Good news: if you’re thinking about selling into the United States, your timing is perfect.
Several leading economic indicators, including increases in U.S. employment rates, salaries and purchase orders are optimistic, suggesting a tremendous opportunity for Canadian companies looking to thrive south of the border. Americans are buying more, and with a favourable exchange rate they’re more likely to consider buying from you, but only if you’re set up properly to deliver.
In this article, we’ll provide you with some insights and practical information to help support your business’ existing export strategy or even set up a path to begin selling in the U.S. for the first time.
Before we dive into discussing key elements of an effective export strategy, let’s take a closer look at the benefits of expanding into the U.S. market.
About 22 million Americans shopped online from Canadian businesses in 2016 and spent a total of almost 9 billion dollars, PayPal Canada President Paul Parisi told the Financial Post. Even so, only 17 per cent of Canadian small businesses are selling online, according to recent PayPal research, and the percentage of those selling into the U.S. is even smaller. That’s a significant missed opportunity.
The U.S. market is ten times the size of Canada’s. That represents a lot of potential customers. It also offers a much larger pool of data that companies can use to deliver better products and services. Exporters to the U.S. can tap into macro-level trends, enabling them to more efficiently to customer preferences, leading to higher sales.
On average, Canadian exporters tend to perform better and be more competitive than their non-exporting counterparts, says a study conducted by the Office of the Chief Economist. Such advantages are why the Canadian government encourages export and offers resources, such as Export Development Canada (EDC), to help you.
Now, let’s look at our seven tips for developing an effective U.S. export strategy.
- Plan to overcome risk
Opening a U.S. sales channel presents significant risks. Knowing them from the get-go will help you craft a strong export strategy and avoid costly missteps, such as:
Not understanding the duty and tariff system. Failing to comply could result in significant penalties.
Securing the wrong U.S. fulfilment partners. When trusting elements of your brand integrity and customer experience to a third party, risks can be high.
Dealing with customers who don’t pay. Attempting to recoup those losses through the U.S. legal system can be time consuming and both financially and emotionally draining.
Falling prey to competitors who, for instance, might steal your IP and make you fight for it in a U.S. court.
Relying on your own assumptions, whether about the viability of the market or the costs of being in it.
Developing a strong strategy before entering the U.S. market is key. The more questions you can address now, the less likely you’ll be without answers later, when you need them.
- Make sure you’re ready to export
Wanting to sell in the U.S. is one thing. Being properly prepared to do so is another. You’ll know you’re ready when there is:
Sufficient interest at the corporate level inside. Growth may happen at the bottom, but it starts at the top with a commitment. If your entire executive team isn’t on board with expanding into the U.S., you’re likely to fail. The many moving pieces involved mean that everyone has to be on the same page.
Readiness to invest in making a U.S. expansion work. Most investment will be in connection with the right people, from recruitment to training for regular travel to and from the U.S. Significant investment will also be required for fulfillment, including more boxes and bags, higher last-mile fees, and longer hauls. If all goes according to plan, you’ll pay it off in no time. But you have to be ready to spend.
A commitment to sustainable growth. It’ll cost a lot to break into the U.S. If you’re not thinking about what a successful foray south will mean, how you’ll manage to keep it going and expand on it, and how you’ll get buy-in from the employees making it happen, then you should take a step back and reconsider selling into the U.S.
Common to all these export readiness criteria is understanding whether there’s sufficient interest at the corporate level inside your company as well as a commitment to sustainable growth. Without these, expanding into the U.S. is a non-starter.
- Select the Right Market for Your Business
So you’ve done your due diligence and you’re ready to spend, grow, and reap. But targeting the entire U.S. market is unrealistic – it’s just too big. Now’s the time to narrow your focus. The smart move is to pick a specific area or industry, ideally a combination of both. For example, if you supply brass doorknobs, you might choose door manufacturers in the southeastern U.S.
But before you commit, it’s crucial that you do a market attractiveness test and a competitive analysis.
A market attractiveness test evaluates a market’s potential. If you’re that brass supplier, for example, ask the relevant questions: is there compound growth in the number of houses being built? If so, how many houses are high end enough to warrant brass doorknobs? Are there any underserved markets within the overall market? In other words, are people having trouble finding brass door knockers? Finally, do you know how the supply chain works in that region, such as who does final-mile delivery and where the distribution centres are?
If all that checks out, move on to the competitive analysis. Surely there’s already someone providing the Southeast with brass doorknobs — who is it? Is your selection superior? Can you offer something they don’t? If you’ve done your competitive analysis correctly, you’ll know if the metaphorical ocean you want to enter is clear blue or littered with failed entrants — and if so littered, is there any room for you to operate?
If things still look good after these two tests, we recommend you conduct two more analyses:
A VRIO (Value, Rareness, Imitability, and Organization) analysis to make sure you can truly own your segment in the market; and,
A CAGE (Cultural, Administrative, Geographic and Economic) analysis to identify the various differences (and similarities) between your home market and the foreign market — especially things you can use to gain competitive advantage such as product labelling regulations, tax breaks, or separate regulatory standards for international firms.
- Mobilize your domestic network
You’ve selected your market and you know your product will add value in it. Now you need a way to enter, and it’s dangerous to think you can do so on your own. But you don’t have to.
Give some thought to your domestic network of advisers, customers, suppliers, trade associations and government partners with inroads into the market you want to enter. The most cost-effective way to set yourself up is a few phone calls and a solid pitch. People want to help you if they can, and if your pitch is good enough, they will.
As part of that exercise, we encourage you to consult the Canadian Trade Commissioner Service, as it’s their job to plug you into helpful resources like shipping partners. For example, if you’re already working with Purolator for domestic shipping, they can work with you and Purolator to set up a U.S. shipping solution. Together, you can devise packaging requirements for your products; technology solutions for packing, tracking and delivering; border management; key shipping lanes and transit times; an affordable returns strategy, and overall readiness to deliver on your promises.
- Attend conferences for your target market
One of the easiest ways to test a foreign market is to attend conferences. They can provide excellent opportunities to expand your network, maximize sales, and promote your brand in front of your target audience. There are plenty to choose from in the U.S. every year, but it’s critical to select the right one.
Trade shows and exhibitions require a significant investment of time and money, so think strategically before making a decision. This means gaining an understanding of the market you’re trying to break into, setting clear sales goals, taking a sober look at the competition, and obtaining an updated list of past events.
It also means considering which events your potential partners are going to attend. Ask whether there will be agents and distributors you could partner with at any particular conference, because you may not find any customers. If you sell mobile medical clinics, for instance, going to a conference your competitors are attending may be the wrong choice. Instead, try a conference where members of the healthcare community are gathering.
- Know the difference between an agent and a distributor
Since you’re probably not going to be on the ground in Atlanta with a bag full of brass doorknobs, you’ll need local representation. But will it be an agent or a distributor?
The roles of these respective professionals are often confused. An agent opens doors and connects you directly to buyers, but doesn’t actually sell anything. On the flipside, a distributor buys products from you and resells them. You can make more money with an agent, but it’s way more work to sell to a thousand customers than to one distributor.
In addition, the legal and operational responsibilities of agents and distributors are very different, and it’s essential that you understand these differences before entering into an agreement with either of them in a foreign market.
You could also consider a licensing agreement with a U.S. manufacturer, but then you’d have to have processes in place to handle IP protection, royalties, and how they’re paid.
There are no wrong answers here — though there is a right answer for you.
- Work with your shipping partner
Ultimately, a quality U.S. export strategy won’t be worth the paper it’s written on if you can’t affordably get your products down there. This is why working proactively with your shipping partner is key.
Among other things, your trusted shipper can help you perform a review of your products, control packaging to optimize transit, reduce damage and lower costs, offering logistical solutions and adding value to your export strategy.
As we said at the start, this is the perfect time to become an exporter. The opportunities are there, and so are the resources — the tools and expert teams — to help you come up with a successful plan to take your products south and your revenues north.
If you’re ready to start developing a U.S. export strategy, watching our webinar is a great first step to learn more. We encourage you to reach out with any questions, and if you found this article helpful, feel free to pass it along.