Are you ready to export?
Canadian entrepreneurs are increasingly looking south and overseas for new markets, but that first step can sometimes be a doozy
When Leo Johnson and his wife and business partner Elana Rosenfeld first started sending their organic specialty coffee overseas, they weren’t completely prepared for the result. “There were definitely some roadblocks that took us by surprise – it wasn’t as simple as selling in Canada,” recalls Johnson, president and CEO of Invermere, B.C.-based Kicking Horse Coffee.
But it wasn’t due to a lack of demand for their product. The company, which launched as a small start-up in 1996, grew rapidly at a time when Fair Trade and organic coffee was in limited supply in Canada. Realizing the void in grocery for specialty and gourmet coffee, the company focused on targeting this niche market, with great success. It had always had an Internet presence, with orders from outside Canada, so in 1998 the pair decided to try exporting to Europe. What they found, however, was that because of the difference in organic certification regulations, their product was unable to meet more stringent European criteria.
It proved to be part of a learning experience that ultimately led Kicking Horse Coffee to success in the U.S. market, where, says Johnson, the company is now gaining significant momentum. “There’s synchronicity between the U.S. and Canada in organics. But exporting can be challenging regardless – the logistical aspect, working with the U.S. Food and Drug Administration, making sure we can clear customers without any hold-ups,” he says. “But we feel there are huge opportunities there.”
Johnson says having a presence south of the border in the form of a U.S. sales representative and public relations company have made a significant impact on the company’s sales. “You really have to think it through thoroughly and find the right salespeople and distributors for your business,” he says, adding, “once you get the accounts the other aspect is trying to generate sales, promote and develop your customer base and attract return clientele. You’re kidding yourself if you think you can do it remotely.”
Now, with sales of more than three million pounds of coffee per year, and a presence in all major grocery chains, Johnson says Kicking Horse will look next to opportunities in Japan and, with the right network and certifications in place, to Europe.
While exporting can offer a world of opportunities, Susan Powell of the Toronto-based Canadian Food Exporters Association agrees that initial missteps are common. To avoid this, Powell cautions that that doing your research and fully understanding the market before entering into an export agreement is a must. “Companies tend to jump into exporting without fully researching the market so they are unaware of some of the culture differences and don’t modify their products to meet the local markets,” she says. “We’ve also seen companies sign exclusivity with distributors only to find out that the distributor has very low market share, making it impossible for the Canadian company to grow their business.”
Knowing when you’re ready to export is an essential early consideration. Powell notes that companies are generally export-ready if they have excess capacity and cannot grow their business any further in Canada. But that shouldn’t preclude businesses with less domestic market share from exploring export opportunities. Scot Speiser, vice-president of B.C. North and Interior, and Yukon for the Business Development Bank Canada (BDC), believes many small- to medium-size Canadian companies underestimate what they have to offer internationally. “If you have a good sales record at home, and sales are starting to plateau, it’s a key time to consider looking into export opportunities,” he says.
According to Speiser, smaller companies may even have the advantage in many markets. “Importers are being more selective in their suppliers,” he says. “Many are choosing a widespread spectrum of smaller companies with stability rather than one larger company. Many importers are shifting from short- to long-term relationships with smaller companies, something Canadian exporters can benefit from. A number of Canadian businesses are tapping into this global supply chain successfully, due to the downturn in the U.S. economy and the double-digit growth in countries like India, Brazil, China and Russia.”
“It’s also important to realize that you can start small and grow by small steps,” says Speiser. “But you must have the capacity to grow sales or create this capacity to ensure you can fulfil demand.” For smaller companies, Speiser says innovation in product or packaging is important to successfully differentiate your product in foreign markets. “Companies can really link into their local market and represent their region when they export. And branding is key in this.” Speiser adds that building on the perception of Canada as a safe and reliable country can also work in a company’s favour and translate into positive perceptions of the product. “Many businesses abroad see Canada as a real international player with integrity,” he says.
Strategies that work
Regardless of company size, Speiser says businesses planning to export must have a significant management commitment to invest time and capital in the project, and/or have a reliable source of flexible financing, as return on investment may take several years and include unexpected expenses. Entrepreneurs must scrutinize even the basics, such as how to enter a foreign market, before they take a step. “Will you use a distributor or sales rep, sell directly to retailers, or sell direct to customers?” he asks. “And seriously evaluate specific regions or emerging markets before taking on markets like the whole U.S.”
Other considerations, including cultural sensitivity, language, staffing costs, pricing, political climate, foreign exchange and currency fluctuations, must also be budgeted for before entering the market. “That’s why having a good local export network before beginning is essential,” says Speiser. “But choose your partners very carefully, and make sure they understand your business goals and share your company values. You can really expand your reach and sales by making good strategic alliances.”
As well as contacting the BDC for help with investment, business strategies and growth opportunities, Speiser recommends reviewing the Canadian Trade Commissioner website at the department of Foreign Affairs and International Trade (www.international.gc.ca) for information on export strategies and more. Other valuable sources information may include banks or your local economic development commission. Attending seminars and trade missions, and seeking advice from various levels of government and industry associations is also invaluable, adds Powell. “A number of mistakes can be avoided if a market is fully researched,” she says.
Susan Powell of the Canadian Food Exporters Association cautions would-be exporters to think carefully before taking the plunge. As well as doing an evaluation to weigh financial resources, commitment, the market they want to target and their potential for success, Powell recommends developing a strategy covering issues such as how to enter the market, product pricing, distribution, promotions and long-term goals. In addition, she advises entrepreneurs to consider the following points:
• What is the size of the market for their product?
• Who are their key competitors?
• What are the distribution channels?
• Are there cultural barriers?
• Does the product need to be reformulated?
• What labelling and other regulations need to be considered?
• Once duties and transportation costs are factored in, can the product be priced competitively against other like products?