Written By: Stephen Reisler
Just before Christmas recently, I was considering buying a case of a delicious cabernet from California’s Napa Valley. The price was $34.65 plus 9% sales tax for a total of $37.76 per bottle. Being busy with family over the holidays, I didn’t get around to wine shopping. A week later on a business trip to Toronto, Canada, I found the very same wine selling at their LCBO stores for $25.95 tax included. However, that was in Canadian dollars or the equivalent of a little more than $18 USD per bottle. Four or five years ago, when the currencies were closer in value, (see chart below), I’d bet that particular wine was a lousy deal in Canada, relative to its cost in the States. Now, though, with the exchange rate figured in, it’s a steal. But this article is for business owners and not consumers.
This really got me thinking about business investment opportunities, and I needed to start “seeing the forest through the tress”. Like most business owners, I got busy with day-to-day affairs and almost missed that obvious realization to pursue this a little further. And as my investigation continued, I was astounded at the potential savings I began to discover. Out of curiosity, I went to a local car dealer to look at the Honda Accord that my American brother-in-law had just bought for $25,975 USD. The dealer price in Canada was $30,864 Canadian. With the exchange rate factor between the two currencies, that very same car in Canada was $5,700 less than what my brother-in-law had paid in the U.S.
I’m no Frank Sinatra, but please help me to start spreading the news!
Canada offers tremendous buying opportunities now that the dollar has fallen more than 20% against the stronger US dollar just in the last year alone. The US dollar is now worth about $1.45 Canadian.
You’ve certainly read about the strong rebound of US car companies. They are once again “back” and thriving profitably. One of the many reasons for that is that these car manufactures have long been buying components from Canadian plants with ever growing margins. These Canadian manufacturing plants are also booming. With record sales and margins from their US customers, many are having a hard time keeping pace with the increase in demand, but are recording record profits as well.
Whatever business sector you are in, I encourage you to think about possibly exploring new buying opportunities north of the border. Imagine the “win-win” of buying a Canadian manufacturer, distributor, or service company in Canada. You buy a company synergistic within your business sector at a discount of about 40% simply related to the currency exchange, and access what that Canadian company produces at a significant savings to your existing business. That alone would be enough of a “win-win”. Multiples used to buy that medium sized Canadian business are slightly lower today than they currently are in the U.S. resulting in another potential gain. That makes the potential “win-win” outstanding! Then, perhaps as added bonuses you may discover, that the Canadian government offers subsidies including aggressive tax credits for value-added activities like research and development. You get access to a well-educated and highly skilled labor force who get paid equivalent salaries in Canadian dollars, (once again more than a 40% savings). As well, Canadian company manufacturing tax rates are lower than in many US states, and that health care costs are included in those tax rates, and not an extra cost to the business.
Many larger US organizations are global players and now have plants elsewhere, including in Canada, where they take advantage of such local incentive programs and such investment opportunities. However, in this era of globalization, business size doesn’t matter like it once did. Only seizing that tremendous opportunity matters! The old adage is to buy at the right time; and now certainly is the right time to buy in Canada.
Might an acquisition or an investment be a future growth diversification strategy worth considering for you and/or your company?
It is always a prudent idea to expand and protect your business through skillful acquisitions, and to keep your eyes open wide to identifying potential new buying opportunities, wherever they are, including north of the border. Barriers to cross-border commerce have long ago disappeared. The old North American Free Trade agreement that took Ronald Reagan’s personal intervention in 1988 to get done, has now existed for more than 25 years with more US-Canada cross-border business investment activity than ever before. Today, the U.S. only purchasing rules mandated by Congress, continue to be politically seductive to many. Politicians and officials in this election year risk being tarred as enemies of U.S. job creation for opposing Buy America.
However, the US is the world leader of capitalism and the free-enterprise system that is a cornerstone of the nation’s existence. It is that which continues to create opportunities for proud Americans to make a real difference for their families and make contributions for their country.
Permit me one final story. On a recent winter vacation to the Whistler ski resort north of Vancouver, I was invited to a friend’s 1,660 square foot condo he had just purchased. Two bedrooms, two bathrooms, wood burning fireplace, bought for $1.1 million Canadian or about $765,000 USD. My friend boasted about him getting, “a real steal of a deal and a great investment”, which he explained would be sold with a significant profit, only to be aided and abetted by a recurring cycle where the Canadian dollar might be worth the equivalence of a US dollar. He reminded me to simply consider the past 5 years, and then to take a look at the past 5 to 7 decades.
It’s now clear to me more than ever, that owners and leaders must “take their heads out of the sand”, in order to “see the forest again through the trees”. Know that business opportunity has no limits and knows no borders! Take advantage now. The time is right.