COMMERCIAL CHEMICAL DEVELOPMENT
The h u m a n trait of buying in t h e cheapest m a r k e t , other things
being
e q u a l , a n d the s h o r t a g e of certain essential commodities a r e the principal factors to consider in estimating . . .
Foreign M a r k e t Potential A. F. G. CADENHEAD AND P. W. BLAYLOCK Shawinigan Chemicals Ltd., Montreal, Canada
I N these days one cannot pick up a newspaper or a government commercial publication without seeing items such as the following: "Foreign Trade is Monopoly of the State in U.S.S.R." "Seven Year Plan Evolved by Iran for Development of Country" "Mexican Production of Cement Now Exceeds Domestic Requirements" "Denmark Shipping Canned Hams to United States" All these statements supply food for thought in the attempt to estimate foreign market potentials. They are all evidence of the age-old attempt of every country to become sufficient unto itself, and having attained that blissful state, to start looking for business outside. In other words, exporting a maximum and importing a minimum over a high tariff wall and so waxing fat. The most important factor operating to check this tendency is the fact that it is human nature to buy in the cheapest market, other things being equal. Another factor is the absence of certain essential commodities in some countries, and their abundance in others. All these things, and many more, enter into any consideration of foreign trade. We shall avoid, for the sake of valued amicable relations, all reference to tariffs, beyond saying that Canadians are happy to note that revision and modernization of your tariff system on a considerable scale is under consideration at the present time in Washington.
1018
For the past 3 0 years Shawinigan Chemicals, Ltd., has exported calcium carbide, acetylene black, and a number of different orgaxiic chemicals to various parts of the world. During tlnis period w e have been exposed to all the trials and tribulations of export trade; we have learned that it is very difficult to make accurate estimates of foreign market potentials, and w e ha"ve b e c o m e convinced that foreign market surveys must be based upon an intimate knowledge o f the political and economic climate of the foreign country. Probably t h e best w a y to illustrate the difficulties which may "be encountered in trying to form an estimate of a foreign market by shortcut rule-of-thumb methods is for us to discuss a specific problem in considerable detail.
In order to be on familiar ground, let us suppose that a U.S.A. manufacturer of organic chemical intermediates wishes to obtain an estimate of the Canadian market for his products with a view to exporting to Canada, or manufacturing in a Canadian plant. His first step will obviously be to get out an atlas and a number of statistical reference books and make a rough general comparison of Canada and the U.S.A. When he has done this, he will b e able to summarize his newly acquired knowledge in a table (Table I ) , and he will see that the population of the U.S.A. is a p proximately 12 times the population of Canada, and that the gross national expenditure of the U.S.A. in 1948 was a p -
. / \ , F . G. CADEJVHEAD, director of the department of chemical development o f Shawinigan Chemicals Ltd., Montreal, Que., since 1944, received a B.A. from Queens University in 1914. He lectured on the theory of analytical chemistry at that institute from 1919 to 1929, w h e n he joined the plaint research department of Shawinigan Chemicals as director. I n 1945 he was honored by Laval University with the honorary degree of doctor of science. JL ETER \V. BLAYLOCK has been engaged in research, development, and economic studies with Shawinigan Chemicals Ltd. since 1934, and is now with the cfciemical development department in Montreal. H e was educated at McCJill University, having received a B.Sc. degree with first class honors in mathematics there in 1934. In 1944 h e was a member of the Canadian government team investigating the German chemical industry.
CHEMICAL
AND
ENGINEERING
NEWS
COMMERCIAL CHEMICAL DEVELOPMENT Table I9
Comparative Statistical
POPULATION &: EMPLOYMENT ( 1 9 4 7 ) Total Population Civilian Labor Force Agricultural Emplovment (September} Nonagricultutxal Employment ( September) Unemployed (September) GROSS NATIONAL EXPENDITURE ( a 947) Consumer Goods & Services Gross Private Investment Government Purchases Net Foreign Investment Exports of Goods & Services Less Imports o f Goods & Services NATIONAL. INCOME BY INDUSTRIAL OJUGIN (1947) ( 1 ) Agriculture ( 2 ) Mining Manufacturing ({ 43 )) Construction ( 5 ) Transportation, Communication & Utililities ( 6 ) Wholesale Trade ( 7 ) Retaa Trade ( 8 ) Finance, Insurance & Real Estate ( 9 ) Service (10) Government: (11) Nonresident Total
U.S. A. Per cent Millions 145.2 100.0 61.7
28
NO.
_
10O.0
1.30
25.6
50.6
82.0
3.71
73.0
2.1
3.4
0.07
1.4
$9,126 2.936 1,551
67.1 21.6 11.5 —0.2
70.7 13.3 12.2 3.8
—22
(+17,724)
(+7.5)
(-f-3,629 )
(+26.8)
(— 8,826) $235,C97
(-3.7) 100.0%
(—3,651) $13,591
(-27.0) 100.0%
$1,720 364
3.3
3,366
30.2
4.1
16,323 10,890 28,602 15,668 18,544 18 764 428 $201,709
13
.
.
5.1
557
8.1 5.4
1,101
lO.l
14.3
1,113
10.2
7.8 9.2 9.2 .2
710 944 836
6.5 8.6 7.6
551
5.0
-264 $10,938
100.0%
17.3/1.0
15.8
9.5 2.0
30.2
proximately 1 8 times t h e gross national expenditure of Canada. If he has traveled at all in C a n a d a , h e will remember that its economy is very similar to that of t h e U.S.A. } t h a t its people r e a d t h e same advertisements in the same magazines, listen to t h e same commercials on t h e same radio programs, and finally buy m u c h t h e same type of goods and services. F u r t h e r m o r e , if he returns to his source of statistical ioformation a n d charts t h e course which trie two economies have followed during r e c e n t years, h e will arrive at a set of graphs ( F i g . 1 ) which show that industrial production in t h e U.S.A. and C a n a d a is growing a t approximately the same r a t e a n d that industrial production and prices in the t w o countries have had t h e same cyclical p a t t e r n of variation. N o w , if our imaginary U.S.A. manufacturer is n o t a cautious m a n he may b e tempted to conclude that there is not m u c h more to b e learned, t h a t t h e markets in the t w o countries are very similar, and that a s t h e Canadian economy is approximately one twentieth t h e size of t h e U.S.A. economy, it follows t h a t the Canadian market for his products will probably b e approximately o n e twentieth t h e size of the domestic U.S.A. market. However, if our U.S.A. manufacturer makes these rash assumptions there is a good chance t h a t his estimate will b e entirely wrong, and so let u s suppose that he is after all a cautious m a n a n d that h e decides to look into these matters more thoroughly. His first s t e p in this connection will probably b e to consult his sales and development departments and to ask them to V O L U M E
Per cent
14.6
$19,160 4.091 60.886 8,353
Ratio U. S. A./ Canada 11.5/1.0
Canada Millions 12.58 5.08
9.0
$166,940 31,090 28.769 8,898
a list of his products, he may t h e n start t o survey the Canadian market i n the field, a n d if he does, h e will find t h a t there a r e m a n y surprises in store. First, h e will learn that no dyestuffs a r e manufactured in Canada a n d that t h e dyes that a r e consumed are imported as finished products from the U.S.A., the U.K., and E u r o p e . Then h e will learn t h a t the major companies in t h e pharmaceutical field a r e totally-owned subsidiaries of U.S.A. and U.K. manufacturers, t h a t operations in C a n a d a are limited to manufacturing a f e w major products, a n d packaging and distributing a large assortment of minor products which are imported from t h e p a r e n t companies. When he investigates most other industries he will find a similar situation, and h e may finally come t o conclude correctly t h a t the Canadian market for organic chemical intermediates is amazingly small. If he is a curious as well as a cautious m a n , he may wonder w h y it i s that two such apparently similar economies should actually be so different. If h e returns t o his source of statistical information, h e will find the answer in a number of facts. First, over 4 0 % of Canadian industry is owned outside the country, in the U.S.A. and elsew h e r e (Tables II and I I I ) . Second, a large proportion of the industrial capacity is concentrated in mining, metallurgy, p u l p , newsprint, and other primary m a n u facturing fields. Third a n d last, the concentration of economic power is greater t h a n it is in the U.SA. C a n a d a is rapidly becoming more highly industrialized, and there is good reason to believe that many of the existing differences will ultimately vanish.
D a t a -- U . S. A. a n d C a n a d a , 1947
-2.4 10O.0%
analyze his sales in terms of consuming industries. Let us suppose that *is a result of this inquiry he learns t h a t h i s sales are equally divided among pharmaceutical, dyestuff, rubber chemical, a n d miscellaneous chemical manufacturers. Armed with this information and with F i g . 1.
Industrial production, (1935 — 1 9 3 9 =
wholesale prices, a n d cost of (1935-1 939~
lOO)
SOOr
~
I
1 II
I
, 1919—1948 j 1 9 3 5 - 1 9 3 9 = TOO |
23
30
TSOO
-I40O
I
•
l^S.A.j
I CANADA!
1920
I0O)
1
INDEX OF INDUSTRIAL PRODUCTION
400|-
living
33
40
43
SO
1935
1920
25
( 1 9 3 S — 1 9 3 9 = lOO)
"i
SO
35
40
45
SO
1955
45
SO
1935
( 1 9 3 5 - 1 9 3 9 = 100)
1
1n
1
r~
INDEXES OF WHOLESALE PRICES AND COST OF L I V I N G
1U. S.A.I
1920
25
30
33
40
45
50
1955
1920
25
SO
35
40
S«uriai O. S. »*pt. ot C«*nm*r««. PaiWilow * * « • • • * Statistic*.
MARCH
2 7.
1950
1019
COMMERCIAL CHEMICAL DEVELOPMENT by actual visits and contacts in the field On these visits we would suggest an especially detailed study of any competiOWNERSHIP tion you may unearth. Often the informaP A R E N T C O M P A N Y OR C O M P A N I E S CANADIAN M A N U F A C T U R E R tion gained is interesting and startling. CHEMICALS As an illustration of this, we might state E. I. du Pont de Nemours & Co., Inc., Canadian Industries Limited and Imperial Chemical Industries that Africa which, geographically, should Foreign Ltd. Foreign have a considerable trade with India, American Cyanamid Co. North American Cyanamid Ltd. Foreign Dow Chemical Co. Dow Chemical of Canada Ltd. finds it exceedingly difficult to export to Canadian Shawinigan Water & Power Co. Shawinigan Chemicals L t d . Foreign U. S. Rubber Co. that country. Why? The answer lies in Naugatuck Chemicals L t d . Domirion Tar & Chemical Co., some racial or religious friction dating Canadian Standard Chemical Co., Ltd. Ltd. Foreign Monsanto Chemical Co. Monsanto ( C a n a d a ) L t d . hack a number of years. As a consequence* PHARMACEUTICALS & DRUGS produce from North America enjoys the Foreign Merck & Co., Inc. privilege of the Indian market, evea Merck & Co., Ltd. Foreign Abbott Laboratories Abbott Laboratories Ltd. though it is produced as cheaply, and Foreign American H o m e Products Corp. Ayerst, McKenna & Harrison Ltd. Foreign British D r u g Houses British D r u g Houses ( C a n a d a ) Ltd. perhaps more cheaply, in Africa than over RUBBER here. Foreign Dominion Rubber Co., Ltd. United States Rubber Co. Trade commissioners' offices of foreign Goodyear Tire & Rubber Co. of countries are at your disposal everywhere, Foreign Canada, Ltd. Goodyear Tire & Rubber Co. Goodrich (B. F . ) Rubber Co. of and are willing and anxious to do anyForeign B. F. Goodrich Co. Canada, Ltd. thing in their power to aid your operations. Firestone Tire & Rubber Co of Foreign Firestone Tire & Rubber Co. Canada, Ltd. They afford a most important source of RAYON, E T C . information for evaluating foreign markets. Foreign Celanese Corp. of America Canadian Celanese Ltd. In addition, a knowledge of your own Forei gn Courtaulds Ltd. Courtaulds ( C a n a d a ) L t d . facilities for obtaining information on foreign markets, which is supplied gratis Table I I I . Foreign Investment in Canada as of Dec. 31st, 1946 by many departments of your government, DISTRIBUTION OF OWNERSHIP TYPE OF I N V E S T M E N T is valuable; and the writers will hazard Others U . S . A. British the guess that to a surprising extent in( Million dustry is ignorant of this. It has been oux INDUSTRY & BUSINESS own experience that government depart$ 46 295 $1,549 $1,890 Manufacturing 19 56 311 Mining & Smelting ments, such as our Bureau of Statistics and 386 5 60 173 Merchandising 238 Department of Trade and Commerce, are 54 202 321 Financial Institutions 2_ 5^ 62 Other Enterprises 577 loaded with valuable information they are 618 $126 $2,416 69 anxious to give away. When you g o to $3,160 $ 58 $ 115 $1,438 GOVERNMENT S E C U R I T I E S visit them they feel that they are really $1,611 102 880 1,158 PUBLIC U T I L I T I E S of some use and can justify their existence. 2,140 67 75 140 MISCELLANEOUS ASSETS After all, your taxes support these bodies, 282 $353 TOTAL $1,688 $5,152 and as you are paying for them, why not $7,193 FOREIGN I N V E S T M E N T IN MANUFACTURING, MINING & S M E L T I N G $2 ,276,000,000 make use of them? E S T I M A T E D T O T A L I N V E S T M E N T IN MFG., MINING & SMELTING $5. ,500,000,000 Prehaps members of your own foreign 41.0% FOREIGN INVESTMENT AS P E R C E N T A G E O F T O T A L trade associations, under whatever name, could help, and would be helped, should they contrbiute to the associations* publiHowever, they are real enough at the assessed by actual visits and contacts in cations from time to time news items the field. present time. somewhat along the following lines: In connection with the first of the above Our hypothetical manufacturer of or(1) Particulars of business trips abroad ganic chemical intermediates is certainly points your own Office of International to be undertaken by a representative of an extreme case for his sales are to certain Trade of the U. S. Department of Com- your firm. secondary manufacturing industries which merce issues at frequent intervals an In(2) Important sales, contracts, or inare not yet fully developed in Canada. ternational Reference Service which deals stallations in foreign countries. (3) Any new methods of doing export However, he has heen useful in illustrating with one foreign country at a time in most the difficulties which may arise in even the minute detail and presents a complete business. (4) Export sales opportunities that may simplest type of foreign market survey, summary of basic economic information. come to your attention which may b e of and he has helped to justify our original This covers, besides general information, interest to other members of the associastatement that there is no simple, short- such pertinent headings as areas and tion. (5) Trade shows and exhibitions t o b e cut method of estimating foreign market boundaries; natural regional divisions; potential. The only satisfactory procedure climate; population; language; education; held, such as the Canadian International Fair held in Toronto and sponsored is to take each problem separately and to form of government; system of weights Trade by the Federal Department of Trade and make a detailed on the spot study of and measures; production; transportation Commerce. every aspect of the matter. (with subheadings of highways, railways, (6) General suggestions as to the type With the above in mind we will not air routes and ports, inland waterways, of export news that should be given promattempt to outline a procedure for esti- and ocean shipping); currency and ex- inence. This sort of cooperation appears to b e mating foreign market potentials and will change; banking; insurance; foreign trade; limit ourselves to listing some of the im- tariff structure; irading potentials; local vital in the commercial world as it finds portant points which must be covered. customs affecting sales; marketing factors itself today. In conclusion we can offer only one First, the general size and type of foreign such as principal commercial cities, etc.; country's economy should b e studied. and local trade practices. One can scarcely guiding principle in undertaking a foreign Then t h e structure and ownership of its imagine a more complete summary. Study market survey, and that is to remember industries should b e examined. Tariffs, it carefully. poor little Buttercup's famous words of freight rates, embargoes and other similar In spite of all this, it is our belief t h a t warningfactors should be investigated, and finally the most important point is the last—that Things are seldom what they seem and most important, the market should be in the end the market should be assessed. Skimmed milk masquerades as cream.
Table II.
1020
Ownership of Some of the Principal Companies a t Present Manufacturing in Canada
CHEMICAL
AND
ENGINEERING
NEWS
