Canada's top executives recognize that the country's future prosperity will depend on them exporting beyond the United States, to the world's emerging markets.
Yet the vast majority of corporate bosses also think the United States will still be hugely important to their companies five years from now, according to the most recent C-Suite survey of corporate executives.
This disconnect underscores tensions at play in Canada's corner offices as executives strive to take a broader global perspective, despite a high level of comfort selling to our closest geographic and cultural neighbour.
More than 80 per cent of the executives who responded to the survey said they think the U.S., as an economic power, is in decline. And almost half said the U.S. will make up a smaller proportion of Canada's overall exports five years from now.
More than 90 per cent also agreed that if Canada is going to stay prosperous, it will have to rely less on the United States and expand trade with emerging markets. But more than 85 per cent of the executives said the U.S. will be equally or more important to their own company five years from now.
It is clear that the proportion of global economic activity that takes place in the U.S. is falling, said Michael Bernstein, chief executive officer of Toronto-based Capstone Infrastructure Corp.
"They have slower growth versus China, India and other countries, which are all accelerating." he said. "The pure math of it [shows] that other countries are picking up market share." Consequently, "if we want to do better than the status quo … we need to accelerate our attention to those emerging markets, otherwise as a proportion of global trade, we will be losing market share," Mr. Bernstein said.
Still, he said Capstone, which invests in a wide range of infrastructure assets such as power generation facilities, utilities, roads and schools, is not ready yet to move into developed countries. Because it owns hard assets, and doesn't just sell products, it likes to invest in places with stable regulatory regimes and minimal currency risk, he said. "Going to emerging markets is a bit too risky for the stage we are at now."
Scott Edmonds, CEO of Vancouver's Webtech Wireless Inc., said most Canadians – including business leaders – still underestimate Asia's "growth and creation of consumer wealth and the burgeoning middle class and its long-term impact on global markets."
While it would be "perilous" for any company to ignore the U.S., said Mr. Edmonds, who lived for six years in Asia, "there are greater growth opportunities overseas, particularly in Asia."
While China is clearly the most important overseas market – 76 per cent of executives said it should be Ottawa's top priority for opening up trade – India is seen as the next major emerging markets opportunity.
Mr. Edmonds said the fact that English is widely spoken in India, and the legal system is similar to ours, makes it highly attractive. "[We can] exploit the cultural and common law connection," he said.
In Western Canada, where almost all energy exports go to the United States, opening new overseas markets has become a key focus in the debate about the Northern Gateway pipeline, which would help deliver Canadian oil to Asia.
It is no surprise that western energy producers are keen to develop new markets, as domestic U.S. shale oil and gas production ramps up in the coming years, said Bruce Waterman, executive vice-president of international development at Calgary-based fertilizer-maker Agrium Inc. "You can build a scenario where energy exports to the U.S. from Canada just aren't going to be as significant as they are today."
Even in fertilizer markets, the U.S. is becoming more self-sufficient, Mr. Waterman said, and that could reduce markets there for Canadian firms such as Agrium.
Canada can and should export to new developing markets, he said, but that can happen only if pipeline, railway and other transportation corridors are improved to make sure the country can deliver its products.
The government also has to get involved, by negotiating trade agreements and reducing friction, Mr. Waterman said. "The more our government can reduce the barriers to trade, the more economic benefit [there is]. Canadian business can compete anywhere in the world, as long as we have access to markets."
The C-Suite survey shows that Access to developing markets is still a big concern for Canadian executives. While 87 per cent of respondents say the U.S. is very or somewhat open to Canadian exports and investments, only 54 per cent characterize India that way, and just 44 per cent describe China as open for business.
Willy Kruh, national leader for high-growth markets at KPMG in Toronto, said most Canadian companies have been remiss in developing emerging market strategies. "They are saying: 'It is not about me. It is about that other guy,'" he said. "But if we are going to survive and compete, we can't just be insular."
Mr. Kruh believes, however, that there has been a recent shift in attitude in Ottawa and among top executives. The catalyst was the recognition that the U.S. market was vulnerable because of the fiscal cliff and other economic issues, along with concerns about increased U.S. oil production and the possibility the Keystone XL pipeline might not be built.
That has made everyone recognize that we "can't have all our eggs in one basket," he said, despite Canada's deep interdependency with the United States.