Small and medium-sized Canadian enterprises, which once ventured no further than the U.S., are increasingly finding outlets for their goods and services in the emerging markets of Asia, Africa and Latin America.
Diminishing telecommunication costs, integrated transportation, expanded information networks and the globalization of trade are enabling even the smallest of companies to pursue markets overseas.
"There's still a comfort level in dealing with the U.S. first," says Kyle McNamara, head of small business at Bank of Nova Scotia.
"But there's a lot more interest in emerging markets, and when they explore exporting, they tend to ask about India or China."
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| File photo by Maurice Tougas, for Business Edge |
| Upside Software Inc. founder Ashif Mawji has taken his Edmonton company into the international market. |
The rising Canadian dollar may also have played a role.
As the loonie started to escalate last year, many small and medium-sized firms (SMEs) went overseas to look for cheaper sources of supply, says Brendan Cunneen, vice-president of the Business Development Bank of Canada.
"But, all of a sudden, they realized the size of the market in India and China," he says, adding this interest may also have been accelerated by the downturn in the U.S. market.
According to Statistics Canada data, 8.3 per cent of Canadian SMEs export and, on average, these SME exporters earn one-third of their revenue from exports.
Statistics Canada defines an SME as having fewer than 500 employees and less than $50 million in annual revenue.
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Typical of the internet-era breed of SME exporters is Vancouver-based BuildDirect.com, an online wholesaler and specialty retailer of building supplies. BuildDirect does business in 60 countries, using its proprietary shipping and logistics software.
The company sells materials for flooring, roofing, siding, decking and countertops.
BuildDirect buys products directly from manufacturers in many parts of the world and sells to builders, retailers, distributors and do-it-yourselfers.
Orders consist of container quantities shipped to ocean ports or inland terminals and pallet quantities shipped to any postal code or zip code address in North America.
Jeff Booth, a former homebuilder who co-founded the company in 1999, says the plan right from the beginning was to buy and sell worldwide. "We were born global," he says.
About 80 to 85 per cent of revenue comes from the U.S., but the firm now has growing sales to the Caribbean and also China, where it has recently opened an office.
Being an online business gives BuildDirect.com an edge over traditional trading houses in terms of larger volume and lower overhead. By acting, in effect, as the front-end of the manufacturers' business, the company is able to eliminate intermediaries, such as export agents.
While BuildDirect does heavy online advertising in the U.S., its sales to emerging markets have materialized almost despite its approach.
"We don't have foreign languages on our website and we don't have pricing in local currencies. Yet our overseas customers still manage to find us," says Booth.
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Upside Software Inc., based in Edmonton, has become a global vendor of contract management software, including sourcing and procurement, billing and forms management.
Established by Ashif Mawji in May 2000, the company made its first sale in Canada and had its first large order in the U.S., but today has customers in 180 countries.
About 10 to 15 per cent of its revenue comes from emerging markets in Africa, Asia and the Middle East.
Mawji considered opening sales offices abroad, but decided to work through local partners that have an established presence in the target markets.
"They know the way business is done there," he says. In Africa, for example, Upside has strong regional partners in South Africa and Nigeria that serve not only those countries but others in the region. It has three partners in India.
As a software provider, Upside can sell its products to faraway markets without having to worry about transportation costs, Mawji says.
But software can nonetheless be a challenge to export, he adds, since different stakeholders have to be comfortable with the applications.
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Pulse Voice Inc. of Markham, a telecom applications provider founded by four Indo-Canadian engineers in 1996, found itself in the ironic position of first having to win clients abroad before being able to compete in North America.
"You had to be a Nortel or an Avaya to be taken seriously by potential customers in Canada or the U.S.”
says chief executive officer Mohan Markandaier.
So, Pulse Voice, which was targeting SMEs with cost-effective call-centre applications, turned to Ukraine, Venezuela, Ecuador and Brazil, where a Canadian company - even a small one - was greeted with less skepticism.
By 2001, 80 per cent of the company's business was outside Canada, and 60 per cent of it was outside North America. Four years ago, it eyed India, initially as a place to offshore its development work. Outsourcing proved difficult, however, so the firm repatriated its development work to Canada.
Impressed with the exponential growth in India's telecom market, Markandaier decided to open a sales office in Chennai "to go after India and the rest of Asia."
Despite all the media hype about call centres in Bangalore and Hyderabad, Pulse Voice found the market challenging.
"The small players started losing contracts and we had trouble collecting our money," says Markandaier. The firm did better with its second product line - an interactive voice response system to automate inbound and outbound communications.
Pulse Voice's sales in India currently generate only five per cent of its total revenue, but the company expects to double that. "You don't need a local partner to start a company in India," says Markandaier, "but to succeed, you need a really good local partner that has not just capital but synergistic solutions. It will help you find the right people to run the company locally and win customers."
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Terminal Systems International, Inc. (TSI) of Saskatoon, has provided flight, baggage and gate information display systems to 40 airports worldwide.
Incorporated in 1997, TSI first sold its systems to Canadian and U.S. airports, but in the early 2000s began adding overseas clients. It sold a system to a beer company in Mexico that bought it for the airport for advertising purposes. Taiwan and the Dominican Republic followed.
TSI's breakthrough came in 2005, when it sold it product to the airport in the Ecuadoran capital of Quito. "We have since maintained close contact with the Quito airport, and provided maintenance and software support," says Dan Serrano, TSI's account manager. "We're in talks now on possible contracts to do all the airports in Ecuador, which would be worth $1 million."
TSI has also won contracts to install its systems at nine airports in southern Peru, and is bidding on projects for 10 to 12 airports in northern Peru. The southern projects were its biggest overseas contracts to date - worth just under $250,000 for software.
How did a company in Saskatoon win clients in the southern hemisphere? "Our product has been highly regarded," Serrano says. "Our airport clients' references are our main tool for selling the product. If airports in Canada and the U.S. are happy, the airport managers in South America hear about it."
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A small Toronto-based commercial interior design firm, full scale + partners inc., built on its success in Canada's retail and restaurant sectors to win projects in China.
Established in 2002 by Chinese-Canadian designers Yvonne Ho and Jenny Lee, the firm says Toronto's cultural diversity lends itself to a "functional simplicity," approach, infused with both Western and Eastern cultures.
The firm's key relationship was with H&M Hennes & Mauritz Canada Inc., a Swedish retail fashion chain. The company was one of two design firms that did their rollout across Canada.
One day, when Hong Kong-born Ho read a press release announcing plans for H&M's first store in China - on Huai Hai Road in Shanghai - she "went knocking on their door."
She brought that project to completion in a tight 70 days in 2006, and is now working on an expansion for H&M - four floors and 40,000 sq. ft. of retail space.
Ho has also opened an office in Shanghai with eight staff, focusing on interior design, project management and construction, the latter in partnership with three local companies.
Another key international client is Esprit Holdings Ltd., a German-owned fashion retailer that has engaged full scale + partners for two outlets in Beijing. The interior design firm is now doing hotel and residential condo projects, too, including a $2.7-million contract for a resort on an island an hour by ferry from Shanghai.
"It wasn't that hard to get these jobs," Ho says. "There's so much opportunity in China."
In Hong Kong, meanwhile, the firm was the prime consultant on construction of a 4,000-sq.-ft. office for the Canada Pension Plan Investment Board, which was completed in late April.
"They were looking for a smaller firm with Canadian background," says Ho. "There really was no competitor."
(Sheldon Gordon can be reached at gordon@businessedge.ca)
