4.

lmpocl of Globol Economic Chonge

Specimen 'A' Level Questions

1. Discuss ihe impoct of globol economic chonge on the service secior.
2. Discuss ihe growth ond locotionol shifts in vorious economic octivities

Musi know concepts

Terliory sector
Quoiernory sector
Quinory sector
Decentrolisqtion
Developing hub s totus
Reseorch ond developmenl indusfry
Smoll ond medium sized entetptises
Industriol locofion

The 'shrinking world' hos greatly inlluenced globol economic integrqfion ond
increosed economic interdependence we ore currently exPetiencing. Aport from
ihoi, 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.iiory
Sectors.

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 thot
exisl 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 othen
industries).

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 this
sector include retoil qnd wholescle soles, lronsportqiion ond distribution,
enterioinment (movies, television, radio, music, Iheotre, etc.), restouronts, clericol
services, medio, tourism, insuronce, bonking, heolthcore, ond low.

In most developed qnd developing countries, o growing proporlion of v,totkerc ate

devoted 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 intongible
producls such os ironsport, heolth cqre ond recreo-tion. Services ore octiviiies thot
do not produce or modify goods. The following ore some importqnf qspecis of the
service industry:-

. In ihe producer ond consuner ore both preseni.

o typicql service
. 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 Services

Producer 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 definition
olso 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 the lote
l96os. Before then, jobs now clossed os quoternory were placed in eilher lhe
secondory or tertiory secfors depending on whethq o iongible product wos
produced or not.

Reosons for the growfh of producer services

o. 6lobolisqtion
Globolisqtion is connecied with the quick growth ond iniennotionolisotion of
producer services. The reosons for this ore thqt producer services ore not only
direci instruments ond ogents of globolisotion. They oct os inPortqnt
faciliiotors in ihe increosing trqde of goods ond services. Producer services ploy
on imporlonl role in reducing relotive distonce between ploces through ihe
building of slructures focilitoting comnunicotion between firms or through
offering experlise on globol stroiegies bosed on sPeciolised knowledge ol
foreign morkels.

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

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

b. Outsourcinq
An importont reoson for fhe growth of producer services is the wove of
externolisoiion of different funciions from business firms thqf begon in ihe
1980s 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 q
growth 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 funcfions
previously pefiorfi\ed wiihin the compony (especiolly monufocturing componies)
were con-tnocied to smoll independeni firms. The tendency for componies lo
externolise differenf tqsks previously perforned in-house is perhops the most
common 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 wiihin
setvice-reloted fields ond thetelote purchose services externolly. The lock of
compeience moy be coused by the fqcl thot fhe firm does nol hove lhe time, or
 resources to fill competence goPs in cerfoin orecs. The supply of new ond
jncreosingly odvonced services increoses ot q poce to which mony conpqnies do
not hove possibilifies to qdopt.

Quinory services
These 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 of
privote 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 gteoter
qnounts 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 the

generotion of more employment. Jobs in sociol services in the Us
increosed ot lhe tate oi over 871" l:etween 1988 ond 2000. The
decline of ihe troditionol nucleor fomily ond the emergence ol more
single odult households hos increosed the demqnd fot mote setvices.
The externolisotion of setvices meons thqt people qe poying for
services, such os cleoning, which hove troditionolly been within ihe
household.

b. New lechnoloqy olso increoses demond for services. The growth of

cosh dispensers ond cqsh cqrds hcs only occurred since the 1960s. If
requires o lorge pool of engineers ond bock-up stoff.

c. 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 indusfry
becouse 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 l9g9q
mechonizotion of services olso exploins why employnent in ihe service
sector con-finues io grow while ernploymenf in ogriculiure ond induslry
 declines 5ecouse of technologicol progress ihqt increoses lobor
productivity ond eliminofes lobs.

fnfernotionolisotion of service firms

In the setvice industry, firms oreincreosingly internotionol. Even smoll enterprises

ore exponding their firms beyond their horne countries qs in the cose of sun6ord's
System 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 universol
bonking 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 the
Noiionol Universily of Singopore (NUS). fry Leogue instifution Stonford University
hos olso ogreed to pqrtner wifh Nonyong Technologicol University (NTU) for the
loller's progrqnme in Environmentol Science qnd Engineeting.

As Singopore-bosed componies io grow ond internolionolise, ihe Internolionol

for
Enterprise 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 their
business copobilities ond find overseos porfners. At ihe some iime, IE Singopore
works fo position Singopore os o bose for foreign businesses to expond info the
reqion 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.lhe
deiermininq focior in the locoiion of services. Some other fociors offecling lhe
locotion 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 tronsPort

occessibility, 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 quolified
personnel 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 to
suburbonisqfion 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 to
concenfrcrte 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. In

conirost, oul of town there is greoter freedom of movement by rood.
Distinction befween producer and consuner services:

Producer services Consumer services

Ofien termed high-order ocliviliesj Low-order octivities or more locol in
provided in o smoll number of highly scole
developed urbcn centres, generslly
cqpitql ciiies

Freguently used by other firms or Provided generolly for people

orgonisotions

Exomples: Exomplesr
. Morkel reseqrch . Heol-fh core
. Monogemeniconsultoncy . Retoilinq
. Adveriising . Educolion
. Legol funciions . Domesfic services
. Finonce, insuronce, business . Refuse collection
services

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

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, fhey
ore 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 often
joini 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 of
Microelectronics, Bioprocessing Technology Cenfre (Biomedicol Sciences Institute)
ond lhe CSIT (Centrc fot Sirotegic Infocomm Technology) ond lertiory
instjtutions 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%) ore
employed in smoll ond rnedium-sized enterprises in lhe high income counlries.
 MSM es Contributions to GDP and Enployment

El SME erploynEnt as %enployrEni

60
r SMEcontr buton to GDP
50

4A

H
30

2A

10

0
Hi6h incon€ countries Upper mddle incone tower 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 is
clossified 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 furnover
rote 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 pqriiculor
indusiry, usuolly endorsed lo encoutage ond roise the level of cornpetiiion wilhin
the 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 the
Copitol 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 inSingqpore

Singopore'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 the
privotisotion of wqier utilities, multinqiionql woter corPorotions con sove the
government money by providing more efficient, cost-effective operotion.
 Appendix

The Concept of Deindustriolisqiion

Jhere ore 2 ways of meosuring Ihe extent to which o monufocturing seclor is

expet i encing deindusirial izoiion:

1, The relotive decline ol nonufqcluring

. Monufocturing mighi octuqlly be growing from yeor to yeor bui if other
seciors of the economy ore expqnding ot o foster rofe, ihen the shore of
totol outpuf or employment moy still be follinq - this is cclled relotive
decline

. 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 employmeni
o 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 or
investment spending.

. There ore 3 measures of obsolute decliner

o A dec.eose in totol employment
o A shrinkoge in monufocluring output by sector
o 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 conpetitiveness
through nechanizafion ond rafionalizalion whete disploced lobour is
obsorbed in the service seclor

2. Negqtive deinduslriolizotion - this is when lhe decline offecfs porticulor

industries ond regions due io inefficiencies in production or inodeguote
infrostructure ond where disploced lobour results in unemployment