International Growth for Canadian Businesses P2

Should Your SME Expand Internationally?

Part 2 of 3

 

When we last left off, we were discussing the situation surrounding Canada. With a retiring Baby Boomer population and current market trends, we are headed toward a technical recession. It’s going to be imperative for the survival of SMEs all over Canada to turn to international markets.

 

Some Examples

Let’s take a look at two possible markets.

 

Market A:

  • Population of 300 million
  • Speaks English
  • Struggling to grow
  • Consumer power has decreased
  • Extremely competitive
  • Has seen a many-fold increase in its trade with the Asian economy & other emergine economies
  • Keen to increase its trade with emerging markets

 

Market B:

  • Population of 1.2 billion
  • Speaks English
  • Fast-growing consumer base
  • Fast-growing population base
  • Keem to bring in international brands & “know-how”
  • Inherited links with the Canadian Market
  • A centre of technological advances

 

When given these two markets side by side, which one would you think is better for Canadian SMEs – Market A or Market B? Would it surprise you to find out that market A was the United States and market B was India?

 

The Truth About India & China

The middle class of India is the fasted growing in the world with over 400 million people. More people in India speak English than in the combined populations of America, the United Kingdom and Canada. The official language of the government and business in India is even English.

 

Another fast growing market for SMEs is China. While some say it might be slowing down, the middle class in China has an incredible growth rate still larger than the US and Canada combined. They manufacture everything in the world and are the biggest buyers of tourism services in the world. Due to deregulation of markets and social structure of small families, the Chinese middle class has vast buying power and disposable income. On top of that the US owes China more money than is available on hand currently.

 

This is readily demonstrated by strong Vancouver and Toronto real estate markets in Canada that are still booming due to investments from Chinese and Indian investors as opposed to rest of Canada.

 

More Emerging Markets

Another fast growing market is Dubai and the adjoining region known as GCC. Together they have a population of 47 million, a GDP of $1.6 Trillion and a GDP per capita of $33,300 with combined inflation of 2.5%. This region also happens to own around 40% of global oil and the largest gas reserves in the world.

 

Combined, they operate the largest network of airlines, the busiest airport in the world, one of the top 3 duty free shops in the world, and one of the highest RevPar (Revenue per available room) for hotels in the world. They will host two global events in the next 10 years and be home to many global sports events.

 

The area is within 4-8 hours of flying time to the world largest land mass and most populated countries such as India, China, Egypt, Turkey, and the East and West African states. Dubai’s proximity leads to a growing economic hub for the adjoining regions.

 

Even in the global recession, these markets grew at a 4-5% rate.

 

Also consider that 45% of the population was born in the 1990s. They are now old enough and ready to buy goods, cars, utilities, houses and everything else that consumers demand. This generation is forcing governments to build infrastructure at a scale never seen before.Trillions of dollars are continually funneled into current infrastructure projects.

 

Nearby, Turkey is another fast-growing economy which doubled its GDP between 2002 and 2014. Oddly enough they were denied entry into the EU in the early 2000s; however, since then, they have witnessed growth like has never been seen before. Not becoming part of the EU was a blessing in disguise. Otherwise they would have suffered a fate similar to PIIGS (Portugal, Italy, Ireland, Greece, Spain)

 

This generation especially, has a penchant for luxurious high-end products. They want to wear brands on their fashionable sleeves and keep up with the rest of the developing world. This need is leading to the fastest growing retail markets in the world. Gross leasable shopping areas tripled in the past twelve years. European and US brands litter the market. But Canada remains missing.

 

Economically speaking, Canadians are struggling. The sooner we accept that reality, the better.

 

The sooner we overcome our shock, the sooner we can start looking for opportunities and focus on growth and value building. A recent RBC paper indicated long economic struggles for Canadians as close to one million Baby Boomers will retire.

 

More importantly, close to 700,000 SMEs will come up for sale or go through transformation as their founders retire. This brings us to the core question: Where is growth going to come from?

 

Growth is not going to come from Canada or the US. Growth will come from EMERGING MARKETS.

 

Next in the series, I will explain HOW SMEs can connect internationally. Until then, have you experienced any international engagement with your business? If so, let us know in the comments below!

International Expansion for Canadian Businesses

Should Your SME Expand Internationally?
Part 1 of 3

International Expansion seems like such a “big thing”. But in 2015, it really isn’t – at least, it shouldn’t be. Technology is a great leveller, and it has brought businesses and people closer. We are all interconnected. What’s important is finding relevant people and putting together your “tribe”. The global 2008 slow-down showed us that absolute decoupling was a fantasy. Out of that bleak reality, emerged the global opportunity.

The effects of 2008 were felt differently in various markets, but they all felt the pinch. Our post 2008 world requires one to look towards HIGHLY untapped markets all over the world and understand what makes them interesting and why they are untapped.

The factors that point to long term sluggishness of markets include:
● Markets that are competitive but have a flat or near-flat growth line
● Ageing and retiring populations
● Ageing infrastructure
● Slow population growth

These factors make international consumption and sustainable growth complete illusions.

Japan went through a period in which its GDP dropped dropped significantly in the course of about ten years. Known as The Lost Decade, all of the factors mentioned above were large contributors, despite the fact that Japan is a highly export-oriented economy.

The troubling scenario is when you take notice of the incidents which led to this collapse and compare them to the future of Canada. Baby Boomers will be retiring in the next 5-7 years. Technically, we are facing a Canadian Recession.

Whereas this might pose an enormous challenge to the country as a whole, it also poses great potential opportunity for SMEs in Canada. So how do SMEs use this knowledge to set themselves on sustainable growth path?

In many ways, the choice has already been made. Find new sources of growth or go out of business. It is going to force many SMEs to think differently and venture outside of their “comfort zones”. They must stop relying on a limited amount of more local markets for revenue.

Thus, the solution is invariably going to be international expansion. They will grow via the inherent yet underutilized strengths which have already made Canadian SMEs great. Strengths such as stability, pluralism, liberal environment, multiculturalism and a reputation for being good and competent business managers.

All SMEs should look for means of expansion to stay relevant and sustainable. Without this, it is only matter of time before they start experiencing stagnation.

One recent HSBC report stated that only 10% of Canadian SMEs export their services to other countries, which is incredibly low for a country and economy as large and developed as Canada. This does not paint a pretty picture.

Again, of one million SMEs, only 10% export. On top of that, those exports are very specific, like some construction businesses, some seafood and some Oil and Gas players. There are very few Canadian brands that exist outside of North America (Tim Hortons took the plunge in 2012). There are very few tech or knowledge-based businesses expanding over the board.

The Case for Expansion
Many Canadian business think that trading with the US is utter nirvana. It was an excellent, ambitious plan, that is until about 15 years ago. The US was the largest economy with a huge consumer base. Baby Boomers were in their peak buying phase, not to mention US markets had an unsurpassed ease of access with geography, similar language, culture, etc. The US was attractive.

But, now America is an over-saturated market with a highly competitive, deep-pocketed economy which evolved through a fundamental shift in 2008. Record high unemployment rates caused and will continue to cause negative effects in their markets for many years to come.

Whereas it used to be a great opportunity for larger corporations to enter US markets by buying cheaper assites, it is increasingly difficult for Canadian SMEs to enter the US market (which has pivoted to Asia in order to grow its own economy).

The Problem
The way we do business is still stuck in the mindset from the 80s and 90s when it was relatively easier to go to US – not because US was an easy market, but because the outside world was large unknown territory. That is no longer the case.

Technology has brought people together. The Internet reduced the gap. Communication infrastructure has made life easier for anyone seeking international growth. We have adopted new tools, but the overall mindset hasn’t changed, thus only 10% of Canadian SMEs export.

In order to avert an impending recession, it’s going to be essential that Canadian SMEs get out of this antiquated mindset and dive into international markets.

Has your business had international expansion experience? Tell us about it in the comments below!