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How trade wars can be the key to business diversification and growth

How trade wars can be the key to business diversification and growth

There’s nothing like an impending crisis to force Canadian entrepreneurs to become more creative in their business dealings, explore new markets and generally seek new ways to become even more innovative.

Our slowly-escalating trade conflict with the United States is just such a moment in time when many business owners will begin to re-think their approach to foreign markets.

In this case, it’s because the Trump administration has slapped tariffs on various Canadian goods, including steel and aluminum, imported into the U.S. More duties could be forthcoming in the months ahead, particularly if NAFTA renegotiations fail. Although reports indicate that negotiations are currently deadlocked after some progress, anything is possible when dealing with an unpredictable president who revels in disruption. A new-and-improved NAFTA deal could be signed shortly, or the trade agreement could be scrapped altogether.

As I outlined in a recent post on surviving just such a trade war, matters could escalate further if Trump decides to slap a 25 per cent tariff on Canadian auto exports. If that happens, all bets are off. In the meantime, we remain cautiously optimistic—and remember that we should see Trump’s trade belligerence as an opportunity.

As Chartered Professional Accountants and trusted business advisors, we’re always on the lookout to highlight new tools that KRP clients can use to expand into new markets and grow their businesses. In that earlier post I mentioned how cultivating trade relationships outside of North America could be one way to gird against any potential negative fallout if Canada-U.S. trade relations continue to sour. But it means even more.

Potentially catastrophic events such as trade wars or sweeping recessions are a chance to significantly tweak your business model. Seeking entry points into new markets and away from the U.S. is one way to achieve that goal, of course, but looking abroad also requires introspection. It’s easy to fall behind when you focus on serving customers so close—both geographically and culturally—to home. What goods and services are competitors in other markets delivering, and have you managed to remain innovative when trying to keep pace? There’s a very good chance that the answer is ‘no.’ Nothing fosters complacency like failing to diversify product offerings or a business model over the long haul.

When conducting that analysis, ask yourself: are we efficient enough to compete? Many organizations become so driven by their overwhelming growth (which is a good thing) that they eventually lag in manufacturing or service delivery (which, obviously, is not). One now infamous Canadian case study is that of Waterloo, Ont.-based Blackberry, formerly Research In Motion, which was a dominant player in the cellphone market for years until it wasn’t. It was slowly outflanked by the likes of Apple Inc., which managed to produce a game-changing mobile device that made the Blackberry look archaic by comparison (superior security functionality aside). Suddenly, Apple was cool; Blackberry looked tired and old. Large organizations that are performing well on the financial front and growing can become slow and bloated. This trade war could be a chance for your management team to consider rejuvenating those operations with a company-wide reboot.

Of course, that won’t be possible without the right team in place. If your existing U.S.-based business or export aspirations are threatened by tariffs and overseas markets are a viable trade option, do you have the right managers and frontline staff to make such an expansion viable? You may not. That could necessitate hiring new executive staff with export experience, either at home or abroad. In many cases, hiring a local to run your overseas operations, or at least help bridge the cultural gap that emerges when doing business in any new market, can mean the difference between success and failure.

Alternatively, if your company is already doing business in the U.S. and has a physical base of operations across the border—rather than simply exporting from Canada—it would be worthwhile to investigate an expansion of that U.S. operation. Doing so might create an opportunity for your firm to circumvent some tariffs. Again, that means having the right management team (including accountants and lawyers with expertise in both U.S and Canadian tax law) in place to help the company through a stateside expansion.

Perhaps most importantly, it’s critical to look for gaps in foreign markets that your company’s product or service offering might be able to fill. These are often numerous but can be hard to find. That’s why having local business representatives or tapping the expertise of local consultants can help highlight unforeseen opportunities. This can take time and plenty of digging, but can also deliver a significant financial return on investment if your firm manages to hit pay dirt.

Just remember that looking for new opportunities abroad takes time, patience and money. Work with your professional accountant to set an adequate budget (plus 20 per cent for contingencies) and be ready for unexpected hiccups such as challenges navigating local business, immigration or tax systems. Done right, the effort will be worthwhile, especially at a time when a certain U.S. president seems determined to flex his protectionist muscles.

Marshall Egelnick, Managing Partner

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