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International Trends in Outsourcing in Services SCCWTO Forum Shanghai, 9-10 June 2005 Pascal Kerneis, Managing Director ESF (European Services Forum) «

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Presentation on theme: "International Trends in Outsourcing in Services SCCWTO Forum Shanghai, 9-10 June 2005 Pascal Kerneis, Managing Director ESF (European Services Forum) «"— Presentation transcript:

1 International Trends in Outsourcing in Services SCCWTO Forum Shanghai, 9-10 June 2005 Pascal Kerneis, Managing Director ESF (European Services Forum) « The voice of the European Service Industries for the GATS negotiations »

2 What Is Outsourcing? Outsourcing = contracting another legal entity to do some of a firms work Offshoring or international outsourcing = moving some of a firms work to another country –To a captive (i.e. Foreign Affiliate) –To a third party supplier –To a joint venture Outsourcing = Imports Insourcing = Exports Consists of R&D, IT management/consulting, legal, architectural/engineering, software programming and design, call centers, medical records transcription, Air tickets emission, financial back office services, etc. Source: Offshore Operations: Industry Feedback, UK FSA April 2005

3 Outsourcing Is Becoming More Important for Services The Information Technology Revolution of these last ten years allow now Data Transfer, that open Offshoring possibilities to the services sectors Global spending on IT and BPO (business process outsourcing) is expected to increase from $250bn in 2000 to over $400bn in 2008 Lobbyist NASSCOM expects India to generate $80bn worth of sales by 2008 in IT services alone… But major discrepancies in the statistical figures between India and OECD (????). Source: A survey of outsourcing The Economist, 13 November 2005; Gartner

4 Illustration Onshoring, Offshoring, insourcing and outsourcing IT and business process services Approximate value of worldwide activity in 2001, USD Source: OECD

5 Factors Affecting Decision to Offshore Educational attainment and innovative capacity –India graduates 300,000 IT engineers and 90,000 MBAs per year Research and development capability Infrastructure facilities English (or business language) fluency Labour costs

6 Outsourcing Does Carry Risks Political risk –Highly qualified, skilled workers from rich countries may lose their jobs to workers from poor countries –Public backlash against exporting jobs Business/economic risk –Market and Consumer confidence issues –Financial crime/fraud issues –Consumer protection issues Source: Offshore Operations: Industry Feedback, UK FSA April 2005

7 Share of reported total exports of other business services and computer and information services, 1995, 2002 Source: IMF (BoP) ! ! ! Reminder: Insourcing = exports ! ! !

8 Outsourcing Benefits Both Countries A McKinsey Global Institute study notes that the U.S. economy gains 12 to 14 cents for every dollar offshored UK financial services firms report Indian offshoring to continue, not only because of economic benefits, but because of the high quality and flexibility of the labour force Source: McKinsey Global Institute, Offshoring: Is it a win-win game? Aug 2003

9 Outsourcing Destinations India is a clear leader, drawing UK and US firms for IT and BPO since the 1980s The Philippines call-centre business is growing quickly Eastern Europe and Russia are often overlooked centres of IT talent But also Call Centers in Mauritius, Caribbean's, Morocco + Egypt and Dubai for Arabic language; However, China now produces more IT graduates than India… Source: A survey of outsourcing The Economist, 13 November 2005

10 Countries who would like to attract Offshoring in services activities from developed countries should use the GATS as an instrument for such a purpose. The current round of GATS Negotiations ought first of all to improve market access via Commercial Presence Abroad--Mode 3 of the GATS – i.e. allowing companies to set up via branching, subsidiaries & joint ventures. Companies tend to prefer captive offshoring, i.e. their own branch or subsidiary. Offshoring and the GATS (1)

11 Offshoring and the GATS (2) But WTO Members ought also to undertake : Commitments for Cross-Border Supply via Mode 1 of the GATS, e-commerce, internet, sending electronic data to call center, fax, back offices. Need for legally secure environment for data transfer Commitments for Movement of Natural Persons via Mode 4 of the GATS, i.e. quickly moving skilled business personnel within a company (intra-corporate transferees) and to a companys clients on a temporary basis. Need to move managing and training staff in the destination country and in the headquater country.

12 52 Initial Offers as of May 2005 = not enough But Business Services (including IT & BPO) is the sector with the largest number of Initial offers –28 New offers –26 Improved offers Next steps: a) Revised offers by 31 May 2005 b) Draft final offers by Dec. 2006? State of Play of the GATS Negotiations & Offshoring

13 ESF Position ESF supports measures which increase the competitiveness of EU firms ESF call for wide Mode 1 liberalisation as to ensure E Commerce and Data transfer development; ESF urge all WTO countries to further open Mode 3 for MFN and National treatment, as to ensure fair competition, ESF strongly supports the liberalisation of Mode 4 (movement of natural persons within the EU and outside the EU) in the GATS negotiations Highly skilled workers ought to be able to move internationally with a minimum of bureaucratic delay Source: ESF Fourth Position Paper on Mode 4, April 2005

14 Jobs of the future… International outsourcing has always happened (largely in the manufacturing industry in China) & will continue, despite occasional political backlash ALWAYS uncertainty over what jobs will be available in what place –Less than 30% of goods and services consumed at the end of the 20 th century were available 100 years earlier. New services are invented every day; –Available staff, due to jobs gone offshore, often are freed up to undertake other fulfilling roles in the firm or in other companies. Source: A survey of outsourcing The Economist, 13 November 2005; William Nordhaus, Yale; Alan Greenspan

15 Pascal KERNEIS Managing Director European Services Forum – ESF 168, Avenue de Cortenbergh B – 1000 – BRUSSELS Tel: Fax: « The voice of the European Service Industries for the GATS negotiations » Website :


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