After almost two years of economic slowdown due to Covid-19, it is now a good time for Canadian businesses to get ready for the global economic bounce back. As the vaccination rate is increasing and many nations begin to reopen their economies, a lot of opportunities are waiting ahead for Canadian firms to grab.
Is the Time Right to Expand?
It is never too early to start planning. Covid-19 pandemic has caused economic recession around the globe. However, the pandemic is not an internal problem of the world economy. As a result, experts are expecting a strong bounce back as early as this year and continue in the upcoming years. The demand in the global economy will get stronger as consumers around the world will go ahead with the purchases that they have been holding back during the pandemic.
Where to Go?
There is no one single answer to this question as it will depend on the industry that you are operating in, your comprehensive market research, and your business strategies. However, the following potential destinations are worth considering.
First, we cannot ignore our traditional trading partner, the United States, their economy has returned to more than 90% of the pre-pandemic level.
Second, a recent ranking of fastest-growing economies by the US News and World Report shows that the Middle Eastern and Asian countries, which account for 8 of the top 10 countries, are expected to grow rapidly in the future. The top 10 countries according to the rank are United Arab Emirates, India, Egypt, Singapore, China, Japan, Thailand, South Korea, Brazil, and Saudi Arabia. These countries, mostly, with a large population and increasing per capita income will pose a strong demand for various types of goods and services.
How to Enter?
Several modes of entry Canadian businesses can consider include: (i) exporting, (ii) contractual agreements such as franchising or licensing, (iii) strategic alliances or joint ventures, and (iv) direct investment.
Export is the simplest method for many businesses. You can increase the current productions and transport your product to the destination countries. Sometimes it is necessary to hire an export management company that has a strong knowledge and experience of the foreign markets. These experts can help with penetrating the new market since they understand factors such as local customer behaviors, preferences, and cultures. However, exporting does have some drawbacks including high transportation costs for some products. Exporters might encounter various types of trade barriers.
Contractual agreements such as franchising, or licensing can help companies to avoid problems with exporting. For this mode of entry, you will allow your business partners (licensees or franchisees) in the foreign country to make and deliver the same products offered in the home country in exchange for royalty fees. However, you might need to disclose your trade secret to the partner; also, it is not easy to control the quality of products that your partner delivers in the international markets.
For strategic alliances, you will work jointly together with a firm in the host market. Each firm will contribute resources and expertise to the partnership. An alternative to this mode is equity joint ventures, in which two partners will jointly own a newly formed subsidiary. The benefit of this entry mode is that both firms will share the costs and risks of the project. However, if a potential conflict between two partners arises, it could lead to a would-be competition.
To overcome the disadvantages of the other modes of entry, Canadian businesses could consider establishing a wholly-owned subsidiary in a foreign country. However, this mode is also risky since it requires intensive investment and hassle in operating a subsidiary remotely. This mode might be more appropriate for larger businesses rather than SMEs.
Is any of these appropriate for small or even micro-businesses? E-commerce can be another option. As the cost of technology is getting cheaper, and there are plenty of e-commerce platforms to choose from such as Shopify, WooCommerce, and LightSpeed, just to name a few, micro-businesses can become micro-multinational firms.
In summary, choosing an appropriate mode of entry will require a careful analysis of your products and general business strategy. A sound expansion strategy can successfully bring your firm to the next level and capture international opportunities.
About the Author
Dr. Nam Phuong Le is a Lecturer of Business Management at University Canada West (UCW) and Kwantlen Polytechnic University (KPU). Dr. Le received his Doctor of Business Administration from Walden University (USA), Master of Business Administration from Vancouver Island University (Canada), and Master of Science in International Business from the University of Hertfordshire (UK). His research interest includes globalization, emerging economies, global migration, internationalization of SMEs, and doing business with East Asia. Besides UCW & KPU, Dr. Le also taught at Fairleigh Dickinson University – Vancouver campus, Yorkville University, University of Petroleum and Energy Studies, India (visiting professor), and other colleges in Vancouver, BC, Canada.