Part 1 of 2: Know the warning signs of distress
Market turbulence, which has been garnering daily headlines, is expected to intensify across all sectors. From automotive and forestry to fishery and gas services, the business landscape is evolving rapidly, and no company can afford to ignore the changes and their potential impact.
In the oil and gas sector, for example, producers and services firms are grappling with massive increases in energy and commodity costs. Significant labour shortages and a tightening regulatory environment have pushed many companies in this space to the ropes. Agriculture is similarly under siege. Canada’s livestock and cattle producers, greenhouses and fisheries are wrestling with spiraling input costs and unpredictable border controls that restrict exports. The strong Canadian dollar has priced many Canadian producers right out of the market just as the federal government shifts its focus away from agriculture toward other market sectors.
The forestry sector is also suffering, in large part due to its failure to prepare for a rising dollar. Years of depreciated Canadian currency allowed many producers to become complacent. As a result of this natural money market advantage, many players failed to invest in R&D, plant upgrades or economies of scale rationalizations needed to effectively compete in global markets. The dollar took flight just as international competitors arrived on the scene. China has emerged as a leading low-cost manufacturer. Similarly, South America is known as an inexpensive source of eucalyptus fibre, Nordic Europe is home to a range of very efficient plants and Finland has established a strong reputation for technological leadership in the forestry industry. The timing couldn’t be worse for Canada, as the volatile currency exposes forestry industry weaknesses just as global market competition heats up. It gets worse in pulp and paper, where Canadian mill capacity ranks among the lowest in the world, while the average age of Canadian plants is older than the global norm. Canada also lags in lumber, where yields and rotations are significantly below international averages because of climate and tree species. The situation isn’t helped by Canada’s relatively high cost structure and inefficient, outdated transportation infrastructure. Despite their reputation as sudden events, crises typically percolate for quite some time before igniting. Forward-thinking organizations recognize that even subtle symptoms can, if left unchecked, evolve into full-blown disasters over time. Because it can take a significant period of time for business emergencies to take root, it is important to view these events as preventable. Businesses that put processes in place to actively watch for and respond to symptoms of underperformance stand a better chance of avoiding crises altogether. If setbacks prove unavoidable, well-prepared companies are better equipped to stop their progress before they worsen. Read the whole article from CMA Management magazine: Download market_turbulence_challenges_canadian_companies.doc
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