to be associated with high levels of foreign direct investments, human capital formation, demonstration effects, and knowledge-spillovers, the indirect benefits might also be substantial.

There is every reason to believe that the comparative advantage of developing countries will not be limited to standard backoffice services. Already, cross-border service exports have evolved from lower-end, disentangled BPO services to more integrated, expert-based and web-enabled services.<sup>18</sup> Companies have started to move up the value chain by focusing on innovation, consulting, branding and increasingly integrated services. In addition, more sophisticated cross-border trade activities like “Training/Online Education”, “Product Design and Development Services” and “Technical Testing” are already being exported. Further changes in technology, the developing country skill set and business practices are bound to lead to cross-border trade in ever more sophisticated services. It is only a question of time before service suppliers in a number of developing countries move into more expert-based service areas ranging from professional services, R&D services to various health services.<sup>19</sup> While such a transition is already underway in India, other developing countries with a similarly well-educated and relatively cheap work force will undoubtedly enhance their participation in this market. The rise in Indian wages - for example, wages in Vietnam or China are already said to be to be lower than Indian wages for comparable work - and the movement of Indian service suppliers to higher value analytical tasks is expected to bolster the trend. More generic, commodity processes will eventually move to lower cost environments. The phenomenon of globally fragmented production processes is bound to provide a powerful impetus to broader economic development.

A study by A.T. Kearney has compared the attractiveness of different countries as outsourcing locations (Figure 3). It confirms that while India remains overall the most attractive location, other countries are not far behind. Latin American countries offer low labor costs, proximity to the United States and are in the same time zone. Brazil’s strengths include its large investments in information technology and telecom infrastructure and a large skilled labor pool. Companies such as Xerox and Unisys have committed to Brazil. Mexico offers the advantage of Spanish, a vital language for many US businesses. Since March 2002, AOL Time Warner serves its Spanish-speaking customers from a call center in Monterrey, Mexico – with estimated cost savings of 25-40 percent. The Philippines is an attractive location due to its cultural affinities with the United States, especially in terms of familiarity with US standards of service. For example, to take advantage of the large number of Filipino accountants trained in US accounting standards, Procter and Gamble moved the accounting services for its global operations to the Philippines more than three years ago. Other companies that have located in the Philippines include AIG, American Express and Citibank. China and Vietnam are also tapping into this service export possibility.

> 18  Multiple agencies such as telesales, call centers, data management, loyalty programs, etc. involve more technical expertise

> 19 An A.T. Kearney study reveals that GE Capital International Services (GECIS) originated as a joint venture in India in 1997, offering basic financial transaction work and contract-center services.  From 2001 to 2002, the company expanded to finance and accounting, complex transaction processing such as mortgage loans and insurance claims, and call centre services including outbound calls.  More recently its service offerings have become even more complex, analytical and knowledge-based:  conducting actuarial analysis, risk modelling, data mining and statutory financial reporting.

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