The Impact of Transnational Service Corporations on Developing Countries : Competition, Market Structure and the Provision of Unique Services

Developing countries became less hostile to transnational service corporations (TNSCs), but many still confine TNSCs to selected industries and specific market segments. Given that services, and especially producer services, are inputs into other industries, the unintended effect of restrictions on foreign direct investment (FDI) in services can be to make indigenous firms less competitive relative to rivals in other countries, because the local firms are denied access to the best service products. Since the effects of FDI in services in host developing countries are to introduce new technology and new services, increase competition in service markets and reduce the prices of services, the impacts on other sectors of host countries are in general favourable. They include better services, increased productivity and/or lower costs and prices benefitting local consumers, purchasers of intermediate services and exporters. As developing countries review their policies on services in the light of their objectives and changing national and global conditions, one of the important considerations relates to the economic costs of protecting inefficient domestic service industries and ways and means of enhancing the competitiveness of those industries, including through greater competition among domestic and foreign firms