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STRATEGY

Tapping Canadian Markets

Market intelligence summary of business opportunities in Canada.
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Selling hockey sticks to Canada may evoke the "carrying coals to Newcastle" irony, but Bending Branches Inc., a Minneapolis-based company that since 1986 has been shipping sticks across the Canadian border, some 300 miles away, attributes nearly half its exports to Canadian markets. "The volume is great," says president Dale Kicker, "although it's become difficult with the value of the dollar floating up and down."

There are more predictable vexations -- government bureaucracy, paperwork, the expense of customs brokerage, and freight costs. But Kicker's 22-employee company is typical of the small U.S. businesses that plunge into the Canadian market intuitively, without getting advice on importing, exporting, or setting up a Canadian branch from federal, state, and provincial agencies or private sources of information.

"Less than a year ago we began focusing more on the Canadian market, but we didn't do any research to support that move," says Peter Winston, chief executive of Integrated Computer Solutions Inc. (ICS), a 70-employee computer consulting firm in Cambridge, Mass. "Canada was simply an extension of the United States in our direct-mail advertising." As orders from Canada came in, ICS figured out how to process them. "We didn't do our research until the last possible second."

Resource: For basic information on exporting to any country, Export Programs: A Business Directory of U.S. Government Resources (Trade Information Center, 800-872-8723) is a free 62-page guide covering foreign markets, financing, and technical assistance available to U.S. businesses.

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Government Trade Shows
Some CEOs are uneasy about going into a market unprepared. "We thought about getting into the Canadian market for years," says Charles Feldman, vice-president of Plasti-Card Corp., a 25-employee North Miami-based plastic-products printer. "But we didn't know about the costs of exporting and assumed it wouldn't be worth our while."

Feldman discovered the Canadian market last November, when he attended a Canada First trade seminar in Toronto organized by the U.S. Department of Commerce. He went knowing nothing about customs requirements or other exporting details. He left fully briefed by a parade of U.S. and Canadian officials and business owners.

Resource: Canada First seminars are organized around U.S. industry sectors or regions. The cost for each two-day seminar typically runs from $300 to $395, excluding transportation and lodging. For more information call 202-482-3101 or fax 202-482-3718.

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Opening Canadian Branches
As demand for Wood-Mizer Products' portable sawmill grew, the number of customers "justified a presence in Canada," says David Mann, consumer sales manager for the $37-million Indianapolis company. Weeks of frustrating delays shipping parts across the border inspired Wood-Mizer in 1988 to form a Canadian subsidiary, managed by a former customer out of a head office near Toronto, with branches in British Columbia and Nova Scotia, and a bilingual office in Quebec.

Wood-Mizer chose managers who knew the product, were attuned to Canadian sensibilities, and were aware of the differences between Canadian and U.S. labor legislation, rules about transacting business in French as well as English in Quebec, warehousing, currency fluctuations, and goods-and-services-tax (GST) kinds of issues.

Resource: Price Waterhouse's Doing Business in Canada (1991, free, 300 pages, 212-819-5000) describes Canada's general business environment, taxation, and business regulations.

Doing Business in the Province of Quebec (1991, $17, 30 pages, 703-487-4650, fax 703-321-8547) covers language requirements, government procurement, labor and transportation issues, and GST. It's available from the U.S. Department of Commerce's National Technical Information Service.

* * *

Currency Exchange
What's the bad news for U.S. exporters to Canada? Currency-exchange rates tend to fluctuate, sometimes wildly. If you've negotiated a Canadian dollar price and the Canadian dollar is worth 10% less than the U.S. dollar, you have some room for profit margin, says Barry Davis, national accounts manager for IAP Inc., an automotive-replacement-parts manufacturer and distributor based in Avenel, N.J. But if you've locked in that price and suddenly the currency-exchange rate drops the Canadian dollar's value to 25% less than the U.S. dollar, Davis continues, it becomes difficult to make a profit.

Plus, Davis finds bank practices less than helpful. His company sometimes has to wait up to a month for checks drawn on Canadian banks to clear. Most bank managers can bypass that waiting period if a U.S. business submits a check for payment drawn on a Canadian bank account that hasn't presented problems over time. If the transaction is between correspondent banks (most Canadian banks have correspondent relationships with U.S. banks), a bank draft can act as a certified check that allows the U.S. bank to withdraw funds directly from the check writer's account in a Canadian bank, thus eliminating the wait entirely. A wire transfer from a Canadian bank to a U.S. bank is even faster.

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Tapping Market Niches
Underserved niche markets in Canada embrace U.S. businesses, particularly when they cut through the red tape at the border and deliver on time. "We get our product across the border with the same dispatch as if we were down the street," says Carl Treleaven, chairman of Pharmagraphics Inc., a $15-million Itasca, Ill., company that prints labels for the pharmaceutical industry. Barry O'Brien, national sales manager of 150-employee India-napolis-based Standard Change-Makers Inc., which has been selling change-making devices for vending machines from a Montreal office for 25 years, offers a bit of practical advice: Canadian branches with trucks in the United States can fax invoices ahead to Canadian customs so the trucks clear the border faster when they arrive there.

Resource: Industry, Science, and Technology Canada (ISTC) publishes Industry Profiles (free; 613-954-4500; fax, 613-954-4499), which evaluates the global competitiveness of Canada's 130 top industries. ISTC also has a Market Intelligence Service (613-954-4970; fax, 613-954-2340) for product-specific information.

The Export Opportunity Hotline (800-243-7232) fields basic questions at no charge. It also sells publications, reports, and other services (including trade leads and agent searches).

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Trade Agreements
Both the Free Trade Agreement (FTA) between the United States and Canada, enacted January 1, 1989, and the North American Free Trade Agreement (NAFTA), now headed for ratification by the U.S., Canadian, and Mexican governments, have had their share of criticism. Still, small companies with a Canadian presence can clearly benefit from some of their provisions.

Perhaps that's most evident with tariffs that have been all but eliminated under the FTA. For $18-million H. O. Trerice -- an Oak Park, Mich., industrial temperature-and control-valves manufacturer -- the benefits have been so great that the product line produced in its Windsor, Ontario, plant is now exported back to the United States, says export manager Valerie Magnuson. "The few tariffs that remain have been reduced to 2.4% from 8% to 10% and will disappear by 1998. Sales of these imports from Canada have helped lower our overhead over the past two years."

Resource: For a free 38-page briefing on the effects and opportunities of NAFTA, write to Richard Steinberg, Morrison & Foerster/NAFTA Briefing, 345 California St., San Francisco, CA 94104.

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Albert Warson is a Toronto-based writer specializing in international business.


CANADA AND ITS PROVINCES

Canadian Statistics

Population: 27.3 million, 50.7% female. By province: Alberta, 2.5 million; British Columbia, 3.3 million; Manitoba, 1.1 million; New Brunswick, 724,000; Newfoundland, 568,000; Northwest Territories, 52,000; Nova Scotia, 900,000; Ontario, 10.1 million; Prince Edward Island, 130,000; Quebec, 6.9 million; Saskatchewan, 989,000; Yukon, 27,000

Area: 3.9 million square miles (world's largest country); about 35% is covered by mainly coniferous forests

Official languages: English and French; in Quebec, it's French by law

Organization: 10 provinces; 2 territories

Political system: Federal parliament, with a house of commons elected every five years (the next federal election is this year) and a senate appointed by the prime minister. Federal capital is Ottawa. Provincial governments are responsible to electorates in their own jurisdictions

Most populated metropolitan areas: Toronto, Ontario (3.9 million); Montreal, Quebec (3.1 million); and Vancouver, British Columbia (1.6 million)

Education: About half of Canada's 13.6 million workers are high school graduates; a quarter have university or community-college degrees

Unemployment: Roughly 11.8% of the work force (at the end of 1992)

Gross domestic product*: Estimated $612.25 billion in 1992, compared with $7.2 trillion in the United States; GDP per capita in Canada is $22,629, compared with $22,487 in the United States

Business activity: More than 77% of manufacturing activity and financial institutions and other service industries are concentrated in Ontario and Quebec

Average industrial weekly wages*: Expected to rise from $431 this year to $446 in 1994; 31% of labor force is unionized, compared with 18% in the United States. Canadians earn more in the textile industry ($22,278 a year) and petrochemicals ($39,974 a year) than U.S. workers, but less in the automotive ($34,286) and computer ($28,361) industries. Production workers are paid an average of $14.72 an hour, as are their U.S. counterparts

Consumer expenditures*: Expected to increase from $272.2 billion this year to $280.6 billion in 1994

*All figures in U.S. dollars based on $0.79 U.S. to $1.00 Canadian.


THE HOTTEST EXPORTS TO CANADA*

The $96.5 billion in U.S. goods and services exported to Canada in 1992 is predicted to grow by an average of 2% this year and in 1994. Consider these markets tapped as among the hottest growth industries in 1993 and 1994:

Pollution control and equipment
Projected growth, 1993-1994: 10% to 12%

Imports from the U.S., 1992: $1.41 billion

Computer software and services
Projected growth, 1993-1994: 9%

Imports from the U.S., 1992: $1.42 billion

Computers and peripherals
Projected growth, 1993-1994: 8%

Imports from the U.S., 1992: $2.10 billion

Automotive parts and service equipment
Projected growth, 1993-1994: 5% to 7%

Imports from the U.S., 1992: $1.49 billion

Source: "Country Marketing Plan," Office of Canada, U.S. and Foreign Commercial Service (202-482-3101). n

Last updated: Mar 1, 1993




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