Services now account for two-thirds of FDI flows and roughly the same percentage of FDI stock. In volume terms, the inward stock of services FDI quadrupled from $950bn to $4000bn between 1990 and 2002. In the 1970s, services were a mere 25% of FDI stock.
What is more, the importance of services is going to grow as they become tradable. Currently only 10% of world services output is traded, compared with more than 50% of goods production – hardly surprising since historically the supply of services has meant being close to the customer.
But the growth of information and communication technologies is changing the situation. If information can be codified, standardised and digitised, services can be located anywhere and broken down into their component parts. Just as the globalisation of manufacturing caused a revolution in FDI in the 1970s and 1980s, so the globalisation of services is causing the same kind of upheaval now. The controversy over offshoring is a key part of this as the jobs of workers in developed countries come under threat in a way they were not a few years ago.
Unctad’s latest World Investment Report, The Shift Towards Services, outlines these trends and one of the organisation’s senior economists, Torbjorn Fredriksson, has contributed a specially written article on the subject (page 52).
The challenge now is for investment promotion agencies to adapt their marketing strategies to this new situation. It’s important not to have a knee-jerk reaction where every location, however unsuitable, targets services.
But IPAs need to understand the changing trends and ensure they are on top of them. A new strategy to achieve this, developed by Oxford Investment Research, is described in Think Tank (page 90).
Finally, this issue sees the completion of our European Cities and Regions of the Future competition. Congratulations to Barcelona and Scotland for coming out on top!