Editor : La Baule conference on international investment, June 2005, France
Author : Fabrice Hatem, AFII
Business support functions : A key component of international investment
Summary
Several separate kinds of functions are needed to run a company. These include goods and services production, of course, but also R&D, admininistration, HQ functions, logistics and distribution, call centres, teleservices, and so on. Multinational corporations may manage such functions in-house or, as is increasingly the case, outsource them to external providers. In both instances, the multinationals generate investment and create jobs, both at home and abroad.
Some of these activities have to be situated close to where the associated services are going to be provided. This is true for sales outlets, which (aside from online selling) are by definition located near to the final consumer. In other cases, services can be consumed remotely. Say an R&D centre develops an innovative solution. This improvement can then be used to upgrade production processes in all the firm’s plants worldwide. Another example: a remote IT service desk can troubleshoot for every workstation in the company, including ones in a different country. In economists’ jargon, these services are « exportable » and can therefore be based in many different sites and countries. This creates « internationally mobile » investments that different host countries can compete for.
For now, the markets for these functions are smaller than those generated by production sites, both in terms of the amounts invested and the number of jobs created. But they are still important, for several reasons. First, these markets are by no means small. Second, they offer good growth prospects in many cases. Third, they have the potential to make a big structural impact on the host economy, especially when decision-making or research centres are involved. In addition, these functions usually employ a more highly skilled workforce – much more highly skilled in the case of R&D facilities – than that recruited by production sites. Two key consequences flow from this situation: on the one hand, a job in one of these areas will produce more value added and pay a higher wage than a job at a production facility; on the other, these activities are more often drawn to countries that can offer an outstanding industrial and labour environment, even if wage rates are higher. In other words, these are market segments where developed countries still have a strong competitive edge and where they can offset the adverse effects of declining market share in production activities requiring average and low skill levels.
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For a full-text article in french (short version) : /fh-medias/2013/10/tertent.pdf
For a full-text article in french (long version) : labaule (PDF). For an update in french (june 2006) : /2006/08/02/les-investissements-internationaux-en-europe-par-fonctions-2002-2005-juin-2006/