Airplanes and construction equipment often grab the spotlight in discussions about American exports. While manufactured things are an important part of the international trade equation, so is the export of services.
In fact, service exports play an important role when it comes to global expansion from the United States. The service sector includes all private-sector economic activity other than agriculture, mining, construction and manufacturing, according to the U.S. Department of Commerce.
While each service industry is governed by its own rules and regulations, four ways for U.S. service providers to establish a growth strategy for new markets include working with partners, subcontracting, opening a branch office and selling remotely via e-commerce.
1. Find a Partner
While some service companies may benefit from a direct affiliation with a foreign company, Ed Marsh, an export advisor, recommends considering an agent, representative or joint venture relationship.
A local partner will already have knowledge of the applicable regulations and restrictions, as well as key influencers, potential clients and competitors. But, says Marsh: "The best local partners aren't looking for new partnerships—they're busy."
Marsh, who runs Consilium Global Business Advisors, says one the best ways for a U.S. company to find a partner is to create an attractive business opportunity in a local market. "If you do that a couple of times," he says, "you'll get a great list of local referrals, and you'll also be able to approach potential partners with a legitimate business opportunity, not just a pitch."
Service companies interested in finding potential partners also should consider attending international trade shows in the United States and overseas, which can be searched on the Trade Show News Network. Another avenue for meeting international buyers is through international trade missions, which are often led by state trade officials or industry associations.
2. Identify Subcontracting Opportunities
Subcontracting is another proven export strategy for U.S. service providers. But going after subcontracting opportunities requires market research and a good understanding of what potential partners need.
Marsh says one good way to find subcontracting opportunities is to look for U.S. companies with contracts to do international work for the U.S. government. Similar opportunities exist by piggybacking on multinational corporate procurement projects.
Before entering into a subcontracting agreement, it is important to understand the laws and regulations that will govern both the contract and the job itself. This includes defining which country's laws will govern the contract. Getting advice from an experienced international attorney is an essential step in this process.
3. Open a Branch Office or Franchise
According to a report from the U.S. International Trade Administration (ITA), U.S. businesses and franchises offer expansion opportunities in new markets all over the world, supporting job creation and increasing the export of American products and services.
When deciding which global markets to target for a franchise or branch office, it is important to consider factors such government regulations, available labor force, infrastructure and demand in the host country. Important issues to explore include regulatory requirements, restrictions on joint ventures, local sourcing requirements and potential currency transfer issues, according to the report.
The best local partners aren't looking for new partnerships—they're busy.
—Ed Marsh, owner, Consilium Global Business Advisors
But rather than opening an overseas office, Marsh says American companies should start by selling directly from their U.S. base. "For a more permanent presence," he says, "which often carries substantially more complex obligations for reporting, withholding and filing, a representative office provides a simple point of entry."
4. Use E-Commerce to Sell Worldwide
The rise of the internet has fueled an increase in service exports related to information and communications technology. "E-commerce can provide service exporters several advantages," says Marsh. "In addition to well-optimized, aggregated SEO reach into otherwise difficult-to-penetrate markets, platforms may well also incorporate technology to facilitate payment and foreign currency considerations. E-commerce can also enable even sole proprietors to reach buyers in numerous international markets."
In addition to digital services, supply chain and professional service providers are among the new breed of American service exporters. Digital and internet services include cloud computing, software and applications, advanced communications services and media and entertainment. Professional and business services encompass areas such as education services, professional services and management consulting.
The Internet Association estimates that internet-related digital exports exceed $66 billion a year. According to the association, international trade in digital goods and services has increased steadily over the past 15 years, and mirrors the rise of the internet as a major economic sector.
According to J. Bradford Jensen, a professor at Georgetown University's McDonough School of Business, and a leading expert on services exports, while 25 percent of U.S. manufacturers export, only 5 percent of eligible service businesses are exporting.
But, Jensen notes, in today's global economic ecosystem, "services that can be delivered digitally face very different challenges than those that require a physical presence—either because of the nature of the service, or domestic regulations that require a commercial presence."
Still, export opportunities are waiting for U.S. service providers who do their homework when it comes to finding potential partners and new opportunities in international markets. From travel and tourism to environmental services, American exporters can capitalize on growing demand for their expertise and know-how.
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