By Peter G. Hall, Vice-President and Chief Economist
Exporting. Globalization. Diversification. These are big terms, and we usually associate them with big business. We can even go as far as to think that in a great, big, new, trading world, small business really doesn’t fit the model, doesn’t really belong in the game – that you really need size and scale to compete successfully. This overlooks one key fact: that all businesses start off as small affairs, and the same is generally true for export ventures. So, how are Canada’s small exporters doing?
Most of Canada’s 1.1 million small businesses make their money in the domestic market. A small slice of these – one in every thirty firms – are in the export business. And of this slice, the vast majority export primarily to the U.S. economy. But that has changed over the last decade. The tech wreck, 9/11 and the resulting ‘thicker border’, the sharp hike of the loonie and the financial and economic crisis of 2008-09 have reduced outright the number of small businesses exporting to the U.S.
At the same time, small businesses have become much more interested in riskier export markets. Data show that the ranks of those exporting to non-OECD markets has risen in the past decade. Over that short time, the share of those active in this chunk of the world economy has mushroomed. In 2000, just 11.9 per cent of small businesses ventured into emerging markets. By 2008, that number was up to 29 per cent, a share that has been maintained through the post-crisis period.
Its small share of the overall marketplace might lead many to conclude that small exporters are too small to warrant attention. That would be a great mistake. The dynamism of this segment suggests that it is already a powerful new force in Canada’s economy. Consider that from 2000 to 2011, the small business share of export sales to non-OECD countries has more than tripled, to over 17 per cent. As a result, it’s no surprise that over the same timeframe the estimated number of enterprises active in emerging markets has also tripled.
As impressive as the growth is, it’s also clear that in the 2009-11 period – the last three years of available data – the trend has stalled. The global economic and financial crisis pummeled sales almost everywhere, increased risk aversion, and turned Canadian exporters inward to our more stable domestic market. The fast rebound in U.S. sales in the 2010-12 period has rivaled growth to emerging markets, holding shares of activity static during this period. Some have concluded that this means the small-business shift towards emerging markets is over. They could be right – or not.
Once the new global growth cycle resumes – in 2014, by our reckoning – world markets will settle into a growth path that for emerging markets is still at least twice the OECD rate. Savvy businesses looking for growth opportunities will see and exploit this dynamic once again. And given that there is already significant small-business participation in this market segment, perceived risks are lower, and momentum favours a resumption of the trend. If so, over half of small business exporters would have activities in emerging markets by 2020, more than doubling the current count of total enterprises.
What if there were an up-shift in activity? Greater awareness of the global dynamic and market opportunities, lower risk aversion, greater availability and awareness of risk-mitigation tools, and a greater policy emphasis are good reasons to believe that these markers could be achieved in just five years.
The bottom line? The big words used to describe today’s economy are not just for big business. Small Canadian enterprises are taking on the world, with great results. Their foray into lesser-known markets has likely just begun, and could well be a significant driver of growth in the upcoming cycle.
This commentary is reprinted with permission from EDC. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.