Thursday, July 3, 2008

Call to Action for Exporters

Call to Action for Exporters

We should all be proud of Canada's economic track record. Several years of federal budget surpluses, debt maintenance, low interest rates, commodity price strength, and political stability position Canada as one of the world's strongest economies. Further, I must admit the strength of the Canadian dollar against the US dollar feels pretty good after decades of silly jokes about our weak loonie from my US colleagues.

That being said, exporters in the business community are aware of the now seemingly unavoidable impact of the weakening US economy on Canada. There is a “perfect storm analogy” for every difficult situation these days, and it is hard not to employ that overused term here.

The US downturn, like every other in history, will correct itself in time. However, the impact of the US subprime fiasco, the ongoing cost of war(s), the uncertainty of whether McCain or Obama policies will rule post November ’08, and the crushing debt are expected to make this downturn last longer than most. The US Federal Reserve is attempting to sound calm and confident, and politicians are even spending billions to artificially prop up the capital markets; however, any measureable positive impact seems to have a shelf life measured in hours.

The US is by far Canada’s largest trading partner. Exporters have been dealing with the effects of the high Canadian dollar for several quarters now. As the Canadian dollar rose to new heights, some “experts” said this was a wake up call for Canadian exporters that have long enjoyed the leverage of a weak dollar and now must become more competitive and productive to survive. I am not sure these same experts appreciated the difficult economic factors to come.

Canadian exporters are already facing slowed decision making, extreme price pressure resulting in a weaker bottom line due to reduced buying power of the US dollar, and creeping protectionism, all combined with the multidimensional impact of skyrocketing energy prices. By all accounts, exporters are facing very challenging top and bottom line pressures.

The prevailing wisdom among exporters seems to include the reworking of short and medium term financial assumptions airing conservatively that the Canadian dollar will continue at par, that sales cycles for certain product/service categories will lengthen, that the sales and value propositions of those same offerings must deliver a return on investment (ROI) in under 12 months, and that customer relationship management to ensure a keen awareness of the customer’s/partner’s overall situation is paramount.

Simultaneously, exporters are busy tuning up their go-to-market strategies aimed to attack the world’s growing markets, including Europe, China, South America and India. For many exporters that have until now ignored or only dabbled in overseas markets, diversifying beyond the US is now a necessity.

Many business people in Canada have always considered the US market to be the prime market. The large size and influence of the US market, its close proximity, shared language and business culture made it the logical place for most companies to enter first, launch in first, expand in first. Time may prove that this will continue to be the case, but for the next two to five years, exporters may want to seriously consider a balance or even a shift. Depending on the type of product or service, exporters may for the first time look to overseas markets first.

The costs of doing business overseas will be significant. Beyond the soft costs of gaining critical knowledge of the target foreign market, differences in language and business culture, and currency complexity, there will be hard costs related to navigating legislation, shipping, communications, and business travel. All these factors will need to be baked into the business case. Obviously exporters, which are typically highly creative and effective businesses, will figure this all out one way or another.

Early stage companies (aka “start-ups”) entering export markets for the first time will need to look carefully at their go-to-market strategies to maximize the leverage of their modest funds. Start-ups, which typically refine their sales and value propositions as they enter the market, will face an even tougher situation. They will be looking to establish credibility and mindshare in a very tough market. The prevailing wisdom here is to enter the export market with the highest probability of business success, and which best represents or can influence the other markets to be entered in the future. Further, savvy market validation research will be required to ensure start-ups are truly hitting the sweet spots of the market. For some start-ups these sweet spots will still be in the US, for others they will not.

Many in the business community will need to exercise export market business skills which may have become a little out of shape or perhaps were never used while the US was booming. Now would be a perfect time to engage the help of professionals who are from or understand these foreign markets, including people new to our community. It will be important to network and leverage the expertise of others who have successfully entered markets, and to tap into programs such as those offered by Export Development Canada and various Canadian Consulates around the world.

We should be proud of the Canadian economy’s strength. We should be confident about Canada’s future. We should also be highly aware of the inevitable impact the US economic downturn will have on Canada and work strategically and tactfully to minimize it. All of this is easier said that done, but is now absolutely necessary.


Dan MacDonald

Dan MacDonald is the president and CEO of InNOVAcorp based in Halifax. www.innovacorp.ca

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