Business Adviser

Transitioning to the new global operating environment


By Danielle Goldfarb
Associate Director
Conference Board of Canada Global Commerce Centre

The global operating environment for Canadian businesses has changed dramatically. Canadian companies are adapting in a variety of ways, but slowly. Recent research from the Conference Board of Canada’s Global Commerce Centre points to five key trends that Canadian companies need to understand as they compete globally:

1. Global value chains

Declining communication costs and the ability to digitize production have made global coordination easier and more attractive. A growing body of evidence shows that companies have been not just growing but rapidly accelerating their use of inputs and services from all over the world. They are figuring out which tasks they can do most efficiently in which locations, and trying to determine where in a global chain they can create the most value.

2. Traded services

Traditionally, customers only bought services locally. But research shows that distance now matters less for selling services than it once did, and companies can set up a local presence to sell into foreign markets. Services also go into the making of many Canadian manufactured exports. Rather than being marginal, services trade (measured properly) accounts for an astounding 40% of Canada’s total trade and a full half of all global trade.

3. Foreign direct investment

A related trend is the rapid acceleration of large investments abroad, boosted by the emergence of developing economies as key investment players. Investment abroad allows Canadian companies to access labour, supplier clusters, markets and technologies, and to sell skills or products that are hard to sell as exports from Canada.

4. Digital trade

The ability to digitize information challenges traditional economic assumptions. For example, 3D printing means you can produce customized manufactures close to the customer at a cost similar to that of mass produced manufactures. (For more on this trend, see our research in this area).

5. Growth markets beyond the BRICs

Canada’s trade with the US has been stagnant over the past decade, and many developed economies are growing slowly compared with rapid growth in developing economies. The large BRIC economies (Brazil, India, Russia, and China) represent the greatest Canadian business potential. But our research suggests that untapped opportunities also exist beyond these countries, such as in Southeast Asia, fast-growing markets in Latin America, and in Eastern Europe.

Canadian companies are starting to adapt to these five trends. We find that companies have become much more deeply engaged in global supply chains than in the past. Businesses have been diversifying their export and import markets, especially into high growth markets. And they are using a variety of strategies to compete – exporting both goods and services, using imported inputs, and investing abroad to access talent, inputs, and markets.

But Canadian companies still have far to go. This country’s trade performance over the past decade has been weak relative to others. According to the Bank of Canada, this is not due primarily to a strong dollar, but to our overexposure to the US, and underexposure to faster-growing emerging markets. Our share of trade with fast-growing emerging markets is dwarfed by our share of trade with slow-growing advanced economies.

The good news is that these trends point to a variety of strategies companies can use to compete effectively. For one, companies need to figure out in which parts of global value chains they can be world leaders, and in which parts they should import or invest in the best talents, technologies, inputs, and services from others. They need to consider the myriad ways to expand and engage globally – including investment abroad, selling goods and related services, and importing inputs. And they should explore the most promising opportunities in high growth potential markets, looking to the obvious markets of Brazil, India, China and Russia, and also beyond to opportunities elsewhere.


Danielle Goldfarb is Associate Director of the Conference Board of Canada’s Global Commerce Centre. The Centre provides evidence-based research and events to help leaders understand dramatic changes in the global operating environment and what these mean in practical terms for business and government strategies. The Centre’s current focus is on matching Canadian strengths with business opportunities in high growth potential markets. To join the Centre, you can contact her at Goldfarb@conferenceboard.ca.

   

DanielleGoldfarb

     
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