EXPORTING ESSENTIALS: SELLING PRODUCTS AND SERVICES TO THE WORLD SUCCESSFULLY (2014)
Chapter 6. Preparing Your Service for Export
Laughter is America’s most important export.
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 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.
According to the Wall Street Journal, “Nearly a third of all U.S. exports this year  will be services—everything from higher education to software to tourism. In 2013 America ran its 20th consecutive surplus in services trade with the rest of the world, a record $231.3 billion driven by a record $699.4 billion in services exports according to the Bureau of Economic Analysis.”1 During the next five years, 87 percent of world economic growth is forecasted to take place outside of the United States, according to the International Monetary Fund.2 Service exports are vital for high economic growth.
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.
AN EXAMPLE OF A SERVICE EXPORT: HUNTINGTON BANK PROVIDES EXEMPLARY SERVICES
Take Huntington Bank, the winner of the 2013 President’s E Star Award for export service. Presented by the Department of Commerce’s International Trade Administration, the award is the highest recognition any US entity can receive for supporting export activity. Huntington was recognized as demonstrating a sustained commitment to the expansion of exporting by offering manufacturers the ability to finance foreign buyers who want to buy American products. The bank also developed an export-finance capability by actuating its delegated lending authority under the US Export-Import Bank Working Capital Program. Huntington has provided a mix of international services, trade services, and foreign exchange since the mid-1970s. The bank also received the E Star Award in 1982.
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 to the Wall Street Journal, “Services are much more important than hitherto believed. They account for about 40% of international trade on a value-added basis, double the total that shows up in balance-of-payments statistics.”3
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):
High perceived value
Low perceived value
Transportable—negligible freight costs
Negligible human interaction
High human interaction
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, either at home or 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. 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. A service export 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 13] 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?
According to export.gov,4 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. “There is this huge infrastructure boom where these big, fast-growing economies are going to need to build out their roads, sewers, telecommunications networks, factories, airports, harbors, you name it,” says J. Bradford Jensen, an economist at the Peterson Institute for International Economics. “All those projects require armies of architects, engineers, project managers, financial insurers. These are all the kinds of tradable services that we have an advantage in providing.”5
· 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 2.4 billion Internet users worldwide—but that figure represents only about 34 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.
· 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: “Healthcare is a steadily growing industry with an approximate value of $117.4 billion exported from the U.S. in 2011, which has risen almost 26% since 2007,” according to export.gov. “With the recent rapid growth of emerging markets such as Brazil, Russia, India and China there exists a tremendous opportunity for U.S. companies to successfully expand into the international arena.”6
· 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 is the largest single category of service exports within the United States. According to the National Export Initiative, “In 2012, more than 66 million international tourists visited the United States, generating an all-time record of $168 billion in revenue–an increase of 10 percent from 2011. Travel and tourism accounted for 8 percent of all U.S. exports and 27 percent of all service exports in 2012.”7 The 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.
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 athttp://www.trade.gov/mas/ian/referenceinfo/tg_ian_001872.asp#service.
Top Service-Export Destinations by Volume
The Bureau of Economic Analysis indicates the following are the top ten countries receiving the largest amount of service exports from the United States8:
· United Kingdom
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.
WHERE TO GET HELP
The same agencies that can help you get your product-export business up and running can advise you on marketing your service internationally. Start with the US Department of Commerce. If appropriate, it will direct you to export councils, US export assistance centers, or trade-development industry specialists. If, by some chance, these export-specific agencies are unable to help you, ask them for a referral to other government organizations or private-sector companies that have experience in service exports.
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, 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 do. 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:
1. 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 tends 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’ve 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.
2. 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.
3. 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.
4. 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.
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? 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:
1. Create new working relationships. It may take a new working relationship to get your service business underway in another country. For example, in preparation for its upcoming IPO, Twitter is aiming to expand its international footprint. It will use its Dublin location as a main hub for expansion into other European countries and will double its existing workforce of a hundred people by 2014.9 Twitter has even started sending key executives from its San Francisco headquarter office to markets it desires to enter, such as France and Singapore, to spearhead global growth. You should use a similar strategy when you export a product and it is extra important to do in launching a service business: 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.
2. 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.
3. Expand your services to your existing domestic clients that 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.
4. Approach foreign companies operating 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.
5. 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.
6. 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.
7. 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/store/), 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!
INTERNET MARKETS SUPPORTED BY GOVERNMENT
Here is a listing of Internet markets where commercial service officers can help guide you in Internet sales. What this means is that if you have a service export, you can receive greater support in each of these countries via the Internet10:
· Czech Republic
· South Korea
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.
Next, let’s take a look at one of the most important topics in the book: how to find customers outside of your country.
1. “The Free Trade Way to Job Growth,” accessed October 23, 2014, http://online.wsj.com/articles/matthew-j-slaughter-the-free-trade-way-to-job-growth-1412250623.
2. “NUSACC: Trade Outlook, accessed October 29, 2013, http://www.nusacc.org/knowledgebase/tradedata-tpid=14&stid=26,27&pid=192.php.html.
3. “The Red-Tape ‘Spaghetti Bowl’ Hurts Trade: One Country Producing a Good from Start to Finish for Export? The Idea Is Obsolete,” Razeen Sally, Wall Street Journal, last modified May 28, 2013,http://online.wsj.com/news/articles/SB10001424127887324310104578509103306337848.
4. “Chapter 9: Exporting Services,” access date October 29, 2013, http://export.gov/basicguide/eg_main_043087.asp.
5. “Should the U.S. Focus on Exporting Services?,” New York Times, New York Times, last modified April 11, 2012, http://india.blogs.nytimes.com/2012/04/11/some-urge-u-s-to-focus-on-selling-its-skills-overseas/.
6. “Health Technologies,” export.gov, accessed October 25, 2013, http://export.gov/industry/health/.
7. “Fact Sheet: National Export Initiative,” Commerce.gov, United States, Department of Commerce, last modified May 24, 2013, http://www.commerce.gov/news/fact-sheets/2013/02/19/fact-sheet-national-export-initiative.
8. “Cross-Border Trade in 2012 and Services Supplied Through Affiliates in 2011,” US Department of Commerce, Bureau of Economic Analysis, U.S. Trade in Services (PDF file), accessed October 29, 2013,http://www.bea.gov/scb/pdf/2013/10%20October/1013_international_services.pdf.
9. “Twitter to Double Its European HQ Ranks,” Mike Isaac, All Things D, accessed October 25, 2013, http://allthingsd.com/20130927/twitter-to-double-its-european-hq-ranks/.
10. “Top Internet Markets FAQ,” export.gov, accessed October 25, 2013, http://export.gov/sellingonline/eg_main_020794.asp.