With the pandemic moving into the rear-view mirror, and businesses reflecting on the skills and experience they have gained in the last 24 months, it’s now time to look ahead to the future.
Businesses are more familiar with operating virtually, and distribution and shipping networks have been tried and tested. Conducting business beyond borders is now easier than before. The question of where to do business abroad can be answered by looking across the pond to the European Union (EU).
Expanding a business to another location, whether in a different city, province, state, or country requires the assessment of a number of factors to understand how to capitalize on opportunities and manage any risks. Outlined below are six factors to consider when developing a strategy for doing business in the EU.
The Size of the Market
Prior to the pandemic, the EU was the world’s largest trader of manufactured goods and services and accounted for 450 million consumers and 22.5 million small and medium-sized businesses, according to the European Commission’s official website. According to the World Bank, the EU’s GDP in 2019 was $16 trillion, second to the US’s $21 trillion and ahead of China’s $14 trillion.
Favourable Trade Agreements
Another advantage of doing business in the EU is the favourable trade agreement between the EU and Canada. The Canada-European Union Comprehensive Economic and Trade Agreement, or CETA, was implemented in 2017. CETA removes tariffs and lowers barriers for the majority of industries conducting business with the EU. CETA also simplifi es the regulatory process and provides Canadian companies with the opportunity to bid on EU government contracts, which is estimated at over $3 trillion annually.
Government Programs to Manage Risks
Dealing with new customers in another country can create added risks for any business. Canadian businesses can reduce these risks with credit insurance. Credit insurance protects businesses against non-payment in a number of events, including bankruptcy and contract cancellation. Export Development Canada (EDC) is a crown corporation that provides credit insurance to Canadian businesses exporting products aboard.
Key Industries & Countries for Expansion
Based on EDC’s analysis, there are several industries in the EU that provide greater opportunities for Canadian businesses. The table below lists the leading countries that do business with Canada by industry.
|Aerospace||France & Germany|
|Agricultural Products||France, Germany, Greece & the Netherlands|
|Fish & Seafood||France, Denmark, the Netherlands & Sweden|
|Forestry & Wood Products||Belgium, France & the Netherlands|
|Information & Communication Technologies||The Netherlands, Germany & France|
|Pharmaceuticals||Italy & Belgium|
Clean technologies, or “cleantech,” is another industry that presents opportunities for Canadian businesses. Driven by the increase in global attention towards climate change through the European Green Deal, the EU has allocated a third of 1.8 trillion euros over the next seven years to finance investments in environmentally friendly technologies, support innovation in industries, and create cleaner forms of transportation.
Understanding of Local Requirements
Recognizing and adapting to local norms and practices will need to be a necessary part of expanding to the EU. Packaging, marketing tactics, and even product names may have to change to adapt to country-specific requirements. Developing a network of partners in the EU can reduce the challenges of addressing local requirements and customer preferences. A local network can also provide value with understanding local laws and tax systems.
Method of Expansion
There are multiple options to start doing business in the EU.
1) Businesses can export products directly to customers and businesses in the EU, without resident distributors or agents. With proper logistics and by accommodating to local requirements, this option can be the fastest route in establishing a presence in the EU.
2) Working with local and regional partners (agents, distributors, and export management companies) is the next option to enter the EU. A key advantage with this approach is that on-the-ground knowledge can help with adapting the product and marketing tactics and adhering to local regulations. There is also the benefit of leveraging these networks to find new customers and provide after-sales services.
3) Setting up an office is the first step in establishing a physical presence in the EU. A subsidiary office provides more flexibility to your business if there are plans to eventually expand to a full-scale operation. With a sales or branch office, business functions would be limited to market research and identifying customers.
4) Strategic alliances and joint ventures provide businesses with a partner or partners to collaborate on a variety of business opportunities. This can include joint product development and market expansion. These arrangements can be advantageous to Canadian businesses as they help to increase competitiveness in a new market as well as limit risks of operating in an unfamiliar location.
With more understanding on expanding to the EU, there is more clarity and confidence to pursue this strategy to ultimately reap the benefits of crossing the pond.
Nigel Taklalsingh | Contributing Writer