Opportunities in Services Exports

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Opportunities in Services Exports

• Jose Edgar Mutuc
• ATIFTAP

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WTO four modes of service trade

• Mode 1 (cross-border supply)
• where only the service itself crosses the
  border
• Mode 2 (consumption abroad)
• the customer travels to the country where
  the service is supplied
• Mode 3 (commercial presence)
• the supplier establishes a commercial
  presence abroad
• Mode 4 (presence of natural persons)
• Presence of natural persons, where the
  provider of the service travels from their own
  country to supply services in another

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Export services

• Developing countries export on the average 68
  different types of services to at least 33
  different export markets, of which two-thirds are
  other developing countries (ITC)

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Services

• Utilities
• Wholesale Trade
• Retail Trade
• Transportation and Warehousing
• Information Services
• Finance and Insurance Finance and Insurance
• Real Estate and Rental
• Professional and Technical services
• Management Services
• Administrative and Support services
• Educational Services
• Health Care and Social Assistance
• Arts Entertainment and Arts, Entertainment, and
• Accommodation and Food services
• Public Administration Services
• Other Service Industries

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Types of Services

• Infrastructure services
• These include architecture, engineering,
  construction, transportation, distribution, and
  financial services.
• IT-related services
• These include computer consultancy, software
  development, data processing, database
  management, and call centers.
• Business services (non-IT-specific)
• These include a wide range of business support
  activities such as research development,
  equipment leasing or maintenance, market
  research, management consulting, translation,
  investigation

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Types of Services

• Professional services
• These include the licensed professions (other
  than architecture and engineering) like
  accounting, legal services, medical dental
  services, nurses midwives, and veterinarians.
• Quality of life services
• These include education training,
  health-related services, entertainment services,
  cultural services, recreational services, and
  sporting services.

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Growth potentials

• Total exports of services more than quadrupled
  between 1980 and 2000, growing from US337Bn to
  US1.4 trillion.
• Asias share of world total services exports in
  2000 was 18 per cent, equivalent to more than
  twice the correspondent figure for 1980

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Outsourcing potentials

• European-based companies will fuel the growth in
  offshore Gartner (2006)
• Outsourcing estimated at 50 year on year rise in
  spending on the world market in 2006 and 2007.

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India 13 Canada 11 Ireland 11 Russia 9 China
8 Poland 8 Brazil 6 Czech Rep Mexico
6 Hungary 5 Philippines4 Malaysia 4 Romania
4 South Africa
ITO competency-destination matrix 2005 (Neo IT)
CAD
QA Testing
Application Mgt/support
IT consulting
System integration
Packaged
SW implementation
SW localization

Infrastructure mgt services
E-business
Embedded technology
Multimedia animation
Web based
applications
Wireless technology
EA (ERP, CRM, etc)

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Health and Wellness Tourism

• US corporations lose approximately 150 billion
  each year to stress-related disorders.
• Global medical tourism is worth 20billion
• Bumrungrad Hospital in Bangkok had more than
  350,000 foreign patients a year.
• In Thailand,
• 600,000 foreign patients had medical treatment
  worth 20 billion baht in 2004.
• by 2008, revenue from medical tourism alone is
  expected to reach a 40 billion baht.

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Health and Wellness Tourism

• In 2005, Singapore generated 915 million (USD)
  from medical travel.
• This is expected to increase at a rate of 8.13
  through 2012, helping to turn medical tourism
  into a 1.6 billion industry for the country. 
• In India, medical procedures cost only around 10
  of US costs.

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Health Tourism potentials

• The Philippines rank as the fifth most popular
  medical tourism destination after Thailand,
  India, Malaysia, and Singapore.
• In 2006, the Philippines earned 200 M
• In 2007, it was expected to gross 300 to 400
  million through health travel.
• Highly competitive prices
• Hopes to earn 1billion a year

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Engineering services

• Global spending on engineering services is large
  and rising constituting about 2 of global GDP
• Current spending on engineering services (750
  billion in 2004) is projected to increase to 1.1
  trillion by 2020
• Automotive at 19 Aerospace at 8 Utilities at
  3 in 2004.
• High-Tech/ Telecom is the dominant and fastest
  growing sector, with 30 of the market
• While today only 10-15 billion of engineering
  services is off-shored, the market is expected to
  grow to 150 -225 billion by 2020.

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IBM view of services (2008)
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Technical services potentials
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Growth expectations

• Some analysts predict that by 2020, services will
  account for 50 of world trade.
• One of the main reasons for the exponential
  growth in services we have witnessed and for that
  which is predicted is the progress in
  telecommunications and information technology.
• These developments have brought a proliferation
  of new opportunities for the sector and have
  played a major part in changing the way services
  are viewed and sold. - Peter Walters,
• International Trade Centre, Geneva

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Reasons for services importing

• Need to increase capacity and productivity
• Access to high quality talent pool
• Cost advantages
• Access to growing markets

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Factors that affect RP potential growth

• Demand at buyer locations
• Costs of operations in buyer locations
• Advancements and availability in technology in
  the country
• Demand for RP services
• Performance creates its own demand

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AT Kearney Global Services Location (2005)
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AT Kearney Global Services Location (2007)
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RP Health Delivery Problems

• Auxiliary services seldom get delivered to the
  towns in the hinterlands. 
• Public health is in a dismal state when compared
  to more progressive Asian neighbors. 
• Filipinos who suffer from illness or injury but
  cant afford basic treatment.  Private health,
  even with the advent of affordable health
  insurance, is still inaccessible to many average
  Filipino citizens.

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Global Market

• There are great potentials in exports of
  services, but success is not assured.
• Sari-sari store thinking will not work!
• The global market is dynamic.
• Customers are sophisticated with constantly
  increasing wants and standards.
• Competitors constantly improve.

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Services challenge

• The service cannot be inspected before it is
  purchased
• What is being sold is a promise to perform
• Moments of truth determine success.

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The Indian experience

• For every IT job, three other new jobs are
  created
• Two-fifths of the Fortune 500 companies outsource
  software requirements to India.
• Greater efficiency as a result of servicing both
  international and local clients.
• Indias cross border services exports are
  evolving from lower-end, disentangled BPO
  services to more integrated web-based and enabled
  services.

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The Indian experience

• The Indian IT and software industry is
  continuously renewing itself and seeking to grow
  by addressing newer service lines the latest one
  being engineering services. Companies in India
  have developed capabilities and skill sets, and
  invested in technology platforms to leverage this
  opportunity, said Kiran Karnik, President
  NASSCOM. The growth in engineering services
  signifies the need for global corporations to
  expand their RD pool beyond their home
  countries.

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• You are never too small to export services. You
  can be a one-person firm and still be a
  successful exporter
• - International Trade Centre

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Services Challenge

• Constantly find a good profitable market and keep
  it
• Constantly develop capabilities to satisfy that
  market

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Sell more and more frequently to present
buyers Convert nonusers into users Induce brand
switching into the markets of the competitors
Secure medium to long term profitability
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Management Competence

• Strategy level what you produce for whom
• Capability level
• Marketing communicate with market and deliver
  your goods and services
• Production all necessary tasks to deliver on
  services
• Transaction level
• Deliver the service and get paid

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Marketing issues

• establishing credibility in the global market.
• skilled in relationship marketing and how to
  utilize networks of contacts (more than market
  research).
• market information becomes outdated very quickly.
• Few services can be marketed through agents so
  service principals, who may only be interested in
  the technical aspects of service design and
  delivery, need to be trained in marketing skills.
• Private sector associations have typically been
  focused on regulatory control and domestic policy
  advocacy, not on services exporting activities or
  services trade policy advocacy.

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Why pick you as service suppliers?

• What do you offer?
• What is your specialization?
• What have you achieved?
• What are your capabilities?
• Human resources
• Infrastructure and technology
• Information resources
• Alliances
• Ability to innovate

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Is the Philippines a selling point?

• 1. Does it have a geographic advantage?
• 2. Does it have a language or cultural advantage?
• 3. Does it have a human resources advantage?
• 4. Does it have a reputation for being
  particularly business friendly or familiar with
  other ways of doing business?
• 5. Does it have a reputation in a particular
  sector that can be leveraged as a country image?
• 6. Does it provide customer access to a range of
  other markets?

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Selecting the export market

• The number of firms already exporting to, or
  interested in, that market
• Economic growth patterns in that market
• Attitudes in that market towards importing
  services, especially from your country
• Historical links with that market, including
  investment and tourism
• Ease of access for your exporters (direct
  flights, visa requirements)
• Ability to pay, including exchange restrictions,
  inflation rate, currency stability