Know how to overcome barriers and find success in Canadian markets
|Accountant Max Legg said a string of barriers present themselves when business owners first decide to go into an international marketplace. He divides them into three categories: product acceptance, border mobility and taxes.|
For many Whatcom County entrepreneurs, cross-border business can bring in a lot of loonies.
It’s a thought that occurred to Max Legg back in the ‘80s when he mulled what career he wanted to pursue. He also humorously pondered what he would tell guests at a dinner party.
“When you go to a party and someone says, ‘What do you do?’ ‘Well I’m an accountant.’ ‘Well, nice talkin’ to ‘ya’, and off they go, right?” Legg joked.
The Moss-Adams LLP CPA didn’t seriously base his career on potential dinner party snubs, but he did consider the importance of specializing — in his case in Bellingham’s growing niche of cross-border business opportunities.
“When folks are in careers, they’re looking for something challenging, something that has a growth opportunity. For this particular office, there seemed to be an untapped opportunity for cross-border activity.”
For a number of Bellingham business owners, the area’s proximity to a large Canadian market in lower British Columbia has provided ample business opportunities, as well as some challenges. Most of the businesses dealing in cross-border issues in Whatcom County are set up to service Canadian companies doing business in the United States.
Getting into the cross-border game
Legg began work as an international tax CPA in 1980 and saw the market expand when the North American Free Trade Agreement (NAFTA) — signed in 1994 — began to encourage cross-border business exchanges.
Today, of his Barkley Village office’s 92 employees, 28 of them deal with at least one international transaction a day, and more than half of the office’s clients have a Canadian address, he said. Legg estimates that Canadian companies doing business in the U.S. outnumber U.S. companies doing business in Canada by a ratio of 7 or 8 to 1. Most often, he said, these Canadian businesses are expanding into the U.S. Legg has spent the last 27 years helping these companies untangle two sets of tax laws.
“I was intrigued by the whole international business aspect of how companies and individuals moved back and forth across borders, how they imported and exported, how that sort of Gordian knot worked,” he said. “And so in getting into it, I can help untie that knot for a lot of businesses.”
Ryan Salas-Mitchell, owner of Ace/E-Manifest Solutions, seized on a cross-border business opportunity when the U.S. Congress passed legislation mandating that any commercial carriers crossing into the U.S. submit electronic manifests to border agents.
Salas-Mitchell had a hunch that many truckers and freight operators wouldn’t have the time, energy or skills to submit e-manifests on their own, and started a business to do it for them. The law went into effect in January, and today, 90 percent of his 50 regular clients are Canadian companies that cross into the U.S.
Legg said a string of barriers present themselves when business owners first decide to go into an international marketplace, and he divides them into three categories: product acceptance, border mobility and taxes.
The first is a question of whether the business’s product or service will receive acceptance in the country — from its potential growth within the market to government restrictions and regulations, he said. For example, a candy producer may need to consider whether the country’s health department, agriculture department or food regulation agency has any regulations of their product, or whether they will encounter customs duties.
The second barrier to entry business owners need to address is the ability of its individuals or agents to gain access into the U.S., he said. While it’s fairly easy for Canadians to enter the U.S. for personal shopping, the government is more concerned with whether commercial transactions would take jobs away from U.S. residents, Legg said.
The third barrier business owners need to consider is taxes, Legg said. Figuring out how a company’s structure will change with a second set of tax laws is important, he said, and this is where Legg usually comes in. In order to specialize in international tax services, he had to learn about the tax laws and regulatory environments of foreign jurisdictions, as well as treaties that overlay both sets of laws, he said, in addition to the standard requirements to become a CPA.
Other challenges come later on in the process of international expansion. Salas-Mitchell said working with border agents — who by the nature of their jobs have individual autonomy in making decisions — sometimes presents a challenge.
“If he’s had a bad day, everyone’s having a bad day,” he said of the occasional hard-nosed border agent.
Salas-Mitchell said some of his clients are stopped and pulled over simply because a particular agent didn’t like the e-manifest’s font.
But he insists the positive experiences with border agents outweigh the negative ones, especially when they go above and beyond to let him know his client has passed through the border.
Payments can also be an issue. Initially, Salas-Mitchell sent invoices by mail to his Canadian clients that took a week to arrive and another week or so to return with his payment. Since then, he’s switched to credit card pre-billing, which has remedied the problem entirely, he said.
Scott Cline, a partner at Blaine-based ProPack Inc., said U.S. customs and border-crossing security changes since 9/11 have resulted in increased time and effort on the part of his company. Cline said these changes have resulted in costs he must pass on to his customers at ProPack, a third-party logistics and freight-forwarding company.
Another issue to think about is whether a business owner has the management structure to be in two areas, Legg said. Sometimes, when a business expands into a different country, management can stretch too thin.
“We often find that businesses that are really not honest with themselves about their expansion plans may get a little ahead of themselves,” Legg said. “They may wind up leaving their home jurisdiction unattended.”
It’s also important to be aware of differences in styles of marketing and doing business between Canadian and U.S. business people. Canadians tend to base their business decisions more on personal interactions and warmness between parties, Legg said. They also tend to be less practiced in the fast pace and sometimes aggressive and competitive nature of U.S. commerce.
Conversely, many U.S. business owners expect fairly instantaneous responses to business questions and inquiries, he said.
“In going north, it may be that the expectation for a quicker turnaround may not exist. There’s a different level and a different pace (in Canada),” he said. “A lot of times, U.S. business owners, in going overseas, need to take a deep breath and not expect everything to be exactly like it is where they are now.”
Overall, most businesses that have banked on cross-border services have been able to cash in on the large Canadian market.
“Our potential client base is larger here because we’re located close to a large nearby market,” Cline said. “We’re just a hop, skip and a jump away from that potential client base.”
Quiz: Is your business ready to start exporting?
1. My company has been in business for one year or more.
2. My company has a product or service it has sold successfully locally? Regionally? Nationwide? Internationally?
3. My company has tools necessary for communication with overseas buyers: marketing materials, website, e-mail address, computer, fax number, a permanent mailing address?
4. My company has a business plan, and has, or is preparing, an international marketing plan with defined goals and strategies.
5. My company will commit resources to research overseas markets in order to determine our best opportunities; and will commit staff time and financial resources to developing export markets.
6. My company will commit the financial resources to actively support the marketing of our products in the targeted overseas markets.
7. My company understands that in order to export, we may have to consider two sets of laws and regulations: our own, and our customers.’
8. My company understands the potential need to modify its products or services, packaging and marketing materials to meet foreign regulations, safety standards, and cultural and language preferences.
9. My company understands the risks associated with exporting, and has knowledge of export payment mechanisms: for example, developing and negotiating letters of credit; how to mitigate credit risk; or a banker who advises us on these issues.
10. My company has adequate knowledge of shipping, freight costing and customs clearance or a freight forwarder who advises us on these issues.
Source: Washington state Department of Community, Trade and Economic Development’s international trade website. For more information, visit www.cted.wa.gov/site/1010/default.aspx.