The fact is that current incentives to cut energy consumption and the move toward greener energy sources will not be enough to slow the growth of global demand for energy. On the supply side, the increase in output is not expected to be enough to meet demand because of the technological challenges and massive investments required to exploit new energy sources. Since supply will barely meet demand, expect to see oil prices climb sharply down the road, which will have a major impact on the world economy.

The price hikes will likely affect economic growth by sapping consumption and international trade and encouraging consumers and industry to implement measures or change their energy consumption habits. As such, McKinsey forecasts that supply and demand will again become balanced but not before 2020 because of the time it will take to make these adjustments and the lag between their implementation and their real impact on oil demand.

Most affected will be companies that don’t prepare for this possibility. Those that do may very well find that the oil shock creates a business opportunity.

Developing and marketing new technologies

A spike in oil prices would open the door to new technologies, which would become profitable, involving, for example, electric vehicles, oil and gas extraction, and green energy, often in partnership with large order givers. The oil shock would speed up adoption of these new technologies, drive down their price due to economies of scale and increase their economic viability, which should further encourage businesses, consumers and public organizations to adopt them.

Making global supply chains more efficient

In the same vein, certain technologies or supply chain management methods that don’t make economic sense to implement at current oil prices could become very attractive for businesses if an oil shock were to occur. One of the sidebars in the McKinsey article presents different examples of activities that would reduce the energy intensity of global supply chains that would become economically viable when oil is priced at $100 a barrel. The following are some of the main categories with the potential impact on oil consumption shown in parentheses:
-    Increase the value density of goods by reducing packing volume (-3%);
-    Reduce average transportation distance (-4%);
-    Change the mix of transportation modes by shifting from air freight or trucking to shipping or rail (-4%);
-    Improve transportation technologies by increasing the scale and efficiency of propulsion systems (-20%);
-    Improve use of transportation modes by optimizing speed, load factor, maintenance and route planning (-12%);
-    Improve use of collective assets by reducing congestion, upgrading infrastructure or engaging in smart traffic management (-2%).

So, while an oil shock would have a very negative impact in the near term, in the long run, the resulting adjustments would have a positive effect because those businesses that managed to reduce their dependence on oil would continue to benefit once balance is restored to supply and demand.

However, what remains to be seen is whether our exporters would still be competitive in this new economic context. As mentioned earlier, making better use of our transportation modes would have a much greater effect on energy consumption than reducing distances. This suggests that an oil shock would not completely halt international trade and that companies would continue buying and selling their goods around the world. At least that’s the hope for export-reliant economies like Canada and Quebec.

Bruno Séguin

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I was especially struck by her recommendation to people looking to open their minds to gain a better sense of what the future holds. Here’s what she says: “Find a friend whose life is completely different from yours, someone who was born abroad and has different values. Step into different worlds that have nothing to do with your company.”

This statement reminds me of a comment made not long ago by Genacol CEO Guy Michaud  at a conference. Michaud was trying to drive home the point that Quebec business owners absolutely have to go see what’s happening elsewhere in the world, especially in China, so they can truly understand what globalization means, just how incredibly fast some markets are changing, and above all, to come to terms with the fact that our society and companies have to go global to survive. This message was directed at entrepreneurs but also at all the professionals who work with them.

I really get what they’re saying. Every time I travel abroad, especially to an emerging country, I realize how little we know about what’s going on outside our back yard. These countries are growing and innovating, developing new products, services and distribution channels. We need to learn from them if we want to move ahead.

Like Gorbis and Michaud, I strongly urge you to take an interest in what’s being done elsewhere to inspire you, to innovate and to venture into new markets. Because human nature is to gravitate to like-minded people, we need to make a conscious effort  to do otherwise. We have to open our minds and take an interest in other business cultures.

When was the last time you travelled to a country that was outside your comfort zone? I, for one, will soon be flying to Guinea. This will be my second trip to that country. How’s that for stepping out of your comfort zone?

Véronique Proulx

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I was therefore rather surprised to read the EDC’s fall 2011 global export forecast in which Peter Hall and his team maintain their bullish spring outlook for Canadian exports for both this year and next. EDC predicts, among other things that “the world economy will capitalize on the current increase in underlying activity, and continue to find remedies for the shocks and weaknesses that beset near-term growth, tiding the economy through to better times” (page 5). As such, EDC is projecting positive growth for global GDP and for Canadian exports in 2011 and 2012. Thus, Canadian exports will increase by 12% in 2011, the same as in 2010, and 7% in 2012. The figures for Quebec are 4% for this year and 7% in 2012.

EDC is still basing much of its forecasts on an eventual recovery in the U.S., maintaining that American businesses are in good shape, banks are well capitalized and access to credit has improved, and consumers have reduced their debt, which will allow them to start spending again. Canadian exporters can only benefit from such a recovery. The question is, when will it happen?

That said, emerging markets are playing an increasingly important role in Canadian exports and it looks like they’re here to stay. Indeed, EDC is forecasting, for both this year and next, that Canadian exports to emerging markets will grow twice as fast as to developed markets (U.S. Europe, Japan, Oceania and Developed Asia). We can therefore expect that almost 13% of our national exports will head to emerging markets in 2012, a significant figure when you consider that in 2001, only 13% of our total exports went to other countries  besides the U.S.! Last spring, EDC predicted that emerging markets would account for nearly 30% of Canadian exports by 2020.

Canada is not the only one looking to emerging markets for export growth. The whole world has the same idea. According to the WTO’s latest statistics on international trade, between 2005 and 2010, the share of global exports to developed economies fell from 67% to 59%, while the corresponding share to developing nations rose from 29% to 37%.

In tough times like these, it’s reassuring to see that the situation is not as bad as we thought, that there’s light at the end of the tunnel, and that all kinds of opportunities await our exporters in markets that used to be out of reach. That said, there are no guarantees for the future. It will therefore be interesting to see if 2012 will finally be the year of the recovery.

Bruno Séguin

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This study, sponsored by such prominent corporations as Coca Cola, Unilever, Procter & Gamble, Nestlé and Kraft, and the resulting report, were not cobbled together by just a few consultants. The fact is that 200 executives from around the world took part in this initiative, organized under the auspices of The Consumer Goods Forum, with the support of Microsoft, HP and Capgemini.  The full report is available for download, and a presentation can be viewed online.

Here is a brief extract of this report, which identifies 12 environmental and consumer behaviour trends around the world:

1. Increased urbanization and the rise of megacities.
2. An aging population, which will affect the types of products and services consumed as well as the location and configuration of points of sale.
3. Increasing spread of wealth and expansion of the middle class in developing nations.
4. Increased impact of consumer technology adoption.
5. Increase in consumer service demands.
6. Increased consumer focus on health and well-being.
7. Growing consumer concern about sustainability.
8. The shifting of economic power to new centres of influence such as China and India.
9. Scarcity of natural resources such as water and food, and the rising cost of energy production.
10. Increase in regulatory pressure to protect the environment and ensure food safety.
11. Rapid adoption of supply chain technology capabilities.
12. The impact of next-generation information technologies such as cloud computing, which will affect how business is conducted.

The report then identifies four strategic objectives retained by the study participants to enable the industry to respond to these 12 trends:

1. Take into account the fact that sustainability is becoming an increasingly important aspect in consumers’ buying decisions .
2. Share resources, even with the competition. In other words, work together to compete more effectively.
3. Engage with increasingly technology-enabled consumers.
4. Serve the health and well-being of consumers.

But how to achieve these objectives? The report offers some guidance, citing examples of initiatives taken by Walmart, Kraft, Colgate, Carrefour, Danone, L’Oréal and others. You’ll also find a source of inspiration and relevant information to help your company implement a value chain for the future.

In the next few weeks, we will give you some things to ponder to help you determine whether your current strategy is suited to these new trends.

In closing, I would like to thank Albert Goodhue, president of GCL Group and moderator of the E?commerce Logistics Group on Linkedin, for letting me know about this important report.

Samir Naoum

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In an environment where companies are turning increasingly to less developed, and therefore more risky, markets for their exports, the letter of credit is a very interesting tool to make sure of being paid. In addition to explaining the mechanism, the article outlines the various benefits of the letter of credit for both the exporter and the importer.

Bruno Seguin

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That said, we can’t underestimate the important role offshoring plays and will continue to play in the years ahead. Multinationals will still have to produce outside North America if only to expand their markets and by extension, their subcontractors will have to follow. Each case will have to be analysed based on the factors mentioned earlier and on the company’s own objectives, not just labour costs.

The article that appeared recently in Supply Chain Digest is well worth reading. It goes into more detail about this topical issue, which the Obama administration is examining, to better understand how important manufacturing is for the U.S. and how to give it the support it needs. We think issues discussed in this article apply to both Canada and the U.S.

Samir Naoum

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• - $143 million in sales generated as a result of their initiatives;
• - $367 million in potential sales;
• - 2,500 requests for guidance from 1,077 SMEs or an average of two per year per company;
• - Of these companies, 68% boosted their export capacity;
• - 375 SMEs participated in buyer hosting events and group or individual trade missions;
• - Over 3,200 participants from 1,300 SMEs attended ORPEX training activities.

These results show that ORPEXs can help companies grow their international sales, which in turn generates significant spinoffs in all the regions of Quebec.

As one of several trade promotion organizations in the province, ORPEXs  regularly team up with their public and private counterparts as well as with other organizations that offer services to SME exporters.

That said, three things set ORPEXs apart in the Quebec economic development and trade promotion ecosystem. First, they are the only ones that offer international trade expertise in the regions. Second, because they are present in the regions and because they guide companies through all the export phases, ORPEXs really get to know the needs of the companies with which they work. Third, because they are small, ORPEXs can easily adapt their service offer to their clients’ needs. All this makes them the ideal partner, a gateway, for seasoned or prospective exporters because they can set up the right activities and provide the right expertise at the right time.

It’s therefore safe to say that ORPEXs, and by extension the International Business Centre, create wealth and play a pivotal role in the economic development of Quebec and its regions. For more information, please don’t hesitate to contact us or visit the RECOMEX Web site.

Véronique Proulx

Director, LAVAL TECHNOPOLE International Business Centre and

President, RECOMEX

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In his presentation, Lampron basically points out the differences between the EU’s 15 founding nations, referred to as the EU-15, and the newest members, which include, among others, Poland, Romania, Slovenia and Lithuania.

The EU-15 market is massive but extremely competitive, saturated, diversified and sought after. To make it on these markets, Quebec companies must offer real added value, target niches, invest heavily in marketing and price aggressively.

The market of these 12 new arrivals is booming due to enormous unmet needs. It is also much less saturated and competitive. Another point to consider is that the markets in many of these countries are small, making it easier for SMEs to serve than bigger ones like France and Germany. And since they are less sought after, it is easier to access the right intermediaries, stakeholders and influencers. Lampron also mentioned that the middle and upper classes in these countries are avid consumers who want to have the best of everything. In the same vein, new technology is being adopted at a dizzying pace since they have so much catching up to do on this front. In short, Central Europe and the Baltics may hold many interesting opportunities for our SMEs.

That said, these markets are not necessarily easy to penetrate. The language, cultural differences, red tape, complicated regulations, corruption, the importance placed on business relationships and lack of liquidity are all entry barriers that companies must keep in mind when considering these markets. Lampron stressed the importance of having good local partners who know how to navigate this business environment and who have good networks.

To date, Quebec firms have barely tapped these markets. According to data from the Institut de la Statistique du Québec taken from a 2010 MDEIE report on trade between Quebec and the European Union, that year only Poland figured among Quebec’s top 15 European trade partners in terms of trade value. Trade between Quebec and the 12 new members is also not really growing, with the exception of Poland, which was up 0.5% between 2008 and 2009.

In conclusion, there is much to do for Quebec companies on emerging European markets, and those who get there first will likely reap the most rewards. Considering the crisis facing the big European players and the imminent signature of  a free trade agreement between the E.U. and Canada, Quebec exporters who have the courage and patience would do well to seriously think about the 12 new members. The inroads made into these markets can then be used as a springboard to the EU-15.

To learn more, I recommend you read Lampron’s presentation available here (in French), in which he also identifies industries with attractive opportunities by country and region.

Bruno Séguin

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Limoges talks about the different services SODIL offers to businesses in her region, i.e. how to prepare an international development plan, introduction to government and private experts, technical assistance, and training and trade missions. She also cautions about the pitfalls awaiting exporters and encourages entrepreneurs to use the services of TPOs to help them with their export projects. Please note that the LAVAL TECHNOPOLE International Business Center is the TPO for the region of Laval, and that our services are similar to SODIL’s.

For his part, Jean-Paul David offers tips on how to prepare an export development strategy, an exercise that shouldn’t be taken lightly because “when you want to sell abroad, you can’t leave anything to chance because mistakes can be very costly.” In the Extra section of the magazine, available only online, David also explains how the services of private consultants and TPOs complement rather than compete with each other.

In this regard, I invite Laval entrepreneurs to contact us to find out more about private and public resources that could help make their export projects a success. For other regions, please refer to the Réseau des commissariats à l’exportation (RECOMEX) Web site for a directory of TPOs covering the different regions of Quebec.

Bruno Seguin

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Fortunately, successful companies were quick to understand the importance of including logistics in their strategies. The 1987 study identified 10 principles of excellence that top companies incorporate in their daily operations to ensure their success and long-term survival. I’ll discuss these a little later.

But what exactly is “logistics?” The purpose of logistics is to get the right product to the right customer in the right condition, at the right place, at the right time and at the right cost. This definition hasn’t changed in over 30 years. Put another way, logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to the customer’s requirements in the most cost-effective way. This means implementing and coordinating numerous activities and processes to ensure success. The model proposed by Michael Porter depicts the firm as a set of primary value-creating activities, as follows:

- Inbound logistics;
- Operations;
- Outbound logistics;
- Marketing and sales;
- Service.

These activities are facilitated by support activities such as procurement, technology systems, human resources and a firm infrastructure.

To support a company’s strategy and maximize profits, logistics managers have to rethink their approach, take strategic action and innovate rather than focus only on the lowest cost.

To this end, the book I mentioned proposes the following 10 principles to achieve excellence in logistics and by extension, better profits:

1.      Link logistics to corporate strategy

This rule is the most important for maximizing the chances of improving the bottom line through logistics. In some industries such as consumer products for example, logistics account for a big part of total costs, hence their importance as a competitive edge. This edge can be leveraged by keeping costs to a minimum or offering superior service. In both cases, logistics play a key role in supporting the selected strategy.

2.      Organize comprehensively

Grouping all logistics-related functions under a single umbrella facilitates effective decision making on such matters as equipment management, transportation, warehousing, distribution and inbound logistics. Optimal decisions often require finding a balance between high transportation costs and minimum inventory and warehousing expenditures. The decisions are easier to make if only one executive is responsible for these related functions.

3.      Use the power of information

A host of very affordable tools are now available to handle transactions and provide decision support. In this regard, it’s important not to take a Big Bang approach, i.e. waiting to find the ideal system because you run the risk of missing opportunities. Besides, systems are changing so fast that by the time you finish implementing your perfect system, there will be better ones out there and yours will be outdated.

4.      Emphasize human resources

Logistics excellence flourishes in an environment that recognizes people as the department’s most important resource. A good recruitment, training and job enrichment process will guarantee your long-term success.

5.      Form strategic alliances

Whether internally between various departments (marketing, sales, manufacturing, etc.) or externally with other participants in the chain (brokers, vendors, customers, distributors), forging partnerships based on collaboration and open relationships is the key to increased profitability for all concerned.

6.      Focus on financial performance

The logistics function should use return on assets (ROA), economic value added (EVA), cost and operating standards or similar indicators as measures of performance. To promote entrepreneurial behaviour, functions such as transportation, warehousing and customer service are best managed as cost or profit centres.

7.      Target optimum service levels

To this end, you have to be able to quantify the additional revenues generated by excellent service and identify the revenues at each service level. This requires you to understand customer expectations in order to specify these levels. Optimum levels will ensure maximum profits.

8.      Manage the details

The best solutions are often the simplest. To improve operations, you have to pay attention to details by leveraging the knowledge, experience and creativity of frontline supervisors and employees. These details and solutions often add up to an operation that is both smooth and efficient.

9.      Leverage logistics volumes

Successful logistics operations consolidate shipment volumes, inventories and the like to gain operating and financial leverage. Substantial savings can also be realized by consolidating freight or coordinating transportation, warehousing and other services with other companies or divisions.

10.  Measure and react to performance

Once you achieve logistics excellence, if you don’t measure your performance and react to the results in an on-going dynamic fashion, the gains realized could well evaporate.

Based on common sense, these principles are often taken for granted by executives and overlooked in internal plans and processes. However, companies that rigorously apply them can boost their overall profitability. To learn more about these principles and for concrete examples of their application, consult the publication mentioned above at the Concordia University library or buy a used version online.

The LAVAL TECHNOPOLE International Business Centre (LTIBC) is dedicated to helping businesses achieve excellence in their global value chain and successfully compete in the international arena. By standing out from the competition, they can conquer or develop new markets thanks to their innovative products and services but especially because they know how to manage and improve their processes. For more information, please contact one of our advisors or visit our Web site.

Samir Naoum

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