Governing forces changing the service environment

Governing forces changing the service environment

Sam Choon-Yin (March 2005)

 There are distinct differences between goods and services. The former refers to physical objects that one can see, touch and/or smell. Services on the other hand are intangible processes which are usually provided at the same time as consumers ‘use’ them. In banks for instance, visitors ‘receive’ services from the tellers simultaneously as tellers provide them. This is an important feature of services as it translates to absence of inventories in service performance. In buses, cinemas and airlines, unused services are lost forever. They cannot be stored somewhere so that during times of higher demand, the stocks can be retrieved to serve the consumers.

            The intangibility feature of services also implies that it is common for consumers to be involved in the service process. In restaurants, supermarkets or hotels, consumers act as inputs. They enter the transformation process and convert into either satisfied or unsatisfied customers. The perceive service quality can be influenced by service personnel like the waiters, cashiers and receptionists as well as fellow consumers. As such, there is usually a huge variability in service inputs and outputs knowing that predicting and controlling human beings and their behaviour are not easy. So, how much you enjoy a visit to a service organisation depends not only on the mood of service personnel but also the conduct of fellow ‘visitors’. No wonder training of service personnel to handle difficult customers and service recovery is so common and essential in service organisations.

            The service sector has grown in importance over the years. This may not be surprising since the sector supports the country’s economic development process. For example, to support the growth of firms, a proper capital market must be established in addition to the banking industry so that companies can make a wiser decision whether to acquire more funds through equity or debt. It has been said that in China, the capital market is still not very developed relative to the banking industry with the stock market accounting for merely 20 percent of the gross domestic product as compared to the total volume of bank loans which exceeded the GDP volume (Zhang, 2002, p. 256).

Good transportation and communications too are required to lend support to economic development. In addition, there is a general tendency for the government to expand services industries like retailing, education and health for sustainable development. Individuals for example must have proper accessed to healthcare regardless of their economic status. They should also have a basic knowledge of the three Rs, writing, reading and arithmetic. Primary education as a result is provided at heavily subsidised rates, normally at no charges.

            Below, I outline the major forces that are changing the service environment around the world; one that pertains to technology advancements and economic globalisation.

            One of the most talked about developments in recent years is advancement in technology. The use of the Internet, cell phones, electronic mails and other electronic gadgets are increasingly common while the gadgets themselves are getting more sophisticated. Today, doing business in the Internet is possible either between business and business (B2B), business and consumers (B2C) and consumers and consumers (C2C). This is in addition to the use of the Internet to publish information about the company and products. Of course, the conduct of electronic commerce is more complicated. Good programming skills are required so that sellers are able to capture customers’ data and execute business transactions effectively and timely, and at the same time without undermining security and privacy of personal information.

            The use of the Internet has basically transformed the way services are delivered. Although the Internet has been in existence since the 1960s, its use as a commercial tool began only in the 1990s thanks to several events including the introduction of the World Wide Web in 1990 courtesy of Tim Bernes Lee and the United States National Science Foundation’s decision to drop the restrictive use of the Internet. Today, China has the second largest number of people with accessed to the Internet after the US. Through the use e-mails, consumers can contact firms 24-hours a day and 7 days a week almost anywhere around the world, and expect their firms to respond within one to three days. Consultants, lawyers or any other businesses can provide services on-line to supplement their core product.

            However, problem arises when the tool is being exploited by certain businesses to create an environment where span became rampant. Although users could choose to block certain messages from entering their inbox, many are aware not of this possibility.

            With e-mails and the Internet, businesses are able to provide more personalised services than before. Federal Express for example allows its clients to check the exact location of their parcels or packages via the Internet. Amazon.com provides information about books and compact discs, among others, that are of specific interest to their customers.

The expansion of e-commerce provides opportunities for the governments to raise tax revenue although some governments are sceptical about doing so. The reason being that it is generally difficult to identify the country-of-origin where the businesses are transacted. Moreover, e-commerce is sill considered a new-kid-in-the-block. Taxing the transactions may hinder its growth. It seems that e-commerce brings forth positive net benefit to the society at least as perceived by the governments and this has remained even when there is the possibility that dirty money may be laundered electronically to unwanted parties including the terrorist cells.

            Technology advancements of course are not limited only to the Internet or e-emails but encompass developments in the communications, transportation, education and health industries. The delivery of services essentially has become more sophisticated and faster than before. The convenience provided to the consumers whom are increasingly affluent and short on time means that they are willing to pay for them (services generate economic values) thus leading to further growth of the services sector particularly the information and communication technology industry.

It may be useful to note though that such improvements should not merely be tapped by private sector organisations. The governments around the world should make use of them to maintain their relevance in the increasingly competitive world. In Singapore for example, taxpayers are able to file their tax returns electronically at the comfort of their homes and offices. The ministries and statutory boards allow individuals to download forms, make enquiries and check out old and new information on their respective websites. Payments of bills and fines could also be made electronically through the self-automated machines (SAMs) located in many parts of the city-state. The introduction of the Electronic Road Pricing (ERP) has increased accuracy in detecting passing of cars along its gantries to avoid disputes while the electronically driven mass rapid transits (MRT) provides comfort and convenience to transport individuals from one place to another. The use of the electronic means essentially minimises opportunities for public officers to extort payments from citizens, contributing to lower intensity of corruption.

Technology advancement has facilitated economic globalisation. Ease of travel and the use of the Internet bring people together to share ideas and exchange goods and services. Globalisation is not a new phenomenon if it is defined simply as the mean to import and export to achieve a better end. The mercantilists for instance talked about the desirability of exporting as opposed to buying from abroad in the fifteenth century although Adam Smith who saw international trade as a positive sum game later rejected this notion. But globalisation expanded rapidly since the end of the World War II as the liberalism doctrine dominates the thinking of the people particularly politicians on international relations issues. Trade barriers were brought down significantly. US’s support for economics like South Korea and Taiwan democratised many economies and brought them significant economic growth. The emphasis on production to meet huge demand in the post war period encouraged companies to set up plants and offices abroad like in South Korea, Taiwan, Malaysia and Singapore. The services sector correspondingly expanded, as better means of transportation and communications were developed to satisfy the demand of the foreign enterprises. The governments also foresee the increasing need to educate their people to provide companies the necessary workforce with relevant skills.

From China’s perspective, the 3rd Plenary Sessions of the 11th Central Committee of the Communist Party of China at the end of 1978 marked the point where China decided to participate in the global economy. In 1986, China decided to further integrate into the world economy by applying to take part in the GATT negotiation. It took 15 years before China was granted the permission to enter the WTO. To join the WTO, China has agreed to reduce tariff duties, remove quota and other non-tariff barriers and opening up many of her services area. Long (2002, pp. 55-56) describes the impact this way, ‘China has undertaken to open up the service areas including insurance and telecommunications. In the past, these areas, which are vital to the national economy, were relatively less open to outside investment. Instead, a virtual monopoly existed. The more monopolised, the less developed the trade was. The less developed, the higher the cost of the services. As a result, the cost for telecommunications and insurance stayed at a high level. If more insurance and telecommunications companies are allowed in, not only will the service cost be lowered but also China’s telecommunications and financial services will be more competitive’. It is expected that with more intense competition, a whole host of services will expand and improve in China over the years including specialised services like accountancy and legal while those that are less competitive will be passed on to those with the comparative advantage.

As the economy grows, the banking and finance industries should correspondingly expand.  As was mentioned earlier, there is tremendous room for the capital market in China to grow, to tap on the huge savings of the Chinese. This will in turn raise the demand for higher standards of corporate governance so as to better protect the interest of the shareholders. China could definitely learn from the Asian crisis debacles and corporate scandals in the US, Australia and other countries to mitigate the agency problem so common in private sector organisations.

The role of government will change in the global economy although not necessarily declining. Liberalists like Kenichi Ohmae (1995) for example thinks that there is a role for the government. In Ohmae’s (1995, p. 82) words, ‘Traditional issues of foreign policy, security and defence remain the province of nation states’. He also recognises the essential role of the government to build the physical infrastructure to support development, and train its citizens to participate more effectively in the global economy.  In the first place, clean government must exist. This is an important point. A corrupt government will be seen as one that mismanages public funds and power entrusted to public officers. More people may rebel against the government, criticise policies the government introduces and avoid contributing further to the government’s pocket. Essentially, the people could no longer trust the government to deliver its jobs properly.

It is common for observers to argue for privatisation of service organisations like in the telecommunications and utility industries for greater efficiency and subsequently lower prices for the consumers. This is true. In China for example, government-owned China Telecom charges 3.6 yuan for a minute call back to Singapore while greater competition in Singapore ‘forces’ firms to charge as low as S$10 for 500 minutes call from China to Singapore. At least, a firm is willing to accept this price. However, privatisation should not be seen as the sole solution to problems in the public sector. Recent corporate debacles suggest that the agency problem in private sector organisations is still serious. While raising the standards of corporate governance is essential, it is also useful to curb corruption in the public sector. It is possible to do so. There are indeed public sector enterprises, even ministries that have bucked the common perception about inefficiencies and ineffectiveness of public sector enterprises.

References

Long, Yongtu, 2002, Negotiations on China’s Accession to the WTO and the market-oriented reform, in Wang Mengkui (editor) China: Accession to the WTO and Economic Reform, Foreign Language Press, Beijing.

Ohmae, Kenichi, 1995, ‘The End of the Nation State: The Rise of Regional Economies’, The Free Press Paperbacks, US.

Zhang, Zhouyuan, 2002, China’s Accession to the WTO and building an open market system, in Wang Mengkui (editor) China: Accession to the WTO and Economic Reform, Foreign Language Press, Beijing.