exporting services - virginia economic development...
TRANSCRIPT
Exporting Services A Guide for New Exporters
CONTENTS
INTRODUCTION ........................................................................................................................................... 1
EXECUTIVE SUMMARY ............................................................................................................................... 3
ASSESSING EXPORT READINESS ............................................................................................................ 4
RESOURCES AVAILABLE TO HELP COMPANIES DEVELOP AN EXPORT PLAN.................................................................. 4
RESOURCES AVAILABLE TO HELP COMPANIES DETERMINE THEIR EXPORT READINESS ............................................ 4
CONSIDER THE INDUSTRY FROM AN INTERNATIONAL PERSPECTIVE .............................................................................. 4
EVALUATE THE NECESSITY AND ABILITY OF THE COMPANY TO ADAPT FOR INTERNATIONAL SALES ....................... 5
EXAMINE THE OBJECTIVES, TRADEOFFS, AND COMMITMENT OF AN INTERNATIONAL EFFORT .................................. 5
CASE STUDY: CHINA .................................................................................................................................................................. 6
UNDERSTANDING EXPORT REGULATIONS ............................................................................................. 7
EXPORT ADMINISTRATION REGULATIONS (EAR) - U.S. DEPARTMENT OF COMMERCE ................................................. 7
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR) - U.S. STATE DEPARTMENT .................................................. 7
LICENSE REQUIREMENTS ........................................................................................................................................................ 8
EXPORT LICENSING DECISION TREE ...................................................................................................................................... 9
FOREIGN CORRUPT PRACTICES ACT (FCPA) – U.S. DEPARTMENT OF JUSTICE ........................................................... 10
SANCTIONS PROGRAMS AND EMBARGOES – U.S. DEPARTMENT OF THE TREASURY ................................................. 10
ANTI-BOYCOTT LAWS – U.S. DEPARTMENT OF COMMERCE ............................................................................................. 10
EXPORT COMPLIANCE ............................................................................................................................................................ 10
CASE STUDY: CHINA ................................................................................................................................................................ 11
RESOURCES ............................................................................................................................................................................. 11
SELECTING AN INTERNATIONAL MARKET............................................................................................ 12
MARKET POTENTIAL ................................................................................................................................................................ 12
LEGAL ENVIRONMENT ............................................................................................................................................................. 13
POLITICAL ENVIRONMENT ...................................................................................................................................................... 13
INFRASTRUCTURE ................................................................................................................................................................... 14
ECONOMICS .............................................................................................................................................................................. 14
CULTURE ................................................................................................................................................................................... 14
CASE STUDY: CHINA ................................................................................................................................................................ 15
CONTENTS
INTELLECTUAL PROPERTY PROTECTION............................................................................................. 16
COPYRIGHTS ............................................................................................................................................................................ 16
PATENTS ................................................................................................................................................................................... 16
TRADEMARKS ........................................................................................................................................................................... 17
TRADE SECRETS ...................................................................................................................................................................... 17
BUSINESS STRATEGY ............................................................................................................................................................. 18
CASE STUDY: CHINA ................................................................................................................................................................ 18
RESOURCES ............................................................................................................................................................................. 19
WORK PERMITS, CERTIFICATIONS, AND STANDARDS ....................................................................... 20
WORK PERMITS ........................................................................................................................................................................ 20
CERTIFICATIONS ...................................................................................................................................................................... 20
STANDARDS .............................................................................................................................................................................. 21
CASE STUDY: CHINA ................................................................................................................................................................ 22
MARKET ENTRY ........................................................................................................................................ 23
DIRECT SALES .......................................................................................................................................................................... 23
STRATEGIC ALLIANCES .......................................................................................................................................................... 23
TYPES OF STRATEGIC ALLIANCES ........................................................................................................................................ 23
MARKETING .............................................................................................................................................................................. 25
RESPONDING TO INQUIRIES .................................................................................................................................................. 26
CASE STUDY: CHINA ................................................................................................................................................................ 27
RESOURCES ............................................................................................................................................................................. 27
FINANCING AND PAYMENTS ................................................................................................................... 28
METHODS OF PAYMENT ......................................................................................................................................................... 28
FINANCING TOOLS ................................................................................................................................................................... 29
SBA FINANCING PROGRAMS .................................................................................................................................................. 29
EX-IM BANK FINANCING PROGRAMS .................................................................................................................................... 29
CASE STUDY: CHINA ................................................................................................................................................................ 31
RESOURCES ............................................................................................................................................................................. 31
APPENDIX: VEDP INTERNATIONAL MARKETING SURVEY .................................................................. 33
WORKS CITED ........................................................................................................................................... 35
Virginia Economic Development Partnership – International Trade Exporting Services 1
INTRODUCTION
The Virginia Economic Development Partnership’s (VEDP) International Trade division has the task of
promoting the exports of Virginia companies with the goal to grow jobs and increase the state’s tax base.
The VEDP sees an opportunity to build on the strength of the state’s service sector to grow service
exports and the high-paying jobs that they support. In an effort to improve the assistance offered to
service companies, the VEDP has developed this guide for exporting services. It outlines export process-
es, decisions, and resources as they apply to service companies, looking closely at the aspects of
exporting unique to or particularly important for them. With this guide VEDP-International Trade hopes to
lead more of Virginia’s service companies into the export game and provide support along the way.
Virginia’s service sector is vital to its economy. All but one of the eight
sectors that added jobs in Virginia in 2011 was a service industry.1 After
government, the state’s second largest industry in 2011 was professional,
scientific, and technical services, which accounted for 14.1 percent of
GDP and had 4.7 percent real growth. The industry’s growth accounted
for 0.64 percentage points of the state’s total growth in real GDP, making
it the largest contributor to the Virginia’s real GDP growth of 0.3 percent.
In contrast, Virginia’s manufacturing industry accounted for 9.3 percent of
GDP and had 0.58 percent real growth.2 Yet according to data from The
Brookings Institution,3 at $13.8 billion, Virginia’s service exports account-
ed for just 42.6 percent of the state’s total exports in 2010. Still, Virginia’s
service exports grew roughly 61 percent from 2003 to 2010, while product
exports grew 37 percent, inflation adjusted. Based on this data, the
state’s service sector is poised to close the gap between its positions in
state exports and in the overall economy.
Meanwhile, the Brookings data also shows that direct service export-production jobs reached 89,409 in
2010, about 69 percent of total direct export-production jobs.4 Moreover, average export job growth in
Virginia’s service sectors from 2003 to 2010 was 5.2 percent while average export job growth in product
sectors over the same period was 1.9 percent. A comparison of the ratios of product and service exports
and the jobs they support shows that service exports are more labor intensive than product exports.3
Additionally, a report published in 2011 by the International Trade Administration5 estimates that workers
in U.S. export-oriented service jobs earn 15 to 20 percent more than comparable workers in non-export
oriented services jobs. For more information about service exports and the jobs they support in Virginia,
please refer to the VEDP publication, Fast Facts – Virginia Service Exports.
Virginia has a particularly high comparative advantage in high skilled services–attributed in part to its
great higher education system and proximity to federal resources–that are in demand in international
markets. Service providers such as architects, engineers, project managers, consultants, and financiers
will be especially in demand over the next several years as developing economies begin to build out
infrastructure. At this point, however, service exports nationwide are being sold from just a small share of
the service companies that could be thriving in the global marketplace.6 There is great potential for
1 (Felberbaum, 2012)
2 (U.S. Department of Commerce Bureau of Economic Analysis, 2012)
3 Emilia Istrate and Nicholas Marchio, Export Nation 2012 (Brookings Institution, 2012)
4 In Virginia, total 2010 service export-supported jobs for service industries reached 125,012, 53 percent of total export-supported
jobs. Some portion of these jobs might lie outside of Virginia, however, being associated with suppliers, logistics, and wholesalers
serving the Virginia exporters. 5 (Riker & Thurner, 2011)
6 (Rampell, 2012)
Virginia Economic Development Partnership – International Trade Exporting Services 2
Virginia’s service companies to grow sales through exports and to add high-paying jobs in the state as a
result.
There are a number of reasons service companies might be reluctant to export. Lack of knowledge about
where and how to market their services, worries about intellectual property and other non-tariff trade
barriers, and language are a few. Many resources are available to answer general questions and con-
cerns about exporting, but they are
geared toward product manufacturers
and sellers, not service providers.
Certainly, some aspects of the export
process are applicable to both product
and service companies, but other
considerations more unique to services
should also be taken into account when
planning service exports. Elements of
export readiness assessment, U.S.
export regulation compliance, target
market selection, intellectual property
protection, registration and certification,
market entry, and payment and financ-
ing differ for service companies. VEDP -
International Trade’s guide for exporting
services is directed exclusively toward
service companies to address these
aspects of the export process. 7
7 Emilia Istrate and Nicholas Marchio, Export Nation 2012 (Brookings Institution, 2012)
Virginia Economic Development Partnership - International Trade assists both new and experienced
Virginia businesses with identifying new markets, developing market entry strategies, and locating
distributors and representatives—all at little to no cost. Virginia businesses interested in increasing
international sales and growing market share can benefit from our export development programs, publica-
tions, resources, and market research.
For more information, please visit our website at www.exportvirginia.org.
Sub-SectorValue,
2010
VA Ranking,
out of 50 states
Computers, Information Services 903$ 4
Training Services 130$ 5
Management and Consulting 1,445$ 6
Architecture and Engineering 254$ 7
R & D Services 668$ 9
Equipment Installation Services 404$ 10
Construction Services 24$ 10
Other Services 44$ 11
Accounting and Auditing 30$ 11
Virginia's Business Services Exports7
In US$ millions
Virginia Economic Development Partnership – International Trade Exporting Services 3
EXECUTIVE SUMMARY
The individual sections contained in this guide provide service exporters with a basic overview of what
they need to know and consider during each step of the export process, as well as resources and links to
help them learn more. Throughout this report, China is highlighted as a case study to demonstrate how
aspects of exporting services vary based on market characteristics. The following key points for service
exporters are examined:
ASSESSING EXPORT READINESS
» In evaluating export readiness, a service company should consider its industry from international
clients’ perspectives, understand the need for modifications to its service, and examine the objec-
tives, tradeoffs, and commitments required for international trade.
UNDERSTANDING EXPORT REGULATIONS
» Complying with export regulations requires that a company consider what type of service it is ex-
porting, to where it is exporting, who will receive its services, and how they will be used.
SELECTING AN INTERNATIONAL MARKET
» Conducting research and weighing alternatives to determine a target international market is a
critical step in the export process. A company should evaluate the costs and risks of doing busi-
ness in a country against the sales potential of its service there. Depending on a company’s
service, situation, and objectives, the components that play into that evaluation include market
potential, legal characteristics, political environment, economy, and culture.
INTELLECTUAL PROPERTY PROTECTION
» It is important for a service company to consider which intellectual property protections might ap-
ply to its services in a foreign market and develop an appropriate intellectual property strategy
there. In addition to protecting intellectual property legally, a company should also make an effort
to protect it operationally.
WORK PERMITS, CERTIFICATIONS, AND STANDARDS
» A service company must have an understanding of a target market’s work permit and visa re-
quirements, professional certifications, and relevant standards should employees need to travel
there to meet clients or stay for an extended period of time to execute projects.
MARKET ENTRY
» When entering an international market, a service company should have in mind an ideal client
profile and a basic plan for reaching those clients – both in terms of entry strategy and marketing
initiatives.
FINANCING AND PAYMENTS
» Terms of payment and means of project finance are key elements of service negotiations and
contracts. Understanding the financial risks and burdens associated with exporting and how to
mitigate them is imperative for a service company.
Virginia Economic Development Partnership – International Trade Exporting Services 4
ASSESSING EXPORT READINESS
An export plan of action is a company’s guide to growing its international business. It outlines a firm’s
constraints, objectives, and best practices for the purpose of organizing export efforts to maximize
chances of success in foreign markets while minimizing disruption to domestic business. The most
effective export plan is used as a management tool and is easily accessed and understood so as to
ensure companywide teamwork and dedication to international business.
RESOURCES AVAILABLE TO HELP COMPANIES DEVELOP AN EXPORT PLAN
» Small Business Administration Export Business Planner - This excellent resource contains more
information on the export process and provides an electronic document to record your goals
» Department of Commerce Sample Outline for an Export Plan
The benefits of exporting are many – increased sales, reduced dependence on the domestic market,
enhanced competitiveness, greater potential for corporate expansion, etc. – but realizing these benefits
requires a commitment of time and money. A company may need to hire staff to modify its service for
international markets, develop new promotional material, incur added administrative costs, wait longer for
sales and payments, and apply for additional financing. Because it is important to evaluate the need,
ability, and willingness to do these things, assessing export readiness is the first, preliminary step of
export planning.
Many resources are available to help a company assess export readiness, but they are geared toward
product manufacturers and sellers, not service providers. Certainly, some aspects of these assessments
are applicable to both product and service companies, so these resources are worth exploring.
RESOURCES AVAILABLE TO HELP COMPANIES DETERMINE THEIR EXPORT READINESS
» Management Issues Involved in the Export Decision – This is a list of questions that company
management should consider before pursuing export operations
» Export Questionnaire - This questionnaire highlights characteristics common to successful ex-
porters
Other considerations more unique to service offerings should also be taken into account when assessing
a service company’s export readiness. The following service-specific export considerations fall under
these broad components of export readiness:
» Knowing your industry and service - Consider the industry from an international perspective
and the need for modifications to the service
» Evaluating your company – Assess the need and ability of your company to adapt in its pursuit
of international sales
» Understanding the impact – Examine the objectives, tradeoffs, and commitment of an interna-
tional effort
CONSIDER THE INDUSTRY FROM AN INTERNATIONAL PERSPECTIVE
A service company must have a basic understanding of the global environment for its industry in order to
evaluate its service’s export potential. Service offerings are often quite specific to their home markets
(e.g., legal services, accounting services, etc.). A service company that wants to expand into international
markets should either a) confirm that its service is not unique to conditions, technology, and culture in the
Virginia Economic Development Partnership – International Trade Exporting Services 5
U.S. and is in demand in other countries, or b) be able to modify its service to meet demand in other
countries.
Past international leads are a definite indication of demand abroad, but it is likely that a service offering
and its corresponding contract will require some adaptation to align it with different cultural norms.
Moreover, service offerings can vary greatly from contract to contract, but it is important for a service
exporter to focus its international efforts around its greatest strength and value proposition in order to
stand out in foreign markets. Analysis of global competition is a good way to gauge international demand
for a company’s particular value-add. A company might also want to contemplate whether the features
that make its service unique or important can be duplicated abroad, so as to ensure that those brand
characteristics are maintained across all operations.
EVALUATE THE NECESSITY AND ABILITY OF THE COMPANY TO ADAPT FOR INTERNATIONAL
SALES
A service company’s product is its people, so it is important to assess the capabilities and organization of
its staff, potential gaps that might impede the sale and delivery of its service in international markets, and
the company’s ability to fill them. A service company should consider whether the organizational structure
is in place to pursue and execute international sales. For example, if a service must be tailored to specific
needs of particular international clients, new processes and resources to facilitate such negotiation and
cooperation may be required. Who in the company should sell and perform the service internationally,
and whether certain staff should be designated for international travel might also be considered.
Communicating a service offer is more difficult than communicating a product offer, especially to some-
one with a different language and culture. Staff interacting with foreign clients may not need to be
multilingual or have extensive international experience, but they should be sensitive to other cultures and
have interpersonal skills that reflect that sensitivity. Another consideration might be the travel readiness of
company and staff. A company might ask itself if there are enough people currently on board to work
toward international objectives. In case of a dramatic influx in international demand, is there a process in
place for quick recruitment or training?
EXAMINE THE OBJECTIVES, TRADEOFFS, AND COMMITMENT OF AN INTERNATIONAL EFFORT
After considering its industry and assessing its ability to adapt in the pursuit of international sales, a
company must examine its willingness to do these things. The company’s international objectives (what it
wants to gain from exporting), the resource tradeoffs and their effect on current business and employees,
and the company’s commitment to an international effort are all part of this examination. For a service
company, in particular, these components should be evaluated in the long term.
INTERNATIONAL OBJECTIVES
The export decision should not be based solely on short term objectives (e.g., a quick fix for a
slump in domestic sales). If a service company withdraws from an international market prema-
turely because they have met a short term objective, then international relationships with partners
and future clients may suffer. A worst case scenario would be if execution of existing international
contracts suffered. The company’s reputation would be at stake, and for a service company,
reputation is everything. Globalization makes it more and more difficult to contain bad news to a
single market, and moreover, should the company change its strategy down the line and pursue
long term international objectives, it will be difficult to overcome that damage to the brand.
RESOURCE TRADEOFFS AND THEIR EFFECT ON CURRENT BUSINESS AND EMPLOYEES
Marketing and delivering a service abroad requires a large initial investment. A service company
may need to train new employees as well as in-country distributors or localize offerings in order to
Virginia Economic Development Partnership – International Trade Exporting Services 6
successfully pursue international sales. It would be a waste of time and money to make this in-
vestment and then decide a few months later that international efforts are interfering with core
domestic sales and contract execution. Thus, it is especially important for a service company to
weigh the tradeoffs of using resources to develop domestic markets or expand offerings before
making the necessary long term commitment to export. If a company has other medium or long
term development plans that might compete with its export plans, then the time may not be right
to launch international efforts.
COMMITMENT TO AN INTERNATIONAL EFFORT
The delivery of a service requires consistent communication and collaboration with a client. It may
take longer to build a relationship and foster the trust required to make a sale that involves such
close interaction, especially when the transaction is between parties from different countries. This
is an important aspect of international sales that a service company should factor into their export
decision, particularly if an export effort needs to be self-sustaining within a certain period of time.
CASE STUDY: CHINA
Relationships and reputation are important and intertwined in China – not just socially, but in business as
well. “Guanxi” is the term assigned to the Chinese concept of relationships, but it carries with it a notion of
obligation and favor not present in the English word. Almost like currency, “guanxi” is saved and ex-
changed in China. “Face” is the term assigned to the Chinese concept of reputation, but culturally, it’s
vastly more important and permanent. As “guanxi” is currency, “face” is an asset that once lost, is difficult
to recover.
Such culture-specific notions do not necessarily play into a service company’s export readiness assess-
ment; they are considerations reserved for later stages of the exporting process. But for the purposes of
this report, they serve as examples of factors that come into play in international sales efforts that make
long term objectives and commitments essential in the export readiness assessment.
The importance of “guanxi” and “face” in China has multiple implications for a service company pursuing
sales in China. The obligation implied in “guanxi” makes the Chinese slow to engage in new relationships.
This means that it may take longer to make a service sale that requires close interaction. Moreover, in
associating and establishing “guanxi” with a service provider, a client takes on a risk of loss of “face.” Any
action or inaction on the part of the service provider – resulting from lack of long term objectives and
commitment or inability to deliver service internationally – that causes a loss of “face” for a service
company also causes a loss of “face” for its client. It is difficult for both the service company and the client
to recover and its loss is likely to affect future business.
Virginia Economic Development Partnership – International Trade Exporting Services 7
UNDERSTANDING EXPORT
REGULATIONS
The U.S. federal government controls the export of certain goods and services to protect national security
and foreign policy interests. There are two key export regulations for both goods and service companies:
» Export Administration Regulations (EAR)
» International Traffic in Arms Regulations (ITAR)
The first step to understanding export regulations is to determine whether EAR or ITAR regulate a
company’s exports. The second step is to determine if those exports require a license.
EXPORT ADMINISTRATION REGULATIONS (EAR) - U.S. DEPARTMENT OF COMMERCE
If a service is in no way related to military use, it is likely regulated
by EAR. These regulations apply to most commercial goods,
software, and technology as well as dual use items with civilian and
military applications. The majority of exports under EAR are desig-
nated as EAR 99 and do not require a license for most destinations
under most circumstances.
For a service company, it is important to understand that EAR
regulations apply to technology and information related to items that
are controlled by EAR.
Information about the design, development, production, manufacture, assembly, operation, installation,
repair, testing, maintenance or modification of controlled items is also regulated under the EAR. This
information can be in the form of blueprints, drawings, layouts, instructions and documentation, and also
includes intangible items such as software or source code. Finally, technical assistance such as training,
instruction, consulting services, and the application of skills is regulated if it relates to an export-controlled
item.8
How this information is transferred outside of the U.S. does not matter in determining export license
requirements. Actions such as mailing, faxing, uploading/downloading, e-mailing, discussing over the
phone, and releasing the article or information to a foreign national in the U.S. are considered an export
and are regulated by the U.S. Federal Government. In summary, exporting can occur through visual
inspection, oral exchange, or the application of knowledge with a foreign customer.9
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR) - U.S. STATE DEPARTMENT
ITAR regulates the export of articles specifically designed, developed, or adapted for a military applica-
tion, regardless of their intended use. Services, technical data, and software are regulated by ITAR if they
are related to an item listed on the U.S. Munitions List.
Examples of regulated technical data include technical drawings, formulas, operating manuals, training
manuals, and source code related to an item on the U.S. Munitions List. When related to controlled items,
defense services are also regulated by ITAR. Examples of defense services include furnishing assistance
8 (Old Dominion University Research Foundation, 2012)
9 (U.S. Department of Commerce, 2012)
If you can’t determine which
agency regulates your
exports, the U.S. Department
of State can issue a free
Commodity Jurisdiction Deter-
mination within 45 days. Click
here to access the electronic
submission form (DS-4076).
Virginia Economic Development Partnership – International Trade Exporting Services 8
to a foreign person (whether in the U.S. or abroad) in the design, development, engineering, manufacture,
production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction,
processing or use of defense articles.
In addition to sending or transferring physical goods, technical data, software, or services overseas,
exporting under ITAR is also defined as transferring any of these articles to a foreign person (whether in
the U.S. or abroad), embassy, agency, or subdivision of a foreign government, and performing a defense
service on behalf of, or for the benefit of, a foreign person (whether in the U.S. or abroad).
LICENSE REQUIREMENTS
The second step to understanding export regulations is to determine if exports require a license.
License requirements are dependent upon a good or service’s technical characteristics, the destination,
the end-user, and the end-use. To determine whether an export license is required, a service company
should consider the following questions:
» What type of service is being exported?
» To where is it being exported?
» Who is the recipient of the service, and how will it be used?
The decision tree on the following page provides information on license requirements and procedures for
both EAR and ITAR.
Virginia Economic Development Partnership – International Trade Exporting Services 9
EXPORT LICENSING DECISION TREE
Exporting Under EAR Exporting Under ITAR
START HERE
Is the technology, information, or
software related to an item
classified under an Export Control
Classification Number (ECCN) on
the Commerce Control List? The
ECCN (ex: 3A001) describes the
item and indicates licensing
requirements.
Click here for instructions.
Export is designated as
EAR 99.
It can be exported
without a license to most
destinations under most
circumstances.
NO
Do any of the General
Prohibitions 4-10 apply?
See Part 736:
General Prohibitions
Do any of the General Prohibi-
tions 4-10 apply?
See Part 736: General Prohibi-
tions
Using the Commerce Country
Chart, is there an “X” in the box?
Cross-reference the ECCN
against the Commerce Country
Chart to see if an export license is
needed. Look at “reasons for
control” and the country.
Click here for instructions.
Export under
“No License
Required” (NLR).
Is a license exception available?
See Part 740: License Exceptions
Export using a
license exception.
Submit an export license application.
YES
NO
NO
NO
NO
YE
S
YES
YE
S
START HERE
Is the technical data, service, or
software related to an item on the
U.S. Munitions List? If so, the export
is regulated by ITAR unless it is
listed as an exception.
Does the export qualify for one of the
following license exemptions?
» Technical data of general
applicability exemption
» Canadian exemption
Company, broker(s), and agent(s)
must all register with the Directorate
of Defense Trade Controls. Registra-
tion takes 4-6 weeks and does not
confer export privileges. Click here to
begin registration.
If performing a service or disclosing
technical data, consider a Technical
Assistance Agreement (TAA).
YES
No License
Required.
Keep records
showing how
exemption was
determined.
Apply for a
license prior
to exporting.
This takes
10-15 days.
YES NO
Virginia Economic Development Partnership – International Trade Exporting Services 10
In addition to EAR and ITAR, there are three other export regulations that a service company must
comply with:
» Foreign Corrupt Practices Act (FCPA)
» Sanctions Programs and Embargoes
» Anti-Boycott Laws
FOREIGN CORRUPT PRACTICES ACT (FCPA) – U.S. DEPARTMENT OF JUSTICE
The Foreign Corrupt Practices Act prohibits U.S. companies, persons, and foreign firms operating in the
United States from making corrupt payments to foreign officials for the purpose of obtaining or keeping
business. The FCPA contains both anti-bribery provisions and books and records provisions, as certain
payments are acceptable under the FCPA but must be recorded accurately.10
A service company should be aware that corrupt payments are also prohibited through intermediaries,
making it illegal to pay an agent while knowing that all or a portion of the payment will go to a foreign
official to gain an improper business advantage. A service provider is likely to face increased risk under
the FCPA due to more frequent and stringent licensing requirements for services abroad. For more
information on the FCPA, visit the following resources:
» U.S. Department of Justice – An overview of FCPA
» FCPA Professor – Frequently Asked Questions about FCPA
To avoid being held liable for corrupt payments, a company should exercise due diligence to ensure its
business relationships are with reputable and qualified partners. To learn more about conducting due
diligence on clients and partners, refer to the Bureau of Industry and Security.
SANCTIONS PROGRAMS AND EMBARGOES – U.S. DEPARTMENT OF THE TREASURY
All U.S. exporters must comply with foreign trade embargoes. Sanctions and other export controls are in
place for exports to Cuba, Iran, Iraq, Syria, North Korea, Sudan, Democratic Republic of the Congo,
Burma, Liberia, Balkans, Belarus, Zimbabwe, the Ivory Coast, and other locations. For more information
on U.S. sanctions and embargoes, visit the U.S. Department of Commerce.
ANTI-BOYCOTT LAWS – U.S. DEPARTMENT OF COMMERCE
U.S. exporters may not participate in international boycotts not sanctioned by the U.S., such as boycotts
against Israeli goods and ports. All U.S. export documents should be examined to make certain that
boycott language is not included in any correspondences, purchase orders, letters of credit or sales
contract terms. Click here for more information.
EXPORT COMPLIANCE
A company should take the following steps to ensure compliance with export regulations:
» Develop a customized compliance program for your company and ensure its adoption.
Visit bis.doc.gov for more information.
» Screen each customer and export transaction for prohibited end users. Visit Export.gov or
UPS.com to conduct a search of denied parties.
10
(U.S. Department of Justice, 2012)
Virginia Economic Development Partnership – International Trade Exporting Services 11
» Be aware of and report “red flags,” such as a customer’s unwillingness to disclose an item’s
end use. To learn more, refer to the Bureau of Industry and Security’s “Red Flag Indicators” and
Export.gov.
» Maintain records of all export transactions and compliance efforts for five years. Click here
to learn more.
CASE STUDY: CHINA
It can often be difficult to verify the reputation of a potential client or partner in a new market, particularly
for a service company. Screening each party to a transaction (use tools on Export.gov or UPS.com) is not
only a required component of export compliance, bus also good business practice. It is not uncommon for
a U.S. company to receive requests from foreign clients that may contain misleading or fake information.
Fortunately, there are a number of resources that a service company can use to verify companies and
inquiries.11
China is notorious for scams involving fake or disreputable companies, and conducting thorough due
diligence on potential partners or clients there is imperative. A U.S. service company might be suspicious
of a new or unknown Chinese contact that exhibits the following behaviors uncharacteristic of a legitimate
Chinese business:
» The contact haggles very little and has an offer that is irresistibly and unusually large
» The contact requests that money be sent to a personal account instead of a business account,
which can be identified by the beneficiary name on the account.
» The company lacks a website with a telephone and address that correspond to each other.
» The company is not registered at the local Administration of Industry and Commerce, which can
sometimes be checked online.12
RESOURCES
» FAQs on Export Licensing - U.S. Department of Commerce
» How to Determine If You Need an Export License - U.S. Department of Commerce
» Export Administration Regulations (EAR) - U.S. Department of Commerce
» International Traffic in Arms Regulations (ITAR) - U.S. Department of State
» Consolidated Screening List for Denied Parties - U.S. Commercial Service
» Screen for Denied Parties - UPS.com
» Country Service Profiles - World Trade Organization
11
(China Trade & Sourcing Blog, 2012) 12
(China Trade Commission, 2012)
Virginia Economic Development Partnership – International Trade Exporting Services 12
SELECTING AN INTERNATIONAL
MARKET
Conducting research and weighing alternatives to determine a target international market is a critical step
in the export process. A company should evaluate the costs and risks of doing business in a country
against the sales potential of its service there. The components below play into that evaluation to varying
degrees depending on a company’s service, situation, and objectives. However, personal knowledge
about or connections in a target market may also sway a company toward a market.
MARKET POTENTIAL
Demand for its service is typically the dominant factor in a company’s analysis of market potential. When
gauging demand a company should look at market size and growth, as well as other data points that are
indicative of demand for its particular service. It may help to understand where and why a service sells in
the U.S. and identify international markets with similar needs or conditions. Price levels, general costs of
doing business - such as adapting the service to meet potential client requirements or travelling to
perform the service - and the presence of competition might also play into a company’s analysis of market
potential.
Market Potential Criteria Research Resources
Market size and growth
» Service Export Values: U.S. Commerce
» Service Export Data: U.S. Census Bureau
» Service Trade Statistics: International Trade
Center
» Global Opportunity Tool: HSBC – Business without
Borders
» Market Research Library: Export.gov
» Trade statistics: GlobalEdge
» Google Global Market Finder
Country data
» Country Commercial Guides: Export.gov
» Compare Countries: NationMaster
» CIA World Factbook
Travel considerations
(expenses, time differences, entry require-
ments, etc.)
» Refer to the Work Permits, Certifications, and
Standards section
» Time Zones: TimeAndDate.com
» Travel Advisories: U.S. Department of State
Standards and quality requirements
» Refer to the Work Permits, Certifications, and
Standards section
» Industry and Market Research: UKTI
» Market Research Library: Export.gov
Virginia Economic Development Partnership – International Trade Exporting Services 13
LEGAL ENVIRONMENT
The legal system and regulatory environment surrounding a particular service industry should also be
considered in choosing a target market. The enforceability of service contracts is one major legal factor to
be taken into account. Trade barriers such as investment restrictions that require a company to partner
with a local firm in order to conduct business, lack of intellectual property protection, and regulation of
international data flows might also affect a service company’s ability to operate in a country and should be
considered. Still, local certifications and other documentation requirements could also play into a service
company’s market evaluation.
Legal Assessment Criteria Research Resources
Legal system and regulatory environment » Ease of Doing Business Reports: IFC
» Country Commercial Guides: Export.gov
Intellectual property protection in the market
» Refer to the Intellectual Property Protection section
» IP Protection: U.S. Trade Representative
» IPR Basics and Country Toolkits: U.S. Government
Foreign trade barriers and market access
» National Trade Estimate: U.S. Trade Representa-
tive
» World Trade Organization Services Database
» European Commission Market Access Database
» World Bank Services Trade Restrictions Database
Required licenses, certifications, and docu-
mentation
» Refer to the Work Permits, Certifications, and
Standards section
» Market Research Library: Export.gov
POLITICAL ENVIRONMENT
A market’s system of government and political environment should be considered because they also have
the ability to impact a service company’s operations there. A country lacking a stable government or in
which there is significant state intervention in the economy may not be a choice market for a service
company that is particularly risk averse. For a company in which employees must travel to perform a
service, markets with a record of kidnappings, riots, or rebellions might be avoided. Additionally, diplomat-
ic relations and potential export controls should be understood because they may prevent a company
from providing services in some countries.
Political Assessment Criteria Research Resources
Stability of the market » Political/Economic by Country: BTI Project
Diplomatic relations
» Refer to the Understanding Export Regulations
section
» Political Overviews: U.S. Department of State
Safety and security » Travel Advisories: U.S. Department of State
Virginia Economic Development Partnership – International Trade Exporting Services 14
INFRASTRUCTURE
Whereas logistics infrastructure may be important to a manufacturer that ships and distributes product in
an international market, communication systems and access to electricity are the infrastructure elements
in a market that are important to a service company that needs to be able to efficiently and effectively
communicate with clients.
Infrastructure Assessment Criteria Research Resources
Infrastructure deployment » Internet Statistics: InternetWorldStats.com
» Global Infrastructure Index: WorldBank
ECONOMICS
It is also important for a service company to look at the overall economy of a country before choosing it as
a target market. The aspects of selling a service can change dramatically in established versus emerging
markets and in healthy versus unhealthy economies. The ability of a foreign government to control
monetary policy factors and improve the overall welfare of its citizens, which can influence the price of
services and the long-term viability of conducting business in the country, should play into a market
evaluation. A country’s Gross Domestic Product (GDP), education and employment levels, international
trade balances, currency reserves, and per capita income are some factors that may impact the overall
performance of a company doing business there.
Economics Assessment Criteria Research Resources
Economic Comparison of markets » Compare Countries: NationMaster
» Market Potential Index: GlobalEdge
CULTURE
A service company should also think about how cultural elements in a market might impact its success.
Some countries have a number of dialects and subcultures that require additional tailoring of services and
marketing. Additionally, the perception of U.S. service providers may be an advantage in some countries,
while a difficulty in others. Finally, understanding the etiquette and behavioral patterns of clients in a
market is critical to establishing a relationship and closing a deal.
Culture Assessment Criteria Research Resources
Cultural business practices, including languages » Cultural Guides: Kwintessential
» World Business Culture
Demand factors unique to buyers » Country Commercial Guides: Export.gov
» Doing Business Guides: UKTI
Virginia Economic Development Partnership – International Trade Exporting Services 15
CASE STUDY: CHINA
In the long term, China’s economic planners aim to shift growth from its concentration in the export-fueled
manufacturing sector to the country’s lagging services sector. In the meantime, China will import a total of
$1.25 trillion in services over the next five years.13
Despite this immense potential, U.S. service compa-
nies face many challenges in China. Intellectual property loss risk, regulations that limit participation in
certain sectors, the government’s role in the economy, and other factors may discourage a service
company from selecting China as a target market.
13
(The American Chamber of Commerce in Shanghai, 2011)
Virginia Economic Development Partnership – International Trade Exporting Services 16
INTELLECTUAL PROPERTY
PROTECTION
According to a recent U.S. Patent and Trademark Office report14
, exports of intellectual property-intensive
service-providing industries (those industries that are the most patent-, trademark-, and copyright-
intensive) totaled about $90 billion in 2007, accounting for approximately 19 percent of total U.S. private
services exports. Exports of software publishers, at $22.3 billion, were the largest group of services
exports in 2007. Other major IP-intensive services export categories in 2007 included scientific research
and development ($10 billion), management and technical consulting ($6.3 billion), computer systems
design and related ($5.6 billion) and business support services ($1.2 billion).
It is important for a service company to consider which intellectual property protections might apply to its
services in a foreign market and develop an appropriate intellectual property strategy there. International
intellectual property attorneys can assist in this process.
COPYRIGHTS
Copyrights protect original works of authorship. Copyrights may be applicable to several types of service
companies and various aspects of their business, such as consultants’ studies and reports, architects’
and engineers’ designs, software and mobile application code, white papers written for marketing purpos-
es, and any other literature authored by the company.
Under the Berne Convention, of which the U.S. and 161 other countries are members, works created or
first-published by a Berne-country national are automatically eligible for protection in every other Berne
country – with national treatment and no registration required. Some countries outside of the Berne union
may require certain procedures to uphold copyright protection. Still other countries offer only slight or
even no protection for the works of foreigners. The World Trade Organization (WTO) Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPs) requires non-Berne WTO members to
accept almost all the stipulations of the Berne Convention.
The TRIPs agreement is the first multilateral intellectual property agreement that is enforceable between
governments. The agreement is said to have a strong dispute settlement mechanism and leads members
of the WTO to provide criminal procedures and penalties in cases of willful trademark counterfeiting and
copyright piracy.15
PATENTS
Patents protect inventions and improvements to existing inventions. For service companies, patent
protection may be sought for technical systems or processes in performing services, as long as it has
“real world” value and is not simply a concept. Additionally, while software code is protected by copyright
law, developers may also protect software applications with patents.
Most countries award a patent to the first inventor to file an application (“first to file”) rather than the first
inventor to use the invention (“first to use”). The U.S. was the standout until recently, but in September
2011 the Leahy-Smith America Invents Act (AIA) made the U.S. a “first to file” country.
14
(Economics and Statistics Administration and the United States Patent and Trademark Office, 2012) 15
(U.S. Department of Commerce, International Trade Administration, 2008)
Virginia Economic Development Partnership – International Trade Exporting Services 17
The Paris Convention for the Protection of Industrial Property, which applies to patents and trademarks,
provides two important benefits for its 172 signatories: the right of national treatment and the right of
priority. The right of priority “allows applicants one year from the date of the first application filed in a Paris
Convention country (six months for a design or trademark) in which to file in other countries. Publication
or sale of an invention, or use of a mark, after first filing will therefore not jeopardize patentability in
countries that grant a right of priority to U.S. applicants as long as they submit an application before the
end of the priority period.”16
Not all countries adhere to the Paris convention, but as with the Berne
Convention, the substantive elements of the Paris Convention are incorporated into the TRIPs Agree-
ment.
The Patent Cooperation Treaty, to which the U.S. is also a party, streamlines the process for inventors
and businesses wishing to obtain patent protection in multiple countries. In filing an international patent
application with the U.S. Patent Office (USPTO), U.S. applicants designate other member countries in
which a patent is sought and are provided a window of 18 months in which they have to fulfill the national
patent requirements for each country to secure full rights there. These requirements include paying
national patent registration fees ($2,000 minimum per country) and, in some cases, filing translations of
the application. The additional time can be used to weigh the requirements, the necessary modifications
for obtaining the patents, and the benefits of exploiting the invention commercially in the countries.16
TRADEMARKS
Trademarks are words, names, symbols, devices, or images that are applied to products or used in
connection with goods to identify their source. Service marks are the same as a trademark except that
they identify and distinguish the source of a service. Any label, logo, or phrase that is associated exclu-
sively with a company’s service may be considered for mark protection. Such protection is particularly
important for testing and certification service companies, because the mark, which is representative of
some attribute, is the company’s “product” and therefore, its livelihood.
As with patents, most countries have “first to file” trademark registration frameworks, though there are
some countries that grant trademark rights based on priority of use in that country. The Paris Conven-
tion’s right of priority extends to trademarks, but local use of a mark may be required to receive and
maintain registration. Still, some countries do not protect service marks at all. Also as with patents, the
U.S. is not a member of any treaty under which a single filing will provide international protection, so it is
important for a company to determine which marks are vital to international operations and file those first
in key countries.16
TRADE SECRETS
Trade secrets are confidential information that is disclosed only on a “need-to-know” basis and allows a
company to gain an economic advantage. A service company’s secrets may include formulas, practices,
processes, designs, patterns, know-how, or compilations such as a customer list or financial data.
Trade secrets are protected without any procedural formalities and thus, for an unlimited period of time.
There are, however, some conditions for information to be considered a trade secret. While these
conditions vary from country to country, some general standards are referred to in the TRIPs agreement:
the information must be secret, it must have commercial value because it is a secret, and reasonable
steps by the rightful holder must have been taken to keep it secret (i.e. confidentiality agreements).
Despite these standards, trade secret protection varies widely and is weak in most countries.
A service business to which the aforementioned intellectual property law protections cannot be applied
can find some relief in trade secret protection. Non-disclosure, non-compete, and non-use agreements
16
(U.S. Department of Commerce, International Trade Administration, 2008)
Virginia Economic Development Partnership – International Trade Exporting Services 18
specific to a company’s business and situation may be signed with partners to try to prevent any know-
how from leaking. If these terms are not addressed upfront, partners may become adversaries by gaining
a legal foothold in the market and pre-empting the ability to profit.
Moreover, a small or medium-sized enterprise might choose trade secret protection over or in addition to
patent protection for its patentable intellectual property and draft the aforementioned agreements as such.
A company may go this route if patent registration is too expensive in the short term, if the information is
not considered to be of such great value to be deemed worth a patent, if the likelihood is high that the
information can be kept secret for a considerable period of time (beyond that for which a patent offers
protection), or when awaiting patent approval. Trade secret protection is perceived as less expensive
than patent protection, but compliance with trade secret conditions may turn out to be more difficult than
expected and courts may require very significant and possibly costly efforts to preserve secrecy. Overall,
patent protection is likely more cost effective and provides much stronger protection.17
BUSINESS STRATEGY
Countries differ significantly in terms of the degree of protection and enforcement available. Although
most nations have some intellectual property law on the books, many developing countries suffer from
institutional deficiencies that fail to protect their citizens. The reality is that even in developed countries,
patent infringements are normally dealt with in civil courts and may lead to injunctions and fines, but
probably not jail time. In less-developed countries, intellectual property protection may not be enforced at
all.
That being said, a service company should consider seeking intellectual property protection in its home
country, in countries where it sells or intends to sell its services, and third party countries in which a
partner or affiliated product or service provider might be located. By properly registering intellectual
property, a company has the legal redress on any loss.
In addition to protecting intellectual property legally, a company should also make an effort to protect it
operationally:
» Raise awareness throughout the company and the international team, in particular, about the
risks of intellectual property infringements
» Know who has access to and monitor the use of the company’s intellectual property frequently
» Monitor whether there are intellectual property infringements in the sector and market
» If possible, reveal only a portion of critical designs or formulas to partners and clients. In other
words, operate in such a way that even if some of IP is stolen, all of it cannot be
Protecting intellectual property may be critical for a service company to maintain a profitable presence in
a market in the long term, but it can be costly. In addition to legal fees for registration, a company must
leave room in the budget for enforcement. All resources and efforts in intellectual property protection are
for naught if a company does not track violations and misappropriations and enforce its rights.
CASE STUDY: CHINA
China is notoriously weak with regard to intellectual property protection. The country has made efforts in
recent years to improve the legal environment for intellectual property rights, but both its legal framework
and enforcement of rights need improvement. Ninety-three percent of respondents to the US-China
Business Council’s (USCBC) 2011 membership survey18
indicated they were somewhat or very con-
17
(World Intellectual Property Organization) 18
(The US-China Business Council, 2011)
Virginia Economic Development Partnership – International Trade Exporting Services 19
cerned about IPR enforcement. A May 2011 U.S. International Trade Commission study19
reported that in
2009 alone U.S. companies lost $48 billion in sales, royalties, and licensing fees to infringement in China.
Still, 57 percent of USCBC survey respondents believed that IPR enforcement is improving.
A company wishing to sell services in the China market should have an intellectual property strategy in
place and seek the appropriate protections – legally and operationally. One operational strategy fairly
common among companies entering the China market is to only offer their first or early-generation
services and products in the country, so as to not risk losing their most advanced IP. A company should
also be ready to take enforcement action. On a positive note, China’s courts are becoming a more
legitimate venue for combating IPR infringement—71 percent of USCBC survey respondents said the
courts can be viable to varying degrees. Only a small portion of companies surveyed had taken an IPR
infringement case to a Chinese court within the past three years (primarily in China’s larger, developed
cities), but three-quarters of them had won their cases.20
RESOURCES
» USPTO IP Awareness Assessment Tool - Designed to help evaluate a user’s IP asset awareness
and target areas specific to those related business needs
» Stopfakes.gov - One-stop shop for U.S. Government tools and resources on intellectual property
rights
» U.S. Patent and Trademark Office
» U.S. Trade Representative Office of Intellectual Property and Innovation
» World Intellectual Property Organization
19
(U.S. International Trade Commission, 2011) 20
(The US-China Business Council, 2011)
Virginia Economic Development Partnership – International Trade Exporting Services 20
WORK PERMITS, CERTIFICATIONS,
AND STANDARDS
When conducting business in a foreign country, a service company may be required to acquire work
permits for employees, obtain professional certification in the foreign country, and meet specific stand-
ards. Being aware of these requirements will help navigate foreign regulations that are specific to services
sectors.
WORK PERMITS
A service company will likely need employees to travel to international markets to meet clients and,
perhaps, stay for an extended period of time to execute projects. Some countries allow visitors to enter
for short stays without a visa, but require a visa for longer stays. To work in a country or stay for an
extended period, most countries require foreigners to obtain a work visa or work permit.21
It is often the responsibility of the employer, not the employee, to apply for a foreign work permit. The
application for a work permit varies by country and can take months to process. As an example, click here
to view the Government of Turkey’s application procedures for work permits. Permits are usually issued
for a specific worker and a specific job and may be denied if the foreign government believes that suitable
labor is available within the country. Employers may be required to advertise the position in the foreign
country and allow enough time to find a suitable resident worker before being issued a work permit.22
Travel and work permit requirements vary by country and trip purpose (such as tourism, business, or
work). To learn more about these requirements, refer to the following resources:
» Fragomen, Del Rey, Bernsen & Loewy, LLP – Review immigration and employment authorization
information by country.
» AboutJobs.com – Read a guide on preparing for overseas employment and view a country-by-
country guide for work permit and visa information.
» U.S. Department of State – View requirements for visas for each country and links to foreign em-
bassies. Consulates and embassies have information about work conditions, application
procedures, professional requirements, and immigration laws for their countries.
» U.S. Commercial Service Market Research Library – In the “Doing Business” guides for each
country, Chapter 8 provides information on visa requirements for business travelers.
» VisaCentral – Search for visa requirements by country and by trip purpose (tourism, business,
work, etc.).
» VisaHQ – Find visa requirements by country, application fees, and links to visa applications.
» WorkPermit – Information about immigration and work permits for most countries.
» Eurojobs.com Blog – Find information on work permits in Europe.
CERTIFICATIONS
Certain service professions, such as law, accounting, and engineering, are licensed and regulated in
individual countries. A company may be required to obtain professional certifications or licenses for
21
(AboutJobs.com, 2012) 22
(Reif, Woznick, Thurmond, Kelly, & Ostrea, 1997)
Virginia Economic Development Partnership – International Trade Exporting Services 21
employees in a country before conducting business there. These certifications vary by industry and are
often provided by third parties.
Industry associations and professional societies with international chapters are an excellent resource for
learning more about available certifications and required licenses. Membership in these organizations is
typically voluntary and can also help a company demonstrate its reputation to international customers.
To identify industry associations that are relevant to your company, please see the following resources:
» List of industry associations that develop standards – U.S. Department of Defense
» Weddles Professional Association Directory – Find associations by industry.
» Market Research Library – Reports by Industry and Country – Industry resources and associa-
tions are available in most market research reports from the U.S. Department of Commerce.
STANDARDS
A standard is a document that prescribes rules, guidelines, or characteristics for products, services, and
production processes. Standards are generally divided into two categories: private and public. Private
standards are developed by non-governmental entities and compliance to these standards is not legally
required. Public standards are developed by governmental entities and are generally mandatory by law.23
The three main international standards-setting bodies in the world are:
» International Organization for Standardization (ISO)
» International Electrotechnical Commission (IEC)
» International Telecommunications Union (ITU)
Standards are developed by numerous U.S., international, foreign and regional organizations. The
majority of the standards developed by these organizations are voluntary; however, foreign clients may
request that a company comply with certain standards.
REVIEW STANDARDS SPECIFIC TO SERVICE COMPANIES
» Browse ISO Standards for Services - Obtaining certification to ISO standards is voluntary and
ISO has no power to enforce the implementation of the standards it develops. However, a num-
ber of ISO standards have been adopted in some countries as part of their regulatory framework
and would thus be mandatory.
» View the European Harmonized Standards for Services - Standardization efforts related to the
European Union’s Service Directive (Directive 2006/123/EC) are under evaluation by the Europe-
an Commission, and some of these decisions will affect service companies.
SEARCH INDEXES OF STANDARDS
For assistance in identifying specific standards, the following organizations have searchable indexes:
» Search Engine for Standards - The American National Standards Institute’s (ANSI) comprehen-
sive standards search engine.
» IHS - Global - Global search of technical standards, codes, specifications, and related docu-
ments.
23
(Smith, 2009)
Virginia Economic Development Partnership – International Trade Exporting Services 22
» International Trade Centre Standards Map - Use the search tool to find information about private
(voluntary) standards by country, region, or sector.
FIND STANDARDS ORGANIZATIONS BY COUNTRY, REGION, OR SECTOR
» National Institute of Standards and Technology - List of organizations offering free access to their
standards.
» World Guide to Standards Resources - The National Institute of Standards and Technology’s re-
source to find standards organizations and resources by country.
» Regional Standardizing Bodies - World Standards Services Network - Many regional organiza-
tions have links to national standards bodies for specific countries.
» International Standardizing Bodies – World Standards Services Network
» Industry Associations that Develop Standards – U.S. Department of Defense
CASE STUDY: CHINA
Professional certification requirements may vary by country. As an example, if a Certified Public Account-
ant (CPA) in the U.S. wishes to provide services in China, a separate certification is required. At the
national level in China, the regulatory authority for CPAs and accounting firms is the Ministry of Finance.
At the local level, the finance departments of provinces, autonomous regions, and municipalities are the
appropriate regulatory authority. Furthermore, Chinese accounting standards vary from standards used in
the U.S. and other countries. As is the case with many country-specific standards, China is modifying its
accounting standards to be better harmonized with international standards.24
24
(Asian Legal Information Institute, 1994)
Virginia Economic Development Partnership – International Trade Exporting Services 23
MARKET ENTRY
When entering an international market, a service company should have in mind an ideal client profile and
a basic plan for reaching them – both in terms of entry strategy and marketing initiatives. There are
several approaches that a service company might take in entering a foreign market:
DIRECT SALES
With a direct sales approach a company markets its services to international clients independent of any
type of partner, so sharing potential profits is not required. A company with special promotional capabili-
ties or restrictive marketing policies may prefer this approach, but it also means assuming all operational
risk. Since direct sales do not require an exchange with an in-country partner, this method of entry may
be a good option for a company especially concerned about intellectual property loss.25
STRATEGIC ALLIANCES
There are a number of reasons why a service company might pursue a strategic alliance when entering a
foreign market. The benefits of this option may include improved market access, particularly if there are
restrictions placed on foreign firms in the target market, and receiving operational assistance. A company
should consider how it hopes to benefit from a relationship and then narrow down the appropriate type of
partnership and partner.
For example, a company looking for marketing assistance could partner with either a local company with
good connections and cultural understanding or a multinational company with global name recognition. A
company looking for technical expertise could partner with a local or other foreign company in a comple-
mentary industry and perhaps attach itself to a product sale, or partner with a local company in the same
industry that is lacking in a particular service area.
TYPES OF STRATEGIC ALLIANCES
SALES REPRESENTATION AND RESELLING
A company may contract a sales representative who uses the company’s literature and resources to
market its services in a country or region. While this model is common among product companies, it may
be appropriate for a service company as well. It is especially important for a service company to under-
stand the differences and implications of hiring employees versus contractors in a market and clearly
define the representative’s role in the contract. One such aspect of the partnership that should be made
clear in the contract is whether the representative has legal authority to obligate the firm.
A service reseller is the same as a product distributor in that they are both merchants, buying and then
selling the services and products for which they have contracts. Reselling partnerships are common in the
software sector. As with a sales representative contract, it is important for a service company to specify in
a reseller contract whether that reseller has exclusive non-exclusive rights to resell in its area.25
JOINT VENTURE
A joint venture (JV) may be contractual, in which the parties jointly execute a contract, or based in equity,
in which the parties jointly invest in a separate business entity. Joint ventures may make sense for a
service company when foreign participation in its sector is restricted. In this case, a foreign company may
25
(U.S. Department of Commerce, International Trade Administration, 2008)
Virginia Economic Development Partnership – International Trade Exporting Services 24
be able to take a minority role in a project or serve in a consultant capacity. A joint venture might also be
beneficial to a company in need of some local expertise or connections, or a company hoping to spread
operational risk or secure additional financing.
Entering a joint venture does not mean that a company may commit less in its efforts in a market. A joint
venture partnership may require only a portion of the financing, but the commitments of time and person-
nel are not proportionally reduced. When structuring a joint venture deal, it is optimal to include provisions
to retain control over day-to-day management of the joint venture as well as “break-up” conditions, so that
if things begin to go badly a company has some means to deal with the problem. While the foundations
for joint venture success are laid in the contract, constant involvement is crucial. It is necessary to be
aware and involved in the joint venture finances and operations at all times in order to ensure that it is
upholding performance and professional standards.
LICENSING
Licensing is a contractual arrangement in which a company’s patents, service marks, copyrights, trade
secrets, or other intellectual property is made available to a licensee to use in a contractually specified
manner for the marketing of services in exchange for compensation that is negotiated between the
parties. The licenser usually supports the operations of the licensee’s business by providing advertising,
accounting, training, and related services. A service company may view licensing, or franchising, as a
viable strategy for entering a market for several reasons:
» It allows a firm to enter a foreign market quickly and poses fewer financial and legal risks
» It gives access to proven marketing methods
» It reduces the burden of executing an intellectual property strategy because, as the partner
stands to lose as well, it acts to head off infringements
» It may help overcome non-tariff barriers, such as operations or investment restrictions
A couple of drawbacks to licensing are that it produces fewer profits and poses a risk to a service compa-
ny’s reputation should the licensee not uphold its service standards.26
MEMORANDUM OF UNDERSTANDING
A memorandum of understanding (MOU) is a non-legal agreement of cooperation between entities that
have a good relationship and might pursue a mutually beneficial arrangement. An MOU may be an
attractive option for a company that for some reason—marketing purposes or otherwise—wants to
associate itself with another party but not be bound to it in any legal way.
After identifying the type of partnership that best fits its purposes, a company needs to understand the
benefits and risks of partnerships. A company should conduct in depth due diligence on potential partners
to verify legality, operational and financial stability and practice, and reputation. Conducting reputational
due diligence is particularly important for a service company because its own reputation is its greatest
marketing tool. A company should avoid any damage to its reputation by affiliation with a questionable
partner.
A services company involved in a strategic alliance with a foreign partner also needs to be aware of and
monitor the following risks:
» Sub-par service performance on behalf of a partner that may damage a company’s reputation
26
(U.S. Department of Commerce, International Trade Administration, 2008)
Virginia Economic Development Partnership – International Trade Exporting Services 25
» Unauthorized intellectual property use by a partner or affiliated third parties
» Use of partner contacts in business dealings –a partner’s local contacts may be valuable, but in-
appropriate exchanges are a risk; moreover, if a local contact can be used by a partner to a
service company’s benefit, chances are that the same contact can also be used against a service
company should things turn sour.
In negotiating the length of a strategic alliance a service company should keep in mind its internal
timelines to meet international sales objectives, remembering that it often takes longer to build the
relationship and foster the trust required to make a service sale. Additionally, it may be beneficial during
negotiations to outline how the alliance can benefit the other party, in order to try to achieve optimal terms
(i.e. non-exclusivity) for itself.
MARKETING
Before entering a foreign market a service company should understand potential language and cultural
differences that may require it to modify its marketing materials:
» Make sure there is no unintended connotation of a service mark or name
» Consider whether there is anything that can be done to make the service stand out in target mar-
kets, such as add-ons that might provide an edge
Marketing a service is more difficult than marketing a product because there is no tangible good that
clients can see and use. However, by focusing marketing efforts around its greatest strength and value
proposition a service company can carve a niche for itself. Using this strategy, a service company can
market itself in foreign countries by developing name recognition in the market, networking, and display-
ing knowledge or skill. Marketing channels for each of these strategies include:
» Name recognition – Advertising in industry or trade magazines, seeking inclusion in in-country
industry directories
» Networking – Attending trade shows and participating in trade missions, joining in-country indus-
try associations, trade associations, American Chambers of Commerce, and developing contacts
in the target country’s Embassy and consulates in the U.S.
» Displaying knowledge or skill – For some services, attending trade shows may not be cost effec-
tive. Instead, a company may participate in conferences, conduct webinars or post blogs on
industry websites to show expertise and build credibility
Another strategy is to pursue the same marketing channels that affiliated products might pursue. A U.S.
service company might also identify international opportunities through the U.S. government’s various
foreign aid agencies. For further information, please refer to the VEDP publication, Fast Facts - U.S. Aid
Opportunities.
A service company might also benefit from highlighting its U.S. origins in its international marketing
strategy. Foreign companies evaluating service providers consider the reputation of a company’s home
country to be more important than the culture of that country, according to results from a VEDP - Interna-
tional Trade survey of foreign professionals. This means that the U.S. brand name - recognized globally
for leadership in many service sectors - is a viable marketing tool even in international markets that are
culturally different from the U.S. Survey respondents noted that the U.S.’s reputation for adherence to
standards and certifications, advanced technology and technical knowledge, and quality gives its service
companies a significant advantage over non-US companies, specifically, in business software and IT
services, consulting, laboratories and testing, and other technical services sectors For more information
about this survey, please see the Appendix.
Virginia Economic Development Partnership – International Trade Exporting Services 26
RESPONDING TO INQUIRIES
PRICING STRATEGY
There are several approaches to pricing services in foreign markets. A company may choose to maintain
a set profit margin globally or use a different price for domestic and international buyers. A pricing
strategy will depend on demand and competition in the foreign market.
Note that “dumping,” or selling at a lower price abroad than domestically, is not illegal for services as it is
for products.
EXPORT COSTS
While there are several methods for calculating a product or service’s final price, the following costs
should be considered in export pricing:
» International market research
» Advertising and marketing in the new market
» Translation services and legal fees
» Post-sale service costs
» Regulatory fees and taxes
» Export documentation
» Insurance, finance, and banking charges
» Employee training
CURRENCY FLUCTUATIONS
To avoid the risk of foreign exchange fluctuations, a U.S. exporter may prefer to quote prices and require
payment in U.S. Dollars, thus placing the burden of exchanging currencies and associated risks on the
buyer. If the client asks to make payment in a foreign currency, the exporter should consult an interna-
tional banker before negotiating the sales contract.
RESPONSE CHECKLIST
A proforma invoice is a common response to an inquiry from a potential client. Regardless of the type of
document used, the following information should be included in a response to an inquiry:
» A basic introduction about your company, its services, and prices
» References or information that indicates your company will be a reliable service provider
» A request for credit references and names of other customers
» Your company’s policy on exports, such as abiding by all U.S. Export Administration Regulations
» An expiration date for the quote
» Simple yet specific language that avoids slang/acronyms
» Terms of sale, terms of payment, insurance, travel costs
» Total charges to be paid, quoted in U.S. Dollars or the local currency
Virginia Economic Development Partnership – International Trade Exporting Services 27
CASE STUDY: CHINA
The Chinese government dictates in its Catalogue Guiding Foreign Investment in China restrictions on
foreign investment in a number of service sectors, including legal services, consulting firms, and a variety
of financial services. In some sectors, foreign companies are restricted entirely, but in others foreign
companies may take a minority share in a joint venture with a domestic company to participate. Such
restrictions make joint ventures a common vehicle for investment in China, which has a well-established
regulatory regime for governing them.
Profits and losses of a Chinese equity joint venture are spread among investors according to their
respective registered capital contributions, of which the foreign investors’ must account for 25 percent.
Approval authority for establishing a joint venture belongs to either the Ministry of Commerce or a
provincial commerce bureau depending on certain variables. One such variable is whether the industry is
restricted in the aforementioned Catalogue Guiding Foreign Investment in China, as a number of services
industries are. Moreover, equity joint ventures in certain services industries such as consulting and
maintenance and repair must stipulate a specific operating duration that may be extended only after
obtaining approval from the appropriate authority by submitting an extension application six months
before the original term expires.27
RESOURCES
» Useful Links for Product Licensing - The Federation of International Trade Organizations
» Pricing, Quotations, and Terms - Export.gov
» Prepare a Proforma Invoice Online - DHL
» International Trade Scams - Export.gov
» Red Flag Indicators - U.S. Department of Commerce
» U.S. Trade Sanctions and Country Information - U.S. Department of the Treasury
» Export Pricing Guide - Australian Trade Commission
27
(US-China Business Council, 2011)
Virginia Economic Development Partnership – International Trade Exporting Services 28
FINANCING AND PAYMENTS
While payment and financing may be standard for a product sale, terms of payment and project finance
are key elements of service negotiations and contracts. Understanding the financial risks and burdens
associated with exporting and how to mitigate them is thusly imperative for a service company.
METHODS OF PAYMENT28
Some popular commercial lender tools used to ensure payment from foreign clients, including Letters of
Credit and Documentary Collections, are not applicable to service exports because they are based on bill
of lading documents used in shipment of physical goods. As a result, Cash in Advance, Open Account,
and Standby Letters of Credit terms are the most likely options for a company exporting services.
CASH IN ADVANCE
Cash in Advance, in which payment for a service is required upfront, is the most favorable term for a U.S.
service exporter because it avoids all risk of nonpayment. This payment term is the least attractive to
foreign clients, and an exporter requiring it may lose contracts to firms offering alternative payment terms.
OPEN ACCOUNT
On the other end of the spectrum is an Open Account payment term, in which an exporter invoices a
client once the service is completed. This option risks nonpayment and contract completion may require a
significant commitment of capital and resources on behalf of the exporter. As a result, unless it has a
longstanding relationship with the client, this option is a service exporter’s least preferred payment term.
Since performing a service might occur over time, a service transaction can allow for greater flexibility in
payment terms than a goods transaction. Structuring unique payment terms to create a mutually benefi-
cial contract for service provider and client is common. For example, some contracts may call for a
significant down payment from the client (25-35 percent is recommended) and staggered payments at
specific milestones during the project. In other cases, a buyer may request a down payment be waived in
favor of higher staggered payments. Still, some countries regulate international transactions and may
require a company to structure contracts in specific ways which may create default payment terms when
working in those countries.
STANDBY LETTER OF CREDIT
A Standby Letter of Credit provides a commercial bank’s guaranty of payment by the client under the
contract signed between the client and the exporter. It is enforced with trade documentation such as
copies of invoices and other evidence of work performance. If a U.S. exporter is unable to collect money
for services rendered, then these documents are submitted to the bank to draw on the Standby Letter of
Credit. If the service and payments are exchanged in accordance with the contract, then the Standby
Letter of Credit is not utilized. Standby Letters of Credit are an overarching term that can encompass
several financial tools that service exporters might use, including performance bonds, bid bonds, warranty
bonds and advance payment bonds. A U.S. service exporter may seek Standby Letters of Credit for
foreign contracts in order to strengthen its own credit worthiness and reaffirm both sides’ contractual
obligations. If used in conjunction with staggered payment terms, Standby Letters of Credit for both the
service exporter and the client may enhance bid competitiveness by insuring refund of advance pay-
ments.
28
(Export.gov, 2012)
Virginia Economic Development Partnership – International Trade Exporting Services 29
FINANCING TOOLS
Commercial Banks are rarely willing to take the risk of financing export projects on their own. To help
exporters get the capital necessary to begin or maintain existing international business, the federal
government, via the Small Business Administration (SBA) and the Export-Import Bank (Ex-Im Bank),
mitigates commercial banks’ risk of export financing through intermediate export finance products. The
agencies assume the country and credit risks that banks are unable to accept by guaranteeing loans and
otherwise extending credit to a company. The agencies’ products come with their own applicant qualifica-
tions and requirements to which commercial banks may add different and more stringent parameters.
Nearly all finance options require an evaluation of an exporter’s assets: collateral, accounts receivable,
cash flow statements, and ability to repay, to name a few. For a service company with limited collateral,
lenders may stipulate the owners sign a personal guaranty of loan repayment. In some cases, even the
financial strength of the owner is not enough for a bank to lend. The difficult truth is that sometimes
services export finance is simply not available through traditional banking channels. The following
programs are examples of financing options available to U.S. service exporters.
SBA FINANCING PROGRAMS
EXPORT EXPRESS LOAN PROGRAM
SBA Export Express offers up to $500,000 in loan proceeds – in the form of a term loan or revolv-
ing line of credit - to be used for business purposes that will enhance a company’s export
development. Any service company that has been in operation for at least one year and can
demonstrate that the loan proceeds will support its export activity is eligible. Participating com-
mercial banks facilitate the application process for the loan. For more information, visit the SBA
Export Express Loan Program Product Page.
INTERNATIONAL TRADE LOAN PROGRAM
The International Trade Loan Program provides lenders with a 90 percent guaranty on term loans
for fixed assets and working capital of up to $5 million for the purpose of enabling the borrower to
be in a better position to compete. The program is intended to assist businesses that plan to start
or continue exporting, or that may have been adversely affected by competition from imports and
need to retool to become more competitive. Funds may be used for mergers & acquisition; con-
struction, renovation & expansion; modernization & improvement; and for refinancing of an
existing loan. For more information, visit the SBA International Trade Loan Program Product
Page.
EX-IM BANK FINANCING PROGRAMS
The service sectors that received the most support from the Ex-Im Bank in 2011 were engineering and
consulting services, which accounted for about 40 percent of the bank’s service export financing. The Ex-
Im bank gives itself an overall grade of “B” in the area of service programs offered in comparison to other
export credit agencies around the world, but Ex-Im Bank service export support typically takes the form of
short term financing, due to the limited useful life of services.29
Moreover, the Ex-Im Bank is generally
prohibited from financing transactions of defense-related services, but traditionally defense service
companies may be able to take advantage of dual-use exceptions.
29
(Ex-Im Bank, 2011)
Virginia Economic Development Partnership – International Trade Exporting Services 30
GLOBAL CREDIT EXPRESS
Global Credit Express is a pilot program aimed at financing the business of exporting rather than
specific export transactions. It offers small businesses with a minimum of three years of revenue
producing operations and one year of exporting experience a 6-12 month revolving line of credit
of up to $500,000. Participating commercial banks facilitate the application process for the Ex-Im
loan. For more information, visit the Ex-Im Bank Global Credit Express Product Page.
EXPORT WORKING CAPITAL PROGRAM (EWCP)
Many banks in the U.S. do not provide working capital advances on export orders, export receiv-
ables or letters of credit. Because of that, some small businesses may lack necessary export
working capital to support their export sales. SBA provides lenders with up to a 90% guaranty on
export loans up to $5 million as a credit enhancement, so that the lenders will make the neces-
sary export working capital available. Exporters can apply for EWCP loans in advance of
finalizing an export sale or contract. With an approved EWCP loan in place, exporters have
greater flexibility in negotiating export payment terms—secure in the assurance that adequate fi-
nancing will be in place when the export order is won. For more information, visit the Ex-Im Bank
Export Working Capital Program Product Page.
EXPRESS INSURANCE
Express Insurance provides small business exporters access to credit insurance on their short-
term export receivables. Export insurance on receivables makes it easier for companies to obtain
other financing. For more information, visit the Ex-Im Bank Express Insurance Product Page and
the Express Insurance Product Fact Sheet.
SUPPLY CHAIN GUARANTEE
The Ex-Im Bank's Supply-Chain Guarantee supports suppliers’ sale of accounts receivable from
a U.S. exporter to a commercial lender by providing a 90 percent guarantee on the invoice. The
program helps exporters’ suppliers obtain cash quickly (often at lower rates that reflect the credit
of the exporter) and increase liquidity to fulfill new orders. For more information, visit the Ex-Im
Bank Supply Chain Guarantee Product Fact Sheet.
Service Category 2010 2011Change
'10-'11
Engineering & Consulting 1,011$ 1,192$
Oil & Gas Drilling and Mining 893$ 877$
Construction -$ 500$
Information Technologies, Telecom 151$ 320$
Other Services 80$ 10$
Legal & Banking 50$ 10$
Medical 0.1$ -$
Transportation 51$ -$
Rental & Leasing -$ -$
Total Services Supported 2,236$ 2,909$
Services Supported by Ex-Im Bank (million USD)
(Ex-Im Bank Competitiveness Report, 2011)
Virginia Economic Development Partnership – International Trade Exporting Services 31
In addition to payment terms and export finance, a company’s success in getting paid for services
rendered abroad might be impacted by foreign currency exchange regulations, in-country legal require-
ments, banking costs, and political/country uncertainty. Developing a relationship with an international
banking institution is an easy way to help lessen the financial risks of international trade. Many experi-
enced lenders will provide free advice and information to assist exporters in understanding their
exposures and the financing options available.
CASE STUDY: CHINA
In 2011, the Ex-Im Bank authorized approximately $590 million in loans, guarantees, and insurances to
facilitate international trade with China.30
Ex-Im Bank finance support is guided by a country limitation schedule that stipulates credit availability
and financing options by country. The current schedule does not place any restrictions on support to
China, allowing short-, medium- and long-term financing for both public and private sector transactions.31
The schedule does, however, outline special credit and guaranty requirements for sovereign transactions,
public sector non-sovereign and private sector transactions under medium- and long-term programs, and
short-term insurance policies for public sector non-sovereign transactions. Of particular note is a special
agreement between Ex-Im and China’s Ministry of Finance that waives import duties and VAT for projects
that include at least 50 percent U.S. exports or where the Ex-Im guaranty is for at least half of the contract
value for medium- or long-term financing on sales to Chinese buyers.32
While none of Ex-Im’s loans to
Chinese buyers in 2011 were in support of service transactions, U.S. service companies may have taken
advantage of credit options made available by the bank to advance their trade with China.33
Other finance-related hurdles a service exporter might face in conducting business in China include
repatriation of profits and dividends, foreign exchange issues, and service management fees.
RESOURCES
SMALL BUSINESS ADMINISTRATION
» Export Express Loan Program Product Page
» Export Working Capital Program Product Page
» International Trade Loan Program Product Page
» SBA Loan Application Checklist
» Business Loan Application Checklist
» Funding Overview
» Loans and Grants Search Tool
EX-IM BANK
» Ex-Im Small Business Global Access
» Global Credit Express Product Page
» Express Insurance Product Page
» Supply Chain Guarantee Product Fact Sheet
30
(Ex-Im Bank, 2011) 31
(Ex-Im Bank, 2012) 32
(Ex-Im Bank, 2011) 33
(Ex-Im Bank, 2012)
Virginia Economic Development Partnership – International Trade Exporting Services 32
» Ex-Im Bank Supports Virginia Export Jobs
» Ex-Im Bank 101 – Introduction Video
FINANCIAL LENDERS
» SBA Lenders by Zip Code
» Ex-Im Lenders List
FINANCE GUIDES
» U.S. Commercial Service – Payment Terms & Financing Options
» U.S. Commercial Service – International Trade Finance Guide
» International Trade Administration – Guide to Export Finance
Virginia Economic Development Partnership – International Trade Exporting Services 33
APPENDIX: VEDP INTERNATIONAL
MARKETING SURVEY
Foreign professionals ranked the most important factors in evaluating a service offer to be quality of
service, responsiveness to customer needs, and price. On the other end of the spectrum, geographic
proximity and the nationality of a company are the factors least considered in evaluating a service offer.
Survey results also showed that when a service company’s nationality is a consideration, the reputation of
the company’s home country is more important than the culture of that country in evaluating a service
offer. This means, for example, that a Korean company evaluating offers from both a U.S. company and a
Chinese company may be more likely to choose the U.S. company because it places greater value on the
Based on the results of a VEDP – International Trade survey of foreign professionals, the attributes
that make a service company competitive in international markets are the same as those that make
it competitive domestically – quality of service, responsiveness to customer needs, and price. Survey
results also show that foreign professionals evaluating service providers consider the reputation of a
company’s home country more important than the culture of that country and, as such, the U.S.’s
standing as a global leader in services gives its service companies a significant advantage over their
non-U.S. competitors. In terms of international marketing, this means that a U.S. service company
should focus its messaging on quality, responsiveness to customer needs, and price, as well as
highlight its U.S. origins in order to employ the U.S. brand as a viable marketing tool.
Virginia Economic Development Partnership – International Trade Exporting Services 34
United States’ reputation for services expertise than on the similarities between the Chinese and Korean
cultures.34
Survey respondents noted that the U.S.’s reputation for adherence to standards and certifications,
advanced technology and technical knowledge, and quality gives its service companies a significant
advantage over non-U.S. companies. Industries in which these attributes are most beneficial to U.S.
companies include business software and IT services, consulting, laboratories and testing, and other
technical service fields.
34
In an effort to gain insight on optimal marketing strategies for service companies in international markets, an online survey of
foreign professionals was conducted on the perceived added value of service providers among international clients. The survey was
designed to capture the perspectives of companies in other countries evaluating domestic and foreign service providers such as
engineering services, information technology consulting services, asset management services, etc. The survey was sent to foreign
consultants with whom the Virginia Economic Development Partnership contracts for marketing research and assistance. The
survey results are based on answers from 56 respondents in 19 countries. Overall, 45 percent of respondents were consultants and
48 percent were from public or private companies. Thirty-nine percent of respondents held the title of Director, CEO, or President
and a further 27 percent were managers. To view the survey questions, please visit VEDP – International Trade Service Export
Survey.
Virginia Economic Development Partnership – International Trade Exporting Services 35
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Virginia Economic Development Partnership - International Trade assists both new and experienced
Virginia businesses with identifying new markets, developing market entry strategies, and locating
distributors and representatives—all at little to no cost. Virginia businesses interested in increasing
international sales and growing market share can benefit from our export development programs, publica-
tions, resources, and market research.
For more information, please visit our website at www.exportvirginia.org.