If one looks at many key metrics in a business, there is often a minority creating a majority.
Many executives know of the sales & marketing adage known as the Pareto Principle, which claims that about 20 percent of customers produce 80 percent of a company’s sales.
In fact, the 80/20 principle is also applied to disparate activities such as relationships, diets, exercise, distribution of wealth, quality control, software, economics and other interesting sectors of our day-to-day life.
However, in Canada’s case the reverse is true. In addition, services-producing industries account for more than 70 percent of Canada’s GDP.
Making a case for services
In spite of the growing importance of the service sector, the government’s economic reports still concentrate their statistics on manufactured goods.
Statistics Canada describes Canada’s economy as one “divided into two sectors: the goods-producing sector which makes tangible products, and the services-producing sector which is essentially everything else”.
One of the reasons for the catch-all phrase “everything else” is that services are intangible and cannot be easily identified or tracked, therefore making them more difficult for statisticians to trace.
Manufactured goods such as medical and sporting equipment, metal products, petroleum/electronic/computer products, machinery, chemicals, transportation equipment, food, clothing and many other tangible products provide researchers with actual proof of manufacturing and export activity.
These very specific figures are then compared to the competition and become part of Canada’s official statistics.
On the other hand, the “everything else” of the services sector represents intangible activities such as R&D, engineering, telecommunications, financial services, management consulting, insurance, tourism and many others, all of which are almost invisible, untouchable and often very personal.
The impact of services
Apart from the fact that 4 out of 5 Canadians are employed by the services sector, 60 percent of Canada’s fastest growing exports over the last decade were services.
Interestingly enough, un-sexy sectors like finance and insurance services represent Canada’s largest and fastest growing exports today, with management services close behind. Their commonality is that they are all hard to track.
Canada is excelling at selling services
Selling any kind of service is much more difficult than selling a manufactured product. Goods can be touched, tested and physically compared to the competition, while a service often cannot even be seen.
It is based almost totally on the perception or the promise created at first contact, and only later on the service delivered.
In addition, while selling services in one’s own home market can be difficult, the challenge of selling Canadian services in foreign markets is even greater.
In an international situation, the service is being sold by a Canadian to a potential foreign client who speaks another language and follows different business standards and traditions.
Convincing that potential client that a Canadian concept, idea or service would work better than what is readily available in the client’s home turf is often a major undertaking.
In spite of these hurdles however, Canada seems to excel at selling services internationally, since service exports now account for 44 percent of the nation’s international trade.
Furthermore, over the last decade, 3 of Canada’s 5 fastest growing exports were services exports.
Not the end of manufacturing
Manufactured goods represent only 30 percent of Canada’s economy, but this is not the end of Canadian manufacturing because services and products are deeply integrated with each other.
Activities like R&D, engineering, telecommunications and management consulting all help to make Canadian products more competitive abroad.
Economists worry about the competition that natural resources and manufactured products exports face internationally, but it is worth noting that with services comprising so many of the country’s fastest growing exports, Canada’s international economic future remains as bright as ever.
Give Canada’s service sector experts their due recognition
The success of the Canadian services sector has gone largely unnoticed, yet it represents Canada’s strongest recent trade growth, while simultaneously protecting businesses against negative economic cycles.
The 4 out of 5 Canadians working in the service sector are helping to keep Canada in the forefront of international trade, and are vital participants in Canada’s expanding global commerce.
They should be recognized for their importance in our economy.