Ian: Welcome to the Business Coach Podcast, an advice-oriented series for Canadian entrepreneurs. I’m Ian Portsmouth, Editor of PROFIT Magazine and I’ll be your host as we tackle the hot issues and opportunities facing Canada’s small businesses.
We’ve developed this Podcast in cooperation with BMO Bank of Montreal. Over the course of this series, I’ll be drawing on experts in a number of fields including some BMO experts in order to provide the credible information and prescriptions you need to run your small business better.
So, Canadian entrepreneurs are fortunate to operate in this country where wealth, innovation, political stability and the rule of law provide the foundation for one of the most vibrant economies in the world. But in the grand scheme of things, Canada is still a small market place, so if you really want to tap your company’s full potential, then you have to look beyond your backyard into foreign markets. Here to discuss the export prospects for your business is Justine Hendricks, Regional Vice-President of Small Business Sales at the Export Development Corporation in Ottawa. Justine, welcome to the Business Coach Podcast.
Justine: Thank you very much Ian.
Ian: So why should SME’s consider exporting as a growth strategy?
Justine: Well, to answer that as simply as possible, Ian, I would say, because it’s not as complicated as you might think it is. Small companies as well as medium and large size companies today probably have two options, you have 2 types of companies. You have companies that are what we call in the growth mode and companies that are in the growth mode would definitely have exporting as a strategy to make sure that they achieve that goal objective. Then you have other companies in the small end of the world that may not have the growth mode objective but a question they must ask themselves in the market place today is how do they ensure or protect themselves to sustain their current level of business. And that’s truly where EDC from an exporting component is there to help them execute on those components.
One of the things that you want to consider is, what are the opportunities for the exporter once they embark into this new way of doing business? Definitely they can be looking at increased sales, they can be reaching out for higher profits, they can gain economies of scale and also they can reduce their vulnerability, because although we recognize that the Canadian market place right now is very vibrant, that may not be sustained for a prolonged period of time.
So the old saying “don’t put all your eggs in one basket” would certainly apply in this instance. So having exporting as part of your strategy is definitely a risk mitigator as well for both small companies as well as medium in size ones.
Ian: Now Justine, just for the sake of those people in the audience who are not particularly familiar with EDC, can you tell us a little bit about it?
Justine: Certainly. Export Development Canada, how we come along to support Canadian exporting firms is basically, we try to help them increase their exporting objectives internationally. What does that mean? There are three things that we do at EDC.
We basically insure, so a Canadian company that is selling a widget internationally, there is always a risk of re-payment of the buyer back to the Canadian company. EDC offers an insurance, an accounts receivable insurance, to help protect the exporter up to 90% of their receivable. Also what we do is we have bonding for companies that either need to post-bond from a performance point of view or simply when they are bidding for a new contract. EDC can offer some supporting services, especially through the banking arm in Canada, so that companies instead of having to submit some collateral to secure a bond, EDC will offer a guarantee so that the collateral instead can be used to go and gain other business internationnally. And thirdly, EDC also has financing services, again that we offer in conjunction with Canadian financial institutions where we in turn guarantee a bank up to a certain percentage of the working capital that companies are looking for to allow them to take some more of their collateral resources to go and gain other market places internationnally.
Ian: So, it’s a big wide world out there with lots of opportunities, EDC is standing by to help companies export, but according to our recent studies conducted by UPS, there seems to be a lot of reluctance among Canadians SMEs to go into export markets. Why do you think that is?
Justine: What I would say, Ian, is I think a lot of it is fear of the unknown and if you look on the small business end of thing, and small business at EDC is defined as companies that have total annual sales of 5 million dollars or less. What we found, especially at the smaller end of the scale, is that a lot of companies aren’t born exporting companies, we call them accidental exporters. So what happens is you’re running your business on a national scale and one day you get, it could either be via email or through the fax machine, an order that comes from outside of Canada.
And that is often how these companies are faced with the question “should I or should I not export”. In some instances, for example, if that first order is $500 or $600, they may decide to just pass it along. But the next order coming along could be more along the lines of 10 or $15,000 to which the company says, well maybe there is an opportunity out there that I could really gain some market share or should I consider going into new markets.
So, basically, that’s probably the first reasons why people or companies don’t embark in an exporting game. The other side to it and we do, I have, I am French originally and we have an expression that said being “une personne qui est trÃ¨s avertie”, so what we preach is to go and embark into the exporting market by knowing what you are getting yourself into. So like any type of strategy, it starts with a plan. So you want to be aware of what you are facing, you want to know what you need to be prepared for and truly, there are a lot of resources out there, either through individual associations, also DFAIT has an arm to help supporting exporting efforts in the country. And EDC too is there to be able to guide both smaller and medium size firms, once they decide to go into this new venture.
Ian: What would be some of the key considerations for an entrepreneur who thinks they might want to plunge into export markets but isn’t sure that their firm is ready to do that?
Justine: There are several aspects that you want to consider. Part of that plan, I would say, you want to make sure that your expectations are clear. So what is your goal that you want to reach? We all know how big the world is? Are you trying to go into simply one market? Are you trying to going to several markets and what the timing of that would be?
You want to be realistic about your view of exporting and truly what it is all about. You also have to be aware that once you go beyond the Canadian borders, you have to have an openness to new ways of doing business, because not everybody conducts themselves similarly as we do in the Canadian market place. And truly you want to be aware of some of the requirements. Here are a few examples for you.
Thinking from human resources component, does your firm have the capacity to handle the demand? You may start with your $15,000 order but assuming that you are going to deliver quite well, it could quickly turn into $100 or $200,000 of orders. And is your firm capable to do that? And most importantly, are you able to do it in an efficient way?
Is your staff aware of some of the cultural opportunities but also sensitive to the cultural aspects once you start to do international business? Then you’re going to do some of the financial and the legal requirements. On a financial end, have you spoken to your banking partner and is your banking partner supporting you in order to go into this venture? We do recognize that once you go beyond the Canadian borders, financial institutions do have different requirements that they need to assess. And that’s truly where EDC wants to be able to support the Canadian exporters in their efforts to go internationally.
Do you have legal advice in order to be aware of some of the intellectual property requirements and some of the risks that might be out there? Contracts on an international basis are different then they are done domestically. Those are some of the important aspects that you want to have as part of your plan. And last but not least is having a marketing plan or an idea of how you want to enter into a new market. Often when Canadian companies or Canadian exporters come to us having received that one order, they may not have put a lot of time and energy towards thinking about how they can enter a market.
Simple things as “is your product viable into a new market?” are some of the questions you need to ask yourself and you need to make sure that you are aware of before you enter into a new market.
Ian: And presumably, you would also want to have a product or service that customers in foreign markets might not be able to otherwise get.
Justine: Absolutely. And I think the key message here is that, there is information there available to you. We, particularly on a small, in the SME market place, we’re more and more focusing some of our products or services and our overall objective and advice to be able to provide them that information so that when you do decide to enter into these markets, and even prior to, you’re able to do that research and it is quite centralized for you so that you can go in as an informed exporter.
Ian: Now, in the most general terms, if we consider any type of company, what would be some of the exports markets at the top of the list, the ones that someone should look to first, I would presume that the US is probably up there.
Justine: Exactly. The first logical stop for Canadians is the United States. But there are several other market places that are gaining a lot of momentum. SME’s that are interested in seeing what are the hot markets or try to get some information on different market places can easily go to our website at EDC.ca and what we have on that website is a tool called the country portal. And what the country portal can do for a Canadian exporter or potential exporter is give them some basic information about an EDC opinion on that country and some of the key points that they want to be aware of. So, it’s a great tool to utilize when you do get that occasional order or if you are about to enter into a new market place, to have some of the points of consideration either prior to signing off on a contract or even when you are looking to consider whether or not you want to go into a new market.
Other countries that are gaining momentum would obviously be China is becoming more and more popular. India is another emerging market that we’re getting a lot of inquiries on, Mexico has always been important particularly in the SME market place, but definitely for Canadian firms looking for information the country portal is your first stop.
Ian: And what can you tell us about the EDC’s new arrangement with Bank of Montreal?
Justine: Well, the new arrangement that we have with Bank of Montreal basically refers to the EDC’s Exporter Guarantee Program. What that program is, it guarantees a loan to a financial institution for up to 75%. Earlier, I was talking about when we do work with Canadian financial institutions, part of our goal is to be able to give Canadian firms access to more working capital. So the arrangement that we have with Bank of Montreal is a similar arrangement that we have with other financial institutions and again, it’s how we work in partnership with the Canadian banks in order to help support Canadian efforts towards exporting more internationally.
What is important here to know for small and medium size companies out there is that we do believe that the bank does play a critical role in your plan towards exporting. We work in conjunction with some, a lot of our financing programs, most of our financing programs are delivered through the arm of the banking institution. So it is critical for us to be a partner at that table along to help ensure that Canadian exporters have the best financing available for that they are competitive in the market place and more importantly, that they have the liquidity that they need to be able to gain either new markets that they want to enter into or very well equipped to fulfill the orders that they receive internationally.
Ian: Justine, thanks for letting us know about these various opportunities.
Justine: It’s been my pleasure.
Ian: Justine Hendricks is Regional Vice-President of Small Business Sales at Export Development Canada in Ottawa.
Thanks for listening to this episode of the Business Coach Podcast. I hope you discovered a few insights that will help you grow your business and that you’ll download other episodes from BMO.com, profitguide.com or iTunes. As always, you can drop us a line at firstname.lastname@example.org, I look forward to hearing from you.
And until next time, I am Ian Portsmouth, Editor at the PROFIT Magazine, wishing you continued success.