Selling to multiple markets as a business strategy is like investing in multiple portfolios as a personal investment strategy. They’re both examples of hedging your bets—spread out your risks, so any one loss isn’t lethal.
The most daunting truth about a “sure thing” market is this: It doesn’t matter how dependable it’s been in the past, things can change. We live in an age of uncertainty, where it’s impossible to predict global macroeconomic and geopolitical events. When you consider that in 2024, more than 60 countries—home to half the world’s population—will hold national elections, change is inevitable.
Focusing solely on one market can have far-reaching, unforeseeable and devastating consequences. As one weary Canadian exporter recently lamented, they were so heavily focused on one market, they were completely blindsided by the ripple effects created by the war in Ukraine and the subsequent sanctions placed on Russia. For the record: Their market was thousands of kilometres away from the war zone, and seemingly unrelated, but their company was negatively impacted.
The key takeaway: Even stable markets can suffer unexpected disruptions. By diversifying your exports, you can reduce your risk.
At 10 times the size of Canada, the United States (U.S.) offers massive potential and is the natural destination for most first-time Canadian exporters. But by no means is it the market for everyone.
Consider these factors:
- Its economic growth is considerably slower than in markets such as India, Indonesia and Mexico.
- Its middle class is decreasing, while the middle class in developing economies is increasing quickly.
- It’s mature and highly competitive, with a huge array of domestic and international companies already well-established in market.
- In recent years, it’s adopted some increasingly protectionist trade policies such as Buy American.
Depending on what you’re selling, you may find markets beyond the U.S. far more lucrative, offering higher revenues and longer-term growth prospects. Even if the U.S. is a good fit, research shows that exporters who sell to multiple markets have 20% higher export volumes. In fact, 51% of Canada’s total export value is generated by the 6% of our exporters who sell to at least 10 different markets.
But the benefits extend far beyond sales volumes. These companies also tend to be more innovative, have higher productivity levels, employ more people and pay higher wages. In short, diversification pays dividends in almost every facet of your business.
No one knows this better than Darryl Nelson, president of NELSON Environmental Group. The Edmonton-based company is a world leader in the cleanup and remediation of contaminated sites. The company entered its first two export markets—the U.S. and Spain— 25 years ago, when the opportunities fell into their lap.
Since then, NELSON’s international expansion plan has evolved from opportunistic to intensely strategic. With a sales cycle that can stretch up to two decades, being in multiple markets and playing the long game have been essential factors in their consistent global growth. Diversification has paid off immensely, enabling them to build relationships and engage in negotiations for projects on every continent, except Antarctica. Building strong relationships is essential in their business, as it leads to the level of client and stakeholder confidence required to work through the lengthy sales cycle required by large-scale site cleanup projects.
Nelson sees the Indo-Pacific, and its newly developing environmental markets, as a region where his company has a distinct competitive advantage. He credits their experiences in China for preparing them to do business in Vietnam.
“You take your learnings with you everywhere, and you build on them. It’s cumulative and evolutionary,” says Nelson, who co-founded the company with his brother, Warren, in 1992.
“With each new market, we have to wrap our minds around what it takes to step into a new foreign land.”
You should also check out
Expand your understanding of how and where to diversify your markets to avoid overdependence and ensure future growth.
According to Nathan Nelson (no relation), Export Development Canada’s (EDC) chief representative in Vietnam and innovation director for the Indo-Pacific region, “evaluating if you’re ready to expand into new markets takes serious introspection. You need to have the necessary resources, a well-thought-out plan, and a bucketload of resilience,” he says.
Those necessary resources are both human and financial. You can start your own internal research by tapping into the free resources provided by the Trade Commissioner Service (TCS) and EDC. But eventually, you’ll likely need to hire additional experts to do a deeper evaluation. You’ll also have to get on a plane—several times—to make the necessary contacts and prove to potential customers that you’re serious about doing business in their market.
These activities will take considerable time and money, but they’re key to planning your international expansion. Part of your to-do list will include refining your market entry strategy—complete with all the necessary due diligence—including:
- performing a SWOT (strengths, weaknesses, opportunities and threats) analysis;
- securing and allocating your financial resources; and
- building your network of in-market partners.
When it comes to resilience, you need to have the proper mindset to facilitate your international growth. According to EDC’s Nathan Nelson, having a healthy dose of humility is essential because doing business in your new target market is going to be very different than anything you’ve experienced before.
A sound export plan will identify, assess and mitigate as many risks as possible with each new market you go into. Ironically, from an internal perspective, even success can be a risk.
Have you anticipated all aspects of scale? Theoretically, going from Canada to the U.S. requires you to be able to grow production by a multiple of 10. Of course, you can ensure slower, measured expansion by doing business one city or region at a time. But you should be prepared for that life-altering order that can push you to a whole other level.
In order to be ready for “the Big One,” it’s critical to understand the solutions EDC offers exporting companies. For example, EDC Credit Insurance eliminates the risk of not getting paid by your foreign buyer. To overcome currency fluctuations, we have our Foreign Exchange Facility Guarantee—it eliminates the need for your bank to freeze the collateral required to put your foreign exchange instrument in place. If you need to increase your operating line or secure a loan to finance your growth, our Export Guarantee Program provides your bank with additional capacity to meet your needs.
Canada has forged 15 free trade agreements (FTAs) with 51 different countries. These agreements reduce or eliminate tariffs and provide additional benefits, like protecting intellectual property and foreign investment. All this can add up to you having a marked competitive edge when doing business in markets where we have an FTA in place. If you’re looking to expand beyond the U.S., we have regional agreements with the European Union and key countries in the Indo-Pacific.
Reach out to the TCS to learn more about potential new markets, including how to find trustworthy partners, suppliers and customers in those markets. With regional offices across Canada, the TCS can help you validate your export plan and putt you in touch with their network of more than 1,000 trade commissioners in 160 markets around the world.
Webinar: Diversify your global markets to hedge against risks
Date: Thursday, April 18, 2024
Time: 1:00 pm - 2:00 pm ET
Join our new webinar on how to diversify your markets as a hedge against risks. You’ll discover tips on identifying new export markets, as well as managing the risks of international growth. Expert panelists include:
- Darryl Nelson—President, NELSON Environmental Remediation Ltd.
- Amélie Manseau—Trade commissioner, Trade Commissioner Service, Global Affairs Canada
- Tanita Alexandridis—Senior advisor, International Business Advisory Services, Export Development Canada
