Canadians too complacent about seeking export markets, report warns

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Tony Hoevenaars has long tried to sell his company's complex electrical equipment in China, but it has been difficult. He blames the distances involved and Chinese duties and taxes.

"We do have some customers in China," the CEO of Mirus International Inc., said in a phone interview from Beijing, where he is attending a trade show. "We don't have a lot of customers – yet."

His small firm, based in Brampton, Ont., makes electrical filters for high-powered drilling equipment used in the petroleum industry. And to finally break through to customers in China and across Asia, he seized the opportunity last year to buy an existing factory in Suzhou, with a loan guaranteed by Canada's federal Export Development Corp.

It's exactly the kind of bold move experts say too few Canadian small and medium-sized businesses are willing to make.

It's a deficiency highlighted by the Toronto Region Board of Trade in its annual Scorecard on Prosperity report, which is being released on Monday. The report says small and medium-sized companies in Toronto and across Canada desperately need to export more to markets around the world, particularly in rapid-growth countries such as China. Failing to do so, the board warns, puts our future prosperity at risk.

Despite all the talk of globalization over the past few decades, very few small and medium-sized companies across Canada do any international trade at all. Only about 5 per cent of all Canadian companies of any size that could export their products actually do. And of Canada's more than one million small and medium-sized businesses, only 41,000 actually export a single widget across the border. Compare that to Switzerland, where 69 per cent of small and medium-sized business sell their products in other countries.

It is a point that has been made before. But now, with oil prices sinking and the Canadian dollar lower – making Canadian goods cheaper on world markets – the time is ripe for Canadian small and medium-sized manufacturers to start selling their goods to the world, as the economy lurches away from dependence on Alberta's oil patch.

Big cities across Canada are ideally suited to take advantage of this change and produce companies that do business more globally. Most of the country's urban centres are home to large immigrant populations from Asia and other high-growth areas. The Board of Trade says businesses need to do a better job making use of the knowledge and connections that newcomers bring with them to make inroadsin China, India and elsewhere.

Those Canadian companies that do export now are usually quite comfortable trading only with the United States. But while it will always be Canada's most important customer, and its economy is recovering, the United States will never match the skyrocketing growth rates now seen in China, India and elsewhere in Asia. That makes seeking other markets a key goal. But according to Ontario numbers in the report, that province has seen total exports fall between 2003 and 2013.

The decline can be blamed largely on our dependence on the United States, which consumes about 80 per cent of Canadian exports but has been struggling economically since 2008. While exports to China and elsewhere in Asia have grown, Ontario, for example, has been outpaced by rivals. Illinois now exports 2 1/2 times as much as Ontario does to China, despite exporting less to the Middle Kingdom than Ontario did a decade ago.

Turning this around is necessary, the Board of Trade says, because Toronto needs to do something about its declining rate of labour productivity, which fell 6 per cent between 2000 and 2010. It is the same story across the country: Among other Canadian cities, only Vancouver and Calgary have made even meagre productivity gains over the past five years, the board says.

Companies that export tend to be more productive, as they need to fend off global competition. The report says that with a growing number of workers hitting retirement age, the productivity of those still in the work force needs to rise to keep living standards, and government tax revenues, up. Boosting exports can help that happen, the board argues.

Jan De Silva, president and chief executive of the Board of Trade, says her organization is among other trade groups and government agencies trying to help smaller businesses go global. The board is launching what it calls a "trade accelerator" education program to help small businesses navigate the world of exports. Governments at all levels across the country also offer myriad subsidies and programs and assist with financing or simply making international connections. But still, the numbers are not encouraging.

"Probably the most disturbing graphic in the whole report that we've got is the one just showing the decline of trade in Ontario," Ms. De Silva said. "… The reality is these markets in Asia have been booming in that period of time."

Walid Hejazi, an associate professor of business at the University of Toronto's Rotman School of Management, is skeptical that Canadian companies will ever truly break out of their timid export habits, or look too far beyond the large and conveniently located U.S. market. The result, he said, is a lack of a spur for companies to become more innovative.

"That's why people say, being next to the U.S. has been a blessing, but it has come at the risk of us becoming complacent," Prof. Hejazi said. "If we were forced to go into these [other] markets, we would be forced to do the things that we need to do."

Whether more Canadian companies will rise to the challenge and go global remains an open question. Speaking on the phone from China, Mr. Hoevenaars, the CEO of Mirus, said Canadian companies should not be fearful of looking overseas for new markets: "I would say the biggest thing is not to be afraid of it. There are opportunities there, and you can be successful."