Making Exports and Diversification Central to Canadian Business

How important is it for Canadian companies to export to foreign markets, and how well positioned are we to enable our companies to do so?

Theworld is a global marketplace with emerging markets eager to discover Canadian products and services. Canada holds several free trade agreements that give Canadian companies a fundamental advantage in accessing the largest growing customer base of 1.5 billion people. Over time, trade is good for Canada in terms of total GDP growth, economic growth and resiliency.

Despite the powerful incentives and the unique capacity they provide Canadian companies in terms of accessing large markets, it’s important to note that free trade agreements go both ways and open our territory to global competition.At the other end of the spectrum, foreign companies that fall into our trade agreements are looking to Canada as an attractive market: we are a developed nation that has free trade agreements with many other countries and is a neighbour to the largest free market in the world—the United States. This puts Canadian companies at risk of losing their current customers—a reality and phenomenon that trade developments can enable.

“Despite the powerful incentives and the unique capacity they provide Canadian companies in terms of accessing large markets, it’s important to note that free trade agreements go both ways and open our territory to global competition.”

For Canadian SMEs to get started with an export strategy, finding the right resource person is often the hardest thing. However, there are many ways to get started and I encourage Canadian companies to approach us in the same way as they would enter a shopping centre—an analogy Minister Mary Ng and I often use. Just like a shopping centre, there are several ways an entrepreneur can access the right resource person to get what they need. From Crown corporations, to industry associations, to the Trade Commissioner Service. Need an export plan? The Business Development Bank of Canada (BDC) has the expertise to help outline it. Have an export contract secured? Export Development Canada (EDC) can help with working capital. Need to understand the regulations of a foreign market? The Trade Commissioner Service is on the ground and can help navigate a regulatory environment.

Canada is also well suited to the institutional context of many countries: their regulatory, legal and financial systems, the logistics of getting products to that market, and the local culture. The Comprehensive Economic and Trade Agreement (CETA), with the European countries, was perhaps the most natural free trade agreement, in large part through the migration of Europeans to Canada. It’s no coincidence that the easiest countries to go to are the ones with which we have deep historic ties. That’s why it’s very exciting to see the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) take off, because when you think of the number of Japanese and Southeast Asians that are present in Canada, these Canadians will provide an essential understanding of their cultures to trade effectively with those nations.

Are enough Canadian companies “thinking global” or are you seeing a more conservative, risk-averse mindset? If so, what are the implications of that and how can we change it?

I think the notion that Canadian entrepreneurs are more risk-averse is false. After all, they are entrepreneurs for a reason.Instead, our biggest concern is that Canadian companies lack the ability to scale effectively to be market-ready for the large customer base in question. There is no point in companies rushing into a new market unless they have a way to meet their customers’ demands.To achieve sustainable growth through exports, a company must be able to scale as demand grows.

Entrepreneurs and business leaders are influenced by the success stories they hear and see. Small Canadian companies need access to mentors that can deliver contextual insights and ask tough questions about scaling up.So, in the near term, we are working to help small Canadian companies get mentored by large exporters. Large exporters know how the trading game is played and are adept at navigating different trading routes. Therefore,they have an essential role to play in facilitating successful collaborations in Canada’s business ecosystem and in guiding smaller companies succeed in their exportation journey. SMEs that turn to mentoring will not only advance Canada’s expertise but also find economic opportunities that their competitors miss.

“Entrepreneurs and business leaders are influenced by the success stories they hear and see. Small Canadian companies need access to mentors that can deliver contextual insights and ask tough questions about scaling up.”

This is what Ontario Global 100 (OG100) does. It puts CEOs from successful, medium-sized firms that have a revenue greater than $25 million, together with today’s top business leaders so they can learn from those who have already faced the challenges of growing a company, expanding into foreign markets and managingglobal supply chains.

Which Canadian industries are performing strongly with their global exports, which are struggling, and why? What must be done to correct this?

Canada’s resource sectors such as oil and gas, mining, commodities and agriculture account for most of our nation’s exports. However, in the long term, the future economy lies in the services industry, a very different type of business model for Canada. The focus will be less on moving goods and products by freight, but on moving into the digital economy, such as e-commerce, cloud technology, software-as-a-service, and more.

High-tech industries and the infrastructure needed to use them are also on the rise. Through our investment program, leading seed venture companies are working with the agricultural, health and financial sectors to incorporate the Internet of Things (IoT), 5G, artificial intelligence, blockchain, robotics and big data.

“In the long term, the future economy lies in the services industry, a very different type of business model for Canada. The focus will be less on moving goods and products by freight, but on moving into the digital economy, such as e-commerce, cloud technology, software-as-a-service, and more.”

In terms of which industry is struggling, the Canadian canola industry faced many obstacles in its effort to ship its products to China. The Government of China challenged the quality of Canadian canola and conveyed that it was inadequate, therefore stopping the import of Canadian canola products into China. Western Canadian farmers, producers and distributors have all been affected by this unpredictability, which may only intensify as they continue to adjust to shifting realities.

We worked to bring together the Canadian Canola Growers Association and the Canola Council of Canada to overcome this problem. For several weeks, we met to gain a better understanding of the reality they are facing and identify the next biggest markets to distribute their canola products in. After extensive market research, we identified Pakistan and Bangladesh as the best strategic move to distribute the canola. These are more challenging and riskier markets, so we selected one product to pilot test. This will allow us to review and expand our own risk appetite to trade with these uncertain territories.

This unique collaboration set a precedent on how we plan to help Canadians overcome the inevitable challenges of international trade.This is why EDC is building upon our understanding of sectors to tailor solutions that Canadian companies need, no matter where they are in their export journey. This includes investing in training and workshops to ensure that our workforce understands that not all exporters are the same, and that each one will need a personalized approach.

What are some factors contributing to Canada’s international reputation as a good trading partner and foreign investor? How can we leverage them for future success?

Canada’s established brand wields tremendous credibility. A reputation for honesty and reliability can be a source of enormous competitive advantage, and this pays off the most in trade relations with companies seeking to enter developing markets.

Canada is known for its expertise in large industrial products such as aerospace, rail transportation, engineering and construction. Those have been the products that developing countries needed to build their infrastructure, which is what has set the Canadian brand apart as a nation of trust around the world.

Canadian innovators can also co-create new products that people want to pull into their lives and create new markets that serve as a foundation for sustainable growth and prosperity. I think this creates an opportunity to have Canada be seen as a leading provider of tomorrow’s products and services. Many of the world’s problems, from inequality to climate change, will require the expertise and scalable business models that Canada can provide.

How effective has Canadian export market diversification been as a whole?

In the past 20 years, an increasing proportion of Canadian exporters have pursued a strategy of diversification. In 2000, 90% of Canadian exports went to the United States. Today, that number has decreased to 70%, and it continues to inch down as Canadian exporters widen their prospects, looking beyond the U.S.

“In 2000, 90% of Canadian exports went to the United States. Today, that number has decreased to 70%, and it continues to inch down as Canadian exporters widen their prospects, looking beyond the U.S.”

However, in recent years productivity in Canadian exports has lagged. The combination of an annual growth rate of 1.5%, and slow economic growth, has reduced Canada’s share of global trade from 4% to 2%, and decreased our global competitiveness. In fact, the World Economic Forum has ranked Canada 12^th in terms of competitiveness, and we are the least diversified G7 nation in terms of our exports. And, of the 35 countries in the Organization for Economic Co-operation and Development (OECD), we are the second least diversified nation. Also, we very recently released our bi-annual Trade Confidence Index (TCI), our index fell by 5.3%—a significant fall which represents the lowest level in 7 years in terms of Canadian trade and confidence.

Nevertheless, diversification in exports is growing at 0.8% per annum of exports to the U.S., and 4.5% of exports to other countries. And, exports that go to emerging markets have increased from 5% in 2000 to 13% today. So, we have a lot of work to do, but there are some encouraging trends.