Sales Abroad by Canadian Foreign Affiliates

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Bjorn Johansson
Office of the Chief Economist
August 7, 2008

Summary

Sales abroad by affiliates of Canadian companies are an important means by which Canadian companies engage in international business and are equivalent to almost 85 percent of the value of exports of goods and services. Recently released data shows growth in Canadian foreign affiliate sales outpacing growth in exports, by a growing margin. Canadian foreign affiliate sales grew in 2006 by over 6 percent, while exports, under pressure from the high dollar and other factors, grew less than 1 percent. Recent growth in sales has been strongest for affiliates located in non-OECD countries: a 40 percent jump in the global sales of these affiliates in 2006 brought the value of their sales to almost the same level as sales of affiliates in the EU. Meanwhile, the share of Canadian affiliate sales in the U.S. has declined to just over half of global Canadian affiliate sales. This pattern reflects stronger growth in recent years in Canadian direct investment in the non-OECD countries than in the United States, as well as the effect of the stronger Canadian dollar on sales converted from U.S. dollars.

Background

Sales of goods and services by majority-owned foreign affiliates of Canadian businesses rose to $441 billion in 2006 (the most recent year for which data is available). This was an increase of $26 billion (or 6.4 percent) over the previous year, the third consecutive annual increase following three years of decline. It brought total sales to their highest level since foreign affiliate trade statistics were first compiled in 1999.

Foreign Affiliate Sales of Goods and Services

Canada’s foreign affiliate sales of goods and services, as well as the totals, measured in billions of Canadian dollars from 1999 to 2006:

  • In 1999 sales of goods were 198.7, sales of services were 117.7 and total sales were 316.4.
  • In 2000 sales of goods were 226.7, sales of services were 140.4 and total sales were 367.1.
  • In 2001, sales of goods were 221.1, sales of services were 143.4 and total sales were 364.6.
  • In 2002, sales of goods were 219.1, sales of services were 135.5 and total sales were 354.6.
  • In 2003, sales of goods were 218.5, sales of services were 119.2 and total sales were 337.8.
  • In 2004, sales of goods were 249.9, sales of services were 131.3 and total sales were 381.2.
  • In 2005, sales of goods were 267.2, sales of services were 134.3 and total sales were 401.5.
  • In 2006, sales of goods were 295.9, sales of services were 146.4 and total sales were 442.3.

Source: Statistics Canada – Foreign Affiliate Trade Statistics, FATS

Sales for both goods-producers and services-producers advanced, with goods sales outpacing services sales. Strong growth in the mining and oil and gas extraction sector was the major driver for the expansion among goods producers. Among service producers, strong expansion in the non-financial banking and insurance sector was largely offset by a decline in the information & cultural industries sector - thus limiting the annual percentage growth among service producers to only about half of the rate of expansion in the two previous years.

Geographic Distribution of Sales

The share of total sales by affiliates located in the U.S. has declined from 64.3 percent in 1999 to 54.4 percent in 2006. Several factors can explain this development. First, Canadian direct investment abroad (CDIA) has been diversifying away from the United States. Second, the increase of the Canadian dollar relative to the U.S. dollar converts to lower sales values expressed in Canadian dollars. Third, growth in U.S. consumption has slowed in recent years.

Canadian Foreign Affiliate Sales in Billions of Dollars by Market/Region
 19992000200120022003200420052006
Note: The sales are global sales, including both local sales and exports from these locations.
World316.364367.052364.554354.557337.750381.207414.672441.121
United States203.540237.411223.798217.989198.475218.808233.747240.094
European Union62.03067.89675.25872.90275.99581.57892.70986.100
Other OECD Countries14.41817.64520.81122.36724.09128.21729.63532.875
Non-OECD Countries36.37644.10044.68741.29939.18952.60558.58182.053
Canadian Foreign Affiliate Sales Growth by Market/Region
 2006 Annual Growth1999-2006 Average Annual Growth2006 Share
Note: The sales are global sales, including both local sales and exports from these locations.
World6.4%4.9%100.0%
United States2.7%2.4%54.4%
European Union-7.1%4.8%19.5%
Other OECD Countries10.9%12.5%7.5%
Non-OECD Countries40.1%12.3%18.6%

Source: Statistics Canada - Foreign Affiliate Trade Statistics, FATS (Table 376-0061)

A decline in sales by affiliates in the EU but outside the U.K. in 2006 caused an overall decline in EU sales, reversing an upward trend from prior years. Consequently, the share of affiliates in the EU in 2006 (19.5 percent) was in fact slightly lower than the 19.6 percent global share registered in 1999. On the other hand, other OECD and non-OECD countries (the only other two regions outside the U.S. and EU for which foreign affiliate trade data is available) expanded their respective shares of sales over the same period. The combination of a decline in sales in the EU and a 40 percent increase in the sales of affiliates in the non-OECD markets over the previous year led to affiliates in the non-OECD markets capturing a share of foreign affiliate sales (18.6 percent) approximately equal to that of affiliates in the EU.

The recent growth in sales by affiliates in non-OECD markets means that these sales now represent 177 percent of Canadian exports to the non- OECD. Sales by affiliates in the EU are now just under twice the value of exports to the EU. As Canadian firms are much more likely to serve the U.S. market through exports than through affiliate sales, sales by affiliates in the U.S. total much less than Canadian exports to the U.S., but the percentage rose slightly in 2006 to just over 60 percent, as growth in affiliate sales outpaced export sales growth.

Foreign Affiliate Sales as Share of Total Exports

Canada’s foreign affiliate sales as a share of total exports, measured as a percentage of goods and services exports for various world countries in 2006:

  • World: 84.7%
  • US: 60.4%
  • EU: 192.9%
  • Other OECD: 101.5%
  • Non-OECD: 177.0%

Source: Statistics Canada – FATS, and Balance of Payment

Footnotes

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