1 WTO Symposium on cross-border supply of services Geneva, 28-29 April 2005 FDI in Services Anne Miroux Head, Investment Issues Analysis Branch UNCTAD, Division on Investment, Technology and Enterprise Development Phone: +4122 9071167; Fax: +4122 9170498 E-mail: anne. [email protected]This presentation is based on UNCTAD, World Investment Report 2004: The Shift Towards Services (Geneva: UNCTAD, 2004), UN Sales Publication No. E.04.II.D.33, also at www.unctad.org
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1 WTO Symposium on cross-border supply of services Geneva, 28-29 April 2005 FDI in Services Anne Miroux Head, Investment Issues Analysis Branch UNCTAD,
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WTO Symposium on cross-border supply of servicesGeneva, 28-29 April 2005
FDI in Services
Anne Miroux
Head, Investment Issues Analysis Branch
UNCTAD, Division on Investment, Technology and Enterprise DevelopmentPhone: +4122 9071167; Fax: +4122 9170498
This presentation is based on UNCTAD, World Investment Report 2004: The Shift Towards Services (Geneva: UNCTAD, 2004), UN Sales Publication No. E.04.II.D.33, also at www.unctad.org
Exports of goods and non-factor services 2246 4 260 7819 7 559 7 917 9 228
Source: UNCTAD, World Investment Report 2004: The Shift Towards Services (see www.unctad.org/wir).
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The importance of commercial presence/mode 3 in the delivery of services
Mode 3 sales of services are clearly larger than cross border sales (mode 1) of services.
In 2001, for instance, the sales of services by affiliates of US multinationals in foreign markets amounted to $432 billion while US exports of services amounted to $276 billion 1 (a 1.6 to 1 ratio).
1/ US Bureau of Economic Analysis
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The shift towards services
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Sectoral distribution of FDI inward stock 1990 2002
9%
42%49%
6%
34%60%
41%
10%
49%
6%
32%62%
7%
46%47% 55%
7%
38%
Source: UNCTAD, World Investment Report 2004: The Shift Towards Services (see www.unctad.org/wir).
World
Developed Countries
Developing Countries
Primary Manufacturing Services
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Estimated world inward FDI stock, by sector and industry, 1990 and 2002(Millions of dollars)
Business activities 117 459 8 298 125 756 703 053 434 109 a 13 514 1 150 676 a
Source: UNCTAD, World Investment Report 2004 , Annex Table A.I.18
Note: Data should be interpreted with caution. The world total was extrapolated on the basis of data covering 48 countries in 1990 and 61 countries in 2002, or latest year available. They account for over four-fifths of world inward FDI stock in 1990 and 2002. The world total in 1990 includes the countries of Central and Eastern Europe, although data by sector and industry are not available for that region.
a A large share of investment in this industry is in Hong Kong (China), which accounted for 58% of developing economies and 22% of the world total. Hong Kong (China) data include investment holding companies.
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What services attract the most FDI?
• Traditional Industries:– Financial services (40% in 1990, 29% in 2002)
– Trading (25% in 1990, 18% in 2002)
• Emerging Industries:
– Telecommunications (3% in 1990, 11% in 2002)– Electricity (1% in 1990, 3% in 2002)– Business services (13% in 1990, 26% in 2002)
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Additional features of the shift of FDI towards services
• Shift towards services in all country groups
• Shift is fastest in developed countries
• Wide variations among individual economies
– Inward stock:
• More than 80%: Denmark, Hong Kong (China), Switzerland
• 30% or less: Bangladesh, Sweden, Venezuela
– Outward stock:
• More than 70%: Austria, Colombia, Denmark
• Less than 40%: Australia, Croatia, Sweden
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Drivers
• «Tradability revolution » – advances in ICT
• Trade and investment liberalization
• High demand for certain skills (growth of IT industries)
• Responses to increased competition
• Cost reduction and quality improvements through:
– consolidation
– focus on core activities
– shift to lower-cost locations
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Potential benefits for developing countries
• Financial resources• Improvement of services provided• Transfer of “soft” technology (knowledge,
information, expertise, organizational skills)• Employment generation• Transfer of “hard” technology (infrastructure)• Enhancement of systemic and export
competitiveness
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Potential costs and risks for countries: the importance of policies
• Potential abuse of monopolistic/oligopolistic market power, especially in basic services
• Systemic risk in banking and other financial services
• Contingent risks in socially or culturally sensitive areas
Need for appropriate policies at the national and international levels:
•Regulation of monopolistic/oligopolistic markets
•Supervision of banking/finance
•Protection of socially or culturally sensitive areas
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Offshoring of services
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Offshoring vs. outsourcing
LocationInternalized production
Externalized production("outsourcing")
DomesticProduction kept in-
house at home
Production outsourced to third-party service provider at home
Foreign
("offshoring")
Production by foreign affiliate
"Captive offshoring"
Production outsourced to third-party service provider abroad
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The big picture
• The services tradability revolution
• Allows for an international division of labour in the production of services
• Open policy environment plus competitive pressures
• Total offshoring market: $32 bn (2001) – but potential is high
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U.S. firms lead the offshoring trend…
• 55-65% of export-oriented service FDI projects are undertaken by U.S. firms
…but other companies are following:• 40% of top European firms have offshored services
• 23% of Japanese IT companies have offshored services, especially to China
• Indian companies among the top in the offshoring of IT services
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Top destinations for export-oriented FDI projects in services, 2002-2003(Number)
Offshoring is not a North-South issue•Ireland & Canada among top recipients of offshored services•But it offers opportunities for developing countries - India’s services exports: $0.5 bn to $12 bn in past decade
Call centres
Shared service centres IT services Regional HQs
India (60) India (43) India (118) US (80)
Canada (56) Ireland (19) U.K. (73) U.K. (64)
U. K. (43) Singapore (8) China (60) China (38)
China (30) Hungary (7) Singapore (35) Hong Kong, China (37)
Ireland (29) U.K. (7) Germany (34) Singapore (36)
Developed country share:
54% 35% 46% 60%
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A win-win-win proposition …Companies
• Concentration on core competencies• Increase competitiveness
Recipient countries• Export earnings• New jobs and skills upgrading• Technology transfers• Potential for linkages
Countries of origin
• Lower costs of services for consumers
• Export opportunities
• Structural change: move to higher-value activities
In brief: all the opportunities (and costs) associated with the emerging international division of labour in the services sector
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…if policy challenges are met • Recipients countries
- Telecommunications, skilled labour, quality of suppliers