MBA Preparation: Services Sector

Post independence, the inclination of Indian leaders towards Fabian Socialism*, central planning and unbelievable quantity of bureaucratic red tape proved to be disastrous. It resulted in the creation of the license raj, responsible for the strangulation of the private sector and was responsible for the spread of rampant corruption and massive inefficiency. The whole economy stagnated until India liberalised its policy in the early 90’s. Following the exchange rate crisis in 1991, the minority congress government of P. V. Narsimha Rao under the stewardship of Manmohan Singh as the finance minister put India on the international map reducing tariffs from an average of 85% to 25% of import value and making the rupee convertible though only partially. What followed was a complete transformation of the economic scenario. From a predominantly agrarian base, the face of the Indian economy has seen a complete cosmetic change especially so in the last three decades. Agriculture as the main driver of the economy has regressed to the backyard. In its place today are sunrise segments and particularly the Services Sector, which accounts for more than 50% of the Gross Domestic Product.

Agriculture, manufacturing and services are the corner stones of the Indian economy. While there is no need to emphasize what constitutes the first two, services are that part of economic activity which have come a long way in occupying the most important position in the overall economic spectrum. This sector has been powering growth in the Indian economy since the last decade. The service sector covers a number of sub-segments like Financial, Telecommunications, Healthcare, Consultancy and most importantly Software Services.

Services can be defined as activities or benefits that one party can offer to another, essentially intangible and not resulting in the ownership of anything. The American Marketing Association defined it way back in 1960 as “activities, benefits or satisfactions which are offered for sale or provided in connection with the sale of goods.” Through the decades various definitions of services have been offered.

Of recent the definition of a service takes into account its following characteristics:

  • They are by and large activities
  • They are intangible
  • They take place in the interaction between the customer and the service provider which means that the services are produced and consumed simultaneously
  • Customer has a role to play in the production process as the services are produced in response to the problems of customers as solution

India with its huge literate work force and zealous technological advancement has emerged as a leader in providing various types of services not just locally but also globally. The low cost proposition offered by Indian companies in providing various types of services has powered it to being one of the most favoured destinations for global corporations keen at outsourcing their requirements to third parties in a bid to reduce costs without compromising on the quality.

India’s high capabilities in Information Technology, and its booming IT software exports are well known. However there are other segments of the service industry, which are nevertheless important. For instance the high quality and experience of the medical fraternity in India has put its Health Care industry on the global map. With super-speciality hospitals specialising in both traditional Indian medical systems supported by state-of-the-art equipment are attracting patients from across the world and constitute a significant segment of the India’s services sector.

Education is another field, which not only comprises a huge segment of the services sector within the country but also is a foreign exchange earner by way of non-resident and foreign students enrolled in major medical, technological and other institutions in India and also by way of exporting manpower in this field to various parts of the world. In fact the demand for teachers from India is on the rise especially in the United States and England in recent times.

Being the second largest technically and scientifically manpowered country in the world, Indian consultancy services have been growing in demand universally. There lies immense scope for India to undertake project and management consultancy, repair and maintenance work, pre-publishing services and Research & Development in various disciplines. Indians have already made a mark as suppliers of varied services, and are available as consultants, medical specialists, health workers, financial and banking experts, educationists, and a host of other services segments.

In general there may be a host of sub-segments of the service sector that can be chronicled into volumes. However the most notable progress (apart from Software services) achieved by this sector has been in the field of financial services, which form a very important segment of the economy today. Companies the world over look at India as the most suitable destination for outsourcing their financial services requirements.

Globally interest rates are at an all time low and this had provided an added impetus to the financial sector the world over. Increased activity in the financial services industry has made this segment even more vibrant. The last decade has seen the broadening and deepening of financial markets the world over. India has one of the most developed financial markets in the developing world. Huge opportunities exist in this sector both in banking as well as the non-banking segments. The recently opened up Insurance industry has further broadened the scope of progress in this sector. Top companies world over are active in the Indian financial market. Some of the big names are Merrill Lynch, Oppenheimer, J.P. Morgan, Morgan Stanley, Grindlays, Standard Chartered, Hong Kong and Shanghai Banking Corporation among others. Many of these look at turning India into their global back office hubs for transaction processing as also customer support activities.

Banking and financial services are the most attractive employers in the services sector. Students from premier institutes are picked up from campus at the management trainee level as are those from second rung institutes, though salary scales differ considerably. Growth however is entirely dependent on performance and a fast track employee can see his career move up to the position of head of a division within 5 years. The minimum salaries fall in the range of 10 -12 lakhs and job satisfaction makes up for the amount of time invested.

Healthcare services are another important area where Indian business has triumphed. The industry is expected to touch a size of close to $150 billion by 2020. This includes the pharmaceutical market, government and private spending. Several economic factors make India an exciting opportunity in healthcare services. The huge Indian population offers the first step towards a large opportunity in this segment. Sound healthcare, which is in short supply offers immense opportunity for the growth and development of this sector. Demand for healthcare services in India far outpaces the supply. Moreover outsourced support services in the healthcare industry are another significant opportunity for Indian business. Services such as medical transcription have already seems various phases of demand. With improving skills among medical professionals and further technological advancement, this sector is poised for huge growth in the near future.

These apart the service sector in India is all set for a huge growth. Among these the software services sector is a jewel in the crown of India’s booming service sector. Huge employment opportunities for the working class and large business opportunities for entrepreneurs via the outsourcing call are keeping the segment abuzz in economic circles. For once if the country returns to its past glory of being a major force in other sectors like agriculture and creates a niche for itself over China as a manufacturing powerhouse, the predictions of it being a financial superpower are bound to become reality far ahead of the documented dates.

Socialism : An economic system based on state ownership of capital.
* Fabian Socialism : Advocating gradual reforms within the law leading to democratic socialism