The Dynamics of Expansion to Emerging Markets: Evidence from Canadian Exporters

• Author: Zhihao Yu,Sui Sui
• Date: 01 August 2013
• Published date: 01 August 2013
• DOI: http://doi.org/10.1111/rode.12046

The Dynamics of Expansion to Emerging Markets:

Evidence from Canadian Exporters

Sui Sui and Zhihao Yu*

Abstract

This study investigates the expansion patterns of Canadian firms towards emerging markets. A unique

large-scale longitudinal (1997–2004) dataset which includes 2600 Canadian exporters is constructed by

linking multiple administrative databases at Statistics Canada. Our results suggest traditional sequential

exporting patterns do not apply to all Canadian exporters. Since 2001, there has been an increasing trend

among a new generation of exporters to target emerging markets as their initial export destination; and

both macroeconomic and firm-specific factors seem to account for this development. Compared with

foreign-controlled firms, Canadian-controlled firms are less likely to export to the emerging markets. In

order to successfully expand into emerging markets, Canadian firms have had to improve their productivity

and reduce their labor costs.

1. Introduction

Recent studies indicate that Canadian companies are expanding their exports to

emerging markets1such as China, South Korea, India, Russia, and Brazil. The share

of Canada’s exports to the USA decreased by 12.8% from 1999 to 2010 (from 85.9%

to 74.9%); however, the share of Canada’s exports to China and Brazil in the same

period, rose by 341.7% (from 0.75% to 3.3%) and 121.6% (from 0.29% to 0.64%),

respectively (Foreign Affairs and International Trade Canada (DFAIT), 2000, 2011).

Furthermore, Canada’s State of Trade report shows that the value of exports between

Canada and emerging and developing markets was 42% more than predicted between

2000 and 2007, after taking into account size, distance and all other factors of a

foreign market as suggested by the gravity model of trade (DFAIT, 2009). While

aggregate trade data suggest that Canadian companies are progressively expanding

into emerging markets, the patterns established by these companies to break into

them have not been studied. Furthermore, although the changing macro environment

triggered more exports to emerging markets, the internal firm-level factors that play

determining roles in responding to the macro environment changes have not been

identified. Therefore, it is our objective in this paper to explain theoretically and

assess empirically the trends among Canadian exporters in their choice of expansion

patterns into emerging markets in relation to their characteristics. We will also

explore the following research question: do the recent Canadian export expansion

* Sui: Global Management Studies Department, Ted Rogers School of Management, Ryerson University,

575 Bay street, Toronto, Ontario, M5G 2C5, Canada. Tel: +1-416-979-5000 ext. 6710; Fax: +1-416-979-5266;

E-mail: sui.sui.66@gmail.com. Yu: Department of Economics, Carleton University, 1125 Colonel By Drive,

Ottawa, Ontario, K1S 5B6, Canada. The authors would like to thank two anonymous referees and the edi-

torial team for helpful suggestions and comments. This research has been supported by the Social Sciences

and Humanities Research Council (SSHRC) of Canada, SSHRC SIG program and Ryerson University.

This paper represents the views of the authors and does not necessarily reflect the opinion of Statistics

Canada.

Review of Development Economics, 17(3), 510–522, 2013

DOI:10.1111/rode.12046

© 2013 John Wiley & Sons Ltd