Service: Meaning and Concept | International Business

After reading this article we will learn about:- 1. Meaning of Service 2. The Concept of Service 3. The Service as the Convenience Factor 4. Identity and Scope of the Service Sector 5. The Service Providers and Receivers 6. Service as a Commodity 7. International Trade and the Service Sector Industry 8. The Human Element in the Service Industry 9. The Quality Aspect of Service 10. Global Trading as a Service.

Contents:

Meaning of Service
The Concept of Service
The Service as the Convenience Factor
Identity and Scope of the Service Sector
The Service Providers and Receivers
Service as a Commodity
International Trade and the Service Sector Industry
The Human Element in the Service Industry
The Quality Aspect of Service
Global Trading as a Service

1. Meaning of Service:

Service and human efforts are like light and shade both have been together for centuries. It had dominated the society in all walks of our lives. Services are a large part of our economy. It is an activity. Goods in any form are meant to add comfort in our activities. Service comes to play its role in between the goods and the consumers.

It can serve the goods producers, it can serve the goods to the market place, it can serve the customers, it can take the customers to the market, it can bring the manufacturers to the customers and vice versa. If it can do so many things than what is service? Many people have tried to define it but so far no perfect definition has been found to completely define it.

In general it has four basic elements:

i. Intangibility.

ii. Heterogeneity.

iii. Inseparability.

iv. Perishability.

Any service will have a mixture of these four factors in varying shades. It is like an umbrella, covering the producers and the consumers. As a matter of fact we can say that the industrial, economic, social, political, education etc. all have been servitized in one way or the other.

There are two things about it, that it cannot be stored or touched. This is its absolute truth and yet it is the most potent of all promotional activities for attracting and retaining the customers, and for capturing the markets.

It is the strongest instrument for identification, isolation, and annihilation of the competitor and competition between the company and the customer. It can help change the cycle of perceptions between the three main players in the market viz. The manufacturers, the consumers and the competitors. It can also redefine and re-align their expectations.

2. The Concept of Service:

The word service simply refers to an act that one performs for another. It gives added comfort to the other person. In business terms it would mean providing solutions, qualitatively and functionally through tangible means with high degree of reliability, and responsibility in return for specific direct or indirect gains.

In other words doing something for some body in return for specific direct or indirect gains with total mutual satisfaction.

Service is highly subjective issue, but the providers of quality service tend to develop specific business oriented personality traits that highlight their responsiveness to the customer’s needs in a highly reassuring manner with total empathy towards the customers. This concept is based on the needs and expectations of the customers.

The need factor in generic and basic to the requirements but expectations factor is sensitive and varies from customer to customer. Some demanding customers expect unconditional servitude from the service provider irrespective of what he intends to pay for or has contracted for the net sum of the package that is to be delivered to him.

On the other hand there are customers that gets satisfaction when their basic needs are fulfilled and if any additional doze of responsiveness and assurance is offered by the provider they feel happy and satisfied.

This factor “expectation” has no limits and the service provider has to have empathic attitude in tune with the customer’s expectations to let them feel satisfied for what they got against what they demanded and expected.

The service quality oscillates between the expectations of the customers at one end and professional flexibility and capability of the service provider at the other end. The provider has to adjust the pitch in such a way that what he provides at least reaches the lower but acceptable limits of the perceived expectations of the customer.

This limit can be progressively up graded as the business develops and mutual trust begins to set in between the two parties, but if the limit is set at maximum limit at the beginning of the business, than as far as the customer is concerned he would take it as his minimum limit for future transactions which may cause concern and hardship to the other party.

Service is an integral part of the international business and it is also an essential factor of the marketing mix.

If we treat service as a product than we can apply the Quality, productivity and efficiency norms to it and it becomes easier to define the Service Marketing. In its scope it extends beyond the marketing mix for the products and includes the people and processes as well.

The industrial revolution has brought a number of products to the consumer segment that both now depend on specialized service companies either to push their products or to position them for the consumers for making the final kill.

Between the producer and the consumer a whole range of specialized service organizations have come up like the distribution sector, the financial sector, advertisers, the packers, the transports, the research & development etc. Major part of the international trade is dominated by the service sector and more people are employed in this sector than the manufacturing sector.

All have a role to play in the present market situation. But the service providers play the most important role for they provide the service that not only moves the goods from the producers to the consumers but also increases the convenience for doing so.

This convenience factor at the market place provides a return loop to the service provider indicating the satisfaction level. This satisfaction level is the propelling force that motivates the service providers for better performance.

3. The Service as the Convenience Factor:

When we talk about service we must ask ourselves ‘service for what.’ This simple question can answer and clear our direction and meaning of service. The service is rendered for improving the Convenience Factor of doing things. If a service cannot improve the CF then it cannot be termed as any kind of service. The need for being comfortable revolves around our life at work and home & leisure.

The study of convenience Factor for home and leisure is beyond the scope of this study and we will focus on the service factor for creating a suitable mix of CF for our activities at work.

We generally do three basic activities at work i.e. Buying, Producing, and Selling. Let us indicate them as BSP for further discussions. A number of activities are also associated with them and revolve around repeatedly in a cyclic action for any business operation.

These BPS activities can be for consumer items or for items, which make the consumer items. The basic items that make the ultimate consumer items are the metals, chemicals, and the fiber. These get value addition through various processes to take the form of consumable and consumer items.

The trading services helps to bring in the “Convenience Factor” for the processing industry, the products, also for the movement of products in the market to reach out for the ultimate consumers.

The whole process passes through three phases:

Phase 1:

Arrangement for the basic materials.

Phase 2:

Processing activities to convert the basic materials into products.

Phase 3:

The market and the consumption place for the products.

The service element adds the CF at all the three phases. It can assist the procurement of the raw materials, components, and intermediary’s etc. at phase-1 very competitively, continuously and conveniently.

It can also arrange the technology plant and equipment to make the production process most effective for phase 2. Lastly, at phase 3, it can assist in the transfer of products to the consumption points in the markets most efficiently and economically.

Thus the service sector in general covers a very large part of economic activities whether production, consumption, distribution, finance, politics, demography, science and technology, work and entertainment, disease and treatment, research and development etc. All these activities will be hard to survive if they were not serviced by the service sector in one form or the other.

4. Identity and Scope of the Service Sector:

The service sector itself is an industry. It serves more people then the manufacturing industry. Within service industry the segment representing the trading sector takes the most prominent place. This sector has the capacity capability to make use of other services from producers to the buyers. In its most advanced stage it takes the role of a “Manufacturer Without Factory” status.

If we study the flow of goods from the manufacturers to the consumers we will find a number of activities are involved for completing the transaction or transformation. Most of these have direct bearing on both, the manufacturers and consumers.

The service segment covers a wide area of associated business activities, most important of which are:

i. Communication services,

ii. Transportation services,

iii. Distribution services,

iv. Legal services,

v. Insurance services,

vi. Research and development services,

vii. Government support services,

viii. Banking services,

ix. Advertisement and sales promotional services, and

x. Education and training services.

These service activities actually form a network, which renders support to the producer and the consumer and is directed towards the ultimate consumer. The communication service segment assists in the exchange of business transaction. The transport services assists in the movement of goods and materials to and from the producers and the consumer irrespective of the geographical locations.

The distribution services assists in the easy availability of goods to the consumers. The legal services assist in providing protection. Insurance services assists in covering up against any misfortunes. Banking services assists for the financing investment and growth research and development.

Services in the invention and innovation for beating the competition and for remaining a step ahead of them, governmental services assists in the creation of infrastructure guidance and creating safe environment for working, advertisement and promotion assists in positioning and reaching out to the consumers in the market and the education and training services in creating and providing the required man power etc.

In brief this “service network” provides support to the producers to produce and to the consumers to consume in the most effective and efficient way. This “service network” is not so simple as it looks rather it very intricate and complex in its operational form. Each element of this network is a business identity in itself and in collective form it constitutes an industry larger than the related industry.

This network need not be confined to one production sector but it covers up a number of them depending upon the capacity of the particular segment. Larger the segment larger would be the industry that it would serve. This service industry tends to reach uniformity of operations depending on the developmental stage of the country.

More advanced or developed countries have more developed and uniform service segment and least developed one have the least because of the need factor. In case of highly developed countries the volume of goods to be exchanged is larger and they need an efficient service segment to service the products in relation to time and costs.

The service and the manufacturing industries have certain degree of correlation to each other and both depend on each other’s strength. No country with developed manufacturing base can afford not to have the developed service industry as well.

But as the service industry is much larger in its operational phase so it tends to look beyond the man-made boundaries and interacts in different geographical areas increasing its reach and operational powers still further. This service sector thus establishes its identity as an indispensable part of the total concept of global industry.

5. The Service Providers and Receivers:

You can sell only if there are buyers, you can produce only if there is consumption, and in the same way you can give service only if there are receivers of that service. The service providers ‘SP’ and service receivers ‘SR’ have a common link of needs. The ‘SP’ exists only because of this need factor.

Trading activities are basically of SP category. They provide services to satisfy the need factor of the recipient or the service receiver. There cannot be any situation in which there are only the SP or the CR. Let us think of a hypothetical situation in which there is no SP and only the SR exists in the market.

One of the largest SR is a manufacturer. As no SP is available so this manufacturer does all the functions by himself, like, procurement of raw materials, processing in to finished goods finally having them delivered to the market for selling directly to the ultimate end users for consumption.

Theoretically this is possible but the ultimate end user would be paying very high cost because he will be paying for the infrastructure and the tied up finance of the SR for the movement of the specific goods.

Not only this but the SR would be creating and maintaining large infrastructure both at the incoming material stage and at the outgoing goods stage, he would also be taking direct risks and expanding time for doing certain activities which otherwise he could have off loaded on to outside organizations.

The SR might not feel the strain if his operations are on a limited scale but as the business grows both internally and in the external markets the SR would be stretching his resources extremely. As the geographical limits of his business increases his operational scope and controls would also increase.

Thus making it more and more difficult for him to control directly. That would be the stage when he would be thinking of bifurcating his operations either product wise or market wise and/or in a hybrid way. This bifurcation can lead to a limited sense of control of his operations but in the present context of global markets the cycle would repeat itself and again he would be in same original starting position.

The need for getting external help for some of the activities would be felt constantly because the problem is not whether he can do all the activities himself but the problem is of costs time and competitiveness as compared to other competitors.

If his competitors can offer same product at lesser costs then he can no longer continue in his solo fashion, he would be compelled by the market realities to seek alternative routs for doing the jobs at lesser costs to beat the competition. One of the times tested method of doing this is to off load some of the activities to external specialized service companies.

These specialize service companies are nothing but SP in the market who can assist him in getting raw materials at competitive prices, in enough quantities and continuously. They can also assist him to market his products in more than one markets.

They can also assist him in market information and competitors’ movements. Thus the hypothetical situation of SR operating alone is not sustainable over longer periods or over larger markets especially in the overseas areas. Hence the SP are an essential segment of the industry and the consumers are better served when the SP and the SR act in unison.

The service provider and receiver are two different identities both have their own preconceived assumptions and expectations. Both view what is given and taken in different ways. The cementing force between them is the price tag. Service at what price and that price for what degree of comfort. To understand relationship let us analyze the situation as faced by the SP and the SR.

Service Receiver:

He has a network of various activities with specific work (Wr), a given time frame (Tr), for a certain volume (VOL) of business, for a known quality (Qr), and at a price (Pr).

Service Provider:

He has a system to take over some of the functions of the work load (Wp), can finish the job of that function in time (Tp) for a volume (Vp) and at a price of (Pp).

From the above two statements we have two sets of variables one with SR (Wr, Tr, Vr, Qr, Pr) and the other with the SP (Wp, Tp, Vp, Qp, Pp).

Now for a given situation the SP and SR can have certain net cost relationship like:

Situation 1: SP<SR

Situation 2: SP > SR

Situation 3: SP = SR

In situation 1, whatever the services that the SP offers are less then the expectations of the SR and in situation 3 they are same. In both these situations the SR has no practical use the services of the SP because either they are less then his expectations or are the same meaning that the net cost of getting the service is the same as would cost him.

However in certain conditions situation 3 can result in some degree of business transaction. If the SR feels that offloading the workload to SP can free him to divert his time for other useful activities. In such a situation the SR would be calculating the time gained in terms of money values.

If the money values thus generated justifies and can be used to pay off to the SP’s fee without causing any net outflow of money values from the SR, in such a situation the SR would be justified to make use of the services of the SP for the conduct of the business.

The second situation in which the SP has the potential to offer more services then what the SR expects, is the ideal situation in which the SP can play a major role. In trading situation conditions per situation no.2 are ideally suited especially in the international business/trading activities.

It has to gear up itself for providing effective services to the SR in such way that not only the SR gets what it expected but the SP also be able to get enough returns to sustain and continue his business activities. The interrelationship of the SP and SR has the underlined factors of Mutual Convenience Factor. This convenience factor has to flow from the provider to the receiver.

It depends not only on the capabilities and capacities of the provider but also how he executes them. The execution part depends on time, efficiency, and economy of operations. The ‘time’ factor takes the most prominent position in all the operations covered by the service sector.

Any activity has a time frame for its execution. The receiver’s action planes are based on this time frame. Any delay would cause strain on his planning and can upset the system, which might result in delayed production and/or delivery of the ultimate product and/or services from the receiver side to the consumers. No one can afford such delays.

The net result would be either termination of the service contract or imposition of avoidable penalty on the service provider. Therefore it must be noted time is the essence of any service and needs utmost attention. If the service provider cannot maintain his time schedules he has no business to be in the service industry.

Besides the time factor, the delivery factor is also an essential segment associated with the time factor. We shall discuss in details the delivery aspect of the service separately but for the time being it is enough to say that it is one of the most essential and crucial element that need the closest of attention of the service provider. Time and delivery are cost additive factors and both can make or mare a business propositions.

You can understand the importance of delivery if you consider a situation in which you have to hand over a cube of ice to a friend across the table in a hot summer day. The cube melts in just one minute. If you delay for more one-minute the cube melts and you can not do the required job. On the other hand if you wrap it in a sealed container then you spend extra money to do your job.

Compare yourself with the person who delivers the cube in less than one-minute. He does his job without spending any money from his pocket and may be he will get another request for the cube.

But in your case at first you purchase the sealed container, then put the cube in it and seal it, deliver it to the friend, the friend has to open the sealed container to get the cube, and finally you have to retrieve the container. The net amount of work done and amount received by you is far in excess as compared to what the other did.

Efficiency and economy of operations both are related to time and also to the cost factors. Traders render their services on very thin returns and unless they are cautious about the expenditure part of their operations they would end up in net loss. Therefore a trader has to take into account the cost element associated with his communication, operations and execution.

Communication part would cover the print media (letters telexes fax cables) and the verbal media (telephone, to face meeting). Operation part would include the organizational network that he uses for the conduct of his business and the execution part would include and mean how he puts into use the available means at his disposal (communication & organization) to do his job.

A good businessman is like a good worker, he does his job at the best of his abilities, and he monitors his abilities constantly for achieving the level of perfection for getting the desired results in more efficient ways.

6. Service as a Commodity:

The service element has to be treated as a commodity and must be given its due share in its treatment for quality productivity and efficiency ‘QPE’ approach for business promotion. In the present context of service it simply means that your service has to be better, flawless, just right, just in time and most important of all it has to be better than your competitors, in all aspects.

It must be remembered that any drawback in your service mix is going to highlight your other minor draw backs which otherwise the receiver of the service might have neglected. A satisfied service receiver is always willing to make some concession with the SP so long his needs are met and met in a competitive and satisfying way.

This extra advantage the SP can generate if he adds on to the CF (convenience factor) of the SR and not the inconvenience factor. If any service is not adding some degree of comfort to the receiver side then why in the first place the receiver should need the service.

A consumer buys a washing machine because he thinks it will take off some of his work load, the time saved, he can utilize in other productive activities.

But if the washing machine is going to create problems to him in the form of frequent breakdowns or if the cost of maintaining it is too high or if it requires a skilled man power to operate it thus adding to the total cost of doing the washing then the consumer might be thinking to do away with the washing machine.

Same is the situation with any business the service has to add some element of convenience at affordable price to the receiver otherwise the service loses its importance. Thus if the service provider treats its service as a commodity and delivers it in the in the similar fashion then no doubt both the receiver and the provider would stand to gain.

7. International Trade and the Service Sector Industry:

International trade is the movement of goods and services across the national boarders and is carried out by the manufacturers, consumers, and the traders who form the core of the service sector.

When the business operation is small its product variety limited than generally it also has a very small customer base. This is the simplest form of business operations. Such operations require least infusion of service in any form, rather they themselves are the service providers.

As the business grows the material requirements would grow, the processing requirements would grow larger number of end products and their handling requirements would grow and finally those products would require larger consumer base for consumption.

At this stage the need for some service element would be felt, the larger the product volume and the variety of products themselves would make it essential for the manufacturer to seek the assistance of service companies both at the input, the output stages and also at the distribution stage.

These service companies could be in the form of dealers distributors network spread over a larger geographical area of operations. As far as the domestic network is concerned the manufacturer can take direct control or with the assistance of subsidiary companies but when the area crosses the national boarders the manufacturers more and more depend upon the external sources of assistance.

It is here that the specialized services of the international traders are brought into play.

The international traders have the potential to service the products over global markets by identifying the points of demand for the related goods. The overheads of these specialized international traders or the specific service sector companies are not very large. Because their starting point is the product and the end point is the demand centre.

All they do is to match the product with the demand and complete the cycle of business deal either by taking title to the deal or by coordinating the transaction between the seller and the buyer. These specialized service organizations help the manufacturers to move their products in overseas markets and the overseas consumers benefits from the service by getting the required products at negotiated terms.

Thus service sector helps in catalyzing the international trade. The main advantage with these specialized service sector companies is their manipulative powers in the world markets by virtue of two main tools in their command, the communication, and the cycle of demand and supply.

This service sector need not be married to any specific manufacturer or consumer or the market. The demand and its satisfaction through the economical route guide their actions because they have to take into account the fact that the seller wants the highest price for its products and the buyer wants the least price for what he buys.

8. The Human Element in the Service Industry:

The human element in the service industry has highest level of involvement, infect the whole of the service industry revolves around that human element that it becomes too personalized.

The man to man contact and mutual trust grow at each contact, what matters is the relationship and not the extent and the content of business. If we term the business as the waves then this relationship is the ocean. The waves have existence due to the ocean but ocean does not exist of the waves.

In the older system, the management plant and the capital formed one side of the system and the labor formed the other side of the system. The management side of the system set up the goals and the strategy. The labor side was to work to achieve those goals following the set strategies.

Such a system required least interaction of man to man contact the two sides worked in isolation. The sense of initiative contribution and achievement was lost in the desire for achieving the results set up by the system. The system came in between the people and the outside realities like any feudal system.

In the initial phase of industrialization limited to geographical parameters that system worked but when the present globalization concept spread the older system failed to function because in the new realities it was not the system that could protect the organization from the outside hostile world but the people within the system only could do that.

The loyalty and affinity amongst them could only propel them to face the challenges from the outside and create a win situation for the organization.

Thus in the present context of globalization the older concepts of rules and regulations and regulatory bodies are now giving way to personalized way of doing things howsoever complicated they might be. The personalized relationships are much more effective in extracting information and exchange of knowledge not only within the organization but outside as well.

The success or failure of an organization depends more on the caliber of its personal and not so much on its plant and equipment or its financial strength. In the service industry this is more relevant than any other profession or industry as a whole.

The operational flexibility that the man on the job commands helps him not only to do his job in a better way but with the communication tools at his command he induces the others both at horizontal and vertical levels of management to perform their jobs well and in a positive manner.

In any job what matters is the end results and the man on the job is the closest to such results and he only can steer events to a positive conclusion. The grooming of this man on the job is of utmost importance and in the service industry it is only way for success.

9. The Quality Aspect of Service:

What is service? We have defined service as an indicator of convenience factor we will slightly modify this statement by adding that service is a CF related to work process. A process in general involves a mechanism, procedures, limitation, and results.

The efficiency of the process would depend upon what it takes in and gives out. In order to get the proper output the process includes various monitoring schedules making sure that the desired net output is achieved. This is what we study in “TQM.” The quality aspect is as important in production/product as it is in service.

10. Global Trading as a Service:

Between the production and consumption is an open vast area of sector which makes the things easier for the producer or consumer while on the topic of trading the service part be confined to activities related to buying and/or selling. These services either help you to produce in a better way or to get in a better way.

Now-a-days the pressure on the producer the consumer is so high that they sooner or later relay on service sector organizations for better results. This concept is deeply rooted in international business activities. The trader assists the buyer to buy at the most competitive terms and they assists the sellers to sell on the most profitable terms.

What does the buyer or the seller do in their normal run of the jobs leaves ample scope for the service sector to offer their services to make their job easier speedier and economical. Let us analyze their jobs and see where service sector can play their role.

Buying Actions:

(i) Materials to be procured,

(ii) Sources of the materials,

(iii) Selection of the best source,

(iv) Availability on demand,

(v) Mode of transport,

(vi) Duration of transport,

(vii) Competition,

(viii) Payment methods, and

(ix) Market situation.

Selling Actions:

(i) Items to be sold,

(ii) Expected quantities to be sold,

(iii) Destinations of sales,

(iv) Prices,

(v) Distribution channels,

(vi) Customer service,