Service Exports - Driving U.S. Startups and Small Businesses

Almost completely shrouded in the anemic U.S. stock market performance and the drumbeat of negativity that passes as business reporting these days has been the massive growth in U.S. service exports – increasingly from U.S. startups and small businesses.

The statistics in from the Brookings Institution’s excellent report – Export Nation [1] – speak to this trend. 

Contrary to the image of imports and exports being only “stuff” flowing in and out of places like the Port of Long Beach, the report notes that services accounted for 31%, or $525.8 billion of total U.S. exports in 2008.  And unlike our huge “hard goods” trade deficit, in 2009 the value of service exports was 40% greater than the value of service imports. 

Business, professional, and technical services were the fifth largest U.S. export category in 2008, and half of the top 10 major export categories were services.   And with U.S. service companies representing 13.8% of global commercial service exports, the United States is hands-down the world’s dominant service exporter.

Of many, let me flag three main drivers:

1.    Purchasing Power Parity. The age-old economic postulate of purchasing power parity (PPP) [2] posits that with free-flowing markets wages and prices worldwide approach parity. Protectionist types of course interpret this to mean that “our wages will get pushed down to “their” levels – or more viscerally, “if this keeps up we’ll all soon be making 50 cents/hour.”

Well, let’s leave for now the huge economic fallacy of this thinking and concentrate on the fact that the narrowing of the relative wealth differential between the U.S. and the rest of the world has allowed for phenomena like an Indian manufacturing company hiring U.S. advisors (i.e. Growthink) to help them define strategic growth opportunities in India. Why? Because on a dollar-for-dollar (or better yet, rupee-to-rupee) basis, it was a better value for them to import services like these from the U.S.  The world is changing, isn’t it?

2.    U.S. Services are Increasingly Exportable. The drumbeat goes on re how “we here in the U.S. don’t “make anything.” Well, beyond the fact, that as I point out in my “Made In China [3]” post that very few Americans dream that their children will grow-up and work in a factory, we here in America “make” the most important stuff that has ever existed we do it better than any society has ever done so.

That stuff? Ideas and Innovations. Strategies.

Or more prosaically, Brands. Websites. Entertainments in all their wondrous forms – Movies, Video Games, Social Media and Networks (think LinkedIN, Facebook, Twitter).

Even our current favorite whipping boy industry – financial services – continues to bring us world-bettering innovations like venture philanthropy (i.e. applying market principles to solve the world’s most pressing humanitarian challenges), super angel funds (overcoming the “outlier” or “Black Swan” conundrum of startup investing) and secondary exchanges like Prosper.com [4], Second Market [5], and Raise Capital [6] (globalizing and bringing information efficiencies to markets for private securities).

3.    Global Best Practices. Perhaps my favorite and why the great probability is that all of our children will live in a world far, far richer and more plentiful than ours – namely that best practices worldwide are visible and replicable to and for all. And the corollary, the really screwed-up and ineffective ways of doing things are also blatantly transparent. 

From lists like the “most business friendly [7]” countries to California now having a portal where parents can see teacher’s ratings to the U.S. Senate studying Chinese technocrats [8] to the simple reality that the Internet and mobile phones make it crystal-clear to all who is winning and losing in the world (see N. Korea, Iran, et al.), the modern world has become a perfectly competitive market in all of the best senses.

The cream rises, and the inefficient, the bureaucratic, the regulatory dead-enders get left on the dustbin of history.

And guess who, when it comes down to doing business right, is the richest cream, the sweetest soup?

It is, of course, U.S. startups and small businesses.

And as they, like the U.S. economy as a whole, become almost exclusively services-focused, they will both lead and profit from their exploding opportunities worldwide.

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To your success,

Jay Turo

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Jay Turo
CEO
Growthink