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With the upgrading of world industrial structure and international industry transfer, trade in services, as one of indicators to mirror the development of a service economy, has become an increasingly important part of international trade and investment. In recent years, international trade in services were developing with the following new tendencies: continued fast growth in international trade in services; the restructuring of international trade in services accelerated; continued regional imbalance in world trade in services; global service outsourcing eloping swiftly; the growing scale of trade in services realized by commercial presence; transnational merger and acquisition tending to be concentrated in service sectors.
I. Continued fast growth in international trade in services
Since 1980s, international trade in services has hit the fast track. From 1980 through 2006, the total value of global trade in services rose to USD 5330.4 billion from USD 767.4 billion, a 690% increase. Its share in global trade volume went up to 17.9% in 2006 from 15.7% in 1980. Especially after 2003, global trade in services grew faster, with the export and import of services both keeping increasing by double digits every year. The boom of world trade in services was attributed to the following facts: information technology revolution led to lower costs in information transmission, acquisition and processing, enabling services and products that used to be non-transferable or non-tradable to be transferred or traded; internet broke the space obstacle to transactions, bringing about new business operating modes like remote office and remote service; under the WTO institutional framework and multilateral trade system, all countries further opened their service sectors, and gradually lowered trade system, all countries further opened their service sectors, and gradually lowered trade barriers in services, resulting in considerably reduced institutional costs and transaction costs in economic activities.
In the years to come, with the restructuring of world industry, the shifting of the focus for international industrial transfer to service sectors will continue, with the increasing international investments, in service sectors and the continued emergence of offshore service outsourcing. A continued rapid growth in world trade in services is expected.
II. Restructuring of international trade in services accelerated
Since 1980s, with the continued emergence of new service sectors, the growing range and increasing types of services, there has been a considerable change in the structure of trade in services. The trade in services that was traditionally based on natural resources or intensive labor has been transforming into a modern trade in services that is typically knowledge and intelligence intensive or capital intensive. In the composition of world trade in services, in 1980, international transportation accounted for 36.8%, international tourism 28.4%, and other services (including 9 sectors: communications, construction, computer and information, insurance, financial services, royalties and license fees, other commercial services, individual, cultural and recreational services and government services; the same below) 34.8%. In 2006, the share of international transportation dropped to 23.1%, and that of international tourism to 27.2%, while that of other services rose to 49.7%. In the composition of world import of services, in 1980, international transportation accounted for 41.7%, international tourism 26.9%, and other services 31.4%. In 2006, the share of international transportation fell to 28.5%, and that of international tourism to 26.4%, while that of other services rose to 45.1%. In the trade in services that is capitals and technology intensive or knowledge intensive, developed countries still remained to be in a dominant position, especially in financial services, insurance, royalties and license fees, computer and information services. Developing countries were developing rapidly in such service sectors as tourism, construction engineering contracting, labor service and ocean shipping.
It is expected that with increasingly more active innovations in services, the contents, types and modes of services tend to diversify, and the shifting of the structure of trade in services to the knowledge and technology intensive service sectors will continue.
III. Regional imbalance in world trade in services existing
Countries varied greatly from each other in terms of scale and competitiveness in trade in services, due to their different development stage and level. Developed countries still took and absolute dominating position, accounting for over three fourth of the world’s total imports and exports of services, of which, the US, UK and Germany accounted for about 30% of the world total. In recent years, developing countries tended to enjoy a higher status in the international trade in services, but compared with developed countries, there was still a considerable gap between them in terms of the overall scale, and the majority of them had trade deficits in services. Among the 2006 top ten countries in international trade in services, only China was a developing country, accounting for 3.1% of the total volume of global trade in services. Also, such regional imbalance will continue to exist for a fairly long period of time.
IV. Service outsourcing growing fast globally
After 1990s, in the wake of economic integration, increasingly more streamlined division of labor as well as more intense market competition, an increasing number of enterprises farmed out their non-core business to other companies, in order to cut costs, optimize industry chain, and upgrade business core competence. Globally, service outsourcing, as a new international service industry transfer as well as a significant approach for expanding export of services for certain countries.
According to the forecast by Gartner, an analysis agency, the world’s service outsourcing market will grow at an average annual rate of 8.2%. In 2003, the world’s service outsourcing revenue stood at USD 220.1 billion, and will reach USD 306.3 billion in 2007. In 2002, the US companies that were willing to farm out their certain business to other foreign companies accounted for a mere 1% of the US companies, while by 2004, the figure rose to over 50%. Among the top 500 companies of Europe, nearly half of them are willing to have more service businesses to be outsourced. At present, international service outsourcing sectors enjoying the fastest growth include: computer and information, human resource management, media and public relation management, customer services and marketing. Among service sectors, software and information services and financial services and marketing. Among service sectors, software and information services and financial services were the most concentrated sectors with the most outstanding performance in terms of international outsourcing. It is estimated that in the world 80% of multinational companies cut expenditures by way of information technology outsourcing. According to the research and investigation by Tower Group, a financial research and service company, there has been a financial service outsourcing boom in developed countries since 1980s. the 15 largest financial service providers in the world have had more information technology projects to be outsourced, which were worth USD 1.6 billion in 2004 and will rise to USD 3.89 billion by 2008, a 34% year-on-year increase. It is estimated in the next five years, the US financial sectors will have USD 356 billion worth services to be done by way of offshore outsourcing, which will account for 15% of the total costs of the whole industry. In international service outsourcing project owners, they are multinational companies and international organizations mostly from the US, Europe and Japan, of which, the US has an about 2/3 share, and EU and Japan have a nearly 1/3 share. Of international service outsourcing project owners, most are giant companies. Many medium and small-sized companies also begin to show much interest in outsourcing. In earlier days, service outsourcing providers were mainly third-party service providers from the US, Europe and Japan. In recent years, thanks to their cost advantages and increasingly higher quality of services, developed countries gradually became major service outsourcing providers. Of which, most were Asian countries, accounting for 45%, with India being in the first position, followed by China and ASEAN. The US outsourcing business mainly went to India and the Philippines. In Europe, major service outsourcing providers were Ireland, Israel, Czech Republic and other East-European countries. In Latin America, Brazil was a major wervice outsourcing provider. Russia, South Africa, Ghana, Nigeria, Kenya, Vietnam, Cambodia and other countries now also entered this sector for a market share.
In spite of its rapid growth, service outsourcing is far from mature in terms of development level. At present, international outsourcing business has a mere 1%-2% share in the whole business process. Among the top 1000 companies of the world, two thirds (2/3) of them did not have any business process to be outsourced. Moreover, the majority of service outsourcing businesses were only at the primary stage of international industrial restructuring. There is, therefore, still huge room for further development. The coming years will witness a great breakthrough in both scale and range of international service outsourcing.
V. Trade in services expanding in scale by way of commercial presence
The new round of industrial restructuring of multinational companies has been accompanied by the shifting of capitals to service sectors. Since 1990s, over half of total foreign direct investments went to the service industry. According to the Report on World Investment 2006 published by the United Nations Trade and Development Conference, the most majority of FDI went to service sectors, especially financial services, communications, and real estate, etc. The proportion taken by FDI going to the manufacturing industry dropped. In 1990, the stock of inward FDI in global services accounted for 49.27% of the total stock of global inward FDI, and the stock of outward FDI 46.59%. By 2004, the former rose to 62.83%, and the latter 68.73% (see Table 2-4). By the end of 2005, FDI in global services accounted for 60% of the total global FDI. In terms of FDI flow in global services, in 1990 it was greater than the total of FDI flow in the first and secondary industries, accounting for 50.1%. In 2005, the figure further rose to about 70%.
FDI is being shifted to the service industry at an accelerated rate, bringing about the constant expansion of trade in services in scale by commercial presence. According to the WTO estimation, trade in services realized by way of commercial presence is about 1.5 times that realized by way of cross-boarder services. Meanwhile, the increasing amount of service outsourcing business also fuels the development of the service industry in terms of transnational investment. The service industry is being changed from a manufacturing dependent type into an independent type in terms of expansion. A multitude of multinational companies have begun to establish their own service supply network. Of the Fortune 500 companies of the world, 50% or so were multinational companies with their business based on service sectors, which contributed nearly half of their total revenues.
VI. Transnational mergers and acquisitions tending to be increasingly more concentrated in the service industry
Since the late 1980s, global transnational acquisition has tended to be increasingly more concentrated in the service industry than in the traditional manufacturing industry. Take the sales volume in global transnational mergers and acquisitions in the service industry for example, in 1989 it was USD 21.321 billion, or 28.6% of the total sales volume in global transnational mergers and acquisitions. The figure rose to 46.4% in 1990, and 50.2% in 1995. In 2000, the sales volume in global transnational mergers and acquisitions in the service industry stood at USD 842.342 billion, with its share rising to 73.6%. From 2001 through 2003, the sales volume in this regard and its share declined, but the sales volume went up again in 2004, with the share of 62.7%. In 2005, the primary sector where merger and acquisition increased considerably accounted for 16%, close to the record high in 1987, but the service industry which still had the largest share accounted for 55%, with the sales volume of USD 393.966 billion.
On February 15, 2000, a new round of negotiation was launched at the special session of the Council for Trade in Services. By the end of 2001, another new round of negotiation was held, with the negotiation on trade in services being incorporated in the Doha Development Agenda. Due to the indefinite suspension of Doha Round. Negotiation on July, 2006, however, the negotiation on trade in services, including market access and rules, was suspended as well. This had effects on the World Conference on Trade in Services and development to a certain extent. With the trend of continued growth as a whole, however, international trade in services will have a higher status in the economy of a country.
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