Report urges businesses to review why they have not expanded into markets like Brazil, Russia, India and China, which will soon be home to a billion middle-income consumers
TORONTO—Canadian companies are at risk of losing out on growth opportunities if they don’t look abroad to the U.S. and other foreign markets in 2014, accounting firm PricewaterhouseCoopers warns in a report issued Tuesday.
“This is about revenue and Canadian companies are placing limited bets on emerging foreign markets. It’s small thinking,” said Tahir Ayub, Canadian Private Company Services Leader at PwC.
The annual report, titled Building a Sustainable Future: Strategies for Growth, urged businesses to review why they have not expanded into markets like Brazil, Russia, India and China, which in the next decade will be home to an estimated billion new middle-income consumers.
“Those new consumers will demand products and services and other countries will meet that demand,” said Ayub.
“Bottom line: Canadian businesses should continue to evaluate the pros and cons of doing business in emerging markets. It’s a risk not to start assessing these markets as places to grow.”
There are also many opportunities to be had just beyond our border in the U.S., he said.
“For Canadian businesses specifically, our geographic proximity, cultural similarities and shared language make the U.S. an ideal trading partner,” said Ayub.
“We’ve got a ready market of sophisticated consumers with significant buying power at our doorstep. The US market is 10 times that of Canada… This is the time to at least explore doing business in the U.S.”
Earlier this week, a research note by CIBC Economics forecasted that spending by Corporate Canada is expected to ramp up in 2014 as global economies, particularly the U.S., continue to show signs of improvement.
CIBC economist Benjamin Tal said Canadian companies are holding onto a near-record amount of cash, an estimated $5.7 trillion, yet have been reluctant to invest in capital projects due to economic uncertainty. But as some of the world’s largest economies show clear signs of strength, these firms will be more willing to spend that money in 2014.
The bank estimates the U.S. economy will expand by 3.2 per cent next year, more than double the projected pace in 2013. While China is forecast to grow by four per cent, compared with three per cent this year.
A PwC survey of 352 Canadian chief executives from the private sector were hesitant about growing outside of Canada, although 76 per cent say they expect their businesses to expand in 2014.
The majority (60 per cent) said Canada had the largest growth potential in the coming year, while 24 per cent noted the U.S. and 10 per cent cited foreign markets.
Those surveyed cited that they expect their businesses will expand by an average of 7.6 per cent _ more than three times more than the two per cent growth rate forecasted for the Canadian economy as a whole.
“Canada’s market is relatively small and developed. The real opportunity to expand, grow sales and boost market share is by entering new markets,” says Ayub.
The most common reasons companies expect growth are increased sales (55 per cent), marketshare gains (44 per cent) and an improved economy (37 per cent). Last year, only 19 per cent of those surveyed admitted to having a rosy outlook on the Canadian economy.
The CEOs say they are taking a number of steps to improve their balance sheets, including reducing the cost of operations (42 per cent), improving staff skills (40 per cent), improving processes (39 per cent), better targetting customers (38 per cent) and retaining staff (33 per cent).
Going into 2014, the respondents say the biggest obstacles they see for their businesses are the economy (38 per cent), labour shortages or inability to recruit skilled staff (28 per cent) and decreased demand for their products and services (25 per cent).
The PwC survey of Canadian CEOs was conducted in the summer. The participants were from a variety of sectors, each generating revenues between $10 to more than $51 million each year.