Laughter is America’s most important export.
—Walt Disney
Exporting servicessomehow doesn’t seem as impressive as putting big things on ships and sending them abroad. It also may not create the kind of broadly shared prosperity that exporting manufactured goods can. But for now, it seems to be where the U.S. has a comparative advantage—and we should probably do whatever we can to maintain that.
—Justin Fox i
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 global importer and 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.
When it comes to services—such as travel, banking services, royalties, legal advice and education of foreign students—we export far more than we import. In each of the past five years, our surplus in services has exceeded $200 billion. ii
Services are important because they account for most of the world economy and are steadily growing. Since 2000, their share of global output has expanded from 67 percent to 71 percent, while industry and agriculture have shrunk. iii
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. iv
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.
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 Doris Nagel , President of Blue Sky Consulting Services , “Service[s] 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.” v
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 industri es 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, both at home and 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?
The following highly skilled and specialized services offer infinite export opportunities because they are in demand worldwide :
Architectural, construction, and engineering services: This sector requires special skills in operations, maintenance, and management with expertise in specialized fields, such as electric power utilities, construction, and engineering services.
Financial services: These services include banking, insurance, securities, leasing, and asset management. US financial institutions, for example, are very competitive internationally, particularly when offering account management, credit card operations, and collection management.
Commercial, professional, technical, and business services: This sector encompasses accounting, advertising, public relations, design, and legal and management consulting services. The international market for those services is expanding at a more rapid rate than the US domestic market. It is estimated that there are already 3.4 billion Internet users worldwide—but that figure represents only about 46.4 percent of the world’s population.
Education and training services: Management training, technical training, and English language training are areas in which US expertise remains unchallenged.
Entertainment and media: Films that are made in the United States and music that is recorded in the country have been very successful in appealing to audiences worldwide.
Tip
According to the Wall Street Journal, there’s a bright spot for U.S. service exports. For example, when U.S. travelers spend abroad, that’s counted as an import. When nonresidents spend in the U.S., that’s an export, and U.S. exports of services are hitting record levels. vi
Environmental services: The United States is the largest producer and consumer of environmental technologies in the world. Environmental technologies are generally defined as the goods and services that generate revenue on the basis of environmental protection (pollution), assessment, compliance with environmental regulations, pollution control, waste management, design and operation of environmental infrastructure, or provision and delivery of environmental resources.
Healthcare technologies: Healthcare technologies “can be best described as the use of a suite of products and services designed to improve and coordinate patient care, address growing health costs, and confront the long-term burden of disease through the use of technology ” vii
Retail and wholesale trade: The wholesale trade sector is made up of establishments engaged in wholesaling merchandise. The retail trade sector comprises establishments engaged in retailing merchandise and may include integral functions such as packaging, labeling, or other marketing services.
Supply chain and distribution: The United States wants to secure a more efficient and integrated approach to supply chain issues, which will involve leveraging the capabilities and resources of the US distribution network to bring competitive service offerings to other world markets.
Telecommunications and information services: The United States leads the world in marketing new technologies and enjoys a competitive advantage in online services, computer consulting, and systems integration. This sector includes companies that generate, process, and export e-commerce activities, such as e-mail, funds transfer, and data interchange, as well as data processing, network services, electronic information services, and professional computer services.
Travel and tourism: This industry is diverse and encompasses services in transportation, lodging, food and beverage, recreation, and purchase of incidentals consumed while in transit.
Transportation, shipping, distribution, and logistic services: This sector encompasses aviation, ocean shipping, inland waterways, railroads, trucking, pipelines, and intermodal services, as well as ancillary and support services in ports, airports, rail yards, and truck terminals.
Figure 14-1 is a graphic depiction of the growth of commercial services by main sector, 1995-2014.
Figure 14-1. viii Growth of commercial services by main sector, 1995-2014 (Sources: WTO-UNCTAD-IT estimates).
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#P51_7855 .
Top Service-Export Destinations by Volume
The Census Bureau indicates the following are the top ten countries receiving the largest amount of service exports from the United States: ix
Canada
United Kingdom
Japan
China
Saudi Arabia
Mexico
Germany
South Korea
Brazil
France
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.
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 and 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. 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 :
Government: Red tape, bureaucracy, bribes, infringements of copyrights, trademarks or patents, and special rules that only the natives seem to know about—these are just a few of the government-generated barriers you’ll encounter. For example, you might discover that your target market has a labor regulation stating that whenever there is a locally funded project, local experts must be hired for any specialized services that are required. Or there might be restrictions aimed at a specific industry, like accounting, which tend to rule out foreign participation. Sometimes you will make dozens of solicitations that will go unanswered—and you’ll never know why. The most notorious barrier is the governmental regulation that locals never comply with even though, for some reason, they’re never caught. However, when you try to export, the regulation is enforced just rigorously enough to leave would-be exporters out of the trade loop. These slippery, elusive protectionist practices are very real, and they may well end up compelling you to take your business elsewhere.
Local practice and custom: Before you export your service, you must conform to global industry standards. If your service depends on scientific accuracy, for example, you need to perform any calculations using metric measurements and notation. If you don’t, your proposal might get ignored because of your lack of compliance with local practices. Presenting your proposal in the local language is an obvious necessity if you want it to be read and understood. If you don’t know the language, hire someone who does and get a high-quality translation.
Cultural differences: Sometimes differences between the types of media used in different cultures can present barriers if not used in a way valued by the other culture. Look closely at the photographs and print copy for an advertising campaign you are about to launch abroad, examine the materials you are about to use for an interior design project, and think through the pictures you have selected for your client’s Web site. Are any of these items offensive in any way? If they are, then edit accordingly. If you don’t know, find out from someone who does before you implement the service package.
Economic: One surefire giveaway that your target country is economically unstable is the situation where you are locked solidly into a deal and then find out that your customer is slow to pay or doesn’t pay at all! Also, watch out for infrastructure factors that may apply in another country, such as astronomical prices for land, making it impossible to start a building project; undrinkable water, making it impossible to open up a tourist bar; or electrical service that is so scant and unreliable that additional power generators are needed to keep things running smoothly. All these factors present very serious barriers for your service business.
Labor market issues. While sectors other than services are typically capital intensive, the service industry is heavily reliant upon human capital. As a result, labor and skills issues (shortages, for example) can have a significant effect on the services sector, and thus on its ability to export.
Investment. Government policies affect investment decisions, particularly in highly regulated industries such as healthcare, financial, and environmental. If not designed and administered effectively, regulatory pacts could present barriers to investments needed to support services exports.
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:
Create new working relationships. It may take a new working relationship to get your service business underway in another country. Find out who’s already operating where you want to be, see what they can do for you, and figure out how you’re going to make it an attractive proposition. Start by defining what you can share in terms of resources and what sort of partner you want. Look for individuals with a strong record of innovation and skills that can be combined with your own to create new opportunities.
Consider an acquisition, joint venture, partnership, or franchise. You can purchase, jointly own, partner with, or assign rights to a company that is operating in a country where you wish to do business. Discuss with your tax and legal advisors. If you can’t work out one of these relationships, try working for the company as a consultant first, and then attempt to obtain an equity stake.
Expand your services to your existing domestic clientsthat have a global presence. One of the simplest ways to get a foothold in international markets is to follow your local customers to their international branch offices instead of starting an independent base of operations from scratch. It means a lot less risk for you, especially financial risk. If you’d like to try this route, find yourself a good confidant within a firm for which you are serving as a consultant. He can notify you well in advance of any future projects that may involve crossing national boundaries.
Approach foreign companiesoperating in the United States. If you have not yet performed a service for a global conglomerate, look for one that can take you where you want to go. If it has a presence in the United States, it is highly likely that it has already selected other foreign sites for further expansion.
Learn the language of your target market. You will have an incalculable advantage if you already speak your prospective customers’ native tongue. You can at least be sure they will understand you! Try marketing your expertise in the area where your parents or grandparents were born. If you mention your ancestral ties to a prospective client, it may enhance her comfort level with you and make her more receptive to your solicitation.
Seek representatives or agents. Look for local professionals who perform a similar but noncompeting service, train them, and then hire them on a consultancy basis. Make sure your expertise adds value to their service package and vice versa—perhaps you can offer their specialization to your customers in the United States. It can be a global-sales and profit booster for you both as well as a relatively simple and inexpensive program to launch.
Become a virtual consultant (also known as teleconsultant). Market your knowledge and skills via telecommunications such as e-mail, Skype, Twitter, business apps, or the Internet. Don’t dismiss any medium as obsolete—each has its own place in the business of global interaction and each will enhance your power to communicate, making you more efficient and responsive to your global customers. And don’t forget to use digital platforms for marketing. For example, design yourself a Web site where private individuals as well as companies can read all about your service. Anyone who responds is a potential client!
An Example of a Service Export: A Wildflower-Nursery Business that Also Exports a Service
Neil Diboll runs Prairie Nursery ( http://www.prairienursery.com ), 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.
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:
Specialize, specialize, specialize. Find a type of service only you can deliver, enter a single market, and deliver it with a vengeance. Even if your customers have never heard of your service, make sure they see how they’ll benefit from it. Don’t just keep pace; be ahead of your time and ahead of the pack.
Secure sufficient working capital to keep you operating over the long haul.
Once you have staked out your territory, get the quickest, most extensive marketing exposure you can (reach out to key influencers—bloggers, Twitterers, and Facebookers alike who carry a huge fan base—via social media platforms).
Use technology and rapid, inexpensive communications (e-mail, Facebook, LinkedIn, Google+, Twitter, Instagram, and Pinterest) to your optimal marketing advantage.
Do whatever it takes to protect your copyright, trademark, or other intellectual property related to your service package.
Even if your core business is in exporting products, consider developing a multifaceted export package involving both product and service components (such as Prairie Nursery does, as we saw earlier). This will enable you to create cost efficiencies and immeasurable added value for your customer.
Once you have a hot export product and a customer lined up, take it a step further and offer your other resource: a marketing campaign geared to the local market to jump start your customer’s sales of your product! Sound complicated? Sure, it will take some more R&D, but it will give you the creative edge you’ll need to keep ahead of the competition and move freely within the world economy of the future.
Don’t forget about profitability. The biggest hurdle is usually that. Choose a business model that will work in the real world, move fast, and monitor the inflow of money. You want to dominate the market before your competitors do. When you are burning cash, you are at the mercy of others. When you are not, you are in control of your destiny.
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.
Notes
“What the US Exports to the Rest of the World,” Justin Fox, accessed April 3, 2016, https://www.ajot.com/news/what-the-u.s.-exports-to-the-rest-of-the-world-justin-fox .
“What Trump and Sanders Get Wrong on Trade,” Steve Chapman, Real Clear Politics, access date April 3, 2016, http://www.realclearpolitics.com/articles/2016/04/03/what_trump_and_sanders_get_wrong_on_trade_130172.html .
Ibid.
“5 Things You Should Know About Service Exports,” Doris Nagel, LinkedIn, access date April 3, 2016, https://www.linkedin.com/pulse/5-things-you-should-know-service-exports-doris-nagel .
Ibid.
“There’s a Bright Spot for U.S. Exports (Hint: It’s Not Goods),” Jeffrey Sparshott, November 4, 2015, accessed April 10, 2016, http://blogs.wsj.com/economics/2015/11/04/theres-a-bright-spot-for-u-s-exports-hint-its-not-goods/ .
“Healthcare Technologies Resource Guide,” Export.gov, access date April 10, 2016, http://export.gov/industry/health/healthcareresourceguide/index.asp#P24_1438 .
“International Trade Statistics 2015,” World Trade Organization, access date April 3, 2016, https://www.wto.org/english/res_e/statis_e/its2015_e/its2015_e.pdf .
“U.S. Trade in Services by Selected Countries and Areas,” Census.gov, accessed April 10, 2016, https://www.census.gov/foreign-trade/Press-Release/2016pr/02/exh20b.pdf .
“Internet Users: Top 20 Countries, Internet World Stats, access date April 10, 2016, http://www.internetworldstats.com/top20.htm .