Here’s a troubling set of numbers: 75% of Canada’s export market lies in the United States. GDP growth in the United States has been stagnant or declining for the last two years. Just 3% of Canada’s export market lies in China, but that country’s GDP has grown every single year since 1976 — and more than 9% last year.
The situation isn’t quite as stark as those numbers would suggest, of course. China is a planned economy with massive infusions of government cash after all, and is exhibiting all the signs of a real estate bubble to boot. The United States is the powerhouse economy of the 20th century, and despite the aftermath of the Great Recession, is now on its way, hopefully, to a recovery. A painful and protracted one, but a recovery nonetheless. But it’s becoming increasingly obvious that the world economy is changing very dramatically, and very quickly.
‘Canadian companies that conduct trade purely domestically and in the U.S. are looking at very slow or maybe declining growth,’ says Sue Hutchinson, senior vice-president of commercial banking with HSBC Canada. ‘If you’re not looking at diversifying, you’re probably going to be left behind over the next few years.’
We’re taking note, albeit slowly. In the last decade, Canadian companies have gradually opened up to markets outside North America, and there’s a lot to be learned from those that have already successfully navigated this new and tricky terrain — for example, how to manage local regulations, local capital structures and foreign exchange in unfamiliar and possibly volatile currencies. This is the impetus behind HSBC’s inaugural International Business Awards, which will honour Canadian companies with proven success in the developing world. (More details, including nomination information, can be found on this Business without Borders page.)
The awards will be presented next May, with the judging panel to include senior executives from HSBC, senior editors from the Globe and Mail and Rogers Media, and Canadian entrepreneurs with experience in the international marketplace. Four awards will be handed out, including, in two categories (sales over $30 million and sales between $2.5 and $30 million), International Business of the Year. There will also be awards to recognize companies in two selected markets, Asia-Pacific and Latin America — both identified as showing particularly strong growth potential.
These are also the regions with some of the fastest growth of the middle class, one of the key indicators for future potential. (The Organisation for Economic Co-Operation and Development (OECD) estimates the worldwide middle class will grow from 1.8 to 3.2 billion people by 2020, and to as much as 4.9 billion by 2030. The vast majority of those people will live south of the equator.) The developing world also commands an increasingly large amount of human capital — over 40% of the world’s researchers are in Asia, for example, according to the United Nations.
The reality is global trade currents are shifting from the developed to the developing world, maybe more rapidly than many Canadians realize. ‘China’s largest trading partner is Brazil, not the U.S.,’ says Hutchinson. ‘Historically, the developing world has done most of its business with the developed world, but that’s changing and it’s partly driven by demographics. Latin American countries, for example, tend to be very young, with lots of people to consume and work.’ Indeed, even Colombia, a country notorious for internal strife associated with the drug trade, is cleaning up its act. Foreign direct investment there reached a record $10 billion in 2008.
HSBC’s perspective is that future opportunities for Canadian companies will come largely by providing the sort of expertise that local partners can’t. ‘Canadian companies are very good at environmental protection, power generation, procuring commodities and all these things that will be very important to the developing world in years to come,’ says Hutchinson. ‘We can participate in everything from commodities to manufactured goods, but we have to get in now. It’s not just a matter of opportunity; it’s a matter of not being left behind.’
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