The success the National Front’s Marine Le Pen has had in the French election has forced exporters to re-evaluate their relationship with France, given that she has vowed to impose import duties, among other threats. With CETA being provisionally implemented July 1, what better time to diversify your export markets? International trade expert Omar Allam answers our questions.
Omar Allam, CEO and Global Chairman of Allam Advisory Group, is a former senior Canadian trade diplomat and former business executive with World Bank and UN experience.
The French president has a lot of power constitutionally, but the French president’s power over the country’s involvement with the European Union is very limited. Like President Donald Trump, Le Pen has plans to “Make France Great Again,” vows to cut taxes for small businesses, reduce regulation and increase domestic spending. The far-right presidential candidate has vowed to remove France from the European Union and severely limit immigration while using protectionism to shield French companies from globalization. Nonetheless, Le Pen would face severe political and constitutional hurdles to implementing her anti-E.U. stance if she gets into power. Any proposal would have to be approved by the houses of the French parliament and approval in a popular referendum, or it would have to be three fifths — basically a legislative majority. Considering that the National Front doesn’t even have five seats [out of 925] in the French parliament, it doesn’t push the needle towards an easy French exit.
Le Pen has promised to introduce a non-binding referendum similar to the U.K.’s Brexit vote. Such a move could trigger events that will heighten concern with companies that are already scrambling today and preparing for potential new limitations on tariffs on trade and labour.
If France voted to exit the E.U., it would turn things upside down. For Canadian [and global companies] that do business in France — for example automotive suppliers such as Magna International with five manufacturing operations and two engineering and sales centres with 625 employees in France, or those who import products over the border — would certainly see an impact to their bottom lines. In the medium term, Le Pen wants to switch France to a new, lower-valued currency that would encourage more French exports. On the other hand, she wants to tax imports of goods and labour.
No. There will be different types of risk that will impact businesses and how countries interact, not only the world trade system and foreign policy, but also defence, security, issues around NATO and the Syria crisis. If Le Pen wins the French presidential election — a real possibility since we saw the Brexit and Donald Trump getting elected as 45th President of the U.S. within months — she won’t likely be on side with Prime Minister Justin Trudeau on issues such as immigration, climate change, NATO and free trade.
I don’t think it’ll be as dramatic as Brexit, but I think it’ll have its own measures. When you look at risks, I see this as medium risk.
Macron is a former investment banker, he was a cabinet minister. He’ll want to be the saviour, or the champion, of the E.U. He’ll want to invest money back into the economy for training and education because there’s a high youth unemployment rate. He’ll really be looking at how he can alleviate social tensions around immigration and how to target high unemployment by encouraging foreign investment and boosting French exports.
Companies need to look at a three-step process to help manage the risks and implications of political uncertainty that would have an effect on their commercial success. The key question at this stage is: How can the outcome of the French election directly affect our business objectives in France and cross-border trade across the E.U.? Companies need to develop a list of risk types, ranging from foreign exchange, immigration, increased taxation and costs of doing business, to strikes and protests, in order to understand the potential political risks. Some situations may weaken a company’s financial position, while others may, in fact, present an opportunity for companies to gain market share. For example, to estimate the financial impact of the election against your company’s commercial and investment objectives, you can use a discounted cash flow model. This tool helps companies understand tolerance levels. There are other tools out there like the organizational network analysis. This can help determine the estimated operational impact of specific political risks. For example, a technology services company might have their executive management team based in Toronto, have their R&D, sales and marketing in France, and their customer service and technical support in India. One of the most important measurements is how these risks translate into easy-to-read and understandable metrics. Using different metrics, companies can assess whether the political risk levels they assign surpass their appetite or tolerance for risk.
How can a strategy on diversification help protect one’s business when scenarios like this create uncertainty?
Again, it’s about managing and implementing. This is a classic example of where diversification can help your business survive in tough economic times. You have to determine how to get there and what needs to be done. When you look at the French election, you ask yourself if this has a big impact, how will you downsize in the market and where can you then pivot to a new marketplace within the E.U.
The rationale for why you selected France as a market will come into play — ask if you can move into a new market without downsizing too much, because there are costs and reputational risks associated with exiting a market altogether. But can you also create new business lines elsewhere. Can you leverage what you’ve done in the French market?
At the end of the day, it’s about how to be smart and strategic about it. So if you’re a Canadian company operating in France, ask yourself where are French companies doing really good business and where are they really successful. Canadian companies, especially Quebec exporters, have traditionally done very well in Francophone markets such as West Africa. There’s a chance to move ahead and also take advantage of the Canada-France relationship and triangulate into third markets. France is really strong in aerospace and defence and they’re selling to India, the Middle East and Asia. So the question becomes: How can Canada take advantage of France’s shortfalls in terms of its global positioning? It’s not just about closing down shop in France, but rather maybe it’s about partnering with French companies and going after more customers together outside of France, or leveraging the footprint in France and looking at other markets in the E.U.
It gets back to how France exits or tries to exit the E.U. I think its status quo until something happens. If you have that risk-management strategy in place you know how to act and react to a surprise move.
A Le Pen win sets in motion events that could trigger fear and panic in companies, so I think you look at the French market and see that companies are currently doing business or want to look at exports in minerals and metals, agrifood, pharma, high-tech, and then you ask yourself how you can carve yourself a niche. There’s provisional implementation that will be applied on July 1, so now’s the time to go in and try to capture business.
With Brexit, it’s a two-year process — lots can be done within a two-year time frame. Not all companies are going in and setting up offices; some are looking for contracts. You have to keep moving forward with CETA and France is just another one of the markets. If it fits within your business model and risk tolerance then you have to go after it. If you sit around and rely on your existing markets, you won’t grow. That’s where a lot of Canadian companies get stuck. They say now is not the time and continue to do the same old stuff.
Today, no business executive can ignore how global forces are reshaping the landscape. Diversifying into a new or existing market involves complex choices, ranging from the mode of entry to appropriate investment levels to local organizational structure design.
Leaders need to prioritize their investment choices based on opportunity, competition and alignment with the company’s capabilities and product or service portfolio.
Thomas Edison said it best: “Inspiration without execution is hallucination.” For Canadian companies, current intelligence combined with the thoughtful perspectives of experienced senior advisers can be a critical differentiator in performance and results.
Bottom Line
If you don’t act now and diversify into new markets — you risk losing out on major business opportunities. Those who anticipate and address change and keep their organizations balanced and agile will be well positioned for continued success. Those who ignore challenges or delay action face the risk of failing their customers and stakeholders, with increasingly uncertain outcomes for their organizations.
