Your suggestions on low cost entry methods will offer good value, and should be
considered by anyone seeking to export.

I would further suggest that most of those exporting direct from Canada could benefit
by
breaking with tradition, and adopting the new reality of doing business
that is increasingly based on a local presence combined with a credible
online presence.

Exporting manufactured goods from Canada is a
sector that should be aggressively pursued, but is actually shrinking
fast, and is much smaller than most Canadians realize. It is also facing
strong international competition: at a recent petroleum equipment trade
show in Mexico, the ratio of Chinese vs Canadian expositors were 19:1
and all offering equivalent products. The message is increasingly
clear: you can’t do it from Canada.

Integrative Trade (EDC term)
that leverages Global Value Chains and is tracked using Trade in Value
Add (TiVa) methods, has dominated since 2009. Over 50% of Canada’s
exports sales actually derive from foreign affiliates, and are not
exported from Canada at all. Further, about half of Canada’s exports are
services – not goods. Note that these stats exclude commodities and
energy exports.

I would like to discuss my experience exporting professional / technical services and
knowledge
intensive manufacturing that either require significant R&D (=
client relationship) or incorporate a lot of electronics and software.

In my practice I have found that the most effective method for market entry, for any
good
and especially for services, is to first establish a local division
(Foreign Affiliate), and use that base to develop sales.

This is based on the need to meet at least two of the following three requirements:

1) Many (most?) customers demand that suppliers are located close by, or at least

provide in country service and support, particularly with products that
involve R&D, computers / software or are fussy and require ongoing
calibration (which is why Magna has 28 plants in Mexico).

2) Services as knowledge products usually require that we move people as they are

the repositories of that IP and knowledge, however obtaining visas are
difficult to impossible, and therefore selling services now demands
establishing foreign affiliates and transferring IP / knowledge to them.
For example, we have found it nearly impossible to provide engineering
services in Brazil, but Mexico with NAFTA is a great place to work.

3)
Agility as you mentioned is key, but agility depends on obtaining real
time, in depth local knowledge that will allow immediate identification
and response to customers needs, changing trends and being able to adapt
/ develop / deliver the right product. Agility also depends strongly on
using all 4 scaling methods and not just depending on growth. This is
very difficult to accomplish without a bespoke local office (not an
agent !).

Obviously opening an office requires that the firm
first establish that sufficient potential market exists before
committing to the expense, but we are talking of “significant” potential
that can be identified relatively easily using the well proven methods
you suggested.

Few firms will consider opening a local office as
the first step. As you pointed out, most will follow a client, or based
on research chase an opportunity, and I agree that most of these
companies will make some spectacular and fully avoidable errors on the
way. But, experience has demonstrated that putting the cart before the
horse is often much less expensive, lower risk and can ramp up success
much faster.

My approach is based on my experience as an agent and distributor (I lived / worked
/
ran businesses in 4 countries in Latin America), and have established
international networks of agents, distributors and licensed IP for
various clients. In addition, I have opened +/- operated over a dozen
divisions in 6 countries.

I suggest that after researching markets, instead of trying to manage that market from
afar,
that the firm open a small office in the target market, staff it with a
person with a proven track record in facing equivalent challenges,
opening new markets and with an extensive and intimate knowledge of the
local market. In other words, leave the Canadians at home, and give the
local manager the needed autonomy.

The cost of opening and operating a local office can be surprisingly low – and be
extremely effective.

For
several clients, the cost of maintaining a technical sales team to
build and maintain client relationships was prohibitive. In fact, for
20% less than the annual cost of one sales rep selling in 4 countries, I
could have opened and operated 4 local offices, and provided 24/7
service and support to customers. One example of effectiveness was
where $35,000 investment resulted in over US$2M in annual sales with
margins of 55%, within 18 months of opening.

Building
relationships are key, and a local rep can go golfing, and usually has
extensive university, family and social connections (not to mention the
critical opportunity to share beverages). It should be noted that this
office need not (initially) be more than a sales / support and
intelligence unit, and as such is cheap and cheerful.

Some stats to demonstrate the value of foreign affiliates and establishing Global
Value Chains:

Exports
of manufactured goods from Canada are down about 5% since 1990, and
down around 7% since 2000, whereas growth from foreign affiliates are up
20% for manufactured goods (04/13), and 86% for services (04/13).

Just
between 2000/09 we lost over 20,000 manufacturing firms and 500,000
jobs – while services foreign affiliates added over 200,000 positions
(none of which were in Canada).

Services now account for about
50% of Canada’s international trade (since 2008), and that agrees with
the WTO reports that just over 50% of world trade is now
in services (mainly financial, insurance, freight etc).

The EDC reports indicate that over 50% of Canada’s exports no longer come from
Canada:
they derive from Foreign Affiliate sales to local customers in the host
country, or (usually) within the FTA of the host country. Because they
are sold by Canadian divisions they count as Canadian
exports.

Sales by foreign affiliates have grown from about 10% of GDP in 1993 to about 40%
today.
Of this 40%, just under half is in manufactured goods, ICT, and
professional / technical services, and the balance is financial services
(Scotia, RBC et al are the big players).

Further, sales in services by foreign affiliates are now double that of services
exported direct from Canada.

We
have about 40,000 exporters in Canada (out of about a million potential
exporters: Statscan), and while growing at about 17% (04/13), they are
being
outsold by a few thousand foreign affiliates that have
demonstrated 39% growth over the same period (and recall that goods
sales decreased by about 7% during this same period, clearly
demonstrating the sharp growth in services).

Bottom line is that
while exporting goods direct from Canada is increasingly competitive and
specialized, the trend towards establishing integrated Global
Value
Chains, tapping into real time local knowledge and developing an agile
response, has probably been the single most powerful factor in driving
export growth.

More firms should be looking to break with
tradition, and consider opening a local office as their first step, but
at the same time, not ignore the low cost and proven methods of market
intelligence and establishing an online presence.