DISSERTATION REPORT ON

SERVICE MANAGEMENT IN THE LAND OF OPPURTUNITIES INDIA

DISSERTATION 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

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.

Introduction:
Where there are challenges, for sure there are opportunities. That is a mantra wellknown to every entrepreneur. That immediately implies that India is truly the Land of Unlimited Opportunities. The challenges have been created by a persistent attachment to 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.

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 the most 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 GDP marks 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.

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

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.

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:

Drivers of Indias services sector

IT industries:
The impressive growth in the Information technology sector has been feasible because of 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 the world, 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

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

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

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 6th place in terms of price competitiveness and 39th in terms of safety and security. Despite short- and mediumterm setbacks, such as shortage of hotel rooms, tourism revenues are expected to surge by 42% from 2007 to 2017.

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 policies in 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.

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 the domestic business, the impact may not be that severe.

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

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.

Retailing
As 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.

Shipping Services
According 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.

Employment in Services Sector

At 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.

Future Trends
1. 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.

Conclusion
Apart 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.

Bibliography:

Websites
1. www.mckinsey.com 2. Business Portal of India 3. www.moneycontrol.com 4. Government Of India Planning Commission.

Newspapers
5. Times of India 6. Economics Time