In This Chapter:
The United States is the world’s premier producer and exporter of services. As the largest component of the U.S. economy, the service sector includes all private-sector economic activity other than agriculture, mining, construction, and manufacturing. The service sector accounts for nearly 80 percent of the private-sector gross domestic product (GDP) and for 90 million jobs.
In the future, the service sector will loom even larger in the U.S. economy. Small and medium-sized entrepreneurial firms—those employing fewer than 500 employees—overwhelmingly lead this service-driven business expansion. There are more than 4 million small service companies that account for more than 16 million jobs. Although small service firms make up most of the service sector, many of the most prominent U.S. service exporters are large firms. Seven of the 30 companies that constitute the widely cited Dow Jones Industrial Average are service 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. service exports more than doubled between 1990 and 2000—increasing from $148 billion in 1990 to $299 billion in 2000. Growth continued to $404 billion in 2006.
In 2004, U.S. service exports exceeded imports by $80 billion, offsetting 10 percent of the deficit in merchandise trade. U.S. services compete successfully worldwide. Major markets for U.S. services include the European Union ($140 billion), Japan ($41 billion), and Canada ($39 billion). At $22 billion, Mexico is the largest emerging market for U.S. service exports.
The following sectors have grown most rapidly because of technology development and have particularly high export potential:
Services can be crucial in stimulating goods exports and are critical in maintaining those 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 many obvious differences between services and products, including differences in tangibility and customer involvement (see Box 9.1). Because services are intangible, you may find that communicating a service offer is more difficult than communicating a product offer. Also, services frequently must be tailored to the specific needs of the client. Such adaptation often necessitates the client’s direct participation and cooperation. Involving 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 to your company. However, many public and private institutions will provide financial assistance to creditworthy service exporters. Trade organizations offer two important finance services under various terms and conditions. One is a guarantee program that requires the participation of an approved lender; the other 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.
Because service exports may be delivered in support of product exports, you might find it sensible 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 those manufacturers abroad.
Also, your service firm may seek affiliation with a foreign firm. An agent, representative, or joint venture relationship could prove beneficial to your firm. An indigenous service firm already has knowledge of the various aspects of marketing in a particular country, such as regulations, restrictions, primary participants, potential clients, and competitors. The indigenous firm will also have market research, exposure, and contacts that you can use to your advantage.
The Manufacturing and Services unit of the Department of Commerce’s International Trade Administration provides support to U.S. services exporters by conducting policy research and industry analysis, coordinating advisory committees, and advocating for U.S. interests in trade negotiations. More information is available on the Web at http://trade.gov/mas. The U.S. Commercial Service, through the network of domestic U.S. Export Assistance Centers, provides counseling and assistance to services exporters. For more information, call the Trade Information Center at 1-(800)-USA-TRADE (1-800-872-8723) or go to the U.S. government export portal, www.export.gov.
FACT: More than two-thirds of U.S. small and medium-sized exporters are non-manufacturers.
INSIGHT: You don’t have to be a manufacturer to export.
FACT: In the coming decade, the service sector is forecast to account for almost all net gains in U.S. employment, with small, medium-sized, and large companies all playing key roles in capital formation, business expansion, and new jobs.
INSIGHT: Small firms make up most of the service sector, and small service firms will play a vital role in job growth.