SERVICE FIRMS (Part 1)
Lecture 4: Radulovich, Lori Petrill, 1988, Internationalization of
Professional Service SMEs , pp. 6/53
Internationalization of Services
International services are defined as ”deeds,
performances, efforts conducted across national
boundries in critical contact with foriegn cultures
8 (Radulovich L.P., 1988, p. 11).
Internationalization is defined as ”expansion
across the borders of global regions and countries
into different geographic locations or markets”
(Hitt et al, 1997, p. 767).
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Global Service Expansion Modes
1. People-processing services involve transfer of
intangible product to a physical person such as the case of
barbers and health-care providers. The distinguishing
factor of people-processing services is that the
customer takes part in service production. In addition, the
customer or service provider must often travel to the
other party and use equipment for the service to take
place. Geographic proximity to the customer is important.
People-processing services must also adapt to the local
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Global Service Expansion Modes
2.Possesion-processing services differ from people-processing
in that service is performed on a physical product to enhance its
value to the consumer. Dry cleaning or car repair are examples
of this category. Similar to people-processing services, a
possession-processing service most often is brought to the
consumer or the customer may travel to the service to partake of
its benefits. Geographic presence is also an integral part of this
service type. Due to standardization of the service, possession-
processing services are more suitable to internationalization since
the service provider need not cope with cultural and customer
differences to any great extent.
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Global Service Expansion Modes
3.Information-based services are the result of insight from
data or information collection, anaylsis and interpretation.
Infomration-based services globalize with greater ease since they
may be delivered vial electronic means. Customers do not need
to be physically close to the service provider hence geographic
proximity is not critical. Exaples of information-based services
include banking, accounting, legal services, insurance, health or
cunsulting services. Information-based services can easily be split
between centralized back-office processing and front-office local
delivery to facilitate global expansion and economies of scale.
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Services & their character
Services are generally described as being invisible, intangible,
non-storable, high fixed-to-variable cost ratio and characterized by
ssimaltenous production & consumption requiring close interaction
between producer and user.
Responses to characteristics like invisibility and intangibility include
investing in branding and promoting reputation.
Characteristics like non-storability and higher fixed-to-variable cost
ratios imply relatively high presssure to sell.
Consequently services tend to be highly dynamic industries,
competitive, and with intangible resources contributing to
successful competition and value creation.
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1) Intangibility differentiates the nature of the
service act and who or what is the recipient of the
service. Tangible services are directed at people’s
bodies (e.g. healthcare, haircutting,
transportation). Intangble services are actions
directed at people’s minds (e.g. education,
museums and information services) or towards
other intangible assets (e.g. banking, legal services,
accounting and insurance).
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2) Hetrogeneity describes the degree of service
uniqueness provided to each consumer, such as in
the case of financial, consulting and accounting
services. Heterogeneity is present when services
vary from consumer to consumer. In contrast,
homogeneity of services infers that there is a high
degree of service consistency, such as in the form
of standard quality, a reliable service, and
consistent service delivery. Example of service
delivery includes consistent delivery of a pre-
recorded entertainment program (TV soap boxes).
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3) Inseparability refers to the simaletnous
production and consumption, as when the customer
is a coproducer of the service. Examples of
inseparable services include air travel and hotel
services. In contrast separability refers to degree to
which the customer is not involved during service
production and need not be present during service
consumption. For example, professional financial
managers receive and invest funds from clients
without the consumer being present. Services that
are separable may be more easily internationalized.
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4) Persishibility indicates that a service may not be
captured and stored for later use, such as in the case
of hotels. Rooms are either occupied or not
occupied, and service capacity use varies
accordingly. In contrast, examples of non-perishable
services include: music recordings, news broadcasts,
and educational video-recorded instructional classes.
In these services, the creation of the service product
may take place at a different time from service
consumption. In the music case purchasing a CD or
attending a live concert are contrasting options.
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Services profile in various countries
Services are more likely to be customized from
country to country to take local legal and
other environmental conditions into account.
There are minimal economies of scale achieved
by centralized production.
One powerfull pull to globalize is from client
demand for the service provider to follow
them in their overseas expansion activities.
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Categories of clients that benefit from
internationalization of services
1. Global clients that prefer the same service provider
in the various country markets in which they do
2. Local clients that require some globally
3. Local clients who simply prefer a global service
provider for a variety of reasons like perceived
quality, global knowledge sharing opportnities, or
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Why do services go global?
Foreign markets may present good
Home country clients may demand that
service provider follows them overseas
A firm’s proven ability to shift product-
market focus (i.e. diversify) is also a
defensive foil against possible invasion of
their turf by competitors.
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Degree of internationalization
The degree of internationalization reflects a firm’s level or extent
of international diversification and is often reflected by the
number of different markets in which it operates and its
importance to the firm − often measured as the percentage of
foreign sales to total sales.
Global market diversification provides firms with opportunities
to increase returns by leveraging existing products and
competencies acrosss multiple global markets for higher
performance with lower risk (Hitt et al, 1997).
Global diversification offers opportunities for economies of scale
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Resource-based View of Interationalization (RBV)
RBV states that firm heterogeneity and firm-
specific resources create a sustainable
compeititve advantage creating resources that
are valuable, rare, inimitable and non-
substituteable. Resources encompass three
general categories: physical capital resources,
human capital resources, and organizational
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Resource-based View of Internationalization (RBV)
Physical capital resources encompass physical technology,
property, plant, equipment and access to raw materials.
Human capital resources include the ”training,
experience, judgement, inteligence, relationships, and
insight of individual managers and workers in a firm”
(Barney, 1991, p. 101).
Organizational capital resources involve the firm’s
reporting structure, planning processes, control and
coordination systems, and information relations among
workers within the firm, between firms, and its
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Knowledge-based View of Internationalization (KBV)
KBV asserts that knowledge is a key factor
contributing to a firm’s internationalization
and that firms are repositories of knowledge.
The knowledge-based view, an extension of the
RBV, is the dominat theory used to explain
internationalization of knowledge-intensive
firms in dynamic environments characterized
by highly competitive knowledge-based
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Avoidling failures when going global
1. Are there potential benefits for our company?The race
to globalize sometimes leads people to overestimate the prize.
Sometimes even when a company fully transfers relevant
technology, there may not be value in doing so in some
markets (e.g. UK Redland and concrete roof tiles for US and
2. Do we have the necessary managment skills? Even if
potential benefits exist for your company you may not be in a
position to realize them. One must have a good track record of
exhibiting performance at global level instead of being a home-
town company (e.g. Daimler-Benz+Chrysler).
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Avoidling failures when going global
3. Willthe costs outweigh the benefits? Even if
you are able to realize the benefits of a global
move, unanticipated collateral damange to your
business may make the initiative counter-
productive. (e.g. China’s TCL ended with four
R&D hq, 18 R&D centers and 20 manufacturing
bases and sales organizations in 45 countries). The
cost of managing this infrastructure has outweighed
the benefits of increased scale and resulted in large
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Strategies for internationalization of services
1. Direct export (in industrial markets e.g. repair of valuable
2. Systems export (joint export effort by two or more firms
whose solutions complmenet each other’s e.g. turnkey factory
+ maintance of facility)
3. Direct entry by establishing a service-producing organization in
a foreign market
4. Indirect entry by acquiring a local firm so as to minimize risk
of failure when establishing a new organization from gound
5. Electronic marketing through the Internet
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