US service e#!orts are over twice as much as the ne#t leading countr$&
i.e. 7rance& its relative standing is not as strong as ustria& <elgium and The ?etherlands.
5ithin @uro!e 7rance& with a service trade balance of about $2* billion in 199-& is the
strongest e#!orter of services& !articularl$ in tourism. 5ith increasingl$ liberal views and
!olicies towards the international marketing of services& the US must com!ete with
some ver$ strong @uro!ean contenders for global o!!ortunities.
Key issues in the international marketing of services
There are indications that the industries of tomorrow will be ver$ different as a result of
the integration of an increasing number of services in the marketing of goods .6@9:&
199,A Covelock and Fi!& 199,A 5$ckoff 199,0. s goods go through increasingl$ more
com!le# value chains to increase firms" relative com!etitive advantage& services will !la$
a more im!ortant role in their marketing. (nterestingl$& services are also going through a
similar !rocess as information technolog$ enables unlimited variations for both sales and
after-sales su!!ort for target markets.
@ver$ tangible !roduct contains some service
=egardless of this convergence and interconnectedness& man$ classes of services will
alwa$s be distinguished from goods in that the customer receives value but no tangible
ob'ect. @ver$ tangible !roduct necessaril$ contains some service because without it the
e#change would be im!ossible .Covelock and Fi!& 199,0. Thus& even though such
activities as !rice 4uotation& order-taking& billing and !a$ment are intangible .i.e.
services0& the$ merel$ facilitate sales and without them there would be no revenue.
%owever& realisticall$ onl$ services that can be targeted as !rofit centers and marketed
accordingl$ 4ualif$ as true services. s legal& technological& economic and com!etitive
environments change over time& it is likel$ that certain cost center t$!e services can be
converted into !rofit centers. Two e#am!les in this regard are automated teller machines
.T>s0 and airline reservation s$stems. <oth s$stems were initiall$ conceived to su!!ort
banking and air trans!ortation services& res!ectivel$. T>s were installed to save mone$
in human resources and investment in additional bank branches. The$ were initiall$
shunned b$ customers& who !referred !ersonal service over the convenience offered b$
T>s. %owever& as customers increasingl$ ado!ted the use of T>s& an increasing
number of banks viewed T>s as !rofit centers and have instituted fees for those using
them. Cikewise& reservations s$stems like !ollo and Sabre were develo!ed to enhance
the booking ca!abilities of United and merican irlines& res!ectivel$.
Classification issues
The formulation of a!!ro!riate generic international marketing strategies is handica!!ed
b$ the unavailabilit$ of a generall$ acce!ted classification method for services. The range
of services offered internationall$ is 4uite broad and belongs to diverse industries that
have develo!ed highl$ s!eciali)ed skills& ca!abilities and knowledge over a !eriod of
time that enables them to com!ete internationall$. lthough numerous classifications for
services trade have been offeredD2E& industr$-based classifications have been commonl$
used. This is not im!ractical given the diversit$ of so man$ unrelated service sectors and
the commonalit$ of industr$-based a!!roaches in the strateg$ literature. >eaningful
anal$ses and a!!ro!riate strategies in services sectors can emerge when ver$ similar
entities .e.g. industr$0 are grou!ed together. 5insted and ;atterson .199/0& for e#am!le&
focus on the international market-entr$ strategies of engineering consulting firms.
%owever& in the absence of a more integrative classification method& relevant services
theories ma$ not emerge and this issue has been stated in the literature .e.g. 9lark et al.&
199,0.
Three grou!s
Covelock and Fi! .199,0 !ro!ose the classification of services into three grou!s.
1. .10 People-processing services are those that involve tangible action to customers
.e.g. restaurants& health care0& thus necessitating a local !resence b$ the
international marketer.
2. .20 Possession-processing services involve intangible actions to merchandise in
an effort to enhance the value of the merchandise to the customer .e.g.
trans!ortation& a!!liance re!air0& and the customer is not involved in the !rocess.
3. .30 Information-based services are those that !rovide some value for the customer
as a result of the collection& anal$sis and mani!ulation of data .e.g. accounting&
insurance0 and onl$ minimall$ involve the customer.
This classification method is articulate and thought !rovoking& but these categories are
not mutuall$ e#clusive and e#haustive for all services. 7or e#am!le& conventional retail
trade and custom tailor services are difficult to classif$ under this scheme. Store-t$!e
retailing is an action that involves the customer but the customer is not trans!orted&
diagnosed with a disease or fed. The retail !rocess merel$ enables the customer to take
!ossession of the goods or services. 6f course& there are social and entertainment as!ects
of store-t$!e retailing& and if these were the !rimar$ motivations for !atronage& then
retailing might 4ualif$ as a !eo!le-!rocessing service.
Two levels of Gtangibilit$H and Gface-to-faceH contact
;atterson and 9icic .19950 offer a useful classification based on two levels of
Gtangibilit$H of the service and two levels of Gface-to-faceHcontact with the client in
service deliver$. The resultant cells are thus labeledB
1. .10 low face-to-face and low tangibilit$ I location-free !rofessional servicesA
2. .20 high face-to-face and low tangibilit$ I location-bound customi)ed !ro'ectsA
3. .30 low face-to-face and high tangibilit$ I standardi)ed services !ackagesA and
-. .-0 high face-to-face and high tangibilit$ I value-added customi)ed services.
Cikewise& 9lark et al. .199,0 offer a classification method based on four categoriesB
1. .10 contact-based servicesA
2. .20 vehicle-based servicesA
3. .30 asset-based servicesA and
-. .-0 ob'ect-based services.
>ost services have the !otential of being internationall$ marketed. list of services with
the !otential for internationali)ation is shown inTable ((. Cike !roducts& the develo!ment
of ca!abilities and com!etencies drives com!etitiveness in services trade. (t is evident
from the list of industries in Table (( that the nature of services varies widel$. @ach
service industr$ has its own infrastructure& re4uires s!ecific com!etencies and ma$ be
governed b$ a com!rehensive set of regulations and laws .e.g. banking& health care&
insurance0. The firm"s com!etitive advantage within a service sector& on the other hand&
ma$ be through the develo!ment of !ro!rietar$ e4ui!ment& !atented !rocesses& andJor
trademarks.
Regulatory impediments
s noted earlier& regulator$ im!ediments are controlled b$ the government and in some
nations& notabl$ the 6@9: members& are being removed through bilateral and
multilateral negotiations .e.g. 1TS& @U& ?7T0. Some markets will be ver$ slow to
agree to o!ening their services markets& !articularl$ financial and telecommunications.
Structural changes within the global services industr$ cou!led with technological change
will serve as the main change agents for these countries.
Economic impediments. lthough a significant !ro!ortion of ever$ nation"s 1:; is
derived from services& international market entr$ for a broad arra$ of services is largel$
limited to highl$ develo!ed nations whose famil$ units on average !ossess a high level of
discretionar$ dis!osable income. Thus& relativel$ low famil$ income in most countries is
likel$ to im!ede successful international market entr$ and growth for man$ service
sectors. 7or e#am!le& average e#!enditures for restaurants is much lower in develo!ing
economies than in develo!ed markets. 7urthermore& as income grows& !otential target
grou!s are likel$ to ta! into the available local low-cost labor to !erform human-resource
intensive services .cleaning services& most re!air0 rather than to rel$ on services offered
through commerciall$ organi)ed services firms.
Cultural impediments
9ultural incom!atibilit$
9ultural im!eratives will necessaril$ have a significant im!act on the acce!tabilit$ and
ado!tion !attern of services. Since services inherentl$ involve some level of human
resources& the likelihood of cultural incom!atibilit$ is greater. 7or e#am!le& nations
which culturall$ define the housewife"s role as the famil$ caretaker will !robabl$ not be
ver$ keen on using da$-care centers. Cikewise& for-!rofit funeral services in (slamic
nations will !robabl$ not be well-received.
Standardization versus customization
n im!ortant strategic issue in marketing services internationall$ is the e#tent to which
each service might be standardi)ed. (n addition to the necessit$ for customer contact for
man$ service categories& m$riad host government regulations in numerous services
sectors make standardi)ation ver$ difficult. ccounting and financial services markets are
governed b$ ver$ different rules around the world. lthough regional markets such as the
@uro!ean 9ommunit$ are succeeding in lowering such host market regulator$ !roblems&
these are minor accom!lishments at best.
=etailing difficult to standardi)e
=etailing !rovides an e#cellent e#am!le of a service business that is difficult to
standardi)e. :es!ite much talk about the internationali)ation of retail trade& local retailing
regulations var$ considerabl$& not onl$ across countries .including within the @U0& but
also within the !rovinces of each countr$ .Samiee& 19950. @ven if regulations were
entirel$ removed& retail trade is inherentl$ culture bound and influences merchandise t$!e
and merchandise mi#.
Therefore& the level of !roduct and marketing standardi)ation observed in the
international marketing of goods is unlikel$ to be matched b$ services. >cCaughlin and
7it)simmons .199,0 have also arrived at this conclusion in their anal$sis of service
industries. (t is thus !lausible that relativel$ more service businesses must be ada!ted to
host countr$ environments and& as such& the global marketing of services ma$ not be a
realistic goal for man$ sectors. That is& common customer needs for services var$ more
widel$ across nations than is the case for !roducts& and addressing them re4uires
locali)ed solutions. %ence& it is likel$ that a multidomestic .or multilocal0 !attern of
internationali)ation might be the most a!!ro!riate in man$ sectors of services& and this
view is im!licitl$ echoed b$ others .Covelock and Fi!& 199,& !. /10.
These ke$ differences set the international marketing of services a!art from the
international marketing of tangible goods. 5hereas an increasing number of consumer
and industrial goods are being marketed globall$& for reasons outlined above& the same is
not true of services. ke$ issue in the globali)ation of markets is the convergence of
markets which is not occurring with sufficient s!eed to accommodate international
growth in man$ services sectors. 7or some services& it will never occur.
Concluding remarks
(t is evident from the issues raised in this stud$ that the internationali)ation of services
offers tremendous !otential for growth des!ite the slow !rogress in multilateral
negotiations aimed at market access. lthough !rogress has been slow& it is of critical
im!ortance that much !rogress has been made to bring services graduall$ under the
aus!ices of 5T6 and& therefore& the future seems !romising. s the largest net e#!orter
of services& the US stands to gain a great deal. %owever& the data in Table ( indicate that
some other nations .e.g. ustria and The ?etherlands0 are better !ositioned in relative
terms than the US.
(nformation limited
(n general& information regarding service marketing internationall$ is limited. Several
research o!!ortunities are thus !lausible. 7irst& em!irical research aimed at validating the
!ractical utilit$ of e#isting services classification a!!roaches for international use is
a!!ro!riate. Second& a broadl$ acce!ted classification method ma$ assist in determining
whether the global industr$ conce!t can be e#tended to certain classes of services. Such a
determination ma$ go a long wa$ in stud$ing the com!etitive strategies of international
services firms. Third& an e#amination of the trends in the international marketing of
services in other leading nations .either single countr$ or cross-nationall$0 ma$ !ermit a
better understanding of strategic forces behind their success. 7ourth& domestic
e#!eriences in services indicate that successful services are based on !rocesses that
cannot be easil$ du!licated .e.g. 5al->art"s cross-docking& >arriott"s em!lo$ment
screening and guest-room !re!aration0. (nformation technolog$ is fre4uentl$ the
backbone of these success stories. %owever& market !enetration and the a!!lication of
com!uters across markets var$ widel$. Thus& it is useful to investigate the e#tent to which
!rocesses can be e#!orted to host nations. 7inall$& onl$ limited effort for develo!ing
reliable measurement scales for use with international marketing of services is evident. (n
!articular& for certain segments and service industries& the (nternet is bound to make
customer-!rovider interaction ver$ different than the traditional models of service
e#change. Therefore& !rogress in scale develo!ment in these areas and their cross-
national validation are also encouraged.
Notes
1. The im!ortance of this issue is reflected in the em!lo$ment of foreign workers in
the services sectors. 7or e#am!le& with a foreign worker em!lo$ment figure of 2
million collectivel$& the US services sectors constitute one of the four to!
em!lo$ers of foreign nationals .<lane& 199,0.
2. See 9lark et al. .199,0 for a review of various classification schemes.
Eecutive summary and implications for managers and eecutives
International services marketing: do not wait for free trade it might take a while to
arrive
(nternational trade in services now re!resents a significant !ortion of total international
trade. >oreover& the rate of growth in services trade e#ceeds that for traditional
merchandise trade b$ a considerable margin. Samiee indicates that trade in services now
re!resents around a fifth of total international trade volumes I insofar as we can trust the
figures.
( 4uestion the figures" trustworthiness because trade in services is more difficult to
measure than trade in goods. 9lark and =a'aratnam observe that the intangibilit$ of man$
services make them hard to identif$. (ntangibilit$ !resents a !roblem for 1overnment
because service im!orts G... elude normal customs !rocedures and cannot be controlled or
accounted for using methods develo!ed for merchandiseH. <ut such a situation must also
!resent a !roblem for official statisticians charged with calculating trade figures.
The result of this measurement and identification difficult$ is that the value of trade in
services is either understated or ignored in favour of reliance on the figures for trade in
goods. Thus& in the U8& the debate about the @uro!ean Union and the single currenc$ is
confused b$ the use of different trade figures b$ su!!orters and o!!onents of greater
union. ;ut sim!l$& the U8"s Ginvisible tradeH does not de!end to an$ great e#tent on the
advantages of closer links with @uro!e.
!his special issue on international services marketing and trade in services covers
the broad range of issues" #e range from the negotiation of international trade
treaties$ through domestic public policy concerns to the strategies used by business
to develop trade in services" %nderlying this discussion is the fact that service
industries in the developed &orld provide the ma'ority of current 'obs$ most ne&
investment and nearly all the ne& 'obs.
The latest U8 unem!lo$ment figures .>a$& 19990 illustrate this situation. :eclining
overall unem!lo$ment covers u! continuing rises in service em!lo$ment com!ared to a
decline in manufacturing em!lo$ment .:ail$ Telegra!h& 1+ 2une& 19990. This !icture will
be re!eated& to a greater or lesser e#tent& throughout 5estern @uro!e and ?orth merica.
lthough variations e#ist I as noted b$ several contributors to this issue I the general
trend remains the same& with manufacturing industr$"s share of 1:; declining as services
become more and more dominant.
1iven how im!ortant service industr$ is to western economies& the success of
international trade strategies becomes vital to long-term economic growth& 'obs and
!ros!erit$ for these countries. 5ithout a vibrant& outward-looking service sector& an
econom$ will struggle to com!ete internationall$. This makes it essential that we search
for greater understanding of the !olicies& strategies and behaviours that contribute to the
internationali)ation of services. (t also demands that official statisticians !a$ greater
attention to trade in services b$ moving awa$ from treating such trade as little more than
an Gad'ustmentH to the figure for trade in goods.
(o& does trade in services differ from trade in goods)
5e have seen that the measurement and identification of traded services !resents a
!roblem for economists& governments and business strategists. <ut there is a second
as!ect of this !roblem that affects the manager I how trade in services differs from trade
in goods.
Trade in goods is eas$ to understand. 5e can see the goods as the$ travel from the !lace
of manufacture into international markets. These goods can be weighed& counted and
valued. 7irm in one countr$ sells a GthingH to 7irm < in another countr$ or GthingsH to
consumers in that second countr$. Such sim!licit$ is not reall$ !ossible with the e#!ort of
services.
2ust one e#am!le will illustrate this !oint. (f ( sta$ in a 7rench hotel in 7rance& does that
re!resents a 7rench Ge#!ortHK This would be the case if the hotel was in the U8 and
7rench-owned. <ut can we reall$ sa$ that the little !ension run b$ >. %oulier where we
sta$ed on our holida$ is I in the real sense of the word I an e#!orterK Technicall$ >.
%oulier is indulging in international trade since the mone$ .and that is what reall$
matters0 is international.
5e can see from this e#am!le where the management headaches start. Since no actual
GthingsH change hands& we find it difficult to com!rehend that e#!orting occurs. The
answer lies in looking at the flow of mone$ rather than the actual movement of goods and
services. (f ( engage a 7rench market research com!an$ to do a stud$ for m$ U8 firm on
market o!!ortunities in 7rance& that firm becomes involved in international trade. Fet
trade figures are unlikel$ to !ick u! all the instances of this sort of transaction.
There are a number of areas I a!art from this ve#ed 4uestion of intangibilit$ I where
international services differ from trade in goods. Some of these are inherent to the nature
of services& whereas other are e#ternal and relate to the attitude of governments&
international trade regulations and the im!act or e#tent of Gculture clashesH. (n addition
there e#ists a further grou! of barriers to internationali)ation shared with goods e#!orters.
The main e#ternal difference from trade in goods is in the area of trade treat$ !rovisions
and the attitude of governments. The 1eneral greement on Trade in Services .1TS0
re!resents the first ste! in multinational endeavours to reduce barriers to
internationali)ing services. s 9lark and =a'aratnam e#!lain& this 199- treat$& com!ared
to the treaties on trade in goods& G... is far more limited& with individual countries
retaining the right to s!ecif$ which services the$ want to e#em!tH. 1enuine free trade in
services remains a long wa$ off and we should antici!ate it being some while before such
trade o!erates on a !ar with merchandise trade.
9onnected to the slow !rogress towards free trade treaties covering services are the
!roblems created b$ governments. Samiee identifies a series of barriers to trade in
servicesB
lack of com!lete and reliable data for man$ service sectorsA
domestic !reference !olicies introduced to !rotect local services from
international com!etitionA
the involvement of government de!artments .such as immigration and labour0 that
lack an international focusA
unfavourable ta# treatment of services income and the lack of bilateral ta#
agreementsA
constraints on international data flow im!licit in man$ data !rotection and
telecommunications regulationsA and
the lack of agreed accounting standards for the treatment of intangible assets
(f& as ( have alread$ stated& international trade in services is vital to the economic
!ros!erit$ of western economies then there is a clear im!erative for governments to act
on the issues identified b$ Samiee. There is no doubt that& as Samiee sa$s& G... much
!rogress has been made to graduall$ bring services under the aus!ices of the 5orld Trade
6rgani)ation .5T60H& but this remains e#tremel$ limited with !rotection of services b$
national government more the rule than the e#ce!tion. 5hile !roclaiming the need for
free trade in services& governments are acting to !ut u! barriers to such free trade.
(t is worthwhile listing some of the measures used b$ governments to constrain trade in
servicesB
6wnershi! restrictions on overseas firms. @ven the US I the biggest enthusiast
for traded services I acts to restrict foreign involvement in markets such as air
trans!ort& financial services and health care. (n less laisse) faire !laces& such as
the @uro!ean Union& restrictions abound I even between member states.
:omestic !reference !olicies. (n the !ast& giving !reference to domestic su!!liers
!rovided a hand$ and !o!ular means of !reventing foreign businesses gaining a
foothold in the home market. Such !olicies are often e#cused on the grounds of
national interest des!ite being I in most cases I blatant !rotectionism.
Unbalanced em!lo$ment rules. (t is not uncommon for !articular rules on
em!lo$ment in certain services to be used to !rotect the home market. 7or
e#am!le& <ritish ski instructors with 4ualifications recognised in ustria& (tal$ and
the US are forbidden from trading in 7rance because the$ don"t hold a 7rench
4ualification. Such restrictions do not a!!l$ to 7rench instructors.
Unfair ta# treatment of foreign services. ;unitive ta#es and regulator$ charges on
foreign services are used to make it un!rofitable for such services to o!erate. The
US"s withholding ta# on currenc$ and bond trading resulted in ?ew Fork
becoming less com!etitive internationall$ but acted to !rotect domestic o!erations
from foreign com!etition.
Cicensing controls. >an$ countries restrict the numbers of licenses for certain
services and can use this to restrict the o!!ortunit$ for non-domestic businesses to
enter the market even where the controls were introduced for the !ur!oses of
regulating home service industries
9ensorshi! and data controls. 7or information-based services& !ublishers and
broadcasters the use of controls over data and the censorshi! of !ublished
materials& while introduced for the !ur!ose of domestic !olitical control& can be
and are used to restrict market entr$ b$ foreign businesses.
1overnments face domestic !olitical !ressures to !rotect indigenous businesses. >ost
trade unions and man$ !oliticians remain unconvinced b$ the benefits of free trade. The
Ggiant sucking soundH argument of =oss ;erot ma$ not have come to !ass& but this does
not sto! !rotectionist !undits and isolationist !oliticians cam!aigning against trade
liberali)ation.
7urthermore& the motivation of man$ o!!onents of free trade is not economic. The$ are
less concerned about the issue of 'obs and businesses than about su!!osed Gcultural
im!erialismH or small is beautiful environmentalism. Since the !rotectionists have lost
the economic argument .so far as academic and !rofessional economics is concerned0
the$ have moved onto other matters. 6ne of these concerns is covered e#tensivel$ in this
s!ecial issue I the issue of culture.
Sorr$ to go on about 7rance& but this nation re!resents a !owerful econom$ where the
!olitical and business consensus differs significantl$ from that !ertaining in the US and
other nglo-Sa#on economies. 7rench stalling on GculturalH issues almost killed the
Urugua$ =ound of 1TT negotiations.
;ut sim!l$& the 7rench I and several other nations I see the liberation of trade in services
as serving the interests of US cor!orations in areas such as entertainment& fast food and
telecommunications. Such countries do not !erceive free trade in services as the same as
free trade in goods.
This is not& however& the !lace to enter into the debate as to the rights and wrongs of the
7rench !osition on GcultureH. Suffice it to sa$ that the 7rench .and man$ other !eo!le
too0 see the success of US GculturalH e#!orts as a threat to national identit$. (t is not
sim!l$ a 4uestion of !rotecting local service industries& but whether US !roducts and
services will Gswam!H national culture !roducing an anod$ne and distant GglobalH
culture.
7or service businesses the issue of culture is& in man$ wa$s& more !rofound than for
manufacturers. The need for !ersonal interaction and differing cultural e#!ectations of
service !roduce the risk of Gculture shockH and resulting business !roblems.
!he clash of cultures: a service management issue)
Stauss and >ang !resent interesting findings from a critical incident stud$ of air
travellers from the US& 2a!an and 1erman$. The most interesting discover$ is that intra-
cultural conflicts are as significant as inter-cultural !roblems. Stauss and >ang suggest
that consumers allow for cultural differences b$ widening the ga! between e#!ected and
acce!table service I the )one of tolerance. (n short& customers make allowance for the
fact that the$ are dealing with a foreigner.
%owever& this tolerance will not last. Stauss and >ang acknowledge that their findings
relate to a !articular t$!e of service .air travel for leisure0 t$!ified b$ intensive customer
contact but a short-term relationshi!. 5e are willing to make allowance for culture
clashes in our first few encounters with a firm"s em!lo$ees& but then e#!ect the foreigner
to have a better a!!reciation of our idios$ncratic wa$s. :es!ite the significance of Stauss
and >ang"s findings& we cannot afford to sideline the im!ortance of culture to the
internationali)ation of services.
The accommodation of national differences receives attention from Covelock who
concludes that the G... combination of a globall$ standardi)ed core !roduct and
customi)ed su!!lementar$ services ma$ offer service firms the o!!ortunit$ to achieve the
benefits of both s$stem-wide efficienc$ and local market a!!ealH. @ven such
multinational service monoliths as >c:onald"s incor!orate variations to accommodate
local !references I the launch of Gcurr$H burgers in the U8 being a case in !oint.
%owever we design our service and whatever means of serving the market we choose&
there will remain a need to ad'ust to local cultural !references. Some means of
internationali)ation I franchising& for e#am!le I !rovide an easier route to delivering
culturall$ sensitive services b$ drawing on local management knowledge. 9onsumer
services are likel$ to re4uire greater cultural ada!tation than do business-to-business
services.
>attila& in looking at the different !erce!tions of sian and 5estern leisure travellers&
concludes that service managers need to be aware of cultural issues. <ut >attila
acknowledges that G... a service firm"s degree of need for cultural customi)ation will
de!end on the customer"s !urchase motivation& the length and t$!e of customer contact
and the com!le#it$ of the service taskH. The degree to which em!lo$ees need sensitivit$
to cultural nuances de!ends ver$ much on the t$!e of service received.
%owever& we cannot ignore culture and all firms !roviding services internationall$ should
consider the !rovision of a!!ro!riate cultural training to staff& the use of local em!lo$ees
and& where needed& changes to the service offering itself. 5ithout these !rovisions the
com!an$ runs the risk of losing business to local com!anies or more culturall$ aware
international service !roviders.
%owever& cultural considerations and the vagaries of government actions are not the onl$
considerations for the international services marketer. Service businesses ma$ be Gabout
!eo!leH but the technolog$ and s$stems remain im!ortant. @ven the best !eo!le struggle
to deliver when s$stems are not in !lace to facilitate deliver$. s 7isk e#!lains&
businesses need to concern themselves with G... wiring and growing the technolog$ of
international services marketingH.
9ultural as!ects I and other human resources issues I relate to the GgrowingH !art of
7isk"s meta!hor. s he !uts it& G... the need to create international service s$stems that are
res!onsive to the human needs of organi)ations& em!lo$ees and customersH. <ut this need
relates to the wa$ we design s$stems and manage technolog$ I it is not an argument for
luddism. s ever$ business is aware& the rate of technological change& es!eciall$ in
communications& is one factor driving the growth of international services.
Coping &ith technological competition: the *nternet and all its &orks
s recentl$ as five $ears ago it would have been a !rescient !erson who identified
Gelectronic marketingH as one of the three !rinci!le entr$ modes for international services
marketing. Fet when 1rLnroos does this we do not ste! back in ama)ement but& instead&
nod sagel$ and agree. (n 'ust a few short $ears the (nternet and the digital
telecommunications revolution have changed international marketing forever. Toda$ $our
com!etitor could be a huge multinational or a small start-u! com!an$. <ut rest assured&
both these com!etitors will use the (nternet to communicate with the market and sell their
!roducts.
The (nternet changes the logistics of services far more significantl$ than for goods. (n the
case of goods marketing& at some !oint a !h$sical ob'ect has to travel from the maker to
the consumer. ;ending the invention of instant matter transmission M la Star Trek& this
will remain the case.
Services& however& do not necessaril$ re4uire a !h$sical !resence. ( can manage m$
finances& seek legal advice& !resent m$ accounts and much else beside without an actual
need to meet the service !rovider !h$sicall$. (t matters little whether m$ bank is across
the street or 3&*** miles awa$ in a different countr$. 7or basic& routine services I such as
a standard bank account I we do not need e#!ensive !eo!le in the localit$ of the
customer.
7or established service businesses& confronting the com!etition from com!etitors trading
via the (nternet .or& in some industries& digital television0 !resents a ma'or challenge&
es!eciall$ for those firms that have e#tensive investments in !ro!ert$ and staff around the
globe.
:es!ite this challenge the fundamentals remain essentiall$ unchanged. 7isk& in looking at
the Gwiring and growingH of technolog$ in services& concludes that technological changes
are G... revolutioni)ing the global service econom$ and changing the rules of com!etition
in international service industriesH. %owever& the benefits from a GwiredH organi)ation
remain familiarB im!roved !roductivit$& better service 4ualit$& su!erior customer
relationshi!s& the develo!ment of new services and the abilit$ to ada!t s$stems to
accommodate customer needs. These five factors !rovide the basis for com!etitive
advantage in services.
Since these five benefits are the fundamentals of a good service business and new
technologies will affect how firms !erform& it is likel$ that without the right technolog$
firms will struggle to com!ete internationall$. %owever& 7isk"s final comment is that G...
onl$ if services technolog$ can be im!lemented in a more organic fashion will the 4ualit$
of service delivered meet the needs of the organi)ation& em!lo$ees and customersH. 5e
are back to where we started in this discussion about technolog$ I services businesses
succeed or fail b$ having good !eo!le o!erating res!onsive s$stems.
5hat ever$ service business must remember& however& is that& as 9lark and =a'aratnam
suggest G... it is !ossible for unso!histicated strangers& from different countries& to interact
easil$ without crossing national boundariesH. 5hatever kind of service business $ou run&
the (nternet will change $our business I for good or ill. s ever with these technological
changes& the result is a ver$ different set of !ossible strategies for international services
marketing.
+eeing the &orld: international service strategies
5e have discussed the im!act of international trade !olicies and agreements. 5e can add
the effects of regional trade agreements I ?7T& >ercosur& the @U& etc. I and the
im!ortance of a !ositive attitude to trading services from governments. 7ollowing this we
have looked at the issues of culture and technolog$. <ut the !ractical business manager is
concerned with strateg$ I there is this e#citing world out there& trade in services is
booming I how do ( get m$ shareN
The articles b$ 9lark and =a'aratnam& 1rLnroos and Samiee are all concerned in some
wa$ with the !racticalities of international service strateg$. 7rom different !ers!ectives&
all these authors derive much the same set of suggestions for strateg$.
The communications revolution re!resents the biggest o!!ortunit$ $et for
internationali)ing service businesses.
5a$s round regulator$ and other barriers to entr$ e#ist and should be sought out.
<usiness cannot wait on the !oliticians.
limited range of market entr$ o!tions e#ists and the selection of the right
strateg$ de!ends on the t$!e of service& the targeted market and the com!etition.
<arriers other than regulator$ barriers need to be considered in !lanning the
internationali)ation of $our service I culture& language& the stage of economic
develo!ment and the e#istence of skills and knowledge all im!act on the strateg$
<ut what managers reall$ want is a crib sheet I a set of o!tions on which to build their
own !lans and actions. 5e know that man$ !roblems and barriers e#ist and want ideas
about getting round them.
1rLnroos identifies five main strategies available to the international services marketerB
.10 direct e#!ortA
.20 s$stems e#!ortA
.30 direct market entr$A
.-0 indirect market entr$A and
.50 electronic marketing.
The choice from among these strategies de!ends on the issues noted above !lusB
The stage of technical develo!ment within the industr$ I to what e#tent is the
service deliverable via electronic mediaK %ow do com!etitors deliver the serviceK
%ow so!histicated are the services alread$ in the target marketK
The degree of international homogeneit$ in the service I does the service re4uire
huge changes to work in the target marketK 6r is it a fairl$ standard !roductK To
what e#tent can we e#tend the service internationall$ without un!rofitable
ada!tationK
These factors are general to an$ service but the t$!e of service will affect the degree to
which internationali)ation is !ossible. 9lark and =a'aratnam describe four t$!es of
service and discuss how each t$!e re4uires different a!!roaches to strateg$.
The four t$!es described areB
.10 9ontact services I these are services where direct contact between service
!rovider and client is re4uired but no !ermanent !h$sical !resence is established
.e.g. consulting& accountanc$& tem!orar$ labour0.
.20 Oehicle services I a service delivered via an GinternationalH vehicle .e.g. TO
broadcasting& telecommunications0.
.30 sset services I services !h$sicall$ located in the overseas market .e.g. bank
branches& hotels& restaurants0.
.-0 6b'ect-based services I services embedded in a !h$sical ob'ect .e.g. 9:s&
machiner$ re!airs& etc.0.
9learl$ there are overla!s& since one firm ma$ offer services falling into two categories.
7or e#am!le a firm ma$ offer an Gob'ect-basedH service in the form of com!uter software
!lus a contact service in the form of a hel! line. (n this case a third o!tion of deliver$ via
the (nternet I a vehicle service I is also !ossible.
:es!ite this overla!& we need to a!!reciate that different t$!es of service im!l$ different
strategies. 5e can cross-reference the t$!e of service with the five strategies to identif$
which strategies are a!!licable to the different t$!es.
Table (e !resents something of a blunt instrument but does show how anal$sis of
international service strategies might !roceed at least so far as entr$ strategies are
concerned. %owever& it remains for us to decide the details of how we make that entr$
strateg$ work and what the !riorities are for our attention.
5e have alread$ noted the !otential benefits from well-managed investment in
technolog$ and the s$stems and !eo!le that go with it. 7isk"s five areasB !roductivit$&
service 4ualit$& customer relations& service develo!ment& and ada!tabilit$ give us the
basis for managing services regardless of the technolog$ issue.
Making service internationali,ation &ork
The remaining articles in this s!ecial issue bring us down from the rarefied atmos!here of
trade treat$ negotiations and grand strateg$ to a more !ragmatic level. Puestions about
service 4ualit$ and relationshi!s .@riksson et al.0& advertising a!!roach .lbers->iller
and Stafford0& effectiveness and efficienc$ .9hang et al.0 are im!ortant since the broad
strategic decision outlined above onl$ takes us the first ste! towards successfull$
internationali)ing our service.
5e need to relate the ke$ issues arising from this !ractical focus to the wider issues of
strateg$ and !ublic !olic$. (nternational services remain an area where there is a lack of
dee! understanding. (ndeed& 8night"s review of the literature reveals the ga!s that e#ist in
academic thinking and he !oints out that !ractitioners have been develo!ing a!!roaches
to international services marketing without reference to an$ detailed academic theorising.
Fet we see from these articles that the returns from !articular actions differ between
countries. Cevels of economic develo!ment are shown to influence the degree to which
market orientation affects service 4ualit$ and o!erational effectiveness .9hang et al.0.
?orms in terms of advertising !ractice .lbers->iller and Stafford0 need careful
consideration if the international service strateg$ is not to fall foul of !oor e#ecution.
7or managers in service businesses the develo!ment of consistent strategies that can be
managed from the centre makes a vital contribution to a firm"s abilit$ to o!erate
internationall$. 1iven the disadvantages inherent in marketing services overseas
.com!ared to man$ domestic services0 managers need to be able to derive advantages
from the strateg$ as well as from good tactics and efficient e#ecution.
s with goods e#!orting& the crucial element needed at the start is the commitment of
senior management to the !ro'ect and the willingness to invest in creating markets a long
wa$ from home. t the same time& managers need to a!!reciate the !itfalls of o!erating a
service overseas& not least in the reluctance of man$ countries to acce!t that international
trade in services is a valuable !art of the world econom$ and to ever$one"s benefit. These
barriers are I on the whole I surmountable& given creativit$ and careful !lanning. <ut
service firms looking for overseas business should take the o!!ortunit$ to badger
!oliticians and bureaucrats about the need for greater liberali)ation of the trade in
services. Successful trade liberali)ation will make a huge difference to the
internationali)ation of services.
1iven the benefits flowing from free trade in goods& we should be willing to acce!t the
risks of com!etition for the sake of an increase in world !ros!erit$. 6r am ( being naQve
about the !ros!ects of significant change coming from the ne#t round of negotiations
concerning international services starting in the new millenniumK
Services marketing has come a long wa$ in addressing the challenge of trading
internationall$. t the moment !o!ular !erce!tion and the !re'udice of bureaucrats
restrain growth in traded services. <ut the thoughtful and creative service& business
willing to commit itself to international trade& can succeed.
Table I.Top ten service export markets and import origins for the USA
Table II. A list of international service sectors
Table Ie.Available strategies for different service types
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