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    Marketing Services: How TPOs Can Help

     

     
     
    © International Trade Centre, International Trade Forum - Issue 4/2005

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    Service exporters face many obstacles. Austrade is finding ways to help businesses overcome them.

    Our experience is that it is not easy to export business and professional services. This doesn't mean that it can't be done. In fact, Australia has some 40 times more firms exporting business and professional services than it did 30 years ago. In 2004 Austrade assisted some 5,000 companies to make export sales. Of these, 369 were from the business and professional service sectors. If we stretch the definition to include the information and communications technologies sector and the building and construction sector, the figure rises to 913 companies… or about 20% of the total.



    For me, the interesting thing is that more companies in these sectors are not really attempting to export. In Australia we have approximately 120,000 companies in these sectors. Yet maybe around 3% of them are exporting. Why is this? Austrade has identifi ed a number of issues that commonly act as barriers to services exporting. We think other countries will recognize the same problems.



    The issues



    • Scale. Most of the business and professional service fi rms in my country are small. In fact 83% of them are micro companies (with fewer than fi ve employees) or they are self-employed.


    • "Why do it over there when you can do it here?" This comment summarizes the views of most of our professional service companies. If they can make a comfortable living working in the domestic market, where is the incentive for them to seek work off shore in an unknown environment?


    • You can't send samples. If you are exporting automo- bile accessories or coff ee, you can send samples and these can be tested, assessed and compared by the potential buyers. But if you are exporting professional services, buy- ers don't really know the quality of what they are getting until they have received them.


    • Reputation. People tend to buy professional services based on the reputation of the supplier. And reputations are very hard to establish and very fragile.


    • Relying on word of mouth for marketing. This applies both onshore and offshore. But it is probably more difficult to make the translation to an international domain than it is domestically.


    • Recognition of qualifications. Professional qualifications that allow you to practise law, dentistry, medicine or accounting in your home country are very often not recognized by other countries unless you go through complex testing and admission procedures (and possibly not even then).


    • Capacity to do only a part of the whole job. Typically companies have to find niche opportunities or they have to be subcontractors to the larger firms who can tender for the big projects.


    • Financial risk. When you are working in a foreign country where the legal systems are unfamiliar, where your partners may be untested, where the political regime may be unstable, where business practices are unfamiliar, etc., then the financial risk is magnified.


    • Language/cultural skills. Case studies that worked at home may not translate easily into a foreign business environment.


    • Very short-term contracts. A professional service consultant may find a job that lasts a few weeks and then they have to find another one. This is very difficult for them. And it is very difficult for a trade promotion agency to keep finding new relevant opportunities.


    • Difficulty getting finance. Business and professional services generally do not require a lot of capital. This is one of the advantages. But it's also a drawback when you need a line of credit so that you can undertake a lengthy service contract. The banks don't want to know people who rely on their wits or what's in their head as their main asset.


    • Difficulty getting paid. To resort to the legal system of the foreign country may be prohibitively expensive and legal systems are notoriously to the advantage of the locals.


    • Access and visa issues. Hand in hand with the difficulty of having professional qualifications recognized comes the difficulty of getting a work permit and/or a visa to operate within a foreign country.


    • Loss of intellectual property. We have many examples of companies who have given copies of their training manuals, methodology and plans before signing any contracts. And have thus lost their intellectual property without any compensation. Even where there is copyright, trademark and patent protection, it can be difficult and expensive to pursue the infringers.


    • Difficulty finding the opportunities. From the perspective of our overseas trade posts, it is easier for them to concentrate on the traditional areas or merchandise - where import and distribution channels are easily identified.


    What can firms do?



    There are a variety of ways to export professional services. We tend to think of professionals travelling to a foreign country and selling their services as a consultant. (Mode 4 in the General Agreement on Trade in Services (GATS) terms.) But businesses sell many such services at home to non-residents. Some legal and medical services fall into this category. (This is Mode 2 in GATS terms.)



    Some services require an on-the-ground presence. Banking and advertising services, for example, generally require offices close to the clients. This is a Mode 3 export in GATS terms, i.e., when you have (or control) an entity in a foreign country. We have recently completed the first-ever study of such overseas investment by Australian firms and discovered that the sales by offshore affiliates of service companies are twice the size of all the other, traditionally measured service exports. And the single largest sector by far is financial and business services.



    It illustrates the importance of measuring and having a good understanding of service trade statistics. The actual flow of wealth back to Australia has not been measured and may be virtually impossible to measure, but I estimate on the basis of some "back of the envelope" calculations that it is probably about 10% per year of total sales by the overseas affiliates.



    Trading services across borders



    Business services can also be traded across borders, as with the sale of franchises or the delivery of software across borders. And some architects can organize their work so that much of it is delivered over the Internet and they can stay at home and still work with their clients via the Internet. This is a Mode 1 service export in GATS terms.



    One way of getting around the problem of scale is for individuals to join together. The large international legal firms and the large international accounting firms have tried and tested this technique of partnerships over a long period and managed to make it work extremely effectively.



    Word of mouth and TPOs



    Word-of-mouth marketing internationally: the first principle is just to be very good at what you are doing. The second is to get exposure - via international conferences, publications, formal and informal networking, etc. And to network effectively: following up correspondence, staying in touch, etc. Then when an opportunity does arise, they think of you. Sometimes it means taking on unprofitable work for a period to establish a reputation. Or doing something for free. (Somewhat like the samples that merchandise exporters can provide.)



    Perhaps the greatest help that we, as a trade promotion organization (TPO), have been able to deliver to these sectors is with the introduction of relevant potential business partners. And the other major assistance that we have been able to give is in raising awareness about the possibilities of exporting by using real-life cases.





    Lloyd Downey is National Manager for Service Exports in Austrade, Australia's trade promotion organization. This article is an edited version of Mr Downey's presentation to ITC's 2005 Executive Forum on National Export Strategies.