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224 International Trade in Services Box 7.1: Egypt as an Emerging Offshore Location for IT Services Egypt is rapidly emerging as the leading supply base for IT services in the Middle East and North Africa. A. T. Kearney (2007) estimates that, in 2008, Egypt’s IT service exports were worth US$99 million and that they will reach US$150 million during 2010. Egypt is mainly used as a nearshoring (nearshore outsourcing) base for the region and for European Union markets. Egypt benefits from its proximity to wealthy Persian Gulf countries (in terms of geography, language, and culture) and Europe (in terms of geography and time zone). Several multinationals based in the West, including HP, IBM, and Microsoft, have established local software application development centers. Indian multinationals such as Infosys, Tech Mahindra, and Wipro have as well. Oracle and several leading telecommunications companies have established large technical support centers that serve foreign markets. The key to Egypt’s success in attracting foreign direct investment in the IT service sector lies in its endowment of technical personnel, its competitive cost structure, and its sustained political commitment to improve the local business environment. Egypt produces some 31,000 graduates annually in the technology, science, and engineering areas. Many graduates have multilingual skills, and the average compensation for IT programmers in Egypt is roughly a third of the compensation in Hungary, Poland, and Romania and somewhat lower than the compensation in India. The political commitment stems partly from the fact that Egypt’s prime minister and three ministers in the government have a professional background in the IT sector. The Ministry of Communication and Information Technology offers a range of customized support services to attract investment, for example in the areas of telecommunications, real estate, and training. In 2003, a technology park with modern infrastructure (referred to as a smart village business park) was established outside Cairo, and more are planned for Alexandria, Damietta, and New Cairo. In December 2004, an amendment to the investment law (Law 14/04) charged the General Authority for Investment and Free Zones as the sole authority to which investors need to turn for project approval, essentially introducing a one-stop shop with delegates from governmental agencies under a single roof. Streamlining administrative procedures has helped cut the time to register a company from four months to a maximum of three days. The authorities are also working to cut the administration associated with the process of registering a business, obtaining a tax card, getting industrial project approval, obtaining a building permit, obtaining an operating license, and clearing industrial registration. This initiative should reduce the total time from 277 days to 45 days. In 2007, the country hosted 27 IT service companies with Capability Maturity Model and Capability Maturity Model Integration certification (described elsewhere below). Some of these companies had obtained Capability Maturity Model Integration level-5 certification, the highest possible level, in part through training and support offered through the government. The government has also launched initiatives to expand the supply of qualified staff in the information and communication technology sector, for example, in partnership with leading IT service companies and by improving computer-related training. One of the projects of the Ministry of Communication and Information Technology that is being implemented in collaboration with the Ministry of Higher Education is referred to as the Edu Egypt Initiative. Its objective is to equip undergraduates with more advanced software and language skills and technical training. A new university, Nile University, was opened in 2007 to raise local standards in applied IT research in close association with the private sector. Sources: Marson and Blodgett (2007); Gott (2008); El Shenawi and Lanvin (2009); Willcocks, Griffiths, and Kotlarsky (2009); CyberMedia, CBC, and Global Services (2009).
Exporting Information Technology Services: In the Footsteps of India 225 liberalization in foreign direct investment—and by diaspora networks. For example, the Chinese and Indian professionals working in the IT sector in the United States either temporarily or as permanent immigrants have brought back best practices, reinvested in China and India, and facilitated investment by U.S. companies in the Chinese and Indian IT service sector. Many developing countries have targeted niche markets and benefited from IT-intensive local industries. For example, Israel has built a highly sophisticated software and service sector on the back of its national defense industry. Other countries hosting industrial leaders with in-house computer competence, such as Brazil’s aviation industry or East Asia’s hardware industry, have local clusters of IT service expertise that may have the potential to become large exporters. Mauritius and Singapore are both used as regional centers for disaster recovery for computer systems. The IT service sector has greatly benefited from the improved capacity and reduced cost of information and communication technologies. Business process innovation has allowed the IT service value chain to be fragmented into small, well-defined tasks that can be traded at low transaction costs. In combination with the development of collaborative virtual work environments, the physical location of the service supplier has, in many instances, been rendered irrelevant. Customized software application development and maintenance are the types of task most commonly outsourced to developing countries. Web design and development represent another area in which entrepreneurs in developing countries have excelled. Systems integration and IT consulting may be reserved for technological leaders, but the remote management and maintenance of IT networks, including help desks, desktop support, data center services, mainframe support, and network operations, are increasingly outsourced to low-cost countries. The frantic pace of innovation in the IT service sector is constantly giving rise to new types of services that can be provided through electronic supply. The terminology of the General Agreement on Trade in Services (GATS) of the WTO states that a service can be traded in four distinct ways. 3 Developing-country imports of IT services cover three of these ways: crossborder supply (that is, electronic delivery or Mode 1), commercial presence (Mode 3), and the temporary movement of natural persons (Mode 4). For example, if a Swiss insurance company instructs its Brazilian subsidiary to deliver IT services electronically to its headquarters or to another of its non-Brazilian subsidiaries, it is, in WTO terminology, engaged in Mode 1 trade. The same holds if the IT services are electronically delivered from any Brazilian company to a non-Brazilian company. If the Swiss insurance company establishes a commercial presence in Brazil to service the Brazilian IT service market, it is, in WTO terminology, involved in Mode 3 trade. Any IT professionals sent from Brazil to one of the Swiss company’s non-Brazilian premises to deliver services are, in WTO terminology, engaged in Mode 4 trade.
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Public Disclosure Authorized Public
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International Trade in Services New
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CONTENTS About the Editors and Cont
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Contents vii Boxes 2.1 Extent of Te
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Contents ix 1.4 Worker Remittances
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Contents xi 6.6 A Checklist of Ques
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xiv About the Editors and Contribut
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xvi Foreword Beyond describing the
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xviii Acknowledgments Finally, this
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1 Assessing the Potential of Servic
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Assessing the Potential of Services
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2 Increasing Labor Mobility: Option
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Increasing Labor Mobility 31 unders
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Table 2.2. Quantitative Estimates o
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Increasing Labor Mobility 37 contri
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Increasing Labor Mobility 39 must h
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Worker categories covered Specifica
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Provisions on professionals Annex o
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Increasing Labor Mobility 45 The EU
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Table 2.7. Agreements between Austr
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Increasing Labor Mobility 55 Figure
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Increasing Labor Mobility 57 Bilate
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Increasing Labor Mobility 59 Jamaic
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Increasing Labor Mobility 61 factor
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Increasing Labor Mobility 63 indivi
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Increasing Labor Mobility 65 that a
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3 Legal Services: Does More Trade R
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Legal Services: Does More Trade Rhy
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Table 3.3. Trade in Legal Services:
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100 International Trade in Services
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Accounting Services 275 Table 8.5.
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Accounting Services 277 Box 8.6: Re
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Accounting Services 279 Box 8.7: An
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Accounting Services 281 Table 8.6.
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Accounting Services 283 Restriction
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Accounting Services 285 Commercial
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Accounting Services 287 Colleges of
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Accounting Services 289 Administrat
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Accounting Services 291 IESBA (Inte
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350 Index Association of Certified
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352 Index Convention on Combating B
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354 Index Former Yugoslav Republic
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356 Index International Public Sect
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358 Index migrants. See labor mobil
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360 Index public-private partnershi
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362 Index Thailand construction ser
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ECO-AUDIT Environmental Benefits St
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