Expanding south of the border: why the time is now for Canadian manufacturers to make the move
by Dave Cavan
Many Canadian manufacturers think they will face daunting challenges in expanding into the U.S. They should not be so easily deterred
Manufacturers are looking to expand into different markets like never before. For Canadian manufacturers in particular, the U.S. market holds great potential when done right. Developing a holistic and focused export growth strategy for the U.S. is key to boosting business growth. Although expanding into the U.S. creates some serious challenges for Canadian companies looking to grow beyond the Canadian border, the opportunities are significant and worth taking on..
The Export Development Canada Global Export Forecast reports that exports of Canadian goods to the U.S. are projected to grow by just 6 percent in 2016, but the U.S. accounts for more than 75 percent of our merchandise exports. What’s surprising is that only 4 percent of Canadian companies export their goods and services to the U.S. This rate is even lower for small and medium-sized businesses, with only 2 per cent of Canadian SMBs exporting to the U.S. It may be surprising to know that this rate is significantly lower than a decade ago. In 2005, 20 per cent of the U.S. import market consisted of Canadian businesses.
The small percentage of companies doing business south of the border is surprising given the huge upside potential of this large market.
So why has this percentage decreased over the last decade and why are such a small number of Canadian companies doing business in the U.S.?
Although the U.S. market may seem complex and daunting, it is a very lucrative market and a huge potential for Canadian companies. With a surging American economy and a weak Canadian dollar; falling oil prices; geographic proximity and accessibility; culture and language familiarity; a shift in industries such as automotive and aviation manufacturing; and available sources of capital; the U.S. market becomes a very desirable shift for many Canadian businesses. The timing is ideal for small-and-medium-sized Canadian enterprises to consider expanding into the U.S.
What has stopped Canadian manufacturers from taking the plunge?
Despite many compelling reasons for developing an export strategy to the U.S., Canadian manufacturers either face or perceive several daunting challenges when it comes to expanding into the U.S.
Competition: Exporters to the U.S. must compete with a wide variety of suppliers, including domestic suppliers, making it a daunting prospect to try and break into the U.S. market of over 300 million people. The level of competition in the U.S. market as compared to Canada, is vastly larger and daunting for many business owners. Canadian businesses considering expanding south of the border have to consider the sheer volume, depth and range of needs of the American consumer market.
Regional differences: Our complex neighbour to the South. Despite the familiarity between the U.S. and Canada, there are several cross-border differences that Canadian manufacturers must take account of. The U.S. is very much a regional market, with diverse needs, requirements, and prospects. The U.S. market is a patchwork of local markets with varying laws, customer service expectations, regulations, time zones, and geographical characteristics.
Complex Cross-Border Requirements: NAFTA requirements together with a variety of federal and state requirements can make it challenging to build a strategy around exporting to the U.S. Tax and incorporation challenges can be especially difficult for Canadian manufacturers who must make decisions based on how they want to invest in the opportunity to expand into the U.S., as well as the resources at their disposal.
Disastrous world events such as the terrorist attacks on 9/11 has also contributed to the complexity with cross-border security and increased costs associated with doing business over the border for many companies.
Time, investment and focus: Expanding into the U.S. requires that manufacturers get very clear and specific on their value proposition, in order to develop a distribution strategy that targets to the U.S. market.
Economic times: The hard-hitting 2008 recession and the weak U.S. dollar in the late 2000s did contribute to the decline in Canadian companies exporting to the U.S., resulting in Canadian companies searching for other areas to diversify their exports, such as the Asian, Middle Eastern and European markets.
Exporting to the U.S. provides Canadian manufacturers with a significant advantage when done well. With the right strategic direction and support, Canadian manufacturers can be poised to capitalize on limitless options for growth in the U.S. market. So how can Canadian manufacturers build a strategy to expand into the U.S.? Several key considerations come into play when it comes to setting up for a successful lean manufacturing process.
How to Prepare your Business for Expansion?
Manufacturers should implement a seven-step process to develop a leading export strategy aimed at strengthening their reach into the U.S. market.
1. Identify a strong export strategy focus: Developing a leading export strategy requires strong focus at the outset–one that aligns well with the company’s goals and vision. A specific, well-thought-out export strategy focus reduces waste and improves efficiency, all while making it easier to ensure executive commitment for expanding to the U.S.
2. Define a clear value proposition: Defining how your company plans to compete based on identified strengths, opportunities, and its current competitive position.
3. Determine an export-focused sales and channel strategy: As part of defining a clear export strategy focus, companies are able to construct a viable value proposition that ultimately answers the question: why should export clients buy from you? This enables companies to strengthen their strategies by defining a holistic sales and channel strategy aimed at boosting expansion efforts.
4. Embrace technology to refine lean business processes: While “lean” is often seen as a cost-cutting initiative, its true value is as a capacity and growth model. With lean practices, Canadian manufacturers are well-placed to build a model that allows for growth without adding significant capital or resources towards expanding into the U.S.
Enterprise Resource Planning (ERP) can help streamline and manage critical business operations including inventory management, order fulfillment, supply chain, finance planning, and distribution. A successful ERP solution offers complete visibility and operational efficiency through a range of business applications that help run a successful business.
ERP can help you manage your supply chains across multiple locations, track products, produce cross-border documentation automatically and provide a financial analysis for your business.
5. Refine exchange rate strategies: Understanding exchange rate fluctuations enables businesses to understand how their short-term financials are impacted as well as how their long-term competitiveness may be effected. Export growth strategies must consider exchange rate fluctuations in order to be successful.
6. Minimize risk factors: In addition to exchange rate fluctuations, there a range of risks that manufacturers should be aware of when it comes to their export growth strategies. These risks include credit and cash flow risks, competitor-related risks such as new entrants, alternatives, and other importing countries, and U.S.-based regulatory risks that could impact business growth.
7. Establish goals, measure results: Monitoring the progress of your export growth strategy is absolutely critical to building a sustainable and successful export growth process.
Dave Cavan, is a Regional Sales Manager at SYSPRO Canada
SYSPRO Canada recently hosted a webinar “Expanding to the U.S—Top Strategies for Growth” hosted by Canadian Manufacturing Online and presented by SYSPRO Canada’s Regional Sales Manager, Dave Cavan and special guest presenter, President of Cogent Power, Ron Harper, as they shared their insights into why the time is right for small and medium-sized Canadian businesses to expand into the U.S. market, in this exclusive event designed specifically for manufacturing leaders.