Preparing Your Service for Export
Laughter is America’s most important export.
—Walt Disney
You don’t have to be a manufacturer to export. As you take your business into the digital age, you’ll find that keeping ahead of the competition takes more than just getting your product into world markets. You’ll also need to export superior services to cultivate additional strength. In this chapter, I’ll discuss exporting a service and how it differs from exporting a product. In addition, I’ll provide a brief look at services that have the best potential for export success, a list of the best international market prospects, and a couple of case examples.
The United States is the largest exporter of services in the world. Export.gov indicates that more than two-thirds of US small- and medium-sized exporters are nonmanufacturers. Business services alone—such as financial products, software publishing, and telecommunications—employ more than double the number of US workers in the manufacturing sector. And these jobs are not just ordinary blue-collar positions. They are white-collar services that involve high wages, high skills, high technology—and high growth! Because of this, the United States is likely to retain these jobs.
“Expanding America’s services industry through trade is a smart effort, because three out of four American jobs are already in the services sector, and in 2012 every additional $1 billion in U.S. services exports supported an estimated 4,000 additional American jobs,” says the Office of Public Affairs at the United States Department of Commerce.1
According to the US Department of Commerce, US exports of services reached a record $633 billion in 2012, up 4 percent from 2011.2 Compare that with the rest of the world. The World Trade Organization indicates the value of world-commercial-services exports rose just 2 percent in 2012, to $4.3 trillion.3 During the next five years, 87 percent of world economic growth is forecasted to take place outside of the United States, according to the International Monetary Fund.4 Service exports are vital for high economic growth.
Between March 2012 and March 2013, exports of US services increased $1.2 billion, or 2.3 percent. The largest increases were in other private services, including items such as business, professional, and technical services; insurance and financial services; and travel. Within these services, the largest increase was in insurance.5
And there is every indication that the growth will continue in the years ahead, with many countries currently emerging from a period of economic weakness and showing a strong demand for American know-how as well as American-made goods. As long as countries’ local currencies remain fairly stable and technology continues to advance, this demand will continue to rise, notwithstanding the ups and downs of the US dollar. Service exports typically don’t face tariffs, as goods sold overseas often do.
AN EXAMPLE OF A SERVICE EXPORT: HUNTINGTON BANK PROVIDES EXEMPLARY SERVICES
Take Huntington Bank, the winner of the 2013 President’s E Star Award for export service. Presented by the Department of Commerce’s International Trade Administration, the award is the highest recognition any US entity can receive for supporting export activity. Huntington was recognized as demonstrating a sustained commitment to the expansion of exporting by offering manufacturers the ability to finance foreign buyers who want to buy American products. The bank also developed an export-finance capability by actuating its delegated lending authority under the US Export-Import Bank Working Capital Program. Huntington has provided a mix of international services, trade services, and foreign exchange since the mid-1970s. The bank also received the E Star Award in 1982.
There are, however, some nontariff barriers that do exist for service exports, such as safety standards, customs procedures, and regulatory hurdles (specific to investment trade), that can make it difficult but not insurmountable for an attorney, accountant, designer, or architect to work abroad.
Still, exporting a service attracts customers because the service usually offers original knowledge—and knowledge is power these days. People are starting new e-ventures every day, purely on the basis of a business model offering superior know-how and great ideas. Disseminating that knowledge aggressively and at a profit worldwide is a winning formula for global success. With technology advancing at lightning speed, and worldwide communications becoming faster and easier with every passing day, now is an ideal time to consider this business avenue.
Fact According to the Wall Street Journal, “Services are much more important than hitherto believed. They account for about 40% of international trade on a value-added basis, double the total that shows up in balance-of-payments statistics.”6
How Technology Drives the Economy—by Fostering Competitiveness
Right now, a variety of technology-based industries, including communications, software development, cloud computing, and health care management, are booming. Take a look at the stocks traded on the NASDAQ—you’ll spot the longtime movers and shakers in these industries typically growing at a double-digit rate or more per year, with the young upstarts right on their heels. The good news for the prospective service exporter is that there is a strong correlation between technological advancements and the growing importance of knowledge. The greater the increase in the availability of technology, as is occurring now, the greater our need to learn how to use it and capitalize on it, fast. Time is of the essence if you want to stay at the cutting edge of your industry, and with current technology, particularly in the field of communications, not only can you count on being able to contact clients and colleagues worldwide in a matter of seconds but you can also bet that it will cost you only pennies.
Exporting a Product vs. Exporting a Service: Is There a Difference?
Throughout this book, we have focused on exporting a product—one that you can see, hold, easily assign a monetary value to, and transport from Point A to Point B. Exporting a service, such as one that is business-oriented, professional, technical, financial, or franchise- or insurance-based, requires a somewhat different approach. Here’s a quick rundown of the differences between a product and a service that affect the export process (again presenting the table we looked at in Chapter 1 in order to jog your memory):
Product |
Service |
---|---|
Tangible | Intangible |
Visible | Invisible |
Measurable | Immeasurable |
High perceived value | Low perceived value |
Transportable—freight costs | Transportable—negligible freight costs |
Negligible human interaction | High human interaction |
Low maintenance | High maintenance |
High standardization | Negligible standardization |
To revisit our discussion in the first chapter, you cannot see or touch a service, it’s invisible,—and you often cannot assess its true value until after you have used it and discovered all the resulting benefits. A service is in many ways a tougher sell than a product, either at home or abroad. Each of the listed ways in which services differ from products creates a marketing challenge for the service exporter, perhaps the most crucial being the need to convince a distant customer to buy your service sight unseen and without any real idea of how he will benefit. This is why a service business depends first and foremost on people (refer to Chapter 4). Of course, when you export a product, you are also relying on a whole string of people to do their jobs—bankers to help you get paid, freight forwarders to move your goods, local distributors to get your product on store shelves—but exporting a service demands a special emphasis on human interaction, both at home and abroad.
People Power Drives Your Service Exports
Selling a service successfully requires even more people power than selling a product. When you export a product the traditional way, you offer it, clinch your sale, follow through, and troubleshoot as needed. Then, once the product is in your customer’s hands, she oversees sales in her geographic territory and contacts you to order more of the product when she sells out. There is little need for communication between buyer and seller once the product is in the distribution pipeline and moving as it should.
By contrast, a service requires direct interaction with your customer, not just initially but for the duration of the service contract. And for some services, of course, the quality of the interaction with your customers is exactly what they’re paying for. This is why people with superior communication skills, diplomacy, and—this can’t be emphasized enough—acute cultural awareness are the single-greatest asset for delivering a quality service export. Having the technology in place to deliver the service is important, too!
Tip Never increase customer expectation, such as offering free expedited shipping or a discount on work, to the point where you cannot deliver on your promises! That does not make for a satisfied customer. It creates a ticked-off customer who never returns.
Which Services Are Best for Export?
As with a product, if your service is a success locally, it is a likely candidate to be successful elsewhere—but you’ll need to do appropriate research to choose the new market most likely to respond well. (Also, just as with your product export, check the Export Administration Regulations [EAR] that can be found at the US Bureau of Export Administration [BXA] beforehand to find out if you need an export license [discussed in Chapter 22] to perform your service abroad.)
Your service should, of course, be relatively unique and difficult to come by in your target market. Services like a manicure at a beauty salon or a last-minute oil change at a car dealer, for example, are essential, but they are unlikely candidates for export because the skill level required to do them is very basic, plus the services themselves lack novelty. It’s all too easy for local operators to duplicate these services, so why should customers seek them beyond their own borders?
According to export.gov,7 the following highly skilled and specialized services offer infinite export opportunities because they are in demand worldwide:
Tip As of July 31, 2013, the Bureau of Economic Analysis started recording expenditures for “R&D and for entertainment, literary and artistic originals as fixed investment,” grouping them with expenditures for software into a new investment category called “intellectual property products,” says the Wall Street Journal. It further states that this adjustment “reflects the economy’s quiet transformation from one based principally on industry to one decidedly based on knowledge and information.”9 That is more in line with the today’s economic realities. Watch for service exports to grow as a result.
There are also other services, such as passenger fares and royalties and license fees, for instance, that can be exported. For more information, visit the “Trade Data Basics” page on the International Trade Administration Web site at http://www.trade.gov/mas/ian/referenceinfo/tg_ian_001872.asp#service.
Top Service-Export Destinations by Volume
The Bureau of Economic Analysis indicates the following are the top ten countries receiving the largest amount of service exports from the United States.12
Targeting the countries that are known to be the most receptive to US service exports will allow you to capitalize on the strengths of particular countries, adapt accordingly, and succeed.
WHERE TO GET HELP
The same agencies that can help you get your product-export business up and running can advise you on marketing your service internationally. Start with the US Department of Commerce. If appropriate, it will direct you to export councils, US export assistance centers, or trade-development industry specialists. If, by some chance, these export-specific agencies are unable to help you, ask them for a referral to other government organizations or private-sector companies that have experience in service exports.
Financing a Service Export
Because of the intangible nature of a service export, it can be more difficult to finance a sale, in terms of knowing the amount to actually quote a customer, but you can nonetheless utilize the basic procedures for product exports I will outline in Chapter 20. It’s important to involve your banker right at the beginning, before you attempt your first service export. As I have noted, it is hard to monitor a service, assess its value, and determine when delivery is complete—all of which makes it just as tricky for a bank to work out the logistics of financing this type of export as it is for you and your customer. Your best bet is to draw up a service agreement outlining delivery and payment terms to be signed by you and your customer. This will solidify the transaction and serve as a guideline for your banker to organize the financing.
Caution Don’t get paranoid about how you are going to get paid on a service export. It’s true that since a service doesn’t have a form of collateral, financial institutions may be less willing to provide financial support to your company. However, many public and private institutions will provide financial assistance to creditworthy service exporters. Ask. By the way, try my method: Ask your customers for one-third of the payment upfront, one-third in the middle of the project, and one-third upon completion. This can be secured through your bank, provided you ask for help, have a legitimate business opportunity, and a good credit history.
Planning for and Overcoming Market Barriers
Whether you are exporting a product or service, it is a given that you will have to confront numerous market barriers—governmental, practical, cultural, and economic. These barriers can be quite challenging, not to mention extremely frustrating, to a new-to-export service company. To overcome them and beat out the competition, you will need to plan on being aggressive and persistent and taking longer to establish a business presence than you may have expected to have to do. If you cannot make any progress despite your best efforts, you may find you need to target another region or country for your export operation. Let’s get acquainted with the barriers:
Note Trade in services for both exports and imports among the United States, Mexico, and Canada, made possible by the North American Free Trade Agreement (NAFTA), totaled $99 billion in 2009 (the latest data available for services trade). Services exports from the United States to the NAFTA countries were $63.8 billion.13 “NAFTA eliminated several important barriers to U.S. services trade,” according to a paper prepared by the US Department of Commerce, the International Trade Administration, and the Office of Industry Trade Policy. “NAFTA established the principle of ‘national treatment’ for services trade by which governments must treat NAFTA members’ services firms the same as local firms. NAFTA eliminated local presence requirements and quantitative restrictions that discriminate against non-local service providers. NAFTA also eliminated citizenship and permanent residency requirements for professional service providers of another NAFTA partner.”14
Seven Ways to Launch Your Service
When you set out to enter a market with your service export, you will face four critical questions: How are you going to get a foot in the door? How are you going to get noticed by prospective customers (for a discussion, see Chapters 6 and 10)? How are you going to keep your foothold once you’re there? And how are you going to do it all inexpensively? Here are some ideas that may help you answer all four questions:
An Example of a Service Export: A Wildflower-Nursery Business that Also Exports a Service
Neil Diboll runs Prairie Nursery (http://www.prairienursery.com/store/), a nursery that sells wildflowers and other native plants that many people dismiss as weeds. These products are tough and well suited to climates like the Midwest in the United States, where temperatures in May, for example, can swing anywhere from as low as 40°F at night to as high as 80°F during the day.
Think Diboll can export a service tied to the nursery? You bet. And that’s exactly what he has done so that he can operate a company that is more than a nursery. His team offers garden designs and customized advice that can be purchased from anywhere in the world, provided that person has access to the Internet. If you want an ecologically grown green roof or a backyard meadow, he will consult with you remotely or virtually via the Internet. Many product-based businesses have complementary services that can be exported.
To get the word out, use images—they have no language barrier. Every time Diboll does a great job creating a new garden for a client, he can take a picture and share it via Instagram, Pinterest, Facebook, and Google+. That’s how his work gets discovered and how his service becomes in demand worldwide!
Tip The primary benefit of any virtual-service export is its lower cost and unlimited opportunity. You don’t need to pay for travel and you don’t have to limit your customer base.
Whichever strategies you apply, remember that every contact you make in the process of offering your service-export package can potentially refer you to another, and still another. Plus, word-of-mouth testimonies from happy clients are your best free advertising (you might ask them to provide an endorsement on social platforms such as LinkedIn and praise you on your Facebook page). As you work to put your network in place, you’ll be doing more than building a strong base of operations—you’ll be working up a healthy momentum that will generate future prospects.
INTERNET MARKETS SUPPORTED BY GOVERNMENT
Here is a listing of Internet markets where commercial service officers can help guide you in Internet sales. What this means is that if you have a service export, you can receive greater support in each of these countries via the Internet:16
The Bottom Line: Maximizing Your Chance for Success
When you’re running a service business abroad, you can’t afford to become complacent. Stay focused and committed to your export service plan. Don’t let your service offering ever become commonplace. Always work at becoming better and better at what you’re doing. And be prepared to take aggressive measures to establish and protect your business presence. The following strategies are essential:
Summary
As technology continues to grow, the market for service exports is only going to get bigger—making us all the more responsible and accountable for knowledge outcomes. Countries would benefit from adopting policies that increase service exports, improve productivity, and promote service-export performance. Breaking into export markets is a major achievement, but it’s what you do once you’re there that makes all the difference in whether you’ll be an also-ran or an industry leader. Remember: if you’re working hard on customer service, as I’ve been encouraging you to do, you’re already a service exporter. See how far you can take it—and how far it can take you.
1 “Fact Sheet: National Export Initiative,” Commerce.gov, United States Department of Commerce, last modified May 24, 2013, http://www.commerce.gov/news/fact-sheets/2013/05/24/fact-sheet-national-export-initiative.
2 “Fact Sheet: National Export Initiative,” Department of Commerce, last modified February 19, 2013, http://www.commerce.gov/news/fact-sheets/2013/02/19/fact-sheet-national-export-initiative.
3 “Trade to Remain Subdued in 2013 After Sluggish Growth in 2012 as European Economies Continue to Struggle,” World Trade Organization: 2013 Press Releases, last modified April 10, 2013, http://www.wto.org/english/news_e/pres13_e/pr688_e.htm.
4 “NUSACC: Trade Outlook, accessed October 29, 2013, http://www.nusacc.org/knowledgebase/tradedata-tpid=14&stid=26,27&pid=192.php.html
5 “U.S. International Trade in Goods and Services,” US Department of Economic Analysis: Bureau of Economic Analysis, last modified August 2013, http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm.
6 “The Red-Tape ‘Spaghetti Bowl’ Hurts Trade: One Country Producing a Good from Start to Finish for Export? The Idea Is Obsolete,” Razeen Sally, Wall Street Journal, last modified May 28, 2013, http://online.wsj.com/news/articles/SB10001424127887324310104578509103306337848.
7 “Chapter 9: Exporting Services,” access date October 29, 2013, http://export.gov/basicguide/eg_main_043087.asp
8 “Should the U.S. Focus on Exporting Services?,” New York Times, New York Times, last modified April 11, 2012, http://india.blogs.nytimes.com/2012/04/11/some-urge-u-s-to-focus-on-selling-its-skills-overseas/.
9 “Yes, Lady Gaga’s Songs Contribute to GDP: The New Measure of the Economy’s Output Reflects the Importance of Intellectual Property,” Osagie Imasogie and Thaddeus J. Kobylarz, last modified May 27, 2013, http://online.wsj.com/news/articles/SB10001424127887324767004578491452865597808.
10 “Health Technologies,” export.gov, accessed October 25, 2013, http://export.gov/industry/health/.
11 “Fact Sheet: National Export Initiative,” Commerce.gov, United States, Department of Commerce, last modified May 24, 2013, http://www.commerce.gov/news/fact-sheets/2013/02/19/fact-sheet-national-export-initiative.
12 “Cross-Border Trade in 2012 and Services Supplied Through Affiliates in 2011,” US Department of Commerce, Bureau of Economic Analysis, U.S. Trade in Services (PDF file), accessed October 29, 2013, http://www.bea.gov/scb/pdf/2013/10%20October/1013_international_services.pdf.
13 “North American Free Trade Agreement (NAFTA),” Office of the United States Trade Representative: Executive Office of the President, accessed October 25, 2013, http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta.
14 “NAFTA: 10 Years Later,” the International Trade Administration Web site, US Department of Commerce, International Trade Administration, Office of Industry Trade Policy, accessed October 25, 2013, http://www.trade.gov/mas/ian/build/groups/public/@tg_ian/documents/webcontent/tg_ian_001998.pdf.
15 “Twitter to Double Its European HQ Ranks,” Mike Isaac, All Things D, accessed October 25, 2013, http://allthingsd.com/20130927/twitter-to-double-its-european-hq-ranks/.
16 “Top Internet Markets FAQ,” export.gov, accessed October 25, 2013, http://export.gov/sellingonline/eg_main_020794.asp.
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