The many Asian markets offer exceptional opportunities for growth, but less than one percent of small and medium-sized businesses (SMEs) in Canada export to Asia.
Some are quick to state that by their very nature, SMEs are too small to penetrate Asia’s diverse and complex markets.
Others would argue that the current governmental policy framework is not offering the right settings to enable SMEs to take full advantage of these lucrative market opportunities in Asia.
And finally, the SMEs themselves, highly intimidated by the scope of business activities in Asia, simply do not know where to start.
In the recently released Building Blocks for a Canada-Asia Strategy, Stewart Beck, the CEO of the Asia Pacific Foundation of Canada, said:
The rise of Asia marks one of the defining shifts of the 21st century. Within five years, Asia will represent 44 percent of the world’s gross domestic product, 54 percent of the global middle class, and will consume $4.8-trillion (U.S.) annually – 42 percent of the world’s total consumption.
The launch of this document on January 28th at the Ottawa Forum is a timely and welcome initiative which, along with British Columbia’s new Raising our Game in Asia trade strategy, will help to increase Canada’s focus on Asia.
It delivers a clear signal to the private sector to take initiative and turn opportunities into successes in this dynamic and diverse region.
The importance of Asia to the future of our economy is unquestionable, especially in the context of Asia’s current shift from an investment-led economy to a consumption and service-driven economy.
Large-scale urbanization, the expansion of the middle-class and sustained economic growth are among the key drivers of future development and wealth in Asia.
This will translate into increasing demand across various industry sectors, such as: power supply and distribution, food production and logistics, and electronics.
But the biggest demand will be in service sectors, including: computer and IT, financial and insurance, engineering, architectural and science, resource and agriculture-related services, health and education services.
These trends should be seen as the ones providing solid opportunities for Canadian businesses.
However, Asian markets are becoming increasingly complicated to access, as governments and businesses all around the world focus on the opportunities in the region.
In order to be successful in Asia, Canadian SMEs will need to find ways to operate in a more competitive environment.
Asia is not all one market and Canadian businesses must not consider it as homogenous. Each country has different cultural traditions, languages, economies and governments.
One approach or market entry strategy is not going to work across each country, or even across different regions within the same country.
Understanding the parameters of various Asian markets from a political, social, economic and technological point of view is key for Canadian SMEs to succeed in this part of the world.
3 ways to help Canadian SMEs tap into Asia
When talking to SME managers, I often hear comments pointing out three key challenges they face when trying to do business beyond our borders, and more specifically in Asia:
- low confidence and lack of international experience
- lack of knowledge and poor analysis of the Asian markets
- lack of long-term commitment
1. Think bigger
The small and medium-sized businesses in Canada at all levels of development have a confidence dilemma. Why?
Because it takes a certain skill set to go from domestic to international operations, and to shift business-changing decisions like expanding internationally from the back of business minds to front and centre.
According to the 2015 report by HSBC and the Conference Board of Canada, Selling to the World: The Keys to International Business Success, the four factors allowing us to determine the company’s readiness to go global – and what HSBC calls “a global competitive advantage”—are:
- Skilled executives
- Market knowledge
- The ability to innovate
- International networks
Canadian SMEs who master these keys will be the ones capable of creating successful operations in the Asian markets.
While every part of the “global competitive advantage” framework is important, the most crucial component to boost the confidence of a small business is the company’s managers.
Talented executives can understand the challenges of expanding internationally, play an influential role in identifying international opportunities, and boost the company’s international competencies by recruiting experienced international business employees and consultants.
That type of “out of the box” and entrepreneurial vision is a big reason why, for instance, AMP Solar Group, an experienced rooftop solar project developer from Port Credit, Ontario, has done so well.
A couple of years after its incorporation in 2009, the company started a careful process of foreign market selection and has established quality business connections in the United States, the U.K., and expanded its operations to the Asian markets of India, Japan and Thailand.
Expanding to unfamiliar Asian markets was somewhat risky and uncertain for AMP –as noted in the December Business Report of the Globe and Mail by Dave Rogers, AMP’s President and CEO.
However, the company’s managers’ strong belief that the market for renewable energy was about to take off, coupled with their solid partnerships in the U.S. and the U.K., allowed them to make confident inroads in Asia.
2. Create your own global knowledge network
Market analysis is far from easy. This is even truer when the company is facing the challenge of targeting a completely unknown market with a high level of cultural and economic differences.
Unfortunately, too many companies are making business decisions based on just a “snapshot” view of the market, which is often inaccurate.
The pace of change is so rapid in Asia that the company’s plans become obsolete before they are even fully implemented.
A lot of market analysis could be biased and poorly made, which results in failure or misalignment of the company’s international strategy.
The managers of Canadian SMEs who aspire to be successful in Asian markets need to find a way to surround themselves with people who have been already exposed to Asia and its various geographic areas.
It is essential to identify who will be your sources of market information and intelligence. This could include taking full advantage of trade promotion agencies and their various market studies and innovative tools.
It may also mean an expanded network of Canadian and Asian consultants and experts. Having a globally oriented business spirit also includes being willing to get on a plane and be physically present in your new target market in Asia.
Prospective CEOs developing the necessary level of commitment for a given market in Asia should attend international conferences and trade shows and develop local contacts which could include new local hires.
According to Ken Shields, CEO of Conifex Timber, a Vancouver-based forestry products company, travel seems to be a must.
For companies that want to expand to China, he is advising to use trade missions which are an efficient way to make connections and to stay apprised of the country’s economic and financial plans and priorities.
3. Build your presence in the market
To successfully capture the opportunities in Asia, Canadian SMEs need to create foundations for deeper and broader relationships with a given market.
Physical presence and personal contact are viewed as real assets in Asia. Setting up a local office in Asia is the most effective way to conduct business transactions, whether with customers, suppliers or partners. This is also the best way to deal with governmental authorities.
Establishing a long-term presence and making the necessary investments help SMEs prepare for tough times and avoid being left behind. This type of presence is a key factor in dealing with the market volatilities.
It is a well-known fact that when China’s economy overheated in the mid-to late 1990s, some of the Western companies started to pull back and only a few anticipated the staying power that was needed to weather the market storms.
China and other Asian markets will no doubt witness new periods of turbulence in the future, as their economies continue to grow.
A long-term presence is also a key factor in developing the necessary level of connectivity with Asian markets. There is presently a tendency to rely too much on technology to fulfill the need for communications.
However, Asian cultures, diverse as they are, have a particular preference for personal contact to establish trust and good reputation.
Nautel, a Nova-Scotia-based manufacturer of radio broadcast transmitters, became international thanks to its innovative business model using an extensive network of sales partners around the globe.
These sales agents, partners or independent contractors – according to Kevin Rodgers, the company’s President and CEO, “are the people on the ground who can interact directly with clients.”
Nautel has been relying on their sales partners’ knowledge of local language, customs and regulations, and proactively leveraging their strengths, connections and knowledge, in order to expand its business beyond Canada’s borders.
Today, Nautel operates in 177 countries, including many in Asia. The company is still on an expansion path, this time to China, one of the few countries Nautel is not yet in, says Rodgers. Nautel has recently entered into an agreement with a sales partner there.
Entry into Asia’s national or regional markets requires adequate resources on-the-ground to facilitate the company’s transaction-based commerce and selling via multinational value chains.
A lack of in-person presence, investment in local human capital, and long-term commitment to the market, may not be simply sustainable in the Asian context.
Therefore, it is understandable why so many foreign companies, which are our competitors in this part of the world, are busy growing their presence in Asia and planning to position their businesses for success in the Asian business ecosystem.