No quick fix for trade diversification as relations with U.S. become less stable
It is a wise choice for Canadian exporters to expand beyond the U.S. in these uncertain times, but breaking into new international markets isn't easy
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CALGARY—From Chinese bank notes to Israeli high-tech, Chad Wasilenkoff has tried to break into markets around the world to diversify the Vancouver-based business he founded.
Paper products maker Fortress Global Enterprises is primarily focused on selling dissolved wood pulp from its Quebec mill and company chairman Wasilenkoff is constantly on the lookout for new opportunities to stay competitive in an increasingly globalized economy.
More Canadian companies are looking to follow the route toward diversification as the increasingly tense trade relations with the United States, including its hardline approach to NAFTA talks, tariffs on steel and aluminum, and threatened tariffs on the auto industry, has emphasized the need to compete globally.
An Export Development Canada survey of 1,000 exporters conducted before the tariff war took hold but released last week, suggested 64 per cent plan to export to new countries, up from the below 50 per cent the proportion has generally hovered at for the past five years.
But experts say the road to diversification can be slow and rocky, and the benefits of an integrated North American market means domestic industries have been slower than others to break into growth regions like Asia and Africa.
Companies like Fortress that do venture out meet a wide variety of challenges, including running up against tariffs, stiff competition and failed ventures.
But Wasilenkoff believes that’s just part of the challenge in developing new markets.
“The ease and accessibility and the logistics that are going on in the world, it’s just too easy for someone to make the product better, cheaper, and more efficiently somewhere else.”
The shift to new markets is not easy, especially given the extent to which Canadian companies supply chains are integrated with the U.S., according to Daniel Schwanen, vice president of research at the C.D. Howe Institute.
“It’s not something you can turn on a dime, unfortunately,” he said.
“If we were serious about diversification, we would have started a long time ago, it’s not something you can do tomorrow.”
The current trade uncertainty isn’t helping long-term planning and efforts to diversify, said Mairead Lavery, senior vice president of business development at Export Development Canada.
“There’s an investment hesitation that’s going on,” she said.
Companies are wondering if the trade uncertainty will last, and if they need to make significant shifts in planning due to the “enraged trade rhetoric”, said Lavery.
Pushing into new markets is also a challenge because many companies don’t have the management capacity, and are running a full tilt with the humming economy, she said.
EDC estimates there are about 120,000 Canadian exporters, with 20,000 more ready to export. But about 100,000 of those are smaller operations with revenue of around a million dollars, leaving few resources to devote to capacity building or market expansion.
“They’re starting to learn that they’re going to have to deal, and grow their business in an uncertain world that doesn’t just include the U.S.,” said Lavery.
Entering new markets presents the challenges of language, laws, geography, and customs, as well as actually finding gaps to fill in supply chains, all of which takes time, said Dennis Darby, president and CEO of Canadian Manufacturers and Exporters.
“It’s not as easy as someone standing up and saying let’s change our supply chain today.”
About 86 per cent of the goods Canada produces are unfinished and so needs to be part of a greater manufacturing process, which are often tied up in long-term contracts and require longer-term time horizons to integrate.
“It took us about 20 years to get totally integrated with North America, so it’s going to take us some time. I think there’s going to be some rough patches in the next couple of years, especially if we can’t resolve our differences with the U.S.,” said Darby.
Wasilenkoff, who is also developing a new venture to sell the sweetener xylitol into the U.S., said he hopes Canada will stand firm against the Trump administration and be ready to adapt.
“If the U.S. really doesn’t want our products or they want to make it difficult, trade patterns will change,” he said.
“Yes, it’s short-term pain, but in the long-run these things level out, and in my opinion the U.S. will be harming themselves, and Canada’s going to ship that product somewhere else to someone that wants it.”
For more helpful information on exporting, visit ExportEdge, an essential tool for all Canadian companies interested in exploring business opportunities in international markets.