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From United Nations University

33. TNCs in the Service Sector

33.1 Introduction: The importance of the service sector in the
                   world economy
    a) the growing percentage of GNP accounted for by services;
       and the reasons for the same

    b) services as a pre-requisite for development and a 
       consequence of development

    c) the role of services in the changing international 
       division of labour

    d) the distinction between service activities by TNCs 
       and TNC service firms

    e) the distinction between  producer and consumer services

33.2 The special characteristics of services and the significance
     of TNCs
    a) characteristics of services -intangibility, perishability,
       need for face to face contact between buyer and seller,
       variability in quality

    b) types of TNC service investments
      i) resource-based: tourism
     ii) import substituting: branch banking, insurance,
         management consultancy, advertising profesional services
    iii) export platform: finance and reinsurance, data
     iv) rationalized investment deriving out of a) and b)
         e.g. in hotels, investment banking
      v) trade related: import and export merchandising,
         marketing, etc.
     vi) transport related: shipping, airlines
    vii) construction and engineering

    c) services activities in which TNCs are most active
      i) where quality control and reputation are important
         competitive assets
     ii) producing, interpreting and transmitting technical
         and financial information
    iii) where there are economies of scope and global

    d) determinants of TNC involvement in service sectors
      i) OLI advantages (see 5)
     ii) ready access to markets; service TNCs follow goods
         TNCs overseas
    iii) trade barriers
     iv) regulatory requirements, incentives by host country
      v) market failure considerations

    e) the impact of new technologies and the trend towards
       deregulation, the international financial integration
       and the tradeability of services

    f) the opening up of service infrastructure projects to
       foreign firms e.g. in Greece, Brazil, Chile and other
       developing countries

33.3 The costs and benefits of TNC involvement in the service
    a) intermediary services to other producers vs. final
       services to consumers

    b) services to other foreign investors vs local customers

    c) interlocking nature of some kinds of services e.g. data
       gathering, communications and banking

33.4 Forms of involvement
    a) equity investment e.g. in consultancy

    b) franchising, e.g. fast food chains, car rental

    c) management contract, e.g. in hotels

    d) technical service agreements, e.g. in petrochemical

    e) turnkey operations, e.g. in construction projects

    f) subcontracting, e.g. major buying groups

33.5 Some distinctive features about the developmental impact
     of TNCs in the service sector
    a) technology transfer

    b) balance of payments

    c) employment

33.6 The special role of TNCs in banking and advertising

      i) banking - retail, service and wholesaling TNC banks as main
         source of finance capital for non-banking TNCs (UNCTC(1987)).
         Transnational banks and the debt crisis
     ii) advertising - impact on consumer tastes, cultural values,
         traditional sectors etc.
    iii) information technology and data processing (Sauvant 1986),
         (UNCTC 1987)

33.7 Policies and Codes
UNCTC(1978, 1980, 1982, 1982c, 1983, 1987, 1988, 1989)
UNCTAD(1985) Dunning and McQueen in Rugman (ed)(1982)
Sauvant(1986) Van Rens(1982) Seymour(1988) Enderwur(1989)
Riddle(1986) Schwamm and Yerciai(1985)
See Bibliography