By R. Bruce Striegler
In a recent webcast titled ‘Market Entry Strategy Highlights’, Export Development Canada, (EDC) the Canadian export credit agency, presented potential exporters information on how to market, sell, deliver and distribute their products in another country. The webcast’s moderator Joe Rios, EDC Sector Advisor, Life Sciences and Light Manufacturing Sector, Business Development Group (BDG), began by noting that the Canadian government’s aggressive trade diversification strategy with recent trade agreements and those under development made the presentation most timely.
A market entry strategy includes ways of assessing the securing and fulfillment of contracts. Some of the most common methods for selling to a new market include directly exporting products or services to a foreign buyer, indirectly exporting products or services using a distributor or consultant, or manufacturing products in the target market. EDC’s knowledge and partnerships are used by more than 7,400 Canadian companies and their global customers in up to 200 markets worldwide each year.
Panel member Laura Dawson, President of Dawson Strategic, which provides advice to business on cross-border trade, market access and regulatory issues says, “International trade is not conducted between governments, but by putting a willing buyer together with a willing seller. What trade agreements and governments can do is help to increase transparency, decrease risk and decrease transaction costs.”
Ms. Dawson explained that this is done is through various international trade pacts or investment agreements which make it easier to settle disputes. “Our framework of international trade agreements has come from the 1989 North American Free Trade Agreement. It’s been the structure for how we do business.” Noting that markets are changing and the U.S. is no longer as big a buyer of Canadian products, she explains, “It is a market that is not growing rapidly, but there are markets including Asia, Latin America and even Africa, where Canada needs to be,” adding that getting into these markets can present risks and challenges. “There are a lot of unknowns. The biggest risk is assuming that the way we do business at home is the same way we’re going to do business abroad.”
Dawson explains that through its international trade agreements, the Canadian Government has established a rules-based framework so that Canadian businesses can find more predictability when they trade in a new country and also reduce barriers such as tariffs and customs along with non-tariff barriers such as licensing or certification. “Recently we’ve had a run on new trade agreements in Latin America; Columbia, Panama, Peru, Honduras, and we’re negotiating the Trans-Pacific Partnership to better access Asian markets. We’re even negotiating with the European Union in order to dig deep into some new trade areas we hadn’t considered in the 1980s and 90s.”
Do your research before you launch
Picking up the conversation, Mark Bolger, EDC’s Regional Manager of Asia, says that companies planning on developing new export markets need to take a look at themselves. “When you’re trying to break into a new market, you will need to look at your appetite for risk. How well do you want to protect your intellectual property or how well do you know the buyers or suppliers that you will be dealing with?”
He comments that exporting takes time, money and a high level of personal commitment. Mr. Bolger advised that potential exporters should have a good game plan in-house on how to deal with the added cost and resources required to develop new distribution networks, understand additional needs in human resources and be aware of new languages and new marketing materials that will be required. He points out that potential exporters also must recognize the legal or regulatory issues in a new market.
Deciding which export market one wants to enter requires time for fundamental research. “You’re going to want to narrow down possible new markets to perhaps one or two. It takes a lot of resources to develop these markets and you should look at each from a growth perspective, find out who your competitors will be, what the price point should be, and what value your product actually brings to the market.” He says that emerging markets may require reducing price points in order to be competitive or that a product may need to be adapted to reach new buyers. “You should be looking at partners you can draw on to help you understand the market and take some of the resource constraints off you,” Bolger says, listing freight forwarders or customs agents as examples of key partners.
When choosing a new export market, Mr. Bolger says that companies who are more risk averse may want to look at countries such as New Zealand or Australia. “Those markets have cultures similar to ours, speak the same language, and the market size is roughly the same size of Canada’s. The needs in those countries are similar to ours, whether in infrastructure, agri-food, healthcare or telecommunications.”
With emerging markets, Mark Bolger says exporters may look to countries such as Thailand or Indonesia, explaining there is a highly developed auto hub in Thailand while Indonesia is a resource play, with significant developments in forestry, mining, and oil and gas. He identified Chile, Columbia and Peru as locations of opportunity, in part because of the free trade agreements Canada has with each, as well as growing development. “They need a lot of infrastructure development to help address that growth. Chile plays directly into Canadian strengths in mining, power and forestry.”
Canadian exporters may find it worthwhile to look at Morocco, which has large infrastructure developments in urban transportation as well as around wastewater management. In South Africa, Canada has huge mining strengths, and Bolger says there are already ties with many South African entities. “In the Caribbean, I’d pick Trinidad or Tobago. There’s some great infrastructure development going on around housing, as well as oil and gas, key to their economy.”
To manage the risk, seek professional advice
Before a business begins to export, Laura Dawson suggests that companies should seek professional advice in several critical areas. “First, you’ll need someone well-versed in customs procedures and how to land your goods, how to get your goods cleared, how to get proper documentation in order.” She adds that it is necessary to ensure that exporters are on-side with all tax, fee and licensing requirements. “I’d recommend that potential exporters should contact the Canadian Bar Association who can get in touch with their counterparts in the proposed market. One of the things we’re paying a lot of attention to lately is anti-corruption measures.”
Mark Bolger adds that protecting intellectual property is a major issue. “It’s not a question of ‘if’ you should protect your intellectual property, you should, whether you’re exporting or not. This is fundamental to your business, so register your trademarks or copyrights, these are all essential to your business.” He says some of these protections could be made well before entering a new market to prevent other companies from copying your product. “Be aware that it is not uncommon for your distributor, supplier or venture partners to infringe. Speak to a lawyer, they can give you great tips and advice, whether you are in a foreign market or even here in Canada.”
Many Canadian companies offer services, not products, and they are also looking to diversify by entering foreign markets. Some of those services include architecture, software developers or engineers. Laura Dawson says, “A growing percentage of Canada’s GDP, employment and trade is derived from services. This is a very important focus both as an area of economic development but also where we need more and better rules.” She notes that current trade agreements don’t necessarily deal well with services.
“This is because many services are a relatively new matter. A lot of the services we now take for granted weren’t available at the time of the North American Free Trade Agreement or World Trade Organization (WTO) deals, identifying third party logistics or the Internet among those services. “The advances we’ve made in technology, containerization, digitization, outsourcing or offshoring all have service implications, but we don’t have very good rules that help us ensure there is transparency and predictability across the board.” She commented that Canada is currently involved in negotiations at the WTO seeking an accelerated services agreement. “We really need to address some of these issues, and the Trans-Pacific Partnership is looking at improved measures for services.”
Choosing a business structure is part of a market entry strategy
Anyone thinking about entering a new or foreign market needs to understand the forms of business structure that may be most advantageous. “The most common form of market entry is pure exporting,” says Mark Bolger.” That can be direct export, or through an intermediary such as becoming a sub-supplier to a larger Canadian exporter, and your goods are pulled into the market that way.”
He continues, saying that some countries require having an agent, but that it is important to ensure the agent shares your values and goals. “Never give exclusivity to one agent for a large market,” he advises. While rates can vary, generally an agent’s commission is worth eight per cent of a contract’s value, and Bolger suggests researching industry associations and trade commissioner services for agent contacts. “You may require a distributor. In the case of a distributor relationship, you need to understand that they’re buying your goods, but you don’t have much control over how or when your product reaches store shelves and the end user, so it’s important to understand how your distributor is working in that regard.”
Direct investment abroad can take the form of opening a sales office, a fundamental first step in breaching a new market. “That’s where you have a small number of people on the ground helping to develop the sales relationships, helping promote the company’s goods, but not actually producing anything in-market.” He says that some countries have limits on the size and scope of the sales offices, so this is another area that companies need to understand before moving into new markets.
Joint ventures are another structure, but Bolger comments, “Joint ventures can be forced upon you by the investment rules of a country since most countries allow only a certain percentage of off-shore ownership in key areas such as telecommunications, distribution or other sensitive areas.” He adds that it is important to understand your joint venture partner, since that is a sphere where a host of difficult issues can develop. “The joint venture may start off on a very friendly basis, but what if, as the business grows, goals and objectives diverge with those of the partners?”
Finally, a wholly owned foreign enterprise may give a company more control, but according to Mark Bolger, “You don’t have the same initial control or assistance in developing marketing or distribution channels and overcoming cultural aspects of doing business in a foreign market.”
“When breaking into new markets, it’s best to leave your assumptions out of decisions. If you assume that your success here at home, or in the U.S. necessarily translates into the same success in foreign markets, you may be making a mistake,” says Bolger. He suggests it is important to talk to other companies in your sector as well as trade associations or Canadian Trade Commissioners to understand the business practices and cultural nuances in foreign markets. “In many respects, you will want to take time to go to the market, to see and “feel” the market to make sure you have a clear understanding of the business practices as well as understanding after-sales servicing policies.” Mr. Bolger says that long-term thinking pays off when it comes to new market entry strategies.