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UNCTAD/CD-TFT 1 OUTSOURCING Accessing Developing Countries Knowledge Pool and Creating a Global Thinking System Mina Mashayekhi Head, Trade Negotiations.

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Presentation on theme: "UNCTAD/CD-TFT 1 OUTSOURCING Accessing Developing Countries Knowledge Pool and Creating a Global Thinking System Mina Mashayekhi Head, Trade Negotiations."— Presentation transcript:

1 UNCTAD/CD-TFT 1 OUTSOURCING Accessing Developing Countries Knowledge Pool and Creating a Global Thinking System Mina Mashayekhi Head, Trade Negotiations and Commercial Diplomacy Branch UNCTAD Geneva, April 2005

2 UNCTAD/CD-TFT 2 The Data A new way to leverage skills and markets Win-win situation: for DCs and ICs: productivity, competitiveness, higher employment, faster economic growth every dollar of outsourcing creates $ of value of which the US captures $ while India gets only 33 cents Outsourcing industry: to exceed $1 trillion by 2006 Total savings from global outsourcing: to grow from $6.7 bn (2003) to $20.9 bn (2008) Developing countries gains: $60 billion in ITES by 2008

3 UNCTAD/CD-TFT 3 The Data Outsourcing: North-South issue? Hardly… More North-North trade-68% of trade North America, largest market: 60% of total Canada, largest exporter of private services to US Job displacement, unfounded: Net creation of 22 million new jobs in the US (from ); shortage of 10 million in 2010 Estimates for outsourcing: job creation: 317,000 net new jobs by 2008 in the US 2003: 98% of total contract value for outsourced business process service delivery in the US is done domestically (only 2% off-shored) India accounted for only 1% of total US imports of private services (of which, 2% - business services)

4 UNCTAD/CD-TFT 4 Worldwide ITES-BPO Spending by region Region (CAGR %) Americas484,732647, EMEA171,303237, Asia/Pacific117,622194,22813 Worldwide773,

5 UNCTAD/CD-TFT 5 The Benefits Contributes to the MDGs: gender empowerment, poverty reduction, access to technology Has positive spill-over effects: gains from additional consumption, skills and technology transfer, secondary employment Strengthens local capacity : through ToT and technological developments could assist DCs in building their own industries Indian example: TCS, Infosys, Wipro Technologies Expands markets: through inter-modal linkages, especially with Mode 4 could benefit late entrants, esp. if trend continues

6 UNCTAD/CD-TFT 6 Gains for Outsourcing Companies Strategic decision / competitive necessity Lower labor costs Economies of scale Round the clock operations / time zone Access to skills (including language skills) Legal and regulatory framework Quality Structure of existing corporate network Global R&D teams working in tandem

7 UNCTAD/CD-TFT 7 The Activities Lower end: customer contact centres, data entry operations, telemarketing, basic technical support Middle: processing of financial transactions (credit-card billing, insurance claims) Higher end: professional services such as research and development, accounting, engineering and architechtural design services, investment analysis, medical diagnostics

8 UNCTAD/CD-TFT 8 Developing Country Beneficiaries India: a wide known success story 18 percent share of the global market Growth rate: 54% in Total export revenues to touch US$ 57 bn by 2008; US$ 148 bn by 2012 Employment to rise from 110,000 (2003) to 2.7 mn by 2012 Philippines, China, Malaysia, Vietnam, Bangladesh, S.Africa, Ghana, Senegal, Kenya, Jamaica, Mauritius, Nicaragua, Barbados, Mexico, Brazil. Others: Hungary, Czech Rep.

9 UNCTAD/CD-TFT 9 Programmers Wages (Average Wage/year (US$000)

10 UNCTAD/CD-TFT 10 Vietnam Experience Nortel, Cisco, IBM, Hewlett-Packard, British Petroleum, Sony, Fuji, TCS, now in Vietnam IT training specialists (NIIT, Aptech, Oracle) and Royal Melbourne Institute of Technology, providing training Attractions: cost advantage strong mathematical skills ( focus of educational system) knowledge of French and English Government: providing incentives to IT sector (tax holidays, infrastructure development, education) Vietnamese diaspora: key driver of IT industry

11 UNCTAD/CD-TFT 11 Ghana Experience Government: pro-active role: campaign, promotion for major US BPO players to set-up presence Attractions: stable political environment english-speaking workforce; high literacy Role of diaspora population: setting-up their own companies in Ghana; some in partnership with foreign investors knowledge of foreign culture and their networks

12 UNCTAD/CD-TFT 12 Success Stories: Summary Competitive cost Language, education, skills also enables moving up the value chain Ability to develop global networks Adequate and reliable infrastructure Government role: infrastructure, education, various incentives, marketing, political stability, regulatory framework (e.g., security of data and IPR protection) relates to long-term prospects of doing business Role of diaspora population Cultural and relational proximity and trust

13 UNCTAD/CD-TFT 13 The Challenges to Overcome Lack: infrastructure, trained HR, local market- base Difficulty in gaining confidence of outsourcing companies: regulatory framework still under development political instability and governance issues Lack of coverage for liability and risk putting in place a strong risk-control framework Potential erosion of competitive advantage through new laws and regulations (e.g., restrictions on transfer of personal data) Growing protectionism in outsourcing countries

14 UNCTAD/CD-TFT 14 Intermodal Linkages Mode 1-Mode 4: need for professionals to travel for negotiating contracts, trouble shooting, maintenance, training, supervision, monitoring etc. Mode 1-Mode 3: Indian companies benefiting from outsourcing now have established their own commercial presence in major markets: 480 Indian companies in UK; India, now 8 th largest investor in the UK; have also established operations in China, Philippines, etc. to leverage specific skills and take advantage of lower costs.

15 UNCTAD/CD-TFT 15 Liberalization: The Targeted Approach Full MA and NT commitments on positive list of service sectors at aggregate (2 digit) level: ensures a reasonable degree of coverage to include large part of current IT & BPO trade; is focused on the sectors in question; allows for gradual liberalization (bearing in mind regulatory and institution constraints in developing countries); allows for more predictability; But: may still miss out on a number of services currently being traded; may not cover other new services to be traded in the future;

16 UNCTAD/CD-TFT 16 Liberalization: The Horizontal Approach Full MA and NT to ALL services supplied on a cross-border basis (excl. certain financial and certain transport services): includes also those services not listed in schedule, and any new service that will be traded in the future; reduces negotiating capital; more accelerated market opening. But: creates challenges for the basic structure and approach of the GATS (bottom-up); does not allow for targeted and focused liberalization; does not easily account for development flexibilities; makes it hard to anticipate impact.

17 UNCTAD/CD-TFT 17 Domestic Regulation Specific commitments: can potentially be undermined through protectionist domestic regulations. Challenges… developing countries are still experimenting with their regulatory systems; cross border delivery through new technological means gives rise to new regulatory issues (liability; consumer protection etc.); new governance and institutional frameworks for cross- border delivery and outsourcing services are required.

18 UNCTAD/CD-TFT 18 UNCTAD Expert Meeting Professional Services & New and Dynamic Sectors Analyzing trade opportunities arising from global outsourcing; Identifying best practices to strengthen domestic capacity and increase participation in international trade; Exploiting existing frameworks for cooperation and coordination among international organisations; For UNCTAD, to intensify its capacity-building efforts for developing countries, esp. LDCs; For developing countries, to build necessary infrastructure and domestic capacity; Effective implementation of Article IV, Telecom Annex; For WTO Members, to address issues of market access in the ongoing GATS negotiations; Cooperative measures through RTAs.

19 UNCTAD/CD-TFT 19 Way Forward Proactive role for DC governments: Identifying their natural advantage and taping/developing it to boost competitiveness Building and maintaining appropriate infrastructure Setting up appropriate regulatory frameworks, maintaining political stability Becoming responsive to private sector needs Tapping diaspora support to build domestic industries

20 UNCTAD/CD-TFT 20 Way Forward Provide assistance to strengthen DC capacity support for skills and infrastructure development, e.g. through a digital fund (external financing) Curb protectionism through industry support measures (redeployment, placement support, training grants, etc.) through international trade negotiations (market access issues in the GATS)

21 UNCTAD/CD-TFT 21 To Sum Up…. Outsourcing is an inevitable trend in the global economy… with potentially huge gains (for both developed and developing countries). Benefits are not automatic… but require targeted action… at national level (policies to support outsourcing, e.g. create infrastructure and educational base); at international level (TA for national policies and negotiating outcomes to curb protectionism).


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