To compete globally and boost economic growth, Robert Johnston, of Eurasia stresses that innovation and productivity need to be the focus of governments and industry leaders.
At a time of major change and uncertainty in the energy markets, Canada’s traditional dependence on a resource-based export economy looks more imperiled than ever. Economists have called on this country to diversify what it sells to the world, with many pointing to industries that are ripe for an export boom, among them health care, software and green energy.
A lower dollar should make Canadian-made products more attractive. But when it comes to breaking into global markets, Sandra Stuart knows that Canada’s mid-size businesses have far to go. “Everyone talks about international trade, but what we see in our numbers and research is hesitation,” says the President and Chief Executive Officer of HSBC Bank Canada.
New free trade agreements are always positive, Stuart maintains, among them the Trans-Pacific Partnership (TPP) and the Comprehensive Economic and Trade Agreement (CETA) with the European Union. But despite the fact that Canada has already signed dozens of free trade deals, only 10 per cent of Canadian companies export, Stuart says. Of those 10 per cent, just 550 account for 70 per cent of export dollars. Meanwhile, Canada’s exports are dropping compared to imports: Our trade deficit jumped to a record $3.4-billion in March, according to Statistics Canada.
What are the main obstacles to Canadian companies that should be jumping into the export fray – and more important, what can they do to break through? Stuart knows the barriers facing middle-market companies, which represent 60 per cent of HSBC Bank Canada’s business. “There are fears about going to different economies, so you have to make sure [mid-size businesses] understand where the opportunities in the economiesare,” she explains.
Canadian companies may worry about the challenges of sourcing goods, navigating foreign regulatory environments, dealing in local currencies and simply getting acclimatized abroad. The key to helping those businesses get over their cold feet is to give them information to help them manage their risks, contends Stuart, who took over as President and CEO of Vancouver-based HSBC Bank Canada last year and also serves on the firm’s board.
The key trade regions for Canadian businesses, China and the U.S., both have much to offer. “China should be one of Canada’s strongest trade corridors,” Stuart says. “There is about $10-trillion (U.S.) in economic opportunity there. But there are language hurdles as well as currency hurdles.” With that in mind, companies doing business in China should consider opening a renminbi account. “That helps the customer manage their foreign-exchange risk,” notes Stuart.
She gives the example of a leading Canadian distributor of building materials that set up an export sales business in 1998. When some Chinese buyers expressed interest in paying for orders in renminbi, the company arranged to begin invoicing in the currency, enabling a reduced exchange-rate risk and longer payment terms. As a result, the company has generated goodwill and strengthened its relationships with its Chinese customers.
Stuart laments that the U.S. has demoted Canada as its No. 1 trading partner in favour of Mexico. Still, the North American Free Trade Agreement (NAFTA) represent $17-trillion (U.S.) in trade opportunity. “The challenge of going to the U.S. is understanding regulation, the market you’re going to and the taxes.
When it comes to global competitiveness, mid-size Canadian businesses would benefit from a stronger national focus on innovation. Although Stuart applauds the federal government’s agenda on that front, she suggests that more innovation hubs and grants could play a role in boosting Canada’s rankings.
The good news is that the depressed Canadian dollar and a stronger U.S. economy should benefit Canadian exporters. “The weak Canadian dollar allows our goods to be much more competitive in the U.S. than it would be otherwise and gives our customers U.S. income,” Stuart says. On the innovation front, Canadian small- and medium-size businesses could invest more in developing cutting-edge, disruptive technologies. The World Economic Forum’s Global Competitiveness Index of 140 economies ranks Canada 22nd in both innovation and business sophistication and 18th in technological readiness.
The country has its share of success stories in these areas. Stuart says there’s often a link between the kinds of Canadian companies that take chances on technological innovation and those that go abroad. For instance, businesses that are early adopters of communications technologies such as Skype and collaboration on e-documents are already better equipped to keep overseas offices in touch. From another perspective, Stuart observes, the more viable and efficient a company is, the more risk it can assume by selling abroad. She points to a Canadian manufacturer that invested in its own 3-D printers; the company can now build its moulds much faster by producing them in-house, cutting out courier and delivery time.
Innovation doesn’t always look the way we expect it to. “What’s really cool is when I go to a company and I think, ‘This business is a dinosaur; it’s not going to make it,’” Stuart says, “and when a company recognizes that they’re going to be disrupted, and they completely retool their business.”
She recently visited a large factory that did some research to see how employees behaved on the floor. “They found too much time was spent walking,” Stuart says. Realizing that a different layout would allow workers to become more efficient, the owner made changes that have expanded the factory’s capacity by 200 per cent and reduced costs by a third. “He’s a much more viable business,” Stuart says. “He’s more willing to take risks offshore now.”
Although Stuart concedes that Canada can’t change its risk-averse business culture overnight, she focuses on adjusting attitudes one company at a time. “Everyone should be contemplating how to grow their business,” she says. “It’s good for all of us.”