Beyond Canada’s borders: Navigating the challenges of new global markets
By Jim MenziesBusiness Operations Economy General Manufacturing export markets global markets Grant Thornton growth management manufacturing
Pay special attention to cultures, lifestyles, business models, and supply chain and distribution channels.
Manufacturers have never been less constrained by geographical boundaries than they are today. The sector has transformed from a collection of regional and national industries into a global engine of economic growth, evolving rapidly from local factory and distribution operations to shipping massive amounts of goods around the world. As manufacturers contemplate navigating this new terrain and venturing beyond Canada’s borders, a number of key factors come into play.
Changing global dynamics. Global growth is fed by continuously changing demographics, offering exciting opportunities for manufacturers to enter new and emerging markets. Middle classes are growing throughout the world, even in countries where disposable income was once considered a luxury.
China’s newly-affluent population now consumes everything from Starbucks lattes to iPhones. Yet China’s economic ascent is becoming old news. The global population will expand to 9.6 billion in 2050, up from 6.9 billion in 2010. India will replace China as the most populous country with 1.6 billion people. Africa will reach 2.4 billion by 2050, with Nigeria becoming the fifth most populous country in the world, outgrowing the US and Canada combined.
Even some developed nations are growing. The UK population is expected to rise from 63 million to 73 million by 2037, although other countries such as Japan and Germany will see their populations decline by more than 10%.
Facing the transition. Even when all signals point to going global, manufacturing executives face an array of challenges, such as: geopolitical uncertainty; distribution and logistics limitations for perishable goods; product regulations that vary by country, region, state or province; and a tireless battle for the global consumer.
As a result, capitalizing on global opportunities is no easy task. It requires innovation and adaptation of processes, products and strategies. Successful manufacturers transitioning into the global market do the following:
- tailor their products, packaging and messaging to the customs and tastes of their destination markets;
- explore local market dynamics, competitors and suppliers in those areas before entering;
- identify the most profitable product opportunities;
- build an informed picture of potential pitfalls;
- have a clear understanding of regulatory requirements in every jurisdiction in which they operate; and
- understand the mindsets of their partners, making it possible to build long-lasting, profitable relationships with them.
As your company goes through these transitions, pay special attention to the cultures, lifestyles, business models, and supply chain and distribution channels in new markets.
Know the business culture
Cultures and lifestyles. Even as cross-cultural exchanges increase and geographic barriers break down, national and ethnic traditions remain strong – both in how consumers view products and how businesses and executives interact. Knowing the nuances of the business culture in each country will help you choose appropriate business partners, build trust with suppliers and retailers, and reach mutually beneficial agreements faster. Consider whether you can access people in-country who understand and will help you navigate cultural barriers, identify which customs and practices may help or hinder potential business relationships, and identify cultural sensitivities or taboos.
Structuring your business model. Find out the relative success of various models such as joint ventures, acquisitions, distribution into the region, business alliances and transactions through third parties. Corporate entities may not be the best choice from either a business or tax perspective, and changing structures may lead to adverse tax implications or be seen as tax avoidance.
Some jurisdictions have structures for foreign investment that help to minimize tax consequences. In other countries, such as India, ownership requirements differ from state to state. Understand your business model options and that a different business model may be deployed cost effectively. Also ensure your model includes an efficient repatriation and exit strategy.
Supply chain and distribution channels. Develop detailed maps of how your goods will move throughout a region from suppliers to distributors to customers. Selective in-country sourcing, especially of non-core components and materials such as packaging, can slash transportation and distribution costs.
Efficient distribution and supply chains may already exist. Understand what’s required to get your products into ideal markets and the robust supply chains necessary to get you there. Be comfortable with your distribution channels and confident you can transport your products without risk of tampering or theft.
Global opportunities abound and realizing doing business in new markets can be quite different from doing business in Canada is half the battle. By taking a sophisticated approach and adapting to challenges as they arise, your business will flourish beyond Canada’s borders.
Jim Menzies is National Leader – Manufacturing Industry for Grant Thornton LLP, a Canadian accounting, tax and advisory firm that provides services to private and public organizations.
This article appears in the Jan./Feb. 2015 issue of PLANT.