Why Mexicans Don't Drink Molson

by Andrea Mandel-Campbell

  Strolling along Alberta’s petroleum-paved streets, it’s not hard to wonder why you’d bother wading into the morass of international markets when there’s meat-and-potatoes money to be made in the comfort of home. Except, of course, what do you do once you’ve picked all the low-hanging fruit? If you don’t know how to climb to the higher, more precarious branches, you starve. Brian Kelsall and Ella Plotkin, top-ranked international project finance lawyers with Ogilvy Renault, say they are constantly asked by fellow Bay Street lawyers why they bother working in obscure countries like Uruguay and Romania when they could be doing the latest income trust in Toronto. Their response would turn out to be remarkably prescient given the federal government’s decision in November 2006 to effectively shut down the income trust industry. “You might do this year’s income trust and next year’s, and even the one after that, but how do you know that in ten years you are still going to have these income trusts and that there will be enough of them to go around The Street?” says Plotkin. “There won’t be. If you don’t keep pushing the envelope and looking for new markets — if you ignore the fact that Canada is part of a world community — then all you’re doing is regionalizing yourself, you’re shutting yourself down and you’re just opening up the opportunity to somebody else.”

  To be sure, scaling global heights is not for the faint of heart. It takes persistence, conviction, smarts and huge personal sacrifice — but it doesn’t have to be a crapshoot. There are ways to mitigate the risks. According to a poll conducted in the early 1990s by Lorna Wright at the Schulich School of Business, Canadian companies gave five main reasons for not going abroad: (1) too far, (2) too expensive, (3) language barriers, (4) different business culture and (5) the United States is closer. “The only thing that still holds true today is that the U.S. is closer,” says Wright.

  Going global is like learning to climb a tree: you have to know which branches will hold your weight and how to identify those that look healthy from the outside but are rotten below the bark. Even then — after you’ve planned your climb, bought the proper gear and calculated the risk— the task still requires a certain leap of faith. In many ways it’s not unlike marriage: you can date a person, live together first and meet the parents; but, even then, there are no guarantees. Either you decide you want to be married and take the plunge, or you opt to remain single. Sure, the risks are greater, but so are the rewards. “If you break it down into its component parts, it’ll worry you,” admits Kelsall. “Forget that stuff. It’s no more difficult than anything you do here. Don’t focus on each individual problem but on the opportunity as a whole. Our mantra is, ‘Just do it.’”

  Admittedly, that’s a scary proposition for most Canadians, who, some argue, are “attitudinally ill-equipped” to grapple with the cultural complexities, cut-throat competitiveness and corruption that characterize foreign markets. “If Canadians want to become international they’re going to have to change their attitude,” sums up Hong Kong–born Vancouver entrepreneur Ken Kwan. It’s as difficult — or as easy — as that. Rick Ricker, the general manager of Reichmann’s fifty-five-storey Torre Mayor skyscraper in downtown Mexico City, perhaps explained it best. I asked him how he was able to build such a monumental edifice, coordinating the arrival of tens of thousands of truckloads of material and equipment through the city’s snarled streets, while navigating the thicket of municipal politics and combative unions. Without missing a beat, he said simply: “It’s what you’re used to.”

  FOR SOME CANADIANS, doing business internationally comes as naturally as eating maple syrup and back bacon. These people are like hidden gems that once you know where to dig, begin popping up in the most unexpected places. Their experiences and insights are invaluable not only to first-time exporters and foreigner investors, but even to companies already doing business out there. Based on their recommendations, I have compiled a list of dos and don’ts and added a few observations of my own. Some of these observations will seem obvious, some might surprise you; but one thing is clear: it’s all within our grasp.

  BEFORE YOU GO ANYWHERE

  Have a plan

  According to a 2004 report by td bank, 46 per cent of small and medium-sized exporters surveyed began selling overseas as a result of unsolicited inquiries.119 Astoundingly, only 37 per cent had any kind of plan in place to export. A subsequent poll by KPMG of Canadian exporters into the Indian market found that only half had done any kind of planning.120 Michel Charland, director of the federal government’s International Trade Centre in Montreal, estimates that about a third of companies go international as a reaction to deteriorating domestic conditions; once the Canadian economy bounces back, they forget about exporting. Another third sell overseas because someone called them. Of those that proactively export, a third are gone from the market within a year and another third last two years before folding up shop and heading home. The sum total: only 11 per cent are successful long-term exporters.121

  Before you even think about what countries you might want to do business in, you need to come up with an international business plan that includes clear goals for your company as well as criteria for evaluating whether there is a market compatible with those aims. The plan would set internal targets for international sales and identify the products and services that would be competitive in markets outside the United States. Calgary-based oil company Nexen calls it “global characterization” — a template of eight to twelve technical and commercial drivers that acts as a litmus test for assessing market suitability. Above all, a company needs to recognize its own strengths and weaknesses and come up with a strategy that plays to its strong suit.

  If you don’t have the time or staff to come up with a plan internally, hit up the nearest group of mba students, a group just itching for the chance to put their skills to use. York University’s Schulich School of Business runs a global leadership program in which students provide language and strategic support to companies hoping to break into new markets. The school has eighty exchange partners worldwide, from Sweden to mainland China, who liaise with Schulich’s students to develop market-entry strategies and identify local suppliers. The program is popular with European and even Israeli firms but, so far, not with many Canadians.

  Global doesn’t mean global

  Telecom carrier tiw learned the hard way the dangers of spreading itself too thin. At one point the company had investments in a dozen countries spanning four continents. How many were successful? One.

  Rather than trying to fan out across the globe, narrow your list of potential markets to one, two, three, maybe four countries. Your search should zero in on countries where you have a comparative advantage and a greater probability of success. Engineering firm SNC –Lavalin, for example, has successfully honed in on French-speaking northern Africa, “where the Americans are not,” and local skills are in short supply. “In Mexico, a lot of locals can do the job, but not in Algeria,” explains Michael Novak, executive vice-president. “In Algeria, we have one chance out of three of winning a bid, and we beat the Americans hands down. In Mexico, we have zero chance.”

  In larger, more complex markets like the United States, China and India, your search should be further refined to particular regions, provinces and even cities. China has thirty-four provinces, regions and centrally administered municipalities, each as distinct and diverse as the countries that make up the European Union. The United States, too, is deceptively diverse. “If you say you want to sell your product to the States, you’ve probably already lost,” says Chris Lindal of Viceroy Homes. “Which state? Which part of which state? Which segment of the market?”

  Do you really want to get into bed with Hugo Chávez?

  Once you’ve whittled down the field of potential candidates, learn everything you can about the countries in question. Beijing-based Canadian business consultant John Gruetzner recommends spending at least one day on the Internet for every day that you intend to visit the country. Find out everything you can, from gdp per capita
and the current account deficit to the peculiarities of the tax and labour laws, local ownership requirements, trade treaties and restrictions on taking foreign currency out of the country. There are plenty of information sources, from the government to myriad business associations, the banks and private consultants.

  After you’ve done your initial homework, go to the country that’s caught your eye. When you think you have it all figured out, go there again. Get the embassy to set up some initial introductions, but don’t limit yourself to government contacts. Get in touch with potential customers, local government officials, suppliers and other Western firms. Hire well-respected local consultants to provide you with on-the-ground analysis of the competition, logistics and distribution challenges. If you think you can figure this out on your own, you are sadly mistaken. As many a veteran of international business points out, “You don’t know what you don’t know.” Assume you need all the help you can get.

  What you really want is to get the most accurate picture possible of the country’s business and political risk and then to run that risk against the potential reward. Was it worth the effort for Hydro-Québec to go to Guinea, where every time the power failed the police picked up the utility’s local representative and threw him in jail? In Nigeria, Nexen went so far as to take a toehold in a small offshore project just to see whether it could operate in the country without paying bribes. It soon learned it would need to steer clear of the mainland for the sake of security and to operate according to its “value system.” Ask yourself if are you willing to gamble that Russian mobsters won’t help themselves to your mobile phone company. Or that a somewhat deluded Venezuelan ex-general-turned-president might decide to nationalize your mine.

  ONCE YOU’ VE DECIDED TO TAK E THE PLUNGE

  Get the board on board

  Getting any international venture to work requires the unwavering commitment of the board and senior management. That doesn’t mean you need to sugar-coat the challenges and complexities to get the brass to sign off on the deal. On the contrary, build every possible catastrophic scenario into your business plan, advises a former executive with Molson. “Show them the huge risks, and then ask them: ‘Do you sign with your blood?’”

  Otherwise, when things start to go wrong, head office is liable to get cold feet and cut off resources precisely when the venture needs it most.

  Take the long view

  There are no quick hits in international business. If you think you can visit five countries in five days and start selling overseas, save yourself the cost of the plane ticket. The returns can be significantly higher in fast-growing, emerging markets, but they may take years to be realized. Be prepared for the long haul; relationships have to be nurtured, and obtuse government regulations must be overcome. Simply incorporating a company in Brazil, complete with notarized documents in quadruplicate, takes six months compared with a few hours in Canada. Nevertheless, Brookfield Asset Management (formerly known as Brascan) is hugely successful in Brazil. Operating there for more than a century, it is Brazil’s oldest foreign-owned company. Brookfield doesn’t disclose what percentage of its revenue comes from Brazil, but its assets include twelve hydroelectric plants, two major shopping centres and high-rise condominiums, a bank, twenty thousand hectares of timberland and seven sugar cane and beef ranches.

  Don’t dabble, and don’t dither

  When U.S. window maker Pella decides to go into a new market, it finds the best trade show in the region, stakes out the best piece of real estate smack-dab in the middle of the fair and puts up an eye-catching display. “They get an immediate reaction,” says Roberto Amaya, Latin American sales manager for Loewen, the Manitoba window and door manufacturer. “It’s been three years, and Loewen is still thinking about whether to send down a $10,000 display to Mexico.”

  It’s a weakness even Canada’s biggest companies are guilty of. Quebec-based Bombardier does a booming business building trains for China’s expanding infrastructure, but its airplanes have failed to take off with the country’s fast-growing aviation industry. The reason? The manufacturer, fearful its technology might be stolen, deliberated for a year over whether to strike a joint venture with local manufacturer Harbin Aircraft Industry to build planes in northern China. Bombardier’s arch rival, Embraer, came knocking and within a month inked a deal with Harbin; a year later the Brazilian-Chinese–made planes were in the air.

  All too often, Canadians “don’t take the first bold step,” admits TransAlta’s Steve Snyder. There are no halfway measures in international business. Frittering around the edges won’t get you anywhere, so either go big or go home. That doesn’t mean throwing money around on half-baked projects. You still need to make careful and considered decisions, but once you decide you are going to do it, then go all the way. “Don’t just put your toe in the water,” says Nexen’s Charlie Fischer. “Either you are committed or you’re not.”

  Being committed also means not sitting back and waiting for the phone to ring. “We need to stop being reactive and start being proactive,” says Jean-François Vinet, vice-president of Tecsult International, a Montreal engineering firm. “You want to be the first one to hear about something, not the last.” Adds Fischer, “When we decide it’s the right thing, we do everything to capture it. We know what we are waiting for, and we are not waiting for someone to come to us.” In fact, as countries like China grow by leaps and bounds, few people these days are waiting around for Canadians to make their minds up about going global. “The most common mistake is hesitancy,” says Howard Balloch, Canada’s former ambassador to China, “and not recognizing that China has arrived and has to be taken seriously.”

  No more nine to five

  Nobody said international business would be easy, and overseas work takes a lot of personal sacrifice: phone calls in the middle of the night, appallingly early morning meetings and endless travel. “The people who have succeeded in China or in Asia have done it with personal sacrifice,” says Phil Hodge, a former vice-president with Westport Innovations in Vancouver. “No matter how much you don’t like being away from your family for weeks at a time, that’s inevitable. There’s just no other way to make potential sales in China. If you see the people who have done well there, you can trace it back to a few who spent a lot of time in China.” Joan Vogelsang, the president of Montreal’s Toon Boom Animation, is on the road at least half the year, regularly working nights and weekends. But while she acknowledges the sacrifice, there’s also a huge personal gain. “There’s an opportunity to learn, to meet people from different cultures,” says Vogelsang, who was born in England and raised in the Caribbean. “It’s very fulfilling, especially when you succeed.”

  THE EXECUTION

  Change comes from the inside out

  Your Canadian operation should reflect its new international dimension. From the very top of your organization to the very bottom you need people and structures in place that can respond to different languages, laws and ways of doing business. That includes everything from translating brochures and having people able to take orders over the phone in a different language to retaining a law firm and an accountant with international capability. Similarly, your company needs board directors and senior management with international experience. “You have to have a management team comfortable with operating globally. Don’t make any compromises when it comes to that,” recommends Pierre Choquette, chairman of Methanex. “I don’t know how Canadian management with no experience globally, no cultural fluency and no exposure to other geographies would be successful.”

  Put your best foot forward

  If you sell six product lines, don’t try to sell all six in your new target market. Choose the best one. “That way you can work on a small but achievable success and build on that,” says Ella Plotkin, lawyer with Ogilvy Renault in Toronto. Sometimes, however, your best product isn’t the one most suited to the market. Manitoba’s Loewen liked to promote its wood windows and doors by putting a picture of an archetypal Cana
dian log cabin on the front of its brochures. The problem was that in Latin America, as in much of the world, wood is considered a substandard housing product: only poor people live in cabins. For Loewen to be successful, it had to graft its high-end windows and doors onto the kind of homes that appeal to people in Latin America.

  Be there

  Approach any new market with the same level of engagement that you would for Canada or the United States. If anything, assume that the farther away your market is, the more attention you need to pay to it. Parachuting in from time to time is considered little more than a social visit by your potential customers. “You have to make them think you live there,” explains Alan Davitt, president of Tri-Star International, which helps companies make overseas business contacts. You may want to start out with an agent or distributor that represents a number of companies and then move to a “sub-office” where you share office services with a handful of other companies. Ideally, you need to “become local,” says Robert Schad, who eschews agents to represent Husky Injection Molding abroad, instead relying on an in-house sales and distribution network. “You get a lot more out of your own people in a couple of markets than from agents in a ton of markets,” he says. To John Gruetzner in Beijing, anything short of completely ensconcing yourself and providing the same level of customer support that you would in Canada — from inventory, financing and marketing to customer service, payment terms and technological approvals — is a recipe for failure. “This is not an air war, it’s a ground war,” he says.