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A person holds up a globe. From legal complexities to cultural differences, it can be tough to enter foreign markets. (PHOTOS.COM)
A person holds up a globe. From legal complexities to cultural differences, it can be tough to enter foreign markets. (PHOTOS.COM)

Global Commerce

Four tips on global expansion for small and medium-sized businesses Add to ...

As most Canadian CEOs would attest, growth opportunities at home will take an organization only so far. At some point any expansion-focused business will need to look abroad to grow its bottom line.

But this can be challenging for small and medium-sized businesses.

To grow in foreign markets, SMEs need to invest heavily and tap the necessary resources to make key business contacts, set up distribution or supply networks, hire local staff or establish a local office or warehouse or manufacturing presence, navigate often complex legal and bureaucratic systems and then (in most cases) attempt to operate in a different language with a divergent set of cultural and business norms (and sometimes ethical standards).

And that’s assuming that the political, social and economic climate in the overseas market is stable. Everything from government coups to currency fluctuations can derail even the most carefully laid expansion plans.

While it may be difficult, gaining a foothold in foreign markets is a very real opportunity for Canadian companies – assuming an organization employs the right due diligence and expansion strategy.

Here are four tips to take the uncertainty out of exporting abroad:

1. Know your market

Figuring that an overseas market will be as receptive to your products or services as customers in Canada is a naïve assumption. Everything from cultural differences to legal hurdles (foreign ownership rules, in particular) and stiff local competition are factors that can dictate the success of any overseas venture.

“You need to look at what your products or services deliver to each market,” explained Andrea Tunney, Export Development Canada’s (EDC) regional vice-president for the Americas in a July interview. “As a new exporter, you need to look in-house and examine your company. Does it have what it takes to be successful in the market? You also need to have a proven business plan here in Canada. Most companies that are exporting are successful in their domestic markets first.”

2. Play the long game

As Ms. Tunney points out, senior management should be fully committed to any overseas move in areas including human resources, operations and finance – then be prepared to wait. “Companies that start in a market work with negative cash flow for two and up to five years,” she points out.

As such, organizations need to be prepared to sustain operations when losing money, then put even more funds aside for less predictable challenges such as bureaucratic delays – a major issue in developing countries – and even currency fluctuations that could erase slim profit margins overnight. Her other piece of advice: Focus on one or two foreign markets at most, and ensure they offer low risks and high potential. Overexpansion is a surefire way to derail a company’s global ambitions.

3. Use government resources

As Thomas Jones, a senior partner with Canadian Export Consulting Services in Ottawa, notes, government organizations such as EDC and Business Development Canada can help businesses by providing accounts receivable insurance (for 30-, 60- or 90-day terms) and financing on goods and services exported from Canada. This is a particularly useful resource to tap when risk-averse lenders such as the major banks turn down financing requests. In addition, Industry Canada, EDC and Foreign Affairs, Trade and Development Canada (DFATD) offer reports on local economic, social and political situations to help entrepreneurs select export markets.

“One of the things we’ve noted is that people are very satisfied with the Trade Commissioner service,” Mr. Jones explains. The DFATD-funded service allows Canadian business owners to connect with trade commissioners in countries around the world, free of charge. The commissioners are tasked with helping entrepreneurs build business contacts, bid on contracts, identify potential customers, obtain the help of local service providers such as lawyers or accountants, and better understand the market into which they hope to expand.

4. Understand the culture

As Ms. Tunney explains, many Canadian companies fail in their overseas ventures because they don’t understand the local business and cultural climate. Citing South America as an example, she points out that strong relationships are a prerequisite for doing business – and relationships can take a long time to build. “[Prospective customers] want to get to know you, meet face to face and they expect regular e-mails and phone calls to develop that relationship and have that communication,” she says. “A general rule that I give to clients is that it takes 12 touch points in emerging markets to make the sale.”

Language is another major hurdle, along with basic differences in work styles. That’s why many companies opt to partner with a local business person, or use representatives on the ground that either come from that country, or understand it well. Having someone on the ground to provide sales service and support, and explain cultural peculiarities, is a definite advantage, Ms. Tunney stresses.

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