As 2012 moves into full gear, we expect to see more Canadian businesses involved in some kind of trade with emerging markets. That could mean either exporting or importing goods or services with companies in regions like Asia or Latin America, or investing in offices, affiliates or joint ventures in those areas.
The latest EDC survey of nearly 300 businesses–mostly small and mid-sized—provides an interesting snapshot of this trend. It indicates about two-thirds of them are doing business with emerging markets in the ways I just described. Another 20 per cent said they plan to do so within five years. Two things drive this push towards new markets – a desire to reach more customers and a way to reduce risk by broadening one’s market base. Another recent study, commissioned by UPS Canada, similarly indicates that roughly one in five Canadian small businesses will start looking to emerging markets this year for new export opportunities.
Which emerging markets seem to have an edge? Out of 1,000 firms we polled, the largest share (some 15%) are exporting about equally to China and Mexico, and a smaller group (5%) to Brazil, Russia or India. Those are also the countries, especially China, India and other parts of Asia, which should see the strongest economic growth in 2012, according to the latest global forecasts. Other countries that have been identified by exporters as attractive destinations, in different reports, include Chile, South Korea and the Philippines.
If you look at high-intensity exporters of all sizes—where foreign sales are more than half their total–they tend to be focused on expanding in both existing and new markets. However, lower-level exporters polled seem to be playing it safer by trying to grow in markets they already know, including the U.S. and domestically.
Is south-south trade heating up?
Another trend that may be picking up speed in 2012 is the growth of trade between emerging markets, what’s referred to as “south-south” trade. Many exporters we spoke to expressed some level of concern about this development.
For example, they are worried about greater market-entry barriers, as foreign governments increase support to local companies; others expect there may be pressure to lower prices as south-south trade heats up. Those who plan to enter emerging markets are also concerned about greater global competition in general.
On the plus side, many exporters say they see benefits to this new trend, such as increased sales to foreign customers that export to other emerging markets; greater resilience from being exposed to more markets, and increased growth potential for those who can integrate into a south-south supply chain.
One thing remains the same: the risk of non-payment and unexpected costs, whether from big currency swings or energy price hikes, are equally challenging to both high and low-intensity exporters. That’s why more and more businesses continue to seek financial partners that can help reduce some of these risks.