Introduction
The marketing of service products is exceedingly different from that of goods. Indeed the service characteristics of intangibility, transience, inconsistent specification, and the lack of a physical distribution channel give the service sector an almost completely different set of marketing dynamics.
In this 21st century, service industries represent more than 67% of the economic activities of most developed countries (Richards & Fitzgerald, 2009, p. 473). Additionally, professional services are growing tremendously faster than processing and manufacturing sectors. With growth come the prospects of globalization. Many corporations have gone international and more are considering the option.
However, it is imperative that an organization’s corporate board fully understands the implications of an international strategy and consider whether or not the move to go global is best suited for their structure, capability, and most importantly, for the nature of the service they offer. The mind-set that globalization is a profitable venture should not be stretched to include off service entities. True as it may be that the international market offers more prospects than a local one, some services are just not apposite and appropriate for foreign bazaars.
This write-up argues out some of the aspects that are affected by a service’s nature in the pursuit of internationalization.
Internationality of Service
This is by far the most fundamental nature of a service that dictates whether or not internationalization is a feasible option for an enterprise seeking to venture into foreign territory. This doctrine does not go contrary to the principle of internationality of services which asserts the belief that there is a market for each service in all corners of the world. What it highlights is the ideology that for an organization to move into a foreign territory, some attributes o the service it offers must be aligned with certain attributes of its intended new market.
Several aspects define the relevance of a service to the international market, from consumer appreciation of the service offered to the legal constraints linked to provision of the service. Marketing execs have to scrutinize their service product’s international market in the various foreign opportunities from five central variations in local reception of the service’s features (Slaughter & Reinsdorf, 2009):
- Prospective consumers’ level of product knowledge
- Legal requirements
- Buying motives
- Expectation of the service benefits
All of these factors must be considered, especially as regards the marketing strategy of the exporting organization. Some services are not well established in some countries and as such, globalization to one such country may present marketing hurdles too steep for an organization or too engaging for a service industry not mature enough to sustain long-term international investment policies.
In some rare cases, local contemporary behavior patterns and traditional beliefs associated with certain services may inhibit international transferability. For example, the idea of life assurance may be repellent to a society that is superstitious about discussing death (Nachum & Aharoni, 2000). It is true that these may be primitive ideologies, but a marketing strategy aiming to penetrate such a market is bound to experience immense antagonism against its product.
In other cases, the targeted audience abroad may be ignorant of a service’s benefits. An example is how online payment options are not so popular in some developing countries such as DRC Congo and Angola. Service providers such as PayPal and Alert Pay don’t have much incentive in venturing into such territories where the benefits of the payment service are not yet fully appreciated.
Distributional Involvement
Distribution for services, unlike for goods, tends to be short, either direct from the service provider to the end user or through intermediaries, agents, and affinity groups (Schary & Skjott-Larsen, 2007).
The nature of a service’s distribution channel has an impact on its opportunities for internationalization. A multi-national 5-star hotel chain running enterprise may only be able to go international through franchising by giving third parties the right to participate in its business provided they accept the terms and pay the franchise fee. The same would be the case for a car-hire corporation. This means that if an organization in these businesses does not have the infrastructure and resources to sustain a franchise corporation then it cannot go international, since the nature of the service dictates its distributional element.
An international insurer may however be hesitant to entrust a third party with its brand name. This is because of the delicate nature of the insurance business. An insurance contract is merely an agreement that one party will indemnify the other in the event that a certain specified occurrence materializes. The reputation of the insurance organization therefore goes a long way in creating the public’s perception of it (Hollensen, 2009, pp. 372-374). Damage caused by a third party can destroy the entire corporation.
It can be said that the number of links in the distribution chain dictates, to some degree, the level of internationalization of a service. The fact that online payment services require minimal interaction between the service providers and the consumers has facilitated the swift growth of the market (Vashistha & Vashistha, 2008, pp. 179-180). On the other hand, the number of intermediaries involved in effecting and executing the terms of an insurance policy (underwriters, insurance brokers, loss assessors, claims adjusters, re-insurers etc)make it hard for an upcoming insurance company to expand its business to additional countries. It is important to point out here that virtually all of the insurance companies that are multinational (AIG, Lloyd’s, AON etc) have been in operation for decades or/and are only global through franchising (Organisation for Economic Co-operation and Development Staff, 2009). It also doesn’t help their reputation that some of the most notorious culprits of the recent global financial crisis are these same big insurance companies. This just goes to show how the nature of the service is at odds with internationalization.
Service Revenue
This is a major factor as is relevant to the service provider’s ability to sustain an international infrastructure and marketing strategy. To take a simplistic example, consider a shoe shinning business. As successful as a shoe-shiner may be in a given locality, it would be a little superfluous and incredibly unworkable for him to open branches in other countries. This is because of the inherent moderate-revenue nature of the service he provides (Rosaldo & Inda, 2008, pp. 311-313). Some shoe-shining enterprises have offices and branches in several countries. An example is Kiwi Shine. But it should be noted that this globalization was only possible through a joint collaboration with Bata. This illustration is thus an exception that should not be relied on as an indication that all services can be internationalized.
On the other hand, a lucrative service business such as asset management, or banking, may be financially sound enough to consider going global, or at least set up in few other countries for starters.
Local Implications
Some features of the service may not be compatible with local aspects in certain target markets
Operational Environmental
Certain services require certain operating conditions for feasibility. Banking, for example, requires a stable economy that is at least partially predictable. This factor explains why most foreign banks shy away from investing in Zimbabwe where economic conditions have in the past decade been unprecedentedly and notoriously erratic (Stern, 2009, p. 583).
A service such as hoteliering would be hard to sustain in a politically unstable environment riddled with constant riots and demonstrations that may result in huge losses for the entrepreneur. In contrast, a service such as medical care (hospitals, clinics, dispensaries etc) would be valid in the same humanitarian-crisis region where a luxury hotel would be impractical.
Infrastructure
The level of infrastructure required by a service prescribes which countries the service can be offered. An organization offering services of a fulfillment house has little hope of surviving in a region where there is little appreciation of technology, or where the telephone network is poor (Johansson, 2008, p. 501). Similarly, a firm specializing in providing 24-hour call centre customer service to its clients is doomed in a country which has only sporadic availability of telephone land lines and poor network.
Global Reception
Certain services have an almost global appeal and necessity. This put them in a proper position for internationalization and presents the opportunities for globalization more applicably. An example is medical care. An organization that provides medical services need not worry about whether its service is needed in a foreign target country, so long as other factors (such as quality and cost of service) are kept constant (Fletcher, Dimitratos, & Jones, 2009).
Now compare this with a company providing high-class taxi cab travel service in Manhattan and around New York City. Such an enterprise would fail miserably in Kabul where people have little regard for leisurely travel.
Compatibility with IT functions
As has already been mentioned, professional service sectors are expanding very swiftly and growth in globalization is one of the foremost concerns of corporate executives in developed countries.
The foremost meter-driver for the observed growth in globalization is the evolution of trends in technological developments (Meijers, 2008, pp. 308-314). Developments in database management systems combined with advances in communication technology have led to the growth of call centers, increasingly based offshore. Additionally, the revolutionary benefits that have come with e-commerce (cost reduction, instantaneous operation, improved customer support etc) have become important new channels for business, especially given their feature of instant payment by credit or debit cards (Dholakia, 2006). The opportunities presented by the internet are readily apparent: by allowing for direct, ubiquitous links to everyone anywhere, the internet lets companies build interactive relationships with customers and affiliated entities (intermediaries, partners etc) it is therefore imperative that multinational service organizations determine how to take advantage of the opportunities presented by these channels.
This being said, the nature of the service offered controls how much the organization offering it can utilize IT functions. IT-based services can easily export their service offering via electronic media. The financial service industry is one of the most profiting sectors. Banks, insurance companies, mortgage & housing corporations, asset management firms etc can now enjoy automation of (Boucadair, Bourdon, & Jacquenet, 2008, pp. 176-184):
- Accounting and record keeping
- Underwriting and claims management
- Customer service (through call centers, e-mailing, 24-hr online chatting etc)
- Valuations, computations, and statistical estimations, and
- Marketing messages and policy implementation etc.
The services offered by these sectors are well compatible with IT functions and automation supports globalization prospects. Furthermore, IT compatible companies have an easier time marketing their services. The internet, for example, is currently the world’s foremost advertising avenue through its 3 distinct features that no other marketing medium boasts:
- Viral marketing
- Customized e-marketing
- Consumer database management
Services that are least likely to utilize developments in IT include operations in construction business, car-hire services, dry cleaning, and businesses that have well-established interactive relationships between providers and consumers, such as dental services and the service of a barber.
Conclusion
Overall it is evident that globalization is the preferred mode of operation for most service providers as compared to localization. The implications for internationalization are definitely different from one service sector to the next, and they pretty much impose expansion strategies on the firm’s board management.
What is most appreciated, however, is how the service sector is unique from the goods sector, and how internationalization is not hinged on financial capability of the organization, but on the inherent nature of the service it offers.
References:
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