Transcript Global Economy

Macro Trends in the Global
Economy: The Role of B2B Services
Christopher Lovelock
Yale University
Jochen Wirtz
National University of Singapore
Frontiers in Services 2007 Conference
San Francisco, 4-7 Oct 2007
Overview
Discuss underlying reasons for fast growth of B2B
services sector
Present macro economic data that shows B2B services to
be fasted growing component of economy
Show model of B2B’s role as key growth engine for the
modern economy
Conclude that increasing specialization of economies
around world has important implications for capturing
value
Present future research opportunities
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Slide © 2007 Christopher Lovelock & Jochen Wirtz
Service Sector is 60% of World GDP,
Dominates Economy in Most Nations
Cayman Islands (95%), Jersey (93%)
Bahamas (90%), Bermuda ( 89%)
Luxembourg (83%)
Panama (80%), USA (79%)
Japan (74%), France (73%), U.K. (73%), Canada (71%)
Mexico (69%), Australia (68%), Germany (68%)
Poland (66%), South Africa (65%)
Israel (60%), Russia (58%), S. Korea (56%)
Brazil (54%), Argentina (53%),
India (48%)
China (40%)
Saudi Arabia (33%)
Slide © 2007 Christopher Lovelock & Jochen Wirtz
Source: World Factbook, 2007
Service Sector Growth Varies by Country:
USA vs. 11 Asian Economies, 1980-2005
% of GDP
1980
1990
2000
USA
China
Indonesia
Malaysia
India
Thailand
Phillipines
South Korea
Taiwan
Singapore
Japan
Hong Kong
90
80
70
60
50
40
30
20
10
0
2005 (forecast)
4
Sources: EIU Country Data
Slide © 2007 Christopher Lovelock & Jochen
Wirtz
Factors Transforming the Service Economy
Social
Changes
Business
Trends
Advances in
IT
Government
Policies
Globalization
New markets and product categories
Increase in demand for services
More intense competition
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
Success hinges on:
Understanding customers and competitors
Viable business models
Creation of value for customers and firm
Slide © 2007 Christopher Lovelock & Jochen Wirtz
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Service Industries Can Be Broadly
Categorized by Type of Customers Served
B2B – Great majority of customers are businesses and
organizations, e.g.,
Professional and business services (incl. consulting,
engineering, accounting, advertising, IT services), logistics
and supply-chain related services
B2B/B2C – Sales are split between customers and
households/individual consumers, e.g.
Finance and insurance, telecommunications, hospitality
services, real estate-related services and rental and
leasing
B2C – Great majority of customers are households/
individuals, e.g.,
Healthcare, arts, entertainment and recreation services,
education, and retailing
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Slide © 2007 Christopher Lovelock & Jochen Wirtz
Share of US Service Sector (Valued at $8.5 Trillion)
Accounted for by Different Industry Categories
Other (except government) 3.6%
Accommodation and food services 4.0%
Arts, entertainment, and recreation 1.5%
Healthcare and social assistance 10.4%
Educational services 1.3%
Professional and business services 17.3%
Real estate and rental and leasing 18.7%
Finance and insurance 12.6%
Information 7.1%
Transportation and warehousing 4.4%
Retail trade 10.3%
Source: Bureau of Economic Analysis,
Survey of Current Business, May 2005, Table
Wholesale trade
1
8.9%
Legend: Blue font= predominantly B2B Services
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Red font= predominantly B2C Services Gold font = mix of B2C & B2C Services
Slide © 2007 Christopher Lovelock & Jochen Wirtz
Macro Economic Data Show B2B Services
Account for Increasing Share of Growing GDP
% of Total
Share of United States GDP, 1990-2006
100%
90%
80%
70%
60%
50%
40%
30%
20%
0%
10%
B2B/B2C
B2C
B2B
Good
s
1990
2000
Source: Bureau of Economic Analysis,
2006 Industry Economic Accounts
Year
Slide © 2007 Christopher Lovelock & Jochen Wirtz
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Model of How B2B Acts:
A Key Growth Engine for Service Sector
Service Industries
(e.g., communications, transportation, utilities, health care, banking, etc.)
R&D
External services
directly embodied
in products
Product
Design
Manufacturing
Services provided
inside company:
design, legal,
accounting,
advertising, etc.
Business Services Supporting
Manufacturing
(e.g.,accounting,
accounting,legal,
legal,consulting,
consulting,
(e.g.,
softwaremaintenance,
maintenance,etc.)
etc.)
software
Logistics &
Distribution
Services
(e.g., supply
chain mgmt,
transport,
transport,
wholesale,
wholesale,
retail)
retail)
Post-sale
Services
(e.g.,
(e.g.,
maintenance
maintenance
repair
repair
upgrades,
upgrades,
recycling/
recycling/
disposal)
disposal)
Commercial
Users
Consumers
Government Support Services*
(e.g.,waste
wastedisposal,
disposal,infrastructure,
infrastructure,education,
education,
(e.g.,
health,public
publicsafety
safety
health,
*variesby
bycountry
country
*varies
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Slide © 2007 Christopher Lovelock & Jochen
Wirtz
Among B2B Service Categories, Professional and
Business Services Show Highest Growth Rates
Value Added - B2B Services
Amount in millions
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
500,000
1,000,000
0
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
Year
20
06
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
97
Professional and business servicesWholesale tradeInformation Transportation and Warehousing
Source: Bureau of Economic Analysis, Industry Economic Accounts
Slide © 2007 Christopher Lovelock & Jochen Wirtz
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Trade in Services: U.S. Service Trade Dominated by
B2B Services
Total in Exports for Services
Exports in %
100%
80%
Both
60%
B2C
40%
B2B
20%
0%
1990
000
2
Yea r
2
005
100%
Imports in %
Source: Bureau of Economic
Analysis, Industry Economic
Accounts
Total in Imports for Services
80%
60%
Both
40%
B2C
B2B
20%
0%
1990
2000
Slide © 2007 Christopher Lovelock & Jochen Wirtz
2005
Year
11
India’s and China’s B2B Exports Are Growing Faster
than B2C Exports (i.e. Travel)
India’s B2B Services Exports
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
Exports in
millions
Travel Services
Transportation
Services
Commerical
Services
Exports in millions
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Travel Services
Transportation
Services
Commercial
Services
20
03
20
02
20
01
20
00
20
02
20
01
20
00
20
03
Source: World Trade in Services
Export Development Canada, 2006
China’s B2B Services Exports
Year
Slide © 2007 Christopher Lovelock & Jochen Wirtz
20
04
20
04
Year
0
5,000
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Omega Healthcare: New B2B Services from
Outsourcing in Healthcare
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Slide © 2007 Christopher Lovelock & Jochen Wirtz
Omega Healthcare
Among India’s largest offshore service providers to the U.S.
healthcare industry
Incorporated in the U.S, operations are located in Bangalore
and
Chennai (Madras) in India, and Pittsburgh in the U.S.
All three senior management members have had extensive
experience in the US healthcare industry.
Services include:
Medical coding
Billing and accounts receivable management
Claims processing
Clinical support services, e.g., radiology
Value proposition to customers includes
30-40% lower cost compared to US-based operations High levels
of quality through rigorous systems management
Improvement of cash flow & increase in revenue
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Slide © 2007 Christopher Lovelock & Jochen Wirtz
Omega Healthcare: Services Based on
Information Can Be Delivered from Anywhere
24-hour operation:
Day-time in India is
night-time in the US,
and vice versa
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Slide © 2007 Christopher Lovelock & Jochen Wirtz
BMW
HSBC
…
Security Services
OneWorld
IT Services
Nestlé
Customer Contact Centers
Growth of B2B Services Reflects Fundamental
Change in Approach to Value-creation
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Slide © 2007 Christopher Lovelock & Jochen Wirtz
Conclusions and Implications
Growth of service sector is strongly B2B driven
Trend likely to continue globally for foreseeable future:
increasing focus on core competencies
resulting outsourcing of many services
Through outsourcing, both manufacturers and B2C service
firms contribute to growth of the B2B services
Specialization through outsourcing has important
implications for capturing value.
Owning the customer relationship is a key enabler for
extracting value and reflects such activities as:
servicing the customer owning the brand (often a consumer
brand) obtaining data on customer transactions and
relationships
If applicable, owning the technology and/or infrastructure
can be important value drivers
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Slide © 2007 Christopher Lovelock & Jochen Wirtz
Research Opportunities
Explore categorization of B2B and B2C services in more
depth, e.g.,
Detailed analysis of NAICS data to refine categorization
Impact of home-based businesses-are they B2B or B2C?
Better understanding of organizational buying behavior:
Determine how companies make outsourcing decisions, set
criteria, and choose between alternative suppliers
Relationship management between outsourcers and clients
Explore causal links between specialization, growth of
the B2B services and competitiveness of an economy
Identifying international market opportunities in B2B
Exploring “rental/access” vs “ownership” in an
international B2B context
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Slide © 2007 Christopher Lovelock & Jochen Wirtz