From tourism to design, the export of services from one country to another has grown steadily over the past decade. Trade and business are changing as advances in technology and increased prosperity alter the way consumers buy and companies operate.
Services have been a bright spot in otherwise gloomy global trade data in recent years, growing faster than merchandise trade and being less prone to peaks and troughs. Yet measuring services trade can be difficult. The data available is limited and fragmented. Tracking crates of manufactured goods and commodities as they are shipped around the world is relatively straightforward by comparison.
Trade in services covers a range of activities, many of which are an integral part of other industries. Consider, for example, a drone manufacturer looking to support agricultural businesses improving their crop fertilisation methods.
Other examples of services include data transmitted over the internet, such as music and film downloads or legal and architectural design services. Equally, it can be hard to estimate services that are delivered by an affiliate of a company with headquarters in another country. And how do you separate out the service component of a business that sells wind turbines but also offers a remote diagnostics service to its customers, for example?
New research conducted by Oxford Economics for HSBC draws on a range of data sources to analyse the role of services trade in the global economy today and how that is likely to change in the future. While the report predicts that services will account for a quarter of global trade by 2030, what is particularly marked is how important services trade has become for individual countries.
Advanced economies including the US, the UK, Germany, France, Japan and Ireland have benefited significantly from exporting services in recent years. In the UK, for example, services account for 44 per cent of total exports versus 30 per cent in 2000 – and that is despite a slowdown in the UK’s financial services exports in the wake of the 2008-09 financial crisis. Though finance remains the UK’s biggest service export, the country has also successfully grown business services and creative sectors such as advertising, design and architecture.
But while the UK, the US and others currently dominate services trade, they are already facing competition from developing countries, including India and China.
Tourism is a major contributor in many developing countries, including China. It now ranks as the third biggest exporter of services after the US and the UK. And China's efforts to rebalance its economy by shifting towards consumer spending mean services are likely to become increasingly important.
India, meanwhile, has found a special niche. Capitalising on a skilled, English-speaking labour force, India has developed a thriving industry providing business and IT support services to banks and companies worldwide. Services are now a major driver of India’s economy, accounting for 36 per cent of the country’s exports.
In the future, both India and China are likely to increase their share of services trade at the expense of developed markets as they tap into an increasingly mobile and expanding middle class, and invest in digital infrastructure.
Developments in technology will change buying habits in other markets too. Virtual reality, for example, could open up opportunities for entrepreneurs in a range of services industries – from gaming and entertainment to education and online retail.
There are still barriers to overcome. Changes to US trade policy mooted by President-elect Donald Trump and the UK referendum vote to leave the European Union both create uncertainties over how tariffs will be applied on goods and services in the future. And there are delays in implementing proposed trade agreements in Asia and the Americas.
Other barriers are disappearing, however. The internet means that even the smallest companies can now easily trade overseas. That means trade’s invisible exports are going to be increasingly important to the global economy.