Key messages

This report addresses two aspects of Australia's trade in services. First, different ways Australian firms sell services to foreign nationals, with an emphasis on the export role of intermediate services inputs ('embodied services'). Second, the report examines different means of delivering services and areas for possible increased services trade and investment activity.

Much is known about Australia's recorded services exports: their value, key categories and key markets. Something is also known of the nature and value of services sold by foreign affiliates of Australian firms, though this is based on old data (a 2002-03 ABS survey). This area warrants further measuring to lift Australia to world's best practice.

Less is known about another category of services exports: embodied services.

These intermediate services are used in the production of goods and services. For example, manufacturing steel requires services such as electricity, transport, and typically business services such as accountants. These inputs are said to be embodied in the final output or product that is exported.

This study finds services industries are 1.7 times as important to the Australian economy in terms of export performance as the level of cross-border services exports would suggest.

ITS Global estimates the value of services that are embodied in Australia's merchandise exports as about $35 billion, growing to around $50 billion by 2014-15. Together with reported cross-border exports of services, this means total services exports were around $89 billion in 2008-09 prices and may rise to around $120 billion by 2014-15.

Embodied services are primarily found to be in categories such as Property and business services, Transport and storage, Wholesale trade and Services to mining (These categories together account for over 10 per cent of total embodied services exports). Key 'carrier' exports (ie. exports that contain embodied services) are in mineral categories. Given the growth of and positive 'spillovers' associated with this sector, further services activity can be expected here.

The case studies illustrate the surprising extent to which Australian firms deliver services overseas through subsidiaries. Acquisition is their key to increased services sales. Indeed, Australia's foreign affiliate sales are estimated as already worth over $100 billion annually, rising to around $135 billion by 2014-15.

There is also a notable demand for services sourced from Australian head offices and either exported to subsidiary and joint venture foreign affiliates throughout Asia and other regions, or sourced through overseas offices of these Australianbased service providers.