For 96 per cent of Canadian companies, business ends at the border
TORONTO—With the U.S. often less than 100 miles down the road, and the global market more accessible than ever, courting customers abroad, exporting services and shipping Canadian-made products worldwide should seem like second-nature for Canadian businesses.
But, for some reason, it isn’t. Fewer than 4 per cent of all Canadian businesses export, while fewer than 2 per cent of small and medium-sized enterprises send their goods abroad.
“We’ve given up on wanting to do this,” Robert Hattin, president of ProVantage Automation Corp. and former chair of Canadian Manufacturers & Exporters board of directors, said. “We’re ambitiousless when it comes to doing this.”
Though most Canadian businesses seem content to serve the domestic market exclusively, Hattin, and many others like him—from bankers to industry organizations—warn that in a rapidly globalizing, competitive world, this stay-at-home strategy is a recipe for disaster.
“Companies end up comfortable with the opportunities that they’re finding locally and they don’t necessarily want to take some of the risks and overcome some of the regulatory and documentation hurdles to tap into markets they don’t necessarily understand,” Canadian Chief Economist at HSBC Bank Canada, David Watt, said.
Few figures illustrate the risks involved in this passive approach to trade better than Canada’s export performance over the past decade. In the mid-2000s, when the country’s exporters still enjoyed relatively favourable trade conditions, Canada owned 20 per cent of the U.S. import market. Over the past 10 years, however, “leaner and meaner” foreign companies have grabbed a larger share. Today, with fewer businesses looking to take on the challenge, Canada’s stake in the all-important U.S. market has eroded to 14 per cent.
Meanwhile, Canadian companies are so likely to cite getting into the U.S. or international markets as a middle-term goal and then fail to follow through, Watt even has a name for it—the curse of the five-year plan.
“They sort of say, we’ll get involved in the export market, we’ll think about it in a five-year plan,” Watt said. “Three years down the road [they] go through an economic cycle, a downturn… and suddenly it’s three years [later] and [they’ve] still got a five-year plan to get involved in the export market.”
And as companies put off expansion, competitors are bound to move in.
“If you want to get market share in the U.S., you have to be prepared to go down there and fight for it,” Watt added.
While the percentage of Canadian SMEs that export is frightening to some observers—lower than the American figure and a fraction of Germany’s, where 20 per cent of SMEs export—Corinne Pohlmann, the senior vice-president of National Affairs at the Canadian Federation of Independent Business, thinks it’s important to note there are an enormous number of small Canadian businesses that will never export. Canadian restaurants or dry cleaners, for example, will never be shipping takeout orders or pressed suits across the border. The CFIB said 50 to 60 per cent of small businesses self-proclaim their products are un-exportable.
Even with that in mind though, the organization still thinks the percentage of small businesses who export “should definitely be bigger” and persistently advises its members with exportable products to “take the plunge.” The CFIB has even developed a program to help SMEs pursue exporting, embedding a Department of Foreign Affairs, Trade and Development commissioner within the organization to assist businesses get across the border.
While increased risk, regulatory burden, financial strain and complacency are all factors that lead companies to shy away from exporting, encouraging Canadian businesses to venture across the border is not just about producing higher revenues.
“You go to Mississauga now, you can drive down any of the streets… and you just take a look at all the factories that are for sale or the buildings that are empty,” Hattin said, describing the attrition in Ontario’s manufacturing sector following the recent recession. “They were not prepared or didn’t have the management talent or the management desire… to withstand it.”
Companies that were “comfortable in their own little place” were some of the ones hardest hit by the 2008 downturn, Hattin said. Watt agrees, noting that exporting to a range of markets makes companies more resilient, more long-lasting and more likely to grow. The economist said as trade barriers begin to fall worldwide—the recent agreement on the Trans-Pacific Partnership being an excellent example—Canadian businesses are going to face more domestic competition. Those unprepared for it may meet a fate similar to the countless companies unable to survive the recession.
While there’s no question Canadian businesses face an uphill battle, as the next generation of entrepreneurs comes of age, Hattin for one, is optimistic they won’t be as tentative about international expansion as many Canadian companies today.
“They don’t see borders,” he said. “I think their mindset is different—they don’t see obstacles the same way we do. They may not be making a hard good, you know, making a shirt and exporting it, or a can of peas, or whatever it is, but I think those people will have the mindset. And really, at the end of the day, it’s about attitude.”