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UC Berkeley Press Release

Exporting services opportunities for California

– Booming Asian economies offer new growth opportunities for small- and mid-sized services firms in California, say two economists at the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley's Haas School of Business.

In a new report, Ashok Bardhan, a senior research associate, and Cynthia Kroll, a senior regional economist, outline the emerging potential in India and China for small- and mid-sized firms in the fields of professional and technical consulting, energy and environmental services, legal services, tourism, software and IT services, banking and finance, architecture and design, transportation and supply chain management, and training and education.

Their research was commissioned by the Centers for International Trade Development, established under the auspices of the California Community Colleges' Economic and Workforce Development Program. The centers help an estimated 2,500 to 3,000 mostly small enterprises each year, largely with training about international import and export processes, and by matching California companies with prospective trading partners.

Bardhan said their findings reflect "the hidden strengths of California in the age of globalization." Kroll said the report points to "options for smaller services firms wanting to play a role in global trade."

They said that much of the state's competitive edge in Indian and Chinese markets is based on its Pacific Rim location, an economic structure that emphasizes services sectors, and its transnational networks within an international population base with large numbers of Indian and Chinese expatriates, who provide an entrée into Asian markets through their understanding of cultural, institutional and regulatory factors.

The researchers said other factors influencing the increasing role of services exports in U.S. and California trade include the growing importance of services globally; the overall competitive edge of the United States in services; increasing "tradability" of services from one part of the world to another; the easing of restrictions for foreign firms providing services in Asian countries; and the absence or underdevelopment of services in many emerging nations.

In their report, Kroll and Bardhan note that the gross state product derived from services climbed from 52 percent in 1997 to 57 percent in 2004, that California's share of service exports represents over 20 percent of the nationwide total, and more than three-quarters of California's services employment falls into three broad sectors - professional and business services, leisure and recreation, and education and health. For the United States overall, services exports represented 30 percent of total exports in 2005.

Among major challenges facing services exporters are:

  • Price pressure and frequent absence of price history in some services
  • The need to modify services to meet new cultural, economic and physical settings
  • Potential complications from foreign legal, regulatory and institutional environments

On the other hand, potential resources and strategies available to California small- and mid-sized firms exporting services include:

  • Targeting secondary and tertiary cities in emerging economies
  • Building on diaspora ties
  • Using franchising and licensing to enter new markets
  • Institutional assistance from government and public-private agencies, both domestic and foreign
  • Entering into joint ventures with established Chinese or Indian companies
  • Piggybacking on larger American firms already operating in those countries

In recent years, Bardhan and Kroll have explored the impacts of offshoring and globalization on jobs and economic growth, offering one of the first analyses of factors underlying the movement of white-collar jobs to foreign countries. The report just released stresses export opportunities rather than imports or offshoring, and job creation possibilities offered by services exports, as well as information about the role of services exports in decreasing the trade deficit.

Jeff Williamson, statewide director for the Centers for International Trade Development, said this analysis will help the centers and other economic development efforts target the most promising service export sectors, and assist businesses with development of long-term, strategic plans in a world where "the global picture has really changed."

The centers have 14 locations at community colleges throughout the state and are funded by the California Community Colleges' Economic and Workforce Development Program to promote economic development through international trade. The statewide director is hosted by the Riverside Community College District.

The report was based on an investigation of trends in services exports; characteristics of the California economy; profiles of small- to medium-sized firms with no more than 500 employees; federal and state government economic data; more than 80 interviews with business executives, industry representatives, academics, and officials in California, India and China; as well as market research by Bardhan and Kroll.