Digital transformation sparks sales of U.S. IT services abroad

Digital transformation sparks sales of U.S. IT services abroad

With all the talk of U.S. trade deficits, one tech sector is beginning to shine. Fueled by interest in digital transformation, American IT services firms are running a significant surplus, exporting software and digital services to foreign companies seeking to overhaul their business processes.

While the U.S. imported more manufactured technology goods in 2016 than it exported, it ran a trade surplus of $32 billion in technology services, according to recent analysis from technology trade association CompTIA.

"Technology services, including software development services, have accounted for a growing share of industry revenues and new job growth,” says Tim Herbert, CompTIA’s senior vice president of research and market intelligence. That’s a testament to both the expertise and brand strength of U.S. IT service providers and the increased demand for digital business transformation around the globe.

U.S. technology vendors sold $202 billion in manufactured goods abroad, down 1.3 percent since 2015 and reaching the lowest level since 2011, the report said. However, technology services continued to capture a larger share of U.S. tech exports, more than doubling since 2005 and exceeding 34 percent of total technology exports last year, according to CompTIA.

“Customers in many markets around the world are following the digital transformation path that we’ve seen with U.S. companies. The desire to enhance productivity, engage in e-commerce, or automate routine processes are most often a function of investments in software and IT services,” Herbert says.

While hardware certainly remains a critical piece of the technology ecosystem, the emergence of cloud computing has shifted corporate investment toward applications and services “most likely to positively affect their operations or bottom line,” says Herbert.

And businesses in markets around the world looking to American technology firms—from pure-play IT service providers to technology vendors with service capabilities—to help them on their digital transformation journeys. The ecosystem of technology services companies is likely to expand even more in the near future.

“The exporters of these services run the gamut of company type, [from a] a traditional hardware company offering managed services [to] a telecom offering security or cloud services, Herbert says. “In the years ahead, companies outside of the tech sector may become notable contributors as well—for example, automotive companies exporting the software or services to support autonomous vehicles.”

Despite flatness in IT services exports in 2015 (the most recent year for services data from the U.S. Bureau of Economic Analysis), the outlook looks promising for tech services. “Customer demand for software and services is on a growth trajectory, providing ample opportunities for U.S. tech providers to further increase their exports,” says Herbert. “Of course, this assumes current economic and trade policy conditions remain relatively stable.”

In fact, there is considerable uncertainty around economic and trade policies going forward. The rise of data localization requirements and other regulatory developments enacted by various countries could reduce the competitiveness of U.S. companies abroad. And that’s not the only potential threat to the export business of American IT service providers. U.S. IT industry executives say the top five potential inhibitors to international growth are trade barriers; the logistics of managing extended work processes, staff, and supply chains; the challenges of localizing products and services to meet the needs of overseas customers; currency and exchange rate issues; and weak demand in key international markets, according to a May 2017 CompTIA survey.

“The one factor not listed, but should be acknowledged, is competition from existing or new market entrants,” Herbert says. “Foreign tech firms are keenly aware of the growth in software and services and will be working hard to capture a larger slice of the pie.”

Exports of U.S. technology product totaled an estimated $309 billion in 2016, according to CompTIA, accounting for approximately $1 out of every $4 generated by the American tech industry and supports 40 percent of the tech industry’s jobs.

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