Internationalization of Service Firms

What is Internationalization?
The growing significance of trade, relations, alliances,
etc. between or among nations. The process of increasing involvement of enterprises in international markets.

What is a Service Firm?

A service firm is a business that makes its facilities available to others for a fee.

Examples:
Wipro Infosys Tech-Mahindra IBM Satyam BPO Limited

Types of Service Firms

Professional Service Firms

Financial Service Firms

Professional Service Firms

Firms of infrequent, technical or unique functions performed by independent contractors or by consultants. Provides services like Accountancy, business consultancy etc.

Financial Service Firms

Financial service firms are those who provide economic services i.e managing money. Includes banks, insurance companies, consumer finance companies, stock brokerages etc. Examples: Bajaj capital limited, DSP Merrill Lynch Limited.

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BANKS: Keeping money safe while also allowing withdrawals when needed. Issuance of cheque books so that bills can be paid and other kinds of payments can be delivered by post. Issuance of credit and debit cards.

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Allow financial transactions at branches or by using Automatic Teller Machines (ATMs). Provide wire transfers of funds and Electronic Fund Transfers between banks. Accepting the deposits from customer and provide the credit facilities to them.

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FOREIGN EXCHANGE SERVICES Provided by many banks abroad the world. Includes:
Currency Exchange Foreign Currency Banking Wire Transfer

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INSURANCE SERVICES Insurance Brokerage
Insurance Brokers shop for insurance on the behalf of customers.

Insurance Underwriting
Activities include life insurance, health insurance, retirement insurance, property insurance.

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OTHER FINANCIAL SERVICES Advisory Services
Stock brokers.

Angel Investment
An angel is an individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.

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Conglomerates
Firm that is active in more than one sector of the financial services market e.g. life insurance, general insurance, health insurance, asset management, retail banking, investment banking, etc.

Debt Resolution
A consumer service that assists individuals that have too much debt to pay off as requested, but do not want to file bankruptcy and wish to pay off their debts owed.

Internationalization of Service Firms

Firms become international when they extend their activities into overseas markets.

Greater is their involvement, greater is the level of internationalization.

Internationalization appears to be the dominant strategic objective for many large business service firms seeking continued growth.

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Firms initially tend to extend their geographical reach in the national market prior to international expansion. In some cases, firms become internationally active prior to extension to national coverage.

Modes of Internationalization
4 modes of internationalization: Mode I:
It refers to those cases in which the service provider is located in one country and the consumer in another, without any of both needing to move.

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Mode II:
Refers to consumption of a given service abroad.

It includes tourism, travel, cultural events etc.

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Mode III:
Refers to cases in which companies of a given country provide services in another one, either through subsidiaries, by participating in local companies or setting up own staff.

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Mode IV:
It requires presence of natural persons and relates to those cases in which an individual goes to another country to provide service to consumers.

Internationalization of professional service firms

The fastest growing sector is knowledge-based services (e.g. engineering, architectural, education, information technology, biotechnology ) which have grown at an average annual rate of 10% to 12% over several years. Most researchers agree that professional service firms must enter a foreign market all at once through different forms of foreign direct investment (FDI).

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Examples
Capgemini Deloitte (Deloitte Touche Tohmatsu Limited)

Why do Professional Service Firms internationalize?

Multilateral Agreements: GATS is often referred as the starting shot for services internationalisation.

Globalization: Global networking developments lead to more emphasis on services and blurring of industrial boundaries in professional services.

Internationalization of Financial Service firms

Important for strengthening and liberalizing financial systems in developing countries.

Driving Factors:
Cross-border information flows Common international standards Linking infrastructures cross borders

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Examples
World bank

Deutsche bank

Internationalization of Indian Service Firms

Contribution to Indian economy: 55.2% share in GDP Services exports increase: 2004-05 : 22.2% 2008-09 : 25.3% 2009-10 : 16.6% 2010-11 : 27.4%

Services Sector: International Comparison

Barriers in the way of internationalization of service firms

Using inputs for producing services

Promoting the offered product

Distribution of services to users

Services sale

Ways to overcome barriers

Providing international levels of service quality. Legal formalities. Partnerships and alliances.

INTERNATIONALISATION OF SERVICES BY TATA

TATA
Indias largest conglomerate and in fact one of the emerging worlds largest MNCs. Tata Sons and TIL (Tata Industries Limited) two promoter companies.
Tata Sons established in 1868 for promoting and managing all major Tata companies until 1970. TIL established by Tata Sons as a managing agency for business it promoted.

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In 1950s, various Tata companies cooperated with foreign partners such as Daimler Benz and the World Bank. Tata International established in 1962.
Offers value-added services in international trading focused on leather and engineering.

Has its subsidiaries worldwide.

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Tata Limited in London has become an agent for the global procurement of services for the entire Tata Group. Tata International AG, trading subsidiary, Tata AG, and associate, Tata Enterprises (Overseas) AG promote and invests in various enterprises and projects overseas. Tata Tea acquired Tetley in a US$432 million leveraged buyout that was the largest takeover of a foreign company by an Indian one to that date.

Conclusion
Internationalization of service firms a good one provided a firm takes into consideration both the positive and negative aspects. A good platform for local firms to work at global level.

BIBLIOGRAPHY
http://www.wto.org/english/tratop_e/serv_e/s_negs_e.htm http://www.wto.org/english/tratop_e/serv_e/finance_e/fina nce_e.htm http://eprints.qut.edu.au http://indiabudget.nic.in http://en.wikipedia.org/wiki/Professional_services