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 likeAccountancy,

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.

Continued…

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.

Continued….

•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.

Continued…

FOREIGN EXCHANGE SERVICES•Provided by many banks

abroad the world.•Includes:

▫Currency Exchange▫Foreign Currency Banking▫Wire Transfer

Continued…

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.

Continued…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.

Continued….• 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.

Continued….• 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 Internationalization4 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.

Continued….• Mode II:

▫ Refers to consumption of a given service abroad.

▫ It includes tourism, travel, cultural events etc.

Continued….• 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.

Continued….• Mode IV:

▫ It requires presence of natural persons and relates to thosecases 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).

Continued…

•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

Continued…

•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• India’s largest conglomerate and in fact one of

the emerging world’s 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.

Continued….• In 1950’s, 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.

Continued….• 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/

finance_e.htm• http://eprints.qut.edu.au• http://indiabudget.nic.in• http://en.wikipedia.org/wiki/Professional_services