Putting a lock on Latin American exports

When former BlackBerry Ltd. engineer Jerod Klink founded a company called LockedUp Ltd. in 2014, he took an unusual route for a small Canadian startup – he jumped into exporting right off the bat.

“We had an American partner who said, ‘I know who’s looking for what you’re building,’” says chief executive officer David Coode. That someone turned out to be a Mexican telecom operator. LockedUp rebranded as Sera4 (“sera” is Latin for lock, and “semaphore” is a computer-science term referring to how access is controlled to a shared computer) and built a unique approach to on-site security that addressed a pressing need in that country.

As Mr. Coode explains, telecom companies need to make sure that the contractors and subcontractors they employ have round-the-clock access to their facilities. Typically, they just provide master keys, but the downside is that “once an employee knows 1,000 others have the key, it’s much easier to engage in petty theft.”

In Latin America especially, theft of the lead-acid batteries that power antenna towers is a huge issue, with the valuable batteries often stolen and sold to recyclers for cash. “We estimate it’s a $400-million-a-year problem in Latin America,” Mr. Coode says. “And that’s just the batteries; on top is repair, crisis management, lost revenue because sites are down.”

Sera4’s software digitizes the locks on towers’ equipment cabinets. Contractors need to download an app to get access to the site, which means master keys can’t simply be passed around, and telecom operators can track who’s coming and going and when theyʼre there. The companies using Sera4’s solution report theft rates are down by as much as 90 per cent, according to Mr. Coode.

Latin America wasn’t originally on Sera4’s radar, but after that first Mexican customer, the need for greater security in the region’s utilities and remote-service providers – from natural gas to waterworks – became obvious. Replicating that early success wasn’t easy, however.

“It was more challenging than it would have been in North America or Europe,” Mr. Coode says. “There’s a non-homogeneity in the region; every customer is unique in terms of how they do business and how to develop a relationship.”

Eric Miller is president of Rideau Potomac Strategy Group, which advises government and the private sector on trade issues. He stresses that Latin America, like much of the world beyond North America, is “a relationship-driven place, not principally transactional. You need to get to know people and earn their trust to have them engage with you.”

Navigating that challenge is well worth it, however, as Latin America and the Caribbean represents an underexplored opportunity for Canadian businesses. At $15-billion annually, Canadian exports to the region are substantially less than to Asia, Europe or the United States, but growing fast – by 9 per cent between 2017 and 2018 alone. Sera4, as a service company working with telecoms and other service providers, is a natural fit for the region’s needs.

“Latin America, by and large, doesn’t buy a lot of intermediate goods like components, which is what Canada tends to produce,” says Ken Frankel, president of the Canadian Council for the Americas. “Canada is very good at service companies, though, and there’s a big need for that, especially around engineering, energy and resources.”

The variety of services Canada has to offer is also diversifying, adds Mr. Frankel, with growth in the so-called orange economy (the creative and arts sector), as well as education and tech. And, as Mr. Coode suggests, Latin America is far from homogenous — more a group of overlapping markets, divided into several internal trading blocs. These include the Pacific Alliance countries, comprising Chile, Colombia, Mexico and Peru; and Mercosur, a more fractious group that includes Argentina, Brazil, Paraguay, Uruguay and Bolivia, with Chile, Colombia, Ecuador, Guyana, Peru and Suriname named as associated states. (Venezuela was recently ousted from the pact.)

“The Pacific Alliance countries are more outward-looking, emphasizing free trade and building up their own multinationals,” Mr. Miller says. “So the opportunity space for Canadian companies has so far been focused to a large extent there.”

While Canada has not yet negotiated its way into the Pacific Alliance, it already has individual trade agreements with each member, as well as Costa Rica.

It’s no surprise, of course, that Sera4’s first client was in Mexico, where according to Mr. Coode, “NAFTA was a huge advantage. Going beyond that was a step away from the ease of doing business there.”

Right now, Sera4 is closely watching progress of the United States-Mexico-Canada (USMCA) agreement, NAFTA’s likely replacement. Mr. Coode is optimistic about its prospects, particularly its potential to clarify issues around selling software and cloud services to Mexico, and stronger definitions of anticorruption practices, which he hopes will help stamp out shady business practices that pose a challenge for Canadian companies.

Even in the region’s most stable and welcoming environments, of course, companies need to keep abreast of local laws and customs.

“When we originally negotiated the deal with our first customer in Mexico,” Mr. Coode says, “they said they wanted us to manage the imports and assume delivered duty paid.” That meant that Sera4 assumed the costs of paying all tariffs and taxes associated with importing. Not only was this a big challenge for a cash-strapped startup, but they later discovered it was an unusual request. “So without knowing any better, we did it, and when we traced the implications, we had significant tax bills,” Mr. Coode says. “Our customer waited a while to pay us back, so we ended up footing a big bill, even though we had very little cash at the time.”

Those days, however, are over. The company, which now has 22 employees, surpassed $1-million in revenue in 2016 and hasn’t looked back, expanding into Colombia, Paraguay, Uruguay, Brazil and beyond.

“Ninety per cent of our business is in Latin America,” Mr. Coode says, “but we’re starting into Africa now too.”

Africa, divided into multiple trading blocs of its own, with dozens of countries, languages and political considerations, may be even more complex than Latin America. “Companies can’t win in other markets unless they are aware of, and play within, the culture of that country,” he says. “We’re definitely more ready than ever.”