Presented April 8th, 2015 atS.C. Johnson Graduate School of ManagementEmerging Markets Institute

Humberto RibeiroVisiting Scholar

Prof. Lourdes CasanovaAcademic Supervisor

Emerging Services

What are Services• Intangible products/commodities that satisfy wants or needs

• Economic activities that produce time, place, form, or psychological utilities

• Economic activities that transform goods and talent into well-being

ServicesIntangible

Perishable

Variable (Inconsistently

Unique)

Customer driven

(Involvement)

Inseparable

Customer and Service

Provider CAN be

separated in all

TRADABLE ServicesSources:Service Management: An Integrated Approach to Supply Chain Management and Operations – Cengiz Haksever, Barry Render (FT Press, 2013)World Trade Organization – Services Profile 2014

Definition

What does “Emerging Services” mean?

• Conceptual model in development

Emerging Services

Services Trade

Growing Services

(Emerging Markets)

Innovative Services

(Developed Markets)

Definition

Services Classification

• According to UN Central Products Classification 2.00 to 4 - Goods

5 - Constructions and construction services53 - Constructions

54 - Construction services

6 - Distributive trade services; accommodation,

food and beverage serving services; transport

services; and electricity, gas and water

distribution services61 - Wholesale trade services

62 - Retail trade services

63 - Accommodation, food and beverage services

64 - Passenger transport services

65 - Freight transport services

66 - Rental services of transport vehicles with operators

67 - Supporting transport services

68 - Postal and courier services

69 - Electricity, gas and water distribution (on own account)

7 - Financial and related services; real estate

services; and rental and leasing services71 - Financial and related services

72 - Real estate services

73 - Leasing or rental services without operator

8 - Business and production services81 - Research and development services

82 - Legal and accounting services

83 - Other professional, technical and business services

84 - Telecommunications, broadcasting and information

supply services

85 - Support services

86 - Support services to agriculture, hunting, forestry, fishing,

mining and utilities

87 - Maintenance, repair and installation (except construction)

services

88 - Manufacturing services on physical inputs owned by

others

89 - Other manufacturing services; publishing, printing and

reproduction services; materials recovery services

9 - Community, social and personal services91 - Public administration and other services provided to the

community as a whole; compulsory social security services

92 - Education services

93 - Human health and social care services

94 - Sewage and waste collection, treatment and disposal and

other environmental protection services

95 - Services of membership organizations

96 - Recreational, cultural and sporting services

97 - Other services

98 - Domestic services

99 - Services provided by extraterritorial organizations and

bodiesSource:http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=25 accessed Feb. 9, 2015

Definition

Are Services Good for the Economy?• Services growth & Agroindustrial growth

impacting GDP per capita

– Japan grows GDP despite AI decline

– UAE modest GDPpC growth despite high AI growth

– Nigeria and China high GDPpC growth while SVC grow stronger than AI

– Mexico and Egypt with good AI growth had slower GDPpC growth than Turkey India and Russia, which had similar AI growth, but higher SVC growth

• Jobs – final consumer rules!

• 21st Century agenda (global, modern, green, systemic, pervasive…)

Sources:The World Bank – Growth of the Services Sector -www.worldbank.org/depweb/beyond/beyondco/beg_09.pdfThe World Bank - http://data.worldbank.org/ accessed Feb 9, 2015

Definition

More than Cogs

• Macro-policy Example: China focus on Services

Beijing - November 9th to 12th, 2013Third Plenary Session of the 18th Communist Party of China Central Committee

Since then:• Lifting price controls• Changing tax

incentives• Removing barriers

(telecom, finance)• Privatizing state

assets

Source:http://www.xinhuanet.com/english/special/cpcplenum2013/economic.htm accessed Feb. 9, 2015

Definition

The Three Dimensions

Emerging Services

• For Everyone– Individual Services

• From glasses to cups to watches to family appliances

– Governmental Services• Security, Governance, Public Services

– Supply-chain Services (Embedded)• Productivity, Efficiency

• A Few Current Triggers– Smart Cities– Web of Things– Industrial Internet– Aging Society– …

Innovative Services

Source:http://www.nbcnews.com/tech/innovation/teslas-elon-musk-says-human-driven-cars-may-be-illegal-n325331 accessed Mar. 17, 2015

Innovation

Global World Product & Services ShareWorld Bank Data 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total GWP 30,643 31,301 31,213 31,089 32,241 33,284 33,087 34,335 38,560 43,412 46,965 50,880 57,328 62,858 59,539 65,217 72,140 73,514

Services GWP 18,643 19,099 20,433 20,591 21,496 22,220 22,428 23,498 26,399 29,590 32,074 34,690 39,220 43,284 42,032 45,653 50,374 51,591

% Serv 60.8% 61.0% 65.5% 66.2% 66.7% 66.8% 67.8% 68.4% 68.5% 68.2% 68.3% 68.2% 68.4% 68.9% 70.6% 70.0% 69.8% 70.2%

60.8% 61.0%

65.5%

66.2%66.7% 66.8%

67.8%68.4% 68.5%

68.2% 68.3% 68.2% 68.4%68.9%

70.6%70.0% 69.8%

70.2%

54.0%

56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

70.0%

72.0%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U$

Bi

Global World Product & Services Share

Total GWP Services GWP % Serv

Source: The World Bank - http://data.worldbank.org/ accessed Feb 9, 2015

GWP Compound Growth (95 to 12) 5.3%

GWServP Compound Growth (95 to 12) 6.2%

Growth

• 2013 GDP (U$) and % of Services in Total GDP

Country Ranking by Services GDP

Source: The World Bank - http://data.worldbank.org/ accessed Feb 9, 2015

From 50 Countries GServP Total GDP % Serv

23 are Developed 32,682,960,845,180 43,642,121,112,231 74.9%

27 are Emerging 14,249,475,546,358 26,471,729,562,837 53.8%

Total 46,932,436,391,538 70,113,850,675,069 -

13,030,848,507,621 United States 77.71

4,259,214,832,234 China 46.09

3,600,205,894,102 Japan 73.18

2,552,647,894,726 Germany 68.43

2,202,659,980,513 France 78.49

2,120,309,409,660 United Kingdom 79.16

1,599,561,105,479 Italy 74.42

1,556,616,771,858 Brazil 69.32

1,293,245,463,560 Canada 70.79

1,253,477,601,515 Russian Federation 59.78

1,103,675,069,588 Australia 70.73

1,070,273,977,423 India 57.03

1,029,325,784,676 Spain 73.89

778,094,185,755 Mexico 61.71

771,063,947,171 Korea, Rep. 59.11

647,625,653,675 Netherlands 75.88

529,747,757,203 Turkey 64.44

504,193,516,455 Switzerland 73.56

421,457,420,276 Sweden 72.71

402,385,064,284 Belgium 76.67

393,728,559,445 Argentina 64.56

346,252,184,253 Indonesia 39.87

333,673,550,988 Poland 63.45

301,266,127,238 Austria 70.34

297,486,232,263 Nigeria 57.01

295,548,640,124 Norway 57.66

281,338,666,667 Saudi Arabia 37.59

254,536,876,154 Denmark 75.78

254,114,793,663 Hong Kong SAR, China 92.74

245,545,335,972 South Africa 70.03

223,026,560,001 Singapore 74.86

214,463,349,292 Colombia 56.67

199,610,988,057 Greece 82.41

188,345,686,198 Finland 70.45

184,311,640,524 Venezuela, RB 42.05

176,091,811,495 Thailand 45.47

174,251,065,656 Portugal 76.65

172,535,565,252 Ireland 74.34

169,855,256,780 Chile 61.28

167,144,555,484 Iran, Islamic Rep. 45.31

162,244,252,422 United Arab Emirates 40.33

157,152,559,586 Malaysia 50.18

156,846,715,989 Philippines 57.65

134,905,921,329 Kazakhstan 58.18

128,316,876,809 New Zealand 69.07

126,734,704,090 Czech Republic 60.7

125,976,667,833 Egypt, Arab Rep. 46.32

124,987,538,541 Pakistan 53.81

111,139,339,441 Ukraine 62.64

104,374,532,217 Peru 51.58

Growth

• Replication & Franchising of Business Models

• Infrastructure(Energy, Telecom, Logistics, Sewage)

• Family Demand

– Needs(Finance&Insurance, Healthcare, Education, Real Estate)

– Desires(Tourism, Content, Entertainment)

Growing in Breadth and Depth

Growth

Services Trade

Source: United Nations Conference on Trade and Development - http://unctad.org/en/conferences/gsf/2013/Pages/Data-on-services.aspx accessed Feb. 9, 2015

1995: WTO

2001: China @WTO

1994: Commercial Internet

2008: Global Financial Crisis

1998: Y2K Bug & Offshoring

1989:Berlin Wall

1986: Perestroika

Major Tradable Services in 2013:

• Travel = U$ 1,200 Bi• Transport = U$ 906 Bi• Financial = U$ 335 Bi• Royalties = U$ 310 Bi• IT Serv. = U$ 285 Bi• Commun.= U$ 120 Bi• Construct = U$ 120 Bi• Insurance = U$ 105 Bi

Trade

Gross World Product & Trade• (U$ Billion)

$53,050

$22,543

$4,720

$18,604

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Services Goods

GWP 2013 (U$ Bi) Trade 2013 (U$ Bi)

Sources:United Nations Conference on Trade and Development - http://unctad.org/en/conferences/gsf/2013/Pages/Data-on-services.aspx accessed Feb. 9, 2015The World Bank - http://data.worldbank.org/ accessed Feb 9, 2015

(8.9%)

(82.5%)

Trade

Moving Forward

Emerging Services

Gold Rush?

• Scenarios

World Economy maintained growth:

Growing Services:

Innovative Services:

Services Trade:

GWP Compound Growth (estimate 13 to 25) 2.6%

GWServP Compound Growth (estimate 13 to 25) 3.1%

With continuous growth, by 2025 GWP is (U$ Bi) 103,170

Total GWP Growth in $ terms (U$ Bi) 29,655

With continuous growth, by 2025 GWServP is (U$ Bi) 76,581

Total GWServP Growth in $ terms (U$ Bi) 24,990

% of GWServP in GWP in 2025 scenario 74.2%

Moving Forward

9.9%

12.3%

14,609

9,889

5,745

4,323 Dvlping Services Growth in $ terms (U$ Bi)

Dvlping Services Trade Compound Growth (01 to 13)

Global Services Trade by 2025 (U$ Bi)

Global Services Trade Growth in $ terms (U$ Bi)

Dvlping Services Trade by 2025 (U$ Bi)

Services Trade Compound Growth (01 to 13)

Dvlping What-if Scenario 1 Scenario 2

Dvlping % Services 62.5% 70.0%

GservP Dvlpg would be 20,380,096,875,809 28,501,208,802,398

GDP would be 32,602,350,892,289 40,723,462,818,878

Services Opportunity 6,130,621,329,452 14,251,733,256,040

Tied with the above!

Where are the Opportunities?

• Find Gold… or Sell Tools!

• TradabilityPeople flow, internet, globalization… Customers reach out across the globe!

• InnovationServices can be greatly improved by business models transformation, webification, digitalization, and other innovation

• IncipiencyServices still have huge untapped marketspace in many regions and segments (Education, Entertainment, Logistics, etc)

• ConsistencyQuality, certification, training, auditing and other support activities (Services) will ramp-up as fast as (or even faster than) Services in general

• OutsourcingServices are, in many cases, still state-owned ventures which are being either deregulated, granted and/or sold to entrepreneurs

• Social StructureTransformations in societies provide new opportunities. Social inclusion, gender equality, aging population are examples

• FragmentationMultiple service industries today are still not consolidated for the benefits of scale and/or scope

Moving Forward

Public Policies

• Tradability• Innovation• Entrepreneurship• Outsourcing• Formalization• Certification & Metrics• Education• Labor• Infrastructure• Tax structure & Incentives• …

Moving Forward

Thank You!