Companies looking to tap new foreign markets typically try to limit the amount of capital they lay out on the table. But going beyond that financial comfort zone can make the difference between winning and losing international business.
That was the situation facing electrical and engineering firm Magna IV Engineering Ltd. six years ago when it was asked to be a technical consultant on a large copper mine project in Chile. The catch was the mining company wanted its would-be Canadian partner to supply millions of dollars worth of electrical equipment, a costly demand for the Edmonton-based firm. Magna IV’s domestic lenders were unwilling to lend against it without third-party guarantees.
“We are not always involved in supplying the equipment, and actually we prefer when we aren’t,” said Ken Unruh, the company’s president.
But Magna IV wanted the business, and to win the $2-million contract it had to supply as much as $7-million in pricey circuit breakers, transformers and other equipment that would power the machinery at the heart of the newly built mine.
The move would put a strain on cash flow, Mr. Unruh said. But winning the contract would make Magna IV a legitimate services supplier to the fast-growing copper mining industry in Chile and allow it to open a permanent office in Santiago.
With traditional Canadian lenders balking, Magna IV turned to the federal Crown corporation Export Development Canada to guarantee the financing of the equipment under its export guarantee program.
The company required approximately $2-million of financing. With the EDC’s guarantees, it secured financing from its Canadian bank and won the business. “EDC guarantees 75 per cent of the receivable, and that is normally enough. We can cover the 25 per cent just from normal operations,” Mr. Unruh explained.
Magna IV subsequently opened a 30-person office in Santiago and has won two other electrical engineering contracts on Chilean mining projects with EDC backing, Mr. Unruh said. Having a physical presence in the South American country has allowed it to bid on and win electrical engineering projects for large clients such as hospitals, food manufacturers and pulp and paper companies.
Magna IV, which has 250 employees, has carried out other international consulting contracts in countries such as Venezula, Mexico and the United States, where it typically has not had to bear the costs of supplying electrical equipment.
There was no master plan for pursuing business in Chile – it sort of just happened, Mr. Unruh said.
“We didn’t look at all the countries in the world and say that Chile is the one that we need to go into. It just so happens that we had some Germans within our company who were connected with some German mining equipment manufacturers, and they said, ‘Hey, we have some projects in Chile, are you interested in working on them?’
“After doing a couple of them, it was, like, maybe we should open an office down there and capitalize on more of the opportunities.”
Today about 20 per cent of Magna IV’s $40-million of annual revenue is derived from international clients. Besides its Chilean presence, it operates a 10-person office in Denver.
Magna IV is not lacking in growth prospects at home or abroad. Two-thirds of its staff are in Edmonton serving the heartland of the country’s oil and gas industry and reaping the benefits of the province’s robust economic growth, but it is also intent on expanding through the West as it has five other offices in Saskatchewan, Alberta and British Columbia.
“Edmonton is where we started in 1982, and our other seven offices are five years old or less,” Mr. Unruh said. “In this area it is oil and gas, but we are in hospitals, shopping malls, power and electric utilities, the oil sands, office towers” and powering residential subdivisions.
“When we talk to the oil and gas people we say yes, we are in oil and gas. When we talk to mining people we say yes, we are mining people. But what we want to say is we are electrical people,” he added. “There are transformers, circuit breakers and protective relays and they are all the same.”
The company is keen to swell its roster of foreign contracts now that it has learned the basics of international success.
“Going into these markets is just the leading edge,” Mr. Unruh said. “There are a lot of learnings, and saying you are going to go into just Santiago and just Denver is a little bit of a waste. You want to make sure that you understand international business, and once you become profitable at it and you understand it, that you keep it going.”
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