International Service Trade And Development Of Manufacturing

With increasingly sophisticated economic globalization and international division, resources and production factors like labor, capital, and technology, are able to flow freely in the international community, also various countries and regions have formed interdependent and linked world market. International division of labor has gradually deepened from inter-industry, product to product to different production processes and internal processes inside the product. More and more enterprises commission the production processes which completed in-house originally to other companies. This is outsourcing. Services are increasingly tradable, mainly as a result of rapid technological advances, in particular in information and communication technologies (ICT), and continuing liberalization of trade in services. As a new division pattern of labor, service outsourcing set off a wave of international service outsourcing in the global. Research show that more than half of the global trade in goods is outsourcing, and up to three quarters of trade in services are outsourced. In all manufacturing industries, the proportion of international service outsourcing has increased (Nordas,2010). And the form of outsourcing has become increasingly widespread. It is not just limited to service outsourcing such as cleaning, security and the dining room, the enterprise can also hire service staff involved in R&D, IT software design, communications, finance, insurance, accounting, legal, market research and other professional fields.Most scholars abroad study the developed economies, which outsource intermediate services to India, China and other countries with relatively low labor costs, focusing its resources on its core business, to improve production proficiency and efficiency. China, as the largest developing country, whose intermediate services exports are always concerned by academics, ignoring its role as an importer of intermediate services. IMF statistics show China’s trade surplus in the state of international service outsourcing, which means intermediate services export is larger than import, while it also show its relatively low level of service outsourcing (Amiti and Wei,2005a). But in recent years, the proportion of intermediate services imports has continued to increase. There are a large number of literatures about domestic and international service outsourcing of China, being able to find economic benefits due to service outsourcing. But we could just find limited influence of China’s exports of intermediate services, to encourage enterprises to innovate and create independent research and development, and to accelerate industrial upgrading. This is because developed countries outsource the non-core, low-wage, low-skill intermediate services to other countries, especially the developing ones, which contain lower value-added and are at the low end of the value chain. Conversely, China will purchase the intermediate services abroad, especially from the developed countries. These foreign intermediate services reflecting advanced technology, on the one hand will encourage enterprises to adjust production, improving their technology; on the other hand, there will be spillover effects, stimulating technological advances of downstream, accelerating industrial upgrading (Miroudot et al.,2009).In order to better stimulate the adjustment of industrial structure, promote the overall technological level of manufacturing, improve product competitiveness of international market, increase employment opportunities and expand the industrial scale, and provide new ideas for the development of the manufacturing, this paper base on the existing literature, and combine the situation of China’s service outsourcing, to analyze the impact of China’s service outsourcing on manufacturing. In the qualitative and quantitative analysis, a focus throughout the text is to subdivide the service outsourcing into international service outsourcing and domestic service outsourcing. Amiti and Wei (2005a,2005b), Van Welsum and Vickery (2005) and Falk and Wolfmayr (2005) and other literature, mentioned domestic outsourcing. They argued that intermediate services can be internal supply or external supply, and can be purchased from the domestic, can also be imported from abroad. Although the international service outsourcing of manufacturing of China (relative to the total inputs) is at an average level about0.8%, far less than the domestic service outsourcing (13.4%), but in an international context, there are more differences of factor cost, technical content and employment opportunities between d internal supply or external supply. The economic benefits from international service outsourcing may be more than domestic service outsourcing, but we also cannot ignore the larger domestic market.In this paper, it starts from the perspective of China as services outsourcer, and studies the differences between international and domestic service outsourcing impacting manufacturing industry. The article is divided into eight parts:The first chapter is an introduction to explain the background of this article, significance of the topic, research ideas and overall structural arrangements. The second chapter is a literature review, to clarify the concept of service outsourcing, and summed up the studies of the relationship between service outsourcing and manufacturing economic benefit and development, and thus leads to the theoretical mechanisms in the third chapter. The third chapter is the theoretical mechanism, summarizing the existing literatures, analyzing the relationship between service outsourcing and manufacturing development from multiple paths, for instance, the comparative advantage, economies of scale, technology spillover, learning effect, market access effect, employment transfer and diversification effects. Chapter IV is the characteristic facts of the development of manufacturing and service outsourcing, statistical describes the current situation of service outsourcing and the growth of China’s manufacturing. Chapter V,VI and VII are empirical analysis of service outsourcing and manufacturing productivity, export and employment. Chapter V comparatively studies the total factor productivity and labor productivity, and uses instrumental variables method as robustness tests, verifying the relationship between manufacturing productivity and service outsourcing, especially examining that whether the domestic service outsourcing improve productivity. Chapter VI is about non-linear relationship of service outsourcing and manufacturing exports. It links the service outsourcing and manufacturing export by productivity, using threshold model OLS regression to verify the non-linear relationship, providing a new idea to explain the paradox of China’s exports and productivity. Chapter VII is a dynamic research of service outsourcing and manufacturing employment, using dynamic panel GMM methods and grouping regression, to associate the employment and employment structure of manufacturing industry with service outsourcing, giving a basis to solve China’s unemployment. Chapter VIII is of the conclusions and policy recommendations. Through empirical analysis of industry data, the paper obtains the following conclusions:First, the relationship between domestic service outsourcing and manufacturing productivity is different from international services outsourcing. The international service outsourcing could promote industry productivity, however, domestic service outsourcing changes in an opposite direction. This indicates that China’s manufacturing productivity increase is more likely due to the high-tech foreign investment in services, hence, manufacturing enterprises should concern international service outsourcing in the pursuit of technological innovation and product quality. Second, the international service outsourcing can expand manufacturing exports, while domestic service outsourcing has no impact on manufacturing exports; Furthermore, the relationship between total factor productivity and export effects of international service outsourcing turns to be "U" shaped. Higher and lower industry TFP significantly increases its export effects of international service outsourcing, and TFP in the middle level, has no impact on exports effect of international outsourcing. This is the results under the coordination of the three aspects:competitive advantage in the export, trade cost and selection of service providers. Third, the international service outsourcing increase manufacturing employment opportunity, while domestic service outsourcing will reduce the manufacturing employment. However, this does not indicate that the international service outsourcing influence the overall employment. Additionally, international service outsourcing increase the relative demand for unskilled workers, but on the contrary, the domestic service outsourcing increase the relative demand for skilled workers. The empirical results and forecasts consistent with China’s special circumstances and the existing interpretation of foreign literature. Figures of25, tables of18and references of166.