3 trends that will impact exports in 2021
As we all know, the pandemic has been a brutal shock. The forced closure of many parts of the economy in the first few months of 2020 plunged Canada and the world into a steep recession.
What do we make of global markets in this shifting business environment? And how do we make our mark as exporters in 2021?
Here are three major trends to monitor in 2021, plus some tips for Canadian exporters to keep up with the rapid changes transforming international markets.
1. Increased protectionism
Greater protectionism, particularly in the United States—our main trading partner—is hampering sales prospects for Canadian exporters, says Diego Crespel, a former business analyst for BDC Advisory Services.
“Periods of economic crisis often trigger protectionist reactions,” he says, adding that the economic crisis caused by COVID-19 is occurring in the context of major trade tensions between the world’s two biggest powers, China and the U.S.
Regulatory developments of this nature are often difficult to anticipate in periods of instability. They require entrepreneurs operating in affected markets to exercise greater vigilance.
Companies must deal with the costs of adjusting to the changing context (regulations, political risks, exchange rates, healthcare crisis). Such costs can place a genuine strain (financial, time) on businesses that must already overcome numerous obstacles in the current situation.
Tip: Diversify your markets geographically
Don’t abandon a market in which protectionist sentiment is on the rise if it’s still a viable market. On the other hand, it is worthwhile to consider other markets or contemplate expanding into other Canadian provinces.
For example, the Canada-European Union Comprehensive Economic and Trade Agreement is opening new doors for Canadian exporters. Europe accounts for fewer than 10% of our exports and Canadian companies should take advantage of the elimination of tariffs and streamlined administrative procedures.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership also opens up access to certain key markets such as Japan, Vietnam, Peru and Chile.
Geographic diversification is especially important because, according to several studies, businesses that develop new markets post faster growth in terms of revenue and profits.
2. Vulnerability of supply chains
Canada has over 165,000 businesses that import goods and over 45,000 that export goods, according to Statistics Canada. Imports make up 33% of Canada’s GDP, while exports make up 32%.
The pandemic has shown that Canadian industries of all sizes, including many small and medium enterprises (SMEs), have become vulnerable to the disruptions in global supply chains.
“The closure of manufacturing companies, along with transportation issues and rapidly rising transportation costs, has taken a toll on supply chains. Most companies had no back-up plan and must re-examine their strategy to better address these risks and diversify their supply chains,” says Diego Crespel.
Tip: Analyze your supply chain risks
To deal with the upheaval in supply chains, you can start by analyzing your inventory. This will help you set priorities, identify stock available for production and sales and evaluate the risk of a breakdown in the chain.
A simple method of classifying your inventory is to perform an ABC analysis. The principle is that 20% of your stock accounts for 80% of your sales. In a context of a resource shortage, the goal is to focus on the products that will have the biggest impact on your operations.
Your next step is to identify the risks in your supply chain. A simple way of doing this is to break down your supply chain into inbound risks (how resources get to you) and outbound risks (how products get to your customers).
Based on this exercise, you may decide to review your inventory policy and parameters such as safety stock and minimum orders.
3. Rapid shift to the e-commerce era
The pandemic also revealed the “importance of e-commerce and the fact that many Canadian companies were behind the eight ball in the shift to the digital economy,” according to Diego Crespel.
Companies that had already begun the transition or that took advantage of the crisis to set up e-commerce services were generally less affected. As a result, online sales are now seen as a priority by 24% of Canadian SMEs, according to a BDC research paper.
This newfound enthusiasm for online shopping could be a positive sign for Canadian exporters. A BDC study published in 2019 concluded that companies that had a strategy for expanding into new markets based on a digital platform were 2.8 times more likely to export.
Advice: Consider exporting with online marketplaces
Online marketplaces such as Amazon are an attractive way to start exporting. With a few clicks, you can be in front of a huge, established international customer base, supported by powerful marketing and fulfillment infrastructures.
But getting good results involves more than just listing your products and expecting sales to roll in. To succeed online, marketplaces have to be used with a clear goal in mind. For example, marketplaces can be used to complement existing sales channels or to cheaply test the appeal of your products in a new market, for example.
It’s also important to pick the right products. Success often comes down to being price competitive, which means there is not much space for mistakes. That’s why we recommend developing a financial plan before starting to sell online.
Your plan should take all costs into account, including:
- costs of shipping and returns
- web developer salaries
- marketing budget (e.g. Google Ads) and customer acquisition costs
- platform fees and licences
- online payment fees
This analysis will tell you whether you can be price competitive and allow you to determine the sales volumes you must achieve to be profitable.
Start preparing for the end of the crisis
The pandemic has caused an unprecedented economic crisis. However, businesses have always shown great resilience. The gradual reopening of the global economy will also boost Canadian exports. It is therefore critical to position yourself now to take advantage of the global economic growth that will come once the pandemic is under control.