Marie-Christine Daignault | Desjardins Group
Doing business internationally increases opportunities for growth—but also for risk.
By keeping these 5 keywords in mind, you’ll put the odds in your favour.
The first obstacle in exporting is all in your own mind! All too often, entrepreneurs take the default route of concentrating on the domestic market and avoiding exporting. Canada represents less than 2% of the world’s gross domestic product (GDP)—so simple math tells us that 98% of opportunities for growth come from abroad.
Of course, most businesses are not ready to break into the international market overnight. You need to build networks, adapt your products, get financing and so on. But even before that, you need to at least look into the possibilities. What markets are accessible? In what way? Who is your competition? What’s the potential for profit? By asking yourself these questions and discussing them, you’re creating awareness. Even if it’s not any time soon, having a perspective on exporting can influence decisions for the future.
To be successful internationally, businesses must have a global vision that is fundamental to their corporate mission. They must consider the benefits of exporting, even if most companies primarily do business in their home province.
For example, when there’s an opportunity for foreign business, you must be ready to quickly adapt your products by choosing certain equipment, configurations and processes. There will be changes, from the little details (wiring, formats, dosages, packaging) to bigger transformations (new equipment, new product lines and sub-products). No matter the situation, businesses must have the inherent ability to adapt when they need to. The payoff? Higher profits.
Doing business internationally will require skills beyond your company’s resources. Finding a client in Brazil is great, but you’ll need to be fluent in Portuguese too. The language barrier is not the only one you’ll face if you want your business to thrive abroad and compete with well-established local companies.
Having access to qualified resources in another country is therefore crucial. You can recruit and train people, or you can go through local partners who specialize in assisting foreign companies. The latter arrangement is common in China, where cultural differences can be substantial.
When buying and selling abroad, businesses have fewer avenues of recourse if a client or partner is late or defaults on their payments. Smart exporters protect themselves by using specially designed financial products like letters of credit (the buyer’s financial institution commits to making the payment) and factoring (the seller’s financial institution advances the payment and then collects the amount owing). Other assistance programs are also available through the provincial and federal governments.
And then there’s expansion. If you’re serious about setting up shop in another country and looking at acquiring assets, you should know that Canadian financial institutions can’t always provide loans for international expansion. You’ll need an alternative strategy: either refinance your assets in Canada or find financing in the foreign country.
5) Foreign exchange
Whatever the size of your business or sector of activity, all exporters are subject to currency market volatility. Foreign exchange risk is a serious obstacle to internationalization, because it can really eat into the profitability of your transactions.
There are a number of hedging instruments available to protect your business against this type of risk, including currency futures, currency options and currency swaps. They represent an expense but they can give exporters the peace of mind they need to sleep well at night. Let currency experts do the speculating!
When businesses have both income and expenses in a foreign currency, they’re able to naturally reduce their need for financial hedging. This means that both sides of the company’s balance sheet shift along with currency fluctuations, minimizing any impact on the company’s profit margin.