Five Questions Companies Should Ask Before Entering A New Global Market *
* But rarely do
By Robert Smith, vice-president of inside sales, North America, Livingston International
This article was originally published on February 22, 2017 in Global Trade Magazine
There’s a quiet revolution happening in Canada’s business community. Businesses across the country that have traditionally limited their market to North America are beginning to look elsewhere for new opportunities.
In fact, recent research conducted by Livingston International shows a significant surge in the use of more than one trade agreement is anticipated among Canadian businesses in 2017. That means many businesses will be setting their sights on markets that are at least an ocean away and have different languages, cultures and consumer habits.
As someone with an extensive sales background, I have a heightened interest and awareness about the challenges associated with introducing an existing product to a new market. But as the chief sales and marketing officer of a trade services firm, I also have an acute understanding of the hidden complexities of doing so.
Much has already been written about the importance of adapting already existing products to the consumer culture and appetite of new markets, and most businesses know they need to conduct substantial market research before attempting to go global. Yet few businesses consider the impact of trade agreements and trade regulations on their ability to be successful in international commerce.
Research we conducted last year showed trade agreements have little bearing on a business’s decision to enter a new market. There are pros and cons to that kind of decision making. On the one hand, it demonstrates a certain level of confidence and risk tolerance, on the other hand it ignores that trade agreements could require changes to product composition, transit times and cash flow.
For example, imagine for a moment being a clothing retailer in Canada who specializes in formal wear. Your products are made from a wide range of materials and in some cases products contain two or even three different fabrics. While your products may have been well received in Canada or even the US, an attempt to sell them in another market where one of the fabrics has heavy trade duties attached to it could adversely affect your competitiveness in that market. Similarly, the size, shape or fabric of one of your products could put it into a specific product category that has a different set of tariffs (or perhaps no tariffs) associated with it.
Perhaps you’re considering selling a product in one market where it will be subject to tariffs, but an adjacent market has a trade agreement with Canada that would make the product tariff free. On the other hand, a market where a free-trade agreement is in place might make the process of getting a product across the border much more cumbersome and time-consuming as you will need to ensure it’s compliant with the trade agreement, and the complications of using the trade agreement might supersede the tariff costs in the other market.
If you’re a little confused, take comfort in knowing you’re not the first to be puzzled by these questions. Many businesses often go to international markets without making these considerations and are forced to reconfigure their supply chains after the fact, sometimes losing money and market share along the way.
Here are five questions related to the trade process that business owners and managers should be asking themselves when considering new markets.
Is there a trade agreement in place between Canada and my target market and, if so, does my product qualify for duty exemption?
If there is no trade agreement, what are the target market’s tariff rates and will my product still be competitive in that market with those tariffs in place?
Can I modify my product in a manner that allows me to take advantage of a trade agreement, or avoid tariffs, without compromising on quality?
Is there a high level of protectionist sentiment in my target market that might result in trade barriers being put in place in the near future?
Are my margins wide enough to withstand a sudden change in trade policy that affects my product?
Managers and owners should also work with their suppliers and trade services partners to identify international market opportunities and risks, and to get counsel on the questions noted above.
Understanding the nuances of the international trade process is just as important as understanding consumer appetite, the competitive landscape and all the other traditional aspects of market analysis. It’s far too costly to not take them into account.