Exploring Global Services Growth: Opportunities & Challenges

1. SEVICES: GOING GLOBAL? Lecturer: Dr. Truong Thi Kim Chuyen

2. CONTENT • Defining and the theorizing services • National and global stimuli to the growth of services • Service outsourcing: benefits and drawbacks for all? • Limits to service export growth in the semi-periphery and periphery • Geography of services • Variety in the internationalization of services

3. Group members • Thái Thụy Tường Vy • Đỗ Bảo Khánh • Phạm Bình Dương • Đoàn Anh Việt • Nguyễn Thị Anh Thư

4. 11.1/ Defining and the theorizing services

5. I. Defining and the theorizing services Following Fisher – Clark thesis, services have been defined: • Comprising what remains after agriculture, mining and manufacturing are excluded. (1st defined way) • Production and consumption of intangible inputs and outputs. (2nd defined way)

6. 1st defined way Differences between manufacturing and services play important implications • For LDCs and the DCs • For measuring and studying services

7. Services are categorized into 7 major components • Finance, insurance and real estate • Business services • Transportation and communications • Wholesale and retail trade • Entertainment, hotels and motels • Public services at all government levels • Non-profit services

8. 2nd defined way • The distinction between tangible manufactured goods and intangible services is not clear cut • Many manufactured products have come to be offered not in their own right to consumers, but in terms of their wider service attributes. This has occurred in 2 ways • The manufactured products can be offered along with closely aligned service products in a single package • Instead of buying a manufactured product in a single one-time purchase, a consumer can buy the service which the manufactured product provides as part of a continuing process involving long-term customer contact through service delivery

9. Service encapsulation

10. 11.2/ National and global stimuli to the growth of services

11. II. National and global stimuli to the growth of services • Rising per capita incomes • Growing demand for healthcare and educational services • Increasingly complex division of labor • Growing size and role of the public sector • Increasing international trade in services • Rapid growth in outsourcing service functions

12. 11.3/ SERVICE OUTSOURCING: BENEFITS AND DRAWBACKS FOR ALL?

13. Deciphering outsourcing terminology

14. Outsourcing can be done domestically or abroad, involves work done externally • Offshoring is always done abroad, the work can be done either internally • External outsourcing – where the work is done by unaffiliated companies ( including independent foreign subcontractors, as in offshore outsourcings ) • Internai outsourcing – where the work is done by affiliated companies as in captive outsourcing

15. While the outsourcing of services is still at a relatively early age, it is seen as representing the leading edge of changes in global production • UNCTAD : Reflect a shift to a new internal division of labour in the production of services • OECD : The total number of jobs could be affected by international and domestic outsourcing

16. Service and manufacturing activities, important differences are expected to fuel an acceleration in service outsourcing • First, There is significant room for growth • Second, The rate of increase in the amount of services that has become tradable • Third, Manufacturing companies have primarily carried out the outsourcing of goods production • Fourth, Skill levels are typically higher • Fifth, Services may be more mobile than outsourced manufacturing activities

17. The benefits of service outsourcing for LDCs include the criterion of higher skill jobs involving better pay, training and transferable skills and associated infrastructure investment that can contribute to further local job growth • The drawback for some LDCs include the possible relocation of outsourced service activities to other more competitive LDC locations unless worker skills and local infrastructure are continuously upgraded

18. 11.4/ LIMITS TO SERVICE EXPORT GROWTH IN THE SEMI-PERIPHERY AND PERIPHERY

19. Semi-periphery and periphery • The semi-periphery countries are the industrializing, mostly capitalist countries which are positioned between the periphery and core countries • The periphery countries (sometimes referred to as just the periphery) are those that are less developed than the semi-periphery and core countries.

20. Limits to service export growth in the semi-periphery and periphery

21. TECHNOLOGY AND INFRASTRUCTURE TECHNOLOGICAL LIMITATIONS: USE BY COMPUTER DIGITAL FORM MADE TO OUTSORCING

22. TECHNOLOGICAL LIMITATIONS: • Ex: Africa has less than 1 internet host per 1000 inhabitants

23. LIMITED INFRASTRUCTURE:

24. LIMITED INFRASTRUCTURE: EX: LDCs cannot link into telecommunications network in submarine cables => They are limited in their ability to develop competitive base for services exports

25. EDUCATION AND TRAINING Lack of education and training is a limiting factor in knowledge-intense services.

26. Special skills are needed for more routine services: LDCs may not be able to keep pace with the demand for qualified workers, shortages of trained workers => Less attractive as an outsourcing destination

27. GOVERNMENT AND POLICIES • Competitive regulatory environment is need to encourage competition among service providers • The regulatory and legal framework in some less developed countries can place limits on the growth of export services. • => they need to be concern about poor data security and intellectual property protection.

28. WTO’s General Agreement on Trade in services (GATS) covers all internationally traded services. However, it still proceeds extremely slowly to help a greater competition and non-discrimination.

29. CORPORATE STRATEGIES

30. Any assessment of the potential for service outsourcing needs to include analysis of corporate strategies and organizational limitations • Ex: some information that is to be processed can be confidental. However,this can increase transation cost and limit desirability of outsourcing. The royal Bank of Scotland in UK are right when deciding not to outsource certain financial service abroad while LDCs is limited in decision of outsourcing.

31. 11.5/ GEOGRAPHY OF SERVICES

32. PATTERNS AND TRAJECTORIES • INTERNATIONAL TRADE IN SERVICES • TRANSNATIONAL INVESTMENT PATTERNS • EXPORT PROCESSING ZONES (EPZS) • AGGLOMERATION AND NEW BUSINESS SERVICE CONCENTRATIONS

33. PATTERNS AND TRAJECTORIES • 2006: milestone for service • Low employment in services  ? • Economy Informal Formal

34. 2006: milestone for service(not include informal economy) Changing employment in services as a percentage of total employment Source: ILO (2007:12, table 5)

35. Employment rate in service • Low employment rate in services  LDC Percentage of Workers in the Service Sector Source: U.S. Bureau of Labor Statistics (2008)

37. The connection between two kinds of economy • Informal economy: informal sector, informal employment, LDC • employment without labour or social protection—both inside and outside informal enterprises, including both self-employment in small unregistered enterprises and wage employment in unprotected jobs. (D E S A W o r k i n g P a p e r N o . 4 6) • Formal economy: formal sector, formal employment, DC

38. Informal sector  resource for the formal sector. • Reason: informal sector provides a huge range of cheap services for employees in the formal sector  reduce the living cost of them  reduce the wages  reduce the goods price  good for formal economy

40. International trade in services EXPORTS IMPORTS 2005

41. TRANSNATIONAL INVESTMENT PATTERNS. 2/3 world FDI stock • FDI Services The largest • Physical presence requirement of delivering of non-tradable services • Home market success  build and strengthen strategies. • Relaxing regulation of service industries & foreign service • Information & communication technologies  low cost location worldwide.

42. EXPORT PROCESSING ZONES (EPZS) • LCDs use subsidies and EPZs  attract investment. • Subsidies: variety of service industries. • EPZs: manufacturing (traditional), export-oriented services

43. Table 1. Regional distribution of EPZs targeting services, 2004 Source: ILO, www.ilo.org/epz.

44. Most EPZs for service industries are located in the LDCs. • The kinds of these EPZs have growth rapidly: commercial services, simple data entry, call centres, medical diagnoses, architectural, business, engineering and financial services. • EPZs Modern communication technologies Reliable power supplies Highly skilled work-force.

45. AGGLOMERATION AND NEW BUSINESS CONCENTRATIONS

46. Actor-network theory • High value-added services + skilled labor + tacit information = world’s global cities. • Low value-added services + standardized knownledge = world’s low wage.

47. 11.6/ Variety in the Internationalization of Services

50. Large global retailers  Internationalizing their Supply Networks  Applying Buyer- driven commodity chain • What is Buyer- driven commodity chains ? • Labour- Intensive • Consumer goods industries