GOVERNMENT SUPPORT

Becoming known as a supplier of quality services

There is still a perception that developing countries (especially least developed countries) do not export services - other than perhaps tourism. Several strategies can help:

• Issuing official communiqués highlighting services exporting and its importance to your domestic economy, including the fact that the export of services often leads to the export of goods.
• Publishing and disseminating of "gee whiz" statistics on the size and dynamism of the services sector and its contribution to foreign exchange earnings.
• Collecting success stories about exporting services for use in public speeches and publications.
• Convening a national conference on services exporting and inviting key foreign firms and members of the international trade press.
• Presenting services exporters on the national website, with frequent updates on achievements.
• As you develop more knowledge about the performance of your national service exporters, you can consider a targeted media awareness campaign so that your services firms become known in the international (as well as the local) trade press

Marketing local suppliers to foreign investors

• Identifying and addressing existing barriers to the use of local service firms
• Benchmarking the performance of domestic service industries against international standards, and publishing the results

Since the ability to develop "local" foreign customers can be so helpful to local service firms in capturing export business in these customers' home markets, efforts to increase use by foreign investors of local suppliers can bring economic benefits. In addition, you are likely to find that, as you strengthen the local business services infrastructure, your economy becomes more attractive to new investors.

Addressing the issue of temporary business entry

The matter of easy cross-border movement is a key issue for service exporters. There are two aspects with which governments can assist. First, there is the matter of how easily domestic service providers can travel abroad. If visas are required, being able to acquire them on-site in the airport upon arrival is much less burdensome than having to acquire them prior to departure. Any initiatives that can reduce the need for business persons to consume valuable hours acquiring travel visas will be a help.

A less obvious area in which governments can be helpful is in facilitating the transiting ability of business persons, especially in countries whose airports serve as regional hubs. When a country requires an entrance visa even of travellers in transit, that country erects a barrier to the ease with which members of business communities can interact. Service firms resident in markets that have no transit visa requirements have the advantage that they can propose that business persons they wish to meet "stop by" when they are travelling in the region. If visas are required, however, such a request becomes burdensome.

Providing relevant export market information

Most governments have some mechanism (such as commercial attachés abroad and export development agencies) for acquiring and disseminating market information in major export markets. Relevant staff need to be briefed on the information needs of service exporters. For example, in addition to traditional market information needs, service exporters usually need to have information on the following aspects of their target markets:

• Temporary business entry requirements
• Leading trade or service industry associations
• The role of government in the provision of services
• Plans to out-source business services
• Requirements in regard to professional credentials
• Options for setting up a mini-office
• The quality of the telecommunications infrastructure
• Cultural factors influencing business practices
• Best ways to meet potential partners

In addition, service exporters will require intelligence on their market's leading service providers.

Providing appropriate export financing

Financial institutions are traditionally very conservative in their lending policies for service firms and will often not take foreign receivables into account in calculating lines of credit. Service exporters face financing challenges at two levels. First, since retained earnings is their primary mode of export financing, any inordinate increases in transaction costs or the cost of capital will reduce the available retained earnings. Sample areas for review include speed of payment on government contracts with the private sector and the lapse of time for the transfer of funds by wire.

Second, to the extent that service exporters need to rely on debt financing, they are constrained by conservative definitions of "collateral" or "security" as their primary collateral is typically accounts receivable. Central banks usually control the definition of what is deemed prudent by way of security for loans. It is helpful to review common practice in regard to the definition of security for service firms and ensure that accounts receivable are acceptable.

Fast-tracking telecommunications development

Because of the importance of telecommunications to the export of services, governments need to review plans for this sector as an export-enabling technology. Service exporters need cost-efficient digitalized infrastructure, accessible throughout the country and with low cost, high speed Internet access.

Accelerating services trade liberalization commitments

In general, experience has shown that a supportive rather than protectionist policy environment is of greater benefit to service exporters. While there may be strategic adjustments needed by local service firms to face increased competition, service firms benefit from pressure in international markets to meet global benchmarks. Also, since a substantial portion of the cost of providing services is attributable to service inputs purchased, the quality and efficiency of those inputs have an impact on overall competitiveness. As a result, some developing country governments are finding that an acceleration of their liberalization commitments brings domestic benefits.

Reviewing/developing policies on services

Economic development initiatives have traditionally focused on the goods-producing sectors, with particular emphasis on manufacturing-led growth. But manufacturing alone cannot be looked to for economic growth because of the increased interdependence between goods production and key intermediate services. Growth in goods-producing sectors is facilitated or constrained in part by development of intermediate services. At a minimum, increased goods production will require additional support from traditional intermediate services such as transportation, finance, and merchandise insurance. The presence of a "service sector" policy can help ensure that scarce development resources are allocated most effectively.

One of the challenges for governments is to determine what aspects of public policy have an impact on the economic benefits to be gained from service sector development and the enhanced performance of service exporters. A few of the principles that have emerged from the work programmes of various governments that have examined service sector policies are listed below:

• Ensure a basically industry-neutral approach in policy development, with current incentives or supports for goods producers extended to service producers (e.g., tax credits, depreciation allowances).
   
• Ensure a size-neutral approach that does not stipulate lower limits on qualifying for export assistance, recognizing that very small service firms can compete globally (often with strategic allies).
   
• Ensure a configuration-neutral approach so that incentives are available for individual firms or consortia of firms (e.g., support for innovation).
   
• Ensure a location-neutral approach so that firms may operate as home-based businesses or as office-based businesses.

Policy reviews that can help service exporters

Temporary entry requirements for foreign business travellers Protocols with immigration officials about visa requirements in export markets Investment in education & training for workers Investment in computer usage in education & training Investment in competitive telecommunications infrastructure Connectivity requirements (through adoption of international standards) Promotion of registration to international quality standards Discrepancies in incentives for goods and service industries Reduction or removal of taxes and duties on information technology equipment Policy framework and infrastructure for the services sector, including information technology

Including services in national export development plan

Strategies for Government Agencies 

Since the signing of the General Agreement on Trade in Services, global trade in services has been expanding at a rapid rate, particularly in the area of "other services" (such as business and professional services, value-added telecommunications, financial services, health care, education and training, etc.). Developing/transitional economies have led world growth in exporting "other services" and have increased their share of total service exports from 20.1 percent to 28.3 percent.

Average Annual Growth in World Trade: 1990 and 1996 (percentages) - Update this information!

 

Sector	Developing Economies		Developed Economies
Exports	Imports	Exports	Imports	Exports
Goods	10.0	11.1	6.2	5.5
Services:	11.4	8.9	6.0	5.6
Travel	12.2	7.9	4.5	4.6
Transport	8.3	13.3	6.8	5.7
Other services	15.5	9.4	6.9	7.3

Source: Calculated from IMF Balance of Payments data

Often the potential for expanding services exports is overlooked in national export development planning because of inadequate statistics and a lack of familiarity with the export activities of service firms (see Box). There may also be a presumption that the necessary developmental activities are the same for goods and services, which is not the case.

With a further round of services trade liberalization talks beginning by the year 2000, service exporters from developing and transitional economies will face even stronger international competition. This Guide can assist Trade Officers and/or Export Promotion Agencies to support growth in services exports by including the factors critical to the success of services firms in national export development planning.

Reviewing existing export development plans

To determine in general how well your present export development plan supports service exporters, ask yourself the following questions:

• Encourage registration to international quality assurance standards such as ISO 9000.
• Provide training in quality assurance techniques.
• Conduct study tours abroad to expose service firms to the kinds of innovations taking place.
• Supply firms with international benchmarks against which they can compare their performance.

Facilitating services export success

Infrastructure development:
The emphasis on infrastructure for economic development and growth has traditionally focused on physical infrastructure such as roads, bridges, and water. Service firms have different pressing infrastructure needs that centre on access to cost-effective telecommunications including the Internet and flexible financing.

Recommended Actions:

• Ensure internally competitive access to telecommunications infrastructure, including the Internet, especially for firms located outside of the major urban areas.
• Ensure access to appropriately skilled workers, which may mean revising public education curricula to incorporate "employability" skills (such as interpersonal communications, problem-solving, negotiations) and global awareness into the education system.

Policy review:
Because service industries have typically not been the focus of export development, there are often policies in place that inadvertently restrict export growth. The following are some of the areas that may need policy review:

• Restrictions on how service firms, especially professional service firms, can structure themselves (e.g., not allowing incorporation or multi-disciplinary practices).
• Restrictions on what is acceptable as collateral for operating lines of credit or other forms of financing (e.g., refusal to accept accounts receivable).
• Restrictions on the ability of local service firms to bid on government contracts, and consideration of price only rather than technical competence and quality assurance (i.e., a two-envelop system).
• Tax incentives for goods producers that have not been extended to service exporters.
• Competition from government agencies for international contracting by private sector service firms.

Negotiated supports:
Certain barriers to export success can only be removed through government intervention. The following actions can significantly improve export opportunities:

• Negotiate for easy "visa-less" cross-border movement for service providers in major export markets.
• Ensure basic mutual recognition of foreign professional credentials (perhaps initially for restricted areas of practice), based on agreements between professional industry associations. This often requires that federal or sub-federal criteria not directly related to professional competence (such as residency or citizenship) be reviewed and amended.

Promoting services export capabilities

One of the most important ways in which governments can help their service exporters is by increasing the visibility of export success. By contrast, when service export activity is omitted from public speeches and national promotional materials, there is an implicit assumption that no significant service export capability exists.
Recommended Actions:

• Increase the coverage of service firms in exporters directories.
• Collect services exporting success stories to use in public speeches and publications.
• Convene a national conference on services exporting and invite key foreign firms and members of the international trade press.
• Include services exporters on a national website, with frequent updates of new achievements.
• Design and implement a targeted media awareness campaign so that your firms become known in the international (as well as the local) trade press.
• Include service association representatives in meetings with donor agencies in order to raise the profile of local export capability.
• Provide training to commercial attaches in how best to promote service exports.

Foreign investors select markets in part based on perceived access to quality business and professional services and telecommunications infrastructure. Satisfaction of foreign investors with the services of local service firms can result in very positive word of mouth about national capabilities in services. Since the ability to develop "local" foreign customers can be so helpful to local service firms in capturing export business in their home markets, efforts to increase the use of local suppliers can bring economic benefits.
Recommended Actions:

• Identify and address existing barriers to the use of local service firms by foreign investors.
• Provide incentives for the use of local service firms (or the local offices of international service firms).
• Develop a directory of local service firms meeting international quality assurance standards (such as ISO 9000) for distribution to foreign investors and offices of international organizations.
• Benchmark the performance of domestic service industries against international standards, and publish the results.

Providing useful market information

Most governments have some mechanism, whether through commercial attachés abroad and/or export development agencies, for acquiring and disseminating market information in major export markets. It is critical that the information collected include the following data of interest to service exporters:

• Temporary business entry requirements
• Leading trade or service industry associations
• The role of government in the provision of services
• Plans to outsource business services
• Professional credential requirements
• Options for "mini-office" space
• Quality of the telecommunications infrastructure
• Cultural factors influencing business practices
• Best ways to meet potential partners

In addition, service exporters will need information about their main competitors in the market. Market demographics tend to be of less use to service firms, who need to focus on developing credibility for their capabilities, as market possibilities change rapidly.
Recommended Actions:

Develop a process for collecting and disseminating relevant market and competitive intelligence to service associations/exporters.

Use service industry associations as conduits for disseminating market information and for consultation on the types of market information that would be most helpful.

Tracking services export success

"If you can't measure it, it doesn't exist" is too often the excuse for overlooking service contributions to the regional and national economies. Capturing data on service exports other than transportation and tourism is difficult because there are no natural checkpoints where such exports can be enumerated. In terms of data to be captured, the Fifth Edition of the IMF's Balance of Payments Manual gives substantially more detail on classifications to report. But the question of how to capture the data still remains. Some countries have required reporting of revenues at the enterprise level where a distinction between export and domestic revenues can be made. Others, however, have to find reasonable survey approaches to data collection that are not overly burdensome on smaller service firms. One mechanism that has proved useful in some countries has been to involve service industry associations in collecting such data from their members as part of their annual dues survey. It is critical that any data collection be accompanied by a program to educate service firms about the "modes of supply", and what it means to be an exporter. The following table provides examples of ways in which services statistics can be strengthened.

Recommended Actions:

• Adopt the revised ten IMF services categories as comprising "services trade."
• Adopt the revised Central Product Classification (CPC) system, making sure to collect service commodities output and input data from all industries.
• Adopt a sufficiently disaggregated set of commodity categories (taken from the CPC) for "miscellaneous business, professional and technical services" so that at least three-quarters of such traded services are identified correctly.
• Adopt a data collection approach for traded services that combines at least administrative records and survey data and includes an account reconciliation procedure with major trading partners.
• Modify current survey practices to reflect the modules of UNSO=s model survey approach, particular those related to international trade.
• Record services trade data in a manner amenable to disaggregated reporting of affiliate (intracorporate) and non-affiliate services trade
• Record "bundled services" (freight and merchandise insurance, maintenance agreements, equipment training) in such a manner that they can be correctly disaggregated from "merchandise" and posted appropriately.
• Delete "factor movements" (investment and labour income) from aggregates labelled "services trade

Reducing the impact of government competition on services exporters

Many governments, as demands on scarce resources increase, have turned their attention to export activities in order to generate needed revenues. In some instances, the export activities concentrate quite appropriately on areas of public administration where one government has developed a particular competence -- government to government assistance. In other instances, however, government agencies have begun actively exporting technical skills in direct competition with their own private sector service firms. For example, government engineering units may bid on IFI-funded projects for which private sector engineering firms have been short listed.

When such direct competition takes places, there are both domestic and export development consequences. On the domestic front, job creation is affected. Typically jobs are created by private-sector firms, not government agencies. When export revenues increase, service firms may add new staff. But when export revenues decline, the reverse may happen. Government units are advantaged in that they usually can call on governmental resources so that they do not bear the full overhead costs faced by private-sector firms. In addition, government units often can borrow funds at concessionary rates, thereby reducing their cost of capital to significantly below that of private sector firms.

Using international quality assurance standards

One of the ways service firms now have to reassure potential customers of the quality of the services they can produce is to become registered to one of the international ISO 9000 quality assurance standards. Whereas other standards deal with the final product, the ISO 9000 series focuses on certifying the process by which goods or services are designed and produced. While it is possible to apply the ISO 9000 standards to the service delivery process, this application is not necessarily straightforward.

Certification does bring with it increased credibility and reduced rework costs, but it is resource-intensive to obtain and maintain. Governments can support the efforts of service firms to gain this type of international recognition by giving points for such certification in a procurement review process and by instructing national accreditation bodies to monitor the application of the standards to service firms.

The ITC has published an ISO 9000 Workbook for Service Firms in Developing Countries, which is now available. It provides very practical guidance on how to obtain ISO 9000 certification and discusses the United Kingdom guidelines for applying the standards to very small firms.

Strengthening national service associations

Service exporters know that strong industry associations are good for them, partly because associations enable them to form linkages with counterparts in other markets and foster partnerships. In some countries, these associations play an active role in standard-setting for the industry. Self-regulation and the implementation of a code of professional conduct are hallmarks of effective industry associations, and they help to build a sense of professionalism among service practitioners. In addition, industry associations can play an important role in fostering ongoing professional development, thereby raising the standards of the services provided.

Governments can help ensure the effectiveness of the associations by acknowledging them as representatives of the services industry. Associations can be used as conduits for the dissemination of market information and for consultation with the private sector as needed. In consultations with donor agencies, for example, the involvement of an association can raise the profile of domestic capabilities and so support the development of the export trade in services.

Improving services trade statistics

Capturing data on service exports other than transportation and tourism is difficult because there are not natural checkpoints where such exports can be recorded. It was not by accident that the matter of services statistics formed a major part of the work programme leading to the elaboration of the GATS.

The Fifth Edition of the IMF's Balance of Payments Manual gives substantially more detail on classifications to report. But the question of how to capture the data still remains. Some countries have required reporting of revenues at the enterprise level where a distinction between export and domestic revenues can be made. Others, however, have to find reasonable survey approaches to data collection that are not overly burdensome to smaller service firms. One mechanism that has proved useful in some countries has been to involve service industry associations in collecting such data from their members as part of their annual dues survey.

Even when a relatively easy collection mechanism exists, there is still the matter of educating service firms as to what constitutes an export. Service firms are reasonably clear that they are exporting when they have a contract to supply services from their domestic base to a foreign buyer in another country. They are often unclear that they are exporters when they use other modalities -- i.e., sell services to foreigners visiting their country, travel abroad to deliver a service, establish a project office abroad, etc. So it is essential that any data collection should be accompanied by a programme to educate service firms about modes of supply and what it means to be an exporter.