Dave Dunwoodie, owner of Graph Tech Guitar Labs in Delta, B.C., strums a Fender Stratocaster electric guitar that his company makes components for.DARRYL DYCK/The Globe and Mail
Some things are going right for Dave Dunwoodie, the owner of Vancouver-based Graph Tech Guitar Labs Ltd.
His company, which makes components for guitar-makers Gibson and Fender, among others, has grown sales every year since Mr. Dunwoodie founded the company in 1983 – when he built the products on his kitchen table. With more than 20 employees, he now ships to about 40 different guitar factories in China, as well as some in Indonesia that have seized on the ukulele trend and are "just pumping [them] out."
But China's industrial slowdown, as well shifting macroeconomic winds, have begun to bite into his thriving export business. And for the first time in more than 30 years, it looks like Mr. Dunwoodie will not increase sales this year.
"A lot of the [Chinese] factories are slowing down – there's too much capacity and not enough business," he says. "We're just treading water.
"We've gained some new markets, but our volumes have gone down. We've had some Asian [manufacturers] go down 60 or 70 per cent on us."
For Western Canada's Asia-facing exporters and business people, China's slowing economy and its impact on the region – as well as the resulting stock market chaos and currency fluctuations – is a big cause for concern. But the sentiment of Canadian exporters in the West varies greatly depending on the industry, the scope of their exposure to China and a number of other factors. While some are dealing with a slowdown related to China's cooling exports to stagnant, recession-ravaged economies in Europe and elsewhere, for example, other Canadian businesses are riding high on longer-term developments, such as continued growth of Asia's middle class.
Mr. Dunwoodie, who regularly visits China on business, said his suppliers have recently told him Chinese factories are slowing down and emptying out as orders cease and work continues to move further south, into lower-cost locales such as Indonesia and Vietnam. Even as Chinese factories grapple with higher wages and try to focus more on quality, he says, the pain is not being spread out evenly: Manufacturers who export the Chinese-made guitars to a recovering U.S. market are doing much better than those exporting to Europe, the rest of Asia or shipping within China.
Graph Tech gets paid in U.S. currency, which is strong, while its suppliers are dealing with a weaker Chinese yuan. "We're making money, and having fun. But it's not quite going to plan," Mr. Dunwoodie says.
For other exporters, the market chaos of recent weeks hasn't derailed longer-term trends, such as Asia's new middle class craving higher-quality products.
Murad Al-Katib, the CEO of Regina-based giant AGT Food and Ingredients Inc., says that although he is following the financial fallout from China's market chaos carefully, the boom times aren't exactly over for Canadian exporters of high-quality lentils and peas.
"The ripple effect into emerging markets, and currencies in emerging markets over all, is something we're watching very closely," Mr. Al-Katib says. "At the same time, fundamentally, the business of the Canadian agri-food industry in Asia is largely driven by the long-term fundamentals of rising incomes in Asia, the growing middle class and the global race to [eat more] protein."
Mr. Al-Katib, whose company has 30 large facilities around the world (including in Tianjin, a port city near Beijing) and also gets paid in U.S. dollars, admits that other Canadian exporters, particularly in energy, are suffering through China's waning demand for commodities.
He suggests that discretionary spending in Asia may take a hit soon – something which could impact AGT's shipments to higher-end consumers in China and India, two countries that together account for roughly 50 per cent of its shipments. But he notes that many of AGT's products are also staples for ordinary consumers and will likely be unaffected by financial turmoil in the region: He says producers in China, for example, turn their peas into pea flour, and use that for dumpling wrappers and vermicelli noodles.
For some exporters who work with even wealthier consumers in China, there is even less impact from the economic turmoil – which some, including Citigroup chief economist Willem Buiter, who spoke to an economic panel in New York on Aug. 27, suggest amounts to China "sliding into a recession" and heralding a global slowdown.
John Skinner, the proprietor of Painted Rock Estate Winery in British Columbia's Okanagan region, says things look rosy: Roughly 40 per cent of the 6,500 cases of wine his winery produces every year are bought by a distributor in China. "There has been no question whatsoever of their intent to fulfill their obligations," Mr. Skinner said. "Their appetite may reduce, but I think our market is quite secure."
He notes that their Red Icon blend, which retails for about $55 in the United States, can sell in excess of $900 a bottle in Shanghai. He now has his eye on expansion in Tokyo.