Enter Your Target Market

The traditional means of market entry fall into four broad categories: direct exports, indirect exports, partnerships and acquisitions/investments. We'll examine each of these and then look at the question of intermediaries: agents, distributors and other go-betweens.

Direct exports

For products, you market and sell directly to the client. For services, you negotiate, contract and work directly with the client.

Advantages of direct exporting

• A higher return on your investment than selling through an agent or distributor
• Allows you to set lower prices and be more competitive
• Close contact with your customers

Disadvantages of direct exporting

• You don't have the services of a foreign intermediary
• Customers or clients may take longer to get to know you

Indirect exports

For products, you market and sell to an intermediary such as a foreign distributor. You can also retain a foreign agent or representative who does not directly purchase the goods.

For services, you contract with an intermediary who then negotiates and contracts on your behalf.

For many new exporters, an intermediary may be the best way to enter a market.

Tip

Consider short-term trial contracts to test-run the arrangement and ensure it will do what you are seeking.

Partnerships

You might find it advantageous to partner with a local company whose strategic position complements or enhances your own. A well-structured partnership can benefit both parties in the following ways:

• Your partner can complement your capabilities and provide the local expertise, insights and contacts.
• Each company focuses on what it does and knows best.
• Both partners share the risk.
• You can pool ideas and resources to help keep pace with change.
• You can approach several markets simultaneously.
• Your partner may provide technology, capital or market access that you might not be able to afford on your own.
• Partnerships may help resolve problems related to professional accreditation, movement of personnel across borders and tax and legal status.
• In a highly competitive global market, combining the technical and financial strengths of two businesses can make both more competitive.

You develop a partnership strategy in three steps:

1. Decide whether or not a partnership can work for you. If your needs can be satisfied in-house, a partner may not be necessary. If you need financing, you may be better off looking for investors. But if you require special expertise or a local market presence, then a partnership might work very well.
2. Define the form, structure and objectives that a partnership must have to suit your needs. To do this, evaluate your company's goals, its ability to achieve them and where you need help in doing so. Then identify how the partnership must work in order to fill in those gaps.
3. Find a partner who meets these criteria and who will be a good "fit" with your company. It is very important to select a partner that has the values and approach to businesses that match your own for a partnership to be successful.

There are several different forms of partnerships. The primary options are:

• Licensing – a licence is the granting of rights to another business so that it can legally use your proprietary technology and/or intellectual property. This usually does not involve granting all the rights to the property.
• Franchising – more than licensing, the franchisee is given the right to use a set of manufacturing or service delivery processes, along with established business systems or trademarks, whose use is controlled by a licensing agreement.
• Cross-licensing – each firm licenses products or services to the other for sales purposes.
• Cross-manufacturing – a type of cross-licensing in which companies agree to manufacture each other's products.
• Co-marketing – carried out on the basis of a fee or a percentage of sales to take advantage of existing distribution networks and domestic markets.
• Co-production – the joint production of goods, enabling your business to use its skills and resources to provide cheaper manufacturing.
• Joint venture – each business contributes capital to a newly created corporation that they operate together, or the Canadian and the local business enter into a general partnership agreement and operate the joint venture as a partnership.

Using the expertise of lawyers, accountants, bankers and other professionals is vitally important when setting up any type of partnership.

All parties must be absolutely clear on who holds which rights and which responsibilities.

Tip

Plan your alliances carefully and pay attention to the qualifications of a foreign agent or distributor. The TCS can help vet your potential partner. Talk to a trade commissioner to request a bona fide check to qualify the contact.

Acquisitions and investments

A partnership isn't the only way to tap into the resources of a foreign company. Acquiring a firm in your target market, or making a substantial investment into one, can achieve the same results.

Through acquisitions and investments, you immediately gain access to the local market, as well as patents and other intellectual property, resource availability, access to capital, specialist expertise, proprietary technology and product differentiation.

You may also enjoy lower operating and production costs in your foreign operation than at home.

Working abroad

Exporters of services should be aware of the personal and business issues involved in working outside Canada. Global Affairs Canada publishes Travel Advice and Advisories to tell service exporters about potential problems, visa requirements and how to best handle issues that arise.

Selling to foreign governments

Foreign governments can present a rich source of contracts for exporters. The United States government alone procures more than $500 billion in goods annually. Canada Business provides information on how to navigate foreign government procurement and has services to help you succeed.

To help Canadian businesses sell to foreign government customers, the federal government established the Canadian Commercial Corporation (CCC), a Crown corporation that acts as Canada's government-to-government contracting organization.

Canadian businesses can navigate complex government procurement markets abroad with confidence with CCC at their side. CCC is a trusted Government of Canada partner that offers companies services that reduce risk, improvx`e their access to prospective buyers and differentiate their offer with CCC’s government to government contracting approach and guarantee of contract performance.

CCC also specializes in contracting with the U.S. Department of Defense (U.S. DoD). All U.S. DoD contracts over USD $150,000 are contracted through CCC based on DFARS 225.870. For more information, visit the CCC’s Department of Defense page.

Your opportunities for selling to the U.S. government aren't limited to defence and aerospace, of course. Global Affairs Canada’s Sell2USGov provides a detailed explanation of U.S. government procurement and how you may be able to take advantage of it.

Selling to multinational corporations

To sell goods or services to foreign corporations, it is essential to conduct research to understand their supply chain sourcing practices. Incorporating the mechanism by which you access the supply chain should be considered in developing your market-entry strategy. Corporations have different sourcing needs, practices, guidelines or entry points to their supply chain. Some approach their supply chain management in terms of Tier 1 and Tier 2 suppliers, for example, with Tier 1 suppliers selling directly to the corporation and with Tier 2 selling to Tier 1. Also, some require their potential suppliers to register their business on an online portal for consideration. Many multinational corporations also have corporate supplier diversity initiatives to source from women, minorities and other groups that are traditionally underrepresented in supply chains. For these initiatives, the key contacts and process for entering the supply chain are typically different (i.e. potential requirement for certification). This, however, does not preclude designated groups from accessing other parts of the supply chain; it is simply a unique entry point that may provide them with a competitive advantage.

You may be wondering where to start in understanding the complexities of accessing corporate supply chains. Information on websites, talking to corporate representatives in Canadian subsidiaries, or meeting with representatives during business fairs or networking events can shed light on sourcing needs and practices. The Canadian Trade Commissioner Service can also assist with providing business intelligence and qualified contacts. If you are part of a Canadian women-owned business, contact the TCS’s Business Women in International Trade Program.

Customer success story

Canadian businesses AND TCS working together – TCS led this device development company into the U.S. Northeast and beyond thanks to the Canadian Technology Accelerator.