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New federal export program too restrictive, business owners say

International Trade Minister Chrystia Freeland has announced $50 million in new funding for small businesses looking to export their goods. (Communitech/Phil Froklage)

When John Zimmerman heard about CanExport, a new government program to provide $50-million in funding for small businesses looking to export their goods, his first thought was "That's awesome!"

Under the CanExport program, which was announced by International Trade Minister Chrystia Freeland in January, the federal government has pledged to reimburse up to 50 per cent of spending between $10,000 and $100,000 on travel, trade fairs, market research and other expenses related to expanding overseas trade. Qualifying businesses must have fewer than 250 employees and annual revenue of between $200,000 and $50-million.

But Mr. Zimmerman, who is general manager and minority shareholder of Victoria-based Ocean Rodeo Sports Inc., quickly determined that although his company fit the size requirement, it couldn't get past a list of other criteria.

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The first problem: "If somebody has spent even $1 in the last year on your product in another country, you no longer qualify," he says.

That restriction shows a lack of recognition of how business is done, according to Mr. Zimmerman. "In our traditional market of kite boarding, we're getting a terrific following right now in Germany," he explains. "It's a strong economy and we're seeing some real resonance with our branding. So in the last few years, we've poured a bunch of our own money into growing that market."

But although Germany now represents 30 per cent of Ocean Rodeo's European sales, that's small potatoes compared with the North American market, where the company makes the bulk of its money. Rather than going after a totally new market, where the business culture and rules of engagement are probably different, "why would we not be able to make use of that program to further pour fuel on that fire?" Mr. Zimmerman asks.

Similarly, even if businesses are introducing their products to an entirely new market segment within one of the countries they export to, they don't qualify for reimbursement under the program, he says.

Ocean Rodeo, for example, found new customers for its dry suits – originally designed to keep kite boarders from getting waterlogged – among commercial customers from fish farms to ferry operators and search-and-rescue operations. But although the marketing channels are totally different, the business doesn't qualify for reimbursement if it has already sold kite boards to any other segment in that market.

"We could really use some cash to tackle new markets for export," Mr. Zimmerman says. "But sometimes it seems there's a disconnect between the high-minded idea and the general implementation of the program."

Kevin Jacobi, owner of WP Warehousing Inc. in St. Catharines, Ont., also finds the CanExport program's focus unnecessarily narrow. He recently began selling his company's glass bottles to wineries in New York State, largely because of a connection with a Canadian company that has operations both here and south of the border.

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For Mr. Jacobi, that served to confirm there was a market for his products in the United States But even though less than 3 per cent of his company's sales of glass bottles come from New York State, he can't get funding to tackle that or any other segment of the U.S. market through CanExport.

His question: "Would you rather speculate on someone who hasn't had any experience in the market, or would you rather invest in someone who has already dabbled there and can see the potential? Which is a better investment for our taxpayer dollars?"

Mr. Jacobi also objects to CanExport treating the "whole U.S. as one market," pointing out that each state has its own rules and way of doing things. "What we've been recommending to [CanExport] is look at the base percentage of sales," he says. "And please look at the U.S. as a number of significantly different markets."

A final concern for small and medium-sized enterprises (SMEs), Mr. Zimmerman says, is that they're unable to apply for reimbursement of any expenses that have been "preassigned."

"Essentially, what they're saying is that we need to wait until we hear back from the bureaucrats as to whether or not we got the funding before we go ahead and execute on our plans," Mr. Zimmerman says. "What that means to me is, 'I need to tell you two years before now what I intend to do because it's going to take you six or seven months to respond, by which time the trade show will be over."

Not so, counters Global Affairs Canada spokesperson François LaSalle. "CanExport continues to maintain its service standard of 25 business days for a decision," he says. "And many applicants apply months in advance of their activities, with a plan and plenty of preparation."

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Mr. LaSalle points out that the purpose of the program is to encourage SMEs to explore new markets. Companies that have been turned down by CanExport can still get support from the Trade Commissioner Service, he says, "which facilitates billions of dollars of trade for over 11,000 Canadian companies every year."

And in the end, Mr. LaSalle says, the program's restrictions haven't stopped plenty of businesses from taking the government up on its offer. "More than $6-million has been approved for 200 Canadian SMEs in just four months," he says. "Some are experienced exporters and some are looking to export for the first time."

"I think the CanExport program is a great new tool," adds Teri Kirk, founder and chief executive officer of the Funding Portal, which helps companies to find government and private sources of funding. "But it's not about carrying on your current business as usual. Governments use programs like this to incent new activity."

Follow Report on Small Business on Twitter at @globesmallbiz.

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