Business services are big business in the U.S., but they're missing out on major opportunities overseas, say experts. How to increase exports for small- and medium-sized businesses was the focus of a discussion at a tech conference in Tucson this week.
Zoe Baird, president of the Markle Foundation, which pursues tech solutions for healthcare and national security, moderated the discussion at Techonomy12, a meeting of tech industry CEOs and investors. She said that as technology and networks are lowering barriers to markets worldwide, a new focus on exports, especially from the service sector, could be a way to create jobs and reverse the flow of the outsourcing pipeline that is exporting jobs. By taking advantage of internet and cloud capabilities, exporting services can be done largely from home without sending U.S. employees overseas, she noted.
Baird asked a panel that included Bradford Jensen of the McDonough School of Business at Georgetown University and Ambassador Miriam Sapiro, Deputy U.S. Trade Representative, to discuss how small- and medium-sized companies might take advantage of expanding access and transparency in the global marketplace and what incentives and policies will enable these global opportunities.
Jensen said that with services accounting for between 50 and 80 percent of U.S. employment, "We're missing a big opportunity for growth through exports of services." Jensen made clear that he isn't talking about exclusively domestic services, such as food services or salon services: He's focused on business services—those whose North American Industrial Classification System codes start with a 5—including the information sector, publishing, and software publishing, as well the media industries, telecommunications, Internet, finance, insurance and professional, scientific, and technical industries, such as accountants, attorneys, engineers, and architects, as well as administrative support activities. These businesses account for 25 percent of US employment, Jensen said.
"In this [presidential election] campaign we heard a lot about the automobile industry," Jensen noted. But while the automobile parts sector employs about 910,000 people in the United States, engineering services [NAICS 541330] employs 980,000—more than auto parts, more than twice the aerospace sector, and at average wages that are higher than both, he said. "These business services are important, and they are tradable," Jensen said. "This is really skill-intensive stuff, and because the U.S. is still a skill-abundant place, we have compared advantage in these activities."
And yet, Jensen said, "The global engagement of the service sector is far too low." While about 20 percent of US manufacturing industry output is exported, less than 5 percent of output from the tradable business service sector is, he said. What's the problem? Jensen said policies are a big impediment.
To that point, Ambassador Sapiro, who is responsible for all U.S. trade negotiations involving technology and services, said her agency is putting a particular focus on small and medium enterprises as it works to meet the administration's five-year National Export Initiative goal to doubling exports by 2014. At about 70 percent of GDP, "SMEs are the backbone of our economy, but only about 1 percent currently export," Sapiro said.
To be sure, she noted, the U.S. is the world's largest services exporter. "Last year our services exports exceeded $600 billion, and we do enjoy a surplus of $200 billion. There is much to be proud of here," Sapiro said. "At the same time, we all feel that there's more we can do."
Sapiro said her team is negotiating bilaterally, regionally, and multilaterally to lower trade barriers with foreign countries and to make sure they are enforced. For instance, recent trade agreements with Colombia, Korea, and Panama require those countries to treat US service providers the same as domestic companies in terms of goods and in terms of services, she said. The Trans-Pacific Partnership, currently under negotiation with partners from Australia, New Zealand, Singapore, Brunei, Vietnam, Malaysia, Mexico and Canada, seeks high standards for data flow and intellectual property rights protections. And Sapiro said her team is also working on separate trade agreements with the European Union and Geneva.
Among her team's priorities are to:
- Promote free data flow so that information can be transferred more easily among providers and customers around the world, notwithstanding legitimate privacy concerns.
- Deal with trade caps such as on digital television and film content.
- Grapple with discriminatory requirements for licensing or maintaining a local office.
"Whether it's goods or services, we are very focused on making sure that [SMEs] have the tools that are necessary to compete," Sapiro said. "We also make sure they have the financing tools that are necessary for some of the smaller ones especially to try to expand and compete effectively."
Helping small and medium firms clear the hurdle to engage is a big challenge, Jensen acknowledged. "We need to clear some of the policy undergrowth and then link it up with the enabling technology to allow small and medium-sized firms to export," he said.