Globally, service sector provide links between geographically dispersed economic activities and thus plays a fundamental role in the growing interdependence of markets and production activities across nations. Moreover, many services considered non-tradable only a few years ago are now being traded actively, as advances in information technology (IT) expand the boundaries of tradability. As technological progress further reduces communication costs, trade in services is expected to continue to expand briskly.
However, the professional service sector has traditionally been a highly regulated sector. Entry into the sector is, by and large regulated, by various institutes or associations. Each institute prescribes code of conduct and ethics that its members have to adhere to. For example, in India, the Institute of Company Secretaries of India, the Bar Council, etc control the entry into the respective professions.
Products, Operations & Technology
The four largest professional services segments are IT services (about 20% of industry revenue), architectural and engineering services (15%), legal services (15%), and consulting services (15%). Accounting services and scientific research each generate about 10% of revenue. Other segments include advertising and specialized design services.
Global demand for professional services
The demand for global professionals often comes from their corporate clients, who do business across borders and choose to rely on the services of professionals who are already familiar with the firm’s business and can guarantee high quality services.
The concept of “one stop shopping” and access to high quality services for firms doing business cross-border appear as major factors in favoring the internationalization of the professional services. The establishment of forms of collaboration between foreign and local firms as well as the employment of local professionals by foreign firms and of foreign professionals by local firms are factors which could contribute to the emergence of a more competitive professional services in those countries which are still mainly importers of these professional services.
Modes of Trade in Services
Services can be rendered in any of the following modes: -
- Cross border supply of services — This implies that the service provider can provide services in any part of the world without undue restrictions. The service provider operates on an international level. Cross border supply of services implies that the service provider need not be restricted to one or few countries only. The service provider can become a truly global organization. The market for the service provider is vastly enhanced. However, such supply can wipe out the local service providers unless they can offer some distinct value addition.
- Consumption abroad - This implies supply of service from one country to a consumer in another member country. The most common example of such service is the tourism industry or educational institutions. The service provider has to have knowledge, skills and infrastructure of a very high order for this model to be successful.
- Commercial presence — This implies that the services are rendered through the commercial presence of a foreign supplier in the territory of another country (e.g. establishing branch offices to deliver services such as banking, legal advice or communications). Affiliations with local service providers are a common method through which international service providers may render their services in various markets.
- Movement of natural persons — This implies free movement of skilled labour and manpower resources from one part of the world to another without any restrictions. This mode has great scope for a developing country like India which has excellent resources in the form of skilled and competent people especially in the new economy sector like InfoTech.
Growth and Opportunities in the professional services
The demand for professional services comes from business and organizations as well as from individual citizens. The former have a need for a constant flow of professional assistance, while the latter need it only occasionally and often in situations of crucial importance to their lives (divorce, succession, purchase of real estate and criminal matters). In the majority of cases individual citizens resort to professional services in fields of domestic law, where the offer would normally come from local providers. Less frequently, individual citizens seek legal advice in foreign and international law, although this is a field in which in recent times demand has grown due to the increase in the mobility of labour.
Most of the demand for professional services in the fields of corporate law and international law comes from businesses and organizations involved in international transactions. These corporates will look for the professional services provider who gives them guarantees as to its knowledge of the firm’s activities and of the place of business as well as of the quality of the service it can deliver, regardless of its place of origin. It is clear that a professional services supplier from the firm’s country of origin (the firm’s habitual professional) would have a comparative advantage with respect to the knowledge of the client’s business, while a local service supplier would have a comparative advantage with respect to the knowledge of the local business and regulatory environment. Corporate law and international law are therefore the sectors most affected by international trade in professional services, although the possibility of entry of foreign service suppliers in more traditional sectors of domestic law should not be completely discounted as the sector becomes increasingly more integrated and competitive.
Foreign professional supplying professional services cross-border or by means of establishment act in the vast majority of cases as foreign professional consultants, that is to say, they provide advisory services in international law, in the law of their home country or in the law of any third country for which they possess a qualification. Domestic law (host country law) still plays a marginal role in international trade of professional services, due to the high barriers represented by qualification requirements, which, like domestic law.
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