Canadian Companies Are Bullish about Investing in Asia

Author(s): Kenny Zhang

Published: 25 Juin 2010  

Op-Ed

While China remains the top investment market for Canadian companies, the economic might of the region as a whole is a growing reality that Canadian companies ought to explore and seize. Canadian firms are slowly latching onto these investment opportunities, especially in growing economies in India and Southeast Asia, according to the results of the 2010 Asian Investment Intentions Survey released recently by the Asia Pacific Foundation of Canada.

Canadian Interest in Asia Remains High and Steady

The survey found a steady high investment interest among Canadian companies into Asia. In 2010, nearly two thirds (64 percent) of survey companies indicated their expect level of investment to increase in Asia in the next 12 months. Even more companies (79 percent) reported that their expected level of investment in Asia would increase in the next 2-5 years. Both indicators suggest Canadian companies’ short-term and mid-term investment interests into Asia remain high.

Compared with the previous years’ survey results, the Canadian investment interests in Asia were fairly stable with an average level of 60 percent for an expected increase in the next 12 months and 77 percent for an expected increase in the 2-5 years. The min-term interest was constantly higher than the short term interest in all years, which suggests that Canadian companies’ investment to Asia stand on the long term commitment.

Growing Interest in India, While China Remains the Top

The survey results confirm that China remains the top investment market for Canadian companies. Nearly one-fifth of surveyed companies indicated that their firms are likely to invest in China in the next 12 months. This level of interest has been fluctuating between 15 and 25 percent, but has consistently remained the top destination in Asia over the last 10 years.

The survey found a strong rise of investment interest among Canadian companies into India, to 13 percent in 2010 from eight percent in 2005 and only 4 percent in 2003. This growing interest in India is not surprising; with average real annual growth of 8.75 per cent over the 2003 to 2007 period, India is emerging as an economic heavyweight in the region. Moreover, recent initiatives, including Prime Minister Stephen Harper’s visit to India in November 2009, have intensified talks on economic and trade opportunities between both countries, including the possibility of forming a Comprehensive Economic Partnership Agreement (CEPA). The results of this survey show that efforts are yielding results.

Main Aim Is to Service the Growing Asian Markets

The results echo the resilience of Asian economies in contrast to the ongoing economic turmoil affecting Europe and North America. Canadian companies remain generally confident about longer term increase in their level of investment in Asia. Some 55 percent of companies are recognizing the shift of opportunity to service the growing markets in Asia, up five percent compared to that of pre-crisis in 2008.

Canadian companies seemed to understand the key that Canadians have to make Asia’s success Canada’s, if our businesses focus on matching Canadian strengths with the needs of growing Asian markets.

Economic Growth in Asia is Fundamental Attraction

In his recent public speech, Mr. Eric Siegel, President of the Export Development Canada pointed out correctly that “Canadian investors are smart to be feeling bullish about investing in Asia. The long term competitiveness of Canadian companies will be increasingly determined by how well they can integrate into supply chains in the emerging economies of Asia.”

The survey found the fundamental factor determining Canadian investment decision to Asia is the sound economic growth in the region. Other important factors include providing expanded support for existing customers and outsourcing to remain competitive in North America.

In Canada, one in three jobs relies on exports. Due to the size of Canada's population, the domestic market remains limited for small businesses; as a result, businesses have to think globally to compete. Exports are not the sole means to benefits from high growth Asian markets. Direct investment gives Canadian firms a way to gain access to markets in which exports would not be competitive. Investing abroad lets companies improve productivity by establishing a presence to ensure the integrity and efficiency of their business value chain. In addition, direct investment abroad provides an opportunity to achieve investment returns by tapping directly into the growth and wealth generation of foreign economies.

At the time when the global economy is still facing difficulties, Canada cannot afford missing the opportunities presented by the Asian emerging markets, particularly China, India and many more.

Overall, Canadian companies remain upbeat about Asian investment opportunities. Despite the constraints of the recent financial crisis, over 50 percent saw no impact or a gain in their Asian operations during the crisis. More surprisingly, nearly 60 per cent saw an increase in revenue from Asian operations over the period of the crisis.

This annual survey was conducted by the Asia Pacific Foundation of Canada between February and April 2010 among 506 companies with a 10.9 percent response rate. The publication was supported in part by Western Economic Diversification Canada. The Asian Investment Intentions Survey, started in 2000, is an annual survey of Canadian companies with a permanent physical presence in Asia. All previous survey reports are available at www.asiapacific.ca.

Kenny Zhang is Senior Project Manager of the Asia Pacific Foundation of Canada

An edited version of this article appeared in China Business, July 2010, Volume 19