The U.S. is by far our biggest export market. That’s not about to change anytime soon, despite the series of trade agreements that Ottawa is negotiating with various countries and regions. And the sheer size and similarities between the U.S. market and our own will continue to make it a natural place for Canadian companies to sell their goods and services.
Yet you’re missing out if you limit yourself to selling to our American neighbours. If you’re looking to fuel your growth through foreign sales, you should understand that the biggest export opportunities lie elsewhere. Here are five powerful reasons why you should explore opportunities beyond the U.S.
You can reduce your risk by diversifying your customer base
The severity in the U.S. of the economic crisis of 2008-09 highlighted the risks of focusing on a single market. Companies that traded only with the U.S. found their exports slowing at best, and in many cases contracting. The prices Canadian exporters received dropped, particularly in the manufacturing sector. And the rise in the value of the loonie against the U.S. greenback further hindered exports.
Having a diversified export strategy reduces your firm’s dependence on the financial and political situation in any one country. A strategic export growth plan that includes emerging markets exposes your business to countries that are enjoying substantially faster economic growth rates than the U.S., driving increasing demand for imports.
That’s not to say that you shouldn’t continue to trade with the giant next door; developed markets, particularly the U.S., offer many benefits including well-established legal and regulatory frameworks, infrastructure to support trade, and businesses partners who may be already known and established. But a diversified trade strategy that couples stable, well-developed markets with more volatile emerging economies balances risk.
You can capitalize on Canada’s sterling reputation
Travel anywhere outside North America and you’ll quickly realize that Canada and Canadians have a global reputation for being honest and hard-working, and for producing quality products and services. It’s always easier to sell to someone who already has a favourable view of you.
When exporters enter new markets, they’re exposed to multiple laws and regulations. The Canadian reputation for fair play makes it easier to find partners, distributors and clients, and smart businesses will capitalize on this advantage.
You can take advantage of new trade deals
Sometimes, opportunities arise that you really shouldn’t miss out on. For Canadian companies, the time is ripe to capitalize on a few such opportunities. First, we’re in the final stages of negotiations with the European Union for CETA, the Comprehensive Economic and Trade Agreement. According to Foreign Affairs & International Trade, an agreement between Canada and the EU, a market of 500 million people, could increase bilateral trade by 20% and increase Canadian income by $12 billion. Once CETA is passed, which should happen in the next few months, many new opportunities will be open to Canadian businesses. Companies will want to capitalize on the momentum immediately, particularly in light of the fact that the U.S. and EU are also beginning trade talks.
Another opportunity lies in emerging markets. Along with the well-known BRIC countries (Brazil, Russia, India and China), there’s an increasing focus on the CIVETS countries (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa). According to the latest trends and research, these are the countries representing the best growth opportunities. The timing may be particularly good due to changes to Canada’s General Preferential Tariff (GPT). Under the GPT, developing economies have been extended preferential duty rates. However, the federal government is now reviewing the list of countries on the GPT and considering removing some of them because their economies are now strong and well developed.
Among the BRIC countries, Brazil, China and India are on the GPT list, and may be removed. Of the CIVETS countries, Ottawa is considering removing Colombia, Indonesia, Turkey and South Africa. Countries that the federal government removes from the list may become more interested in the possibility of establishing free trade agreements with Canada. This would ensure that preferential tariff treatment works for both partners, improving market access for Canadian goods.
You can capitalize on faster-growing markets
Our trade is shifting to parts of the world other than the U.S., particularly toward developing economies. Emerging markets are therefore playing an increasingly important role in the trade strategies of many companies.
Data shows that Canada’s economic reliance on the U.S. in terms of share of exports and GDP has fallen over the last decade. According to TD Economics, Canadian exports to the U.S. peaked in 2000 at 84% of our total foreign sales, leaving 16% for all other countries. By 2015, the share going to the U.S. is forecast to fall to 72%. This means our sales to all other countries are forecast to reach 28% of total exports, almost double their share in 2000. And this trend will only continue to grow.
You can leverage our economic stability and government support
Canada is seen as a good country to do business with; it is known to be both economically and politically stable. In fact, Forbes magazine rated Canada as the best country to do business with in the G-20. This gives Canadians a strategic leg up when it comes to trade financing and sends a positive message to consumers in foreign markets.
There are different export strategies to use when entering new markets. Indirect exporting can involve an agreement with an agent or distributor to market and sell a product, or a strategic partnership with another company. Canada’s solid economic fundamentals make it easier for companies looking to export to find partners in foreign markets, and Canadian businesses can benefit from this reputation when it comes to entering markets overseas.
Because increased diversification of exports is a priority of the Canadian government, there are many good export development programs in place. Along with securing multiple trade agreements, Ottawa has created programs to support individual companies. You can find a wealth of information, including opportunities in specific countries, on the Export Development Canada website. And manufacturers should also check out CME SMART Prosperity Now, a federally funded program run by Canadian Manufacturers & Exporters.
Joy Nott is president of I.E.Canada, the Canadian Association of Importers and Exporters, and has more than 20 years of experience in customs compliance. Prior to joining I.E.Canada, she was a vice-president and managing consultant for JPMorgan Global Trade Management Services.
More columns by Joy Nott