Internationalization Service Firms

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1. INTRODUCTIONToday service industries constitute more than two thirds of the most developed nations’

economic activities. While internationalisation of manufacturing companies has been on the research

agenda for over 50 years now, comparable research on internationalisation of services first began to

emerge in the mid-1!0s "#night, 1$. %o, regardless of services’ dominating position in the world

business, the research on services internationalisation lags behind that of manufacturing "&ontractor

et al , '00($ and does not reflect its world position ")avalgi et al , '00(* %amiee, 1* +oveloc,

1* rnroos, 1$. /rofessional services are more important than other services in today’s and

tomorrow’s Western economies "e.g. Toivonen, '00* haroni, '000* /eneder et al , '00($ and are

growing remarably faster than manufacturing and other service industries in these countries. 2n

addition* because the professional service product is an input into other service- or manufacturing

firms’ production chains, innovations in service processes is liely to positively affect other industries

as well. The concept, firm internationali3ation, relates to the firm4s international development over

time "+amb and +iesch, '00'$. The decision maing process regarding the internationali3ation of

firms in basics evolves around the choice of maret, timing and mode of entry. This paper is a review

of the theoretical underpinnings of the internationali3ation process of firms. irst, two main streams

of theories regarding the internationali3ation process will be discussed, following an e6planation of

each theory stream and e6amples of theories in each stream. The pros and cons of each theory will

not be evaluated as such, but it will be discussed whether the basic theories in general are applicable

today. 2n that assessment a special focus will be put on the applicability of the theories regarding

small and medium si3ed enterprises and some newer theories in the field will be presented and

e6plained. inally, some concluding remars will be given.

1.1 TWO MAIN STREAMS OF THEORIES

The main variables the

internationaliation !ro"ess

is in#l$en"e% b&

E"onomi" a!!roa"h 'ehavioral a!!roa"h

Internal variables 7 8wnership advantages

7 Tacit nowledge

7 /roduct characteristics

7 &ommunication ability

7 96periential nowledge7 +earning

E(ternal variables 7 +ocation advantages

7 &omparative advantages

7 2ndustry characteristics

7 :ncertainty

7 overnment intervention

7 8pportunism

7 /sychic distance

7 eographic distance

7 &ultural differences

7 2nter-organi3ational networs

Table 1. The main internal and e6ternal variables each approach to internationali3ation theory focuses

on ;eference< %eifart and =achado-da-%ilva, '00>, p. '.

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The literature on the internationali3ation process of firms can broadly be divided into two

streams of theories* the economic approach to theory and the behavioral approach to theory

"ndersson, '000* ?enito and ripsrud, 1'* =ort and Weerawardena, '00@$. ?oth research streams

call attention to the fact that internationali3ation can be influenced by both e6ternal and internal

variables "%eifert and =achado-da-%ilva, '00>$. Table 1 summari3es the main aspects of both the

e6ternal and internal variables that each approach focuses on.

2n the following two chapters each stream of theories will be e6plained and discussed. irst,

the focus will be on the economic approach and some e6amples of theories that follow that approach

will be discussed. %econd, the behavioral approach will be e6plained and few theories following that

approach to theory will be discussed.

1.) THE ECONOMIC A**ROACH OF INTERNATIONA+I,ATION

The economic approach has its base in mainstream economics, and focuses on the company

and its environment "ndersson, '000$. The fundamental assumption of the economic approach is

that firms are Auasi rational in their choice of investments. The decision maer has access to perfect

information, he is rational and will choose the optimal solution "ndersson, '000* ?ucley et al.,

'00>* %eifert and =achado-da-%ilva, '00>$. The approach focuses on two fundamental aspects of

international production* the ownership of assets employed in production activities in different

countries and the location pattern of such activities "?enito and ripsrud, 1'$. The economic

approach is basically static, i.e. a firm4s foreign e6pansion is e6amined as a series of static choices,

where individual investment decisions are treated as discrete phenomena, dictated by efficiency

considerations and relative cost and benefits "?enito and ripsrud, 1'* &lar, /ugh and =allory,

1>B'00$. 8nce the cost and benefits of specific investment opportunities are considered in light of

the economic and competitive constraints operating in a maret, there is little room for managerial

discretion "?ucley et al., '00>$. The fact that various decision maers can mae different strategic

decisions in the same situation is therefore not acnowledged in this approach "ndersson, '000$.

ccording to this tradition, the choice of location for foreign investment is a deliberate

decision, it is efficiency led and made with the primary goal of profitability "?ucley et al., '00>*

lucler, '00@$, but it may be combined with secondary goals, such as asset seeing or protection

"?ucley et al., '00>$. 9conomic theories predict that a company will choose the location for its

'



investment that minimi3es total cost. +abour cost differentials, transportation costs, the e6istence of

tariff and non-tariff barriers, as well as government policy are generally held to be important

determinants of location choice "?enito and ripsrud, 1'$. nother e6ample of a factor that is

treated as a cost component is a lac of e6perience from a maret, because it is seen as more cost

consuming to control foreign operations when the company has little e6perience in the maret.

Therefore, e6perience acts as a determinant of location decisions concerning C2s "?enido and

ripsrud, 1'$.

When internationali3ing, firms identify their specific competitive advantages and then loo for

those location-specific advantages of a maret that provide the best production or sales conditions.

Dence, marets are systematically screened, compared and assessed with respect to efficiency gains

"lucler, '00@$. ;egarding entry modes decisions, the emphasis is on minimi3ing cost and ris.

Theories following the economic approach have tended to advocate a gradual move from low-cost,

low-ris strategies, such as e6porting, to higher-cost, higher-ris strategies, such as wholly owned

production subsidiaries ")ones, 1$.

%everal economic theories have been proposed to e6plain the choice of foreign entry modes by

firms. mong the best nown are Cunning4s eclectic theory, the 2nternational /roduct +ife &ycle

=odel and the Transaction &ost pproach. 9ach of these theories will now be discussed and

e6plained.

1.2.1 Dunning's Eclectic Theory

The concept of the eclectic paradigm of international production was first put forward by )ohn

D. Cunning in 1>@. The intention was to offer a holistic framewor by which it was possible to

identify and evaluate the significance of the factors influencing both the initial act of foreign

production by enterprises and the growth of such production "Cunning, 1!!$. Dis model is eclectic

because it integrates distinct e6planatory approaches from different theories into one single

framewor "9eledo and %ivaumar, 1!* lucler, '00@$.

Cunning "1>>B'00$ set out a systemic e6planation of the foreign activities of enterprises in

terms of their ability to internali3e marets to their advantages. Cunning4s approach suggests that

=E9s need some advantages in order to compensate for costs of foreignness, and therefore the

approach emphasi3es the need for firm-specific advantages "?ucley, /ass and /rescott. 1'B'00$.

ccording to the theory, the firm4s decision to enter a foreign maret and the choice of entry form

(



depend on a combination of three advantages that are necessary conditions for entry into foreign

marets "Cunning, 1!!$. These advantages are* ownership-specific advantages "8-advantage$,

location-specific advantages "+-advantage$ and internali3ation-specific advantages "2-advantage$, as

shown in figure 1.

irst, a firm must have a specific ownership advantage. This refers to an organi3ation4s access

to tangible and intangible assets that foreign competitors do not possess or do not have in the same

measure "9eledo and %ivaumar, 1!* =tigwe, '00@$. The 8-advantage compensates for the

general Fliability of foreignnessF that comes from operating at a distance as well as the generally

superior competitive position of rival domestic firms in the target maret "?enido and ripsrud,

1'$. 8-advantages are assets and sills that the firm possesses, such as firm si3e,

multinational e6perience, and ability to develop and maret a differentiated product "9eledo and

%ivaumar, 1!$. 2ncreased nowledge of a foreign country reduces both the cost and the

uncertainty of operating in a foreign maret. 96perience creates increased maret nowledge and

uncertainty reduction, and therefore e6perience is considered an 8-advantage "?enido and ripsrud,

1'$.

?ucley, /ass and

/rescott "1'B'00$

emphasi3e that it is

essential to remember

that 8-advantages result

from the investment

policy of the firm and

there must be continual

reinvestment in these

assets in order to

generate competitive advantage. 8-advantage must therefore be defined in a dynamic, not a static

sense.

%econd, a firm must have location specific advantages that refers to advantages that a firm

gains by locating its production, or part thereof, to foreign locations "=tigwe, '00@$. The firm must

identify and evaluate the attractiveness of the target maret with respect to its fit with the firm4s



strategy "9eledo and %ivaumar, 1!* lucler, '00@$. avourable government incentives or

regulations in different locations and the desire to reduce transaction costs are a strong incentive for

relocating production to particular offshore locations "=tigwe, '00@$ and can give the firm great

advantage over its rivals.

Third, there are internali3ation advantages which refer to the benefits of retaining assets and

sills within the firm. 2-advantages accrue to firm from the internal use of its 8-advantages rather

than renting them out to e6ternal parties in the form of licensing agreements or franchising "=tigwe,

'00@$. ccording to the theory, internali3ation is an alternative organi3ational strategy in order to

reduce transaction costs, given the imperfections of marets and transportations costs "lucler,

'00@$. ?ecause of this, firms have to assess whether the 8-advantage can best be reali3ed through

internali3ation "2-advantage$, or through e6ternal cooperative or maret transaction "lucler, '00@$.

1.2.2 The International Product Life Cycle Model

;aymond Gernon4s "1@@B'00$ 2nternational /roduct +ife &ycle =odel, 2/+& model "also

referred to as the =odel of %eAuential Cecision =aing$ has had a great influence on

internationali3ation theory and the empirical literature on international mareting and multinational

e6pansion "?ucley and hauri, '00$. The internationali3ation process is conceived by Gernon

"1@@B'00$ to be a systematic, incremental, and predictable seAuence "#won and Du, 15* %iorsi

and =enhoff, '000$ where the form of entry into foreign marets depends on the life stage of the

traded products "alan and on3ale3-?enito, '001$.

Gernon wished to remedy a lac of realism found in the dominating comparative-cost-

advantage theory by emphasi3ing the role of product innovation, the effects of scale economies and

the role of uncertainty in influencing trade patterns across national borders "=elin, 1'$. The model

involves companies going through stages from e6port to C2 "=elin, 1'* %aarya, 9cman and

Dyllegard, '00>$ where products typically pass through the phase of introduction, growth and

maturity "lmor, Dashai and Dirsch, '00@$, as shown in table '.

The introduction stage is domestic and innovators locate production activities at home where

the product was developed "lmor et al., '00@* +ou, Hhao and Cu, '005* =elin, 1'$. The firm is

primarily engaged in e6porting of the new product to foreign industrial marets. 96porting will

5



continue until the firm has acAuired enough nowledge about the foreign maret to shift production

abroad "#won and Du, 15* =elin, 1'* %iorsi and =enhoff, '000$.

Table '. The 2nternational /roduct +ife &ycle =odel

Three sta-es o# the I*+C mo%el

Sta-e 1 Intro%$"tion Sta-e ) /ro0th Sta-e Mat$rit&

7 /roduction activities are

located in the developed

country where the product

was developed

7 The product is e6ported into

other industrial marets

7 96port activities increase and

finally the

iproduction activities-are-

located in pro6imity to

consumers in other

developed countries

7 /roduction activities are

located in less developed

.....IJuntries where costs are

low

7 The firm e6ports its product

from the less developed

country bac to the original

innovating country

Curing the growth phase e6port activities increase and the demand for products e6pands into

additional marets. 8ver time the innovators locate production activities in pro6imity to consumers in

these countries "lmor et al., '00@* alan and on3ale3-?enito, '001* +ou, Hhao and Cu, '005*

=elin, 1'$.

t the maturity stage maKor marets are saturated and a certain degree of standardi3ation of the

product has usually taen place "=elin, 1'$. With an increasing degree of standardi3ation the need

for fle6ibility declines and a commitment to some set of product standards opens up technical

possibilities for achieving economies of scales through mass output. &oncerns about production cost begins to tae the place of concern about product characteristics. t this stage there is liely to be

considerable shift in the location of production facilities "Gernon, 1@@B'00$ where the production

will be located in less developed countries where costs are lower "lmor et al., '00@* +ou, Hhao and

Cu, '005* =elin, 1'* %iorsi and =enhoff, '000$. t the end, the firm will e6port its product

from the less developed countries bac to the original innovating country "%iorsi and =enhoff,

'000$.

1.2.3 The Transaction Cost Aroach

The roots of the Transaction &ost pproach "also referred to as the 2nternali3ation Theory$ go

bac to ;onald &oase "1(>$ who argued that there are conditions under which it is more efficient for

a firm to create an internal maret rather than enter foreign ones. %uch conditions are the transaction

costs of foreign activities.

@



2n a perfect maret, transactions are carried out free of transaction costs because* "1$

information is freely available, "'$ decision-maing is rational, "($ there are always alternative

suppliers and buyers, and "$ specific transactions have no carry-over effects between two parties

from one period to the ne6t. 2n reality, however, these conditions seldom e6ist. Transaction costs are

incurred because there is a need to devote efforts to reorgani3ing, carrying out and controlling

transactions among interdependent firms. The transaction cost approach tries to e6plain the

institutional form of those transactions ")ohanson and =attsson, 1!>$.

This approach assumes that a =E9 has developed a firm-specific advantage in its home

maret. :sually this is in the form of internally developed intangible assets, primarily some form of

now-how, that give the firm some superior production, product, mareting andBor management

nowledge. The maret for now-how, however, under the assumption of economic approach, is

characteri3ed by imperfections which can create complications in its pricing and transfer and

conseAuently increase the associated costs of transacting with a partner. high level of transaction

cost results in a preference for internali3ing the transaction ")ohanson and =attsson, 1!>* =adho,

1>$. irms therefore decide to produce abroad if they perceive that the reduction in transaction

costs resulting from the replacement of the e6ternal imperfect marets will be greater than the cost of

organi3ing such activities internally. 8therwise, foreign marets will be supplied by e6ports, licensed

sales, or some other form of international activity "nastassopoulos and Traill, 1!$. 2nternali3ation

does have associated administrative and ris-taing costs. These costs will be lower the less different

the foreign maret is from the home maret. Thus, this approach predicts that international e6pansion

will start in nearby marets ")ohanson and =attsson, 1!>$.

ccording to the Transaction &ost pproach, firms choose the organi3ational form and

location for which overall transaction costs are minimi3ed "&oviello and =artin, 1$.

&haracteristics of a transaction are analy3ed and the efficient management of transaction is viewed to

be the force of the firm4s competitiveness "=adho, 1>$.

Three theories following the economic approach to internationali3ation have been discussed*

Cunning4s 9clectic pproach, the 2nternational +ife &ycle =odel, and the Transaction &ost

pproach. 2n the following chapter the alternative approach to internationali3ation will be e6plained,

the behavioral approach. Three fundamental models following that approach will be discussed*

>



hroni4s Cecision =aing =odel, the :ppsala =odel, and the 2nnovation-;elated

2nternationali3ation =odels.

1. 'EHA2IORA+ A**ROACH OF INTERNATIONA+I,ATION

The behavioral approach of internationali3ation, also called the process approach, has its base

in organi3ational theory. 2t replaces the economic man with the behavioral man, therefore the

approach is regarded as behaviorally oriented "ndersen, 1(* ndersson, '000$. Theories and

models following the behavioral approach treat individual learning and top managers as important

aspects in understanding a firm4s international behavior "ndersson, '000$.

2n the behavioral approach the focus is on the impact of international e6perience on the pace

and direction of subseAuent internationali3ation. n important theme in this approach is the role of

organi3ational nowledge in the internationali3ation process "&lercA, %apien3a and &riKns, '005$. Theinternationali3ation is viewed as a seAuence of steps by which companies acAuire e6perience and

nowledge about e6ternal marets through the gradual commitment of resources and learning by

doing "%eifert and =achado-da-%ilva, '00>$.

%everal models following the behavioral approach have been proposed to e6plaining the

internationali3ation process of firms. mong the best nown e6planations are hroni4s Cecision

=aing =odel, the :ppsala =odel and the 2nnovation-;elated 2nternationali3ation =odels. 9ach of

these models will now be discussed and e6plained.

1.3.1 Aharoni's Decision Ma!ing Model

Lair haroni4s "1@@B'00$ wor laid a foundation for later studies on decision processes in

=E9s "?oddewyn, 1!(* +i, +i and Calgic, '00* Westerman, '00@$. 2t is one of the earliest studies

that abandoned the classic economic rationality, and instead applied the behavioral theory of the firm

to C2 research "+i et al., '00$. t that time, international business was not in main focus for the

business community nor to academics "hroni, 1@@B'00$

haroni "1@@B'00$ adopted a behavioral approach in order to identify the reasons behind

foreign investment and how a company manages this activity. urthermore, he e6amined

environmental and organisational factors influencing the decision-maing process "%yianais and

?ellas, '005$. hroni characteri3ed the foreign investment decision as a comple6 social process that

is influenced by social relationships both within and outside the firm. De provided a rich description

!



of individual and organi3ational behavior over time and showed the crucial effect of perception and

uncertainty in the course of this process "?ucley and hauri, '00$.

ccording to hroni the first foreign investment decision is to a large e6tent a trip to the

unnown. 2t is an innovation and development of a new dimension, and a maKor breathrough in the

normal course of events. There is some strong force, some drastic e6perience, that triggers and pushes

the organi3ation into this new path. This trigger compels the organi3ation to shift the focus of its

attention and to loo at investment possibilities abroad. 2t creates a situation that leads the decision

maer to feel that an investment abroad may help him solve some urgent problem, carry on some

activity that he has committed himself to maintain, or simply that such an investment may fulfill

some important needs.

1.3.2 The "sala Model

8ne of the most important and most influential models in the field of bounded rationality is the

:ppsala internationali3ation model. The model drew upon the wors of hroni and its main themes

are firms4 behavior with regards to different foreign establishment seAuences related to marets and

entry modes. ccording to this model, incremental learning at the firm level is the main factor

e6plaining a firm4s international behavior and decision-maing process "ndersson,

'000* &ollinson and Doulden, '005$.

)ohanson and Wiedersheim-/aul "1>5B'00$ found that when internationali3ing, the firm

progresses through a distinct and rigid pattern of steps. 2n their framewor, the flow of information

between the firm and the maret are crucial in the internationali3ation process and they put heavy

emphasis on the concept of Fpsychic distanceF* the cultural distance between spatially separated units

of the firm. )ohanson and Wiedersheim-/aul4s initial article served as the basis of subseAuent research

that has been encapsulated in what we now today as the F:ppsala =odelF of the internationali3ation

process "?ucley and hauri, '00$. The seminal article in this tradition was by )ohanson and Gahlne

"1>>$ who conceived a firm4s internationali3ation as a process embodying a gradual increase in

commitment to a foreign maret. They argued that local e6periential nowledge causes incremental

advances in maret nowledge and thus provoes an establishment chain of international

organi3ation. The process of internationali3ation unfolds as a seAuence of stages, where firms gain

e6perience stepwise, build management competence and reduce uncertainty in order to incrementally

increase investments in target marets.



ccording to the :ppsala =odel, internationali3ation of the firm is a process driven by an

interplay between learning about international operations on the one hand and commitments to

international business on the other. +ac of nowledge about foreign marets and operations is the

main obstacle to internationali3ation and nowledge can mainly be developed through e6perience

from operations in those marets. oreign business opportunities and problems are discovered

through e6periences from foreign marets and operations. 96perience gives the firm an ability to see

and evaluate business opportunities and thereby to reduce uncertainty associated with commitments

to foreign marets. %ince nowledge is developed gradually international e6pansion taes place

incrementally ")ohanson and Gahlne, '00($.

1.3.3 The Inno#ation$%elated Internationali&ationodels

=odels of innovation-related internationali3ation were developed on the basis of the :ppsala

model "ndersen 1(, ;eid, 1!1$. mong the best nown models are from ?iley and Tesar

"1>>$, &avusgil "1!0$ and ;eid "1!1$. These models focus on the learning seAuence in connection

with adopting an innovation and the internationali3ation decision is considered an innovation for the

firm.

ccording to ;eid "1!1$ viewing e6porting as an innovation adopter gives us richer insight

into how e6porting is initiated and how it is developed. #nowledge of those characteristics that

account for differences in the way attitudes and information about foreign marets affect responses to

e6port stimuli and subseAuent e6port behavior is critical to understanding the e6porting process.

%imilar to the :ppsala =odel, the 2nnovation-related =odels regard internationali3ation as a

process. The :ppsala =odel, with its emphasis on learning theory, is presented as a dynamic model,

while the 2nnovation =odel portray the internationali3ation process as a step-by-step development

"ndersen, 1($. 9ach new stage represents more e6perience andBor involvement than the earlier

stages "ndersen, 1(* Gissa, '00($ and each stage is considered an innovation for the firm

"anema, %nuif and Hward, '000$. Dowever, the number of internationali3ation stages varies by

researchers following the innovation-related models "Gissa, '00($.

/art of the contribution of the 2nnovation-related =odels lies in their e6planation of how the

process starts and the role of ey decision-marers and the variables that influence their decisions

"&ollinson and Doulden, '005$. %ome of the main factors influencing enterprises4 e6port initiation

and behavior patterns are shown in table (.

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Table (. The determinants of e6port mareting behavior according to the innovation-related models. Eational policies, e.g. e6port incentives, e6port support services, provision of information about foreign maret

opportunities and currency devaluation. ;egional trading agreements. Dome country conditions< si3e, domestic demand,

competition, the worforce4s education level, production and transport costs, linages between industries, legislation,

infrastructure and institutional framewor. 2ndustry characteristics, including foreign and domestic competition and

maret demand. oreign maret conditions< si3e, competition, tariff and non-tariff trade barriers, product standards*

geographic and cultural distance from the host country. =areting activities by competitors in foreign marets. 2ndustrialand trade associations. :nsolicited e6port orders.

Internal 3 E(ternal 43

• eneral firm characteristics< si3e, goals* bacground, past performance, ownership structure and reputation.

• Cifferential company advantages< the nature of its products, marets, technological orientation, financial resources and

information about foreign marets.

• Cecision-maer characteristics< age, country of birth, value system, past history, e6perience in foreign marets and

behavior in uncertain situations.

• The strength of managerial aspirations for various business goals, e.g. growth, profit and maret development.

• =anagement e6pectations about the effects of e6porting on business goals.

• The level of organi3ational commitment to e6port mareting, including willingness to learn and devote adeAuate

resources to e6port-related activities.MMMM %ource< Gissa, '00(

The view states that e6port attitudes and nowledge of the way they influence choice of

method of foreign entry, choice of country, and recognition of potential opportunities, represent the

maKor elements of e6porting as an adoption of innovation processes. urthermore, the view states that

the decision-maer4s attitude, e6perience, motivation, and e6pectations are primary determinants in

firms engaging in foreign maret activity ";eid, 1!1$ and therefore the entry into e6porting is

considered to be traced to an innovator inside the firm. That individual possesses aggressive and

competitive traits, with greater tolerance of ris than hisBher counterparts in the firm and motivated by

perceived rewards stemming directly from e6porting as a strategy of its growth "Gissa,

'00($.

11



). THE IM*ACT OF THE INTERNATIONA+I,ATION OF

SER2ICES ON DE2E+O*IN/ COUNTRIES Ad#ances in inforation technology ha#e #astly e(anded the range of ser#ices that can )e traded

internationally. De#eloing countries stand to )enefit on t*o fronts$$they *ill )e a)le to increase

their e(orts of ser#ices and they *ill gain access to ser#ices not a#aila)le doestically$$ro#ided

they refor the regulatory en#ironent and de#elo the necessary huan and hysical caital.

TD9 2ET9;ET28E+2HT28E of services is at the very core of economic globali3ation. %ervice

industries provide lins between geographically dispersed economic activities and thus play a

fundamental role in the growing interdependence of marets and production activities across nations.

=oreover, many services considered nontradable only a few years ago are now being traded actively,

as advances in information technology "2T$ e6pand the boundaries of tradability. s technological

progress further reduces communication costs, trade in services is e6pected to continue to e6pand

brisly.

).1 THE SER2ICES RE2O+UTION

dvances in technology, especially information technology, are revolutioni3ing the image of services.

:ntil recently, it was common to view the services sector as a collection of mainly nontradable

activities with a low productivity-growth potential. The e6pansion of this sector in industrial countries

was often thought to be a side effect of deindustriali3ation* in developing countries, it was often

attributed to the growth of the informal sector, chaotic urbani3ation, and a swelling public sector.

8verall, the growth of services was perceived at best as a by-product of developments in the primary

and secondary sectors, at worst as a drag on long-term economic growth. ?ut, as 2T transforms

service industries, and as awareness grows of the importance of efficient producer services, the

development of these services is coming to be regarded not as a conseAuence but as a precondition of

economic growth.

%ervices comprise a wide array of economic activities. The main thrusts of the Fservices revolutionF

are the rapid e6pansion of nowledge-based services "for e6ample, professional and technical

services, baning and insurance, and modern health care and education$ and the growing tradability

of services. #nowledge-based services belie the stereotyped view of services as activities with low

capital intensity--physical and human--and productivity growth. %ervice industries are the main

investors in 2T around the world. %pending on nowledge-based services, which are highly income

elastic, is growing rapidly in both industrial and developing countries.

1'



Changing )oundaries of trada)ility. %ervices are often characteri3ed as the te6tboo e6ample of

nontradables "e.g., a haircut$. Dowever, technological innovation has e6panded the opportunities for

services to be embodied in goods that are traded internationally--software on disettes, films on

videotape, and music on compact diss. ?ut the most dynamic force behind the internationali3ation of

services is the e6pansion of electronic networs "see bo6$ and the new possibilities for trade in long-

distance services associated with these networs.

/rogress in 2T is maing it possible to unbundle the production and consumption of information-

intensive service activities. These activities--e.g., research and development ";NC$, computing,

inventory management, Auality control, accounting, personnel, secretarial, mareting, advertising,

distribution, and legal services--play a fundamental role not only in service industries but also in

manufacturing and primary industries. 2n the :nited %tates, for e6ample, as much as @5->5 percent of

employment in manufacturing may be associated with service activities. With progress in 2T,

outsourcing--supply by an e6ternal entity of a service previously provided in-house--has become

feasible. nd, as communication costs continue to fall, the potential for international outsourcing

grows.

%ervice activities that involve the manipulation of symbols "collection, processing, and dissemination

of information$ are the archetypal information-intensive activities. Cata entry, analysis of income

statements, and development of computer software and financial products are e6amples of activities

in this category that are prime candidates for long-distance provision. The impact of 2T on thetradability of services is not limited to the increasing feasibility of long-distance provision, however.

The introduction of new products "e.g., financial derivatives$ and e6pansion of access to maret

information "e.g., computer reservation systems for airlines$ have also been greatly facilitated by 2T.

9ven services in which consumer-provider interaction has traditionally been very high "e.g.,

education and health services$ are now amenable to unbundling and, eventually, cross-border trade.

dvances in computer-mediated technology "including online access to information, two-way

student-teacher communication, multimedia systems$, for e6ample, are significantly enhancing the

effectiveness of long-distance education. Teleconferencing--using satellite lins for contacts between

medical colleges and physicians in remote areas--is becoming a popular mechanism for continuous

education. nd telemedicine is becoming a reality--it is now possible to transmit ultrasound scans for

evaluation by specialists in better-eAuipped hospitals.

1(



Trade in commercial services has been growing much faster than global output over the last decade.

&ommercial services encompass transport, travel, and Fother private servicesF--a category that

comprises financial, communication, construction, information, technical, professional, and personal

services. +ong-distance services are typically recorded under Fother private services.F %ervice

statistics have many deficiencies, but it is clear that trade in services has been growing rapidly.

verage annual growth in trade in commercial services from 1!0 to 1( was >.> percent, compared

with . percent for merchandise trade "in nominal terms$. Trade in Fother private services,F the most

dynamic component of commercial services, grew at .5 percent annually. The share of commercial

services in global trade rose from 1> percent in 1!0 to roughly '' percent in 1(. nd, to the e6tent

that intrafirm trade in long-distance services is not properly captured by balance of payments

statistics, these figures underestimate the e6pansion of trade in services.

).) O**ORTUNITIES

s service industries rely increasingly on 2T, they tend to become more dependent on capital and

human-capital inputs. This has led some analysts to suggest that developing countries cannot compete

internationally in services and that policies to liberali3e trade in services would be of limited interest

to them. This view is mistaen. Ceveloping countries are already carving out areas of comparative

advantage in 2T-based services, a process that will continue to evolve. =oreover, liberali3ation is not

only about e6panding e6ports* even more important is its role in helping domestic producers gain

access to more efficient and diversified services in world marets.

9fficient producer services are increasingly relevant to the pursuit of an outward-oriented strategy of

development. F%hip-and-forgetF trade is becoming a thing of the past. To compete internationally,

dynamic e6porters increasingly rely on reduced product-cycle times, prompt delivery, and improved

customer services. s a result, the service content of final e6ports is increasing. 2n time-sensitive

industries, firms are either FAuicF or Fdead.F 2nnovative service providers are enhancing

transportation and communication systems, and developing an advanced services infrastructure.

vailability of such infrastructure, in turn, is becoming a maKor criterion in the locational decisions of

e6porters. The newly industriali3ing economies in 9ast sia have been particularly successful in

developing a modern infrastructure for producer services.

Long$distance ser#ices. There remains much scope for e6pansion in developing countries4 traditional

service e6port areas "e.g., tourism$. new area of special promise is long-distance services. Cata

entry was one of the first service activities to be internationally outsourced. This type of activity

1



reAuires only a low level of computer literacy and limited interaction between the customer and the

supplier. The customer mails paper-based data forms or sends scanned images of data forms

electronically to the foreign provider for processing. The supplier sends the computeri3ed data bac

via telecommunication lines or by mailing magnetic tapes. &ountries in the &aribbean have been

Auite active in e6ploring the maret for offshore data entry.

%oftware programming is another activity that is increasingly traded across borders, with subsidiaries

or partners overseas entrusted with developing software that is transmitted electronically bac to the

parent or partner company. or e6ample, many leading international computer and software

companies have set up ;NC and production operations in ?angalore, 2ndia. The 2ndian software

industry, which is growing rapidly, generated revenues totaling more than O500 million in 1(-,

two-thirds of which came from e6ports. 2t is estimated that 2ndia has captured roughly 1' percent of

the international maret for customi3ed software.

F?ac-officeF service activities are also being traded internationally. or e6ample, several :%

insurance, ta6-consulting, and accounting companies send claims and forms overseas for processing.

2n manufacturing, service activities such as product design, logistics management, ;NC, and

customer service are also being outsourced internationally.

There are no precise estimates of the si3e of the maret for long-distance services that can be captured

by developing countries. The fact that a significant share of these transactions taes place at the

intrafirm level clouds the picture. Dowever, rough estimates suggest that 1-5 percent of the

employment in services in industrial countries may be internationally contestable by developing

countries. The potential impact of the globali3ation of services in terms of Kob displacement in

industrial countries does not seem very large. ?ut, from the perspective of developing countries, the

potential impact in terms of higher e6ports over the long term is significant, possibly as large as their

current total e6ports of commercial services. There are important niches in the maret for long-

distance services that can be successfully e6ploited by developing economies with a literate

worforce and a modern telecommunications system.

2t is important to note that marets for these services are sensitive to technological change. +ong-

distance services in data entry, for e6ample, are e6pected to continue to e6pand in the near future,

reflecting the continuous fall in communication costs. /rogress in optical recognition technology and

the development of online services for credit card and chec clearing, however, can significantly

affect the need for data entry in the future. These services may lose some of their dynamism as they

15



are displaced by innovations in software and scanner technology in the industrial world. Eonetheless,

the increasing number and diversity of information-intensive Kobs, the technical feasibility of new

long-distance services "e.g., in remote clerical support$, and the dynamism of C2 flows and of the

global demand for software suggest that the overall maret for long-distance services will continue to

e6pand.

While creating possibilities for new e6ports, the internationali3ation of services is important also for

developing countries as importers of services. +ong-distance access to the Ffloating poolF of

nonproprietary nowledge, for e6ample, is being revolutioni3ed by computer-mediated networs,

such as the 2nternet. 9lectronic bulletin boards are becoming more sophisticated and increasingly

effective as instruments for the transference of nowledge and for technical assistance. They can now

combine te6t, voice, and images, and their use may significantly alter the prospects for human capital

accumulation in developing countries in the ne6t few years.

). CA*TURIN/ THE O**ORTUNITIES

To capture the opportunities offered by the internationali3ation of services, developing countries will

need to adapt their regulatory environments and develop supportive physical and human

infrastructure.

Li)erali&ation and regulatory refor. +iberali3ing the import regime for services is central to

achieving increased efficiency and competitiveness in the provision of services. 2t allows businesses

to import services that are not produced domestically or that are not available at a price and Auality

reAuired for competitiveness. +iberali3ation also fosters efficiency by increasing competitive

pressures on domestic producers of services. ?ecause of the nonstorability of many services, C2 is

the maKor mode of international delivery of services. +owering barriers to C2, therefore, is crucial.

2ncreasing recognition by developing countries of the need for such reform is reflected in the

liberali3ation pacages encompassing the services sector that many of them have unilaterally initiated

in recent years. Let most service activities continue to face a more restrictive regulatory regime thando goods.

?order policies account for only some of the impediments to internationali3ation. %ervices are

regulation-prone, and the domestic regulatory environment can create additional barriers to

international competition "state monopolies in service industries, legal barriers to entry in economic

activities, price controls$. Comestic deregulation is often a necessary complement to the opening up

1@



of the foreign trade and investment regime. lso, differences in regulatory environments for service

industries across countries may restrict access on a de facto basis "for e6ample, different standards for

accreditation of professionals$. ccordingly, effective liberali3ation may also reAuire harmoni3ation

of regulatory practices among maKor trading partners "e.g., as pursued in the conte6t of the %ingle

=aret initiative in 9urope$.

longside unilateral liberali3ation of services, countries are pursuing liberali3ation through reciprocal

negotiations. n important achievement of the :ruguay ;ound is the adoption of the eneral

greement on Trade in %ervices "T%$, which e6tends multilateral rules and disciplines to services.

%everal recent regional integration arrangements have also included liberali3ation of services.

The T% covers four modes of international delivery of services< cross-border supply "e.g.,

transborder data flows, transportation services$* commercial presence "e.g., provision of services

abroad through C2 or representative offices and branches$* consumption abroad "e.g., tourism$* and

movement of personnel "e.g., entry and temporary stay of foreign consultants$. 2t broadly follows the

TT "eneral greement on Tariffs and Trade$ tradition, emphasi3ing nondiscrimination "most-

favored-nation "=E$ and national treatment$ and prohibiting policy instruments that resemble

Auantitative restrictions. 2t innovates, however, in covering transactions associated with commercial

presence "that is, establishment trade$ and introducing a concept of maret access that encompasses

nonborder restrictions "e.g., limitations on the type of legal organi3ation under which foreign

providers can operate are, in principle, prohibited$.

:nconditional =E is a basic obligation of signatories, but =E e6emptions are allowed. The

coverage of these e6emptions is still being negotiated in areas such as basic telecommunications and

maritime transport. They are time-bound and should be eliminated through future negotiations.

=aret access and national treatment, in turn, are specific obligations under the T%. They apply

only to the service industries and activities specifically listed by the country in its schedule of

commitments, at the level of each mode of supply and subKect to the limitations made e6plicit in the

offer. The T% adopts a positive list approach with respect to sectoral coverage of service

industries--that is, only the industries scheduled in the offers of the negotiating parties are subKect to

T% discipline. This practice is less transparent than the negative list approach adopted, for

e6ample, in the Eorth merican ree Trade greement "ET$, in which all service industries are

covered unless specifically e6empted.

1>



The comple6ity of the agreement "with offers made by service activity and mode of supply$ renders it

difficult to mae a comprehensive evaluation of the economic value of the offers and their liberali3ing

impact. 2n terms of industry coverage, developing countries covered a smaller subset of service

activities in their offers than industrial countries. Tourism and travel-related services were the only

activities in which a substantial number of developing countries made commitments. &ommitments in

the area of communication services--an area of critical relevance for countries interested in pursuing

outward-oriented strategies of development--were Auite limited. These commitments are mostly

related to value-added telecom services "e.g., data processing, electronic data interchange$ but cover

less than '0 percent, on average, of the service activities negotiated under this category.

The liberali3ation of trade in services actually achieved under the :ruguay ;ound seems rather

limited at present. Dowever, while the immediate liberali3ation may be limited, the agreement paves

the way for future multilateral liberali3ation. The framewor agreed provides for continued

negotiations to be completed over a two-year period, and nothing constrains members from

undertaing further unilateral liberali3ation, provided it is consistent with the multilateral disciplines

established by the T%.

+ther suorti#e olicies. The services revolution places a premium on the development of a

competitive telecommunications system. =ost developing countries are hard pressed to meet the

demand for even basic telecommunication services, and investment in networs for value-added

services may be considered an unaffordable lu6ury. Dowever, technology now allows a country todevelop a dual structure for telecommunication services< a country can invest in low-cost, dedicated

networs for business needs in parallel with e6panding the basic infrastructure. The private sector can

play a leading role in this process, as it has in &hile, for e6ample.

/roviding access to modern, high-Auality communication services is not enough. &ountries can be at

a competitive disadvantage in long-distance e6ports because of non-competitive pricing of

telecommunication services. "This has been the case for some 9astern &aribbean countries.$ The use

of alternative means of telecommunications "e.g., low-cost satellite stations$ may be inhibited by

monopolistic practices of the basic telecommunications providers. 9stablishing a competitive

framewor for the provision of telecommunication services is therefore necessary.

nother important constraint faced by developing countries concerns the Auality and relevance of the

training of their wor forces. 2n-house training can partially mitigate the shortcomings of the formal

educational system in preparing worers to use 2T in service industries. The main challenge, however,

1!



is to mae the general population receptive to technological change. s economies become more

service-intensive, worers must be retrained more freAuently, and their performance becomes more

dependent on access to 2T. ccordingly, the diffusion of computer literacy should receive special

attention in education strategy.

2n sum, the most dynamic trade routes of the twenty-first century will be dominated by transactions inintangibles rather than goods. %ervice industries will be responsible for the FroadsF of the global

FinfostructureF and they will be the main providers of the content to be traded via electronic means.

The adoption of a liberal trade and investment regime is essential for countries to ma6imi3e the

benefits to be derived from the internationali3ation of services and to move toward the information

age. This is particularly true for developing countries.

1



. AD2ANTA/ES AND DISAD2ANTA/ES OF

INDUSTRIA+I,ATION OF SER2ICE FIRMS

or developing countries, the growing internationali3ation of services and rapid technological change

in 2T present both opportunities and challenges. There are opportunities for developing new e6ports

and attracting more services-related foreign investment. Technological progress will allow countries

to leapfrog stages of development in building their info-infrastructures, thans to technological

discontinuities "e.g., the emergence of digital networs$. 8ne challenge facing the developing

countries is the design of appropriate regulatory environments for service industries. ccess to

efficient services matters not only because it creates the potential for new e6ports but also because it

will be an increasingly important determinant of economic productivity and competitiveness. 8ther

challenges include undertaing necessary investments in modern 2T networs and adapting

educational systems to the information age.

The internationali3ation of services is not limited to the modes of supply associated with international

trade. &ommercial presence abroad "through foreign direct investment "C2$, representative offices,

or branches$ remains the preferred mode of supply for many services. Trade in services tends to be

complementary to C2 in general. s C2 occurs, transactions in long-distance services "such as

communications services and technical advice$ and movements of service providers "intracorporate

transfers$ e6pand. %ince the mid-1!0s, C2 flows have increased at a much faster pace than global

trade and output "inflows into developing countries, for e6ample, have increased by more than 15

percent per year$, and the fastest-growing component of C2 flows has been that related to service

industries. The prospects for continuing internationali3ation of services through C2 are good.

Cemand for modern producer services is growing fast all over the world. ;egulatory barriers to entry

in service industries are being reduced, either through unilateral reforms or reciprocal negotiations.

Ceveloping countries increasingly are looing upon C2 in services as an especially powerful means

of transferring technical and managerial now-how. =oreover, 2T is increasing the appeal of

transnationali3ation for service firms.

'0



5. O*ERATIONS MANA/EMENT IN INTERNATIONA+ FIRMS

O!erations mana-ement is an area of business that is concerned with the production of good Auality

goods and services, and involves the responsibility of ensuring that business operations are efficient

and effective. 2t is the management of resources, the distribution of goods and services to customers.

/2&% The ssociation for 8perations =anagement also defines operations management as Fthe field

of study that focuses on the effectively planning, scheduling, use, and control of a manufacturing or

service organi3ation through the study of concepts from design engineering, industrial engineering,

management information systems, Auality management, production management, inventory

management, accounting, and other functions as they affect the organi3ationF.P1Q

dditionally, The Operations Management Body of Knowledge "8=?8#$ ramewor defines thescope of operations management and the activities and techniAues that are a part of the operations

management profession.P'Q

8perations also refers to the production of goods and services, the set of value-added activities that

transform inputs into many outputs.P(Q undamentally, these value-adding creative activities should be

aligned with maret opportunity "see =areting$ for optimal enterprise performance.

UNDERSTANDIN/ O*ERATIONS MANA/EMENT

&onsider the ingredients of your breafast this morning. :nless you live on a farm and produced

them yourself, they passed through a number of different processing steps between the farmer and

your table and were handled by several different organisations. %imilarly, your morning newspaper

was created and delivered to you through the interactions of a number of different organisations.

9very day, you use a multitude of physical obKects and a variety of services. =ost of the physical

obKects have been manufactured and most of the services have been provided by people in

organisations. )ust as fish are said to be unaware of the water that surrounds them, most of us give

little thought to the organisational processes that produce these goods and services for our use. The

study of operations deals with how the goods and services that you buy and consume every day are

produced.

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http://en.wikipedia.org/wiki/Business_operations

http://en.wikipedia.org/wiki/Efficient

http://en.wikipedia.org/wiki/Effective

http://en.wikipedia.org/wiki/APICS_The_Association_for_Operations_Management

http://en.wikipedia.org/wiki/Design_engineering

http://en.wikipedia.org/wiki/Industrial_engineering

http://en.wikipedia.org/wiki/Management_information_systems

http://en.wikipedia.org/wiki/Quality_management

http://en.wikipedia.org/wiki/Production_management

http://en.wikipedia.org/wiki/Inventory_management


http://en.wikipedia.org/wiki/Accounting

http://en.wikipedia.org/wiki/Operations_management#cite_note-0



http://en.wikipedia.org/wiki/Marketing

http://en.wikipedia.org/wiki/Business_operations

http://en.wikipedia.org/wiki/Efficient

http://en.wikipedia.org/wiki/Effective

http://en.wikipedia.org/wiki/APICS_The_Association_for_Operations_Management

http://en.wikipedia.org/wiki/Design_engineering

http://en.wikipedia.org/wiki/Industrial_engineering

http://en.wikipedia.org/wiki/Management_information_systems

http://en.wikipedia.org/wiki/Quality_management

http://en.wikipedia.org/wiki/Production_management



http://en.wikipedia.org/wiki/Accounting




http://en.wikipedia.org/wiki/Marketing



5.1. O*ERATIONS6 O*ERATIONS MANA/EMENT AND O*ERATIONS

MANA/ERS

5.1.1 The histori"al %evelo!ment o# o!erations mana-ement

8perations in some form has been around as long as human endeavour itself but, in manufacturing at

least, it has changed dramatically over time, and there are three maKor phases - craft manufacturing,

mass production and the modern period. +et4s loo at each of these briefly in turn.

Cra#t man$#a"t$rin-

&raft manufacturing describes the process by which silled craftspeople produce goods in low

volume, with a high degree of variety, to meet the reAuirements of their individual customers. 8ver

the centuries, sills have been transmitted from masters to apprentices and Kourneymen, and

controlled by guilds. &raftspeople usually wored at home or in small worshops. %uch a systemwored well for small-scale local production, with low levels of competition. %ome industries, such

as furniture manufacture and clocmaing, still include a significant proportion of craft woring.

Mass !ro%$"tion

2n many industries, craft manufacturing began to be replaced by mass production in the 1th century.

=ass production involves producing goods in high volume with low variety R the opposite of craft

manufacturing. &ustomers are e6pected to buy what is supplied, rather than goods made to their own

specifications. /roducers concentrated on eeping costs, and hence prices, down by minimising the

variety of both components and products and setting up large production runs. They developed

aggressive advertising and employed sales forces to maret their products.

n important innovation in operations that made mass production possible was the system of

standardised and interchangeable parts nown as the Smerican system of manufacture’ "Dounshell,

1!$, which developed in the :nited %tates and spread to the :nited #ingdom and other countries.

2nstead of being produced for a specific machine or piece of eAuipment, parts were made to a

standard design that could be used in different models. This greatly reduced the amount of wor

reAuired in cutting, filing and fitting individual parts, and meant that people or companies could

specialise in particular parts of the production process. second innovation was the development by

rederic Taylor "111$ of the system of 4scientific management’, which sought to redesign Kobs using

similar principles to those used in designing machines. Taylor argued that the role of management

was to analyse Kobs in order to find the Sone best way’ of performing any tas or seAuence of tass,

''



rather than allowing worers to determine how to perform their Kobs. ?y breaing down activities into

tass that were seAuential, logical and easy to understand, each worer would have narrowly defined

and repetitious tass to perform, at high speed and therefore with low costs "#anigel, 1$.

third innovation was the development of the moving assembly line by Denry ord. 2nstead of

worers bringing all the parts and tools to a fi6ed location where one car was put together at a time,

the assembly line brought the cars to the worers. ord thus e6tended the ideas of scientific

management, with the assembly line controlling the pace of production. This completed the

development of a system through which large volumes of standardised products could be assembled

by unsilled worers at constantly decreasing costs R the apogee of mass production.

The mo%ern !erio%

=ass production wored well as long as high volumes of mass-produced goods could be produced

and sold in predictable and slowly changing marets. Dowever, during the 1>0s, marets becamehighly fragmented, product life cycles reduced dramatically and consumers had far greater choice

than ever before.

n unforeseen challenge to Western manufacturers emerged from )apan. Eew )apanese production

techniAues, such as total Auality management "TJ=$, Kust-in-time ")2T$ and employee involvement

were emulated elsewhere in the developed world, with mi6ed results.

=ore recently, the mass production paradigm has been replaced, but there is as yet no single approach

to managing operations that has become similarly dominant. The different approaches for managing

operations that are currently popular include<

• Flexible specialisation "/iore and %abel, 1!$ in which firms "especially small firms$

focus on separate parts of the value-adding process and collaborate within networs to

produce whole products. %uch an approach reAuires highly developed networs, effective

processes for collaboration and the development of long-term relationships between firms.

• Lean production "Womac et al., 10$ which developed from the highly successful

Toyota /roduction %ystem. 2t focuses on the elimination of all forms of waste from a

production system. focus on driving inventory levels down also e6poses inefficiencies,

reduces costs and cuts lead times.

• Mass customisation "/ine et al., 1($ which sees to combine high volume, as in mass

production, with adapting products to meet the reAuirements of individual customers.

'(



=ass customisation is becoming increasingly feasible with the advent of new technology

and automated processes.

• Agile manufacturing "#idd, 1$ which emphasises the need for an organisation to be

able to switch freAuently from one maret-driven obKective to another. gain, agile

manufacturing has only become feasible on a large scale with the advent of enabling

technology.

2n various ways, these approaches all see to combine the high volume and low cost associated with

mass production with the product customisation, high levels of innovation and high levels of Auality

associated with craft production.

5.1.) The role o# the o!erations mana-er

%ome people "especially those professionally involved in operations management$ argue that

operations management involves everything an organisation does. 2n this sense, every manager is an

operations manager, since all managers are responsible for contributing to the activities reAuired to

create and deliver an organisation4s goods or services. Dowever, others argue that this definition is too

wide, and that the operations function is about producing the right amount of a good or service, at the

right time, of the right Auality and at the right cost to meet customer reAuirements.

%o operations managers are responsible for managing activities that are part of the production of

goods and services. Their direct responsibilities include managing both the operations process,

embracing design, planning, control, performance improvement, and operations strategy. Their

indirect responsibilities include interacting with those managers in other functional areas within the

organisation whose roles have an impact on operations. %uch areas include mareting, finance,

accounting, personnel and engineering.

8perations managers4 responsibilities include<

• Human resource management R the people employed by an organisation either wor

directly to create a good or service or provide support to those who do. /eople and theway they are managed are a ey resource of all organisations.

• Asset management R an organisation4s buildings, facilities, eAuipment and stoc are

directly involved in or support the operations function.

• Cost management R most of the costs of producing goods or services are directly related to

the costs of acAuiring resources, transforming them or delivering them to customers. or

many organisations in the private sector, driving down costs through efficient operations

'



management gives them a critical competitive edge. or organisations in the not-for-profit

sector, the ability to manage costs is no less important.

Cecision maing is a central role of all operations managers. Cecisions need to be made in<

• designing the operations system

•

managing the operations system

• improving the operations system.

The five main inds of decision in each of these relate to<

1. the processes by which goods and services are produced

'. the Auality of goods or services

(. the Auantity of goods or services "the capacity of operations$

. the stoc of materials "inventory$ needed to produce goods or services

5. the management of human resources.

5.) THE TRANSFORMATION MODE+

5.).1 The trans#ormation mo%el

The discussion above has highlighted the role of operations in creating and delivering the goods and

services produced by an organisation for its customers. This section introduces the transformation

model for analysing operations. This is shown in igure 1, which represents the three components of

operations< inputs, transformation processes and outputs. 8perations management involves the

systematic direction and control of the processes that transform resources "inputs$ into finished goods

or services for customers or clients "outputs$. This basic transformation model applies eAually in

manufacturing and service organisations and in both the private and not-for-profit sectors.

igure 1 The transformation model

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http://openlearn.open.ac.uk/mod/resource/view.php?id=161697#FIG001_001




5.).) In!$ts

%ome inputs are used up in the process of creating goods or services* others play a part in the creation

process but are not used up. To distinguish between these, input resources are usually classified as<

• transformed resources R those that are transformed in some way by the operation to

produce the goods or services that are its outputs

• transforming resources R those that are used to perform the transformation process.

2nputs include different types of both transformed and transforming resources.

Three types of resource that may be transformed in operations are<

• materials R the physical inputs to the process

• information that is being processed or used in the process

• customers R the people who are transformed in some way.

=any people thin of operations as being mainly about the transformation of materials or

components into finished products, as when limestone and sand are transformed into glass or an

automobile is assembled from its various parts. ?ut all organisations that produce goods or services

transform resources< many are concerned mainly with the transformation of information "for e6ample,

consultancy firms or accountants$ or the transformation of customers "for e6ample, hairdressing or

hospitals$.

alloway "1!$ defines operations as all the activities concerned with the transformation of

materials, information or customers.

The two types of transforming resource are<

• staff R the people involved directly in the transformation process or supporting it

• facilities R land, buildings, machines and eAuipment.

The staff involved in the transformation process may include both people who are directly employed

by the organisation and those contracted to supply services to it. They are sometimes described asSlabour’. The facilities of an organisation R including buildings, machinery and eAuipment R are

sometimes referred to as Scapital’. 8perations vary greatly in the mi6 of labour and capital that mae

up their inputs. Dighly automated operations depend largely on capital* others rely mainly on labour.

'@



5.). O$t!$ts

The principal outputs of a doctor4s surgery are cured patients* the outputs of a nuclear reprocessing

plant include reprocessed fuel and nuclear waste. =any transformation processes produce both goods

and services. or e6ample, a restaurant provides a service, but also produces goods such as food and

drins.

5.).5 Trans#ormation !ro"esses

transformation process is any activity or group of activities that taes one or more inputs,

transforms and adds value to them, and provides outputs for customers or clients. Where the inputs

are raw materials, it is relatively easy to identify the transformation involved, as when mil is

transformed into cheese and butter. Where the inputs are information or people, the nature of the

transformation may be less obvious. or e6ample, a hospital transforms ill patients "the input$ intohealthy patients "the output$.

Transformation processes include<

• changes in the physical characteristics of materials or customers

• changes in the location of materials, information or customers

• changes in the ownership of materials or information

• storage or accommodation of materials, information or customers

• changes in the purpose or form of information

• changes in the physiological or psychological state of customers.

8ften all three types of input R materials, information and customers R are transformed by the same

organisation. or e6ample, withdrawing money from a ban account involves information about the

customer4s account, materials such as cheAues and currency, and the customer. Treating a patient in

hospital involves not only the Scustomer4s’ state of health, but also any materials used in treatment and

information about the patient.

8ne useful way of categorising different types of transformation is into<

• manufacture R the physical creation of products "for e6ample cars$

• transport R the movement of materials or customers "for e6ample a ta6i service$

• supply R change in ownership of goods "for e6ample in retailing$

'>



• service R the treatment of customers or the storage of materials "for e6ample hospital

wards, warehouses$.

%everal different transformations are usually reAuired to produce a good or service. The overall

transformation can be described as the macro operation, and the more detailed transformations within

this macro operation as micro operations. or e6ample, the macro operation in a brewery is maing

beer "igure '$. The micro operations include<

• milling the malted barley into grist

• mi6ing the grist with hot water to form wort

• cooling the wort and transferring it to the fermentation vessel

• adding yeast to the wort and fermenting the liAuid into beer

• filtering the beer to remove the spent yeast

• decanting the beer into cass or bottles.

5.).7 Fee%ba"8

further component of the transformation model in igure 1 is the feedbac loop. eedbac

information is used to control the operations system, by adKusting the inputs and transformation

processes that are used to achieve desired outputs. or e6ample, a chef relies on a flow of information

from the customer, through the waiter, about the Auality of the food. dverse feedbac might lead the

chef to change the inputs "for e6ample by buying better Auality potatoes$ or the transformation process "for e6ample by changing the recipe or the cooing method$.

eedbac is essential for operations managers. 2t can come from both internal and e6ternal sources.

2nternal sources include testing, evaluation and continuously improving goods and services* e6ternal

sources include those who supply products or services to end-customers as well as feedbac from

customers themselves.

5. THE 'OUNDAR9 OF THE O*ERATIONS S9STEM

5..1 The bo$n%ar& o# the o!erations s&stem

The simple transformation model in igure 1 provides a powerful tool for looing at operations in

many different conte6ts. 2t helps us to analyse and design operations in many types of organisation at

many levels.

'!





5.. Insi-hts #or Mana-ers

The wor processes perspective has led to a number of important insights for managers. 2t provides

an especially useful framewor for addressing a common organi3ational problem< fragmentation, or

the lac of cross-functional integration. =any aspects of modern organi3ations mae integration

difficult, including comple6ity, highly differentiated sub-units and roles, poor informal relationships,

si3e, and physical distance. 2ntegration is often improved by the mere acnowledgment of wor

processes as viable units of analysis and targets of managerial action. &harting hori3ontal wor flows,

for e6ample, or following an order through the fulfillment system, are convenient ways to remind

employees that the activities of disparate departments and geographical units are interdependent, even

if organi3ation charts, with their vertical lines of authority, suggest otherwise.

2n addition, the wor processes perspective provides new targets for improvement. ;ather than

focusing on structures and roles, managers address the underlying processes. n obvious advantage is

that they closely e6amine the real wor of the organi3ation. The results, however, have been mi6ed,

and e6perts estimate that a high proportion of these programmes have failed to deliver the e6pected

gains.

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7. CASE STUD9

7.1 INTERNATIONA+ISATION OF THE INDIAN +E/A+ SER2ICES

MAR:ET

2ndian maret is growing and many multi national companies have opened up offices in 2ndia in the

recent past. Eearly half of the fortune five hundred companies in 2ndia have either opened their

offices or their call centres. 2ndian companies are taing over companies abroad. With estimates of

annual growth ranging between > and per cent, 2ndia’s economy is one of the fastest-growing in the

world. 9ven more importantly, the type of economic activity that oreign +aw irms are liely to

profit from- such as large cross border deals- is growing even faster. greater number of foreign

clients are now involved in 2ndian transactions, too, which is why these firms want to establish a

stronghold in 2ndia, to better serve their clients.

The 2ndian ?ar &ouncil has imposed restrictions on the activities of foreign law firms in recent years

that have sharply curtailed participation of foreign law firms in the 2ndian legal services maret. 2ndia

reAuires that anyone wishing to practice law must enroll as a member of the ?ar &ouncil and if that

person happens to be a foreign national then he must belong to a country that allows 2ndian nationals

reciprocal rights to practice in their country. oreign Cirect 2nvestment is not permitted in this sector,

and international law firms are also not authori3ed to open offices in 2ndia. oreign services providers

may be engaged as employees or consultants in local law firms, but they cannot sign legal documents,

represent clients, or be appointed as partners.

2n 1, two Eew Lor-based and one +ondon-based law firm had sought permission from the

;eserve ?an of 2ndia ";?2$ to begin liaison office activities in 2ndia to advise and assist non-2ndian

clients in connection with their activities in 2ndia and outside 2ndia. The three law firms, White N

&ase "Eew Lor$, &hadbourne N /are "Eew Lor$ and shurst =orris &risp ":nited #ingdom$

were granted permission under the oreign 96change ;egulation ct "9;$ to start liaison

activities. Dowever, in 15, +awyers’ &ollective, a public interest trust set up by lawyers to providelegal aid, moved ?ombay Digh &ourt challenging the right of foreign law firms to Upractice lawV in

2ndia. The Digh &ourt had held that the practices engaged by these firms amounted to Upracticing the

lawV and hence were not to be permitted. The oreign +aw irms had challenged this Kudgment to the

%upreme &ourt, which remanded the case bac to the Digh &ourt to hear and decide. Today there are

about (! Smagic circle’ firms with their liaison offices or referral relationships with their 2ndian

counterparts, while others strie up informal associations.

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Re-$lations

or the purpose of regulating the legal service and the practising of lawyers in the courts the 2ndian

legislature has enacted the dvocates ct which has provisions for the supervision of the legal arena.

%ec. ' of the dvocates ct reAuires that only natural persons who are citi3ens of 2ndia can be

enrolled as dvocates. This section also provides that apart from other provisions contained in the

ct, a national of any other country may be admitted as an advocate on a %tate roll, if citi3ens of

2ndia, duly Aualified, are permitted to practice law in that other country. %ec. (( of dvocates ct<

dvocates alone entitled to practice< 96cept as otherwise provided in this ct or in any other law for

the time being in force, no person shall, on or after the appointed day, be entitled to practice in any

court or before any authority or person unless he is enrolled as an advocate under this ct.

%ec. > of the dvocates ct subKects of any foreign country, which discriminates against the citi3enof 2ndia in the matter of legal practice, shall not be entitled to practice in 2ndia. 2t also empowers the

?ar &ouncil of 2ndia to lay down conditions subKect to which foreign subKects may be recogni3ed for

being enrolled as an advocate.

;ule ' of &hapter 222 under %ec. "1$ "ah$ of the dvocates ct reads as< n dvocate shall not enter

into a partnership or any other arrangement for sharing remuneration with any person or legal

/ractitioner who is not an dvocate.

9ven if a foreigner is allowed certificate of practice law in 2ndia, he has to secure permission from

;?2 if he desires to acAuire foreign e6change and remit the same outside 2ndia under %ec. ' and %ec.

(0 of the oreign 96change ;egulation ct, 1>(. lthough the oreign 96change ;egulation ct

has been repealed we have similar provisions in the oreign 96change =anagement ct, 1 which

is the successor of the previous ct.

%ec.11 of the &ompanies ct provides that a partnership or any other form of association with more

than '0 partners if not registered as a company, shall be an unlawful assembly. Thus 2ndian law firms

cannot have more than '0 partners.

part from all these barriers the legal fraternity in 2ndia is neither too interested in allowing their

foreign counterparts to rub shoulders with them and is Auite adamant and opinionated on the

opposition of the globali3ation of the si6 hundred crore large legal service industry.

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Chan-e is in the air

?ut the winds of change have started blowing and that too in the right direction. The 2ndian

government is planning to liberali3e its stand on the opening of the legal maret and is een on

deciding to mae it a level playing field. There has been a change in the government’s policy and

course of action. The government is in favour of allowing foreign law firms and lawyers to open upoffices in the country, although it has evoed mi6ed reactions amongst the legal fraternity. 2n terms of

professional demand, there is a shortage of legal e6perts to the tune of '', according to a 2&&2

report. The overnment has shown interest in maing +imited +iability /artnerships "++/s$ a reality

in 2ndia and has taen efforts to have an enactment in place to govern it. This would enable foreign

law firms "as well as accounting firms$ to have tie-ups and associate offices in 2ndia and can come

into operation in this manner. The ?ar &ouncil is also looing into the reAuests for rela6ing the

constraints on advertising the legal profession. 2ndia being a signatory to the eneral greement on

Trade in %ervices "T%$, which is an organ of the World Trade 8rgani3ation "WT8$ and whose

obKective is to facilitate free flow of services across the world, is under an obligation to open up the

service sector to =ember Eations and the legal profession is also taen to be one of the services

which is included in T%.

The reasons why the 2ndian legal maret should not be unwrapped to the world are<

!e opening of t!e "ndian legal mar#et is not only pre$udicial to t!e interests of t!e "ndian legal

profession% but liberalisation also !as important implications for t!e nation& !e legal profession is

instrumental to t!e administration of $ustice& o permit foreign lawyers to encroac! on t!is extremely

important aspect of a democracy could be contrary to public interest& A symbiotic system of co'

existence t!at !as succeeded in meeting e(ery need of a client !as always been in place& !is system

!as wor#ed well for decades and t!ere is no reason w!y it will not wor# in t!e future&

7.) INTERNATIONA+I,ATION OF INDIAN SOFTWARE INDUSTR9

While there is no single factor which can e6plain the rapid internationali3ation and growth of 2ndian

software industry. 2n this study various factors are e6amined. This paper e6amines the organi3ation

and si3e of 2ndian software industry, 2ndia’s competitive advantage, global demand for software

talent, the influence of 2ndian diaspora and the emergence of born global firms. 2n the first glance

2ndian software industry is still in its infancy and its si3e is insignificant when compared to that of

:%. urther study reveals the true potential to be the world leader. &ompetitive advantage of 2ndian

((



software industry stems mainly from its highly silled worforce, low cost of silled labor, and deep-

rooted democratic institutions. 2ndia’s success can also be attributed to the global demand for

software development service and shortage of silled personnel abroad. =igration of highly educated

2ndians in early 1>0’s and 1!0’s had established an active and influential community that aided in

rapid growth of 2ndian software industry. /ressure on global firms to lower costs and increase

shareholder value in wae of the dot.com burst created a fertile environment for software outsourcing

and creation of born global firms. 2n conclusion, it can be said that factors that caused the rapid

growth of 2ndian software industry are still very relevant today and will propel 2ndia as a global

power in the nowledge based world.

In%ian So#t0are In%$str&

2ndian software industry had a very late start when compared to :% or 9urope. Let in the last decade,

2ndian software firms have emerged as global powerhouse in computer software development. 2ndian

firms have transformed from a modest coding and body shopping operations to become a global

competitor in a leading edge sector. 2ndian 2T consulting companies are now competing globally with

the established industry giants.

ccording to Eew Celhi based Eational ssociation of %oftware and %ervices &ompanies

"E%%&8=$, a software industry promotion organi3ation, 2ndian software industry had collective

revenue of ;s >,((> &rores or O15.5 ?illion in '00'-'00(. 2n 10, it was only about :%O 150

million P1Q. While this is relatively small when compared to that of :%, growth rate of 2ndian

software industry has been tremendous. The compound annual growth rate "&;$ for 2ndia’s

software e6port revenue over last five years has been as high as @'.(. %oftware e6ports revenue,

according to E%%&8= statistics, for the year '00( is :%O .!>5 ?illion. =aret for 2ndian

software e6ports has been mainly in Eorthern merica, Western 9urope and )apan. Table below

shows the regional breadown of 2ndian e6ports.

Table ;1 In%ia<s So#t0are E(!ort Reven$e

2ndia’s 96ports in :%O %hare in 2ndia’s 96ports

Eorth merica@.@!5 ?illion @>.>

Western 9urope'.10( ?illion '1.(

)apan1( =illion '

(



sia /acific(11 =illion (.'

;est of the World

5!( =illion 5.

Total.!>5 ?illion 100

&lassifying and organi3ing computer software industry is difficult. The industry is not well defined

and is rapidly changing. s a result, the industry is classified according to UverticalV i.e. classification

of customer’s industry group. Table below breas down the 2ndian software e6port revenue based on

vertical areas. This classification helps to understand the e6pertise level and focus of 2ndian software

companies.

Table ;) In%$str& "lassi#ie% a""or%in- to servi"e se-ments

Gerticals /ercentage

?aning, inancial %ervices N 2nsurance (5

=anufacturing 1'

Telecom 9Auipment 1'

overnment 1

;etail

:tilities '

Transportation 1

Telecom service providers (

Dealth &are (

8thers '>

Total 1==>

&lassifying according to revenue, 2ndian software firm fall into three broad categories< bove 10

?illion ;upees, ?etween ;s 1 ?illion to ;s 10 ?illion, and below ;s 1 ?illion, it can be seen that

2ndian software industry has few clear cut leaders and has a large number of small firms. The large

number of firms gives an indication of the breadth of 2ndian software industry, while the verticals

give the depth of 2ndian software talent.

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Table R(< 2ndustry classified according to revenues

Ann$al T$rnover N$mber o# Com!anies in )==

bove ;s 10 ?illion 5

?etween ;s 10 ?illion and ;s 1 ?illion >

+ess than ;s 1 ?illion '>5

%ource< E%%&8= and 2C&

,ote- ) *S +ollar , -s ./0approx1

Internal Stren-ths

2!e real treasure of "ndia is its intellectual capital& !e real opportunity of "ndia is its incredibly

s#illed wor# force& -aw talent !ere is li#e now!ere else in t!e world&3 P'Q

- )ac Welsh, &98, eneral 9lectric

The above statement sums up 2ndia’s comparative competitive advantage in software e6ports.

&ontrary to general perception, 2ndia’s international competitive advantage lies not in low-cost labor-

intensive services, but in sill intensive services as e6emplified by the depth of software segments in

table '. 2ndia’s cost advantage is an obvious factor but it is rapidly diminishing. The wage gap

between 2ndian software professionals and their counterparts’ in the developed world has started to

narrow. 2ndia’s comparative advantage lies in its abundance of silled professionals. :niversities in

2ndia train and graduate world class 9nglish speaing professionals. ccording to :% census bureau

@0,1 engineering undergraduate degrees was granted in :nited %tates in '00(. 2n comparison

2ndian universities granted 1',000 engineering undergraduate degrees in the same period. P(Q 2n

addition 2ndian universities granted more than '50,000 undergraduate degrees in %cience and

=athematics. The number of 2ndian graduates emerging annually is growing at '0 to (0 percent.

%everal ortune 500 companies’ have setup operations in 2ndia to tap into 2ndia’s enormous talent

pool. eneral 9lectric has invested over :%O 100 million in ?angalore to build its largest ;NC lab in

the world. 9 employs more than '@00 scientist including more than 00 with /h.C. degrees. 2n the

early years, 2ndian software firms sent people to customer’s location abroad to do development wor.

This is called as S?ody shopping’. The wor done by 2ndian firms in the early part of 10’s was

mainly simple coding and testing. s time progressed, 2ndian firms acAuired higher sills in software

(@



development and proKect management. Digh sill levels allowed 2ndian software firms to rapidly

move up the value chain from simple coding to complete system design. s the reputation of the

service firms grew, more software development wor is being done in 2ndia to tae advantage of

lower costs. This is being called as Soffshoring’ and will be discussed in detail later.

/olitical environment and democracy has added to 2ndia’s competitive advantage. 2ndia’s deep-rooteddemocratic institutions ensured political stability even when there had been four general elections and

si6 prime ministers in the last decade. overnment intervention in software industry has been

minimal and almost negligible. The industry has been driven by private sector firms that compete in

global marets. 2t would be wrong to conclude that government has played no role in software

industry. The government’s foremost role was in creating a vast networ of educational institutions

and investments in ;NC. 2nvestments in education, especially in engineering, and ;NC labs was

important in creating human capital and infrastructural clusters. The biggest 2T clusters in 2ndia<

?angalore, &hennai, Dyderabad, =umbai, Eew Celhi, and /une are also home to ;NC labs and

publicly funded educational institutions. This is similar to that of :%, where defense related ;NC

created 2T clusters in %ilicon Galley, ?oston, Callas and ustin.

E##e"t o# In%ian Dias!ora

irms from developing countries face reputation as a barrier to entry in e6port marets. ?uyers

abroad have limited information about Auality and service reliability because they have little prior

e6perience in dealing with these firms. ;eputational barriers are especially higher in service sector

such as software. %oftware being an intangible, determination of Auality is conseAuently more

difficult. To mitigate reputational barriers, 2ndian software e6porters have adapted several strategies.

8ne is to form Koint ventures or strategic alliances with customer firms. %econd is to open branches

near customer locations. Third is to list in Eew Lor %toc 96change "EL%9$ or E%CJ. ifth R

the more innovative and successful approach is to tie up with 2ndian Ciaspora. 2ndian Ciaspora has

played a maKor role in 2ndian software e6ports by providing maret information and matching referral

services. The networ increases the informational intensity in international trade and boosting

confidence of :% buyers of 2ndian software services. &ompanies lie 2?=, 2ntel, T2, D/, 9 and

others opened ;NC centers in 2ndia largely because of the confidence in many 2ndians woring in

their :% operations. 9’s 2ndian ;esearch center in ?angalore has filed 5 patents in the :.% since

year '000. P1(Q

Table?5 Chara"teristi"s o# In%ian Dias!ora

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&haracteristic8verseas 2ndians

Eumber N +ocation bout '5 =illion, dispersed across %outheast sia, =iddle 9ast, Eorth merica, 9urope and ustralia

ssets 2n =iddle 9ast N %outheast sia< +ow silled guest worers withmodest incomes and savings

2n :% and 9urope< %alaried professionals in high tech companies,universities, consulting, medical and financial services R theUnowledge diasporaV

%enior positions in ortune 500 companies with individual highnet worth

&ompetencies #nowledge based services

Digh tech startups

Genture financing

Source< #apur N ;amamurti U2ndia’s emerging competitive advantage in services

2ndian diaspora in the :% and 9urope are well represented in nowledge based services such as

health care, education, finance, software, ;NC and management consulting. ew have held top

management positions in ortune 500 firms such as =c#insey, /epsi&o, &omputer ssociates,

:nited irlines, 2ntel, 2?= and /N. 2ndian diaspora have helped diffusion of nowledge to 2ndian

software firms through a variety if mechanisms. 9ither via starting their own firms in 2ndia or by

consultingBadvising them or by returning to 2ndia. 2ndia’s success in software e6ports is in parte6plained by the e6tensive, strategic, informational and reputational role-played by 2ndian diaspora.

So#t0are O$tso$r"in-

8utsourcing of software development to subcontractors in 2ndia is relatively a new development. Ten

years ago, most of the software development was done in the :% at customer’s location. 2ndian

engineers had to come over to the client site to do the development wor. This reduced riss and

simplified proKect management. ?ut as the reputation and capability of 2ndian software developersgrew, more wor was sent off shore i.e. to 2ndia. 8utsourcing software development wor reduces

uncertainty, lowers cost and speed up development.

Re%$"tion in $n"ertaint& 8utsourcing software development reduces uncertainty regarding, proKect

costs, schedule overruns and functional failure. &ontracts for outsourcing can be framed in ways that

(!



all uncertainty regarding the software development is transferred to the subcontractor who is

providing the service.

Asset #le(ibilit& %oftware development is comple6 and need different sills for different types of

proKects. %ubcontracted supplier will have a wider range of sills and nowledge in 2T systems. s

result, customer can gain fle6ibility on its outsourced assets to deliver different types of software for different applications without having to hire or retrain internal staff.

Re!$tation enhan"ement 8utsourcing development wor to a subcontractor depends on the

reputation of the supplier i.e., subcontractor. irms that outsource software development is able to

lower costs and speedup development have seen that its reputation in Wall %treet go up. With the right

suppliers both the firms, the customer and the supplier, will win by outsourcing development wor.

S!ee%in- $! Innovation irms outsource development wor to complement their in-housecapability if developers in 2ndia woring for the subcontractor have the necessary sills for

innovation. 8utsourced services act as e6tended resources for the customer. 2n a world of ever

decreasing product lead times* reducing development time is a maKor benefit. 2ndia offers a time 3one

advantage. 2ndia is twelve time 3ones ahead of the :% and five hours ahead of 9urope. This time

difference allows development wor to go on uninterrupted on a '-hour development schedule for

teams woring in the :% and in 2ndia. =odern telecommunication technology allows transfer of

information instantly to all development centers. Thus allowing part development in the :% or

9urope and part in 2ndia to speed up innovation or software development.

'orn /lobal Firms

2n last few years, world has seen the emergence of a new transnational firms called Uborn lobal

firmsV. ccording to a study by Cr. %. Tamer &avusgil at =ichigan %tate :niversity P1>Q, ?orn global

firms e6hibit international business e6pertise and superior performance.

9mergence of born global firms in 2ndia is due to embedded networ of 2ndian diaspora, 2ndian

entrepreneurs and venture capitalists. The 2ndus 9ntrepreneurs "Ti9$ is one such networed

organi3ation which brings together venture capitalists from the :% and entrepreneurs. ?orn global

firms such as ndale 2nc, =oschip 2nc, &ovansys etc have operations in the :% and 2ndia. 2n '000,

2ndian immigrants in :% founded >' companies and most of them had operations in 2ndia since

inception. P1!Q This phenomenon is also fueled by reverse migration of silled 2ndian developers who

migrated bac to 2ndia and stated their new enterprises.

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?orn global companies from 2ndia and the :% have dual advantages of reputation and access to

capital by operating from the :% and benefit of tapping into silled talent in 2ndia. This new business

model presents an enormous opportunity for 2ndian companies to increase their global e6ports.

&urrently there is no reliable information on the e6port revenues of the born global companies.

2n last few years, the world saw the emergence of 2ndia as a leading software e6porter leading to

internationali3ation of 2ndian software 2ndustry. 2nitial general opinion on 2ndia’s success in software

was attributed to low cost silled labor available in 2ndia. This paper shows that low cost is Kust one

of the factors and cost advantages are diminishing rapidly. The main factors driving

internationali3ation or globali3ation of 2ndian software industry can be split into two groups< 2nternal

factors such as R vailability of silled, reliable and nowledgeable worforce, stable political system

and governmental assistance, and 96ternal actors such as demand for software development in the

:% and 9urope, influence of 2ndian diaspora, popularity of software outsourcing and emergence of

born global firms.

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7. C+IENT A +EADIN/ /+O'A+ STRATE/9 @ MAR:ETIN/

CONSU+TIN/ FIRM

Nat$re o# the !roe"t multinational proKect with survey programming, fieldwor and data

preparation. ieldwor included e6ploratory interviews as well as online surveys.

What 0e %i%

The client gave us the Auestionnaire and we managed all activities in research operations till the

delivery of cleaned and merged data files

We managed the proKect including selection of online panels, recruitment of respondents, selection of

translation house, survey programming and hosting

We ensured that the proKect was completed well within the timelines with high Auality output at every

proKect phase

Deliverables

or e6ploratory interviews< ;ecruited the 2T decision maers as per the hard and soft Auotas

or online surveys< Celivered the clean data files for individual countries and the consolidated data

file for all countries

'ene#its realie% b& the "lientThe client was able to manage their focus on their client engagement and wored on the details of

research design, interpretation and ey conclusions

8ne point contact to manage the operational comple6ities of this multi-country study

&ost savings

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CONC+USION

2t is a Auest of balance of advantage. 2t is a common phenomenon in 2ndia that prior to

liberali3ation of any sector, there is been widespread opposition for e6ample the 2nsurance sector. The

reason for this appear to be that corporate law remains more or less homogenous across borders. Thefact remains that 2ndia is in the process of globali3ing its economy. 2n the process, the legal maret

opening up to competition from the international legal maret is rather inevitable. 2nstead of

deliberating about the advantages and disadvantages of the legal marets being opened up to foreign

firms, it is perhaps more sensible to accept that the entry of foreign firms in 2ndia is only a matter of

time. This should be seen as an opportunity< for the law firms, of competition, and for the graduates,

as a wider range of employment options.

dvocating protectionism is taing a parochial and myopic view. /arochial, because liberali3ation

will only shut-shop for uncompetitive entities, which are a burden on the economy. =yopic because

the long term benefits should be the driving consideration for policy maers. +iberali3ation of

services involves fairly painful short-term adKustment costs, which reAuires that the institutional and

regulatory environment be strengthened before hand. 8nce these are put in place the 2ndian economy

can tae the advantage of entire sian maret both drawing inwards and supplying outwards the

services of legal professionals. 2f 2ndia held bac, it rised Fmissing the boatF on a change that would

give it access to needed legal e6pertise and increase the opportunities for local lawyers to dointernational wor.

The matter regarding entry of foreign firms and lawyers into 2ndia reAuires in-depth

deliberations and should be carefully considered in consultation with the ?ar &ouncil of 2ndia"?&2$,

ll 2ndia ?ar ssociation"2?$, %upreme &ourt ?ar ssociation"%&?$, ?ar ssociation of

2ndia"?2$, %ociety of 2ndian +aw irms"%2+$ and other bodies of the legal profession before a final

decision is taen. 2n the light of the above discussion the following recommendations will be of great

importance and will help the industry to tae it further.

&ompetitive advantage is a position a firm occupies against its competitors.

firm can have competitive advantages over other firms by managing its operations.

The first-mover advantage for sustainable innovations contains royalties for licensing technology*

development of manufacturing abilities that a challenger would be unable to copy or unable to copy

Auicly* a head start on the ne6t generation of technologies, including the creation of proprietary

'



information that would provide competitive advantage. 8nce the firm develops and marets a product

successfully, learning effects would lead to improvements in technology, lower prices, mass marets,

and entry of competitors. 2n the case of Toyota hybrid petrol-electric car, /rius. 2ts competitors, such

as ord =otors, eneral =otors, =ercedes, and /orsche =itigating environmental, health, and safety

impacts of a company is socially responsible and good business. /romoting environmental care can

enhance a company’s image and can bring competitive advantage.

2mproved environmental, health, and safety performance can aid plant-level productivity efforts and

increase revenues and maret share. To gain these positive results, the firm must establish

management systems and tools that integrate environmental, health, and safety metrics with other

process metrics within the company and across the supply chain.

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Internationalization Service Firms

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