Globalization of Services

Most businesses, whether these are of the manufacturing or of the service kind, offer their customers a package that includes a variety of service related activities. We have called it as ‘service product’ or ‘service package’. In any service, there is the ‘core product’ and the supplementary elements which are termed as ‘augmented product’ and ‘extended product’. There can be several different supplementary elements. The service product, which consists of the core product surrounded by supplementary elements called as the ‘flower of service’

Increase in globalization necessitates a firm to look for global standardization with local customization. We may call such a combination as ‘mass customization’. A global company can offer a globally standardized core service augmented and differentiated by nationally customized augmented / supplementary service elements. The ‘petals’ of the Flower of Service can be adapted according to the local preferences, their ability to pay, the local customs and cultural patterns.

The service characteristic of ‘customer involvement in production’ puts a damper on the global standardization. But, if this service characteristic assumes less importance, like in fast food business or airlines where the customer involvement is tightly controlled, global standardization becomes much easier. Global customers for possession processing services prefer common procedures and standards. For instance, airlines depend on their aircraft being maintained the same way all around the world. A possession processing firm such as Citibank has expanded in banking service (any way, any where, any time) through Citicard banking centers with their ATMs to 28 countries, the banking centers being linked globally for 24 hours 7 days a week. Global customers of people processing services may also like standardization when they are traveling around the globe.

Globalization of any business demands that at least the ‘core product’ be standardized. However, this is not possible in all types of businesses. Hotels, for instance, find it difficult to reproduce their core strength overseas; the reason is their heavy dependence upon people and, therefore, the vulnerability to varying labor attitudes and productivity across the globe. This is the reason why the multinational hotels cannot be a very big threat to Indian hoteliers. The multinational hotel chains can make a difference with advanced equipment and hi-tech; but, that is not the core product. In general, people processing firms will find it harder to globalize than the possession-processing services. The latter kinds of services do not need to cope with cultural and taste differences; only, some technical specifications may vary from one country to another such as 230 volts in India to 110 volts in the USA.

Globalization also raises the issue of location. People-processing firms in general, would need a higher degree of local presence and more number of local sites than that required for possession-processing firms. Location decision has been one of the important strategic decisions for any firm. Service businesses, particularly the people processing kind, need local presence at least for their downstream activities. But at the same time, they can take advantage of the different nations’ differing comparative advantages and build more efficient and effective value chains. For instance, McKinsey & Company, the management consulting firm, now sends some of its work for clients from high cost countries to its offices in a low cost country like India. To quote another example, some US banks and insurance companies now send their checks and claims to be processed in Ireland or in East Asia. Needless to mention that only those links of the value chain can be located outside the customer’s country (or region) which do not involve aspects of differing local preferences and differing norms or those parts of the value chain which are immune to local differences.

Information-based services have fewer problems in globalizing because of the availability of electronic channels of communication; thus, the logistics aspect is taken care of for most of the part. Firms providing information based services can concentrate production in locations that have specific comparative advantages such cost savings or specific expertise or advantageous tax (and other) policies of the local government. For instance, India is one of the favored locations for computer software production because of the low wages and acceptable expertise. Even in this business, certain client-specific and country specific products have to be produced in the client’s country or nearer to client’s location. Information technology has been instrumental in minimizing the logistics problems in services making it possible to separate the value chain into its various constituent parts and thus, allowing the firms to benefit from the comparative advantages of different locations.