4. lmpocl of Globol Economic Chonge

Specimen 'A' Level Questions1. Discuss ihe impoct of globol economic chonge on the service secior.2. Discuss ihe growth ond locotionol shifts in vorious economic octivities

Musi know conceptsTerliory sector

Quoiernory sector

Quinory sectorDecentrolisqtionDeveloping hub s totusReseorch ond developmenl indusfrySmoll ond medium sized entetptisesIndustriol locofion

The 'shrinking world' hos greatly inlluenced globol economic integrqfion ond

increosed economic interdependence we ore currently exPetiencing. Aport fromihoi, the economic londscope is chonging. This is seen through the rise in new

service sectors os services become on inportoni indusfry of most developed

econotnies

Aporl from siondords of living, o notion's level of developmenl is olso suggested by

the proportion of ils lobour force engoged in eoch sector of ihe econorny. The

three nost commonly recognised seciors ore cqlled primory, secondory ond ier.iiorySectors.

The primory sector involves ihe exPloitolion of noturol resources. The use of lond'fo produce crops ond livestock os well qs fhe exiroction of mqtericls of volue thotexisl in nqture ore clossified os primory econohic octivilies. Forming, fishing,

foreslry, mining ond quorrying moke up mosi of the jobs in ihis sector. Some

primory products ore old directly io the consumeT but most go fo secondory

industries f or processing.

The secondory sector involves the refining, processing ond fobricotion of row

moteriols into products of greoler value. All monufocluring processes, lherefore,

ore secondory octivities. Secondory products ore clossed either os consumer goods

(produced for sole to the public) or copilol goods (produced for sole to othenindustries).

The tertiory seclor of the economy is the ser./ice indusiry. This sector provides

services to lhe generol populotion ond to businesses. Activities qssocioted with thissector include retoil qnd wholescle soles, lronsportqiion ond distribution,enterioinment (movies, television, radio, music, Iheotre, etc.), restouronts, clericolservices, medio, tourism, insuronce, bonking, heolthcore, ond low.

In most developed qnd developing countries, o growing proporlion of v,totkerc atedevoted to lhe tertiory sector. fn Jhe U.5., rnore ihon 80% of the lobour force is

tertiory workers.

Unlike the primory ond secondqry sectors, lhe service sector provides intongibleproducls such os ironsport, heolth cqre ond recreo-tion. Services ore octiviiies thotdo not produce or modify goods. The following ore some importqnf qspecis of theservice industry:-

. In o typicql service ihe producer ond consuner ore both preseni.

. The user pqrticipotes in the production

. They ore lobour intensive, with limited possibilities for economies of scqle

. Much service employment is non-monuol qnd soloried

. Servace ernployment is eosily slorted due to low levels of copitol iniensity

. There is no welldelined product thot con be meosured.

Inpoct of Globol Economic Chonge on the Service Sector

1 . REg sf !9r, lgry

Post World Wqr 2 sow o dromotic growth in new service-producing industries,

nomely guoternory ond quinory services.

Quoternory or producer ServicesProducer services refer to odvonced, speciolised ond knowledge intensive service

industries operotinq in o morkel consisting of other firms. Exomples of such service

indusiries ore finonce, monogemenl, inforrnqtion monogement, R & D, technicol

consultonls, qdvertising ond morketing, design ond legol services. A widet definitionolso includes differcnl types of tronsporl ond comnunicotion services, wholesole

ond o wide spectrun of odministrotiv€ services

Quoiernory industraes hove only 6een recognised os o seporote group since thel96os. Before then, jobs now clossed os quoternory were placed in eilhersecondory or tertiory secfors depending on whethq o iongible productproduced or not.

Reosons for the growfh of producer serviceso. 6lobolisqtion

Globolisqtion is connecied with the quick growth ond iniennotionolisotion ofproducer services. The reosons for this ore thqt producer services ore not only

direci instruments ond ogents of globolisotion. They oct os inPortqntfaciliiotors in ihe increosing trqde of goods ond services. Producer services ploy

on imporlonl role in reducing relotive distonce between ploces through ihebuilding of slructures focilitoting comnunicotion between firms or throughoffering experlise on globol stroiegies bosed on sPeciolised knowledge olforeign morkels.

Producer service componies olso ploy on importont rcle in idenlifying, developing

ond tronsferring new knowledge belween firns. Therefore, producer servicesore inporiont'pipelines' connecling countries qnd regions.

b. OutsourcinqAn importont reoson for fhe growth of producer services is the wove ofexternolisoiion of different funciions from business firms thqf begon in ihe1980s ond 1990s. During the fordist crisis, rotionolasotion (down-sizing) ond

outsourcing were amportqnf meons to ochieve lowered cosis, increosing

productivify cnd flexibility ond tneeling increosing internqtionol competilion.

The ropid development of micro-electronics ond informotion ond communicotions

technology opened up new woys o{ orgonising production. This resuhed in qgrowth of componies speciolised in hondling the increosing technologicol ond

odminisfrqiive complexity chorocterising o growing number of firms qnd

industries. The exiernolisofion resulted in q situotion where mony funcfionspreviously pefiorfi\ed wiihin the compony (especiolly monufocturing componies)

were con-tnocied to smoll independeni firms. The tendency for componies loexternolise differenf tqsks previously perforned in-house is perhops the mostcommon explonotion to the growth of producer services.

There ore o number of reosons os to why componies choose to externqlise in-

house iosks. Some componies mqy suffer from o lock of expertise wiihinsetvice-reloted fields ond thetelote purchose services externolly. The lock ofcompeience moy be coused by the fqcl thot fhe firm does nol hove lhe time, or

lotelhewos

resources to fill competence goPs in cerfoin orecs. The supply of new ondjncreosingly odvonced services increoses ot q poce to which mony conpqnies do

not hove possibilifies to qdopt.

Quinory servicesThese ore consumer-oriented services. These octivities ore geored to providing

services for individuol consumers. They include heolth core, educotion, govetnment,enterioinmen-t, sociol services, tourism ond recreotion. Quinory ociivities involve

high-level decision moking or control functions thal monipulote vost resources ofprivote businesses ond governments.

The growth of consumer services hos been exploined in o nurnber of woys:

o. Demoqrophic chqnqes leod to increosed demonds for service

functions. An ogeing populotion, for exomple, teguies gteoterqnounts of heolth core. In fhe U5, in nunbers ol emPloyees,

heolthcore is by for ihe lorgesf consumer-oriented industry.

Sociol services in the U5 rqnked just below heolihcore in thegenerotion of more employment. Jobs in sociol services in the Usincreosed ot lhe tate oi over 871" l:etween 1988 ond 2000. Thedecline of ihe troditionol nucleor fomily ond the emergence ol moresingle odult households hos increosed the demqnd fot mote setvices.The externolisotion of setvices meons thqt people qe poying forservices, such os cleoning, which hove troditionolly been within ihehousehold.

New lechnoloqy olso increoses demond for services. The growth ofcosh dispensers ond cqsh cqrds hcs only occurred since the 1960s. Ifrequires o lorge pool of engineers ond bock-up stoff.

As incomes coniinue io rrse, people's needs become less "tnoteriql" ond

they begin -io denond more services-in heolth, educotion,

enterloinmeni, ond mony other oreos. Meonwhile, lobor productivify in

services does no-t grow os fosf qs if does in ogriculture ond indusfrybecouse most service jobs connot be filled by mochines. This mqkes

services more expensive relolive to ogriculturol ond industriql goods,

further increqsing the shore of setvices in 6DP. The l9g9qmechonizotion of services olso exploins why employnent in ihe servicesector con-finues io grow while ernploymenf in ogriculiure ond induslry

b.

c.

declines 5ecouse of technologicol progress ihqt increoses loborproductivity ond eliminofes lobs.

fnfernotionolisotion of service firms

In the setvice industry, firms ore increosingly internotionol. Even smoll enterprisesore exponding their firms beyond their horne countries qs in the cose of sun6ord'sSystem Access below.

Suncord's Systen Access provides universol bonking solutions ihot help bonks

deliver o broqd ronge of bonking products ond services for retoil ond wholesole

bonking. Systern Access provides solutions for bock-office tronsqction processing,

front-oflice muhi-chonnel delivery, cord monogement ond poymenfs. Estqblished in

1983 by its CEO, Mr Leslie Loh, system Access is o leoding provider of universolbonking softwore solution for finonciol services insiitutions worldwide. Theit ceo,Mr Loh, wos owqrded the Rotory - ASME (Associotion of Smoll Medium

Enterprises) Enlrepteneat of theYecx in singopore.Heodquqrtered in Singopore, Sysfem Access hos regionol oflices in Brotislovq,Progue, Dubqi, Monilo, Eongkok, Tokyo,5honghoi ond Kuolo Lumpur serving the needs

of cusfoners in over 40 countries, ocross Asiq-Pocific , Evope, the Middle Eost qnd

Africo.

The educqiion services loo hove internqtionolized for instonce, leoding US medicol

school, Duke University, will loinfly set up the 6roduote Medicol School with theNoiionol Universily of Singopore (NUS). fry Leogue instifution Stonford Universityhos olso ogreed to pqrtner wifh Nonyong Technologicol University (NTU) for theloller's progrqnme in Environmentol Science qnd Engineeting.

As for Singopore-bosed componies io grow ond internolionolise, ihe InternolionolEnterprise Singopore (IE Singopore) is o plotforrn or sn ogency speorheoding

Singopore's efforts to develop ils externol economic win9.

fE Singopore offet a wide tonge of services in Singqpore ond 36 locotions

worldwide. They provide morkel informotion, ossist enterprises io develoP theirbusiness copobilities ond find overseos porfners. At ihe some iime, IE Singopore

works fo position Singopore os o bose for foreign businesses to expond info thereqion in portnership with Singopore-bosed componies

3. Other new locotionol frends in Droducer ond consumer services

Besides the iniernolionolisolion of seNice firms, lhe locotions of service

employnent ore influenced by o number of geogrophic fqctors - notobly,

occessibiliiy - ond os these chonges with time, so too does the locqfion of services.

Hoving o close proximify to custoners ond informoiion sources ore no longer.lhedeiermininq focior in the locoiion of services. Some other fociors offecling lhelocotion of services include:

. Direct occess to nqjor highwoys

. Quolity of telecornrnunicolions

. Recruitment of quolified personnel

. Cost of office spoce ond property

. Accessibility 1o other services

Producer services generolly locote in the CBD becquse of excellent tronsPortoccessibility, the importonce of hoving foce-to-fo.e meelir'gs. fhe need for foce-lo-face meetings leods to o concentrotion of highly skilled, influentiol ond quolifiedpersonnel in lorge urbon oreos, especiolly copitol ciiies.

consurner services iend to locote close to their cusiomers. Some services however

hove decentrolised, which meons dispersol from a centte of concentrofion, due tosuburbonisqfion ond counler urbonisotion. People hove moved oul to suburbs ond the

country oreos oround lorge towns, qnd lhe setvice industries hqve followed them

out there. The cheop suburbon Siies qnd cheop suburbon lobour ottrqci the service

industries. This is especiolly true for less sophisticoted producer services, lhe'bock-office' services. They include the routine functions Such qs personnel, finonce,ond occounts which do not need to foce-to-foce meelings. These setvices ore

chorqcterised by low woges snd low office cosls, ond ore qble to irode services by

meqns of telecommunicqtions. Hence cheop suburbon sifes ond cheop suburbon

lobour ore very ottrcctive. These services hove moved from cify cenltes toconcenfrcrte in suburbqn ond periPherol locqtions.

Olher reosons for decentrolisotion of services include:. Access io ploces hos chonged so thoi mony PeoPle prcfe( to use iheir cor

insleod of public fronsport. There is serious congesfion on urbon roods an

centrol oteas whete toutes aonvetge.

. Porking is difficulf os well qs costly in the centte of towns ond cilies. Inconirost, oul of town there is greoter freedom of movement by rood.

Producer services Consumer services

Ofien termed high-order ocliviliesjprovided in o smoll number of highlydeveloped urbcn centres, generslly

cqpitql ciiies

Low-order octivities or more locol in

scole

Freguently used by other firms ororgonisotions

Provided generolly for people

Exomples:. Morkel reseqrch. Monogemeniconsultoncy. Adveriising. Legol funciions. Finonce, insuronce, business

services

Exomplesr. Heol-fh core. Retoilinq. Educolion. Domesfic services. Refuse collection

Exonple: Location of high-feehnolog,y industries in Science Potks

Distinction befween producer and consuner services:

As research ond development (R&D) is on importoni port of the quoternory seclor,let's loke o look oi the locotionol lrend of high-technology industries.

These high-iech industries, which demond expertise ond high inpuis of informotion

needed for resaorch ond developrneni, iend io be footloose. In oiher words, fheyore not lied to ony porticulor locolion or couniry, ond hove s free choice of locotion.

Yet they do tend to cluster in cer-toin oreos such qs proximity to universities ond

r€seorch institutions. By locqting close together, high'tech industries con exchonge

ideos ond informotion. At the some time, they ate oble to shore bosic omenities

such os rood occess or tronspor-t focilities. These firms ond RdD dePqrtments ore

locoted in science porks such os Combridge Science Pork. Science Porks ore oftenjoini venlures \etween universities ond locql outhorities. They ore usuolly locoted

odjocenl lo universities on edge-of -town green-field siles where, becouse the lond

is of lower volue, there is plenty of spoce for cor porking, lqndscoping ond possible

fulure exponsion. The Combridge Science Pork hos been developed in coniunction

wiih Trinity College, Combridge. Existing comPqnies con be divided into ihose

moking scieniific instrunenis (38%), electronics (30%) ond drugs ond

phqrmoceuticols (22%).

Our Singopore Science Pork lies oi fhe heqri of Singopore's 'Technoloqy Corridor'which conglomerotes o high concentroiion of knowledge-bqsed corporoiions,reseorch ogencies like ihe Insiituie for Infocomn, ihe fnstituie ofMicroelectronics, Bioprocessing Technology Cenfre (Biomedicol Sciences Institute)ond lhe CSIT (Centrc fot Sirotegic Infocomm Technology) ond lertioryinstjtutions like NU5 (Fig. 12).

MAP OF :ECH'{O!OGY CT'RRI'OR ]

***.1!. rcEENN

10 3'is,!EsshR

\-assse€mLE<Hac.r..'o'1,{t utit:':3l}:: &l'

SII{GAPORE SCIENCE PAIK

Fig. 13: Locolion of Sihgopore science Pork

4. Rise of smoll ond nedium-sized enterorises

Smoll ond nedium-sized setvice entetptises ore becoming more importoni in

regionol ond economic development. They ate sociolly ond economicolly importont,since they contribute to enlrepreneurship ond innovotion ond in ihe EU; they

represent 99"L of oll enferprises ond provide oround 65 million jobs. As seen in

Figure 8 below, o substqntiol proporiion of people (slighily more thon 5O%) oreemployed in smoll ond rnedium-sized enterprises in lhe high income counlries.

60

50

4A

30

2A

10

0

MSM es Contributions to GDP and Enployment

El SME erploynEnt as %enployrEni

r SMEcontr buton to GDP

Hi6h incon€ countries Upper mddle incone

Htower mddle inconE

Fig. 14

There is o difficulty in defining whqt SMES ore, os ddiflerenl countties define

SMEs differenily. fn ihe EU, o business wifh o heodcounl of fewer thon Z5O is

clossified os medium-sized; o business with o heodcount of fewer thon 50 isclossified os smoll, ond o business raith o heodcount of fewet thon 10 is considered

microbusiness. The Europeon systen olso tokes into occounl o business's furnoverrote qnd ifs bolonce sheet.

However, there does not seen to be ony stondord definition of SME in ihe U.5.

5. Derequlotion of Public Services (e.q. public utilitiesl

As morkel forces become powetful agent in globol economic chonge, public services

such os public tronsport, provision of electricity ore l>ecoming more ond more

deregulat ed .

l hat does de?egulation nean?It refers to the reduction or eliminotion of govetnmenl power in q pqriiculorindusiry, usuolly endorsed lo encoutage ond roise the level of cornpetiiion wilhinthe industry. This is lo encouroge higher produciivity, Promofe efficient operolion

of morkets ond lower prices.

In ihe post, oreos thqt hqve 6een dereguloted include the telecommunicotion ond

oirline industries. In fhe lote 1990s ond eatly zooos the utility induslry (power

componies) in North Americo sto-ted to detegulate.

Oiher public services Jhol hove been dereguloted:

i. Bus services in London

For London Buses, bus services outside London were dereguloled in 1985. This

meont ihot ony licensed operotor could opply io run o new rou-ie even if onolher

compony olreody ron o service olong the some roods.

Although London wos exempted, it wqs iniended thol once bus services in theCopitol hod become less dependeni on governmeni ossistonce ond sieps hod been

ioken to encouroge greoier competition between operotons, deregulofion should be

extended lo anclude it.fn 1985, London Tronsport (LT) sef up o subsidiory known os London Buses Limited(LBL) io run its bus services. However, route plonning qnd fore structures remoined

the responsibility of LT.

ii. Telecommunicoiions inSingqporeSingopore's telecom morket wos completely dereguloled in 2000. Compelition wqs

introduced os soon os 5ingopore Teiecom's exclusive license for the servrce

expired. SingTel loses its rnonopoly when other mobile telephone operofors such os

Ml ond StorHub Mobile,6eganto operote comPetitive services.

iii. Woter services in Argenlino, /v\onilo etc.Woter ond sonitolion services hove mostly been publicly run os it qs olwoys been

viewed qs o public Aood. However, with growing freshwoter scorcify, mojor globol

corporotions hove been moving into lhe'woter mqrket'. Ii wos cloimed thot wiih theprivotisotion of wqier utilities, multinqiionql woter corPorotions con sove thegovernment money by providing more efficient, cost-effective operotion.

Appendix

The Concept of Deindustriolisqiion

Jhere ore 2 ways of meosuring Ihe extent toexpet i encing deindusirial izoiion:

1, The relotive decline ol nonufqcluring. Monufocturing mighi octuqlly be growing

seciors of the economy ore expqnding ottotol outpuf or employment moy still be

decline

which o monufocturing seclor is

from yeor to yeor bui if othero foster rofe, ihen the shore offollinq - this is cclled relotive

. 3 importonl meosures of relative decline ore:o A folling shore of rnonufociuring in iotol notionol outpul (6DP)

o A folling shore of industriol ernploymeni in totol employmenio A declining shore of monufqctured exports in world trode

2. The obsolute decline of honufocturing. An qbsolute decline is on octuol foll in output, employmenf, profits orinvestment spending.

. There ore 3 measures of obsolute decliner

o A dec.eose in totol employmento A shrinkoge in monufocluring output by sectoro Folling levels of copitol investment spending

Types of deindustriolizotion:1. Positive deindustriolizqtion - this is when industries reduce their workforce

to increose productivifyj this resulis in on imProvement of conpetitivenessthrough nechanizafion ond rafionalizalion whete disploced lobour is

obsorbed in the service seclor

2. Negqtive deinduslriolizotion - this is when lhe decline offecfs porticulorindustries ond regions due io inefficiencies in production or inodeguoteinfrostructure ond where disploced lobour results in unemployment