Global Service Industry

Overview

The tertiary sector of the economy (also known as the service sector or the service industry) is one of the three economic sectors, the others being the secondary sector (approximately the same as manufacturing) and the primary sector (agriculture, fishing, and extraction such as mining).

For the last 100 years, there has been a substantial shift from the primary and secondary sectors to the tertiary sector in industrialised countries. This shift is called tertiarisation. The tertiary sector is now the largest sector of the economy in the world, and is also the fastest-growing sector.

In examining the growth of the service sector in the early Nineties, the globalist Kenichi Ohmae noted that:

In the United States 70 percent of the workforce works in the service sector; in Japan, 60 percent, and in Taiwan, 50 percent. These are not necessarily busboys and live-in maids. Many of them are in the professional category. They are earning as much as manufacturing workers, and often more.

According to the U.S. Department of Commerce, during the last half of the 20th century, the service sector became the largest and fastest-growing part of the U.S. economy. During the first half of the century, the service sector represented about 60 per cent of the economy, but by the end of the 20th century, it represented about 80 per cent. This has been a significant shift and an ongoing transition from an agrarian (farming) economy to manufacturing, and, ultimately, to the service economy that we see today.

World Bank has pointed to the higher contribution of growth in the services sector to poverty reduction than the contribution of growth in the agriculture or manufacturing sectors.

International Trade in Services

Global trade in services has more or less mirrored the trend in merchandise trade, and, by corollary, international demand. World exports of services have shown consistent rise in the 2000s decade with a healthy average annual growth of around 9.5 per cent, except in 2001 and 2009— periods of global slowdown and economic crisis. After having increased by 13 per cent in 2008 (as per WTO data), world exports of services fell sharply with negative growth of 12 per cent in 2009, only to bounce back in 2010 with 9 per cent growth. In 2010 the value of services exports was US$3,695 billion, slightly below the 2008 pre-crisis peak of US$3,842 billion and in 2012 it has increased to US$4,425.8 billion. While world trade in services is dominated by the developed countries, emerging economies like China and India are now playing an increasing role. India is the most dynamic exporter of services and ranked seventh in the world in both exports and imports of services in 2010.

WORLD SCENARIO: Facts and Figures

  • As economy shifts from developing to developed stage, they will show more and more shift toward services.
  • Today, the fastest growing segments of the US economy are services.
  • The US balance of trade in goods has remained in the red for many years, but here has been a trade surplus in services.
  • Today service sector dominates the economics of many developed nations. As countries develop the role of agriculture in the economy declines and that of services increase.(China has 44.6% GDP from service, 45.5% from industry, and 10% from agriculture).
  • During recession it has been seen that service output declines less than industrial output – the service employment is less sensitive to business cycle fluctuation.
  • Globalization as strategy for service firm is becoming more important.