Expectations of increased export revenues in face of challenging domestic outlook
TORONTO - September 8, 2014 - Over one third of small and medium-sized businesses (SMBs) in Canada (35%) expect to increase export revenues in the next year, according to a new survey from Western Union Business Solutions, a leader in global payment services. The study also revealed that 49% of Canadian SMBs are not confident in the nation's economic climate; 45% of companies believe the economy has deteriorated in the last 12 months, with cash flow and funding challenges impacting overall business confidence.
The study, which surveyed over 2,000 Canadian SMBs engaged in international trade, revealed that:
- 54% of SMBs are worried about cash flow;
- 37% are concerned about credit availability;
- 49% believe that credit is difficult to obtain;
- 52% think that the ease with which they access financial services has deteriorated in the past year.
Half of SMBs (49%) do not expect to see domestic growth over the coming year, while one third (33%) plan on reducing headcount. However, only one in five (19%) of respondents expect a decline in growth in the international trade aspect of their business, with the majority (66%) expecting it to remain steady. 15% expect their international trade to grow.
"The economic environment remains uncertain, particularly for small and medium-sized businesses," said Jonathan Rees, North American Managing Director, Western Union Business Solutions. "Cash flow and funding challenges continue to put pressure on profit margins while fragile domestic demand is weighing on overall confidence."
"However, it is encouraging to see that SMBs are moderately confident about international trade conditions, with some even expecting to see revenue growth from exports."
International trade growth
Respondents trade on average with 1-2 countries and nearly one fourth (23%) said that they had increased the number of countries they trade with in the past year. 35% said they expect to see export revenues to increase by 6% in the coming year, far outstripping domestic growth forecasts.
The major export partners for Canadian SMBs are:
- Australasia, which 32% of respondents sell to;
- The U.S. (30%);
- Europe (26%),
- Asia, not including China (25%),
- China (24%).
On the import side, the largest partners are China (39%), the U.S. (32%), other parts of Asia (30%), Europe (26%) and Australasia (24%).
"Canadian SMBs are increasingly looking abroad for growth opportunities," commented Rees. "In fact, more than half (59%) believe that emerging markets and "BRIC" countries will drive their business' export trade in the future."
As Canadian SMBs increase their international trade activity, they become more exposed to foreign exchange fluctuations; 42% stated that FX movements have negatively affected their business over the past financial year. However, only about 4% of companies surveyed report currency volatility as a top concern, demonstrating a gap in preparedness. This comment is supported by the fact that 73% of businesses do not fix the cost of their foreign invoices in advance and therefore only realise their true value when the payment is due or after it is made.
"Without proper cash flow strategies in place, the costs of foreign payables often run higher than planned," remarked Rees. "It is concerning to note that 30% of Canadian small businesses actually borrow money or dip into their reserves if foreign invoices run higher than expected, putting undue pressure on cash flow at a time when funding and credit availability is already difficult."
"Companies can look to solve this problem by fixing their international cash flow in advance and securing a hedge credit facility to cover foreign invoices, which is a far better option than eating into business reserves," he said.
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The independent research was conducted by East & Partners in June 2014 and surveyed the international trade and foreign exchange practices of 2,207 Canadian companies engaged in cross-border trade. The report categorized businesses based on an annual enterprise turnover of up to CAD$100 million; nearly half (48%) of the participants surveyed are business owner or CEOs, while the others are CFOs, finance directors, or treasurers. Participating companies hailed from a variety of industry sectors, including property and business services (17%), construction (11%), retail (10%), wholesale (7%), and accommodation and restaurants (7%). More than 40% of survey respondents are from businesses based in Montreal and other areas of Quebec (23%), or Ottawa and locations in Ontario (22%). The margin of error associated with this level of reporting is +/- 2.0% at a 95% confidence level.
About Western Union Business Solutions
Western Union Business Solutions enables companies of all sizes to send and receive international j payments and manage global cash flow, creating unique solutions tailored to suit their individual needs. It is a business unit of the Western Union Company (NYSE: WU), a leading nonbank provider of cross border payments, which operates its Business Solutions services through locally licensed affiliates in over 30 countries. Clients are supported by a network of trading offices, strategic banking relationships and a global clearing network and can send cross-border foreign exchange payments in more than 135 currencies.
About Western Union
The Western Union Company (NYSE: WU) is a leader in global payment services. Together with its Vigo, Orlandi Valuta, Pago Facil and Western Union Business Solutions branded payment services, Western Union provides consumers and businesses with fast, reliable and convenient ways to send and receive money around the world, to send payments and to purchase money orders. As of June 30, 2014, the Western Union, Vigo and Orlandi Valuta branded services were offered through a combined network of over 500,000 agent locations in 200 countries and territories and over 100,000 ATMs. In 2013, The Western Union Company completed 242 million consumer-to-consumer transactions worldwide, moving $82 billion of principal between consumers, and 459 million business payments. For more information, visit www.WesternUnion.com