Clearing Customs: How to become a success story on the international markets
Busting into that realm could be a breakthrough for your company – or leave it broke. Here's how to avoid turning into an object lesson
by Jessica Wynne Lockhart
When it comes to going global, the international marketplace is a veritable minefield of missed opportunities, skewed expectations and business deals gone bad. That’s particularly true for first-time players, for whom the pressure to comply with environmental regulations, weak in-country partnerships and the struggle to understand cultural norms can all play a role in the success – or ruination – of their business.
Illustrations Sophie Casson
But for those companies willing to accept the challenge, the payoff can be huge. “By and large Canadian companies are exceptionally good at identifying and capitalizing on new market opportunities,” says Derek Lothian, the national manager of communications for Canadian Manufacturers & Exporters. “There’s trepidation, there’s a lot of risk out there – but the opportunities are starting to burgeon. There’s a lot going on.”
Disaster Scenario: Non-Payment
Name: Linda Morris, Export Development Canada
As the western Canadian Regional Vice-President of Export Development Canada (EDC), an export credit agency used by more than 7,700 companies, Linda Morris has seen her fair share of international market blunders. However, when it comes to doing business outside our borders for the first time, Morris says that the biggest mistake that companies make is assuming that they’re going to get paid.
“People just go in with their eyes closed. They don’t really understand how long things take, the risks of non-payment and how to mitigate those risks,” she says. “Our claims department probably has a lot of horror stories.”
For instance, consider the company that agrees to sell its product to a new client. The first two orders go off without a hitch, but when the bill comes due for the third, much larger purchase, payment never arrives. Or imagine a commodity producer shipping grain or potash overseas, only to have their product decrease in value substantially by the time it arrives at its destination. Without a solid contract in place, it becomes a victim of market price fluctuations. Their buyers source it elsewhere at a lower cost, leaving the original order sitting in a port to collect demurrage charges and, in the case of perishable goods, to decay.
“They’re not only not getting paid. It’s costing them more,” Morris says. “If they haven’t taken that into consideration in their costs and financing, it could be a big hit to their bottom line.”
Finally, if the prospect of buyers simply not paying or failing to pick up a product isn’t scary enough, there’s also the story of what happens when costs are in one currency, sales are in another, and foreign currency exchange rates begin to fluctuate wildly. “It can result in the deterioration of margins to the point of losing money on the sale,” says Morris.
Lesson Learned: Seek Support
Morris says that education is the best defense against non-payment and loss of revenue. “It is key to do the homework on the buyers and cover those risks one cannot afford to take,” she advises. “For example, if the sale went bad and the company could not collect – would it put the whole business in jeopardy?”
To ensure deals are contractually and financially sound, Morris suggests seeking the guidance of government offices and consortiums that exist to support companies doing business abroad. The Department of Foreign Affairs, CME and EDC all offer resources and financial solutions.
Disaster Scenario: Working in Politically unstable Countries
Name: Doug McNeill, Stream-Flo Industries
Stream-Flo Industries, an Edmonton-based manufacturer of oilfield equipment, has more than 25 years of experience working internationally, with operations in Southeast Asia, North Africa and the Middle East. But despite their expertise, when civil war erupted in Libya in February 2011, the seasoned pros at the company were caught off-guard.
“There was no warning or anticipation of these developments,” says Doug McNeill, Stream-Flo’s Executive Vice-President of Business Development. With staff in the field and a shipment of equipment en route, the situation quickly became unpredictable.
Taking action, the company was able to turn around some of their shipments, but at a cost. In the evacuation effort, service tools and equipment were left behind. And without the ability to collect on any in-progress invoicing, revenue was lost after payments were delayed for almost a year.
But, as McNeill points out, the situation could have been much worse. “If we’d had a bunch of equipment on the ground and a large percentage of our work was being done there, [we] could have put [our] whole company at risk,” he says.
The Long Game
Disaster Scenario: Lacking a Long-Term Strategy
Name: Laurent Auger, Alberta Ministry of International and Intergovernmental Relations
In an ideal world, the story goes something like this: On a trade mission to Russia, an Albertan energy company specializing in compressors attends a meeting that has been set up for them by government officials. The meeting goes well, and six months later it strikes a deal with its new Russian partner for $5 million.
It’s the kind of story that’s like catnip to companies thinking of branching out into international markets. But it may as well be an urban legend, because things typically pan out much differently. During the economic downturn in 2009, Alberta Ministry of International and Intergovernmental Relations official Laurent Auger found himself being approached by an increasing number of businesses wanting to expand internationally. One such company, a Calgary-based manufacturer, joined him at a trade show in Germany. It was the company’s first experience abroad and they soon made contact with an interested German company.
But a year later, when tentative negotiations were still in progress, the economy picked up again in Alberta. The prospect of an international partnership was dropped and with it, a year of time and resources went to waste. “They never went back to it and [the potential partnership] fell apart,” says Auger. “This particular company was off-the-cuff and never really had a strategy to look at the market and the possibilities in the long-term.”
Lesson Learned: Going Global Takes Time and Patience
“One of the mistakes that some of the smaller and medium-sized companies make is that it’s a reactionary response to market conditions to decide to go internationally without having a proper footing and foundation – that is, budget, personnel and strategy,” says Auger. Businesses need to proactively develop an international plan while it’s financially sound to do so, rather than impulsively trying to diversify when business is slow.
EDC’s Linda Morris says that believing the process will go quickly is another rookie error. “When you go international, everything takes longer. You can’t translate your Canadian business totally to the new market,” she explains. “It is expensive. It takes a long time to put these contracts in place. It will be a drain on financial and business resources.”
As for the tall tale of the $5 million deal? It’s actually a true story. But Auger says that it was the result of realistic expectations, hard work and the stars aligning.
“It’s not one trade show that will yield a $5 million dollar contract. They were lucky that it happened quickly,” he says. “Their strategy was very simple: to educate themselves about the market and to continue relationships once they had met some potential partners. They understood that it would be a long-term strategy.”