Exporting: Service Exports

The United States leads the world as the premier producer and exporter of services. As the largest component of the U.S. economy, the services sector includes all economic activity other than agriculture, mining and manufacturing. The service sector accounts for about 80 percent of GDP and private nonfarm employment (over 81 million jobs).

Looking into the future, the service sector looms ever larger in the U.S. economy. This services-driven business expansion is overwhelmingly led by small, entrepreneurial firms, those firms employing fewer than 500 employees. Small services companies account for more than 41 million jobs. Although small services firms comprise most of the service sector, many of the most prominent U.S. services exporters are large firms. Seven of the thirty companies that comprise the widely cited Dow Jones index of industrial stocks are services firms.

The dominant role that services play throughout the U.S. economy translates into leadership in technology advancement, growth in skilled jobs, and global competitiveness. U.S. services exports more than doubled over the last ten years - increasing $135 billion since 1987, and $84 billion since 1990.

In 1996 U.S. services exports exceeded imports by $80 billion offsetting 42% of the deficit in merchandise trade. U.S. services compete successfully worldwide. Major markets for U.S. services include the European Union ($70 billion in 1996 exports), Japan ($35 billion), and Canada ($20 billion). At $8 billion, Mexico is presently the largest emerging market for service exports. Services exports support millions of high quality U.S. jobs - 3.5 million in 1994 according to recent estimates - and play a key role in U.S. economic growth.

Typical Service Exports
Exporting of Services
Marketing Services Abroad
Government Support for Service Exports
Related Information

Typical Service Exports

A fundamental shift has been taking place in the world's economy over the past 25 years for most developed economies and multinational firms. While economic well-being will always be closely linked to the efficient production, consumption and trade in goods, it is also increasingly being determined by the productivity, application, and utilization of information, as well as less tangible services - either throughout the industrial process, or as a separate activity. In global trade, many of the industries in which the United States maintains a strong competitive lead are accompanied by sophisticated sales support. The following sectors have grown most rapidly from technology development and have particularly high export potential:

  • Travel and tourism. The largest single category within the U.S. service sector involves, quite simply, all businesses involved in its related services. Recreational and cultural services are also included. The industry is diverse and includes services in transportation, lodging, food and beverage service, recreation, purchase of incidentals consumed while in transit, and traveling on commercial airlines.

  • Transportation services. This sector includes aviation, ocean shipping, inland waterways, railroads, trucking, pipelines, and intermodal services as well as ancillary and support services in ports, airports, railyards, and truck terminals. It is the indispensable service for international trade in goods moving all manufactured, mining, and agriculture products to market as well as transporting business and leisure travelers around the world.

  • Architectural, construction, and engineering. The vast experience and technological leadership of the U.S. construction industry, as well as special skills in operations, maintenance, and management, frequently give U.S. firms a competitive edge in international projects. Some U.S. firms with expertise in specialized fields, such as electric power utilities, also export related design, construction, and engineering services.

  • Education and training services. Management training, technical training, and English language training are areas where U.S. expertise remains unchallenged. The export market for this training is almost limitless, encompassing most industry sectors, both products and services.

  • Banking, financial, and insurance services. U.S. financial institutions are very competitive internationally, particularly when offering account management, credit card operations, and collection management. U.S. insurers offer valuable services ranging from underwriting and risk evaluation to insurance operations and management contracts in the international marketplace.

  • Entertainment. U.S. filmed entertainment and recorded music have been very successful in appealing to foreign audiences. U.S. film companies license and sell rights to exhibit film in movie theaters, on television, and on videocassette. U.S. music has been successful in both English-speaking and non-English-speaking countries.

  • Information services. This sector includes companies which generate, process, and export electronic commerce activities such as e-mail, funds transfer and data interchange, as well as data processing and network services, electronic information services, and professional computer services. The United States leads the world in marketing new technologies and enjoys a competitive advantage in computer operations, data processing and transmission, online services, computer consulting, and systems integration.

  • Professional business services. This sector includes accounting, advertising, legal, and management consulting services. The international market for these services is expanding at a more rapid rate than the U.S. domestic market. Organizations and business enterprises all over the world look to U.S. firms, as leaders in these sectors, for advice and assistance.

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Exporting of Services

Services can be crucial in stimulating product exports and are critical in maintaining such transactions. Many U.S. merchandise exports would not take place if they were not supported by service activities such as banking, insurance, and transportation.

There are, however, many obvious differences between services and products. Some aspects that differentiate the exporting of services from products include intangibiliy and customer involvement. Since services are less tangible than products, communicating a service offer is much more difficult than communicating a product offer. Also, services frequently must be tailored to the specific needs of the client. This adaptation often necessitates the client's direct participation and cooperation. The involvement of the client requires the service provider to possess interpersonal skills and cultural sensitivity.

The intangibility of services makes financing somewhat more difficult, given that no form of collateral is involved, and financial institutions may be less willing to provide financial support. However, there are many public and private institutions that provide financial assistance to credit-worthy service exporters. Trade organizations offer two important finance services under various terms and conditions that are extremely valuable financing tools. One is a guarantee program that requires the participation of an approved lender, while another program provides loans or grants to the exporter or a foreign government. Exporters who insure their accounts receivable against commercial credit and political risk loss are usually able to secure financing from commercial banks and other institutions at lower rates and on a more liberal basis than would otherwise be the case.

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Marketing Services Abroad

Since service exports may be delivered in support of product exports, a sensible approach for some beginning exporters is to follow the path of complementary product exports. For years, many large accounting and banking firms have exported by following their major international clients abroad and continuing to assist them in their international activities. Smaller service exporters who cooperate closely with manufacturing firms are operating internationally and aim to provide service support for these manufacturers abroad.

Also, a services firm may seek affiliation with a foreign firm in which opportunities exist. An agent, representative, or joint venture relationship could prove beneficial to the U.S. services firm. An indigenous services firm already has a knowledge of the various aspects of marketing in that country; i.e., regulations, restrictions, as well as the primary players, e.g., potential clients, competitors, etc. The indigenous firm will also have market research, exposure, and contacts that can be used to the advantage of the U.S. services firms.

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Government Support for Service Exports

The Service Industries and Finance offices of the U.S. Department of Commerce provide assistance to small and medium-sized U.S. service firms interested in exporting. For more information on how they and other U.S. Government entities can assist your firm, contact them directly at 202-482-3575 (U.S. Department of Commerce, Office of Service Industries and Office of Finance, Room 1124, Washington, D.C. 20230).

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More about Exporting:
Introduction
Developing an Export Plan
Developing a Market Plan
Export Advice
Methods/Channels
Making Contacts
Technology Licensing /Joint Ventures
Preparing Your Product for Export
Service Exports
International Legal Considerations
Shipping Your Product
Pricing, Quotations, and Terms
Methods of Payment
Financing Export Transactions
Selling Overseas
After-sales Service