Future Bangalores? The increasing role of Central and Eastern Europe in the global services offshoring market: evidence from trade statistics

Gál, Zoltán (2010): Future Bangalores? The increasing role of Central and Eastern Europe in the global services offshoring market: evidence from trade statistics.

Abstract

Many Central and Eastern European countries invigorated by EU enlargement became important locations for offshored service centres. Building on the region’s nearshoring advantages such as geographical-cultural proximity and on its multilingual graduate supply, CEE is likely to utilise more value added and quality-driven services. Trade statistics support the assumption that an expanding export in other business and ICT services has been associated with offshoring services in the six NMS analysed in detail in the paper. The service export data adopted from the Balance of Payments statistics gives a good approximation to indentify those sections of service trade, which can be regarded as offshorable. The paper summarises the additional factors favouring nearshoring (as in CEE locations) over offshoring (e.g. India) and lists several factors besides size why CEE countries cannot outpace India’s market potential.

• Item Type: MPRA Paper
• English Title: Eastern Europe in the global services offshoring market: evidence from trade statistics
• Language: English
• Keywords: offshoring; nearshoring; service trade; balance of payments statistics; offshorable services; Central and Eastern Europe; new member states; India; offshoring advantages
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; L - Industrial Organization > L8 - Industry Studies: Services > L84 - Personal, Professional, and Business Services; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; L - Industrial Organization > L8 - Industry Studies: Services > L86 - Information and Internet Services ; Computer Software

References

AMITI, M., WEI, S.-J. (2004) Demystifying outsourcing. The numbers do not support the hype over job losses. Finance & Development, December 2004, 36-39.

AMITI M. and WEI S. (2005a) Services Offshoring, Productivity, and Employment: Evidence from the United States. IMF Working Paper No. 05/238.

AMITI M. and WEI S. (2005b) Fear of Outsourcing: Is it Justified? Economic Policy, April, 308-348.

BEVAN, A., ESTRIN, S. (2004) The determinants of foreign direct investment into European transition economies, Journal of Comparative Economics , pp. 775–787.

BLINDER A. (2006) Offshoring: The Next Industrial Revolution? , Foreign Affairs , March/April, vol. 85 (2), 113-128

BRYSON J. (2007) The Second Global Shift: The Offshoring or Global Sourcing of Corporate Services and the Rise of Distanciated Emotional Labour, Geographiska Annaler, Series B. Human Geography, 89B, 2007. Supplement 1, 31-43

CAPIK P. (2008) Offshoring and outsourcing: new trends in the service sector foreign direct investment in Poland. Economic and Society Trust. http://www.thinktank.cz/fdi/files/papers/Capik-February-2008.pdf

CARMEL, E. and ABBOTT, P. (2007) Why “nearshore” means that distance matters. Communications of the ACM, 50(10), pp. 40-46.

CHAKRABARTY, S. (2006) Making Sense of the Sourcing and Shoring Maze: The Various Outsourcing &Offshoring Alternatives. In H.S. KEHAL, & V.P. SINGH (Eds.), Outsourcing and Offshoring in the 21st Century. A socio economic perspective, 1 ed.: pp. 18-53, Herhsey, PA: IGI Publishing channel.

ECONOMIST (2005) The rise of nearshoring – Outsourcing in Eastern Europe, Special Report, The Economist, 2005 December 3rd .

EKHOLM, K. (2006) Eastern Enlargement and Western Labor Demand, Department of Economics, Stockholm University. http://www.oenb.at/de/img/ekholm_preliminary_tcm14-49000.pdf

EKHOLM, K. and K. HAKKALA (2006) The Effect of Offshoring on Labor Demand: Evidence from Sweden, CEPR Working Paper No. 5648. p.30.

ELLER, M., HAISS, P., STEINER, K. (2006), Foreign direct investment in the financial sector and economic growth in Central and Eastern Europe: The crucial role of the efficiency channel, Emerging Markets Review, pp. 300–319.

FIFEKOVA, M. and HARDY, J (2010) Business Service. Foreign Direct Investment in Central and Eastern Europe. – trends, motives and impacts. Project Report, Published by The Economy And Society Trust p. 28. http://www.czechinvest.org/data/files/fdi-project-report-1981-en.pdf

GÁL, Z. (2009) Central and Eastern Europe in the global services offshoring market: evidence from the trade and location statistics. In: Public and Private Services in the New Global Economy. XIX. International Conference of RESER, September 24–25, 2009. Budapest. Szerk. Palócz É., Szalay L. Budapest: RESER, 2009. p. 28 http://www.reser.net/downloads/2009-Congress-papers_t8384.html

GÁL, Z. – SASS, M. (2009) Emerging new locations of business services: offshoring in Central and Eastern Europe. – Regions, 274. 2009. Summer, 18–22. p.

GHIBUTIU A. and DUMITRIU I. (2008) The Effects of Offshoring on Trade in Services. Evidence from Romania, The European Trade Study Group, ETSG Working Paper. http://www.etsg.org/etsg_web/etsg_site/papers_list.php.

GROSSMAN G. and ROSSI-HANSBERG E. (2008) Trading Tasks: A Simple Theory of. Offshoring, American Economic Review, 98, pp. 1978-1997.

GROTE M. and TÄUBE F. (2006) Offshoring the Financial Services Industry: Implications for the Evolution of Indian IT Clusters, Environment and Planning A vol. 38, S. 1287-1305

GROTE M. and TÄUBE F. (2007) When Outsourcing is not an Option: International Relocation of Investment Bank's Research, Journal of International Management vol. 13(1), S. 57-77

HANSEN, M.W., SCHAUMBURG-MÜLLER H. AND POTTER E. (2007), ‘Outsourcing for development’, CBDS Working Paper Series, Working Paper No. 4, October.

HARDY, J. (2006) Bending workplace institutions in transforming economies: foreign investment in Poland, Review of International Political Economy, 13, 1: pp. 129-151.

HARDY, J. (2007) ‘Learning' or ‘coercive' firms? Foreign investment, restructuring transforming economies and the case of ABB Poland', Management Concepts and Philosophy, 2, 1.

HUNYA, G. and SASS M. (2005) Coming and Going: Gains and Losses from Relocations Affecting Hungary, WIIW Research Reports No. 323 November. WIIW Vienna.

JAHNS C., HATMANN, E. and BALS, L. (2006) Offshoring: Dimensions and Diffusion of a New Business Concept, Journal of Purchasing and Supply Chain Management vol. 12, 218-231

JENSEN, P.D.O., KIRKEGAARD, J.F. AND LAUGESEN, N.S. (2006), ‘Offshoring in Europe – Evidence of a Two-Way Street from Denmark’, Institute for International Economics, Working Paper Series, WP 06-3, June. p.34.

JONES R. W. and KIERZKOWSKI, H. (1900), The role of services in production and international trade: A theoretical framework, in R. W. Jones and A. Krueger, eds, ‘The Political Economy of International Trade’, chapter 3, pp. 31–48. Oxford, Basil Blackwell,

JONES R. W. and KIERZKOWSKI, H. (2005) The role of services in production and international trade: A theoretical framework, in RODNEY F. and KREICKEMEIER, U. (eds.), Recent Developments in International Trade Theory, issue, pp. 308-348. Edward Elgar, 2005

KIRKEGAARD, J. (2005) Outsourcing and Offshoring: Pushing the European Model Over the Hill, Rather Than Off the Cliff!” Institute for International Studies, Working Paper WP05-1, Washington. p. 40.

MANKIW, G. and SWAGEL, P. (2006) The politics and economics of offshore outsourcing, Journal of Monetary Economics, vol. 53(5), pages 1027-1056, July

McKINSEY (2005) McKinsey Global Institute (MGI), The Emerging Global Labor Market: Part II—The Supply of Offshore Talent in Services. A report from the McKinsey Global Institute.

MEYER T. (2006) Offshoring to new shores: Nearshoring to Central and Eastern Europe, Deutsche Bank Research, No. 14. p. 12

MEYER T. (2007) India's specialisation in IT exports: Offshoring can't defy gravity. Deutsche Bank Research, Economics No. 27. p. 10.

PROTSENKO, A. (2003), Vertical and Horizontal Foreign Direct Investment in Transition Countries, PhD. Dissertation, University of Munich. http://edoc.ub.uni-muenchen.de/2105/1/Protsenko_Alexander.pdf

PTÁČEK P. (2009) The Role of Foreign Direct Investment in Establishing of Knowledge Economy in the Czech Republic: the Case of Knowledge Intensive Business Services. In: ZIOLO, Z., RACHWAL, T. (eds.): Functions of Industry and Services in the Development of Information Society. Prace Komisji Geografii Przemyslu Polskiego Towarzystwa Geograficznego Nr. 13, Warszawa – Krakow. (forthcoming)

RAJAN, R. G. (2006) India: The Past and its Future. Address at the forum The crucial role of the efficiency for Free Enterprise, Mumbai, India, 20 January 2006. available at India, 20 January 2006. available at www.imf.org/external/np/speeches/2006/012006.htm

RAO, M (2004) Key issues for global IT sourcing: Country and individual factors. ISM Journal, Summer pp. 16-24

SASS M. (2008) A szolgáltatások relokációja - európai folyamatok Relocation of services – European processes. Európai Tükör, 2008. XIII. évf. 7.-8. szám, 85.-100.

SASS M. (2009) The new role of Central Eastern European Countries in the international division of labour in services: methodological problems, (forthcoming).

STURGEON, T.J., LEVY, F. BROWN, C., JENSEN, J.B. and D. WEIL (2006) Why Can’t We Measure the Economic Effects of Services Offshoring: The Data Gaps and How to Fill Them. Services Offshoring Working Group Final Report. Industrial Performance Center, Massachusets Institute of Technology. web.mit.edu/ipc/publications/papers.html