How does the exportation of services work

With the advancement of technology and increased global interaction through globalization, various opportunities for service exportation have emerged in the market, allowing many companies, particularly in the technology sector, to reach a larger market with the availability of their services either remotely or through overseas branches. Let’s take a closer look at how it works.

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Author: Leonardo Almeida Lacerda de Melo

Service exportation refers to the sale and provision of services by a company from one country to clients or businesses located in other countries, making it one of the forms of international trade that involves the offering of services instead of physical products.

Investing in this mode typically requires the ability to provide these services remotely or through travel to the country where the services will be rendered and can bring several economic benefits to the country, as it enables local businesses to expand their markets and reach a global customer base.

Such a move has the potential to increase revenue and economic growth for the country, generate jobs, and drive innovation, as all nations tend to profit from this type of practice, especially with the cross-border exchange of services among them.

Types of Services that Can be Exported

Various types of services can be exported, such as consulting services, financial services, IT services, tourism, transportation, healthcare services, and education, among others.

Given the large number of sectors, there is high global competition among the services offered, and companies need to provide quality and competitive services to stand out in the international market. This may require investments in personnel training, technology, and marketing.

At this pace, service exportation is an important form of international trade that involves the sale of services from one country to another, offering opportunities for economic growth and expansion for companies but also presenting challenges that need to be overcome to achieve success in this field.

Types of Service Exportation Contracts

It’s possible to classify the most commonly used types of services to pay attention to the main investment opportunities presented by the sectors with the greatest representation in the market for this type of exportation. Let’s see these types of contracts:

Service Provision Contract:

This is the basic contract that establishes the general terms and conditions for the provision of the service. It typically covers elements such as the scope of services, obligations of the parties, deadlines, remuneration and payment methods, intellectual property, confidentiality, responsibilities, and dispute resolution.

Licensing Contract:

This type of contract is common when service exportation involves the licensing of technology, software, or intellectual property to a foreign client. The contract stipulates the rights and obligations of the parties, including terms of use, restrictions, royalty payments, and technical support.

Specifically, this model has seen considerable debate with the changes in the ways software was presented to consumers, considering the increase in remote technical support and updates over the years, definitively characterizing the relationship as a service provision.

Consultancy Contract:

When the services involve specialized consulting, a consultancy contract is often used. It defines the details of the consulting services to be provided, the required expertise, the obligations of the parties, deadlines, fees, and other relevant clauses.

Agency or Representation Contract:

This type of contract is used when a company acts as an agent or representative of another company abroad. The contract establishes the responsibilities of the agent, the obligations of the principal, remuneration, exclusivities, areas of operation, and termination rights.

This contract is commonly used for the final sale of exported products, utilizing the agent or representative’s services as a direct seller in the established country for the exportation of a specific product.

Technical Service Contract:

When services involve specialized technical knowledge, such as installation, maintenance, training, or technical support, a technical service contract can be used. It details the technical specifications, deadlines, obligations of the parties, remuneration, and other related terms.

Joint Venture Contract:

In some cases, service exportation can occur through a strategic partnership between companies from different countries. In this case, a joint venture contract is established to govern the relationship between the parties, defining the ownership structure, management, profit sharing, obligations, and responsibilities.

The idea is to share resources and divide risks when entering the foreign market, where an exporter may choose to form partnerships with a local company to have a partnership with a better understanding of that country and likely have greater market confidence.

Parties Involved in Service Exportation

In general, the Service Exportation Contract has common parties among different contracts, and it is possible to clearly identify the exporter of services and its importer, regardless of the type of contract entered into.

The service exporter is the company or service provider that is supplying and exporting the services to the foreign market. This party is responsible for fulfilling the obligations stipulated in the contract, providing the services according to the agreed terms, and receiving the agreed remuneration.

On the other hand, the service importer is the company or client that is acquiring the exported services. This party is responsible for fulfilling the obligations stipulated in the contract, paying for the provision of services as agreed, and providing the necessary information and support for the execution of the services.

In addition to these main parties, depending on the nature of the contract, other stakeholders may be involved, such as commercial intermediaries, legal representatives, and government agencies, among others.

Market Research for Service Exportation

Market research is an important step that should be carried out before the start of service exportation, aiming to obtain information about the target market and the international business environment, enabling strategic decision-making, and adapting services according to the needs and demands of international clients.

This step can be done through various methods, such as market studies, analysis of statistical data, opinion surveys, interviews with experts, and visits to trade fairs, among others. It is recommended to seek the support of professionals specialized in international trade or foreign trade promotion agencies to obtain comprehensive and reliable market research.

In summary, the analysis usually involves the following activities:

Target market analysis:

Understanding market characteristics such as size, trends, segmentation, competition, regulations, cultural preferences, and consumption patterns to act in line with the needs of the target audience.

Identification of potential clients:

Identifying companies or clients who may be interested in the offered services, considering the ideal client profile, market needs, and requirements that correspond to them.

Competition evaluation:

Analyzing competitors in the target market, understanding their service offerings, strengths and weaknesses, marketing strategies, and pricing practices to understand how other service providers are operating in the segment.

Feasibility analysis:

Assessing the economic and commercial feasibility of exporting services to the target market, considering aspects such as costs, prices, expected demand, entry barriers, and return on investment.

Service adaptation:

Based on the collected information, adapting the offered services to meet the needs and preferences of the target market. This may involve adjustments in service offerings, pricing, packaging, marketing, and communication.

The Main Conditions that Can Affect the Cost of Provided Services

The international service provision contract, due to its various modalities, as previously shown, can have several nuances in its negotiation that can affect the final value of the service to be performed. The negotiation may determine everything, from the costs of transporting the service provider to the importer’s country of origin to the responsibility for payment of taxes related to the service provided. Let’s look into the examples mentioned.

Regarding general costs that may be involved in the service provision, these can be negotiated to determine the responsibility of each party. It would be the equivalent of defining the Incoterm clause to be applied in a product export (more information in our article).

As for taxation costs, research is conducted to determine the amount that the destination country will tax on the presented service. Depending on the country, the tax burden can significantly alter the final value.

Issues That May Arise in Service Exportation

Just like any other relationship between two parties, various disputes may arise during service exportation. The most common ones will naturally be contractual default when one of the parties fails to fulfill its obligations stipulated in the contract (the service is not properly provided), and liability for damages, when any damage occurs to the consumer of that provided service and liability needs to be determined, among others.

There may also be problems with service regularization, such as unforeseen tax incidence, unknown prohibitions or regulations, or failure to comply with requirements for proper service provision in a specific location.

How to Ensure Secure Service Provision Abroad

In order to protect oneself, it’s necessary for the service provider to exercise due legal caution throughout the entire provision, having knowledge of the location where the service will be provided, the requirements for service provision, taxes, etc. In addition, a well-drafted contract with the importer is necessary, which should precisely define the responsibilities of each party, as well as the penalties for non-compliance.

Therefore, it’s advisable for the exporter to seek specialized assistance in exporting the offered services, in order to legally protect themselves and avoid additional expenses and stress due to any problems that may occur with the provision of their services.