TD Forecasts Canadian Export Business Competitiveness to Erode
TD Economics reported today on the sustainability of the Canadian export industry. Issues such as a strong Canadian dollar are predicted to affect export business detrimentally.
The strong Canadian dollar combined with rising unit labour costs are eroding export competitiveness on the international market. Although companies in the exports and manufacturing industries have been holding firm recently, TD still speculates the need for concern for Canadian businesses.
In the 1990s and 2000s, Canadian exporters had an enormous competitive advantage. This is because of previous Canadian dollar value, one which reached 62 cents at its lowest in 2002. This large advantage allowed firms to disregard important company improvements including business innovation which led to disappointing business investments and declined productivity growth.
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As the Canadian dollar progressed to higher values, these issues have come to light. “The shift in the loonie’s fortunes reflected several forces: a commodity boom that benefitted the value and the volume of Canadian exports, a better performance of the Canadian economy in many respects than its major industrial nation peers, and relatively better federal fiscal balances when viewed through an international lens,” stated the TD Economics report.
Evidence suggests that rising Canadian currency has seriously impacted Canadian businesses' bottom lines. According to a Statistics Canada survey, approximately 4,000 exporters closed down between 2004 and 2007, with an indication that smaller exporters were the most adversely affected. Although Canada is still high on the international exportation scale, its share of world exports is declining.
Additionally, strong currency can be problematic for a variety of industries. As the Canadian dollar swings upward in value, the goods and services sector is now not only continuing to compete amongst Canadian business, but also foreign import competition has increased because of their new association as a cheaper alternative.
TD has concluded that for business to stay competitive, solutions include either revamping business practices to become a leaner and more productive company, or outsourcing productions (a solution that doubled between 2000 and 2008). Obviously, the better answer for Canada overall is for companies to become more efficient, potentially by employing more highly skilled labour.
Finally, TD cautioned Canadian businesses to prepare for the export industry to continue to deteriorate.
“In order to regain competitiveness on an international scale, firms need to revamp businesses models to become more efficient. This will involve implementing new technology and innovations, increasing spending on research and development, and specialized skills training programs for the workforce. While this might seem like a lot of work, the good news is that there will be lots of opportunity to do so,
and closing up shop is not the best solution to a lofty loonie,” concluded TD Economics report.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.