Classifying Services in International Markets

A useful typology of service firms in international markets is provided in Figure.  It distinguishes and gives examples of different types of service firms operating internationally with reference to two main qualifying dimensions: their respective degree of intangibility, and the respective degree of face-to-face client contact required or necessitated.

Each of the four cells illustrated in the figure also serves to reveal a few useful strategic and managerial insights.  For example:

Cell 1: Location-Free Professional Services
  • Permanent presence in foreign country not required, but travel and associated costs may be high.
  • Limitations on what can be learned/gained in the foreign country.
  • High dependence on international (tele)communications systems and effectiveness.
Cell 2: Location-Bound Customized Projects
  • Permanent presence in foreign country necessitated.
  • Time, effort and cost intensive.
  • Multi-lingual and cross-cultural skills usually necessary.
  • Autonomy vested in local representatives requires careful management.
  • Subject to local competitive and other pressures.
Cell 3: Standardized Service Packages
  • Limited customer contact and knowledge.
  • Indirect forms of communication may prove problematic and require careful monitoring.
  • Intellectual property opens to imitation and piracy.
  • Company image and reputation very important.
Cell 4: Value-Added Customized Projects
  • High interaction with customer necessary.
  • Time, effort and cost intensive.
  • Highly dependent on resource capacity and flexibility, individual expertise and empowerment.
  • Quality control may be problematic.
Keys to Export Success in Service Industry
Classifying Services in International Markets
Classifying Services in International Markets

Recently researched experience of successful service exporters reveals a pattern of behavior and practice which may be distilled into a few maxims for success.  These are:

  • The development of a strategic export formula and system suitable to both the market of entry and to the organization and its resource capabilities
  • Adequate funding
  • Demonstrable competitive advantage and value
  • Knowledgeable and well-connected local contacts of value
  • A commitment to service quality
  • A commitment to the customer
  • Personal expertise
  • A commitment to R & D
  • Value-added service product strategies
  • Vigilant cost management
Why are service exports more subject to cultural sensitivity issues than exports of physical products?

This is because service exports, in general, involve a great deal more face-to-face contact than the export of goods. Services where cultural sensitivities are likely to be most problematic include those of a personal or professional nature where the sense of personal, physical and psychological risk is perceived to be high.

And where there is likely to be a relatively high degree of personal contact. Cultural sensitivity means that time and effort must be invested in getting to know people and their ways, in establishing not only relationships, but one’s credentials as a prelude to gaining trust and confidence.

This process cannot be forced or rushed, but must be given the time, attention and due diligence expected by local partners. In turn, this impacts directly on the financial and human resource costs of establishing international operations, and underscores the importance of having knowledgeable, well-connected and respected host country advisers.

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