Services have become increasingly important in global value chains, accounting for about one fifth of cross-border trade (WTO 2019) and a larger share of trade in value added (Miroudot and Cadestin 2017). Recent research has estimated the impact of service input liberalisation on the domestic performance of firms operating in downstream manufacturing sectors (e.g. Arnold et al. 2010, 2011) and highlighted how cross-border flows of services and goods at the firm level are strongly related and sometimes complementary (e.g. Breinlich and Criscuolo 2010, Ariu et al. 2019, 2020)

Still, by focusing on cross-border trade in services (Mode 1 of trade in services, according to the WTO classification), most of these studies miss an important share of the contribution of services to global value chains. Since most services are intangible and non-storable, their provision often happens in the location where the buyer is located, either via local commercial presence (Mode 3) or through workers’ movement (Mode 4). For example, Figure 1 shows that trade in professional and business services through Mode 3 for France from 2005 to 2011 accounted for more than half of all trade in services (right axis). Moreover, the value of services exported via commercial presence abroad doubled in the reference period, significantly surpassing the growth in merchandise exports and other modes of cross-border supply of professional and business services (left axis)   
 

Note: The figure plots, for France, the growth of the export value of professional and business services supplied through Mode 3 of GATS, or commercial presence abroad (left axis), as well as its share of the total service trade (right axis). For comparison, the figure also plots the growth in the value of merchandise (goods) exports (left axis). The professional and business services considered are: transport, telecommunications, computer, information and audiovisual services, charges for the use of intellectual property, and other business services 
 

Offshoring of services increases with export experience at destination

Relying on the CAM survey and on French customs data, in a recent paper we explore how service inputs contribute to explain the process of internationalisation of firms (Berlingieri et al. 2021). When firms export goods, they also incur costs related to service activities: contacting retailers, advertising and distributing their products, etc. We argue that firms’ experience in the goods export market increases their propensity to source these inputs from the export destination market, rather than domestically. A simple look at the data supports this hypothesis (Figure 2): the average probability with which a French firm offshores service inputs from the export market is virtually zero for non-exporting firms, but it increases sharply to 7% in the following two years of exporting to the same destination, and keeps growing (albeit at a slower pace) for longer export tenures.