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Capital ideas for export businesses

Understanding how to mitigate financial risks is key to successful expansion
banking, Craig Williams, Export Development Canada, insurance, regulation, Capital ideas for export businesses

By all accounts, Asia offers a compelling expansion market, albeit one that is equally represented by risk and benefit. Properly cultivated, the benefits can be manifold.

The bottom line on risk, however, is that managing it can be time consuming and costly.

"It does take longer when you're working internationally; it is more expensive," said Linda Morris, regional vice-president with Export Development Canada (EDC). "But the rewards are also better."

B.C., with its proximity to China and its high number of Chinese immigrants, has developed a strong market in China, according to Morris. She cites the B.C. lumber industry as a good example of the power of mutually beneficial international trade partnerships. But the quid pro quo of resource supply and demand alone are not enough.

"We need to have connections with the federal government on the ground, so that the department of foreign affairs and international trade understands how Canada is working in China."

That understanding, she said, relates to anything from protecting intellectual property and obtaining required licences to understanding banking regulations and legal obligations.

"Having a law firm that understands both your company and the culture you're going into, having a good accounting firm and having a strong relationship with your Canadian banker who is supporting you, are key," said Morris.

It's fair warning for those looking to capitalize on the consumer power of the swelling middle classes in countries such as China and India.

"You probably don't want to start by cutting your teeth in Asia," said Craig Williams, vice-president of national programs at Canadian Manufacturers & Exporters.

Operators, said Williams, need guidance and information on things like export insurance, credit conditions and how to work with big banks both at home and overseas.

They also need to understand how to mitigate risks that arise from differences in areas such as financial processes in human resource management, and the fact that when selling into countries such as China, there will be an additional complication with the foreign exchange.

In that context, Williams noted, countries are rated at different financial risk levels. China, Japan, Vietnam, Malaysia – each is regarded differently. "[The] risk assessment is done, and widely held, by financial institutions."

Their evaluations implore businesses to develop deep knowledge and a sound plan for doing business overseas.

Morris agrees, noting that in her experience, financing expansion into Asian markets is best founded on three pillars. First, she said, businesses need information and knowledge about the market and the companies they will be competing with.

Second, having a connection in the foreign market is essential in order to understand market demand and the unique offerings of a Canadian company.

Third, she said, involves having a sound financial plan. It's part of her role at EDC.

"[We] help companies grow their working capital and work with their banks to make sure they have the financial resources to go into the market," Morris said.

Although capital is very important, for those without deep pockets there are other options.

Smaller companies in particular can find their way more directly into Asian markets by leveraging existing contacts with larger companies to whom they already sell, and in whose global supply chain, in many cases, they are already embedded.

"Further discussions with those companies might develop an opportunity to ride on their coattails," she said.

EDC also offers loans and lines of credit both at home and abroad, as well as bank guarantees, which can make a difference when trying to secure capital from financial institutions.