For smaller companies, risks can be even more pronounced. “If you are putting a significant amount of capital on the line, you have to do so in a thoughtful, targeted and focused manner that is in keeping with your strategy. Protecting intellectual property can be another issue, especially when sharing technology with a foreign partner.”
Despite such red flags, Mr. Evans is convinced that investing overseas is as much about survival as it is potential success. “Part of it is about expansion into foreign markets.
But part of it is also about protecting your interests at home too.”
CASE STUDY 1: CANADA MENTALS
Expansion helps B.C. manufacturer navigate economic challenges
John Mitchell has a message for small and medium-sized Canadian manufacturers: “To survive in Canada, you have to invest abroad.”
In 2003, he found himself staring down some hard realities: a rising Canadian dollar was rapidly eroding his profits and his biggest customers were demanding lower prices.
It was a wakeup call for the president and CEO of Delta, B.C.-based Canada Metals, which had earned a dominant share of the recreational boating industry’s zinc anode market by serving customers including Yamaha and Mercury Marine.
An analysis revealed that uncompetitive labour rates and a limited market focus further threatened Canada Metals’ future. “We decided to focus on opportunities in lower-cost emerging markets. Further, we would look at global expansion,” says Mr. Mitchell.
After evaluating several possible locations for an offshore manufacturing facility, Mr. Mitchell says China stood out.
It was 2004, and “China had opened up to wholly owned foreign entities. They presented us with a seven-year tax holiday, assistance getting through red tape and other help. These people were motivated,” he says.
Still, establishing the facility wasn’t easy. “I have a lot more grey hair. There were a lot of cultural idiosyncrasies and rules and regulations to learn,” says Mr. Mitchell. “But we felt if we could bring down our cost and maintain our quality, we could compete globally.
“We accomplished that, and this allowed us to expand sales into Europe and South America.”
As a result, Canada Metals has doubled its revenue, grown beyond its original customer base and added new product lines, including its proprietary Martyr brand zinc anodes. Its sales in China are robust and growing. And the company recently added operations in Italy and New Zealand to its group.
In Canada, “where I used to have a lot of labourers, I now have quality technicians, engineers, and sales and marketing staff,” says Mr. Mitchell of the head office, which employs 85 people. “Had I not expanded, I would have been out of business.”
CASE STUDY 2: TOON BOOM ANIMATION
Animation software maker a picture of success
Were it not for its determined expansion efforts, Montreal-based Toon Boom Animation might today be little more than a one-product business. Instead, it’s a global success with rising prospects.
By 2000, the company, which makes animation software for the education, TV and film industries, had established a worldwide presence that included relationships with studios in Hollywood, Europe, China and elsewhere.
Company president and CEO Joan Vogelesang says, “We think of the world as our oyster.”
Inspired, in part, by Toon Boom’s game-changing investments in India that began 12 years ago, Ms. Vogelesang is chasing opportunities in South America, the Middle East and the Caribbean, among other markets.
Through a chance encounter with India-based film distributor Dhiren Shah in 2000, Ms. Vogelesang learned about India’s rising middle class and its virtually non-existent animation industry.
“At the time, India’s TV and film industry was built around Bollywood and Live Action. We expected demand for cartoon content in feature films and TV would rise.”
She says it took nearly a year and a half – and about a million dollars invested – before Toon Boom saw any returns. Over that time, Ms. Vogelesang and others met with studios, government officials and entrepreneurs, including Mr. Shah, who saw the potential to build a new industry. Eventually, those efforts paid royally.
By 2008, India’s animation market was valued at $494 million. Today, it’s worth over $1 billion, and Toon Boom is a major player.
Toon Boom has since launched a simplified version of its technology now used as a dynamic learning tool in a growing number of classrooms. “We are already in thousands of schools in the U.S.”
While encouraging Canadian SMEs to explore global opportunities, Ms. Vogelesang cautions, “You have to protect your IP. And you can’t just hand your business off to a distributor or to a junior. You have to invest in strong, ethical relationships. And you need to have the faith and confidence that your investments will pay in the long run.”
For more information, visit edc.ca.