Canadian companies look to supply chains for export success

Canadian companies look to supply chains for export success

When Eric Fetchko started working as a junior engineer at boat-part maker SeaStar Solutions in the 1980s, part of his job was to look across the supply chain for cost effective ways to ship and manufacture product.

At the time, Japan was the place to do business for its expertise and low-cost, competitive edge.

“The world has changed a lot since then,” says Fetchko, now the vice president and general manager at SeaStar, a Richmond, B.C.-based company that manufactures steering and control systems for an estimated 93 per cent of the global pleasure boat market.

“It’s a lot more global.”

Today, SeaStar has feet on the ground in Europe, Asia and Australia to deliver and compete across an ever-changing international supply chain. For SeaStar, which is both a customer and a supplier across those global channels, that means greater emphasis on getting the company’s steering, electronic shift and throttle and engine preheaters to customers on time, at a competitive price, and in perfect condition.

“You’re expected to be the most effective supplier – and quality is a given; it’s not negotiable,” Fetchko says, which means having reliable suppliers and intermediaries to move goods.

“The customer wants a quality product, and the best on-time delivery.”

For SeaStar and other Canadian exporters participating in global supply chains, it means having the expertise to anticipate potential hiccups and delays from port to port, runway to runway and the road and rail in between.

It has perhaps never been more important for Canadian companies to successfully master the global supply chain. The lower Canadian dollar gives Canadian companies a competitive edge with outside buyers, and the international business helps them to sustain operations and maintain and create jobs back at home. New and pending free trade agreements with countries in Europe and Asia will provide Canadian exporters with even more opportunities down the road.

But there are challenges, including a slowing global economy, especially in key markets such as China, which is making efficiencies across the supply chain even more critical. Experts say there are a number of supply chain-driven strategies Canadians exporters can tap to expand in international markets, despite the economic headwinds.

Supply chains can start at home

Most Canadian exports are made through some type of supply chain, says Jayson Myers, president and CEO of Canadian Manufacturers & Exporters, Canada’s largest industry and trade association. Many start with channels at home in Canada.

“You don’t have to launch yourself into new markets in order to go international,” he says.

Myers points to companies like Xerox in Canada, which works with Canadian technology start-ups to scale their product line, and then catapults them into international markets as part of the Xerox supply chain. Aerospace companies are another example where Canadian exporters can enter international markets through Canadian supply chains.

“Figure out your best way to navigate through a supply chain,” Myers says. “Maybe you can get into a supply chain in Canada that will help you go global.”

For example, Myers notes the potential benefits of the Canada and European Union (EU) Comprehensive Economic and Trade Agreement (CETA), which could provide Canadian exporters more opportunities to enter EU supply chains.

“Multinational companies will use Canada as a bridge for doing business between North America and Europe to take advantage of the CETA and NAFTA, and potentially the TPP as well. If you want to do business in China, for example, establishing yourself as a supplier to a European multinational doing business there may be a better and far less risky strategy for Canadian SMEs than trying to export directly.”

To be successful, Myers says companies need to understand and serve their customers’ needs, including their requirements along the supply chain. That means having the capacity to deliver products to customers on time, at the volume required, as well as meeting standards and qualifications that often vary by supply chain and international market. That often includes having all of the approvals to send products through various customs checkpoints, as well as meeting all health and safety and product standards.

Examples include Canadian auto parts companies, such as Magna International Inc., Linamar Corp. and Martinrea International Inc. A smaller company that fits this category is Aberfoyle Metal Treaters, a commercial heat-treating and blast coating company near Toronto. Aberfoyle services steel mills and other industries such as aerospace, nuclear power and hydroelectricity.

“It’s all about being able to identify and navigate your way through the supply chain, making sure you know what solution you can provide and where it fits into the final value of the product or services being provided to the ultimate customers,” Myers says.

“It’s not something you can Google. You have to identify the people who can help you through that.”

Innovation for supply chain success

The increasingly competitive global market has also highlighted the need for suppliers to come up with innovative products and solutions, Myers says. This is especially important amid a slowing global economy and pressure to reduce costs.

“It’s not just companies that are competing, but also the supply chains,” Myers says. “What’s very important is your ability as a business — and as a party in a supply chain — to add value to your customer and to your customer’s customer.”

As a result, more companies are looking for partners to help them develop new products, or improve existing ones.

“There is a tremendous amount of opportunity for companies that can deliver a solution through more innovative products and services, more reliable supply, or by being able to cut costs to help customers save,” Myers says.

For example, he says Xerox works with start-ups on innovations that help them scale production for supply throughout its international supply chain.

Rick Cleveland, director of education and accreditation at the Supply Chain Management Association (SCMA), says the supply chain has evolved away from simply a channel to reduce costs and improve profit margins. Today, there’s more integration with consumer needs, including areas such as product development and how and when to tap into a particular market.

“In the last decade and a half, it has been a lot more about generating revenues and getting new products into new markets in an efficient and effective way so the consumer sees you as a reliable supplier,” says Cleveland.

The drop in the Canadian dollar against the U.S. currency presents even more opportunities for Canadian exporters to use the supply chain to their advantage, Cleveland says.

He recommends exporters involve partners in a supply chain early, particularly when it comes to balancing capacity and navigating the regulatory environment. For example, Cleveland says supply chain experts can help handle the logistics of shipping and ensure exporters comply with trade agreements along the way.

“Supply chain professionals can help identify and mitigate the risks associated with global business, so involving them early in new product or market development can be a competitive advantage.” 

The evolving world of global supply chains

Thanks to the regionalization of global supply chains, more and more Canadian exporters are adopting an “integrative trade” approach, which is a diversified business model that internationalizes a company’s business operations. Foreign activity enables firms to source a wide range of inputs and tap into offshore growth opportunities. It also provides diversification, says Daniel Koldyk, a senior research analyst with Export Development Canada (EDC).

“Supply chains have evolved and are becoming more important and more widespread,” says Koldyk. “They are absorbing a substantial volume of international business, which means companies need to consider how they can benefit from or join these chains.”

In effect, supply chains enable exporters to grow, scale up their business and diversify their customer base, Koldyk says, which is especially important in today’s volatile economic climate.

“When economic cycles comes and go, they’ll be able to weather those storms much more effectively,” he says.

Once companies have developed a strong track record of export sales, many enter the next stage of integrative trade — the creation of foreign affiliates to help fuel international sales.

An example of an integrative trade model is Guelph, Ont.-based Canadian Solar Inc., which builds solar farms and panels.

Canadian Solar is fully integrated in the global economy, “but its contribution to Canadian trade has been underestimated, since a significant percentage of its production occurs overseas and is sold directly into third markets,” according to an EDC report titled, Chasing the Chain: Canada’s Pursuit of Global Value Chains.

“Canadian Solar has two significant production facilities in Canada, but these operations concentrate on the domestic market,” the report notes.

Canadian exporters are ramping up their engagement with overseas value chains through foreign affiliates, according to Chasing the Chain.

The report says foreign affiliate sales in overseas markets have surpassed those in the U.S. In fact, sales in emerging markets alone are projected to surpass U.S. sales by 2018, the report says.

“Canadian foreign affiliates are delivering a wide range of services and not simply producing goods. In fact, the value of Canada’s foreign affiliate services sales has overtaken that of goods production and is twice as large as services exports,” the report notes.

In 2013, 48 per cent of Canada’s foreign affiliate sales ($258 billion) were recorded in the U.S., the report shows. Emerging markets were next at 28 per cent ($151 billion), followed by Europe at 16 per cent ($84 billion), and other OECD nations at 8 per cent ($42 billion). Canada’s foreign affiliate sales soared 39 per cent between 2004 and 2013, while its goods and services exports grew by only 17 per cent, the report notes.

“As companies go from small to medium, they really need to think about how they join the integrative trade revolution,” Koldyk says.

 A proactive approach to mitigating risk

Exporters also need to be proactive, not just reactive, to compete along the global supply chain, says Keith Carruthers, president and CEO of SSI Consulting Solutions and a former board chair at the SCMA.

“It’s all about mitigating risk,” says Carruthers. “How you plan your strategy to be most effective.”

In many cases, Carruthers says businesses don’t have in-house expertise, so they need to go outside to increase their probability of success, and reduce risk.

“They often have expertise in their industry in house, but not necessarily expertise in international trade,” he says.

Too often, Carruthers says exporters don’t plan for unforeseen interruptions along the supply chain, such as extreme weather events, labour unrest or fluctuating currency.

“There are a lot of pitfalls with doing business in other countries that many businesses don’t understand,” says Carruthers. “It’s not as easy as people think it is. If you’re not utilizing the expertise you have, and you make assumptions, that’s how problems happen.”

Having experience with someone in that market can be very critical, whether you’re sourcing or shipping products.

It’s a lesson the founders of St. John’s-based I. C. Spa Products Inc. learned when the company started shipping its Ossetra-brand organic beauty products, to international markets five years ago.

The company started shipping to Australia in 2010 and later the U.S., which has been a success, but the firm ran into problems in Asia. Two years after working with what they thought was a reputable distributor in China, founders Darlene McCarthy and Lee-Ann Fleming discovered they were in fact working to make a knock off.

“We were really green back then,” says McCarthy. “We were two estheticians and figured all we had to do was collect our active natural raw ingredients, find a bottle and put it in a bottle and away it goes. No — there’s so much more to all of this. It’s been a hill to climb.”

While it was a hard lesson to learn, that costs them thousands of lost dollars, the mistake hasn’t deterred the founders from seeking new markets. They’re working on selling their products to spas in Dubai and recently set up a distributor in the EU.

“We’ve been at this for 10 years and learned a lot, but there’s a lot more to learn when it comes to importing and exporting,” says McCarthy, the company’s vice president and operations manager.

That includes obtaining the various certifications and registrations to make and ship the product, as well as working with the right brokers and distributors along the supply chain. McCarthy says they’ve also learned more about who to trust.

“There are more good companies out there to deal with than bad. It’s important to stay focused and keep moving on.

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