service industries

SERVICES HAVE become a driving force in the global economy and the rise of the “new economy” amplifies this trend. However, for a long time, services were viewed as nonproductive activities. This situation was also justified in terms of services as invisible and intangible inputs to other material products that were largely supplied on an individual basis rather than in an integrated, horizontal fashion. Services were largely produced and consumed simultaneously and most were not regarded as being able to be traded, whether within or between national economies. Recent improvements in technology, coupled with reductions in trade barriers, have increased the opportunities for market services internationally. Also, services have influenced the cost structure and relative competitiveness of firms, industries, and regions.

Defining services is not an easy task. With the expansion in corporate outsourcing activities alongside the perceived need for firms to become more marketand service-oriented, it has become increasingly difficult to identify service companies (employees provide many internal and external services, including those in manufacturing firms). It has generally been accepted that services differ from manufacturing products along the dimensions of intangibility, heterogeneity, inseparability, and perishability. Furthermore, the intrinsic nature of any service is to interact with and support the reproduction and production needs of other economic activities. Services are not just economic. Services are heterogeneous and they are profoundly rooted in social and cultural transactions. Basically, services industries include retail and distribution; financial services, including banking and insurance; hotels and tourism; leisure, recreation, and entertainment; and professional and business services, including accounting, marketing, and law. Several categories of services exist; however, one should distinguish between hard services and soft services.

Service industries are central, not peripheral activities. They are now considered the largest economic element of developed nations. In developed countries services can represent as much as 80 percent or more of the gross domestic product (GDP). In developing economies, services represent on the average approximately 50 percent of the GDP. Nonetheless, total world services trade is a fraction of world goods trade, showing the need to reduce barriers.


The geography of services is no longer of local or national significance: it now embraces an international state. Service industries have been enabled and become participants in world trade. In 1986, the Uruguay Round and the World Trade Organization (WTO) created a significant agreement—the General Agreement on Trade in Services (GATS)—because it began to reduce previous national restrictions placed on the market of international services and foreign direct investment. The agreement was expected to increase international trade and the growth of the global economy. Statistics show that in the UNITED STATES, the service sector now constitutes 77 percent of the workforce.

Although this is not a new role, during the 1980s service industries became a much more active force in the process of social and economic change. For exporters, both in developed and (in growing numbers) in developing countries, there is an increase in income and jobs. For importers, again in both developed and developing countries, access to state-of-the-art services in a host of different sectors provides the essential infrastructure, without which economies could not achieve full potential. Also, trade in services requires the presence of a particular infrastructure (such as banking, auditing, or corporate legal advice).


New and diversified services have generated increased consumption, ranging from tourism and leisure to sophisticated innovations in ways of making financial capital available. Service industries are strongly concentrated in major urban economic areas (and districts) and have influenced the emergence of special locales, such as LONDON; spaces of consumption such as shopping malls; office working spaces; and urban service clusters. Main cities normally absorb the major part of services, mainly advanced ones, so the surrounding areas must buy many of these activities in the center. Services can be internally or externally provided. However, the spatial interrelations between supply (workers, establishments) and demand differ according to the type and nature of the services. There are also some limits to the concentration of the service industries (congestion costs, environmental issues, and other limits derived from the agglomeration economies).

Service industries in general tend to be less international than manufacturing, and the internalization process of service firms differs significantly. Service firms have been slower to expand internationally than their counterparts because many firms faced the inseparability and the perishability of most services. Additionally, the high fixed-cost structure of many service industries and the problems of unfamiliarity and service intangibility make it difficult for all but the largest service firms to successfully create enough local business to establish and support an overseas operation. They also face problems arising from heterogeneity (that is, variability in service output). This implies that firms will have trouble maintaining a consistent worldwide brand image, which will lead to difficulties in controlling international operations. It has been further suggested that the market for services is not homogneous between nations as government conditions and restrictions are also thought to have a larger impact on services than on manufacturing firms.

These factors require that service providers need to be physically proximate to the service consumer and that the output of service firms cannot be stored. As a result, this restricts the ability of the service firm to venture overseas to export and therefore requires the establishment of local national subsidiaries. Many researchers have revealed that most service firms are not operating in a purely multilocal form but that many have started to integrate and coordinate their international subsidiaries.

Over the last two decades, global services rose worldwide at an impressive rate. Service employment as a proportion of total employment rose steadily during the late 1980s and early 1990s, most notably in developed countries such as the United States, CANADA, the UNITED KINGDOM, and FRANCE. The rate of increase of new business has currently eased but still remains strong. From the mid-1990s onward, the increase in the share of service employment in total employment began slowing down. Growth in employment is currently lagging behind the upturn in economic growth, but one expects recruitment to accelerate in the next few years as the recovery in the global economy for services keeps growing.

Ongoing changes in the economy are now influenced by service industries. The evolving spatial and structural attributes of service industries and their impact on individuals, firms, regions and institutions (performances, modes of organization, internationalization's effects, and intrametropolitan location dynamics) provoke the emergence of new, complex, and interesting issues in society.