Globalisation of services: trade, foreign direct investment and regional development

1. Globalisation of services: trade, foreign direct investment and regional development Konstanze Höchtberger konstanze.hoechtberger@nuigalway.ie CISC Seminar

2. Intro • Two-way relationship between globalisation and services - mututally reinforcing • Interest of the paper: the globalisation of service activities • Approach: qualitative • Focus of the paper: internationalisation of ICT and ICT-enabled services • Limit of the paper: internationalisation by the means of trade and FDI CISC Seminar

3. Organisation of the paper • Modes of service delivery • Classification system • Nature and patterns of services trade • FDI and international production in services • Internationally traded services (ITS) and regional development CISC Seminar

4. Modes of delivery I Basic distinction: trade vs. FDI • Trade: service transactions between residents of two countries, also intrfirm • FDI: subsidiary sales different from trade due to residency principle of balance-of-payment accounting CISC Seminar

5. Modes of delivery II United Nations distinction • Cross-border supply: trade • Consumption abroad: consumer moves abroad to obtain a service • Commercial presence: FDI • Presence of natural persons: foreign service provider moves to consumer country on temporary base CISC Seminar

6. Modes of delivery III Delivery modes of business services Trade: • wired • domestically located • embodied • transhuman • intrafirm FDI: • export delivery system • services production facility • international production unit CISC Seminar

7. Services Offshoring UNCTAD - services offshoring: • Offshore outsourcing: wired exports • Onsite delivery (bodyshopping): transhuman exports • Captive offshoring: international production unit • Nearshoring? CISC Seminar

8. Classification system CISC Seminar

9. Nature of services trade I • Services trade lags behind trade of manuctured goods in international trade statistics • Services sector most important source for global FDI • Paradox of services globalisation ? CISC Seminar

10. Nature of services trade II • Tarif and non-tarif barriers hampering services trade • Non-storability and intangibility of services necessiates close client-supplier interaction • Upstream and downstream services value incorporated into the international trade of goods • Statistical measurement problems, e.g. presence of natural persons and intrafirm trade CISC Seminar

11. Services trade patterns I ICT tradability revolution: time&space compression • Countries with well-educated and low cost labour pool: outsourcing of lower value service activities from core economies - comparative advantage • India as the prime case study: software coding and testing, data-processing services • Ireland, India, Canada and Israel accounted for 70% of the total offshored services market in 2001 CISC Seminar

12. Services trade patterns II • Bulk of services trade occuring between the triad countries, to large extent intrafirm • Services trade as the result of an increased technical and social division of labour within the manufacturing sector • Absolute rather than comparative advantage determining the services trade between the triad nations CISC Seminar

13. Services FDI I • Concentrated in triad nations • Factors driving the growth of services FDI • Demand side factors: structural change and the knowledge-based economy • Supply side factors: corporate restructuring and externalisation of services functions • Consequence • Growth of multinational business services firms • Much of services FDI occurs in the form of repeat investment and M&As CISC Seminar

14. Services FDI II Market seeking services FDI: • Need for close client-supplier interaction • Export delivery system/production facility • Ownership advantages Resource-seeking services FDI: • Far-flung client-supplier interaction • International production units • Locational advantages (cost, capabilities and time zone) CISC Seminar

15. Services FDI III Types of resource-seeking services FDI: • Export base to a larger foreign market region: software localisation in Dublin for EMEA • Coordination and administration: regional HQ of IT firms in Singapore • Integrated production units: captive offshore centres in Ireland, India and Australia  follow the sun • Captive offshoring has broad spectrum ranging from data entry to R&D! CISC Seminar

16. ITS and regional development I Centralisation and decentralisation tendencies: • Much of high value service activties cluster in global city regions in proximity to major clients NY, London, Tokyo… • A certain set of services offshored to “new-comer” global city regions Dublin, Bangalore, Singapore • New offshore locations popping up, increased empasis on “nearshoring” Carribean, Eastern Europe, South Africa • Polarization of tasks? CISC Seminar

17. ITS and regional development II • Sustainability: footloose nature of stand-alone offshore service activities - vulnerable to relocation • Regions with limited access to ICT: left out from the transformation of services globalisation • Manufacturing-services continuum: ICT manufacturing base as pathway towards higher value, sustainable ITS activity - Ireland? CISC Seminar