The United States and the European unio are experiencing anaemic growth and towering debt. Japan, in the doldrums now for over a decade, is fighting back from a devastating earthquake and tsunami. Meanwhile, emerging markets, particularly the “BRIC” countries – Brazil, Russia, India, and China – are in growth mode, and Canadian manufacturers have taken notice.

“We have seen a lot more interest by our members to connect with emerging markets,” says Jean-Michel Laurin, vice president, Global Business Policy for Canadian Manufacturers and Exporters (CME), Canada’s largest trade and industry organization. “Even in the best scenario we won’t see growth rates in mature economies anywher near those in emerging markets.”

A recent high-profile trip in August by Prime Minister Stephen Harper to Brazil put trade under the spotlight. The two countries did almost C$6 billion in trade in 2010, but manufactured goods were dwarfed by trade in agricultural products and commodities.

“In a country like Brazil, if you want to sell there – for a lot of companies it makes sense to set up local operations and grow from there,” says Laurin.

The reasons are simple enough: Canada and Brazil don’t have a free trade agreement, and Brazil’s tariffs and regulations can make exporting difficult. However, there is significant opportunity. Brazil is a C$2 trillion economy, and will be hosting the 2014 World Cup and the 2016 summer Olympics. It is anticipated that in the next five years the country will invest almost C$1 trillion in infrastructure.

Know your market
Fabricated metal products, machinery, and transportation equipment all represent trade opportunities for Canadian manufacturers. However, emerging markets are developing more sophisticated capabilities with regard to the manufacture of durable goods.

“Both Brazil and China have competitive industries in these sectors, and both have cheaper labour than Canada,” says Martin Schwerdtfeger, senior economist at TD Bank. “They are competitors to Canada for global markets in these products.  Think for example of Brazil’s Embraer, or Chinese power tools manufacturers.”

Schwerdtfeger argues that in order to gain domestic market share in those two countries, Canadian firms will have to differentiate themselves through quality.  In the case of Brazil, a strong Brazilian currency might open some opportunities for Canadian imports. And, as with Brazil, in the example of China the distance and cultural challenges argue for a local presence.

“Sometimes the Chinese are willing to pay a premium for something that is made in Canada, but exporting to China might not make as much sense as investing there and finding a partner,” says Laurin from CME. “It depends on the customer and the market. In many cases we have seen Canadian companies setting up operations abroad to serve regional markets.”

Laurin emphasizes that Canadian manufacturers wanting to export to emerging markets should have innovative technologies that already have a good share of the Canadian domestic market.

“You need to be able to withstand the test of global competition,” he says. “Know the language, understand the nuance of doing business in those countries – you need to do your homework.”

Fortunately, there are many resources for Canadian exporters, from trade commissioners to organizations like the CME and Export Development Canada (EDC), Canada’s export credit agency that offers commercial solutions for exporters.

“Canada’s trade commissioners offer a pretty good service,” says Laurin. “You might ask: ‘What is a bureaucrat in Sao Paolo going to do for me?’ Well, the answer is: ‘Quite a lot’. The commissioners are typically aware of common mistakes, of things people overlook, and have local expertise that can be passed on.”

The trend is your friend
“Ten years ago there was not much focus on exporting to emerging markets,” says Peter Hall, vice-president and chief economist at the EDC. “There was some action, but it was through supply chains in the United States – we would export from there to the rest of the world.”

But things have changed dramatically, with the most notable shift being the appreciation of the Canadian currency relative to the U.S. dollar.

“That duress provokes action,” says Hall. “Crisis is the mother of transformation.”

Exporters now have to be aware of currency trends within individual emerging economies. Notably, the Canadian dollar has both appreciated and depreciated in real terms with respect to both the Chinese renminbi and the Brazilian real since 2006.  During the same period it has seen more sustained strength versus the Indian rupee.

Hall notes that though the bulk of Canada’s export growth to emerging markets has been in the commodity space, and Canada’s re-investment in technology to enhance productivity is still sluggish, there is an important trend toward high-value manufacturing exports.

“Although high-value manufacturing is small compared to total exports, it is out-growing the rate of expansion seen in commodities,” says Hall.  “That is quite remarkable. If you strip away the effect of price movements – which is small for high value-added manufacturing in machinery, aerospace, and power equipment – then the volume of these goods vastly out-ships commodities.”

That said, higher value-added manufacturing is still a much smaller portion of Canada’s total trade. Hall echoes other observers in emphasizing the importance of knowing how growth trends fit with an individual country’s needs.

“Canadian manufacturers do have a lot of opportunities with Russia, for example, in oil and gas and related industries,” says Hall. “Exporting agricultural machinery to Russia also represents opportunity.”

And there are unique opportunities in India, too, despite recent concerns over how corruption could negatively affect political stability and economic growth.

“The Indian government plans to expand infrastructure,” says Emanuella Enenajor, a Toronto-based economist with CIBC World Markets. “They intend to expand ports, railway services, and bridges. There are several Canadian companies with expertise in these areas.”

India, like China, has structural supply shortages in the energy sector. As a result, it will invest in energy infrastructure for decades to come.  This, from a macroeconomic perspective, should prove supportive for long-term trade opportunities for oil and gas
field machinery.

“All of the BRIC countries have active gas and petroleum industries, as well as mining,” says Schwerdtfeger from TD Bank. “There should be important opportunities for Canadian exporters of machinery and equipment related to these industries.”

If you are a smaller company, getting access to these markets might be easiest by acting as a supplier to big Canadian players such as the engineering and construction behemoth SNC-Lavalin, or companies that are well positioned to serve niche markets. You also might have hidden advantages amongst your own staff, in that Canada’s increasingly multi-cultural society offers an impressive resource base.

The cultural advantage
Unfortunately, Canada’s diverse culture has yet to be fully exploited.

“Multi-culturalism is a huge potential Canadian advantage, but perhaps it has not been leveraged as much as possible,” says Hall from the EDC. “The initial tendency is for people to get engaged in the domestic Canadian economy, but we are now seeing increased connectivity between people and their country of origin.”

The problem may be that home-grown manufacturers don’t see the hidden potential of Canada’s increasingly diverse workplace. Usually, capital formation takes a few generations – many immigrants simply don’t have the financial acumen to embark on such a venture on their own. But they can be a crucial resource.

“We definitely get a benefit, but it may be harder to translate for the metalworking industry,” says Enenajor. “The advantage can perhaps be realized in terms of managerial level positions, and international networking.”

Given global trends, it is crucial that Canadian manufacturers leverage every advantage when exporting to BRIC countries, which represent over a quarter of the world’s land area and more than 40% of the world’s population. They have no choice: there is little doubt that, in the coming years, emerging markets will be the place to be for Canadian manufacturers. CM

Tim Wilson is a freelance writer based in Peterborough, ON and a regular contributor.