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Impact of Service Sector on Operations Management

Questions:

1.Why have the service sectors of most National Economies continued to grow in Importance and how must Operations Management Change in response to this Growth?

2.What aspects of Operations Management are most affected by the increasing Globalization Internationalization of Business?

3.Is it inevitable that in the future nearly all Manufacturing Operations will be performed in low labor Cost Countries?

4.What could be the possible Impacts of Great Britain’s exit from the European Union and the Implementation of the USA’s isolationist policies on global Operations Management?

1.The service sector is a significant component for the economy of any country. This sector makes a direct contribution to the employment, GDP and provides important inputs for other aspects of economy. Thus, service sector have crucial impact on overall country climate that is an essential element of development and growth. There are some services sectors, like; education, health, water and sanitation industry, are also related to attaining the social development goals. Service sector make a significant contribution to the Gross Domestic Product (GDP) in most of the nations, generating employment opportunities and public services for the country’s economy. This is the most important sector, which is continuously improving the economic performance and offer different export opportunities (Castillo, Flores and Rodríguez, 2014). The service sector is developing with the demands, which are created by the industries to assist its growth, for example, banks require industry for making financial transactions. It accounts for a major proportion of GDP in many countries, involving low income nations, where it generates more than 50% of GDP.

There are so many factors, which are driving the continuous growth to the service sector in most of the economies. The major factors behind this growth in importance are globalization and rapid changes in technology. Among the major drivers of powerful performance of service sector is the increasing importance of globalization in various services. This globalization is increased the international sourcing of services from international markets (Enderwick, and Enderwick, 2013). Due to globalization, the demand for travel, information and communication services have increased. Thus, information technology has assisted to satisfy this demand of the organizations. Marketing and advertising services are offering assistance to all the areas of economy. Moreover, growth in importance of service sectors can be outlined to the economic growth of community and changes in the socio-cultural environment, which have supplemented it. Changing environmental factors carried out the services in front of the economy.

Impact of Globalization on Operations Management

Furthermore, economic affluence is also a key factor for increase in the demand for services. In most of the developing nations, the size of middle income people is increasing fast and the proportion of very poor household is declining. Economic liberalization had a positive effect on the households of these countries (Global Forum on International Investment, 2008). Their income and expenses has been creating the demand for services. The importance of service sector is consistently increasing in most of the national economies, as these services are assisting the countries in expanding their output of services in the fields, where they find a competitive advantage, in this way creating employment opportunities, serving more to Gross Domestic Product (GDP) and producing foreign exchange.


The operation management needs to change in response of this growth in the importance of service sector, as it poses various challenges on operation management. Due to globalization, development in the information technology and changing needs and preferences, operation management addressing the quality management and productivity has become very important. So, the operation management needs to improve the services, which are being offered to the end customers (United Nations Conference on Trade and Development, 2013). They need to enhance the service quality, as there are some international players in the industry with similar services. As these services are becoming more global and outsourced, so there is need of greater understanding and knowledge of operation management strategies. It needs to make focus on the effectiveness and efficiency of business processes. This increased globalization impacts the operations strategies of the organization in both the positive and negative manner (Kloosterman, Beerepoot and Lambregts, 2015). With the effect of globalization, the companies have changed the ways in which they maintain their operations and processes.

2.Globalization (Internationalization) is an important term that refers to the changes and transformations in the world, where the businesses are shifting from domestic countries towards more integrated globe. Internationalization of business is expanding the operations from a single nation to multiple nations. It is a complex process, in which firms have to work with different culture, environments and government rules and regulations (Russell, and Taylor, 2006). When an organization thinks to expand the business globally, it needs to change its operations strategies and management approaches accordingly. Operations managers have to analyze the different opportunities and challenges, which are present in international countries and implement appropriate strategies.

There are various aspects of operations management, which need changes under globalization. There is a great growth potential in the foreign emerging markets that have resulted in intense competition in domestic markets that forces the firms to enhance their operations and expand the business globally (Puig,   Marques and Ghauri, 2009). There has been development in the foreign demand that requires the grown international network of manufacturing. When the companies go global, Production planning become very difficult on one side and it allows efficient resource utilization on the other side. Moreover, the combination of product designing and development has become critical success factors in high-tech sectors, where the fast production and customization regulate the success in markets. As a result of this, the organizations need to maintain production facilities, resources, production plants and research and development amenities worldwide (Hirst, Thompson, and Bromley, 2015). For example, Apple Computer has developed a global manufacturing with the facilities in California, Singapore and Ireland. It allows the company to launch its new products in other markets, like; America, Asia and Europe.

Impact of Offshore Manufacturing on Operations Management


Furthermore, total quality management is also a key aspect, which is affected by increasing globalization. The impact of globalization on quality is dependent on the company (Stromquist, and Monkman, 2014). If the company does not set up an appropriate framework for quality management, then effect of globalization will be negative. Globalization can be very demanding on the company and without having a proper plan; it can create long term issues for the companies. If the companies operate their business with traditional management style and do not incorporate Total Quality Management approaches, then quality of products and services can suffer a loss. In addition to this, it may impact the supply chain management of operations management (Rushton, Croucher, and Baker, 2014). The global market has made the supply and demand more impulsive and very hard to estimate as there is a greater dependence on different firms. The international network is making the supply chain more complex, because number of customers, suppliers and plants spread across the world. Thus, increasing globalization affects some key aspects of the operations management of organizations.

3.It is inevitable that in the future nearly all the manufacturing operations will be performed in low labor cost countries. There are so many countries, which have very expensive labor costs, like; US, Australia, Canada etc. Manufacturing services are one of the most important contributors to the economy of a nation, so it is essential to manage the costs and expenses on this service. For developing more profitable manufacturing, countries try to make various efforts and outsource the labor from other low labor countries for their manufacturing process. This process is known as offshore manufacturing, under which the organizations conduct their fully manufacturing in a nation, where raw materials and labor are cheaper than their own country, for exports and finally imports in the home country of manufacturer (Gray, Leiblein, and Roth, 2013). The main countries with low cost labor are Mexico, Bangladesh, Vietnam, Taiwan, Malaysia etc.

For a long duration, foreign direct (FDI) has been an important practice among the companies in various countries, so these investments do not seen very remarkable. In the past the companies in United States went foreign to safeguard an international market or to get the raw materials. Now, these companies are using different way to enhance their business operations. They enter in other country to make or purchase the products and deliver them to their home country (Green, & Roos, 2012). But, this process is not goof, as it is not improving the domestic production, but replacing it. The manufacturing companies defend this offshoring from foreign market as the single way to deal with the high quality and inexpensive imports. Moreover, they state that shifting to low-cost labor nations, like; Taiwan, Malaysia and Mexico can allow the home country to regain its position in the world.

Implications of Brexit on Operations Management


This is not good for the home countries and its people, as it reduces the job opportunities for the people. It can be good for an individual company only, but it affects the business operations by going global. In rush of saving money, the managers in manufacturing generally lose the prospect of higher penalties of shifting to abroad (Harney, 2008). By continuously moving to cheaper labor nations, they are just delaying the inevitable day of calculation, when they should face the phase of business, when they will really need reform. The companies need to go with any other alternative than manufacturing outsourcing, because it will not lead the organizations to net costs saving due to hidden overhead costs. The manufacturers need to understand that it increases the delivery time for the order and affect the operations management of the company (Markides, and Berg, 2017). In addition to this, it also affects supply chain management of the company. These manufacturers think that it cannot be avoided, but it can be avoided, if they should hire the skilled labor for their business operations at appropriate costs, so that they can promote the domestic business environment and exports.

4.European Union (EU) is a union, which is formed of 28 nations for the objective of making the economic and political decisions simultaneously. Great Britain’s Exit (Brexit) from European Union was a significant event that affected every area of business in the global market. On 23 June, 2016, 52% people gave vote in favor of decision of Britain to exit the EU (Buiter, Rahbari, & Schulz, 2016). The major reason behind this event was to work in future with the sovereignty and freedom, so that they can take major economic and political decisions. Brexit had a large impact on the global operations management, as majorly it affected the supply chain management, distribution and logistics management. These were among experiencing and seeing some of the major shifts and severe impacts as an outcome of departure of United Kingdom from European Union (Dhingra, Ottaviano, & Sampson, 2015).


According to the Wall Street Journal article, logistics and shipping organizations could be forced to deal with the supply chain interruptions until they will not establish new regulations and trade agreements (Ranchman, 2016). Along with the hindrances in the flow of products, many companies are hoping the surge in retail businesses and manufacturing companies are looking for the support in balancing the new trade reality. This exit of UK was somewhat good for retail and logistics, but only for short term. It has made the nations across the region more closely look like China, Japan and America, because it has made the distribution and shipping operations very complex (Hallam, 2017). Global supply chain operations were become more complex, as the distribution channels become restructured and country has imposed more restrictions. In addition to this, UK’s exit from European Union forces the organization to change their operations strategies according to new rules and regulations. They face various issues in globalizing their business in international market and operating the business in another country (Hunt & Wheeler, 2016).

Isolationism is a judgmental term for the traditional policy of Americans of not engaging in long-term and permanent alliances with the other nations. It is done by United States to preserve itself from freedom of action and trusting on the Pacific and Atlantic Oceans for protecting the country. This event of the country also had a great impact on the global operations management. At that time, trade flows are controlled and international investment is also prohibited. Global supply chain that is inherent in the retail businesses are at risks of actions, which may stanch from the isolationist policies. The motto behind this policy was, “we will purchase the American and we will recruit the Americans”. It affected the global network of business operations in different industries (Kamau, 2017).

For example, Wal-Mart has made various changes in its operations management. First the company has changed its strategy to sell American made products to the consumers in the country. It has worked with different universities to bring back the manufacturing jobs in United States. The management also hosted a supplier summit that consists of an open invitation for the suppliers to demonstrate domestic products to Wal-Mart. Companies need to make focus on its supply chain and logistics management (PolkaDots, 2017). In USA, this was good as it enhanced the domestic business and employment. Furthermore, it has a better impact on the global operations management.

References

Buiter, W., Rahbari, E., & Schulz, C., 2016, The implications of Brexit for the rest of the EU, Viewed on < https://voxeu.org/article/implications-brexit-rest-eu>

Castillo, R., Flores, C. and Rodríguez, M., 2014. The relative importance of the service sector in the mexican economy: A time series Analysis. Lecturas de Economía, (80), pp.133-151.

Dhingra, S., Ottaviano, G. & Sampson, T., 2015. Should we stay or should we go? The economic consequences of leaving the EU. British Politics and Policy at LSE.

Enderwick, P. and Enderwick, P., 2013. Some economics of service-sector multinational enterprises. Multinational Service Firms,(London and New York, NY: Routledge, 1989), pp.3-34.

Puig, F.  Marques, H. and Ghauri, P.N. 2009, "Globalization and its impact on operational decisions: The role of industrial districts in the textile industry", International Journal of Operations & Production Management, Vol. 29 Issue: 7, pp.692-719.

Global Forum on International Investment, 2008, The Contribution Of Services To Development And The Role Of Trade Liberalisation And Regulation, The Organization for Economic Co-operation and Development.

Gray, J.V., Leiblein, M.J. and Roth, A.V., 2013. Quality risk in offshore manufacturing: Evidence from pharmaceutical Industry. Quality control and applied statistics, 58(1), pp.73-74.

Green, R.& Roos, G., 2012, Australia’s Manufacturing Future, Retrieved from https://www.uts.edu.au/sites/default/files/Australia%27s_Manufacturing_Future.pdf.

Hallam, N, 2017, Analysis- What Impact will Brexit have on Supply Chain Operations, Retrieved from https://www.supplychaindigital.com/scm/analysis-what-impact-will-brexit-have-supply-chain-operations.

Harney, A., 2008, The China Price: The True Cost of Chinese Competitive Advantage, Penguin Publications.

Hirst, P., Thompson, G. and Bromley, S., 2015. Globalization in question. John Wiley & Sons.

Hunt, A. & Wheeler, B., 2016. Brexit: All you need to know about the UK leaving the EU. BBC News, 24.

Kamau, 2017, The Impact of Isolationist Trade Policies on Retailers and the Communities they Serve, Harvard Business School.

Kloosterman, R.C., Beerepoot, N. and Lambregts, B., 2015. 2 Service-sector driven economic development from a historical perspective. The Local Impact of Globalization in South and Southeast Asia: Offshore Business Processes in Services Industries, 149, p.17.

Markides, C.C. & Berg, N, 2017, Manufacturing Offshore Is Bad Business, Harvard Business Review.

PolkaDots, 2017, Wal-Mart in the Face of Isolationism, Retrieved from https://rctom.hbs.org/submission/walmart-in-the-face-of-isolationism/.

Ranchman, G. 2016, Brexit and the making of a global crisis, retrieved from https://www.ft.com/content/5490d754-3a0e-11e6-9a05-82a9b15a8ee7.

Rushton, A., Croucher, P. and Baker, P., 2014. The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.

Russell, R.S. and Taylor, B.W., 2006. Operation Management: quality and Competitiveness in a Global environment. Hoboken: John Wiley & Sons.

Stromquist, N.P. and Monkman, K. eds., 2014. Globalization and education: Integration and contestation across cultures. R&L Education.

United Nations Conference on Trade and Development, 2013, Global importance of services. Retrieved from https://unctad.org/en/conferences/gsf/2013/pages/importance-of-services.aspx.

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