Technology and Global Industry Companies and Nations in the World Economy (1987) / Chapter Skim
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The Impacts of Technology in the Services Sector
The Impacts of Technology in the Services Sector
Pages 119-159
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From page 119... ...
· Can a services economy generate a continuously higher standard of living? · How might a services economy and services technologies affect national sovereignty and He nation's posture In the world?
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From page 120... ...
120 O _ JAAIES BRIAN QUINN 100 _ 80 % Manufactunns -~~ 1 1840 18S0 1880 1900 1920 YEAR 1940 1960 1980 1995 FIGURE 1 Employment in industrial sectors as percentage of total labor force. From Quinn (1983)
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From page 121... ...
Initial analyses indicate that measured value added in the services sector is at least as high as in manufacturing (see Figure 31. Services also appear less cyclical Man manufactunng.
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From page 123... ...
But, 30 ~ 25 o a e Lu 20 as 15 10 v, At s o FOG. SERVICES NON-RETAIL RETAIL FIGURE 3 PIMS index of value added.
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From page 124... ...
But the banking, education, financial services, enteltainment, car rental, message delivery, and retailing industries have also become technology-intensive (Office of Technology Assessment, 1984~. For example, retail discounting (largely by major chain retail operations)
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From page 125... ...
A fourth myth is the fear Mat a services economy cannot continue to
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From page 126... ...
Index of mechani7~don calculated as [Gross Book Value of Plant and EquipmentJ/[(Value AddedlNet Sales) x (Net Sales + Change in Inventory/Percent Plant Utilization)
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From page 127... ...
Widen wide limits, the services economy is a natural outgrowth of productivity increases in Me goods-producing sector. Whereas agriculture once demanded some 70 percent of aB employment in the United States, less Man 4 percent of die work force now produces much more food per capita including 50 percent more of Me major grains Man Me country can eat (see Figure 11.
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From page 128... ...
Pearls, gourmet foods, more comfortable furniture, vacations, phonograph records, parks, high-powered cars, or Gavel have value only because people create this value in Heir minds. Thus, Here is no intrinsic limit to the wealth a services economy can create, over than the limits of human imagination in finding or placing higher values on new services.
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From page 129... ...
. 1960-1984 1980-1984 Sector Goods-producing 2.82 4 Agriculture, forestry, fisheries 1.43.1 Construction 0.71.2 blanufac~ring 3.52.6 Mining 2.11.0 Services-producing 4.03.6 Communication 7.14.7 Telephone, telegraph 7.64.7 Radio, television 2.96.2 Finance, insurance, real estate 4.02.9 Banking 3.81.7 Insurance 3.00.2 Secundes, commodities brokers 4.616.9 Real estate 4.23.3 Public utilizes 3.91.9 Services 4.12.4 Amusements, recreation 3.44.9 Auto repair 4.21.5 Business services 6.87.2 Heals services 5.23.6 Legal services 4.66.4 Personal services 0.41.9 Transportation 2.1-1.0 Wholesale, retail trade 3.94.7 SOURCE: New York Times (October 27, 1985)
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From page 130... ...
Defining He services component of international trade movements is even more complicated. If a loan officer In He Brush subsidiary of a U.S.
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From page 131... ...
THE IAlPACTS OF TECHNOLOGY IN THE SERVICE SECTOR 131 factoring it is often impossible to say how much of a company's overseas profit is due to the company's products versus the embodied technology, training, systems, or services support He company provides indirectly to host country users from its U.S. base.
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From page 132... ...
Many intermediate-size companies, unable to afford the new technologies, sold out to their larger brethren (see Table 41. Concentration measures in banking, transportation, financial services, and (less so)
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From page 133... ...
Small practitioners and hospitals did not have the patient volumes to afford the elaborate diagnostic, treatment, surgical, and recovery equipment that was being, developed. This concentration allowed highly specialized medical practices to form around the hospitals and created even more specialized regional referral centers
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From page 134... ...
134 as Cut to = ._ on V)
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From page 135... ...
135 ~ ~_ _ _ _ _ _ _ _ _ _ o- ~ ~ ~ ~ ~ ~ ~o _ _ _ _ _ _ _ _ _ _ ~ _ _ _ _ _ _ _ _ _ ' _ ~ ~ C~ ~ ~ ~ os o~ oo ~ .
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From page 136... ...
However, as uncontrolled costs soared (the average cost of an inpanent stay rose from $729 in 1972 to $2,898 in 1984) and patient care became more impersonal, new distribution systems emerged (U S
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From page 137... ...
· In the m~d-1960s, when the insurance industry was stable and heavily regulated, insurance companies automated Weir back-room activities to obtain dramatic gains in productivity in handling premium billings and col~ec~ons.4 As wildly fluctuating interest rates hit the industry in the mid-1970s, companies had to change their products rapidly to attract premiums and to offset the effects of customers borrowing against their policies at low interest rates. Only Dose companies that had flexibly designed computer and control systems could deploy their products rapidly enough to obtain a compeiinve edge.
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From page 138... ...
Two other industries suggest Be basic restructurings caused by technology in Be service industries: · Recognizing Mat Be capability for sales of financial services is now embodied In Be electronic display system, Sears, K mart, and J
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From page 139... ...
, investment (Dean Witter Financial Services, hnc.) , and Fin real estate services to customers In many locations (Gardiner, 1985~.
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From page 140... ...
GTE Corporation row has 40 different firms managing its pension fund worldwide, yet these investments can be monitored, handled, and settled through a master trust anywhere in He world every day of the week impossible without electronics technologies. With this capacity, large pension funds (like the $17 billion fund of General Motors Corporation)
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From page 141... ...
Sophisticated information systems are allowing major chains to branch out and manage a portfolio of retail drug, supermarket, home center, and small specialty chains win much higher value added potentials (Chain Store Age Executive, March 1985, pp.
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From page 142... ...
In addition, financial services became another way to attract customers
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From page 143... ...
Major manufacturers can integrate completely from"just-~-~ne" suppliers to He shopping mad as GM seems to intend with its Saturn automobile project. Although potential gains appear high, win such ~ntegrai~on comes increased risks notably GM's $5 billion TABLE 7 Financial Services Offered by Depository and Nondepository Institutions Banks S&L's Insurers .
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From page 144... ...
b Services exports exclude official transactions and invesunent earnings. CEoreign investment income includes private direct investment income and portfolio income but excludes official transactions.
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From page 145... ...
Foreign investment income includes private direct investment income and portfolio income but excludes official transactions. SOURCE: Denved from venous issues of Balance of Payments Statistics, Intemational Monetary Fund, and International Financial Statistics, Intemanonal Monetary Fund.
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From page 146... ...
Under these conditions, the extent to which sovereign nations can intervene effectively to control their monetary systems (and hence inflation rates) in order to manage Weir economies Trough traditional means is not clear.
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From page 147... ...
Although this use of technology has distribute manufacturing more widely, the Ionger-tenn effects of decentralized production are less clear. The diversity of specialized customer tastes Mat can be accommodated by flexible manufacturing systems and better communications technology may soon create higher competitive premiums for Pose who stay physically closer to the marketplace and can respond more rapidly to customers' needs for services.
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From page 148... ...
has been for Japanese productivity. Although users of services can provide a significant driving force for product technologies, simultaneous development of product and manufacturir~g capabilities has become so important Mat lacking the latter could be the fatal flaw in a services economy.
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From page 149... ...
manufacturing and agricultural exports have suffered notable relative declines in recent years, He United States has had a strong positive net balance of Bade in services and income from investments abroad, excluding payments for investments in the United States (see Table 1 1~. Some have questioned whether traditional arguments of comparative advantage will be relevant in world services trade, especially in financial or informaiionbased services where everyone can buy the same hardware (and often the same software)
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From page 150... ...
Many experts believe that the net effect of services trade is even more seriously understated by definitional and reporting biases. For example: As their major customers increasingly sought international raw matenals, supply sources, economies of operating scale, or markets, bod U.S.
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From page 151... ...
151 Rio, ~ or 1 co or -1 _ o_ o_ o ._ _o ·E~ o ~-m ,0 no ~cr ·t U
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From page 152... ...
Hourly wages in specific industries and current trends paint a more encouraging picture for services. Although average hourly wages per worker are higherin manufactunng than in some major services industries, notably retailing, over services activities enjoy higher average hourly wages than manufacturing, and the gap is closing in financial and other services (see Table 131.
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From page 153... ...
Since many services jobs must be close to the point at which the services are usecl' services employment tends to become more geographically dispersed, following people's preferences for suburban and rural living. The quality of employment thus improves on two scales.
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From page 154... ...
Can a services economy remain wealthier in Be long run than more manufacturing-onented economies? How far can an economy move toward a services base before it can no longer maintain its relative wealth?
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From page 155... ...
Although some observers claim that services industries are inherently Incapable of creating "wealth" that can be transferred to future generations, even this argument fails. Better education, art, literature, heal care, cultural capabilities, convenience in transportation, communication capabilities, recreational availability, and personal security can be transferred to future generations.
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From page 156... ...
This sector could, if properly stunulated, provide the basic technological demands to maintain an important level of defense preparedness. Industries such as airlines, communications, information systems, financial services, and rental cars already hold such potential.
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From page 157... ...
As capital and information increasingly flow electronically across borders, a real question exists whether traditional comparative advantages are possible, in the long run, and if not whether He very basis for Bade decreases. If nations or corporations cannot capture the benefits of their research, will they continue to perform it?
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From page 158... ...
1984. The changing structure of the financial services industry.
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From page 159... ...
1985. Technology and He future of the financial services industry.
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