Expanding a family firm onto foreign shores is not for the faint of heart. Scott McCulloch considers the advantages and disadvantages of going global.
Would your family firm’s expansion be an explosive success or a minefield of catastrophes?
Imagine that you’re part of a wildly successful Canadian enterprise looking to dip its toe in the US market, perhaps even go global.
The prospect of new revenue streams is tantalizing.
There are advantages to a strategic international expansion, namely entry into new markets, access to local talent and potential for business growth.
You decide on a company structure. You have a tax-advantageous state in mind as to where to incorporate. You instruct your lawyer to obtain an employer identification number.
Disadvantages? There are compliance risks. When expanding into a new market, a business must adapt and operate accordingly to the country’s regulations.
If expanding to a country with a different business culture to your own, it’s best to receive some cultural training. There are cultural barriers, not to mention language barriers.
How can language barriers affect your international business? Learn more.
International Expansion Strategies
Does your family business have capabilities for managing international employees? Going global brings advantages. But hiring international employees requires a new level of HR support and administration.
Without those capabilities, you’ll need to outsource.
A recent survey by Rochester PR Group, a UK market entry specialist, found that 64% of Canadian respondents said their vision for their companies has always been global rather than local.
Many Canadian firms are naturally drawn to the US when it’s time for a strategic international expansion. The US market offers geographic proximity, a familiar culture, and a business-friendly environment.
When companies go into the US, they think doing business will be the same as in Canada
But don’t take similarities for granted.
“When companies go into the US, they often think doing business will be the same as in Canada,” warns Marie-Elaine Beaudoin, an international expansion strategy expert at Business Development Bank of Canada.
“The US has many different markets and it’s a very competitive environment.”
Do your homework. That could mean setting aside a war chest. Expanding to the US can be more expensive than you think.
Choose the right market too. The US is far from homogenous. It’s a patchwork of local markets with varying characteristics, including regulations and tax laws.
Do Your Homework
It is also vital to differentiate your product or service. Americans are often skeptical about doing business with foreign companies.
That hasn’t put off Canadian firms. Canada’s family-owned business are the backbone of the economy. Indeed, they were directly responsible for $574.6 billion in goods and services produced in 2017.
About $192 billion of family-owned GDP came from big family-held businesses, firms such as Bombardier Inc. and Loblaws Cos Ltd.
Yet even those enterprises have distinctly different tales to tell in terms of US forays. Aircraft and train maker Bombardier has a long history of success in the US, employing more than 7,000 people at 37 facilities.
But Joe Fresh, the Loblaw-owned brand, which at its US peak in 2013 had six prime locations in New York City and a vast distribution deal with JC Penney at nearly 700 stores, closed its final store in 2016.
There have been other notable success stories. Montreal-based shoe retailer Aldo Group, held by the Bensadoun family, has more than 1,000 US stores.
In a strategic foreign expansion, thinking through the potential challenges can make a difference between success and failure.
For and Against
There are many factors to consider: customer behavior, market size, regulatory requirements, intellectual property protections, competition and distribution channels to name a few.
Where do you start?
If you’re an executive in a family firm looking to drive business value through a strategic project, in this case an international expansion, look at the “what”, “why”, “how” and “when” elements of the matter first, experts say.
Tania Cervoni, a practice leader at the Canadian Management Centre in Toronto, notes there are common organizational challenges that prevent strategy from turning into reality.
Leaders must ask themselves: “Why are we doing this?” The project’s purpose must align to specific business and strategic objectives.
If it doesn’t, abandon it.
An international expansion can test the decision-making mettle of even the healthiest of families. Fortunately, 88% of Canadian family businesses have a conflict-resolution strategy in place.
Watch this video to discover the "Nonflict Way of Resolving Conflict."