Emerging countries are becoming increasingly powerful centres of commerce and global leadership. (See Table 1.) They now account for half of the global economy—a larger share than all advanced economies combined. And according to the International Monetary Fund, financial spillovers1 from emerging countries explain as much as a third of the variation in exchange rates and stock market performance of advanced countries.2
Emerging Countries,* by Region
|Emerging Latin America||Emerging EMEA||Emerging Asia|
|Brazil, Chile, Colombia, Mexico, Peru||Egypt, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, Saudi Arabia||Bangladesh, Cambodia, China, India, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand, Vietnam|
*combining the definition of emerging countries used in the MSCI indexes and by the International Monetary Fund Source: The Conference Board of Canada.
Not surprisingly, emerging Asia, led by China, has been the main driver behind this shift. Over the past two decades, emerging Asia increased its share of global trade from 10 to almost 25 per cent.3 And in 2017, this region became a larger economic powerhouse than the combined G7 countries.
The gap between these two poles of power will continue to widen in coming years. By 2022, emerging Asia will account for 37 per cent of the world economy, compared with only 28 per cent for the G7. China and India will obviously be the growth leader, but so will other Asian economies such as Indonesia, the Philippines, and Bangladesh. In fact, even after excluding China and India, emerging Asia is the only region that will see its share of the global economy rise in coming years. (See Chart 1.)
The influence of emerging countries, particularly from Asia, will continue to grow in coming years, especially with China’s One Belt One Road initiative, which will connect 70 nations across Asia, Europe, the Middle East, and Africa.4 This is happening at a time when the U.S. is stepping away from global leadership roles, including multilateral trade and environmental agreements, and European economies are experiencing slow growth due to an aging population.
Asia Will Continue to Grow Its Share of the Global Economy
(share of global gross domestic product for selected regions, per cent)
f = forecast
Sources: The Conference Board of Canada; International Monetary Fund, “World Economic Outlook Database,” October 2017.
With the centres of commercial and political powers shifting, Canadian firms wishing to succeed internationally will have to change their strategy to focus around these new poles of power, particularly in Asia.
In 2017, close to a quarter of the Fortune Global 500 firms were Chinese companies.5 Three-quarters of these 115 firms are state-owned enterprises (SOEs),6 although privately owned companies are also making significant inroads. Among the latest additions to the list are China’s tech giants, Alibaba and Tencent, with a combined market cap of close to US$1 trillion. Emerging countries’ largest firms are becoming direct competitors to advanced economies’ multinationals, in turn reshaping global value chains.
Doing business with emerging markets’ giants. Engaging with emerging countries’ largest firms can be a means for Canadian companies to tap into emerging markets, notably through leveraging their well-established domestic networks. As such, in the fall of 2017, Alibaba organized a one-day event in Toronto to provide advice to Canadian firms wishing to make inroads into China’s huge consumer market.7 Emerging countries’ largest firms can also be a source of venture capital funding, which can accelerate the internationalization of Canadian start-ups. Recently, Tencent invested in Kindred Systems Inc, a smart robot manufacturer from Toronto, after backing messaging app Kik and Wattpadd in the past.8
Leveraging other Canadian firms’ existing ties with emerging countries. If doing business directly with the largest firms in emerging countries proves too challenging, Canadian companies can start by connecting with other Canadian firms already established in these markets. To identify firms doing business in Asia, firms can use the Mapping Canada in Asia tool developed by the Munk School of Global Affairs. Using an interactive map, this tool tracks Canadian firms’ presence in Asia by sector and region.9
Future trade agreements with emerging markets. New market opportunities will likely open in coming years with potential free trade agreements with TPP-11 countries, China, and India. These negotiations can take several years, but so does building the right connections and relationships with local partners. Firms should engage in the government’s consultation process throughout the negotiations to ensure their voices are heard regarding market access in these countries.
Keeping pace with the changing global orientation of power and commercial enterprise is a challenge. To leverage new opportunities made possible by the rising power of emerging economies while minimizing risk, businesses should do the following:
Company Name: Wade Antenna Inc.
Location: Brantford, Ontario
Product: Industrial and commercial antennas and towers
Year Established / Started Exporting: 1989 / 1993
Total Revenues: $5 million to $10 million
Export Share of Sales: 65 per cent
Export Markets: U.S., Middle East, Europe, Asia, South Africa, South America, Caribbean, and Australia
Wade manufactures communication antennas, towers, and mounts used by the military, defence contractors, and commercial aviation systems worldwide.
Wade is a niche player in defence communications. The firm has developed a technology to jam a drone’s communications when used for illegal activities—such as dropping contraband into prisons—or protecting airports and built-up areas where drones should not be operating. Customers range from consumers seeking lightweight affordable towers to the Department of Homeland Security and 17 navies around the world.
Re-orienting business lines
Wade began targeting emerging markets to diversify its portfolio. “We wanted to look beyond the U.S. because we have so many eggs in one basket and are so tightly tied to military spending there,” notes Ryan Murphy, President. The company utilizes agents in the Middle East and South America. “Part of our growth plan is to further develop this agent network. We have put on a real push to grow in other markets since we haven’t given them much attention and want to be more aggressive.”
Finding the right partners in emerging markets
“We know who’s who in Europe and the U.S. where we work with large military integrators and understand how they operate,” explains Murphy, “but many of them are not in developing countries, so there is a lot of ground-breaking and unknowns.” Accessing the Trade Commissioner Service in the past year has helped Wade find agents. As well, the person responsible for emerging markets at Wade has worked in many countries and is well versed in different customs.
Future Growth Plan
Wade anticipates strong emerging market growth and is putting the company’s focus there for the antenna and drone side of the business. For example, “China and Thailand are planning to upgrade many, many airports and if we can be part of a big project, it would change the size of our business radically,” says Murphy. “We are trying to identify different integrators on the ground who are designing airport communications systems.”
Company Name: Signifi Solutions Inc.
Location: Mississauga, Ontario
Product: Automated retail vending machines
Year Established / Started Exporting: 2005 / 2010
Total Revenues: $5 million
Export Share of Sales: 40 per cent
Export Markets: U.S., U.K., UAE, Africa, China
Signifi Solutions builds and sells sophisticated vending machines, used by Canada Post, BMW, eBay, PayPal, and others.
Signifi’s vending machines incorporate robotics and hardware for dispensing, enterprise software, and a dynamic user interface. “Providing this entire solution is what makes us unique,” says Shamira Jaffer, President.
Forming strategic alliances
Signifi has forged a strategic alliance with the CEUTA Group (a U.K. services provider for pharmacies), which has worldwide reach. This partnership has allowed the company to have stock delivered securely to its machines—one of its biggest challenges. The alliance will prove beneficial because of this partner’s presence in many overseas markets.
Different regulatory and technology regimes
Signifi must integrate with different payment processors for merchant account processing and follow different electrical specifications. Its highly skilled technical staff does the necessary adapting.
Culturally sensitive business interactions
The company stresses the importance of face-to-face, culturally sensitive business interactions. It has tackled cultural barriers by hiring a diverse and multicultural workforce that speaks different languages. “Our employees are willing to travel anywhere,” notes Jaffer. “We work with an agency to hire them; the secret sauce is bringing them on with a co-op program and the cream rises to the top.”
Future Growth Plan
Signifi is bullish on emerging market growth and is hiring an export manager to develop its international strategy. “To grow the company to a sustainable level, we need to be looking abroad,” Jaffer emphasizes. “We see the export manager as key to help navigate growth and manage distributor relationships around the world. Having a presence through strategic partnerships also facilitates growth, as we are learning from the CEUTA relationship.”
This research series is funded by HSBC Bank Canada, and is researched
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