Why Small Businesses are Diversifying (and how you can, too)
The days when smaller Canadian businesses felt confident about grazing only within the domestic or U.S. markets are probably over, and according to EDC’s new Vice-President of Small Business Services, Chris Dallaire, that’s a good thing.
“Businesses of any size can be negatively affected by having all their economic eggs in one market,” says Dallaire. “However, with less cushioning around their bottom line, the smaller they are, the harder they can fall. Small businesses can be less resilient to developments like a rise in the Canadian dollar or a sudden decline in demand for their goods. Diversifying is a sound business strategy for smaller companies that can make them more competitive.”
Changing patterns of global economic activity are also underscoring the need to look beyond traditional markets. The most vibrant growth is expected to occur in trade flows among the world’s emerging economies, sometimes called SouthSouth trade. According to a 2011 study by the Asian Development Bank, total SouthSouth trade as a share of global commerce will rise from 12.8 per cent to about 26.5 per cent between 2012 and 2030.
Five ways to break into a new market
Still, when you’re a smaller business and used to dealing on familiar turf, the world can seem like an awfully big—and risky—place. But by using some savvy business techniques, small companies can lessen the risks and increase their chances of successful growth. In addition to developing a realistic export strategy and choosing a single, low-risk, high-potential market to start with, small companies must decide on a method of market entry, such as the ones described here.
1. Direct exporting
While selling directly to foreign customers seems simple, this method also requires figuring out effective marketing, distribution and return channels, and more. The effort and expense to “do it all” can be beyond the capacity of many small businesses.
2. Using a representative
Using a local agent or distributor allows you to sell without fielding a sales force or managing distribution or cultural barriers. Many Canadian businesses find suitable representatives by attending trade fairs, and the Canadian Trade Commissioner Service and industry trade associations can also provide information.
3. Partnering with a larger Canadian exporter
Partnering with a company that already has footholds in foreign markets allows you to benefit from their reputation and brand while leveraging their foreign expertise, sales force and customer base. Getting involved with industry associations, chambers of commerce and boards of trade can help you network with bigger players.
4. Following a current customer
If you’re selling to Canadian businesses that are operating in other countries, you may be able to sell directly to their foreign affiliates, which can help introduce you to the local market and find other customers.
5. Partnering with a foreign company
Working with companies already operating in a foreign market can provide on-the-ground knowledge and contacts, as well as gateways for expansion. A partnership with a large Brazilian company, for example, may provide access to buyers in other South American markets.
With a little help, small companies can act big
Dallaire notes that about 80 per cent of EDC’s customers are smaller businesses. “That makes us keenly aware of the unique challenges small businesses face, and how they can overcome the hurdles and succeed,” he says.
For example, getting financing and ensuring an adequate cash flow are two major challenges often faced by small companies. A simple trick of the trade, however, is to use accounts receivables insurance (ARI) or guarantees to give banks a higher level of comfort in extending credit. ARI can protect up to 90 per cent of losses from a variety of risks, including non-payment, and can be purchased for a single buyer or a single contract. Also designed for small businesses, EDC’s Export Guarantee Program secures loans and lines of credit to help businesses access additional financing.
Another challenge small companies face is accessing affordable market intelligence and networking opportunities. “We have small business account managers living and working in regional offices in communities across Canada, and lots of free resources on edc.ca, including comprehensive market guides, white papers, forecasts, and webinars and events,” says Dallaire. “We’re here and ready to help you at every stage of your business growth.”
Want to experience the benefits of exporting but not sure where to begin? Introduction to Exporting: How to Sell to International Markets is a comprehensive, 75-page guide that can help you get started.
Download at www.edc.ca/introduction