For many industrial products the revenue from associated services exceeds the revenues from the products. Perhaps the most obvious case is cellular phones, in which the physical product is practically given away to gain the phone services contract. Or consider how inexpensive printers may seem until the costs of operation (i.e. ink cartridges) are considered. Indeed for many capital equipment manufacturers the margins on after sale services (i.e. maintenance contracts, overheads, repairs and replacement parts) are much higher than the margins on the machinery itself. Further when companies lease capital equipment to customers the distribution between products ad services almost disappears completely. When a business customer leases truck it is purchasing a vehicle or transportation services?
Businesses also buy a variety of services that are not associated with products. Our favorite examples are the at sea satellite launch services now provide Boeing and the Russian navy, the latter by submarine. We also appreciate the Ukrainian cargo company that charges $24,000 an hour to rent space on its gain jets. Other professional services are purchased from advertising and legal agencies, transportation and insurance companies oil field services, banks and investment brokers and health care providers to name only a few .
After Sale Services
Effective competition abroad requires not only proper product design but effective service prompt deliveries, and the ability to furnish spare and replacement parts without delay. For example, GE medical systems provides a wide range of after sale services for hospitals that buy MRIs and other equipment training, information technologies, associated healthcare services and parts and accessories. In the highly competitive European Union, it is imperative to give the same kind of service a domestic company or EU Company can give. One US export management firm warned that US businesses may be too apathetic about Europe treating it as a subsidiary market not worthy of spending time to develop. It cites the case of an American firm with a $3 million potential sale in Europe that did not even give engineering support to its representatives, although the same sale in the United States would have brought out al the troops.
For many technical products, the willingness of the seller to provide installation and training may be the deciding factor for the buyers in accepting one company’s product over another’s. South Korean and other Asian business people are frank in admitting thy prefer to buy from American firms but that Japanese firms often get the business because of outstanding after sales service. Frequently heard tales of conflicts between US and foreign firms over assistance expected from the seller are indicative of the problems of after sales service and support. A South Korean executive’s experiences with an American engineer and some Japanese engineers typify the situation. The Korean electronics firms purchased semiconductor chip making equipment for a plant expansion. The American engineer was slow in completing the installation; he stopped work at five o’clock and would not work on weekends. The Japanese installing other equipment understood the urgency of getting the factory up and running; without being asked they worked day and night until the job was finished.
Unfortunately this is not an isolated case. In another example, Hyundai Motor’s company bought two multimillion dollar presses to stamp body parts for cars. The presses arrived late, even more time was required to set up machines and Hyundai had to pay the American extra to get the machines to work correctly. Such problems translate into lost business for US firms. Samsung Electronics Company, Korea’s largest chipmaker used US equipment for 75 percent of its first memory chip plant when it outfitted its most recent chip plant, it bought 75 percent of the equipment from Japan. Of course not all American companies have such problems. Indeed in India Intel recently opened a data center comprising an Internet server farm of hundreds of servers. Already customers in many countries connect and store their servers and have them serviced by Intel at such centers.