Know your market to succeed
The United States and the European Union are experiencing anaemic growth and towering debt. Japan, in the doldrums now for over a decade, is fighting back from a devastating earthquake and tsunami. Meanwhile, emerging markets, particularly the “BRIC” countries – Brazil, Russia, India, and China – are in growth mode, and Canadian manufacturers have taken notice.
“We have seen a lot more interest by our members to connect with emerging markets,” says Jean-Michel Laurin, vice president, Global Business Policy for Canadian Manufacturers and Exporters (CME), Canada’s largest trade and industry organization. “Even in the best scenario we won’t see growth rates in mature economies anywhere near those in emerging markets.”
A recent high-profile trip in August by Prime Minister Stephen Harper to Brazil put trade under the spotlight. The two countries did almost C$6 billion in trade in 2010, but manufactured goods were dwarfed by trade in agricultural products and commodities.
“In a country like Brazil, if you want to sell there – for a lot of companies it makes sense to set up local operations and grow from there,” says Laurin.
The reasons are simple enough: Canada and Brazil don’t have a free trade agreement, and Brazil’s tariffs and regulations can make exporting difficult. However, there is significant opportunity. Brazil is a C$2 trillion economy, and will be hosting the 2014 World Cup and the 2016 summer Olympics. It is anticipated that in the next five years the country will invest almost C$1 trillion in infrastructure.
Know your market
Fabricated metal products, machinery, and transportation equipment all represent trade opportunities for Canadian manufacturers. However, emerging markets are developing more sophisticated capabilities with regard to the manufacture of durable goods.
“Both Brazil and China have competitive industries in these sectors, and both have cheaper labour than Canada,” says Martin Schwerdtfeger, senior economist at TD Bank. “They are competitors to Canada for global markets in these products. Think for example of Brazil’s Embraer, or Chinese power tools manufacturers.”
Schwerdtfeger argues that in order to gain domestic market share in those two countries, Canadian firms will have to differentiate themselves through quality. In the case of Brazil, a strong Brazilian currency might open some opportunities for Canadian imports. And, as with Brazil, in the example of China the distance and cultural challenges argue for a local presence.
“Sometimes the Chinese are willing to pay a premium for something that is made in Canada, but exporting to China might not make as much sense as investing there and finding a partner,” says Laurin from CME. “It depends on the customer and the market. In many cases we have seen Canadian companies setting up operations abroad to serve regional markets.”
Laurin emphasizes that Canadian manufacturers wanting to export to emerging markets should have innovative technologies that already have a good share of the Canadian domestic market.
“You need to be able to withstand the test of global competition,” he says. “Know the language, understand the nuance of doing business in those countries – you need to do your homework.”
Fortunately, there are many resources for Canadian exporters, from trade commissioners to organizations like the CME and Export Development Canada (EDC), Canada’s export credit agency that offers commercial solutions for exporters.
“Canada’s trade commissioners offer a pretty good service,” says Laurin. “You might ask: ‘What is a bureaucrat in Sao Paolo going to do for me?’ Well, the answer is: ‘Quite a lot’. The commissioners are typically aware of common mistakes, of things people overlook, and have local expertise that can be passed on.”
