President Trump’s administration has signalled considerable change when it comes to trade. If you’re wondering what this might mean for your investment or expansion plans south of the border, this insightful blog by Mairead Lavery, Senior VP of Business Development, is the first in a 3-part series explaining how exporting to the U.S. can still be a sound business strategy.
In this blog post:
President Trump’s administration is still in its infancy, but it has already signalled considerable change — particularly when it comes to trade. It may cause some worry among Canadian companies, especially those considering investing or expanding south of the border. But is this concern justified?
Despite perceived uncertainty, exporting to the U.S. can still be a sound business strategy.
As is so often the case, this evolving situation presents both challenges and opportunities. While the long-term effects of a move toward protectionism are hard to predict, in the short term at least, it may strengthen the U.S. dollar, which should help Canadian companies by making exported goods seem like more of a bargain to American companies. This might be especially beneficial to Canadian companies that contribute parts or components for final products assembled by their U.S. counterparts under the “Buy American” banner.
The fact that the U.S. and Canada have long enjoyed a strong, stable, and mutually beneficial relationship — and knowing that increasing trade barriers would harm both nations — is comforting.
Canada is the third largest direct investor in the U.S. with $450 billion invested. In fact, of all investments by Canadian companies in setting up operations outside of Canada, 45 per cent were used in the U.S. in 2015. They are, by far, our largest export market, with 72% of our exported goods headed there in the same year.
Canadian companies have established a significant and growing presence across many U.S. industries, most notably finance and insurance, followed by energy and manufacturing. Direct investment has led to the creation of a large network of Canadian foreign affiliates across America, with sale amounting to $298 billion in 2014.
And it’s a two-way street.
U.S. companies invested $388 billion to operations in Canada in 2015. At the same time, sales from U.S. foreign affiliates based in Canada continue to grow, totaling $612 billion in 2014.
Instead of retreating, Canadian companies are actually in a unique position to take advantage of this close commercial relationship and grow their U.S. business. One way to do this is to establish operations south of the border.
There are many benefits to creating and maintaining a presence in the U.S. Perhaps most importantly, being closer geographically allows you to better develop and service key customer relationships, and it gives you a base from which to pursue new ones. It can also make logistics easier, by helping you to secure more and better access to U.S.-based supply chains and distribution networks. All of this has the added benefit of strengthening your business not just in the United States, but north of the 49th parallel as well.
So where do you begin?
A significant step can be to establish a foreign affiliate. This is the most common way that Canadian companies use to set up operations abroad. It becomes the part of your business devoted to serving your interests in the American market, and operating as a local U.S. business would in terms of regulations, taxes and the like. You are giving your customers an easy and very effective way to deal with you directly.
Our research shows that this not only puts you closer to these key customers, it lets you diversify and grow your customer base, which in turn helps drive your revenue, profitability and ability to compete — ultimately adding stability to your Canadian operations. In fact, nearly 60 per cent of the Canadian companies we surveyed said sales increased in markets they were already selling into with traditional methods.
Uncertainty about the future of Canadian-U.S. trade is, if nothing else, an opportunity to pause and reflect on where to take your business next. The upshot is that, as a long-term strategy, now may be the time to invest more in U.S. presence.
If you are considering expanding your U.S. presence as a growth strategy, there are resources available to help you succeed.
EDC can help provide financing for your U.S. (or overseas) investment. We can also help with introductions — either to U.S. companies with significant supply chain needs, or to the right people in the U.S. Commerce Department to take advantage of the Select USA program. This program helps you navigate all of the state level incentives that might be available to your company to find one that is right for your U.S. strategy. We can also connect you to Canadian Trade Commissioners on the ground across the U.S. who can, in turn, introduce you to potential business partners.
Here’s to your next opportunity, no matter where it comes from.
