By Keith Norbury
The owners of Ontario-based Pride Bodies Ltd. were understandably “proud” of the railway maintenance service truck they put together for Canadian Pacific Railway. So proud that they took the prototype vehicle to an industry trade show in Kentucky this fall to drum up interest from potential U.S. customers. “CP is very proud of the vehicle and worked hand-in-hand putting it together,” said Kevin Lanthier, Pride’s sales coordinator, in an interview at the International Construction & Utilities Exposition held Sept. 29-Oct. in Louisville. “So we’ve had CP’s fleet manager here, showing it off to some of the other (rail) guys down south. That’s been a good opportunity for us to meet new leads.”
Only a fraction of SMEs export at all
According to Industry Canada, though, the vast majority of small and medium sized businesses in this country don’t avail themselves of such opportunities. A 2011 survey of Canadian SMEs found that only about 10 per cent exported and that export sales accounted for about four per cent of their total revenues. (A similar survey is scheduled for this year, but results have not been released.) Other sources painted a similar picture. For example, an October 13 article on canadianmanufacturing.com reported that only four per cent of Canadian companies export with only two per cent of SMEs selling goods or services outside of the country. (Unfortunately, Canadian Sailings magazine wasn’t able to independently locate a source for those figures.)
The Canadian Federation of Independent Business, however, recently conducted a study, which has yet to be published, that pegs the proportion of Canadian companies that export at closer to 22 per cent. About half of small businesses are also involved in importing, said Christine Polhmann, the Federation’s Senior Vice-President of National Affairs.
Manufacturers much more likely to trade
“When you look at manufacturing specifically, that number goes up quite a bit,” Ms. Pohlmann said. “I’d say it’s closer to 70 to 80 per cent that are actually involved in trade of some kind when you’re in the manufacturing sector.” Most of that trade is with the United States.
According to Industry Canada’s Trade Data Online website, exports of all manufactured goods from Canada to the U.S. totalled $24.1 billion in August 2015 compared with $20.6 billion in August 2014 and $18.4 billion in January 2014. The U.S. accounted for 82.1 per cent of all Canadian exports of manufactured goods in August 2015, up from 78.5 per cent in August 2014 and 80.0 per cent in January 2014.
For 2014, the U.S. consumed 79.2 per cent of Canadian manufacturing exports, its highest rate since 2006 when the figure was 82 per cent. In current Canadian dollars, manufacturing exports to the U.S. were $252.1 billion, their highest level since 2006, when the amount was $259.2 billion. Canadian manufacturing exports to the U.S. have risen steadily each year since 2009 when they dropped to $180.5 billion.
Low Canadian dollar helps
For Pride Bodies, which now employs about 70 people at its two facilities in Cambridge, about 25 to 30 per cent of its production is shipped to the U.S., Mr. Lanthier said. It was quite a bit higher during the early 2000s, a few years after Pride got its start, when the Canadian dollar was worth around 63 U.S. cents. Pride recently hired a U.S. sales rep to build up that export business. “But it’s a much tougher market,” Mr. Lanthier said.
With the Canadian dollar hovering lately around 75 U.S. cents compared to trading at close to par two years ago, “it’s definitely allowing us to be more competitive,” Mr. Lanthier said. That bit of leeway has enabled Pride’s U.S. sales rep to make some sales he wouldn’t have been able to before. “We’re able to play with the pricing a little more,” Mr. Lanthier said.
Calgary-based Precision Mounting Technologies Ltd., which manufactures devices for mounting computers and tablets in police cars and other emergency services vehicles, now earns about 40 per cent of its revenue in the U.S., said Vice-President Richard Chown. He attributes much of that to the weak Canadian dollar. “It’s fantastic because we manufacture in Canada and we sell in U.S. dollars,” said Mr. Chown, who is based in Ottawa. Domestic sales are also booming because those customers pay Precision in Canadian dollars rather than the U.S. dollars that Precision’s competitors across the border are charging.
Dollar different works both ways
Robert Hattin, a former Chairman of the Canadian Manufacturers & Exporters Board of Directors, cautioned that the low Canadian dollar can also work against manufacturers because it means higher prices for their inputs and materials from the U.S. “Because we’ve gutted our supply chain in Canada in terms of what we manufacture, everything is being imported into Canada if you’re building something — whether it’s machine tools, drill bits, or whatever,” Mr. Hattin said.
That isn’t an issue for Precision, however. Mr. Chown said increases in the cost of steel, aluminum and the nuts and bolts his company buys have been “negligible.”
Ms. Pohlmann said the hope was that lower oil prices combined with the weak Canadian dollar and the strengthening U.S. economy would cause Canada’s manufacturing sector to rebuild and take off. “But we haven’t seen it in our data yet,” she said. Possible explanations for that lag include people being cautious about moving into new markets and the complexities involved in exporting to the U.S. It’s not uncommon for an neophyte exporter to encounter delays or unexpected fees or penalties for improper paperwork, she said.
A few years ago, CFIB did one-on-one case studies with about a dozen companies as a follow-up to a survey on trade to find out what barriers businesses face. Despite each of the companies being fairly astute exporters, “every single one of them had said they had learned the hard way on what it took to get involved in trade,” Ms. Pohlmann said. While those companies persevered and learned what they needed to do to exploit those markets, it raised an important question: “How many others tried and gave up once they hit those barriers?”
Auto manufacturing exports bounce back
All things considered, Trade Data Online figures reveal that Canadian automobile manufacturing exports have experienced a boost in value in recent months, in contrast to a slump in the value of oil and gas exports in the same period. Automobile and light-duty motor vehicle exports totalled $5.2 billion in August 2015 compared with 4.0 billion in August 2014, and $3.0 billion in January 2014. Meanwhile, oil and gas exports totalled $7.1 billion in August 2015 compared with $9.3 billion in August 2014 and $10.3 billion in January 2014. Oil and gas, though, continues to lead among 25 export categories, according to Trade Data Online. Automobiles and light vehicles are the second leading category. Total exports for all categories amounted to $41.2 billion in August 2015 compared with $43.1 billion in August 2014.
In August 2015, automobiles and light vehicles made up 11.7 per cent of exports compared with 9.2 per cent in August 2014 and 7.4 per cent in January 2014. Oil and gas meanwhile made up 16.1 per cent of exports in August 2015 versus 21.5 per cent in August 2014 and 25.6 per cent in January 2014.
More recent figures from Statistics Canada show a similar trend. Exports of energy products were down 32.5 per cent this September compared with September 2014. For the same periods, exports of motor vehicles and parts rose 16.9 per cent; electronic and electrical equipment and parts were up 15.7 per cent; and industrial machinery, equipment and parts increased 12.4 per cent.
Secret to export success is to get going
Mr. Hattin has also seen exports jump at ProVantage Automation Corp., an automation integrator and engineering services company he launched three and half years ago. In its first year, all of ProVantage’s sales were to the domestic market. Today, about 62 per cent of its revenues are in the U.S.
“It’s easy when you’re starting from zero — it’s a very small number,” Mr. Hattin said. “But we started off at three people and now we are around 15 people. The limiting issue for us is finding people. Lack of opportunity is not the issue. There are more opportunities in the U.S. than there are in Canada.” The secret to seizing that opportunity? “Getting up off our butt and going there,” Mr. Hattin said.
“It’s really not hard. People make it difficult. But I think if you have a product or service to sell that’s competitive, you will find that there’s an eager market south of the border. And if not in the States, then down in Mexico. It really is a global market.”
Going to trade shows in the U.S. is a simple and basic step toward exploring the U.S. markets, he said. “Exporters must show ambition by attending trade shows, and show they are willing to meet the requirements of foreign markets,” Mr. Hattin said.
Focus on the U.S. consumer
What Canadian manufacturers, or anyone in business in Canada, should focus on isn’t the U.S. economy, though, Mr. Hattin said. The focus should be on the U.S. consumer. “It’s the only thing you’ve really got to read — because they consume a lot of everything. Cars, food, whatever it is, Americans have a huge appetite and a large bankroll to buy.”
His advice for Canadian companies wishing to compete in that market is to go to the U.S. and set up shop. Hiring a U.S. sales guy, like Pride did, is another good step, although a minor one, Hattin said. “You need to have a bona fide office with real people.”
Another alternative would be for a Canadian company to licence its technology to a U.S. partner, he said. It doesn’t even have to be new technology. “It could be old legacy designs. It could be any sort of intellectual property.”
Canadian companies can help build their U.S. markets by educating their customers on how to get things shipped into the U.S. “You need to have the services of a professional brokerage,” Mr. Hattin said. “At the end of the day, there cannot be an interruption,” he added. “People who’ve done it before know how to do it. For people who are saying that’s too much hassle, well, maybe it is. But unless you try it and do it, you’ll never get good at it.”
Ms. Polhmann agreed that finding the right information is a major challenge. “You can use a customs broker and certainly many do,” she said. “There are lots of great things a customs broker can do for you. But those services are not for free.” However, her organization advises that companies taking the leap into trading do find themselves a good customs broker to navigate the complex nuances, although she added a caution. “Ultimately, you are still responsible for whatever the customs broker does on your behalf. So you need to understand all the rules and regulations to make sure that it’s being done appropriately.”
It’s all about finding a niche
Another challenge for Canadian companies is that U.S. customers often don’t want to bother buying Canadian because “they have such a large market internally that they don’t want to go through the hassle of being the importer of record,” Ms. Pohlmann said. To address that, a Canadian exporter can become the importer of record to alleviate that burden on the U.S. customer, she said.
“Again, you’re the Canadian company and you have to go that extra mile to sell your product into the United States, to remove any impediments a somewhat reluctant American customer might face,” Pohlmann said. The U.S. market is so massive that Canadian companies are going to have to compete with many American companies providing similar products and services. “So you really have to be able to stand out as a Canadian company to get in there and get your products noticed and marketed appropriately in order to break in,” Ms. Pohlmann said.
For small companies like Pride and Precision, carving out such a niche is the biggest key to export success, Mr. Chown and Mr. Lanthier each said. “We use different material and we do precision machining and a lot of companies don’t do that. So it’s really a niche,” Mr. Chown said. “That’s how we compete. We differentiate ourselves by doing that.”