When thinking of international opportunities for Canadian businesses, attention is often directed toward goods trade, especially with the renegotiation of the North American Free Trade Agreement (NAFTA) being highly focused on traditional sectors, such as the automobile sector. However, international opportunities for Canadian firms increasingly lay in the services sector, particularly in professional services, which include advertising, architectural, engineering, computer and information, research and development, legal, accounting, and other technical services.
Between 2012 and 2015, global trade in professional services rose by almost 50 per cent, with research and development services being the fastest-growing segment. (See Chart 1.) Not surprisingly, the largest markets for professional services are the United States and Europe. Together, these account for over 70 per cent of trade in professional services worldwide.1
The way professional services are delivered internationally is different to traditional goods exports, as they require a lot of interaction among people. For this reason, the standard export channel alone is not sufficient for Canadian firms to tap into these global opportunities. To serve their international clients, Canadian professional services firms have been highly active in setting up foreign offices—a pathway to global markets that can complement the standard exporting channel.
As such, there has been a boom in foreign direct investment by Canadian professional services firms in the U.S. and Europe in recent years. (See Chart 2.) Thanks to these investments, the sales of foreign affiliates of Canadian professional services firms have more than tripled since 2011, from $13.5 to nearly $50 billion today. These firms also employ over 100,000 workers worldwide. With the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the recently signed Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), new opportunities will open to Canadian professional services firms.
Global Trade in Professional Services Up Almost 50 Per Cent Since 2012
(global imports of professional services, US$ billions)
Sources: The Conference Board of Canada; UN Comtrade.
Professional Services Firms Tapping Into Global Opportunities Through Foreign Direct Investment
(Canadian direct investment abroad, book value, $ billions)
Sources: The Conference Board of Canada; Statistics Canada.
The United States accounts for two-thirds of Canada’s professional services exports and close to half of international investment by Canadian professional services firms. However, given the protectionist values of the current Administration, it will be difficult to secure greater access to the U.S. market for professional services in the short term. Therefore, professional services firms should look for new opportunities abroad, including in the EU’s huge government procurement sector to which Canadian firms now have access under CETA.
Further liberalization in services trade in North America has not been a top priority of the NAFTA renegotiation. This is unfortunate, as this is precisely where further gains from trade between the three nations are possible. In particular, the list of professionals covered by NAFTA has not been updated in over two decades; over time, this has become a barrier to trade in professional services. The current list of professionals covered by NAFTA excludes a wide range of occupations that have emerged since the agreement was first negotiated, especially in the IT sector, such as software developers, data scientists, analysts, and project managers.
The Conference Board of Canada recommends that the list of professionals covered by NAFTA be reviewed to include new occupations and allow some flexibility for future occupations that may not yet exist.2 However, the slow progress so far in the renegotiation does not bode well for advances to be made in the services sector. It is unlikely the list of services professionals covered by NAFTA will be updated in the short term, and this will continue to present issues for Canadian professional services firms doing business south of the border. One way to help Canadian firms overcome the cross-border mobility barriers is to set up offices in the U.S. to serve customers or to partner with local firms.
Tap Into the EU’s Government Procurement Market. Europe is by far the largest importer of professional services, accounting for almost half of global trade in these services.3 With the signing of CETA, Canadian firms now have one key advantage over their G20 competitors: a privileged access to the EU government procurement market, worth $3.3 trillion.4 As such, Canadian companies now get almost the same access that other EU member states grant each other, with coverage spanning all EU government levels:
To help Canadian firms navigate these wide-ranging opportunities, Global Affairs developed a procurement guide for Canadian businesses.5 The guide includes step-by-step instructions on how to use TED, the EU’s centralized platform for government procurement.
The international activities of Canadian professional services firms are heavily concentrated in the U.S. and Europe. However, the need for professional expertise—engineering services to support infrastructure projects, project management services, capacity building and training, gender expertise, or consulting services to national governments about best practices in terms of governance, environmental protection, and so on—is greatest in developing and emerging economies.
Canadian firms have a wealth of knowledge in these areas that could contribute to the economic development of nations in Asia, South America, and Africa. One way Canadian professional services can tap into these opportunities is by bidding on projects financed by multilateral development banks, such as the World Bank6 or the African Development Bank,7 or by partnering with other firms—Canadian or foreign—that have existing operations in these countries.
To successfully tap into global opportunities in professional services, Canadian companies need an in-depth understanding of their market and a strong international network. These core strengths will help them prioritize which foreign markets to pursue, select the best approach to serve their international customers, and adapt their product offering to local needs.8 In particular, firms should:
Company Name: Speakers’ Spotlight
Location: Toronto, Ontario, and Calgary, Alberta
Service: Speaker provider
Year Established / Started Exporting: 1995 / 1998
Total Revenues: $25–$30 million
Export Share of Sales: 25%
Export Markets: U.S., Europe, Latin America, South America, Australia, New Zealand, Asia
Speakers’ Spotlight is one of the largest speaker agencies in the world, representing popular speakers like Canadian astronaut Chris Hadfield. It has booked more than 20,000 speaking events in over 30 countries from its roster of speakers—half Canadian and half from the U.S. and Europe—who are experts in a wide range of topics, from business and politics to sports and entertainment.
The company’s access to speakers in high demand worldwide is its key differentiator. Moreover, international demand has been driven by specific speakers such as Chris Hadfield, who have helped the company open up new markets. In addition to offering exclusive speakers, Speakers’ Spotlight differentiates itself through its exceptional service. “Being responsive and proactive is in our corporate DNA,” says Martin Perelmuter, President. “The team we have in place after 22 years is by far the most experienced in the industry in Canada. We’re not selling a widget; it takes experience, knowledge, and passion to help clients find the right match.”
Cross-border requirements for speakers
“It’s not easy to manage various border issues, such as visas and transfer taxes,” explains Perelmuter. Speakers’ Spotlight consults with an immigration lawyer to pre-plan and tackle challenges related to the flow of speakers across borders.
Language and cultural differences
With information gleaned from web searches, Speakers’ Spotlight provides speakers with insights related to cultural issues to help them adapt accordingly. “This kind of planning and preparation avoids potential pitfalls,” says Perelmuter. “For example, a military person speaking on leadership could turn off audiences in some countries; and references to hockey in presentations do not necessarily resonate with many multicultural groups.”
Future Growth Plan
In five years, international sales have jumped from 10 per cent of total sales to close to 25 per cent, and Speakers’ Spotlight is aiming for continued growth, particularly in the U.S., South America, and Europe. “We love getting Canadian speakers in front of international audiences,” notes Perelmuter. Speakers’ Spotlight is now striving for 50 per cent of its business outside of Canada. “We want to create more of a presence in the U.S., since our growth up to this point has been organic. We also have to look at places like India because it is such a huge English-speaking market.”
This research series is funded by HSBC Bank Canada, and is researched and written by The Conference Board of Canada.
Inquiries, please contact The Conference Board of Canada at www.conferenceboard.ca or 1-866-711-2262.