Firms find growth from selling services


When was the last time you travelled, opened an app or shared your news on LinkedIn?

Trade Forecast

If it was in the last day, month or even year you - and millions of people like you - are driving an evolution in the global economy.
This is because you are buying a service, rather than food or clothes. And it’s not just consumers buying services. Companies are also buying in services like legal, financial, HR and IT.

When put together, this explosion of services consumption is changing patterns of global trade. In fact new research from HSBC, shows that exports of exports fell about 3% this year. But overseas sales of services such as tourism, banking, construction and software development have risen by 1% even in this tough trading environment.

And if governments don’t put up barriers, services trade is estimated to grow about  7% a year. By 2030, it’s estimated services will add USD12.4trn to global trade flows, up from around USD4.9trn this year.

Evolution leads to adaptation. Today’s entrepreneurs are busy creating services we didn’t know we wanted but now can’t live without, like being able to order a cab from your phone.

Established firms are also adapting to this new environment. They too are working out how services can be integrated into their existing business model. This is creating a new breed of companies, those who are using hybrid models – part manufacturer, part provider of services – to grow.

Take the automative sector. Some cars are only 50% metal, the other 50% being software. Or think about aeroplane engines sales, which come with a 20 year servicing contract, or even the cloud contract which comes with a mobile phone.

Not only are services being traded more, the research also suggests selling they contribute to a more stable business model. This is because buying and selling services is less sensitive to the economic cycle than the exporting of manufactured goods.

So what will happen next? Well, today the US, UK, China, Germany and France were the world’s top exporters of services in 2015. These countries will still top the league table in 2030, but most developed markets will lose market share.

This is because people in today’s emerging economies are developing skills and the digital infrastructure they need to compete in this new environment. India, for example, is already a highly successful exporter of business process outsourcing (BPO) and support services for finance, medicine and engineering, and is set to increase these exports in the coming years.

For businesses looking for growth and the next opportunity, working out what services they can sell is a good place to start.
 

Download the full report - Unlocking the Growth Potential of Services Trade below or view Global Trade Forecast 2016