M&D: State of the Nation

August 2016

We’re breaking down the headlines and sharing what you need to know

By: Mitch Silverstein, Partner

Aside from the daily pressures that spring from managing your business, those in the manufacturing and distribution sector have a whole host of other issues to consider these days. Globalization is only making competition fiercer. Our economy has taken a rollercoaster ride for the last decade, and lately we’ve witnessed current events overseas that have turned powerhouse markets upside down in mere hours.  

So, in all of the uncertainty, what’s a business owner to do?
We advise mid-market clients in the M&D sector daily, and yes, there are many factors that business owners need to be wary of (or even try to avoid) if they are doing business in the US and/or are considering expanding into Europe. However, our current economic climate has also given rise to certain benefits that can be advantageous to Canadian M&D businesses at this time.

What is the main piece of advice for navigating these external factors?
We’re taking the topics straight from the headlines and breaking them down, issue by issue...

Interest rates

Recently, the Bank of Canada said it will be
holding interest rates and cutting the economic forecast.  As this is happening, now is the time to develop an export strategy or reevaluate your expansion plan, before committing significant resources.

The Canadian dollar

With the loonie in a current state of flux, business owners should investigate their eligibility for various government funding programs to help offset costs of market development, market research, product testing and/or modifications to meet local standards. Funding programs of note include:

  • Export Market Access (EMA) – this program assists small- to medium-sized businesses with accessing and expanding in foreign markets. Available funding can cover up to $30,000, or 50% of project costs (including trade show attendance!).
  • CanExport – this new program was announced in January and aims to help increase the competitiveness of Canadian companies. Qualifying companies can receive up to 50% of eligible costs, up to $100,000.
  • The Ontario Exporters Fund – the fund was established to assist small- and medium-sized businesses in becoming export ready and gain access to international markets. Eligible businesses can receive up to $40,000/per year for two years towards hiring an export manager.
The weak Canadian dollar is also a major benefit to Canadian exporters: as of mid-July 2016, $1 CAD is worth approximately $0.77 USD and $1 CAD is worth approximately €0.69 Euro. Thus, Canadian exports have similar advantages in both the US and the European Union (EU) countries. Additionally, while Canadian companies may have a logistical disadvantage versus their competitors in the EU, this may be more than offset by current exchange rates. 

Brexit and the EU

We’re all aware of the uncertainty that came following
Brexit. So keep an eye on the CETA (Canada-European Union: Comprehensive Economic and Trade Agreement) which, although still in negotiations, is expected to be ratified by the Liberal government. CETA is intended to help reduce barriers for Canadian companies wanting to do business in Europe.

There is a major advantage to exporting to Europe, which may come along with CETA: the EU is considered a much more diverse market space and one that is potentially less saturated than the US, by competition. In the US, industries tend to cluster in certain areas – while this is helpful and can aid in reduced exporting costs by concentrating on one geographic region, it also saturates competition. If a company is exporting in one industry in Europe, they have the ability to move into different geographic markets as they grow. Less saturation may make it easier to gain visibility and a reputation in the space. Couple this with a
FOREX advantage and it starts to become a very attractive situation for Canadian businesses.

With everything going on in the world, it’s tough for business owners to sift through all the “noise” and concentrate on sound advice that is tailored to their needs. Beyond guidance from professional advisors, staying on top of the news and participating in the dialogue by attending conferences like the
Toronto Global Forum or joining associations such as the Canadian Manufacturers & Exporters (CME) is crucial as it can help business owners stay ahead. Gatherings like the Toronto Global Forum and associations like CME can provide invaluable guidance and promote conversations around issues that affect the sector as a whole, helping everyone better anticipate the trends and threats ahead.

Because despite all the uneasiness that is splashed across the headlines, there are still many areas of great opportunity for those in the manufacturing and distribution sector – sometimes you just need to read between the lines.

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About Richter : Founded in Montreal in 1926, Richter is a licensed public accounting firm that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring and insolvency, business valuation, corporate finance, litigation support, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. Follow us on LinkedIn, Facebook, and Twitter.

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