Strategy Session: Export Duties
You’re doing it wrong. Here’s how to do it right
Marzena Czarnecka is a Calgary-based business writer. She can be reached at firstname.lastname@example.org
by Marzena Czarnecka
Here’s something that looks like good news but isn’t: When it comes to international exports, among Canada’s provinces Alberta is second only to Ontario in the billions upon billions of goods it sends out to the world. And this output quintupled between 1995 and 2012.
But this is not a feel good story, friends. Most of what Alberta exports is energy and most of it (energy and other) – a collective whopping 87 per cent of all our exports – goes to our immediate neighbours down south. A diverse economic or business plan this is not. But it’s not the one-type-of-eggs-in-one-vulnerable-basket aspect of this scenario that’s most troubling about Alberta’s export attitude.
Illustration Denis Carrier
What really sucks, and what’s going to hammer us economically unless we – and when I say we, I mean you, because, you know, you’re the one with the exportable product – do something about it, is that even with our sweet spot products and with our favourite, time-tested, unthreatening market, we don’t do exports well at all. (And when I say “we,” you know I mean … anyway. Onwards.)
We want to. We have this image of ourselves as an up-and-coming global centre, a 21st century poster child of the new economy, whose risk-embracing, profit-chasing entrepreneurs drill holes and chase markets all over the world. But you know what? Really, when it comes to the nuts and bolts of chasing global markets, of taking our products – service and expertise, too – global, we’re downright provincial. And less worldly than we were 10 or 20 years ago.
It’s the truth. And it makes Paul Draeger, senior counsel with the Calgary office of Norton Rose Canada, weep. “Even if you look at the major oil, major pipeline companies here now, they are much less international than they were in the mid-’90s, early 2000s,” he says.
Their international groups are shrunken; the message is “we’re powering back.” The market rewards pure plays, and, as Draeger puts it, “The statement of the day is we have to focus in on what our primary markets are.”
So you might have heard this before friends, but apparently it hasn’t sunk in so we’re going to say it again and again: Your primary product is cyclical. C-Y-C-L-I-C-A-L. And your primary market down south – you’ve been keeping tabs on what’s going on down there, right?
Of course. And you know you should be penetrating Peru, Brazil, Russia, China – did you miss the boat on China? The GDP growth is down into the single digits, and everyone’s there now. Why aren’t you? Right. Because when others took first mover advantage, your primary market was on fire. And that, friends, is the key mistake that Alberta businesses (don’t feel bad, because it’s a national failure, really) make when they decide to get serious about their exports. They don’t do east-west-south (waaaaay south) until their primary market is bust. And then, well, it’s too late.
“Because of the cycle of boom and bust here, people tend to look at international markets as something you jump into when things start to go downhill here,” says Hans Gjerdrum, vice-president of international business with Kudu Industries. “That’s too late.” Too late. But that particular misconception persists cycle after cycle. “I’ve seen this time and time again,” Drager says. “When things are working well here, people stop looking at exports.
The attitude is, ‘Our order books are full, we don’t have time to send anyone there – it’s just a cost.’” The unspoken assumption is that when the lull comes, when there’s time, you can penetrate those new markets quickly. “Because you’re so good and the world is waiting for you.”
Yeah, princess. It doesn’t work that way. And the thing is, when it comes to domestic plays and expansions, you know this. You’ve got a stellar, multi-stage Canadian business plan, right? But you think you’re going to start shipping your product to Peru, Russia and Malaysia with three weeks’ notice, when the domestic or nearby U.S. market goes soft? Come on. Reality check. It takes time. It takes having a plan. And working at it for years. Y-E-A-R-S. Not the bottom part of one Alberta cycle.
All right. So are you ready to do it correctly? You’re creating something that’s exportable. A pump, a widget, a patented life sciences device, a funky fertilizer (go, Alberta agri-business), an awesome process or technology – heck, all the lessons below apply to services and expertise too. Here’s how to not suck at exporting, in five easy – ok, fine, not easy at all, but, you know, not impossible – steps.
First, start now. “It takes quite a while to find the opportunities to focus on.” says Gjerdrum. “You can’t just go to the airport and look for the export market.” And by “start now,” we don’t mean start fantasizing. Get real, get concrete: allocate a chunk of cash – a percentage of your revenues, if you like, there are guidelines galore – towards the goal of exploring your export markets. Hire a vice-president international, on a contract or part-time basis if you can’t quite do the full-time thing. This person’s immediate goal is to educate you and the rest of your management team about what going global entails. Her second goal is to start working on your tailored going global plan.
Second, hook up. The Alberta government wants you go to global. The Canadian government wants you to go global. The governments of the countries you want to go into – at least some of them – really want you to go global. There are associations and organizations galore out there, the sole purpose of which is to educate and assist would-be exporters. Really. Join them. There are also associations and organizations galore of exporters. Join those too. Talk to people. Talk to people who have been successful in penetrating the markets you’re lusting after. Talk to the people who’ve failed spectacularly in those markets. “Learn from their experience, so you don’t make the same mistakes,” says Gjerdrum.
Third, get to know your target market – and not just by its numbers. Get to know it intimately. You need to learn its economic profile, for sure, and the regulations that govern it – and pay attention to all the anti-bribery and corruption legislation in particular, because even in the most emerging of markets you will now be held to Canadian and first-world standards. But you also need to take its social and cultural pulse. And if you’re really serious about it, you need to build a social license to operate in that market, says Drager. And you want to start building that, ideally, before you start flooding the market with product. Make local connections and contributions.
“The key is to understand the culture where you are doing business,” says Gjerdrum. “Instead of going full steam ahead with a Canadian, North American or even Western European attitude and saying ‘You guys are wrong, this is the way we do it because that is the way we do it at home,’ you have to build some trust.” Listen. Learn. Respect.
Fourth, invest in protection. No, not that kind– and not armed body guards either. Contract protection. Emerging markets are exciting, but they’re also terrifying, and their laws are sometimes, what’s that word … well, let’s go with emerging. But that doesn’t mean you have to carry the risk of not getting paid and getting screwed with no enforceable remedy. “There are remedies and processes that are available,” says Drager. You just have to be creative. Demand payment up front for certain things and in certain jurisdictions, and write other protections and remedies into your contracts if necessary and where possible. “There are ways to structure your contracts to ensure you are protecting your very important assets, ways to ensure you have direct and enforceable remedies,” says Drager. It just takes time and forethought. Which, of course, you have, because you’re planning all this now, well in advance of your market penetration.
Finally, dream big – but in small steps. Your global play could be the most exciting, explosive-growth thing that will ever happen to your company – eventually. “The companies that are not going to succeed are the ones that think they will go after the international market and get that elephant that will save the year right away,” says Gjerdrum. “That never happens. It’s small steps, and you have to keep on plugging away at it.” Keep focused on it when the domestic market booms and busts. Keep refining your international plan. Keep making new connections. Keep learning. And keep giving back.
There. That’s all. Got it? Now go forth and export. What? You think the cycle’s about to pick up here and you don’t have time right now? Right. Were you listening to us, at all? Come on, people. Let’s get this right.
Visit the Productivity Alberta website for useful tools and services.
Looking to raise your exporting game? Check out the Forum For International Trade Training’s website.