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U.K. businesses considering international trade with Canada may wish to be aware of currency trends

U.K.-Canada International TradeARTICLE

By Karen Lynch

One measure of the traditional closeness between the U.K. and Canada is the importance of international trade between the two nations. The U.K. is one of Canada’s largest export markets, while Canada is among the U.K.’s top 20. This article delves into the state of U.K.-Canada trade, as part of a series of country profiles that addresses markets worldwide, focusing on the factors companies consider when deciding which foreign markets to enter or where to expand their global trade.

Businesses considering trade with Canada will wish to be aware of currency trends. Sterling has declined in value relative to the Canadian dollar (CAD), making British goods less expensive for Canadians. The pound was in the range of CAD1.6 in early 2017, down about 20 percent from CAD2.0 a year earlier.1

Some 700 U.K. companies already do business in Canada, such as Aviva, Burberry, Carillion and HSBC, per the Department for International Trade.2 Canada also serves as a springboard into the U.S. market due to market similarities, the department says.

Exporting to Canada

Canada is the U.K.’s 16th largest merchandise export market, with top exports including petroleum products, aerospace parts, pharmaceuticals, motor vehicles, aircraft engines, gold, medical products, spirits, transport vehicles and tractors.3 Canada imported £5.6 billion in goods from the U.K. in 2015, about on par with the previous year but up from £5.2 billion in 2013. U.K. services exports to Canada grew to £4.1 billion in 2015, up slightly over the previous year and from £3.9 billion in 2013.4

The Canadian economy (£1.25 trillion)5 grew at about 1.3 percent in 2016, with projections of 1.8 percent growth in 2017.6 Average inflation in 2016 was 1.45 percent.7

Canadians’ GDP per capita is around £34,000,.7and median household income is about £48,000.9 Over 80 percent of working Canadians are employed in the services sector.10 Canada’s unemployment rate is around 7 percent, “just slightly above its estimated full-employment level,” according to the Royal Bank of Canada.11 “A healthy labour market, low interest rates and the implementation of the federal government’s child care benefit will provide consumers with the wherewithal to spend,” the bank said, adding that households will be responsible for more than 60 percent of Canada’s economic activity.In terms of digital international trade potential, Canada ranks among the Top 10 global business-to-consumer (B2C) e-commerce markets,12and by 2018 Canada is expected to have some 20 million digital buyers.13 Three-quarters of the country’s online shoppers buy from international sources.14

The chart displays statistics that U.K. businesses should consider before initiating international trade initiatives with Canada.

Importing from Canada

The U.K. is Canada’s third-largest merchandise export market (after the U.S. and China); Canada exported some £9.8 billion in goods to the U.K. in 2015, with the biggest categories including machinery and equipment, chemicals, mineral fuels, and food and beverage.15 Canada exported some £3.4 billion in services to the U.K.16

Setting up for International Trade in Canada

As the world’s 10th largest economy (measured in nominal GDP),17 Canada is home to multinational companies in such industries as paper, technology, aerospace, automobiles, machinery, food, clothing and many other goods.18 Major Canadian services industries include transportation, construction and retail; major natural resources industries include forestry, fishing, agriculture and mining.

U.K. companies considering establishing a subsidiary in Canada would be competing in a market that also attracts companies from around the world. The top exporters to Canada, in order, are the U.S., China, Mexico, Germany and Japan.19 In 2016, Statistics Canada estimated that employment at foreign-controlled Canadian companies totalled 1.9 million in 2013, representing 12.3 percent of all jobs in the country.20

Paving the way for U.K. companies, Canada ranks 22nd out of 190 countries in the World Bank’s (WB’s) Ease of Doing Business rankings, and a breakdown of that statistic ranks Canada second in ease of starting a business and seventh in ease of getting credit.21 Its tax system is rated 17th in the index. The government offers research and development tax credits and incentives, especially in support of developing an innovation economy.22 The country has a highly skilled workforce, ranking ninth out of 130 countries in the World Economic Forum’s (WEF’s) Human Capital Index 2016.23

The U.K. had an estimated cumulative total of £21 billion in foreign direct investment (FDI) in Canada in 2015.24

Borders and Cultural Considerations for International Trade

Overall, Canada ranks 24th out of 136 countries rated by WEF’s Global Enabling Trade Index 2016.25 Breaking down that ranking finds that the country ranks 46th in the ease of trading across borders. International trade barriers can also be compounded by non-tariff regulatory and legislative differences among Canada’s provinces.26

Nor is Canada a monolithic culture. “French Canadians will carefully analyse every detail of a proposal,” according to one expats’ guide to doing business, while business in Western Canada tends to be more relaxed.27 Language is a consideration in the Province of Quebec, where French is required in many business situations by the Charter of the French Language.28

The Takeaway

In international trade, the U.K.-Canada relationship has deep historical roots. Trade groups generally advise that any company evaluating its prospects in the Canadian market carefully analyse local production, import and consumption of its own type of product, in addition to trade and market considerations.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. “XE Currency Charts: GBP to CAD,” XE ;http://www.xe.com/currencycharts/?from=GBP&to=CAD&view=1Y
2. "Doing Business in Canada: Canada Trade and Export Guide", U.K. Department for International Trade; https://www.gov.uk/government/publications/exporting-to-canada/doing-business-in-canada-canada-trade-and-export-guide#canada-export-overview
3. ibid
4. Balance of International Payments,Global Affairs Canada;http://www.international.gc.ca/economist-economiste/statistics-statistiques/bip-bdp.aspx?lang=eng
5. "Canada",World Bank; http://www.theglobeandmail.com/report-on-business/rob-commentary/canada-us-trade-relations-whats-next-for-the-pivotal-partnership/article24130628/
6. "Economic and Financial Market Outlook", Royal Bank of Canada; http://www.rbc.com/economics/economic-reports/pdf/quarterly-economic-update/fcst_sept2016.pdf
7. "2016 Canada Ecommerce Market",inflation.eu; http://www.inflation.eu/inflation-rates/canada/historic-inflation/cpi-inflation-canada-2016.aspx
8. "Invest in Canada",Global Affairs Canada; http://www.international.gc.ca/economist-economiste/invest/invest-Canada.aspx?lang=eng
9. "Median total income,all family types",Statistics Canada; http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm
10. "From Hewers of Wood to Hewers of Code: Canada’s Expanding Service Economy", Bank of Canada; http://www.bankofcanada.ca/2016/11/hewers-wood-hewers-code-canada-expanding-service/
11. "Economic and Financial Market Outlook", Royal Bank of Canadahttp://www.rbc.com/economics/economic-reports/pdf/quarterly-economic-update/fcst_sept2016.pdf
12. "Canadian B2C E-commerce is on the Rise", yStats.com; https://www.ystats.com/canadian-b2c-e-commerce-is-on-the-rise-driven-by-the-mobile-and-omnichannel-trends/
13."2016 Canada Ecommerce Market", PFS; http://www.pfsweb.com/blog/2016-canada-ecommerce-market/
14. ibid
15. "Country Info: United Kingdom,"Country Info: United Kingdom; http://www.edc.ca/EN/Country-Info/Pages/United-Kingdom.aspx
16. "Balance of International Payments",Global Affairs Canada; http://www.international.gc.ca/economist-economiste/statistics-statistiques/bip-bdp.aspx?lang=eng
17. The World’s Top 10 Economies, Investopedia;http://www.investopedia.com/articles/investing/022415/worlds-top-10-economies.asp
18. "Canada’s Economy", Citizenship and Immigration Canada; http://www.cic.gc.ca/english/resources/publications/discover/section-12.asp
19. Canada,The Observatory of Economic Complexity;http://atlas.media.mit.edu/en/profile/country/can/
20. "Employment of foreign majority-owned affiliates in Canada",Statistics Canada;http://www.statcan.gc.ca/daily-quotidien/160324/dq160324b-eng.htm?cmp=mstatcan
21. Ease of Doing Business, World Bank;http://www.doingbusiness.org/rankings
22. "Setting up and Doing Business in Canada",the balance; https://www.thebalance.com/do-business-in-canada-2947118
23. "Human Capital Index 2016,”,World Economic Forum; http://reports.weforum.org/human-capital-report-2016/rankings/
24. "Foreign Direct Investment Positions at Year End",Statistics Canada; http://www.statcan.gc.ca/daily-quotidien/160426/t001a-eng.htm
25. "Global Enabling Trade Index 2016",World Economic Forum;http://www3.weforum.org/docs/WEF_GETR_2016_report.pdf
26. "Tear Down These Walls",Senate Committee on Banking, Trade and Commerce; http://www.parl.gc.ca/content/sen/committee/421/BANC/Reports/2016-06-13_BANC_FifthReport_SS-2_tradebarriers(FINAL)_E.pdf
27. "Doing Business with Americans? HSBC Has Some (Hilarious) Cultural Advice",MacLean’s magazinehttp://www.macleans.ca/economy/business/doing-business-across-the-border-hsbc-has-some-hilarious-cultural-advice/
28. "Legal Guide", DoingBusinessInCanada.com; http://www.doingbusinessincanada.com/legal-guide-0/french-language-requirements--in-the-province-of-quebec-1/the-charter-of-the-french-language-224

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