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    The internationalization ofservices: trends, obstacles andissuesSaeed SamieeCollins Professor of Marketing and International Business, College ofBusiness Administration, The University of Tulsa, Oklahoma, USA

    Keywords Services marketing, International marketing, Trade barriers, Market entry

    Abstract The international market for services grew to $1.2 trillion in 1995 and has beengrowing at double-digit rates. The USA possesses the lion's share of the world's servicesexports and stands to gain significantly from lower barriers to trade in services. However,despite the significant progress already made, numerous barriers remain and manycountries have not joined the multilateral negotiations for eliminating or loweringexisting barriers. This study examines the history of market access and trends, theobstacles to the international marketing of services, and key issues includingclassification methods and economic, regulatory, and cultural impediments, and offersdirections for future research.

    The USA has by far the largest net services trade surplus among key

    industrial nations. Its services sectors realized just over $100 billion in tradesurplus in 1997, compared to about $60 billion in 1994 (Foreign Trade

    Outlook, 1998). However, Germany and Japan do not benefit from the same

    global competitiveness as the USA in the services sectors and, as a result,

    produce significant annual services trade deficits (approximately $39 billion

    and $50 billion in 1994, respectively). This poor showing is quite surprising

    given these nations' competitive strength and world-class performance in

    merchandise trade. Thus, from an international competitive strength and

    strategy viewpoint, the USA enjoys an excellent position in global trade in

    services.

    According to the World Trade Organization (WTO), the value of global trade

    in services was estimated at $1.2 trillion in 1995 which constituted about

    25 percent of global merchandise trade. The value of global trade in serviceshas been growing at double-digit rates and this trend is expected to continue.

    For example, the volume of services trade grew by 14 percent in 1995 over

    the previous year (The Economist, 1997). The service sector has accounted

    for the highest portion of total economic activity in Hong Kong, the USA,

    and France since the early 1990s. In general, the shift towards a service-

    based economy in key trading countries has been evident since 1970. Only

    three countries (i.e. China, Korea and Singapore) produced a larger

    proportion of their GDPs from the manufacturing sector in 1992 than in 1970

    (Blaine, 1996). Despite its growing size and tremendous importance,

    however, services trade was never a part of GATT negotiations until the

    Uruguay Round.

    The purpose of this study is to examine market trends and obstacles to the

    internationalization of services and to offer prospects for future development

    in international service marketing. In the sections that follow, a brief

    history of the international services trade and the obstacles to the

    international marketing of services are presented. Next, the issue of global

    The current issue and full text archive of this journal is available at

    http://www.emerald-library.com

    Market trends

    JOURNAL OF SERVICES MARKETING, VOL. 13 NO. 4/5 1999, pp. 319-328, # MCB UNIVERSITY PRESS, 0887-6045 319

    An executive summary for

    managers and executive

    readers can be found at the

    end of this issue

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    competitiveness in services marketing is discussed. Finally, several

    important issues about international marketing of services and future

    research directions are highlighted.

    Market access: a brief history

    In terms of absolute volume, the USA is by far the largest exporter of

    services. Its total services exports were $277 billion in 1997, representing a

    growth rate of 8.5 percent over 1996 (Foreign Trade Outlook, 1998). This

    dominant position was the main reason for the leadership role assumed by

    the USA in negotiating the Uruguay Round. In September 1986, after theagenda for the Puta del Este, Uruguay Round of GATT had already been

    drawn, the USA took a hard-line position that services, foreign direct

    investment and intellectual property restrictions had to be added to the

    agenda. The US objective was to bring services trade under the same rules

    and governing body as merchandise trade.

    The US demand met with objections from many developing nations, notably

    Brazil and India. Though many nations initially opposed the USA, the

    developing nations in particular did so with good reason. Consider, for

    example, the computer services industries. The inherent national importance

    of this sector for development is widely known to governments. It also

    follows that if data processing and analysis are handled only through service

    importation (for example, by sending the data abroad through transnational

    data transfer), the nation will not gain the necessary competence, trained

    personnel, and software and hardware industries which are essential in

    competing globally across many industries (Goff, 1992; Gupta, 1992). Not

    surprisingly, both Brazil and India were among the most vocal opponents of

    the liberalization of services trade to the very end.

    Given the opposition of numerous nations, the progress resulting from the

    1993 Uruguay Round for services trade was limited. In general, member

    countries agreed to apply the basic GATT framework to services trade in due

    course. About 88 of the 117 nations involved in the 1993 agreement also

    pledged to liberalize trade in a wide range of services. However, air

    transport, labor movement, financial services and the telecommunicationssectors faced special provisions, but nations agreed to negotiate further on

    the latter two industries. These matters were formalized in the General

    Agreement on Trade in Services (GATS) which is one of the 15 agreements

    that together make up the WTO (Sigmund, 1998). According to Article 19 of

    GATS, the next round of services negotiations will take place in January

    2000.

    The financial services and telecommunications agreements were separately

    negotiated in 1997. The support for market access for these services has been

    broad, but less than unanimous: terms for financial services were agreed to

    by 102 nations (with many exceptions) and only 69 nations agreed to the

    terms of the telecommunications agreement (Sigmund, 1998). Although

    significant progress on market access in many service categories has beenmade, much work remains to reach the generally low level of barriers

    negotiated in merchandise trade.

    Obstacles to the international marketing of services

    Barriers to the international marketing of services are numerous. Some

    obstacles are merely conceptual in nature, whereas others are based on

    tradition and regulation. Collectively, these problems have contributed to the

    exclusion of services trade in previous GATT negotiations. First, there is a

    General Agreement on

    Trade in Services

    320 JOURNAL OF SERVICES MARKETING, VOL. 13 NO. 4/5 1999

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    lack of complete and reliable data for various services sectors on a global

    scale. Second, the natural tendency of governments is to protect domestic

    firms from foreign sources of competition and to buy only from domestic

    service suppliers. Third, the inseparable nature of services necessarily

    engages some governmental departments whose expertise and charge are not

    international. For example, when service providers must be personally

    present to offer their services, then such government bodies as immigration

    and labor necessarily get involved. The focus of the labor office in every

    country is to preserve domestic jobs for citizens, rather than to make it easy

    for foreign workers to perform services internationally. Likewise,

    immigration offices follow strict guidelines for controlling the flow of non-

    citizens across national boundaries, particularly for employment purposes[1].

    Fourth, tax laws may be linked to immigration status and permit unfavorable

    treatment of service income in host countries and the absence of bilateral tax

    treaties can make it unprofitable for some service providers to move abroad.

    Fifth, as an increasing number of services are intertwined with information

    technology (e.g. financial), they are disproportionately affected by limits

    placed upon international transmission of data or transnational data flow

    (TDF) constraints (Samiee 1984, Francis-Laribee 1994). For example, as of

    25 October, 1998, when the EU's new TDF laws took effect, the

    transmission and use of any data pertaining to EU citizens to countries whoselaws do not afford the same level of protection as the 1998 EU directives is

    forbidden (Baker et al., 1998). Even when equal protection is offered by

    another country, firms there must show customers their full profile data upon

    request and must make corrections as required. Sales of mailing lists without

    the prior consent of individuals on the list is strictly forbidden. This model is

    the opposite of the US law which stipulates that the burden of being removed

    from a list for a US resident is on the individual, who must contact the listing

    firm (e.g. a bank) and request such removal in writing. In addition, greater

    levels of control will be placed on the use of the Internet as far as privacy of

    EU citizens is concerned. Web-site operators cannot place data tags (i.e.

    cookies) on users' computers and trace addresses for use for marketing or

    other purposes.

    Sixth, despite their growing importance, services sectors remain elusive and

    largely invisible areas of business. Generally accepted accounting principles,

    for example, invariably treat services as expenses whereas some services

    constitute assets acquired by the firm. This occurs despite increasing

    evidence regarding the critical importance and roles of intangible assets to

    the competitive posture of firms in virtually every industry. Employee and

    management education, for example, contribute to organizational learning

    and knowledge, which in turn enhance the competitive position of the firm.

    Likewise, the capabilities of a firm which set it apart from the competition

    are based on intangible business processes rather than capital equipment.

    Finally, the limited amount of information available about international tradein services has assisted in the mystification of this important and rapidly

    growing line of business. Unlike merchandise trade, the true volume of

    international services is not known. As a result, the management of service

    industries from a public policy and international trade and marketing

    perspectives remains complex and not well understood. Without this basic

    information, governments are handicapped in their deliberations, planning

    and negotiations to improve the global infrastructure for the marketing of

    services.

    Services intertwined with

    information technology

    Critical importance of

    intangible assets

    JOURNAL OF SERVICES MARKETING, VOL. 13 NO. 4/5 1999 321

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    The historic emphasis on merchandise trade along with the intangible nature

    of services are probably responsible for the lack of a reliable reporting

    structure. Governments have only embarked on developing classification and

    statistical data-gathering systems to facilitate services trade in the pastdecade. Even in the absence of the variety of services which are marketed

    internationally today, the inattention to statistics regarding services is

    surprising. Services have been important components of merchandise trade.

    For example, the merchandise cannot be distributed without the assistance offacilitating intermediaries (e.g. freight forwarders), transportation modes and

    channel intermediaries. This lack of, or limited, information has made itdifficult for public policy officials to accommodate and promote the

    marketing of services internationally in the way they have supported

    merchandise trade. Thus, many service firms with the potential to export

    their services internationally have remained strictly domestic. For example,

    three-quarters of engineering consulting firms surveyed in one study

    indicated that they are not engaged in exporting (Winsted and Patterson,

    1998).

    Global competitiveness in services marketing

    Despite the increasing dependence of the US economy on the services sector

    and its significant service trade surplus, service exports are relatively more

    important to some other nations. As shown in Table I, service exports as apercentage of GDP is nearly 23 percent for The Netherlands, making it themost active service exporting country in relative terms. Austria is the second

    most active exporter of services and 17 percent of its GDP consists of service

    exports. All other leading exporters of services export less than

    7 percent of their GDP. Service export activities in Germany and Japan, in

    contrast, constitute about 3 percent and 2 percent of their GDPs, respectively.

    Among leading industrial nations, Germany and Japan produce the largest

    services trade deficits.

    When service exports are measured as a proportion of all exports, both Spain

    and The Netherlands rank very high. About 46 percent and 45 percent,

    respectively, of these nations' exports consist of services. In contrast, about

    38 percent of exports from the USA and France consist of services. Exportsof services from Germany and Japan are the lowest among the leading

    nations. On a per capita basis, The Netherlands is the single largest exporterof services ($4,582), and it exports about six times as much in services as the

    USA (Blaine, 1996). Belgium-Luxembourg and Austria are the second and

    third most active exporters of services. Germany and Japan are the lowest

    service exporters on a per capita basis.

    Thus, even though US service exports are over twice as much as the next

    leading country, i.e. France, its relative standing is not as strong as Austria,

    Belgium and The Netherlands. Within Europe France, with a service tradebalance of about $20 billion in 1994, is the strongest exporter of services,

    particularly in tourism. With increasingly liberal views and policies towards

    the international marketing of services, the USA must compete with somevery strong European contenders for global opportunities.

    Key issues in the international marketing of services

    There are indications that the industries of tomorrow will be very different as

    a result of the integration of an increasing number of services in the

    marketing of goods (OECD, 1996; Lovelock and Yip, 1996; Wyckoff 1996).

    As goods go through increasingly more complex value chains to increasefirms' relative competitive advantage, services will play a more important

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    1994exports

    1994imports

    Services

    Country

    Millionsof

    U

    S$

    Per

    capita

    Asapercentageof

    GDP

    A

    sapercentageof

    allexports

    Millionsof

    US$

    Rank

    Per

    capita

    Asapercentageof

    GDP

    Asapercentage

    o

    fallimports

    trade

    balance

    USA

    196

    ,515

    762

    3.27

    38.34

    137,478

    1

    533

    2.29

    19.9

    5

    59,037

    France

    91

    ,275

    1,587

    7.40

    38.76

    71,763

    4

    1,248

    5.82

    31.29

    19,512

    TheNetherlands

    70

    ,104

    4,582

    22.76

    44.77

    69,431

    5

    4,538

    22.54

    48.3

    5

    673

    Germany

    61

    ,043

    756

    3.49

    14.56

    100,064

    3

    1,234

    5.72

    26.81

    (39,021)

    Japan

    60

    ,520

    486

    1.92

    15.24

    110,060

    2

    884

    3.50

    39.99

    (49,540)

    UK

    60

    ,508

    1,043

    5.97

    29.59

    54,699

    7

    945

    5.40

    20.50

    5,809

    Italy

    59

    ,594

    1,044

    5.30

    31.40

    58,146

    6

    1,018

    5.17

    34.68

    1,448

    Belgium-Luxembourg

    38,6

    53

    3,865

    1.78

    34.36

    34,548

    8

    3,4

    55

    15.92

    27.63

    4,105

    Spain

    34

    ,032

    862

    6.6

    5

    46.43

    Austria

    29

    ,257

    3,703

    17.01

    35.4

    5

    21,3

    55

    10

    2,703

    12.41

    25.71

    7,902

    Canada

    27,145

    9

    943

    2.88

    16.41

    Sources:TheUSDepartmentofCommerce,BureauofEconomican

    alysis(www.ita.docov).GDPdatafor1994from

    theOrganisationforEconomic

    CooperationandDevelopment

    (www.oecd.org).IMF,

    BalanceofPaymentsYearbook,Part2,1995,T

    ableC-2.Datapartiallyextricatedfrom

    Blaine(1996)

    TableI.Toptenserviceexportmarketsandimportoriginsfor

    theUSA

    JOURNAL OF SERVICES MARKETING, VOL. 13 NO. 4/5 1999 323

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    role in their marketing. Interestingly, services are also going through a

    similar process as information technology enables unlimited variations for

    both sales and after-sales support for target markets.

    Regardless of this convergence and interconnectedness, many classes of

    services will always be distinguished from goods in that the customer

    receives value but no tangible object. Every tangible product necessarily

    contains some service because without it the exchange would be impossible

    (Lovelock and Yip, 1996). Thus, even though such activities as price

    quotation, order-taking, billing and payment are intangible (i.e. services),they merely facilitate sales and without them there would be no revenue.

    However, realistically only services that can be targeted as profit centers and

    marketed accordingly qualify as true services. As legal, technological,

    economic and competitive environments change over time, it is likely that

    certain cost center type services can be converted into profit centers. Two

    examples in this regard are automated teller machines (ATMs) and airline

    reservation systems. Both systems were initially conceived to support

    banking and air transportation services, respectively. ATMs were installed to

    save money in human resources and investment in additional bank branches.

    They were initially shunned by customers, who preferred personal service

    over the convenience offered by ATMs. However, as customers increasingly

    adopted the use of ATMs, an increasing number of banks viewed ATMs asprofit centers and have instituted fees for those using them. Likewise,

    reservations systems like Apollo and Sabre were developed to enhance the

    booking capabilities of United and American Airlines, respectively.

    Classification issuesThe formulation of appropriate generic international marketing strategies is

    handicapped by the unavailability of a generally accepted classification

    method for services. The range of services offered internationally is quite

    broad and belongs to diverse industries that have developed highly

    specialized skills, capabilities and knowledge over a period of time that

    enables them to compete internationally. Although numerous classifications

    for services trade have been offered[2], industry-based classifications have

    been commonly used. This is not impractical given the diversity of so many

    unrelated service sectors and the commonality of industry-based approaches

    in the strategy literature. Meaningful analyses and appropriate strategies in

    services sectors can emerge when very similar entities (e.g. industry) are

    grouped together. Winsted and Patterson (1998), for example, focus on the

    international market-entry strategies of engineering consulting firms.

    However, in the absence of a more integrative classification method, relevant

    services theories may not emerge and this issue has been stated in the

    literature (e.g. Clark et al., 1996).

    Lovelock and Yip (1996) propose the classification of services into three

    groups.

    (1) People-processing services are those that involve tangible action to

    customers (e.g. restaurants, health care), thus necessitating a local

    presence by the international marketer.

    (2) Possession-processing services involve intangible actions to merchan-

    dise in an effort to enhance the value of the merchandise to the customer

    (e.g. transportation, appliance repair), and the customer is not involved

    in the process.

    Every tangible product

    contains some service

    Three groups

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    (3) Information-based services are those that provide some value for the

    customer as a result of the collection, analysis and manipulation of data

    (e.g. accounting, insurance) and only minimally involve the customer.

    This classification method is articulate and thought provoking, but these

    categories are not mutually exclusive and exhaustive for all services. For

    example, conventional retail trade and custom tailor services are difficult to

    classify under this scheme. Store-type retailing is an action that involves the

    customer but the customer is not transported, diagnosed with a disease or

    fed. The retail process merely enables the customer to take possession of thegoods or services. Of course, there are social and entertainment aspects of

    store-type retailing, and if these were the primary motivations for patronage,

    then retailing might qualify as a people-processing service.

    Patterson and Cicic (1995) offer a useful classification based on two levels of

    ``tangibility'' of the service and two levels of ``face-to-face''contact with the

    client in service delivery. The resultant cells are thus labeled:

    (1) low face-to-face and low tangibility location-free professional services;

    (2) high face-to-face and low tangibility location-bound customized

    projects;

    (3) low face-to-face and high tangibility standardized services packages;

    and

    (4) high face-to-face and high tangibility value-added customized services.

    Likewise, Clark et al. (1996) offer a classification method based on four

    categories:

    (1) contact-based services;

    (2) vehicle-based services;

    (3) asset-based services; and

    (4) object-based services.

    Most services have the potential of being internationally marketed. A list ofservices with the potential for internationalization is shown in Table II. Like

    products, the development of capabilities and competencies drives

    competitiveness in services trade. It is evident from the list of industries in

    Table II that the nature of services varies widely. Each service industry has

    its own infrastructure, requires specific competencies and may be governed

    by a comprehensive set of regulations and laws (e.g. banking, health care,

    insurance). The firm's competitive advantage within a service sector, on the

    other hand, may be through the development of proprietary equipment,

    patented processes, and/or trademarks.

    Regulatory impediments

    As noted earlier, regulatory impediments are controlled by the governmentand in some nations, notably the OECD members, are being removed

    through bilateral and multilateral negotiations (e.g. GATS, EU, NAFTA).

    Some markets will be very slow to agree to opening their services markets,

    particularly financial and telecommunications. Structural changes within the

    global services industry coupled with technological change will serve as the

    main change agents for these countries.

    Economic impediments. Although a significant proportion of every nation's

    GDP is derived from services, international market entry for a broad array of

    Two levels of ``tangibility''

    and ``face-to-face'' contact

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    services is largely limited to highly developed nations whose family units on

    average possess a high level of discretionary disposable income. Thus,

    relatively low family income in most countries is likely to impede successful

    international market entry and growth for many service sectors. For example,average expenditures for restaurants is much lower in developing economies

    than in developed markets. Furthermore, as income grows, potential target

    groups are likely to tap into the available local low-cost labor to perform

    human-resource intensive services (cleaning services, most repair) rather

    than to rely on services offered through commercially organized services

    firms.

    Cultural impedimentsCultural imperatives will necessarily have a significant impact on the

    acceptability and adoption pattern of services. Since services inherently

    involve some level of human resources, the likelihood of cultural

    incompatibility is greater. For example, nations which culturally define thehousewife's role as the family caretaker will probably not be very keen on

    using day-care centers. Likewise, for-profit funeral services in Islamic

    nations will probably not be well-received.

    Standardization versus customizationAn important strategic issue in marketing services internationally is the

    extent to which each service might be standardized. In addition to the

    necessity for customer contact for many service categories, myriad host

    Service industries

    Accounting Funeral services

    Advertising Health care

    Banking Insurance

    Broadcasting Investment banking (brokerage)

    Computer services Leasing

    Computer software Legal services

    Construction Lodging

    Consulting Maintenance and repair

    Contract research Media

    Data entry CinemaData processing The Internet

    Design and engineering Radio

    Distribution (including service distributors) Still media

    Agents, brokers and representatives Television

    Franchising Reservation systems

    Freight forwarders and customs brokers Restaurants

    Retailing Royalties and licensing

    Shopping malls Security systems

    Warehousing Tourism

    Wholesaling Telecommunications

    Education: Online services

    Executive and management development Mobile

    Institutions of higher learning Paging

    Vocational and technical TelephoneEntertainment Transportation (courier)

    Music and other audio Express delivery

    Theme parks Package delivery

    TV productions, motion pictures Transporation (merchandise)

    Spectator sports Transportation (passenger)

    Theater, live performances Utlities

    Table II. A list of international service sectors

    Cultural incompatibility

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    government regulations in numerous services sectors make standardization

    very difficult. Accounting and financial services markets are governed by

    very different rules around the world. Although regional markets such as the

    European Community are succeeding in lowering such host market

    regulatory problems, these are minor accomplishments at best.

    Retailing provides an excellent example of a service business that is difficult

    to standardize. Despite much talk about the internationalization of retail

    trade, local retailing regulations vary considerably, not only across countries

    (including within the EU), but also within the provinces of each country

    (Samiee, 1995). Even if regulations were entirely removed, retail trade is

    inherently culture bound and influences merchandise type and merchandise

    mix.

    Therefore, the level of product and marketing standardization observed in the

    international marketing of goods is unlikely to be matched by services.McLaughlin and Fitzsimmons (1996) have also arrived at this conclusion in

    their analysis of service industries. It is thus plausible that relatively more

    service businesses must be adapted to host country environments and, as

    such, the global marketing of services may not be a realistic goal for many

    sectors. That is, common customer needs for services vary more widely

    across nations than is the case for products, and addressing them requires

    localized solutions. Hence, it is likely that a multidomestic (or multilocal)pattern of internationalization might be the most appropriate in many sectors

    of services, and this view is implicitly echoed by others (Lovelock and Yip,

    1996, p. 81).

    These key differences set the international marketing of services apart from

    the international marketing of tangible goods. Whereas an increasing numberof consumer and industrial goods are being marketed globally, for reasons

    outlined above, the same is not true of services. A key issue in the

    globalization of markets is the convergence of markets which is not

    occurring with sufficient speed to accommodate international growth inmany services sectors. For some services, it will never occur.

    Concluding remarksIt is evident from the issues raised in this study that the internationalization

    of services offers tremendous potential for growth despite the slow progress

    in multilateral negotiations aimed at market access. Although progress has

    been slow, it is of critical importance that much progress has been made to

    bring services gradually under the auspices of WTO and, therefore, the future

    seems promising. As the largest net exporter of services, the USA stands to

    gain a great deal. However, the data in Table I indicate that some other

    nations (e.g. Austria and The Netherlands) are better positioned in relative

    terms than the USA.

    In general, information regarding service marketing internationally is

    limited. Several research opportunities are thus plausible. First, empirical

    research aimed at validating the practical utility of existing servicesclassification approaches for international use is appropriate. Second, a

    broadly accepted classification method may assist in determining whether

    the global industry concept can be extended to certain classes of services.

    Such a determination may go a long way in studying the competitive

    strategies of international services firms. Third, an examination of the trends

    in the international marketing of services in other leading nations (either

    single country or cross-nationally) may permit a better understanding of

    strategic forces behind their success. Fourth, domestic experiences in

    Retailing difficult to

    standardize

    Information limited

    JOURNAL OF SERVICES MARKETING, VOL. 13 NO. 4/5 1999 327

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    services indicate that successful services are based on processes that cannot

    be easily duplicated (e.g. Wal-Mart's cross-docking, Marriott's employmentscreening and guest-room preparation). Information technology is frequently

    the backbone of these success stories. However, market penetration and the

    application of computers across markets vary widely. Thus, it is useful to

    investigate the extent to which processes can be exported to host nations.Finally, only limited effort for developing reliable measurement scales for

    use with international marketing of services is evident. In particular, for

    certain segments and service industries, the Internet is bound to make

    customer-provider interaction very different than the traditional models ofservice exchange. Therefore, progress in scale development in these areasand their cross-national validation are also encouraged.

    Notes

    1. The importance of this issue is reflected in the employment of foreign workers in the

    services sectors. For example, with a foreign worker employment figure of 2 million

    collectively, the US services sectors constitute one of the four top employers of foreign

    nationals (Blane, 1996).

    2. See Clarket al. (1996) for a review of various classification schemes.

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