If you mention exports, most people think about products. They might picture container ships and airplanes.
But the fastest growing exports are services. More and more companies are finding profit in exporting services, and several trends almost guarantee that service export growth will escalate . What’s more, you may already exporting services without realizing it!
Here’s five key things you might not know about the growing world of service exports.
#1: Service Exports Cover an INSANELY Wide Range of Activities.
If people think of anything when they hear the term “service export,” they might think of construction services on large foreign infrastructure projects. Or maybe oil rig workers, or film stars and production crews on foreign sets.
These are definitely some examples. But there’s a whole lot more. In short, any service provided by people from one country to people or companies from another is a service export.
Here are some services that are exported from the U.S. every week:
- Rents paid by a U.S. reside for property owned outside the U.S.
- Franchise support and know how supplied to a foreign franchisee (think McDonald’s providing its operating template to a franchise in China)
- Architects and engineers designing a project in Abu Dhabi (even if they never physically leave the U.S.)
- Cloud service providers whose platform is used by companies based outside the U.S.
- Call center support provided to users from outside the country
- Remote access to IT systems located outside the U.S.
- Converting British pounds to U.S. dollars for a British bank, or arranging the purchase of U.S. stocks for a foreigner
- A team of consultants or installation experts traveling to a foreign destination to assist with an install or trouble-shooting
- Tax advisors providing advice to foreign companies
- Medical personnel who read test results from patients located in another country
- Financial, benefit, HR, IT and management support provided by a company’s U.S. headquarters for the benefit of the company’s foreign subsidiaries
These are broad categories. But there’s still more. Many services are “exported” but never cross any physical boundaries. Here are some examples:
- A U.S. tailor creates a suit for a foreign visitor
- A foreign visitor books hotels, tours, and a rental car while in the U.S
- A local drycleaner who launders and presses a foreigner’s shirt
All of these are considered exports because they are provided by a service provider in the U.S. to someone from another country.
No doubt, many companies have already exported services without even knowing it!
#2: Services Are the Fastest Growing Exports Worldwide.
Service are the fastest growing exports just about everywhere. The U.S. is the largest single country services exporter, and depending on whether you believe the U.S. International Trade Commission or the International Trade Centre, the U.S. exports between $662 and $710 billion in services each year.
U.S. service exports continue to grow much faster than product exports, growing about 26% between 2010 and 2014, according to the World Trade Centre. The U.K. and Germany are #2 and #3 in service exports, and the two countries combined export nearly as much as the U.S. The EU taken as a whole exports more than the U.S., but some of that is because of exports among EU countries.
Service exports from Europe grew about 26-27% during the same 2010-2014 period, and worldwide, services grew even a little faster at about 27%. While the U.S. is the largest services exporter, it accounted for only about 14% of the world’s services export market.
The number one recipient of U.S. services is, depending on who measures, is either Canada or the U.K. The number one service that the U.S. exports is travel. Between 25% and 37% — again, depending on who measures — of the services exported from the U.S. is travel-related.
Second is royalties. This would include payments to foreign companies for the use of intellectual property based outside the U.S. Some of this may be franchise fees (think Christian Dior), but I suspect a lot of this is actually intercompany royalties paid by the U.S. operating company to a foreign subsidiary where the company’s intellectual property has been parked.
Source: U.S. Bureau of Economic Analysis, online database
Other types of export services are shown above. Distribution-related services are among the faster growing. IT services are also growing rapidly, but because they take place via the web and cloud, they are almost impossible to measure accurately.
Which leads to the next point.
#3: Service Exports Are Seriously Under-Reported.
Meaning that they are growing much faster than any reported numbers. No one has yet come up with an agreed way to measure and track services exports.
There are no recognized set of “harmonized codes” to categorize services, and so they are categorized inconsistently. There is no physical border for them to cross, and no manifests or bills of lading to be checked and reported at customs. There is no paperwork declaring value.
As noted, many companies are exporting services without realizing it or tracking it. Services are increasingly provided by telephone, the web, and the cloud. Even services provided by workers who travel to a foreign location are difficult to track. Some (but not all) of these workers have applied for a work visa (and it’s a really good idea to figure out if one is needed), but then there is no good way to track whether services are provided or not, much less their value.
Service exports are hugely under-reported – but no one really knows by how much.
#4: Current Megatrends Guarantee Even More Service Exports.
Some of these trends include:
- The proliferation of cloud-based services, including blue-tooth technologies, wearables, and the Internet of Things
- The continued rapid growth of global e-commerce
- Exploding middle classes in emerging markets will mean more disposable income for products, but also services
- Developing economies with growing populations will require massive infrastructure investments in infrastructure, leading to lots of service opportunities
- Technology developments such as 3-D printing, telemedecine, artificial intelligence, and robotics
Each of these trends and others likely to emerge will drive cross-border services in ways we cannot yet even imagine.
#5: The Trade in Services Agreement Will Make Services Exports Even Easier.
The media is full of discussions about various free trade agreements, but the Trade in Services Agreement (TiSA) is almost never mentioned. Yet it may have the greatest impact of any trade agreement ever negotiated.
The EU and U.S., along with 22 other countries are busily negotiating an agreement to make it much easier to perform services across country boundaries. This group of countries currently provides 70% of the world’s service exports, and the goal is to not only protect but also grow that share.
Although details of this trade agreement are limited, the stated focus of this free trade agreement is on standardizing regulatory provisions to put service providers in one signatory country on the same footing as any other service provider within the trade zone.
That single phrase has enormous, absolutely game-changing implications about harmonizing regulations and standards. If and when passed TiSA is likely increase service exports exponentially. Look for our upcoming blog , where we’ll look at these potential impacts in more detail.
Leave a Reply