External Stimulation Accelerating a Structural Shift to Service-Oriented Industry- a Cross Country Comparison

Summary

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Under the paradigm shift from an industrial society to an information society, that emerged in the 1990s, a structural shift from a manufacturing-based industrial structure to a service-oriented industrial structure has become crucial for a nation's competitiveness. While it is generally postulated that a shift to a service-oriented industrial structure is a consequence of a virtuous cycle between an increase in income level leading to a qualitative change in demand and increased service industry productivity, historical evidence on national growth around the world reveals the fact that an increase in income level does not necessarily induce a shift to a service-oriented industrial structure as expected. Given the above postulate and a virtuous cycle, the solution of this contradiction is a crucial subject of services management. This paper attempts to identify the source of the contradiction regarding the above postulate. On the basis of an empirical analysis of the growth trend, sectoral structure and income level of 100 countries over the last two decades, a certain threshold was found to exist in the level of income for inducing qualitative change in demand that spurs a shift to a service-oriented industrial structure. In addition, it was demonstrated that an increase in income to a level higher than the threshold cannot be expected solely from an increase in manufacturing industry productivity. External stimulation that includes trade liberalization, deregulation and technological innovation for maximizing the vitality of both domestic and foreign investment is indispensable.

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External Stimulation Accelerating a Structural Shift to Service-Oriented Industry- a Cross Country Comparison

(ProQuest Information and Learning: ... denotes formulae omitted.)

INTRODUCTION

Services industry has been demonstrating rapid growth around the world from the 1960s. The share of tertiary industry, which is almost equal to services industry in broad sense, in GDP has been demonstrating increasing trend from 43.9% in 1960 to 52.1% in 2000 as illustrated in Figure 1.

This rapid growth of services industry has drawn keen interest among economists, particularly after the general economic slowdown in the 1970s leading to the discussion on the paradigm shift from an industrial society to a post-industrial society (Bell, 1973). However, the substance of this new paradigm still remains hidden.

After the 1970s, the significance of services in broad sense has been rapidly increasing around the world. For example, in the world where demand has strong impact on the economic performance, efficient management of input factors and/or outputs such as just-in-time system, is more important for productivity growth than the large machinery in the manufacturing industry. In this context, the significance of many professional skills and knowledge such as legal, financial, communication, personnel, R&D services, has been increasing within a firm. The shift to "serviceoriented" manufacturing industry emerged particularly in advanced countries (Watanabe and Ane, 2003). This shift within a firm results in the shift to a service-oriented industrial structure together with the increasing trends in "outsourcing" professional services.

On the other hand, services industry has absorbed and assimilated th...

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