Worried about the risks of exporting? Start with a strategic plan.
Here’s how preparation can help you overcome challenges.
Expanding your business into international markets can be very rewarding — but it can also be an intimidating process. Though risks and challenges are real, they can also be mitigated using a well-prepared strategy. With the right planning and support, you can gain access to new opportunities, increased exposure, and an expanded customer base that lies beyond our borders. Kseniya Stogniy, a Regional Manager, Partner Channel with Export Development Canada (EDC) and formerly an Export Help Advisor (EDC), answers the top questions EDC receives from companies who are looking to grow internationally, but don’t know where to start.
How does a company properly research and plan to enter a new market?
The first step, prior to entering a new market, is to create an export plan — a roadmap for your global growth. This plan will help you assess your company’s readiness for expansion, including the availability of resources, from funding to the knowledge and skills of your team. It will also help you look at the market and the approach you want to take to enter it. Once you’ve assessed your readiness, you’ll want to identify international opportunities in your sector, who your potential customers are, and how to best reach them. The next step is to create a strategy, which is the meat of your plan — the who, what, when, where, and why. EDC’s Export Help Hub is a useful resource at this stage; it’s full of expert advice on entering the US, EU, and Mexico markets. Lastly, remember as you move through the export process, continuously measure your results with a set of KPIs (Key Performance Indicators) and adjust as you go.
How should a business strategically plan for market risks and challenges?
When it comes to exporting, with opportunity comes risk. What if your customer doesn’t pay, or your product gets stuck at the border? Understanding the risks that your company may face will help you prepare for them accordingly. The likelihood of risk can be based on several factors, including your company’s size, the industry you’re in, the markets you’re looking to enter, and your financial strength. If you’re a small business looking to export as a growth strategy, your risks will be different than a company that’s already an avid exporter, exploring new markets.
You’ll want to start by examining your competition abroad. Some industries are traditionally safer than others, and while that’s subject to change, it can play a role in your decision to expand globally. You’ll want to look at what’s in demand in Canada for your industry compared to what’s in demand in the market you’re looking to enter. You’ll also want to determine how risky the market is you’re entering. Many Canadian companies are most comfortable first exporting to the US because it’s fairly similar to what you already know in terms of language, cultural norms, and similarity in tastes –– but you shouldn’t ignore the benefits of trade diversification. Finally, a financial analysis of your company’s strengths and weaknesses will help determine your appetite for risk.
“When entering a new market, ensure that the opportunities you’re looking for are within the scope of your current business, that you can deliver on them, and perform to your highest ability.”
What should be considered when it comes to intelligent risk-taking?
The first step in intelligent risk-taking is to go into an exporting opportunity making sure you have the full picture. This is where your plan comes in. While companies often skip over the planning process, it’s a critical component. In creating your plan, you’ll be able to address what you need to know before entering a new market. These include: regulatory requirements, taxes, customs and tariffs, IP protection, due-diligence, and compliance. Having all of this in your plan means you’ll have a strategy to address these foundational items as you begin to take your company global.
How should a person set up their business to protect themselves?
Many small businesses aren’t prepared for the risks their company may face during this growth process, which means they’re often caught off guard. There are steps you might want to take prior to exporting, like incorporating your business, rather than remaining a sole proprietorship — and there are benefits to both options. Beyond knowing your risks and preparing for them, companies may want to hire a risk manager. This individual will look at the market you’re expanding into to identify and monitor potential risks and use their expertise and market intelligence to guide internal decisions. You may also want to consider the costs and benefits of insuring your sales, to see if credit insurance makes sense for your business.
At the end of the day, however, remember that not all risks can be planned for. The best advice I can provide is for companies to be open to experimenting. If you fail, fail fast, look back, make observations, learn from them and move forward, and adjust as you go. With the right tools, you can manage risks as they arise. Longer term, exporting can help lower business risk; a Deloitte study showed that companies who export are less risky because they’re more diversified, have a broader set of customers, and are better equipped to handle the ebbs and flows of economic upturns and downturns, leading to more resilient companies that stay in business longer.
What are some key factors to understanding distance/logistics and the use of resources?
When you’re dealing with a potential buyer or customer in a new market, there is a lot to be considered logistically. For example, who takes title of the product and when, who is responsible for delivering the product, who is responsible for placing products onto a boat or other form of transportation, and who is responsible for taking them off. Reviewing Incoterms — a set of internationally recognized rules defining the responsibilities of sellers and buyers — would dictate who takes responsibility at what point. We also recommend hiring a freight forwarder as a small company exporting for the first time wouldn’t want to be stuck doing customs clearance or documentary clearance or dealing with other fees that may come up at the last minute. If you’re unsure of where to begin when looking for a trusted partner, EDC’s InList resource is a helpful tool companies can use when searching for a vetted list of providers. So, before you get into a new market, look closely at the supply chain as a whole.
How do you research prospective business partners and build new relationships?
Once you’ve engaged with a prospective business partner, there are various ways to verify the business’ legitimacy before you go ahead and sign an agreement. The risk associated with this when you’re entering foreign markets is greater than when you’re dealing with domestic customers. This is a topic many companies don’t feel comfortable addressing because they don’t feel they have the contacts in those markets to conduct due-diligence. A good place to start is EDC Company InSight, which lets you search EDC data to discover insights about international companies — including buyers, suppliers, distributors, and potential partners. To dive deeper, the best resource you can use is the Trade Commissioner Service in a specific market. They will help you conduct due-diligence on a specific buyer or refer you to a local credit agency. They’ll also have best practices and other check-lists that will help you when working with a new partner for the first time.
How can you plan to have sustainable growth in an exporting business?
When it comes to sustainable growth, the key is to not bite off more than you can chew. When entering a new market, ensure that the opportunities you’re looking for are within the scope of your current business, that you can deliver on them, and perform to your highest ability. Do you have the backing to cover unexpected costs, longer payment cycles, and higher costs of sales? While ensuring you have the financial capital to pursue growth opportunities in new markets is key, don’t forget that having the right team of people in place is equally important. Make sure that you have sufficient support to operate the current business, so that you can pursue the growth opportunities in new markets, or alternatively, hire someone to focus on export market development. Taking all of this into consideration will help make sure the growth you’re approaching is sustainable.
What is one way an export business can remain adaptable in an ever-changing market?
This is an important question, and the answer is to listen to your customers’ feedback. What works well in Canada may not work in a different market. So, after entering that market, take the time to step back and assess whether that solution is working there. You’ll want to determine how your reception is in the new market and whether there are customer comments or feedback you can incorporate into easy improvements. The most successful companies will be flexible and willing to make changes to their strategy as needed. It goes back to the advice I gave prior: if you’re going to fail, fail fast, and be agile to change and improve.