THUNDER BAY – Business – If you’re an entrepreneur with growth on your mind, the place to look for fresh markets is no longer just the U.S., the European Union or Japan. It’s increasingly important to consider China, India, Brazil and emerging countries in Southeast Asia, says Frank Pho, Vice President, Global Expansion, at the Business Development Bank of Canada (BDC).
Massive Economic Growth – China – India and Brazil
China’s economy grew by over 10% annually from 2000 to 2010, while India’s expanded by 7% yearly and Brazil’s has grown by nearly 4% per year. Meanwhile, the economies of Canada, the U.S. and the European Union each grew by less than 2% annually.
“The emerging markets are where you have constant GDP growth. Going to those countries should no longer a question of why, but rather a question of how,” Pho says. Expanding into these markets offers not just growth potential but also much needed diversification, he says. “Canada is a very small percentage of the global market. Companies that focus only domestically limit their growth potential.”
But Canadian companies are falling behind in the globalization race, Pho says. Just 8% of Canadian exports explore the fastest-growing emerging markets, while 85% still focus on the mature developed world. Many companies don’t even consider pursuing international sales, and Pho says that can be dangerous. “If you don’t expand abroad, you’re playing a defensive game, because you will still be competing against foreign companies doing business in Canada.”
The road map to international expansion
Canadian entrepreneurs need “a paradigm shift” to catch up, Pho says. Many start selling abroad without an understanding of the target market’s behaviour, their different supply chain and/or business practices, which results in costly false starts.
Entrepreneurs must adopt the consumer mindset of the target country and adapt their products and solutions. Too often, Canadian companies fail because they assume a product that sells in Canada will sell elsewhere.
While discretionary income has increased in many emerging countries, consumers there still have less purchasing power than Canadians and won’t necessarily go for a product with costly frills, Pho says. Therefore, it may be beneficial to offer a version with fewer features.
It’s important to get help from advisors who understand the local consumer mindset, target market and players in the supply chain, Pho says. This process can take two to three months, but it will save you a couple of trips. You will then need an additional six months to a year to adapt your product, develop a relationship with in-country partners and validate the business model before you’re ready for a full launch.
That’s often much more time than Canadian companies give themselves. “Canadians often want to get a deal signed with a local partner after a couple of meetings. That won’t work in a country like China. They want to get to know you and build a relationship,” Pho says.
The path to growth
Robert Desrosiers agrees. He started marketing his company, RH Hydraulique— which makes telescoping ladders used on utility trucks—in developing countries five years ago. Sales have just started to pick up now from those efforts, but they already represent 15% to 20% of his revenues. “It’s just the beginning. The potential is enormous,” he says.
Desrosiers says it takes three to five years, on average, to develop a solid foothold in a new country. That includes time to research local regulations, make contacts and educate potential customers about his products. Presence onsite is also vital, he says, with a foreign venture requiring about 10 visits to the other country in the start-up phase.
In Indonesia and India, he’s also had to adapt some of his ladders because vehicles in those countries are smaller. However, the long wait and adjustments have been worth it, Desrosiers says. “I didn’t have a choice but to do this. If I want to grow, I have to go international.”
Managing an international team of employees or overseas partners can be tricky. You often have to negotiate across thousands of kilometres of time zones, language and cultural differences, and unfamiliar business practices and rules.
BDC’s Frank Pho advises developing two layers of checks and balances to improve your odds of success:
- Create a “multi-level” monitoring system. Don’t rely just on communications with the person designated to work with you. Also, establish informal relationships with people who work under and above that person in the chain of authority. That allows you to validate vital information on operations. It also helps ensure you have someone else to talk to if your contact suddenly leaves.
- Establish “multi-dimensional” monitoring by developing contacts up and down your supply chain in the local country. This helps you keep ahead of changing market conditions and gives you quick access to alternate supply options, if needed.
The Business Development Bank of Canada is passionate about one thing: entrepreneurs. Helping them is our raison d’être. BDC listens and knows how to meet their needs. We have business relationships with 29,000 entrepreneurs across Canada. We understand the challenges they face every day, and we use our human and financial capital to provide the means to reach their aspirations. At BDC, we do everything to help entrepreneurs grow their business. BDC offers financing, venture capital and consulting services. BDC focuses on small and medium-sized enterprises (SMEs).
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