Toronto, Monday, September 16, 2013
‘Going where the growth is’: Why Canada’s small businesses are shifting their export routes
By Mashoka Maimona, Toronto, Canada
Ashfaque Rahman is owner of Norvic Shipping, which operates chartered ocean vessels to export grains grown in Saskatchewan and Alberta from a Vancouver port to the Middle East and Asia.
Trading routes are quickly transforming and diversifying as companies realize the dangers of ‘putting all their eggs in one basket’ – the lukewarm…
Why small manufacturers are returning to ‘Made in Canada’1
The Made-in-Canada business model once seemed viable for only niche, high-end brands, such as Canada Goose, that could afford higher manufacturing labour costs. But a change may be afoot.
The family-owned agriculture businesess’s first forage customers were Japanese cows and racehorses back in 2004, well before the financial crisis, founder Barry Schmitt said. “Our business was founded on exports to Japan. They had the need for the fibre and we have the acres to produce it.”
But raw material producers are not the only beneficiaries of this change. Toronto-based Norvic Shipping operates chartered ocean vessels facilitating these exports – predominantly bulk food grains grown in Saskatchewan and Alberta – from a Vancouver port to the Middle East and Asia. Since 2006, its annual growth rate has doubled with shipments to Bangladesh, India, and the UAE – all countries on HSBC’s list of the 10 fastest growing trade corridors for Canada in the next two decades.
HSBC’s February 2013 Global Connections Trade Forecast report revealed that Canada’s fastest-growing corridors of growth by 2030 will be Asia and the Middle East, with India replacing Mexico in the top five.
“India has one billion people; China has 1.2 billion; Bangladesh has about 160 million; Pakistan, 175 million; Indonesia, 250 million. That’s more than two billion people in these countries alone. They have to eat at the end of the day,” Ashfaque Rahman, owner of Norvic, said.
Todd Winterhalt, Export Development Canada’s vice-president of international business development confirmed trading routes are quickly transforming and diversifying as companies realize the dangers of “putting all their eggs in one basket” – the lukewarm markets in Western Europe and the U.S.
The post-crisis move to create trading partnerships in emerging markets such as the next-11 countries – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam – is not limited to large corporations, he said.
Of EDC’s $87.4-billion in investment across 200 countries, $30-billion went to 130 emerging markets last year – a “disproportionately” high figure for a company in which 80% of customers are small to mid-sized businesses, Mr. Winterhalt said.
No surprise, China overtook the United Kingdom as Canada’s second-largest export destination in 2012, jumping 14.9% to $19.3-billion mainly on shipments of wood pulp, lumber, canola, iron ore, potash, and coal said Ben Arber, head of global trade in Canada at HSBC. The forestry sector dominates exports to China as a result of the country’s booming housing sector, he said. But Vietnam and India are also prime candidates, with the ambitious Delhi-Mumbai Industrial Corridor project fuelling the need for industrial materials and expertise.
The U.S. accounted for 73.2% of Canada’s annual merchandise exports in 2012, down from its 20-year peak in 2002 of 83.9%.
Mr. Arber pointed out that while energy dominates Canada’s exports, more than 50% of small to mid-sized businsses export non-commodity based products, because the sheer size and scale to operate in the mining or energy industries usually deters resource-limited entrepreneurs from entering them.
Happily for them, Canada’s exports are a project finance and engineering expertise story as well. “You’ve got some of the best engineers in the world in Canada, and the expertise in the construction and infrastructure space… are in high demand in the emerging markets,” he said adding they are well-positioned to capitalize on a growing appetite for both expertise and transport parts.
While critics blame a strong Canadian dollar for weakening export figures to the U.S., Mr. Arber contends a strong loonie attracts buyers from emerging BRIC (Brazil, Russia, India, and China) markets.
“Going where the growth is” has become a catchphrase for many of these SMBs, scouring for exporting opportunities in countries with double-digit annual GDP growth and maturing consumer demand.
“By definition, you’re going to have more desire, more demand, more contracts, more potential customers [in emerging markets] than a market with 1.5% or 2% GDP growth,” said.
However, Mr. Schmitt, who has been in the exports business since 1993, also credits the fact that the regulatory, policy, cultural, and technical barriers to access in these markets are loosening. “Doing business abroad has certainly gotten easier … than it was 20 years ago. As Canadian businessmen, we’re very well accepted everywhere we go in the world,” he noted.
“More people in the world speak English now. The Internet has made trading a lot easier. We used to do it by faxes and you could only trade between 4 p.m. and 11 p.m. Now you can send an e-mail anywhere, anytime,” he said.
Another trend being noticed is that exporting relationships aren’t solely between Canadian businesses’s home base to one location. Buying and selling on foreign soil for foreign partners is bursting. “What we’ve seen is more and more Canadian affiliates in second markets engaging in trade between that market and a third market,” Mr. Winterhalt said.
Norvic’s Mr. Rahman ships coal from Indonesia, South Africa, and the U.S. to coal-hungry India, where power plants keep sprouting up to support more than one billion people. “This is another frontier for us,” he said in a phone interview from Japan, en route to Indonesia.
“Trade is a way companies keep on the leading edge and remain technologically advanced, understand the latest methods, and are more innovative. There is a lot of research to show that companies that trade tend to be more innovative and technologically advanced,” said Gordon Betcherman, professor at University of Ottawa’s School of International Development and Global Studies. “The SMB sector is really critical to that by remaining active in international trade.”
However, Mr. Arber contends Canada is in Chapter 1 of its emerging market exports narrative, with decades of international trade needed to change companies’ outlooks and strong reliance on the United States.
But some like Mr. Schmitt see the next chapter quickly approaching. “My sons are now coming into the business,” Mr. Schmitt said about his teenage boys. “When they’re communicating with the young guys from the other countries, it’s like a borderless world.”