Our services export industry is booming. Joe Parkes takes in a statistical overview and looks at some of the big deals our exporters are cutting in overseas markets.
They are Hollywood stars, teachers in India, environmentalists in Vietnam, cinema chain operators in South America, forensics technologists at Scotland Yard, health specialists in Europe, Olympics planners in Beijing, architects in Dubai, and The Wiggles, and Dorothy the Dinosaur.
They’re all part of Australia’s dynamic services export industry, which earned $41.9 billion in the year to last June, according to the Australian Bureau of Statistics (ABS).
Services represent the most dynamic sector in the Australian economy, providing 72 percent of Australia’s GDP and employing 84 percent of all Australian workers, according to ABS. Over the last 10 years, exports of services have increased by an average of almost 5.8 percent every year.
They are worth more than all the nation’s rural exports put together and have about the same value as manufactures. The biggest export earner of all is Australia’s tourism industry, harvesting about $11 billion a year from 5.5 million international visitors.
The Department of Foreign Affairs and Trade (DFAT) ranks education services as Australia’s second largest services exporter and our fourth biggest export overall, worth more than $10 billion a year and attracting more export dollars than even gold, beef, or aluminium. Australian universities see fees paid by overseas students as indispensable, contributing more than 15 percent of their revenue. There are now some 380,000 foreign students attending courses in our universities and in hundreds of private Australian language and training colleges.
Last year Australia sold the world a range of professional services, such as legal, architectural, accountancy, and engineering support worth more than $4.3 billion. But the increasingly muscular performance of the Australian dollar on foreign exchanges is now threatening to eat into this potential.
Nevertheless, demand is growing for Australian experience and skills in environmental services like waste-water treatment, recycling, energy efficiency and pollution prevention, while financial services exports generated $1.7 billion in exports in 2006.
Australia’s most enthusiastic customers for services are currently the United States, Japan, and Britain, with spectacular growth putting China in fifth place, just behind New Zealand.
According to DFAT, services are most likely to become Australia’s strongest growing sector in global trade in the next few years. They already account for around 19 percent of total export activity with both developing and developed countries recognising that ‘efficient services industries are central to vibrant and resilient economies’.
It’s exciting news but, alas, in today’s world not all exports are created equal.
For a start, there is a completely separate set of international rules covering services exports. The World Trade Organisation has created a special General Agreement on Trade in Services (GATS) that allows individual countries to decide for themselves what their commitments will be to market competition from foreign service suppliers.
This means Australian service exporters are constantly coming up against overseas government barriers that include foreign equity limitations, lack of recognition of qualifications, restrictions on the issue of licences, limits on the number and location of branches, and restrictions on the way our service industries can present their commercial presence.
Australia wants this to change. It is hoping the World Trade Organisation’s current Doha Round of trade negotiations will conclude by the end of this year with WTO members agreeing to a standardised response to the trade in services.
Tim Harcourt, Austrade’s chief economist, wonders why there’s so much angst about services. "We tie ourselves up in knots about what’s ‘old economy’ versus ‘new economy’ and what’s services and what’s not," he says. "The reality is that many ‘old economy’ industries have high quality services components in them. For example, I run into small Perth services companies that provide training and technology to mining energy companies from places as diverse as Moscow, Delhi, and Beijing. The same thing happens in Argentina in the wine country of Mendoza, where you find a dozen Adelaide services exporters providing viticulture training to local vineyards. In many ways, there’s a lot of ‘new economy’ to be found in ‘old economy clothes’ with plenty of services exporters leveraging off traditional commodity export sectors."
The OECD believes liberating the trade in services could deliver benefits five times greater than liberalising the global trade in goods. But until change is achieved, many Australian services exporters—especially in areas like the law—face dealing with restricted opportunities.
Only a handful of Australia’s 55,000 lawyers are involved in trans-national legal practice and, according to the International Legal Services Advisory Council of Australia (ILSAC), deep-seated overseas regulatory barriers are holding back our efforts to expand. At present, legal opportunities in overseas markets are almost all in the hands of larger legal firms with enough cash, staff, and clout to open offshore offices.
Free Trade Agreement Reforms
There are some signs that reform is coming to the services export sector, notably the Free Trade Agreement between Australia and the United States (AUSFTA), which provides for greater market access and non-discriminatory treatment for Australian service providers in the United States market.
There is an increasing range of market opportunities in Asia’s developing services industries sector—legal education and training, commercial dispute resolution and technical assistance, and loan and finance project work for international development and financial institutions such as the Asian Development Bank and World Bank.
In China, Chile, Thailand, the United States, and India, Australia’s internationally recognised research and development capabilities in renewable energy—solar photovoltaic (PV), wind, hydro, biomass, and geothermal—are in demand, especially since Australia’s notorious lack of interest drives many firms offshore to pursue commercialisation.
There is international demand, especially in Asia and South America, for Australia’s research and development services on railways in areas like ultrasonic and stress testing in rails, computer simulations, signalling for automatic train protection and control systems.
Our expertise in cutting edge telecommunications services and technologies—especially Australia’s world-leadership in satellite and microwave solutions—is increasingly popular in international markets. In 2006, Australia’s ICT services exports were worth $2.7 billion, an increase of round $0.5 billion.
One of the most spectacular results has been in the mining services export sector with forecasts of offshore sales worth $6 billion by 2010.
Alan Broome, chairman of the mining services industry’s export support organisation, Austmine, says its members are enjoying a "very buoyant market development" largely led by rapid market development in China, India, the Russian Federation, and Latin America.
Our health and medical industry is also internationally famous for its technology, skills, research and development. Australia’s domestic health market ranks as the 11th largest in the world and it exports about $2 billion worth of pharmaceuticals a year.
Health
services are becoming increasingly popular in overseas markets, especially in areas like health IT including health messaging, electronic health record structures and hospital management systems. There’s also growing demand for Australia’s specialist and alternative health services like acupuncture, homoeopathy and naturopathy.
A growing area of health service exports is in clinical trials where Australia is internationally recognised for its work in niche services like preclinical and clinical trials in biomedicine.
Not all our services exports involve such specialised undertakings. ABS reports that Australia exports more than $700 million worth of building services—and that figure might be an understatement because service transactions are notoriously difficult to track.
Australia’s consulting and construction engineers are also in demand for feasibility studies, environmental evaluations, project designs and management.
There is a great deal more that Australian service firms are achieving overseas. We are selling the world a cornucopia of services in the arts, agribusiness, biotechnology, defence, franchising, oil and gas exploration, telecommunications, and sports.
And, to top it off, there are millions of children all over the planet who can’t get enough of The Wiggles—a talented and dedicated group of Australians who now earn about $40 million a year in overseas markets, mainly the United States, from tours, CDs, videos and DVD sales, as well as product licences.
Big Deals
Question: How does an Australian service provider win business on the world stage?
Answer: Any way you know how.
In the case of Robert Hopton, group strategic marketing director of the Sydney-based architects Woodhead International, he was standing in a taxi-rank queue at Singapore’s Changi airport and started chatting with a fellow he’d met briefly at the Sydney Olympics. His new acquaintance turned out to be the airport’s chief economist and their chance meeting led to Woodhead winning two major design contracts: the interiors at Changi’s Terminal three (worth $1.35 billion) and the interiors at Singapore’s National Library (worth round $222 million).
They were the first offshore design deals Woodhead had won, even though the company had been in business since 1927. It is now one of the leading architectural and design consultancies in Asia.
"Success grows more success," says Hopton. "A willingness to partner with other firms and to share information on the project has turned out to be one of our most important assets. It also develops your capacity to enter new markets."
Woodhead has also developed a system that offers industry specific expertise to its clients by creating project teams that understand the customer’s business and can provide unique cost-effective design solutions.
Architecture is proving to be a hot-ticket export item for other Australian designers like the award-winning firm Woods Bagot, famed for its designs for the massive Burj Dubai mega shopping mall in the Middle Eastern state. Burj Dubai has proved to be a magnet for Australian talent with its shops managed by Melbourne’s Jeanette Bennett and Fred Douglas, food concept by Future Foods, a small Melbourne niche exporter, and the mall’s 35,000 fish aquarium installed by Melbourne Aquarium company, Oceanis.
‘Piggy-backing’ is proving to be a popular and lucrative business in a whole range of international projects involving Australians. In Tokyo, for example, noted restaurateur Luke Mangan has opened a branch of his Sydney restaurant, Salt, to considerable acclaim, and decorated it with artworks by the Narrabeen, Sydney, artist Karen Benton. He also flies in Australian food and beverages every week.
Woods Bagot’s latest coup is the design for London’s latest ‘landmark’ building at 100 West Cromwell Road, the biggest development the British capital has seen in 30 years. Costing an estimated £200 million, the structure will cater for luxury living.
