At the same time, the structure of services FDI is changing. It used to be that two-thirds were in trade and financial services. This share has declined substantially, to about 45%. Instead, ‘new’ services have emerged, ranging from telecommunications, to power generation, health services and various business services, including R&D and call centres. Moreover, services firms tend to be less transnationalised than manufacturing firms in terms of the share of assets, employment and income abroad. Some of this services FDI leads to exports in their own right; other services FDI helps to improve the competitiveness of the host economy. Call centres draw attention to a trend that will continue and determine the future composition of FDI in services: information and telecommunication technology is making more and more services tradable. Instead of production having to take place when and where information-intensive services are consumed, ICT makes it possible to produce these services in one location and consume them, at a chosen time, elsewhere.

 What are the implications of all this for firms and investment promotion agencies? For services firms, this means that they – like their manufacturing counterparts – will increasingly establish an international intra-firm division of labour, within which each part of the services they produce will be located where this can be done best, and often that will be in developing countries. The same applies to the services functions of industrial firms. For investment promotion agencies, this change in the structure of FDI flows means that they have to pay more attention to the bulk of FDI flows and adapt their promotion strategies accordingly.

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Karl P. Sauvant, Director, Division on Investment, Technology and Enterprise Development, UNCTAD

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