- There is a lack of awareness in Canada for where the global opportunity is and what it looks like.
- Companies get to a point where they need not only capital but also real operational expertise, which is when an external buyer attempts to acquire them. If the buyer chooses to run the business from Canada, a stronger company may emerge because there is not only a Canadian presence, but also a strategic advantage from the foreign buyer to scale up.
- Tech, human capital and the services are Canada’s top export opportunities in the future economy.
We have to further diversify our economy, because the US is now redefining its position in the world and we may feel some of those consequences in Canada.
How effective is Canada’s market diversification strategy?
In Canada, we have made good progress on our diversification strategy. In 2000, around 90% of our merchandise exports went to the US. Now, it is around 70%. We diversified our markets, including Europe and some emerging nations. We hope that we are not going to see a reversal of this trend because as the situation between Canada and the US changes – if we see the end of NAFTA or a major restructuring of NAFTA – there might be a greater desire to invest in the US to guarantee market access. We are still very dependent on the US as a major market. Even if we have an issue with NAFTA in the near future, I believe the US will remain a primary partner because it is a huge consumer market and we are very close geographically. Still, we have to further diversify our economy, because the US is now redefining its position in the world and we may feel some of those consequences in Canada. So we might see companies changing their current model of servicing the US. And this might come with a change of direction, and currently activity is moving more outside North America, which we feel is the right thing to do.
“In Canada, we have made good progress on our diversification strategy. In 2000, around 90% of our merchandise exports went to the US. Now, it is around 70%.”
At Export Development Canada (EDC), diversification has been top of mind for many years. We have corporate measures where we monitor the amount of support we provide to companies that want to set up shop outside Canada. We call it Canadian Investment Abroad. If, for example, a Canadian company wants to go to Europe and service the market, in many cases they have to do it abroad and not from Canada. We see a lot of benefits to this approach, including more jobs in Canada and increased competitiveness and growth for the Canadian company.
“There is a good chunk of capital available in Canada, but it is that technical or operational expertise that is lacking.”
How are EDC’s tools and capacity being mobilized to support Canada’s mission to transition to a more sustainable economy?
At EDC, we place a huge focus on cleantech. Last year, we executed $1 billion worth of cleantech transactions. This was not all related to emissions targeting, but it is cleantech in general: clean energy, wind farms, solar farms, hydrogen transportation, energy storage – anything with an impact on emissions. We are seeing a lot of exciting sustainable technologies and great engagement not only in Canada but with these Canadian cleantech companies going international as well. We are also seeing oil and gas companies becoming energy companies, which is very interesting adaptation. Furthermore, In addition to EDC, we see investors such as pension funds providing more support to the cleantech industry.
“We have to further diversify our economy, because the US is now redefining its position in the world and we may feel some of those consequences in Canada.”
Sustainable reporting is also a part of our corporate social responsibility (CSR) practice. In EDC’s portfolio, our mission is to support exporters, not to earn a bigger return like a pension fund. We are also closely monitoring where we are proactive versus where we are responding to market demands. While EDC is moving into supporting more cleantech, it does not mean that we abandon other sectors. We need to support these industries through their own transitions with a broad view of moving everyone towards a better outcome in regards to greenhouse gases (GHGs).
Canadian companies tend to be limited in their ability to go global. What can be done to make companies think global from the beginning?
I do not think it is a question of ability. Canadian companies have the ability to be as competitive as others regardless of where they do business. Because Canada is a small economy, we have not developed huge brands that a consumer would recognize. This does not mean that we are not present on the global stage; it just means we are not visible because we are part of the supply chain rather than the end product. There is, however, a lack of awareness in Canada for where the global opportunity is and what it looks like. If you are an entrepreneur in Canada, you have to balance two things: what the opportunity is and what the risks are. You are not going to focus on understanding the risks if you do not get the opportunity.
“Our mission is to support exporters, not to earn a bigger return like a pension fund.”
At EDC, we work very hard at leveraging our international connections. We have a huge customer base that already buys from Canada or has a footprint in Canada. EDC works with them to connect Canadian companies into their supply chain. When we approach a Canadian entrepreneur and say, “We understand what your value proposition is and we have a buyer in Chile that is looking for the same thing. Do you want to have a conversation?” That triggers the interest and the visibility of the opportunity. Next, entrepreneurs start to look at the risks. At this juncture, EDC is able to assume a lot of those risks and, in turn, minimize the risk for that entrepreneur. Once entrepreneurs buy into this arrangement, they are as competitive and as strong as the other competitors in the global market. It comes back to the challenge of identifying where the opportunity is, and then the entrepreneurial enthusiasm that allows businesses to succeed naturally follows.
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What can be done to support entrepreneurs on their journey from proof-of-concept to full commercialization – something that has proved quite challenging for Canadian companies?
Canada has a fairly strong venture capital space. The challenge in this space has been commercial scalability and avoiding the valley of death. Our observation at EDC is companies get to a point where they need not only capital but also real operational expertise. This is where a foreign buyer may come in and purchase what has essentially been created in Canada. Of course, in the ideal situation, I would want to have that business stay Canadian, but our experience tells us that does not happen all the time. What we can do at EDC for the companies we support is make sure there is true value in what has already been created in Canada. Ideally, the buyer will then choose to run the business from Canada and not bring it to the US or Europe. If this path is chosen, a stronger company may emerge because there is not only a Canadian presence, but also a strategic advantage from the foreign buyer such as the operational expertise to help the company get to the next level. There is a good chunk of capital available in Canada, but it is that technical or operational expertise that is lacking.
“There is a lack of awareness in Canada for where the global opportunity is and what it looks like.”
What do you identify as the top three export opportunities for Canada in the future economy?
Number one is tech such as AI, quantum computing and digital software. Canada is well positioned in this sector and EDC is observing significant investments in tech. Number two is human capital and population growth. I met with the chief economist from the Conference Board of Canada. One interesting observation he made is that today’s economy is growing more based on consumers than investments or natural resources. It is a consumer led growth story. Agri-food is an example of an industry where we see a lot of consumer demand. Number three is services. The advancement of new technologies and the increased ability to transfer information from one side of the border to the other is growing the services sector. You are going to see more regulation in the future, but overall, information flows very easily today, so there is going to be a lot of potential there. Canada is going to play a big role in these growth opportunities and, in turn, I believe the Canadian brand will become more visible on the global stage.