Integration & Trade No 32 by IDB

Global Value Chains in the Services Sector

resources. As Mesquita Moreira (2010) points out, the scant supply of engineers and other university graduates in Latin American countries is one of the main limiting factors, and comprehensive policies programs have to be embarked on that will deal with this weakness. If successful, the benefits of such policies will only be reaped in the long term. Furthermore, although several countries in Latin America have launched sectoral programs or policies to enhance certain service areas (notably software and IT services, and, to a lesser extent, other business and technical services), it is difficult to find other specific measures aimed at promoting services exports or investments in the sector. Generally, the most frequent fiscal and financial support mechanisms extensions of tools originally designed for trade in goods and, on occasion, the problem inherent in the correct definition of what is meant by trade in services has excluded many exporters from these benefits (Mesquita Moreira, 2010) (see Box).

lthough participating in GVCs generates potential opportunities for certain Latin American countries in terms of exports and job creation, there are no guarantees of other beneficial effects, such as knowledge spillovers or the accumulation of technological capabilities. Moreover, insofar as insertion in these chains is based on labor costs, the process can, if successful, soon come up against boundaries. Insofar as services exports have positive effects on the exporting country’s levels of per capita income, this will entail rising wage bills, which will enable a degree of competitiveness only if offset by productivity increases. But, as relatively homogeneous technologies (e.g. ICT infrastructure and easy transfer routines) are in use in many new services export sectors, it seems implausible that there are huge differences in productivity to sustain the competitiveness of locations with high labor costs. This is less likely to occur if competition is based on other differentiating factors that are hard to replicate by competing countries. Clearly, public policies can, in this context, play a key role by enhancing internal conditions for attracting investment and boosting services exports in an attempt to attain less volatile positions within these global production frameworks and generate more spillovers and linkages. And we are not just talking about specific policies for these sectors, but about others tackling more structural problems in Latin American development, mainly linked to education, science and technology, infrastructure, and financing.u

References Apte, Uday & Richard Mason. 1995. “Global Disaggregation of Information-intensive Services”, Management Science, 41(7). A. T. Kearney. 2009. The Shifting Geography of Offshoring: The 2009 A. T. Kearney Global Services Location Index. A. T. Kearney, Inc. Barbadori, Tomás; Guadalupe Gil Paricio; Leonardo Sampieri & Paulina Seivach. 2009. La exportación de contenidos y servicios de producción televisiva en la Ciudad de Buenos Aires. Un diagnóstico sobre la situación actual y las perspectivas de la industria local. Buenos Aires: Observatorio de Comercio Internacional de la Ciudad de Buenos Aires.

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Moreover, in addition to the traditional weakness of the region’s financial systems, the services sector has characteristics of its own, such as the limited opportunities for committing physical assets or future production as guarantees. A pressing issue is the formation of risk capital schemes, indispensable for activities where the degree of intangibility in operations is extremely high, or financing is required to undertake innovation processes associated with a great deal of uncertainty (e.g. more knowledgeintensive services).

Closing Remarks