Opportunities in Services Exports

1. Opportunities in Services Exports Jose Edgar Mutuc ATIFTAP

2. WTO four modes of service trade • Mode 1 (cross-border supply) where only the service itself crosses the border • Mode 2 (consumption abroad); the customer travels to the country where the service is supplied • Mode 3 (commercial presence); the supplier establishes a commercial presence abroad • Mode 4 (presence of natural persons) Presence of “natural persons”, where the provider of the service travels from their own country to supply services in another

3. Export services • Developing countries export on the average 68 different types of services to at least 33 different export markets, of which two-thirds are other developing countries (ITC)

4. Services • Utilities • Wholesale Trade • Retail Trade • Transportation and Warehousing • Information Services • Finance and Insurance Finance and Insurance • Real Estate and Rental • Professional and Technical services • Management Services • Administrative and Support services • Educational Services • Health Care and Social Assistance • Arts Entertainment and Arts, Entertainment, and • Accommodation and Food services • Public Administration Services • Other Service Industries

5. Types of Services • Infrastructure services These include architecture, engineering, construction, transportation, distribution, and financial services. • IT-related services These include computer consultancy, software development, data processing, database management, and call centers. • Business services (non-IT-specific) These include a wide range of business support activities such as research & development, equipment leasing or maintenance, market research, management consulting, translation, investigation

6. Types of Services • Professional services • These include the licensed professions (other than architecture and engineering) like accounting, legal services, medical & dental services, nurses & midwives, and veterinarians. • Quality of life services • These include education & training, health-related services, entertainment services, cultural services, recreational services, and sporting services.

7. Growth potentials • Total exports of services more than quadrupled between 1980 and 2000, growing from US$337Bn to US$1.4 trillion. • Asia’s share of world total services exports in 2000 was 18 per cent, equivalent to more than twice the correspondent figure for 1980

8. Outsourcing potentials European-based companies will fuel the growth in offshore Gartner (2006) Outsourcing estimated at 50% year on year rise in spending on the world market in 2006 and 2007.

9. India 13 Canada 11 Ireland 11 Russia 9 China 8 Poland 8 Brazil 6 Czech Rep Mexico 6 Hungary 5 Philippines4 Malaysia 4 Romania 4 South Africa ITO competency-destination matrix 2005 (Neo IT) CAD * * * * * * * * * * * * * * QA Testing * * * * * Application Mgt/support * * * * * * * * * * IT consulting * * * * System integration * * * * * * * * Packaged SW implementation * * * * * SW localization * * * * Infrastructure mgt services * * * * E-business * * * * * * Embedded technology * * * Multimedia & animation * * * * * * * * * * * * Web based applications * * * * * * * * * * * Wireless technology * * * * * EA (ERP, CRM, etc)* * * * * *

10. Health and Wellness Tourism • US corporations lose approximately $150 billion each year to stress-related disorders. • Global medical tourism is worth $20billion • Bumrungrad Hospital in Bangkok had more than 350,000 foreign patients a year. • In Thailand, • 600,000 foreign patients had medical treatment worth 20 billion baht in 2004. • by 2008, revenue from medical tourism alone is expected to reach a 40 billion baht.

11. Health and Wellness Tourism In 2005, Singapore generated $ 915 million (USD) from medical travel. This is expected to increase at a rate of 8.13% through 2012, helping to turn medical tourism into a $1.6 billion industry for the country.  In India, medical procedures cost only around 10% of US costs.

12. Health Tourism potentials The Philippines rank as the fifth most popular medical tourism destination after Thailand, India, Malaysia, and Singapore. In 2006, the Philippines earned $200 M In 2007, it was expected to gross $300 to $400 million through health travel. Highly competitive prices Hopes to earn $1billion a year

13. Engineering services • Global spending on engineering services is large and rising – constituting about 2% of global GDP • Current spending on engineering services ($750 billion in 2004) is projected to increase to $1.1 trillion by 2020 • Automotive at 19%; Aerospace at 8%; Utilities at 3% in 2004. • High-Tech/ Telecom is the dominant and fastest growing sector, with 30% of the market • While today only $10-15 billion of engineering services is off-shored, the market is expected to grow to $150 -225 billion by 2020.

14. IBM view of services (2008)

15. Technical services potentials

16. Growth expectations Some analysts predict that by 2020, services will account for 50% of world trade. One of the main reasons for the exponential growth in services we have witnessed and for that which is predicted is the progress in telecommunications and information technology. These developments have brought a proliferation of new opportunities for the sector and have played a major part in changing the way services are viewed and sold. - Peter Walters, International Trade Centre, Geneva

17. Reasons for services importing • Need to increase capacity and productivity • Access to high quality talent pool • Cost advantages • Access to growing markets

18. Factors that affect RP potential growth • Demand at buyer locations • Costs of operations in buyer locations • Advancements and availability in technology in the country • Demand for RP services • Performance creates its own demand

19. AT Kearney Global Services Location (2005)

20. AT Kearney Global Services Location (2007)

21. RP Health Delivery Problems Auxiliary services seldom get delivered to the towns in the hinterlands.  Public health is in a dismal state when compared to more progressive Asian neighbors.  Filipinos who suffer from illness or injury but can’t afford basic treatment.  Private health, even with the advent of “affordable” health insurance, is still inaccessible to many average Filipino citizens.

22. Global Market There are great potentials in exports of services, but success is not assured. Sari-sari store thinking will not work! The global market is dynamic. Customers are sophisticated with constantly increasing wants and standards. Competitors constantly improve.

23. Services challenge • The service cannot be inspected before it is purchased • What is being sold is “a promise to perform” • Moments of truth determine success.

24. The Indian experience • For every IT job, three other new jobs are created • Two-fifths of the Fortune 500 companies outsource software requirements to India. • Greater efficiency as a result of servicing both international and local clients. • India’s cross border services exports are evolving from lower-end, disentangled BPO services to more integrated web-based and enabled services.

25. The Indian experience • “The Indian IT and software industry is continuously renewing itself and seeking to grow by addressing newer service lines; the latest one being engineering services. Companies in India have developed capabilities and skill sets, and invested in technology platforms to leverage this opportunity,” said Kiran Karnik, President NASSCOM. “The growth in engineering services signifies the need for global corporations to expand their R&D pool beyond their home countries.”

26. ‘You are never too small to export services’. You can be a one-person firm and still be a successful exporter” - International Trade Centre

28. Services Challenge Constantly find a good profitable market and keep it Constantly develop capabilities to satisfy that market

29. Sell more and more frequently to present buyers Convert nonusers into users Induce brand switching into the markets of the competitors Secure medium to long term profitability

30. Management Competence • Strategy level: what you produce for whom • Capability level: • Marketing: communicate with market and deliver your goods and services • Production: all necessary tasks to deliver on services • Transaction level: • Deliver the service and get paid

31. Marketing issues • establishing credibility in the global market. • skilled in relationship marketing and how to utilize networks of contacts (more than market research). • market information becomes outdated very quickly. • Few services can be marketed through agents so service principals, who may only be interested in the technical aspects of service design and delivery, need to be trained in marketing skills. • Private sector associations have typically been focused on regulatory control and domestic policy advocacy, not on services exporting activities or services trade policy advocacy.

32. “Why pick you as service suppliers?” • What do you offer? • What is your specialization? • What have you achieved? • What are your capabilities? • Human resources • Infrastructure and technology • Information resources • Alliances • Ability to innovate

33. Is the Philippines a selling point? 1. Does it have a geographic advantage? 2. Does it have a language or cultural advantage? 3. Does it have a human resources advantage? 4. Does it have a reputation for being particularly business friendly or familiar with other ways of doing business? 5. Does it have a reputation in a particular sector that can be leveraged as a country image? 6. Does it provide customer access to a range of other markets?

34. Selecting the export market • The number of firms already exporting to, or interested in, that market • Economic growth patterns in that market • Attitudes in that market towards importing services, especially from your country • Historical links with that market, including investment and tourism • Ease of access for your exporters (direct flights, visa requirements) • Ability to pay, including exchange restrictions, inflation rate, currency stability