White Paper
g CONTENTS
How Canadian Exporters
Are Adapting to a Strong
Canadian Dollar
The Canadian dollar is again consistently trading above parity against
the U.S. dollar. When this last happened, in 2007, many Canadian
exporters were caught unprepared as our dollar broke through that
symbolic barrier and their profit margins abruptly vanished. Many of
these companies, in order to continue exporting, slashed expenditures
as quickly as they could.
This time, however, Canada’s export community appears to be in a
much better position to cope with the dollar’s rise. Over the past few
years, and during the economic downturn in particular, many exporters
have made shrewd strategic decisions to safeguard their international
competitiveness. Now that global demand is finally showing signs
of recovery, these exporters are well positioned to increase their
international sales despite the Canadian dollar’s high value relative to
many major currencies, not least the U.S. greenback.
This white paper presents the key strategies that have enabled many of
Canada’s exporters to adapt successfully to the strong loonie. Supporting
data shows the extent to which each of these strategies has been used.
The data also highlights the areas that Canadian exporters may want
to emphasize so they can compete more effectively in a world where
the Canadian dollar is so strong.
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Table of Contents
3Introduction
4 Strategies for Adapting to a Strong Canadian Dollar
4 Diversifying Export Markets
7 Establishing a Physical Presence Abroad
10 Purchasing More Foreign Goods and Services
11 Improving Productivity
14 How EDC Can Help
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Introduction
When the Canadian dollar reached parity during the fall of 2007, 66% of Canadian exporters
considered its value a “very important” factor that affected their ability to compete in international
markets. In the winter of 2010–2011, when the Canadian dollar was again trading at parity, that
proportion had fallen to 55%.1 This is a notable improvement and indicates that a growing
number of Canadian exporters are now in a better position to compete internationally,
despite the high loonie, than they were a few years ago.
EDC currently expects Canadian goods and services exports to grow by 12% in 2011 and by 7%
in 2012.2 Part of this growth will be due to export levels continuing to recover from their 24%
collapse in 2009. Even so, these are historically robust increases and support the view that the
loonie’s high value is not hindering
our exporters’ performance as
Figure 1: The Canadian dollar’s value expressed in U.S. dollars
(monthly average)
much as it used to.3
1.2
For more than half of Canada’s
exporters, however, the value of the
Canadian dollar is still critical to their
success on global markets. The more
it climbs, the more difficult it becomes
for them to export their goods in a
profitable way.
1.0
0.8
May 2011
May 2010
May 2009
May 2008
May 2007
May 2006
May 2005
May 2004
May 2003
May 2002
May 2001
May 2000
0.6
EDC has prepared this white paper
with such exporters in mind. It
Source: Haver Analytics and EDC Corporate Research Department
presents the most effective strategies
for adapting sustainably to a strong
Canadian currency and shows, through real-life examples, how many of our companies have
remained competitive despite the dollar’s rising value. Since the dollar may remain above parity
for some time, we hope that the insights gained from this white paper will prove useful to all
Canadian exporters.
1
EDC Trade Confidence Index (TCI) Survey, Fall 2007 and Winter 2011. The TCI is a survey of 1,000 Canadian businesses that export or plan to export and is comprised of a
cross-section of industry sectors, regions and business sizes.
See EDC’s Global Export Forecast, Spring 2011, available on www.edc.ca.
3
Canadian goods and services exports grew at an average annual rate of 2.1% between 2000 and 2008.
2
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Strategies for Adapting to a Strong Canadian Dollar
Canadian exporters have used a range of strategies to adjust to the dollar’s appreciation.
In summary, these have been to:
• diversify into new markets;
• establish a physical presence abroad;
• use imported inputs in significant quantities; and
• increase productivity by boosting efficiency and innovation.
Numerous Canadian exporters began using some of these strategies in 2003, as soon as the
dollar’s value began to rise. Since then, and particularly after the global crisis of 2008–2009,
even larger numbers of our exporters have put one or more of these strategies to use.
All these strategies are closely connected in that they reinforce each other’s effectiveness.
Innovation, especially in the area of new product development, is one example of a critical
success factor for exporters hoping to penetrate new foreign markets. Another is the use of more
imported inputs, which can both reduce a company’s foreign exchange exposure and enhance
its productivity. Finally, doing business abroad greatly increases a firm’s opportunity to learn
about new products and processes, thereby stimulating its propensity to innovate.
Diversifying Export Markets
Since the Canadian dollar began appreciating in 2003, many Canadian exporters have started
to sell their goods and services in new foreign markets. Whereas 70% of Canadian exporters
exported only to the United States in 2002, that percentage fell to 56% in 2009 – in absolute
terms, more than 4,000 companies
began to export to countries other
Figure 2: Share of Canadian exports of goods and services
to the U.S. and non-U.S. markets
than the U.S. during this period.
90%
35%
Partly as a result, the share of
Canadian goods and services
85%
30%
exports to the United States fell
from close to 83% in 2002 to less
80%
25%
than 71% in 2010 (see Figure 2
below). Meanwhile, the proportion
75%
20%
of Canadian exports to emerging
70%
15%
markets more than doubled. From
a geographical standpoint, Canadian
65%
10%
exports to Asia (excluding the
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Middle East) and to the European
Share of exports to the US (left)
Share of exports to non-US markets (right)
Union have risen significantly.
Source: Statistics Canada and EDC Corporate Research Department
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Selling to new foreign markets can lessen the impact of a strong dollar in several ways. First,
our dollar has not appreciated equally against all world currencies. Between May 2006 and
May 2011, for example, it had risen only 3% against the euro, while it had gained 15% against
the U.S. dollar. Selling to European buyers may therefore result in healthier profit margins for
Canadian exporters, since the euro has lost less value than the U.S. dollar against the loonie.
This translates into more Canadian dollars once the euro payment has been received and
converted to Canadian currency.
Second, although profit margins tend to be smaller when selling to emerging markets, the large
sales potential of these economies can help make up for the lower margins. Currently, half of the
growth in world imports is taking place in emerging markets. This proportion will continue
to increase as economic expansion in these countries continues to outpace that of developed
economies.4 Further, by increasing their total sales volumes through market diversification,
Canadian exporters can leverage economies of scale to become more efficient and profitable.
Third, profit margins can sometimes be larger in emerging markets than in developed ones.
This will normally be the case when the exporter has sought out markets where its goods and
services will be highly valued, and where it is prepared to adapt its products and marketing
strategies to meet local requirements. Deloitte Touche Tohmatsu surveyed 440 business executives
and found that, in close to 30% of cases, profit margins on sales to emerging markets were
healthier than they were in developed markets.5 This shows how the value proposition that a
Canadian exporter brings to an emerging market, such as Turkey or Indonesia, may be better
appreciated and remunerated there than it would be in traditional export markets like the
United States.
Finally, entering new markets presents exporters with rich learning opportunities. Companies
can observe at close hand how other players in their industry meet local customer needs, and
this market intelligence allows them to benchmark themselves against their international
peers in areas such as quality, responsiveness and new product development. They can then
use this new knowledge to improve their competitiveness both in Canada and abroad.
4
5
The World Bank predicts that emerging economies will grow at an average annual rate of 4.7% between 2011 and 2025, compared to 2.3% for developed economies. Source: The
World Bank, “Global Development Horizons 2011, Multipolarity: The New Global Economy,” 2011.
See “Innovation in Emerging Markets: 2007 Annual Study,” Deloitte Touche Tohmatsu, 2007.
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Nautel Limited’s Experience with the Strong Canadian Dollar
Nautel Limited is a global leader in the design, manufacture, sale and support of high-power
radio frequency products for AM and FM broadcast, navigation, industrial and space-based
applications. During a typical year, at least 90 per cent of its production is exported. Based
in Hackett’s Cove, Nova Scotia, Nautel, like most Canadian exporters, experienced difficult
times from 2007 to 2009 because of the rapid rise in the Canadian dollar and the severe
drop in demand from U.S. buyers caused by the recession.
One of the first things Nautel did to offset the Canadian dollar’s strength was to reduce its
currency exposure by renegotiating existing, or entering into new contracts, with suppliers
so that more purchases were denominated in U.S. dollars. Then, unlike most of its peers,
Nautel actually increased spending on new product development and sales and marketing.
“Cutting costs was not going to get us where we wanted,” says Darlene Fowlow, Nautel’s
Vice-President Finance and Chief Financial Officer. “We knew we had an excellent brand but
our sales were relatively concentrated in a number of markets and with a number of loyal
customers. The economic downturn and the strong Canadian dollar forced us to establish
more clearly where we wanted to grow both in terms of product line and geographic areas.”
Given the nature of Nautel’s products, there were many growth markets to consider. The
company’s sales and marketing group worked closely with the engineering team to identify
new products and product enhancements on which to focus efforts. At the same time, sales
and marketing were focused on getting feet on the street and establishing Nautel in areas of
the world where it was not well known. The financing, procurement and production teams
were brought in to verify the profitability of these potential new business opportunities.
The combined effort was a resounding success. Company sales have grown by 35 per cent
since 2008 thanks, in large part, to newly-designed products which have allowed Nautel
to enter markets where it had practically done no business in the past. “Turkey and Saudi
Arabia were new markets for us, yet our biggest pieces of business during our last 2 fiscal
years were in these countries” Ms. Fowlow says.
If Nautel had not taken steps to deal with the strong Canadian dollar, Ms. Fowlow estimates
that the company’s sales would likely be one-third of what they are today. For Canadian
exporters currently struggling with the soaring loonie, Nautel advises against focusing strictly
on cost-cutting efforts. “You need to build on your strengths and then find new markets where
these competitive advantages will be valued. In the case of Nautel, product development and
customer service are what differentiates us from the competition. Instead of jeopardizing
those strengths through cost-cutting, we chose to elevate our game even further in these
areas and that is why, I believe, we have been successful in reducing the impact of the
strong Canadian dollar on our bottom line.”
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Establishing a Physical Presence Abroad
EDC estimates that one out of every 10 small and medium-sized (SME) Canadian exporters
currently has some form of physical presence overseas, such as a plant, a warehouse or a sales
and distribution office.6 For larger exporters, that proportion rises to one in three.7 In total,
this amounts to roughly 4,000 Canadian exporters with some type of business operation
outside the country.
Since the Canadian dollar began to overtake the U.S. dollar in value, investment by Canadian
businesses outside Canada has grown much more rapidly than exports (see Figure 3 below).
Between 2002 and 2008, the sales of these Canadian foreign affiliates rose twice as fast as export
sales originating from Canada, at 6.2% per annum versus 2.8% per annum respectively.
Setting up shop abroad can help Canadian exporters overcome the negative effects of a strong
loonie in several ways. For example, producing products or services in the foreign market
where they are sold can significantly reduce the mismatch created by earning income in one
currency and making expenditures in another.8 Since this
Figure 3: Growth of Canadian exports, Canadian direct investment
abroad and Canadian foreign affiliate sales (2000 = 100)
mismatch is at the root of the
200.0
dwindling profit margins of
many Canadian exporters,
180.0
adopting such a strategy can
generate major benefits.
160.0
Some Canadian firms use a foreign
affiliate to produce goods in an
overseas location, such as China,
120.0
and then export the affiliate’s
100.0
production directly to buyers in
another foreign country, such
80.0
as the United States. The driver
2000
2001
2002 2003 2004
2005
2006
2007 2008
2009
2010
behind this form of foreign
Exports
CDIA Stock
investment is often the greater
Foreign Affiliate Sales
availability and/or affordability
Note: CDIA data for 2010 is based on Q3 2010 data
Source: Statistics Canada and EDC Corporate Research Department
of key inputs – labour, raw
materials and technology, for
example – in the foreign market compared to Canada. Examining such a business decision
strictly from a currency standpoint, it will only prove profitable if the currency of the country
where the foreign production facility is based appreciates less quickly than the Canadian
dollar against the currency in which the exported goods are paid for.
140.0
6
Estimate based on EDC’s Trade Confidence Index Survey, conducted during the spring and in the fall of 2010.
SME exporters are Canadian companies that export and have total annual sales (i.e. domestic and foreign) of less than $25 million. Companies that have total annual sales above
$25 million are classified as large exporters.
8
There would still be a mismatch, however, unless all of the foreign affiliate’s revenues and expenditures were incurred in the same currency. In addition, exporters face new forms of
foreign exchange exposure when they establish foreign operations. For example, when income is periodically repatriated from the foreign affiliate (such as dividends or repayment
of an intercompany loan), the Canadian exporter will need to convert these foreign currency payments to Canadian dollars. The size of these new exposures should be smaller than
the ones initially faced by the exporter.
7
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Another option is to use a foreign affiliate to produce parts or services for the Canadian
exporter’s domestic production processes and ship the completed components back to
Canada. The Canadian exporter can then incorporate these components into its final goods
or services, which it then exports to foreign buyers. Overseas investments of this nature are
normally made to reduce costs, which can allow the exporter’s profit margins to recover some
of the ground lost due to the strong Canadian dollar. Again, the new currency exposures created
by the adoption of such a strategy should be considered carefully in order to maximize its
potential gains.
Finally, Canadian exporters sometimes open a sales and distribution office abroad. This is
less of a financial strain than opening a production facility, and having this type of in-market
presence can be beneficial in a number of ways. It can facilitate collaboration with overseas
partners on joint projects, such as co-developing new products and improving after-sales
service to buyers farther along the supply chain. A local market presence can also improve
the exporter’s responsiveness to foreign buyers’ demands, and these buyers may be willing
to pay a premium for such a benefit. Offering this extra value can allow Canadian exporters
to earn higher margins that will help compensate for the strong dollar.
That said, opening a foreign sales and distribution office will still usually involve a meaningful
financial outlay and will require an ongoing commitment of time and energy from the
company’s Canadian management. A solid knowledge of the local market, based on past
exporting experience, is often a prerequisite for this type of investment.
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Samco Machinery’s Experience with the Strong Canadian Dollar
During 2006, Samco Machinery closely evaluated the implications of a Canadian loonie
trading at parity with the U.S. dollar. It seemed like a remote possibility at the time since
the loonie was worth around 87 to 88 cents and had greatly appreciated in value during
the previous years.
“The results of our evaluation were not pretty,” recalls Bob Repovs, the President of this
Toronto-based manufacturer of customized roll-forming machines. “In fact, the numbers
showed that it would be close to impossible for Samco to be financially viable if the Canadian
dollar reached those heights.”
Samco started planning its strategy to remain profitable if parity ever became reality which
included selling to new foreign markets, reducing component costs, improving operational
efficiency and concentrating more than ever on product development.
Samco’s market diversification strategy was aimed at reducing its dependence on the
U.S. where 80 per cent of its sales were made in 2006. By taking a more global marketing
approach (e.g. by investing in the company’s web site and attending trade shows outside
of North America), Samco was successful in finding new customers in India, Russia, South
Africa and Western Europe. These efforts, combined with soft demand for its products
south of the border, has resulted in the U.S. now representing less than 50 per cent of
Samco’s sales.
The potential in India appeared significant to Samco from a cultural (English is frequently
spoken and the system of law is based on that of the U.K.), sales and manufacturing perspective.
As a result, Samco established a joint venture in 2007 to produce both complete machines for
Indian customers and components that would be exported back to Canada for assembly into
machines made in Toronto. This foreign investment – which Samco now owns 100 per cent –
has allowed Samco to make inroads in India while at the same time providing it with a
reliable source of components for its Canadian operation at a much lower cost.
Finally, lean practices were implemented throughout the entire company in 2009, with
a particular focus on eliminating waste from the design process. As well, investment in
research and development was increased in order to enhance the company’s ability to
develop new products in order to meet the needs of both existing and new clients.
Bob Repovs is proud of the fact that Samco is now a competitive company on the world
stage even with the Canadian dollar at parity. Margins may not be what they used to be,
but thanks to the dynamic steps the company took to adapt to the strong Canadian dollar,
Samco’s future (and international prospects) today appear very bright.
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Purchasing More Foreign Goods and Services
The import content of Canada’s total exports was fairly constant at 28% from 2002 to 2007,
which is the latest year for which data is available.9 In other words, for each dollar of Canadian
exports, about 28 cents’ worth is usually made up of imported goods and services purchased
by the Canadian exporter and other members of its Canadian supply chain.
During this period, the import content of manufactured exports, excluding resources-related
manufacturing such as food or wood products, was also surprisingly stable at about 40%. This
means that Canadian exporters and their domestic suppliers did not increase their purchases
of non-Canadian goods and services, even though the strong Canadian dollar has given them
significantly greater buying power abroad.
To some degree, this is understandable, since the choice of suppliers is an important strategic
decision for any company. It can be hard to justify dropping a Canadian supplier solely to diminish
the impact of a rising loonie, especially if the supplier is reliable, produces quality products and
is easy to work with because of proximity or a long-standing relationship. Over time, however,
and as new suppliers are needed, Canadian exporters and their domestic suppliers will likely
look more frequently at non-Canadian sources of inputs. This trend has probably already
begun and, when the 2008–2010 numbers for the import content of Canada’s exports are
calculated, we should see a rising use of imported inputs within Canadian supply chains.
Purchasing more imported goods and services can reduce the negative impact of the strong
Canadian dollar in two fundamental ways. First, as an exporter’s foreign exchange exposure
diminishes, so does the Canadian dollar’s influence on profit margins and export price
competitiveness.10 Accordingly, when an exporter increases its foreign currency expenditures
(especially in U.S. dollars), it will automatically reduce the sensitivity of its international sales
and profits to shifts in the value of the loonie.11 Second, the greater purchasing power provided
by a strong Canadian dollar can help cut expenses by reducing the cost of imported raw
materials, parts and components, which in turn increases profit margins.
9
The calculations for the import content of Canada’s exports have been performed by EDC’s Corporate Research Department based on data supplied through Statistics Canada’s
input-output accounts.
Foreign exchange exposure is the difference between the amount of a company’s earnings in a foreign currency and the amount of expenditures in that same currency.
11
It should be added that in order to reach this objective, Canadian exporters sometimes renegotiate contracts with Canadian suppliers in order to pay them in U.S. dollars.
10
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Improving Productivity
Canada’s poor productivity record during recent years is well known.12 Many organizations, such
as the Bank of Canada, the Conference Board of Canada and the Institute for Competitiveness
and Prosperity, have repeatedly brought it to the attention of government and private-sector
decision makers and to the general public for quite some time.13
Since the Canadian dollar started to appreciate in 2003, Canada’s business productivity growth
has averaged 0.6% per year, compared with 2.4% for the United States. This explains why
output per hour worked in Canada’s business sector has now fallen to 71% of U.S. output,
compared to 80% of U.S. output in 2003.14
During this period, Canada’s productivity growth has also trailed the average for OECD
countries and that of all G7 nations except Italy. Yet in order to compensate for the negative
impact that the strong loonie has had on Canadian exporters’ international price competitiveness, productivity growth should have risen more quickly in Canada than in other countries.
Since it did not, what can exporters do to reverse this downward drift so they can better cope
with an appreciating Canadian dollar?
Productivity growth can be attained in two fundamental ways. The first centres on operational
efficiency, such as investing in new technology and finding ways to eliminate waste, improve
processes and mobilize workers. Greater operational efficiency lowers the cost of goods sold,
which helps counter the downward pressure on profit margins caused by our currency’s rise
in value.
The second approach focuses on innovation and differentiation, which involves, for example,
creating unique products, upgrading quality and improving service levels. This can enhance
buyers’ loyalty and induce them to pay more for products, thus allowing the exporter to raise
prices and offset declining profit margins.15
How have Canadian exporters been faring on these two fronts? A detailed answer to this question
is beyond the scope of this paper, but it is clear that most Canadian companies are well-run,
efficient, and creative. If these companies are also exporters, studies have shown that they are
even more innovative and productive than their non-exporting peers.16 Nonetheless, there is
plenty of room for Canadian exporters to become more efficient and innovative, and thereby
adapt better to the strength of the Canadian dollar.
12
References to productivity growth in this section refer to labour productivity in Canada’s business sector, which equals the value of the inflation-adjusted GDP that was generated,
on average, for each hour a person worked.
See, for example, Bank of Canada, remarks by Tiff Macklem, Canada’s Competitive Imperative: Investing in Productivity Gains, February 2, 2011; The Conference Board of Canada,
How Canada Performs 2009: A Report Card on Canada, March 2010; and The Institute for Competitiveness and Prosperity, Setting our Sights on Canada’s 2020 Prosperity Agenda,
April 2008.
14
Source: Centre for the Study of Living Standards.
15
It should be added that innovation – doing things better or differently in order to create value – can also be a key contributor to operational efficiency.
16
See Todd Evans, Research and Development: A Key Input for Enhancing Canadian Export Capacity, EDC Corporate Research Department Working Paper, October 2009, available
on www.edc.ca.
13
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This process appears to have begun, as Canadian companies have notably increased their
investment in machinery and equipment since the loonie started its ascent in 2002 (see
Figure 4). This is a positive development, since these types of investment generate efficiency
gains and usually aid in the
Figure 4: Investment in machinery and equipment in Canada as a
development of new products.
share of gross domestic product and the USD/CAD exchange rate
Unfortunately, this increased
10.0%
$1.00
spending has not significantly
closed the gap between Canadian
9.5%
$0.95
companies and their American
counterparts with respect to their
9.0%
$0.90
annual investment per employee
in machinery, equipment and
8.5%
$0.85
software. While Canadian compa8.0%
$0.80
nies spent 77% of the amount
invested by American companies
7.5%
$0.75
per employee in 1987, that gap
had only slightly narrowed to
7.0%
$0.70
82% by 2009.17
6.5%
6.0%
$0.65
The result of this ongoing under­
investment is that Canadian
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
workers currently have only
Investment in M&E to GDP Ratio, Real Terms (left)
about half as much machinery,
USD/CAD Exchange Rate, Yearly Average (right)
equipment and software to work
Source: Haver Analytics and EDC Corporate Research Department
with as their U.S. counterparts.
This makes it difficult for them to match the U.S. output per hour worked. Canadian businesses
also trail companies from nine other OECD countries in this regard.18
$0.60
Another indicator of lagging productivity is Canadian business investment in R&D. As Figure 5
shows, Canada’s R&D intensity in the business sector, measured as the share of R&D spending
by businesses relative to GDP, has, on average, been below the OECD mean since 2003. It would
have been preferable if Canadian companies had invested more in R&D to counteract the
effects of the loonie’s appreciation, especially when considering that R&D is the cornerstone
of innovation. Since value creation through innovation can help Canadian exporters compete
on a basis other than price, a greater focus on R&D would be in order for Canada’s exporting
community in future.
17
18
Source : Institute for Competitiveness and Prosperity, Report on Canada no. 7, Beyond the Recovery, June 2010.
During the past decade, Canada ranked behind Switzerland, Japan, Italy, Austria, Australia, Denmark, Sweden, Germany, the United States and the Netherlands with respect to the
average investment in machinery and equipment in relation to gross domestic product. Source: Conference Board of Canada.
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Figure 5: Business spending on R&D as a share of gross domestic product: annual average for 2003–2009
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
Mexico
Poland
Greece
Turkey
Estonia
Slovak Republic
Hungary
Italy
Portugal
Spain
Ireland
Norway
Slovenia
Czech Republic
Netherlands
Canada
United Kingdom
Australia
France
Belgium
Luxembourg
Iceland
OECD average
Austria
Denmark
Germany
Korea
United States
Japan
Finland
Israel
Sweden
0%
Note: Some OECD countries do not appear due to insufficient data (i.e., data for less than five years).
Where data was not available for the full 2003–2009 period, the average was calculated for those years for which data was available.
Source: OECD and EDC Corporate Research Department
A Quebec SME’s Experience with the Strong Canadian Dollar
In the raw materials processing sector, profit margins are usually slim and companies
doing business in this sector are forced to constantly increase their productivity to remain
competitive. Over the last decade, many Canadian exporters working in the wood product
manufacturing industry unfortunately have not survived the combined impact of the loonie’s
appreciation and the collapse of the U.S. housing market. The massive penetration in North
America of furniture made in China has been an additional headache for Canadian wood
component manufacturers that sell their products to furniture makers.
The controller of a small/medium size enterprise (SME) in this sector, that was able to adapt
to all these changes, notes that his company began increasing its capital investments to increase
efficiency during the 1990s, when the Canadian dollar was still weak. “In our sector, it’s
relatively simple. To enhance profitability, raw material yields – namely that of logs – has to
be maximized and labour and equipment have to perform at high levels.” he says. That’s
why, for example, this company with headquarters in Quebec invested in a state-of-the-art
sawmill in 1997.
However, when the Canadian dollar began to appreciate in 2003 and it became clear that
Chinese furniture would soon take large shares of the U.S. market, the company innovated
in two ways. First of all, by penetrating a new segment of the market: cabinetry panels. Then
by adjusting its processes so it was able to manufacture custom products with a very short
lead time. Along with this change in business model, the company continued its capital
investments, particularly with regard to automating production. In addition, to enable the
company to sell its products to new American customers, (particularly in the institutional
market), the company purchased one of its competitors in the United States in 2010.
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After the turmoil faced in recent years, the future is finally looking brighter for this SME
exporter. Thanks to the measures described above, today the company sells more than 80%
of its production to the United States – the same proportion as when the Canadian dollar was
trading a great deal lower than today. “We have the good fortune to have roughly half our
costs in US dollars, which helps us absorb the rising Canadian dollar,” adds the controller.
“Nonetheless, if output per employee had not risen by approximately 30% in the last five
years and if we had not shifted our focus to the custom cabinets, it’s obvious that we would
no longer be in business today. Increased productivity is essential for all exporters in the
context of a strong Canadian dollar,” he concludes.
How EDC Can Help
The Canadian dollar is expected to remain strong for years to come. This will continue to
make things difficult for Canada’s exporters as their revenues and margins remain under pressure.
At the same time, a strong loonie presents exporters with an opportunity to redefine the way
they do business and to ensure that they continue to compete on the world stage.
Many companies that have adapted to a strong Canadian dollar have worked with EDC, and
we invite you to contact us to discuss your strategies for success in this environment. EDC’s
financing, bonding and insurance solutions, combined with our in-depth knowledge of export
markets around the globe, can help you successfully implement new strategies, whether they
include selling into new markets, investing overseas or purchasing state-of-the art equipment.
EDC | How Canadian Exporters Are Adapting to a Strong Canadian Dollar
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This document is a compilation of publicly available information. It is not intended to provide specific advice and should not be relied on as such. It is intended as an overview only. No action or decision should be taken
without detailed independent research and professional advice concerning the specific subject matter of such action or decision. While Export Development Canada (EDC) has made reasonable commercial efforts to ensure
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