The death of outsourcing that KPMG, one of the‘big four’consulting firms, announced a few years ago did not go unnoticed in the small world of business process outsourcing (BPO), where firms rationalise oper-ations by taking advantage of lower wage costs in countries such as India.
According to KPMG,‘there is a revolution taking shape in the business services industry, one that disregards the traditional shared services and outsourcing paradigms’(Justice,2012).1While the report of the death of outsourcing might be exaggerated, it does suggest that companies are becoming more aware of the difficulties of depending on work done on the other side of the world in a context marked by shrinking labour cost arbitrages and growing concern for quality, security, and intellectual property rights. Whatever the truth might be, this stands in stark contrast to the view shared at the turn of the millennium and the heyday of overstatements on globalisation. At that time, there were endless accounts of the glorious hopes for the twenty-first-century entry into the world of service offshoring, with no shortage of relocation of activities abroad. If the sky was not the limit, labour cost differentials, skills, digitisation, and the ability to codify well-defined segments of tasks performed at distance were. As Alan Blinder, former Vice-Chairman of the Fed, put it:‘The old assumption that if you cannot put it in a box, you cannot trade it is hopelessly obsolete. Because packets of digitized information play the role that boxes used to play, many more services are now tradable and many more will surely become so. In the future, and to
1 To avoid confusion between outsourcing and offshoring, it is worth remembering here that outsourcing describes the purchasing of goods and services from outside specialist providers at arm’s length either nationally or internationally. In contrast, offshoring describes purchases of goods and services from foreign providers at arm’s length or the transfer of particular tasks within thefirm to a foreign location, i.e. to foreign affiliates.
The cross-border aspect is the distinguishing feature of offshoring, i.e. whether goods and services are sourced abroad as opposed to the domestic economy, not whether they are sourced from within the same firm or from external suppliers (the aforementioned definitions are drawn from OECD,2010: 220).
54
a great extent already, the key distinction will no longer be between things that can be put in a box and things that cannot. Rather, it will be between services that can be delivered electronically and those that cannot’(Blinder,2006).
These opposing views are not only about the extent to which the expansion of the tertiary sector is likely to follow the rise of a global knowledge-based economy – or put differently: how a greater inter-nationalisation of services would better match the large share of services in GDP and employment. They also reflect rising concerns on the trad-ability of service activities, concerns which typically focus on employ-ment and barriers to trade. For instance, while Blinder minimises many overstatements on the expected overall loss of service jobs in the United States, he does stress that services likely to remain in the United States would for the most part be low-skilled with clear negative effects on wages (Blinder, 2006: 124). Others, on the contrary, suggest that higher-skilled and higher-waged service jobs in the United States are a comparative advantage and provide an enormous opportunity to make the case for service trade liberalisation, especially in removing non-tariff measures in India, China, and the European Union (Jensen,2011). In the face of such difficulties in exporting services, service international-isation is often considered to rely less on trade than on foreign invest-ment (Enderwick,2007). While not immune to the burden of domestic regulatory environments, foreign investment is viewed as a way to over-come restrictive border measures as long as‘national treatment’rules out discrimination between foreign and domesticfirms. This drove the early moves of companies such as American Express, Accenture, and IBM to India in the 1990s. It is also why Indian service firms such as Tata Consulting Services and Infosys have now for some time established affiliates in the United States and elsewhere.
The role of standards in the internationalisation of services attracts far less attention than job losses, trade wars, and the competition of new multinational servicesfirms. And yet, in codifying the disaggregation of service production and delivery into discrete and independent stages – likely to be assessed against distinct quality performances and security guarantees – standards have a direct effect on employment, trade, and investment. A number of accounts consider standardisation of services as a crucial requirement in developing a competitive advan-tage through the substitution of capital for labour and by establishing routine labour processes suitable to less skilled and cheaper employees abroad (Zeithaml et al.,1990: 79; Johnson and Nilsson,2003; McIvor, 2010). Some might identify this as service innovation, while others emphasise the engrained labour alienation that such practices imply.
Similarly, there is a common understanding that trade in services is quite different from goods and relies on standards (for quality, safety, protec-tion of consumers, etc.) often embedded in domestic regulaprotec-tion and likely to impede market access (Boden and Miles, 2000b; Djellal and Gallouj, 2010; World Trade Organization, 2012; Du Tertre, 2013).
From this point of view, standards often protect public interest and fulfil policy objectives; they can also be used as tools for market integration, in particular for services close to manufacturing like those provided in huge and remote back offices.
Against this background, what is the relationship between the expan-sion of the tertiary sector, the globalisation of production and market networks, and the authority conferred on standards in the regulation of contemporary capitalism? More specifically, what is the role of non-conventional forms of regulation such as standards in service offshoring?
Conventional explanations focus on information asymmetries, institu-tional factors, and the sectorial specificity of trade transactions in services as compared to goods. As we will see in further detail in the third section of this chapter, they distinguish, in particular, between intangible and relational services resistant to standardisation and so-called industrial-ised services likely to be standardindustrial-ised in complement to relying on infor-mation and communication technologies. This is, in other words, a restrictive hypothesis, according to which the attributes of service and domestic institutions will largely determine the propensity for standard-isation and internationalstandard-isation. This chapter aims to consider the wider potential power plays in shaping the political economy of standards as they may encourage or hinder offshoring. In contrast to such sectorial-and institutional-dependent views, I propose an extensive hypothesis.
I argue that standards can accommodate opposing political economy objectives and power configurations. By linking the global marketplace to distinct national economies, service standards can respond in diverse ways to quality and security guarantees. They can incorporate specialised knowledge into packages of segmented tasks and apply worldwide market discipline to unskilled workers. But there is no reason to believe that they cannot also lead to a more progressive understanding, for instance by providing safety procedures to workers heading to the night shift in remote customer centres, or protecting consumers with guarantees, or procedures for the handling of complaints and dispute resolution (such as with the ISO standards 10002 and 10003). Such an ambiguous form of non-conventional power in the regulation of the international econ-omy reflects what I call a transnational hybrid authority.
My extensive hypothesis allows for appraising the socio-political impli-cations of standards in the internationalisation of services along the three
analytical dimensions discussed in theprevious chapter. The range of actors and standardisation bodies having authority to set international standards is vast; depending on their instruments, they span the insti-tutional continuum of the public and private spheres. Moreover, the scope of objects likely to be standardised spreads across a material continuum, whose two poles are the physical and societal worlds. In other words, even if service offshoring depends on standardised technical interfaces supporting the provision of highly industrialised services, it cannot ignore shared social and cultural values. Finally, the system of standards recognition overlaps a wide spatial continuum; following the dual nature of sovereignty, the recognition of standards is both endogen-ous to the territorial State and exogenendogen-ous, akin to the market forces of transnational capitalism. From this point of view, standards per se nei-ther support nor hinder the internationalisation of services. It all depends on which actor exerts authority to set such and such a standard likely or not to be recognised across such and such jurisdiction. It involves actors with opposing political economy interests and values, concerns issues intrinsically blurring the frontier between societal and physical worlds, and rests on a system of recognition that reinforces the deterritorialisa-tion of sovereignty. In a nutshell, setting standards and complying with them is inherently ambiguous.
This chapter begins by sketching the contextual and conceptual back-ground of services and the expansion of the tertiary sector, emphasising the distinct regulatory constraints required of services. I suggest that issues of quality and security, conventionally seen as the heart of the regulation of services, should be understood as social institutions, whose qualification remains highly political. The second section examines in some detail the available data on the internationalisation of services. It unpacks what I refer to as the 75/25 puzzle: services account for 75 per cent of GDP and employment in rich countries and are considered the key to future development of a global knowledge-based economy; mean-while, over the last two decades, their overall share in the global economy has continued to represent around 25 per cent of world trade and invest-ment. It also sheds light on a significant shift in composition (with developing and emerging countries having doubled their share), with growing diversification up the value chain and a profound integration of services into manufacturing processes. The third section focuses on conventional explanations of drivers and barriers of greater services tradability, with a distinct emphasis on standards within the broader regulatory environment of contemporary capitalism. It discusses in par-ticular the restrictive hypotheses on the internationalisation of services put forward by institutional economics and approaches inspired by the
French régulation theory. Finally, the chapter examines the extent to which services may defy the very idea of standardisation and support a more extensive hypothesis. To this end, service standards are examined as particular instances of transnational hybrid authority whose ambigu-ous power spreads across sectorial and institutional specificities. They define a wide range of quality and security requirements likely to have strong social and political implications.
The Test of Tertiarisation
The extension of the tertiary sector is one of the most striking aspects of the shift in recent decades towards a so-called knowledge-based global economy. Services now account for approximately 75 per cent of GDP and employment in the advanced economies of the OECD, and more than 50 per cent in developing countries and emerging economies. As we have seen, services raise contested issues pertaining to employment, trade, and foreign investment. While they have exhibited the strongest growth in the global economy for many years, increasing doubts are emerging around the continuity and sustainability of this movement.
This leads us to consider with renewed caution assertions made over the last twenty-five years on the importance of this phenomenon and the transformation it implies for the transnational regulation of global capitalism. Karpik (1989) associated the shift towards services as part of a new‘economy of quality and singularities’. In the same vein, Castells (2001: 56) identified the advent of a ‘service society’ as a radical shift towards‘informational capitalism’. And according to Gadrey (2010), an
‘economy of quality, service and knowledge’calls for the construction of a whole new‘economy of care’. The rise of services directed towards the immediate and tailor-made satisfaction of consumer needs is, the argu-ment goes, most certainly going to give rise to‘new forms of competition’ (Petit, 2008). Finally, some see the valorisation of knowledge in the service economy as marking nothing other than a new accumulation regime:‘cognitive capitalism’(Moulier-Boutang,2007).
Thefirst step needed to stand back from the spin generated around the
‘new service economy’is to look at what the terms‘services’and‘tertiary sector’really mean. What are services? This is not a trivial question. Even before initial negotiations attempting to establish a regulatory framework within which to liberalise trade in services had begun in the mid-1980s, the renowned British weekly The Economist had come up with the following oft-cited formula: services are ‘things which can be bought and sold but which you cannot drop on your feet’ (The Economist, 1985). Such a definition does not, of course, do full justice to a plethora
of activities difficult to pin down on this basis. Still, it catches in a nutshell what bodies responsible for producing and harmonising inter-national statistics have taken years to define in order to reach a compre-hensive approach to statistical issues entailing services, guiding negotiations, and supporting implementation of international agree-ments encompassing services such as the General Agreement on Trade in Services (GATS). This was in particular the task of the new United Nations Manual on Statistics of International Trade in Services, first published in 2010. The manual restates the usual cautionary note on the heterogeneous range of service activities difficult to encapsulate within a simple definition and remains all the more true given the difficulty in separating services from the goods with which they may be associated in varying degrees.2 That being said, it defines services as follows: ‘the result of a production activity that changes the conditions of the consum-ing units, or facilitates the exchange of products or financial assets’ (United Nations,2010: 8).
A prime interest of this apparently simple definition is to extend the meaning of international trade in services to encompass various modes of supply included in the GATS, in particular the supply of services through the commercial presence of affiliates established abroad. More substan-tially, it allows forflexibility in responding to opposing conceptions of service activities. Most frequently cited characteristics of services are intangibility (or immateriality such as in teaching or health), co-production (or the relational dimension between a customer defining its needs and a consultancyfirm offering a response), heterogeneity (or the idiosyncratic dimension of services ever customised according to clients’ needs and thus supposedly avoiding standardisation), and per-ishability (that is, the impossibility to stock services in an inventory like goods) (Millar and Choi,2011: 28). The UN definition clearly abandons the criteria of immateriality and intangibility, which for two centuries had stood at the heart of classical and neoclassical economics. Instead of seeing services as what Adam Smith and his followers saw as residual, non-productive, and immaterial activities, characteristic of non-productive labour, the definition echoes the diversity of service activities and their increasing integration with the production of physical goods. It is from this perspective that it draws on Hill’s seminal contribution (Hill, 1977). In contrast to neoclassical analyses, Hill put the focus on the
2 The definition used by the manual is based on the 2008 version of the System of National Accounts jointly published by the United Nations, the International Monetary Fund, the World Bank, the Organisation for Economic Co-operation and Development, and the European Commission.
processes involved in the transformation of the state of an individual or object and the relational issues involved when the activity implies co-production between the producer and the consumer of the service. From this focus on changes in the condition of a person or an object, the impossibility of stocking services has nothing to do with a physical impossibility supposedly derived from immateriality; it is, rather, a
‘logical impossibility[, since] a stock of changes is a contradiction in terms’(Hill,1977: 319). It follows that, as services are exchanged with-out transfer of ownership in contrast to goods,‘models of pure exchange economics of a Walrasian type in which existing goods are traded between economic units are quite inapplicable and irrelevant to services’ (Hill, 1977: 318). This is why a medical service is not some kind of immaterial drug, a training course some kind of immaterial brain, or a life insurance policy some kind of immaterial grief. Hill’s definition has been widely recognised as the most suitable for both research and statis-tical purposes. It allows us to stick to as simple a definition as possible for our own purpose. Suffice here to mention a last point, made by Gadrey (2003: 18) in order to account for a greater variety of demand rationales characterising services. According to this view, services are deeply embedded in social institutions. They span two axes. Thefirst concerns the‘type of capacities’ with which the user mainly interacts. It opposes technical capacities (such as the automatic teller machine providing you with cash) to human capacities (such as those displayed by a discrete Swiss banker advising you in a cosy meeting room on how to park cash and dodge tax authorities). The second axe is about the ‘mode of request’ chosen by the user to get a service delivered. It opposes inter-active requests (i.e. to ‘be served’ by a service provider such as a customer-relations officer based in a call centre in Bangalore) to non-interactive requests (i.e. to‘serve yourself’, when you use an IT platform, pay for a nice trip on your own, or do your own cleaning).
This said, there is little disagreement about which activities account for services or not, but much more on how to establish an explicit and comprehensive definition (Illeris, 2007: 24). We accept Bryson and Daniels’ idea that ‘it is important not to become too distracted by the search for a precise definition of services’ (Bryson and Daniels,2007a:
4). Even more important is the extent to which a service economy is in fact inextricably linked to the manufacturing industry. In his classic work, Daniel Bell (1973) saw the dawning of the post-industrial era as an age in which services would replace manufactured goods as a growth engine. Consolidation of service activities in economies the world over has not, in fact, led to a major change in traditional industrial production.
The situation is not that of a closed system in which an increasing share
of service activities results in a corresponding decline in manufacturing or agricultural production. On the contrary, production systems are increasingly interdependent between manufacturing industry and ser-vices. Two obvious examples present themselves. The smartphone, which has made Apple the world’s most valuable company and the first-ever company to reach a value of $1,000 billion on the US stock
of service activities results in a corresponding decline in manufacturing or agricultural production. On the contrary, production systems are increasingly interdependent between manufacturing industry and ser-vices. Two obvious examples present themselves. The smartphone, which has made Apple the world’s most valuable company and the first-ever company to reach a value of $1,000 billion on the US stock