Week four: When you think of Ireland's export potential, it is no longer just about physical goods: service exports, particularly in financial services, offer significant opportunities

DURING ALL the doom and gloom of recent times, one sector of the economy has proved relatively resilient: exports.

According to predictions by the Central Bank last week, Ireland’s economic recovery (when it eventually materialises) will be export- led, as activity is beginning to pick up in our export markets.

When the word “exports” is mentioned, most of us think of goods that are manufactured here – such as food, drink, medical devices and pharmaceutical products – and sold into overseas markets. However, services exports (also known as internationally traded services) tend to pass under the radar, even though they represent an increasingly important element of the export sector.

According to Pat Ivory of the Irish Business and Employers Confederation (Ibec), Irish services exports grew in value from €21.7 billion in 2000 to €69.2 billion in 2008 and now account for about 45 per cent of Irish exports.

“From an economic point of view, it’s increasingly important to look at how services exports are developing, and to try to make sure that Government policy reflects the needs of the service sector in terms of supporting the growth of these companies,” Ivory says.

So what exactly are internationally traded services? There are many types of companies operating in this sector, says Ivory, but the majority provide computer-related services such as software.

Other important areas include financial services (as illustrated by this week’s visual case study on taxback.com), insurance services and a range of business services such as management consultancy, logistics and energy services.

The US is the most important market outside the EU for Irish exports, Ivory says, but Ireland’s penetration of this market is significantly lower for internationally traded services than it is for goods exports. “The US market accounts for only around 9 per cent of Irish exports of services whereas it is closer to 20 per cent for Irish exports of goods.”

This would suggest that there is potential to carry out more services-related business with the US, according to Ivory. “Outside of the US, Asia is an increasingly significant market,” he says, adding that Irish services exports to China recorded a dramatic rise to more than €2 billion in 2007.

In terms of supports to foster this key sector, State agency Enterprise Ireland has set up a dedicated unit to deal with companies specialising in internationally traded services.

As well as providing expertise on challenging issues such as marketing a company’s services internationally, Enterprise Ireland provides financial assistance to export companies through its Going Global fund.

However, Ibec believes more must be done to bolster internationally traded services and it is working to raise the profile of this promising sector of the economy.

In a report published last year, Ibec makes a number of recommendations on how to support the sector.

It calls on the Government to extend its policies on innovation to support services to the same degree as manufacturing. One way in which this could be done is through research and development incentives and “supporting deeper linkages between business and universities and educational institutions” in the area of services research, the report suggests.

To “diversify” our services export base, Ireland should also try to take advantage of opportunities in emerging areas such as e-learning, education, healthcare, digital media and creative industries.

The Ibec report also notes that the EU directive on services in the internal market, which aims to break down barriers to trading services within the EU, was due to be transposed into law by member states by December 2009.

A spokeswoman for the Department of Finance says this has not yet happened in Ireland but it is expected soon.

Once the directive is implemented across the EU, it will effectively create a single market in commercial services. By doing so it is expected to release untapped growth potential in this sector and could open up a new wave of opportunities for Irish companies.

Ivory says a higher proportion of companies on the services side of the export sector are indigenous start-ups than on the manufacturing side, which comprises many large multinational corporations.

There are companies of every size in the services sector: taxback. com, for example, has 26 offices worldwide and employs more than 630 people.

According to Ivory, though, many services firms tend to be “very focused and very lean operations”, for example in the software sector, and generally speaking would be smaller in terms of “employment impact”.

However, one of the goals of support agencies such as Enterprise Ireland is to help these early-stage companies grow into medium and large enterprises and, by doing so, transform this sector into an engine of future job creation.

Watch Terry Clune of Taxback.com discuss how Ireland can reap rewards by offering services to foreign enterprises at irishtimes. com/business/education or on eoy.tv, the dedicated website for the series

Next week: Takeovers and managing change