A shift from a traditional hub-and-spoke trade model to a more integrated structure is redefining the nature of business worldwide.
Trade and investment proponents such as Todd Winterhalt, EDC vice president of international business development, say the Americas, including promising markets such as Panama, are among the leading regions worldwide where this phenomenon is emerging.
For Canadian companies seeking to expand or diversify, the resulting south-to-south trade activity represents robust opportunities.
In yesterday’s hub-and-spoke model, a company’s direct investment in a foreign market typically sought to leverage supply chain advantages that served the parent company’s domestic base, explains Mr. Winterhalt.
Today, rather than send goods back to Canada, progressive Canadian firms set up in one or more Southern Hemisphere locations to participate in trade among emerging market countries, where recent annual growth has been upwards of 15 per cent.
“Trade among the Southern Hemisphere’s emerging markets such as Brazil and Mexico is mushrooming. And this trade is more integrated than ever before,” Todd Winterhalt, EDC Vice President, International Business Development
“If you are a Canadian firm that wants to get a slice of that trade, start by investing in one of those markets,” says Mr. Winterhalt.
He says, for example, the recent establishment of regional headquarters in Panama by global companies including Caterpillar, Unilever and Bosch, signal efforts to serve not only the Panamanian market, but also to tap broader opportunities across South America and the Caribbean.
“We used to think of Panama for logistics only, but now its growing finance and service capabilities are adding to the mix. Panama’s trade links with a variety of markets make it an ideal place to expand and support new business ventures in all points south.”
Even on its own, Panama represents a wealth of opportunity, notes Mr. Winterhalt.
Despite having a modest population of just over 3.4 million people, Panama’s stable, democratic government and strategic role as a logistics centre have helped Panama achieve consistent average growth of six to seven per cent over the past several years.
Public-sector infrastructure plans now forecast to result in expenditures of more than $13 billion through 2014 are also helping drive growth. In addition, an ambitious $5.25-billion effort to double the famous Panama Canal’s capacity and open it to larger vessels is also underway. Add to that, Panama is also experiencing a construction boom spanning apartments and housing to hotels and resorts.
“Even through the 2008-09 financial crisis and lingering economic challenges in Europe and the U.S., Panama’s economy continues to exhibit strong signs of growth.”
Mr. Winterhalt says the country’s economic momentum is further supported by a low fiscal deficit, low inflation, positive debt-to-service ratios and minimal foreign exchange risk. Panama’s maturing trade policies, which now include progressive legal and regulatory regimes, are further evidenced by the recent signing of a Canada-Panama Free Trade Agreement (now awaiting ratification).
“Panama’s economic fundamentals are strong and improving. Earlier this year, it received investment-grade ratings from Moody’s and Fitch,” he says. “Panama has also been added to the OECD’s white list as a leading economy in terms of how it handles international taxation and regulatory issues.”
EDC’s consistent support of upwards of 100 exporters doing business in Panama over the past five years reflects Canadian business interest, particularly in mining, agri-food, infrastructure and transport.
While Canadian majors including Inmet Mining Corporation and SNC Lavalin are among those involved in major project work, Mr. Winterhalt says, “It’s not just about the bigger names; it’s about the sub-supplier that will also gain from this business.”
He points to companies such as B.C.-based Helitech, which now supplies helicopter and avionics technology to Panamanian police, and the Royal Canadian Mint, which has been active through its production of commemorative Balboa coins, among examples. Meanwhile, leading museum and gallery exhibit space creator Kubik of Mississauga, Ont., has been awarded the design development, fabrication, film and interactive displays, as well as the installation and commissioning of Panama’s Biodiversity Museum.
“Panama is up and coming. The growth and improvement of its economy is broadly based. Its consumer class is increasing,” says Mr. Winterhalt. “The resulting opportunities are certainly going beyond the traditional, and extend into trade with other regional markets. It’s a great example of how the these regional clusters are emerging.”
CASE STUDY Success in one market can serve as a springboard to others
For Kubik, a Canadian manufacturer of displays for tradeshow exhibits, corporate events and other interior environments – including museums – it was a matter of start exporting or stop growing.
“For the first six or seven years of our 28-year existence, our clientele was predominantly Canadian, but we soon realized that Canada was simply too small a market if we wanted to grow our business and succeed,” says Kubik CFO Larry Yunger.
The company started out exporting to the United States and learned a quick lesson; in order to win contracts, it had to perform more or less to perfection in order to overcome reluctance among U.S. customers to choose cross-border suppliers. However, says Mr. Yunger, by meeting deadlines and exceeding expectations, Canadian companies can quell client misgivings and grow their business.
Kubik then took the lessons it learned overseas in a venture with Nike that allowed it to establish a European beachhead in the Netherlands.
“Since then, we’ve taken on a large number of the Fortune 500-type Dutch and European companies,” says Mr. Yunger.
He is hoping that a current work-in-progress underway in Panama will also serve as a catalyst for export growth in previously untapped markets. The project is the new Panama Biodiversity Museum, a Frank Gehry-designed facility in which Kubik is responsible for the entire interior fit-out, including all audio-visual displays, media, graphics and showcases.
“In the same way that the Nike partnership allowed us to establish a presence and build a reputation in Europe, we are hoping that this project will serve as a springboard to other jobs in the area, as well as South America as a whole,” says Mr. Yunger. Kubik has branch offices, which are full-service facilities, in New Jersey and Amsterdam, and is exploring further growth opportunities in the rapidly expanding Asian sphere.
Special publication: A definitive guide on doing business in Panama
Panama offers a broad range of opportunities for Canadian exporters, investors and service providers. EDC’s Doing Business with Panama – A Guide for Canadian Exporters and Investors offers a ready source of information to help Canadian businesses advance their interests in this dynamic country.
Among its topics, this 37-page free publication identifies key areas of opportunity ranging from the agri-food and health care sectors to infrastructure development in such diverse areas as transportation, energy and telecommunications to the environment.
This valuable resource also highlights EDC services designed to facilitate Canadian export trade and investment.
Download now at www.edc.ca/panama.
THINKING OF DOING BUSINESS IN PANAMA? Here are five tips offered by Alain Gauthier, EDC’s chief representative, Caribbean & Central America, based in Panama City.
Research market opportunities for your product, including reviewing the new Canada-Panama Free Trade Agreement (yet to be ratified by Canada), which outlines duties applicable to various products. http://bit.ly/pUrIvE
The Panamanian government is the country’s largest purchaser of goods and services. Numerous tenders related to infrastructure projects and the expansion of the Panama Canal present clear opportunities. Consider how you can sub-supply to those companies winning bids. The Panama Compra website,
Find a local Panamanian partner. Depending on the nature of your product, it can be an agent, a distributor or you may consider entering a partnership. Before committing to a sales agreement or other business relationship, carry out careful due diligence, including investigating the company’s creditworthiness, financial record, management, business history and local reputation. Check with local legal or professional consulting firms, such as Deloitte or PwC, both of which have offices in Panama.
Identifying laws that may impact your business/trade, especially those concerning labour requirements and taxes, including those for opening a business or sending money out of the country, is important. Similarly, it’s wise to determine applicable government approvals as well as the time it will take to obtain them. For investments, it pays to consider potential government incentives and related terms.
Contact the Canadian Trade Commissioner Service at www.panama.gc.ca . It can suggest local contacts such as legal and tax advisers, accounting firms and potential local partners. The Panama Canada Chamber of Commerce and EDC are two other valuable sources of information and guidance.
ONLINE? For more information, visit edc.ca.