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Presentation at the VIII Greater Caribbean Business Forum that took place in Panama during EXPOCOMER

Developing a competitive service sector

by Doreen Conrad

First, I would like to briefly describe our international organization, the International Trade Center or ITC. We are an agency of the UN and are based in Geneva. We deliver technical cooperation programs to developing and transition economies to strengthen their capacity to promote exports. My particular Section deals exclusively with helping countries to increase exports of services, and this is usually in the business and professional services sector, where there is the greatest export potential. The ITC is proud of its reputation for being very practical and business-oriented, so that will be the tone of my presentation.

The topic of trade in services is critically important to Greater Caribbean country economies, where, in just about every country, services represent more than half of your economies. We know that trade in services contributes directly to job creation, trade diversification and development. Yet, many developing countries have not yet focussed on developing a competitive service sector, and on developing exports of services. And many exporters of services are not even aware that they are exporting. For example, if a company delivers their service online, or delivers their service to a business visitor to their country, these are exports, (because its new money coming into the economy), even though the company never left the country. That’s one of the reasons that service exports are not statistically captured in most countries and so there is little awareness about what exports are already taking place. I’m regularly asked about trade diversification and, in return, I ask what the country is doing to promote trade in services, an excellent way to diversify their trade. Plus, this is the fastest growing component of global trade.

Some top trade officials respond that they are aware of the importance of services to the national economy, especially given the visibility of the WTO General Agreement on Trade in Services negotiations. However, they are sometimes unsure about what it takes to increase the competitiveness of their service sector, and to address the very unique needs of a sector that involves the sale of something intangible --- it’s like selling a “promise” when companies try to sell their services, so they must build their credibility.

I’d like to direct my comments first to the trade promotion organizations and what strategies can be implemented to build a more competitive, export-ready service sector; then to those of you in the business community about some success techniques and best practices to help you market your services effectively. I will draw on my experiences and observations in all types of economies around the world.

I mentioned the growth in trade in services --- what is attributing to the growth? Global demand for business services, and especially specialized services, is very high as every organization, whether public or private; for-profit, or non-profit, large and micro-enterprises have support functions which are critical to their survival and competitiveness, but are not their core mandate or competency. I’m talking about accounting, training, market research, and so on. Growth in the cross-border outsourcing of these business and professional services, as well as many others, continue to increase at more than 20 percent per year.

Technology has made an enormous impact on trade in services. The move towards e-trade means that an increasing number of services can be marketed online, and trade more cost-effectively, making the export opportunities almost limitless. Service firms in developing economies have a competitive edge, in that, with equivalent professional qualifications, they can offer a price advantage as compared with the billing rates of similar firms in developed market economies, while reaching customers around the globe with little incremental cost. ICTs also support services which can be provided to foreign clients from anywhere, thus encouraging service providers to stay in smaller communities and countries, rather than migrate to larger places.

Just to underline my point about the unawareness about service exports, our studies reveal that developing countries are already exporting on average, 68 different types of services to at least 33 different markets, of which two-thirds are other developing countries. In fact, as of a couple of years ago, of the top 12 countries in the world with the highest percent of exports services (as a percentage of exports), include Anguilla, Montserrat, Antigua & Barbuda, the Bahamas, Barbados, St. Lucia, St. Vincent & the Grenadines, and Grenada. So the issue is not whether to export services, or capacity, but how trade promotion organizations can increase the volume and profitability of service exports.

Let’s look at the challenges facing trade promotion organizations in working with the service sector, in particular:

·        Most service exporters are very small firms with limited resources.

·        Many service enterprises do not realize that they are exporting and must be educated about what constitutes a traded service

·        Most service exporters have not used government trade support services and are not known to trade promotion officials

·        Often, trade promotion officers do not have the types of contacts needed by service exporters to network and establish credibility in export markets

·        Because service opportunities change rapidly, market information and sectoral studies become outdated quickly. Instead, service exporters need a sense of the market and a sense of complaints that could become export opportunities. (e.g. “I wish I could find someone to….”)

·        Since service export opportunities need to be acted on quickly when they appear, contact networks and market intelligence are typically more useful in identifying target markets, than are services trade flow data

·        Many of the service providers were educated in technically-oriented and have not learned marketing skills, yet need to undertake business development, especially in small firms.

·        Private sector business associations or chambers have typically been focussed on regulatory control and domestic policy advocacy, not on services exporting activities or services trade policy advocacy.

From an assistance perspective, the service sector is diverse with over 150 sub-sectors. There are at least four types of services each of which needs different types of market information and trade development assistance:

1.      Goods-related services, such as packaging, freight forwarding, customs brokerage, etc. Since these services are traded much like goods, they are often already included in goods trade promotion initiatives and can be promoted effectively at trade shows, for example.

2.      Services that have recognized promotional channels, such as education, tourism and capital projects. These can typically be promoted effectively through participation in the relevant trade shows. For capital projects, bid information is available online.

3.      Professional services. Their main barrier to market entry is recognition of their professional credentials (which, by the way, is a matter for trade negotiators). Therefore, they often enter new markets with a partner who is already licensed in the market. Professional services are typically marketed at professional conferences or other networking events to promote “word of mouth” referral.

4.      “Pure” services, that is not linked to goods and do not require licensing. These may be marketed via international events but are more typical promoted through more customized strategies and include services such as management consulting, advertising, research, editing, etc.

To then consider these factors and summarize a “best practice summary” for TPOs, it would be as follows:

·        Ensure top trade officials’ commitment to a specialized trade development approach for services

·        Ensure that trade promotion officers understand the different types of services and how to match promotion strategies to them

·        Ensure that trade promotion officers can articulate the differences between services and goods exporters

·        Ensure that trade promotion officers working with goods exporters are familiar enough with services export strategies that they can help their clients also export related services

·        Ensure that top trade officials understand the need to build national credibility for service exporters

Now, to support a services trade development strategy, countries need an official services promotion unit with at least one trade officer dedicated full-time to services trade promotion. Services need a different type of trade promotion approach. For example, rather than taking “pure” service providers to trade shows when they have nothing to exhibit, the opportunity to give a presentation and build their profile and credibility would be much more effective.

A services promotion officer or unit needs to coordinate with other government initiatives targeting service firms. Because of the high percentage of SMS in the sector, one of the areas of coordination is with programs designed to assist SME exporters. Another program area is initiatives focused on women entrepreneurs as the majority of women business owners are likely to be managing service firms.

One of the challenges in planning for services trade promotion is that there are typically at least twenty government agencies that could be involved (ministries such as Industry, Public Works, Communications, Education, Health, Tourism, Immigration, Transportation, and so on). Ideally this coordination would be led by a designated “services champion” with appropriate authority and resources.

The “services champion” would typically:

·        monitor government speeches, awards programmes, and literature to ensure services are included

·        ensure trade promotion events are organized for service firms

·        collect and report success stories

·        develop a database of firms in the sector

·        sponsor networking events to promote “clustering” of services to offer clients one-stop shopping, especially on large projects

·        engage the media in creating awareness about the importance of services

·        encourage services industry associations to deliver the export training that is available

·        offer to speak at industry association events or service clubs and deliver a presentation

·        implement strategies to increase service exports from inward investment by facilitating networking and profiling your service sector capabilities

Creating awareness is one of the most important things that must be done, as the country diversifies and expands its focus on services.

Now, let us turn to those of you who represent private sector enterprises in the service sector, which are potential exporters and promoting your business services.

I alluded to the fact earlier, that services are traded in different ways --- four ways according to the WTO. The service can be delivered from your office, online to a foreign client; the client could be visiting your country and need services (such as business tourists needing printing or translation services); or a project office is temporarily set up abroad for a project; or fourthly, the service provider actually travels to the export market to deliver the services. You can see that, through the first two modes, exporters do not even have to leave the country to export, and that is why many of them do not realize that they are already exporting.

If a firm is interested in exporting, one of the first things in their business development strategy might be to initially target those incoming businesspeople or multinational foreign investors already in your market who can at least give the firm a referral or letter of recommendation.

Another thing I notice as I work in various countries, is that many companies’ promotional materials and marketing approaches are not world-class, to say the least. This is a problem as they are not perceived as reliable or professional, and if you cannot articulate succinctly and effectively what you do, even if you have the best service in the world, who is going to take a chance and purchase your services? So it is a very important consideration before going abroad. Another example: your business card is your most important representation. That and your literature is all that is working for you when you have left a potential client’s office. Yet, many business cards do not specify what kind of service is provided. Many do not even have their country on the card, and many businesspeople simply forget or run out of business cards at networking events, which is always astounding. Potential exporters should think about this phrase: marketing is everything you do! You never know when someone can refer business to you. And that’s the way it works in the service sector --- you are selling a promise and need referrals and recommendations because people do not usually see the service until it is created.

Another success strategy is to consider “bundling” or “clustering” complementary services, such as architecture, design, engineering and construction management services for project bidding; or for foreign investors: corporate real estate, ICT, accounting, legal, printing, etc., all the services they will need. The search and sourcing of services is very time-consuming and expensive and this is a solution for potential clients. This can be facilitated by your industry associations or chambers, by organizing networking meetings so the industry becomes familiar with others in it. Remember that the service sector does not all belong to one services industry association --- they belong to their professional association (eg. engineering, or a business chamber, or an SME group, and so on).

Remember, there are three key factors that comprise competitiveness:

1.      The ability to meet unmet customer needs

2.      Awareness of your competition, why they are succeeding and the market conditions, and

The last subject that I wanted to touch on is one that is quite topical now in the Caribbean, and that is the establishment of services coalitions, or umbrella organizations and the impact on regional integration.

We are aware that there are services coalitions in various phases of establishment in countries which include the well-established one in Barbados; and others in Guyana, Bahamas, Belize, Jamaica, Surinam, and Trinidad and Tobago and perhaps others --- I know the Dominican Republic was also interested or in the process already. The origin of these coalitions lies in the agreement by CARICOM member states in 2001 to form coalitions to prepare the service sector to meet the challenges and seize the opportunities of the emerging environment. National services coalitions can drive the effort to promote services as an essential component of the Region’s exports and they can be a real catalyst at facilitating market entry and reciprocity within the region.

We at the ITC have been working with many developing countries around the world in the establishment of their coalitions and stand ready to provide any needed technical advisory services to support this important initiative.

In conclusion, there is a world of opportunities in trade in services. With a few key ingredients, such as a fast, affordable telecommunications framework, government support, a dedicated trade promotion program, and a quality, educated workforce, any country can increase their exports of services and diversify their trade.

Ms. Conrad is the chief of the Trade in Services Section of the International Trade Center in Geneva

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