Shift From Manufacturing To Services On Unemployment Economics Essay

The aim of this report is to discuss how employment has been affected due to the shift of a manufacturing based sector to a service based sector. This report will demonstrate the key facts and using an example from International Business Machine (IBM) it will illustrate different measures which an industry has had to adapt to.

The structure of the UK economy is made up of three sectors; “primary, secondary and tertiary” (Griffiths & Wall 2004). The primary sector is directly linked with natural resources which are used within this sector. An example of this sector could be farming or agriculture. The second sector is the secondary sector which is where all goods are linked to production and includes the processing of goods from the primary sector. Thirdly is the tertiary sector which is commonly known as the “private sector”.

Structural change can be described in many different ways; Griffiths & Wall (2004) describes this change by changes in size of the different sectors. Over periods of time, sectors will get bigger or smaller, resulting in changes in output for products and employment rates.

Structural change is also measured by output and employment rates as a sector in decline will also have falling output and employment rates. The effect of this could be because people are being made unemployed they may not have enough money to buy luxury items which they would if money was coming into the household; they have to stick to buying low-elasticity goods in order to survive.

Main Body

Many organisations in today’s climate are moving from the secondary sector into the tertiary/ service sector and this can have negative and positive effects for the organisation as a whole; “Structure of Industry in a country is not statistic, and changes over time” Griffith & Wall (2004). An example of a company which has adopted this strategy is International Business Machines (IBM); the computer company. By IBM adapting this change from being a manufacturing sector to a service sector it has had some series effects on the employment rates for Greenock but also the output which the Greenock plant now produces compared to previous years. (Lam, P) states that the change in the “UK economy has become a ‘post-Industrial’ economy and now the service sector is dominant” which suggests that not only has the company IBM adapted this change, but many industries within the UK have also changed services due to the structure of the UK economy.

The company IBM has had to cut cost such as production and reduce employment due to the change in the economy and there are many reasons for this. Some of these reasons for this change are that; demands for products are changing as peoples tastes and attitudes are changing towards the product. This will have negative affects for industries as it may have a decline in output of selling their products as people may not show interest the products as they may not be fashionable anymore (Worthington & Britton (2006)).

Supply of labour can also be a factor which might force industries to change from a manufacturing sector to a service sector. The UK is living in a “demographic population” which means that there is a large volume of older people compared to younger people. This has affected many industries as it means in order to find people to work for them; they had to hire older workers instead of younger ones. This means that in today’s climate there is a strain on health services as more older people are living longer so more jobs in the service sector have to be offered which increases the employment rate in the service sector over the employment in the manufacturing sector.

Another reason which industries change from manufacturing to service industries is because of increasing technology (Lam, P). By increasing technology, machines can now take over jobs which humans could do resulting in decreased employment rates for the economy but it can also have positive affects as it can increase the levels of output, as machines can work quicker at producing the products. However if machines fail to work the industry could face severe problems resulting in a halt in production.

Natural resources are another reason why industries change sectors. As natural resources are limited it is harder for industries to source or buy these products which initiates structural change and reduces output of production and can reduce employment rates as industries maybe can’t work without these resources.

One of the main reasons for this change in sectors is by international competition. International competition is a worldwide activity which results in redistributing of economic activity (Lam, P). This may involve producing products overseas as it can result in cheaper labour workforce. International competition has occurred due to lack of barriers to trade between different countries and now most of the UK economy imports goods in and exports goods out. By redistributing economic activity it allows more choice for consumers and by the use of the internet, industries can sell goods 24/7 and gives the consumer options to buy but also source for cheaper products.

IBM (2010) is a worldwide company which is a “global enterprise” as it operates in over 170 countries. IBM in Greenock has undergone many changes over a period of time and now no longer has a manufacturing site in Greenock where computers were produced. This has had serious consequences for Greenock’s population as a whole, especially in the employment rates aspect of Greenock. As IBM does not manufacture in Greenock anymore it shows that it has become “de-industrialised”. This statement means that they are changing domestically and changing their market conditions (Singh, A (1977)). Reasons why IBM could have been changing their structure could be for the negative profit figure which the company as whole made during 2002 – 2005 (Fame 2010). The negative profit was between £0 and -£100000 and this could have had something to do with the Greenock plant being shut down as it shows that something must have been going wrong for the company, and by restructuring, IBM are now making very high profits again. Griffith & Wall (2006) also state that de-industrialisation can be defined by the loss of industrial employment and that by IBM becoming de-industrialised the demand level may be too high and industries may not be able to cope.

Malone, S (2003) defines that IBM has sold their manufacturing plant in Greenock and it has been bought over by Sanmina-SCI. IBM decided to outsource its range of computer servers as it was cheaper to resource materials for production and there is cheaper labour resources abroad. In turn this has reduced employment in Greenock and a total of 6000 jobs were lost, this has put pressure on other companies throughout Greenock, as the demand for employees is a lot higher than the supply in jobs which are being advertised in this climate. (IBM 2010).Even though, the manufacturing sector for IBM in Greenock no longer exists, IBM has set up many different services within the Greenock area which offer jobs to the population. These services include application services. These application services help people with IT skills so employees must be trained appropriately in these areas in order to advise people. Another service which IBM has created is customer relationship management. (Hirschbuehler, D) believes that by this customer relationship management “every customer experience is an opportunity to nurture a customer into a brand advocate”.

Technical Support services, IT deliveries services and Supply Chain Management services are other department which have also been set up and have brought jobs into Greenock’s society. However although there are many departments set up which initiate jobs for Scotland, one of the main employment centre is the call centres. These call centres have been set up abroad which employees 600 foreign workers. This indicates that many foreign workers are employed rather than setting up and employing people from the UK to work for them as labour and maintenance costs for the industry may be cheaper worldwide rather than the UK resulting in UK’s unemployment rates being very high.

Although unemployment may be the biggest consequence of the shift between manufacturing to service, there are other consequences which arise from this. Another main consequence is de- skilling of workforce. As many jobs are lost, skills also deteriorate as people may be out of job for a while. Another factor of this is that skills required for many jobs have also changed as there are increases in the technology which industries use and operate around (Griffiths & Wall 2004). This can have negative effects for the company as if skills are not up to date, production may not be able to operate as employees won’t have the necessities to produce the products. A workforce who does not have the skills to enable them to produce when manufacturing will become de-motivated to get jobs done. This in turn will be less stimulating which means that it is up to the managers within the industry to provide staff with continuous training requirements if they want production to occur if there are continuous technological advances. By technological advances it does create advantages for the industry as for all the jobs which used hard labour skills now most industries use high-tech machines. This reduces the time to half so output is produced efficiently but also reduces the employment significantly.

In IBM in Greenock these skills have dramatically changed over time. As the innovation of computers has generated over time, there was a halt in production due to the new skills which employees within the plant did not have. Through the change in shift from sectors the skills are not like the ones they needed when producing computers. Employees have to be trained to gain knowledge on new skills such as “people skills and management skills” which used within call centres and the services IBM now provide. By this change in skills, employees who were employed to work in the manufacturing plant have now lost all the essential skills which they would have gained from working in manufacturing.

Another consequence that is related to employment is low – wage competition.