More than 65% of the $43 trillion the world created in value last year came from services ? that represents $28 trillion in value. Of this, a large proportion comes from trade in services which only one or two decades ago would have been categorized as non-tradable services because as a general rule services exchange value can only be realized through proximity of the buyer and provider. D. Nayyar, of Jawaharlal Nehru University (Delhi) has defined trade in services as international transactions between residents of one country and those of another country, irrespective of where the transaction takes place. International trade in services so defined can be divided into four categories (a) that in which the producer moves to the consumer (b) that in which the consumer moves to the producer (c) that in which either the producer or the consumer moves to the other (d) that in which neither the consumer nor the producer moves to the other.

Whereas in the first three cases the nature of the transactions conforms to the essential characteristics of trade in services, in the fourth scenario such physical proximity is no longer necessary, largely because more efficient communication or means of transport (courier services, for example) have enabled the realization of the same without physical displacements of persons.

The recent revolutions in technologies of transportation and even more so of communication have opened up hitherto unimaginable vistas for furthering global trade in services. Globalization, driven by market forces, has leveraged these as more and more firms search for the most efficient locations, breaking down the product value chain in manners less and less constrained by geography and time. These underlying forces have given birth to a whole new industry, which we now call the global outsourcing industry.

● The global outsourcing industry

The phenomena of outsourcing and cross-border trade in services, facilitated by the above described factors and supported by Foreign Direct Investments, have created new opportunities in the development strategies of many developing countries. India is obviously the leader in the field but other countries such as the Phillipines or some of the former members of the Soviet bloc in Europe are now making huge strides in taking advantage of this new situation.

Outsourcing has become an important feature of the international trade in services as firms from developed economies have sought access to a new pool of talent abroad to boost productivity. As more and more white-collar jobs are being ?outsourced? to foreign jurisdictions ? these transfers affect the middle classes in developed countries ? , there has been a backlash in some parts of the United States and Europe. It is generally thought, however, that the long-term trend is irreversible as companies seek to improve efficiency and returns on investments. Outsourcing is influencing policy decisions both in developed and developing economies. It is critical for governments in developing countries, which want to benefit from this new industry, to have a clear long-term strategy regarding the way forward.

● Optimizing the contribution of services trade

Mauritius is taking a serious bet on developing the Services industry as a major plank of its overall strategy to integrate the global economy as its preferred option to eliminate poverty and ensure economic growth. It is generally agreed that over the past decade or two, globalization has contributed to bring large swathes of people out of absolute poverty around the globe. It is also well documented, however, that it has also witnessed a widening of extremes between rich and poor within countries as well as among countries. This is where the government must avail of the policy space offered by the World Trade Organization (WHO) and other international obligations to ensure that the sequencing and timing of integration into the global economy maximizes the inclusiveness of the whole process. There is no doubt that the development of services for exports offers very promising opportunities for Mauritius to build on some of its competitive advantages to become a serious player for the region as well as on the global scale in some specific areas. Information and Technology Enabled Services (ITES), Education, Medical Tourism, Financial Services are some of those verticals, which have been identified as presenting real possibilities. One of the most interesting features of the services industry is that improved efficiency in its delivery is a direct contribution to the costs of doing business in any jurisdiction. It must therefore be a matter of policy to leverage openness and foreign direct investment in the sectors to improve the overall competitiveness of the country. More efficient provision of financial services and their opening to foreign players, for example, should result in lower costs of capital.

● Maximizing value addition

As more and more developing states join the bandwagon of services exports trade, they will begin by leveraging their cost arbitrage. Mauritius has started on this curve for some time now with the first call centers, which were established about ten years ago. The small size of the economy will lead to the need to specialize in niche markets by focusing on critical USPs such as the favourable business environment and our history and tradition of dealing with international partners in business.

But most important of all, the quality of human resources offered will be a determining factor. One can safely argue that the global environment in services industry in general, and in Business Process and Knowledge Process Outsourcing today, creates the conditions in which supply creates demand. Firms will increasingly be looking for where the best talent pools lie, where spaces for creating value offer distinct investment opportunities and where the quality and responsiveness of the offer stand out. To meet these expectations, we shall need to radically review the education system and the way that the vast amount of financial resources invested in our schooling, university and training systems are being utilized.

The latest figures indicate that about 11 ? 12 % of those entering the school system today actually end up with a tertiary education. A generally accepted rule of thumb is that for an economy to sustain a dynamic services trade meeting global standards, this figure should be nearer to the 30 ? 35 % target. In the short term, the measures to facilitate access of professionals and qualified agents in the country should be enforced. A recent article in the local press mentioned the lack of response to these incentives and a failure to attract any significant numbers of professionals into Mauritius. This should at least allay the fears of the Cassandras who feared an imminent ?invasion of the country by foreigners? when these measures were first announced.

The National Strategy for the Information and Communication Technology (ICT) sector, which has been recently published by the ministry of Information Technology (IT), will help clarify government policy for facilitating and encouraging the penetration of IT and communications in the whole fabric of the Mauritian society.

It also defines a framework for the ITES industry to develop as an export based industry. IT is the most critical conduit to allow services to be provided anywhere and to be consumed, often simultaneously, anywhere else in the world. Liberalization of the access to and supply of fibre optics and bandwidth would also have to be implemented and publicized as an attractive business proposition, keeping in mind regional developments such as EASSY and the FLAG submarine optical fibre projects.

To conclude, we may reiterate that exports of services does offer one of the most promising avenues for Mauritius to leapfrog from a basically protection ? preferential access based type island economy into a competitive globally integrated one. There are a number of strengths within our present system that can be leveraged to attain this objective, but tremendous efforts will need to be deployed to create the new mindset that goes which such an endeavour.

Rajendra TAGORE SERVANSINGH [email protected]

(Rajiv Servansingh is the representative of the Board of Investment in Mumbai. He has been Deputy Secretary-General at the Mauritius Chamber of Commerce and Industry, where he was deeply involved in the liberalization of services issue.)