Globalisation of Globalisation of ServicesServices

Chapter 10Chapter 10

Learning ObjectivesLearning Objectives

In this chapter, we will In this chapter, we will Introduce the subject of globalisationIntroduce the subject of globalisation Explore India’s status as a newly Explore India’s status as a newly

globalising service economyglobalising service economy Discuss the mindset of globalising firmsDiscuss the mindset of globalising firms Introduce the five stages of globalisation Introduce the five stages of globalisation

according to Kenichi Ohmaeaccording to Kenichi Ohmae Discuss the standardisation versus Discuss the standardisation versus

customisation issuecustomisation issue Explore possible issues in managing Explore possible issues in managing

employees/partners in globalisationemployees/partners in globalisation Provide an overview of the fast growing Provide an overview of the fast growing

business process outsourcing industry business process outsourcing industry (BPO)(BPO)

Globalisation and IndiaGlobalisation and India

India’s global ascendancy in India’s global ascendancy in recent years has been driven by recent years has been driven by the IT- based service industries. the IT- based service industries.

McDonald’s, Pizza Hut and McDonald’s, Pizza Hut and Thank God It’s Friday already Thank God It’s Friday already operating hereoperating here

Many Indian service brands may Many Indian service brands may now begin to think global.now begin to think global.

Some Sunrise AreasSome Sunrise Areas

Indian movies are slowly beginning Indian movies are slowly beginning to make inroads into foreign markets.to make inroads into foreign markets.

Animation studios in India are able to Animation studios in India are able to do quality work for a fraction of the do quality work for a fraction of the costs that western outfits charge.costs that western outfits charge.

Corporate hospitals in India get Corporate hospitals in India get patients from abroad who cannot patients from abroad who cannot afford the high cost of medical afford the high cost of medical treatment in their country. This is treatment in their country. This is termed as “medical tourism”termed as “medical tourism”

Key areas in the Key areas in the Quest to go globalQuest to go global

Value-Addition Should be Our Value-Addition Should be Our MantraMantra One major flaw in our global One major flaw in our global

marketing effort – Our value addition marketing effort – Our value addition is poor in whatever products or is poor in whatever products or services we export, thus giving us services we export, thus giving us few benefits.few benefits.

How can we add value?How can we add value? With unique characteristics or features, With unique characteristics or features,

or by adding something intangible to the or by adding something intangible to the mix that cannot be imitated. mix that cannot be imitated.

Brand-building has to be undertaken Brand-building has to be undertaken vigorously and seriously in areas where vigorously and seriously in areas where Indian companies are likely to become Indian companies are likely to become leaders.leaders.

Role of Skills, VisionRole of Skills, Vision

Marketing skills, and long term global Marketing skills, and long term global vision (unlike the Japanese or Korean vision (unlike the Japanese or Korean goods manufacturers), have been weak goods manufacturers), have been weak in Indian firms. in Indian firms.

The American service companies, and The American service companies, and Asian manufacturing companies should Asian manufacturing companies should be the role models for strategic thinking be the role models for strategic thinking and vision, combined with hard work and vision, combined with hard work that is needed to make a sustained that is needed to make a sustained impact on the global scene.impact on the global scene.

Hard and Soft ServicesHard and Soft Services

Hard services (e.g. architectural design, Hard services (e.g. architectural design, education, life insurance and music) and education, life insurance and music) and soft services (e.g. food service, health soft services (e.g. food service, health care, laundry and lodging). Hard services care, laundry and lodging). Hard services require limited or no local presence by the require limited or no local presence by the exporter and consumption can, to a large exporter and consumption can, to a large extent, be separated from production.extent, be separated from production.

But soft services production and But soft services production and consumption are to a major extent consumption are to a major extent simultaneous processes, and such services simultaneous processes, and such services require major local presence by the service require major local presence by the service firm or a representative that acts on its firm or a representative that acts on its behalf.behalf.

Market Services Internationally Market Services Internationally

Five main strategies areFive main strategies are Direct export;Direct export; Systems export;Systems export; Direct entry;Direct entry; Indirect entry; andIndirect entry; and Electronic marketing.Electronic marketing.

Direct exportDirect export

Consultants and firms repairing Consultants and firms repairing and maintaining valuable and maintaining valuable equipment may have their base equipment may have their base on the domestic market and on the domestic market and whenever needed move the whenever needed move the resources and system required resources and system required to produce the service to the to produce the service to the client abroad.client abroad.

Systems exportSystems export

When a manufacturer delivers When a manufacturer delivers equipment or turn-key factories equipment or turn-key factories to international buyers, a need to international buyers, a need for engineering services, for engineering services, distribution, cleaning, security distribution, cleaning, security and other services is often and other services is often present present

Direct entryDirect entry

Service firm establishes a service-Service firm establishes a service-producing organization of its own on producing organization of its own on the foreign market.the foreign market.

It may face problems with It may face problems with production, human resource production, human resource management and consumer management and consumer behavior.behavior.

Can acquire a local firm operating on Can acquire a local firm operating on the same service market to over the same service market to over come those problems. come those problems.

Indirect entryIndirect entry

Franchising is an often used Franchising is an often used concept for indirect entry into a concept for indirect entry into a foreign market.foreign market.

franchisor gets the local franchisor gets the local knowledge and franchisees get knowledge and franchisees get an opportunity to grow with well-an opportunity to grow with well-established concept.established concept.

It is least risky of the It is least risky of the internationalization of services. internationalization of services.

Electronic strategiesElectronic strategies

Internet provides firms with a way of Internet provides firms with a way of communicating its offerings and communicating its offerings and putting them up for sale, and a way putting them up for sale, and a way of collecting data about the buying of collecting data about the buying habits and patterns of its customers habits and patterns of its customers and using network partners to and using network partners to arrange delivery and payment. The arrange delivery and payment. The electronic bookstore Amazon.com is electronic bookstore Amazon.com is a good example of a firm a good example of a firm internationalizing its services using internationalizing its services using electronic marketing.electronic marketing.

Five Stages of GlobalisationFive Stages of Globalisation

The stages in globalisation usually The stages in globalisation usually followed by a manufacturing company followed by a manufacturing company according to Dr Kenichi Ohmae (Japan)according to Dr Kenichi Ohmae (Japan)

1.1. A strong product concept in the home A strong product concept in the home countrycountry

2.2. Export through agents or third partiesExport through agents or third parties3.3. Opening of sales offices outside country Opening of sales offices outside country

marketsmarkets4.4. Shifting production baseShifting production base5.5. Complete integration, with sourcing from Complete integration, with sourcing from

best locations and production, R&D in best locations and production, R&D in most viable locations anywhere in the most viable locations anywhere in the world.world.

Stages in ServicesStages in Services

Usually a strong domestic market Usually a strong domestic market position is the first stage. position is the first stage.

Export through third parties can be in Export through third parties can be in the form of local partners (like the form of local partners (like McDonald’s in India) who are either McDonald’s in India) who are either partners in a joint venture or partners in a joint venture or franchisees of the branded service.franchisees of the branded service.

Company offices can be opened Company offices can be opened abroad to market the service directly abroad to market the service directly to the public, or to deal with the to the public, or to deal with the franchisees.franchisees.

Stages in Services cont..Stages in Services cont..

The fourth stage may not happen in The fourth stage may not happen in services, if the production and consumption services, if the production and consumption are not separated, as there may be no are not separated, as there may be no factory at all. factory at all.

This may lead the service company to This may lead the service company to directly proceed to stage 5, where it directly proceed to stage 5, where it reorganises and integrates its global reorganises and integrates its global business, with expertise and resources business, with expertise and resources drawn from all over the world. drawn from all over the world.

Eg: Many global ad agencies draw their Eg: Many global ad agencies draw their people from Indian affiliates. Similarly, people from Indian affiliates. Similarly, multinationals based in India, like ING multinationals based in India, like ING Vysya Bank, have expatriates at top levels.Vysya Bank, have expatriates at top levels.

India’s RecordIndia’s Record Indian IT businesses have gone through the early Indian IT businesses have gone through the early

phases of globalisation, and are in the process of phases of globalisation, and are in the process of consolidating their operations (TCS, WIPRO and consolidating their operations (TCS, WIPRO and Infosys).Infosys).

Other service brands from India are largely in Other service brands from India are largely in computer education (NIIT), or in banks (SBI, computer education (NIIT), or in banks (SBI, Bank of Baroda) which have expanded to a few Bank of Baroda) which have expanded to a few Afro-Asian countries. Airtel, Afro-Asian countries. Airtel,

In general, branded service companies have not In general, branded service companies have not been able to establish themselves beyond Indian been able to establish themselves beyond Indian shores.shores.

In others , like the public sector banks, stiffer In others , like the public sector banks, stiffer accountability norms did the trick.accountability norms did the trick.

India’s Record Contd..India’s Record Contd..

Some firms like L&T and Engineers India Some firms like L&T and Engineers India are in large service businesses, and have are in large service businesses, and have the financial muscle to reach out abroad.the financial muscle to reach out abroad.

Gas Authority of India Limited, ONGC, Gas Authority of India Limited, ONGC, Indian Oil are big oil and gas companies Indian Oil are big oil and gas companies with a lot of expertise in their fields, and with a lot of expertise in their fields, and have the necessary financial power to have the necessary financial power to compete abroadcompete abroad

But in areas like food, general retailing, But in areas like food, general retailing, education and so on, India’s global record education and so on, India’s global record in service businesses is nothing to rave in service businesses is nothing to rave about- yet.about- yet.

Standardisation v/s Standardisation v/s Customisation Customisation

Which is the correct strategy- Which is the correct strategy- StandardisationStandardisation or or customisationcustomisation ? ?

One useful approach is to think global, and act One useful approach is to think global, and act local, as per the needs of the local markets. local, as per the needs of the local markets.

Eg: McDonald’s not serving beef hamburgers Eg: McDonald’s not serving beef hamburgers in Indiain India

Some changes in products or practices are due Some changes in products or practices are due to environmental factors such as the law, or to environmental factors such as the law, or local environment, or customer sentiment. local environment, or customer sentiment.

For example, hotels in India offer a lot of For example, hotels in India offer a lot of personal services to guests, some of which personal services to guests, some of which could be eliminated if they were to operate in could be eliminated if they were to operate in the U.S., where guests are comfortable doing the U.S., where guests are comfortable doing things on their own.things on their own.

Summary- Standardisation v/s Summary- Standardisation v/s CustomisationCustomisation There may be faster growth There may be faster growth

possibilities if a service business can possibilities if a service business can standardise its processes or product, standardise its processes or product, but frequently, it has to adapt to but frequently, it has to adapt to differing expectations regarding differing expectations regarding various service parameters.various service parameters.

The core processes, however, can The core processes, however, can still be standardized, like McDonald’s still be standardized, like McDonald’s has shown.has shown.

Managing Employees/Partners in Managing Employees/Partners in the Process of Globalisationthe Process of Globalisation

What kind of employees What kind of employees should your company have should your company have

when it crosses the border?when it crosses the border? Local, or exported from your Local, or exported from your company’s headquarters?company’s headquarters?

(Disney faced this (Disney faced this dilemma when it opened a new dilemma when it opened a new Disney theme park in France.)Disney theme park in France.)

Managing Employees contd..Managing Employees contd..

Everything, from salaries to housing Everything, from salaries to housing and education for children is a new and education for children is a new experience for expats. experience for expats.

A lot of western expats in the Middle A lot of western expats in the Middle East send their children to schools East send their children to schools run by their own countrymen, such run by their own countrymen, such as the American School or the British as the American School or the British SchoolSchool

Indian Employees Adjusting Indian Employees Adjusting AbroadAbroad

Indian employees generally fit Indian employees generally fit well into the English-speaking well into the English-speaking world, and also a few of the Gulf world, and also a few of the Gulf countries. countries.

But other countries , such as But other countries , such as Japan, China are largely Japan, China are largely untested waters for Indians.untested waters for Indians.

Channel Partners or Channel Partners or Customers AbroadCustomers Abroad On-time deliveries on promised On-time deliveries on promised

dates, and in general, professional dates, and in general, professional behaviour is an expected norm in behaviour is an expected norm in many advanced markets. many advanced markets.

On the other hand, in less developed On the other hand, in less developed countries, even mundane things like countries, even mundane things like collecting payments are sometimes collecting payments are sometimes difficult to manage. difficult to manage.

The difficulties could be many more The difficulties could be many more in service businesses because of in service businesses because of their intangibility. their intangibility.

Mindset of Globalising FirmsMindset of Globalising Firms

Most important in the process of Most important in the process of globalisation is the mindset of globalisation is the mindset of companies that are globalising. companies that are globalising.

It usually means looking at the world, It usually means looking at the world, rather than any one country as your rather than any one country as your marketplace. marketplace.

Eg: American service firms like Eg: American service firms like McDonald’s, Citibank, Wal-Mart, McDonald’s, Citibank, Wal-Mart, Morgan Stanley, Accenture and Morgan Stanley, Accenture and YahooYahoo