Opportunities in Opportunities in Services ExportsServices Exports

Jose Edgar MutucJose Edgar Mutuc

ATIFTAPATIFTAP

WTO four modes of service tradeWTO four modes of service tradeMode 1 (cross-border supply)Mode 1 (cross-border supply)

where only the service itself crosses the border where only the service itself crosses the border

Mode 2 (consumption abroad); Mode 2 (consumption abroad); the customer travels to the country where the service is the customer travels to the country where the service is

supplied supplied

Mode 3 (commercial presence); Mode 3 (commercial presence); the supplier establishes a commercial presence abroad the supplier establishes a commercial presence abroad

Mode 4 (presence of natural persons)Mode 4 (presence of natural persons) Presence of “natural persons”, where the provider of the Presence of “natural persons”, where the provider of the

service travels from their own country to supply services service travels from their own country to supply services in another in another

Export servicesExport services

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

ServicesServicesUtilitiesUtilitiesWholesale TradeWholesale TradeRetail TradeRetail TradeTransportation and WarehousingTransportation and WarehousingInformation ServicesInformation ServicesFinance and Insurance Finance and InsuranceFinance and Insurance Finance and InsuranceReal Estate and RentalReal Estate and RentalProfessional and Technical servicesProfessional and Technical servicesManagement ServicesManagement ServicesAdministrative and Support servicesAdministrative and Support servicesEducational ServicesEducational ServicesHealth Care and Social AssistanceHealth Care and Social AssistanceArts Entertainment and Arts, Entertainment, and Arts Entertainment and Arts, Entertainment, and Accommodation and Food servicesAccommodation and Food servicesPublic Administration ServicesPublic Administration ServicesOther Service IndustriesOther Service Industries

Types of ServicesTypes of Services

Infrastructure servicesInfrastructure servicesThese include architecture, engineering, construction, These include architecture, engineering, construction,

transportation, distribution, and financial services.transportation, distribution, and financial services.

IT-related servicesIT-related servicesThese include computer consultancy, software These include computer consultancy, software

development, data processing, database management, development, data processing, database management, and call centers.and call centers.

Business services (non-IT-specific)Business services (non-IT-specific)These include a wide range of business support activities These include a wide range of business support activities

such as research & development, equipment leasing or such as research & development, equipment leasing or maintenance, market research, management consulting, maintenance, market research, management consulting, translation, investigation translation, investigation

Types of ServicesTypes of Services

Professional servicesProfessional servicesThese include the licensed professions (other These include the licensed professions (other than architecture and engineering) like than architecture and engineering) like accounting, legal services, medical & dental accounting, legal services, medical & dental services, nurses & midwives, and veterinarians.services, nurses & midwives, and veterinarians.

Quality of life servicesQuality of life servicesThese include education & training, health-These include education & training, health-related services, entertainment services, cultural related services, entertainment services, cultural services, recreational services, and sporting services, recreational services, and sporting services.services.

Growth potentialsGrowth potentials

Total exports of services more than Total exports of services more than quadrupled between 1980 and 2000, quadrupled between 1980 and 2000, growing from US$337Bn to US$1.4 trillion.growing from US$337Bn to US$1.4 trillion.

Asia’s share of world total services exports Asia’s share of world total services exports in 2000 was 18 per cent, equivalent to in 2000 was 18 per cent, equivalent to more than twice the correspondent figure more than twice the correspondent figure for 1980 for 1980

Outsourcing potentialsOutsourcing potentials

European-based companies will fuel the European-based companies will fuel the growth in offshore Gartner (2006) growth in offshore Gartner (2006)

Outsourcing estimated at 50% year on Outsourcing estimated at 50% year on year rise in spending on the world market year rise in spending on the world market in 2006 and 2007.in 2006 and 2007.

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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Can

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11

Irel

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11

Rus

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9

Chi

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8

Pol

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Cze

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ITO competency-destination matrix2005 (Neo IT)

Health and Wellness TourismHealth and Wellness Tourism

US corporations lose approximately $150 billion US corporations lose approximately $150 billion each year to stress-related disorders. each year to stress-related disorders.

Global medical tourism is worth $20billionGlobal medical tourism is worth $20billion

Bumrungrad Hospital in Bangkok had more than Bumrungrad Hospital in Bangkok had more than 350,000 foreign patients a year.350,000 foreign patients a year.

In Thailand, In Thailand, 600,000 foreign patients had medical treatment worth 600,000 foreign patients had medical treatment worth

20 billion baht in 2004. 20 billion baht in 2004. by 2008, revenue from medical tourism alone is by 2008, revenue from medical tourism alone is

expected to reach a 40 billion baht. expected to reach a 40 billion baht.

Health and Wellness TourismHealth and Wellness Tourism

In 2005, Singapore generated $ 915 In 2005, Singapore generated $ 915 million (USD) from medical travel.million (USD) from medical travel.

This is expected to increase at a rate of This is expected to increase at a rate of 8.13% through 2012, helping to turn 8.13% through 2012, helping to turn medical tourism into a $1.6 billion industry medical tourism into a $1.6 billion industry for the country. for the country. 

In India, medical procedures cost only In India, medical procedures cost only around 10% of US costs. around 10% of US costs.

Health Tourism potentialsHealth Tourism potentials

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

Engineering servicesEngineering services

Global spending on engineering services is large Global spending on engineering services is large and rising – constituting about 2% of global GDP and rising – constituting about 2% of global GDP Current spending on engineering services ($750 Current spending on engineering services ($750 billion in 2004) is projected to increase to $1.1 billion in 2004) is projected to increase to $1.1 trillion by 2020 trillion by 2020 Automotive at 19%; Aerospace at 8%; Utilities at 3% Automotive at 19%; Aerospace at 8%; Utilities at 3%

in 2004. in 2004. High-Tech/ Telecom is the dominant and fastest High-Tech/ Telecom is the dominant and fastest

growing sector, with 30% of the market growing sector, with 30% of the market

While today only $10-15 billion of engineering While today only $10-15 billion of engineering services is off-shored, the market is expected to services is off-shored, the market is expected to grow to $150 -225 billion by 2020. grow to $150 -225 billion by 2020.

IBM view of services (2008)IBM view of services (2008)

Technical services potentialsTechnical services potentials

Growth expectationsGrowth expectations

Some analysts predict that by 2020, services will account Some analysts predict that by 2020, services will account for 50% of world trade. for 50% of world trade.

One of the main reasons for the exponential growth in One of the main reasons for the exponential growth in services we have witnessed and for that which is services we have witnessed and for that which is predicted is the progress in telecommunications and predicted is the progress in telecommunications and information technology. information technology.

These developments have brought a proliferation of new These developments have brought a proliferation of new opportunities for the sector and have played a major part opportunities for the sector and have played a major part in changing the way services are viewed and sold.in changing the way services are viewed and sold.

- Peter Walters, - Peter Walters, International Trade Centre, GenevaInternational Trade Centre, Geneva

Reasons for services importing Reasons for services importing

Need to increase capacity and productivityNeed to increase capacity and productivity

Access to high quality talent poolAccess to high quality talent pool

Cost advantagesCost advantages

Access to growing marketsAccess to growing markets

Factors that affect RP potential Factors that affect RP potential growthgrowth

Demand at buyer locationsDemand at buyer locations

Costs of operations in buyer locationsCosts of operations in buyer locations

Advancements and availability in Advancements and availability in technology in the countrytechnology in the country

Demand for RP servicesDemand for RP services

Performance creates its own demandPerformance creates its own demand

AT Kearney Global Services Location (2005AT Kearney Global Services Location (2005))

Cost People & skills

Business environment

Total score

India (1)

China (2)

Malaysia (3)

Philippines (4)

Singapore (5)

Thailand (6)

Canada (9)

U.S. (11)

Indonesia (13)

Vietnam (26)

U.K.(28)

Australia (29)

3.47

3.21

2.95

3.58

1.62

3.27

1.10

0.54

3.51

3.55

0.46

0.97

2.14

1.76

1.12

1.16

1.44

0.94

2.03

2.74

1.06

0.69

2.12

1.66

1.26

1.17

2.00

1.05

2.67

1.51

2.40

2.22

0.89

0.76

2.41

2.29

6.87

6.14

6.07

5.78

5.73

5.72

5.52

5.49

5.47

5.00

4.99

4.91

AT Kearney Global Services Location (2007)AT Kearney Global Services Location (2007)

Cost People & skills

Business environment

Total score

India (1)

China (2)

Malaysia (3)

Thailand (4)

Brazil (5)

Indonesia (6)

Chile (7)

Philippines (8)

Singapore (11)

Vietnam (19)

U.S. (21)

Canada (35)

3.22

2.93

2.84

3.19

2.64

3.29

2.65

3.26

1.65

3.33

0.48

0.77

2.34

2.25

1.26

1.21

1.78

1.47

1.18

1.23

1.51

0.99

2.74

2.09

1.44

1.38

2.02

1.62

1.47

1.06

1.93

1.26

2.53

1.22

2.29

2.30

7.00

6.56

6.12

6.02

5.89

5.82

5.76

5.75

5.68

5.54

5.51

5.16

RP Health Delivery ProblemsRP Health Delivery Problems

Auxiliary services seldom get delivered to the Auxiliary services seldom get delivered to the towns in the hinterlands.  towns in the hinterlands. 

Public health is in a dismal state when compared Public health is in a dismal state when compared to more progressive Asian neighbors.  to more progressive Asian neighbors. 

Filipinos who suffer from illness or injury but Filipinos who suffer from illness or injury but can’t afford basic treatment.  Private health, can’t afford basic treatment.  Private health, even with the advent of “affordable” health even with the advent of “affordable” health insurance, is still inaccessible to many average insurance, is still inaccessible to many average Filipino citizens. Filipino citizens.

Global MarketGlobal Market

There are great potentials in exports of There are great potentials in exports of services, but success is not assured.services, but success is not assured.

Sari-sari store thinking will not work!Sari-sari store thinking will not work!

The global market is dynamic.The global market is dynamic.

Customers are sophisticated with constantly Customers are sophisticated with constantly increasing wants and standards.increasing wants and standards.

Competitors constantly improve.Competitors constantly improve.

Services challengeServices challenge

The service cannot be inspected before it The service cannot be inspected before it is purchased is purchased

What is being sold is “a promise to What is being sold is “a promise to perform”perform”

Moments of truth determine success.Moments of truth determine success.

The Indian experienceThe Indian experience

For every IT job, three other new jobs are created For every IT job, three other new jobs are created

Two-fifths of the Fortune 500 companies Two-fifths of the Fortune 500 companies outsource software requirements to India.outsource software requirements to India.

Greater efficiency as a result of servicing both Greater efficiency as a result of servicing both international and local clients.international and local clients.

India’s cross border services exports are evolving India’s cross border services exports are evolving from lower-end, disentangled BPO services to from lower-end, disentangled BPO services to more integrated web-based and enabled more integrated web-based and enabled services. services.

The Indian experienceThe Indian experience

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

‘‘You are never too small to export services’. You are never too small to export services’. You can be a one-person firm and still be You can be a one-person firm and still be a successful exporter” a successful exporter”

- International Trade Centre- International Trade Centre

Services ChallengeServices Challenge

Constantly find a good profitable Constantly find a good profitable market and keep itmarket and keep it

Constantly develop capabilities to Constantly develop capabilities to satisfy that marketsatisfy that market

Management Competence

e-competence

Sales/Export Competence

Management Competence

e-competence

Sales/Export Competence

Management Competence

e-competence

Sales/Export Competence

Management Competence

e-competence

Sales/Export CompetenceSales/Export CompetenceSales/Export CompetenceSales/Export CompetenceSales/Export Competence

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

Management CompetenceManagement Competence

Strategy level: what you produce for whomStrategy level: what you produce for whom

Capability level:Capability level: Marketing: communicate with market and Marketing: communicate with market and

deliver your goods and servicesdeliver your goods and services Production: all necessary tasks to deliver on Production: all necessary tasks to deliver on

services services

Transaction level:Transaction level: Deliver the service and get paidDeliver the service and get paid

Marketing issuesMarketing issues

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

““Why pick you as service suppliers?”Why pick you as service suppliers?”

What do you offer?What do you offer?What is your specialization?What is your specialization?What have you achieved?What have you achieved?What are your capabilities?What are your capabilities? Human resourcesHuman resources Infrastructure and technologyInfrastructure and technology Information resourcesInformation resources AlliancesAlliances Ability to innovateAbility to innovate

Is the Philippines a selling point?Is the Philippines a selling point?

1. Does it have a geographic advantage?1. Does it have a geographic advantage?2. Does it have a language or cultural advantage?2. Does it have a language or cultural advantage?3. Does it have a human resources advantage?3. Does it have a human resources advantage?4. Does it have a reputation for being particularly 4. Does it have a reputation for being particularly

business friendly or familiar with other ways of business friendly or familiar with other ways of doing business?doing business?

5. Does it have a reputation in a particular sector 5. Does it have a reputation in a particular sector that can be leveraged as a country image?that can be leveraged as a country image?

6. Does it provide customer access to a range of 6. Does it provide customer access to a range of other markets?other markets?

Selecting the export marketSelecting the export market

The number of firms already exporting to, or The number of firms already exporting to, or interested in, that marketinterested in, that marketEconomic growth patterns in that marketEconomic growth patterns in that marketAttitudes in that market towards importing Attitudes in that market towards importing services, especially from your countryservices, especially from your countryHistorical links with that market, including Historical links with that market, including investment and tourisminvestment and tourismEase of access for your exporters (direct flights, Ease of access for your exporters (direct flights, visa requirements)visa requirements)Ability to pay, including exchange restrictions, Ability to pay, including exchange restrictions, inflation rate, currency stabilityinflation rate, currency stability