Shapegrabbers' Pierre Aubrey. (Darren Brown, OBJ)

With banks failing, the U.S. dollar sinking and protectionism on the rise, it's only a matter of time before Canadian manufacturers and exporters feel recessionary pressures from south of the border, if they haven't already.

One way to alleviate the hurt, of course, is by having a superior product that dominates a specific niche. While not recession-proof, Ottawa-based Shapegrabber's unique, 3-D scanning product and inspection system, able to measure complex shapes often too difficult or costly to measure with standard tools, is holding its own thus far in terms of sales. Used in the automotive, aerospace and medical industries, its popularity is still high, and that has helped cushion some of the hurt felt by other Canadian manufacturers.

Company vice-president Pierre (Pete) Aubrey talked to the OBJ last week about shipping goods to the U.S., the challenges in getting noticed as a small fish in a big American sea, and dealing with dollar parity.

OBJ: Where do you manufacture your 3-D scanners, where do you export them to, and how much do you rely on the U.S. market?

AUBREY: We manufacture in Canada, (but) we source parts from worldwide. The U.S. is a good supplier of some of our components, but we export directly to the U.S., among many other international markets. I'd say the United States accounts for 60 per cent of our annual sales . . . We also export to Japan, other Asian countries, Mexico is an export country as well, and Europe.

OBJ: Have you had regulatory or customs difficulties in bringing your product to U.S. markets?

AUBREY: No major problems. Certainly, we have to be aware of them, and go through the right process, but no major problems, yet. Occasionally, you'll have something at the border, a couple of days delay to get the paperwork sorted out.

Some of it is luck. It depends on what you call a problem. Usually, it ends up being a delay of some kind, and a delay can cause a problem. We had an issue recently where a delay meant that our system didn't arrive to a trade show on time, so we missed half the trade show. It was purely a bureaucratic thing related to shipping. The paperwork didn't arrive to the customs people before the weekend, etcetera, etcetera. So something that should have taken three days took a week and a half.

OBJ: Do you retain help for that kind of stuff or do you do it yourself?

AUBREY: We use customs brokers, and we've used some consultants in the past for all kinds of issues.

We had to get our lasers that we purchased certified, for example. We put (the lasers) in our product. We used a consultant to do some of that work . . . Because our scan heads use lasers, even though we buy certified lasers, we need to make sure our product preserves that certification, so there's a process to go through, through the Food and Drug Administration in the U.S.

OBJ: What other challenges have you had, and how were they resolved?

AUBREY: We are a small company. Getting on the map and just being considered as an option when people are in the market to buy a 3-D measuring device (is a challenge). We know once we're considered that we have a pretty good chance of selling. The issue is for them to know about us. So it's the classical issue: people need to know that we exist.

That's addressed by our promotional activities. As we grow and focus on certain niche markets, more and more people know about us.

OBJ: How do you get on their radar screens?

AUBREY: We use a combination of tools. All the way from our more internally focused things, like the website, to trade shows (and) advertising in the right publications.

It's not just advertising; it's writing editorial content, case stories, and getting them published in the right magazines. It includes giving talks at some conferences, trying to be recognized as someone who is an authority in a certain area.

OBJ: How have you adjusted business practices with the dollar being at par? What are you doing differently?

AUBREY: Well, we sell in U.S. dollars . . . because not only is the U.S. our largest market, but the measuring equipment we sell tends to be priced in U.S. dollars in many places, including in Asia. They expect to be quoted prices in U.S. dollars. So when you're going through distributors, etcetera, there's a certain reluctance to change pricing all the time, so we stick to our pricing.

And it's a competitive market. If some of your competitors are American, they're keeping their prices where they are.

That's had a direct impact on our total revenue, as well as margin. What we've done to partially cover the change is to increase our U.S. dollar price. But it still ends up being a lowering in the Canadian dollar price.

So what we're doing is we've increased our total volume of shipments. Our company's growing, so it's helped to cushion the blow, if you will. Unfortunately, we haven't grown as much (as we could have) if the dollar had stayed where it was. Certainly, we're looking out for anything we can do more efficiently, looking at all our expenses to make sure we are as efficient as we can to keep our margins as healthy as possible.

OBJ: Can it reach a point where there won't be any growth?

AUBREY: If the Canadian dollar keeps increasing, you get to a point where it's not sustainable. We haven't reached that yet in my business, but it can at one point.

We can try to make (the products) cheaper, and maybe you're forced to increase your prices again. But you don't want to have to do that . . . Everything is competitive. It all depends on what the competition does, and how it compares to the alternatives.

OBJ: How are things in overseas markets other than the U.S.? Are sales increasing because their currencies are stronger in comparison to the U.S.?

AUBREY: No, not really. I'd say the U.S. dollar had an impact (downward) in our U.S. sales. But again, it's more in terms of the margin. We have worldwide pricing, so we sell in U.S. dollars. So if the U.S. dollar drops in relation to the Canadian dollar, it has an overall impact on our margin everywhere. N

THE EXPERTS SAY

The exchange rate is crucial to the export business of Ottawa-based manufacturers. The United States dollar is, and will remain for some time, the measuring factor (for North American products) when it comes to global pricing. Key attributes of Ottawa-based manufacturers' products are quality and ability to alter manufacturing processes to improve "go to market" success. There is a constant review from all firms on cost reduction from their own suppliers, and an open mind to review and change internal processes to reduce costs. Years ago, a product was created and sold at a determined price. Now, the global pricing dictates the price and hence what the cost and process must be. Manufacturing companies are fully aware of this change. Shrinking margins are not new. They have been going on for years. But process change and the ability to produce other products – diversification – is key to survival and profitable success.

Ottawa manufacturing firms run lean, and are successful at what they produce. Many fantastic products are manufactured in this greater area. Most are exported. Perhaps in the future, the Canadian dollar will be considered when it comes to international comparison, but not today.

Bob Bamford, managing director,

Ottawa Manufacturers' Network (OMN)

Canadian exporters are facing a perfect storm. While they may deal in U.S. dollars on the international stage, most of their expenses are incurred in Canadian currency. With a dollar that has been so volatile the past 12 months, appreciating more than 20 per cent, (it) acts like a direct price cut on export sales.

The U.S. is still Canada's largest export market with more than 50 per cent of all production destined (for it). The appreciation of the Canadian dollar has a double-whammy effect on Canadian businesses: on the one hand, our products become more expensive, while on the other, demand in our largest export market decreases.

For manufacturers in the short term, it comes down to two issues: cutting costs and improving operational efficiency. This is done by reducing waste, training employees to become more flexible, engaging them in improving plant efficiency and making the best use of lean manufacturing techniques such as kanban, 5S, value stream mapping and kaizens. Doing so is essential to survive the storm and to become more profitable, so they can make the necessary investments in technology, skills and market development to be competitive in the long run.

(Also), diversifying export markets is one of the key success factors for Canadian manufacturers and exporters to succeed. Canada has diversified its export markets more in the past three years than it has in the last 30. To take advantage of opportunities outside North America, businesses need to ensure that they have a unique value proposition, and are globally competitive leaders in their areas of specialization.

Jean-Michel Laurin,

VP global business policy, Canadian Manufacturers and Exporters