Going Global: Taking on National Expansion and Emerging Markets (Views: 204)

Mon, 29 Jul 2019

As a founder—especially an early-stage founder, knee-deep in the many tasks required to keep a new business afloat—it can be difficult to see the horizon line, let alone look beyond it. Progress is measured day by day, new ground broken inch by inch, connections painstakingly made one handshake at a time. National expansion may seem implausible--global expansion, incomprehensible. And yet, beyond the bustling doors of your co-working space lies an entire world of business possibilities.   

The Value of Exporting

Even to those without tunnel vision, exporting may seem like a foreign concept (no pun intended), something to be handled, perhaps, by large enterprises and large enterprises alone. And yet, in 2017, 97.4% of the 48,000 Canadian establishments that exported goods were SMEs, and their exports comprised 41.9% of the total $438.6 billion generated. When the performance of exporting SMEs was compared to that of non-exporting SMEs, the former generated, on average, twice the revenue of the latter ($3.5 million versus $1.6 million, respectively) (Government of Canada). In addition to helping build a more profitable business, exporting provides a buffer against recessions and other, unexpected environmental, political, or social instability at home. If you need more reason go global, EDC has outlined seven reasons exporters do better and cited multiple case studies to back their claims.

 

When it comes to reaping the above benefits, Canadian companies have a head-start on their American counterparts given their “preferred access to markets in Asia through free trade agreements” (EDC) as well as Canada's trans-pacific partnerships and bilateral trade agreement. Canadians also, arguably, have more reason to export given the relatively small size of their native market. That said, multiple reports have shown that Canadian SMEs' awareness of their export options is limited. A recent survey by the Foreign Affairs Department, prompted in part by Canada’s impending trade deal with the EU (CETA), demonstrated that only 7% of participants were aware of CETA. The same figured was returned when participants were asked about their knowledge of an older deal—the Comprehensive and Progressive Trans-Pacific Partnership.

 

Of those surveyed, two-thirds had plans to sell abroad. Their top targets were Australia, New Zealand and the United Kingdom — all English-speaking Commonwealth countries. These destinations are no surprise, especially when we consider that lack of contacts, tariffs, a shortage of information about opportunities, and linguistic and cultural obstacles were all cited as obstacles to pursuing trade elsewhere. And yet, Western markets are not the only lucrative option for companies willing to export; with risk comes the potential for reward; and emerging markets, such as those in the BRIC (Brazil, Russia, India, and China) economies, are no exception to this rule.

 

Emerging Markets

The economy of the US—Canada’s number one export destination—has been decelerating. This deceleration, it just so happens, has been aggravated by the troubles of other developed economies, such as U.K.’s Brexit, France’s yellow vest protests, and Italy’s budget problems (Reinicke). Alongside the West’s stagnating arena, emerging markets arguably represent less crowded terrain, full of consumers with an appreciation of high quality brands and a new ability to purchase them.


Of course, the true value of these markets has been questioned. Some claim they are too complicated to tackle; others feel that they are where the true cornucopia lies. We want to examine both sides; because, in the event that your enterprise begins to feel steadier (and we hope that it does), such markets may start to seem a little less like a pipe dream and a little more like a logical next step, especially when you consider that EMs make up 59.81% of the world’s GDP (IMF Data Mapper).


In the early 2000s, it seemed as if “the world was finally starting to experience the global convergence that economists had long predicted” (Noah Smith). Emerging markets appeared to be rising—and rapidly—to meet more developed ones, and with them, came an entire population: the emerging middle class. Investors and entrepreneurs alike were quick target this demographic, but many believe that their excitement was unfounded, at least long-term. Among these naysayers is Invesco portfolio manager Justin Leverenz, who wrote, “…optimism about [the rising EM middle class] was largely conjured up by investors and multinational corporations that observed the nascent expansion of discretionary income in EM and extrapolated it into the next big opportunity across the entire asset class.” Leverenz’s larger argument is not that the middle emerging class isn’t promising, but that its scope is much smaller than some might have you believe, confined, primarily, to China and India. “…large EM countries like Russia, Brazil, Turkey, Mexico, South Africa, and Argentina,” Leverenz says, “saw only a small uptick in growth in their middle class relative to total population over the past two decades.


Levernz also points out that the EM middle-class, at least as it is defined by entities such as EM Advisors Group or The World Data Lab, exploded from 2000-2010 but has plateaued in the near-decade since. The reason for this tapering has been discussed at length. Some, like Levernz, see this trend as evidence of EM’s false promise, while others, such as Bloomberg opinion columnist Noah Smith, see it as an un-worrying cool down after a period of impressive but unsustainable growth. The latter of these interpretations is based largely on an assessment of China, which country that is no longer able to bolster the economies of its resource exporters like it did while in the throes of rapid industrialization. Other experts have analyzed a greater span of historical data to find that—outlying years aside—emerging markets have been growing steadily over the past 50 years—by McKinsey Global Institute’s estimate, at an average rate of 3.5%.

 

Are You Ready to Export?

Even if you do subscribe to the promise of emerging markets, knowing whether you’re ready to cash in on that promise is a different story. Emerging markets come with their own volatility—political, economic, and social. Precluding these risks is a question of research, risk management, and flexibility, topics which BDC has addressed thoroughly here.

 

The government of Canada also offers a comprehensive export checklist and guide for those who wish to self-assess. Some of their more pertinent points: Can your staff handle the extra demand associated with exporting? Do you have personnel with culturally-sensitive marketing skills? And do you have people to advise you on the legal and tax implications of exporting? Though their questions may be intimidating, they also note that, “To succeed in international markets, you don't have to be a big firm. Tens of thousands of Canadian small and medium-sized companies (SMEs)—those with foreign sales of between $30,000 and $5 million—are currently exporting and are doing very well” (Government of Canada). They also stress the importance of science, technology and innovation exports to the health and adaptability of the Canadian economy, which has typically leaned on the movement of its natural resources.  

 

Though good old fashion research is one way to go about determining your eligibility, Fundica offers another quick and impactful option. Create a profile to learn what export programs (and more) might be relevant to you.  




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