Services are the fastest growing exports just about everywhere. According to the International Trade Centre (the joint agency of the World Trade Organization and the United Nations), they grew 27% worldwide between 2010 and 2014.

Who’s leading the way in service exports?

The U.S. exports more services than any other nation in the world, more than $700 billion in services each year.

Canada also exports around $90 billion in services annually, making North America the single largest region for service exports, after the EU which trades mostly within its own region.

The U.K. is the world’s second largest service exporter, and despite its much smaller economy, provides about $350 billion in services – about half as much as the entire U.S.

The U.S. exports many of its services to Canada and the U.K. Surprisingly, Canada doesn’t export a high volume of services to the U.S. The country’s largest services trading partner by far is the U.K., with France and China nearly tied for a distant second place.

Thirty-one percent of U.S. exports are services. Canada’s service exports were only about 21% of total exports, but the sector is staged for growth.

And while the U.S. is the largest services exporter, it accounted for only about 14% of the world’s services export market.

With the huge focus on the service economy in North America (an estimated 70% of U.S. GDP is service-related), these numbers show that both countries are missing huge opportunities to increase their service exports.

What types of services are exported from North America?

The number one service that both Canada and the U.S. export is travel.

Around 25% of the services exported from the U.S. and 19% from Canada are travel-related.

Second for the U.S. (but much smaller for Canada) are royalties and other intellectual property payments.

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 a large proportion is actually intercompany royalties paid by a U.S. operating company to a foreign subsidiary where the company’s intellectual property has been parked.

Transportation-related services are a huge and growing part of service exports from North America, making up close to 13% of the U.S.’ service exports and 14% of Canada’s.

This speaks to the fact that many North American goods are exported and require transport to their ultimate destination.

Other types of services that both the U.S. and Canada export frequently include: financial services, telecommunications services, and a giant catch-all category of “other business services.”

All of these numbers should be considered directional only because of the huge measurement problems related to services.

Not all countries report their services the same way, and there are many, many types of services that are currently not captured – an issue we’ll delve into in a future article.

3 current megatrends leading service export growth into the future

The growth of service exports worldwide is forecasted to continue, and will likely outpace product exports.

Some of the identifiable trends that will contribute to the growth of service exports include:

1. Growing innovation and integration of technology incorporated into physical products.

Automobiles; they were never simple products, but are now chock-full of electronics that a simple car mechanic can no longer diagnose or repair.

Home appliances; exporters of these products must now think about how all of the electronic components can be diagnosed and repaired.

In some cases, this results in the need for additional training for local distributors (one type of service export).

In other cases, it may necessitate training and contracting separate local or regional service providers, or even having company repair experts hop on planes (creating more service exports).

Cloud-based services; the cloud is making it ever-easier to provide the sharing of music, ideas, designs, and data of all kinds virtually across borders.

Services will be provided as software incorporated into Bluetooth technologies, wearables, robotics, and the Internet of Things. Self-driving cars and 3-D printing over long distances will be possible because of the cloud.

Interestingly, the printed item is a product, although whether it actually is deemed an export or not will be open to interpretation and debate, but the technology that makes it possible will be cloud-based software services.

The real issue here isn’t the explosion of services, but whether or not laws and regulations (about such things as data privacy and data security, licensing of encrypted technology, and export and import controls) can be passed to keep up.

For example, if there is a data breach, from what country are the cloud services even provided?

Without these laws, one could argue that national boundaries are becoming increasingly irrelevant, which will be an advantage to service providers in emerging economies.

Another aspect of this trend is the shift from services that have a linguistic component to those that are purely data or algorithmic.

In the past, it is not surprising that a large volume of services trade occurred among the U.S., Canada, and the U.K. – all three share a common language and a common legal system.

These elements are important when the service requires person-to-person communication, such as troubleshooting computers remotely, arranging travel and financial transactions, and designing buildings and golf courses.

However, the shift to cloud-based data transmission will make these aspects of technology-driven services that are important on the front-end design to be less important for the delivery, which will occur in data packets.

2. Continued rapid growth of global e-commerce

Online purchasing is booming worldwide, with more and more people able to access and purchase items from anywhere.

This is resulting in an increase in distribution service exports tasked with moving e-commerce goods across borders. It is also a key reason distribution-related service exports are growing rapidly.

3. Enormous demographic changes

The middle classes in many emerging markets are exploding. This will mean more disposable income for both products and services.

Studies consistently show that once basic living needs are met, middle class people everywhere will be purchasing music downloads online (a service export), surfing the internet (more service exports), and buying more things online (yes, the products may be traditional exports, but the applications facilitating buying and paying for these items will be service exports in many cases).

Similarly, these rapidly developing economies will require massive investments in infrastructure, leading to many architectural, engineering, and construction service opportunities.

It’s also been shown that emerging economies shift more quickly towards services than developed economies.

The post Why services are the fastest growing exports worldwide – and are about to gain momentum appeared first on Trade Ready.

Exports are a hot topic these days, but generally when people talk about exports, they are referring to product exports. Did you know, though, that the fastest growing type of exports is services?  

More and more companies are finding profit in exporting services, and several trends ensure that these exports will grow rapidly.

Service exports are an important emerging trend in global trade. Many traditional manufactured product exports increasingly contain technology that requires installation, troubleshooting, maintenance, and repairs.

The increase in service exports is a natural outcome of the continued growth of the services economy in North America.

And the pervasiveness of the Internet and the explosion of cloud-based communication has enabled information and related services to flow freely across country boundaries.

In this new article series, our goal is to help companies learn more about them and their role in the global trade industry.  We’ll also look at some of the many benefits, issues and challenges of exporting services. As well as explore some tips on how to export services successfully.

What counts as a service export?

The natural place to start is to clearly define what exactly a service export is, and is not.

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 where that came from.

A service export is, very simply, any service provided by a resident in one country to people or companies from another.

Here are some broad categories of services that are exported from the North America every week:

Financial

• Rents paid by a North American resident for property owned outside their home country
• Converting British pounds to Canadian dollars for a British bank, or arranging the purchase of U.S. stocks for a foreigner
• License and royalty fees paid to tax havens where large companies like Apple and many others have “parked” their intellectual property

Know-How

• Franchise support and know-how supplied to a foreign franchisee (think of 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 their offices in North America)
• Call center support provided to users from outside the country
• Tax advisors in North America providing advice to foreign companies
• A translation company in North America providing its services to clients in Europe
• Medical personnel based in the U.S. or Canada who read test results or compile medical reports about patients located in another country
• Financial, benefit, HR, IT and management support provided by a company’s North American headquarters for the company’s foreign subsidiaries

Internet & Cloud-Based Software

• Cloud service providers whose platform is used by companies based outside their home country
• Remotely accessing IT systems located outside North America

People-Based Service Delivery

• A team of consultants traveling to a foreign destination to assist with an installation or trouble-shooting equipment
• Geologists traveling to a foreign oil production site

The breadth of service exports is enormous.  But there’s still more. Many services are “exported” but never cross any physical boundaries.   This may sound confusing, but here are some examples:

• A local tailor creates a suit for a foreign visitor
• A foreign visitor books hotels, tours, and a rental car while visiting the U.S. or Canada
• A local dry cleaner launders and presses a foreigner’s shirt

All of these are considered exports because they are provided by a service provider in one country to an individual or company in another country.

Many companies are already exporting services without realizing it!

If you’ve shared your computer screen with someone outside your country via Skype, for example, to solve a problem together, you have exported services.

So, let’s say you’ve presented an informational webinar and some of the participants were located outside your home country, service was being exported during the webinar.

If you are exporting services, you may wonder if there is anything you need to worry about.  Some of the challenges associated with service exports include export compliance, VAT and income tax, work visas and immigration, tariffs and duties, and data privacy considerations.

Whether these issues will be a major concern or not  depends on the service you’re exporting and how you provide it.  We’ll cover some of these issues later in our series.

Watch for our next article on this topic, where we’ll look at the growth of service exports.  We’ll examine some of the services trends between the U.S. and Canada, from North America to the rest of the world, and worldwide.

Is your company looking to add service exports to its offerings? What are some of the challenges and opportunities you see in this exciting, growing industry?

The post What are service exports, and why are they suddenly so important? appeared first on Trade Ready.

From what I have learned in my travels and dealings in the region, the growth strategy is three fold from a sectoral development standpoint:

1. Grow existing sectors
2. Build new sectors, new sub-sectors, and new functions and hubs
3. Move key sectors up the value chain

Apply your business’ expertise to foreign development plans

As Asia continues to develop, various jurisdictions may have gaps and deficiencies along the value chain that can be filled by a foreign solution.

Some of these jurisdictions may lack the knowledge, capabilities and advanced processes in order to move their economies forward. I believe Canadian companies can stand to benefit from these gaps and deficiencies by being part of the development process.

For example:

• China is building their aerospace, life sciences and clean-tech capabilities.
• India is moving up the value chain and transforming its Business Process Outsourcing (BPO) sector into Business Process Management (BPM).
• The Philippines is building a bustling Business Process Outsourcing (BPO) hub in Asia and has overtaken India as the call center capital of the world, due to its highly educated workforce that can speak fluent English.
• Singapore and Hong Kong aim to be Renminbi, international education, medical tourism, and cultural hubs of the world.
• Thailand and Malaysia continue to build infrastructures and eco-systems that are conducive for manufacturing.
• Vietnam is vying for low cost manufacturing as China begins shifting to high value manufacturing.
• And finally, Indonesia is focused on natural resource development and building its financial services, ICT, and aerospace capabilities.

I have found that the following three high-growth sectors in Asia possess a number of gaps and deficiencies, and thus opportunities for trade and investment.

Foreign companies can fill gaps in Asia’s finance and technology areas

I had the opportunity to work on a market assessment and lead generation project in early 2011 with a Southeast Asian financial center that was planning to enhance its regional standing.

When examining the jurisdiction’s Financial Services, clusters/sub-segments and its capabilities together with complementary and supplementary sectors, many gaps in the eco-system were found.

This jurisdiction had very limited venture capital and start-up financing to support its growing tech start-ups. Being a developing economy, this Southeast Asian financial capital lacked risk management and IT workflow capabilities.

Local companies could not provide the solutions, thus foreign companies with the right technologies and processes were needed to address the gaps.

This assessment project had many dimensions. But, for the purpose of this opinion piece, I will only focus on the gaps and deficiencies in functions and sectoral capabilities.

Figure 1 below shows a graphic representation of the process used in this project, which can also be used for other sectors.

Figure 1: Financial Services Sector and Sub-Sector Assessment

Energy and clean-technology

The development of Asia’s clean-tech sector and the limited depth and breadth of Asia’s energy mix are areas in which Canadians can play a strategic role.

The International Energy Agency’s 2013 World Energy Outlook report expects the energy demand in Southeast Asia to increase by more than 80 percent in 2035. The report also states that Southeast Asia will be the fourth largest oil importer after China, India and the European Union.

Based on my interactions with subject-matter-experts, key stakeholders that work in the energy sector, and the Asian Development Bank, there is a strong push to reduce the region’s dependence on imported oil, develop and grow its clean-tech sector, and diversify its energy mix.

The Canadian clean-tech sector is highly innovative and internationally oriented. Canadian clean-tech companies can stand to benefit by offering their products and services to jurisdictions that are developing clean-tech sectors as well as for those that have yet to start development.

Also, as the region’s appetite for energy grows, Canadian energy companies can benefit from this opportunity by building supply chains to Asia, and supplying energy products to the region.

Asian travel boom and Aerospace sector opportunities

Aerospace is another area where Canada can lend its expertise.

Personal and business travel is booming in the Asian region due to the lack of VISA restrictions, increasing disposable income and yearn to travel among the middle class, growth in regional trade, and the region’s geographic makeup of archipelagos and vast terrains.

During my last trip to Southeast Asia in 2013, I learned that Brunei, Malaysia, the Philippines (Manila Bay, Clark and Cebu) and Singapore are adding airport capacity and vying to become aerospace centers.

At present, I believe Singapore is ahead of the game due to the presence of the Seletar Aerospace Park—its two airports which act as airport hubs in the ASEAN bloc—and support from Singaporean government.

The travel boom in Asia coupled with the move by these Asian jurisdictions to become aerospace centers will potentially add new functions including maintenance, repair, and overhaul (MRO), re-fueling, flight training and simulation, parts manufacturing, and research and development (R&D).

Canada being a global key player in aerospace can stand to benefit from these developments by lending its capabilities and investment, and by supplying aerospace components and aircraft.

Tracing gaps and deficiencies along the value chain is a technique that has allowed me to find trade and investment opportunities in Asia.

As various Asian countries continue to develop their economies, I believe Canada can stand to benefit by taking part in the development process.

I hope this technique will add value to your market research, assessment, and expansion activities.

How is your company using similar techniques to seek opportunities for trade and investment? Share your comments below!

The post Tracing gaps and deficiencies along the value chain to uncover business opportunities in Asia appeared first on Trade Ready.