Tapping into new international markets presents growth opportunities for businesses of all sizes and yet, as of January 2018, only about 15 percent of Canadian SMEs were engaged in global trade.
SME exporters generate more revenues than non-exporters according to SME Profile: Canadian Exporters, a report by Industry Canada. Evidence shows that exporters generate higher sales, pre-tax profit margins and returns on assets, on average, compared with non-exporters. So why don’t more businesses go global?
Among the many challenges faced by businesses seeking to tap into global markets, finance might be the most fundamental.
So how do small and medium sized businesses prepare themselves to take advantage of the opportunities of going global?
We asked a panel of experts in our latest #TradeElite Twitter chat, to find out how SME’s can best get financially prepared to access new global markets. What we discovered is that there is lots of information, support and assistance for business of any size. Check out the highlights of the chat below and you can scroll through the #TradeElite hashtag to follow the entire chat.
Moderator: Nicole Chevrier, Content Marketing Specialist, FITT (@FITTNews)
Panelists:
Scott C. Ferris, @ScottCFerrisPEI, CEO of The Saddle Up Management Co. and Biz Dev Professional. Scott established the Saddle Up Management Company after 25 years of experience in export sales planning, domestic and international business development, investment attraction, negotiations and partnership engagement. His experience stems from participating in and organizing more than 30 trade missions on four continents.
Stacey Gordon, @StaceyCGordon, Director, International Trade, ATB Financial. Stacey is the Director of International Trade at ATB Financial, where she introduces trade and helps to remove roadblocks. She previously spent 9 years at EDC where she worked with hundreds of companies at all stages of their export journey. She teaches International Marketing at MacEwan University, where she hopes to influence the next generation of leaders and entrepreneurs about the advantages of diversification.
Jeff Shepherd, @JeffMShepherd, Marketing Coordinator, Mentor Works Ltd. Jeff is a Marketing Coordinator and Government Funding Planner at Mentor Works Ltd. As an educator about the Canadian government funding landscape, Jeff identifies opportunities where businesses could scale and reach new international markets with grants, loans, and other government incentives.
What are some of the most common financial barriers to international trade for small business?
Q1. What are some of the most common financial barriers to international trade for small business?
A1. Business development spending and Pre-shipment/pre-/service costs #TradeElite— Stacey Gordon (@StaceyCGordon) October 18, 2018
A1 – in my experience the most common financial barrier is lack of knowledge and lack of preparedness. This can be a daunting area for many companies and a “fear of looking unaware” prevents many from addressing a very important business area. https://t.co/RiWqF1pN9b
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A1. Supporting upfront and ongoing costs of #internationaltrade is difficult for most small businesses. If outside capital is required, it’s often difficult to secure lines of credit and other sources of investment. #TradeElite
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A1. Monetary systems and dealing with the risk of #currencyfluctuation is often a concern. What currency will you bill customers in? How will you mitigate risk if accepting international currency? #TradeElite
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
What’s the best way for business to assess their financial readiness? Is an expert required?
#TradeElite 1. Understand how financing works: ie: which costs can be covered by your FI institution ( ie: cost that are related to a defined cash flow or have assets attached) and which costs will have to be covered out of pocket ( ie: soft costs )
— Stacey Gordon (@StaceyCGordon) October 18, 2018
2. If the area of trade finance or lending is new to an entrepreneur, they should absolutely seek the help of an expert, talk to your banker and enlist the help of financial resources like @ExportDevCanada who can help you understand how to finance trade. #TradeElite
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A2. Upfront costs can range from setting up local offices with foreign personnel and purchasing #insurance to getting product certification and developing new packaging. Ongoing costs include transportation, warehousing, and paying #duties and taxes. #TradeElite https://t.co/PSRsb9ypE6
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A2 – Any business should know its cash flow & assess its overall operations in terms of profit/loss. Beyond this to assess for capital purchase requirements, expansion/growth, new market entry etc. then a detailed examination of available cash, options for financing, is needed https://t.co/QD0Uuq0D1z
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A2 – #TradeElite Also companies need to have a good understanding of what their expected costs to engage in import/export will be. @FITTNews has excellent resources available through its workshop series with costing worksheets, export plan templates and more
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A2. While not essential, using experts is advised. Small businesses often lack insight to the long-term financial commitment of exporting; expertise from organizations like BDC provide an objective view and can help show the big picture. #TradeElite https://t.co/PSRsb9ypE6
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
What are some tools and resources that small biz can use to gauge their state of readiness?
A3 – #TradeElite Economic development/trade agencies from the municipal, provincial and Federal levels have great resources to help exporters. Of course @FITTNews provides in-depth readiness through its training, but so does @ExportDevCanada @bdc_ca and others. https://t.co/8VHNwITvcB
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A3. Innovation, Science, and Economic Development Canada (ISED) also provides a comprehensive set of #exportreadiness questions that cover several areas of exporting. https://t.co/hvW4cLHDhy #TradeElite https://t.co/OtU4MdFoLE
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A3. The Canadian Trade Commissioner Service offers an export quiz that helps #smallbiz owners check a range of export readiness factors. https://t.co/nFXk0zilzq #TradeElite https://t.co/OtU4MdFoLE
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A5: #TradeElite 1/2 There are plenty of resources to help small businesses, but there will always be a large responsibility on the company to do as much of their own due diligence as possible, however, here are some resources to consider state of readiness, but provide info:
— Stacey Gordon (@StaceyCGordon) October 18, 2018
2/2A5: #TradeElite @TCS_SDC @TFOcan @calgaryeconomic – Trade Accelerator Program@ExportDevCanada – @cme_mec – Canadian Manufacturers and Exporters @bdc_ca has commercial consulting services to help move your trade business forward
— Stacey Gordon (@StaceyCGordon) October 18, 2018
How do you prepare a financial plan to access new international markets? Where do you start?
1/2
A4:
Where does trade fit in your overall company strategy? What resources is your company prepared to put behind the development of the strategy. Do you want international markets to represent a small portion of your revenue or a larger portion. #TradeElite— Stacey Gordon (@StaceyCGordon) October 18, 2018
2/3 What is your market entry strategy going to be? There are plenty of ways to sell into foreign markets; you can go in alone, license, use local agents, sell through domestic suppliers already in those markets. #TradeElite
— Stacey Gordon (@StaceyCGordon) October 18, 2018
3/3
Each strategy has their own risk/return ratio and some countries/industries will have more market entry options than others. Research Research Research. #TradeElite once you have a clear understanding of your resource allocation and market entry plan, set up a budget— Stacey Gordon (@StaceyCGordon) October 18, 2018
A4. Start by analyzing revenues and projected costs in the #export market. Will company #cashflow be sufficient in covering long-term commitments in your new markets, or will you need to secure additional #financing to make it work? #TradeElite https://t.co/e1euH8jDwh
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A4 – #TradeElite – Start with an export costing worksheet. There are many templates widely available and I have mentioned some sources already. But companies will need to know everything from additional production/service delivery costs right through to moving goods into market. https://t.co/CeFQ0GMUEd
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
How do you forecast the cost of getting into a new market? What kinds of initial costs and ongoing costs are there?
A5 get expert advice local partnership info if possible to minimize risk #TradeElite
— Mike Au (@Mike_Au1) October 18, 2018
@TCS_SDC is a great service for that, they are located in most countries!
— Stacey Gordon (@StaceyCGordon) October 18, 2018
Understanding your market entry strategy, ensuring you are familiar with each step of the supply chain and who is responsible for what.
Your market development plan, invest in resources to determine the plan and budget that allows for some unexpected expenses. #TradeElite— Stacey Gordon (@StaceyCGordon) October 18, 2018
A5 1/2- #TradeElite Ultimately you will have to have done some extensive research into the target market. As @StaceyCGordon said, know your market entry strategy, sales channel(s), logistics options etc. https://t.co/k6hKs8qzKF
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A5 – 2/2 #TradeElite Initial costs will be potential prod/service modifications, packing changes, packing, logistics again ( know your INCO terms https://t.co/5Umqwz7GIF) Ongoing costs will include additional shipments, customer care, returns/warranty. https://t.co/k6hKs8qzKF
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A5. Upfront costs can range from setting up local offices with foreign personnel and purchasing #insurance to getting product certification and developing new packaging. Ongoing costs include transportation, warehousing, and paying #duties and taxes. #TradeElite https://t.co/swKc2oRkYj
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A5. Developing #cashflow forecasts is the best way to understand market entry costs. Developing monthly, quarterly, and annual projections will show what you’ll need to cover in the early stages of #exporting. #TradeElite https://t.co/swKc2oRkYj
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A5. Once #cashflow projections are complete, use a break-even analysis to ensure sales can cover these costs. Are there gaps? If so, explore #financing options. #TradeElite https://t.co/swKc2oRkYj
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A5.
Lipsticks made in Cda sell to EU.
Cost of Goods
+Check Cosmetics Rules
+EU Consultant Fee
+QA Dossier Fee
+New Labels/Packaging
+$ Ship CdatoEU
+Brokerage
+Duty Rate
+VAT
+Origin Port fee
+Local Delivery
+Ads / Marketing
+Exchange Rate
+Mark up
etc.#TradeElite— audrey ross (@tresAudrey) October 18, 2018
Are the financial implications for getting into global trade different for smaller businesses?
#TradeElite, A6. 1/2 :Smaller business may have a harder time accessing capital and financing the “startup” costs to trade. Many small companies I have worked with start by supplying to a large local exporter who can shoulder some of the cost and risk associated with trade.
— Stacey Gordon (@StaceyCGordon) October 18, 2018
2/2 A6. They then use that opportunity to springboard into the markets they are supplying into.
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A6. Smaller businesses must focus on #cashflow and ensure that they can manage #financial commitments. Larger firms with more mature domestic operations can often avoid cash shortages more easily. #TradeElite https://t.co/RaaEYgEriO
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A6 – #TradeElite Personal opinion here – yes. Smaller firms need to be more aware of starting financial position, ensure they have the cash/access to financing & will feel the impacts of negative situations more on their bottom lines. Hence the need for better preparation. https://t.co/IBVIj9LmGz
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A6 – #TradeElite On the upside for smaller firms, global trade can be a difference maker for them to launch exponential growth. There are risks, but there is so much support available for SMEs that can ensure they are prepared and supported in going global. https://t.co/IBVIj9LmGz
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A6. ABSOLUTELY. Financial institutions are hesitant to invest in SME’s, they have to leverage their own money or be more creative abt investors. This means they have different burdens for repayment / access than larger companies. It’s getting better. #TradeElite
— audrey ross (@tresAudrey) October 18, 2018
What are some of the common financial mistakes small businesses make in embarking on global ventures?
A7. The less fixed you are on an expected outcome the less stressed you will be. Things change quickly when you go global. Agility & Flexibility are your new buzzwords. #TradeElite
— audrey ross (@tresAudrey) October 18, 2018
A7 – #TradeElite Not assessing their starting point and having a good snapshot of available resources. Failing to plan and engaging proper research to estimate costs. Either get your feet on the ground in target market or work through really good sources of intel.
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A7 – #TradeElite Also many companies don’t take the time to learn about what supports are available to them. Reaching out for mentorship in this area can be a huge advantage, a real time saver, and point companies in the right direction for solid resources
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A7:
1/3: Often companies get too caught up in the idea of making a lot of money and they miss taking key steps to mitigate their risks
Going into a market, “hoping on a plane” to “check things out” without a plan.— Stacey Gordon (@StaceyCGordon) October 18, 2018
A7:2/3
Check out the @AB_EDT Trade Missions before going into a market, they provide a tremendous opportunity to travel with other AB companies and will use their resources to get you in front of the right people. #tradeelite— Stacey Gordon (@StaceyCGordon) October 18, 2018
A7: 3/3 :Not properly planning the relationship/market development piece, either not understanding the upfront investment it will take to make a sale or not knowing when to move on to the next relationship. #TradeElite
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A7. Businesses need to consider #export expansion as a long-term commitment. Don’t underestimate #exporting’s demand on #cashflow and ensure you have buy-in across the management team. #TradeElite https://t.co/dReLIEstdS
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A7. Also, a big mistake is not using #governmentfunding programs to #finance your international expansion. Small businesses can access government #grants to offset a range of market development activities. https://t.co/mcG6nQKqXd #TradeElite https://t.co/dReLIEstdS
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A7. Lack of an #exportplan is the worst mistake of all. The more effort your #smallbusiness puts into developing an export plan, especially in relation to finances, the fewer surprises you’ll have along the way. #TradeElite https://t.co/dReLIEstdS
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
What are some hidden or often forgotten costs businesses need to account for in their planning?
A8: Given that many of the added costs come from the unknown, there are a few: taxes, delays due to processes (many industries are still gov’t owned in other countries), the difference in the amount of time it takes to build a relationship with your buyer, local content laws.
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A8 – #TradeElite In my experience product/packaging modifications, including translation, are often overlooked. As are packing costs. But there are a ton of others – loading/off loading, tailgaiting, demurrage/storage, documentation fees, trade finance product fees… https://t.co/cut9fiSFy0
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A8 – #TradeElite IP costs, licensing fees, agent/broker fees or commissions, legal fees, in-country fees (that could include facilitation payments – yes that’s still a thing) https://t.co/cut9fiSFy0
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A8. In consumer goods? Courier costs. These are going to shoot up high as you are sending samples back & forth for approval, PR or QA review. Your local courier peep, may not be your int’l courier peep. COURIER COSTS. #TradeElite
— audrey ross (@tresAudrey) October 18, 2018
What are the most critical financial management issues for small biz getting into global trade?
A9. Getting paid and generating cash to cover export costs is essential. Using products like @ExportDevCanada credit insurance can help reduce #financialrisk and support long-term export success. #TradeElite https://t.co/errGSvLm51
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A9 – #TradeElite Agree Jeffrey, using @ExportDevCanada and your banks for risk mitigation and currency hedging tools is also important. https://t.co/2LVSEGjIUC
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A9. #Cashflow planning should be the most prominent consideration your business makes. Take time to develop conservative and realistic forecasts. Being prepared for multiple scenarios will enable agility in foreign markets. #TradeElite https://t.co/errGSvLm51
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A9. Developing and communicating payment terms to your customers is of utmost importance. Don’t leave any room for misunderstandings, and proactively follow-up on invoices to speed the accounts receivables cycle. #TradeElite https://t.co/errGSvLm51
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A9 – #TradeElite It can be very sexy to be in new markets and companies can get caught up in wanting to be in certain markets (for travel, enjoyment purposes for example). It’s crucial to keep an eye on costs and your returns. Know when to take a loss and move on. https://t.co/H43VrqwHM3
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A9:
The MCI is not having the #cashflow to make it through the export cycle and not considering all of the true cost when bidding. #TradeEliteThere most likely will be delays and extra expenses that were not considered, so it is important to build in some contingency.
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A9. Cash flow.
You pay your supplier.
You are paid on terms after delivery.
The farther out your market is, the more time before you can start the clock on payment. Ex, a project could ship in June, be delivered in July & be paid in Oct. #TradeElite— audrey ross (@tresAudrey) October 18, 2018
What kind of finance skills are typically needed from in-house resources? Do you need to hire a financial expert?
A10: 1/3 #TradeElite No two trade deals or relationships are ever the same, so a general financial plan, understanding of what you want your capital structure to look like and how you are going to finance each stage of your export journey, is important.
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A10: 2/3 #TradeElite Talking to another Canadian company who is experienced in your market is also very helpful. Hiring an experienced consultant is an option.
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A10: 3/3 #TradeElite As the company starts to negotiate contracts and recognize revenue in foreign markets, I highly recommend enlisting the help of an accountant and trade lawyer in addition to a risk mitigation specialist.
— Stacey Gordon (@StaceyCGordon) October 18, 2018
A10. Your internal #finance expert must be able to understand and mitigate economic risks, process and report international payments, and proactively manage cashflow. #TradeElite https://t.co/U7d2aKFepS
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
It’s worth it. They seem expensive, but not as expensive when you have to pay out for some silly mistake they could have saved you from. Remember – long term investment. #TradeElite https://t.co/XRCcV30QiA
— audrey ross (@tresAudrey) October 18, 2018
A10. If building in-house skills is preferred, EDC-FITT #internationaltrade training courses can provide members of your team with the skills necessary for #export success. https://t.co/fF2s2KAUZW #TradeElite https://t.co/U7d2aKFepS
— Jeffrey Shepherd (@JeffMShepherd) October 18, 2018
A10. You need someone who really understands your biz & is great at the domestic market, then they need to know / work w// hire someone / a firm who really knows the target market & global business. More training or 3rd party are going to be needed. #TradeElite
— audrey ross (@tresAudrey) October 18, 2018
A10 1/2 #TradeElite Ability to read financial statements at a basic level, understand cash flow, building costing and pricing estimates are certainly strengths. At some time, yes you will need an expert – accountant, banker, trade finance specialist https://t.co/2QBI1EQSBU
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A10 2/2 #TradeElite SMEs need to focus on their core competencies and be generalists in other areas where experts can step in, saddle up and take on specific areas and bring expertise that’s needed. https://t.co/2QBI1EQSBU
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
Recent evidence suggests that financial support to small biz is most successful when offered in combination with consulting services, business advice or financial education – what are your thoughts?
Q11 #TradeElite I’d agree with this as someone who benefitted from financial support & paid project management help and now as someone who provides that support. Throwing money at a company without the knowledge or skills to properly ensure it used is a waste. https://t.co/JODmij6VaD
— Scott C. Ferris (@ScottCFerrisPEI) October 18, 2018
A11. Absolutely agree. There is no way you / your team can think of every thing. Use your resources & set up a great foundation with experts, then as you learn more you can work independently. #TradeElite
— audrey ross (@tresAudrey) October 18, 2018
Read the rest of the chat and join future discussions by following the #TradeElite hashtag. And stay tuned for the next #TradeElite chat, coming up on November 15th at 2:30-3:30PM ET, and if you haven’t yet, join us on Twitter at @FITTNews.
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