The business of America is ... service
For over a century, manufacturing was the heart of the American economy. Americans, with their big homes and big cars, were the envy of the world. However, this happy dance between producers and consumers was interrupted by World War II.
Being the only industrialized country that did not suffer war damage, our factories started humming again after WWII, not only to satisfy the huge pentup domestic demand, but also a strong international demand. With little challenge to our manufacturing supremacy, we neglected to notice three major changes in the world. First, under the Marshall Plan we had helped rebuild Europe into a competitive manufacturing region; second, Japan, too, quickly rebuilt its manufacturing by becoming a major supplier to the Korean War effort; and third, weakened by the War, European colonial empires broke up and their newly independent colonies realized that exporting finished goods, rather than raw materials, was the key to wealth in the modern world.
By early 1960s, we started facing competition, first from Europe, and soon after, from Japan. However, most surprising for American companies was competition from Europe’s former Asian colonies — Singapore, Hong Kong, Taiwan, and South Korea — which had started assembling (mostly electronic products) and manufacturing (mostly lowtech consumer products) for Western companies who sold them under their own brands. These Asian Tigers, along with China, turned world manufacturing on its head.
Asian countries have now become fierce worldwide competitors. With their very existence at stake, American firms discovered two saviors: foreign markets and customer service.
As organizations become large, the management and coordination of their proliferating functions becomes their Achilles heel. This is where other American firms saw their opportunities for riches. They started helping rapidly internationalizing and ever-growing manufacturing firms manage their increasingly complex functions like finance, insurance, distribution, logistics and, above all, information management and resource planning. In the process, these service firms themselves have become mega-enterprises serving businesses, governments and consumers worldwide.
One the consumer side, increasing incomes and urbanization has made people’s lives much more complicated and more dependent on outsiders to manage them.
The entrepreneurial spirit of America and a strong cultural belief in personal effort that lifted it to the top of the manufacturing world in the past is now enabling America to lead the service revolution, which generated nearly $14T in GDP in 2013 compared to less than $5T for manufacturing. We have a $225B international trade surplus in services compared to $700B deficit for merchandise trade. It’s a pretty good bet that whatever other revolutions come around in the future, America would lead them, too.