UYGUNLUK GÖRÜŞÜ
YÖNETİM KURULUNUN YILLIK FAALİYET RAPORUNA İLİŞKİN BAĞIMSIZ DENETÇİ RAPORU
5) Bağımsız Denetçinin Yıllık Faaliyet Raporunun Bağımsız Denetimine İlişkin Sorumluluğu Amacımız, TTK hükümleri ve Yönetmelik çerçevesinde yıllık faaliyet raporu içinde yer alan konsolide ve
A widely discussed theme is the interface betweenthe goods manufacturing and services; in the strategic management literature, as f.i.Quinn 1992, in economics and analysis of structural change, see Pascal 1986 and in analysis of the role of specific service functions towards manufacturing industries, f.i. Porter 1990.
As is generally acknowledged, it is impossible to conceive manufacturing industries without taking into consideration a huge amount of services; to apprehend
manufacturing production without considering a substantial service component.
Manufacturing is becoming increasingly services dependent and an increasing share of service companies are integrated into networks with other economic sectors. There are also strong linkages between goods and services arising out of the
complementarities of demand. This integration implies that separating the two is increasingly becoming an artificial division that is not reflected in the characteristics of production processes. As an example, Marshall 1994 points to the difficulty that applies to existing terms coined to describe structural change in the economy, such as post-industrialism, de-industrialisation, etc.
Pousette and Lindberg 1989 show, on the basis of Swedish data, that manufacturing is becoming increasingly services dependent. Nonetheless, there was no significant correlation between service intensity and profitability in manufacturing. One of the main conclusions is that we are witnessing a shift away from standardised factory production to services production in manufacturing; in terms of cost structures, at least half of manufacturing activities are services. All observations are, however, hampered by the poor quality of available data. Pousette 1989 elaborates this issue, by comparing the manufacturing industry’s demand for internal and external services in eight European countries. The differences in manufacturing demand between countries proved difficult to explain. It was, however, possible to test whether technological sophistication (with R&D expenditures as a proxy), firm size,
organisation of firms or labour market flexibility influence the demand for services. It turned out that no strong correlation was found. Apparently, the author concludes, other, non-economical factors have to be called upon in order to explain the demand for services.
Abernathy-Utterback cycle as the process of regeneration of technology growth in a mature industry that has exhausted the technological opportunities in the present regime.
39 Ed Steinmueller, private communication
Technology is restructuring many manufacturing and services industries, (Guile 1988). Barriers between industries are disappearing and interdependencies are strong,
“[s]ervices such as communications, finance, transportation, and health care are large, capital intensive industries responsible for commercial application of some of the most sophisticated technologies available.” (Quinn 1988)
Equally, manufacturers become service producers. The content of services in the manufacturing industry is growing and technology dependent, see f.i. Quinn 1986, 1990, 1992. Concrete policy issues (Quinn and Doorley 1988) arising from this may be summarised as follows:
i) macroeconomic and tax policies focused on improved capital formation rates, lower cost of capital, and lengthened investment time horizons,
ii) increased and better-targeted national investments in both hard and soft infrastructures supporting services,
iii) restructured regulatory practices to improve the efficiency and innovativeness of the services sector,
iv) a focus on employment and human resources development policies more appropriate to the mobility and intellectual skills required for a services-dominated society,
v) stronger recognition and exploitation of services-manufacturing interface potentials in international trade measurements and in trade negotiations.
Information technologies applied in services change the structure of domestic and global competition in both goods and services industries (Quinn 1992). The manufacturing and service sector are interdependent, with the share of services in manufacturing growing.
Through the impact of new generic technologies in services,
∗ new economies of scale appear, leading to larger institutions, often with a decentralised structure,
∗ new economies of scope, created by new technologies, have often unintended and beneficial second order effects,
∗ increased complexity can often be handled more efficiently with new techno-logies.
51
Introduction
At an aggregated level service sectors have traditionally been regarded as innovation laggards, complementary to the viewpoint that these sectors are productivity
laggards. We conclude from our discussion that such viewpoints can be traced back to the debate in classical economics theory on delineating economic systems, a debate that became obsolete with the development of the neo-classical framework in economics. As long as service products are transacted through economic interactions between providers/suppliers and users - through the interaction between the utility satisfising or cost minimising behaviour of customers and the profit maximising behaviour of suppliers - service production, provision and consumption are definitely aspects of the economic system.
Being productivity laggards, it follows that service sectors may represent a loss to societal welfare, through the substitution of ‘progressive’ activities in the Baumol sense, i.e. welfare expanding activities, with ‘stagnant’ activities. If the transition from progressive to stagnant activities is associated with changes in the composition of final demand - as in an Engelian transition of an increased share of services in final consumption, due to differing income elasticities - we need to distinguish two classes of service activities, those that are intermediate inputs into other production processes and services provided for final consumption.
Principally this is the only distinction that is relevant from an economic dynamics perspective, arising from the distinction between the two opposing forces active in the system, profit maximising producers/suppliers and utility maximising consumers.
Furthermore this is a universal distinction; in the sense that it does not distinguish between material or immaterial production, between productive and unproductive production/consumption etc. Though there are no qualitative differences within the stylised framework of neo-classical economics between the functioning of consumer and intermediate markets, it is reasonable to think in terms of these two categories.
Hence, if product properties were solely economic in origin we would neither expect any differences in the way service and (material) goods markets function, nor as regards their effect on generating productivity change. There are thus no a priori reasons for differences in levels of productivity change across the
services/manufacturing barrier. If service and material goods markets function differently, the sources of these differences must be sought in their non-economic properties; properties that generate or modulate their economic behaviour. The origin of such differences must be sought in the product’s specific characteristics; in its
physical and informational properties, the relation between these properties40 and the product’s relations with other products. Different economic properties of immaterial and material goods; between ‘services’ and ‘products’, must then be sought in the different economic attributes of physical and informational properties. This is not the place to develop this argument further, but the distinction will imply differences to
• the way ‘products’ and ‘services’ satisfy wants and the characteristics of these needs,
• their transaction properties, and hence market relations,
• users’ and producers’ mechanisms for benefit appropriation,
• production and consumption structures.
Directly or indirectly all these may create a non-vanishing differential in productivity change in the production of material goods and services. If the characterisation of service sectors as productivity laggards is correct, it raises a series of questions that are of direct relevance to public policy. The relevance is most direct in the case of services produced for consumer markets. It could imply a serious inefficiency in the employment of resources in the total production system, with a corresponding misallocation of these resources, leading to non-optimal economic welfare.
But this would also lead to dynamic inefficiencies in intermediate service markets.
As the intermediate service markets we observe are external to the firms in the production chain, the service producer in the productivity stagnant activity would experience increasing relative prices of its products, reflecting the increasing
productivity gap with the progressive sector of the economy. Hence we must expect that the service user as a cost minimizer would either reduce the amount of relative inputs from the service sector, through substituting the service inputs with other capital inputs to its production, or that (s)he would internalise the service function.
Inside the firm, we expect the service user to reorganise production to minimise dependence on the service function, either by keeping its volume at a minimum, or by the expanded scope of reorganisation leading to relative productivity enhancing measures allowed by direct control over the service activity. As our observations differ from the predicaments of this arguments, there must be institutional barriers that prevent this process, supposing the assumption of these services as productivity laggards is correct. These barriers would directly imply dynamic inefficiency in this system. Thus a direct policy objective should be to redeploy productive resources, opposing this transition, to ensure optimal welfare.
If we insist that stagnancy or asymptotic stagnancy of service sectors and the structural transformation from manufacturing to services are fully led by Engelian demand changes, generated by increasing income, or changes in demand structures at constant income, the increasing price gap between manufacturing and services imply
40 Evidently both kinds of goods have both categories of properties; both physical and informational. We suggest however that when physical properties is dominant in some sense, we call it a ‘material product’, whereas when informational properties are dominant, it is classified as a service.
that either the demand for manufacturing products has reached its saturation point or that we are in the middle of a transformation where the overall, declining
productivity growth will finally lead to a reconstitution of manufacturing sectors as demand will eventually be shifted back towards manufacturing.
The dynamism in structures and operations of service functions, and in their relations with other sectors of the economy, does not support the received opinion of these service functions as innovation laggards. On the contrary, ‘common sense’ based observation suggest at least that within the mixed bag of activities called services, there are highly innovative, as well as less innovative, sectors, and firms, just as in manufacturing industries. An indication of the scale of innovative activity in service sectors may be that when Acs and Audretsch reduced the US Small Business
Administration innovation database (Acs and Audretsch 1988) to innovations occurring in manufacturing sectors, half the innovation universe was excluded; of about 8000 innovations introduced in 1982, roughly 4500 were retained. This implies that about 3500 innovations were non-manufacturing.41
Countless individual examples illustrate that there have been tremendous productivity increases in a wide variety of service sectors. In retail trade the
development of super- and hypermarkets has rocketed productivity, in terms of both labour usage and capital requirements. Transport and distribution have been
revolutionised by the container revolution, boosting productivity and restructuring the transport infrastructure. Telecommunication, even when restricted to telephony, in the 1990s is a universe apart from the situation in the 1950s, while the scope and scale of financial transactions have multiplied almost beyond reckoning. Medical services now allow for large scale standardised treatment of diseases and casualties that were leading edge treatments just a few decades, or even years, ago.42 But even more so, in all these kinds of service industries, the development has been paralleled by proliferation and diversification that has completely altered the service landscape.
At an aggregate level, Hannah 1995 argues from a European perspective that productivity development in service sectors explains a significant part of the divergent development of several European countries and the US from the mid nineteenth century and onwards; the American miracle. In this period the US was
‘catching up and forging ahead’, while Britain, the original leader, was ‘falling
41 The innovations were recorded on the basis of references to the innovations in specific sections, listing innovations and new products, in technology, engineering and trade journals.
More than 100 journals were examined, covering all four-digit SIC manufacturing industry.
Two comments are warranted from this; (1) the coverage suggests a bias towards manufacturing industries, or those (engineering) parts of the service sectors that are most closely associated with the technological fields of the manufacturing industry, and (2) the innovations evidently include imitating innovations, creating the possibilities for additional biases.
42 These examples illustrate also the variety in mechanisms behind the changes in service industries; the ‘pure’ service innovation of the super- and hypermarkets, simple tangible innovations like the container, the contingent development within a ‘telecommunication industry complex’ (to paraphrase president Eisenhower’s military-industrial complex), the adjustment of financial sectors to IT-based tools and infrastructures and the science-based development of health technology and practices and drugs.
behind’ (these expressions refer to processes described in the ‘catch(ing) up’
literatures, see Abramowitz 1986). Hannah’s argument is that while productivity development in manufacturing industries were important, they were important everywhere. That is, they do not explain the differential pattern across the Atlantic Ocean.
Hannah states that an explanation of the distinct pattern of US developments must be sought in the service sector. In particular, Britain matched living standards in the US towards the end of the nineteenth century because British service sectors were highly superior. According to Hannah, the reason for the US forge-ahead lay inthe
development of the service industries, which in contrast to the strides in
manufacturing competitive advantages, did not leak abroad due to low trade and multinational investment of service industries. Today US service industries have taken over the position that British services had at the beginning of the century. The US emerges as the productivity leader in several services, (cf. McKinsey 1992 and Baily 1993).
The outcome of this is that there is a definite need to identify processes in service sectors that are changing productivity characteristics through widening scopes of service provision. As these processes are what is included in the concept of innovation processes, this leads to the need to map and analyse innovative performance in service sectors. This is the theme we will turn to in the following three chapters. The first chapter will describe measurements of R&D activities and technology in services, before describing measurements of innovation in the next two chapters: chapter 5 examines empirical measurements of innovation activities and chapter 6 charts some attempts at developing innovation theories for services.