China's economic growth has slowed in recent years, but it remains one of the largest and fastest-growing economies in the world offering significant opportunities to Canadian companies, according to a new report prepared by The Conference Board of Canada (CBoC) for HSBC Bank Canada.
Those opportunities will escalate if Canada and China sign a free trade agreement in the near future, according to the report Shifting Chinese Demand: New Opportunities for Canadian Companies.
But to remain globally competitive, CBoC advises Canadian manufacturing industries doing business in China make technological upgrading a priority to keep pace with Chinese and foreign companies that are rapidly enhancing their technology.
The report says while commodities are expected to remain a large share of Chinese imports, ongoing structural transition of the economy, from an investment to a consumption-led model to meet the needs of a growing middle class, will increase demand for many goods and services. Canada holds a global comparative advantage in several of these sectors.
By analyzing data, CBoC reached three main conclusions:
The Canadian industries identified by CBoC as best prepared to capitalize on growing Chinese demand are: Scientific research and other technical services; Mining; Crop production; Animal production; Fishing, hunting, and trapping; Finance and insurance services; Computer and information services; Food manufacturing; and Other Commercial Services
CBoC's interviews with representatives of three Canadian companies doing business in China show that success can be achieved by finding niches, having a local presence, adapting to the culture and focusing on developing relationships.
Clearwater Seafoods, Hatch Ltd., and IJW Dorweiler are successfully doing business in China in three "sweet spot" sectors: food manufacturing, engineering, and recreation and financial services.
Nova Scotia-based Clearwater Seafoods has been doing business in China since 1994.
Chinese consumers "value brands, high-quality products and food safety," says Greg Morency, Clearwater's Head of Global Markets.
"All of this has played a role in our growth . . . and the halo effect of being a Canadian company has also helped," says Morency.
Clearwater has its own sales representatives on the ground who speak Mandarin and English, have experience with other multinationals, understand Western products that sell for a premium, and know how to create a value proposition.
Since 1999, Hatch Ltd., has provided a full range of services, including business consulting, engineering, procurement, construction management and technology to the Chinese market.
Hatch has grown its business in China through the strategic acquisition of a Chinese engineering firm in 2012 and through the establishment of four joint ventures (JV).
"Business in China is all about developing personal relationships and networks that then bring new opportunities and help build results," says HATCH's Managing Director, Metals Joe Lombard.
"People refer you based on those relationships; partnerships are a broader way of formalizing them. You can go to a million trade shows but, if you don't make friends in China, you'll get nowhere."
One of the firm's important learnings is that greater value is placed on products in China than on services.
"We had to change the way professional services are presented because the market for professional services is less mature in China than in some other countries," says Lombard.
IJW DORWEILER Ltd. (IJWD), the subsidiary of two mergers and acquisitions firms and business valuation boutiques based in Canada (Dartmouth Partners and IJW & Co.), opened a Hong Kong office in 2015.
Drew Dorweiler of Dartmouth says the decision to open an office in Hong Kong reflects the need to have a local presence in order to do business effectively.
"Business people in China want to learn more about you and trust you before doing business with you so it's important to develop relationships first," says Dorweiler.
Linda Seymour, Executive Vice President and Head of Commercial Banking, HSBC Bank Canada, says many of the themes driving growth in the Chinese economy play to Canada's strengths – including the massive investment in infrastructure. 1
"China remains an engine of global growth and a must-be market for Canadian companies," she adds. "And yet, few Canadian companies understand the scope of the Belt and Road initiative and most of these still have not factored this into their corporate strategies."
The Belt and Road blueprint aims to develop two corridors linking China to the world. The Belt refers to the historic overland Silk Road trading routes connecting China via central Asia to Europe and the Middle East. The Road refers to the maritime equivalents to the south, linking China, Southeast Asia, India and Africa.
Seymour points out HSBC's Renminbi Internalisation Survey 2016 showed that only two in five companies globally are aware of the initiatives although, European and North American firms may be edging ahead of their Asian peers in preparing to capitalise on the program.
She says Belt and Road projects represent huge opportunities for companies that can help develop physical infrastructure such as highways, ports and telecommunications networks.
To read the full report Shifting Chinese Demand: New Opportunities for Canadian Companies, please click here.
Source: Conference Board of Canada Report: Shifting Chinese Demand: New Opportunities for Canadian Companies, January 2017
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