“In today’s digital economy, you don’t need to be big to be global.” So confirmed Deanna Horton, senior fellow at the University of Toronto’s Munk School of Global Affairs. She gave a talk, titled “Big Data, Small World: Keep Calm and Go Global” at “Trading at the Speed of Light,” the Canadian Chamber of Commerce’s Ottawa conference in honour of International Trade Day, May 19.
Then, using a dataset she has been compiling, she debunked a commonly held belief about small- and medium-sized exporters (SMEs).
“The established wisdom is that Canadian firms that want to expand into foreign markets get their feet wet in the U.S. before going any further,” Horton told the group. “And when we looked at large firms, we saw this preference for the U.S. as a first market. But the story is completely different for SMEs, where the data show they prefer Asia as their first location.”
Her study began by mapping 700 Canadian firms and organizations with 1,800 locations in Asia. “I’m not talking about potential, but rather, what people are actually doing,” she said.
Referring to her research for the Creating Digital Opportunity project, which is led by the Innovation and Policy Lab at the Munk School, she then told the group how she broke those companies down into the “CDO” subset of companies that are active in the digital economy. After that, she looked at those with operations in Asia, and in the U.K. or U.S. — or both.
“What’s interesting is that even SMEs in the digital economy can have this kind of global imprint,” she said. “Think about this. We know the majority of the companies are small, and yet two-thirds of them have locations in more than one of the global developed markets.” It was from that subset that she derived the statistics about first markets. A full 56 per cent of large firms went to the U.S. first, with Europe a strong second choice as a first stop (36 per cent) and Asia bringing up the bottom at eight per cent.
The SME chart was quite different: 37 per cent went to Asia first, 34 per cent cut their exporting teeth in the U.S., and 29 per cent went to Europe.
Horton speculated on the reasons: “Apart from the fact that Asia is the global growth market, it is also where firms in the high-tech sector are manufacturing, and I would surmise that Canadian firms may have been following their clients. We will be looking at this more closely.”
In her study, the majority of the 192 companies in the CDO data subset were SMEs (149 versus 43 large firms) and two-thirds of the total number work in service-related fields. In addition, many have more than one location in Asia, and also more than one location in any one country, especially China and India.
“If you look at the commercial relationships between Canada and the countries in Asia, and you only look at trade statistics, you miss out on a good deal of activity. This is especially the case in the digital economy,” she said.
There was also a difference between SMEs and large companies when they broke down first-market entry by type of business. For large firms, the U.S. was the overwhelming first choice for software, whereas Europe was first for manufacturing. For SMEs, the first location in manufacturing was the U.S., but when they looked at software, the clear winner was Asia.