21 September 2016

Rebounding U.S. economy increases demand for Canadian exports

Canadian Companies are urged to take advantage of opportunities for growth in the U.S./Canada trade corridor.

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The US economy is currently more robust than it has been for the past 10 years and offers significant opportunities for Canadian exporters, but some key industries are not yet ready to take full advantage of the upswing, according to a new report prepared by The Conference Board of Canada for HSBC Bank Canada.

The report, Taking Advantage of the US Economic Rebound, says some Canadian industries have only minimal or low capacity to meet the expected increase in US demand and need to invest more in human and/or physical capital to boost capacity if they want to capitalize on the opportunity.

To take advantage of the US economic rebound Canadian companies need to have capacity to meet rising demand, skilled people and a competitive edge rooted in innovation.

They also need to think strategically about where they can be most competitive in the US and which investments to make to meet demand. The speed at which they can determine their strategies and adjust or reorient their operations to US market demand will be key to their success as exporters.

The report notes that although projected US growth of around 2.5 per cent in 2016 and 3 per cent in 2017 is still below its past trend, more robust and well-anchored US growth is critically important to global demand for Canadian exports, which are deeply integrated into global value chains through trade and investment with the US.

Best prepared industries

The US economy finally has pulled out of the doldrums, led principally by a recovery in consumer demand, thanks to falling unemployment and rising real wages and consumer confidence, according to the report.

Five Canadian sectors are best poised for success in a strengthening US economy:

  • Transportation and government services
  • Other commercial services such as wholesale trade and administration
  • Computer and information services
  • Food manufacturing
  • Finance and insurance services

"It's interesting to note that four of these five are service industries - some of the most dynamic global trade stories in recent years, representing Canada's fastest growing exports and capable of carrying the Canadian economy into a new trade era," says Linda Seymour, Executive Vice President and Head of Commercial Banking for HSBC Bank Canada.

The US is the world's largest consumer of commercial services and one of the largest importers of commercial services, which grew at 11 per cent annually between 2008 and 2013.

Canada has strong export-oriented commercial services sectors. To deliver on US demand, they don't have to boost their machinery and equipment or plant capacity as manufacturers might, but they do have to ensure they have the right people in place.

The report found that while service industries as a whole are well prepared to take advantage of new opportunities, some manufacturing industries may have to invest in enhancing their capacity to meet stepped-up demand.

Least prepared industries

Canada's "least prepared" industries are expected to see moderate or high demand from the US, but have only minimal or low capacity to meet the demand. They need to make additional investments in human and/or physical capital to increase capacity if they want to capitalize on the expected increase in demand. They are:

  • Wood product manufacturing
  • Pharmaceutical and medicine manufacturing
  • Aerospace product and parts manufacturing
  • Leather and allied product manufacturing
  • Computer and electronic product manufacturing
  • Furniture and related product manufacturing
  • Other transportation manufacturing (eg rail and shipbuilding)
  • Clothing manufacturing
  • Motor vehicle parts manufacturing

To gain a better understanding of what it takes to grow business in the US, the report analyzed the operations and strategies of three Canadian companies that have been successful south of the border: Spin Master, Global Relay and McRae Imaging.

The report suggests that other Canadian exporters can learn from these insights as they adjust strategies to match shifting trade patterns and strive to be successful in the next export era.

The report's analysis showed that in addition to developing new products, the three companies were also innovative in many other ways of running their businesses in order to stay competitive - even against major industry rivals, as in the case of Global Relay and Spin Master.

This includes everything from implementing new internal processes to leveraging partnerships. These actions illustrate that companies of all sizes and in a variety of industries can position themselves to take advantage of the rebounding US economy.

Each of the companies utilized key strategies for propelling US growth: the acquisition and partnership route for Spin Master; sales agents and distributors for McRae Imaging; and a strong local presence and leveraging partnerships for Global Relay. They also continue to adjust their strategies and invest in the next generation of innovation.

To read the full report of Taking Advantage of the US Economic Rebound report, please click here.

Source: Taking Advantage of the US Economic Rebound Report, August 2016

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