As our oil industry copes with slumping prices and the manufacturing sector still struggles, Canadians may be failing to notice one of the most promising global export stories – the huge growth potential in selling services.
"We really think it's an area that's poorly understood," says Danielle Goldfarb, associate director of the Global Commerce Centre at the Conference Board of Canada.
"There's very little discussion of the fact that Canada sells a lot of services into global markets. There's often an image of burger-flipping jobs, but the services we're selling are really associated with high wages – financial services, insurance, computer services and engineering and technology, where Canada is a world leader."
The idea of selling services is straightforward. It can be either a sale of expertise or advice, such as legal counsel or business expertise, or a service combined with an initial sale of goods.
In the latter case, the growth comes from the potential long-term relationship that can develop.
For example, it is one thing if a company such as Bombardier Inc. sells its new C Series jets to foreign airlines, which the company seeks to do at the key Paris Air Show starting June 15. Equally, or perhaps even more, important are the long-term service and maintenance contracts that come with sales of sophisticated equipment such as jets.
The same type of added value applies to knowledge exports such as information technology and financial-service management, Ms. Goldfarb says.
"When you look at our exports over the past decade, three of the top five categories are in commercial services." These are: finance and insurance, management service and computer and information services. "They're growing much more rapidly than our exports of our products," she says.
In a recent presentation, Jacqueline Palladini, senior economist at the Conference Board's Global Conference Centre, said that 56 per cent of Canada's service trade in international markets is "embodied" in trade in goods – the service and maintenance contracts that come along with the sale.
Another 7 per cent is in add-on services that come with other services – the legal advice that comes with the financial service, and so on – while only 37 per cent of our service trade is pure service, without any goods attached.
Ms. Palladini also noted that tradable service-related jobs are "higher paying and require workers with higher education." In 2012, the average weekly wage for a trade-related manufacturing job was $976, compared with $1,336 for a job in a tradable service field.
Ms. Goldfarb has wondered why there is not more attention focused on trade in services. One of the challenges is that it can be difficult to get as clear a picture of Canada's service export economy compared with trade in raw materials and goods.
Statistics Canada data for last year shows that Canada's worldwide exports of $524.5-billion grew by more than 11 per cent over 2013, while services exports of $95-billion grew by only 2.9 per cent year over year.
"The trade data may not represent the full picture," Ms. Goldfarb says.
"For example, you could be a company like Scotiabank that sets up in the U.S. and you're also selling your services through your affiliates. That doesn't get captured in our statistics, yet it's also a part of companies going into global markets and selling their services. That also has an impact on head-office jobs in Canada."
To give an idea of how complicated the services trade data can be, in Ontario the statistics show that services actually "saved" the province's trade picture between 2004 and 2014. In that decade, which walloped manufacturing in the province, goods exports declined by about $14-billion (at 2007 dollar levels), while service exports increased by about $24-billion, says Ms. Palladini, for a net gain of about $10-billion.
Ms. Goldfarb and Glen Hodgson, the Conference Board's senior vice-president and chief economist, are preparing comprehensive research on Canada's trade in services to be released this summer.
The conditions for growth are good, says Mr. Hodgson – better global access to Internet, cheaper computing power and air travel, ever-improving telecommunications and more sophisticated products that require support from experts who can export their know-how as a service.
There are obstacles, too, he notes. These include legal and administrative obstacles that we ourselves erect in Canada, concern about violation of patents and intellectual property rights if technology services are exported, varying and often uncertain international standards, tariffs and trade barriers, and cultural differences that can lead to misunderstanding.
Since 2013, Canada has been participating in 24-nation talks to develop a Trade in Services Agreement that would address some of these concerns. Getting an international services deal is a long slog, though, and in advance of this, Ms. Goldfarb and her colleagues believe Canadian exporters would be wise to focus more on the opportunities for boosting service trade.
"Now we can digitize information and send it anywhere globally and that has really opened up all kinds of potential to sell goods and services in global markets that didn't exist before," she says.s