The service revolution has swept the world – with a bang in the West, but with a barely audible whimper in India. While our economists and planners – brought up in the comfortable tangible environment of measurable factory outputs and commodity trade – lament the dwindling share of manufacturing in GDP, the real world of commerce has rapidly moved its focus to the service economy.
In India, the powers that be are optimistically targeting the growth of the manufacturing industry’s share in GDP from 17 per cent to 25 per cent, which can but mean reduced emphasis on the service sector. Simultaneously, it is also reported that India’s Chief Statistician T C A Anant has said we are yet to figure out a way to measure the true impact of services on the economy. A mere 8.7 per cent of central taxes come from services, even though close to 60 per cent of India’s GDP is from services. In most of the developed world, services are already contributing over 75 per cent of GDP.
A Boston Consulting Group research report released in the 1990s showed a clear trend. While margins on products were dwindling alarmingly, profits were primarily coming from services and solutions offered to customers. In the IT and communications industries, profits from hardware and products represented a mere two per cent of overall profits, despite a 57 per cent share in total revenue. IBM realised this early. It hived off its manufacturing and rechristened itself IBM Global Services.
While the business world knows where the money lies, India’s central government still appears to be at the stage of formulating policies on how to collect a fair portion of service profits through taxation. What is required is not just a policy to tax the growing service economy, but concerted action to find ways and means to encourage its growth. This does not mean we should place less emphasis on manufacturing, agriculture and mining. What it does mean is that providing inadequate support to the biggest and fastest-growing sector of the economy will hurt India very badly. This fiscal year, 2011-12, would have been much worse had the major service sectors not grown at over 10 per cent, to compensate for the dismal performance of agriculture, manufacturing and mining, all three of which grew at well below five per cent.
A research project I supervised in the United Kingdom might be a good example to consider and adapt. The UK’s South East England Development Agency (Seeda) initiated a project to identify what businesses thrived in which areas, with a view to facilitate the acceleration of such growth. As I had made a claim that the Milton Keynes/north Buckinghamshire area had the largest number of start-ups as well as closures in knowledge services, a research fund of over £10,000 was made available for me to make a thorough investigation. One of our findings was that knowledge-service entrepreneurs preferred to start their businesses in locations that satisfied certain criteria that happened to fit our area perfectly.
First, as knowledge-service providers telecommute much more than they commute physically, they chose to locate their electronic cottages in pleasant environments with low pollution and greenery, playing fields for children, good schools and a record of safety and low crime rates — but with strong telecommunications infrastructure.
Second, they required a supportive town/city administration to ensure fair and speedy resolution of problems related to their physical existence in the local community. They were not looking for cheap land or other concessions that manufacturers needed; for their main asset was between their ears.
Seeda not only accepted our research findings, but also gave a £250,000 grant to locate a hub at our university (the University of Buckingham), which had already built a reputation in service management. Entrepreneurs with ideas for starting service enterprises were provided subsidised facilities — offices with state-of-the-art telecommunication systems, and shared office equipment. They also had access to our academic faculty, who had the necessary expertise in service management. The total time taken from formulation of research aims to payment of the grant was just six months.
The service economy today encompasses a wide range of human activity. From traditional industries such as utilities like water, gas and electricity, tourism, and retail to newer fields such as business processing offices, entertainment (including the technological support services), distance education, health, telecommunications, consulting, and financial industries, we have a great many activities that go beyond hand-holding, smiling and saying “have a nice day”. Besides, there is a vast, hidden service economy within the so-called manufacturing sector. After-sales service and support services such as IT, human resources, accounting, logistics and so on constitute the lion’s share of human activity within the manufacturing sector as well.
By downplaying the importance of the service sector and giving it step-motherly treatment, our economists and planners are doing the nation a disservice. If we can build the manufacturing economy on the one hand and simultaneously facilitate growth of services, our economy could be the envy of the world.
We have two major strengths essential for a strong service economy: the fastest-growing population of educated people and a deep-rooted culture of service. Seva bhavana is our heritage. Let us build on it.
However, weaknesses need to be addressed. Let me highlight one. We are very poor in what service customers view to be the most important dimension — that of delivering on promises without being chased. Recent research I conducted on a major Indian corporation revealed that it spends around 40 per cent of its time on “following up” each other. Many people tell me this is par for the course around India. If that is correct, this weakness alone could wreck us.
To re-emphasise the thrust of this article, one is not belittling the importance of building a strong manufacturing base. One is just pointing out that we have to build a strong product/service bundle economy. It is not just the government and their economists and planners who have to rise to the occasion. Each one of us must do so, starting by just delivering on our promises, right the first time and every time.
The writer, a former corporate executive, was the founder-director of the Centre for Service Management at the University of Buckingham, and is now MD of Chennai-based VSM Consulting Services.
mahesh@vsmahesh.com
