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."
The Canadian economy experienced some unexpected downturns and market-changing conditions over the past year, including low oil prices, a devalued loonie, inflated housing prices, and others.
"When I hear stories about, 'Oh the weak Canadian dollar will drag [improve] Canadian exports and offset the oil patch,' I'm not so sure," Watt said.
Some people believe a weak loonie 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 a room full of Ontario business leaders in Toronto in mid-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, making it harder for Canadian companies to develop and expand on their international presences and exports.
“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," he added. “Canadian companies need to take advantage now or we'll get steamrolled."
Watt said the Canadian economy's prospects from 2015 through 2016 are not strong. His growth forecast for Canada this year is slightly above 1 percent.
Watt noted that companies seeking to pursue new opportunities or grow their businesses outside Canada must understand how the global marketplace has changed so that they can make the most of today's international opportunities. Traditionally, the construction, insurance, financial services, mining, and oil and gas sectors have led the way among Canadian exports. “Now, arts and entertainment, information technology, and culture need to step up," he said.
If an interactive poll held during HSBC's Connecting for Growth events is any indication, the majority of Canadian business executives feel a lack of knowledge is keeping them from going global — 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.
Danielle Goldfarb, the director of the Conference Board of Canada's Global Commerce Centre, 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 Ontario Businesses Learned Abroad
The top executives of some of the Ontario 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. “There's an inherent trust," said Eyal Eshed, the export manager for Nuform Building Technologies, adding that being Canadian carries weight as long as a company delivers on its promises.
The reputation for humility and compromise that many Canadians possess can help foster international relationships, but Canadians also have a tendency to be risk-averse and not very aggressive. When attendees at the HSBC event in Toronto were asked what the biggest challenge their company faced, 49 percent of them said they were risk-averse. This was their number-one answer.
Barry Eisen, the executive vice-president, mergers and acquisitions for Altus Group — a company offering independent advisory services, software, and data solutions in commercial real estate — said Canadian companies should make the effort to go global, even if that means advancing cautiously.
“When we look at making an acquisition and we present it to our board, we really break it down to three steps," he said, explaining that these are financial, strategic, and cultural. Because his company doesn't manufacture a physical product, Eisen said acquiring companies essentially means getting into bed with them — meaning the acquirer inherits the good with the bad. As such, he continued, it's extremely valuable to make sure that the current team and the next generation of talent within acquired firms agree to stay on to see the acquisition through and ensure its success.
Having stability when it comes to personnel and cultural guides on the ground in foreign markets is all the more important in parts of the world that are unstable.
For example, when local government decided to split a state in India into two, it changed parts of the tax structure for Hammond Power Solutions. It was completely unexpected and threw the company — temporarily — for a loop, Hammond said. It drove home the message that being ready for anything and everything in international business is part of the game.
He explained that Hammond Power Solutions was forced to expand internationally many years ago when the North American Free-Trade Agreement opened up Canada's doors to foreign competitors, making it harder for Canadian companies to retain their place within the local economy.
While his company has made acquisitions in the United States, Hammond cautioned Canadian businesses against focusing predominantly or exclusively on our southern neighbor. “We have the largest single market right next door," he said, adding that many characteristics, including sharing the same language and the presence of a good legal system, make it tempting to concentrate too many resources in developing the American market.
Hammond said international expansion beyond the United States takes skill executives and a knowledge of foreign markets — a potentially risky prospect but with untold gains to be had, if done right.
Eshed agreed that the gamble to go international has been worth it for Nuform Building Technologies. Although the company only started its international program a few years ago, it has already seen huge gains. Eshed estimates about 70 percent of the company's sales currently come from exports.
Having a person dedicated to exports helps a lot, Eshed continued, and he advised other Canadian companies thinking of tackling exports to do the same.
Finally, Eisen shared some words of wisdom about global expansion. First, proceed with caution. If prospective new deals and acquisitions don't smell right, he said, it's usually best to walk away. Second, of all the things a company looking at going global can do, Eisen said the most important is a simple and universal credo: “Do your homework."
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 Altus Group expands globally by going where its customers are going, 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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