International Trade in Services.pdf - DSpace at Khazar University

226 International Trade in Services
However, service delivery through commercial presence is relatively unimpeded,
and this is likely to imply that there is limited scope for trade liberalization.
The multinationals that seek to enter a market or have already done so face few
policy-induced restrictions. For this reason, this chapter is mainly focused on
developing-country exports of IT services, which cover crossborder supply
(Mode 1) and the temporary movement of natural persons (Mode 4). While a
handful of the leading Indian IT service companies deliver a limited portion of
their IT services through commercial presence (Mode 3), this mode of delivery
represents only a tiny share of total developing-country exports of IT services.
As entrepreneurs in an increasing number of developing countries successfully
contest the international market for IT services, policy makers may be excused for
their enthusiasm about the prospect of helping to nurture a domestic exportoriented
IT service sector. However, they need to have realistic expectations about the
scope for generating IT service exports. While there is plenty of demand, relatively
few developing countries have the supply capacity in terms of the quantity and quality
of human resources and the sophistication of local companies to develop a sizable
export industry in the short or medium term (see MGI 2005, Dongier and Sudan
2009). Even China and Eastern European countries that are relatively well endowed
with technically skilled engineers face serious shortages of managers with industryrelevant
experience who can manage the complex delivery process and engage in
client-related activities. Most companies in countries with dynamic IT service sectors,
including India, are struggling with staff attrition and salary inflation because of
the limited number of adequately trained and experienced staff.
Dossani (2010) and others have concluded that the endowments of entrepreneurship
and quality education are key in the IT service sector. Education and
telecommunications policy are the two paramount issues in terms of policy fundamentals.
Other privileges and targeted incentives such as tax breaks can help, but are
not altogether critical. Policy makers should focus on helping to remove binding
constraints to the industry, most of which are not unique to the IT service sector.
What Can Be Done to Remove Binding
Constraints and Harness Trade Opportunities
There are several constraints that policy makers can address to help the private
sector harness trade opportunities in the IT service sector. Effective strategies are
likely to focus on initiatives that attract private investment from local and foreign
investors (box 7.2), reward entrepreneurship by improving the business environment,
and raise educational standards. In countries with weak infrastructure and
poor business environments, a common approach is to let private real estate
developers build software and high-technology parks near population centers