Magazine article International Trade Forum

A Services Environment Facilitating Manufacturing and Agriculture

Magazine article International Trade Forum

A Services Environment Facilitating Manufacturing and Agriculture

Article excerpt

Efficient services markets are essential for manufacturing and agricultural production and trade. Governments wanting to increase competitiveness in these areas work towards creating them.

Services now make up an increasingly large component of the final value of goods, a process often referred to as servicification. Manufacturing and agricultural companies buy, produce, sell, and export more services than before. Servicification is driven by increasing geographical dispersion of supply chains, the need to cut costs and improve efficiency, emergence of new technologies, and the desire to deepen customer relationships.

The National Board of Trade has mapped the services needs of one manufacturer and one agri-food company in Sweden. Both needed more than 40 different services to sell and ship their products. They relied especially on business, communication, financial and transport services. Additionally, the companies themselves offered services to their customers.

Servicification is closely related to global value chains (GVCs). Services are enablers used to move production forward and are becoming separate tasks in value chains. For GVCs to be economically viable, firms must have access to price-competitive, high-quality services. Breaking down GVC production costs highlights the importance of services, which often amounts to four-fifths of total value.

Services, like manufacturing, can be broken down into tasks, spread geographically and constitute value chains in their own right.

To participate in international trade and in GVCs, businesses also rely on moving people and data. They need movement of people to gain access to markets, access skills, deliver services to customers, establish new offices, and manage the company. Data movement is required as part of their business processes and internal workings, Barriers to data movement might, among other things, hamper the ability to trade and to boost efficiency.

Services in developing country value chains Companies in developing countries are also dependent on services. A study from 1999 on 'Inter-industry linkages of services in the Bangladesh economy (with a case study of the ready-made garments industry) and potential service trade' by A.K. Azad showed external services exceeded 20% of total output for the Bangladeshi garment industry.

However, it is not clear how much nonservices industries in developing countries are also using and selling more services, i.e. if the servicification process is global. If it is not, developing-country manufacturers are likely losing out in terms of international competitiveness.

The key role of services in facilitating production, GVCs and trade calls for governments to work towards creating a services-friendly business environment. This includes enabling firms to develop services supply capabilities and ensuring effective services are available locally. Efficient logistics services and reliable infrastructure are linked to effective movement of goods and the ability to coordinate production and GVC participation.

Information and communications technology services (ICTs) make services tradable and allow them to be exchanged as separate tasks. ICTs have great impact on the ability of services to uphold value chains. Financial services, particularly insurance, are also essential to that process.

Unfortunately, many developing countries tend to restrict the movement of services, people and data, thereby limiting the ability of their companies to become competitive and participate in global trade and value chains. …

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