The evidences also suggests that FDI is playing an increasing role in the global economy as firms increase their cross border investments. Between 1985 and 1995 the total annual flow of FDI from all countries increased nearly six fold to $135 billion, a growth rate in the world trade The major investors has been U.S, Japanese, and Western European Companies investing in Europe, Asia.
The relative significance of each driver varies by service category. In some instances, there may even be variations by industry.
1. Market globalization drivers:
One factor of particular significance to many service industries is the presence of global customers who demand consistent service from suppliers around the world, and the availability of global channels in the form of fast-developing physical supply chains or electronic networks. As large corporate customers themselves become global, they often seek to standardize and simplify the suppliers they use in different countries for a wide array of business-to- business services.
A related trend can be found among some of the people-processing services used by international business travellers and tourists, who often feel more comfortable with predictable standards of performance worldwide for such travel-related services as airlines and lodging.
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In possession-processing services, the development of global logistics capabilities by firms such as Federal Express has encouraged a number of manufacturers to outsource responsibility for their logistics function to a single firm, which then coordinates transportation and warehousing operations around the world.
2. Competition drivers:
These exercise a powerful force in many service industries. To the extent that customers who operate around the world are known to value global provision of services, a firm may be obliged to follow its competitors into new markets in order to protect its position in existing markets.
Similarly, once a major player moves into a new foreign market, a scramble for territory among competing firms may ensue, particularly if the preferred mode of expansion involves purchasing or licensing the most successful local firms in each market.
3. Technology drivers:
For information-based services, the growing availability of broadband telecommunication channels, capable of moving vast amounts of data at great speed, is playing a major role in opening up new markets. Access to the Internet or World Wide Web is accelerating around the world.
But there may be no need to duplicate all informational elements in each new location. Significant economies may be gained by centralizing “information hubs” on a global basis. It may also be advantageous to take advantage of favorable labour costs and exchange rates by consolidating operations of supplementary services (such as reservations) or back office functions (such as accounting) in just one or a few selected countries.
4. Cost drivers:
The effect of these drivers varies according to the level of fixed costs required to enter an industry and the potential for cost efficiencies. Lower operating costs for telecommunications and transportation, accompanied by improved performance, serve to facilitate entry into global markets.
Barriers to entry caused by the upfront cost of equipment and facilities may be reduced by such strategies as equipment leasing (as in airlines), seeking investor-owned facilities such as hotels and then selling them on management contracts, or awarding franchises to local entrepreneurs.
However, cost drivers may be less applicable for services that are primarily people based and so require recreating most element of the “service factory” in multiple locations. Under such circumstances, scale economies tend to be lower and experience curves relatively flatter. In service business on which new product development costs are low, cost drivers are also likely to be less significant.
5. Government drivers:
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We can expect government drivers to be more favourable for people- processing and possession-processing services that require a significant local presence, because these services can create local employment opportunities. In contrast, governments often impose regulations to protect home-based services, such as passenger and freight transportation, from attacks by foreign carriers operating on the same routes.
A typical action involves restricting foreign airline’s landing rights or their ability to pick up passengers at an intermediate stop on a scheduled flight between two other countries.
If transportation services are easily exported, information-based services are even more so. Data, after all, can move around the world almost instantaneously through electronic channels. Governments can play an important role in requiring adoption of internationally compatible technical standards.
However, unrestricted imports of services in categories ranging from entertainments to finance are often seen as both an economic and cultural threat. Hence such government actions as regulating international banking (widely practiced), banning private ownership of satellite dishes (already implemented in China, Iran, Singapore and Saudi Arabia), or seeking to limit access to services on the Internet.
6. Overall Assessment of Drivers:
Are some types of services more easily driven to globalize than others? Looking at the summary in Table 23.1, we can see important variations in the impact of each of the five groups of drivers. However, government drivers, expressed in terms of economic policy, regulation, and protections, are often specific to individual industries. Hence it’s important to evaluate globalization drivers at the level of individual industries, as well as in terms of broader service categories.
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