It’s easy to feel hesitant about exporting given the impacts of COVID-19 and the rising tides of economic protectionism. But diversifying your markets remains one of the best ways to make your business resilient and ready to grow.
Canadian companies that build a multinational presence through trade and diversification are more profitable, more stable and more resilient than companies that don’t. Exporters tend to perform better than non-exporters for several reasons: they specialize their production and enjoy economies of scale; they interact with, and learn from, foreign consumers and suppliers; and they face stronger competitive pressure that prompts them to make investments and improve their business practices.
Extensive research on Canada’s manufacturing sector finds that exporters produced 13% more output per worker than non-exporters on average from 1974 to 2010. The evidence suggests that exporting helps improve the performance of individual companies, but also translates into noticeable benefits for the overall economy. In general, the more intensely Canada exports, the higher is its overall productivity.
While it might be tempting to delay your expansion plans indefinitely and focus on the domestic market, staying home comes with risks of its own. Canada is a small portion of the global market. Additionally, firms from other countries with growth plans of their own will happily compete for Canadian customers here.
Although large companies are more likely to export, and export more than smaller firms, there are also significant benefits for small- and medium-sized enterprise (SME) exporters. SME exporters had higher revenues and profit margins, and did better along a wide range of performance metrics according to research.
One of the keys to making inroads into new markets is to ensure your value proposition is clear for your prospective customers and that you are tuned to their specific needs. If you’re entering a new market, it’s essential to get to know it. If you’re already exporting, get to know your customers’ concerns and how you help them succeed.
At the same time, you want to protect yourself financially. Take a hard look at your balance sheet to make sure you have the capital to operate in a new market. You can use credit insurance to cover your cash flow in case your new customers run into financial difficulty.
Another safeguarding step is to evaluate your supply chain. Could you continue to deliver to new customers if future disruptions occur? Many companies are moving away from a global “just in time” supply chain model that maximizes efficiency toward a regional model that allows for contingencies and puts critical steps and suppliers closer to their customers for this very reason.
When assessing new suppliers, it’s essential to ask them about their financial stability — and their own suppliers — to avoid surprises. At the start of the pandemic, some companies faced sudden and unexpected shortages because they weren’t aware their suppliers’ suppliers were based in China, where factories were among the first to be impacted by the pandemic. Knowing this background would have helped them plan better.
If there’s one lesson COVID-19 has driven home, it’s “expect the unexpected.” Make a list of the things you think couldn’t possibly happen, then build contingency plans for how you’ll deal with them if they do.
Our specialized and experienced advisors in Canada are available to provide you with the practical support and resources to assist in your steps to diversifying your markets. Contact us today for a free initial consultation!
(credit: EDC)