Organizations aiming to expand outside of Canada have the potential for exponential international growth. But all too often, leaders underestimate the complexities and time commitment involved. Small to medium-sized businesses that jump too rapidly or aggressively into international growth can face disappointment and crippling expenses.
Even major corporations can downplay the challenges involved. Just ask major U.S. retailers such as Target and Nordstrom, both of which charged headlong into the Canadian market, only to be forced into a strategic retreat after several years in operation (and incurring considerable financial losses). The cautionary tales of small to medium-sized businesses seeking new fortunes in foreign markets, and failing, are countless. But there are also clear success stories—Canadian companies large and small that defy the odds and find innovative ways to broaden their client base abroad.
Successful international growth—whether South of the Border or to another continent, doing business digitally or by establishing a physical presence within a target market—requires patience, planning and the advice of experienced professionals.
Here are seven things to consider before looking to expand your business into another country:
- Do you have the capacity? Expansion is not limited to footprint. Other areas that may require resources include workforce; production; sales and marketing; shipping; cyber-security; insurance; and backroom functions. Will additional financing be necessary to facilitate these needs? An accounting professional experienced in international business can review your current capital position and determine what needs to be addressed in order to achieve your goal
- Is your product or service a fit? Taking a cookie-cutter approach to international growth is never ideal, and there may already be ample competition in the market. How will your brand stand apart? Are your value propositions defined—and are they relevant to that market? Are you fulfilling a specific need? Is your product or service easily adapted to local business culture or social mores? Is your price-point optimized? On the technical side, consider minute details that can have major consequences (e.g., Does your product meet local technical specifications, or will costly retooling/redevelopment be necessary?). You may need to engage local talent to help refine and execute a sales and marketing strategy. In other words, pre-market entry research is key
- Is government support available? As well as offering advice for connecting with potential foreign partners and pursuing new business opportunities abroad, the Government of Canada provides funding to help businesses expand into international markets, including up to $50,000 to help small and medium-size enterprises. Other countries may also offer funding and resources to help foreign businesses become established in their region. The federal government’s network of trade commissioners across the globe is yet another invaluable resource, in this case for building networks and understanding local business conditions
- Is leadership on board? Before spending copious amounts of time and money on developing a plan for expansion, ensure that company owners and leaders buy in to the plan. If there’s an organizational gap in export, market, or language experience, ensure it’s filled before getting started. Other senior staff may also be required in Canada, as well as in your target market, to manage new or increased responsibilities
- Are you tax savvy? Never underestimate the tax liabilities, potential pitfalls and even the opportunities available when doing business outside of Canada. Some countries have relatively low tax complexity; others pose significant challenges, so it’s imperative to have a plan in place for repatriation of earnings if doing business in one of these jurisdictions, or where tax rates are higher than those in Canada. And, while there may be treaties in place in some countries to help avoid double taxation, breaking the rules can lead to legal headaches or a decades-long battle to recoup funds. In other words, foreign tax planning and compliance is a balancing act with many nuances. It can also be a significant business line item, so ensure it’s budgeted as part of your initial expansion plan and continues to be a priority for your organization going forward. Whether growth comes through expansion, merger, acquisition, or restructuring, the goal is to ensure local compliance while minimizing liability. This is another area in which an experienced Chartered Professional Accounting firm with international expertise can help. At Adams + Miles, for example, our International Tax and Growth partners leverage their deep global strategy and tax skill set, along with our firm’s AGN International affiliation, to help clients expand abroad
- Do you understand the culture? In some countries, extensive face-to-face, relationship-based negotiations are expected before signing a deal, while others are more transactional. Will language be a barrier to success? Is a local labour force available with the necessary skillsets? Are there barriers to women, minority or LGBTQ+ entrepreneurs operating in certain areas of the globe? Global Affairs Canada offers a wealth of information for doing business in other countries through its country info reports, while EDC helps exporters understand market risks and opportunities through the Country Risk Quarterly. Getting it right culturally can make all the difference
- Do you know the rules? Understanding the rules and regulations of the country in which you’re doing business is a critical first step. All countries have specific (and varying) requirements for tax and regulatory filings and submissions. Some relate to animal and human health, while others cover environmental protection and consumer rights. Compliance can be a very complex (and costly) consideration. That’s why it’s always wise to seek expert advice prior to entering a foreign market, while working with local experts to help ensure a smooth transition
Expanding a business is an exciting prospect for entrepreneurs and large corporations alike. Planning and seeking the right advice will help lighten the avoidable baggage that can accompany international growth—especially when it can cost a great deal more to correct mistakes after the fact. Making the right moves before embarking on your journey to a foreign country will help ensure smooth sailing and a profitable future.
Tony Sokic, Managing Partner
For more information on international growth outside of Canada, contact an Adams + Miles partner today.