The Off-shoring of Services

Trade economist Alan Blinder in analyzing how new technology will affect international trade, has predicted that Services will become more outsource-able as technology continues to develop. In the past, trade was limited by our ability to transport a product from one location to another:  “any item that could be put in a box and shipped (roughly manufactured goods) was considered trade-able and anything that could not be put in a box (such as services) or was too heavy to ship (such as houses) was thought of as nontradeable.” Now as the internet becomes more secure and reliable, the range or products that we can deliver over long distances is expanding to include services as well as manufactured goods.  Considering the role services play in the Japanese economy, accounting for almost 20% of GDP in 2010, a massive movement of service jobs out of Japan would have massive effects on the composition of the Japanese Labor force and its economy in general.

 

Not all service jobs are vulnerable to outsourcing. Some jobs are improved by proximity or physical contact with the provider of the service, such as hair-cuts, surgery, and childcare. Others like accounting and Technological services are particularly susceptible.

 

 

6 thoughts on “The Off-shoring of Services

  1. wilburns

    There has been a lot of discussion regarding this issue in academia and among economists. If I understand you correctly, you’re talking about how globalization and the advance of technology allows for products and services to be designed, manufactured, and shipped just about anywhere in the world. For example, the iPhone is designed in California, manufactured in China, and shipped worldwide. The designers of the iPhone don’t have to be in China in order for the iPhone to be made, and the workers don’t have to be in California. Apple will design the iPhone wherever the skilled and educated talent necessary lives, and will manufacture it wherever the cheapest and most reliable labor lives.

    One piece of literature on this phenomenon that came to my mind is “The World is Flat: A Brief History of the 21st Century” by Thomas Friedman. In the book, he basically makes the case that location and geographical divisions of nations are largely irrelevant in the modern global marketplace.

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  2. the prof

    ?! Blinder — this is a new direction, he’s a former vice chairman of the Fed and (some of you would know this role!) textbook co-author.

    Anyway, talk to Prof. Bai about services outsourcing — there are now call centers in Dalian staffed by Japanese speakers. Toyota has 1,000 or so engineers just outside Ann Arbor, MI who have designed an entire car from scratch. And so on. Is the latter outsourcing? I don’t know a good definition of “services outsourcing” though if the vehicle is primarily aimed at markets other than Japan, I suppose it wouldn’t fit.
    And that’s the real issue: measuring it. Data on services are weaker than data on goods, and data on trade in services is even weaker — nothing goes through customs to be counted!

    Oh, and the world is not flat, but trade costs have been falling for 150 years, with improvements ships and railroads, reinforced by the first transatlantic telegraph in 1858. In the post-WWII era the first big shift was the development of containerized shipping, replete now with specialized port facilities, cheaper air transport and now (for data) transoceanic fiber optic networks.

    It would be really interesting to see the Japan side. You can get trade data on services on a monthly basis, both exports [tourism is a service export] and imports with some breakdown. As per the above, though, I’m not convinced the data would be very comprehensive. I’m sure the government is surveying businesses on their practices, but have seen no such studies.

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  3. kuveke

    I did some research on Japan’s service sector and found that its largest service industries are financial, retail, tourism, and transportation. It seems unlikely that these are services that Japan will have to struggle to hold onto considering that the transportation and tourism sectors can’t be done by outside countries. In terms of Japan’s financial sector it is rather doubtful that services handling investments and accounting will be outsourced to impoverished nations. Even if it becomes cheaper for foreign financial agents like those in the the U.S and Germany to manage the money of the Japanese it seems unreasonable for this to occur. Most investment is done at home and the experts on Japanese finance are most probably found in Japan. Finally while retail giants are always a threat to disrupt native retail we have discussed in class that retailers like Wallmart have had an incredibly difficult time trying to break into the Japanese market. While I’m not trying to discount the importance of the services becoming easier to outsource and trade I’m going to go out on a limb and say that the impact on service jobs is not going to be devastating to Japan’s economy.

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    1. the prof

      The back office part of financial services can be outsourced. Tourism can decline (in fact, that’s already happened, because Chinese tourism was quite important until a few weeks ago). Domestic transportation is safe, but shipping can (is!) on foreign bottoms. Retail is safer, the volume of eBay and other direct-to-consumer purchases are small, and are unlikely to ever encompass perishables (food) or bulky items (cars). Speaking [uh, writing] of which, I’ve not checked my eBay watch list, some nice 19th century Japanese woodblock prints and scrolls, sometimes they go for very reasonable prices, even including shipping from Japan…

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