Leveraging Value Across Borders—Do ‘Market Place Interactions’ Trump ‘Market Space Transactions’?: Evidence from Australian Firms in Industrial Markets Robert Jack
Abstract One of the challenges for any firm is a sustainable approach to value creation. As firms aim to create additional value for their clients, their output comprises a combination of supplementary service activities supporting the development of, or increased utility of, a good or a service. However, products comprising goods and/or multiple service components are complex and add to the logistical and operational challenges of product delivery across international markets. Although the use of innovative technologies for international service delivery is available to the firm, some degree of direct interaction may still be required for various types of supplementary services, such as customised design, installation, maintenance and on-going after-sales service support. By undertaking an exploratory case study of four Australian firms, operating in industrial markets, this chapter seeks to assess the use of service innovative technologies in the delivery of supplementary services to international clients. For all case study firms, the delivery of supplementary services formed an important component of their international strategy. In particular, the provision of maintenance services was assessed by senior management as their company’s competitive advantage. A key finding is a preference for direct delivery of services, in conjunction with technology. This is for two reasons—first, not all service-related problems can be successfully resolved via technology; second, is for the firm to retain the ability to provide customer relationship building, specifically for the purpose of enhancing value creation.
Keywords Service delivery Inseparability Value creation Service technologies Embedded services
R. Jack (&) Department of Marketing and Management, Faculty of Business and Economics, Macquarie University, Sydney, Australia e-mail:
[email protected] © Springer-Verlag London 2015 R. Agarwal et al. (eds.), The Handbook of Service Innovation, DOI 10.1007/978-1-4471-6590-3_30
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1 Leveraging Value Across Borders—Do ‘Market Place Interactions’ Trump ‘Market Space Transactions’?: Evidence from Australian Firms in Industrial Markets 1.1 Introduction Services represent an increasingly significant component of the international economy. Services are defined as deeds, processes, and performances (Grönroos 2000; Hill 1977; Nicoulaud 1989; Shostack 1977). In contrast to a good, a service involves interactive activities either performed, or directly delivered, by a firm to its customers. The term ‘inseparability of production and consumption’ is applied to describe this service process and has emerged as a significant point of difference between services and goods (Berry 1984; Lovelock 1983). Although commonly assessed as separate product categories, researchers acknowledge that there are numerous service activities that firms ‘embed’ with products (Bowen et al. 1989; Dunning 1989; Robinson et al. 2002; Ulaga and Reinartz 2011). These can range from services delivered before the production of a good, such as customised design, to post-production services, such as installation and on-going post-sale service support for a good. Similarly, embedded services can be used to develop or support service-based products. In this regard, service packages, consisting of a combination of core and supplementary services have been identified (Grönroos 1998; Lovelock and Yip 1996). In a similar manner to services embedded with goods, different combinations of service activities may merge to form offerings, or value creating packages. In both these instances, a firm progresses beyond providing a product solely with good or service characteristics. As firms aim to create additional value for their clients, their output increasingly comprises a combination of value-creating activities organised around a product, which could be a good or a service (Ulaga and Reinartz 2011). Understanding the composition of a firm’s productive output has particular relevance to internationalisation. The successful delivery of services may require some form of direct interaction between the user and the provider (Erramilli and Rao 1990, 1993; Grönroos 1998; Vandermerwe and Chadwick 1989). Consequently, firms that provide services may enter foreign markets directly to fulfil the needs of customers and may not have the option of exporting, as (some) services may not be delivered successfully to consumers in this manner (Cardone-Riportella and Cazorla-Papis 2001; Cicic et al. 1999; Clark et al. 1996; Erramilli and Rao 1990). Although many services are presumed to require interactive delivery, researchers have long considered how technology may affect the requirement for the provider and client to interact with each other. The concepts of e-service and service technologies have received increasing attention and suggest that traditional market place interaction is being replaced with ‘market space’ transactions. In terms of internationalisation, this provides the firm with opportunities and a dilemma. A firm intending to conduct business activities in a foreign market must choose an
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appropriate entry mode for product delivery (Morschett et al. 2008). Diverse product composition implies that firms may be required to undertake multiple tasks across international markets. These multiple tasks may require the use of distinct entry modes for each (Morschett et al. 2008). If these tasks are responsible for the firm’s competitive advantage the firm will choose an appropriate delivery method consistent with the maintenance of its competitive advantage. Technology allows services to be embodied in a codified format. This opens the way to a more flexible, efficient delivery option thereby enabling the firm to ‘reach’ international customers across a broad range of markets. However, the dilemma posed for the firm is the leveraging of value. Contact personnel and the social/interpersonal aspects of a service encounter play a much greater role than technology in forming quality perceptions (Jayawardhena et al. 2007; Murray and Schlacter 1990). As Pehrsson (2007, 2008) asserts, localisation of value-adding activities close to customers enables firms to gain an understanding of customer needs, hence enhancing their competitive advantage. The current research aims to expand our understanding of how firms evaluate their product components and leverage value across international markets. In order to understand how firms deliver value to their overseas clients, this paper adopts a qualitative case study methodology and examines the entry mode approach of four industrial Australian firms all with sales across international markets. Our chapter is structured as follows: we provide an overview of service characteristics and their compatibility to delivery via technology. We then detail how internationalisation may affect service delivery. After providing a brief overview of each case study firm, we discuss the implications of the data, and provide a conclusion.
1.2 Services and Embedded Services Services represent not only an integral component of the delivery system of a final product (a good and/or a service) but also represent an essential component of production (Dunning 1989; Giarini 1987, 1994, 2002; Grönroos 1999; Leo and Philippe 2001; Ulaga and Reinartz 2011). Giarini (2002, p. 61) explains: If we consider all sectors of contemporary economic activity, it can be shown that services of any sort comprise the essential part of production and utilisation systems of both goods and services.
The relevance of this definition is that it highlights that firms increasingly rely on the development of services in order to improve their economic performance in production and product utilisation. Researchers have, therefore, explained that services are embedded in products at both the pre-production and post-production phases (Giarini 2002; Grönroos 1999; Hirsch 1988, 1989, 1993; Lovelock and Yip 1996; O’Farrell et al. 1998). Consequently, embedded services are responsible for extending the value of a product beyond that incorporated in its tangible features to extend its overall performance. Internal activities, such as research and development,
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can be oriented toward cost-reduction initiatives, which although they may ultimately benefit the customer, may not be apparent to the customer. Conversely, installation, after sales service, customised design and guarantees and warranties will be visible to the end user. Taking this broader understanding of service activities into account, Grönroos (2000, p. 46) defines a service as: A process consisting of a series of more or less intangible activities that normally, but not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems.
This definition is more comprehensive and suggests that a service can be delivered either as an individual activity or in combination with other product forms. Early proponents of services marketing emphasised that services contain characteristics that distinguish them from goods (Berry 1984; Carman and Langeard 1980; Grönroos 1978; Shostack 1977). Expanding on these differences, some researchers conclude that services contain four characteristics that differ markedly from manufactured goods (Berthon et al. 1999; Coviello and Martin 1999; Gabbott and Hogg 1994; Patterson and Cicic 1995; Roberts 1999)—intangibility, heterogeneity, perishability and inseparability. Of the four characteristics inseparability is frequently cited as especially important, and has received a substantial amount of attention in the literature. Researchers argue that much of what makes a service special is that it is a ‘lived-through’ event. Lovelock (1983); Grönroos (1998); Lovelock et al. (2001) define services as a ‘process consumption’. As services are created as they are consumed there is more scope for tailoring a service to meet the needs of individual customers (McLaughlin and Fitzsimmons 1996). Lovelock (1983, p. 12–13), explains: If customers need to be present during the service delivery, then they must enter the service ‘factory’ and spend time while the service is performed. Their satisfaction with the service will be influenced by the interaction they have with the service personnel, the nature of the service activities and also perhaps by the characteristics of other customers using the same service.
However, inseparably is by no means an exclusive characteristic as services can be ‘splintered’ or ‘separated’ from their original production and embodied in a tangible format for separate sale or delivery (Bhagwati 1984; Erramilli and Rao 1990, 1993; Sampson and Snape 1985). Examples of such separation, or splintering, are the transfer of services by correspondence or electronic transmission (Berthon et al. 1999; Grubel 1987). In some of these examples, the service function can be presented in an accessible format. In these cases, ‘inseparability’ no longer applies. Several researchers (Meuter et al. 2000; Zaheer and Manrakhan 2001) have considered how technology may affect the requirement for the provider and client to interact with each other. The concepts of e-services and service technologies has received increasing attention (Bartezzaghi and Ronchi 2003; Berthon et al. 1999, 2008; Meuter et al. 2000; Moen et al. 2008; Mulligan and Gordon, 2003; Petersen
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et al. 2002; Surjadjaja et al. 2003; Vatanasakdakul et al. 2010; Zaheer and Manrakhan 2001), and suggests that traditional market place interaction is being replaced—or supplemented—with ‘market space’ transactions. Rayport and Sviokla (1995, p. 14) describe the ‘market space’ as a virtual realm where products and services exist as digital information and can be delivered through information-based channels. Advances in information and communication technologies have made it easier for firms to connect with individuals and other firms remotely and to interact with them at many levels no matter where they are located (Zaheer and Manrakhan 2001). It also enables disintermediation of the internal and connected value chains of the firm hence creating a multitude of new service opportunities. Service-based information content, which can be clearly specified with measurable outputs in terms of quality and quantity, could be suited to transmission via remote access (Meuter et al. 2000). Such remote access is particularly feasible in activities that involve significant levels of information or digital content and which form an increasing proportion of the value add for many manufacturing and service firms. This provides the firm with both opportunities and dilemmas. The potential for technology innovation to transform delivery from an inseparable to separable format creates greater growth opportunities for the firm as it allows for a more efficient delivery across a broader set of markets or segments. In this way, market space transactions effectively replace market place interactions. However, the dilemma posed is that the firm needs to determine the value of undertaking this. Leamer and Storper (2001) explain that, regardless of the ability of technology to allow long distance ‘conversations’, it does not replace the ‘richness’ of face-to-face interaction. The requirement for the delivery of complex, uncodified ‘messages’, requiring trust and understanding, implies that face-to-face contact is still essential. The movement toward customisation and relational marketing, point towards firms maximising product–customer interaction rather than minimising it (Beaven and Scotti 1990; McLaughlin and Fitzsimmons 1996; Vargo and Lusch 2004a; Vargo and Lusch 2004b).
1.2.1 Services and Internationalization Differences in product separability can influence a firm’s decision to adopt a particular entry mode when entering markets. There may be a range of international market entry mode options open to a firm producing a particular type of service product. Although the options do not follow any particular sequence, the firm can pursue a number of different entry modes (‘direct export’, ‘indirect entry’, ‘electronic transmission’—sometimes referred to as ‘wired exports’, ‘contracting’, ‘information-based services’ and ‘direct investment’) (See Ball et al. 2008; Grönroos 1999; Lovelock and Yip 1996; Roberts 1999). Berthon et al. (1999) explain that inseparability, combined with the additional elements unique to the international environment (technological, economic, physical, socio-cultural, and political–legal) make the internationalisation of a firm’s service activities complex (Clark et al. 1996; Dahringer 1991; Fernandez 2001;
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Patterson and Cicic 1995). A ‘location-bound service’ limits the service provider in the internationalisation options they can pursue as the service relationship between the provider and the user restricts the ability of companies to export services without engaging in a form of foreign direct investment. This may require the firm to ‘skip’ the export stage when it begins its internationalisation process, as it is simply not possible for the firm’s product to be delivered to the user via this mode. The use of various forms of e-technologies has the potential to improve the efficiency of market transactions as companies can reduce their search costs significantly and increase their ability to respond flexibility to new market opportunities (Petersen et al. 2002). Firms must also consider the transaction costs associated with co-ordinating and controlling relationships and transaction flows among external partners. Every transaction places resource or asset demands on the providing institution (the firm). A number of key studies utilized transaction cost theory to analysis both firm-customer exchanges and the entry modes associated with service delivery (see Bowen and Jones 1986; Brouthers and Brouthers 2003; Petersen et al. 2002). Transaction cost theory suggests that the appropriate governance structure for a given transaction and, therefore, the appropriate entry mode, is one that minimises total transaction and production costs (Datta et al. 2002; Dunning 1979, 1988, 2001; Madhok 1997; Williamson 1979). Efficiency is achieved by reducing the costs of negotiating, monitoring and enforcing the exchanges between parties to a transaction. When directed to the activities of the firm, a transaction cost approach argues that firms choose their optimal structure for each stage of production by evaluating the costs of economic transactions (Anderson and Gatignon 1986; Brouthers and Brouthers 2003; Teece 1986). Brouthers and Brouthers (2003) cite three different factors that influence transaction costs: asset specificity, environmental uncertainty and behavioural uncertainty, with asset specificity being the prime determinant of integration. When such investments are made, a supplier and a buyer are locked into the transaction because the assets are specialised to that transaction and have limited or no value outside that transaction. In these examples, asset specificity is defined as ‘high’. Services vary with respect to their asset specificity and these variations may result in differences in entry mode selection (See Contractor and Kundu 1998; Dunning and Wymbs 2001; Erramilli and Rao 1993; Fladmoe-Lindquis and Jacque 1995; Murray and Kotabe 1999). As some services are likely to be people intensive, competitive advantage tends to be derived from idiosyncratic assets (training and knowledge), and entry mode choice may vary with the degree of idiosyncratic asset investment. When services being provided require high levels of idiosyncratic assets internal sourcing, in the form of direct investments, is the outcome. This overview is relevant as researchers have focused on the relationship between the increasing use of technology and the effect that this may have on the level of asset specificity (Bartezzaghi and Ronchi 2003; Meuter et al. 2000). Specifically, the adoption of internet service strategies can lead to reduced transaction costs, largely because products are easier to describe, and because
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information transfer across markets is more efficient. That is, the specificity of assets is reduced (Bartezzaghi and Ronchi 2003; Mulligan and Gordon 2003; Petersen et al. 2002). Bartezzaghi and Ronchi (2003) point out that Internet technology provides the possibility of increasing the effectiveness of communication and delivery through its standard protocols and worldwide access. Dunning and Wymbs (2001) also emphasise that the Internet may assist in reducing asset specificity by permitting increased specialization of a firm’s value creating activities. The variability in transaction costs may influence management decisions regarding organizational form and the assignment of transaction flows to assets (Mulligan and Gordon 2003). This provides a rationale for the firm to adopt those technologies with the aim of reducing transaction costs and thereby allowing a greater flexibility in terms of reaching a greater number of foreign markets. However, the dilemma it faces is that it may contradict one of the key tenants of firm internationalisation—emphasizing the importance of building tacit knowledge in foreign markets by the localisation of value adding activities close to customers enabling the firm to gain an understanding of customer needs, hence enhancing their competitive advantage (Pehrsson 2007, 2008).
1.3 Research Method The current research seeks to understand the use of technology in service delivery across international markets. To achieve this objective, the methodology must be one that lends itself to both exploration and theory building. This objective makes qualitative research a particularly attractive research tool as it seeks to explain the relationship between the components of a firm’s product and its delivery choices. It is a complex phenomenon. Understanding such an intricate relationship calls for direct contact with the respondents. The aim is to build on existing knowledge and to interpret strategy formation and implementation in a real life context, but without specifically excluding any variables at the outset (Yin 2003). The approach allows for an open and flexible investigation to be conducted with the aim of developing new insights into service innovation, delivery and firm internationalisation. The context of the study is important here. The qualitative method allows researchers to understand the context-specific depth of a phenomenon (Bamberger 2000). This method also allows the researcher to investigate a contemporary phenomenon (service delivery) within its real-life context (firm internationalisation) (Yin 2003). As such, it is likely to provide a better understanding of the dynamics of the entry modes pursued by firms. A qualitative, case study-based research technique using in-depth, face-to-face interviews can provide a rich, focused, and realistic account of the impact of service innovation on a firm’s entry mode strategy. As internationalisation is a complex phenomenon, it is difficult to understand the intricacies of the firm’s situation without being directly in contact with the respondents. The result of this on-going contact provide ‘rich descriptions’ essential for analysis. This research utilises the multiple case study method. Researchers have
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described the case study as a potentially powerful method of identifying and testing patterns across studies (Amatatunga and Baldry 2001; Gummesson 2000; Larsson 1993). According to Feagin et al. (1991) and Hamel et al. (1993), multiple case studies have distinct advantages in comparison to single case designs. Yin (2003) argues that evidence from multiple cases is often considered more compelling and the overall study is therefore regarded as being more robust. Multiple case studies, like multiple experiments, allow replication logic. The multiple case study approach is useful for the current research, in that it allows firms with different products to be chosen as individual cases for analysis. Although there is no ideal number of cases, Eisenhardt (1989) advocates a range of at least four to a maximum of ten. Potential case study firms were initially identified using academic contacts, reviewing case study literature and recommendations by representative bodies such as the Australian Trade Commission (Austrade) and The Australian Business Foundation. Contact was initially made with firms via email with potential interviewees being informed about the characteristics of the investigation together with a request to collaborate and assist in the study. Those firms that responded with interest were then asked formally for their participation. Four firms agreed to participate in the study. The firms were all small to medium size and operated in business-to-business markets. Their key characteristics are listed below in Table 1. The Chief Executive Officer, or designated managing director, was interviewed to explain the firm’s current product focus, how the firm has approached internationalisation, and the role that service characteristics may have played in that process. Functional managers in the areas of business development, marketing and operations were interviewed to ascertain how components of each firm’s product are delivered internationally. The interview protocol was designed to gather information in relation to the nature of product composition and internationalisation. Interviewees were asked to explain the service composition and characteristics of their product offerings. Subsequently, the CEOs were asked whether the degree of service innovation, had an impact on the company’s existing foreign markets entry-mode choice. Table 1 Characteristics of case study firms Firm
Product classification
Percentage of total sales from international markets (%)
Year of establishment
Total number of employees
Case 1 Case 2 Case 3 Case 4
Industrial design and manufacturing Industrial design and manufacturing Industrial design and manufacturing Software design and installation
60
1972
120
85
1969
30
77
1985
180
25
1990
42
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A total of 20 interviews (five for each firm) were conducted with senior staff. Interviews typically lasted 60 min and were recorded and transcribed. All data were coded in nVivo software. Individual case studies were reviewed by case participants. All interviewees were sent a copy of their transcribed interview for validation. This process, which Flick (2008) calls ‘member checks’, allows communicative validation of data and interpretations with participants of the study. After all individual case studies were written, a cross case analysis was conducted to synthesise the findings from all four cases. Analysis was conducted primarily through pattern matching logic (Yin 2003).
1.4 Overview of Results 1.4.1 Case Study 1 Case study 1 has a history of industrial design, manufacturing and product maintenance throughout Australia. Their product composition was explained by the CEO: Well it is design, manufacture, maintenance, and in some cases refurbishment. The company has diversified to a certain extent into providing other maintenance capability services and manufacturing services for additional market segments.
Its international market development is detailed in Table 2. Case study 1 product offering requires a significant amount of interaction with clients, as explained by the Marketing Manager: It does require a significant amount of interaction. If you look at Australia, we have 14 operations scattered in key customer interface positions. In Asia we’re currently using the Hong Kong office as the hub; if you say you are going to provide the service to ensure the reliability, then clients like to see people on the ground.
However, maintenance can be electronically provided by the firm’s service support offices, which are strategically located throughout Australia and Asia. Accordingly, the CEO stated that, in regard to maintenance: Some of our products have built in components with the ability for electronic feedback, so that regardless of where the product is, our people can diagnose the problem without physically having to be there. It can all be done remotely.
Table 2 Case 1 international market information Country or region
Percentage of international sales (%)
Entry mode used to access each market
Establishment
Hong Kong
60
Maintenance facility
1995
South-East Asia Other
30
Export
2000
10
Export
2000
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Table 3 Case 1 embedded services and separability Service type
Length of service activity
Frequency of service activity
Method of delivery
After sales support— maintenance
On-going
On-going
Interaction and electronic transmission
In the Hong Kong market, face-to-face business is more common as accepted business practice, so a more interactive approach is considered appropriate. This was seen as a reflection of the complex nature of firm’s product, and the fact that the firm’s international clients expect a customised approach to their individual product needs, as explained by the CEO: Certainly, technology has improved the situation; however, we have to convince the customer that we are capable of doing the work before you get the opportunity to price it. We have to convince them that we have the capability, the technical resources and the financial capability. This result in a more interactive approach to service delivery rather than just relying on the basics of electronic transmission.
Table 3 provides an overview of the firm’s service and delivery method.
1.4.2 Case Study 2 Case study 2 is a designer and manufacturer of industrial goods and also provides a significant amount of service support for its finished product. Their product composition was explained by the CEO: Our slogan is ‘building products and partnerships’. The service component is important for helping our brand name and for delivering our slogan—we try to work fairly hard at that, which means we turn up at their factories more than our competitors do.
Its international market development is detailed in Table 4. The firm organizes the delivery of its service support in two ways. First, some of the service support can be done from head office by electronic transmission. This normally requires the firm to access their product’s internal software on-line and Table 4 Case 2 international market information Country
Percentage of international sales (%)
Entry mode used to access each market
Establishment
Malaysia/Thailand
40
Joint venture
1972
20
Exports/agents
1999
35
Joint venture
2002
Exports
1972
North and South America China Other
5
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Table 5 Case 2 embedded services and separability Service type
Length of service activity
Frequency of service activity
Method of delivery
After sales support— remote reading After sales support— consulting
On-going
On-going
Electronic transmission
On-going
On-going
Interaction
reprogram it to resolve a problem. These remote repairs are conducted at head office and can be done at any time. It does not require any on-going interaction with the firm’s clients, other than the client making the firm aware that a problem exists and requires immediate attention. Second, some service support requires the firm to travel directly to the client to solve the problem. The CEO estimates that additional service support is normally split: Some of the service support can be done from head office and some has to be done in the field. A lot of the problems are solved at the commissioning stage and during the warranty. Anything after that will be around 60 % from the office and 40 % from the field.
The Marketing Manager explained that the on-site service assistance is more often a relationship building exercise which goes beyond the specific purpose of the visit: So they are happy because someone is holding their hand and we are happy because we are never out of their face.
The service visits require the firm to provide a technician for routine service ‘calls’, four times a year. Table 5 provides an overview of the firm’s service and delivery method.
1.4.3 Case Study 3 Case study 3 is a designer and manufacturer of specialised medical equipment and provides a significant amount of service support for its finished product. The Director of Operations defined the product as follows: If you look at what we do, typically we might design and build one machine and never do it again because it is a very specific requirement or client need. So I would say that what we do is not really a product it is a service. The fact that we deliver hardware is part of that is kind of irrelevant, as we are providing that as part of a service.
Its international market development is detailed in Table 6. The service support can be provided electronically or remotely by using devices such as webex, emails. The Director of Operations stated: It is interesting that fairly recently in the last 3–4 years we are relying more and more heavily on using some of the latest technology which allows us to connect to a machine via
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Table 6 Case 3 international market information Country
Percentage of international sales (%)
Entry mode used to access each market
Establishment
North America (USA and Canada) Europe
70
Sales and marketing office Agents × 3
2002 2000
Agents × 2
2000
25
Asia/Pacific
5
Table 7 Case 3 embedded services and separability Service type
Length of service activity
Frequency of service activity
Method of delivery
After sales support
On-going
On-going
Interaction and electronic transmission
modem. So we are able, with the technology available now, to be able to do a lot of diagnostics over a phone line. So a lot of the ‘troubleshooting’, which we would normally have to send someone out too, can now be done by dialing up the machine and we can have a look at what going on and diagnose what the problem is and, providing that you have someone reasonably competent at the other end, you can fix it remotely. So we are relying on that at the moment as our front-line way of dealing with that sort of issue.
However, the company is committed to supporting the technology it has developed in a direct and interactive way: So, often you could justify the service trip on the basis of being about relationship maintenance. And given that you are traveling quite often you can incorporate other things to make that trip more cost effective……I don’t think you can ever avoid that. So in that case I don’t think that technology will help a lot because that is still going to be a very personal thing.
Table 7 provides an overview of the firm’s service and delivery method.
1.4.4 Case Study 4 Case study 4 delivers and installs software application solutions tailored to clients’ specific needs. The company’s product is utilised by over 10,000 licensed users across more than 1,300 customer organisations throughout Australia, New Zealand, and Malaysia. The CEO described the product as follows: We regard ourselves as a solution provider. Because the product is no longer a desk application—it was and we still have quite a few products like that within our range—most of it now requires it to be set-up properly and people have to be trained, so it is an enterprise wide solution, as opposed to a desk top application.
Its international developed is detailed in Table 8. All interviewees highlighted the interactive nature of the methodology. The CEO explained:
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Table 8 Case 4 international market information Country
Percentage of international sales (%)
Entry mode used to access each market
Establishment
New Zealand Malaysia
20
Subsidiary
1995
60
Joint venture
2002
Nigeria
20
‘Export’ from head office
2002
Most of it is face to face; you have to meet the key players or stakeholders and people who are going to run the system, help set-up their core project office team and so forth. So there is a lot of interaction. We virtually camp at the client’s site and become part of their team as such.
All interviewees emphasised the inseparable nature of the service embedded in their product package. However, it was explained that maintenance was a combination of inseparable and separable components, with interaction required only as a ‘last resort’: Most of our support is delivered by email, or over the web where customers can log onto a knowledge portal and look for resolutions. I would say that 90–95 % of all our (post installation) problems are resolved by e-service technologies. There is 5 % where we need to send someone to site, but they are rare exceptions, as what we try and do is resolve the problems without incurring the expense of sending someone. We would do it obviously when it really needs to happen, where we need to be pro-active as part of the escalation process; or sometimes we are trying to build a special relationship with the customer.
The provision of the firm’s maintenance services for overseas clients is achieved via a process known as escalation. The CEO and other respondents explained that the escalation process occurs throughout the their network, so if the problem cannot be dealt with by either the Malaysian or Australian helpdesks, then it can ‘escalate’ to helpdesks operating from the USA or Europe. Such a process ensures that any direct interaction required by the firm is really only supplied when it becomes clear that the escalation process cannot assist the client in resolving their problem. However, respondents stated that although the escalation system was designed to minimise the requirement for sending a technical person to the client’s site, the firm will provide such a service if it feels that it is important for creating client value or relationship strategies: We will send someone on site to see what the person is doing and correct what they are doing because it is part of our customer management policy.
Table 9 provides an overview of the firm’s service and delivery method. Table 9 Case 4 embedded services and separability Service type
Length of service activity
Frequency of service activity
Method of delivery
After sales support maintenance
On-going
On-going
Electronic transmission and interaction
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1.5 Discussion We previously draw attention to the trend towards the provision of e-service technologies across international markets (Bartezzaghi and Ronchi 2003; Meuter et al. 2000; Surjadjaja et al. 2003). We also highlighted that over the last decade researchers have developed terms such as ‘wired exports’ (Roberts 1999); ‘electronic marketing’ (Grönroos 1999) and ‘information based services’ (Lovelock and Yip 1996) to explain the method of service delivery through technology or electronic transmission. The data collection process revealed that all case study firms use technology, in various forms, to assist in the delivery of their product package internationally. Although all firms emphasised the practicality of electronic technology in communicating with their international clients, the focus of the research was on how firms were using technology to deliver services internationally. A summary of the service type and delivery method for each case study firm is presented in Table 10. The firms use technology to assist with the delivery of various embedded maintenance services for their international clients. However, all explained that, although various forms of e-services technologies were used quite consistently for clients in the Australian market, each firm realised that this ‘indirect’ approach for service delivery is not always appropriate for clients in international markets. Rather face-to-face interaction is the preferred method of delivery. This ‘preference’ for direct delivery of advice and associated services displays some compatibility to the literature identifying the ‘richness’ of face-to-face interaction in service encounters in comparison to the indirectness of on-line delivery (Leamer and Storper 2001). Roberts (1999, p. 80) research highlights that embodied service exports and various forms of electronic transmission, such as ‘wired exports’, are less popular methods of service exportation than those that incorporate face-to-face contact. The case study firms explained that on-line service delivery is always combined with direct delivery of maintenance services internationally. Senior management emphasised that their aim is to provide the majority of maintenance services via on-
Table 10 Delivery of embedded services via technology or web-based facilities Firm
Type of service delivered by technology
Used to as a delivery mode in international markets
Used in conjunction with direct delivery of services
Cast study 1
After sales support maintenance After sales support remote readings and consultation After sales support
Yes
Yes
Yes
Yes
Yes
Yes
After sales support maintenance
Yes
Yes
Cast study 2
Cast study 3 Cast study 4
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line access. In most cases, the aim is to supply up to 90 % of selected maintenance services by delivery through various forms of electronic transmission. However, respondents also emphasised that they cannot entirely rely on service technologies across international markets. The value of direct delivery, by company staff to international clients, was always emphasised. For example, although Case Study 4 ‘escalation process’ of on-line maintenance service provision is comprehensive, the need to supply staff internationally, for direct delivery of maintenance services, is integrated into the firm’s international strategy. The other case study firms applied similar arrangements. The preference of the firms for direct delivery of maintenance services, in conjunction with technology, is for two reasons. First, not all maintenance problems can be resolved successfully via technology. Therefore, the firms had to retain the ability to directly deliver their embedded services to international clients. This became particularly important as all four firms had their client base in industrial markets. Consequently, unresolved maintenance problems for their clients could mean a temporary shutdown in production, and substantial loss of revenue. Therefore, each firm had to guarantee their international clients the ability to provide direct support for their product if it was required. Often the requirement for direct delivery is only given at short notice. Accordingly, it is difficult to anticipate when a service employee will be required to travel from head office to the client. The second reason to retain the ability to provide direct delivery of maintenance services is client relationship building. Case study firms 2, 3 and 4 explained the importance of direct service delivery as a means of enhancing client trust and ensuring a high degree of satisfaction. For all firms, the delivery of embedded services formed an important component of their marketing strategy. In particular for Case study 2, the provision of maintenance services was assessed by senior management as their company’s key competitive advantage. Similarly, senior management at Case Study 1, whose electronic maintenance network is quite extensive globally, explained that the expectation in overseas markets, particularly their major international market in Hong Kong, was for clients to see maintenance staff ‘on the ground’. Accordingly, direct delivery of certain services was undertaken for relationship building purposes, even though technology could still provide the service to the client.
1.6 Conclusion International service activities requiring a significant amount of interaction and customisation do have greater transaction cost drivers. The current research does provide some support for the literature that emphasises that technology and electronic service transmission can reduce the asset specificity and transaction cost of services. The development of service innovations and online technologies has opened up new channels through which companies can reach international
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customers with opportunities inherent in transcending the barriers of location and distance. The trend towards substantial embedded service delivery via service technologies was evident and was emphasised as a desirable and appropriate format. Importantly, although each firm’s ability to deliver elements of their embedded services via on-line technology was acknowledged, all four firms emphasised the additional value generated by delivering these services directly to their international clients. They further explained the necessity of integrating a direct service delivery requirement into their internationalisation strategy, regardless of the extent of electronic or on-line service transmission. Each firm’s assessment of leveraging value across their international markets was a balance between what could be delivered to their clients on-site and what could be delivered via technology. Future research could look at the implications of information and communications technology for firm internationalisation and the delivery of services to international clients. The research has been limited to a qualitative study. Future research could form the basis of a quantitative research study, allowing researchers to apply its findings over a broader range of firms. All of the case study firms could be classified as small-to-medium-sized enterprises. Research into larger firms with similar types of product packages would be useful. It would also be beneficial to conduct a longitudinal study to examine whether the established pattern of these firms is stable over more than a single point in time.
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