Playing it safe – Private companies’ reliance on domestic market may put them at the back of the line

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Neighbourly love: US dubbed ideal trading partner

TORONTO, October 22, 2013 — Canadian private companies continue to focus on securing a strong framework for their business. They’ve positioned themselves for growth in Canada and an overwhelming majority (78%) expect business to get better in the coming year, according to the annual Business Insights Survey of Canadian Private Companies released today.

“There’s no doubt that private companies have built a robust foundation — 77% of businesses surveyed have been in business for more than 20 years and one quarter for 50 plus years,” says Tahir Ayub, PwC’s Canadian Private Company Services Leader. “Hard-won experience has led private company leaders to protect their cash flow and maintain a healthy balance sheet. In fact, more than half of this year’s respondents don’t plan to access additional financing outside of their existing sources of capital to fund growth.”

Results from the survey indicate that Canadian private companies target a confident 7.6% growth rate and a focus on the domestic market. Ayub says, “There’s no right or wrong approach to growth, but to achieve this ambitious growth rate, you have to go where the economies are developing significantly. It’s a global marketplace and Canada represents three per cent of global trade. Business leaders need to situate themselves on the world stage — it’s what other nations are doing and we can’t afford to be left behind.”

Setting the path for M&As
According to the Business Insights Survey, one finding that remains consistent each year is the lack of interest from private company leaders to grow their business through mergers and acquisitions (M&As). This year, only 1 in 10 respondents stated that M&A was essential to drive growth over the next three years and nearly half (44%) said they have no plans to pursue an M&A.

“M&As are not a primary driver for growth — particularly among companies with revenue under $50 million. These companies tend to focus more on organic development like growing their customer base, improving talent and operations,” says Ayub. “However, with a clear strategy, the proper resources and appropriate planning, M&As can be done right. They can be an effective way to enter new markets, acquire market share, launch new products and grow significantly.”

Thinking outside the box
Although nearly half of survey respondents (44%) indicate that they currently generate revenue outside of Canada, over the next five years, the majority (60%) see the strongest growth potential in the domestic market. This is due to the nature of their products and services, capacity to serve the market and demand.

According to the survey, less than a quarter of respondents (24%) view the US as the market with the strongest growth potential for their company. Ayub explains, “Canadian private company leaders need to recognize that the US will continue to be one of the strongest developed global economies in the world — it’s 10 times that of Canada. Businesses that aren’t exploring the possibility of expanding into the US are limiting their own growth potential. Its geographical proximity and cultural similarities, it makes them an ideal partner for Canadian businesses.”

Outside of the US, only 10% of respondents have their sights on emerging foreign markets over the next five years. “With the level of consumer demand expected to increase in emerging markets — the low interest in conducting international business may lead to missed opportunities,” says Ayub. “When you consider the rise of BRIC (Brazil, Russia, India and China) and other emerging nations combined with the prospect that emerging foreign markets will be home to one billion new middle-income consumers in the next 10 years, Canadian private companies are missing a huge chance to grow.”

Ayub concludes, “Bottom line: Canadian businesses should continue to evaluate the pros and cons of doing business outside of Canada. If they’re looking to expand, they have to go where the economies are growing or where they have better market share opportunities. While entering new markets can be challenging, with the right strategies and a secure foundation in place, the opportunities for growth are infinite.”

About Business Insights
The ninth annual Business Insights Survey of Canadian Private Companies examines issues affecting privately held companies including current & future performance and the strategies private companies are adopting to thrive in today’s business landscape. In the summer of 2013, we surveyed over 350 leaders of Canadian privately-held companies from a broad range of industries. A copy of the report is available from the media contacts. Data is also available for the 352 respondent companies by revenue, number of employees, age and region.

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About PwC’s Private Company Services (PCS)
More than 65% of PwC Canada's clients are private companies, ranging from high net worth individuals to owner-managed family businesses and large, professionally-managed businesses. PwC's Private Company Services (PCS) group is a dedicated team of advisors who help private company owners resolve day-to-day business issues, create value and achieve long-term success. PCS offers the perspective of a third party with professional insights, business and technology consulting, deals, tax and accounting expertise. For more information about PwC's Private Company Services, please visit www.pwc.com/ca/private.

About PwC Canada
PwC Canada helps organizations and individuals create the value they’re looking for. More than 5,700 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with more than 180,000 people in 158 countries. Find out more by visiting us at www.pwc.com/ca.

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