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Sales by foreign affiliates outpacing direct exports

Sales of Canadian goods and services by foreign affiliates in global markets have recently exceeded direct exporting and the trend is likely to continue as the economy shifts towards services and market diversification.

Statistics for 2015—the latest available data—shows sales by foreign affiliates’ exceeded exports of goods and services for the first time that year, totaling $634 billion, $5 billion larger than exports. Foreign affiliates are majority foreign-owned companies operating in a market with ties to a source or parent company in the country of origin. Canada’s foreign affiliates operating in the United States accounted for 57.3 percent of all sales, compared to 15.6 percent in the European Union (EU), and 27.1 percent in other countries.

Foreign affiliates are particularly useful for Canadian companies looking to access more distant markets, such as the EU, as well as emerging markets. In 2015, sales by foreign affiliates were 75 percent greater than Canadian exports to the region and grew by 29.7 percent since 2011.  In countries other than the EU or the U.S. sales by foreign affiliates were 52 percent greater than exports, and grew 23.1 percent between 2011 and 2015.

Within the EU, sales in the United Kingdom accounted for 35.7 percent of the total sales by foreign affiliates, while 14.1 percent of the sales were in Germany and 8.7 percent in Sweden. Those three markets accounted for most of the sales in the EU.

Sales growth was particularly strong in Sweden where there was a 400.0 percent increase since 2011, and in and Germany with an increase of 44.3 percent.

Canadian direct investment abroad is an important means to reach distant markets, especially for services. Many countries even require Canadian companies to have an affiliate in their country before services can be provided there.

In 2015, services accounted for 53.3 percent of foreign affiliate’s total sales, while they accounted for only 16.5 percent of all exporters’ total sales.  Sales of services have also grown at a faster pace than sales of goods since 2011, increasing by 53.5 percent while goods increased by 14.5 percent.

The bottom line

Sales by foreign affiliates now exceed exports and will likely continue to grow at a fast pace as the economy shifts to become more service-driven and Canadian companies continue to diversify their export markets. As newer trade agreements such as the Canada‑European Union (EU) Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans‑Pacific Partnership (CPTPP) gain momentum, Canadian companies will likely continue to access new markets thus further diversifying their trade interests and contributing to the growth of sales by foreign affiliates.

This article was submitted by the Office of the Chief Economist.

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