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Attracting Service Sector MNEs

Written by: OECD Development Centre

Article Overview: As shown in section II.2, services sector FDI has been a growing area in the past 15 years. Since the service sector FDI, in general, involves high value-added MNEs that possess knowledge and technology, host developing countries may want to mobilise their human resources so as to attract these types of MNEs. While not all servicesrelated MNEs require high-skilled workers, some of the growing services-related MNEs do actually require a high-skilled workforce. They include MNEs operating in the area of financial services, information technology, telecommunication, pharmaceutical, medical, as well as firms that locate regional headquarters in the host country.

Attracting Service Sector MNEs

As shown in section II.2, services sector FDI has been a growing area in the past
15 years. Since the service sector FDI, in general, involves high value-added MNEs that
possess knowledge and technology, host developing countries may want to mobilise
their human resources so as to attract these types of MNEs. While not all servicesrelated
MNEs require high-skilled workers, some of the growing services-related MNEs
do actually require a high-skilled workforce. They include MNEs operating in the area of
financial services, information technology, telecommunication, pharmaceutical, medical,
as well as firms that locate regional headquarters in the host country.
The common feature among these services-related MNEs is that they require
strong business support linkages and global connectivity. This calls for a highly-skilled
workforce that could handle business administration and management as well as
computing and information and technology.
One good example of a rapidly growing services sector is regional headquarters.
Singapore is a country that has successfully attracted a large number of corporate
headquarters and is now a key hub in Asia. More than 60 per cent of the 6 000 foreign
companies now based in Singapore have regional responsibilities and headquarters
functions23. With a sufficient supply of computer-literate English-speaking workers with
tertiary education, as well as other key factors such as sound logistics, financial
infrastructure, and tax incentives, more corporate headquarters are likely to be based in
Singapore in the future.

Summary
To sum up, empirical evidence indicates that human capital is important for
attracting FDI, and that host developing countries need, at least, a minimum of basic
schooling for all adult population to show that their country has a sound investment
climate to potential MNEs. Countries that seek high value-added MNEs in hightechnology
manufacturing and services need to develop the tertiary education sector
further. This calls for HRD policies that secure access and quality of basic schooling. To
formulate effective demand-driven HRD policies, it is necessary to have industries and
IPAs participate in policy making as well as the delivery of educational services.

OECD DEVELOPMENT CENTRE
Working Paper No. 211
HUMAN CAPITAL FORMATION
AND FOREIGN DIRECT INVESTMENT
IN DEVELOPING COUNTRIES
by
Koji Miyamoto

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  Do MNEs Train More than Domestic Firms?
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Article Tags: adult population, business support, corporate headquarters, developing countries, empirical evidence, fdi, financial infrastructure, host country, information and technology, investment climate, mnes, regional headquarters, regional responsibilities, service sector, services information technology, skilled workers, skilled workforce, sound investment, tax incentives, tertiary education sector



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