Regulatory barriers continue to hold back Scotland’s potential to export services, according to a new report from the Fraser of Allander Institute
The report, delivered in partnership with Prosper and commissioned by the Scottish Government, finds that Scottish services exports were worth about £16 billion in 2023, around twice their nominal value in 2008.
However, the research finds that non-tariff barriers remain a significant constraint on further growth.
These include the recognition of professional qualifications, licensing and certification requirements, restrictions on short-term business mobility, local establishment requirements, differences in standards, and data-related regulation.
Businesses also face less visible “soft” barriers, including client preferences for locally-based providers, familiarity with domestic standards and the importance of established in-market relationships. The report finds that these commercial expectations can sometimes be as restrictive as formal regulation.
Services businesses account for nearly 41% of Scotland’s international exports, supporting high-value employment across sectors including financial services, professional and business services, digital technologies, science and research, and energy-related services.
Professional, scientific and technical services represented the largest selected category of services exports in 2023, at £4.6bn, followed by financial and insurance services at £2.6bn and wholesale, retail and vehicle repair at £2.2bn.
Professor Mairi Spowage, director of the Fraser of Allander Institute, said: “Scotland has an internationally competitive base of knowledge, expertise and specialist services.
“This report shows that the opportunity is substantial, but success depends on more than demand alone. Reducing regulatory friction, improving mutual recognition and helping firms build trusted relationships in key markets will be essential if Scotland is to convert its strengths into sustained export growth.”
The report notes that businesses commonly respond to barriers by opening local offices, forming partnerships with established firms or adapting how their services are delivered.
In some cases, companies decide not to enter a market because the costs and complexity are too high. These changes may not be visible in headline trade statistics, but can affect investment, productivity and how much economic activity remains anchored in Scotland.
Established markets – including the rest of the UK, the European Union and the United States – remain central to Scottish services exporters.
At the same time, growing demand in India, China, the Gulf states and other emerging markets presents new opportunities for financial services, engineering, digital technologies and research. Accessing these markets will often require firms to navigate evolving regulations and develop a local presence or partnerships.
Sara Thiam, Prosper chief executive, said: “Exports from the services sector deserve greater attention, making this report particularly timely.
“While service exporters are less exposed to tariffs, they still face regulatory, mobility and administrative barriers that can limit access to markets and constrain growth.
“The Scottish and UK governments must better understand these challenges and ensure trade support reflects the needs of service exporters. Services exports should also be given equal priority to goods in free trade negotiations.
“By reducing barriers and improving market access, we can help more Scottish firms turn global ambition into commercial success.”
The report calls for export policy to focus on sectors in which targeted action can make a measurable difference. Priorities include greater regulatory alignment, mutual recognition arrangements, structured engagement with international partners and better evidence on how Scottish businesses deliver services overseas.
It also recommends improving the measurement of services trade, including activity conducted through overseas commercial presence, local partnerships and services embedded within exported goods.
Better firm-level data would provide a fuller picture of Scotland’s role in UK and global value chains and help policymakers target support more effectively.
Tom Arthur, Minister for Business and Fair Work, said “Services account for over 40% of Scotland’s exports and support hundreds of thousands of high-value jobs.
“The Fraser of Allander Institute report makes clear that there are genuine opportunities in building skills and innovation, improving export support for businesses and taking a more joined-up approach to trade policy and delivery.
“It will help us better understand the international trade barriers that Scottish businesses face. We will study these findings carefully and set out our response in due course.”
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