Exporting services – how are they classified
In our latest interview with a trainer from the Institute of Export & International Trade, we talk to Dick Brentnall – the Institute’s services expert. You can also read our discussion about the practicalities of selling services overseas and the option of franchising.
In international trade what sorts of offerings would be classed as a service rather than a goods export?
The variety of services in international trade is quite broad. Here’s just a few headings or categories: business support, information technology and computers, education and training, tourism, financial and legal, healthcare, architecture, engineering, scientific and environmental, transport services, and retail. These are just a few of the broad headings for what you would term ‘intangible’ offerings.
Intangible literally means you can’t feel, see, touch or hold it. An exported good is tangible, whereas a service is primarily an experience. A service is something that you experience at a certain time and it can’t be repeated, whether it’s a telephone call or working with a professional like an accountant or lawyer. You would experience something at that time and its intangible – that’s a service.
How important is it that a business classifies their offering appropriately, whether it’s a service or a good?
Because it’s intangible it can’t be classified in the traditional sense. Exporters of goods will know that to import or export their goods to any part of the world, there are a whole set of processes and classifications that have to be done for their product to allow importation.
In the case of services, that does not apply. The only classification at the moment that does apply is in regard to the various attempts over the years to try to quantify services traded, and in so doing, a whole series of classification headings have been created.
All members of the service industries can get a code – a 4-digit Standard Industrial Classification code called a ‘SIC code’. The SIC codes allow the businesses to be quantified in terms of productivity, sales and so on – largely for measuring things like the economic impact of certain types of services. That is currently the only major classification.
If we go back 30 years, we could know what the goods businesses were doing in terms of trade – exports and imports to the UK for example – by the nature of their tangibility. In the case of services, this was unknown. There have been attempts to get closer to classifying or quantifying the services being traded to get an understanding of what that the level of trade is.
The SIC coding allows far more detailed analysis of how each service industry operates such that when every year the government releases its Pink Book with trade figures, in this Pink Book there is information about how the service industries are performing.
It’s purely classification for data information though and has nothing to do with the sorts of tariffs and duties that apply to goods.
And how do things like software and design offerings fit into all this?
These sorts of companies will have a SIC code for sure; design as a category falls within the Creative Industries. At the moment, in the UK, the Department of Culture, Media and Sport classify a variety of things – architecture, art, museums, galleries, IT software, music and so on – as well as design.
Design, more broadly speaking, here includes product, graphic and fashion designs.
How easy is it to distinguish between the categories? Presumably there are some grey areas?
If you have educational software for which the prime purpose is the education aspect, then the software could be viewed as a means to the end. There is a bit of confusion about which category some services will fall into however.
Even in manufacturing, there are intangible assets being sold – ‘manuservices’ – what sorts of things do these encompass?
So far we’ve been discussing ‘pure services’ – i.e. however it is classified, it is a service from beginning to end. In the case of ‘manuservices’ there are a whole variety of services that form parts of a manufacturing process all of which can have an impact on the goods or end product.
For example, at the beginning of the manufacturing process there’s research and development which is itself a service; there’s the design of the product which is itself an intangible; any software or internal IT will also be part of a service, albeit internal; when you distribute the goods, that is then a service; there are the marketing elements which are services to promote a good to an end user; and finally there’s after-sale services like repair – a critical element and again an intangible.
With after-sales, for example, there are many manufacturers who have excellent products but sometimes they are let down by their after-sales service; on the other hand a strong after-sales service might enhance their offering and give them a competitive head-start.
Even though it’s intangible it can be a critical, positive factor in the manufacturing process.
Topics: Export Planning, Getting Started, Legislation & Regulation, Product Development, and Sales & Marketing