Since the early 1970s international trade in services has been growing rapidly and is becoming an increasingly important ingredient of strategic national planning. Growing awareness and demand for global products and services, opening up of markets in newly industrializing countries along with a rapid increase of regional trade agreements such as European Union (EU) and the North American Free Trade Agreement (NAFTA) or the growing relevance of global negotiating forums such as the World Trade Organization (WTO) have all contributed to this increase of interest as well as activity of International Trade.
Virtually, every country now engages in service trade including those with the lowest per capita GNP. In fact, a number of developing countries, including India, Singapore, Egypt and Israel have a substantial dependence on trade in services. It is generally agreed that services account for the largest share of gross domestic product and most of employment growth in the majority of industrialized countries in recent years. For example, in the twenty years from 1965 to 1985, the share of services in GDP increased from 55% to 61% on an average for industrialized economies and from 42% to 46% for developing economies (Wieczorek, 1995).
Currently in India, services trade accounts for nearly 52% of its Gross Domestic Product. Indian exports of business, technical and professional services have been growing at an average rate of 8.5% since 1983 and have contributed greatly toward the $120 billion in foreign exchange reserves at the end of June 2004 (The World Bank Group, 2004). India’s IT industry has been leading this growth with expected revenues of $20 billion in 2003-04. Of particular interest to policy makers and practitioners alike is the fact that the revenues from services trade ($30 billion currently) is likely to contribute significantly toward reducing the overall trade deficit. More striking is the relative importance of services in employment.
The importance of services sector arises not only from its size, but also from its linkages with goods production. The service component (for example, product design and development, promotion, distribution and customer support) of the value added in manufactured goods has seen dramatic improvement in recent years. At the same time technologically advanced goods (such as computers and automation equipment) are providing increased opportunities for the production of many support services.
Despite the significant and growing importance to national economic welfare, service sector trade has been a relatively neglected subject until recently. This neglect has resulted in a significant gap in research into the area of international trade and investment in services. The paucity of attention on export performance of services sector could be partially based on the nature of services affecting the risk perceptions of managers. The intangible nature of services along with certain unique characteristics like simultaneity in production and consumption, and lack of scope for standardization poses challenges in quantification and analysis of the same. Research in International trade has also shown that product characteristics affect managerial risk perceptions (Axinn, 1989, Roux, 1987).
