Don’t fear the loonie
The gap has narrowed between the value of Canadian and US currencies, but manufacturers have more ways to hedge against fluctuations.
Canadian manufacturers have declared the high Canadian dollar to be a national emergency. Although it may be good for importers who purchase equipment and machinery from abroad, exporters are howling over dangerously shrinking margins. But a new study by the Conference Board of Canada shows manufacturers are the mostly likely to weather the loonie’s volatility because they have more ways to hedge against its fluctuations.
The Dollar Volatility: Who Should Care? report used four indicators: export intensity; import intensity of inputs; import intensity of machinery and equipment investment; and the extent of Canadian direct investment abroad (CDIA), which identified 27 industries that rely heavily on international transactions.
The study found globalized industries such as oil and gas extraction, plastics, primary metal, non-metallic mineral production, and electronic product manufacturing, have more flexibility with operating structures.
In the larger globalized business category, “you have companies like Bombardier, which has plants in Mexico, the US, and a presence in Asia. Research In Motion (RIM) is another example,” says Louis Theriault, director of the Conference Board’s International Trade and Investment Centre.
In the smaller business category companies find niches that tap into foreign markets and global supply chains. They generally have this strategy in place from the beginning and simply follow the demand.
“You can’t just lean on the US markets for revenue or only Canadian suppliers and limit yourself to domestic activity alone in terms of production,” says Theriault. “For large and medium manufacturers, opening plants abroad and outsourcing makes sense.”
However, most Canadian manufacturers fall into the small to medium enterprise (SME) category. They have a long history of trading with the US and rely heavily on North American supply chains. In today’s “new normal” economy, he says SMEs must change the way they look at global markets and diversify to move forward.
The global trade landscape has shifted dramatically in the past 10 years, from about 85% of our exports going to the US to about 77% today. And about 63% of Canada’s imports came from the US, but that too, has dropped to 56 per cent.
Although the US still accounts for much of our two-way trade, Canadian companies must find a place in the global supply chain.