Academic journal article Management International Review

Service Multinationals: Their Past, Present, and Future

Academic journal article Management International Review

Service Multinationals: Their Past, Present, and Future

Article excerpt

Abstract and Key Results

* This focused issue underscores the growing importance of service sector in the global economy and attempts to fill in the lacunae of research in internationalization of service industries. We stress the need for more systematic research both at the conceptual and empirical level to extend the frontiers of knowledge on service multinationals. Given the rising importance of service sector, it is imperative that international business scholars examine the internationalization of service firms in both developed and developing nations.

* The focused issue presents papers that delve into different aspects on service multinationals, namely surveying recent academic work on non-manufacturing sector, internationalization and performance, determinants of exports for service firms, regional versus global strategies for service firms, offshoring propensity in information technology industry, and value transformation model for location-intensive and information-intensive software services. Each paper offers a distinct insight into the services sector.

Key Words

Service Multinational Enterprise * Non-manufacturing Sector * Location Aspects * Regional Strategies * Offshoring * Performance

Introduction

The emergence of services started in the 1960s as industrialized economies of the world witnessed an increase in the services share of gross domestic product, total employment, total foreign direct investment, and balance of payments. Aharoni (2000) noted that an important manifestation of the changing nature of the global economy was the increasing importance of services sector as a percentage of gross national product in both developed and developing economies. According to World Bank (1999), during 1980-1997, the share of services in gross domestic product has increased across the board, though the steep transformation from manufacturing to services has taken place in the highly developed countries. In all low income countries, this share grew from 38 to 42 percent; in middle income countries from 40 to 50 percent; and in developed economies the range was from 60 to 70 percent for the above period.

As early as the 1980s, scholars examined the growing importance of services in several national economies (Daniels 1982, Riddle 1986, Shelp 1984). These studies find that services grew in response to a number of demand and supply led factors:

1. The growth of per capita output and high income elasticity of demand for consumer services in industrialized countries;

2. The increasing role of producer services in the value added process;

3. The increasing tendency of firms in non-service sectors to externalize less productive service activities;

4. The growing importance of marketing, distribution and after sales maintenance and servicing activities to the value of a physical product;

5. The growth of finance, banking, legal, insurance, transport, and other transport services;

6. The emergence of new intermediate market for services;

7. The liberalization of markets for several services, notably insurance and financial services.

The above-mentioned factors favored FDI as a modality for organizing the cross-border production and transaction of these services (Dunning 1989). Consequently, MNEs' share of total services activities undertaken increased rapidly. The first wave of service MNEs' growth (1960 to 1980) came in response to international expansion of manufacturing MNEs, when service firms like Citi Bank, Price Waterhouse, and Saatchi & Saatchi followed their clients namely General Motors, Unilever and Sony. The second wave (1980 to 1990) witnessed the internationalization of service firms in certain sectors, such as telecommunications, when services firms ventured abroad in search of "new" markets. The third wave (1990 to present) in the internationalization of service firms has been due to liberalization, deregulation, and privatization taking place in the service sector in developing countries. …

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