Where B.C. Does Business Abroad

Countries B.C. residents do business with | BCBusiness

You said it: B.C.’s trade ambitions lie in Asia, but its goals are far from being achieved. Growth opportunities beckon from across the Pacific, but as the results of the 2014 BCBusiness Survey on International Business show, the province’s companies are mostly sticking much closer to home

Nearly two-thirds of readers say their firms don’t do business outside of Canada, and of those that do, more than 80 per cent choose a close and reliable trading partner: the U.S. Perhaps that’s of little surprise, given that our neighbour has the world’s largest economy, and that we share a language, longstanding business ties and a nearly seamless transportation infrastructure with the Americans.

Yet while that relationship has long served B.C.’s economic interests, it has also left the province trailing many of its global competitors in pursuing opportunities in other foreign markets—especially markets whose economic growth far surpasses that of Canada’s domestic market or that of the U.S. Our readers see those opportunities—survey respondents overwhelmingly chose Mandarin as the most advantageous non-English language to learn—but only a minority listed emerging markets in countries in Asia and elsewhere among those with which they do business.

David Watt is the chief economist for HSBC Bank Canada, a subsidiary of the leading international bank, HSBC Holdings PLC. He says doing business with the U.S. was never a bad idea in the past, but changing fortunes call for a more global outlook. “Especially in the last 20 years, the U.S. consumer has been a key driver of the global economy and global growth. So we didn’t seem to have that urgency to develop a broader trade perspective,” says Watt, arguing that, as a result, a lot of the Asian economies are unfamiliar to us. “We don’t necessarily understand the culture, we don’t understand what they need.”

Indeed, our survey respondents listed unfamiliarity with foreign markets, along with regulations, as their biggest barriers to doing business internationally. Watt says companies that were successful trading with the U.S. lacked incentive to invest the considerable resources required to learn how to do business in Asia. “It takes time, and it takes investment, and it takes a lot of travel in order to become familiar with contacts and the opportunities there. So it always seems to be something that we’ll get to in the future but we never sort of get to the point of examining how to take advantage of the opportunities that we have there.”

The last few years, however, have shown the folly of relying too heavily on domestic and U.S. markets. B.C.-origin exports to the U.S. dropped from $22 billion in 2005 to just $12.9 billion in 2009 following that country’s housing market implosion and resultant recession. By 2013, those exports had only recovered to $15.5 billion.

B.C. exports to Mainland China, by comparison, rose steadily from $1.2 billion in 2004 to $6.6 billion in 2013, with the numbers climbing unabated—as though the Great Recession never happened (U.S. and Canadian GDP shrank 2.8 per cent in 2009 while China’s GDP grew at a 9.2 per cent clip). B.C. exports to Pacific Rim countries (excluding Japan) nearly tripled from $3.3 billion to $10.3 billion during the same nine-year period.

[pagebreak] Teresa Wat is B.C.’s minister for international trade. She says the government has been working for years to help businesses diversify into Asian markets. The province’s Forestry Innovation Investment (FII), for example, set up an office in Shanghai in 2003 to promote B.C.’s wood products.

“We have been very aggressive in getting our lumber industry’s presence in China,” Wat says. “We have succeeded in convincing certain jurisdictions in China to change their building codes so that the builders can use our wood, our lumber, to build houses.”

Those exports helped shield B.C.’s forestry industry from some of the worst of the U.S. housing downturn. In 2013, Wat says, just over 40 per cent of B.C.’s lumber exports went to the U.S., while just under 40 per cent went to China.

Wat says B.C. has been engaging in Asian trade missions and working with the federal government to negotiate free trade agreements like the one Canada completed (but hasn’t yet ratified) with South Korea this year. Her government is trying to blaze a trail for industry.

HSBC’s Watt says he’s unsure if those trade missions have borne much fruit, noting that competitors such as the European Union, the U.S. and Australia have been ahead of Canada in signing trade deals, and in actual trade.

“It is certainly a situation that if we don’t start to take advantage of the opportunities that are going to be arising, other people will,” he says.

B.C., for example, is making a concerted push to develop a liquefied natural gas (LNG) industry, but Australia and the U.S. are already exporting products while B.C.’s industry is still on the drawing board. By 2019, when the bulk of B.C.’s LNG exports will begin hitting the markets, Australia and the U.S. are projected to have surpassed Qatar as the world’s number one and two LNG exporters, respectively.

Watt says Canada should also examine what its customers in emerging markets will be demanding in the future. There will be opportunities in those markets beyond the natural resources they are consuming now.

“There is going to be an important rotation in these nations away from competing with cheap labour to actually being more consumer-like,” Watt says. “And as that transition unfolds, growth levels go up, consumer spending tastes and the industrial nature of these economies can shift. So that’s where we start looking for the opportunities.”