sasi report 1
TRANSCRIPT
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DISSERTATION REPORT ON
SERVICE MANAGEMENTIN THE LAND OF OPPURTUNITIES INDIADISSERTATION REPORT SUBMITTED IN PARTIAL FULFILLMENT FOR THE
AWARD OF
POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)2010-12
Submitted By
SASI KUMAR RAO
Roll no: 10039
KOHINOOR BUSINESS SCHOOL, KHANDALA
February March, 2012
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Abstract:The rise of investment in service industry has emerged as one of the most important
aspects of Indian economy. The attempt has been made to review the recent trends and
pattern and tries to identify determinants of such investments. The report explores the
human development approach and marketing approaches of service companies. It also
examines various drivers in service sectors and the challenges in front of the service
industries.
The services sector, also referred as the tertiary sector, is the largest of the three
constituent sectors in terms of contribution to GDP in India. The service sector
comprises of trade, hotels and restaurants, transport, storage, communication,
financing, insurance real estate, business services, community services (public
administration and defense) etc. The service sector provides services of final
consumption nature as well as intermediate nature, the latter accounting for a major
share. Substantial part of services such as transport and communications is in the form
of intermediate inputs of production of other goods and services. Initially in 1980s when
the services sector emerged as the main contributor to GDP, it was attributed to the
dominant role played by the public sector and rise in the pay an allowances of workers
of public sector in the after math of implementing new pay scales recommended by the
fifth pay commission. However the import of the liberalisation of trade and industrial
policies since 1984 also appears to have resulted in services growth. In addition to this,
growing urbanization has also contributed to the growth in services sector.
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Introduction:Where there are challenges, for sure there are opportunities. That is a mantra well-
known to every entrepreneur. That immediately implies that India is truly the Land of
Unlimited Opportunities. The challenges have been created by a persistent attachmentto a certain method of thinking and doing the tasks. As Einstein astutely noted, the
significant problems we face cannot be solved at the same level of thinking we were at
when we created them. Transforming the challenges into opportunities requires a
different way of believing.
The greatest opportunity that India have of building from scratch which is not
available to any developed economy. Take for instance the US. US cities are the
infamously inefficient in terms of resource use and sustainability. Practically all
Americans live in cities and if Indians were to build new, more efficient cities, you will
have the greatest difficulty populating them because people will be reluctant to move
from their home cities. Their legacy urban centers will burden the transition to living in
more sustainable cities. Contrast that with India. Most Indians living in villages would
love to have the chance of living in well-designed efficient cities.
What we in India need is not so much hard resources as we need a bold compelling
vision. We need the vision to look beyond the here and now, and see the future. If we
have a bold, coherent, inspiring and realistic vision of the future, it will serve as the
guide to purposeful action.
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Indias economy
India's large service industry reports for 54% of the country's GDP while the industrial
and agricultural sector contribute 29% and 17% respectively. Agriculture is the
paramount occupation in India, contributing for about 60% of total employment. The
service sector makes up a further 28% , and industrial sector around 12% the labor
force. The agricultural products mainly include rice, wheat, oilseed, cotton, jute, tea,
sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Industries
mainly include telecommunications, textiles, chemicals, food processing, steel,
transportation equipment, cement, mining, petroleum, machinery, information
technology enabled services and software.
Service sector is the lifeline for the social economic growth of a country. It is today themost prominent and fastest growing sector globally contributing more to the global
output and employing more people than any other sector.
The real reason for the growth of the service sector is due to the increase in
urbanization, privatization and more demand for intermediate and final consumer
services. Availability of quality services is life-sustaining for the well being of the
economy.
In advanced economies the growth in the primary and secondary sectors are directly
dependent on the growth of services like banking, insurance, trade, commerce,
education, real estate, defense, entertainment etc.
Service Sector in India today accounts for more than half of India's GDP. According to
data for the financial year 2007-2008 GDP by sector, the share of services, industry,
and agriculture in India's GDP is 53.7 per cent, 29.1 per cent, and 17.2 per cent
respectively. The fact that the service sector now accounts for more than half the GDPmarks a turning point in the evolution of the Indian economy and accelerates it to the
fundamentals of a developed economy. Despite the global economic slowdown, the
service sector in India has contributed 56 percent to the GDP during 2008-09, according
to an expert.
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Services or the "tertiary sector" of the economy covers a wide gamut of activities like
trading, banking & finance, infotainment, real estate, transportation, security,
management & technical consultancy among several others. The assorted sectors that
combine together to constitute service industry in India are:
Hotels , Restaurants and tourism
Railways & Shipping
Retail
Other Transport & Storage
Communication (Post, Telecom)
Banking
Insurance
Dwellings, Real Estate
Business Services
Public Administration; Defense
Personal Services
Community Services
Information technology
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There was marked speedup in services sector growth in the eighties and nineties,
especially in the nineties. While the share of services in India's GDP increased by 21
per cent points in the 50 years between 1950 and 2000, nearly 40 per cent of that
increase was concentrated in the nineties. While almost all service sectors participated
in this boom, growth was quickest in communications, banking, hotels and restaurants,
community services, trade and business services. One of the reasons for the sudden
growth in the services sector in India in the nineties was the liberalization in the
regulatory framework that gave rise to innovation and higher exports from the services
sector.
The rise in services share in GDP has not accompanied by proportionate increase in the
sector's share of national employment. Some economists have also cautioned that
service sector growth must be supported by proportionate growth of the industrial
sector; otherwise the service sector grown will not be sustainable. In the current
economic scenario it looks that the flourish in the services sector is here to stay as India
is fast emerging as global services hub.
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Indian Service Sector
India ranks fifteenth in the services output and it provides employment to around 23% of
the total workforce in the country. The various sectors under the Services Sector in
India are construction, trade, hotels, transport, restaurant, communication and storage,
social and personal services, community, insurance, financing, business services, and
real estate.
In coalition with the global trends, Indian service sector has witnessed a major boom
and is one of the major contributors to both employment and national income in recent
times. The activities under the purview of the service sector are quite diverse.
Amongst the various sectors which contribute to service sector few of them are
discussed below:
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Drivers of Indias services sector
IT industries:The impressive growth in the Information technology sector has been feasible becauseof low cost of operations, high quality of product and services and readily available
skilled manpower. The ITES-BPO industry has witnessed significant growth in 2005-06,
driven by increased off shoring by firms in America and Europe. Within ITES service
lines, customer care and finance have been the two fastest growing segments. Apart
from these two, some other important segments in the outsourcing industry include
human resources, payment services administration and content development. While
presently customer care remains the largest service line, finance and administration
services are expected to grow significantly over the next few years.
The global ITES and BPO market is growing at around 9 per cent. With the industry
structure undergoing change, established software service companies have entered into
ITES-BPO arena driven by factors such as cross selling opportunities, critical mass and
strong balance sheets, end-to-end service offerings. Even as Indian service providers
continue to strengthen their position as providers of Information Technology Outsourcing
(ITO) and Business Process Outsourcing (BPO) services to companies around theworld, the possibility now exists for India to add new stream of services export growth
i.e., Engineering Services Outsourcing (ESO).
Most economies are getting increasingly skill-scarce in a relative cost-effective sense,
and professionals in India could meet this gap effectively. Each year, India's universities,
technical colleges and other tertiary institutes produce nearly 100,000 engineering and
science graduates. India presently accounts for 28 per cent of IT and BPO talent among
28 low-cost countries in the world. India has emerged as a major software exporting
country with a level of US $ 23.6 billion in 2005-06, growing at a steady rate of over 30 %
in the recent past. While this cost advantage due to cheap skilled labor and the fluency in
English is a major strength for India, the pool is not big enough. Currently only about 25
per cent of technical graduates and 10 to 15 per cent of general college graduates are
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suitable for employment in the offshore IT and BPO industries, respectively. There is a
shortfall of nearly 0.5 million qualified employees in the IT and BPO sector. The potential
shortage of skilled labors has already led to an increase in wage. Wage costs are rising
by around 17 - 20 per cent per year. India will need a 2.3 million IT and BPO workforce
by 2010 to maintain its current market share.
Information technology (IT) is amidst the fastest growing sectors in the country. Growth
of Indian IT industry has been forced by the IT software and services (IT services) and IT
enabled services (ITES). The software and services (IT services) industry of India has
been moving up the value chain, giving India is extremely impressive in strength or
excellence brand equity in the global markets.
The ITES sector has also leveraged the global changes positively to emerge as one of
the prominent industries. Some of the services covered by the ITES industry would be:
Customer interaction services -Non voice and Voice.
Back office, revenue accounting, data entry, data conversion, HR services.
Medical Transcription.
Content development and animation.
Remote education, market research and GIS
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Hotels, Restaurants and Tourism:The tourism industry that includes hotels and restaurants has witnessed good times on
account of increased passenger traffic (business and leisure). The same has been the
result of government initiatives such as Incredible India campaign, signing liberal
agreements with various nations in the recent past that increased international traffic,
increased investments to develop and open new tourists destinations and increased
focus on development of infrastructure such as modernization of airports and ports; all of
which helped the industry to flourish.
The opportunities ready for the taking in the food and other service areas related to
hotels and restaurants. As the per capita incomes of Indians are increasing and the
pattern, lifestyle and standard of living is changing diversely the demand for better
hospitality is in great demand. Families and friends love to go out and have a good time
in hotels. This gives more opportunities to National and International Players. Amongst
the most interesting ones in the food sector are the following:
Indian fast food/finger food
Family diners restaurants
Sandwich & salad parlours
Bread and other bakery product outlets:
Multi-cuisine food courts:
Ice-cream and juice/beverage parlours
Indian "desserts" and "snack food" chains
The term hotels include restaurants, beach resorts, and other tourist complexes
providing accommodation and/or catering and food facilities to tourists. Tourism is the
largest service industry in India, with a contribution of 6.23% to the national GDP and
8.78% of the total employment in India. Tourism related industry include travel agencies,
tour operating agencies and tourist transport operating agencies, units providing facilities
for cultural, adventure and wild life experience to tourists, surface, air and water transport
facilities to tourists, leisure, entertainment, amusement, sports, and health units for
tourists and Convention/Seminar units and organizations. India witnessed more than 5
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million annual foreign tourist arrivals and 562 million domestic tourism visits. The tourism
industry in India generated about US$100 billion in 2008 and that is expected to increase
to US$275.5 billion by 2018 at a 9.4% annual growth rate. Certain services which can be
undertaken in hotels, restaurants and tourism field are as follows:
Personal grooming salons.
Career counseling centres.
Chain of repair and maintenance services for electrical/electronics products.
Document preparation, imaging, and storage centres
According to World Travel and Tourism Council, India will be a tourism hotspot from
2009-2018, having the highest 10-year growth potential. According to the Travel &
Tourism Competitiveness Report 2007 India is ranked 6 th place in terms of price
competitiveness and 39th in terms of safety and security. Despite short- and medium-
term setbacks, such as shortage of hotel rooms, tourism revenues are expected to surge
by 42% from 2007 to 2017.
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Financial Services-Banking and Insurance:One must note that reforms have taken place in the banking sector since 1991 despite
changes in the government. The Finance Ministry continuously formulated major policiesin the financial sector such by giving licenses to private sector banks as part of the
liberalization process, opening of the insurance sector, designing measures to increase
financial soundness like introducing capital adequacy requirements and other prudential
norms for banks, limiting the entry of foreign banks etc.
The financial sector in India has become more substantial in terms of capital and the
number of customers. It has become globally competitive and diverse aiming, at higher
productivity and efficiency.
Exposure to worldwide competition and the act of freeing from regulation in Indian
financial sector has led to the emergence of better quality products and services.
Regeneration have changed the face of Indian banking and finance. The banking sector
has improved manifolds in terms of capital adequacy, asset classification, profitability,
income recognition, provisioning, exposure limits, investment fluctuation reserve, risk
management, etc.
Broadening into investment banking, insurance, credit cards, depository services,
mortgage financing, securitization has increased revenues. As large number of players in
various fields enters the market, competition would be intensified by mutual funds, Non
Banking Finance Corporations (NBFCs), post offices, etc. from both National and
International players. All this would lead to increased worldliness and technology in the
sector. Corporate governance would come into the picture and other financial institutions
would have to reach global standards. Also the limit for FDI in private banks is increased
to 74% and the limit for FII is 49%. There are many challenges ahead for the banking
sector such as technology, consumer satisfaction, corporate governance, risk
management, etc. Some of the major players in this sector are HDFC, ICICI, HSBC,
State Bank of India, Punjab National Bank, Ing Vysya, ABN Amro Bank, Centurion Bank,
City Bank, etc.
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The insurance sector has opened up for private insurance companies with the
personation of IRDA Act, 1999. A large number of companies are competing under both
life and general Insurance. Some of the major players in this sector are LIC, Max New
York Life Insurance, Bajaj Allianz, ICICI Prudential, HDFC Standard Life, Metlife
Insurance, Birla Sun Life Insurance, etc. Various types of policies and instruments are
coming up in the market to attract more customers. Most of the population of India is not
insured, hence there is a lot of scope in this sector and a number of companies are
planning to enter the sector. Every futuristic individual would want himself to get insured.
In all of this, the sector could generate employment to the tune of 1.5 million compared to
0.9 million today.
While the policy changes have led to the development of the financial sector, growth has
also been backed by the radical change in the Indian consumers mindset regarding
credit. The banking system has evolved from the traditional banking practices of lending
and deposits to other avenues such as investment banking, insurance services etc.
Going forward, banks that have ensured sufficient capital to sustain credit growth will
increase focus on non funded income to sustain margins. A few domestic banks like
ICICI Bank and SBI are likely to be impacted by the financial turmoil witnessed globally
and will have to make provisions but the fact that they are dependant largely on thedomestic business, the impact may not be that severe.
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Telecommunication:The communication sector is one of the fastest growing sectors domestically. The
changing demographic profile and increased disposable incomes are few factors that
have driven growth of the sector. Indias teledensity has improved from under 4% in
March 2001 to over 26% by the end of March 2008; however, it is still low as compared
to other developing nations. At the end of FY08, India's mobile subscriber base stood at
261 m registering a growth of 58% YoY. The low penetration levels leave a lot of scope
for growth in this sector. Further, low tariffs that are likely to boost volumes and higher
usage will continue to give a further fillip to growth.
The Indian telecom market has emerged as one of the fastest growing telecom markets
in the world. India's subscriber base has crossed 440 million and the telecom operators
are adding a whopping 8-10 million new subscribers each month. There is still
substantial scope for further growth in this sector considering that the tele-density is only
37% in India. Telecom sector being the one of the fastest growing sectors in India and
the fastest growing telecom market in the world, with a compound annual growth of 34%
over the last decade. Today, India has nearly 490 million subscribers and with an annual
addition of more than 125 million over the last couple of years, India will reach 500
million subscriber-bases in 2010. Among the various segments, wireless or mobile
segment has been the key contributor, especially the prepaid services, offering a wide
range of opportunities to provider and services to customers. Greater demand for better
services and speed has made the market more competitive. Going forward, the sector is
likely to achieve greater growth rates with a whole range of new services expected over
next few years with the coming of 3G.
The accelerated economic growth of both India and China in recent years has been a
focus of significant policy discussion and analysis. On one hand, this growth is led by the
IT industry in India, and on the other, it is the manufacturing industry based in China.
However, service sector has played a very different role in both the countries. The share
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of service sector in Indias GDP is 54% while its share in Chinas GDP is 40.7%. Since
the 1990s, China and India have witnessed spectacular average annual growth rates of
10.2% and 6.2% respectively (for the period 1992-2005). In India, service sector has
become a dominant contributor, such that the success in this regard has been called as
Indias services revolution. However, in China, the service sector has lagged behind the
manufacturing sector.
One of the drawbacks of the Chinese service sector growth is the constant threat of
intellectual property rights violation. There is rampant piracy which is constantly
contributing to the smaller and weaker size of Chinas software firms. Despite the
differences in the Indian and Chinese service sectors, most of Indias lessons can be
applied to ensure the success of the Chinese service sector. Both India and China have
earmarked two different development paths. Each has leveraged its strengths to develop
its own industries. While India has been hugely successful in its service sector, it has
fallen short of the manufacturing sector. As a result, China looks towards India for
lessons learned and vice versa.
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RetailingAs per the available estimates, of the Rs.1,330,000 crore retail market, food and grocery
retail is the single largest block estimated to be worth Rs.7,92,000 crore (with 59.5 per
cent share), but the share of organised sector in this is miniscule. Clothing, textiles and
fashion accessories constitute the second largest block with a 9.9 per cent share at
Rs.1,31,300 crore. But the largest segments as far as organised retailing is concerned
are the timewear (48.9 per cent share) and footwear (48.4 per cent share) sectors. The
growth in modern retailing is linked to several factors particularly, the increasing
purchasing power; rapid global interaction and integration as well as the changing
consumer needs, lifestyle and attitude. Further, shopping centre business alone is
estimated to become a Rs.40,000 crore business by 2010-11.
Also, India is one of the most captivating markets for retail investment. Many national
and global players have been investing in the retail segment and have ambitious plans
for further expansion. The vast middle class with rising purchasing power are attracting
global retail giants into the almost unexploited retail industry. Some of the international
players already present in the Indian market include fast food chains like McDonalds and
Pizza Huts, Dominos, Levis, Lee, Nike, Adidas, Benetton, Sony, Sharp, Kodak etc.
Wallmart words top most retailing brand has already entered in India in cash and carry
format in partnership with Bharti.
The investment opportunities in the domestic retail industry lay in most of the product
categories particularly, food and grocery (the largest category), home improvement and
consumer durables, apparel and eating out, supply chain infrastructure (cold chain and
logistics) etc. India also has significant potential to emerge as a sourcing base for a wide
variety of goods for international retail companies.
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Shipping ServicesAccording to the Ministry of Shipping, Government of India, approximately 95% of the
Indias trade by volume, and 70% by value, is moved through maritime transport. India is
among the top 20 leading countries having large number of merchant fleets in the world.
The Gross Tonnage (GT) under the Indian flag was 10.1 million GT as of 1.09.2010, with
as much as 1029 ships in operation. Ports act as an interface between ocean transport
and land transport. India has 12 major ports viz. Kolkata (including Dock complex at
Haldia), Paradip, Vishakapatnam, Chennai, Ennore, Tuticorin, Cochin, New Mangalore,
Mormugao, Jawaharlal Nehru at Nhava, Mumbai, and Kandla, and 187 minor ports.
Nevertheless, most of the ports have not achieved their target for the year 2009-10.
Mormugao (8.5%), Tuticorin (8.1%) Mumbai (2%), Kandla (2%), and Paradip (1.8%)
were the only ports which achieved their growth target for 2009-10. Haldia (-22.1%) and
Ennore (-14%) were the two ports which showed huge variation in traffic compared to the
traffic targeted in 2009-10.
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Employment in Services SectorAt present services account for about 26 per cent of total organized sector employment
in the country while contributing a little over 55 per cent to the national GDP. A sectoral
disaggregation of the employed workforce shows that the contribution to employment of
services (excluding construction) rose from 22.8 to 23.4 per cent, while the workforce
increased from 397.0 to 457.8 million between 1999-2000 and 2004-05.
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Future Trends1. Globally outsourcing industry would continue to grow.
2. Following the success of US and UK, more countries in the European Union
would outsource their business.
3. Technological power shift from the West to the East as India and China emerge
as major players.
4. Political backlash over outsourcing would come down as companies reap the
benefit of outsourcing.
The contribution of the Services Sector has increased very rapidly in the India GDP for
many foreign consumers have shown interest in the country's service exports is the main
reason for the growth of the Services Sector.
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ConclusionApart from the various components of service sector discussed above there are certain
other areas of service sectors like Railways, other Transport & Storage, Dwellings, Real
Estate, Business Services, Community Services, Personal Services and Public
Administration Defence which have potential growth opportunity. One of the key service
industries in India would be health and education. They are vital for the countrys
economic stability. A robust healthcare system helps to create a strong and diligent
human capital, who in turn can contribute productively to the nations growth.
All this shows that services hold immense potential to accelerate the growth of an
economy and encourage general well-being of the people. They offer infinite business
opportunities to the investors. They have the capability to produce substantial
employment opportunities in the economy as well as increase its per capita income.
Without them, Indian economy would not have acquired a strong and dominating place
on the world platform. Thus, service sector is considered to be an integral part of the
economy and includes various sub-sectors spread all across the country.
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Bibliography:
Websites
1. www.mckinsey.com2. Business Portal of India
3. www.moneycontrol.com
4. Government Of India Planning Commission.
Newspapers
5. Times of India
6. Economics Time
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