Expanding into international markets can give your business access to new customers and revenue opportunities, but it also introduces new risks and responsibilities. Before entering a new country, take time to understand the market, assess your business's readiness and develop a plan for managing foreign exchange, regulations, logistics and other costs.
Here are some important considerations for Canadian businesses looking to expand internationally.
Assess your business's readiness
International expansion requires more than finding customers in another country. Make sure your business has the people, finances, capacity and processes to support additional demand.
Consider:
- Does your product or service have a clear opportunity in the target market?
- Can you meet additional customer demand without affecting your existing business?
- Do you have enough working capital to support international sales?
- Can you provide customer service across different time zones and languages?
- Do you understand the legal, tax and regulatory requirements that may apply?
- Do you have a plan for managing international payments and foreign exchange?
The Canadian Trade Commissioner Service recommends assessing your company's export potential, financial and legal resources, competitiveness and capacity before entering international markets.
Research and choose your target market
Not every international market will be a good fit for your business. Start by identifying countries where there is demonstrated demand for your product or service. Consider the size and growth of the market, competition, customer needs, pricing, distribution channels and cultural differences.
You should also research:
- Local competitors
- Customer preferences and buying habits
- Language and cultural considerations
- Local business practices
- Trade agreements
- Tariffs and other trade barriers
- Import or export requirements
- Product standards and certifications
- Potential distributors, agents or business partners
The Trade Commissioner Service recommends screening potential markets before conducting more detailed research and suggests narrowing the initial focus to the most promising opportunities. You can also use the Trade Commissioner Service's market and industry resources to research countries, industries, trade agreements and export opportunities.
Understand foreign exchange risk
If your business imports or exports goods, provides services internationally or receives payments in another currency, changes in exchange rates can affect your costs and profits. For example, if your Canadian business agrees to receive US$100,000 from a customer, the Canadian-dollar value of that payment can change between the time you sign the agreement and the time you receive the funds. You can't control currency markets, but you can plan for foreign exchange risk.
Depending on your circumstances, you may want to:
- Understand which currencies your business is exposed to
- Include potential currency fluctuations when setting prices
- Consider the timing of international payments
- Match foreign-currency revenues and expenses where possible
- Discuss foreign exchange risk-management strategies with your financial institution
A clear foreign exchange strategy can help you better understand your potential costs and protect your margins.
Understand the rules and regulations
International trade can involve requirements in both Canada and your target market.
Depending on what you're selling and where you're doing business, you may need to consider:
- Import and export requirements
- Tariffs and customs duties
- Export permits or controls
- Product standards
- Labelling requirements
- Taxes
- Intellectual property protections
- Contracts and local laws
- Professional licensing or accreditation for services
Requirements can differ significantly between countries and industries. The Trade Commissioner Service recommends researching international trade regulations, product standards and licensing requirements before entering a market. Consider working with qualified legal, tax, customs or trade professionals when requirements are complex.
Plan how you'll enter the market
There are several ways to enter an international market. Depending on your business, you might sell directly to customers, work with an agent or distributor, establish a local partnership or make an investment in the market. The right approach depends on factors such as your financial capacity, the product or service you're offering, the level of customer support required and the business environment in your target market. A local partner may also provide valuable knowledge of customers, regulations, distribution and business culture.
Plan for payments and logistics
Getting a sale is only one part of international business. For physical products, you'll need to consider shipping, customs clearance, insurance, documentation, packaging and delivery times. For services, you may need to consider contracts, travel, local licensing, work permits or how the service will be delivered. You should also establish clear payment terms and understand the risks associated with different payment methods. Building relationships with appropriate service providers, such as customs brokers, freight forwarders, insurers, accountants and legal professionals, can help you navigate the practical side of international trade.
Start with a clear plan
International expansion can be rewarding, but it should be approached as a long-term business decision rather than a quick way to increase sales. Before committing significant resources, make sure you can answer a few fundamental questions:
- Which market are you entering and why?
- Who are your customers?
- What makes your product or service competitive there?
- What will it cost to enter the market?
- What regulations and trade requirements apply?
- How will you manage foreign exchange risk?
- How will customers pay you?
- How will you deliver your product or service?
- Who can help you navigate the market?
The Canadian Trade Commissioner Service offers resources and advisory services for Canadian businesses preparing to enter international markets, including market research, market-potential assessments and connections with qualified contacts. With careful research, a realistic financial plan and the right support, expanding beyond Canada can become a strategic opportunity for your business.
This article is for general educational purposes only and does not constitute legal, tax, accounting or financial advice. Requirements for international trade vary by country, industry and business circumstances.
