Small Steps Globally, Big Impacts for Canadian Exporters

March 9, 2015    

By Omar Allam, CEO & Founder – Allam Advisory Group

Executive Summary

Businesses have the same basic goals that they have always had: stay in business, overcome competition, increase revenues, and minimize costs. What is changing — rapidly so in some cases — is the complexity and predictability of the environment in which businesses pursue their goals.

Despite this rapid evolution, much of the recent popular talk of a totally “borderless world” still appears to be more theoretical than real. Countries are still defined by national boundaries; imports and exports[1] still have to flow across these boundaries; and the nature and magnitude of these flows still are important to national governments. The progressively disappearing barriers and borders are exposing all companies both to new markets and to international competition. Consequently Canadian exporters that do not consider internationalization are unknowingly self-imposing a severe restriction on their potential for long-term survival.

In order to have more internationally focused Canadian exporters, government support (at all levels) remains vital. Many small and mid sized businesses (SMBs) would not consider the international marketplace if it were not because of support. This “complement” effect fully justifies governmental intervention.

Introduction

The world of exporting has changed considerably, including the types of goods and services being exported, the kinds of entities involved in export transactions, and the financial and risk management services being more routinely provided. In short, exporting activity has become less predictable and more complex.

In some cases, entities requiring support may be only indirectly or tangentially related to a particular export transaction. But even though parts of the chain may become remote from the original export activity, each part of the chain must succeed in obtaining support in order for the original export (and all other exports in the chain) to be realized. For Canadian exporters, this is giving rise to financing and risk management needs that are driven as much by the dynamics of the supply chains they find themselves involved in as by the specifics of a particular export transaction.

Exporting is less predictable and more complex

What does all this mean for the changing nature of exporting and Canadian exporters? As noted earlier, exporting is becoming less predictable and more complex. This is not a sudden change, but a steady progression. A decade ago, this change was noticeable, as firms explored the emerging possibilities of doing business in a more integrated, globalized world.

Exporting has Evolved

Today’s SMBs are more dynamic and flexible. While an SMB may reside in one country, its virtual capacity may extend far beyond its national borders. Many SMBs still act as sub-suppliers to larger firms, but many others seek out larger (domestic or offshore) firms to sub-supply to them. It is not unusual for SMEs to find their first sales offshore, returning to their home market once they have established a track record abroad. Many are just as likely to have relatively complex financing and investment needs as insurance needs. The nature and timing of working capital needs are therefore more complicated.

Similarly, the role played by emerging economies has become more textured and complex. According to Export Development Canada, Canadian exports and direct investment into emerging markets has been growing strongly in recent years. Canadian exports and Canadian Direct Investment Abroad (CDIA) to emerging countries reached an estimated $72 billion in 2011, which amounts to 13% of total Canadian exports and CDIA to all countries (and more than double the 6% share from a decade ago)[1].

Impacts on Canadian Exporters

It is undeniable that international trade and investment play a crucial role in sustaining Canadian prosperity. Thus, one would expect that Canadian exporters are very much involved in the global supply chains and related developments in global commerce described above. It is worth noting that some of the recent literature on Canadian trade — from both public and private sector sources — increasingly recognizes and acknowledges these trends.

The exporting activities of Canadian firms are evolving rapidly, and this is giving rise to financing and risk management needs that are driven as much by the dynamics of the supply chains they find themselves involved in as by the specifics of a particular export transaction.

Exporter Challenges

Canada is now one of the few OECD countries without a broad-based program of marketing support for firms active in international markets. For example, Australia provides financial support to assist with the export promotion activities of SMBs by contributing to the costs of participating in trade shows, market visits, foreign buyer missions, and other marketing activities. Germany has an extensive trade fair programme that places German pavilions at major international fairs, as does the United Kingdom and Italy.

Some examples of key barriers to greater internationalization are:

1) Lack of understanding of global markets, including: how to navigate through trade barriers designed to exclude market entrance for foreign firms; in gaining an awareness of market information such as existing or upcoming bidding opportunities, or in obtaining market intelligence on competing offers, skills required and bid restrictions; in understanding the right preparation for bidding or whether they actually possess the capabilities to supply the required goods or services; in having the knowledge and experience to become involved in complex obligations in foreign markets.

2) Lack of ability to assemble the financing capabilities to fulfill the opportunity, including the right amount of long term capital to sustain the firm through production and delivery of the products; getting short term cash to meet on-going obligations; or being able to amass the bonding support necessary to meet purchasing bid requirements, or to provide creative financing that may differentiate a bid sufficiently enough to win a deal.

Advice for Smaller Canadian Exporters

Every business executive in the country likely knows that emerging markets are forecasted to grow at faster rates than the Canadian or U.S. economy in the near future. Doing something about the opportunities in emerging markets, however, requires companies to know about specific opportunities, and to be able to reasonably assess their commercial value and the risks associated with pursuing them.

Canadian exporters need to stop relying on free “google-esque” information and watered down services available to them. While some blue chip consulting firms (e.g. Deloitte, KPMG, Boston Consulting Group), business councils/chambers of commerce, and federal/provincial government agencies provide consulting services to SMBs that may help them consider various expansion modes, Canadian companies are looking for a more cost effective and hands-on approach (with real senior experts) when considering external advice as it relates to expanding their business, besides exporting.

Part of the problem is that services are too expensive, limited in scope and uneven. Additionally, a frequent complaint regarding traditional consultants is that the senior partner or managing director disappears after the work has been secured, letting more junior colleagues complete the task. Even free government services like the Canadian Trade Commissioner Service (TCS) have seen reductions in domestic footprint (Canada and the US), which exacerbates the problem. Smaller firms/exporters find it particularly difficult to navigate the trade promotion ecosystem.

Moreover, high-growth start-up companies and SMBs often lack the broad range of knowledge and expertise required to expand their business internationally. They lack the connections in business and government; they don’t under the political, legal, economic, social and financial risks and market access issues that could affect their bottom-line; and they often need help finding qualified partners and project financing solutions. There is a serious need in the marketplace, and certainly a significant demand for, these types of consulting services.

Solutions

Companies that want to succeed globally really need to ‘think outside the box’ when it comes to hiring external consultants.There are a lot of good companies and independent consultants that have unique expertise to contribute and companies should invest in bringing external expertise not “generalists” to help a company with global market entry or expansion strategy and execution. Look out for network based companies that provides custom project solutions that leverage the world’s best independent professionals for growth and process improvement needs. For example, the professional pool of talent at the Allam Advisory Group (AAG) have FP 500 operating experience, served as career diplomats, former Canadian Ambassadors, and former public service executives and top graduate degrees — bringing a strategic and operational perspective with a “roll-up your sleeves” approach with substantial experience in developing the market presence of both Canadian and foreign organizations worldwide. AAG’s team has significant experience in designing, building and operating successful global businesses and organizations based in Canada, Europe, Asia, Africa and the Middle East, Central America and Central Asia.

Bottom Line?

The complexity and variety of export activity will no doubt continue to grow, as Canadian firms continue to adapt creatively to new challenges and new ways of doing things, and to changes in relative costs and prices. In many ways, this development is a natural evolution of the traditional notion of comparative advantage or international specialization. With privileged access to both government and private sector contacts, these (AAG) competitive advantages will seize new trade and investment opportunities and will help open doors and unlock business opportunities for Canadian companies doing business internationally and foreign companies wishing to export or invest in Canada.

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