The exponential power of diversification

The idea behind diversification is fairly simple: “Never put all your eggs in one basket.” But for businesses, what does that actually mean?

• Extending and expanding all aspects of your business operations: What you sell, who you sell it to and where you sell it.
• Putting in the effort to attract different buyers for your products and services or modifying your offerings to appeal to entirely new sectors.
• Branching out from one location in your hometown to others across Canada, then ultimately, beyond our own borders.

Make no mistake, diversification takes effort, but it pays off in spades, as any diversified company can attest. But you don’t have to fly solo in your journey to diversify. In Canada, we have an entire network of trade-related organizations that work together to help you do business internationally. Some of those key players assembled during our recent webinar, Diversifying into new sectors and markets. Here are some key learnings and links to more information.

1. Many happy returns: Diversification by the numbers

Using data from Statistics Canada, the economic research and analysis department at Export Development Canada (EDC) has compiled findings that point to the tangible results of diversification by Canadian exporters. (Figures based on averages between 2010 to 2015.)

The effect of selling to multiple markets:

• 64% of exporters sell to one market and account for 12% of total export value.
• 6% of exporters sell to at least 10 markets and account for 51% of total export value.
• Exporters who sell to multiple markets have 20% higher export volumes—they also import more goods, have higher productivity levels, employ more people and pay higher wages.

The effect of selling multiple products:

• 63% of exporters sell three products or less and account for 10% of total export value.
• 14% of exports sell 10 or more products and account for 73% of total export value
• Exporters who sell multiple products have 8% higher export volumes—they also import more goods, have higher productivity levels and employ more people.
  

2. Advantage Canada: 1.5 billion customers await

• Canada is the only G7 country that has trade agreements with all other G7 countries.
• We currently have 14 agreements in place with 51 countries, which ultimately connects Canadian businesses to 1.5 billion consumers globally.
• Free trade agreements not only reduce or eliminate tariffs, they also provide many non-tariff advantages as well, which help smaller Canadian companies compete globally.

3. $1.1 billion more to grow Canadian exports

Canada’s new Trade Diversification Strategy is aimed at increasing overseas exports by 50% by 2025. Increased funding of $1.1 billion has been earmarked to help Canadian businesses access new markets. Investments will be made in the infrastructure required to support trade, providing Canadian businesses with the necessary resources to execute their export plans, and by enhancing trade services to Canadian exporters.

4. Make sure your business is in tip-top trade shape

Before you venture abroad, ensure your company is operating at peak capacity and is ready to take on the challenges of doing business abroad. Business Development Bank of Canada (BDC) is focused on helping Canadian small- and medium-sized businesses grow. Like most banks, they offer a wide array of financing, including business loans and working capital. They also have an entire division focused on advisory services. Click on that link, and you’ll hit a jackpot of resources designed to help you manage your business, increase revenues and optimize your operations. They provide coaching for small businesses, including digital programs to help future-proof your company.

5. Build a better trade network

If you’re not working with the Trade Commissioner Service (TCS) to expand your sales in international markets, chances are you’re not capitalizing on your full potential. The TCS has more than 1,000 trade officers in 160-plus offices around the world, ready to help you go global. They can:

• Provide market insights: Find out which global markets are buying your goods or services with up-to-date country and sector profiles, including market facts and reports, as well as leading opportunity sectors.
• Ensure you’re export-ready: Your regional TCS office in Canada can assist you in defining which markets are best for you and developing your market-entry strategy. Take the online Export Readiness Quiz and download the Step-by-Step Guide to Exporting to help you get started.
• Plug you into overseas trade networks: To do business in any new market, you’ll need a full team of local trade professionals who know the intricacies of their country. TCS officers abroad can put you in touch with reputable and vetted local agents, distributors, lawyers, accountants, translators, cultural and linguistic interpreters, customs brokers, government representatives and potential buyers.

6. Take the risk out of international business ventures

While exporting can increase your sales, it also comes with its own set of challenges. As international risk experts, EDC can help you overcome those obstacles with a number of risk-management, financing and working capital solutions. Here’s just a few:

• Credit insurance: Ensure you get paid for that order from your new international buyer. Not only will you be covered in the event of non-payment, you can also offer more competitive terms and leverage your insured accounts receivable to raise more working capital.
• Buyer financing: Get a leg up on the competition by providing your international customer with flexible financing. Longer payment terms can lead to deeper customer loyalty, not to mention increased sales.
• Foreign exchange safeguards: Protect your margins against currency fluctuations—without having to post collateral—which will free up your cash flow for continued growth. 

7. Adopt a diversification mindset

Achieving growth through diversification requires disciplined planning. To be successful, growth needs to be sustainable.

• Make sure your company has the necessary capacity: That it possesses the organizational, financial and operational resources required for growth.
• Choose your new markets carefully and expand in bite-size pieces. Assuming you get that new order, make certain you have the ability to fill it, and the next one.
• You may be an expert producing your goods or services, but that doesn’t mean you’re an expert in exporting. International trade is a team sport that’s played with a different set of rules, so be sure to tap into the trade organizations listed above.

8. Some promising markets to consider

The United States is both a logical and convenient market to export to when you’re first looking to expand. There’s so much written about India and China, that they often eclipse some other very promising emerging markets. Consider these top prospects:

• Chile: If you’re thinking about Latin America, take a closer look at Chile. Canada has significant trade linkages in many sectors there.
• Vietnam: Clocking in at an average 6% growth over the last five years, it’s one of the fastest growing economies in the world, plus they have a very competitive manufacturing sector.
• Croatia: It might be one of the smaller markets in the European Union, but it definitely has a steadily growing economy, not to mention a level of stability that translates into less risk.  

9. Dip your toes in international waters

All the research in the world can’t replace the type of in-market intelligence you can gather at an international trade event. Contact the TCS to find out which trade missions might be of interest to you. Keep in mind, the CanExport Program provides financial support to small- and medium-sized Canadian businesses for a wide range of export marketing activities, including reimbursing 50% of eligible expenses.

10. Make the right connections

Through EDC’s Business Connection Program, we’re able to introduce committed international buyers to experienced Canadian suppliers. Since 2003, we’ve provided in excess of $45 billion in financing to more than 250 international companies in 47 countries. The result: We’ve made introductions to 6,000-plus Canadian companies.