Future of NAFTA fuels either anxiety or confidence for SMEs

Joe Teo’s company, HeyOrca, is based in St. John’s, N.L., but 90 per cent of its roughly 200 clients are in the United States.

HeyOrca, which Teo co-founded in 2015, makes software to help small- and mid-size marketing firms share documents and campaign information with their clients. The company has raised $2.65 million and plans to push further into the U.S. through remote sales. Despite his startup’s dependence on the American market, Teo, 26, is unfazed by the proposed renegotiation of the North American Free Trade Agreement, or by the general flux in American politics.

“The U.S. market is big and we’re able to expand,” he says, “… so long as we’re making something people want.”

In fact, Teo says his 24-person company has never lost a sale based on its location. “They have no qualms with us being a Canadian company. Often they think we’re a U.S. company. I don’t think it’s a barrier,” he said, before pausing. “So far.”

And it’s that “so far” that many entrepreneurs are now adding to their statements. New trade tariffs could make cross-border sales costlier.

In May, President Donald Trump’s administration notified Congress the U.S. intends to renegotiate NAFTA with Canada and Mexico. Minister of Foreign Affairs Chrystia Freeland has said negotiations will begin in August.

Lorne Gross, a corporate lawyer who advises both Canadian clients doing business in China, as well as foreign companies doing business in Canada, says the future of NAFTA is just one of the issues causing doubt for Canadian entrepreneurs running small- and mid-size businesses. “There is uncertainty in the global economy,” he said, pointing to Brexit as another example.

But Gross says some of the “international turbulence” is actually very favourable to Canadian companies.

“This could actually be a really huge opportunity for Canadian businesses, and not something bad,” he said. “Those very big question marks could be exclamation marks where Canada is concerned.”

He says the low Canadian dollar, Canada’s relative economic stability and its educated workforce could make Canada a “gateway” to other western economies, while also improving the reception for Canadian companies abroad.

“The very things that are scaring people in the global market could very well encourage them to do business in Canada,” he said. “There are uncertainties out there in the macro environment. But it doesn’t mean there aren’t opportunities.”

John Risley is amused by the premise that such uncertainty would spook a true entrepreneur.

“Forgive me, I’m smiling,” he wrote in an email.

“The job of entrepreneurs is to take risk and to do so given the circumstances of the moment,” said the Nova Scotia billionaire and founder of Clearwater Seafoods and Ocean Nutrition Canada. “Anyone who is intimidated at the prospects of a change in NAFTA … should go to work for someone who can focus on what’s important.”

But Pierre Cléroux, chief economist at Business Development Bank of Canada (BDC), says there is legitimate concern among entrepreneurs, particularly regarding the NAFTA negotiations.

“Obviously people are worried about it. It’s on the news every day. The biggest certainty is that we’re not sure exactly what the American government wants to do,” he said. “Obviously exporters worry about it … Exporting is expensive. If the rules are changing it affects your business.”

(For his part, Risley predicted the talks would be “extremely unlikely” to produce “any meaningful change”.)

Cléroux, BDC’s vice-president of research, says Canadian small- and mid-size businesses have significantly increased their exports in the past five years (up 94 per cent to Mexico, 85 per cent to China, 36 per cent to India).

“That is what we need to do — we need to look at different markets to diversify the risk,” he said. “If the rules change in the U.S., well, if you also export to Europe and China, you’re in better shape.”

And while more Canadian SMEs are actually exporting — up seven per cent between 2010 and 2016 — even more exporting is necessary, Cléroux said. He points to the results of a recent survey of the export strategies of 700 Canadian SMEs. Increased exporting was a sure driver of growth and profit.

“If you want to expand, you really have to go outside the country,” he said.