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competing to win

William Polushin is founding director of the Program for International Competitiveness at the Desautels Faculty of Management, McGill University, and President of AMAXIS, an international business and operational development services firm.

Building on my previous blog entries, the transition from Canada: The Trading Nation to Canada: A Nation of Traders requires, among other key factors, both an appreciable increase in the number of Canadian enterprises actively and profitably exporting or investing in international markets and a broadening and deepening of our international trade and investment relationships.

Of the 47,637 exporting establishments in Canada*, 56.6 per cent export only to the United States, another 22.8 per cent export to the U.S. and at least one other international market, and 20.7 per cent export only to destinations other than the United States. Without a doubt, the U.S. looms large on our country's trade horizon.

That said, the rise of China, India, Brazil, Mexico and other developing economies around the world, and the drive for market diversification by both corporate Canada and the federal and provincial governments are helping to reshape Canada's international trade and investment position. While the United States is -- and will continue to be -- Canada's largest and most important trading partner by a wide margin, an increasing percentage of Canadian exports, imports, foreign direct investment inflows, and Canadian direct investment abroad is going to or originating from other countries. The following charts illustrate this shift.

Over the period 2005 to 2010, the United States' share of Canadian merchandise exports and imports has dropped from 83.8 per cent to 74.9 per cent and from 56.5 per cent to 50.4 per cent, respectively. As it pertains to exports, the greatest gains have been made in the European Union (in particular, the United Kingdom), China, Mexico, and, to a lesser degree, the developing economies of Latin America and the Caribbean, the Asia-Pacific region, Africa and the Middle East.

On the import side, China and Mexico are capturing ever-increasing shares of the Canadian market, followed by other developing countries around the world. In dollar value terms, the European Union, led by Germany and Eastern and Central European nations, is trending modestly upwards, despite losing relative ground to other regions. As for Japan, the dollar value of Japanese imports rose in 2010 following two years of decline. As a share of Canada's merchandise imports, though, Japan has been generally trending downwards.

The changes taking place on the direct investment front demonstrate an even higher degree of market diversification. While the stock of U.S. direct investment in Canada has increased from $67.9-billion in 1985 to $306.1-billion in 2010, the share of non-U.S. foreign direct investment in our country has risen from 24.9 per cent to 45.5 per cent over the past 25 years.

Since 2000, the stock of Canadian Direct Investment in non-U.S. locations has actually exceeded the stock of CDIA in the United States, and the relative share of Canadian Direct Investment in developing Asia, Latin America, and Africa is steadily increasing. Of Canada's $616.7-billion in direct investment abroad, 40.5 per cent was in the United States, 11.4 per cent in the United Kingdom, 12.2 per cent in other EU countries, 7.3 per cent in Japan and other OECD countries, and 28.6 per cent in all other countries.

Canada: The Trading Nation is definitely on the path to market diversification. Canada: A Nation of Traders isn't quite there.

In my next post, I will start examing the fundamentals of competing in a global economy.

* In 2009, the latest year for which this information is available from Statistics Canada, there were 47,637 exporting establishments in Canada.

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