Many founders dream of setting up shop in countries around the world, but achieving that goal is not as simple as booking a plane ticket and packing a suitcase. Getting there requires planning, research and analyzing the ebbs and flows of the global marketplace.
Export Development Canada’s mid-year Trade Confidence Index reveals Canadian exporters are wary of rising interest rates and global economic sluggishness. And while trade confidence is on the rise, it’s still well below the survey’s historical average.
Despite this, Canadian businesses are eager to grow and expand. In 2022, Canadian businesses exported more than $778 billion worth of goods and services — an uptick of nearly 19 percent compared to the previous year. In Q2 of 2023, roughly 2.2 percent of small- and medium-sized businesses announced plans to set up shop outside of Canada within 12 months.
But the road to global expansion is often an uphill journey.
“As businesses grow and scale outside of Canada, there’s often a need for extra resources and funds,” explains Mélanie Carter, district manager for EDC’s small business team. “For example, founders might need to hire individuals to develop and execute export plans, pay various taxes and permits, or even adapt the language on labels or manuals. There’s a number of different costs to consider when doing business internationally.”
Having an experienced partner to guide a business through the intricacies of global expansion is invaluable — which is where Scott Bagby comes in.
Bagby’s résumé reads more like a passport. He’s spent the past 20-odd years taking companies international. He has put products in more than 80 countries, set up offices in a dozen of them, and brought new business to every continent except for Africa and Antarctica (although he’s heard the penguin sector is booming).
When MaRS Momentum first launched, Bagby exported himself to Toronto from New York to become an Executive in Residence specializing in international expansion.
Bagby is all too familiar with some of the challenges that accompany global growth, from the culture shock of doing business in a foreign country to the importance of understanding overseas tax and employment laws. As a MaRS EIR, he guides founders through the intricacies of taking their business abroad, sharing his two decades’ worth of lessons on how to do it right. Here, Bagby identifies three common — and expensive — mistakes, and offers advice on how to steer clear of them.
While executives are often eager to expand into massive markets like China and India, certain details often get lost in translation. Language barriers, time zones, geopolitical nuances and cultural differences mean ways of doing business that are familiar to Canadians may not be the standard abroad.
Bagby likens global expansion to running a marathon.
“You don’t just go out and run 25 kilometres on your first day. You start by running one kilometre, then five, then 10 and so on. The same rule applies to leaving your home market,” he explains. “Canadian entrepreneurs who are new to international expansion should target English- and French-speaking countries, or Commonwealth and ex-Commonwealth countries. Markets with similar employment and tax laws are great opportunities for younger companies.”
There’s no such thing as dipping your toe in a new market.
When Bagby sees companies making such tentative forays, “that usually means some consultant has told them there’s demand for their product or service in a certain country, and the higher-ups haven’t even talked to the rest of the organization about their plans to expand,” he says.
This approach creates a loose foundation at best.
“From finance to technology, marketing and beyond, every single department needs to be on board and understand what they need to do,” says Bagby. “Putting a sales rep down in, say South America, thinking everything will be fine usually ends in disaster unless everyone back home is working together.”
Those first two points naturally lead to a common gaffe that’s crucial to avoid: not getting down to the brass tacks of … well, taxes.
“The most egregious mistake I’ve seen companies make over and over again is not getting legal and tax advice, and that mistake is always very expensive,” says Bagby.
Most founders aren’t familiar with foreign withholding tax, simply because they’ve never had to deal with it — and that can be problematic.
“It’s not straightforward. Companies need to consult a tax advisor about withholding tax and understand how much they’ll be paying before directing profits back to Canada,” explains Bagby. “Failing to do this can cost three times the amount it cost to expand in the first place.”
And then there are labour and employment laws, which can vary dramatically across territories. That means Canadian companies doing business abroad often face additional challenges when it comes to hiring or laying off staff.
“For example, I know a Canadian company that wanted to shut down its German office and start fresh in Austria, but they couldn’t,” says Bagby. “In some countries, like Germany, you have to employ people for at least two years. It was an expensive, avoidable mistake.”
Caveats aside, taking a business abroad is not inherently a perilous endeavour. For those who are mindful of the key steps and necessary strategic moves, the rewards can be exponential.
“If a company is willing to invest the time and money to do their research, consult the experts and prepare for every possible curveball without cutting corners, then they’re ready to take the plunge,” says Bagby.
For him, the mark of a company that has triumphantly established itself in a foreign market goes well beyond turning a profit.
“The easiest way of measuring success isn’t merely financial,” says Bagby. “Is the business and brand thriving? Is the company able to recruit people who want to work for them? If the answer to those questions is ‘Yes,’ then the international expansion is a success.”
Going international? MaRS Discovery District and Export Development Canada (EDC) have built tailored content to help you identify new potential markets and explore practical solutions as you expand. Explore the International Growth Collection.