Global Export Opportunities Await Many Canadian SMEs

By Angus Gillespie

In virtually every large international economy the world over, large companies within those countries are exceptionally active and thriving as exporters. The lifeblood of the global market is trade and every nation is endowed with certain fundamental advantages that they can bring to the table and share with other countries. The challenge in many instances lies in getting more of the small to medium-sized enterprises to think about global opportunities. What they have to offer is far more important than even they themselves may believe.

The goal of any country is to be a net exporter as opposed to a net importer. Greater levels of exports mean more production, jobs and revenue. If a country is a net exporter, its gross domestic product increases, which is the total value of the finished goods and services it produces.

International trade accounts for a significant portion of the entire Canadian economy, and in particular, natural resources where agricultural, energy, forestry and mineral mining exports account for more than 50% of Canada’s total exports. Automotive products and other manufactured goods come in at about 40%. Each year exports make up about 30% of the entire gross domestic product. But the vast majority of Canadian companies do not trade globally, especially the SMEs. Many of these businesses find the prospect of exporting to be a daunting task and that it quite likely won’t be worth the time and effort.

However, in an ever-increasingly global economy, times have changed and there is definitely a market for SMEs to succeed beyond their safe conventional borders.

A panel of experts recently gathered at the Toronto Region Board of Trade to share thoughts on ideas on how to better engage Canadian companies – and particularly SMEs – into the exporting realm. The panel included: David Rawlings, CEO, JPMorgan Chase Canada; Dianne Craig, President and CEO, Ford Canada; and Sam Sebastian, Managing Director, Google Canada.  The panel was assembled as the board unveiled its new Trade Accelerator Program (TAP) GTA, which is designed to assist businesses looking to get into exporting. Other than the United States, Toronto is the first metropolitan centre anywhere in the world that has developed and will be implementing a complex export strategy.

It’s estimated that barely 4% of the one million SMEs in Canada are exporting goods to other countries.

A low Canadian dollar and a strong U.S. economy are creating favourable conditions for more enterprises to explore exporting. Every $100 million increase in exports creates approximately 1,000 new jobs at home, according to figures from the Conference Board of Canada.

A low Canadian dollar and surging U.S. economy should help drive the nation’s key export sectors.

However, an 80-cent dollar doesn’t immediately turn the fortunes around for such sectors as manufacturing.  Long-term contracts and the need to establish a capital base and amended production flow all factor in as to how quickly the changes will take hold. A growth forecast for exporting comes as welcome news, as Canadian consumers remain weighed down by household debt and provincial governments across the country try hard to balance their fiscal books.

In 2014 Canada had just under $529 billion in exports in 2014, with about $400 billion of that going to the United States. Imports for the year were just above $524 billion, so there was a small overall trade surplus.  However, that has not been the case this year as the natural resources sector continues to suffer.  Minerals and mining are down and of course the drop in oil prices has also led to colossal problems for provincial and federal coffers. At last report, the deficit stood at almost $17.5 billion, largely due to the plunge in oil prices, according to figures from Statistics Canada.

The Bank of Canada recently held its key overnight interest rate at 0.75%, essentially ignoring a weaker U.S. economy in the first quarter, noting that stronger U.S. growth this quarter should help Canadian exports and business investment, but if that’s the case, it’s going to have to come from an industrial other than natural resources.

Looking ahead, experts see a lot to be positive about when it comes to Canada’s ability to improve its stand in the international exporting arena.

“The diversity of the workforce in Toronto and throughout Canada is a huge advantage,” says David Rawlings, CEO, JPMorgan Chase Canada. “We’re in a Triple-A rated country with a very strong rule of law and government and regulatory framework. I think the tools available are pretty phenomenal.”

As an executive in the financial industry, Rawlings sees first-hand how progress has been made in recent years.

“I think there is a real desire among Canadians to go more global beyond the U.S. and there’s also a real desire for U.S. companies to get bigger here. We’ve seen growth along both lines over the past couple of years,” he says.

One of the most important industries to the Canadian economy is the auto sector. One in seven Canadians is either directly or indirectly employed within the industry and it’s one of the country’s most strategic business sectors as well as being the biggest contributor to Canada’s manufacturing Gross Domestic Product (GDP) at about 12%.

The auto industry directly employs over 550,000 Canadians across the country in 14 vehicle and assembly plants, more than 550 major component and OEM auto parts manufacturing operations, 3,950 dealerships, and aftermarket automotive product and service retailers. There are hundreds of thousands of additional Canadians whose jobs are in industries that support the auto industry including transportation and financial services, mining, steel, chemicals, oil and gas, aluminum, and high tech just to name a few industries.

Chrysler, Ford and General Motors along with their dealers directly employ some 102,000 Canadians and directly support an additional 50,000 Canadian retires.

“We’ve been exporting for 112 years,” says Ford President Dianne Craig. “The scale to which we rely on the export markets is huge. Globally, Ford exports 44% of the manufactured products. In Canada, 90% of our vehicles are exported and 100% of our engines get exported.”

Craig says Ford has concentrated on changing the paradigm in Canada to focus beyond just the U.S. as a trading partner. In spite of benefitting from NAFTA, the global automotive industry in emerging markets has become huge. By 2020 it’s estimated there will be 100 million vehicles sold around the world.

“In Canada this year we’ll sell over two million vehicles, which may not sound like a lot in context with the U.S. where we’ll sell 17 million vehicles, but in China it’s expected to grow to 30 million. Add in India and that is where the growth is going to be. If you’re going to continue being a global player like Ford, all exporters need to think beyond shipping just to the U.S.”

In addition to the Asian markets, exports to the European Union have shot up significantly over the past couple of years, in spite of teetering economies in a number of its 28 member nations.  The EU is currently Canada’s No.2 trading partner and growing. Although China seems to hold great potential our total exports added up to just under $19.5 billion last year. Good – but not as good as many believe it could be, based on the enormous size of such a potentially inviting market.

One of the biggest barriers facing SMEs is most often the psychological one. It remains hard for smaller businesses to fathom that they now have a voice that can be heard on a much greater scale than in the past.

“We work with tens of thousands of SMEs across Canada and we see the opportunity to increase the scope and scale of small to medium business well beyond our borders,” says Sam Sebastian, Managing Director, Google Canada.

Sebastian says that when his team meets and talks with SMEs, many of them still feel confined and restricted in terms of what they can do from a marketing standpoint. But times have changed. No longer is it about taking out an advertisement in the Yellow Pages or the local newspaper. Now there is the Web online and various other technologies, so a plethora of opportunities have opened up that were not there in the past.

“They can now broadcast their message around the globe,” Sebastian says. “Of the tens of thousands of SMEs, less than 5% export. But the ones that do have a 30-40% better productivity and 75% have better revenue per employee because they open themselves up.”

A key message to SMEs is that a great deal of expansion can be had by simply taking advantage of the many technological tools that are now right at their fingertips.

“Companies are way underleveraging the opportunities that are available,” Sebastian emphasizes. “It’s important for Canadians to leverage our assets. In the end, it’s about having the best goods and service, that’s what consumers want.”

According to a report by Industry Canada, exporters generate higher sales, pre-tax profit margins and returns on assets, on average, compared to non-exporters. As well, exporters are more research and development intensive, spending 8% of annual revenues on R&D, compared with 6% for non-exporters.

Exporters are also more growth oriented than non-exporters, with about 10% growing sales by 20% or more per year over the 2009–2011 period compared with 8% for non-exporters.

The federal government recently announced various measures to assist SMEs seize opportunities abroad as part of the Government’s pro-jobs and pro-export plan. The measures are designed to help SMEs expand their businesses and create jobs by exploring new export opportunities for their goods and services, including to new and emerging markets.

Prime Minister Stephen Harper first announced a new export market development program that would provide direct financial assistance to entrepreneurs seeking to develop new export opportunities and markets, especially in high-growth emerging markets. These initiatives will be particularly helpful in helping SMEs finance activities such as participation in trade fairs and missions, and market research to create new business opportunities.

“Our Government is committed to creating jobs and opportunities for Canadians and we understand that the majority of private sector jobs are created by SMEs,” Harper said, while attending an event in Mississauga recently. “We have made it a priority to support the men and women who run SMEs, especially as they explore opportunities in emerging markets and look to take advantage of Canada’s new trade agreements in Europe and Asia, where they now have preferential access to half of the world’s consumers.”

Harper’s Minister of International Trade Ed Fast has hosted a variety of export workshops across the country in an effort to provide SMEs with the tools and practical information they need to take advantage of international business opportunities to export. The cross-country series began last November and has attracted almost 2,000 SME representatives who have been interested in learning more about how to expand their businesses beyond local, regional or national trade. There was also the recent expansion to the Canadian Trade Commissioner Service, which provides advice to all entrepreneurs, big and small.

Not that long ago the federal government announced a total of $50 million over five years in direct financial assistance to Canadian SMEs for market research and participation in trade missions. It is expected that this funding will help between 500 and 1,000 Canadian entrepreneurs per year reach their full export potential.

Something to keep in mind: every $1 billion in exports is the equivalent of about 11,000 jobs for Canadians.