Despite economic difficulties at home, Canadian businesses have a chance to grow by taking advantage of opportunities in the global marketplace and utilising their global competitive advantage. The world needs more Canadian business(es)," said David Watt, chief economist at HSBC Bank Canada. “We have to go out there and work for it. If we wait until conditions are better, then somebody else is going to move in first."
A housing market bubble, a stalled GDP , low oil prices and a devalued loonie all characterize an economy that needs a serious shot in the arm. That, according to Watt, should come from international business expansion. “We need to make efforts [today for] now,” he said. “We need businesses to step up.” Watt told the audience that the Canadian economy's prospects from 2015 through 2016 are weak. His growth forecast for Canada this year is slightly above 1 percent because of lower oil prices and the weakening of the Canadian dollar.
Some people believe a weak Canadian dollar will bolster Canadian exports — and it may very well do so — but it will only get harder and harder to compete if companies maintain the status-quo approach to selling internationally. Watt said the current economic conditions make it all the more important for Canadian businesses to step up to the plate when it comes to international expansion and growing exports.
"Even the smallest companies have to start thinking like multinationals," he said.
Watt addressed Quebec business leaders in Montreal in October at the Connecting for Growth event focused around insights on global opportunities for Canadian businesses from a report that was supported by HSBC Bank Canada and researched and written by The Conference Board of Canada.
The report, Selling to the World: The Keys to International Business Success, was based on exclusive research with Canadian firms that have already proven themselves beyond our borders. The common thread that ties these firms together, the Conference Board found, was that each one had developed and leveraged its global competitive advantage (GCA) — that is, its unique ability to create value for its customers.
Watt said national investment in research and development (R&D) has waned significantly over the past 14 years, to the detriment of the economy — and so it's no surprise that Canadian businesses have struggled to expand.
“R&D isn't just optional,” agreed Linda Seymour, HSBC's executive vice president of commercial banking. She pointed out that about 550 — really, a tiny fraction — of Canada's roughly 40,000 businesses are responsible for 70 percent of the country's exported goods. Given that the government of Canada has negotiated more than 40 free-trade agreements around the world, it's clear Canadian businesses need to do more to live up to their potential.
Companies Must Look Beyond our Borders for Growth
Canadian firms need to look for opportunities all around the globe today — not six months or a year from now, Watt emphasized.
The percentage of Canadian companies involved in exporting is less than 4 percent, Watt explained, with less than 2 percent of small and medium-size enterprises (SME) exporting. In comparison, the percentage of German SMEs exporting is around 20 percent. “This is Canada's opportunity,” Watt added. “Canadian companies need to take advantage now or we'll get steamrolled.”
If an interactive poll held during the Montreal event is any indication, a large portion of Canadian business executives feel a lack of knowledge about going global. Thirty-five percent of the attendees reported that a lack of knowledge is holding them back from pursuing global markets — which is why it is critical to tap the experiences of those Canadian firms that have found success internationally. And discovering those secrets was the goal of the Selling to the World research.
The Conference Board of Canada's Senior Economist Kristelle Audet, who wrote the report, said that all the globally successful companies analyzed by the Conference Board built their GCAs in four core areas:
Skilled Executives are innovative, entrepreneurial risk-takers willing to go outside their comfort zone.
Innovation Capabilities show a company's knowledge of its international customers' specific needs—which result in new and improved products. Ongoing investment in R&D and staying at the forefront of technology are the keys to standing out in the global marketplace.
Foreign Market Knowledge is a reflection of a company's market orientation. Successful global companies deepen their understanding of new markets through market research, surveys, hiring people locally, drawing from international contacts, and making the most from available government resources. This needs to be part of the company culture.
International Networks comprise customers, suppliers, trade organization, banks, and other local organizations that can help the Canadian company build expertise in the new market.
What Quebec Businesses Learned Abroad
The top executives of some of the Quebec companies profiled in the Selling to the World report spoke about their experiences during the event.
One highlight, they noted, is the welcoming reception Canadian companies receive in other parts of the world. “Canadians have the immediate advantage of being seen as 'the nice guy,'” said Marty Lieberman, president of base-layer and intimate apparel company L'Amour.
That certain je ne sais quoi Canadians possess can translate into a willingness to listen and make compromises, which helps foster international relationships, but Canadians also have a tendency to be risk-averse and not very aggressive, qualities that are less likely to be effective in the competitive arena of global business.
In answer to another interactive poll question, 22 percent of attendees reported that their greatest challenge to international expansion was being risk averse. And, no doubt, competition will heat up in the years ahead as broader trade agreements such as the Trans-Pacific Partnership supplant more protectionist policies, such as NAFTA, that have been beneficial to Canada. Canadian companies will be required to be more aggressive and innovative as they face greater competition from countries with lower wages and larger R&D budgets.
Annie Gagné, the business relations director for Quebec's GIRO, a company that makes planning and optimization tools for public transportation networks, explained that R&D is one of the key reasons why the 35-year-old company has managed to enter markets in 28 countries around the world.
Considering that GIRO itself grew out of research for a Master's thesis, Gagné explained that making a large investment in R&D was a natural conclusion reached early on by the company's founders. Today, upwards of 30 percent of GIRO's workforce is involved in R&D. In addition, she said, having access to the international university community has been a boon to GIRO's continued expansion.
Another key to understanding markets beyond Canada, speakers said, is for executives to spend time in the countries where their companies operate.
“You need to get on a plane,” said Raman Rai, HSBC's senior vice president and head of global trade and receivables. He explained that it is very important for Canadians to meet potential suppliers and buyers on their turf.
Frédéric Dugré, founder and CEO of membrane water-filtration systems company H2O Innovation, spends time every other week visiting clients and potential clients around the world. With 400 water-filtration and water-recycling plants in 40 countries, H2O Innovation responds to a very international problem that becomes more pressing with each passing day: Water quality and scarcity.
Dugré strongly cautioned Canadian business people against exporting a North American mindset to other countries. When H2O Innovation first expanded to India, the company ran into difficulties when it based its plans on presumptions exported from their previous experiences on this continent. “We had the wrong business model at first,” Dugré said.
To prevent costly mistakes, Canadians doing business successfully in other countries have learned the importance of having people on the ground to ensure that products, services, and marketing messages match the needs and cultural nuances of the new market.
A host of intertwined factors are required for success in global markets. These include taking risks, being disruptive, investing in R&D, knowing your market, having the right workers in the right places, and nurturing global networks.
While there are risks involved in venturing outside Canada, there are also risks to continuing to conduct “business as usual” within the tepid Canadian economy — especially when companies in other nations are eyeing expansion here.
“It's a race,” Dugré said. “You've got to be first.”
To learn more about how your company can “sell to the world” by sharpening your global competitive advantage, download Selling to the World: The Keys to International Business Success, a new report commissioned by HSBC from the Conference Board of Canada.
Discover how diversification leads to global success for H2O Innovation, click here.
Source: Selling to the World: The Keys to International Business Success, June 2015
Issued by HSBC Bank Canada ("HSBC")
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