Fdi Trends
...services are also becoming more traditional. Almost all the countries in the world are affected by the rise of services FDI and the broad-based growth of service TNCs. The off-shoring of export-oriented services such as call centers, business processes, drawing, testing and even research and development (R&D) are gathering speed in response to the “tradability revolution” in services. Some of the off-shoring is done internally by moving services from parent companies to its foreign affiliates, while some are outsourced internationally to third-party services providers (UNCTAD, 2006).
Offshoring and its impact on FDI
Outward FDI may arise as the offshoring of services gathers more speed and touches more and more white-collar workers. Advances in information and communications technology (ICT) have made all information-intensive services more tradable: they can now be produced in one place and consumed in another. Offshoring allows, for the first time, an international division of labor in the production of services (mirroring what is already occurring in manufacturing)—with all its advantages (and risks). The potential is high, as reflected not only in the share of services in GDP (more than two-thirds in developed countries), but also in the fact that, so far, only some 10% of services production enters international trade, compared with more than half of industrial production (see Figure 3 and Figure 4 which shows top investors by number of projects, those investors are engaged in either service or manufacturing production).
Most offshored services to date are concentrated in a relatively small number of countries. Ireland, India, Canada and Israel (in that order) accounted for over 71% of the total market for offshored services in 2001, mostly in software development and other IT services (McKinsey & Co. 2003). But many other destinations are emerging...
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