The clamour of industry still rings in the air at the 300-year-old waterfront shipyard in Kingston, Ont.
The scream of grinders and the bark of mechanized saws competes with the hiss and crackle of welding torches as craftsmen inside two steel sheds work on gleaming aluminum utility and patrol vessels soon bound for the United States, Panama and Lebanon.
This is the home of 23-year-old MetalCraft Marine Inc., and business is booming. But the Kingston-based company's good fortune could have capsized if it hadn't made a dramatic shift in marketing strategy. In the summer of 2007, U.S. business journalists began reporting on the subprime mortgage crisis and a growing crisis in the financial sector. Bob Clark, MetalCraft’s contracts manager, set out to learn more about the potential trouble ahead. At the time, 95 per cent of the company’s revenue came from selling high-speed patrol and search-and-rescue craft to U.S. regional and federal governments: MetalCraft’s continued prosperity depended on a strong U.S. economy.
“When I found out what it was, I realized it could have a domino effect—a house of cards collapsing—and we immediately started looking for business outside the U.S.,” he says.
Within weeks, MetalCraft shifted much of its sales and marketing budget overseas. It began to focus on Asia, the Middle East, and Central and South America.
While Mr. Clark describes MetalCraft's move as a necessity, business strategy expert Douglas Reid says few Canadian companies “had the guts” to make the same decision when signs of a looming economic crisis first began to surface.
“It reflects exactly the kind of thinking that I would hope more businesses would do, which is foresight and a willingness to not go with the herd,” says Prof. Reid, a Queen's University business professor.
After years of steady but slow growth, revenue at the boat builder suddenly took off. By 2008, overseas business increased by 20 per cent. With boats ranging in price from $300,000 to $5-million, MetalCraft’s annual revenue is now about $10-million. Offshore orders represent 45 per cent of business while U.S. business accounts for just 55 per cent of sales. The company used to do business with the Canadian government but stopped because it has a procurement window of only a few months and it did not consistently order new boats every year, so the domestic market was too short and undependable.
Based on MetalCraft's 2010 order books, overall revenues will rise by 50 per cent over 2007 numbers, Mr. Clark says.
Many Canadian companies were hit hard by the collapse of U.S. financial markets as a result of being tightly bonded to the United States by 22 years of free trade, Prof. Reid says. Approximately 78 per cent of Canadian merchandise exports go south of the border, according to a February report by the Conference Board of Canada.
While there's no data representing the number of Canadian companies that have followed a similar strategy as that of MetalCraft, the Conference Board suggests Canadian companies have been trending away from the U.S. market since the middle of the decade.
Between 2004 and 2008, the share of Canada's merchandise trade going to the U.S. dropped from 85 per cent to 78 per cent, says the Conference Board report.
It suggests a number of factors are the cause: slower U.S. economic growth, the tech bust, the appreciation of the Canadian dollar, and the two bi-lateral free trade agreements running out of steam.
“Today it's not difficult to see why you should avoid the U.S. It's a difficult market to get sales, and the advantage of sharing a common language and business structure isn't going to make it simpler to pry money out of their pockets,” Prof. Reid says.
