6 May 2013

Offshore Services: an Industry to Watch in Latin America

Professor Nanno Mulder of the University of Chile highlights the book he will launch in conjunction with the SECO / WTI Academic Cooperation Project.

Professor Mulder, could you please tell me a little bit about your background?

I studied at the University of Groningen in the Netherlands, where I completed my Bachelor’s, Master’s and PhD degrees. In 1996, I moved to Paris and worked at the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII), a leading French institute in international economics. After five years at CEPII, I took on a new role at the Organisation for Economic Co-operation and Development (OECD). That is where I met WTI Director of External Programmes and Academic Partnerships, Pierre Sauvé.

In 2006, I moved to the UN Economic Commission for Latin America and the Caribbean (ECLAC), based in Santiago de Chile, where I am an Economic Affairs Officer the International Trade and Integration Division. I am one of a team of 20 people giving policy advice to countries in Latin America and the Caribbean on trade issues. Working for ECLAC allows me to be connected to policy-makers in the region. In Santiago, I am also affiliated with the Institute of International Studies of the University of Chile, which participates in the SECO / WTI Academic Cooperation Project of the WTI.

What brings you to the WTI?

I am here as part of the SECO / WTI Academic Cooperation Project, which enables students and professors from partner institutions to study and conduct research at the WTI. I am a visiting professor from the University of Chile, one of the WTI’s partners in the Project.

As part of the cooperation, I participate in several partnership project activities. One example is the organisation of presentations at ECLAC for visiting professors coming to Chile on behalf of the SECO/WTI project. Another element was the organisation of a conference with the WTI, the University of Chile and ECLAC last October on the topic of “Offshore services in Global Value Chains: New drivers of structural change in Latin America and the Caribbean?” A third example is my stay here for one week as a visiting professor.

A selection of the papers presented at the conference you mentioned will be published in a SECO-sponsored book in the fall of this year. Could you tell me more about the book’s focus?

The book is about the entry of Latin America into the global offshore services industry. It is a collection of papers targeting three issues: concepts, case studies and policy. The types of offshore services produced in the region are heterogeneous. A simple example is contact centres serving English-speaking and Hispanic communities in the United States and elsewhere.

More complex services relate to IT, such as the development of software, the maintenance and storage of data and more complex services such human resources management. At the other end of the spectrum is knowledge process outsourcing, which requires specialist expertise. Offshore services can contribute to the generation of foreign exchange, as well as to the improvement in productivity and innovation in developing countries.

How was the SECO / WTI Cooperation Project instrumental in the creation of this book? What impact do you hope your book will have?

As our project partner, the WTI helped us in all stages of the process from organising and running the conference to editing and publishing the book that was the result of our collaboration. In fact, Pierre Sauvé will be one of the editors of the book. Also, the WTI provided financial support for the organisation of the conference.

On a deeper level, the WTI also gave intellectual guidance. This was vital in ensuring that we received the maximum impact out of the conference and in terms of editing the book. The WTI will also help us in promoting the book within the private sector and within policy-making communities. It is important to point out that the book will be published in English so that it will have an impact on policy-makers, business people and academics beyond Latin America. With SECO resources, we will organise a book launch event at the Latin American Society of International Economic Law (SIEL) conference in October 2013.  

Could you please give us a situational overview of the offshore services industry in Latin America and the Caribbean?

This industry is growing rapidly in the region and has a high potential for innovation and productivity growth. At the same time, labour conditions tend to be more favourable than in other sectors. When I gave an introduction to the Brown Bag seminar at the WTI on 10 April, I mentioned that policy makers in South America are worried about the re-primarisation of exports, as well as the accelerated pace of de-industrialisation of their economies. There is a strong temptation for economies in South America to export commodities, mainly because of the high demand from China for these products, resulting in high prices.

The commodity focus of exports has led to the appreciation of their exchange rates and has rendered non-competitive the exports of many manufactures. At the same time, these countries are importing massively industrial products from China. As a result, the manufacturing sectors in South America have shrunk with negative consequences for the economy and labour conditions. In this context, the development of the offshore services industry can help Latin American and Caribbean countries to dampen the growing dependency on primary resources and to make economic growth and development more sustainable. These economies need to diversify into new activities and the offshore services industry is one of the candidates for this diversification.

Our book demonstrates how certain countries or sub-regions in Latin America have succeeded in attracting several global players in the offshore services industries. One factor that has helped in this process is that global companies such as Nestlé, Air France and Shell want to provide services in time zones all over the world and therefore require service delivery all hours of the day. For this purpose, they have established subsidiaries in Latin America.

I can imagine how the offshore services industry’s global offering is appealing to multinational companies. Cost saving is another important aspect.

That’s true. One example discussed in our book is that of Costa Rica, where 62 companies recently set up shop. More than 80% moved there after the financial crisis in 2008 and more than 80% of these companies are American. That is a tendency called nearshoring, or transferring business processes to a nearby country. Crises tend to have a positive effect on the growth of this industry, by contrast to most other sectors of the economy.

You were lecturing at the WTO. Were you also addressing the topic of offshore services in Latin America?

Yes, I conducted a two-hour information session with more than 50 representatives from the World Trade Organization (WTO), the United Nations Conference on Trade and Development (UNCTAD) and country delegations. The topic was the same as the Brown Bag seminar at the WTI.

Apart from me, there were two other presenters: Masataka Fujita from the Division of Investment and Enterprise of UNCTAD and Juan Marchetti of the Trade in Services Division of UNCTAD. Both had interesting comments on the presentation, in particular regarding the role of government policies to attract foreign investment in this sector. The information session ended with a lively discussion with several participants.

You presented a Brown Bag seminar at the WTI on 10 April on Latin America’s entry in the global offshore services industry: a new source of structural change in the region. How was presenting your research at the WTI useful to your research?

It was useful to present to an audience of international experts consisting of MILE students, doctoral students and professors on a subject that is new and innovative in the context of Latin America. When talking about offshore services, many people think of countries like China, India and Poland, but not necessarily Brazil or Chile. The discussion focused on the question, “What are the conditions under which this industry is emerging and what are the related policy implications?” There are diverging views on the role of government in the promotion of this industry. Some claim that you need both the government and private sector to be active. Others claim that an active private sector is the key and that government should also provide so-called “framework conditions” without direct interventions.

During the seminar, we discussed the usefulness of subsidies to promote this industry. The five to six countries in Latin America most present in global offshore services all clearly demonstrate that policy played a crucial role in their success. There is no example yet in our region where governments were solely responsible for creating a favourable business climate and where an industry emerged by itself

At the WTI, the exchange of ideas was helpful, because people questioned the usefulness of policies in the development of these industries – in initiating them and in sustaining their growth. What is also important is the role of multinational companies. Many are from Switzerland and from Europe, so it was fruitful to have the discussion here.

How did you become involved with the WTI?

I have two main connections to the WTI: Pierre Sauvé and I were colleagues at the OECD around 1998-2000. My second connection is through the University of Chile, where I am involved in the Master’s Programme. The University of Chile has a WTO Chair and Master’s and PhD activities linked to the SECO / WTI Academic Cooperation Project. The WTI sends two professors per year to the University of Chile to lecture at the Master’s Programme. The Master’s Programme is not formally linked to the WTI, but the SECO / WTI Academic Cooperation Project is linked to the University of Chile, which is one of the project’s partner institutions.

Bilateral exchanges of students and professors and the participation in conferences present mechanisms to promote education and research that is relevant to policy-makers in Latin America and the Caribbean. Addressing policy-makers to help them create new export niches is one of our key goals. There is little knowledge on how to promote this, but the conference and the book may provide insights on the successes and failures of countries within the region regarding growth and promotion of this industry.

Could you tell me more about your role within the SECO / WTI Academic Cooperation Project.? What is the relationship between the University of Chile, ECLAC, the WTI and policy-makers?

My role as a visiting fellow is to promote joint research between the WTI, the University of Chile and ECLAC, with the aim to maximise policy-relevance on a wide scale and regional reach in Latin America. Along with Dorothea Lopez, the University of Chile WTO Chair, Professor Rodrigo Polanco and Dr Sofia Boza, I keep close links to the WTI. The reason the WTI is interested in working with ECLAC and including ECLAC in its partnership with the University of Chile is because of our outreach to governments throughout Latin America and the Caribbean.

The link between the Universitas Pelita Harapan in Indonesia and the Association of Southeast Asian Nations (ASEAN) is similar to the one between the University of Chile and ECLAC. Through such connections, the WTI receives exposure to policy-makers in Latin America and ASEAN.

The University of Chile and ECLAC are interested in working with the WTI to benefit from the great expertise of the international academic community in Switzerland and to connect with Geneva-based international organisations. Our contact with the WTI allows us to be in touch with renowned experts in the trade field and with global organisations such as the WTO, UNCTAD, WIPO, ITC, etc. This cross-fertilisation helps to increase policy development both ways. It is a win-win situation.

On another note, the WTI provides a very stimulating environment for conducting research. This is because of the presence of first class researchers and students, excellent library facilities, and friendly and efficient support staff. Connections to the academic and policy community here in Switzerland are important aspects of WTI’s competitive edge.

Is there anything else you would like to say?

I would like to express my gratitude to the WTI for hosting me and for providing such a great opportunity. On behalf of the University of Chile, I look forward to continuing the cooperation with the WTI.

Although most partners in the SECO / WTI Academic Cooperation Project are probably less developed than Chile, it is still a developing country in the academic field, as well as others. Even though it is an OECD member, Chile still has a long way to go to. Through ECLAC, the SECO / WTI Academic Cooperation Project can reach out to many more countries in the region and promote policy-oriented research to foster Latin America’s development.