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:
- 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
- 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?