Manufacturing an export strategy

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by Tim Wilson

Opportunities abound if businesses can overcome challenges

The news in the first half of 2015 was uncertain for Canadian manufacturers, with exports falling for four consecutive months, settling into their lowest levels since January, 2014. But as energy prices fell, and the dollar stabilized at around $0.80, a silver lining has begun to emerge, particularly with regard to export opportunities in the US.

“People are upbeat that now is a good time with regard to the dollar,” says Jim Shenkman, president of Bivio Events Inc., which hosted the first annual Expand in the USA conference in Mississauga, ON, on June 16 and 17. “And though there is general agreement that NAFTA is a little tired, and could use updating, there remains the possibility that it will be superseded by the Trans-Pacific Partnership.”

The Trans-Pacific Partnership, or TPP, has had a rough ride. Critics say it weakens citizen governance, and trade unions are worried about job losses. Nonetheless, recent legislative successes by President Obama for fast tracking the TPP suggest it may soon become reality.

“This will affect Canadian companies in both positive and negative ways,” says Shenkman. “While on the one hand the TPP will bring much more competition to the US market from Pacific Rim countries, on the other it will open the global supply chain through the US to the Pacific.”

That said, the TPP is by no means a done deal, and Canadian exporters have to deal with today’s reality, and with the challenges they face on the ground. A lower dollar makes Canadian products more competitively priced, but it also raises the cost of machinery and some parts. Ultimately, the only way to succeed over the long haul is to diversify and be more efficient. This should be helped by the fact that the International Monetary Fund expects the US economy to see the strongest growth since 2005.

“There is a lot of innovation going on in Canadian manufacturing, making it more competitive, with new and interesting products,” says Mike Holden, director of policy and economics for Canadian Manufacturers and Exporters (CME). “Adding to those drivers are free trade with the European Union, agreements with Korea, and possibly the TPP–those will provide opportunities for businesses.”

Canadian manufacturers also depend on public sector investment in infrastructure. Without this backbone, our geographic location and high standard of living risk shutting it out of global supply chains.

“Infrastructure is an important determinant of success,” says Holden. “Being able to get goods to market on time, and to promise when they will be delivered–it’s a big deal. It helps strengthen the domestic supply chain to get things to market as cheaply and efficiently as possible.”

Canadian Total Exports: Manufacturing (5 year)As we head into a federal election, infrastructure investment will be a hot topic, whether it be rail, road, air or intermodal. Toronto Pearson, Canada’s largest air cargo hub, is pulling its weight, and Canada’s rail infrastructure is a major strength–recently CN announced new a $250 million intermodal and logistics hub in Milton, ON. But regional challenges around the Greater Toronto Area remain.

“The region’s lengthy commute and gridlock impedes the flow of goods and people across the region resulting in a $6-billion productivity loss,” says Jan De Silva, president and CEO, Toronto Region Board of Trade. “However, there has been considerable momentum in recent years toward investing in new infrastructure to help alleviate this problem.”

Manufacturers want quick and reliable access to the US border, and to ports in Vancouver and Halifax for export overseas. But if Canadian companies want those export markets to pay attention to them, they also have to stand out from the crowd. One way to do that is by leveraging our diverse culture to support advanced manufacturing.

“As the global economy rebalances following the 2008 economic downturn, advanced manufacturing will continue to grow in importance,” says De Silva. “And studies show that cultural diversity is associated with increased trade flows. We have not fully capitalized on the tremendous opportunity these talented people present. It’s a real opportunity that we should begin to take advantage of today.”

That means looking beyond the 80 per cent of exports that presently go to the US. The shift to export markets in other parts of the world is underway, but it is not moving as quickly as many would hope. Getting an export blend is one sure strategy to protect a manufacturing exporter from localized disruptions.

“Businesses must diversify their export markets and begin tapping into new and emerging markets,” says De Silva. “China, Central and Southern Asia, South East Asia, and the Middle East and Africa are expected to post faster than average economic growth between 2015 and 2017.” SMT

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