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March 25, 2015

Helping Canadian exporters means more than trade missions and trade fairs

Last week’s announcement by Prime Minister Stephen Harper that the Canadian government will increase funding for SMEs to spur increased exports is certainly a shot in the right direction. The new program, administered by the Canadian Manufacturers and Exporters, will see approximately $8.5 million made available annually to assist firms who want to go abroad to attend trade shows and join trade missions in search of new markets for their products and services.

The program responds directly to growing concern over Canada’s export performance. Since the end of the recession, Canadian export growth has grown at nearly two percent behind the OECD average and the share of exports in our economy had decreased significantly. From a high of 45% in 2005, the export intensity of our economy has dropped to just 31%.

It’s worth putting this in perspective.

Germany, a mature economy like ours with a strong manufacturing base and higher wages, has seen its exports recover at twice the speed of Canada’s since the end of the recession. The country also sees over 50% of its GDP contributed by export activity. This export intensity has more than doubled since 1993 when it sat at just 22%.  And while some 40% of medium-sized companies in Germany export, just 4.8% of potential exporting companies in Canada actually do so.

Finding ways to better support Canadian exporters and their efforts abroad is a laudable government role. Whether trade missions and trade fair funding will cut it, however, is another story.

The reasons for Germany’s export prowess are many. The depressed value of the Euro helps, and so too does a strong focus on the trades and manufacturing.

An additional arrow in Germany’s export quiver is the country’s network of international Chambers of Commerce Abroad (AHK).  Coined “Germany’s secret economic weapon,” the AHK plays a central role in the country’s export success. With 125 offices in 85 countries, and over 1,700 staff, the AHKs are the international arm that links with 80 local and regional chambers back in Germany Together these organizations serve German firms, in particular small and medium sized ones, in their export efforts. As a 2013 Wall Street Journal article highlights, the AHK has evolved into a  “a low-profile but sophisticated global network of representatives built over decades to establish an export footprint for even the smallest German companies.”[1]

This is in dramatic contrast to Canadian chambers of commerce, both federal and provincial, which operate primarily as policy and networking shops.  Instead, trade promotion in Canada is concentrated in the Department of Foreign Affairs and Trade (DFATD) Trade Commissioner Service (TCS), and through similar provincial organizations.[2]

Performance data released by the AHK shows that the network supports approximately 500,000 enquiries annually, and established 400,000 business contacts.[3]

Compare this to Canadian data released as part of DFATD’s annual performance review. Over the 2012-2013 calendar year, the Trade Commissioner’s Service (TCS) disseminated 5885 business trade leads, with 775 commercial agreements concluded as a result. Over the broader July 2011 to Dec 31 2012 period, the TCS provided assistance to 17,255 organizations.

Accounting for size (Germany’s economy is about twice as large as Canada’s) doesn’t seem to cover much ground as an explanation for this difference in those numbers. Nor does the staffing difference between the AHK or the TCS (1700 vs 1175).[4]

Whether German’s are simply far more globally-oriented is possible. So too is the hypothesis that the local-global network that exists in Germany is simply far more effective in both communicating global opportunity to firms, as well as channeling firm inquiries and firm expansion requests to the right people in the right market. Ultimately for Canada to address it’s mounting export challenge it should aim to address both of those issues.

As I’ve written elsewhere, the share of Canadian who study abroad while in university is dismally low compared to other jurisdictions, including Germany (30% vs Canada’s 3%). Boosting international exposure at an early stage is certainly a potential driver for increased international commercial activity later.

Better integrating local chambers of commerce with Trade Commissioner activity is equally important. While one-off visits or “discover – insert region – “ sessions are helpful, they don’t build the ongoing relationship that’s necessary to overcome the barriers to exporting, notably lack of confidence and capacity. An ongoing communication of opportunities in specific markets, and of the services available to overcome barriers to get there, is a necessary part of building this into the fabric of domestic commercial strategy.

And finally, while trade missions and trade fairs help introduce a market, they don’t provide the footing that firms need to build trusting relationships with suppliers, investors and customers. These take time to develop. Programs such as the Canadian Digital Media Network’s Soft Landing program, or DFATD’s Canadian Technology Accelerator program, are both examples from the tech-sector that are worthy of significant attention as models for other sectors and primed to be expanded to locations around the globe.

So while the government’s investment in SME export support is indeed laudable, it’s likely not the best means of solving are mounting export challenge. A far more nuanced and multi-faceted investment in company support services and building partnerships with academic and industry stakeholders will be necessary to build a competitive economy going forward.

DH

[1] http://www.wsj.com/articles/SB10001424052702303755504579205970304187440

[2] A review of provincial programs highlights a significant range in the levels of service and subsidy provided to exporters from sophisticated offerings in Quebec and British Columbia to very minimal ones in Manitoba, Alberta and Saskatchewan.

[3] http://www.ahk.de/en/about-ahk/ahk-in-figures/

[4] It bears mentioning that commerce-related staffing at the TCS has been reduced from 1600 in 2010 to 1175 in 2014. This trends seems very incongruent with stated support and promotion of increased export activity.

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