Strategy

Business without Borders: Too afraid to fly?

Why 40% of Canadian firms do no business abroad, and how that could hurt us.

airplane

Trent Sukovieff is savouring the comforts of his hometown of Calgary after spending the past four months in Iraq. “It’s like Christmas, New Year’s and everything all rolled into one,” he says of his springtime visit. These days, home for Sukovieff and his fiancee is Dubai, where he heads up the Middle East headquarters for Waterworks Technologies, the company his father, Len, founded.

Building a water-treatment plant in Iraq is a tricky business, requiring patience and sensitivity to the local culture, Sukovieff says. Procuring a nut or bolt of a certain size, available at any hardware store in Canada, might take a week in the war-torn country. If you need something done right away, you can’t just call head office; they’re all asleep, so the support of a full-service office in nearby Dubai is a necessity.

A lot of companies in Canada would ask, why bother? Sukovieff has a compelling answer. “We have a lot more business coming out of our Dubai office than we ever have out of the Canadian office,” he says. The company has projects on the go in Oman, Bahrain, Qatar, Saudi Arabia, Jordan, Egypt, Kuwait, Afghanistan, Djibouti — places thirsting for the proprietary water and wastewater treatment systems that Waterworks designs.

The company started in 1985 serving clients in Canada and the United States but very quickly gravitated to the developing countries where the demand for water infrastructure was greatest. “In Canada we have a lot of water,” Sukovieff shrugs. Thus the potential for his firm’s growth here is limited. And the challenges of living, working and profiting abroad? To him, it’s all part of the adventure.

Would that all Canadian companies were so worldly. Canadian Business surveyed 833 businesses across Canada between April 15 and May 4 as part of the Business without Borders initiative, and 60% claimed to be engaged in business outside Canada in some way, whether exporting, sourcing goods and services, or working with foreign partners.

The most surprising result, though, came from the 333 respondents not doing business internationally: 62% expressed no interest whatsoever in doing so. Only 3% indicated they planned to start within 12 months, while 18% said they were gathering information. Nine per cent said they were interested in doing business abroad but not sure where to start. These homebodies — all with annual revenues in excess of $1 million as per the survey parameters — were not clear about just why they were not reaching beyond Canada, citing a variety of perceived barriers including cost, competition, regulations, staffing and marketing. A third of respondents admitted to being “just not interested.”

“The ones who aren’t [doing business abroad] are just guessing,” opines Paul Beamish, Canada Research Chair in International Business at the Ivey School of Business at the University of Western Ontario, who participated in a roundtable discussion of the survey results on May 20. Just 5% cited foreign-exchange fluctuations as a risk inherent in operating outside Canada, he notes, yet among the 500 companies engaged with foreign customers and suppliers, this was the largest single concern, mentioned by more than a third of respondents. Other real obstacles faced by the more globally oriented firms included the cost of operating internationally, local competition, staffing, local politics and market conditions, and marketing to unfamiliar customers.

The most common way companies conducted business abroad was through foreign partners, at 37%, followed by their own boots on the ground, at 35%. Nearly one in five had no foreign offices or partners, instead serving their customers and dealing with suppliers from Canada, a model made increasingly feasible by the Internet.

Many respondents expressed dismay at the difficulty of obtaining reliable regulatory and market information. Noted one: “Getting a straight answer on what duties and brokerage will apply on shipments is almost impossible to obtain. Even to the United States it is difficult. It would be great if all of these free trade agreements actually resulted in freer trade.”

Just how the globetrotters got into foreign markets likewise elicited a variety of responses. While some deliberately targeted, researched and made inroads into particular markets, firms more often did so via acquisitions or serendipitous routes ranging from a meeting at a trade show to an employee’s personal contacts and language skills, or a chance sale over the Internet.

The advice volunteered for companies contemplating a move overseas tended toward caution, market knowledge, decorum and patience, but also aggressive salesmanship or at least persistence. Several recommended cloaking one’s enterprise in the Canadian flag which, they said, sells well in the countries where they operate. Suggested another: “Act first; ask for permission later.” Still other tips were practical in nature, such as insuring your receivables and hiring immigrant staff in Canada.

The things companies felt they needed to expand their global presence ran the gamut from marketing to financial wherewithal to government facilitation and tax incentives.

The survey sample represented a broad cross-section of business in Canada, with proportional representation from every region, industry and size of enterprise. Around half of the companies had annual revenues greater than $20 million and more than 100 employees. Approximately four out of five that answered the question were headquartered and owned in Canada. The individual respondents were all decision makers within the companies, involved in either business development or choosing suppliers, or both. Collectively, the companies generated 80.9% of their revenues in Canada, 11.8% in the United States. No other single country represented even 1% of sales, which would seem to underline the uptapped potential of a more global strategy.

Ivey’s Beamish has heard all the excuses for why companies stay home. When the dollar is high compared with other currencies, as it is today, they say they can’t compete. But that makes it a great time to buy assets or companies in the U.S. or Europe, he says. “It’s like a 20% off sale for Canadian companies.” The biggest barrier is really one of attitude, he adds. Certain corporations embody a kind of broad-minded entrepreneurism; their behaviour can be described as “geocentric.” What the Business without Borders survey failed to illuminate, Beamish says, is why the importers and exporters stayed engaged with foreign markets regardless of the obstacles. He has an inkling after 30 years of study, though: they still managed to make money there. Doing business domestically has a long list of obstacles too, ones that virtually all the respondents had managed to overcome, he points out.

“If you’ve built a mousetrap that sells well in a competitive country like Canada, imagine how it could do in others,” he says.

Rock Oil Synergies of Camrose, Alta., is in the midst of testing that proposition. Rock Oil suffered along with other oilfield services firms from the downturn in drilling in its home province in recent years. The company has spent the past six months investigating expansion into the Middle East where, president and CEO Derek Woods explains, “what we do hasn’t been adopted yet.” A reseller of technologies to maximize oil-well output, Rock Oil recently partnered with a company in Syria where, due to political restrictions, there is virtually no competition from American firms.

Advising Rock Oil on the venture is Clark Grue, who heads up Rainmaker Global Business Development in Calgary. Grue has a more urgent reason for Canadian companies to go global. Even if you’re happy with your business in Canada, “other countries and companies will knock on Canada’s door.” He uses hockey, something any red-blooded Canadian can understand, as an analogy: “Do you want to play defence or offence? You can defend your turf at home or you can go on the offensive.”

Razor Suleman, one of three entrepreneurs who took part in the Business without Borders roundtable, feels the country could benefit from a change in attitude. The 36-year-old founder of I Love Rewards, a Toronto-based developer of employee recognition programs for corporations, experienced just such a head-shake upon receiving backing from John Albright, managing director of JLA Ventures, in 2007. Suleman had said at the time he hoped for I Love Rewards to lead in its niche in North America, but Albright corrected him. “I’m not investing in I Love Rewards to be a North American company,” Suleman recalls the venture capitalist saying. It had to be global. Today I Love Rewards has programs running in Mexico, Egypt and parts of Europe, and to his surprise Suleman has found sales in other countries, especially the U.S., easier than in Canada.

“People make decisions with less information, with a higher risk tolerance, and with more urgency,” he says, warming to the subject. “If you have a successful Canadian business, somebody needs to tell you you can have a successful North American business, and ultimately a successful global business. And I want to be that person!”

That sort of promotion of global enterprise provides the driving force for the Business without Borders project, which will roll out over the next year in the pages of this magazine, in The Globe and Mail and online ( bwob.ca). The next three instalments, running quarterly, will explore ways companies are using Canada’s multicultural advantage and rising national brand to seize new opportunities in the global marketplace.

For more stories, exclusive research and insights on international business, visit www.bwob.ca and join the community of Canadian businesses making an impact around the world.