The future of productivity

We find it almost impossible to overstate the benefits of smart exporting. Exposure to new growth opportunities, global best practices and diverse competition challenges exporters to excel. Exporters also grow faster, are more productive, and achieve better market performance than their domestic counterparts.

But many private companies may not realize that exporting can actually reduce the risk of business failure. Why? Geographic diversification balances risk, calms volatility and improves a company’s ability to withstand the ups and downs of business cycles. While much of the conversation around trade focuses on government’s role, the truth is Canadian companies must take action themselves to move boldly and decisively into international markets.

We’ve distilled these insights and more from 46 experienced exporters into a three-stage journey toward “smart exporting.” Learn how to “Think like an exporter,” “Become an exporter,” and “Win as an exporter,” in our report, as well as our video.

Are we missing the export opportunity?

International trade is essential to a thriving economy. Trade – especially exports – enables Canada’s economy to grow despite the constraints of a small population and low domestic demand growth. Opening the economy to foreign demand opportunities, global best practices and new technologies improves overall economic performance as well as national and industry-level productivity.

However, Canadian export activity has slowed. While global exports were increasing at an average annual rate of 9.1 percent between 2000 and 2012, annual Canadian export growth averaged only 4.2 percent over that same period. More alarming, Canadian export intensity (exports measured as a percentage of GDP) dropped from 46 percent in 2000 to 30 percent in 2012.

Meanwhile, although emerging economies generate approximately 80 percent of global real GDP growth and will continue to be the primary driver of future growth, less than 12 percent of Canada’s exports are directed to these economies. By contrast, 76 percent of Canadian exports still go to the United States, where competition is stiff.

To boost productivity and improve our competitiveness, we must increase Canada’s exports. More than that, we must increase the strategic diversification of those exports.

Much of the conversation around trade, however, focuses on government’s role. Canada’s government has made trade a top priority, and sponsors many valuable export support programs. Yet many of these programs are invisible to organizations that need them. Government organizations should do more to promote existing programs and make them more accessible to exporters, as well as to encourage more inbound international tourism: every 1% increase in international arrivals generates $817 million in increased exports for the two following years.

Ultimately, however, Canadian companies must take action themselves. In an increasingly connected global marketplace, it is in Canadian business leaders’ best interest to move boldly and decisively into international markets.

Exporting’s compelling benefits: improved performance, lower risk

The benefits of exporting are compelling. Canadian businesses often take off like a rocket – at first. Deloitte’s 2012 report on productivity found that Canada boasts a higher proportion of high-growth start-ups than our OECD peers. Yet our research also found that as these companies age, they can no longer sustain that growth. Exporting can help established companies avoid this slump and maintain a high growth rate. In other words, exposure to new growth opportunities, global best practices and diverse competition challenges exporters to excel. Exporters grow faster, are more productive and achieve better market performance than their domestic counterparts.

More surprising, perhaps (especially to risk-averse Canadians) is that exporting can actually reduce a company’s risk of failure. Overexposure to a single market, even one as stable as Canada’s, creates concentration risk. Even when foreign markets are more volatile than the domestic market, overall business volatility can be reduced when companies are exposed to different business cycles. Geographic diversification therefore balances risk, calms volatility and improves a company’s ability to withstand ups and downs. Although exporting can open up new risks and challenges, companies that do business internationally stay in business longer.

Rather than avoid exporting, then, Canadian business leaders need to embrace it – in an informed way. To help guide the way, we interviewed 46 experienced Canadian exporters and distilled their insights into a three-stage journey toward “smart exporting.” Of course, every journey will vary depending on company circumstances and ambition, but these recommendations are drawn from real stories of success and error, and we believe companies of all sizes and sectors can use them to better prepare for, and improve their chances of, success abroad.

Stage 1: Think like an exporter

Prospective exporters should begin by adopting a new mindset and thinking globally – expanding their visions, seeking new perspectives and refocusing resources outward to position their companies for success in a competitive global market.

How?

• Reflect: To compete on a larger scale, companies often need to redefine and narrow their value proposition to focus on the single strongest feature of their business – whether that’s a tangible product or an intangible quality.
• Explore: Having the right information is crucial. Decision makers should evaluate their beliefs and assumptions through research and conversations with other exporters. For example, the U.S. market is often the first target of new exporters because of perceived similarities – yet the U.S. market is very mature, highly competitive and not nearly as similar to Canada as some think.

Stage 2: Become an exporter

This takes persistence. The first year in particular can be especially challenging – in part because Canadian companies often make the mistake of trying to do business in new markets the same way they do business in Canada. By preparing thoroughly and building business relationships over time, new exporters will lay the groundwork for sales and success.

How?

• Promote: Most markets place a high value on relationships, which can only be developed over time. Companies should build trust and credibility by consistently attending trade shows and by using the power of their networks.
• Localize: Working to understand and adapt to the culture and business practices of a chosen market is a very valuable investment. The best exporters use what they learn to transform themselves into “local players” – tailoring their offerings to suit local requirements or tastes and establishing local representation that can operate in the customers’ language and according to cultural norms.
• Protect: Exporting will always present risks. Starting small, conducting due diligence and carefully vetting business partners can cut the risk of unpleasant surprises down the road.

Stage 3: Win as an exporter

Canadian companies that transform themselves to serve foreign customers not only gain new growth markets – they benefit from exposure to new technologies, business practices, and standards. They can operate to a higher standard, better position themselves against market risks, and be more agile and flexible in different customer environments. By absorbing and using what they learn, exporters become highly productive, competitive players on the global stage.

How?

• Re-invent: Export winners continually transform their business, investing in new technologies and disseminating new knowledge across the organization.
• Collaborate: Sustained long-term growth comes from working with global partners to innovate, pilot new technologies and create new opportunities domestically and globally.
  

Opportunity is knocking

Canada’s productivity and competitiveness are closely linked with the strength of our exports – and thus the success of our exporters. Government can do its part by building an infrastructure conducive to trade and opening up opportunities for businesses to grow. But government alone isn’t enough.

Canadian businesses have to do their part, as well – and they must be bold. Whether exporting is an immediate or a long-term objective, business leaders should be taking action today. And no matter where a company is on its journey to smart exporting, the desire to continuously learn and transform will pave the path to success.

Interested in more content like this? Find this article and more in Deloitte Sphere, our e-magazine, available free on the iTunes store and Google Play.