Transcript Global Services - Global Workforce

GLOBAL SERVICES
Lesson 1: Shift from Manufacturing to Service
Oriented Economies
INDUSTRIAL REVOLUTION/
MANUFACTURING-BASED
ECONOMY
•
•
•
•
•
National economy founded
centrally on the family economy.
Family production (agriculture in
this example) is more or less a
subsistence economy—most
production is oriented around
keeping the family alive.
The logic of a manufacturing
economy is a surplus economy.
Advances in agricultural
technology and practice ->
increased food supply and raw
materials -> food surplus -> more
disposable income.
Increased efficiency in the
production of manufactured goods
-> reduced the costs of
commodities for consumers ->
many items once considered
luxuries to became attainable for
vast segments of our population.
Tile factory
EFFECTS OF INDUSTRIAL REVOLUTION
•
•
•
The industrialization of Europe, left a permanent
mark on society. Life in the 18th century changed
drastically. Classes shifted, wealth increased, and
nations began assuming national identities
Jobs were created to fill the needs of assembly lines
and machinery operation. Vast majority of the jobs
though were low-wage positions that barely allowed
workers to subsist.
Investors and owners of the companies and factories
flourished in this era.
EFFECTS OF INDUSTRIAL REVOLUTION



Development of unions:
overworked and underpaid
workers tried to remedy their
situation through unions.
These unions gave many
workers a loud voice, which
often resonated in the ears of
bosses, which coerced (usually
with the threat of strikes)
them to ameliorate the
workers' situation.
Gave women the opportunity
to work outside of the home.
Eventually manufacturing
jobs became more skilled.
Wages rose and, partially due
to the power of the unions,
those involved were able to
become part of the middle
class.
Assembly-line in U.S. during
WWI
SHIFT FROM MANUFACTURING-BASED
ECONOMY TO SERVICE-BASED ECONOMY
•
•
•
•
•
•
•
Traditional development path: runs from agriculture
through manufacturing and only later to services.
Shift began in developed countries in the last quarter of the
20th century
In 1950, in the U.S. 30% job in manufacturing and 63
percent in services. In 2011, only 9% in manufacturing and
86 percent in services.
One reason for shift is that long-established industrialized
countries (i.e. Germany, the USA, Japan and the UK) faced
increased competition as more countries industrialized.
Second, productivity increased in manufacturing sector ->
need less workers
Third, many people in industrialized countries have a wide
range of consumer goods but lack time -> growth in
personal consumer services, such as leisure and fitness
Can you think of other reasons?
SHIFT FROM MANUFACTURING-BASED
ECONOMY TO SERVICE-BASED ECONOMY
•
•
•
•
Service sector is very
diverse.
In the U.S. this shift has
resulted in more low-wage
service sector jobs (vs.
middle class
manufacturing jobs)
For example there are 2.7
million people working at
fast food restaurants
earning $18,000/year.
There are high-end service
jobs though – such as
market analysts,
accountants, auditors,
public relations specialists,
etc.
GLOBAL SERVICES AS PERCENT OF GDP
US: in 2010, 76.7 percent of GDP
 Kenya: in 2010, 62 percent of GDP
 China: in 2010, 43.6 percent of GDP

Traditional services (hotel and restaurant
management): People consume more services when the
country has reached a level of affluence that satisfies
most of their other needs.
Modern services (software development, call centers)
can exploit economies of scales (similar to
manufacturing). Technology allows many of these
services to be done abroad for a lower cost.
SHIFT TO OFF-SHORING AND OUTSOURCING
•
•
•
•
•
•
There is a growing trend in developing countries to bypass
manufacturing and shift directly into service-based economies.
Traditional services (hotel and restaurant management): People
consume more services not when technological advances lowers
the price, but when the country has reached a level of affluence
that satisfies most of their other needs.
Modern services (software development, call centers) can exploit
economies of scales (similar to manufacturing). Technology allows
many of these services to be done abroad for a lower cost
So, now service sector in the developed world is vulnerable to
competition from developing countries (as corporations take
advantage of these countries’ comparative advantage – i.e. cheap
labor)
India for example has become a hub for the supply of globally
sources services (i.e. call centers, IT support, etc.)
What services do you think can be outsourced, and what
ones must remain at home?
GLOBAL TRADE IN SERVICES
Mode 1: Cross-border
There is thus a clear geographical separation between the buyer and
the seller. For example, a US stockbroking firm may buy or sell
shares for a Japanese resident over the Internet.
Mode 2: Consumption abroad
Services can be traded by the consumer moving or travelling to the
foreign market. For example, a US fee-paying student may travel to
Japan to study at a Japanese university.
Mode 3: Commercial presence
Services can be traded by the capital of the exporter moving to the
foreign market. For example, a US telecommunications company
may establish a company in Japan. Most services are traded in this
way.
Mode 4: Presence of natural persons (or movement of people)
Services can be traded by the producer or service supplier moving to
the foreign market. For example, an accountant who is a United
States citizen may temporarily work for a Japanese company in
Japan.