Volume 1, Issue 3 - Winter 2016

Foreign trade can’t be so foreign anymore

By Jayson Myers. 

Good news about CETA. For those keeping score, this is the third time Canada’s Comprehensive Economic and Trade Agreement with the European Union has been signed, but another major hurdle has been crossed on the road to ratification. It now goes to the European Parliament (expect another signing ceremony!), and then enabling legislation must be passed in Canadian and European national parliaments. If all goes well, the treaty will come into effect next year.

CETA will open new opportunities for Canadian business in Europe. And none too soon. The International Monetary Fund (IMF) has just downgraded its forecast for world economic growth to a disappointing 3.4 per cent for 2017. It expects advanced economies to chug ahead at a measly 1.8 per cent next year.

The problem? Well, there are several.

Commodity markets will remain depressed. China is pivoting away from infrastructure and heavy industry to consumer and services-led growth. There’s a lot of excess capacity in industrial markets. Businesses are cutting costs and capital investment is expected to remain weak, especially for heavy machinery, mining, drilling, and agricultural equipment. Governments are trying to keep their deficits in check. Over-indebted consumers don’t have a lot of money to spend. Unemployment remains stubbornly high. Protectionist pressures are mounting. It’s all a recipe for very slow growth in domestic markets and international trade.

But, there are a few bright lights on the horizon. The United States, our largest export market, is expected to outperform other major economies — the IMF projects 2.2 per cent growth next year — thanks to an improvement in employment and household income. A high U.S. dollar will also help boost sales south of the border (although increasing costs in Canada). U.S. construction activity is expected to pick up and demand for consumer products, including cars and light trucks, will remain strong.

It says a lot, though, when a sub-normal growth forecast for the U.S. economy becomes a beacon of hope for exporters. Of course, it will not only be Canadian companies looking to sell into the American market. Exporters from around the world will be competing there — many with the advantage of currencies that have sunk just as low, or even lower, than the Canadian dollar against the almighty greenback. Meanwhile, the risks of doing business in the U.S. are on the rise.

If Prairie manufacturers are going to grow, they need to look beyond their existing markets in Canada and the U.S., and double-down on making international business an integral part of their operations. It can’t be ‘business as usual’ anymore. Few manufacturers can rely on a low dollar, existing product lines, or current distribution and supply chain relationships to guarantee even short-term export success.

To help you along the way, here are the top seven tips I’ve learned from Canadian companies on growing international business in a slow-growth economy:

1. It’s not about markets.

It’s about finding and developing manageable business opportunities. There is a lot of change — and a lot of challenge — behind slow-growth market conditions. Start by identifying specific business opportunities that you will be able to exploit ahead of the competition and effectively manage as they evolve.

2. It’s not about sales.

It’s not about getting product out the door, either. It’s about offering unique customer solutions. Business development starts with understanding customer expectations. Even high-tech companies realize their real differentiator is their ability to offer innovative, value-adding solutions to their customers that are reliable, competitively priced, and easy to manage.

3. It may not be about exports at all.

Canadian manufacturers can grow by investing in offshore production and services operations. The sales of Canadian affiliates located abroad far exceed the value of goods and services exported from Canada.

Foreign investment in Canada also provides a channel to export around the world. Canadian businesses might be better positioned to grow internationally by integrating their product or service into a broader value chain solution for customers offered by larger companies with a multinational presence. Roughly 80 per cent of the world’s non-commodity trade takes place within multinational companies and among their top-tier suppliers. CETA should help to attract even more European multinationals to invest in Canada. Think about leveraging locally anchored value chain opportunities to go global.

4. It’s difficult to capture market share.

It’s easier to secure business during a process of new product development. The competition for existing business is intense. It’s transactional. Canadian companies will succeed if they are able to offer unique products and services at competitive costs. But, those able to build relationships with customers as part of their product and service development process have a better chance of long-term business growth.

5. No one can do it alone.

Partnerships are important. There are lots of businesses, government agencies, trade associations, and other organizations that can help build international business opportunities and mitigate the risks along the way. Canada’s Trade Commissioner Service and Export Development Canada are two especially important entities that can help prepare companies to enter new markets and connect with other business partners and opportunities abroad. International trade is risky business. But, like any venture, the returns are significant if managed well.

6. It takes face-time and patience.

International business is built on trust, and it’s built by people. Even in North America, sustained business growth depends on interpersonal relationships. Canadian companies have a bad reputation of not following up on business opportunities. Remember, introductions are only a start. The Chinese say that talk happens over Peking duck, but business is done over noodles. Don’t rely on the Internet — plan to spend a lot of time in your target market.

7. Yes, it takes money.

Whether it’s in developing the right products and services; investing in the right technology, production, or distribution platforms; managing risk; hiring the right people; or growing and sustaining business relationships, international business growth comes at a high cost. So, business planning needs to take working capital requirements into account. Export insurance is more important than ever in today’s slow growth, high-risk environment. And, customer financing services can be a very attractive component of the business solution offered to international customers. Vision without money is hallucination.

Jayson Myers is an award-winning business economist, specializing in industrial and technological change. He is an advisor to both private and public sector leaders, and has counselled Canadian prime ministers and premiers, as well as senior corporate executives and policymakers around the world.