Lower loonie cuts network buying power

Although by press time Canada’s dollar had bounced back from its all-time low of US$0.62, it has seen better days. And according to Canadian economists, the same could be said of Canadian companies trying to buy networking equipment from U.S. vendors.

Arvind Jain, an associate professor in finance at the John Molson School of Business in Montreal, said the loonie’s sad state could impact the use of networking technology in this country.

“One of the harmful effects of the low Canadian dollar is precisely that people will not update their equipment and not buy research as much as they could if the Canadian dollar was strong,” he said.

The fact is that companies north of the 49 th parallel face an uphill battle in regards to technology upgrades, Jain said. Many vendors in the U.S. work with U.S. dollars alone and, as a result, Canadian firms looking to buy new routers, switches and software might have to put off purchases for another day.

“The seller in the U.S. isn’t going to change his or her price just because the Canadian dollar has gone down,” Jain pointed out. “Chances are, you will have to pay more Canadian dollars.”

But Graham Voss, an associate professor in the department of economics at the University of Victoria, had a different opinion. He told Network World Canada that in some cases, Canadian companies might discover a bargain or two south of the border.

“For larger firms that have some buying power with U.S. suppliers, it may be possible to negotiate a lower price. In effect, the supplier and the Canadian purchaser will share the cost of depreciation. For this to happen, the Canadian buyer has to have some market power with its supplier…and/or the U.S. supplier must be concerned with market share.”

As for smaller companies, Jain and Voss shared the same thought: shop locally. Although the choice of vendors at home is relatively small, at least the prices match the purchaser’s currency.

“Of course, this requires the existence of Canadian producers,” Voss said. He noted, however, that this fact might represent a silver lining around our eclipsed loonie. “Over the longer term, the lower dollar may provide some incentive for Canadian firms to enter the market and start producing this type of equipment.”

It might also entice U.S. companies to set up shop in this country, the better to serve and understand their clients. Network Appliance Inc., for example, opened a Canadian subsidiary last May and, according to the Network Appliance Canada Ltd.’s president, Jeff Goldstein, it just made sense. “We try to be very sensitive to our Canadian customers,” he said.

For this Canadian arm, sensitivity means conforming to the customer’s needs. Sometimes Canadian companies prefer to work in U.S. dollars, simply because it’s easier to keep track of expenditures when everything is marked in the same currency, Goldstein said. Others, however, want nothing to do with the American greenback and insist on transactions in Canadian dollars.

Goldstein’s opinion of the situation differed from Jain’s. Whereas the latter suggested Canadian companies might hold back on purchasing from U.S. vendors during these days of a depressed Canadian dollar, Goldstein said, “I don’t think it makes much of a difference… If you need to spend money, you’re going to do it.”

Craig Nesbitt wholeheartedly agreed. He’s the director of service evolution with Telus Corp., which recently spent $250 million on high-speed Internet equipment.

“It’s really going to depend on the timing of the particular business and the demands of that particular area,” Nesbitt said. “With us, for example, we’re very conscious of the costs and the low value of the dollar… (But) we’re looking six, nine and 12 months out and planning accordingly. You’re not going to buy anything before you have to, which I don’t think is any different than at any other time.”

Asked if the low dollar means it’s easier for U.S. companies to buy from Canadian vendors, Craig said, “Of course. That’s one of the reasons why the government wants the dollar where it is.”

But then comes the next question: is Canada open for business or ripe for plunder? After all, not only do our goods and services appear cheap beside U.S. offerings, but so, too, do our businesses.

“That is a value-loaded question,” Jain said of the prosper-or-plunder query. “Whether you consider that to be good or bad, both sides are correct. We do become cheaper for the Americans, and that means Canadians who have assets here will be richer. On the other hand, it does mean turning your assets over to a foreign country. What value you place on that is very subjective.”