International Trade in Services.pdf - DSpace at Khazar University

222 International Trade in Services
worth about US$100 billion; system integration, US$50 billion; application development
and maintenance, US$43 billion; embedded software services, US$40 billion;
and consulting services, US$6 billion (see Dongier and Sudan 2009).
Developing countries captured approximately 14 percent of the global IT service
market in 2007. The two leading exporters, India and Israel, exported IT and
computer services worth roughly US$23.1 billion (in 2008) and US$5.3 billion (in
2006), respectively (Nasscom 2009). Chinese exports of IT services were worth an
estimated US$1.2 billion in 2008 (Meyer 2009). Still, IT service exports are a fairly
modest business activity in most developing countries. A large number of developing
countries are enjoying the gains from trade in IT-enabled services, such as
back-office support services and call centers, that are generally less skill intensive
than the IT service sector itself. India is, so far, the only developing country that
has created a sizable, export-oriented IT service sector. Table 7.1 shows that several
other developing or emerging economies have significant exports. Argentina,
Costa Rica, Malaysia, the Russian Federation, Sri Lanka, and Uruguay all made the
list of major exporters put out by the World Trade Organization (WTO) in 2006.
There are signs that the international market for IT services is becoming contested
by companies in a growing number of countries, including large populous ones
such as Brazil, China, the Arab Republic of Egypt, and Vietnam and small or less
populous ones such as Mauritius and Romania. The McKinsey Group forecasts
that developing-country exports will double and reach US$55 billion during
2010. Egypt, an emerging IT service location, is described in box 7.1.
Demand has been fueled by competition in international and maturing markets
that compels companies to raise productivity and reduce the costs associated
with the use of IT. Offshoring offers significant cost savings through labor-cost
arbitrage and economies of scale in the delivery process. However, offshoring is
associated with a number of other benefits that sometimes are more important
than prospective cost savings. Offshoring can enable companies to offer their
clients new, more flexible, and, often, higher-quality services. It may also offer
reduced time to market, facilitate access to foreign markets, and create business
opportunities for the development of new products for niche markets. International
outsourcing allows companies to focus on what they do best, freeing up
capital to be reinvested in research and development and more productive activities.
Innovation in business practices, low productivity growth, and scarcity of
local engineering talent have worked as drivers in many instances.
Supply is fueled by the many developing countries that have invested in education
and are now able to offer an abundance of young, motivated, and technically
adept graduates. Developing-country IT service exports are growing as delivery
models mature and service providers become increasingly sophisticated. Offshoring
has also been facilitated by economic integration—particularly through